Golden Ocean Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 29, 2023

There are 5 speakers on the call.

Operator

And thank you for standing by. Welcome to the Second Quarter 2023 Golden Ocean Group Limited Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be the question and answer session. Please be advised that this conference is being recorded.

Operator

I would now like to hand the conference over to our speaker today, Lars Christian Svensson. Please go ahead, sir.

Speaker 1

Hello, and good afternoon from Oslo. My name is Lars Klissdan Svensson, and I'm the Interim CEO of Golden Ocean. Today, CFO, Peter Simons and I will guide you through our Q2 numbers and share our views We start with the highlights for Q2. Our adjusted EBITDA in the second quarter came in at $80,400,000 compared to $54,700,000 in the Q1 of 2023. The net profit amounted to $34,900,000 And earnings per share of $0.17 This compared to a net loss of $8,800,000 and loss per share of $0.04 in the 1st quarter.

Speaker 1

Our TCE rates for Capesize and Panamax vessels were $19,100 per day and $15,600 per day respectively. This amounts to a fleet wide average net TC of $17,660 per day. For the 3rd quarter, We have secured a net TC of $18,300 per day for 79% of the Capesize days and 13 $510 for 98 percent of the Panamax days. For the Q4, we have secured a net TCO of $21,500 per day for 30 4% of the Capesize stays and 16,500 per day for 26% of the Panamax days. We also welcome new additions to the fleet with 6 of our 10,85,000 Deadweight Kamsarmax newbuildings being delivered and 6 modern Newcastlemax vessels which have commenced long term contract with a Brazilian iron ore miner.

Speaker 1

We entered into 2 credit facilities of an aggregate amount of 120,000,000 part financing the 6 new buildings at a highly competitive terms. And last but not least, we announced a dividend of $0.10 per share for the Q2 of 2023. I will now pass the word over to Peter.

Speaker 2

Thank you, Lars Hansen. If we move to Slide 5 And our P and L, we can start by looking at our revenues. As Lars Christian mentioned, we achieved the TCE rates of 19,100 for our Capes And 15,600 for our Panamax and Ultramax fleet. Our total fleet YTCE was 17,700, up from 14,900 in Q1. We had 6 ships drydocked in Q2 versus 3 ships in Q1, resulting in approximately 215 days Over fire in Q2 versus 146 days in Q1.

Speaker 2

We have one ship that we expect to drydock for Q3, And this dry dock has been completed at today's date. Just below 375 Vessel days have been added through new ship deliveries, net of ships leaving the fleet. Some of this resulted in TCE revenues of SEK 153,000,000, which compares to SEK 131,200,000 in Q1. Looking at our operating expenses, we recorded CHF 62,400,000 in Total OpEx compared to EUR 61,600,000 in Q1. The increase In addition, we incurred increased costs relating to the change of technical management for approximately 25 ships during the quarter.

Speaker 2

This was offset by lower OpEx reclassified from charter hire as we record each quarter. Our OpEx ex DarioC was NOK 6200,000 which was largely unchanged from Q1. Looking at our general and administrative expenses, we ended with a total expense of SEK 5,200,000, which was up from SEK 4,200,000 in Q1. The increase is attributable to nonrecurring personnel expense, mainly relating to profit sharing. Our daily G and A came in at 5.56 dollars per day net of cost we charge to affiliated companies, which is up from $4.44 per day in Q1.

Speaker 2

Our charter hire expense was reduced from 16.8 in Q1 down to 10.2 in Q2, which is a result of fewer vessel days in our trading portfolio. Moving to the net financial expenses. We recorded NOK 23,000,000 In net financial expenses versus SEK 20,500,000 in Q1. This is due to higher reference rates, both LIBOR and SOFR, and higher average debt during the quarter. On our derivatives and other financial income, we recorded a gain of SEK 14 point €3,000,000 which compares to a gain of €2,700,000 in Q1.

Speaker 2

On our derivatives portfolio, we recorded a €9,000,000 gain Versus a SEK 2,100,000 loss in Q1, with interest rate swaps being the main positive contributor, offset by a loss on FFA and bunker derivatives. On our results from investments in associates, We recorded a gain of €4,900,000 which is unchanged quarter on quarter, stemming from our investments in Swiss Marine, TFG and UFC. A net profit of €34,900,000, €0.17 per share And a dividend of €0.10 was declared for the quarter. Moving to our cash flow. We see a net decrease in cash of SEK 15,900,000.

