Golden Ocean Group Limited

Ladies and gentlemen, good afternoon. It's my pleasure to welcome you to GoldenOcean's quarterly release presentation. Thank you very much for tuning in. In today's call, we follow our usual procedure. Peter Simonsen, GoldenOcean's CFO, will talk us through the financial highlights. And hereafter, I will be discussing the market and the outlook for the company. Towards the end, I will also offer some insight into how our decarbonization journey is developing. So in the next 15 to 20 minutes, You will see that 1. Despite a weak first quarter, the gradual recovery of China is on, and combined with the seasonal uplift, it provides momentum for a strong freight rate environment for the rest of the year. That 2. Our fuel-efficient fleet continues to outperform the benchmark indices significantly. And finally 3. We will show how Golden Ocean has invested in reducing emissions and reducing fuel costs while future-proofing the company. With that, let's take a look at the main highlights for the quarter. In Q1, we recorded an adjusted EBITDA of 55 million, which resulted in a net loss of 9 million, or 4 cents per share. We achieved average net TCE rates of 13,600 per day for our capesizers, and $16,600 per day for the Panamaxes. Like the last four quarters, these earnings are well above the benchmark indices. The fleet made $4,900 per day per vessel more than the market every day throughout the quarter. Our modern fuel-efficient fleet, fixed-paying contracts, and scrubbers drive the premiums. Rate Guidance And looking at this quarter, Q2, we have so far secured $20,000 per day for 74% of our CAPE days and $14,600 per day for 76% of our Panamax days. Looking ahead and into Q3, we have secured $22,300 per day for 26% of our CAPE days and $19,600 per day for 38% of our Panamax days. During the quarter, we took delivery of the first of our ten Kamsomax's new buildings. We will take delivery of another five vessels in this series before the turn of the year. In addition, we also acquired six New Carson Maxx vessels. Two have already been delivered. The rest will follow before end June. We also entered into an agreement to sell our two oldest Cape size vessels as we continue to divest less efficient tonnage and take advantage of firm asset markets. Finally, we announce our ninth consecutive quarterly dividend. We will pay out $0.10 per share for Q1. The dividend is a reflection of our belief in the market and underlining that dividends remain a central element of our capital allocation. Now I pass the word to Peter, who will dive into some of the numbers and financial details of the quarter. Thank you, Ulrik. Thank you.

If we move to slide five, we achieved a total fleet-wide time charter equivalent rate of 14,900 in Q1, which was down from 20,400 in Q4. We had three ships dry docked in Q1 versus two ships dry docked in Q4, resulting in 146 days of fire versus 120 days in Q4. We have six ships expected to dry dock in Q2 this year, with three completed as the date of this report. We had the time charter revenues of 132.3 million, which compared to 180.4 million in Q4. We recorded sales gains of 2.6 million versus 2.8 million in Q4, which will both relate to the sale of two Panamax vessels previously announced that were delivered before and after the year end. On the operating expenses, we recorded 61.6 million in total, which is up 3.5 million from Q4. This is attributable to higher dry docking costs and also higher OPEX reclassification from charter hire, which is due to higher trading activity. OPEX xDryDoc and reclassification was 6,300 unchanged from Q4. Looking at our general and administrative expenses, we came in at 4.2 million in Q1, which is down from 5 million in Q4 due to lower personnel expenses. Our daily G&A came in at just below $450 per day, net of cost recharged to affiliated companies down from 540 in Q4, and still by far the lowest G&A per day among our peers. Our charge for hire expense were $16.8 million versus $12.5 million in Q4, And this, as mentioned, is due to higher trading activity, which was offset by lower chartering rates in the quarter. Adjusted DVTA was 54.7 million versus 112.4 million in Q4. In connection with the sale of the two older Cape size vessels announced, we recorded an impairment loss of 11.8 million in the quarter. Moving to the net financial expenses, we saw interest rate expenses increase and record a 20.5 million expense versus 17.6 million in the previous quarter. This change is due to higher LIBOR and SOFR rates and slightly higher average JET in Q1. On the derivatives and other financial income, we recorded a gain of 2.7 million, which compares to a gain of 10.9 million in Q4. On the derivative side, we saw a 2 million loss versus a gain of 2.7 million in Q4, and this is mainly due to falling mark-to-market values on our interest rates swap portfolio. On the results from investment in associates, we recorded a gain of 4.9 million, which was down from 7.8 million in Q4, which relates to our investments in Swiss Marine, TFG and UFC. and a net loss for the quarter of $8.8 million, or $0.04 per share. And as Ulrik mentioned, we have announced a dividend of $0.10 per share. Looking at our cash flow on slide six, we saw a net decrease in cash of $14.9 million, On cash flow for operations, we saw positive cash flow of 76.5 million. And this includes a total of 15.3 million in dividends received from our investments in associated companies. Our cash flow provided from financing came in at 32 million. We had dividend payments relating to the Q4 results of 40.1 million. We drew down a total of 80 million relating to the delivery of two new Castlemach vessels. We saw net refinancing proceeds of approximately 15 million for the previously announced 250 million facility. And we saw scheduled debt and lease repayments of 23.3 million. On the cash flow used in investments, we recorded 123.3 million. This mainly relates to the sale proceeds relating to golden strength of 15.3 million, payment of deposit and purchase price of 123.8 million relating to the announced Newcastle Max acquisition, payment of new building installments of 15.7 million, and received repayment of shareholder loans of 0.9 million or $900,000. On the balance sheet on slide seven, we recorded cash and cash equivalents of 123.2 million, which includes 4.8 million in restricted cash. And in addition to that, we have 100 million in undrawn available credit facilities at quarter end. Our debt and finance lease liabilities totaled 1.3 billion, up approximately 75 million since Q4. Average fleet-wide loan-to-value under our debt facilities was 44.5%, which was unchanged quarter on quarter. Book equity was 1.9 billion, and the ratio of equity to total assets was approximately 57%. And with that, I give the word back to Ulrik.

