Golden Ocean Group Limited

Hello and good afternoon from Oslo. My name is Lars Christian Svensson and I'm the Interim CEO of GoldenOcean. Today, CFO Petter Simonsen and I will guide you through our Q2 numbers and share our views on the market going forward. We start with the highlights for Q2. Our adjusted EBITDA in the second quarter came in at 80.4 million compared to 54.7 million in the first quarter of 2023. The net profit amounted to 34.9 million and earnings per share of 17 cents. This compared to a net loss of 8.8 million and loss per share of 4 cents in the first quarter. Our TCE rates for Cape size and Panamax vessels were 19,100 per day and 15,600 per day respectively. This amounts to a fleet-wide average net TCE of 17,660 per day. For the third quarter, we have secured a net TCE of 18,300 per day for 79% of the Cape size days respectively. and $13,510 for 98% of the Panamax days. For the fourth quarter, we have secured a net TCO of 21,500 per day for 34% of the Cape site days, and $16,500 per day for 26% of the Panamax days. We also welcome new additions to the fleet with six of our ten 85,000 Deadweight Camps and Maxx new buildings being delivered and six modern Newcastle Maxx vessels which have commenced long-term contract with the Brazilian iron ore miner. We entered into two credit facilities of an aggregate amount of 120 million, part financing the six new buildings at a highly competitive terms. And last but not least, we announced a dividend of 10 cents per share for the second quarter of 2023. I will now pass the word over to Petter.

Thank you, Lundqvist. If we move to slide five. and our P&L, we can start with looking at our revenues. As Lars-Jussef mentioned, we achieved the TCE rates of 19,100 for our CAPEs and 15,600 for our Panamax and Ultramax fleet. Our total fleet YTC was 17,700, up from 14,900 in Q1. We had six ships dry docked in Q2 versus three ships in Q1, resulting in approximately 215 days of a fire in Q2 versus 146 days in Q1. We have one ship that we expect to dry dock for Q3, and this dry dock has been completed at today's date. Just below 375 vessel days have been added through new ship deliveries, net of ships leaving the fleet. The sum of this resulted in TCE revenues of 153 million, which compares to 131.2 million in Q1. Looking at our operating expenses, we recorded 62.4 million in total APEX compared to 61.6 in Q1. The increase is a result of higher dry docking costs due to more ships being dry docked. In addition, we incurred increased costs relating to the change of technical management for approximately 25 ships during the quarter. This was offset by lower OPEX reclassified from charter hire as we record each quarter. Our OPEX xDARI dock was 6,200, which was largely unchanged from Q1. Looking at our general and administrative expenses, we ended with a total expense of 5.2 million. which was up from 4.2 million in Q1. The increase is attributable to non-recurring personnel expense, mainly relating to profit sharing. Our daily G&A came in at $556 per day net of cost recharged to affiliated companies, which is up from $444 per day in Q1. Our charter hire expense was reduced from 16.8 in Q1 down to 10.2 in Q2, which is the result of fewer vessel days in our trading portfolio. Moving to the net financial expenses, we recorded 23 million in net financial expenses versus 20.5 million in Q1. This is due to higher reference rates, both LIBOR and SOFR, and higher average debt during the quarter. On our derivatives and other financial income, we recorded a gain of 14.3 million, which compares to a gain of 2.7 in Q1. On our derivatives portfolio, we recorded a 9 million gain versus a 2.1 million loss in Q1, with interest rate swaps being the main positive contributor, offset by a loss on FFA and bunker derivatives. On our results from investments in associates, we recorded a gain of 4.9 million, which is unchanged quarter on quarter, stemming from our investments in Swiss Marine, TFG, and UFC. A net profit of 34.9 million, 17 cents per share, and a dividend of 10 cents was declared for the quarter. Moving to our cash flow, we see a net decrease in cash of 15.9 million. On our cash flow from operations, we recorded a positive cash flow of 45.5 million, which includes a 1.6 million of dividend received from associated companies. On cash flow provided from financing, we recorded a 102.0 million drawdown relating to deliveries of three Newcastle MAX vessels. And we drew down 80 million relating to delivery of four CAMSA MAX new buildings. We also drew 25 million under our revolving credit facilities, leaving 75 million undrawn and available at quarter end. We made a prepayment of 25.8 million relating to the sale of Golden Feng and Golden Shui, and we recorded 30.3 million in scheduled debt and lease repayments. recorded a dividend payment of 20 million. And finally, we spent 6.9 million in payments under our share repurchase program as announced during the quarter. Owner cash flow used in investments totaled 184.6 million, which is mainly relating to 43.6 million in net proceeds received from the sale of Golden Feng and Golden Shui, 130.1 million in asset investments, the majority relating to purchase price for three Newcastle vessels, and payment of new building installments of 98 million. Moving to slide seven on our balance sheets, we can see that our cash and cash equivalents was 107.3 million, which includes 3.4 million of restricted cash. In addition, we have 75 million, as mentioned, undrawn and available under our revolving credit facilities at quarter end. Our debt and finance leased abilities totaled 1.5 billion at the end of Q2, up by approximately 152 million since Q1. Average fleet-wide loan-to-value under our debt facilities per quarter end was 45%, and our book equity of 1.9 billion led to a ratio of equity to total assets of approximately 54%. And with that, I give the word back to Lars Christian.

