Golden Ocean Group Limited

Good day and thank you for standing by. Welcome to the second quarter 2024 Golden Ocean Group Limited earnings conference call. At this time all participants are in a listen only mode. After the speakers presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Peter Simonson. Please go ahead.

Good afternoon and welcome to the Golden Ocean Q2 2024 release. My name is Peter Simonson and I am the interim CEO and CFO for Golden Ocean. Today I will guide you through the Q2 numbers and forward outlook. In the second quarter of 2024, we have the following main highlights. On our adjusted EBTA in the second quarter of 2024 ended up at 120.3 million compared to 114.3 million in the first quarter. We delivered a net income of 62.5 million and earnings per share of 31 cents. This compares to a net income of 65.4 million and earnings per share of 33 cents for the first quarter. Our adjusted net profit was 63.4 million and adjusted earnings per share of 32 cents up from 58.4 million and earnings per share of 29 cents in Q1. Our TCE rates for Cape sites and Panama vessels were about $28,000 per day and about $15,700 per day respectively. And a fleet-wide net TCE of about $23,500 for the quarter. We have continued to execute on our fleet renewal strategy by selling one older Panama vessel at an attractive price. For Q3, we have secured a net TCE of about $26,200 per day for 83% of our Cape site days and about $17,200 per day for 94% of our Panama days. For Q4, we have locked in a net TCE of about $25,800 per day for 29% of our Cape site days and about $17,900 per day for 18% of our Panama days. And with a strong result in Q2, we are pleased to declare a dividend of 30 cents per share for the second quarter of 2024. Let's look a little deeper into the numbers. We achieved a total fleet-wide TCE rate of $23,500 in Q2 up from $22,600 in Q1. We had four ships dry docked into Q2 compared to two ships in Q1, contributing to approximately 193 days of fire in Q2 versus 97 days in Q1. Six ships are scheduled for dry dock in Q3 2024, of which one vessel has completed dry dock as of today. This results in net revenues of 196.7 million, largely unchanged -on-quarter as stronger TCE performance was offset by fewer vessel days. On our OpEx, we recorded 66.3 million versus 62.6 million in operating expenses. Our running expenses were largely unchanged -by-quarter, while more ships dry docked impacted the OpEx results. In addition, we had 4.3 million in decarbonization and digitalization investments versus below one million in the previous quarter. Our OpEx, we classified from charter hire, was 1.5 million, just below one million lower than in Q1. Looking at our general and administrative expenses, we ended up at 5.1 million, down from 7.4 million in Q1. The decrease is explained by non-recurring personnel-related expenses in Q1, and our daily G&A came in at $568 per day, net of cost recharged for affiliated companies, down from $819 per day in Q1. On our charter hire expense, we recorded 4.8 million versus 7.3 million in Q1, as fewer vessel days for the trading portfolio was offset by profit split payments. Net financial expenses came in at 25.3 million versus 27.2 million in Q1, lower due to lower average debt in the quarter. Our derivatives and other financial income, we recorded a gain of 1.9 million compared to a gain of 7.3 million in Q1. On derivatives, we recorded a gain of 2.4 million versus a gain of 12 million in Q1. This included interest rate swap gains of 2.7 million, of which 4.1 million was realized cash gains, offset by -to-market loss of 1.4 million, in addition to a small loss on FFA and FX, and bunker derivatives of $300,000. For results in investments in associates, we recorded a loss of 0.4 million compared to 4.6 million loss in Q1, relating to investments in Swiss Marine, TFG, and UFC. Our net profit ended at 62.5 million, or 31 cents, and an adjusted net profit of 63.4 million, or 32 cents, and a dividend of 30 cents declared for the quarter. Moving to the cash flow. Our cash flow from operations came in at 76.9 million, which includes 0.4 million in dividends received from associated companies. On cash flow used in investments, we recorded 25.5 million, which mainly relates to installments and costs relating to our CAMHSA Maxx new buildings. Cash flow used in financing recorded 95.8 million, which mainly comprised of 31.9 million in scheduled debt and lease repayments, 23 million in net proceeds from refinancing announced in previous quarters, 25 million in repayments under the revolving credit facilities, and a dividend payment of 60 million relating to the Q1 results. A total net decrease in cash of 44.4 million. On our balance sheets, we had cash and cash equivalents of 103.1 million at quarter end, including 3.6 million of restricted cash. In addition, we have 150 million in undrawn available credit facilities at quarter end. Debt and finance lease liabilities totaled 1.4 billion at quarter end, down by approximately 33 million quarter on quarter. The average fleet-wide loan to value under our credit facilities was .1% at quarter end. And a book equity of 1.9 billion resulted in a ratio of equity to total assets of approximately 56%. If we have a look at the Golden Ocean fleet composition, we have over the last three years, grown the fleet by around 30% while reducing the average age with the same percentage. The growth has been focused around the larger vessel types, particularly within the Cape size and Newcastle max segment. Following consolidations among our US listed pairs, as the graph illustrates, we are still the only company compared to our pairs with meaningful market caps that have significant Cape size exposure. With our dual listing in New York and Oslo and a market cap of around $2.5 billion, we offer high trading liquidity exposure to what we believe will be the most favorable dry bulk segment in the years to come. Although we have a significant growth of the past years, we have maintained a conservative leverage with the current LTV of around 34%, which enables extended repayment profiles and industry low credit margins. Together with highly competitive OPEX and GNA costs, we have an industry low cash break-even level, giving full operational flexibility. In addition, our modern fuel efficient fleet has over time proven to significantly outperform market rates with the average historical premium of $4,000 above quote rates. The combination of industry low cost levels and premium earnings created a highly robust and resilient business model. At the same time, it gives Gold Notion the ability to tilt its fleet into the spot market while continuing to managing the charting portfolio sensibly. If we have a look at the markets in the past quarter, the global Cape size trade continued its positive trajectory with the year on year growth of 3% for the first half of 2024. Brazilian iron ore volumes held up its Q1 strength, resulting in a 