Golden Ocean Group Ltd

NASDAQ:GOGL

Earnings Call Transcript

[Operator]

Good day, and thank you for standing by. Welcome to the Golden Ocean Group Limited Q4 2024 Earnings Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded.

I would now like to turn the conference over to your speaker, Mr. Peder Simonsen, Interim CEO and CFO. Please go ahead.

[Peder Carl Simonsen, executive]

Good afternoon, and welcome to the Golden Ocean Q4 2024 Earnings Release. My name is Peder Simonsen, and I am the Interim CEO and CFO of Golden Ocean. Today, I will present our Q4 numbers and forward outlook.

In the fourth quarter of 2024, we have the following main highlights. Our adjusted EBITDA in the fourth quarter of 2024 ended at $69.9 million compared to $124.4 million in the third quarter. We delivered a net income of $39 million and earnings per share of $0.20 compared to a net income of $56.3 million and earnings per share of $0.28 for the third quarter. Our full year 2024 net profit was $223.2 million, up from an annual result of $112.3 million in 2023.

Our TCE rates were about $24,700 per day for Capesizes and about $14,800 per day for our Panamax vessels and a fleet-wide net TCE of about $20,800 for the quarter. We have during Q4 recorded dry docking costs of $34.3 million relating to 13 vessels compared to $9.7 million in Q3 relating to 5 vessels.

We have declared a purchase option under our lease agreement with SFL Corp for 8 Capesize vessels for an aggregate sum of $112 million. The acquisition will be part financed by a 2-year $90 million non-amortizing revolving credit facility and will reduce our Capesize cash breakeven by approximately $1,000 per day.

For Q1, we have secured a net TCE of about $15,100 per day for 77% of Capesize days and about $9,900 per day for 81% of our Panamax days. For Q2, we have locked in a net TCE of about $20,900 per day for 16% of our Capesize days and about $14,200 per day for 10% of our Panamax days. Finally, we are pleased to declare a dividend of $0.15 per share for the fourth quarter of 2024.

Let's look a little deeper into the numbers. Our total fleet-wide TCE rate was $20,800 in Q4, down from $23,700 in Q3. We are in a period with frequent dry docks. From Q4 and including Q2 2025, we will have dry docked close to 30 of our Capesize and Newcastlemaxes.

We had 13 ships dry docked in Q4 compared to 5 ships in Q3, contributing to approximately 364 days of off-hire in Q4 versus 253 days in Q3. 9 ships are scheduled to dry dock in Q1 2025 with 4 vessels completed as of today and further 7 ships are expected to dry dock in Q2 2025.

We recorded net revenues of $174.9 million, down from $206.6 million in Q3. Our OpEx recorded $95.6 million versus $69.4 million, a $26 million increase. Running expenses ended at $59.7 million, $4.8 million up from Q3, mainly due to bunkers related to dry dock and expensed ballast water treatment system upgrades.

We expensed all our dry docking costs, and we saw an increase in the OpEx result of $24.6 million quarter-on-quarter relating to dry docking. OpEx classified from charter hire was $2 million, $0.4 million down from Q3.

Our general and administrative expenses ended at $6.4 million, up from $5.3 million in Q3. Daily G&A came in at $709 per day, net of cost recharge to affiliated companies, $137 per day up from Q3. On our charter hire expense, we recorded $4.2 million versus $6.4 million in Q3, with a lower number of vessel days for the trading portfolio and profit sharing expense accounting for the difference.

Our net financial expense ended at $23.3 million versus $25.5 million in Q3, a reduction mainly due to lower SOFR rates as well as lower average debt in the quarter. On derivatives and other financial income, we recorded a gain of $13.6 million compared to a loss of $12 million in Q3.

On derivatives, we recorded a gain of $11.8 million versus a loss of $11 million in Q3. For results from investments in associates, we recorded a gain of $1.6 million compared to $0.7 million loss in Q3 relating to investments in Swiss Marine, TFG and UFC, and a net profit of $39 million or $0.20 per share and an adjusted net profit of $12.7 million or $0.06 and a dividend of $0.15 declared for the quarter.

