Golden Ocean Group Q1 2024 Earnings Call Transcript

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May 22, 2024

There are 5 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the First Quarter 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, Lars Christian. Please go ahead.

Speaker 1

Good day, and welcome to the Golden Ocean Q1 2024 Release. My name is Lars Kristians Jensen, and I'm the CEO of Golden Ocean. Today, our CFO, Peter Simonsson, and I will guide you through our Q1 numbers, forward outlook and activities within the Golden Ocean Group. Here are the highlights for the Q1 of 2024. Our adjusted EBITDA in the Q1 of 2024 ended up at $114,300,000 compared to $123,200,000 in the Q4 of 2023.

Speaker 1

We delivered a net income of $65,400,000 and earnings per share of $0.33 compared to a net income of $57,500,000 and earnings per share of $0.29 for the Q4 of 2023. Our TCE rates for Capesize and Panamax vessels were about $27,200 per day and about $15,000 per day respectively. In conclusion, the combined fleet wide net TC of about $22,600 per day for the quarter. For Q2, we have secured a net TC of $27,200 per day for 75% of the Capesize days and about $14,500 per day for 82 percent of the Panamax days. For Q3, we locked in a net TC of about $5,200 per day for 24 percent of the Capesize days and about $20,500 per day for 41% of the Panamax days.

Speaker 1

With a strong result in Q1, where we were able to capitalize on our commercial strategy in full, we are pleased to declare a dividend of $0.30 per share for this Q1 of 2024. Per de will now guide you through our numbers in detail. Over to you, Per de.

Speaker 2

Thank you, Dorje Sjun. If we move to Slide 5 and look at our P and L for the quarter, we achieved strong commercial performance in an unusually healthy freight market for the season. Our Capes came in at 27,200 and Panamaxes achieved 15,000 in TCE rates for the quarter, which resulted in the total fleet wide TCE rate of 22,600, up from 22,000 in Q4 2023. We drydock 2 ships in Q1, which is the same as in Q4, contributing to approximately 97 days of fire versus 109 days of fire in Q4. We have 3 ships scheduled for drydock in Q2 'twenty four, of which 2 vessels have been completed as of this report.

Speaker 2

This resulted in net revenues of $196,700,000 unchanged quarter on quarter as stronger TCE performance was offset by fewer vessel days. Looking at our OpEx, we achieved total operating expenses of CHF 62,600,000 versus CHF 63,400,000 in Q4. Running expenses were largely unchanged quarter on quarter. And OpEx reclassified from charter hire was $2,400,000 $700,000 lower than in Q4. OpEx ex drydock was $6,700 per ship per day, which is unchanged from Q4.

Speaker 2

Looking at our general and administrative expenses, we ended up at SEK7,400,000 which is up from SEK4,900,000 in Q4. The increase mainly relates to non recurring personnel expenses. Our daily G and A came in at SEK 8.19 per ship per day, net of cost we charge to affiliated companies and $5.24 per day when adjusted for nonrecurring expenses, in line with last quarter. Our charter hire expense came in at SEK 7,300,000 which was slightly up from Q4 with fewer vessel days in our trading portfolio was offset by profit split payments to our leasing counterpart, SFL Corp. Our net financial expenses were SEK27,200,000 versus SEK27.3 million in Q4.

Speaker 2

On our derivatives and other financial income, we recorded a gain of SEK 7,300,000, which compares to a loss of SEK 5,800,000 in Q4. On derivatives, we recorded a gain of CHF 12,000,000 versus a loss of CHF 8,200,000, which is the result of interest rate swaps gains of SEK 9,600,000, which again includes SEK 4,100,000 in realized cash gains and gains on FFA and bunker derivatives of SEK 2,500,000. Euros For results from investments in associates, we recorded a loss of 4,600,000 compared to a 2,700,000 gain in Q4. This relates to our investments in Swiss Marine, TFG and UFC. In sum, we recorded a net profit of €65,400,000 or €0.33 per share and an adjusted net profit of €58,400,000 or €0.29 per share and a dividend of €0.30 to clear for the quarter.

Speaker 2

Moving to Slide 6 and our cash flow. We recorded cash flow from operations of SEK 115 point 8,000,000, which includes SEK 600,000 in dividends received from associated companies. Cash flow used in investments totaled SEK 12,200,000, which mainly relates to SEK 15,700,000 relating to the sale of 1 Panamax vessel, which was offset by SEK 27,000,000 in installments and costs relating to our Kamsarmax newbuildings. Cash flow used in financings were SEK 74,900,000. This mainly comprises of €35,400,000 in scheduled debt and lease repayments, including prepayments relating to the sale of 1 Panamax vessel, €73,700,000 in net proceeds from refinancings announced in the previous quarter, and $50,000,000 in repayment under the revolving credit facilities.

