Golden Ocean Group Limited

Good day and thank you for standing by. Welcome to the Golden Ocean Group Limited Q4 2024 earnings conference call and webcast. At this time, all participants will be in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Peter Simonsen, Interim CEO and CFO.

Please go ahead.

Good afternoon and welcome to the GoldenOcean Q4 2024 earnings release. My name is Peter Simonsen and I am the Interim CEO and CFO of GoldenOcean. Today I will present our Q4 numbers and forward outlook. In the fourth quarter of 2024, we have the following main highlights. Our adjusted EBTA 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 20 cents. compared to a net income of 56.3 million and earnings per share of 28 cents 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 Cape sizes 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 five vessels. We have declared a purchase option under our lease agreement with SFL Corp for eight Cape-sized vessels for an aggregate sum of $112 million. The acquisition will be part financed by a two-year $90 million non-amortizing revolving credit facility and will reduce our Cape-sized 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 Cape size 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 Cape size days and about 14,200 per day for 10% of our Panamax days. Finally, we are pleased to declare a dividend of 15 cents 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 docks close to 30 over our Cape size and Newcastle maxes. We had 13 ships dry docked in Q4 compared to five ships in Q3, contributing to approximately 364 days of off-fire in Q4 versus 253 days in Q3. Nine ships are scheduled to dry dock in Q1 2025 with four vessels completed as of today. And further seven 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 69.26 million increase. Running expenses ended at 59.7 million, 4.8 million up from Q3, mainly due to bunkers related to dry dock and expense ballast water treatment system upgrades. We expense 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 recharged 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 software 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. a net profit of 39 million or 20 cents per share and an adjusted net profit of 12.7 million or 6 cents and a dividend of 15 cents 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 financings of 91.5 million mainly comprising of Net proceeds from new financings and new building 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 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%. GoldNotion has in Q4 started and will in the first half 2025 continue an intensive dry docking period for its Cape size fleet. It's close to half of the fleet completing special surveys over a period of nine 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 Cape size and Newcastle Max segment. Capes and Newcastle Maxes represent over 80% of Golden Ocean's deadweight tons and thereby earnings capacity. 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 R&R volumes were down 13% quarter-on-quarter, while annual exports 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 tons per month in Q3. Coal volumes continued in healthy levels in Q4, but whereas Colombian coal export increased one mile in the first half of 2024, 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, US 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 tons 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 an 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 and 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 ton-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 tons, which is in the upper end of their full year guiding. Both Vala and Australian miners are continued 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 three times the sailing distance to Asia compared to Australia, is the most important ton-mile demand contributor to the Cape size market. Chinese steel production has remained flat quarter on quarter, but it's 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 continues its attempt to decarbonize its heavy industry, including steel production. By using higher quality commodities, they are able to reduce emissions per ton steel produced. Increased demand for high-grade iron ore and coal is highly supported to ton 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 Simandour mine in Guinea, West Africa, commence exports. Simandou high-grade iron ore mine is expected to ramp up its production over two years, adding an expected 120 million tons export capacity annually. In addition, new expansion projects are underway in Brazil, with an additional capacity of approximately 50 million tons 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 ton, which compares very favorably to the break-even rate for the major miners of approximately $40 per ton 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 ton-mile demand for cape sizes 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 ton-mile for the largest vessels. Guinean bauxite exports over the last five 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 ton-mile, represents a switch to cape sizes 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 tons per month. Following infrastructure improvements, analysts are expecting an annual export of 155 million tons in 2025, representing a 5% to 10% year-on-year growth. As bauxite exports currently contributing to about 13% to 15% of ton mile for capesized 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 Newcastle Maxis and Cape size vessels. Despite elevated new building prices, the largest dry bulk vessels remain unfavoured 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 cape size in Newcastle MAX fleet is entering into a period of frequent dry dockings. An analyst estimates 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 cape-sized 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 to provide some reduction in ton 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 break-even rate. The recently announced refinancing of leases for eight vessels with SFL Corp. will reduce the cash break-even 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 a 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.

