Golden Ocean Group Limited

Golden Ocean Group Limited

$10.09
-0.77 (-7.09%)
NASDAQ Global Select
USD, BM
Marine Shipping

Golden Ocean Group Limited (GOGL) Q3 2023 Earnings Call Transcript

Published at 2023-11-21 10:28:09
Peder Simonsen
Thank you, Lars-Christian. If we move to the - our profit and loss, we delivered a strong commercial performance with Cape TCE rates coming in at $18,200, slightly down from the previous quarter and Panamax is coming in at $15,400 in line with previous quarter Our total fleet-wide time charter equivalent was $17,100, which was materially unchanged from Q2. We had two ships drydocked in Q3 versus fixed ships in Q2, resulting in approximately 115 days off-hire versus 215 days off-hire in Q2. We have two ships expected to drydocked in Q4, which are expected to complete - be complete by the second half of the quarter. We added just below 550 vessel days compared to Q2 through our new ship deliveries, net of vessel sales in Q3. Our net revenues came in at $156.6 million compared to $154 million in Q2. Looking at our operating expenses, we recorded $64.5 million versus $62.4 million in the previous quarter. This was impacted by additional ship days compared to the previous quarter. In addition, we recorded approximately $3 million expense, relating to the change of technical managers on certain of our ships. This was offset by few dry dockings in this quarter compared to previous quarter and also offset by lower OpEx reclassified from charter hire with fewer ships being chartered-in on average during the quarter. The reclassified charter hire was $4.9 million in Q3 versus $6.2 million in Q2. Our general and administrative expenses came in at $4.4 million, down from $5.2 million in Q2, which is fairly unchanged, when adjusting for non-recurring items in Q2. Our daily G&A ended at $470 per day, net of cost we charge to affiliated companies, down from $560 per day in Q2. Our charter hire expenses were $8.3 million, down from $10.2 million due to fewer vessel days in the trading portfolio and an adjusted EBITDA of $78.9 versus $80.4 in Q2. Looking at the net financial expenses, we recorded $28 million in net interest expense versus $23 million in Q2, a change due to higher reference rates and higher average debt in the quarter. The increase in interest rates also needs to be seen in relation to the realized portion of the interest rate swap portfolio, which impacted our derivatives and other financial income in the quarter. We recorded a gain of $11.9 million compared to a gain of $14.3 million, of which $10.6 million relates to interest rate swaps and $1.8 million related to bunker derivatives and FFA gains, and of the $10.6 million, $4.9 million is realized cash gains and $5.8 million is mark-to-market gains following an increase in long-term interest rates. Results from investments in associates, we recorded a loss of $300,000 compared to a gain of $4.9 million in Q2, which relates to our investments in Swiss Marine, TFG, and UFC. A net profit of $28.7 million and $0.14 per share, and a dividend declared of $0.10 for the quarter. Moving to the next slide, our cash flow from operations came in at $47.4 million, which includes $600,000 dividend from associated companies. Our cash flow provided from financing came in at $33.5 million. We recorded $32.4 million drawdown relating to delivery of one Newcastlemax vessel. We drew $40 million relating to deliveries of two Kamsarmax newbuildings and we drew $25 million under our revolving credit facility. This was offset by $7.6 million prepayment relating to the sale of one Panamax vessel and $35.8 million in scheduled debt and lease repayments. We recorded a dividend payment of $19.9 million relating to our Q2 results and $900,000 payment for share repurchase. Our cash flow used in investments was $88.5 million, which mainly relates to $45.3 million relating to the delivery of the last Newcastlemax vessel, $58.1 million in installments and costs relating to our Kamsarmax newbuildings, and this was offset by $14.8 million in net proceeds from the sale of the Panamax vessel. Total net decrease in cash of $7.8 million during Q3. Moving to the balance sheet, we had a cash and cash equivalents of $99.7 million, including $2.2 million of restricted cash at the end of Q3. In addition, we had $50 million in undrawn available credit facilities at quarter end. Our debt and lease liabilities totaled $1.5 billion end of Q3, up by approximately $72 million since Q2. Our average fleet-wide loan to value under the company's debt facilities per quarter end was 45.6% with the book equity of $1.9 billion, we had a ratio of equity to total assets of approximately 53% at the end of Q3. With that, I give the word back to Lars-Christian. Lars-Christian Svensen: Thank you, Peder. In Golden Ocean, we like to focus on the larger vessels, where we have the most volatility and also potential upside historically. Our young and modern fleet, which currently holds an average of seven years, allows us to