Birgitte Vartdal - Chief Executive Officer Per Heiberg - Chief Financial Officer

Good day and welcome to the Q1 2017 Golden Ocean Group Limited Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Birgitte Vartdal, CEO. Please go ahead.

Thank you and good afternoon and good morning. Welcome to the Golden Ocean Group Limited Earnings Call for the first quarter of 2017. This quarter was relatively strong given weak expectations that the whole market had at the start of the year. We have made significant progress in executing on our plan including that to delever our balance sheet and most notable for the quarter is our large acquisition of 16 vessels in a ship-for-share transaction enhancing our market leading position, lowering our cash breakeven level and increase the leverage to recovery in the market. We will run this presenting in the normal mode and start with the company updates by Per summarizing our financial results and the acquisitions and then I will proceed with the market outlook and round up with Q&A.

Okay, thank you, Birgitte. Just a short run through of the highlights for the quarter. The company reports net loss of $7.9 million for Q1 which is an improvement of $60.3 million compared to first quarter 2016 whereas a decrease of $24.4 million compared to the previous quarter. The adjusted EBITDA is $17.5 million for the quarter compared to $14.2 million in eg EBITDA in the first quarter of 2016 and $24.2 million positive EBITDA in the previous quarter. During the first quarter of 2017 Golden Ocean took delivery of the two large Supramaxes from Chengxi and the two large Capes from Waigaoqiao. The Supramaxes are unfinanced while we draw in total $50 million in debt on the two Capes. In March the company entered into agreements to acquire 16 modern dry bulk vessels in a ship-for-share transaction. In addition to issue shares the company will assume $285.2 million in debt and completed a $60 million equity offering in order to finance the acquisition. Due to better market performance, reduced CapEx and postponed newbuilding deliveries over the previous year, the company is in position to repay all deferred bank debts agreed in the refinancing that we did in the first quarter 2016. Following this prepayment we are in line with our original repayment schedule for all loan facilities. Moving on to the P&L as mentioned the net loss for the quarter was $17.9 million compared to a profit of $6.5 million in fourth quarter 2016. Operating revenues less voyage expenses are down $25 [ph] million compared to Q4. This is mainly due to lower freight rates achieved for the Capesize vessels while the smaller sizes performed relatively equal to previous quarter. The regular ship operating expenses are down on a vessel by vessel basis if you compare it to Q4, but during Q1 2017 we have spent $1.5 million in dry dock cost for two vessels and we also added $1.2 million in OpEx for the four vessels delivered during the quarter. In previous quarter we had a significant positive contribution to the quarterly net profit from mark-to-market changes on the company interest rate swaps. This quarter the rate was fairly stable over the quarter and does not influence the P&L in any significant way. Showed on the balance sheet, cash including restricted cash is relatively stable over the quarter. The underlying cash from operation is positive during the quarter and $112.5 million in installments paid on the delivered vessels and installments on newbuildings are offset by net cash or expected $58.2 million from the equity offering and also the $50 million in new bank debt on the delivered Capesizes. Vessels net increased with the four delivered vessels net of ordinary depreciation and newbuildings decreased accordingly. The prepayment of the full amount of deferred debt following the 2016 refinancing is classified as current portion of long term debts $54 million in total and this prepayment will be done at the end of this month. Long term debt, net of short term portion increased by $50 million in new debt on delivered vessels. Moving on to OpEx we see that in the last quarter the OpEx is down compared to previous quarter and we continue our efforts to reduce OpEx, but at the same time keep focusing on the quality and safety of our fleet. Two vessels were dry docked in the first quarter of 2017 at a total cost of $1.5 million and the expense to total cost. We expect four more vessels to dry dock during 2017 and as it looks now they are scheduled to dock prior to the September deadline for installing ballast water treatment systems. Moving on to the newbuilding program, the four vessels that we took delivery in the first quarter were all postponed from the previous quarter. We agreed these postponed to the yards and took delivery of two Ultramaxes in January and the two Capes in February against certain price reductions. The two Ultramaxes was paid with available free cash 100% financed with equity. On the two Capes we have drawn $25 million on each of the vessels under an existing loan facility. Out of the total sailing fleet now we have three unfinanced Ultramaxes. By financing this we can add extra liquidity to the company if needed. Remaining CapEx now relates to six new buildings with delivery in the first quarter amount to 18. On these vessels we paid $10 million during the first quarter and additional $10 million has been paid early in this quarter. Following these the payments already made, the remaining CapEx of $174 million falls due on delivery of each vessel and also these six vessels are financed with $25 million each and the next CapEx is then $24 million in total for all six newbuildings at the time of delivery. Then just moving on to a slide where we have summarized the acquisition of the Quintana fleet and also the Hemen transaction, just a summary of that, this is done to different fleets, the 14 vessels from Quintana has an average age of four years and are mainly built in Korea and Japan and are high quality vessels. We had some $17.4 million at the time of delivery. In addition to the debt we will issue in total $14.5 million shares in Golden Ocean to the owners of Quintana Shipping. And after all vessels are delivered Quintana Shipping shareholders will own approximately 11% of the company. The Hemen fleet two modern ice class Panamaxes vessels to our own vessels [indiscernible] and we will assume - get the seller's credit of $22.5 million on those two vessels and we will also 3.3 million shares to Hemen Holding in relation to – on delivery. Hemen Holding will then after the fully delivered will own 37.7% of the company. Just a small status on deliveries we are in the process of taking delivery of the Quintana Fleet and in total 9 out of the 14 vessels are delivered. The remaining vessels are expected to be delivered during June with potential small or one or two vessels going into early July. The two vessels from Hemen will be delivered during June 01, sailing and the other one will come from the yard. And then just an overview of the assumed debts related to the acquisition and in comparison with the existing debts of Golden Ocean; the assumed debts in relation to the acquisition of the Quintana Fleet and the amortization holiday until end of June 2019 which is beyond the waiver period for the existing bank debt of Golden Ocean. There is a cash fleet in relation to this transaction on a running basis and we will paydown debt on an semiannual basis surplus cash from the acquired fleet. During this waiver period we have limited financial covenants on the nonrecourse company and we prepaid debt on each vessel following the deliveries. In total we have paid out $17.4 million on all 14 vessels. Part of the proceeds from the equity offering will be used for the purpose of paying down debt and the remaining proceeds will turn working capital for the fleet and also strengthen the financial situation of that subsidiary. The Hemen facility or fleet will be financed through the seller's credit which has attractive terms and no amortization until it matures in June 2019. Total debt and CapEx net of cash following the transaction is approximately $1.3 billion of which $400 million is related to the nonrecoursed to the shortlisted entity. So the next page shows well now let's talk to the fleets when all the new vessels are taken into account. And on the fluid level basis the company's fleet will consist of 83 vessels of those 6 are newbuildings to be delivered in the first quarter 2018. In total sales all these vessels are currently on timer charter at fixed rate as the company has utilized the recent strength in the markets to take some additional cover and also few of the Quintana vessels are already on fixed time chargers throughout 2017. The remaining part of the fleet is still exposed to the spot markets on the index-linked charter contracts trading in the spot market or participate in pools. As reported earlier the company has entered into a Supramax pool run by CTM [ph] and currently we have decided to put all the Supramaxes into this pool. I think most of them are already in the pool and one or two will enter the pool very shortly. And the company are actively participating in the pool and they contribute to the pool which are offering capacity. And by that, I hand over the word to Birgitte for an update on the markets.

