Golden Ocean Group Q3 2024 Earnings Call Transcript

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November 27, 2024

There are 4 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Q3 2024 Golden Ocean Group Limited Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Peter Sivensson, Interim CEO and CFO. Please go ahead.

Speaker 1

Good afternoon, and welcome to the Golden Ocean Q3 2024 Release. My name is Peter Ziemannsson, and I am the Interim CEO and CFO of Gold Notion. Today, I will present our Q3 numbers and forward outlook. In the Q3 of 2024, we have the following main highlights. Our adjusted EBITDA in the 3rd quarter ended up at CHF 124,400,000 compared to CHF 120,300,000 in the 2nd quarter.

Speaker 1

We delivered a net income of CHF 56,300,000 and earnings per share of CHF 0.28 compared to a net income of €62,500,000 and earnings per share of €0.31 in the 2nd quarter. Our adjusted net profit was €66,700,000 and adjusted earnings per share of €0.33 up from $63,400,000 and earnings per share of $0.32 in Q2. Our TCE rates were about $28,300 per day for Capesizes and about $16,400 per day for Panamax vessels and fleet wide net TCE of around $23,700 per day for the quarter. We have continued to execute on our fleet renewal strategy by selling 1 older Panamax and an older Newcastle MAX vessel at attractive prices. Further, we continue to secure attractive financings supporting our industry low cash breakeven rates.

Speaker 1

For Q4, we have secured a net TCE of about $26,300 per day for 82% of Capesize days and about $14,600 per day for 83% of Panamax days. For Q1, we have locked in a net TCE of about $21100 per day for 27% of Capesize days and about $17,500 per day for 15% of Panamax days. And with a strong result, we are pleased to declare a dividend of €0.30 per share for the Q3 of 2024. Let's look a little deeper into the numbers. As mentioned, we achieved a total fleet wide TCE rate of 23,700, slightly up from Q2.

Speaker 1

We had 5 ships drydocked in Q3 compared to 4 ships in Q2, contributing to about 253 days of fire in Q3 versus 193 days in Q2. We are entering into a period with frequent dry dockings. We have 13 ships scheduled to dry dock in Q4 2024, of which 4 vessels have completed dry dock as of today, and 7 ships are expected to dry dock in Q1 2025. We recorded net revenues of NOK 206,600,000, NOK 9,200,000 higher than Q2, mainly due to increased vessel days. Looking at our operating expenses, we recorded NOK 69,400,000 in OpEx versus SEK 66,300,000 in Q2.

Speaker 1

Running expenses were largely unchanged quarter by quarter, while we had 1 more ship drydock in the quarter reflected in the results. We had CHF 2,400,000 in decarbonization and digitalization investments. Our OpEx reclassified from charter hire was CHF 2,400,000 dollars just below 1,000,000 up from Q2. On our general and administrative expenses, we ended at 5,300,000, slightly up from Q2. Our daily G and A came in at $5.72 per day, net of cost we charge to affiliated companies, unchanged from Q2.

Speaker 1

Our charter hire expenses were 6,400,000 dollars versus $4,800,000 in Q2, reflecting higher number of vessel days for the trading portfolio as well as profit sharing expense relating to our lease with SFL Corp. Net financial expenses came in at $25,500,000 largely unchanged quarter on quarter. Our derivatives and other financial income, we recorded a loss of 12,000,000 compared to a gain of CHF 1,900,000 in Q2. On derivatives, we recorded a loss of CHF 11,000,000 of which CHF 14,000,000 was relating to a mark to market loss on interest rate swap derivatives, offset by a SEK 4,000,000 realized cash gain on the same derivatives, as well as a SEK 400,000 loss on FFA, FX and bunker derivatives. For results in investments in associates, we recorded a €700,000 loss compared to a €400,000 loss in Q2 relating to our investments in Swiss Marine, TFG and UFC.

