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Earnings Call Analysis
Q2-2024 Analysis
Golden Ocean Group Ltd
In the second quarter of 2024, Golden Ocean Group Limited showcased robust financial performance with an adjusted EBITDA of $120.3 million, a slight increase from $114.3 million in Q1 2024. The net income stood at $62.5 million, translating into earnings per share of $0.31, although down from $65.4 million and $0.33 per share in Q1. Notably, the adjusted net profit improved to $63.4 million ($0.32 per share), up from $58.4 million ($0.29) in the previous quarter.
The company reported commendable time charter equivalent (TCE) rates, with Capesize vessels generating about $28,000 per day and Panamax ships achieving $15,700 per day. The fleet-wide net TCE for Q2 reached $23,500, a rise from $22,600 in Q1 2024. Additionally, Golden Ocean has secured net TCE rates for future quarters, indicating strong demand. For Q3, the rates are pegged at approximately $26,200 for 83% of Capesize days and $17,200 for 94% of Panamax days. Meanwhile, for Q4, based on current bookings, the rates are projected at $25,800 for 29% of Capesize days and $17,900 for 18% of Panamax days.
In light of the positive results, Golden Ocean declared a dividend of $0.30 per share for Q2 2024, reinforcing its commitment to returning value to shareholders. This follows a pattern of strong dividend payments, totaling $1.1 billion since 2021, which exceeds 90% of net profits during the same period.
Golden Ocean faced operational challenges due to increased dry-docking, with four ships undergoing maintenance in Q2 compared to two in Q1. This resulted in a total of 193 days offhire, impacting TCE and operational efficiencies. Despite these challenges, overall revenues remained steady at $196.7 million, largely unchanged from previous quarters. Operating expenses rose to $66.3 million, attributed to the increased dry-docking activities and investments in decarbonization and digitalization amounting to $4.3 million for the quarter.
Looking forward, the market shows a promising outlook, particularly in the Capesize segment. The first half of 2024 recorded a 3% year-on-year growth in global Capesize trade, with Brazilian iron ore volumes contributing notably with a 9% growth. Analysts optimistic about a conventional seasonal rebound heading into the second half of the year expect increased demand for coal and agricultural exports, suggesting a favorable trading environment for Golden Ocean's fleet.
Golden Ocean has strategically grown its fleet size by 30% over the past three years while also reducing its average age. As a leader in the Capesize market, it benefits from a high trading liquidity due to its dual listing in New York and Oslo. Furthermore, with a loan-to-value (LTV) ratio of around 34%, the company maintains a conservative leverage structure, enhancing its operational flexibility and enabling it to capitalize on market opportunities.
Despite the optimistic market conditions, Golden Ocean acknowledges risks related to macroeconomic pressures, including potential impacts of high inventories and slowing steel production in China. Moreover, while the company enjoys operational efficiencies and a modern fleet, fluctuations in commodity prices and global demand could affect profitability. Investors should remain mindful of these underlying risks while considering future cash flows and dividend payouts in the evolving market landscape.
Good day, and thank you for standing by. Welcome to the Second 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 first speaker today, Peder Simonsen. Please go ahead.
Good afternoon, and welcome to the Golden Ocean Q2 2024 Release. My name Peder Simonsen, 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 second quarter of 2024, we have the following main highlights. On our adjusted EBITDA in the second quarter of 2024, ended up at $120.3 million compared to $114.3 million in the first quarter. We delivered a net income of $62.5 million and earnings per share of $0.31. This compares to a net income of $65.4 million and earnings per share of $0.33 for the first quarter. Our adjusted net profit was $63.4 million and adjusted earnings per share of $0.32, up from $58.4 million and earnings per share of $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 fleet-wide net TCE of about $23,500 for the quarter. We have continued to execute on our fleet renewal strategy by selling one older Panamax vessel at an attractive price.
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 stays. 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 second quarter 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. We had 4 ships dry-docked in Q2 compared to 2 ships in Q1, contributing to approximately 193 days offhire in Q2 versus 97 days in Q1. 6 ships are scheduled for dry dock in Q3 2024, of which 1 vessel has completed dry dock as of today.
This results in net revenues of $196.7 million, largely unchanged quarter-on-quarter as stronger TCE performance was offset by fewer vessel days. On our OpEx, we recorded $66.3 million versus $62.6 million in operating expenses.
Our running expenses were largely unchanged quarter-by-quarter, while more ships dry docked impacted the OpEx results. In addition, we had $4.3 million in decarbonization and digitalization investments versus below $1 million in the previous quarter. Our OpEx reclassified from charter hire was $1.5 million, just below $1 million lower than in Q1.
Looking at our general and administrative expenses, we ended up at $5.1 million, down from $7.4 million in Q1. The decrease is explained by nonrecurring personnel-related expenses in Q1. And our daily G&A came in at [ $568 ] per day net of cost we [ charged affiliated ] companies, down from $819 per day in Q1.
On our charterhire expense, we recorded $4.8 million versus $7.3 million in Q1 as fewer vessel days for the trading portfolio was offset by profit split payments. Net financial expenses came in at $25.3 million versus $27.2 million in Q1, lower due to lower average debt in the quarter.
