Golden Ocean Group Q2 2024 Earnings Call Transcript

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August 28, 2024

There are 3 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Second 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 first speaker today, Peter Simonson. Please go ahead.

Speaker 1

Good afternoon, and welcome to the Golden Ocean Q2 2024 Release. My name is Peter Gee Mansen, and I am the Interim CEO and CFO for Golden Ocean. Today, I will guide you through the Q2 numbers and forward outlook. In the Q2 of 2024, we have the following main highlights. On our adjusted EBITDA in the Q2 of 2024 ended up at SEK120,300,000 compared to SEK 114,300,000 in the first quarter.

Speaker 1

We delivered a net income of SEK 62,500,000 and earnings per share of SEK 0.31 This compares to a net income of €65,400,000 and earnings per share of €0.33 for the Q1. Our adjusted net profit was €63,400,000 and adjusted earnings per share of €0.32 up from CHF 58,400,000 and earnings per share of CHF 0.29 in Q1. Our TCE rates for Capesize and Panamax vessels were about $28,000 per day and about $15,700 per day, respectively. And a fleet wide net TCE of about $23,500 for the quarter. We have continued to execute on our fleet renewal strategy by selling 1 older Panamax vessel at an attractive price.

Speaker 1

For Q3, we have secured a net TCE of about $26,200 per day for 83% of our Capesize days and about $17,200 per day for 94% of our Panamax days. For Q4, we have locked in a net TCE of about 25,800 per day for 29% of our Capesize days and about 17,900 per day for 18% of our Panamax days. And with a strong result in Q2, we are pleased to declare a dividend of $0.30 per share for the Q2 of 2024. Let's look a little deeper into the numbers. We achieved a total fleet wide TCE rate of 23,500 in Q2, up from 22,600 in Q1.

Speaker 1

We had 4 ships drydocked into Q2 compared to 2 ships in Q1, contributing to approximately 193 days off hire in Q2 versus 97 days in Q1. Six ships are scheduled for drydock in Q3 2024, of which one vessel has completed drydock as of today. This results in net revenues of SEK196,700,000 largely unchanged quarter on quarter as stronger TCE performance was offset by fewer vessel days. On our OpEx, we recorded $66,300,000 versus $62,600,000 in operating expenses. Our running expenses were largely unchanged quarter by quarter, while more ships drydocked impacted the OpEx results.

Speaker 1

In addition, we had $4,300,000 in decarbonization and digitalization investments versus below $1,000,000 in the previous quarter. Our OpEx reclassified from charter hire was SEK 1,500,000, just below SEK 1,000,000 lower than in Q1. Looking at our general and administrative expenses, we ended up at SEK 5 point $1,000,000 down from $7,400,000 in Q1. The decrease is explained by nonrecurring personnel related expenses in Q1 and our daily G and A came in at $5.68 per day, net of cost we charge to affiliated companies, down from $8.19 per day in Q1. On our charter hire expense, we recorded 4,800,000 versus SEK7,300,000 in Q1, as fewer vessel days for the trading portfolio was offset by profit split payments.

Speaker 1

Net financial expenses came in at SEK25,300,000 versus SEK 27,200,000 in Q1, lower due to lower average debt in the quarter. Our derivatives and other financial income, we recorded a gain of SEK1.9 million compared to a gain of SEK7.3 million in Q1. On derivatives, we recorded a gain of SEK2.4 million versus a gain of SEK12 1,000,000 in Q1. This included our interest rate swap gains of CHF 2,700,000, of which CHF 4,100,000 was realized cash gains offset by mark to market loss of CHF 1,400,000. In addition to a small loss on FFA and FX and bunker derivatives of SEK 300,000 For results in investments in associates, we recorded a loss of NOK 400,000 compared to NOK 4,600,000 loss in Q1 relating to investments in Swiss Marine, TFG and UFC.

