Golden Ocean Group Q4 2023 Earnings Call Transcript

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February 28, 2024

There are 6 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q4 2023 Golden Ocean Group Limited Earnings Conference Call and Webcast. 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 turn the conference over to your first speaker today, Lars Christian Frentzen, CEO. Please go ahead.

Speaker 1

Good day, and welcome to the Golden Ocean Q4 2023 release. My name is Lars Kristian Svensson, and I'm the CEO of Golden Ocean. Today, our CFO, Peter Simonsson and I will guide you through our Q4 numbers, recent activities and our forward outlook. Here are the highlights for the Q4 of 2023. Our adjusted EBITDA in the 4th quarter ended up at 123 point $2,000,000 compared to $78,900,000 in the 3rd quarter.

Speaker 1

We delivered an adjusted net income of $64,600,000 and adjusted earnings per share of $0.32 compared with an adjusted net income of $22,000,000 and earnings per share of $0.11 for the 3rd quarter. Our TCE rates for Capesize and Panamax vessels were $25,176 per day and $16,738 per day respectively. That took us to combine fleet wide net TC of about $22,000 per day. For Q1, we have secured a net TC of $25,000 per day for 74% of the Capesize days and $15,400 per day for the 84% of the Panamax days. For Q2, we have a net TCO of $25,000 per day for 25% of the Capesize days and 14,200 per day for 19% of the Panamax base.

Speaker 1

During the quarter, we have agreed to sell 1 Panamax for a net consideration of $15,800,000 and received a financial commitments for an aggregate amount of 625,000,000 dollars at highly attractive terms. We continue to prioritize dividends, and we're pleased to declare a dividend of $0.30 per share for the Q4 of 2023. I will now pass the word over to Per.

Speaker 2

Thank you, Lars Christian. If we move to our profit and loss on Slide 5, we recorded a fleet wide TCE rate of 22,000 in Q4, up from 17,000 in Q3. Our full year fleet wide TCE rate for 2023 ended at 17,900. We had 2 ships drydocked in Q4, the same as Q3, contributing to about 109 days of fire in Q4 versus 115 days in Q3. We have 2 ships scheduled for drydock in Q1 this year, of which one vessel has completed drydock as of today.

Speaker 2

This resulted in net revenues of SEK 196,700,000 compared to SEK 156,600,000 in Q3. Our operating expenses came in at $63,400,000 versus $64,500,000 in the previous quarter. The running expenses were largely unchanged quarter by quarter, while the OpEx reclassified from charter hire was 3,000,000 dollars this quarter, dollars 1,900,000 lower than Q3. Our general and administrative expenses came in at €4,900,000 up from €4,400,000 in Q3. This translates into a daily G and A of $5.28 per day, net of cost recharged to affiliated companies, up from $4.68 per day in Q3.

Speaker 2

Our charter hire expense came in at CHF 6,900,000 down from CHF 8,300,000 in Q3 as a result of fewer vessel days in our trading portfolio. Our net financial expenses came in at CHF 27,400,000 down from CHF 28,100,000 in Q3, a change mainly due to lower average debt and higher return on short term deposits. On derivatives and other financial income, we recorded a loss of SEK 5 point 8,000,000 compared to a gain of CHF 11,900,000 in Q3. The biggest contributor to this is a CHF 9,500,000 loss on interest rate swaps, which is a combined result of CHF 13,600,000 mark to market unrealized loss, offset by a CHF 4,100,000 realized cash gain under our interest rate swap portfolio. Results from investments in associates.

Speaker 2

We recorded a gain of SEK 2,700,000 compared to a SEK 300,000 loss in Q3. This relates to our investments in Swiss Marine, TFG and UFC. Our net profit of €57,500,000 or €0.29 per share and an adjusted net profit of 64.6 $1,000,000 and $0.32 per share was recorded in Q4. Our full year 20 20 3 net profit came in at CHF 112,200,000 and adjusted net profit of CHF 117,400,000. And as Lars Christian mentioned, we announced a dividend of SEK 0.30 per share for Q4.