Speaker 2

On our cash flow from operations, We recorded a positive cash flow of €45,500,000 which includes a €1,600,000 of dividend received from associated companies. On cash flow provided from financing, We recorded a €102,000,000 drawdown relating to deliveries of 3 Newcastle MAX vessels, And we drew down SEK 80,000,000 relating to delivery of 4 Kamsarmax newbuildings. We also drew SEK 25,000,000 under our revolving credit facilities, leaving SEK 75,000,000 undrawn and available at quarter end. We made a prepayment of 25.8 €1,000,000 relating to the sale of Golden Teng and Golden Shui, and

Speaker 3

we recorded €30,300,000,000 in scheduled debt and lease

Speaker 2

repayments. €1,000,000 in scheduled debt and lease repayments. We recorded a dividend payment of €20,000,000 And finally, we spent SEK 6,900,000 in payments under our share repurchase program as announced during the quarter. On the cash flow used in investments, It totaled €184,600,000 which is mainly relating to €43,600,000 in net proceeds received From the sale of Golden Feng and Golden Shui, dollars 130,100,000 in asset investments, the majority relating to purchase price for 3 Newcastlemax vessels and payment of newbuilding installments of CHF98,000,000 Moving to Slide 7 on our balance sheet. We can see that our cash and cash equivalents was 107,300,000 which includes SEK 3,400,000 of restricted cash.

Speaker 2

In addition, we have SEK 75,000,000 as mentioned, undrawn and available under our revolving credit facilities at quarter end. Our debt and finance lease liabilities totaled SEK 1,500,000,000 at the end of Q2, up by approximately SEK 152,000,000 since Q1. Average fleet wide loan to value under our debt facilities per quarter end was 45%. And our book equity of SEK 1,900,000,000 led to a ratio of equity to total assets of approximately 54%. And with that, I give the word back to Lars Christian.

Speaker 1

Thank you, Pedri. Moving over to the GDP growth. GDP growth is the leading indicator for drybulk demand. The graph on the left shows the G20 Diffusion Index. This index illustrates a number of G20 countries that are growing above their long term potential.

Speaker 1

As you can see, this correlates well with historical cyclicality of the Baltic Dry Index And indicates another potential upturn in the near future. The global GDP outlook has been revised downwards over the course of the year, But shows healthy growth rates according to the IMF with China and India remaining important contributors. Over to the market development. We have all seen and read the macro news over the last 6 months, which has created unusual volatility in the freight and trading markets. For the Capeside market especially, the physical story paints a solid picture.

Speaker 1

Iron ore exports from Brazil are up substantially from last year, about 12,000,000 tonnes to date. Bauxite from West Africa increasingly so and China's appetite for Imported coal, albeit record domestic production being high, has surpassed 2022 year to date. We also need to mention the extremely high fleet efficiency, currently well below 5 years average, where the Capeside market has a large upside, Much like what we've seen in the Panamax space over the last month, where sudden congestion in South American ports and a dry Panama Canal has pushed the freight markets. Panamax is so far trailed behind the Cape segment this year. However, with the congestion, delayed soybean season and good corn crops from the U.

Speaker 1

S. Gulf, We foresee more Panamax activity for the second half as well. Moving over to the steel and iron ore inventories. The Chinese iron ore and steel mill inventories are also telling a very compelling story. Iron ore port inventories are down 25% 40,000,000 tonnes since last since the heights of beginning of 2022.

Speaker 1

And steel inventories has also been drawn down almost 30% 34,000,000 tons over the same period. This is well below the 30 day critical consumption level for the country. It also explains the vast amount of iron ore volumes being shipped so far this year And thus indeed indicate that China is continuing to utilize steel. The iron ore price is currently trading around $115 per tonne And have so far not shown weakness volatility rather on the back of macro news yet to be implemented. Finished steel As in terms of rebar, long and flat steel is also at normal levels, I.

Speaker 1

E. Steel in every shape and form is being absorbed and the underlying demand continues. Brazilian iron ore and bauxite. The tonne mile in the Capesize segment continues to increase. Last year, the iron ore tonne mile was down about 3%.

Speaker 1

However, with the aid of other commodities, much thanks to Guinea and bauxite, the overall ton mile for Capes increased 3% in 2022. The trade has become significant currently 10% of Cape Town Mile with analysts expecting 30% to 40% growth in 2024. So far in 2023, with more volumes being shipped from both Brazil and Guinea, the ton mile will continue its positive trajectory. Another point we would like to raise in this call is the most structural impact of the bauxite trade. If I can draw your attention to the bottom left graph, You will see that seasonality in the Capesize market has experienced less volume during Q1 and also in turn lower freight rates.

Speaker 1

This has been due to the wet season and maintenance of the iron ore terminals in Brazil. But as you can see, with the increased bauxite tons exported during the same period, The ton mile gap narrows every year. We are under the belief that the so called traditional Q1 slow season can be challenged and that we will have a more steady trade flow all year round for the larger sizes. If you have a look at the favorable supply dynamics, as mentioned in the previous Previously in this presentation, we see limited downside in the larger sizes when it comes to efficiency. There is simply put little room to turn the fleet faster during port than what we currently experiencing.