Thank you, Peter. We start off with a quick review of the market developments in Q1. The CAPE market came under severe pressure from the beginning of the quarter, impacted both by seasonal slowdown and economic slowdown. The market reached a low point just above $2,000 per day at the end of February. But as the Chinese economy started to react to the policymakers efforts to stimulate the economy, we saw increasing demand for iron ore and particularly coal. Chinese iron ore imports in Q1 were up 9% year on year, while coal was up 100%. The Cape market, both spot and FFA, reacted promptly and firmed throughout March. It gained further in April, although of course that did not contribute to our Q1 results. Despite the rally in March, it was a case of too little, too late, and the Cape market averaged just $9,000 per day over the quarter. However, as we will see later, Golden Ocean achieved a premium of 15%, 5-0, with the Capes making close to $14,000 per day. In the Panamax segment we saw the typical Q1 seasonality playbook. We saw pressure on the rates until the post-Chinese New Year activity gave way to a decent recovery, which, however, was capped somewhat by a severe drought in Argentina and weak Chinese grain demand. The Panamax market averaged 11,300 per day during Q1, although Golden Ocean's efficient fleet sailed in daily TCE of almost 50% above that. The world GDP outlook is uncertain amid financial sector turmoil, high inflation, a war in Europe and increasing interest rates, to mention a few. Yet, we remain optimistic for two reasons. The first is that the global economy could prove more resilient than it feared a few months back. The problems in the supply chain are easing and the pace of US inflation is slowing. It increases the possibility of soft or at least a softer landing. Secondly, and this is very important, the market for the large sized dry bulk vessels that Golden Ocean owns is highly correlated with China, more so than with the growth in the rest of the world. In this respect, we note that China has had a much better than anticipated start to the year. The Chinese economy grew a solid 4.5% year-on-year in Q1, well above the consensus prediction of 4%. Moreover, growth gained momentum over the quarter, and Q2 is now widely projected to come in substantially stronger. Consequently, many analysts have lifted the outlooks significantly, and the consensus across the investment banks now predict the Chinese economy to grow nearly 6% this year. GDP growth is, of course, a headline rate, and the effect on demand for dry bulk shipping will depend on many factors. We have on previous calls pointed to the property sector as critical, not only for the Chinese economy, but also for dry cargo. The property sector is faring better. It expanded in Q1 following six quarters of contraction. In addition, new home prices rose at their fastest pace in 21 months in March. Meanwhile, steel production has been strong in Q1, increasing 6.1% year-on-year, further reducing the already low iron ore inventories, of course, supporting near-term demand. Having said that, other data points paint a more negative picture. The PMI fell below 50 in April, indicating a contraction in factory activity. Iron ore and steel prices have softened in recent months, while there are rumors of a cap on steel production. In conclusion, China has clearly shaken off the COVID-related drag on its economy and is settling on a trajectory of very decent growth. The rebound is fragile and we have to watch the space, particularly the steel production. But indications thus far are that the Chinese comeback is on, which bodes well for dry bulk demand. Demand for dry bulk commodities has grown consistently over the past 30 years. On average, 30% more per annum than global GDP. In other words, historically, it was not a lack of demand causing dry bulk shipping markets to suffer. It was the ship owners sealing their own face by contracting too much. This is not the situation today. The highly positive supply situation persists with growth rates at 30 year lows. Particularly, the cape size segment looks favorable with the lowest order book of all dryball classes. In the cape segment, Golden Ocean is, with our 62 capes, the largest owner in the world. Another reason for supply-side optimism is the commencement of the IMO 2023 regulations, which are reducing the efficiency of the fleet as a majority of the global dry-bulk fleet is forced to slow down to comply. The exact effect of CII and EEXI is hard to quantify, but all other things equal, it will require more vessels to move the same amount of cargo if the global fleet is slowing down. The impact of the IMO regulations will grow over time as the threshold for compliance increases. We expect limited impact this year, but from next year onwards, we expect a meaningful effect. Finally, we expect ordering to stay muted. Prices remain elevated. There are question marks over future-proof technology, and there are few, if any, available slots until 2026. Naturally, with such an attractive supply side, the market does not need spectacular growth. Normalized demand growth will be enough to outpace the supply and create very strong supply-demand fundamentals. So putting supply and demand