Speaker 2

Moving to Slide 6. We had cash flow from operation copying in at NOK 96,900,000, which includes NOK 1,700,000 in dividends received from associated companies. On cash flow provided by investments of $14,700,000 we recorded $21,200,000 relating to the sale of 1 Supramax vessel, which was offset by $6,100,000 in installments and costs relating to our Kamsarmax newbuildings. On cash flow used in financing, we recorded SEK 92,700,000, which comprised over SEK 14,000,000 prepayment of finance lease relating to the sale of a Supramax vessel, dollars 33,700,000 in scheduled debt and lease repayments, €25,000,000 in repayment under the revolving credit facilities and a dividend payment of €20,000,000 relating to our Q3 results. Our total net increase in cash was SEK 18,900,000.

Speaker 2

Moving to Slide 7. We recorded cash and cash equivalents by quarter end of SEK 118,600,000, which includes the SEK 2,200,000 euros restricted cash holding. In addition, we had a SEK 75,000,000 in undrawn available credit facilities at quarter end. Debt and finance lease liabilities totaled SEK 1,500,000,000 end quarter, down by approximately SEK 70,000,000 quarter on quarter. The average fleet wide loan to value under our company's debt facilities was 43.8% by year end.

Speaker 2

And with a book equity of SEK 1,900,000,000, we recorded a ratio of equity to total assets of approximately 55%. Looking at the newly established financings on the next slide. We have established an aggregate of SEK 625,000,000 in new financings, which comprises of lease financing, bank financing in the European market and a bank financing in a broader Asian Banking Group. The latter facility is subject to customary documentation and closing procedures. The financing has a weighted average tenure of 5.7 years and a weighted margin of 172 basis points, which evidences Golden Ocean's strong position in the global financing markets, including now a broad exposure to Asian debt capital.

Speaker 2

And with that, I give the word back to Lascholston.

Speaker 1

Thank you, Peter. Let's have a look at the current Golden Ocean exposure. Golden Ocean continues to focus on the largest segments Capesize and Panamax. As you can see from the left graph, compared to our peers with meaningful market caps, we are the largest play Capesize option with 64% of our fleet exposed to this market. Over the last years, we have actively tuned the fleet to where we are today.

Speaker 1

This is to be able to capture the spikes in the Capesize sector as described in the right graph, where you can see over time holds the highest income potential compared to the smaller sizes. With our company being dual listed in New York and Oslo and a market cap of around $2,400,000,000 we offer large liquidity and exposure to the most favorable drybulk segment, which we will substantiate further in this presentation. The Capesat market rebounded in the Q4 of 2023 and a strong push has continued into the traditionally slow Q1. So far, however, 2024 has been anything but slow. Colombia, Brazil, West Africa and Indonesia have increased year to year exports in drastic numbers and the limited activity through the Suez Canal has created even longer holds, which have an instant impact on the Capesize ton mile scenario in addition to the added market volumes.

Speaker 1

The Panamax market has benefited well from the ton mile agribulk trade, which is up 5.5% year on year, much thanks to the strong soybean season from the East Coast South America. Also, as an often used metric to identify appetite for iron ore, we're still watching an iron ore price at around $125 per ton. On the subject of iron ore, we move to the iron ore and bauxite exports. The bauxite exports from Guinea reached $125,000,000 in 2023, totaling 12.5% of all Capesize ton miles. Since 2019, this is an increase of almost 6%.

Speaker 1

It has become a new structural trade in the Capesize segment with high transparency given China is on the receiving end of about 85% of the total volumes. If I can draw your attention to the left graph, you can see the trade is also inversely seasonal. The bauxite high season is in Q1, whereas Brazil traditionally enters a slow season in the same quarter. This year, however, due to dry weather in Brazil, we have seen both exports route active in large volumes with Brazil exporting about 20% more year on year. The underlying kicker will also be the iron ore Simandu mine from West Africa coming on stream in late 2025 with an export capacity of 60,000,000 tonnes.

Speaker 1

Let's have a look at the steel production. China is predicted to maintain a relatively flat steel production for 2024, and the steel inventories are about the same levels year on year. Also, the steel export from China, which we saw increased by a healthy 35% in 2023 is forecasted to continue at a good level this year. India continued their mission to double steel capacity by the end of this decade and had a healthy growth of 12.5% in 2023. The country is expected to continue this growth until 2,030.