Speaker 1

Our net profit ended at NOK 62,500,000 or NOK 0.31 and an adjusted net profit of CHF 63,400,000 or CHF 0.32 and a dividend of CHF 0.30 declared for the quarter. Moving to the cash flow. Our cash flow from operations came in at SEK 76,900,000, which includes SEK 400,000 in dividends received from associated companies. On cash flow used in investments, we recorded SEK 25,500,000, which mainly relates to installments and costs relating to our Kamsarmax newbuildings. Cash flow used in financing, we recorded SEK 95,800,000, which mainly comprised of NOK 31,900,000 in scheduled debt and lease repayments, NOK 23,000,000 in net proceeds from refinancings announced in previous quarters, NOK 25,000,000 in repayments under the revolving credit facilities and a dividend payment of €60,000,000 relating to the Q1 results.

Speaker 1

A total net decrease in cash of 44,400,000 dollars On our balance sheet, we had cash and cash equivalents of €103,100,000 at quarterend, including €3,600,000 of restricted cash. In addition, we have CHF150,000,000 in undrawn available credit facilities at quarterend. Debt and finance lease liabilities totaled CHF1,400,000,000 at quarterend, down by approximately SEK33 1,000,000 quarter on quarter. The average fleet wide loan to value under our credit facilities was 34.1% at quarterend. And a book equity of SEK 1,900,000,000 resulted in a ratio of equity to total assets of approximately 56%.

Speaker 1

If we have a look at the Golden Ocean fleet competition, we have, over the last 3 years, grown the fleet by around 30% while reducing the average age with the same percentage. The growth has been focused around the larger vessel types, particularly within the Capesize and Newcastle MAX segment. Following consolidations among our U. S. Listed peers, as the graph illustrates, we are 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 $2,500,000,000 we offer high trading liquidity, exposure to what we believe will be the most favorable drybulk segment in the years to come. Although we have a significant growth over the past years, we have maintained a conservative leverage with the current LTV of around 34%, which enables extended repayment profiles and industry low credit margins. Together with highly competitive OpEx and G and A costs, we have an industry low cash breakeven level, giving full operational flexibility. In addition, our modern fuel efficient fleet has over time proven to significantly outperform market rates, with the average historical premium of $4,000 above quarter rates. The combination of industry low cost labels and premium earnings creates a highly robust and resilient business model.

Speaker 1

At the same time, it gives Golden Ocean the ability to tilt its fleet into the spot market, while continuing to managing the chartering portfolio sensibly. If we have a look at the markets in the past quarter, the global Capesize trade continued its positive trajectory with a year on year growth of 3% for the first half of twenty twenty four. Brazilian iron ore volumes held up its Q1 strength, resulting in a 9% growth for the first half of the year. The bauxite volumes exported from West Africa were record high in Q1, but growth slowed down somewhat as they entered into the seasonally weaker wet season, however, maintaining a strong baseline export. For Colombian coal, we noted a continued strong export to Asia, recording a year on year staggering growth of 45% the first half of the year, adding tonne mile to the more standard trading routes.

Speaker 1

China and India received mostly these volumes, with the respective import increase of 7% 9% year on year for the first half of twenty twenty four across all main commodity segments. Iron ore continued to flow into China following the strong Q1, and the continued focus on high grade iron ore has led to growth in iron ore sourced from Brazil, supporting Tonmaier. The major miners such as Vala have continued to guide positively on their production targets, indicating continued healthy long distance volumes from Brazil, favoring the Capesize vessels. We are currently seeing export volumes exceeding 1,000,000 tonnes per day from Vale and otherwise strong volumes from Australia. We have seen iron ore inventories increase to 2022 levels as higher imports have not been matched by corresponding steel production.

