Golden Ocean Group Limited
Interim Report June 30 2008
Interim Results for the Quarter ended June 30, 2008
August 20, 2008
Golden Ocean Group Limited (the “Company” or “Golden Ocean”) reports net income of $201.0 million and
earnings per share of $0.73 for the second quarter of 2008. This compares with net income and earnings per
share of $25.6 million and $0.09 respectively for the second quarter of 2007. Total operating revenues for the
second quarter were $243.8 million, total operating expenses were $180.3 million and net other expenses
were $8.3 million. Included in the second quarter results is a gain on the sale of assets of $145.8 million.
This relates to the announced sales of the two Panamax vessels Golden Jasmine and Golden Jade in addition
to the sale of the first Capesize newbuilding delivered from the Daehan Shipyard in Korea.
Golden Ocean reports net income of $254.7 million for the six months ended June 30, 2008, equivalent to
earnings per share of $0.92.
Cash and cash equivalents decreased by $30.6 million during the quarter. The Company generated cash from
operating activities of $92.5 million, received $124.6 million from investing activities and paid $247.6
million in financing activities. This includes part payments on newbuilding instalments of $117.2 million.
During the second quarter the Company repaid $152.9 million in debt and borrowed an additional $61.4
million.
On August 20, 2008 the Board has declared a dividend of $0.40 per share. The record date for the dividend is
September 4, 2008, ex dividend date is September 2, 2008 and the dividend will be paid on or about
September 10, 2008.
At June 30, 2008 the total number of shares outstanding in Golden Ocean was 276,740,107 of $0.10 par value
each.
Corporate and Finance
In April 2008, the Company declared the options to purchase two Karmsarmax vessels at Zhoushan Jinhaiwan
Shipyard in China. The vessels of 80,000 dwt will be delivered during 2011 and are “sister vessels” of the
series ordered in October 2007. The delivered cost for the vessels is estimated to be about $52 million per
vessel.
In April 2008, the Company agreed to sell the Panamax vessel "M/V Bellflower". The vessel is one of the
long term time charter vessels previously acquired from Louis Dreyfus with a purchase option attached to the
time charter contract. The vessel will be delivered to the Buyers by the end of February 2009 and the agreed
price is about $76 million net. The strike price for the option is about $22 million net and the transaction will
thereby free up approximately $54 million in cash liquidity. The transaction will give a positive result of
approximately $31 million, and this will be recorded on delivery of the vessel.
In April 2008, the company fixed out on time charter one of the Jinhaiwan Capesize newbuildings. The
vessel will be delivered to the Charterer during the second half of 2009 for a 5 years time charter contract.
The net agreed daily time charter hire is $48,450. The cash generated from this time charter contract is
expected to "write down" the investment to zero during the charter period.
Market and Strategy
The dry bulk sector bottomed out at the end of January 2008, and from that point in time the market climbed
continuously throughout the second quarter. The Capesize sector reached all time high on the 5th of June
when the Baltic Cape Index reached a daily rate of $233,988.
The Capesize market averaged at $176,000 per day in the second quarter of 2008 which represented a rise of
35 per cent compared to the previous quarter. The corresponding numbers for Panamax were $74,600 per day
which represented a 20 per cent improvement compared to the first quarter of 2008. The spread between the
two segments was on average wider than we have ever experienced in the dry bulk industry. This is a proof of
a tight balance between the demand for iron ore transportation and available large size bulk carriers.
The main reasons for the strong recovery are from our point of view threefold:
- On the demand side, iron ore exports out of Australia increased by 9 per cent compared to the
previous quarter when the adverse weather had a negative impact. In addition Brazilian and Canadian
exporters were able to increase their exports by 7 million mt combined, compared to the previous
quarter. Total global shipments of coal increased by 29 million mt over the same period, while other
commodities had a fairly flat development.
- Slippage (delays) at yards is evident, resulting in a lower than expected supply of new vessels.
- The third element which is more difficult to analyse is Chinese coastal trade. Given the strong
production increase of 100 million mt for the quarter which more or less entirely is consumed
domestically, we are of the opinion that the “hidden” demand for Chinese coastal trade is higher than
analysts are able to observe. The official political target is to move 50 per cent of new coal capacity
from the northern resource areas to the power stations in the booming mid and south parts of the
country.
The total dry bulk fleet had a net fleet growth of 6.7 million dwt which corresponds to 1.6 per cent growth
compared to the previous quarter. In total 10 Capesize vessels, 13 Post Panamax vessels and 10 Panamax
vessels were delivered during the second quarter of 2008.
During the second quarter values of second hand vessels and new building contracts improved after a flat first
quarter. Brokers believe that the value of a five year Panamax vessel was $92 million by the end of the quarter
while a similar aged Capesize vessel is believed to be worth $155 million.
Brokers estimates is that a Panamax contract in the first quarter of 2008 was priced at $55 million and a
Capesize contract to be priced at $97.5 million.
The combination of slower Chinese activity and holiday season in the western hemisphere has resulted in
lower freight rates through July and first half of August. The long term Time Charter market and asset prices
have not reacted to the weaker spot market reflecting a positive sentiment among dry bulk ship-owners. At
the moment of writing there are already signs of increased activity and firmer freight rates. We believe the
demand for dry bulk transportation will remain robust in spite of the challenges in the financial markets.
The coal inventories in China are at a critical low level and we expect higher imports in the coming months.
In spite of relatively high Chinese iron ore inventories we expect iron ore imports to stay high and the Indian
export tax will support higher exports from Australia and Brazil which will have a positive effect with regards
to tonnes miles.
International steel prices are higher than Chinese prices, which should support steel exports out of China.
Outlook
The sizeable order book is still a concern representing 60 per cent of the total dry bulk fleet. However delays
are already noticeable and the full effect of potential delays from new capacity yards is expected to be more
visible in 2009. Consequently we expect the utilisation of the dry bulk fleet to remain high over the next 12
months, but with continuous short term volatility.
Given the positive short to medium term outlook for the dry bulk sector the Company has maintained its open
capacity during the second quarter, which stands at around 30 per cent for the Panamax segment for the
remainder of this year. All Cape capacity is covered. For 2009 we have approximately the same percentage
open capacity. The Company intends to keep the existing forward spot exposure for the time being. The
short term physical trading was contributing positively in the second quarter and is expected to do so also in
the third quarter.
The strong cash flow generated from the operation of owned and chartered in fleet will enable the company to
continue to maintain a high dividend payout. The dividend for the last two quarters has been positively
influenced by the gain on sale of assets, an event which is likely to decrease in the coming quarters.
Golden Ocean still finds sale and leaseback arrangements as an attractive financing tool, in order to optimize
the return on the invested equity.
The current high volatility in the market for shipping equities might create interesting opportunities to grow
the Company through buying equity / assets at a discount compared to underlying assets values. The
Company is continuously evaluating such opportunities, which might create possibilities for further
consolidation.
Based on results achieved so far in the third quarter of 2008, the Company expect the positive trend in
operating results to continue.
Golden Ocean Group Limited
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