Hunter Group ASA — Earnings Release 2020

Nov 26, 2020

Hunter Group ASA Third quarter and 3Q YTD results 2020

26 November 2020

Highlights

Financial highlights

• Total revenues of USD 35.81m
  • − Spot pool revenues of USD 8.67m
  • − Time charter revenues of USD 26.50m
• Total operating expenses of USD 10.53m
  • − Vessel opex incl. insurance of USD 4.08m
  • − Voyage exp. and commissions of USD 0.70m
  • − G&A expenses of 0.46m
    • − USD 0.28m administrative expenses
    • − USD 0.12m legal expenses
    • − USD 0.05m non-cash expenses
• EBITDA of USD 30.56m
• Net profit of USD 21.69m
• Average daily earnings of USD 59,700
  • − Avg. daily spot earnings of USD 38,200¹
  • − Avg. daily time charter earnings of USD 73,200
• Opex incl. insurance of USD 6,900 per day per vessel
• 589 earnings and operating days
  • − 227 pool spot days
  • − 362 time charter days
  • − Zero downtime
• USD 106m of yard payments, marking the completion of the newbuilding program and leaving no remaining yard obligations

Key events in 3Q 2020

• Hunter Idun and Hunter Frigg were delivered from the yard on 3 July 2020 and 21 August 2020, respectively. This marks the end of the current newbuilding program. Both vessels commenced timer charters ("TC") immediately after delivery at USD 72,500 per day and USD 40,000 per day, respectively
• Hunter Atla and Hunter Saga were repurchased from SFL Corporation Ltd, in accordance with the saleand-leaseback agreement. Both vessels were refinanced with low-cost bank debt and a lower debt level
• TC for Hunter Disen was extended by 5-7 months at USD 38,000 per day, following expiration of its previous contract

Subsequent events

• TC for Hunter Idun was extended for 4-6 months at USD 30,000 per day, upon completion of it's current TC in December
• Entered into Memorandum of Agreement for the sale of Hunter Saga and Hunter Laga for a combined amount of USD 168.4m
• Sale of Hunter Laga successfully completed, and she was delivered her to her new owners on 23 November 2020
• As of the date of this report, 88% of days in the fourth quarter have been booked at an average est. dayrate of USD 41,400
  • − 72% of spot days booked at an avg. est. dayrate of USD 18,000¹
  • − Average Q3 TC dayrates of USD 55,200

Management update

Although the tanker market has been in a lull for the past few months, the period since our previous report has been an eventful one for the Company. As we took advantage of the market spike during the second quarter and secured TC coverage for a large portion of our fleet, we have been able to continue to execute on our strategy and capital allocation policy during the third quarter, despite the current market weakness.

The third quarter marked the end of a capital-intensive newbuilding program. With the delivery of our final vessel, Hunter Frigg, on 21 August, the current newbuilding program was completed leaving zero remaining yard commitments. Coinciding with our final delivery, we reduced leverage and capital cost by refinancing the sale and leasebacks for Hunter Atla and Hunter Saga with low-cost bank debt. These measures have significantly reduced our cash breakeven per vessel and given our current contract coverage, as well as our market outlook, management is very comfortable with the state of the company.

We recently announced a Memorandum of Agreement for the sale of Hunter Saga and Hunter Laga for a combined amount of USD 168.4m. Hunter Laga has successfully been delivered to her new owners, while the sale of Hunter Saga is expected to be completed during December. The total transaction is expected to result in a net cash release of around USD 60m and a combined return on equity for the two vessels of around 40%. The divestment is in line with our stated strategy since the beginning of the VLCC project, and we intent to distributed all excess cash¹ to the shareholders of the Company.

	Q3 '20	Q4 '20	Q1 '21	Q2 '21
Hunter Atla	TC		Spot
Hunter Saga			Sold: Expected closing December 2020
Hunter Laga		Sold: Delivered to new owners x
Hunter Freya			Spot
Hunter Disen		TC		Spot
Hunter Idun		TC	Spot
Hunter Frigg	Yard	TC		Spot
% days covered	100%	88%	52%	10%
Avg dayrate covered (\$k/d)	58,900	41,400	35,500	31,000
Capital commitments (\$m)	224	-	-	-
Debt drawn/(\$m)	206	-	-	-

