Belships

Quarterly Report • Oct 26, 2018

REPORT 3RD QUARTER 2018

26 October 2018

www.belships.com

Lilleakerveien 4, P.O.Box 23, Lilleaker, N‐0216 Oslo, Norway Phone +47 22 52 76 00 | chartering@belships.no Enterprise no: NO930776793MVA

HIGHLIGHTS

• Operating income of USD 8.3 m (Q2: USD 8.3 m)
• EBITDA of USD 3.2 m (USD 3.5 m)
• No impairment/impairment reversal
• Net result of USD 0.6 m (USD 0.9 m)
• Average TC‐income (net) per ship per day Q3: USD 13 400 (Q2: 13 250)
• All ships operating normally modern fleet average age 5.2 years
• Contract coverage 100% for delivered ships around USD 38 million fixed charter backlog
• The merger plan to be approved by the Extraordinary General Meeting

3rd quarter 2018 results

Belships operating income in 3rd quarter 2018 was USD 8.3 million (Q2: USD 8.3 million), while EBITDA amounted to USD 3.2 million (USD 3.5 million). The Group's operating result amounted to USD 1.8 million (USD 2.1 million), while net result for 3rd quarter 2018 was USD 0.6 million (USD 0.9 million).

Fleet status

Belships concentrates on the dry bulk market, with 6 modern Supramax/Ultramax in service.

M/V Belstar, M/V Belnor and M/V Belisland have continued the long‐term contracts to Canpotex of Canada. Canpotex is one of the world's largest exporters of potash, a fertilizer product imported in large volumes by countries such as China, India and Brazil. M/V Belforest, M/V Belocean and M/V Belnippon are all on time charter to Cargill. In September the c/p's with Cargill for M/V Belforest and M/V Belocean were extended until August and October 2019 at USD 13,500 and USD 12,000 daily respectively. Next open position will then be M/V Belnippon in February 2019.

All ships have sailed without significant off‐hire. Technical management is handled by Belships Management (Singapore), with a total fleet of 10 ships under technical management.

Newbuilding program

Belships' remaining newbuilding program with Imabari Shipbuilding in Japan consists of one 63 000 dwt eco‐design Ultramax bulk carrier on a long‐term T/C‐in agreement incl. purchase option for delivery within first half 2020.

Financial and corporate matters

As per 30 September the Group's cash totaled USD 5.3 million, which is unchanged from 30 June.

The mortgage debt as per 30 September was USD 24.5 million. Net lease obligation as at 30 June was USD 41.2 million. In addition Belships has a long‐term loan facility of SGD 2 million, secured by the lease agreement for our Singapore office. Net lease obligation and mortgage debt were reduced by USD 1.7 million in the 3rd quarter.

Hedging the Group's interest exposure on bank loan is considered on an ongoing basis. The hedging level of interest rate exposure is currently around 60%.

At the end of the 3rd quarter of 2018, the book value per share amounted to NOK 5.07 (USD 0.62), while the equity ratio was 29.6 %. Added value related to the long‐term charter party for M/S Belisland is not reflected in the balance sheet.

Market highlights

The Capesize‐index ended the 3rd quarter at USD 18 350 per day, whereas the Kamsarmax‐index ended at USD 15 351 per day. The Supramax‐index ended the quarter at USD 13 273 per day. As per

today the Cape index stands at USD 18 683 per day, Kamsarmax‐index at USD 16 110 per day and Supramax‐index at USD 13 319 per day. Baltic S&P Assessment's valuation of a 5‐year old Supramax is currently USD 18.5 million.

Outlook

After a slow start due to Chinese holidays, the Supramax market has risen slightly in October. There is more interest for period deals and for Far East delivery fixtures around USD 13‐14,000 per day have been reported.

Belships' ships are fully covered until February 2019 when M/V Belnippon becomes open. The company is well positioned for a dry bulk market that we believe will be strengthening in 2019‐20.

Belships' ships are chartered out on fixed rates to reputable counterparts, representing a future nominal gross hire of around USD 38 million.

Focus remains to continue developing Belships as an owner and operator of modern bulk carriers to reputable counterparts, building a portfolio of quality ships and robust charter parties that will generate distributable cash flows.

