Belships — Interim / Quarterly Report 2018

Apr 24, 2018

REPORT 1ST QUARTER 2018

24 April 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 8.2 m (Q4: USD 7.6 m)
• EBITDA of USD 3.3 m (USD 3.7 m)
• Impairment reversal of USD 1.3 m (USD 2.0 m)
• Net result of USD 2.1 m (USD 3.2 m)
• M/S Belnippon delivered from Imabari Shipbuilding 24th January
• All ships operating normally modern fleet average age 4.5 years
• Contract coverage 100% for delivered ships around USD 45 million fixed charter
• Financial advisor appointed to evaluate strategic alternatives
• Dividend proposal of NOK 0.10 per share

1st quarter 2018 results

Belships operating income in 1st quarter 2018 was USD 8.2 million (Q4: USD 7.6 million), while EBITDA amounted to USD 3.3 million (USD 3.7 million). The Group's operating result amounted to USD 3.1 million (USD 4.6 million), while net result for 1st quarter 2018 was USD 2.1 million (USD 3.2 million). The figures for 1st quarter includes impairment reversal of USD 1.3 million. Impairment reversal in 4th quarter 2017 amounted to USD 2.0 million.

The Board proposes a dividend of NOK 0.10 per share for 2017.

Fleet status

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

M/S Belstar, M/S Belnor and M/S 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/S Belforest and M/S Belocean are both on time charter to Cargill, and will be open around October‐November. M/S Belnippon, which was delivered from Imabari Shipbuilding in January, is on time charter to Cargill for 10‐13 months. All ships have sailed without significant off‐hire. Technical management is handled by Belships Management (Singapore), with a total fleet of 11 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 31 March the Group's cash totaled USD 5.4 million, compared to USD 5.5 million as per 31 December 2017.

The mortgage debt as per 31 March was USD 27.0 million. Net lease obligation as at 31 March was USD 42.3 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 1.8 million in the 1st quarter.

M/S Belnippon is considered as operational lease.

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 1st quarter of 2018, the book value per share amounted to NOK 4.74 (USD 0.61), while the equity ratio was 28.0%. 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 1st quarter at USD 8 339 per day, whereas the Panamax‐index ended at USD 12 011 per day. The Supramax‐index ended the quarter at USD 12 023 per day. As per today the Cape index stands at USD 13 665 per day, Panamax‐index at USD 10 485 per day and Supramax‐ index at USD 11 312 per day. Baltic S&P Assessment's valuation of a 5‐year old Supramax is currently USD 18.0 million.

Outlook

The replacement in China of domestic produced iron ore with imports is expected to continue in 2018, but the first quarter imports are almost flat y/y at 271 million tons. A contributing factor is flooding in Brazil, which has hampered export of iron ore to China. This has certainly put pressure on the rates for Capesize, whereas lower imports of coal to China have affected the freight rates for Panamax and Kamsarmax. However, the agriculture export from Brazil/ Argentina has been strong y/y, which is benefitting the Supramax/Ultramax fleet.

The talks of tariffs between USA and China have been impacting the dry bulk sentiment, but the trade of soybeans from US to China constitutes only 0.6% of the total dry bulk trade.

The supply is expected to increase by a modest 1‐2% p.a. in 2018‐19, whereas the demand is expected to increase by 3‐4% p.a. If so, we should see an improvement in ship values and charter rates.

Belships' vessels are fully covered until October 2018 when M/S Belocean becomes open, followed by M/S Belforest in November and M/S Belnippon in January 2019. The company is well positioned for a dry bulk market that we believe will strengthen.

Belships' vessels are chartered out on fixed rates to reputable counterparts, representing a future nominal gross hire of around USD 45 million.

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

The Company's largest shareholder, Sonata AS, has informed the Board of Directors, that it is reviewing its long‐term ownership. The Company has in consultation with Sonata AS, appointed ABG Sundal Collier as financial advisor, to evaluate strategic alternatives. This strategic review has been initiated and is progressing well.

