Golden Ocean Group Limited

Thank you for standing by. Welcome to the first quarter 2025 Golden Ocean Group earnings conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star 1 1 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw a 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 our speaker today, Peter Simonsen, CEO. Please go ahead.

Good afternoon, and welcome to the Golden Ocean Q1 2025 release. My name is Peter Simonsen, and I'm the CEO and CFO of Golden Ocean. I will today present the Q1 2025 for numbers and forward outlook. In the first quarter of 2025, we have the following main highlights. Our adjusted EBTA in the first quarter ended up at 12.7 million compared to 69.9 million in the fourth quarter. We recorded a net loss of 44.1 million and a loss per share of 22 cents compared to a net income of 39 million and earnings per share of 20 cents in the fourth quarter. Our TCE rates were about $16,800 per day for cape sizes and about $10,400 per day for Panamax vessels, and a fleet-wide net TCE of about $14,400 per day for the quarter. We continue our intensive dry docking program, recording dry docking costs of $38.3 million for 380 dry docking days in Q1, compared to $34.3 million in Q4 relating to 320 dry docking days. Following the share purchase by CNB Tech of close to 50% of the shares in Golden Ocean, a contemplated share-for-share merger between Golden Ocean and CNB Tech was announced after quarter end. In line with our fleet renewal strategy, we have entered into agreements for the sale of two older Camps Max vessels at attractive prices. For Q2, we have fixed a net TCE of about $19,000 per day for 69% of Cape size days and about $11,100 per day for 81% of our Panamax days. For Q3, we have fixed a net TCE of about $20,900 per day for 16% of Cape size days and about 12,900 per day for 38% of Panamax days. Finally, we declare a dividend of 5 cents per share for the first quarter of 2025.

Let's look a little bit closer into the numbers.

As mentioned, we had a total fleet YTCE of 14,400 in Q1, down from 20,800 in Q4. We are in a period of frequent dry docks. From Q4 to and including Q2 2025, we will have dry docked around 30 of our cave sizes and Newcastle max vessels. We recorded 445 days of total off-fire in Q1 versus 364 days in Q4. Dry dock constitutes 380 days in the quarter and 320 days in Q4 respectively. For Q1, in addition to the nine dry dockings, we recorded 93 days due to spillover effects from delays in completion of dry dockings in Q4. Seven ships scheduled for dry dock in Q2 2025, of which three vessels have completed dry dock as of today. The rest will enter the yard in June. This resulted in net revenues of 114.7 down from 174.9 million in Q4. On operating expenses, we recorded 95.3 million versus 95.6 million in Q4. Our running expenses entered at 53.8 million, 5.9 million down from Q4, mainly due to less Canada days in the quarter, and lower expenses for ballast water treatment systems recorded in Q4. We expense all dry docking costs, and we saw an increase in the OPEX results of 4.1 million quarter on quarter relating to dry docks. ending at 38.4 million versus 34.3 million in the previous quarter. OPEX reclassified from charter hire was 1 million, 1 million down from Q4. And we incurred 2.1 million in fuel efficiency enhancements and other vessel upgrades in the first quarter of 2025. Our G&A ended at $5.4 million, down from $6.5 million in Q4. Daily G&A came in at $614 per day, net of cost recharged to affiliated companies, $95 per day down from Q4 due to lower legal fees. On charter hire expense, we recorded $1.5 million versus $4.2 million in Q4 as a result of lower vessel dates for the trading portfolio. On depreciation, We saw a reduction in depreciation by 3.6 million to 31.9 million in Q1 as a result of the declaration of purchase options for leased vessels with SFL and thereby extension of their useful life in our balance sheet. On net financial expenses, we recorded 22 million versus 23.3 million in Q4, a reduction mainly due to lower software rates in the quarter. On derivatives and other financial income, we recorded a loss of 2.5 million compared to a gain of 13.6 million in Q4. On derivatives, we recorded a loss of 3 million versus a gain of 11.8 million in Q4. Included in derivatives was a market-to-market loss of $7 million on interest rate swaps in addition to a $2.7 million realized cash gain. And finally, FFA and FX derivatives, a positive result of $1.3 million. For results in investments in associates, we recorded a gain of 0.7 million compared to a 1.6 million gain in Q4 relating to investments in Swiss Marine, TFG, and UFC. A net loss of $44.1 million, or a $0.22 loss, and a dividend of $0.05 per share declared for the quarter. Cash flow from operations came in at negative 3.3 million, down from 71.7 million in Q4. Cash flow used in financings were 15.8 million, mainly comprising of net proceeds from new financings of 50 million, which was a drawdown under our revolving credit facility, 35.9 million in scheduled debt and lease repayments, and a dividend payment of 29.9 million relating to the Q4 results.

Total net decrease in cash of 19.1 million.