In today's Extraordinary General Meeting the merger with Lighthouse is expected to be approved. The Board of Directors believes this transaction will be in the best interest of all the shareholders and the company.

Following this transaction the combined entity will control a fleet of 16 dry bulk carriers and enhance its earnings potential with a combination of charter backlog and spot exposure. Complementing management activities create a complete in‐house operational structure, ideally positioning Belships as a platform for further growth. The company will concentrate on the dry bulk market and expect to benefit from a fully in‐house commercial and technical management.

26 October 2018 THE BOARD OF BELSHIPS ASA

Sverre Jørgen Tidemand, Chairman

Christian Rytter Kjersti Ringdal Sissel Grefsrud Carl Erik Steen

CEO Ulrich Müller Phone no. +47 22 52 76 15

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The quarterly figures are not audited

BELSHIPS ASA
		Q3	Q2	YTD Q3	Q3	Q2	YTD Q3
USD 1 000		2018	2018	2018	2017	2017	2017	2017
Freight revenue	Note	7 402	7 231	21 505	5 808	5 538	16 712	22 646
Management fees		890	1 061	3 008	874	901	3 029	4 663
Operating income	2	8 292	8 292	24 513	6 682	6 439	19 741	27 309
T/C hire expenses Ship operating expenses		‐1 188 ‐2 065	‐1 183 ‐2 081	‐3 309 ‐6 169	0 ‐1 933	0 ‐1 925	0 ‐5 946	0 ‐8 175
Operating expenses ship management		‐996	‐823	‐2 702	‐722	‐887	‐2 468	‐3 371
General and administrative expenses		‐893	‐674	‐2 391	‐499	‐596	‐1 761	‐2 493
Operating expenses		‐5 142	‐4 761	‐14 571	‐3 154	‐3 408	‐10 175	‐14 039
Operating result (EBITDA)		3 150	3 531	9 942	3 528	3 031	9 566	13 270
Depreciation and amortisation		‐1 373	‐1 393	‐4 219	‐1 149	‐1 147	‐3 412	‐4 597
Reversal/impairment of ships	4	0	0	1 269	500	0	500	2 544
Effect on onerous contracts		0	0	0	0	234	397	397
Operating result (EBIT)		1 777	2 138	6 992	2 879	2 118	7 051	11 614
Interest income		15	20	38	5	5	18	26
Interest expenses		‐1 058	‐1 060	‐3 179	‐1 182	‐1 186	‐3 581	‐4 735
Other financial items		‐57	‐38	‐20	‐60	‐176	‐313	‐361
Currency gains/(‐losses)		‐81	‐131	‐140	72	7	110	114
Net financial items		‐1 181	‐1 209	‐3 301	‐1 165	‐1 350	‐3 766	‐4 956
Result before taxes		596	929	3 691	1 714	768	3 285	6 658
Taxes		‐23	‐52	‐106	‐46	‐38	‐131	‐294
Net result		573	877	3 585	1 668	730	3 154	6 364
Hereof non‐controlling interests		‐7	‐4	11	16	13	34	60
Hereof majority interests		580	881	3 574	1 652	717	3 120	6 304
Other comprehensive income Actuarial gain/(loss) on defined benefit plans		0	0	0	0	0	0	‐6
Total comprehensive income		573	877	3 585	1 668	730	3 154	6 358
Hereof non‐controlling interests		‐7	‐4	11	16	13	34	60
Hereof majority interests		580	881	3 574	1 652	717	3 120	6 298
Earnings per share (US cent)		1.22	1.87	7.66	3.56	1.56	6.74	13.60
Diluted earnings per share (US cent)		1.22	1.87	7.66	3.56	1.56	6.74	13.60