9% growth for the first half of the year. The bauxite volumes exported from West Africa were record high in Q1, but growth slowed down somewhat as they entered into the seasonally weaker wet season, however, maintaining a strong baseline export. For Colombian coal, we noted a continued strong export to Asia, recording a year on year staggering growth of 45% the first half of the year, adding ton mile to the more standard trading routes. China and India received most of these volumes with a respective import increase of 7 and 9% year on year for the first half of 2024 across all main commodity segments. Iron ore continued to flow into China following the strong Q1, and the continued focus on high grade iron ore has led to growth in iron ore source from Brazil, supporting ton mile. The major miners such as Valda have continued to guide positively on their production targets, indicating continued healthy long distance volumes from Brazil, favoring the Cape size vessels. We are currently seeing export volumes exceeding one million tons per day from Valda and otherwise strong volumes from Australia. We have seen iron ore inventories increase to 2022 levels as higher imports have not been matched by corresponding steel production. Combined with seasonal slowdown, negative macro news on the Chinese economy and poor steel margins, this has put pressure on iron ore prices, which now are trading in the mid to high 90s. We should however, keep in mind that these are healthy levels historically, and that the cost per ton delivered in Asia for the large miners are in the 40 or $50 per ton, making exports highly profitable. Analysts are also indicating that parts of the inventories are over lower grade, which counters China's target of reducing emissions in the steel industry by increasing the use of high grade iron ore. China is in the process of including the steel industry into its emissions trading scheme, which will make increased high grade even more beneficial. Correspondingly, we see signs that China is targeting high grade sourcing of iron ore over domestic production and lower grade producers. China has built inventories across most commodities, both on agricultural products such as soybeans and energy such as coal, indicating that this is a strategic and politically supported buildup. Steel production has stayed flat globally, but Chinese steel production has fallen by 1% in the first half of 2024 compared to last year, in line with general economic indicators. And if inventories remain high as a result of lower steel output, it may eventually impact iron ore prices and potentially trading volumes. We are now coming into the seasonally stronger period in the second half, which normally carries higher industrial activity and where Chinese steel production normally picks up. We have seen a shift in where steel is used. Whereas previously the majority of the steel production was used in the real estate market, we now see that infrastructure investments, manufacturing and exports are increasing in significance, representing over 60% of the steel production. The steel exports from China is continuing at a high pace with a 30% increase year on year for the first half of 2024. Outside China, crude steel production started recovering during 23, but faded someone into Q2 of 24. However, analysts expect a growth of five to 7% the next couple of years as the world recovers from increased inflation and interest rates. Chinese companies have over a long time invested significantly in mining and infrastructure in Guinea, which in addition to bauxite, holds the largest high grade iron ore deposit currently under development. In the end of 2025, we can expect the Simandu iron ore mine to start shipping its first of its forecasted 60 million tons export capacity. If assuming that the Simandu volumes will replace Australian volumes, it will triple the sailing distance to Asia, boosting ton-ball demand when the mine is fully operational in 2026. In addition, there are increased production capacity of high grade volumes on track out of Brazil and in Gabon, which further supports Cape size ton-mile. As highlighted in previous presentations, long-haul bauxite exports have become a significant driver for the Cape size market. We are entering into the high season for bauxite exports in Q4 and Q1, and we expect that volumes will remain healthy and increase from the seasonal lows in Q2 and Q3. Bauxite, which is used to produce aluminum, is heavily used in the growing Chinese car industry, which has been further subsidized by the government recently to support further car sales. Further, monsoon season in India is ending in September, and we expect to see an increase in demand for coal as we seasonally see each year. Coal represents the main energy source for power generation in India and China, with over two-thirds of all electricity produced from coal and around 15% new power plant capacity under development. Supply. The order book remains highly favorable, with the Cape size being the most compelling segment. Although we have seen some additions to the order book this past quarter, we remain at historically low levels, illustrating that restrictions posed by yard capacity, high new building prices, and long lead times remain a key fundamental support. As mentioned in previous presentations, the additional volumes from the new Simadu mine in Guinea will alone be able to absorb the 7% Cape size order book. It is also important to note that the Cape size fleet is aging, and that over half of the Cape size fleet will be above 15 years of age in 2028, in a period where environmental regulations are tightening. And lastly, on the supply side, the Cape size fleet continues to operate highly efficiently, with low congestion, and only marginal Panama and Suez Canal exposure. We round this presentation off as we normally do, illustrating the cash flow potential of Golden Ocean. Despite the negative macro data and rising inventories, we continue to see strong volumes out of Brazil, a balanced freight market, and a supportive FFA curve. The freight market is still not out of the summer lull, as is normal for this time of year, but we are starting to see activity levels pick up in line with the seasonal pattern. We will round off with a reminder of our robust business model, low cost, cost base and modern fleet, which lays the fundament for the free cash flow and dividend potential in Golden Ocean. We have since 2021 paid out an aggregate of $1.1 billion in dividend, representing above 90% of net profit for the period. While there are risks, we continue to see seaborne trading volume flow, and we are optimistic as we enter into the seasonal strength. 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, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. We will now take our first question. Please stand by. And the first question comes from the line of Omar Nocta from Jeffreys. Please go ahead. Your line is now open.