Thank you. The market rates were slightly lower in the first quarter this year compared to the last quarter of 2016 and this corresponds with a slightly lower utilization as can be seen on this graph. While comparing year-over-year which was quarter of 2016 there was significant improvement. Deliveries were seasonally strong in the first quarter and combined with slightly lower demand than in the fourth quarter. This reduced the utilization relative to the previous quarter. Still we are on an upward moving trend in utilization that we expect to continue. Looking at steel bond demand in the first quarter it is down, but better than what the market expected at the start of the quarter. The positive surprises on rate in January and March I would say was due to strong movement of all commodities at the same time also reflected in strong prices on the various commodities. Transportation of iron ore was particularly strong with coal was also up year-over-year and grain and minor bulks continued their improvement. We have commented on this for two quarters now that the steel growth has continued both in China and also in the rest of the world. This has been continued year-over-year growth since mid last year and numbers for April also indicate good growth. Chinese production was the highest ever and up year-over-year by 4.5%. The positive trends on steel production and consumption is also shown here on the apparent steel demand estimated based on other available base resources, which again was up in April. Looking at the steel prices they dropped after the strong part in the beginning of the year, but seemingly lately it has stabilized maybe turning back off. Steel exports have been slow from China and with good increase in production and good steel demand and also pretty low steel inventory. It indicates a strong underlying consumption at the moment. This is also supported by profit in steel margins for the steel mills. This graph shows estimated steel margins both based on imported coking coal from Australia and lately also for domestic coal. The margin has kept positive even on a drop on steel prices but this has been combined with significant drop in the iron ore prices where iron dropped from around $90 dollar per ton to the current level at around $60 per ton. Domestic met coal prices will stay low, but the imported met coal has had significant volatility in the price based on the cyclone in Australia and the limited availability input. Positive sea margins and lately rising steel prices should be a good support for iron ore demand going forward. Looking at the source of iron ore Brazil and Australia are still keeping up on their market share. Going forward as previously mentioned we expect to see increase for the remainder of the year mainly coming from Brazil which should significantly improve somewhat. For April alone there has been high pressures on some suppliers which has partly reduced the flow, but we expect that to come back on stream. Another new element is that exports from India have come back although in relatively small volume. This has not been the case since 2013. So concern in relation to iron ore is the stockpiles and the level of stockpiles in China currently at around 135 million which is a significant level and could lead to temporary drop in the seaborne market, but will not be sufficient for a long period of time. Coal is a very important swing factor and it's fair to say that there are mixed signals on this commodity. If you look at Q1, 2017 volumes are up relative to Q1, 2016, but down relative to the fourth quarter in China. Chinese Governments are trying to control the price and the volume by adjusting the number of days the mines can operate by adjusting the quality of the coal and this will also going forward depend on politics, weather and prices on how they switch between imported volume and domestic produced volume will be. As opposed to iron ore stockpiles of coal in China is low and with lower than normal hydropower situation there is a potential for short term need of coal going into the warmer summer months. South Korea has increased their import volumes slightly while Europe has turned back down following new care coming back on stream. Looking at the total electricity consumption in China, this is still up and 7% year-over-year in April, but down relative to the very strong March numbers. Thermal Power is still a very significant part of the mix. Although hydro power is increasing seasonally and over time you will see the other renewable sources will increase. So with the strong increase in electricity consumption even though the relative part of thermal power may drop, it seems likely that the need for thermal power will increase in nominal terms. One reason that market have been strong in the first quarter is that all commodities had strong flows at the same time and for grain and soybean that's related to a strong season in South America which has taken quite a few Panamax vessels out of the Pacific. And this combined with the time period where the coal volumes are also strong led to Panamax market being strong in the end of the first quarter. They are still large crops, but prices are low on the grain and we expect there to be continued flows but probably more stable flows. Storage capacity have increased and this will allow the sellers to more control the volume being exported for the timing of the bulk. Moving from the demand to supply, the first quarter had high deliveries as normal for the start of the year, $18 million deadweight tons were delivered while around $5 million deadweight tons was scrapped. There was a nice fleet growth of $13 million deadweight tons which is just above 1.5% of the sailing fee. April alone however had 2.5 million of deliveries and just above 1 million of scrap, so the run rate on deliveries after Q1 is expected to go down. Looking at the remaining order book, we have updated this graph showing the status of delivery schedules in the various periods. 