Speaker 1

A net profit of €56,300,000 or €0.28 and adjusted net profit of €66,700,000 or €0.33 and a dividend of €0.30 per share declared for the quarter. On our cash flow, we recorded cash flow from operations of $100,800,000 up from $76,900,000 in Q2. Our cash flow used in investments was €4,400,000 mainly due to installments and costs relating to our Kamsarmax newbuildings of €24,800,000 offset by €20,800,000 in sales proceeds from 1 older Panamax vessel. Cash flow used in financing came in at €81,800,000 mainly comprising of €35,000,000 in scheduled debt and lease repayments, and €8,100,000 in prepayment relating to the sale of 1 Panamax vessel, €60,000,000 in dividend payments relating to the Q2 results, which was offset by €21,600,000 in drawdown in connection with delivery of 1 Kamsarmax newbuilding. Total net increase in cash of €14,600,000 On our balance sheet, we recorded cash and cash equivalents of €117,600,000 including €1,400,000 in restricted cash.

Speaker 1

In addition, we have $150,000,000 in undrawn available credit facilities at quarter end. Debt and finance lease liabilities totaled $1,400,000,000 end Q3, down by approximately SEK20 1,000,000 quarter on quarter. Average fleet wide loan to value under the company's debt facilities per quarter end was 34.1%. Book equity of SEK1.9 billion and the ratio of equity to total assets of approximately 56%. Looking at Golden Ocean's fleet composition.

Speaker 1

Golden Ocean continues to renew its fleet as evidenced with the vessel sales announced in the quarter. Although we are opportunistic, we focus on our position in the Capesize and Newcastlemax segments, which represents over 80% of Golden Ocean's deadweight tonnes and thereby earnings capacity. We are the largest listed owner in the Capes segment. As I will discuss further in this presentation, we believe that both supply and demand dynamics favors the Capesize segment in the foreseeable future. As illustrated in the graphs, if you are to invest in the dry bulk space, we are the only listed company offering meaningful Cape exposure and at the same time significant market cap and trading liquidity.

Speaker 1

In Q3, we saw cargo volumes continue at healthy levels from a seasonally strong first half, despite geopolitical turmoil and a challenging trading sentiment. Brazilian iron ore volumes were up 13% quarter on quarter as driven by strong production and guidance from the largest Brazilian miner, Vale. Australia continued strong exports, although slightly down quarter on quarter. The West African bauxite volumes have grown to a healthy baseline of 10,000,000 to 12,000,000 tonnes per month and are now in the upper end of the range as they are approaching peak season exports in Q1. Whole volumes are up 3% quarter on quarter, mainly from Indonesia and Australia to Southeast Asia.

Speaker 1

Colombian volumes, which were strong Tallmile contributor for the first half of twenty twenty four, have decreased with 11% from previous quarter as they have struggled with onshore infrastructure issues. As for the first half, China continued to import a large portion of the volumes, representing 75% of the Brazilian iron ore and 83% of the Guinea bauxite exports. In line with healthy growth in volumes, both Vale and Australian miners guide positively on production, reiterating their strong full year production targets. Iron ore prices have been volatile, but stayed at historically healthy levels despite the negative macro backdrop. Current prices of above $100 per tonne compares very favorably to the breakeven rate of the major miners of approximately $40 per tonne delivered in Asia, indicating continued profitable exports.

Speaker 1

Healthy iron ore price is a signal that the demand for iron ore remains healthy. Following significant investments in mining and infrastructure in Guinea, the Semandu high grade iron ore mine is expected to ramp up its production and exports from Q4 2025, which will over 2.5 years have an expected 120,000,000 tonnes of export capacity annually. If assuming that the Cymondu volumes will replace Australian volumes, it will triple the sailing distance to Asia, boosting ton mile demand for Capesizes significantly. In addition to Cimandou, Brazil have several new expansion projects underway. The additional annual export capacity of around 50,000,000 tonnes will come on stream during 20252026, further adding Capesize Ton Mile.