Oslo, 24 April 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
		Q1	Q4
USD 1 000		2018	2017	2017
Freight revenue	Note	7 104	5 934	22 646
Management fees		1 057	1 634	4 663
Operating income	2	8 161	7 568	27 309
Timecharter hire		‐1 170	0	0
Ship operating expenses		‐2 023	‐2 229	‐8 175
Operating expenses ship management		‐883	‐903	‐3 371
General and administrative expenses		‐824	‐732	‐2 493
Operating expenses		‐4 900	‐3 864	‐14 039
Operating result (EBITDA)		3 261	3 704	13 270
Depreciation and amortisation		‐1 453	‐1 185	‐4 597
Reversal impairment of ships		1 269	2 044	2 544
Effect on onerous contracts		0	0	397
Operating result (EBIT)		3 077	4 563	11 614
Interest income		3	8	26
Interest expenses		‐1 061	‐1 154	‐4 735
Other financial items		75	‐48	‐361
Currency gains		72	4	114
Net financial items		‐911	‐1 190	‐4 956
Result before taxes		2 166	3 373	6 658
Taxes		‐31	‐163	‐294
Net result		2 135	3 210	6 364
Hereof non‐controlling interests		22	26	60
Hereof majority interests		2 113	3 184	6 304
Other comprehensive income
Actuarial gain/(loss) on defined benefit plans		0	‐6	‐6
Total comprehensive income		2 135	3 204	6 358
Hereof non‐controlling interests		22	26	60
Hereof majority interests		2 113	3 178	6 298
Earnings per share (US cent)		4.56	6.86	13.60
Diluted earnings per share (US cent)		4.56	6.86	13.60

CONSOLIDATED BALANCE SHEET

The quarterly figures are not audited

BELSHIPS ASA
		31 Mar	31 Dec
USD 1 000		2018	2017
ASSETS	Note
Fixed assets
Ships	4	91 090	91 242
Prepaid timecharter hire		135	405
Other fixed assets		2 610	2 080
Total fixed assets		93 835	93 727
Current assets
Short‐term receivables		1 516	1 848
Prepaid timecharter hire		1 095	1 095
Cash and cash equivalents		5 395	5 459
Total current assets		8 006	8 402
Total assets		101 841	102 129
EQUITY AND LIABILITIES
Equity
Paid‐in capital		43 623	43 620
Retained earnings		‐15 477	‐17 589
Non‐controlling interests		374	351
Total equity		28 520	26 382
Long‐term liabilities
Mortgage debt	3	21 778	22 999
Bareboat commitment	3	40 299	40 816
Pension obligations		539	530
Other long‐term liabilities		1 538	1 466
Total long‐term liabilities		64 154	65 811
Short‐term liabilities
Mortgage debt	3	5 000	5 000
Bareboat commitment	3	1 980	1 940
Other short‐term liabilities		2 187	2 996
Total short‐term liabilities		9 167	9 936
Total equity and liabilities		101 841	102 129

CONSOLIDATED CASH FLOW STATEMENT

The quarterly figures are not audited

BELSHIPS ASA

	Q1
USD 1 000	2018	2017
Cash flow from operating activities
Net result before taxes	2 166	6 658
Adjustments to reconcile profit before tax to net cash flows:
Effect on onerous contracts	0	‐397
Depreciations on fixed assets	1 453	4 597
Reversal impairment of ships	‐1 269	‐2 544
Share‐based compensation expense	‐3	0
Difference between pension exps. and paid pension premium	‐19	‐171
Net finance costs	911	4 956
Working capital adjustments:
Change in trade debitors and trade creditors	‐152	85
Change in other short‐term items	38	‐322
Interest received	3	26
Interest paid	‐1 061	‐4 735
Income tax paid	‐40	‐137
Net cash flow from operating activities	2 027	8 016
Cash flow from investing activities
Payment on newbuilding	0	0
Payment of other investments	‐318	‐271
Net cash flow from investing activities	‐318	‐271
Cash flow from financing activities
Repayment of long‐term debt	‐1 727	‐9 835
Paid costs related to financing	‐46	‐369
Net cash flow from financing activities	‐1 773	‐10 204
Net change in cash and cash equivalents during the period	‐64	‐2 459
Cash and cash equivalents at 1 January	5 459	7 918
Cash and cash equivalents at end of period	5 395	5 459