Speaker 2

Lastly, we had a dividend payment of €59,900,000 relating to the Q4 results during Q1. Total net increase in cash of 28,800,000 dollars Moving to Slide 7, our balance sheets. We recorded cash and cash equivalents of 147,400,000 dollars which includes $2,700,000 in restricted cash. In addition, we have $125,000,000 in undrawn available credit lines at quarter end. Debt and finance lease liabilities totaled $1,500,000,000 end of Q1, down by approximately SEK 11,000,000 quarter on quarter.

Speaker 2

Average fleet wide loan to value under the company's debt facilities per quarter end was 38.3%. And book equity of SEK 1,900,000,000 led to a ratio of equity to total assets of approximately 55%. With that, I give the word back to Lasch Juste.

Speaker 1

Thank you, Peter. We will then continue with the market outlook, first up illustrating the Golden Ocean fleet composition. The solid financial platform Heather described gives Golden Ocean the ability to tilt the fleet in the spot market when we see a trend we believe in like we've done in Q1. Large volatility and equally great monetary upside still lies in the larger segments, especially in the Capesize space. As the graph illustrates, we're still the only company compared to our peers with meaningful market caps that have significant Capesize exposure.

Speaker 1

With our dual listing in New York and Oslo and a market cap of around $3,000,000,000 we offer large liquidity and exposure to what we believe will be the most favorable dry bulk segments in the years to come, Panamax and Capesizes. The global Capesize trade continued its positive trajectory with almost 4% increase in Q1. But more interestingly, the trade flows from the Atlantic to the Pacific were up 13% year on year, a massive ton mile absorber. This was mostly driven by a dry Brazil, where we saw an iron ore increase of 15% year on year, Colombian coal exports, where we noted a staggering 52% increase year on year, and the bauxite trade from West Africa, which reached record high exports volumes and close to 10% increase year on year. China and India received most of the volumes with an import increase of 8% 12% year on year growth for the 1st 2024.

Speaker 1

In addition to the mentioned high seaborne trade volumes, vessel transit through Suez are down 43% in Q1 'twenty 4 versus Q1 'twenty 3. The dry Panama Canal produced even fewer transits with a 73% reduction over the same time period. As we look further into the iron ore, we note that China increased the iron ore imports with 5% year on year in the Q1. More interestingly, the country has increased its import from the Atlantic by over 30%, which is mostly handled on Capesize vessels and act as a solid ton mile contributor as mentioned previously in the presentation. In 2025, we can also expect to see Mansu Iron Ore mine in Guinea to start shipping the first of its forecasted 60,000,000 tons export capacity, which will further strengthen the ton mile scenario, which we believe will continue to boost the Capesize sector.

Speaker 1

I would like to draw your attention to steel production. The Chinese steel production inventories remain flat compared to Q1 'twenty three, Albeit the steel consumption related to the property sector is down, China has had a solid increase in consumption related to infrastructure, plus 4%, the auto industry, plus 6%, and the energy sector has seen a 7% increase so far in 2024. The steel exports from the country are continuing at a high pace with a 30% increase year on year. Shaking off the inflation goes, the rest of the world has increased their steel production by about 6% and is forecasted to increase at the same pace throughout the year and in 2025. In the previous quarter, we emphasized the Capesize sector as the most attractive place to be in the dry space.

Speaker 1

Based on the last quarter, we're even more convinced about this thesis. The order book remains at a 30 year low for the Capesizes. And to put it in perspective, the additional volumes from the new Simandou mine in Guinea, when fully operational, will be able to absorb the 6% Capesize order book on a standalone basis. 30% of the Capesize fleet will hit 20 years of age in 2,030 will either have to be modified to handle the environmental regulations or look towards the scrap yards as we enter a new decade. I would like to remind you that the Golden Ocean fleet has a current average age just north of 7 years.

Speaker 1

As a last comment to this slide, the congestion continues to be low and the downside has already been priced in into the Capesize segment. We round off this presentation as we normally do, illustrating the Golden Ocean cash flow potential. The market outlook is positive and our fleet composition is well situated to reap the rewards of what we believe will be a solid year for large sized dry bulk. We're excited to create further value for our shareholders and to reach new milestones when it comes to yield and fleet optimization as we continue to navigate 2024. I will now pass the word back to the operator and welcome any questions.

Speaker 1

Thank you.