Thank you. Hi, Federer. Thanks for the update. I got a couple of questions from my side. You talked a bit about the market, and these are both market-related. We've seen the capes continuing to do well this summer, and this year, in fact, despite the fact that Chinese steel markets have been soft, as you were highlighting. We're in this mid-20s range, and we're actually, as of today, we're above -to-date averages. So, I just wanted to ask, what do you think has been supporting rates from, say, a fundamental picture, and then also maybe seasonally? Why haven't we seen, like, a seasonal let-up in rates in your eyes?

Hi, Omar. I think it very much follows the seasonal pattern, the development we've seen. If you set aside the first half development, which was counter-seasonal. I think we have a fundamentally strong market with fundamentally healthy volumes flowing. It's a little bit like last year, when we said that, despite all the negative news flow, we can just call what we see in the market. And we are now in a period where there is wet season, both in West Africa and India. We see that the, even though you saw the IRNR price drop down due to the macro sentiment falling, it has rebounded because you continue to see volumes flowing. So, that is an indication that we see the underlying fundamentals being fairly strong. And this is with, obviously, with the healthy baseline bauxite export, but we're coming into a season where this is going to ramp up, and also Chinese industrial activity. So, without trying to call absolute rate levels, we are very positive for what's to come, based on the fundamentals that we see in the market, and the sort of seasonal upswing that we normally see. And as I mentioned, coal volumes will start to pick up going into India as we come to the end of the monsoon season.

Okay, thanks for that. I appreciate the perspective. And I guess, maybe just a bit more on the other segments, we've seen, caves are obviously doing well, supermaxes, which I know you don't have much exposure, they're also holding up and doing quite well, and trading above levels from last year, and definitely much stronger overall. But how would you think about the Panamaxes? I know, Golden Ocean, your results have been much stronger than, say, the spot market averages we've been seeing, but we've seen the Panamaxes coming under pressure here recently, while the other segments seem to be just steady or rising, perhaps. How would you explain this kind of sandwiching of the Panamaxes by the larger and smaller ships? Have you seen this before, and how do you see that evolving here in the coming months, given the seasonal changes ahead?

I think sentiment has also been very much depressed on the Panamax side. The volumes have been just slightly below sort of a fleet capacity, so you've seen sort of the activity levels sliding, and thereby the sentiment being pretty gloomy. We have our ice-clad business, which has supported us this quarter. We had the positioning cost last quarter, and then we see the benefits of these contracts now in Q3, and actually positioning in this quarter, and contracts now playing out in Q3 and Q4. So normally these are interlinked and correlating, so we do expect that also coal volumes will start to give support to the Panamaxes, in addition to obviously the grains and soybeans and corn coming out of the Atlantic. We see that there is weak volumes coming out from Ukraine on the grains and also out on the continent due to a very dry crop this year. So we may see that be replaced by longer ton-mile volumes. So we do look constructive at that segment as well, but we see sort of the seasonal rebound hitting the cape sizes to a larger extent than maybe the Panamaxes at the moment.

Okay, got it. Well, thanks, Peter, appreciate that. I'll pass it over.

Thank you. Thank you. As a reminder to ask a question, you will need to press star one on your telephone and wait for your name to be announced.

As there are no further questions, I would now like to hand

back to Peter Simonson for any closing remarks.

Just wanted to thank you for dialing in and listening, and we will see you back in November for the next quarter. Thank

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