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The quarterly figures are not audited

BELSHIPS ASA

	USD 1 000

	Majority interest
	Paid‐in			Retained
	Share	Treasury	Share	Other	v Other	Non‐	Total
	capital	shares	premium	paid‐in	equity	controlling	equity
As at 31 March 2018			reserves	equity		interests
Equity as at 31 December 2017	14 272	‐166	13 751	15 763	‐17 589	351	26 382
Net result for the period	0	0	0	0	2 113	22	2 135
Other comprehensive income	0	0	0	0	0	0	0
Total comprehensive income	0	0	0	0	2 113	22	2 135
Non‐controlling interest transactions	0	0	0	0	0	0	0
Net share‐based payment	0	0	0	3	0	0	3
Equity as at 31 March 2018	14 272	‐166	13 751	15 766	‐15 476	373	28 520
As at 31 December 2017
Equity as at 31 December 2016	14 272	‐166	13 751	15 763	‐23 887	411	20 144
Net result for the period	0	0	0	0	6 304	60	6 364
Other comprehensive income	0	0	0	0	‐6	0	‐6
Total comprehensive income	0	0	0	0	6 298	60	6 358
Non‐controlling interest transactions	0	0	0	0	0	‐120	‐120
Share‐based payment expense	0	0	0	0	0	0	0
Equity as at 31 December 2017	14 272	‐166	13 751	15 763	‐17 589	351	26 382

KEY FINANCIAL FIGURES

BELSHIPS ASA

		Q1	YTD Q4
		2018	2017
EBITDA	USD 1000	3 261	13 270
Interest coverage ratio		2.90	‐2.45
Current ratio	%	87.34	84.56
Equity ratio	%	28.00	25.83
Earnings per share	US cent	4.56	13.60
Earnings per share	NOK	0.35	1.12
Equity per share	USD	0.61	0.56
Equity per share	NOK	4.74	4.62
Number of issued shares (excluding treasury shares)		46 804 000	46 804 000
Average number of issued shares (excluding treasury shares)		46 804 000	46 804 000

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.

This report was approved by the Board of Directors on 24 April 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

BELSHIPS ASA
USD 1 000			January ‐ March 2018
	Dry cargo	Technical	Admini‐	Group	Total
		managm.	stration	transacts.
Freight revenue	6 975	0	0	129	7 104
Management fees	0	1 156	209	‐308	1 057
Operating income	6 975	1 156	209	‐179	8 161
Timecharter hire	‐1 170	0	0	0	‐1 170
Ship operating expenses	‐2 201	0	0	178	‐2 023
Operating expenses ship management	0	‐883	0	0	‐883
General and administrative expenses	‐12	0	‐813	1	‐824
Operating expenses	‐3 383	‐883	‐813	179	‐4 900
Operating result (EBITDA)	3 592	273	‐604	0	3 261
Depreciation and amortisation	‐1 420	‐16	‐17	0	‐1 453
Reversal impairment of ships	1 269	0	0	0	1 269
Operating result (EBIT)	3 441	257	‐621	0	3 077
Interest income	0	3	0	0	3
Interest expenses	‐1 049	0	‐12	0	‐1 061
Other financial items	‐55	‐3	133	0	75
Currency gains/(‐losses)	‐6	7	71	0	72
Net financial items	‐1 110	7	192	0	‐911
Result before taxes	2 331	264	‐429	0	2 166
Taxes	0	‐31	0	0	‐31
Net result	2 331	233	‐429	0	2 135
Hereof non‐controlling interests	0	22	0	0	22
Hereof majority interests	2 331	211	‐429	0	2 113