CONSOLIDATED BALANCE SHEET

The quarterly figures are not audited

BELSHIPS ASA
		30 Sep	30 Jun	30 Sep	31 Dec
USD 1 000		2018	2018	2017	2017
ASSETS	Note
Fixed assets
Ships	4	88 398	89 734	90 341	91 242
Prepaid timecharter hire		0	0	679	405
Other fixed assets		3 254	2 623	2 153	2 080
Total fixed assets		91 652	92 357	93 173	93 727
Current assets
Short‐term receivables		1 468	1 887	1 343	1 848
Prepaid timecharter hire		681	957	821	1 095
Cash and cash equivalents		5 276	5 400	7 874	5 459
Total current assets		7 425	8 244	10 038	8 402
Total assets		99 077	100 601	103 211	102 129
EQUITY AND LIABILITIES
Equity
Paid‐in capital		43 628	43 628	43 595	43 620
Retained earnings		‐14 586	‐15 166	‐20 767	‐17 589
Non‐controlling interests		305	370	325	351
Total equity		29 347	28 832	23 153	26 382
Long‐term liabilities
Mortgage debt	3	19 336	20 557	27 220	22 999
Bareboat commitment	3	39 215	39 765	41 335	40 816
Pension obligations		475	504	566	530
Other long‐term liabilities		1 463	1 467	1 658	1 466
Total long‐term liabilities		60 489	62 293	70 779	65 811
Short‐term liabilities
Mortgage debt	3	5 000	5 000	5 000	5 000
Bareboat commitment	3	2 071	2 026	1 896	1 940
Other short‐term liabilities		2 170	2 450	2 383	2 996
Total short‐term liabilities		9 241	9 476	9 279	9 936
Total equity and liabilities		99 077	100 601	103 211	102 129

CONSOLIDATED CASH FLOW STATEMENTS

The quarterly figures are not audited

BELSHIPS ASA

	YTD Q3	YTD Q2
USD 1 000	2018	2018	2017
Cash flow from operating activities
Net result before taxes	3 691	3 095	6 658
Adjustments to reconcile profit before tax to net cash flows:
Effect on onerous contracts	0	0	‐397
Depreciations on fixed assets	4 219	2 846	4 597
Reversal/impairment of ships	‐1 269	‐1 269	‐2 544
Share‐based compensation expense	8	8	0
Difference between pension exps and paid pension premium	‐56	‐29	‐171
Net finance costs	3 301	2 120	4 956
Working capital adjustments:
Change in trade debitors and trade creditors	‐211	166	85
Change in other short‐term items	‐223	‐687	‐322
Interest received	38	23	26
Interest paid	‐3 179	‐2 121	‐4 735
Income tax paid	‐151	‐95	‐137
Net cash flow from operating activities	6 168	4 057	8 016
Cash flow from investing activities
Payment of other investments	‐369	‐369	‐271
Net cash flow from investing activities	‐369	‐369	‐271
Cash flow from financing activities
Repayment of long‐term debt	‐5 226	‐2 992	‐9 835
Dividend paid	‐577	‐577	0
Paid costs related to financing	‐178	‐178	‐369
Net cash flow from financing activities	‐5 981	‐3 747	‐10 204
Net change in cash and cash equivalents during the period	‐183	‐59	‐2 459
Cash and cash equivalents at 1 January	5 459	5 459	7 918
Cash and cash equivalents at end of period	5 276	5 400	5 459

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The quarterly figures are not audited

USD 1 000

	Majority interest
	Paid‐in Retained
	Share capital	Treasury shares	Share premium	Other paid‐in	v Other equity	Non‐ controll.	Total equity
As at 30 September 2018			reserves	equity		interests
Equity as at 31 December 2017	14 272	‐166	13 751	15 763	‐17 590	352	26 382
Net result for the period	0	0	0	0	3 574	11	3 585
Other comprehensive income	0	0	0	0	0	0	0
Total comprehensive income	0	0	0	0	3 574	11	3 585
Dividend paid	0	0	0	0	‐570	0	‐570
Transactions non‐controlling interests	0	0	0	0	0	‐58	‐58
Net share‐based payment	0	0	0	8	0	0	8
Equity as at 30 September 2018	14 272	‐166	13 751	15 771	‐14 586	305	29 347
As at 30 June 2018
Equity as at 31 December 2017	14 272	‐166	13 751	15 763	‐17 590	352	26 382
Net result for the period	0	0	0	0	2 994	18	3 012
Other comprehensive income	0	0	0	0	0	0	0
Total comprehensive income	0	0	0	0	2 994	18	3 012
Dividend paid	0	0	0	0	‐570	0	‐570
Share‐based payment expense	0	0	0	8	0	0	8
Equity as at 30 June 2018	14 272	‐166	13 751	15 771	‐15 166	370	28 832

