Belships ASA - Report 4th quarter 2019
CONTINUED SPOT PERFORMANCE AND GROWTH
• Operating income of USD 40.4 million (Q4 2018: USD 29.2m)
• EBITDA of USD 7.4m (USD 5.9m)
• Net result of USD 2.1m (USD 1.2m, excl. purchase bargain gain)
• Net TCE earnings per ship of USD 11 992 per day versus BSI index of USD 10 226 net per day
• 70% of total ship days in Q1 2020 have been booked at USD 9 625 net per day
• Average cash breakeven per vessel about USD 9 500 per day for next 12 months
• Ship-for-shares acquisition of 2017-built 63 000 dwt Ultramax for delivery in Q2 2020
• Bareboat agreement with purchase options for 64 000 dwt Ultramax for delivery 2H 2020
• BELEAST delivered to its charterer in December for the agreed bareboat and subsequent sale
• Agreement for bareboat charter and subsequent sale of PACIFIC LIGHT
• Modern fleet with an average age of 5 years including newbuildings
• Initiated carbon footprint fleet study
Time charter earnings per ship in the quarter were recorded at USD 11 992 net per day versus BSI index of USD 10 226 net per day for the same period. Net earnings per ship in the full year amounted to USD 11 201 versus BSI index of USD 9 451 net per day for the same period, representing a 19% premium to market indices. Outperformance of the BSI index is due to the optimized portfolio of period charter coverage and outsized spot earnings achieved by our subsidiary Lighthouse Navigation.
On 23 October Belships took delivery of Ultramax newbuilding BELRAY from Shin Kurushima, Japan.
On 3 December BELEAST delivered to its charterer for the agreed bareboat and subsequent sale.
Following a breakdown in September, PACIFIC LIGHT resumed operations after repairs in October. The remaining fleet sailed without significant off-hire in the quarter.
Belships has initiated a carbon footprint fleet study and engaged an independent third party to verify results. Belships aims to continue improving fleet efficiency and report in accordance with the Poseidon Principles.
Ultramax newbuildings BELFUJI (Imabari), BELMOIRA and BELAJA (Shin Kurushima) have been delivered during Q1 2020.
Two newbuilding resales of 64 000 dwt eco-design Ultramax bulk carriers will be delivered during the second half of 2020 and 2021. In addition, Belships will take delivery of a 2017-built Japanese 63 000 dwt Ultramax during Q2 2020.
In October, Belships entered into an agreement with Marti Shipping & Ship Management of Turkey for a bareboat charter and subsequent sale of BELEAST. The 50 000 dwt bulk carrier was built in 2006 and was the oldest ship in Belships fleet. BELEAST was delivered in December as planned and Belships realised a gain of USD 4.4m. The Charterer has an obligation to purchase the vessel within 24 months and the net cash flow during the period will be approximately USD 3.5m after repayment of outstanding loans.
In October, Belships agreed a 7-year bareboat charter for a 61 000 dwt Ultramax bulk carrier newbuilding from Shin Kurushima, Japan. The vessel was delivered in February 2020 and named BELAJA. The estimated cash breakeven for the Vessel upon delivery is about USD 11 000 per day including operational expenses. Belships paid a sum of USD 3m prior to delivery. The agreement comes with purchase options below current market values and can be exercised after the fourth year until the end of the charter.
In December, Belships announced it had entered into agreement for a 10-year bareboat charter of a 64 000 dwt Ultramax bulk carrier newbuilding. The vessel will be delivered by Imabari Shipyard during second half of 2020. Estimated cash breakeven for the vessel upon delivery is about
USD 10 750 per day including operational expenses. Belships will pay a sum of USD 3m upon signing contract, expected to occur during March 2020. The agreement comes with purchase options below current market values and can be exercised after the fourth year until the end of the charter.
In December, acquisition was announced for a modern secondhand Ultramax bulk carrier from Japanese Owners for a price of USD 24.5m. The 63 000 dwt vessel was built in 2017 by Imabari shipyard. Conditional subjects have been lifted and the agreements will be signed forthwith. Delivery is expected during the second quarter of 2020, after having passed its intermediate drydocking survey. The payment for the vessel will be settled by issuing new shares equivalent to 50 per cent of the purchase price at a subscription price of NOK 7.15 per share, and the remaining in cash upon delivery. The vessel is intended to utilise 60 per cent financing from the existing Accordion Tranche,
equivalent to approximately 60 per cent of the purchase price. Hence, the transaction will have a positive cash effect of about USD 2.45 million.
These transactions signal the competitive advantage Belships has in sourcing ship finance. Belships’ fleet continues to increase and improve with only modest cash investments. Taking into consideration 9 acquisitions and 2 divested vessels over the past 12 months the net cash effect is less than USD 3m. The Japanese Ultramax bulk carriers entering the fleet represent the highest quality and lowest fuel consumption available in the market today.
Financial and corporate matters
At the end of the quarter, cash and cash equivalents was USD 44.4m. Mortgage debt was USD 136.6m, while net lease obligation was USD 78.7m.