Speaker 1

If anything, with the new CII regulations coming in full force in 2024, Large parts of the fleets are likely to slow steam even further. At the same time, the order book and supply dynamics for dry cargo vessels are encouraging and very much unchanged the last 12 months, largely due to uncertainty surrounding propulsion technology and yard capacity restraints. Next slide here, we go through the resilient business model of Golden Ocean. We strive to maintain our position of having the lowest cash breakeven in the industry, Currently fleet wide around $13,000 per day. With our premium fleet, hands on execution and good financing, We are continuing to outperform the markets every quarter.

Speaker 1

For the first half of twenty twenty three, we have across both Cape and Panamax segments Outperformed the market with $4,700 a day. We aim to continue our fleet renewal program and enhance further energy efficiency devices across our fleet to bring our cash breakeven down further. With our low cash breakeven and fleet composition, we will float in almost any market as seen on the graph on the right side. Now let us guide you through our next two quarters. The forward outlook from a market standpoint looks promising as discussed earlier in this presentation.

Speaker 1

We have for Q3 locked in 79 percent of the Capesize available days at $18,300 per day 97 percent of the Panamax available days at $13,500 per day. Q3 to date, We have outperformed the market by $5,300 a day on a fleet wide average. For Q4, we are locked in 30 4% of the available Capesize days at 21,526 percent of the available Panamax days at $16,500 per day. And this combined, we have contracted a TCE revenue of $181,000,000 for the second half of the year. This cover will protect a healthy bottom line for the rest of the year and at the same time give us leverage needed to capture rising market going into Q4.

Speaker 1

Cash flow potential. To round off this presentation, we would like to show you the significant earnings potential in Golden Ocean as we move into the historical high The assumed freight rates set out in the graph are achieved rates and based on the best in class fleet efficiency and low cost model, The free cash flow can generate healthy dividend yields even at current freight levels. With that, I pass the word back to the operator. Thank you.

Operator

And now we're going to take our first question. And the question comes from line of Omar Nochtar from Jefferies. Your line is open. Please ask your question.

Speaker 4

Thank you. Thanks Lars, Christian and Petr. Good afternoon. I wanted to ask about the drybulk market and I think you gave some interesting commentary about the bauxite Trade potentially offsetting the typical wet season in Brazil. Do you think basically going forward, we may be able to throw out the conventional idea that dry bulk Always that's weakest in the Q1.

Speaker 4

And do you look to capitalize on this dynamic Potentially here as we get into 2024 with maybe some charter ins or some FSAs, how do you think about playing the Potential of bauxite offsetting iron ore.

Speaker 3

I think, Omar, that When it comes to the bauxite trade, the growth there is the growth potential is huge. The volumes are there, the mines are there, and the infrastructure works very well. This is already contracted volumes going into a different trade than what the traditional iron ore would do. So we are quite bullish on this particular commodity That will drive it forward, build the ton mile. If that increases 2%, 3%, 4% per year, next year and the year after, We're looking at a quite healthy Capesize rates going forward.

Speaker 4

Yes. And I guess in terms of The iron ore activity that we have been seeing, you mentioned that it's been relatively strong actually going into China and with a big step up out of Brazil So far this year, when we think about the pace of activity, obviously, the first half looked Really good going into China. It looks like elsewhere was a bit softer. What's the pace been like as we look here as we started the second half here, I guess we're 2 months in. How is the pace of iron ore going into China in relation to the first half from your vantage point?

Speaker 4

And are there any shifts or promising signals for Volumes outside of China?

Speaker 3

The second half, as I said, in terms of iron ore story, has started at a lot higher pace than the first half of the year. Just today, the output from Brazil combined with all the miners are over 1,200,000 tonnes per day. So compare that to January this year, this is a significant increase and will drive these volumes forward 100%. In terms of Alta countries and places taking the iron ore, we see the European growth as well as slowly but surely increasing What we're seeing from the second half, first half, sorry. Yes.

Speaker 4

Okay. Thank you. And maybe just one final one on the market. In terms of coal, we have seen here a jump in LNG prices of late, at least in relation to where things were A couple of months ago at the lows, have you seen any effect on that on coal volumes or coal interest or activity? Any shift or any Sort of, I guess, any impact of that on the coal trade?

Speaker 3

Yes. The coal trade has been active all year, especially from Australia into China Since they reopened their relationship there. India has been active in the first Q1 this year. And now with the monsoon season over, We expect India to continue their import, that their stockpiles are low as well. With the gas prices going up, we have seen in the market lately more cargoes as well going from Maybe that's a strong signal that the continent is starting to build a little bit more security to avoid what happened last year.

Speaker 4

Got it. Thank you. Thanks, Lars Christian. That's good color. I'll hand it over.

Speaker 3

Thanks, Omar. Thanks, Omar.

Operator

Thank you.

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Earnings Conference Call
Golden Ocean Group Q2 2023
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