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Golden Ocean report 4Q21 results

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Dry Bulk,

Golden Ocean Group Ltd, one of the world's leading owners of large size dry bulk vessels, has announced its unaudited results for the quarter and full year ended 31 December 2021.


  • Net income of US$203.8 million and earnings per share of US$1.02 for 4Q21, compared with net income of US$195.3 million and earnings per share of US$0.97 for 3Q21.
  • Adjusted EBITDA1 of US$243.5 million for 4Q21, compared with US$229.7 million for 3Q21.
  • Reported TCE2 rates for capesize and panamax/ultramax vessels of US$39 304/day and US$29 635/day, respectively, and US$35 256/day for the whole fleet in 4Q21. Estimated TCE rates inclusive of charter coverage and calculated on a load-to-discharge basis, are:
    • Approximately US$26 100/day contracted for 75% of the available days for capesize vessels and US$21 100/day contracted for 72% of the available days for panamax vessels for 1Q22.
    • Approximately US$31 400/day contracted for 22% of the available days for capesize vessels and US$22 700/day contracted for 14% of the available days for panamax vessels for 2Q22.
  • Announced a cash dividend of US$0.90 per share in respect of 4Q21, payable on or about 10 March 2022 to shareholders of record on 3 March 2022.

Ulrik Andersen, CEO, commented: “We release the best quarterly result and the best full-year result in the history of Golden Ocean. The record result has been made possible through attractive market conditions, timely acquisitions and strong chartering performance. Staying true to our strategy of returning cash to our shareholders, we are paying out US$0.90 per share in dividends for the quarter, taking the dividends relating to 2021 to more than US$500 million. Looking into 2022, we have a considerable amount of fixed profitable charter cover for the first quarter, which will protect our dividend capacity and build a bridge into what we expect to be a much more attractive second half of the year. Despite the recent weakening in freight rates, which we mainly attribute to seasonality, we believe the outlook for 2022 and beyond is positive due to a combination of steady demand growth and fleet supply that is at generationally low levels.”

Fleet development and performance

As of the date of this report (16 February 2022), the company's fleet consists of 99 vessels and newbuildings, with an aggregate capacity of approximately 13.9 million DWT. The company's fleet consists of:

  1. 81 vessels owned by the company (48 capesize, 31 panamax and two ultramax vessels).
  2. Eight capesize vessels chartered in on long-term leases with profit-sharing arrangements.
  3. Two 104 550 DWT ice-class vessels chartered in.
  4. One ultramax vessel chartered in.
  5. Seven 85 DWT kamsarmax vessels on order.

In November 2021, the company finalised the sale of two older panamax vessels, Golden Opportunity and Golden Endurer.

During 4Q21, the last of the company’s vessels trading in the capesize Chartering Ltd (CCL) pool were redelivered, and the company now has full commercial control of its capesize fleet.

The company's estimated TCE rates for 1Q22 are US$26 100/day for 75% of available days for capesize vessels and US$21 100/day for 72% of available days for panamax vessels. These estimates are forward looking statements and are based on time charter contracts entered into by the company as well as current spot fixtures on the load-to-discharge method, whereby revenue is recognised on a straight-line basis over the voyage from the commencement of loading to the completion of discharge. The actual TCE rates to be earned will depend on the number of contracted days as well as the number of ballast days at the end of the period when a vessel is sailing without cargo. According to the load-to-discharge accounting method, the company will not be able to recognise revenue for any ballast days or uncontracted days at the end of 1Q22. At the same time, expenses for uncontracted days cannot be deferred and will be recognised.

The company has continued to opportunistically secure charter cover-age at highly profitable rates. For 2Q22, the company has secured 22% of total days at an average rate of US$31 400/day for capesize vessels and 14% of total days for panamax vessels at an average rate of US$22 700/day.

4Q21 results

4Q21 income statements

The company reported net income of US$203.8 million and earnings per share of US$1.02 for 4Q21, compared to net income of US$195.3 mil-lion and earnings per share of US$0.97 for 3Q21.

Adjusted EBITDA was US$243.5 million for 4Q21, an increase of US$13.9 million from US$229.7 million for 3Q21.

Operating revenues were US$381.8 million in 4Q21, a decrease of US$5.8 million from US$387.6 million in 3Q21. Five vessels were in drydock during 4Q21 compared to one vessel in drydock during 3Q21 contributing to an increase in off-hire days to 201 days from 85 in 3Q21. Voyage expenses decreased by US$12.8 million to US$68.9 million from 3Q21 as a result of a decrease in fixtures on voyage charters in the period and the corresponding decrease in bunker consumption and port costs.