Charter coverage and capital commitments

Third quarter market review

Benchmark VLCC spot rates averaged around USD 20,000 per day during the third quarter, significantly down from the second quarter average of almost USD 100,000 per day. Reduced demand for oil due to Covid-19 and record inventory levels are the primary culprits. As we have previously discussed, the drop in spot oil prices following the initial Covid-19 wave and the subsequent oil price war within OPEC+ led to a surge in oil imports and floating storage speculation. This in turn led global oil inventories to reach record levels, and resulted in around 100 VLCCs, by varying estimates, being held up in floating storage and/or Chinese port congestion. OPEC eventually agreed to cut exports by almost 10 million barrels starting May 1st in an attempt to rebalance the market, essentially all of which were seaborne volumes. The cuts were reduced by 2mbd from 1 August and are currently scheduled to be further reduced by 2mbd on January 1, 2021. Consequently, MEG VLCC cargoes have remained flat at around 100 throughout the third quarter, compared with approx. 150 seen in the beginning of the year. VLCC cargo liftings in other areas of the world are also down some 20%. Although Chinese and Indian oil imports have been strong during the quarter, their positive effect have been offset by the return of vessels previously held up in port congestion and floating storage. In addition, 9 newbuild VLCCs were delivered during the quarter while zero were scrapped. On a positive note, however, global oil demand did recover to some 93mbd for the third quarter and is expected to reach an average of approx. 95mbd for the fourth quarter. This compares with around 81mbd in April and 97mbd in January. This obviously causes draws on global inventories and will cause a gradual decrease towards the five-year average.

Market outlook

In the fourth quarter the tanker market has so far continued to be dominated by reduced seaborne export volumes and high, although declining, global oil inventories. The latter, we believe, needs to approach its five-year average before a meaningful recovery in the tanker market will take place. The second wave of Covid-19 cases and escalating restrictive measures around the world have increased uncertainty around future global oil demand and has likely pushed the inflection point for a tanker market recovery further into 2021. A slower global oil demand recovery, combined with the recent unexpected increase in Libyan oil production from approx. 0.1mbd to approx. 0.8mbd, may also postpone the planned 2mbd reduction in OPEC cuts from January 1, 2020 and further delay the inventory drawdown cycle. Risk remains for volumes and rates to continue to be under pressure in the short term. However, with the lowest orderbook since the mid 1990's coupled with a large phase out potential given the age of the fleet all is not negative. In addition, average voyage lengths are up for the fifth straight year indicating longer and longer hauls worldwide which clearly is positive for our vessels. Global stimulus packages of more than USD 6.7 trillion may also contribute to an increase in oil demand, which in turn is positive for the tanker market, and the VLCC market in particular. Covid-19 is obviously affecting us all, but we know one thing for sure, and that is that for every day that goes by we are one day closer to the end of the Covid-19 pandemic. The latest news indicate that we are close to having an effective vaccine from 3(4) large pharmaceutical companies, and once they are distributed, travel will again be on the agenda, increasing oil demand further.

Condensed consolidated financial statements for 3Q 2020

Consolidated income statement

	Quarters			Year to date	Year to date
(Unaudited figures in USD 1 000)	3Q 2020	3Q 2019	Note	30.09.2020		30.09.2019 31.12.2019
Revenues
Pool revenues	8 669	0		43 379	0	12 026
Time charter revenues	26 498	0		42 189	0	0
Other income	640	69		640	281	378
Net gain on sale of assets	0	0	5	0	0	12 308
Total Revenues	35 806	6 9		86 208	281	24 712
Operating expenses
Vessel operating expenses	4 084	0		8 467	0	1 442
Voyage expenses and commissions	703	0	1	1 619	0	1 968
Depreciation and amortisation expense	5 292	14	6	11 141	30	1 915
General and administrative expenses	456	297	4	1 093	703	1 113
Capitalised development cost	0	0				0
Total operating expenses	10 535	311		22 319	733	6 438
Operating profit (loss)	25 271	-242		63 888	-451	18 274
Net financial income (loss)	-3 581	-1 414		-11 592	297	-2 321
Profit (loss) before taxes	21 690	-1 656		52 296	-154	15 953
Tax on ordinary result	0	70		0	0	0
Net profit (loss)	21 690	-1 586		52 296	-154	15 953
Earning per share	0,04	0,00		0,09	0,00	0,03
Earnings per share diluted	0,04	0,00		0,09	0,00	0,03
	Quarters
(Unaudited figures in USD 1 000)	3Q 2020	3Q 2019		30.09.2020		30.09.2019 31.12.2019
Net profit (loss)	21 690	-1 586		52 296	-154	15 953
Other comprehensive income, items to be reclassified to profit & loss
Translation differences	0	0		0	2	0
Comprehensive income for the period	21 690	-1 586		52 296	-152	15 953
Total comprehensive income attributable to:
Equity holders of the parent	21 690	-1 586		52 296	-152	15 953