On derivatives and other financial income, we recorded a gain of $1.9 million compared to a gain of $7.3 million in Q1. On derivatives, we recorded a gain of $2.4 million versus a gain of $12 million in Q1. This included our interest rate swap gains of $2.7 million, of which $4.1 million was realized cash gains offset by mark-to-market loss of $1.4 million, in addition to a small loss on FFA and FX and bunker derivatives of $300,000.
For results in investments in associates, we recorded a loss of $0.4 million compared to $4.6 million loss in Q1, relating to investments in SwissMarine, TFG and UFC. Our net profit ended up $62.5 million or $0.31 and an adjusted net profit of $63.4 million or $0.32 and a dividend of $0.30 declared for the quarter.
Moving to the cash flow. Our cash flow from operations came in at $76.9 million, which includes $0.4 million in dividends received from associated companies. On cash flow used in investments, we recorded $25.5 million, which mainly relates to installments and costs relating to our Kamsarmax newbuildings.
Cash flow used in financing, we recorded $95.8 million, which mainly comprised of $31.9 million in scheduled debt and lease repayments, $23 million in net proceeds from refinancings announced in previous quarters, $25 million in repayments under the revolving credit facilities and a dividend payment of $60 million relating to the Q1 results. Total net decrease in cash of $44.4 million.
On our balance sheet, we had cash and cash equivalents of $103.1 million at quarter end, including $3.6 million of restricted cash. In addition, we had $150 million in undrawn available credit facilities at quarter end.
Debt and finance lease liabilities totaled $1.4 billion at quarter end, down by approximately $33 million quarter-on-quarter. The average fleet-wide loan-to-value under our credit facilities was 34.1% at quarter end. And a book equity of $1.9 billion resulted in a ratio of equity to total assets of approximately 56%.
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 Newcastlemax segments.
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. With our dual listing in New York and Oslo and a market cap of around $2.5 billion, we offer high trading liquidity, exposure to what we believe will be the most favorable dry bulk 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&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 levels and premium earnings created a highly robust and [ resilient ] business model. 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 market 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 2024.
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 ratio, recording a year-on-year staggering growth of 45% in the first half of the year, adding tonne-mile to the more standard trading routes.
China and India received most of these volumes, with a respective import increase of 7% and 9% year-on-year for the first half of 2024 across all main commodity segments. Iron ore continued to flow into China, following a strong Q1. And the continued focus on high-grade iron ore has led to growth in iron ore source from Brazil, supporting tonne-mile.
The major miners, such as Vale, 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 million 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. Combined with seasonal slowdown, negative macro news on the Chinese economy and poor steel margins, this is 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 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 would 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.
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 2024 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 committing 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, where 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 2024. Outside China, crude steel production started recovering during '23 that [ faded somewhat ] into Q2 of '24. However, analysts expect a growth of 5% to 7% in 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.
In the end of 2025, we can expect the Simandou iron ore mine to start shipping its first of its forecasted [ 60 ] million tonnes export capacity. If assuming that the Simandou volumes will replace Australian volumes, it will triple the sailing distance to Asia, boosting [ tonne-mile ] 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 tonne mile.
As highlighted in previous presentations, long-haul bauxite exports has 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 increased from the seasonal [ loans ] in Q2 and Q3. 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 2/3 for all the 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. Although we have seen some additions to the core order book this past quarter, we remain at historically low levels, illustrating that restrictions posed 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 Simandou 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. 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 $1.1 billion 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.
I will now pass the word back to the operator and welcome any questions.
[Operator Instructions] And the first question comes from the line of Omar Nokta from Jefferies.
Peder, 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. We've seen the Capes continuing to do well this summer. And this year, in fact, despite the fact that Chinese steel markets have been soft, as you were 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 letup in rates in your eyes?
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 counterseasonal ]. I think where we have a fundamentally strong market with fundamentally healthy volume slowing, 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.
And we are now in a period where there is a 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 sentiments falling. It has rebounded because we continue to see volumes flowing.
So that is an indication that we see the underlying fundamentals being fairly strong. And this is with obviously, with the healthy baseline bauxite export, but we come 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 fundamentals that we see in the market and sort of seasonal ups that we normally see. And as [ I also ] mentioned coal, coal volumes will start to pick up going into India as we come to the end of monsoon season.
Okay. I appreciate the perspective. And I guess -- maybe just a bit more on the other segments. We've seen Capes are obviously doing well. Supramax, which I know you don't have much exposure, they're also holding up and doing quite well and trading above levels from last year and definitely much stronger overall.
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 Panamax is coming under pressure here recently, while the other segment seem to be just steady or rising perhaps. How would you explain this kind of [ sandwiching ] of the Panamaxes by the larger and smaller ships? Have you seen this before? And how do you see that evolving here in the coming months, given the seasonal changes ahead?
I think sentiment has also been very much depressed on the Panamax side. I mean, the volumes have been just slightly low 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 cost last quarter, and then we see the benefit of these contracts now in Q3 and -- or actually positioning in this quarter and contracts now playing out in Q3 and Q4.
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 big 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 tonne-mile volumes. So we do look constructive at that segment as well, but we see sort of the seasonal rebound hitting the Capesizes to a larger extent than maybe the Panamaxes at the moment.
[Operator Instructions] As there are no further questions, I would now like to hand back to Peder Simonsen for any closing remarks.
Just wanted to thank you for dialing in and listening. And we will see you back in November for the next quarter. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.