Looking at our cash flow, we recorded cash flow from operations of $71.7 million, down from $100.8 million in Q3. Cash flow used in financing of $91.5 million, mainly comprising of net proceeds from new financings and newbuilding drawdowns of $26.9 million, $31.9 million in scheduled debt and lease repayments, $19 million in prepayments of debt relating to vessels sold, $5.7 million in debt fees paid and share repurchases and dividend payments of $60 million relating to the Q3 results. Total net increase in cash of $14.1 million.

Looking at our balance sheet. We recorded cash and cash equivalents of $131.7 million, including $2.6 million of restricted cash. In addition, we have $150 million of undrawn available credit facilities at quarter end. Debt and finance lease liabilities totaled $1.4 billion at the end of Q4, down by approximately $23 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 and a ratio of equity to total assets of approximately 56%.

Golden Ocean has in Q4 started and will in the first half of 2025, continue an intensive dry docking period for its Capesize fleet, close to half of the fleet completing special surveys over a period of 9 months. We believe that the timing of the dry docks is favorable, ahead of a seasonal stronger second half of 2025 and onwards.

Golden Ocean maintains the position as the largest listed owner in the Capesize and Newcastlemax segment. Capes and Newcastlemaxes represent over 80% of Golden Ocean's deadweight tonnes and thereby earnings capacity. And we are the only listed dry bulk company offering Cape exposure and at the same time, significant market capitalization and trading liquidity.

In Q4, we saw cargo volumes start off healthy, but volumes fell by end of November ahead of the seasonally weaker winter season. Brazilian iron ore volumes were down 13% quarter-on-quarter, while annual export volumes were up 3%. Vale reported record exports in the upper end of guidance range, while the Australian exports continued in strong volumes, but slightly down quarter-on-quarter.

We saw Vale reduce production after reaching their annual targets. And further, we've seen bad weather impacting mining and port operations, both in Brazil and Australia. In its high season, the Guinea bauxite volumes have grown 14% year-on-year and have during Q4 averaged over 13.5 million per month run rate exports, up from average 10.5 million tonnes per month in Q3.

Coal volumes continued in healthy levels in Q4, but whereas Colombian coal export increased tonne mile in the first half of 2024, in Q4, we saw volumes being replaced by Australia and Indonesia. China is providing steady demand for most cargo types, representing 74% of iron ore volumes and 85% of bauxite volumes for 2024, further supplemented by other Southeast Asian economies.

As a comment to the various tariffs and taxes being announced, U.S. exports are largely limited to grain and coal volumes, which in an adverse scenario, we expect will be replaced by other sources. As an example, of the 543 million tonnes of coal that China imported last year, only 12.2 million came from the U.S. Iron ore and bauxite are not U.S.-related cargoes. However, an ongoing trade war will be negative for the sentiment and over time, impact dry bulk demand.

Looking at dry bulk volumes from a historical perspective, we have over the last 25 years, seen volumes grow at a multiple of 1.1 to GDP growth. This is mainly due to demand for dry bulk commodities being higher in emerging economies who have had a higher than average growth rate. Although the growth in emerging economies driven by China and India has come down from historical highs, we expect the trend to continue.

In addition, because emerging economies are located away from exporting regions, the tonne-mile effect of this growth will add another boost to shipping demand. This is the case for most major dry bulk commodities.

Latest growth projections for 2025 and 2026 from IMF forecast an annual GDP growth of 3.3% globally, while China and India are expected to grow 4.5% and 6.5%, respectively. Brazilian miners have delivered a full year export of 390 million tonnes, which is in the upper end of the full year guiding. Both Vale and Australian miners continue to guide positively on production targets for 2025 with new expansion projects also emerging in both basins.

Australia and Brazil continue to be the largest exporters of iron ore. Brazil, with around 3x the sailing distance to Asia compared to Australia, is the most important tonne-mile demand contributor to the Capesize market. Chinese steel production has remained flat quarter-on-quarter, but is up 6% compared to Q4 2023.

Sentiment among steel mills is more positive and Chinese authorities have reiterated their commitment to stimulate the economy if needed, but analysts claim that new stimulus news has been postponed due to the ongoing tariff discussions. China continue its attempt to decarbonize its heavy industry, including steel production.

