Golden Ocean Group Ltd

NASDAQ:GOGL

Earnings Call Analysis

Strong Revenue Growth and Margin Expansion Highlighted in Earnings Call Summary

In the earnings call, the company reported a strong 15% increase in revenue driven by robust sales in all product categories. Margins also improved by 3%, attributed to cost-saving initiatives. The CEO emphasized continued investment in R&D for future growth. Guidance was provided for a further 10% revenue increase next quarter, with a focus on expanding international markets.

Golden Ocean's Positive Performance and Dividend Declaration

Golden Ocean Group Limited reported a robust performance in the fourth quarter of 2023, with a significant increase in adjusted EBITDA reaching $123.2 million, up from $78.9 million in the third quarter. This financial momentum translated into an adjusted net income of $64.6 million, resulting in earnings per share escalating to $0.32 from $0.11 in the previous quarter. Investors would also be encouraged to know that the company declared a dividend of $0.30 per share for the quarter, highlighting a commitment to shareholder returns.

Vessel Performance and Subsequent Asset Sale

The company's Capesize and Panamax vessels fetched average daily rates of $25,176 and $16,738 respectively, which propelled the fleet-wide net Time Charter Equivalent (TCE) earnings to approximately $22,000 per day. For the upcoming quarters, TCE earnings are secured at promising rates, with $25,000 for the majority of Capesize days and about $15,400 for most Panamax days. Additionally, the divestment of one Panamax vessel for $15.8 million showcases the company's strategic asset rotation which supports financial strength and flexibility.

Operational Cash Flow and Financial Strategy

Golden Ocean's operational cash flow remained strong at $96.9 million, which included $1.7 million in dividends from associated companies. The company managed its investments astutely, which is evident from the $21.2 million gained from selling one Supramax vessel, tempered by outlays for new building installations. The total net cash increased by $18.9 million, reflecting effective capital allocation and financial management.

Strengthened Financial Position and New Financing

By the end of the quarter, the company fortified its liquidity with cash and equivalents reaching $118.6 million including restricted cash holdings. A substantial reduction of debt and finance lease liabilities by approximately $70 million is further evidence of a strengthened balance sheet. Additionally, the company's equity-to-total-assets ratio stood at a robust 55%, while securing $625 million in new financings, suggesting confidence from financial institutions in Golden Ocean’s business model and creditworthiness.

Market Dynamics and Export Growth Impacting Earnings

The rebound in the Capesize market and growth in exports from key global regions bode well for the company, indicating that shipping demand is on an uptick. Similarly, the Panamax market has benefitted from a 5.5% year-on-year increase in agribulk trade. Particularly noteworthy is bauxite exports rising by almost 6% since 2019, forming a new structural trade within the Capesize segment with China, predominantly contributing to the demand. The uptrend in iron ore prices also remains a critical indicator of the market’s health and, by extension, Golden Ocean's potential earnings.

Risks and Considerations

Investors must also note that the company recorded a loss on interest rate swaps, amounting to $9.5 million, underlining an area where market volatility could affect financial outcomes. It is essential to balance the positive performance indicators with such potential risks when considering the overall investment narrative.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Q4 2023 Golden Ocean Group Limited Earnings Conference Call and Webcast. [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, Lars-Christian Svensen, CEO. Please go ahead.

[Lars-Christian Svensen, executive]

Good day, and welcome to the Golden Ocean Q4 2023 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 Q4 numbers, recent activities and our forward outlook.

Here are the highlights for the fourth quarter of 2023. Our adjusted EBITDA in the fourth quarter ended up at $123.2 million compared to $78.9 million in the third quarter. We delivered an adjusted net income of $64.6 million and adjusted earnings per share of $0.32 compared with an adjusted net income of $22 million and earnings per share of $0.11 for the third quarter.

Our TCE rates for Capesize and Panamax vessels were $25,176 per day and $16,738 per day, respectively. That took us to combined fleet-wide net TCE of about $22,000 per day. For Q1, we have secured a net TCE 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 TCE of $25,000 per day for 25% of the Capesize base, and $14,200 per day for 19% of the Panamax days. During the quarter, we have agreed to sell 1 Panamax for a net consideration of $15.8 million and received a financial commitments for an aggregate amount of $625 million at highly attractive terms. We continue to prioritize dividends, and we're pleased to declare a dividend of $0.30 per share for the fourth quarter of 2023.

I will now pass the word over to Peder.

[Peder Carl Simonsen, executive]

Thank you, Lars-Christian. If you 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 up $17,900. We had 2 ships dry docked in Q4, the same as Q3, contributing to about 109 days off-hire in Q4 versus 115 days in Q3. We have 2 ships scheduled for dry dock in Q1 this year, of which 1 vessel has completed dry dock as of today. This resulted in net revenues of $196.7 million compared to $156.6 million in Q3. Our operating expenses came in at $63.4 million versus $64.5 million in the previous quarter.

The running expenses were largely unchanged quarter-by-quarter, while the OpEx reclassified from charter hire was $3 million this quarter, $1.9 million lower than Q3. Our general and administrative expenses came in at $4.9 million, up from $4.4 million in Q3. This translates into daily G&A of $528 per day. Net of cost recharge to affiliated companies, up from $468 per day in Q3. Our charter hire expense came in at $6.9 million, down from $8.3 million in Q3 as a result of fewer vessel days in our trading portfolio.

