Golden Ocean Group Q3 2023 Earnings Call Transcript

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November 21, 2023

There are 6 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q3 2023 Golden Ocean Group Limited Earnings Conference Call and Webcast. At this time, all participants are in listen only mode. After speakers' presentation, there will be a question Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Lars Christian Svensson, Interim CEO.

Operator

Please go ahead, sir.

Speaker 1

Hi there, and a very good afternoon from Oslo. My name is Lars Klitzdern Svensson, and I'm the Interim CEO of Golden Ocean. Today's CFO, Peter Simonsson, and I will guide you through our Q3 numbers update you on recent activities in Golden Ocean and our forward outlook. Here are highlights for Q3. Our adjusted EBITDA in the Q3 of 2020 and earnings per share of $0.14 This compared with net profit of $34,900,000 and earnings per share of $0.17 for the 2nd quarter.

Speaker 1

Our TCE rates for Capesize and Panamax vessels were $18,200 per day $15,400 per day respectively. Combined a total fleet wide net TC of 17,100. For Q4, we have secured a net TC of 23,040 For Q1, we have secured a net TC of $21,700 per day for 12% of the Capesize days and 15,600 per day for 23% of the Panamax space. During Q3, we have also entered into back to back agreements to buy and sell the Supramax vessel, we held as a purchase option. The company expects to recognize a gain from the sale of approximately $6,000,000 upon delivery of the vessel, And the expected delivery date is before year end.

Speaker 1

We also completed the sale and delivery of 1 of our Panamax vessels to new owners, Recognizing a gain from the sale of about $1,000,000 and net cash proceeds of about $7,000,000 True to the dividend policy, we declare a dividend of $0.10 per share for the Q3 of 2023. With that, I will pass the word over to Per.

Speaker 2

Thank you, Lars Christian. If we move to the our profit and loss, we delivered strong commercial performance With Cape TCE rates coming in at 18,200, slightly down from previous quarter and Panamax is Coming in at 15,400, in line with previous quarter. Our total fleet wide Time charter equivalent was 17,100, which was materially unchanged from Q2. We had 2 ships drydocked In Q3 versus 6 ships in Q2, resulting in approximately 115 days off hire versus 215 days off hire in Q2. We have 2 ships expected to drydock in Q4, Which are expected to complete be complete by the second half of the quarter.

Speaker 2

We added just below 550 vessel days compared to Q2 through new ship deliveries, Net of vessel sales in Q3. Our net revenues came in at 156,600,000 compared to €154,000,000 in Q2. Looking at our operating expenses, we recorded NOK 64,500,000 versus NOK 62,400,000 in the previous quarter. This was impacted by additional ship days compared to the previous quarter. In addition, we recorded Approximately EUR 3,000,000 expense relating to the change of technical managers on certain of our ships.

Speaker 2

This was offset by few dry dockings in this quarter compared to previous quarter and also Offset by lower OpEx reclassified from charter hire with fewer ships being chartered in on average during the quarter. The reclassified charter hire was SEK 4 point NOK 9,000,000 in Q3 versus NOK 6,200,000 in Q2. Our general and administrative expenses came in at NOK4,400,000 down from NOK5,200,000 in Q2, which is Fairly unchanged when adjusting for non recurring items in Q2. Our daily G and A ended at $4.70 per day, net of cost recharged to affiliated companies, down from $5.60 per day in Q2. Our charter hire expense were €8,300,000 down from €10,200,000 due to fewer vessel days in the trading portfolio And an adjusted EBITDA of €78,900,000 versus €80,400,000 in Q2.

Speaker 2

Looking at the net financial expenses, we recorded NOK 28,000,000 in net interest expense versus NOK 23,000,000 in Q2, a change due to higher reference rates and higher average debt in the quarter. The increase in interest rates also needs to be seen in relation to the realized portion of the interest rate swap portfolio, which impacted our derivatives and other financial income in the quarter. We recorded a gain of SEK11,900,000 compared to a gain of SEK14,300,000 of which €10,600,000 relates to interest rate swaps and €1,800,000 relate to bunker derivatives and FFA gains. And of the NOK 10,600,000, €4,900,000 is realized cash gains and €5,800,000 is mark to market gains following an increase in long term interest rates. Results from investments in associates, we recorded a loss of NOK 300,000 compared to a gain of NOK 4,900,000 in Q2, which relates to our investments in Swiss Marine, TFG and UFC.

Speaker 2

Net profit of €28,700,000.14 per share and a dividend declared of €0.10 for the quarter. Moving to the next slide. Our cash flow from operations came in at NOK 47,400,000 which includes NOK 600,000 dividend from Associated Companies. Our cash flow provided from financing came in at NOK33.5 million. We recorded €32,400,000 drawdown relating to delivery of 1 Newcastle master vessel.