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Thank you. We are now going to proceed with our first question. The questions come from the line of Omar Nocta from Jefferies. Please answer your question. Your line is opened.

Hi, Simon. Thank you. 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?

Hi, Omar. Thanks for the question. I think what we see now is a little bit of a rebound in sentiment, which is based on you know, improvement in weather conditions in Australia, which has started to ramp up some volumes there, which disappeared for a while when 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 see 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 that the market is very responsive and we are sort of in the end of maybe the seasonal downturn. And then it remains to be seen how long we will need to wait before it sort of firmly moves upwards.

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

I think we, you know, it depends very much on which sort of, is it the five-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 within use and best paint, the best sandblasting of the hull. We are also investing in mavis ducts and boss cap fins on some of the ships. So we are, in addition to moving the ships up to class standard and making them sort of fully maintained, we are also investing additional money into them. I think 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 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.

Got it. Okay, that's very helpful. Thank you. I'll pass it back. Thanks very much.

We are now going to proceed with our next question. The questions come from the line of Craig Lewis from BTIG. Please ask your question.

Hey, thanks, and good afternoon, and thanks for taking my question. I was hoping you could talk a little bit about... you know, 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, you know, positioning the fleet, you know, over the next one to two years, How are you thinking about opportunities maybe to add tonnage or following this eight-vessel acquisition, thinking about maybe even selling some vessels now?

Yeah. Hi, 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 some older 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 Newcastle MAC space, which is sort of our strategic sort of long-term favorable segments. I think the SFL transaction is more a refinancing than a sort of S&P transaction. I mean, we've had the chips, we had the options, they were structured in a way which made them sort of very, very highly likely that we would declare the options. And so we won't be sort of seeing 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 Cape side space than the Panamax space over time. And other than that, we will sort of continue to be opportunistic. And, you know, it's... 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. We're always very light-footed and nimble here in the building.

Thank you for that. It's funny how the cycles kind of play out. Everyone's a little bit different. You know, I guess, you know, in the past, you know, other companies have been a little bit more active in M&A. You know, I guess as you think about that and, you know, people always ask about the potential for, you know, M&A in the dry bulk space. You know, I guess just giving your focus on the larger scale or vessel, you know, 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, you know, and that can be private and public fleets?

Yeah, no, I think, you know, M&A is a wide term. I think, you know, if transactions where we use the share as a collateral, sort of it's, 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. It is the assets that everybody is after, and they are pretty generic. If we start to trade a little bit more around the underlying asset values and the right combination of ownership and fleet composition in terms of age and type, that's very much possible.

Super helpful. Thanks for the time.

Thanks, Greg.

As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, it's star 1 and 1 for any question. We are now going to proceed with our next question. The questions come from the line of Clement Mullins from Value Investors Edge. Please ask your question.

Good afternoon. Thank you for taking my questions and thank you for this presentation. I wanted to ask about recent news flow around the potential imposition of port fees on Chinese-built vessels docking in the US. 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?

Hi. I think it is very much coming from what the analysts will 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 coarsened and not in the details enough to make any meaningful assessment of the impact. I think for dry bulk in general, the US is not a major player. It has some volumes on the soybean side and also on coal. These are volumes that are you know, possible to replace from other sources if it becomes, you know, 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 box 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 if this suggestion comes into play. But I do also think that it seems that it will hurt as it looks more the US consumer than it will China, which it seems to be the intention. And I think also, you know, like with the 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 in the freight calculations when we fix our ships. So we do not see this as a massive change to the shipping outlook for dry bulk.

Yeah, 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, thank you. I'll turn it over. Okay, thank you. Sorry, go ahead.

No, no, I was just saying that, you know, 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.

Agreed. Makes sense. I'll turn it over. Thank you for taking my questions. Thank you.

Once again, as a final reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.

Thank you. We have no further questions at this time.

I will now hand back to you for any closing remarks.

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

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