Golden Ocean Group Limited

Good day and thank you for standing by. Welcome to the Q3 2024 Golden Ocean Group Limited Earnings Conference call. At this time all participants are in a listen-only mode. After the speakers presentation there will 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 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 will now like to hand the conference over to your speaker today Peter Simonsson, interim CEO and CFO. Please go ahead.

Good afternoon and welcome to the Golden Ocean Q3 2024 release. My name is Peter Simonsson and I am the interim CEO and CFO of Golden Ocean. Today I will present our Q3 numbers and forward outlook. In the third quarter of 2024 we have the following main highlights. Our adjusted EBTA in the third quarter ended up at 124.4 million compared to 120.3 million in the second quarter. We delivered a net income of 56.3 million and earnings per share of 28 cents compared to a net income of 62.5 million and earnings per share of 31 cents in the second quarter. Our adjusted net profit was 66.7 million and adjusted earnings per share of 33 cents up from 63.4 million and earnings per share of 32 cents in Q2. Our TCE rates were about $28,300 per day for Cape sizes and about $16,400 per day for Panamax vessels and fleet-wide net TCE of around $23,700 per day for the quarter. We have continued to execute on our fleet renewal strategy by selling one older Panamax and an older New Cosmo Max vessel at attractive prices. Further, we continue to secure attractive financings supporting our industry low cash breakeven rates. For Q4 we have secured a net TCE of about $26,300 per day for 82% of Cape size days and about $14,600 per day for 83% of Panamax days. For Q1 we have locked in a net TCE of about $21,100 per day for 27% of Cape size days and about $17,500 per day for 15% of Panamax days. And with a strong result we are pleased to declare a dividend of 30 cents per share for the third quarter of 2024. Let's look a little deeper into the numbers. As mentioned we achieved the fleet-wide TCE rate of $23,700 slightly up from Q2. We had five ships dry docked in Q3 compared to four ships in Q2 contributing to about 253 days of fire in Q3 versus 193 days in Q2. We are entering into a period with frequent dry dockings. We have 13 ships scheduled to dry dock in Q4 2024 of which four vessels have completed dry dock as of today and seven ships are expected to dry dock in Q1 2025. We recorded net revenues of $206.6 million, $9.2 million higher than Q2 mainly due to increased vessel days. Looking at our operating expenses we recorded $69.4 million in OPEX versus $66.3 million in Q2. Running expenses were largely unchanged quarter by quarter while we had one more ship dry dock in the quarter reflected in the results. We had $2.4 million in decarbonization and digitalization investments. Our OPEX reclassified from charter hire was $2.4 million just below $1 million up from Q2. On our general and administrative expenses we ended at $5.3 million slightly up from Q2. Our daily GNA came in at $572 per day net of cost recharged to affiliated companies unchanged from Q2. Our charter hire expenses were $6.4 million versus $4.8 million in Q2 reflecting higher number of vessel days for the trading portfolio as well as profit sharing expense relating to our lease with SFL Corp. Net financial expenses came in at $25.5 million largely unchanged quarter on quarter. Our derivatives and other financial income we recorded a loss of $12 million compared to a gain of $1.9 million in Q2. On derivatives we recorded a loss of $11 million of which $14 million was relating to a mark to market loss on interest rate swap derivatives offset by a $4 million realized cash gain on the same derivatives as well as a $400,000 loss on FFA, FX and Bunker derivatives. For results in investments in associate we recorded a $700,000 loss compared to a $400,000 loss in Q2 relating to our investments in Swiss Marine, TFG and UFC. A net profit of $56.3 million or $0.28 an adjusted net profit of $66.7 or $0.33 and a dividend of $0.30 per share declared for the quarter. On our cash flow we recorded cash flow from operations of $100.8 million up from $76.9 million in Q2. Our cash flow used in investments was $4.4 million mainly due to installments and cost relating to our Camsamax new buildings of $24.8 million offset by $20.8 million in sales proceeds from one older PanaMax vessel. Cash flow used in financing came in at $81.8 million mainly comprising of $35 million in scheduled debt and lease repayments and $8.1 million in prepayment relating to the sale of one PanaMax vessel, $60 million in dividend payments relating to the Q2 results which was offset by $21.6 million in drawdown in connection with the delivery of one Camsamax new building. Total net increase in cash of $14.6 million. On our balance sheet we recorded cash and cash equivalents of $117.6 million including $1.4 million in 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 in Q3 down by approximately $20 million quarter on quarter. Average fleet-wide loan to value under the company's debt facilities per quarter end was 34.1%. Book equity of $1.9 billion and the ratio of equity to total assets of 56%. Looking at Golden Ocean's fleet composition. Golden Ocean continues to renew its fleet as evidenced with the vessel sales announced in the quarter. Although we are opportunistic, we focus on our position in the Cape size and Newcastle max segments which represents over 80% of Golden Ocean's deadweight tons and thereby earnings capacity. We are the largest listed owner in the Cape segment. As I will discuss further in this presentation, we believe that both supply and demand dynamics favors the Cape side segment in the foreseeable future. As illustrated in the graphs, if you are to invest in the dry bulk space, we are the only listed company offering meaningful Cape exposure and at the same time significant market cap and trading liquidity. In Q3, we saw cargo volumes continue at healthy levels from a seasonally strong first half despite geopolitical turmoil and a challenging training sentiment. Brazilian iron ore volumes were up 13% quarter on quarter as driven by strong production and guidance from the largest Brazilian miner, Vale. Australia continued strong exports, although slightly down quarter on quarter. The West African bauxite volumes have grown to a healthy baseline of 10 to 12 million tons per month and are now in the upper end of the range as they are approaching peak season exports in Q1. Hole volumes are up 3% quarter on quarter, mainly from Indonesia and Australia to Southeast Asia. Colombian volumes, which were strong ton-mile contributor for the first half of 2024, have decreased with 11% from previous quarter as they have struggled with onshore infrastructure issues. As for the first half, China continued to import a large portion of the volumes, representing 75% of the Brazilian iron ore and 83% of the