Speaker 2

We drew €40,000,000 relating to deliveries of 2 Kamsarmax newbuildings, and we drew €25,000,000 under our revolving credit facility. This was offset by €7,600,000 prepayment relating to the sale of 1 Panamax vessel And €35,800,000 in scheduled debt and lease repayments. We recorded a dividend payment of NOK 19,900,000 relating to our Q2 results and a NOK 900,000 payment for share repurchases. Our cash flow used in investments was €88,500,000 which mainly relates to 45,300,000 relating to the delivery of the last Newcastle MAX vessel, 58,100,000 in installments and relating to our Kamsarmax newbuildings. And this was offset by CHF14,800,000 in net proceeds from the sale of a Tanamax vessel.

Speaker 2

Total net decrease in cash of NOK7,800,000 during Q3. Moving to the balance sheet. We had a cash and cash equivalents of NOK 99,700,000, including NOK 2,200,000 of restricted cash at the end of Q3. In addition, we had NOK 50,000,000 in undrawn available credit facilities at quarter end. Our debt and lease liabilities totaled €1,500,000,000 end of Q3, up by approximately SEK72 1,000,000 since Q2.

Speaker 2

Our average fleet wide loan to value under the Company's debt facilities per quarter end was 45.6%. With the book equity of SEK 1,900,000,000, We had a ratio of equity to total assets of approximately 53% at the end of Q3. With that, I give the word back to Richard.

Speaker 1

Thank you, Peter. In Golden Ocean, we like to focus on the larger vessels where we have the most volatility and also potential upside Historically, our young and modern fleet, which currently holds an average of 7 years, allows us to constantly beat the market over time. And with our current vessel count of 95, we offer a large commercial platform. Our market cap of 1,500,000,000 As I mentioned in our previous slide, we're proud of a young and modern fleet. However, it's just as important to maintain a low cash breakeven to float in practically any market.

Speaker 1

Illustrated here with our 60 Capesize vessels, Our Cape and Newcastle MAX cash breakeven over our entire fleet holds at $14,800 per day. Due to our fleet composition and clinical execution, we have outperformed the market with about $5,000 per day so far this year. If you deduct that premium from the $14,800, Golden Ocean's adjusted cash breakeven is below $10,000 per day. From the bottom left historical graph, you can clearly see the Golden Ocean Modern Fleet combined with an industry low cash breakeven, Much due to excellent financing, we'll make money in almost any market. We will continue to invest in our vessels to increase our fleet premium towards the market And thus decrease our adjusted cash breakeven further.

Speaker 1

Not only should we be considered a market leading company with high liquidity, Albeit volatile, Q3 finished on a strong note for both Panamax and Capesize. China is continuing to import iron ore, bauxite, Coal and agri products surpassing last year's levels. Even so, the Chinese iron ore and steel stockpiles are decreasing, Much due to a huge steel export program. We have seen increased ton miles in both segments and with the seasonality coming to life, The Panamax and Cape sectors look to finish 2023 on a strong note. The iron ore trade has come into full bloom so far in 2023, With steady Chinese demand and continuous imports from both Brazil and Australia.

Speaker 1

Brazil will, for the first time since the Braemontinho incident, deliver around their yearly targets. The commodity price itself is pushing $130 per tonne, which had led to frustration in the Chinese government and steel mills As their stockpiles continue to diminish. India has had a declining iron ore export throughout the 3rd quarter. In addition, they have concluded a large iron ore contract from Brazil to India for 5,000,000 tonnes, which can indicate a new trend and trading pattern for dry cargo. For the ton mile scenario, we could very much welcome more iron ore imports to India from Brazil.

Speaker 1

So where has all the increased landed iron ore tons been absorbed? Well, China is the world's largest steel producer, accounting for 56% of global steel output. Contrary to negative macro news, China Steel production is up 2% year on year with a solid 4.5% increase in Q3. Although property investments are down about 9%, we see that the Chinese iron ore production is down and rotation to technology intensive manufacturing And energy transition with infrastructure investment is up 9% year on year and private manufacturing investments were up 6%. In addition, Chinese car exports are up 62% as the Locksmith exports 30% year on year, which equates to about 80,000,000 tons As we have discussed earlier this year, the bauxite trade from Guinea has developed into a steady long haul Capesize trade predominantly into China.

Speaker 1

This bauxite trade has dominated the total global Cape ton mile with a staggering 12.5%. In addition, it's inversely seasonal to the iron ore trade from Brazil, which makes it tempting to assume that the coming Q1 will be more volatile and interesting than we've seen in many years. We see an upside to this trade into 2024 and we will position large parts of our fleets accordingly. The supply side is still looking vastly compelling in the dry space. The total dry order book is around 8% of the total fleet And even more alluring is the Capesize segment where we have 5% of the total fleet ordered for new buildings.