Speaker 1

Iron ore inventories increased to 2022 levels during the first half of twenty twenty four, but have stabilized during October, November as fuel production has balanced out iron ore imports. Whereas we throughout the year have seen significant negative news flow relating to Chinese growth projections, in October, we saw Chinese government announcing stimulus packages, including stabilizing the weak property sector, but more importantly, a clear signal that Chinese government is committed to achieving its growth targets. In the latest economic outlook published by IMF, it's expected that China will grow by 4.8% and 4.5% in 2024 2025, respectively, supporting healthy long term demand for commodities. Despite elevated inventories, China has continued to import high grade Brazilian iron ore, which supports the indication that the parts of the inventories are of a lower grade. Further, the Dalian Metals Exchange in China has required traders to hold higher deposits of iron ore in order to trade its ore, further upping inventory levels.

Speaker 1

China has stated that it's aiming to reduce emissions in the steel industry. To use higher grade iron ore and coal will reduce emissions per tonne steel produced. China is in the process of including the steel industry into its emissions trading scheme, which will make increased high grade imports even more beneficial. The new high grade R and R mine in Simandou, Guinea, partially funded by Chinese interests, will add to the sourcing of high grade commodities. The official statistics on reported steel production in China has remained muted in Q3, but has during October improved as steel margins have started to strengthen and PMI indicators improve.

Speaker 1

We have also seen a more optimistic tone from the large steel mills, a significant change in narrative from what was presented during Q2. Outside China, crude steel production has started recovering, but is muted by weak demand and high interest rates. However, as this constitutes 50% of global steel demand, it presents a significant upside once the re amount comes underway. Analysts expect growth of 5% to 7% in the next couple of years as the world is recovering from inflation and higher interest rates. Despite weak steel margins, Chinese steel mills continue to protect their market share.

Speaker 1

The steel exports from China has continued in Q3 and into Q4 with a 30% increase year on year in the 1st 9 months of 2024. The stimulus targeting in the real estate sector is highly positive to stabilize the property market and for the economy in general. Construction represents around 25% of steel demand, while infrastructure investments, manufacturing and exports are on aggregate, representing approximately 60% of Chinese steel production. Guinea in West Africa has become a major exporter of high grade commodities. As is the case for the new iron ore projects coming on stream, the Guinean bauxite is to a large degree controlled by Chinese interests, indicating ton mile support in the years to come.

Speaker 1

Exports of bauxite, which is used in the production of aluminum, is feeding the booming EV industry as well as other sectors in China. The Guinean bauxite replaces volumes from Indonesia, which in addition to significant growth in demand and sailing distance represents a switch to Capesizes from smaller vessel segments. The bauxite trade has on average grown by 22% annually since 2017 and is expected to grow by approximately 5% to 10% in 2025, further supporting Capesize demand. As bauxite exports currently contributing to 13% to 14% of ton mile for Capesizes. This will represent a demand growth covering most, if not all, of the scheduled deliveries in Capesize for 2025.

Speaker 1

The order book remains favorable with Capesize being supported by shipyard capacity constraints. Capesize and Newcastle MAX compete with containerships, LNG vessels and tankers for capacity due to the dock size required. With Capes representing the lowest profit margins for the shipyards, they are generally outcompeted by other more profitable segments on the available capacity, leading to higher quarter prices and long dated delivery schedules. We have only seen marginal additions to the order book the past quarter and we remain at historically low levels, illustrating that the restrictions posed by yard capacity, high newbuilding prices and long lead times remain a key fundamental support. The Capesize fleet is aging and over half of the Capesize fleet will be above 15 years of age in 2028, in a period where environmental regulations are tightening.

Speaker 1

Also, as seen from the fleet profile, the concentration of vessels required to dry dock in the 2 coming years is expected to reduce fleet capacity further than normalized distribution over a docking cycle. We lastly see inflation in necessary investments to meet technical requirements, raising the bar for smaller operators of older tonnage. There has been unusually little weather disruptions in the port operations during the fall, which normally leads to delays and tightening of the dry bulk markets. The dry bulk fleet continues to operate highly efficiently with low congestion and only marginal Panama and Suez Canal exposure. The return of physical volumes setting the price of freight has seen a healthy rebound in rates in Q4 following a weaker period, very much as seen in 2023.

