Belships

Earnings Release • Aug 17, 2022

Belships ASA: Report 2nd quarter 2022

Belships ASA: Report 2nd quarter 2022

CONTINUED GROWTH, PROFITABILITY, AND DIVIDEND

HIGHLIGHTS

*  Operating income of USD 194.0m (USD 140.4m)

*  EBITDA of USD 48.9m (USD 36.0m) including USD 9.4m from Lighthouse

Navigation

*  Net result of USD 31.6m (USD 22.5m)

*  Declared dividend of USD 19.5m (NOK 0.75 per share)

*  TCE of USD 24 437 gross per day for owned fleet

*  Acquired five modern Ultramaxes and divested one vessel, net cash invested

USD 6m

*  Entered into time charter contracts for five vessels for periods of about

2 years

*  97 per cent of ship days in Q3 are fixed at about USD 24 200 gross per day.

72 per cent of ship days in the next four quarters are fixed at about USD

23 500 gross per day.

*  Modern fleet of 31 vessels with an average age below four years and daily

cash breakeven for 2022 of about USD 10 000 per vessel

Financial results commentary

Belships reports a net result of USD 31.6m for Q2 2022, compared to a net result

of USD 22.5m for Q2 2021. The increase in net result is mainly caused by the

improved freight market and Belships' increased fleet. EBITDA contribution from

Lighthouse Navigation was USD 9.4m in Q2 2022 compared to USD 14.5m in Q2 2021.

The reduction in EBITDA contribution from Lighthouse Navigation is mainly due to

an increase in provisions for potential lossmaking contracts in Q2 2022.

Net freight revenue for owned vessels was USD 54.6m in Q2 2022 compared to USD

32.6m in Q2 2021. The increase in net freight revenue is driven by an increase

in TCE on owned vessels from 18 980 in Q2 2021 to 24 437 in Q2 2022 and an

increase in vessel days of about 30 per cent.

Ship operating expenses were USD 13.2m in Q2 2022 compared to USD 9.8m in Q2

2021. The increase is due to growth in active days of about 30 per cent,

stemming from fleet expansion. Ship operating expenses include non-recurring

costs Covid-19 related crewing expenses of USD 1.4m.

Fleet status

Time charter equivalent (TCE) earnings per ship in the quarter was recorded at

USD 24 437 gross per day versus BSI index of USD 28 901 gross per day for the

same period. Relative performance versus spot indices is affected by a high

number of fixed period time charter contracts that contribute to our coverage

for 2022-2024.

Five two-year period time charter contracts have been entered into during the

quarter increasing contract coverage for 2023 to 47 per cent at highly

profitable levels. Cash breakeven for remaining open days in 2023 is below zero.

Q3

2022          Q4 2022          Q1 2023          Q2 2023          Q3 2023          Q4 2023

Contract coverage             97%               79%                     65%

50%                 40%                33%

TCE rate (USD/day)        24 200           23 400                23 200

22 600            22 200           22 000

BELHAVEN was drydocked in the quarter, the remaining fleet sailed without

significant off-hire with a total of 2 392 on-hire vessel days.

Ultramax newbuildings BELYAMATO and BELMONDO are expected to be delivered from

Imabari Shipbuilding, Japan in November 2022 and January 2023.

Transactions

Belships entered into agreements for the acquisition of two modern 64 000 dwt

Ultramax bulk carriers built at Japanese shipyards in 2019 and 2020. The vessels

are financed through time charter lease agreements for a fixed period of about

5 years with options to extend for a further 2 years. Cash breakeven for each

vessel is about USD 11 200 per day. Belships paid a total of USD 12.0m as

downpayment upon delivery of the vessels. The agreements come with options to

repurchase the vessels significantly below current market levels. The vessels

were delivered in June.

Belships has declared an option to purchase the Ultramax bulk carrier BELNIPPON

(2018). The strike price is significantly below current market levels.

Conclusion is expected within Q3 2022. Belships will finance the vessel under

available bank financing substantially covering the amount due for the purchase

option.