Thank you, Peder. We're moving over to the GDP growth. GDP growth is the leading indicator for dry bulk demand. The graph on the left shows the G20 diffusion index. This index illustrates the number of G20 countries that are growing above their long-term potential. As you can see, this correlates well with the historical cyclicality of the Baltic Dry Index and indicates another potential upturn in the near future. The global GDP outlook has been revised downwards over the course of the year, but shows healthy growth rates according to the IMF, with China and India remaining important contributors. Over to the market development. We have all seen and read the macro news over the last six months, which has created unusual volatility in the freight and trading markets. For the Cape site market especially, the physical story paints a solid picture. Iron ore exports from Brazil are up substantially from last year, about 12 million tons to date. Bauxite from West Africa increasingly so, and China's appetite for imported coal, albeit record domestic production being high, has surpassed 2022 year to date. We also need to mention the extremely high fleet efficiency, currently well below five years average, where the Cape site market has a large upside. Much like what we've seen in the Panamax space over the last month, where sudden congestion in South American ports and a dry Panama Canal has pushed the freight markets. Panamax has so far trailed behind the Cape segment this year, however, with the congestion, delayed soybean season and good corn crops from the U.S. Gulf, we foresee more Panamax activity for the second half as well. Moving over to the steel and iron ore inventories, the Chinese iron ore and steel mill inventories are also telling a very compelling story. Iron ore port inventories are down 25% and 40 million tons since the heights of beginning of 2022. And steel inventories has also been drawn down almost 30% and 34 million tons over the same period. This is well below the 30-day critical consumption level for the country. It also explains the vast amount of iron ore volumes being shipped so far this year and does indeed indicate that China is continuing to utilize steel. The iron ore price is currently trading around $115 per ton and has so far not shown weakness, volatility rather, on the back of macro news yet to be implemented. Finnish steel, as in terms of rebar, long and flat steel, is also at normal levels, i.e. steel in every shape and form is being absorbed and the underlying demand continues. Brazilian iron ore and bauxite. The ton mile in the cape size segment continues to increase. Last year, the iron ore ton mile was down about 3%. However, with the aid of other commodities, much thanks to guinea and bauxite, the overall ton mile for capes increased 3% in 2022. The trade has become significant, currently 10% of Cape Ton Mile, with analysts expecting 30-40% growth in 2024. So far in 2023, with more volumes being shipped from both Brazil and Guinea, the Ton Mile will continue its positive trajectory. Another point we would like to raise in this call is the more structural impact of the bauxite trade. If I can draw your attention to the bottom left graph, you will see that seasonality in the Cape Sars market has experienced less volume during Q1 and also in turn lower freight rates. This has been due to the wet season and maintenance of the I&O terminals in Brazil. But as you can see, with the increased bauxite tons exported during the same period, the ton-mile gap narrows every year. We are under the belief that the so-called traditional Q1 slow season can be challenged and that we will have a more steady trade flow all year round for the larger sizes. If you have a look at the favorable supply dynamics, as mentioned previously in this presentation, we see limited downside in the larger sizes when it comes to efficiency. There is simply put little room to turn the fleet faster during port operation than what we're currently experiencing. If anything, with the new CII regulations coming in full force in 2024, large parts of the fleets are likely to slow steam even further. At the same time, the order book and supply dynamics for dry cargo vessels are encouraging and very much unchanged over the last 12 months, largely due to uncertainty surrounding propulsion technology and yard capacity restraints. Next slide here, we go through the resilient business model of Golden Ocean. We strive to maintain our position of having the lowest cash break-even in the industry, currently fleet-wide around $13,000 per day. With our premium fleet, hands-on execution, and good financing, we are continuing to outperform the market every quarter. For the first half of 2023, we have across both Cape and Panamax segments outperformed the market with $4,700 a day. We aim to continue our fleet renewal program and enhance further energy efficiency devices across our fleet to bring our cash break even down further. With our low cash break-even and fleet composition, we will float in almost any market as seen on the graph on the right side. Now, let us guide you through our next two quarters. The forward outlook from a market standpoint looks promising as discussed earlier in this presentation. We have for Q3 locked in 79% of the cave size available days at $18,300 per day and 97% of the Panamax available days at $13,500 per day. Q3 to date, we have outperformed the market by $5,300 a day on a fleet-wide average. For Q4, we are locked in 34% of the available Cape size days at $21,500 and 26% of the available Panamax days at $16,500 per day. And this combined, we have contracted a TCE revenue of $181 million for the second half of the year. This cover will protect a healthy bottom line for the rest of the year and at the same time give us leverage needed to capture a rising market going into Q4. Cash flow potential. To round off this presentation, we would like to show you the significant earnings potential in Golden Ocean as we move into the historical high season. The assumed freight rates set out in the graph are achieved rates, and based on the best-in-class fleet efficiency and low-cost model, the free cash flow can generate healthy dividend yields even at current freight levels. With that, I pass the word back to the operator.