Total comprehensive income 21 690 -1 586 52 296 -152 15 953

Consolidated balance sheet

Assets

(Unaudited figures in USD 1 000)	Note			30.09.2020 30.06.2020 30.09.2019 31.12.2019
NON-CURRENT ASSETS
VLCC vessels	5, 6	597 190	423 239	84 837	254 234
VLCC vessels under construction	5, 6	0	71 825	162 387	79 663
Other tangible assets	6	304	212	158	217
Total tangible assets		597 495	495 277	247 382	334 114
TOTAL NON-CURRENT ASSETS		597 495	495 277	247 382	334 114
CURRENT ASSETS
Trade and other receivables		8 016	12 201	0	7 351
Other short-term assets		3 745	4 630	1 217	851
Total current assets		11 760	16 831	1 217	8 202
Cash and cash equivalents		25 397	17 135	9 725	52 455
TOTAL CURRENT ASSETS		37 157	33 966	10 942	60 657
TOTAL ASSETS		634 652	529 242	258 323	394 771
Equity and Liabilities
EQUITY
Share capital (575 362 013 shares)	2	82 625	82 625	82 625	82 625
Share premium	2	115 065 65 961	114 989 44 272	112 467 0	114 914 13 665
Other equity TOTAL EQUITY		263 651	241 886	195 092	211 204
LIABILITIES
Interest-bearing debt	6	345 215	269 430	58 730	174 494
Total non-current liabilities		345 215	269 430	58 730	174 494
Trade payables		3 066	2 936	552	3 077
Accrued public charges and indirect taxes		208	55	16	15
Current portion of interest-bearing debt		21 721	14 762	1 440	5 932
Other current liabilities		790	172	2 492	49
Total current liabilities		25 785	17 925	4 500	9 073
TOTAL LIABILITIES		371 000	287 355	63 230	183 567
TOTAL EQUITY AND LIABILITIES		634 652	529 242	258 323	394 771

Consolidated cash flow statement

	Quarters			Year to date	Year to date
(Unaudited figures in USD 1 000)	3Q 2020	3Q 2019		Note 30.09.2020	30.09.2019	31.12.2019
Profit (loss) before tax	21 690	-1 656		52 296	-154	15 953
Depreciation	5 292	30	6	11 141	30	1 915
Gain on sale of VLCC	0	0	5	0	0	-12 308
Financial income	18	-3		-84	-3	-509
Financial expenses	3 592	90	6	11 571	92	2 974
Change in working capital items	5 958	1 761		-2 569	1 855	-4 818
Net cash flow from operating activities	36 550	222		72 355	1 820	3 208
Investments in VLCC newbuilds and PP & E	-107 396	-95 419	5, 6	-274 369	-190 482	-312 840
Sale of VLCC	0	0	5	0	0	46 136
Sale of other financial investments	0	0		0	24 758	24 758
Net cash flow to investment activities	-107 396	-95 419		-274 369	-165 724	-241 946
Interest received	-18	3		84	3	509
Interest paid	-3 592	-90	6	-11 571	-92	-2 974
Net change interest bearing debt	82 743	60 000	6	186 510	60 000	180 184
Installment leasing-debt (IFRS 16)	-25	-14		-67	-30	-48
Capital contribution	0	0	2	0	79 168	79 168
Transaction cost capital contribution	0	-104	2	0	-422	-647
Net cash flow from financing activities	79 108	59 795		174 956	138 627	256 192
Total net changes in cash flow	8 262	-35 402		-27 058	-25 277	17 454
Currency effect on cash	0	0		0	0	0
Cash and cash equivalents beginning of period	17 135	45 127		52 455	35 001	35 001
Cash and cash equivalents end of period	25 397	9 725		25 397	9 725	52 455

Consolidated statement of changes in equity

		Share	Share	Currency	Retained	Total
(Unaudited figures in USD 1 000)	Note	Capital	premium	translation	earnings	equity
Equity as of 01.01.2019		55 376	63 412	-2 289	0	116 499
Total comprehensive 3Q YTD 2019			0	0	-154	-154
Private placement 22 May 2019	2	27 249	51 919	0	0	79 168
Transactions costs			-424	0	0	-424
Equity as of 30.09.2019		82 625	114 907	-2 289	-154	195 090
Net profit 4Q 2019				0	16 107	16 107
Other comprehensive income				0	0	0
Total comprehensive 4Q 2019				0	16 107	16 107
Option plan payment			230	0	0	230
Transactions costs			-223	0	0	-223
Equity as of 31.12.2019		82 625	114 914	-2 289	15 953	211 204
Net profit 3Q YTD 2020				0	52 296	52 296
Other comprehensive income				0	0	0
Total comprehensive 3Q YTD 2020			0	0	52 296	52 296
Option plan payment			151	0	0	151
Equity as of 30.09.2020		82 625	115 065	-2 289	68 249	263 652

Notes to the Hunter Group condensed consolidated financial statements for 3Q 2020

1. Accounting principles

These condensed interim financial statements of Hunter Group where authorized for issue by the Board of Directors on 25 November 2020.