constantly beat the market over time and with our current vessel count on 95, we offer a large commercial platform. Our market cap of $1.5 billion and dual listings in New York and Oslo, provide solid liquidity for our shareholders. All of the above should make Golden Ocean an attractive go-to company for all investors wanting dry bulk exposure. As I mentioned in our previous slide, we're proud of a young and modern fleet. However, it's just as important to maintain a low cash breakeven to float in practically any market illustrated here with our 60 Capesize vessels are Cape and Newcastlemax cash breakeven over our entire fleet holds at $14,800 per day. Due to our fleet composition and clinical execution, we have outperformed the market with about $5,000 per day so far this year. If you deduct that premium from the $14,800, Golden Ocean's adjusted cash breakeven is below $10,000 per day. From the bottom left historical graph, you can clearly see the Golden Ocean modern fleet combined with an industry-low cash breakeven, much due to excellent financing will make money in almost any market. We will continue to invest in our vessels to increase our fleet premium towards the market and thus decrease our adjusted cash breakeven further. Not only, should we be considered a market-leading company with high liquidity, but a company that has a massive upside potential with downside protection well covered. Albeit volatile, Q3 finished on a strong note for both Panamax and Capesize. China is continuing to import iron ore, bauxite, coal, and agri products surpassing last year's levels. Even so, the Chinese iron ore and steel stockpiles are decreasing, much due to a huge steel export program. We have seen increased tonne miles in both segments. And with the seasonality coming to life, the Panamax and Cape sectors look to finish 2023 on a strong note. The iron ore trade has come into full bloom so far in 2023, with steady Chinese demand and continuous imports from both Brazil and Australia. Brazil will for the first time since to Brumadinho incident delivered around her yearly targets. The commodity price itself is pushing $130 per tonne, which has led to frustration in the Chinese government and steel mills as their stockpiles continue to diminish. India has had a decline in iron ore exports throughout the third quarter and in addition, they have concluded a large iron ore contract from Brazil to India for 5 million tonnes, which can indicate a new trend and trading pattern for dry cargo. For a tonne mile scenario, we've had very much welcome more iron ore imports to India from Brazil. So, where has all the increased landed iron ore tonnes being absorbed? Well, China is the world's largest steel producer, accounting for 56% of global steel output. Contrary to negative macro news, China's steel production is up 2% year-on-year with a solid 4.5% increase in Q3. Although property investments are down about 9%, we see that the Chinese iron ore production is down and rotation to technology-intensive manufacturing and energy transition with infrastructure investment is up 9% year-on-year, and private manufacturing investments are up 6%. In addition, Chinese car exports were up 62%, as steel exports 30% year-on-year, which equates to about 80 million tonnes of iron ore. As we have discussed earlier this year, the bauxite trade from Guinea has developed into a steady long haul Capesize trade, predominantly into China. This bauxite trade has dominated a total global Cape tonne mile with a staggering 12.5%. In addition, it's inversely seasonal to the iron ore trade from Brazil, which makes it tempting to assume that the coming Q1 will be more volatile and interesting than we've seen in many years. We see an upside to this trade into 2024 and we will position large parts of our fleet accordingly. The supply side is still looking vastly compelling in the dry space. The total dry order book is around 8% of the total fleet and even more learning is the Capesize segment, where we have 5% of the total fleet ordered for newbuildings. Historically, this remains at an all-time low and combined with unusual low congestion is still suggests that the downside is priced already. To round off this presentation, we would like to show you the significant earnings potential in Golden Ocean as we finish off the volatile dry cargo year for 2023. Keeping in mind the premium we achieve on our fleet, the graph on the right shows the substantial cash flow potential and yield at various freight levels. As an example to achieve a 25% yield, you must need an average Baltic index rate of 20,000 per day, if you apply the 2023 year-to-date performed Golden Ocean premium of $5,000, while the current spot market suggests a free cash flow yield of approximately 30%. With that, thank you very much for listening and I will pass the word back over to the operator.
Operator
[Operator Instructions] And the question comes from the line of Sherif Elmaghrabi from BTIG. Please ask your question. Your line is open.