Other operating expenses under the company's revenue sharing agreements were US$6.4 million in 4Q21, compared to other operating income of US$0.8 million in 3Q21. The decrease was due to final settlements made with CCL following the termination of the CCL pool agreement.

The company achieved an average TCE rate for the fleet of US$35 256/day in 4Q21 compared with US$32,262/day in 3Q21.

Gain from sale of vessels of US$4.9 million was recorded in 4Q21 related to sale of Golden Endurer.

Ship operating expenses amounted to US$57.6 million in 4Q21 compared with US$52.4 million in 3Q21. In 4Q21, ship operating expenses included US$49.2 million in running and other sundry expenses (compared to US$46 million of running expenses in 3Q21), US$5.1 million in drydocking expenses (US$0.6 million in 3Q21) and US$3.2 million in estimated ship operating expenses on time charter-in contracts (US$5.8 million in 3Q21). Running expenses mainly consisted of crew costs, repair and maintenance, spares and insurance. COVID-19 and its impact on crewing continues to affect the operating efficiency of the fleet.

Charter hire expenses were US$11.2 million in 4Q21 compared with US$31.2 million in 3Q21. The decrease in charter hire expenses was mainly the result of decrease fewer chartered-in days in during the quarter.

Administrative expenses were US$4.8 million in 4Q21, compared with US$4.6 million in 3Q21. Depreciation was US$33.4 million in 4Q21, an increase of US$0.1 million compared to US$33.3 million in 3Q21.

Net interest expense was US$10.4 million in 4Q21, slightly lower than US$10.8 million in 3Q21. In 4Q21, the company recorded a US$1.2 million net gain on derivatives, mainly relating to a US$4.2 million gain on USD interest rate swaps which were offset by a US$3 million loss on the company's forward freight derivatives.

The company recorded a gain from associated companies of US$9.9 million in 4Q21, mainly related to a gain of US$8.9 million from its investment in SwissMarine Pte. Ltd and a US$0.9 million gain from its investment in United Freight Carriers LLC. In 4Q21, the company recorded an unrealised mark-to-market loss of US$2 million on shares in Eneti Inc. and US$1.1 million gain relating to dividends received from DNK, a war risk insurance association.

The dry bulk market

A combination of high demand and unprecedented supply chain inefficiencies supported record freight and utilisation rates at the start of 4Q21. At its peak, tonne-mile demand was up 5.7% year-to-date over 2020, with import volumes exceeding pre-pandemic levels. Driven by high waiting times at ports, fleet productivity decreased by 7% y/y despite a 3.4% increase in fleet size, significantly reducing effective fleet supply. The Omicron variant of the COVID-19 virus contributed to a resurgence in supply chain problems as borders tightened once again, and both factories and port operators struggled with labour shortages.

In 4Q21, global dry bulk fleet utilisation (calculated as total tonne-mile demand divided by total available fleet capacity) was 93%, a slight decrease from 94.4% in the prior quarter, which marked the highest level in more than a decade, according to Maritime Analytics. Total seaborne transportation of dry bulk goods was 1211 million t in 4Q21, representing a 1.7% decrease from 1232 million t in 3Q21 and a 2.4% increase from 1183 million t in 4Q20 when the recovery in global trade was beginning to gain momentum.

As 4Q21 progressed, China continued to ration energy in response to the global energy crisis and further sought to cool a property development market overheated by speculation. China also closed a number of factories in certain industrial hubs in an effort to decrease pollution ahead of the 2022 Winter Olympics. The result was a 6.8% drop in Chinese steel production compared to 3Q21. Many analysts expect the Chinese government to increase public infrastructure spending to offset a potential decline in steel demand from the real estate sector.

Despite lower demand for iron ore for steel production and production halts in Brazil, Chinese iron ore imports were unchanged compared to 3Q21. Also, volumes from Brazil accounted for a larger share of imports, positively impacting tonne-mile demand.

Seaborne transportation of coal decreased by 4.2% in 4Q21 compared to the prior quarter but increased by 11% compared to 4Q20. Metallurgical coal volumes increased by 2.4% compared to the prior quarter as Australian coal that had been waiting offshore for months due to an ongoing trade dispute was allowed to be discharged. Outside of China, coal imports were mostly unchanged compared to 4Q20, as increases in Taiwanese imports largely offset lower Indian imports, which skewed higher in 2020 when Australian coal was redirected from China.