Speaker 1

Historically, This remains at an all time low and combined with unusual low congestion, it still suggests that the downside is priced already. To round off this presentation, we would like to show you the significant earnings potential in Golden Ocean as we finish off the volatile dry cargo year for 2023. Keeping in mind the premium we achieve on our fleet, the graph on the right shows the substantial cash flow potential and yield at various freight levels. As an example, to achieve a 25% yield, you must need an average Baltic index rate of 20,000 per day If you apply the 2023 year to date performed Golden Ocean premium of $5,000 while the current spot market suggests a free cash flow yield of approximately 30%. With that, thank you very much for listening, and I will pass the word back over to the operator.

Operator

Thank you. And the questions come from the line of Sherif Elmer Gabi from BTIG. Please ask your question. Your line is open.

Speaker 3

Hi, good afternoon. Thanks for taking my questions.

Speaker 4

Hi, Sean.

Speaker 3

Hi. I just want to first focus on that Supramax that you sold. It sounds like The purchase option and then subsequent sale was a pretty unique opportunity. But are there any other upcoming options on the 8 Capes that you've time chartered in, Which could present a similar opportunity or could you even hang on to that tonnage given where asset prices are today?

Speaker 5

Yes, thank you for that. I think, 1st of all, when it comes to the Supramax vessel, we that is something that we consider non core business. So for us to be able to do a good market transaction, We thought that was a good idea. When it comes to Capesizes, which we absolutely consider core business, we are definitely interested in the clearing options, if it makes sense to the market

Speaker 3

Okay. And then turning to scrubbers, the scrubber premiums really widened over the last few months. And so just with that in mind, could we see scrubbers installed on other vessels in the fleet as they come in for dry dock or special survey?

Speaker 5

Yes, definitely. If there's a young enough asset that we see potential, then we will upgrade as many of them as possible in the next product cycle.

Speaker 3

Okay. Thanks for taking my question.

Speaker 5

Thank you, Joe.

Operator

Thank you. And the questions come from the line of Omar Nochtar from Jefferies. Please ask your question.

Speaker 4

Hi, there. Hi, guys. Good afternoon. Hi. Yes, just wanted to ask, obviously, you highlighted the overall the strong sort of quality of the Golden Ocean fleet.

Speaker 4

Wanted to ask, obviously, 3Q was supposed to be generally or had been a pretty soft quarter when we look at just spot market averages and Looking at what companies in this sector have reported, but you guys generally kind of came in sort of flattish or maybe even cash flow generation was a bit better. So just wanted to ask kind of what drove that improvement, that sequential sort of modest improvement? Was that sort of well timed Time charters or some spot performance that was a bit beyond expectations. Any color you can give on that?

Speaker 5

Yes. No, I think entering into the quarter, we were quite covered on the Panamax front. We realized quite quickly We needed to have some more exposure there to capture the market. So we turned every stone to be able to add on some more spot exposure on the Panamaxes, which yielded well. Same thing with the Capesizes as we discussed in the previous quarter as well.

Speaker 5

We had fairly high confidence in the second half this year Simply because of the many drivers that we see on the coal and the bauxite and also Brazil performing the way it should do. So for us going into This quarter, it was quite clear that we wanted quite a bit of spot exposure. And luckily, we got this one up.

Speaker 4

Okay, got it. That makes sense. And then maybe just as a follow-up, you highlighted the looking to further invest in the fleet to capitalize or at least create Excess earnings potential. You've got the your order book program basically is close to wrapping up here with those 4 Kamsarmaxes due in 2024. Recently, we've seen several of your competitors order ships on a dual fuel basis that deliver out and 26%, 27%, I think even we saw 28%.

Speaker 4

How are you guys thinking about the newbuilding order book as it is now in terms of Obviously, you mentioned the fleet size is at 8% is relatively small. But in terms of Golden Ocean and looking forward, how do Think about where you stand with new buildings. Are you comfortable with these 4, taking delivery of them and then moving on? Or can we expect you to dive deeper into new buildings.

Speaker 5

I think for our focus at the moment, we're very happy with the new building program that We had on and looking to complete next year. We're definitely there to grow in terms of vessels on the water. We could find more than tonnage 2, 3, 4 years old That fit well into our strategy and fleet. We think that is a better investment at the moment than to go to the yards and place a new building order. With respect to which fuel to attack, we haven't made up our mind there yet and maybe not as clear as the other competitors.

Speaker 5

So we We're to invest in our fleet, what we already have, but already makes money and grow the fleet that way.

Speaker 4

Yes. Yes, very good. Well, thank you. That's it for me.

Speaker 2

Thank you, Omar. Thanks, Omar.

Operator

Thank you. We have no further questions at this time. I would like to hand back to you for closing remarks.

Speaker 2

Thanks a lot for dialing in. Now we'll see you next quarter.

Speaker 5

Thank you very much.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.

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Earnings Conference Call
Golden Ocean Group Q3 2023
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