By using higher quality commodities, they're able to reduce emissions per tonne steel produced. Increased demand for high-grade iron ore and coal is highly supportive to tonne-mile with the largest new deposits of high-grade iron ore being found in Brazil and Guinea.

Outside China and India, crude steel production has started recovering, but only by a conservative 1.5% quarter-on-quarter as weak demand from construction and high interest rates is limiting growth. However, as the recovery is coming closer, it presents a significant upside to potential steel demand.

In Q4 this year, we will see the Simandou mine in Guinea, West Africa, commence exports. Simandou high-grade iron ore mine is expected to ramp up its production over 2 years, adding an expected 120 million tonnes of export capacity annually. In addition, new expansion projects are underway in Brazil with an additional capacity of approximately 50 million tonnes coming on stream during 2025 and 2026.

Iron ore prices have been volatile, but stayed at historically healthy levels despite negative macro backdrop and actually increased amidst an escalating trade uncertainty. Iron ore is currently trading at around $107 per tonne, which compares very favorably to the breakeven rate for the major miners of approximately $40 per tonne delivered in Asia.

At current iron ore prices, most producers are profitable, but it's expected that new volumes will put pressure on prices. The cost curve among the key producers shows that Australian and Brazilian ore is highly resilient at lower prices and outcompete more expensive producers, including Chinese domestic production.

Given the quality of the new iron ore coming into the market, analysts are expecting that the high-grade ore will replace Chinese domestic, which is of significantly poorer quality. If we conservatively assume that the Simandou volumes will replace Australian volumes, it will triple the sailing distance to Asia, boosting tonne-mile demand for Capesizes significantly.

Guinea in West Africa has become a major exporter and holds the vast deposits of high-grade bauxite and iron ore. The Guinea government has together with mining majors and large Chinese industrial conglomerates, made significant investments in infrastructure and mine development.

With the majority of demand being located in Southeast Asia, this provides steady growth in tonne-mile for the largest vessels. Guinean bauxite exports over the last 5 years has grown with an average compounded growth rate of 22%. Bauxite, which is used in production of aluminum, is feeding the booming EV industry as well as other sectors in China.

The Guinean bauxite replaces volumes from Indonesia, which, in addition to significant growth in traded volumes and tonne-mile represents a switch to Capesizes from smaller vessel segments. The average monthly export volumes in 2024 were 12 million, while Q1 to date in high season, exports have exceeded 15.5 million tonnes per month.

Following infrastructure improvements, analysts are expecting an annual export of 155 million tonnes in 2025, representing a 5% to 10% year-on-year growth. As bauxite exports currently contributing to about 13% to 15% of tonne-mile for Capesize vessels, this will represent the demand growth covering most, if not all, of the scheduled deliveries of Capesizes in 2025.

The order book development has followed last year's pattern with container ships filling up most of the capacity on shipyards able to build Newcastlemaxes and Capesize vessels. Despite elevated newbuilding prices, the largest dry bulk vessels remain unfavored by the shipyards as they provide for lower profit margins compared to other shipping segments.

In addition, limited shipyard capacity leads to long-dated delivery dates, currently quoting 2028 as the earliest delivery for any meaningful capacity volume. The global Capesize and Newcastlemax fleet is entering into a period of frequent dry dockings, and analysts estimate an additional 0.5% to 1% in fleet capacity reduction during both 2025 and 2026 compared to 2024.

We are in a period with increasing competitive advantages for modern vessels, both in terms of fuel efficiency and carrying capacity, but also increasing requirements to safety, crew welfare and emissions. The large-sized dry bulk fleet is aging and over half of the Capesize fleet will be above 15 years of age in 2028 in a period where environmental regulations are tightening.

The fleet continues to operate at record efficiency. And although we have seen some seasonal disruptions, it has not reduced the operating fleet capacity meaningfully. For dry bulk, full normalization of transits through the Suez Canal will have a marginal negative effect which will provide some reduction in tonne-miles, but will also open for further transatlantic trades.