KEY FINANCIAL FIGURES

		YTD Q3	YTD Q2
		2018	2018	2017
EBITDA	USD 1000	9 942	6 792	13 270
Interest coverage ratio		2.20	2.46	2.45
Current ratio	%	80.35	87.00	84.56
Equity ratio	%	29.62	28.66	25.83
Earnings per share	US cent	7.66	6.44	13.60
Earnings per share	NOK	0.63	0.53	1.12
Equity per share	USD	0.63	0.62	0.56
Equity per share	NOK	5.13	5.03	4.62
Number of issued shares (excluding treasury shares)		46 804 000	46 804 000	46 804 000
Average number of issued shares (excluding treasury shares)		46 804 000	46 804 000	46 804 000

Definition of Non‐IFRS financial measures

Current ratio ‐ is defined as total current assets, divided by total current liabilities

EBITDA ‐ is defined as operating result adjusted for depreciation and amortization, other gains/(losses), interest income, interest expenses and other financial items

EBIT ‐ is defined as operating result adjusted for interest income, interest expenses and other financial items Equity ratio ‐ is equal to shareholders' equity including non‐controlling interest, divided by total assets Interest coverage ratio ‐ is equal to earnings before interest and taxes (EBIT), divided by interest expenses

NOTES TO THE CONSOLIDATED ACCOUNTS

Note 1 Accounting principles

These interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, "Interim Financial Reporting". They do not include all of the information required for full annual financial reporting, and should be read in conjunction with the consolidated financial statements of Belships for the year ended 31 December 2017.

With effect from 1 January 2018, the company implemented IFRS 15 – Revenue recognition and IFRS 9 – Financial instruments. All ships are chartered out on long‐term fixed timecharter, accordingly no impact on implementation on IFRS 15. In the notes to the annual report additional breakdown on revenue will be provided for. IFRS 9 did not have any impact.

This report was approved by the Board of Directors on 26 October 2018.

The accounting policies adopted are consistent with those followed in the preparation of the Company's and the Group's annual financial statements for the year ended 31 December 2017.

Note 2 Segment information

USD 1 000	January ‐ September 2018
		Technical	Admini‐	Group
	Dry cargo	managm.	stration	transacts.	Total
Freight revenue	21 104	0	0	401	21 505
Management fees	0	3 311	631	‐934	3 008
Operating income	21 104	3 311	631	‐533	24 513
T/C hire expenses	‐3 309	0	0	0	‐3 309
Ship operating expenses	‐6 701	0	0	532	‐6 169
Operating expenses ship management	0	‐2 702	0	0	‐2 702
General and administrative expenses	‐12	0	‐2 380	1	‐2 391
Operating expenses	‐10 022	‐2 702	‐2 380	533	‐14 571
Operating result (EBITDA)	11 082	609	‐1 749	0	9 942
Depreciation and amortisation	‐4 113	‐46	‐60	0	‐4 219
Reversal/impairment of ships	1 269	0	0	0	1 269
Operating result (EBIT)	8 238	563	‐1 809	0	6 992
Interest income	0	7	31	0	38
Interest expenses	‐3 167	0	‐12	0	‐3 179
Other financial items	‐138	‐10	128	0	‐20
Currency gains/(‐losses)	‐9	‐46	‐85	0	‐140
Net financial items	‐3 314	‐49	62	0	‐3 301
Result before taxes	4 924	514	‐1 747	0	3 691
Taxes	0	‐106	0	0	‐106
Net result	4 924	408	‐1 747	0	3 585
Hereof non‐controlling interests	0	11	0	0	11
Hereof majority interests	4 924	397	‐1 747	0	3 574