Operator

Thank And the first question comes from the line of Sheriff Almagarabi from BTIG. Please go ahead. Your line is now open.

Speaker 3

Hi, thanks for taking my questions. So first on the recent flooding in Brazil, is the impact on grain exports there being felt by Panamax at all? Or is it isolated to smaller vessel classes?

Speaker 1

Hey there. Thanks for the question. For now, we don't see the massive impact on the Panamaxes on this incident. So it's pretty much business as usual for what we can observe so far.

Speaker 3

Okay. And then any thoughts on chartering in more tonnage to flex the size of the fleet, given current spot market strength ahead of seasonally stronger part of the year? For example, SFL has a handful of smaller bulkers, I believe, that are trading spot.

Speaker 1

Yes. We always look to optimize the fleet. And sometimes, we take time charters in as well to see the need. We like to, 1st of all, see a trend first before we time charter in. But if we do, it's definitely going to be in the Capesize and the Panamax space where we believe the strength will lie in the second half of the

Speaker 3

year. That's helpful. Thanks for taking my question.

Speaker 1

Thank you.

Operator

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Omar Nochtar from Jefferies. Please go ahead.

Operator

Your line is now open.

Speaker 4

Thank you. Hi, Lars, Christian and Peter. Good afternoon. Just had a couple of questions for you just on the broader market and you did you provided some good insight and detail in your the last part of your presentation. Just wanted to ask kind of from big picture perspective, what do you think is driving the market right now?

Speaker 4

We've seen figures for Chinese steel production coming off recently. And yet despite that, the Cape market has been very strong and resilient. What would you say is if you could identify maybe one driving force of the market? Is that something that you can identify or give any perspective on?

Speaker 1

Yes. Nice to speak to you again, Omar. I think there's 2 things that we're not going to be able to avoid in this market, and that is the Panama Canal and the Suez Canal. In addition to that, we have a lot of coal from Colombia moving. The bauxite and iron ore has been flowing very strong.

Speaker 1

And it's very ton mile intensive. The only way to find these ships are going to be via the Cape of Good Hope. It is not possible to get them through any kind of house anymore. So we see appetite, especially on the cold side, India as being a strong importer still. And the Chinese are preferring, as far as we can observe this year, to import air volumes from Brazil instead of Australia.

Speaker 1

So it's been a good steady flow. And it takes me a little bit back to last year where we saw the headlines on macro news from China and the property sector, etcetera. But we see record volumes being shipped every week and that still continues.

Speaker 4

Okay. Yes. That's interesting. And you mentioned also, I guess, the Chinese steel exports being up 30% year over year in the Q1. And I think last year, they were up tremendously as well.

Speaker 4

Is there do you think there's a story that could develop for Chinese steel exports? And assuming that those remain strong and tariffs don't eat into it, is that something that could become a bullish thesis for drybulk as well? And if it were to be, is that what segment do

Speaker 2

you think would be best positioned? Yes.

Speaker 1

No, it seems the steel, obviously, export from China has been sold in over a good period of time, and most of it has been lifted on the smaller sizes, I. E. Supramaxes and Handysizes. And that hasn't really been enough to kick that market off properly. But we if there's more steel trends coming out of China, we might see more backhaul cargoes on the Panamaxes as well, which can be interesting for the steel business.

Speaker 1

Yes.

Speaker 4

Okay. And maybe just one final one for me. And as you mentioned, you positioned nicely with the focus on the Capes and you have the Panamaxes, but generally you're very top heavy and positioned to take advantage of this tight market for the larger vessels. You on your Slide 13, you discussed the order book where Capes continue to be even though it's the one market that is shining for the past, say, 6 to 9 months, it has the lowest orderable percentage. Given that, how are you thinking about new buildings from here?

Speaker 4

I know Yasharif was just asking about chartering in ships to flex the fleet. How about in general just in terms of adding new capacity? Do you feel the need or is there an opportunity you think to go into the new building market and take advantage of the low side?

Speaker 1

Over the last 3 years, Omar, we've been active on acquiring tonnage to be ready for this cycle and the demand tightness that we see now. The last done on the Newcastle MAX was $73,000,000 and we bought 6 of those sisters for $50,000,000 popped last year. So for us, we don't have to do anything at the moment. We're quite happy with the position that we have. But we will obviously always look for accretive deals to the fleet and we have the balance sheet to lift as well.

Speaker 4

Yes. No, that makes sense. Appreciate that. That's it for me. Thank you.

Speaker 1

Thanks, Omar.

Operator

Thank you. As there are no further questions, I would now like to conclude this conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.

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Earnings Conference Call
Golden Ocean Group Q1 2024
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