15 million deadweight tons is scheduled for delivery in Q2 alone, but with only 2.5 million in April and in total for the quarter 6.3 million being launched, it is likely that the final number for Q2 will be below 15 million tons. In addition to the delays, you can also see that there are 3.8 million deadweight tons scheduled for delivery in Q2 that has not even commenced. Looking at 2018, the current order book is approximately 20 million deadweight tons, this compares to 53 million deadweight tons that we had initially for 2017 and more than 80 million deadweight tons that we had initially for 2016. So clearly the current order book for 2018 is much lower than the previous year and even though you could potentially add few orders to the very end of the year, it is not likely to have a big ordering now with delivery into 2018. There has been a lot of talks about newbuilding orders and LOI in particular on this new [indiscernible] segment, some have materialized but the drop in rates in April seemed to have calm down to talks between [indiscernible]. And it’s really important to see a sustainable healthy level in the dry bulk market that we see a cautious approach to newbuilding orders also going forward. Currently the order book is at 8.5% of the fleet which is more or less the same as a quarter ago described by some additional orders in the order book. I think all owners are considering their stance around regulations, ballast water treatment systems, et cetera and this should over time be beneficial looking at the older part of the fleet. Also as the time goes by the increasing part of the fleet gets older and every vintage to say is larger in size relative to the year before. So the more time there's the more significant part of the fleet will come into the older segments. There was a lot of S&P activities in Q1 on the back of strong prices. A lot of vessels shifted out and prices moved up quite strongly. During April, we would say that the levels have flattened out and there is less activity, but clearly still vessels for sale. This market moves a lot with the [indiscernible] on the one-year time charter and if the market activity picks up on the time charter, we expect to see more activity on S&P again. And looking in a historic perspective, the current values although they are up from last year is still low in historic perspective. Summarizing our market outlook, I would say that we continue to be cautiously optimistic. Our market view has not changed a lot since the last quarter. It is positive to see that when commodity movements are strong even combined with delivery, you see that great pickup in periods. The volatility that we have seen was expected and we think we will continue to see volatility in the market. But overall, we believe we are moving on a positive trend. As always there are many factors that can impact our market. At the moment we believe that the most important ones to monitor is of course the import to China, the steel demand, the latest downgrade of the Chinese economy and debt level and the combination between imported volumes of iron ore and domestically produced. Also as mentioned previously that the growth is not only in China, but you have seen more positive global growth is positive for the market and obviously the supply side and how that will play out is important. In this market its extreme important to focus on low cash breakeven levels to weather the volatility that we continue to expect to see. Following the transactions, we have done in the first quarter we have further lowered our cash breakeven levels to $9,000 per day on a fleet wide basis before ordinary debt repayment. Thus even in the current market environment, we see rates above the average levels for our fleet and we are positive generating cash to paydown on our debt. That combined with the significant leverage we have on the upside with an on the water fleet of 77 vessels and six new buildings to come a $1,000 per day movement in rates should yield $28 million in additional cash flow for the company. An improved market will therefore quickly yield significant cash flow and we should be well positioned even in a volatile market. And with that we conclude the presentation and open up for Q&A if anyone has questions.

Q - A -

Okay, apparently everything looks crystal clear then. Thank you for the time and we will speak again in one quarter.

Thank you. That concludes today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.