Thank you. Thank you.

Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw your question, please press star 11 again. Please remember we will compile the Q&A rules.

This will take a few moments. And now we're going to take our first question.

And the question comes from the line of Omar Nocta from Jefferies. Your line is open. Please ask your question.

Thank you. Thanks, Lars, Christian, and Petr. Good afternoon. I wanted to ask about the dry bulk market. And I think you gave some interesting commentary about the bauxite trade potentially offsetting the typical wet season in Brazil. Do you think basically, you know, going forward, we may be able to throw out the conventional idea that dry bulk is always the weakest in the first quarter? And do you look to capitalize on this dynamic potentially here as you get into 24 with maybe some charter ends or some FSAs? How do you think about playing the potential of bauxite offsetting iron ore?

I think, Omar, that when it comes to the bauxite trade, the growth potential is huge. The volumes are there, the mines are there, and the infrastructure works very well. This is already contracted volumes going into a different trade than what the traditional iron ore would do. So we are quite bullish on this particular commodity that will drive it forward with the ton mile. If that increases 2%, 3%, 4% per year next year and the year after, we're looking at quite healthy cave-sized rates going forward.

Yeah. I guess in terms of You know, the iron ore activity that we have been seeing, you mentioned that it's been relatively strong actually going into China and with a big step up out of Brazil so far this year. You know, when we think about the pace of activity, obviously the first half looked really good going into China. It looks like elsewhere was a bit softer. What's the pace been like as we look here, as we started the second half here? I guess we're two months in. How is the pace of iron ore going into China in relation to the first half from your vantage point, and are there any shifts or promising signals for volumes outside of China?

The second half, in terms of the iron ore story, has started at a lot higher pace than the first half of the year. Just today, the output from Brazil, combined with all the miners, are over 1.2 million tons per day. So compare that to January this year. This is a significant increase and will drive these volumes forward 100%. And in terms of other countries and places taking the iron ore, we see the European growth as well as slowly but surely increasing from what we've seen from the second half. First off, sorry.

Yeah. Okay, thank you. That's interesting. And maybe just one final one on the market in terms of coal. You know, we have seen here a jump in LNG prices of late, at least in relation to where things were a couple of months ago at the lows. Have you seen any effect on that, on coal volumes or coal interest or activity? Any shift or any sort of, I guess, any impact of that on the coal trade?

Yeah, the coal trade has been active all year, especially from Australia into China, since they reopened their relationship there. India has been active in the first Q1 this year, and now with the monsoon season over, we expect India to continue their imports, that their stockpiles are low as well. With the gas prices going up, we have seen in the market lately more cargoes as well going from east to west. Maybe that's a strong signal that the continent is starting to build a little bit more security to avoid what happened last year.

Got it. Thank you. Thanks for our discussion. That's good color. I'll hand it over. Thanks, Omar.

Thanks, Omar.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1-1 on your telephone keypad. The speakers don't have further questions at this time and would like to hand the conference over to our management team for any closing remarks.

Well, thanks a lot for dialing in and have a continued great week.

Thank you very much. Bye-bye.