The interim condensed consolidated financial statements for the three- and nine-months ending 30 September 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual consolidated financial statements as at 31 December 2019.

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019.

Vessels and equipment

The net cost of the VLCCs (less estimated residual value) is the basis for a straight-line depreciation over the estimated remaining economic useful lives (25 years). Other equipment (excluding vessel upgrades) are depreciated over its estimated remaining useful life (5 years). The estimated residual value for the VLCCs is calculated by multiplying the lightweight tonnage with the market price of scrap per ton. Residual values are reviewed annually.

Voyage expenses relates to fuel and other costs incurred before the vessel joins the Tankers International pool.

2. Equity transactions

On 22 May 2019, HUNT issued 190,454,000 new ordinary shares for gross proceeds of NOK 695 million (USD 79m) with a subscription price of NOK 3.65, and registered it in The Register of Business Enterprises.

3. Segment information

As the Dwellop-segment was discontinued in 2018, and the Indicator-segment has not had any activity during the last couple of years, the management monitors the operating results in 1 segment which develops and operates the VLCCs.

4. Transactions with related parties

The following table provides the total amount of transactions with related parties controlled by the members of the executive management of Hunter Group for 2019. All related party transactions have been entered into on an arm's length basis.

Transactions with related parties	30.09.2020	31.12.2019
Purchased services in USD 1 000	74	160

The Group has used the services of the law firm Ro Sommernes DA for legal advice in 2019 and 2020; USD 110t in 2019 and USD 35t as per 30.09.2020. The Company's chairman Henrik Christensen is a partner in Ro Sommernes DA.

From 1 November 2018 the Company rents office space from Dronningen Eiendom AS. The rental agreement is for 36 months. One of the Company's shareholder is also a shareholder of Dronningen Eiendom AS.

5. VLCC under construction

The Company entered into at total of eight shipbuilding contracts of which Hunter Atla, Saga and Laga were delivered in 2019. Hunter Freya was delivered on 6 March 2020 and Hunter Disen was delivered on 5 June 2020. Furthermore, Hunter Idun was delivered on 3 July 2020 and Hunter Frigg was delivered on 21 August 2020. In addition, one were already sold and redelivered her to her new owner with a gain of USD 12.5m in 2019.

6. Property, plant & equipment

( Unaudited figures in USD 1 000) Per 31 December 2019	VLCC vessels
	IFRS 16 PP&E	Other tangible assets	under	construction VLCC vessels	Total
Additions in the period	152	0	270 919	3 450	274 521
Transfer to VLCC in operation	0	0	-350 582	350 582	0
Cost at 30 September 2020	411	10	0	610 130	610 551
Accumulated depreciations at 30 September 2020	-113	-3	0	-12 940	-13 056
Book value at 30 September 2020	298	7	0	597 190	597 495
This period's depreciation	65	0	0	11 076	11 141

The Group took delivery of "Hunter Freya" (NB No. 5465) on 6 March 2020, "Hunter Disen" (NB No. 5466) on 5 June 2020, "Hunter Idun" (NB No. 5467) on 3 July 2020 and "Hunter Frigg" (NB No. 5470) on 21 August 2020. In 2019 NB No. 5457 were sold and redelivered her to her new owner with a gain of USD 12.5m.

The acquisition cost of the delivered VLCCs has as such been transferred from VLCC under construction to VLCC vessels.

7. Subsequent events

TC for Hunter Idun was extended for 4-6 months at USD 30,000 per day, upon completion of it's current TC in December

Entered into Memorandum of Agreement for the sale of Hunter Saga and Hunter Laga for a combined amount of USD 168.4m

Sale of Hunter Laga successfully completed, and she was delivered her to her new owners on 23 November 2020

As of the date of this report, 88% of days in the fourth quarter have been booked at an average est. dayrate of USD 41,400

• − 72% of spot days booked at an avg. est. dayrate of USD 18,000¹
• − Average Q3 TC dayrates of USD 55,200

Hunter Group ASA Org. nr. 985 955 107

Address: Dronningen 1, 0287 OSLO E-mail: Erik A. S. Frydendal CEO ef@huntergroup.no Lars M. Brynildsrud CFO lb@huntergroup.no