Guinea bauxite exports. In line with healthy growth in volumes, both Vale and Australian miners guide positively on production, reiterating their strong full year production targets. Iron ore prices have been volatile but stayed at historically healthy levels despite the negative macro backdrop. Current prices of above $100 per tonne compares very favorably to the break-even rate of the delivered in Asia, indicating continued profitable exports. A healthy iron ore price is a signal that the demand for iron ore remains healthy. Following significant investments in mining and infrastructure in Guinea, the Simandou high-grade iron ore mine is expected to ramp up its production and exports from Q4 2025, which will over two and a half years have an expected 120 million tonnes of export capacity annually. If assuming that the Simandou volumes will replace Australian volumes, it will triple the sailing distance to Asia, boosting ton-mile demand for Cape sizes significantly. In addition to Simandou, Brazil has several new expansion projects on the way. The additional annual export capacity of around 50 million tonnes will come on stream during 2025 and 2026, further adding Cape-sized ton-mile. Iron ore inventories increased to 2022 levels during the first half of 2024, but have stabilized during October-November as steel production has balanced out iron ore imports. Whereas we throughout the year have seen significant negative news flow relating to Chinese growth projections, in October we saw Chinese government announcing stimulus packages, including stabilizing the weak property sector, but more importantly, a clear signal that Chinese government is committed to achieving its growth targets. In the latest economic outlook published by IMF, it's expected that China will grow by .8% and .5% in 2024 and 2025 respectively, supporting healthy long-term demand for commodities. Despite elevated inventories, China has continued to import high-grade Brazilian iron ore, which supports the indication that the parts of the inventories are of a lower grade. Further, the Dalian metals exchange in China has required traders to hold higher deposits of iron ore in order to trade its ore, further upping inventory levels. China has stated that it's aiming to reduce emissions in the steel industry. To use higher-grade iron ore and coal will reduce emissions per tonne steel produced. China is in the process of including the steel industry into emissions trading scheme, which will make increased high-grade imports even more beneficial. The new high-grade iron ore mine in Simandou, Guinea, partially funded by Chinese interests, will add to the sourcing of high-grade commodities. The official statistics on reported steel production in China has remained muted in Q3, but has during October improved as steel margins have started to strengthen and PMI indicators improve. We have also seen a more optimistic tone from the large steel mills, a significant change in narrative from what was presented during Q2. Outside China, crude steel production has started recovering, but is muted by weak demand and high interest rates. However, as this constitutes 50% of global steel demand, it presents a significant upside once the remand comes under way. Analysts expect growth of 5 to 7% in the next couple of years as the world is recovering from inflation and higher interest rates. Despite weak steel margins, Chinese steel mills continue to protect their market share. The steel exports from China has continued in Q3 and into Q4, with a 30% increase -on-year in the first nine months of 2024. The stimulus targeting in the real estate sector is highly positive to stabilize the property market and for the economy in general. Construction represents around 25% of steel demand, while infrastructure investments, manufacturing and exports are on aggregate, representing approximately 60% of Chinese steel production. Guinea in West Africa has become a major exporter of high-grade commodities. As is the case for the new iron ore projects coming on stream, the Guinean bauxite is to a large degree controlled by Chinese interests, indicating ton-mile support in the years to come. Exports of bauxite, which is used in the 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 demand and sailing distance, represents a switch to cave sizes from smaller vessel segments. The bauxite trade has on average grown by 22% annually since 2017 and is expected to grow by approximately 5 to 10% in 2025, further supporting cave size demand. As bauxite exports currently contribute to 13 to 14% of ton-mile for cave sizes, this will represent a demand growth covering most, if not all, of the scheduled deliveries in cave size for 2025. The order book remains favorable, with cave size being supported by shipyard capacity constraints. Cave size and new custom max compete with container ships, LNG vessels and tankers for capacity due to dock size required. With capes representing the lowest profit margins for the shipyards, they are generally outcompeted by other more profitable segments on the available capacity, leading to higher quarter prices and long-dated delivery schedules. We have only seen marginal additions to the order book the past quarter and we remain at historically low levels, illustrating that the restrictions posed by yard capacity, high new building prices and long lead times remain a key fundamental support. The cave size fleet is aging and over half of the cave size fleet will be above 15 years of age in 2028, in a period where environmental regulations are tightening. Also, as seen from the fleet profile, the concentration of vessels required to dry dock in the two coming years is expected to reduce fleet capacity further than normalized distribution over a docking cycle. We lastly see inflation in necessary investments to meet technical requirements, raising the bar for smaller operators of older tonnage. There has been unusually little weather disruptions in the port operations during the fall, which normally leads to delays and tightening of the dry bulk markets. The dry bulk fleet continues to operate highly efficiently with low congestion and only marginal Panama and Suez Canal exposure. The return of physical volumes setting the price of freight has seen a healthy rebound in rates in Q4 following a weaker period, very much as seen in 2023. It illustrates the underlying supply and demand balance in the freight market. We will round off with a reminder of our robust business model, low cost base, a modern fleet which continues to support the free cash flow and dividend potential in Golden Ocean. The accumulated dividends paid has surpassed 1.1 billion by a good margin, representing above 90% of net profit for the period. Although we expect volatility with ongoing geopolitical uncertainty, we continue to remain fundamentally positive on the market outlook. I would now pass the word back to the operator and welcome any questions. Thank