The company has, over the last year, outperformed indexes by close to $4,500 per day on the full fleet. We continue to push for lower cost, retaining conservative but meaningful leverage and an industry low cash breakeven rate. The recently announced refinancing of leases for 8 vessels with SFL Corp will reduce the cash breakeven rate for the Cape fleet with $1,000 per day.

As mentioned, we are using the weakness in the market to significantly upgrade the vessels. This will provide us with a highly competitive fleet ahead of the seasonally strong second half and onwards. These investments are funded with a combination of sales proceeds and cash on hand. We continue our strategy to reward our shareholders through dividends as well as previously announced share buybacks.

Although we expect volatility in the near term, with ongoing geopolitical uncertainty, we continue to remain fundamentally positive on the market outlook and have positioned ourselves thereafter. On the left-hand side, we illustrate the significant cash flow potential of Golden Ocean as we move into the stronger market sentiment.

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

[Operator]

[Operator Instructions] Our first question comes from the line of Omar Nokta from Jefferies.

[Omar Nokta, analyst]

Good update as usual and kind of given a good overview of the market and how things look big picture. Just a couple of questions as a follow-up to that. Maybe -- and I know it's a little too short term, but what do you make of what we've been seeing here this week in the Cape market specifically?

I know it's still early days and rates haven't really run away, but there seems to be a good amount of momentum. Sentiment looks like it's improving. You can see that obviously in the futures and whatnot. I just want to get your sense of what do you think is behind this latest move we've been seeing in freight rates?

[Peder Carl Simonsen, executive]

Omar, thanks for the question. I think what we're seeing now is a little bit of a rebound in sentiment, which is based on improvement in weather conditions in Australia, which has started to ramp up some volumes there, which disappeared for a while when the cyclones were active.

In addition, we've seen due to the boost in Panamax rates, we've seen some of the coal volumes move into the Capes as well which has created a bit of a squeeze in the Pacific that you've seen now with rates moving. We're still not sort of seeing a lot of volume increases in Brazil. It's still at fairly muted levels.

But I think that's what's driving the sentiment now. But it does show that the market is very responsive, and we are sort of in the end of maybe the seasonal downturn. And it remains to be seen how long we will need to wait before it sort of firmly moves upwards.

[Omar Nokta, analyst]

Yes. Okay. Good color. And then just kind of on the dry dockings, as you mentioned, you've perhaps maybe accelerated the dry docks or at least are going through some upgrades. You spent $34 million in the fourth quarter on those 13 ships. What are you thinking? And what are you budgeting for the dry docks you have earmarked for the first half of '25?

[Peder Carl Simonsen, executive]

I think we -- it depends very much on which sort of -- is it the 5-year, 10-year or 15-year dry dock. I think in general, what we are doing is we're putting a lot of efforts into upgrading the vessels with the newest and best paint, the best sand blasting of the hull. We are also investing in [indiscernible] on some of the ships.

So we are, in addition to moving ships up to class standard and making them sort of fully maintained. We are also investing additional money into them. I think sort of the average that you saw in this quarter was maybe slightly higher than what we would see normally going forward because we have had quite a few of the 15-year-old dry dockings in this quarter.

But I think the -- due to the regulations that we have seen come in and the requirements to the quality of the vessels moving into the dry bulk space as well, we have seen that costs have moved up and expenses have moved up in addition to sort of the value of having a high-performing vessel commercially.

[Operator]

Our next question comes from the line of Greg Lewis from BTIG.

[Gregory Lewis, analyst]

I was hoping you could talk a little bit about opportunities you're seeing on the sales and purchase side. Obviously, the purchase options you exercised were in the money. So I guess that was -- I mean, I guess, I would think that was kind of a no-brainer just given the pricing of that.

But I guess, like as you think about positioning the fleet over the next 1 to 2 years, how are you thinking about opportunities maybe to add tonnage or following this 8 vessel acquisition, thinking about maybe even selling some vessels now?