On our balance sheet, we had cash and cash equivalents of 112.6 million, including 5.9 million of restricted cash. In addition, we've had 100 million of undrawn available credit lines at quarter end. Our debt and finance lease liabilities totaled 1.44 billion by NQ1, up by approximately 73 million quarter on quarter. Average fleet-wide loan-to-value under the company's debt facilities per quarter end was 39.2%. and a book equity of 1.8 billion, and a ratio of total equity to total assets of approximately 54%. In Q1, we saw seasonality play out for the main dryball commodities, in addition to a reduction in sailing distances year on year. Ton miles fell 1.5%, with grains and coal being the main contributors. as China reduced their imports by 14% and 25%, respectively, compared to Q1 2024. This has impacted the smaller shipping segments the most, which Panamaxes were supported by an increase in the relative share of coal volumes. Iron ore volumes fell in line with seasonality, driven by weather-related trade disruptions, in particular for Australia. In fact, Brazilian exports were slightly positive year on year, despite more heavy rain season, which indicates infrastructure improvements. Bauxite volumes from Guinea, which had their high season in Q1, recorded a 37 percent year-on-year growth in Q1, with 48.8 billion tons exported, of which approximately 85% goes to China. On iron ore, Australian iron ore exports were impacted by an extensive cyclone season in Q1, with volumes reduced by 9.7% compared to Q4 and 2.2% year-on-year. Rain season in Brazil also impacted export volumes, but interestingly ended higher compared to Q1 2024. Despite geopolitical unrest and lowered global growth forecasts, we have seen supportive signals from Australian and Brazilian miners on their expected annual export volumes. Both Rio Tinto and Vale expect 2025 full-year volumes to reach 325 to 335 million tons, while BHP reiterates their 255 to 265 million tons target. The target represents flat year-on-year development for all three exporters. China continues to be the main importer of iron ore. As for coal and grains, Chinese R&R import volumes have been lowered during the period with geopolitical unrest. Chinese steel production has come down quarter on quarter in light with seasonality and compared to Q1 2024. However, the Chinese government are continuing to stimulate the economy through lowering interest rates. And according to recent announcements from the China Iron and Steel Industry Association, they forecast a 2% year-on-year growth in steel demand backed by further stimuli in the industrial sector, counterbalancing the weak property market and consumer demand. The quality of Chinese domestic iron ore is poor and deteriorating, with an estimated FE content of around 20-30%. On the back of increased pressure to decarbonize the steel industry, the Chinese government focused on high-quality coal and high FE content, and this is highly supportive to Ton Mile with the largest new deposits of high-grade iron ore found in Brazil and Guinea. In Q4 this year, we will see the Simandou project in Guinea, West Africa commence exports. The Simandou high-grade iron ore mine is expected to ramp up production over two years, adding an additional 120 million tons export capacity annually. In addition, new expansions are underway in Brazil, adding 50 million tons in new capacity over the next years. Iron ore prices continue to be well supported, trading around $100 per ton for a long period. This compares very favorably to the break-even rate of the major miners of around $50 per ton delivered China. Further, when new high-grade volumes come on stream, ore prices may fall from current levels. And with domestic Chinese iron ore in the high end of the cost curve, a lower iron ore price is expected to favor more ton mile heavy trading routes. With significant Chinese investment in mining and infrastructure in Guinea, We expect these volumes to be prioritized as a replacement for domestic ore, supporting the long-term positive outlook for the Cape-sized vessels. The Guinea government has, together with Chinese industrial conglomerates and global mining giants, developed infrastructure and port facilities in an area where the largest deposits of high-quality bauxite and iron ore are found. Guinea and bauxite have, over the last five years, seen an average growth rate of 22%. Bauxite, which is used in the production of aluminum, is supplying the booming EV industry as well as other industries in China. The Q1 export volumes from Guinea showed the export capacity with volumes exceeding 48 million tons, 37% up from Q1 2024. The first quarter is the high season for bauxite exports. And this year, exports have surprised on the upside, which substantiates the consensus expectation for 5% to 10% growth annually for the next few years. As the Guinean bauxite trade constitutes 12% to 15% of the total cape-sized ton mile demand, A 5% to 10% growth in volumes will represent a 1% to 1.5% growth in the ton-mile demand, representing the full 2025 order book. We're currently seeing some instability in Guinea, whereby mining licenses have been temporarily revoked, having a shorter potential impact on exports. Due to the high importance of the iron and bauxite ore exports for the country's economy, we expect that this will be resolved. The order book remains attractive for the cape size fleet with around 8% order book to fleet ratio. Shipyard capacity for cape sizes and new custom maxes is limited, and yards prioritized container and LNG and tanker orders over dry bulk vessels. Despite historically high new building prices, the profit margins for dry bulk is limited compared to other vessel segments. We are in a period with increasing competitive advantages for modern vessels, both in terms of fuel efficiency and carrying capacity, but also tightening regulations relating to safety, crew welfare, and emissions. As seen on the left-hand graph, the Cape size fleet is aging rapidly, and by 2028, over half of the global Cape size fleet will be over 15 years, in a period where environmental regulations are tightening. The global Cape size fleet will, over the next two years, experience high proportion of dry docks compared to an average five-year cycle. A large share of these vessels are 15-year dry dockings, normally requiring substantial investments to meet class requirements. The focus by major miners and traders on safety, technical additions and emissions are increasing, which has substantially increased the investment needed to maintain a trading flexibility for older ships. The fleet continues to operate at high level of efficiency with port disruptions in the lower end of the historical range. While we do not expect conditions to increase meaningfully, there is no remaining downside to fleet efficiency. Sailing speeds remain low and expect this to continue, particularly for the large portion of the older, inefficient fleet. We are still only seeing marginal transits for the cave sizes through the Suez Canal. And while reopening will provide some reduction in ton mile at face value, it may also reopen ton mile accretive trades.