Speaker 1

It illustrates the underlying supply and demand balance in the freight market. We will round off with a reminder of our robust business model, low cost base and modern fleet, which continues to support the free cash flow and dividend potential in Golden Ocean. The accumulated dividends paid has surpassed SEK1.1 billion by a good margin, representing above 90% of net profit for the period. Although we expect volatility with ongoing geopolitical uncertainty, we continue to remain fundamentally positive on the market outlook. I would now pass the word back to the operator and welcome any questions.

Operator

You. Thank We will now take the first question from the line of Omar Nochtar from Jefferies. Please go ahead.

Speaker 2

Thank you. Hi, Simon. Thanks for the update and pretty good detail on the market outlook. And I guess just wanted to get maybe a sense of in terms of Golden Ocean and where you sit in terms of capital deployment. From here, you sold an older Newcastle MAX and a Panamax.

Speaker 2

Prices look fairly solid and you've got some big gains on those. I guess how would you characterize where you sit today company wise? Or do you view Golden Ocean being kind of more of a seller in this market, take advantage of perhaps lofty pricing? Are you a buyer in terms of perhaps asset values are coming under pressure? Or are you neither?

Speaker 2

Any kind of color you can give, I guess, in terms of what you're seeing in the S and P market and then what that then means for you?

Speaker 1

Yes. Hi, Omar. Thanks for the question.

Speaker 3

I think, first of all, we have sort of done our heavy lifting

Speaker 1

when it comes to fleet

Speaker 3

growth earlier in the cycle. So we grew by 30% over the last 3 years. And then in line with the increased asset prices, I think at current point in time, we don't see the real value in acquiring modern tonnage at the current prevailing prices. So I think we are more sort of selling off all the tonnage in line with our strategy to replace the sort of balance out the fleet that we have and average out the fleet age. And I think when it comes to capital deployment, I think that we have been pretty clear that we favor dividends at the current point in time.

Speaker 3

And I think even though if you look at current share prices plummeting, it might be tempting to deploy some of this into the buyback program we announced renewal of. But I think as for the rest of the group with the same main shareholder, we do preference dividends over buybacks in general terms.

Speaker 2

Okay. That's clear. And I guess maybe just in terms of the dividend as you're just highlighting, you paid $0.30 or you declared $0.30 and you paid that I believe the past 4 quarters. Earnings per share has generally been in that range, plus or minus a couple of cents. Would you think about, let's say, next quarter or a following quarter, EPS falls into, say, the $0.20 or $0.25 Not saying don't want to hold you to it, but when you think of that $0.30 dividend threshold, is that something you expect to maintain if earnings don't deviate too far away from what you have achieved?

Speaker 2

Or do you shift back towards that percentage payout of earnings?

Speaker 3

I think we've always been

Speaker 1

the percentage payout of earnings,

Speaker 3

but we have also tried to balance out the sort of the peaks and troughs. And obviously, we have a cap cost base, which enables us to pay out dividends if the market weakens temporarily. And I think we are very much repeating what we've said that we're positive to the market and the fundamentals of the market, which means that we intend to pay dividends throughout any weaker periods. But the nominal amount, I think, we'll have to see. And we are also optimistic, as we have shown.

Speaker 3

But I think, in general, sort of the we intend to continue where we are what we have been doing since 2021.

Speaker 2

Okay. Very good. All right. Well, thank you. I'll turn it over.

Speaker 1

Thank you.

Operator

Thank There are no more questions at this time.

Speaker 1

Okay.

Speaker 3

Then I will thank

Speaker 1

you all for listening in and wish you

Speaker 3

all a peaceful holiday season when the time comes.

Speaker 2

Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Golden Ocean Group Q3 2024
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