Belships entered into an agreement for the acquisition of a modern 64 000 dwt

Ultramax bulk carrier built at a Japanese shipyard in 2020. The vessel is

financed through a time charter lease agreement for a fixed period of about 5

years with options to extend for 3 years. Belships paid a total of USD 6.0m upon

delivery of the vessel. Cash breakeven for the vessel is about USD 11 600 per

day. The agreement comes with an option to purchase the vessel during the

charter significantly below current market levels. The vessel was delivered in

June.

Belships entered into an agreement for the sale of BELPAREIL. The 63 000 dwt

bulk carrier was built in 2015, and was the oldest ship in Belships' fleet. The

vessel was delivered to its new owners in July and Belships will realise a gain

of approximately USD 11.0m in Q3 2022. Total net cash flow after delivery of the

vessel was approximately USD 28.5m.

Belships entered into agreements for the acquisition of two modern Ultramax bulk

carriers built at Japanese shipyards in 2015 and 2017. Belships paid a total of

USD 15.5m as downpayment upon delivery of the vessels. The vessels are currently

on time charter lease agreements with purchase options significantly below

current market levels. Belships has declared the purchase options for both

vessels and will finance the vessels under available bank financing

substantially covering the amounts due. The vessels were delivered in July.

Belships' fleet has increased and improved with only modest cash investments,

signaling the competitive advantage Belships has in sourcing ship finance. The

Japanese-designed bulk carriers entering the fleet represent the highest quality

and lowest fuel consumption available in the market today.

Lighthouse Navigation

Lighthouse Navigation delivered another good quarter with an EBITDA of USD

9.4m, however, the underlying EBITDA totalled USD 20.1m. Provisions for

potential loss-making contracts of USD 10.7m based on the forward freight market

at the end of the quarter have been deducted. This brings the year-to-date

EBITDA to USD 32.0m and average EBITDA last eight quarters to USD 12.7m.

Sustainability

Belships aims for the highest standards in corporate governance and is well

placed to deliver emission cuts in line with industry ambitions for 2030.

Belships recently published a comprehensive sustainability report for 2021 (ESG

Report) reflecting our ongoing commitment to transparency and meeting investor

and stakeholder expectations.

Belships is compliant with the upcoming emission regulations from IMO in 2023

(EEXI) without additional CAPEX signaling the competitive advantage of Belships

modern eco-fleet.

The new Norwegian Transparency Act entered into force 1 July 2022 and Belships

has taken the necessary steps to be compliant.

Financial and corporate matters

At the end of the quarter, cash and cash equivalents totalled USD 130.8m, whilst

interest bearing bank debt amounted to USD 114.6m.

Net leasing liability at the end of the quarter was USD 452.7m. Leasing

liabilities have been calculated under the assumption that all purchase options

to acquire Ultramax bulk carriers on bareboat charters will be exercised. All

lease agreements have fixed interest rates for the entire duration of the

charters. Belships have no contractual obligations to acquire any of its leased

vessels.

At the end of the quarter, book value per share amounted to NOK 10.5 (USD

1.05), corresponding to a book equity ratio of 28 per cent. Value-adjusted

equity is significantly higher.

Dividend policy

Belships ASA aims to distribute quarterly cash dividends targeting about 50 per

cent of net result adjusted for non-recurring items. Other surplus cash flow may

be used for accelerated amortisation of debt, share buy-backs or vessel

acquisitions considered to be accretive to shareholders' value.

Dividend payment

Based on the financial result in the second quarter 2022 the Board declared a

dividend payment of USD 19.5m (NOK 0.75 per share) equivalent to about 72 per

cent of net result adjusted for net minority interests.

This brings the total dividends paid out since the inception of the dividend

policy in Q2 2021 to USD 131.4m (NOK 4.85 per share).

Market highlights

In the second quarter, the Baltic Supramax Index (BSI-58) averaged USD 28 873

per day - up from USD 25 115 in the first quarter. In May rates peaked above USD

30 000 per day.

According to Fearnleys, total Supramax shipment volumes ended at 249 million

tons in Q2 2022, up from 235 million tons in Q1 2022. Towards the end of the

quarter rates receded and a weak period followed despite a record shipment of

92 million tons observed in July.

The war in Ukraine sparked an energy crisis and spurred inflationary pressures

in most economies. China has continued to fight the pandemic with severe

lockdowns in major cities. In sum, this has resulted in lower GDP forecasts and

fears of demand destruction from increasing commodity prices and rising interest

rates.