The fleet will be cash positive at a day rate of about USD 9 500 for the coming 12 months. The rate includes dry docking and finance cash flows.
At the end of the quarter, the book value per share amounted to NOK 6.46 (USD 0.74), while the equity ratio was 39.2 %.
In Q1 2020, Belships realized its fuel oil hedging contracts at an accumulative gain of USD 0.2m. The position was closed at average spread of USD 219 per mt. EBITDA in the quarter includes an unrealised loss on the same fuel oil hedging contracts of USD 1.3m. The Q1 2020 effect will be zero. Gains and losses have been included as part of other gains/losses.
The company has reclassified management fees of USD 2.2m to other income in the quarter. The gains relate to management fees in Belships Management Singapore on agreements which stem mainly from periods before 2019.
The market slowed down in the fourth quarter as the BSI58 index averaged USD 10 226 net per day, from USD 11 886 net per day in the third quarter, as supply growth increased slightly whereas shipment volumes flattened.
Year-on-year fleet growth trended below 3.0 per cent from the middle of 2018 to the middle of 2019, after which vessel deliveries increased and brought the growth rate to over 4.0 per cent by the end of the year. Going forward, the rate of vessel deliveries seen since the summer of roughly 1 million deadweight per month is likely to be maintained the first four or five months of 2020, after which it will drop to about half a million per month for the remainder of the year. The orderbook schedule for 2021 currently shows a marginal 0.2-0.3 million deadweight per month for the entire year, and new ordering activity remains very low.
On the demand side, Q4 was hit by an ‘import ban’ of coal into China as well as a nickel ore export ban from Indonesia. China still imported 17.6 mill tons in December, however this was significantly down from the 21 mill tons they imported in October and November, again a drop from the 25 mill tons they imported from May to September. The nickel ore ban reduced monthly export volumes by 15 mill tons in Q4, which is equivalent to 250 Supramax shipments.
Apart from the decline in Nickel Ore and Coal volumes, other commodities grew modestly so total volumes ended up falling by close to 3.0 per cent in the fourth quarter compared to the third quarter.
The transition towards IMO 2020 started to affect bunkers prices and availability in the fourth quarter. Bunkers spreads in the spot market peaked in December above USD 300 per mt as measured by the difference in fuel price between 3.5 and 0.5 per cent sulphur content. However, both price and availability has rapidly adjusted and during January the spreads moved to USD 200 per mt whilst the forward curve is pointing towards USD 170 and below.
The weak start to the markets in 2020 is primarily due to the negative economic impacts stemming from shutdowns in connection with the Corona virus. At the time of writing, preliminary data shows that the shutdowns have clearly affected economic activity. Consumption of steel, coal, copper and oil among others have dropped by 20-40 per cent according to various reports.
Going forward, the near-term outlook is clouded as much depends on when China resumes normal activity. However, when they do, it is probable to have a significant positive effect as pent-up demand will come in addition to volume normalization. Positive prospects remain for the overall market balance. Fleet growth is expected decrease significantly from the summer, and leading indicators are pointing to increased economic growth as low interest rates and energy prices have coincided with continued credit growth and other economic stimulus. The soft spot market from December in to the first part of 2020 is however different from previous down cycles, most clearly evidenced by the strength and contango in Forward Freight Assessments for the coming months. It is worth observing that forward rates today for standard Supramax vessels for the rest of 2020 are trading at USD 10 000 average, where adjusting conservatively for an Ultramax would put the figure at about USD 11 300.
Belships has entered into an agreement with Marti Shipping & Ship Management of Turkey for a bareboat charter and subsequent sale of PACIFIC LIGHT. The 50 000 dwt bulk carrier was built in 2007, and is currently the oldest ship in Belships’ fleet. PACIFIC LIGHT will commence its charter during March or April of 2020. Belships will realize a gain of approximately USD 2.4m upon delivery. The Charterer has an obligation to purchase the vessel within 24 months and the net cash flow during the period will be approximately USD 1.8m after repayment of outstanding loans.
In January, an instalment of USD 6m for the USD 110m fleet financing originally due in Q3 2020 was prepaid. Next ordinary instalment in that facility is due in Q2 2021. Belships fleet financing has a maturity date in 2024.
The Company will soon control a modern fleet of 23 dry bulk carriers, including newbuildings, and continues to enhance its earnings with a combination of charter backlog and spot market performance. The Supramax and Ultramax segment continues to display the most attractive risk/reward within the dry bulk market.
Belships’ strategy going forward is to grow as a fully integrated shipowner and operator of geared bulk carriers. Through the vessel acquisitions, financing and share issues, Belships has demonstrated its ability to deliver on this strategy. Belships expects that further transactions may be available and intends to pursue such transactions where accretive.
Following the transactions already announced and the issuances of new shares, the company continues to increase the free float in the Belships share, as well as broaden the shareholder base. It is Belships’ intention to make further steps to increase the liquidity in the share.
Belships maintains focus on capital discipline with the aim of returning capital to the shareholders as an important part of the company’s strategy.
21 February 2020
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