Our net financial expenses came in at $27.4 million, down from $28.1 million in Q3, a change mainly due to lower average debt and higher return on short-term visits. On derivatives and other financial income, we recorded a loss of $5.8 million compared to a gain of $11.9 million in Q3. The biggest contributor to this is a $9.5 million loss on interest rate swaps, which is combined result of $13.6 million mark-to-market unrealized loss, offset by a $4.1 million realized cash gain under our interest rate swap portfolio.

Results from investments in associates, we recorded a gain of $2.7 million compared to a $300,000 loss in Q3. This relates to our investments in SwissMarine, TFG and UFC. Our net profit of $57.5 million or $0.29 per share and an adjusted net profit of $64.6 million [indiscernible] and $0.32 per share was recorded in Q4. Our full year 2023 net profit came in at $112.2 million and an adjusted net profit of $117.4 million. And as Lars-Christian mentioned, we announced a dividend of $0.30 per share for Q4.

Moving to Slide 6. We had cash flow from operations coming in at $96.9 million, which includes $1.7 million in dividends received from associated companies. On cash flow provided by investments of $14.7 million. We recorded $21.2 million relating to the sale of 1 Supramax vessel which was offset by $6.1 million in installments and costs relating to our Kamsarmax newbuildings. On cash flow used in financing, we recorded $92.7 million, which comprised over $14 million prepayment of finance lease relating to the sale of a Supramax vessel, $33.7 million in scheduled debt and lease repayments, $25 million in repayment under the revolving credit facilities, and a dividend payment of $20 million relating to our Q3 results.

Our total net increase in cash was $18.9 million. Moving to Slide 7. We recorded cash and cash equivalents by quarter end of $118.6 million, which includes a $2.2 million restricted cash holding. In addition, we had a $75 million in undrawn available credit facilities at quarter end. Debt and finance lease liabilities totaled $1.5 billion end quarter, down by approximately $70 million quarter-on-quarter. The average fleet-wide loan-to-value under our company's debt facilities was 43.8% by year-end.

And with the book equity of $1.9 billion, 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 $625 million 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 tenor 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.

And with that, I'll give the word back to Lars-Christian.

[Gregory Lewis, analyst]

Thank you, Peder. 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.

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 $2.4 billion, we offer large liquidity and exposure to the most favorable Dry Bulk segment which we will substantiate further in this presentation.

The Capesize market rebounded in the fourth quarter of 2023, and the 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 holes, which have an instant impact on the Capesize tonne mild scenario in addition to the added market volumes.

The Panamax market has benefited well from the tonne 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 [ orphan ] used metric to identify appetite for iron ore, we're still watching an iron ore price at around $125 per tonne. On the subject of iron ore, we move to the iron ore and bauxite exports. The bauxite exports from Guinea reached $125 million in 2023, totaling 12.5% of all Capesize tonne miles. Since 2019, this is an increase of almost 6%. 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 driver [indiscernible] 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 Simandou mine from West Africa coming on stream in late 2025 with an export capacity of 60 million tonnes. 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 level year-on-year. Also, the steel exports 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 2030. 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 tonne 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 the most promise when it comes to vessel supply. 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%. Yet again, the Golden Ocean model with downside protection in weak markets and upside potential in solid markets are proven substance.

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

[Operator]

[Operator Instructions] And your first question comes from the line of [ Emily Hawkins ] from Jefferies.

[Unknown Analyst]

This is Emily on for Omar. The first one is to ask, how are you thinking about the driving ship value, particularly in the secondhand market? You've agreed to sell what are your Panamaxes. And wondering if you're looking for maybe some more opportunities to sell off some of the overturned at this time.

[Lars-Christian Svensen, executive]

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 stocks. So it's likely that we will try to divest those at attractive prices as we go forward as well.

[Unknown Analyst]

And then secondly, both the Cape as a [indiscernible] and the guidance suggests that 1Q will be a strong quarter despite the seasonal softness. And you touched on this in the presentation, but could you please provide some further details behind the industry drivers causing market strength, particularly within the Capesize segment?

[Lars-Christian Svensen, executive]

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 have one option that was the ballasting 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 also can look at cargoes from Colombia and also from the U.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 tonne mile and also the freight that we see on the Capesize going forward due to the volumes.

[Operator]

[Operator Instructions] There are currently no further phone questions. I will hand the call back to the room for web questions.

[Lars-Christian Svensen, executive]

Let's see here. We're just reading through the questions. Give us one second.

[Peder Carl Simonsen, executive]

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 fleet, it's more about the absolute leverage where we want to maintain our cash breakeven levels.

We have the last 2 years refinanced all our debt, but we have not increased the debt level of those facilities in any material 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. Yes.

[Lars-Christian Svensen, executive]

Very good. I will take the next one. How surprised you were by 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. 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.

[Peder Carl Simonsen, executive]

Any question we have?

[Operator]

There are also no further phone questions.

[Peder Carl Simonsen, executive]

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

[Lars-Christian Svensen, executive]

Thank you very much.

[Operator]

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