Note 2 Segment information, continued

	USD 1 000	2018					2017
		Dry cargo	Techn. manag.	Admin/ Grp.trs.	Total	Dry cargo	Techn. manag.	Admin/ Grp.trs.	Total
	Freight revenue	6 743	0	129	6 872	5 254	0	112	5 366
	Management fees	0	1 156	‐99	1 057	0	1 300	‐46	1 254
	Operating income	6 743	1 156	30	7 929	5 254	1 300	66	6 620
	T/C hire expenses	‐938	0	0	‐938	0	0	0	0
	Ship operating expenses	‐2 201	0	178	‐2 023	‐2 206	0	118	‐2 088
	Operating expenses ship management	0	‐883	0	‐883	0	‐859	0	‐859
Q1	General and administrative expenses	‐12	0	‐812	‐824	‐6	0	‐660	‐666
	Operating expenses	‐3 151	‐883	‐634	‐4 668	‐2 212	‐859	‐542	‐3 613
	Operating result (EBITDA)	3 592	273	‐604	3 261	3 042	441	‐476	3 007
	Depreciation and amortisation	‐1 420	‐16	‐17	‐1 453	‐1 090	‐13	‐13	‐1 116
	Reversal/impairment of ships	1 269	0	0	1 269	0	0	0	0
	Effect on onerous contracts	0	0	0	0	163	0	0	163
	Operating result (EBIT)	3 441	257	‐621	3 077	2 115	428	‐489	2 054
	Freight revenue	7 095	0	136	7 231	5 424	0	114	5 538
	Management fees	0	1 160	‐99	1 061	0	1 070	‐169	901
	Operating income	7 095	1 160	37	8 292	5 424	1 070	‐55	6 439
	T/C hire expenses	‐1 183	0	0	‐1 183	0	0	0	0
	Ship operating expenses	‐2 257	0	176	‐2 081	‐2 164	0	239	‐1 925
	Operating expenses ship management	0	‐823	0	‐823	0	‐887	0	‐887
Q2	General and administrative expenses	0	0	‐674	‐674	0	0	‐596	‐596
	Operating expenses	‐3 440	‐823	‐498	‐4 761	‐2 164	‐887	‐357	‐3 408
	Operating result (EBITDA)	3 655	337	‐461	3 531	3 260	183	‐412	3 031
	Depreciation and amortisation	‐1 357	‐15	‐21	‐1 393	‐1 109	‐15	‐23	‐1 147
	Effect on onerous contracts	0	0	0	0	234	0	0	234
	Operating result (EBIT)	2 298	322	‐482	2 138	2 385	168	‐435	2 118
	Freight revenue	7 266	0	136	7 402	5 690	0	118	5 808
	Management fees	0	995	‐105	890	0	975	‐101	874
	Operating income	7 266	995	31	8 292	5 690	975	17	6 682
	T/C hire expenses	‐1 188	0	0	‐1 188	0	0	0	0
	Ship operating expenses	‐2 243	0	178	‐2 065	‐2 109	0	176	‐1 933
	Operating expenses ship management	0	‐996	0	‐996	0	‐722	0	‐722
Q3	General and administrative expenses	0	0	‐893	‐893	‐2	0	‐497	‐499
	Operating expenses	‐3 431	‐996	‐715	‐5 142	‐2 111	‐722	‐321	‐3 154
	Operating result (EBITDA)	3 835	‐1	‐684	3 150	3 579	253	‐304	3 528
	Depreciation and amortisation	‐1 336	‐15	‐22	‐1 373	‐1 109	‐15	‐25	‐1 149
	Reversal/impairment of ships	0	0	0	0	500	0	0	500
	Operating result (EBIT)	2 499	‐16	‐706	1 777	2 970	238	‐329	2 879
	Freight revenue	0	0	0	0	5 822	0	112	5 934
	Management fees	0	0	0	0	0	1 741	‐107	1 634
	Operating income	0	0	0	0	5 822	1 741	5	7 568
	Ship operating expenses	0	0	0	0	‐2 408	0	179	‐2 229
	Operating expenses ship management	0	0	0	0	0	‐903	0	‐903
Q4	General and administrative expenses	0	0	0	0	‐37	0	‐695	‐732
	Operating expenses	0	0	0	0	‐2 445	‐903	‐516	‐3 864
	Operating result (EBITDA)	0	0	0	0	3 377	838	‐511	3 704
	Depreciation and amortisation	0	0	0	0	‐1 143	‐16	‐26	‐1 185
	Reversal/impairment of ships	0	0	0	0	2 044	0	0	2 044
	Operating result (EBIT)	0	0	0	0	4 278	822	‐537	4 563

Note 3 Mortgage debt/Bareboat obligation

Mortgage debt as of 30 September 2018 was USD 24.5 million, of which USD 5.0 million is classified as current. Arrangement fee and other transaction costs related to the mortgage debt, were initially recorded as a reduction of the debt in the balance sheet, and are subsequently amortized over the loan period in accordance with the amortized cost principle.