Sherif Elmaghrabi
Hi, good afternoon. Thanks for taking my questions. Lars-Christian Svensen: Hi Sherif.
Sherif Elmaghrabi
Hi. I just wanted to first focus on the Supramax that you sold. It sounds like the purchase option and then subsequent sale is a pretty unique opportunity, but are there any other upcoming options on the 8-K that you've time chartered in, which could present a similar opportunity or could you even hang onto that tonnage given where asset prices are today? Lars-Christian Svensen: Yes, thank you for that. I think first of all, when it comes to the Supramax vessel that is something that we consider non-core business. So for us to be able to do a good market transaction, we thought that was a good idea. When it comes to Capesizes, which we absolutely consider core business, we are definitely interested in declaring options if it makes sense to the market at that time.
Sherif Elmaghrabi
Okay. And then turning to scrubbers, the scrubber premiums really widened over the last few months. And so just with that in mind, could we see scrubbers installed on other vessels in the fleet, as they come in for dry-dock or special survey? Lars-Christian Svensen: Yes, definitely. If there is a young enough assets that we see potential and we will upgrade as many of them as possible in the next dry dock cycle.
Sherif Elmaghrabi
Okay. Thanks for taking my question. Lars-Christian Svensen: Thank you, Sherif.
Operator
[Operator Instructions] And the question comes from the line of Omar Nokta from Jefferies. Please ask your question.
Omar Nokta
Hi, there. Hi guys, good afternoon. Lars-Christian Svensen: Hi Omar.
Omar Nokta
Hi. Yes, I just wanted to ask, you know, obviously, you highlighted the overall the strong sort of quality of the Golden Ocean fleet. I wanted to ask, obviously, 3Q was supposed to be generally or had been a pretty soft quarter when we look at just spot market averages and looking at what companies in this sector have reported, but you guys generally kind of came in sort of flattish or maybe even cash flow generation was a bit better. So just wanted to ask, kind of what drove that improvement that sequential sort of modest improvement, was that sort of well-timed time charters or some spot performance, that was a bit beyond expectations. Any color you can give on that? Lars-Christian Svensen: Yes, no, I think entering into the quarter, we were quite covered on the Panamax front. We realized quite quickly that we needed to have some more exposure there to capture the market. So we turned every stone to be able to add on some more spot exposure on the Panamaxes, which yielded well Same thing when it came to Capesizes. As we discussed in the previous quarter as well, we had fairly high confidence in the second half of this year, simply because of the many drivers that we see on the coal and the bauxite, and also Brazil performing the way it should do. So for us going into this quarter, it was quite clear that we wanted quite a bit of spot exposure and luckily we got this one there.
Omar Nokta
Okay, got it. That makes sense. And then maybe just as a follow-up, you highlighted the - you know, looking to further invest in the fleet, to capitalize or at least create excess earnings potential, you've got the - your order book program basically is close to wrapping up here with those four Kamsarmax due in 2024. Recently we've seen several of your competitors order ships on a dual fuel basis that deliver out into '26-'27, I think even we saw '28. How are you guys thinking about the new building order book, as it is now in terms of obviously, you mentioned fleet sizes at 8% is relatively small? But in terms of Golden Ocean and looking forward, how do you think about where you stand with newbuildings? Are you comfortable with these four taken delivery of them and then moving on or can we expect you to dive deeper into newbuildings? Lars-Christian Svensen: I think for our focus at the moment, we're very happy with the newbuilding program that we had on and looking to complete next year. We're definitely there to grow in terms of vessels on the water. We did find modern tonnage, two, three, four years old that fit well into our strategy and fleet where we think that is a better investment at the moment than to go to the yards and place a newbuilding order. In respect to which fuel to impact, we haven't made up our mind there yet and maybe not as clear as the other competitors. So we prefer to invest in our fleet, which we already have, that already makes money and grow the fleet upwards.
Omar Nokta
Yes. Very good. Well, thank you. That's it from me. Lars-Christian Svensen: Thank you, Omar.
Peder Simonsen
Thanks, Omar.
Operator
[Operator Instructions] We have no further questions at this time. I will hand back to you for closing remarks. Lars-Christian Svensen: Thanks a lot for dialing in. We'll see you next quarter.
Peder Simonsen
Thank you very much.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.