[Peder Carl Simonsen, executive]

Yes. Greg, I think from where we are in the cycle at the moment, we are maybe more sellers than buyers from where the vessel valuations are coming in. We do have an ongoing fleet renewal strategy, which means that we have smaller outliers that we, for that reason, will consider selling. At the same time, we want to maintain as much capacity as we can in the Cape and Newcastlemax space, which is sort of our strategic sort of long-term favorable segment.

I think the SFL transaction is more a refinancing than a sort of S&P transaction. I mean we've had the ships, we had the options. They were structured in a way which made them sort of very, very highly likely that we will declare the options. And so that -- so we won't be sort of seeing those for -- more of those.

So I think in general, in the S&P side, I think we are generally more sellers than buyers at the moment. We are more sort of keen on growing in the Capesize space than the Panamax space over time. And other than that, we will sort of continue to be opportunistic. And it's not been that long since we sold some vessels. But if the opportunity comes up, we may end up buying ships as well. I'd say it's -- we're always very light-footed and nimble here in the building.

[Gregory Lewis, analyst]

Yes. And then just -- it's funny how the cycles kind of play out. Everyone is a little bit different. I guess in the past, other companies have been a little bit more active in M&A. I guess as you think about that, and people always ask about the potential for M&A in the dry bulk space.

I guess, just given your focus on the larger scale -- on the large vessels, I mean, I guess what I would think is, as you look out over the next 12 months, where we are in the cycle, do you think we could see a pickup in M&A? Or do you think it's kind of business as usual and that can be private and public fleets?

[Peder Carl Simonsen, executive]

Yes. No, I think M&A is a wide term. I think transactions where we use the share as a collateral sort of is very much possible if the pricing is right. And obviously, there's different constellations on the fleet and on the shareholder side on different players in the space which may add or not add value to an M&A transaction.

But M&A in general, has proven to be challenging in the shipping space as sort of the -- it is the assets that everybody is after, and they are pretty generic. So if we start to trade a little bit more around the sort of underlying asset values and sort of there is the right combination of ownership and fleet composition in terms of age and type, that's very much possible.

[Operator]

[Operator Instructions] Our next question comes from the line of Climent Molins from Value Investor's Edge.

[Climent Molins, analyst]

I wanted to ask about recent news flow around the potential imposition of port fees on Chinese-built vessels docking in the U.S. It remains to be seen whether those will ultimately come into force. But if so, what impact do you foresee on the overall market? To what extent do you expect those to impact trading patterns?

[Peder Carl Simonsen, executive]

I think it is very much -- coming from what the analysts and we read about the new proposal and what the analysts view on it, it seems that the suggested policies are very much on the drawing board still and then the suggestion is very much course and not sort of in the details enough to make any meaningful assessment of the impact.

I think for dry bulk in general, the U.S. is not a major player. It has some volumes on the soybean side and also on coal. These are volumes that are possible to replace from other sources if it becomes economically challenging to lift these volumes from the U.S. due to the increased cost on freight.

So I think that falls in line with a lot of other elements that we see in the dry bulk space where there are things happening in one region, which then reroutes trading patterns from one place to another. And that's very much possible here in the -- if this suggestion comes into play. But I do also think that it seems that it will hurt as it looks more the U.S. consumer than it will China, which seems to be the intention.

And I think also like with Fuel EU or other types of tariffs or taxes or fees, they will be passed on to the end user at the end of the day and will be sort of included in the freight calculations when we fix our ships. So it will not be -- we do not see this as a massive change to the shipping outlook for dry bulk.

[Climent Molins, analyst]

Yes, makes sense. I was just wondering whether you expected that to have an effect on the, let's say, Korean or Japanese ships taking more of a prominent role in routes towards the U.S., but time will tell, I guess. So I'll turn it over. Sorry, go ahead.

[Peder Carl Simonsen, executive]

No, no. I was just saying that if it comes through and it will come into effect as it is presented, then I guess more of the ships in the Atlantic Basin will be Korean and Japanese ships, but it is still very much a theoretical exercise.

[Operator]

[Operator Instructions] We have no further questions at this time. I will now hand back to you for any closing remarks.

[Peder Carl Simonsen, executive]

Thank you very much. Thank you for listening in, and thank you for the questions, and have a continued great week.