Golden Ocean Group Ltd

NASDAQ:GOGL

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the First Quarter 2024 Golden Ocean Group Limited Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Lars-Christian. Please go ahead.

[Lars-Christian Svensen, executive]

Good day, and welcome to the Golden Ocean Q1 2024 Release. My name is Lars-Christian Svensen, and I'm the CEO of Golden Ocean.

Today, our CFO, Peder Simonsen, and I will guide you through our Q1 numbers forward outlook and activities within the Golden Ocean Group.

Here are the highlights for the first quarter of 2024. Our adjusted EBITDA in the first quarter of 2024 ended up at $114.3 million compared to $123.2 million in the fourth quarter of 2023. We delivered a net income of $65.4 million and earnings per share of $0.33 compared to a net income of $57.5 million and earnings per share of $0.29 for the fourth quarter 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 TCE of about $22,600 per day for the quarter.

For Q2, we have secured a net TCE of $27,200 per day for 75% of the Capesize days and about $14,500 per day for 82% of the Panamax space. For Q3, we locked in a net TCE of about $25,200 per day for 24% of the Capesize days and about $20,500 per day for 41% of the Panamax days. 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 first quarter of 2024.

Peder will now guide you through our numbers in detail. Over to you, Peder.

[Peder Carl Simonsen, executive]

Thank you, Lars-Christian.

If we move to Slide 5 and look at our P&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 a total fleet-wide TCE rate of $22,600, up from $22,000 in Q4 2023.

We dry docked 2 ships in Q1, which is the same as in Q4, contributing to approximately 97 days offhire versus 109 days offhire in Q4. We have 3 ships Scheduled for dry dock in Q2 '24, of which 2 vessels have been completed as of this report. This resulted in net revenues of $196.7 million, unchanged quarter-on-quarter as stronger TCE performance was offset by fewer vessel days.

Looking at our OPEX, we achieved total operating expenses of $62.6 million versus $63.4 million in Q4. Running expenses were largely unchanged quarter-on-quarter. And OpEx reclassified from charterhire was $2.4 million, $0.7 million lower than in Q3. OpEx ex drydock was $6,700 per ship per day, which is unchanged from Q4.

Looking at our general and administrative expenses, we ended up at $7.4 million, which is up from $4.9 million in Q4. The increase mainly relates to nonrecurring personnel expenses.

Our daily G&A came in at $819 per ship per day, net of cost recharge to affiliated companies and $524 per day when adjusted for nonrecurring expenses, in line with the last quarter.

Our charterhire expense came in at $7.3 million, 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 $27.2 million versus $27.3 million in Q4. On our derivatives and other financial income, we recorded a gain of $7.3 million, which compares to a loss of $5.8 million in Q4. On derivatives, we recorded a gain of $12 million versus a loss of $8.2 million, which is the result of interest rate swaps gains of $9.6 million, which again includes $4.1 million in realized cash gains and gains on FFA and bunker derivatives of $2.5 million. For results from investments in associates, we recorded a loss of $4.6 million compared to a $2.7 million gain in Q4. This relates to our investments in SwissMarine, TFG and UFC.

In sum, we recorded a net profit of $65.4 million, or $0.33 per share, an adjusted net profit of $58.4 million or $0.29 per share and a dividend of $0.30 declared for the quarter.

Moving to Slide 6. And our cash flow, we recorded cash flow from operations of $115.8 million, which includes $0.6 million in dividends received from associated companies. Cash flow used in investments totaled $12.2 million, which mainly relates to $15.7 million relating to the sale of 1 Panamax vessel, which was offset by $27 million in installments and costs relating to our Kamsarmax newbuildings.

Cash flow used in financing were $74.9 million. This mainly comprises of $35.4 million in scheduled debt and usual payments, including prepayments relating to the sale of 1 Panamax vessel, $73.7 million in net proceeds from refinancings announced in the previous quarter and $50 million in repayment under the revolving credit facilities.

Lastly, we had a dividend payment of $59.9 million relating to the Q4 results during Q1. Total net increase in cash of $28.8 million.