Net bareboat obligation as at 30 September was USD 41.3 million, of which USD 2.1 million is classified as current. The bareboat obligation is related to M/S Belforest and M/S Belisland. These two ships are included in the balance sheet as financial leases.

Note 4 Ships

Belships has assessed its recoverable amount on its ships. As as result of an improved dry bulk market, a net reversal of a part of prior periods impairment amounting to USD 1.3 million have been recorded in the first quarter. The company has applied the same impairment model and assumptions as described in the annual report for 2017, however market related assumptions are updated to reflect the situation as of 30 September. With effect from 1 January 2018, the company has assessed the residual value to be zero.

Note 5 Subsequent events ‐ Merger

On 4 October 2018 an extended stock exchange announcement was made regarding the merger between Belships Chartering AS, a wholly‐owned subsidiary of Belships (as the assignee company) and LHS Holdco AS, LHS Holdco II AS, LHN Holdco 1 AS and LHN Holdco 2 AS (as the assigning companies), against issuance of consideration shares in the Company (the "Merger"). The merger plan and the share capital increase pertaining is expected to be approved by the general meeting held 26 October.

20 LARGEST SHAREHOLDERS

Updated 23 October 2018

	Number of
Name	shares	%
SONATA AS	31 747 492	67.05%
TIDSHIPS AS	5 020 432	10.60%
EITZEN REDERI AS	657 249	1.39%
BELSHIPS ASA	498 000	1.05%
AR FONDS AS	416 183	0.88%
AS TORINITAMAR	360 000	0.76%
NAGATSUKA TORU	330 000	0.70%
CHREM CAPITAL AS	320 000	0.68%
JOMAHO AS	316 681	0.67%
JENSSEN & CO A/S	302 816	0.64%
CITIBANK, N.A. S/A BANKINTER S.A. C	273 547	0.58%
TIDINVEST II AS	269 651	0.57%
STEEN CARL ERIK	269 154	0.57%
JOVOKO AS	250 000	0.53%
SØLAND LIV	240 000	0.51%
JSL AS	236 180	0.50%
ASL HOLDING AS	225 000	0.48%
KIELLAND BERNHARD	200 000	0.42%
AR VEKST AS	198 995	0.42%
HKG HOLDING AS	168 117	0.36%
OTHER SHAREHOLDERS	5 052 503	10.64%
TOTAL OUTSTANDING SHARES	47 352 000	100.00%

FLEET LIST

As at 30 September 2018

			Built			T/C‐rate
Ship		Ownership	year	Dwt	Employment	(net USD/day)
Supramax
M/S Belstar		100 %	2009	58 018	T/C to 08/19	16 000
M/S Belnor		100 %	2010	58 018	T/C to 05/20	16 000
M/S Belocean		100 %	2011	58 018	T/C to 08/19	11 550
Ultramax
M/S Belforest		BBC	2015	61 320	T/C to 08/19	13 000
M/S Belisland		BBC	2016	61 252	T/C to 03/21	17 300
M/S Belnippon	1	TC	2018	63 000	T/C to 01/19	11 070
Imabari newbuilding	2	TC	2020	63 000

1) Delivered in January 2018 for long‐term lease with purchase option. Charter period is eight years with three annual renewal options. Purchase option may be exercised at the end of year 4 to JPY 3.01 billion, with an annual decrease of JPY 110 million.

2) Delivery during 1st half of 2020 for long‐term lease with purchase option. Charter period is eight years with two annual renewal options.

CHARTER COVERAGE

One of the world's largest potash exporters, selling over 10 million tonnes of potash every year, representing about one‐third of global capacity.

Canpotex is a joint venture that is wholly owned by the two Saskatchewan potash producers, Mosaic and Nutrien.

Largest private US company in terms of revenue, with USD 109.7bn in revenues in 2017 and ~150,000 employees worldwide.

Major business areas within agricultural services, crop and livestock, food, health and pharmaceuticals, and industrial and financial risk management.