Thermal coal volumes increased by 10.2% in 4Q21 compared to the same period in the prior year, as both China and India sought to replenish depleted inventories and mitigate the impact of widespread power shortages. In India, domestic power production failed to meet internal targets and most power stations entered the monsoon season with shortages. While coal is not favoured by developed economies for power generation, it has been a critical part of the energy mix for emerging economies and is the source of greater than 70% of total Chinese electricity output and greater than 75% during the winter months. According to Maritime Analytics, thermal coal demand is forecast to increase at a growth rate of 2.4% and 2.3% in 2022 and 2023, a rate well above growth in recent years.

Transportation of essential agri-bulks, which represented 12.2% of total seaborne volumes in 4Q21, was not materially different than 4Q20. Other minor bulks grew by 3.4% compared to 4Q20. The global fleet of dry bulk vessels amounted to 944.8 million DWT at the end of 4Q21, absorbing a modest net increase of 6.5 million DWT in the quarter, compared to 5.6 million DWT in 4Q20. The orderbook as a percentage of the global fleet stood at 7% at quarter-end, the lowest level in 30 years.

Strategy and outlook

The company's constructive market outlook is based on both expectations of steady global demand for dry bulk commodities, and equally importantly, powerful supply-side dynamics that have not been present for many years. The International Monetary Fund (IMF) forecasts global GDP to grow by 4.4% in 2022 and 3.8% in 2023. The IMF cited rising energy prices and supply chain disruptions that have resulted in higher and more broad-based inflation than anticipated as the cause of its downward revisions from prior quarters. Growth forecasts for the emerging and developing Asia have also been marginally reduced to 5.9% and 5.8% for 2022 and 2023, respectively. The revised forecasts remain high by historical standards and should support steady dry bulk commodity demand.

Even with lower growth forecasts, global tonne-mile demand is forecast to increase by 2.9% and 2.5% in 2022 and 2023, respectively. After grow-ing by 3.6% in 2020 and by approximately 4.2%/yr on average over the last decade, the global dry bulk fleet is forecast to grow by 2.7% in 2022 and 2.6% in 2023, closely approximating the expected growth in tonne-mile demand. Based on these forecasts, it is expected that a sustained period of higher rates will follow, particularly if fleet efficiency does not improve dramatically. An orderbook at a 30-year low as a percentage of the operating fleet is highly supportive of expectations for moderate fleet growth.

In 2021, 29.4 million DWT of new capesize and panamax vessels have been ordered, representing approximately 5.2% of the global fleet as of the start of the year. This figure approximates the requirement for a fleet renewal cycle, based on a normal useful life of a vessel, and ordering activity is significantly lower than seen during past periods, where freight rates have been elevated. Along with the increase in steel prices, the additional technical complexity of certain vessels has driven newbuilding prices sharply higher in 2021. The company does not anticipate a dramatic surge in new-building orders given the recent sharp rise in newbuilding prices, scarcity of competitive financing, and, importantly, increased ordering of highly complex next-generation vessels in other shipping segments that have placed capacity limits on shipyards globally.

In the short term, the company is monitoring developments related to the Chinese real estate industry, which accounts for approximately 30% of domestic steel demand, as well as the potential for stimulus-driven infra-structure projects to offset any decline in demand. The company believes it is well-positioned in the near term, with highly profitable charter coverage for most of its available days in 1Q22 and approximately one quarter of its available days in 2Q22.

Throughout 2021, the company has actively grown and renewed its fleet, disposing of several older vessels and acquiring or placing orders for 25 modern vessels. In addition to increasing the company’s cash generation potential by virtue of a larger fleet, company's actions have ensured that its fleet will remain highly competitive for years to come.

Technological advancements play a key role when it comes to energy efficiency and emission control, both in terms of engine technology and data handling. The company optimises vessel routing and speed in order to increase voyage efficiency and reduce fuel consumption. The company has decarbonisation as a core strategic pillar and are carefully considering all potential efforts to further reduce its emissions.

With a best-in-class fleet focused exclusively on large vessel classes, Golden Ocean is well-positioned to generate significant cash flow and create value for our shareholders. The Board of Directors remains committed to returning value to its shareholders through dividends and expects to deliver continued dividends as long as market strength persists. While the amount and timing of any future dividend payments will be based on company's results, investment opportunities and the prevailing market conditions, it is the company's intent to distribute a significant portion of its earnings in line with the company's current strong market expectations.

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