I will now pass the word back to the operator and welcome any questions.

Thank you, dear participants. As a reminder, if you wish to ask a question, please press star 1 1 on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star 1 1 again. Please stand by, we'll compile the Q&A rules, so this will take a few moments. Once again, if you wish to ask a question, please press star 1 1.

Dear participants, as a reminder, if you wish to ask a question, please press star, one, one. Just give us a moment, and now we're going to take our first question.

And the question comes to the line of Peter Hogan from ABG, St. Alcolier. Your line is open. Please ask your question.

Good afternoon. I was wondering if you could shed some light on the timing for the contemplated merger in terms of, well, yeah, I suppose more, if you can be specific on dates to look forward to in this context.

Hi, Petter. No, I think as of date, it's really hard to say. We are working in accordance with the plan that was announced in the press release. And there are obviously in such processes a lot of different work streams. So it's hard to be more specific on what has been announced.

Okay. Okay. I don't know. Is it... Looking at the prices for the two related equities here, it seems to be a detachment between market prices and the agreed 0.95 exchange ratio. Should we interpret that as if the market is not expecting the... the merger to go through with such an exchange ratio, or are there any other elements to this that, well, I don't understand?

I have to say that that's something that you should probably interpret on my behalf, isn't it? I mean, it's priced in the way it's priced, and for whatever reason. I guess some of it has to do with liquidity in the stock, but I leave that to you to interpret.

I understand, Peter. I do understand that it's probably closer to my profession to try to explain it as you understand it. It's quite difficult to grasp that now, so 15%, 16%, 17% discounts. Okay, but towards the market then, we've had sort of, I would say, a conventional sort of Q1, perhaps somewhat on the low end. If you go back a few weeks, we had some good momentum here. but over the past few trading days, it's stagnant again. In terms of near-term expectations here, should we think that we need to see Simundu volumes coming and trying to get covered with chips, or are there significant or sort of meaningful catalysts in the marketplace to be expected prior to that?

I think what has happened in the recent couple of weeks is that we've seen some disruptions on the Guinea export side. There's been some turmoil on force majeure being invoked on some of the mines and export facilities there, and also we saw a breakdown of some technical equipment in Peru, also disrupting some of the market. And these things do not necessarily give a lot of less volumes into the market, but they impact the sentiment. given the sort of general economic sentiment, that can impact the FFA curve, which is what prices freight. So I think incidents like that will impact the market given the nervousness in general, but the volumes are picking up in line with seasonality. We see that Vale is now approaching $900,000 tons per day. which is very solid. And I don't see that there's going to be, you know, that gravity will find its way here as well. So I don't think we need to wait for Simandou. We are still very positive for the second half. Expect volumes to be healthy for the capes. So that's our expectation, but it may take some time given the way the sentiment works as of now.

Okay. And in light of what is now, as I said before, not a very at least good quarter in hindsight that we saw in Q1 and with current rates also perhaps at least not in the high end. The enterprises continue to be strong here. Is it, from your perspective, well, is it to be expected that we'll continue to see, well, according to Clarkson quotes, $79 to $80 million for a resale Newcastle Max if rates continue for the standard capes in sort of the mid-teen level? doesn't something have to give here? Either rates come up or asset prices would see some pressure.

You've asked this question for quite a long time and that there's been a disconnect between asset prices and the rates. I think that new building prices have are high as a function of both sort of supportive long-term fundamentals for the market, but also lack of the yard capacity. So I think those are very well supported. We see it also on the second hand values, which we don't expect to come down. I mean, we have Simandou, we have a lot of the demand sort of fundamentals being positive for the big ships and not least historically, well, good visibility on the supply side. So I don't really see what's going to bring values down and I think it is a matter of time before this gravity trickles into the freight market as well. There are a lot of warm-ups that impact this market as of now. We had obviously a good Q1 last year, sort of unusually good. And this year it was more in line with seasonality. And we've seen that the big miners are still very much guiding positively for full year volumes in line with last, which means that they would need to ramp up their exports significantly for the second half. So I don't think fundamentally there's anything that has changed that picture and obviously supported by risk-constrained shipyard capacity and the willingness to build the Cape sizes and Ecoslomaxis. I think that's not going to change in the near term.

Okay. Well, okay. It's going to be an interesting still. market this. I hand it back to the operator. Thank you.

Thank you, Petter.

Thank you. Dear participants, as a reminder, if you wish to ask a question or to do some kind of follow-up question, please press star 1 1.

Dear speaker, there are no further questions.

I would now like to hand the conference over to Peter Simonsen for any closing remarks.

Thank you. I just want to thank you for joining in and have a great rest of the week.

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