Golden Ocean Group Limited (NASDAQ:GOGL) Q1 2024 Earnings Call Transcript

Golden Ocean Group Limited (NASDAQ:GOGL) Q1 2024 Earnings Call Transcript May 22, 2024

Golden Ocean Group Limited beats earnings expectations. Reported EPS is $0.29, expectations were $0.23.

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. [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: 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 days. For Q3 we have locked in a net TCE of $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 prepare 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 Simonsen: Thank you Lars-Christian. If you 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 the 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 23,000 in Q4 2023. We drydocked two ships in Q1 which is the same as in Q4, contributing to approximately 97 days offhire versus 109 days offhire in Q4. We have three ships scheduled for drydock in Q2 2024 of which two vessels have been completed as of this report. This resulted in net revenues of 196.7 and changed 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 charter hire was 2.4 million, 0.7 million lower than in Q4. OPEX, extra dock 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 non-recurring 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 non-recurring expenses in line with the last quarter. Our charter hire 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 leading counterpart SSL Corp.

Our net financial expenses were 27.2 million versus 27.3 million in Q4. On our derivatives and other financial income, we have 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 real-life 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 investment in Swiss Marine, TFG and UFC. In sum, we recorded a net profit of 65.4 million, $0.33 per share, and an adjusted net profit of 58.4 million or $0.29 per share, and a dividend of $0.30 to clear for the quarter.

Moving to Slide 6 and our cash flow, we recorded cash flow from operations of 115.8 million, which include 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 one Panamax vessel, which was offset by 27 million in installments and costs relating to our Kamsarmax new buildings. Cash flow used in financings were 74.9 million. This mainly comprised of 35.4 million in scheduled debts and lease repayments, including prepayments relating to the sale of one Panamax vessel, 73.7 million in net proceeds from refinancing 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.

A total net increasing 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. Theft 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 debts 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: 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, like we have done in Q1. Large volatility and equally great monetary upsides still lies into 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 are significant Capesize exposure. With our dual listing in New York and Oslo and a market cap 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 ton-mile absorber. This was mostly driven by a driver’s ill, where we saw an iron ore increase of 15% year-on-year, Colombian coal exports where we noticed a staggering 52% increase year-on-year, and a 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 transits through Suez are down 43% in Q1 2024 versus Q1 2023.

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 and the first quarter. More interestingly, the country has increased its import from the Atlantic by over 30%, which has mostly handled on Capsize vessels and act as a solid ton-mile contributor as mentioned previously in the presentation. In 2025, we can also expect to see Simandou iron ore mining Guinea to start shipping the first of its forecasted 60 million tons of export capacity, which will further strengthen the ton-mile scenario, which we believe will continue to boost the Capsize sector. I would like to draw your attention to steel production.

The Chinese steel production inventory has remained flat compared to Q1 2023. 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 contract are continuing at a high pace with a 30% increase year-on-year. Shaking off the inflation ghost, the rest of the world has increased their steel production by about 6% and its 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, 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 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 fleets has a current average age just north of seven years. As the last comment to this slide, the congestion continues to be low and the downslide 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 size 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 would now pass the word back to the operator and welcome any questions. Thank you.

Q&A Session

Operator: Thank you. [Operator Instructions]. And the first question comes from the line of Sherif Elmaghrabi from BTIG. Please go ahead, your line is now open.

Sherif Elmaghrabi: Hi, thanks for taking my questions. 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: 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.

Sherif Elmaghrabi: Okay, and then any thoughts on chartering in more tonnage to flex the size of the fleet, given current spot market strength ahead of the seasonally stronger part of the year, for example, SSL has the handful of smaller bulkers, I believe, that are trading spot?

Lars-Christian Svensen: Yeah, 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 will lie in the second half of the year.

Sherif Elmaghrabi: That’s helpful. Thanks for taking my questions.

Lars-Christian Svensen: 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 Nokta from Jefferies. Please go ahead, your line is now open.

Omar Nokta: Thank you. Hello Lars-Christian and Peder. Good afternoon. Just had a couple of questions for you just on the broader market, and you provided some good insight and detail in the last part of your presentation. I just wanted to ask, kind of, from 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: Yeah, nice to speak to you again Omar. I think there’s two 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 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 canals anymore. So we see appetite, especially on the coal side, India is 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 there’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 [ph] from China, and the property sector, etcetera. But we see record volumes being shipped every week, and that still continues.

Omar Nokta: Okay, yeah, 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’re 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 terrorists don’t eat into it, is that something that could become a bullish thesis for dry bulk as well, and if it were to be what segment do you think would be best positioned?

Lars-Christian Svensen: Yeah, no, it seems the steel obviously exports from China has been solid in over a good period of time. And most of it has been lifted on the smaller sizes, Supramaxes and Handysizes and that hasn’t really been enough to kick that market off properly. But if there’s more steel trends coming out of China, we might see more back coal cargoes on the Panamaxes as well, which can be interesting for the steel business.

Omar Nokta: Yeah, 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 in position to take advantage of this tight market for the larger vessel. On your Slide 13, you discussed an order book where Capes continue to be, even though it’s the one market that is shining for the past six to nine months, it has the lowest order book percentage. So given that, how are you thinking about new buildings from here, I know Sherif was just asking about chartering and 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 size?

Lars-Christian Svensen: Over the last three years, Omar, we’ve been quite active on acquiring tonnage to be ready for this cycle on tightness that we see now. The last done on the new [indiscernible] 73 million and we bought six of those sisters for $50 million a pop 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 there as well.

Omar Nokta: Yeah, that makes sense. I appreciate that. That’s it for me. Thank you.

Lars-Christian Svensen: Thanks, Omar.

Operator: Thank you. [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 standby.