Moving to Slide 7. Our balance sheet, we recorded cash and cash equivalents of $147.4 million, which includes $2.7 million in restricted cash. In addition, we have $125 million in undrawn available credit lines at quarter end. Debt and finance lease liabilities totaled $1.5 billion end of Q1, down by approximately $11 million quarter-on-quarter. Average fleet-wide loan-to-value under the company's debt facilities per quarter end was 38.3%. And book equity of $1.9 billion led to a ratio of equity to total assets of approximately 55%.

With that, I give the word back to Lars-Christian.

[Lars-Christian Svensen, executive]

Thank you, Peder.

We will then continue with the market outlook, first up illustrating the Golden Ocean fleet composition. The solid financial platform Peder just described gives Golden Ocean the ability to tilt the fleet in the spot market when we see a trend we believe in likely 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 with a significant Capesize exposure. With our dual listing in New York and Oslo and a market cap of around $3 billion, 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 tonne-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% and 12% year-on-year growth for the first quarter of 2024. In addition to the mentioned high seaborne trade volumes, vessel transit through Suez are down 43% in Q1 '24 versus Q1 '23. 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 first quarter. 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 to mile contributor, as mentioned previously in the presentation. In 2025, we can also expect the Simandou iron ore mining Guinea to start shipping the first of its forecast of 60 million tonnes of export capacity, which will further strengthen the tonne mile scenario, which we believe will continue to boost the Capesize sector.

I would like to draw your attention to steel production. The Chinese steel production and inventories remained flat compared to Q1 '23. 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. 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 went fully operational, will be able to absorb the 6% Capesize order book on a stand-alone basis. 30% of the Capesize fleet will hit 20 years of age in 2030 and 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.

As the last comment to this slide, the congestion continues to be low and the downside has already been priced into the Capesize segment. We ran 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. Thank you.

[Operator]

[Operator Instructions] And the first question comes from the line of Sherif Elmaghrabi from BTIG.

[Sherif Elmaghrabi, analyst]

So first, on the recent flooding in Brazil, is the impact on grain exports there being felt by Panamaxes at all, or is it isolated to smaller vessel classes?

[Lars-Christian Svensen, executive]

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.

[Sherif Elmaghrabi, analyst]

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

[Lars-Christian Svensen, executive]

Yes, we always look to optimize the fleet and sometimes, we take time charters in as well to see the need. We like to, first 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 lie in the second half of the year.

[Operator]

And the next question comes from the line of Omar Nokta from Jefferies.

[Omar Nokta, analyst]

Just had a couple of questions for you just on the broader market. And you did -- you provided some good insight in detail in your -- the last part of your presentation. I just wanted to ask kind of some big picture perspective, what do you think is driving the market right now? 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 if you could identify maybe one driving force of the market. Is that something that you can identify or give any perspective on?

[Lars-Christian Svensen, executive]

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. And it's very tonne-mile intensive. The only way to find these ships are going to be via the Cape of Good Hope. This is not possible to get them through any canals 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 their volumes from Brazil instead of Australia. 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, et cetera, but we see record volumes being shipped every week, and that still continues.

[Omar Nokta, analyst]

Okay. Yes. That's interesting. And you mentioned also, I guess, the Chinese steel exports being up 30% year-over-year in the first quarter. And I think last year, they were up tremendously as well. 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 there -- is that something that could become a bullish thesis for dry bulk as well, and if it were to be that, what segment do you think would be best positioned?

[Lars-Christian Svensen, executive]

Yes. 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 [Indiscernible], and that hasn't really been enough to 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.

[Omar Nokta, analyst]

Yes. Okay. And maybe just 1 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 order book percentage. Given that how are you thinking about newbuildings from here? I know your [ history ], 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?

[Peder Carl Simonsen, executive]

Over the last 3 years, Omar, we've been quite 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 million, and we bought 6 of those sisters for $50 million 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 [Indiscernible].

[Operator]

[Operator Instructions] 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.