together, we expect an extended period of sustainable, healthy earnings. The world may be facing headwinds in terms of inflation, bank sector turmoil, slowing economies. However, it is not enough to upset the outlook for dry bulk shipping. In the short term, The freight market looks to have bottomed out in February, and with the Chinese rebound on track, combined with a typical seasonality, we see sufficient momentum to sustain a healthy market through the rest of the year. In this respect, it is important to point out that the most promising class of vessels in the dry space is the Cape size. There are three reasons for this. The first is that the Capes have the highest correlation with China. The Handys and Supers depend more on global GDP, therefore often referred to as GDP carriers, the outlook for the rest of the world is not as good as for China. Secondly, in recent years, the smaller vessels enjoyed significant support from the red-hot container markets. Many small dry cargo vessels carried containers. That demand is gone and it will not come back. Finally, the capes have the lowest order book. In the longer term, the historical low fleet growth looks to be the main driver of a failable market balance well into 2026. In other words, we remain highly optimistic about the prospects for Gold Notion both short-term and long-term. As we usually explain in our course, we always seek to secure fixed paying contracts when levels are attractive and we do that in whatever segment, be it Cape or Panamax, that offers the best value. We do not want to be fully spot exposed at any time. For Q2, we have approximately three quarters of our fleet fixed above $20,000 per day, net of all commissions. For Q3, we have 26% of our CAPE days fixed at $22,000 per day, and 38% of our Panamax days fixed at $19,600 per day. We believe the near-term prospects for the CAPE sizes are more promising than any other classes, given their high correlation with China. Therefore, we have taken more fixed-paying contracts on the Panamaxes than the CAPEs. In 2021, Golden Ocean set ambitious emission reduction targets. Compared to our 2019 baseline, we want to reduce our carbon intensity by 15% in 2026, 30% by 2030, and have net zero emissions by 2050. We believe decarbonization is changing the traditional ship-owning model and will impact cost of capital, asset prices, customers' buying criteria, and much more. A low carbon business model is much more resilient. It will have superior earning capabilities and be much better suited to service customers and comply with future regulations. In GoldNotion, we have a pragmatic approach to decarbonization. We want to monetize it. And as can be seen, it is entirely possible to invest profitably in decarbonization. In 2021, we commenced our efforts to reduce our emissions. We began divesting high-emitting tonnage, often with lower cargo capacity, and replaced it with fuel-efficient tonnage, often with higher cargo capacity. We also initiated a digital transformation in which we rolled out a performance management IT infrastructure that, through sensors and data, allows for real-time monitoring of our ship's performance. In addition, we now use digital speed and route optimization, have improved hull cleaning procedures to reduce drag, and much more. Our efforts have paid off and radically increased the fleet's efficiency. And in turn, of course, also saved a large amount in bunkers. Last year alone, we reduced our carbon intensity compared to our baseline by 9.2%. That translated into saved costs of around $20 million. In the years to come, GoldenOcean will continue our decarbonization efforts to the benefit of the shareholders and the environment. The green transition and making money is a duality, not mutually exclusive. On the last slide today, I will talk about cash flow generation. GoldenOcean has the industry's lowest cash break even and one of the most efficient fleets. It means we have substantial cash flow potential. For instance, are we to achieve $20,000 per day on an annualized basis, which is close to where the Q3-Q4 FFA curve is trading? we stand to generate 229 million in free cash. Note that the graph does not take our fleet's superior performance into consideration. It only looks at achieved rates. It's a bold decision what we do with future earnings, but we have for the past nine quarters paid dividends, even with acquiring vessels, so it is a fair assumption that dividend continues to be a top priority when it comes to capital allocation. Before opening up for questions, I'd shortly Wrap up three main points from today's presentation. Gold Notion outperformed the market in Q1, beating the indices by an average of 4,900 per day across our entire fleet. Gold Notion is not taking the foot off the gas when it comes to monetizing decarbonization and building a more resilient and future-proof business model. Gold Notion continues to focus on returning capital to our shareholders through dividends. We pay out of dividend for Q1 despite making a small loss. It emphasizes our belief in the market fundamentals and marks our ninth consecutive quarterly payout. And now we start the Q&A session. I therefore hand the word back to the operator. Thank you for your attention.