Note 2 Segment information, continued

BELSHIPS ASA USD 1 000 2018 2017 Dry cargo Techn. manag. Admin/ Grp.trs. Total Dry cargo Techn. manag. Admin/ Grp.trs. Total Q1 Freight revenue 6 975 0 129 7 104 5 254 0 112 5 366 Management fees 0 1 156 ‐99 1 057 0 1 300 ‐46 1 254 Operating income 6 975 1 156 30 8 161 5 254 1 300 66 6 620 Timecharter hire ‐1 170 0 0 ‐1 170 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 General and administrative expenses ‐12 0 ‐812 ‐824 ‐6 0 ‐660 ‐666 Operating expenses ‐3 383 ‐883 ‐634 ‐4 900 ‐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 Q2 Freight revenue 0 0 0 0 5 424 0 114 5 538 Management fees 0 0 0 0 0 1 070 ‐169 901 Operating income 0 0 0 0 5 424 1 070 ‐55 6 439 Ship operating expenses 0 0 0 0 ‐2 164 0 239 ‐1 925 Operating expenses ship management 0 0 0 0 0 ‐887 0 ‐887 General and administrative expenses 0 0 0 0 0 0 ‐596 ‐596 Operating expenses 0 0 0 0 ‐2 164 ‐887 ‐357 ‐3 408 Operating result (EBITDA) 0 0 0 0 3 260 183 ‐412 3 031 Depreciation and amortisation 0 0 0 0 ‐1 109 ‐15 ‐23 ‐1 147 Effect on onerous contracts 0 0 0 0 234 0 0 234 Operating result (EBIT) 0 0 0 0 2 385 168 ‐435 2 118 Q3 Freight revenue 0 0 0 0 5 690 0 118 5 808 Management fees 0 0 0 0 0 975 ‐101 874 Operating income 0 0 0 0 5 690 975 17 6 682 Ship operating expenses 0 0 0 0 ‐2 109 0 176 ‐1 933 Operating expenses ship management 0 0 0 0 0 ‐722 0 ‐722 General and administrative expenses 0 0 0 0 ‐2 0 ‐497 ‐499 Operating expenses 0 0 0 0 ‐2 111 ‐722 ‐321 ‐3 154 Operating result (EBITDA) 0 0 0 0 3 579 253 ‐304 3 528 Depreciation and amortisation 0 0 0 0 ‐1 109 ‐15 ‐25 ‐1 149 Reversal impairment of ships 0 0 0 0 500 0 0 500 Operating result (EBIT) 0 0 0 0 2 970 238 ‐329 2 879 Q4 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 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 31 March 2018 was USD 27.0 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 31 March was USD 42.3 million, of which USD 2.0 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 approved dry bulk market a net reversal of a part of prior periods impairment have been recorded. 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 31 March.

With effect from 1 January 2018, the company has assessed the residual value to be zero.

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

20 LARGEST SHAREHOLDERS	Updated 18 April 2018
	Number of
Name	shares	%
SONATA AS	31 747 492	67.05%
TIDSHIPS AS	5 020 432	10.60%
EITZEN REDERI AS	806 134	1.70%
BELSHIPS ASA	498 000	1.05%
AR FONDS AS	416 183	0.88%
NAGATSUKA TORU	330 000	0.70%
CHREM CAPITAL AS	320 000	0.68%
TIDINVEST II AS	315 414	0.67%
JENSSEN & CO A/S	302 816	0.64%
CITIBANK, N.A. S/A BANKINTER S.A. C	273 547	0.58%
STEEN CARL ERIK	269 154	0.57%
JOVOKO AS	250 000	0.53%
JSL AS	241 191	0.51%
SØLAND LIV	240 000	0.51%
ASL HOLDING AS	225 000	0.48%
AR VEKST AS	212 055	0.45%
KIELLAND BERNHARD	200 000	0.42%
HKG HOLDING AS	168 117	0.36%
JOMAHO AS	160 000	0.34%
LARSEN KJELL EGIL	160 000	0.34%
OTHER SHAREHOLDERS	5 196 465	10.94%
TOTAL OUTSTANDING SHARES	47 352 000	100.00%

FLEET LIST

As at 31 March 2018

Ship		Ownership	Built year	Dwt	Employment	T/C‐rate (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 08/18	9 770
Ultramax
M/S Belforest		BBC	2015	61 320	T/C to 09/18	9 986
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 12/18	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.

Canpotex Canpotex Canpotex Cargill Cargill Cargill 2018 2019 2020 2021 2022 Belisland Belnor Imabari newbuild Belstar Belnippon Belforest Belocean Firm contract

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.