Speaker 1

Combined with seasonal slowdown, negative macro news on the Chinese economy and poor steel margins, this has put pressure on iron ore prices, which now are trading in the mid to high 90s. We should, however, keep in mind that these are healthy levels historically and that the cost per tonne delivered in Asia for the large miners are in the $40 or 50 dollars per tonne, making exports highly profitable. Analysts are also indicating that parts of the inventories are of a lower grade, which counters China's target of reducing emissions in the steel industry by increasing the use of high grade iron ore. China is in the process of including the steel industry into its emissions trading scheme, which will make increased high grade even more beneficial. Correspondingly, we see signs that China is targeting high grade sourcing of iron ore over domestic production and lower grade producers.

Speaker 1

China has built inventories across most commodities, both on agricultural products such as soybeans and energy such as coal, indicating that this is a strategic and politically supported buildup. Steel production has stayed flat globally, but Chinese steel production has fallen by 1.1% in the first half of twenty twenty four compared to last year, in line with general economic indicators. And if inventories remain high as a result of lower steel output, it may eventually impact iron ore prices and potentially trading volumes. We are now coming into the seasonally stronger period in the second half, which normally carries higher industrial activity and where Chinese steel production normally picks up. We have seen a shift in where steel is used.

Speaker 1

Whereas previously, the majority of the steel was used in the real estate market, we now see that infrastructure investments, manufacturing and exports are increasing in significance, representing over 60% of the steel production. The steel exports from China is continuing at a high pace with a 30% increase year on year for the first half of twenty twenty four. Outside China, crude steel production started recovering during 2023, but faded somewhat into Q2 of 2024. However, analysts expect a growth of 5% to 7% the next couple of years as the world recovers from increased inflation and interest rates. Chinese companies have over a long time invested significantly in mining and infrastructure in Guinea, which in addition to bauxite, holds the largest high grade iron ore deposit currently under development.

Speaker 1

In the end of 2025, we can expect the Simandou iron ore mine to start shipping its first or its forecasted 60,000,000 tonnes export capacity. If assuming that the Simandou volumes will replace Australian volumes, it will triple the sailing distance to Asia, boosting tonbal demand when the mine is fully operational in 2026. In addition, there are increased production capacity of high grade volumes on track out of Brazil and in Gabon, which further supports Capesize Ton Mile. As highlighted in previous presentations, long haul bauxite exports have become a significant driver for the Capesize market. We are entering into the high season for bauxite exports in Q4 and Q1, and we expect that volumes will remain healthy and increase from the seasonal loans in Q2 and Q3.

Speaker 1

Bauxite, which is used to produce aluminum, is heavily used in the growing Chinese car industry, which has been further subsidized by the government recently to support further car sales. Further, monsoon season in India is ending in September, and we expect to see an increase in demand for coal as we seasonally see each year. Coal represents the main energy source for power generation in India and China, with over 2 thirds of all electricity produced from coal and around 15% new power plant capacity under development. Supply. The order book remains highly favorable with the Capesize being the most compelling segment.

Speaker 1

Although we have seen some additions to the core order book this past quarter, we remain at historically low levels, illustrating that restrictions post by yard capacity, high newbuilding prices and long lead times remain a key fundamental support. As mentioned in previous presentations, the additional volumes from the new Simadou mine in Guinea will alone be able to absorb the 7% Capesize order book. It is also important to note that the Capesize fleet is aging and that over half of the Capesize fleet will be above 15 years of age in 2028 in a period where environmental regulations are tightening. And lastly, on the supply side, the Capesize fleet continues to operate highly efficiently with low congestion and only marginal Panama and Suez Canal exposure. We round this presentation off as we normally do, illustrating the cash flow potential of Golden Ocean.

Speaker 1

Despite the negative macro data and rising inventories, we continue to see strong volumes out of Brazil, a balanced freight market and a supportive FFA curve. The freight market is still not out of the summer low, as is normal for this time of year, but we are starting to see activity levels pick up in line with the seasonal pattern. We will round off with a reminder of our robust business model, low cost base and modern fleet, which lays the fundament for the free cash flow and dividend potential in Golden Ocean. We have since 2021 paid out an aggregate of $1,100,000,000 in dividend, representing above 90% of net profit for the period. While there are risks, we continue to see seaborne trading volume flow and we are optimistic as we enter into the seasonal strength.