you. As a reminder to ask a question, please press star 1 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, that's star 1 and 1 if you wish to ask a question. We will now take the first question from the line of Omar Nocter from Jefferies. Please go ahead.

Thank you,

Hi Simon. Thanks for the update and pretty good detail on the market outlook. I guess I just wanted to get maybe a sense of in terms of Golden Ocean and where you sit in terms of capital deployment. From here, you sold an older Newcastle Max and a Panamax. Prices look fairly solid and you've got some big gains on those. I guess how would you characterize where you sit today company-wise or do you view Golden Ocean being kind of more of a seller in this market? Take advantage of perhaps lost pricing or you're a buyer or in terms of perhaps asset you're coming under pressure or are you neither? Any kind of color you can give I guess in terms of what you're seeing in the S&P market and then what that then means for you.

Hi Omar. Thanks for the question. I think first of all, we have sort of done our heavy lifting when it comes to fleet growth earlier in the cycle. We grew by 30% over the last three years and then in line with the increased asset prices, I think at current point in time, we don't see the real value in acquiring modern tonnage at the current prevailing prices. I think we are more of selling off older tonnage in line with our strategy to replace the sort of balance out the fleet that we have and average out the fleet age. I think when it comes to capital deployment, I think that we have been pretty clear that we favor dividends at the current point in time. I think even though look at current share prices plummeting, might be tempting to deploy some of this into the buyback program we announced the renewal of. But I think as for the rest of the group, we're the same main shareholder. We do preference dividends over buybacks in general terms.

Okay. Thank you. That's clear. I guess maybe just in terms of the dividend as you're just highlighting, you paid 30 cents or you declared 30 cents and you paid that I believe the past four quarters. Earnings per share has generally been in that range plus or minus a couple of cents. How would you think about let's say the next quarter or a falling quarter, EPS falls into say the 20s or 25 cents, not saying don't want to hold you to it. But when you think of that 30 cent dividend threshold, is that something you expect to maintain if earnings don't deviate too far away from what you have achieved or do you shift back towards that percentage payout of earnings?

I think we've always been the percentage payout of earnings. But we have also tried to balance out the peaks and troughs. And obviously we have a cap cost base which enables us to pay out dividends if the market weakens temporarily. And I think we are very much repeating what we've said that we're positive to the market and the fundamentals of the market, which means that we intend to pay dividends throughout any weaker periods. But the nominal amount I think we'll have to see. And we are also optimistic as we have shown, but I think in general we intend to continue where we are, what we have been doing since 2021.

Okay, very good. All right, well thank you. I'll turn it over. Thank you.

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Okay. Then I will thank you all for listening in and I wish you all a peaceful holiday season when the time comes. Thank you.

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