Speaker 1

Last but not least, the rest of the world, after struggling with the inflation ghost, is finally showing signs of a steel production rebound. A solid 7% increase in Q4 and a forecast of 6% increase in the next 2 years paint a positive picture for global steel production. So where to focus in dry going forward? In addition to the healthy and positive ton mile scenario as discussed in the Capesize segment, the order book is closing in on a 30 year low. Compared to the other dry segments, Capesize holds them both promise when it comes to vessel supply.

Speaker 1

The congestion in the Cape space is close to a historical low, meaning that the downside risk to fleet efficiency has already been priced. It is clear based on the data and visibility we have today that the Capesize segment is the place to be. To round off this presentation, we would like to remind you of the strong cash flow potential we hold in Golden Ocean. As the spot freight market continues to push close to the $30,000 mark, Golden Ocean yields well above 20%. We would not be surprised if we can reach the mid-30s on freight in the near future, which would yield 30%.

Speaker 1

Yet again, the Golden Ocean model with downside protection in weak markets and upside potential in solid markets have proven substance. I would now pass the word back to the operator and would welcome any questions. Thank you very much.

Operator

Thank you. And your first question comes from the line of Emily Harkins from Jefferies. Please go ahead.

Speaker 3

Thank you. Hello, everyone. This is Emily on for Omar. Thank you for taking our questions. We first wanted to ask, how are you thinking about the ridership value, particularly in the secondhand market?

Speaker 3

You've agreed to sell one of your Panamaxes and we're wondering if you're looking for maybe some more opportunities to sell off some of the older tonnage at this time.

Speaker 4

Thank you, Emily. We are looking to optimize the fleet at any point of time. And some of our older Panamaxes does not fit into our current vessel scope. So it's likely that we will try to divest those at attractive prices as we go forward as well.

Speaker 3

Thank you. And then secondly, both the CAPE FFA curves and your guidance suggest that 1Q will be a strong quarter despite the seasonal softness. You touched on this in the presentation, but could you please provide some further detail behind the industry drivers causing market strength, particularly within the Capesize segment? Thank you.

Speaker 4

Yes. No, we have had a very interesting start to the year. But if you go 3, 4 years back, when you have a Capesize ballasting from the Pacific and into the Atlantic, they only really had one option and that was the ballast to Brazil and then go back to China. A couple of years ago and especially last year as well, the bauxite option from West Africa opened up. And now that we have the insecurities around Suez, when you have a ship coming around the Cape of Good Hope, you now can look at cargoes from Colombia and also from the U.

Speaker 4

S. East Coast. That creates pockets of strength, which will also be shown by the volatility going forward. But that is a lot more legs to stand on now than we had in the previous year. So we're quite optimistic about the ton mile and also the freight that we see on the Capesas going forward due to the bolt ins.

Speaker 4

Let's see here. Just reading through the questions. Give us one second.

Speaker 5

I think first question relates to our LTV and our strategy surrounding leverage. And I think we have a very clear focus on cash breakeven. And although asset values has come up massively, we know that they are very volatile. And it's not really about the relative leverage that we have on our feet. It's more about the absolute leverage where we want to maintain our cash breakeven levels.

Speaker 5

We have, in the last 2 years, refinanced all our debt, but we have not increased the debt level on those facilities in an immaterial way for that reason. So I think our strategy to maintain a sort of mid cycle 55% leverage, It sustains well with maintaining healthy balance sheet throughout the cycles and maintaining a sustainable cost level throughout the cycles.

Speaker 2

Yes.

Speaker 4

Very good. I will take the next one. How surprised we were about the strength of the market in Q1? We weren't very surprised about that. As you saw from our previous presentation, we were quite spot oriented as we moved into the quarter.

Speaker 4

So we expected a big push due to the drivers mentioned earlier. And we think this will continue going forward as well. As related to our bookings into Q2 at $25,000 a day, we're quite happy with that level. It means that we can continue to look for pockets of strength in the market and tune our fleet into the spot market where we see opportunities. Thank you.

Speaker 5

These were the questions that we have.

Operator

There are also no further phone questions.

Speaker 5

All right. Then now thank you for joining this call and we will be back here in 3 months time.

Speaker 4

Thank you very much.

Operator

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

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Earnings Conference Call
Golden Ocean Group Q4 2023
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