Considerable variations in the demand growth for each commodity group continued

in Q2 2022. Breakbulk and other minor bulks grew by 8 per cent, year on year,

whereas iron ore dropped significantly, displaying the relative weakness for

larger bulk carriers versus the more versatile Supra/Ultramax segments. The

strong growth in minor bulk commodities reflect relatively high rates of global

industrial production. Iron ore continues to be impacted both by lower demand

from China and disappointments in output from South America. Grain volumes were

6 per cent lower than last year, notably impacted by the lack of Ukrainian

exports where ports remained closed. Coal has now returned to growth with stock

building in Europe and with the recent ban on Russian coal into the EU, this

growth is expected to accelerate. Europe has imported majority of its coal from

Russia until now, whereas after the ban, Russian volumes have started to move

longer to China and India. EU countries, on the other hand, will have to source

imports from the Americas in addition to Asia and Australia, which would benefit

ton mile demand.

Port congestion has abated somewhat from earlier this year but is still notable

in most regions and reduced vessel sailing efficiency is still supporting the

market balance. In addition, high bunker prices have aided a reduction in

sailing speeds.

According to Clarksons, 58 Supra/Ultramax vessels have been delivered YTD, which

totals 3.46m dwt compared to 4.35m dwt delivered by the same time last year,

evidencing the falling rate of newbuilding supply. 41 vessels remain on schedule

for delivery this year and 103 for next year. However, given the pace of

deliveries year-to-date and considering that there are often order

cancellations, slippage or even incorrectly reported orders, the numbers may be

lower.

Low newbuilding activity for dry bulk continues as the lack of conviction and

alternatives for fuel and propulsion systems appear to restrain demand for

ordering. Newbuilding prices increased in the second quarter as higher input

costs as well as full orderbooks for container and gas vessels dictate the

position with shipyards. Also, available delivery positions with shipyards

appear to remain distant, at least two years ahead. Current second-hand vessel

values appear attractive in comparison with the cost of a newbuilding lending

support to rather buy existing ships on the water.

Outlook

The sentiment in dry bulk markets softened significantly in July, however spot

market rates for Supra/Ultramax are still very profitable. The Baltic Exchange

Supramax spot index is currently about USD 18 000 and has averaged about USD

22 000 per day so far in Q3 2022. Freight Forward Agreements (FFA) for Supramax

currently indicate a market average of about USD 19 000 for the remaining part

of the year, with Ultramax bulk carriers earning an additional premium.

Belships has covered 97 per cent of ship days in Q3 2022 at about USD 24 200 per

day, and 72 per cent of ship days in the next four quarters are fixed at about

USD 23 500 per day. All period contracts are fixed with highly reputable and

recognised charterers in the dry bulk market.

Lighthouse Navigation continues to deliver good results. The rapidly falling

spot market in July affected the start to Q3 2022, however, they remain

positioned for a market rebound in 2H 2022.

Looking ahead, towards 2023 and 2024, the supply side as observed from the

number of deliveries and the publicly quoted orderbook for our segment is

historically low. On the back of stable demand, we remain optimistic in terms of

market prospects.

The purpose of growth has been to increase profitability and the value and

attractiveness of owning our shares. We are focused on capital discipline and

returning capital to shareholders. A competitive return for our shareholders is

to be obtained through increase in the value of the company's shares and the

payment of dividends, as measured by the total return. Since we announced a new

dividend policy in Q2 2021, we have returned a total of USD 131.4m (NOK 4.85 per

share) to shareholders.

Belships owns a modern fleet of 31 Supra/Ultramax bulk carriers with an average

age below four years and daily cash breakeven for 2022 of about USD 10 000 per

vessel. Based on Belships' current contract coverage, we expect to generate

significant free cash flow and continue to pay quarterly dividends as announced

with our dividend policy.

17 August 2022

THE BOARD OF BELSHIPS ASA

For further information, please contact Lars Christian Skarsgård, Belships CEO,

phone +47 977 68 061 or e-mail LCS@belships.no

This information is subject to the disclosure requirements pursuant to Section

5-12 the Norwegian Securities Trading Act