Speaker 1

I will now pass the word back to the operator and welcome any questions. Thank you.

Operator

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

Operator

Your line is now open.

Speaker 2

Thank you. Hi, Fetter. Thanks for the update. I got a couple of questions from my side. You talked a bit about the market and these are both market related.

Speaker 2

We've seen the Capes continuing to do well this summer and this year in fact, fact that Chinese steel markets have been soft as you're highlighting, we're in this mid-20s range and we're actually as of today, we're above year to date averages. So I just wanted to ask, what do you think has been supporting rates from, say, a fundamental picture? And then also maybe seasonally, why haven't we seen like a seasonal let up in rates in your eyes?

Speaker 1

Hi, Omar. I think it very much follows the seasonal pattern, the development we've seen. If you set aside the first half development, which was counter seasonal. I think we have a fundamentally strong market with fundamentally healthy volumes flowing. It's a little bit like last year when we said that despite all the negative news flow, we can just call what we see in the market.

Speaker 1

And we are now in a period where there is wet season both in West Africa and India. We see that the even though you saw the iron ore price drop down due to the macro sentiment falling, It has rebounded because you continue to see volumes slowing. So that is an indication that we see the underlying fundamentals being fairly strong. And this is with the obviously with the healthy baseline bauxite export, but we're coming into a season where this is going to ramp up and also Chinese industrial activity. So without trying to call absolute rate levels, we are very positive for what's to come based on the fundamentals that we see in the market and the sort of seasonal upswing that we normally see.

Speaker 1

And as I also mentioned, coal volumes will start to pick up going into India as we come to the end of the monsoon season.

Speaker 2

Okay. Thanks for that. I appreciate the perspective. And I guess maybe just a bit more on the other segments we've seen, Capes are obviously doing well, Supramaxes, which I know you don't have much exposure. They're also holding up and doing quite well and spreading above levels from last year and definitely much stronger overall.

Speaker 2

But how would you think about the Panamaxes? I know Golden Ocean, your results have been much stronger than, say, the spot market averages we've been seeing. But we've seen the Panamaxes coming under pressure here recently, while the other segments seem to be just steady or rising perhaps. How would you explain this kind of sandwiching of the Panamaxes by the large and smaller ships? Have you seen this before?

Speaker 2

And how do you see that evolving here in the coming months given the seasonal changes ahead?

Speaker 1

I think sentiment has also been very much depressed on the Panamax side. I mean, the volumes have been just slightly below sort of fleet capacity. So you've seen sort of the activity levels sliding and thereby the sentiment being pretty gloomy. We have our ice class business, which has supported us this quarter. We had some positioning costs last quarter and then we see the benefits of these contracts now in Q3 and or actually positioning in this quarter and contracts now playing out in Q3 and Q4.

Speaker 1

So normally these are interlinked and correlating. So we do expect that also coal volumes will start to give support to the Panamaxes in addition to obviously the grains and soybeans and corn coming out of the Atlantic. We see that there is a weak volumes coming out of Ukraine on the grains and also out of the continent due to a very dry crop this year. So we may see that be replaced by longer ton mile volumes. So we do look constructive at that segment as well, but we've seen sort of the seasonal rebound hitting the Capesizes to a larger extent than maybe the Panamax at the moment.

Speaker 2

Okay, got it. Well, thanks, Peter. Appreciate that. I'll pass it over.

Speaker 1

Thank you.

Operator

Thank you. As there are no further questions, I would now like to hand back to Peter Simonsson for any closing remarks.

Speaker 1

Just wanted to thank you for dialing in and listening, and we will see you back in November for the next quarter. 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 Q2 2024
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