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Belships ASA : Report 2nd quarter 2021
STRONG MARKET – RETURNING VALUE TO SHAREHOLDERS
HIGHLIGHTS
Operating income of USD 140.4m (USD 28.6m)
EBITDA of USD 36.0m (USD 1.9m) including USD 14.5m from Lighthouse Navigation
Net result of USD 22.5m (USD -14.6m)
Declared dividend of USD 11.4m (NOK 0.40 per share)
Net TCE per ship of USD 18 031 per day
Entered into agreements to acquire five new Ultramax bulk carriers
Two oldest Supramax vessels sold
42 per cent of available ship days in the next four quarters are booked at about USD 22 400 net per day. 80 per cent of available days in 2022 remain open.
Modern fleet of 27 vessels with an average age of about 4 years and average cash breakeven of about USD 10 500 per day
Fleet status
Time charter earnings per ship in the quarter were recorded at USD 18 031 net per day versus BSI index of USD 24 261 net per day for the same period. The inherent lag in our business means that when the spot markets fall, our outperformance will tend to be higher. Conversely, when the market rises our performance will tend to lag on a short-term basis. It is also caused by a certain number of vessels in the fleet performing period time charter contracts.
Approximately 87 per cent of available ship days in Q3 are booked at about USD 22 800 net per day. Approximately 42 per cent of available ship days in the next four quarters are booked at about USD 22 400 net per day.
BELFUJI has been fixed for a time charter contract for about 22-24 months duration at a gross rate of USD 24 000 per day. The contract commenced during June 2021.
BELMOIRA has been fixed for a time charter contract for about 22-24 months duration at a gross rate of USD 23 000 per day. The contract commenced during June 2021.
BELRAY has been fixed for a time charter contract for about 22-24 months duration at a gross rate of USD 22 000 per day. The contract commenced during July 2021.
BELISLAND has been fixed for a time charter contract for about 22-24 months duration at a gross rate of USD 22 000 per day. The contract commenced during August 2021.
BELINDA has been fixed for a time charter contract for about 11-13 months duration at a gross rate of USD 27 000 gross per day. The contract will commence during August 2021.
BELISLAND was drydocked in the quarter. The remaining fleet sailed without significant off-hire in the quarter with a total of 1 807 on-hire days. Two vessels in the fleet are scheduled for drydocking in Q3.
BELORIENT was delivered to its new owners in April 2021. Net cash flow upon delivery was approximately USD 1.0m after repayment of outstanding loans.
Updated delivery schedule for Ultramax newbuildings:
BELTRADER and BELGUARDIAN were delivered in August 2021
BELKNIGHT is expected to deliver August 2021
BELFORCE is expected to deliver September 2021
BELMAR is expected to deliver September 2021
(New) BELTOKYO is expected Q4 2021
(New) BELYAMATO is expected Q4 2022
Transactions
In April, Belships entered into an agreement for the acquisition of a 2017-built Ultramax to be named BELTIGER. The vessel was delivered in August whilst an existing time charter party at a marginally cash-positive rate will follow the vessel and is expected to run until the end of October 2021. The purchase price was USD 21.75m, of which 80 per cent paid in cash and the remaining was settled through an issue of new Belships shares. The estimated cash breakeven for the vessel upon delivery is about USD 9 500 per day including operational expenses. The vessel was delivered in August.
In May, Belships entered into an agreement for the acquisition of a newbuilding Ultramax resale of 61 000 dwt financed through a bareboat agreement for 10 years. The vessel will be named BELFORCE and delivery is expected within September 2021. The estimated cash breakeven for the vessel upon delivery is about USD 10 900 per day including operational expenses. Belships has paid a sum of USD 3.0m upon signing the contract in Q2 2021. The agreement comes with purchase options significantly below current market values and can be exercised after the third year until the end of the charter. There are no obligations to purchase the vessel.
In June, Belships has entered into an agreement for the acquisition of an Ultramax bulk carrier built in 2015 by a Japanese shipyard in a cash transaction. Delivery of the vessel is expected within October 2021. The agreed purchase price is JPY 2.52bn (about USD 22.9m). The vessel has subsequently been sold and leased back on bareboat charter for 9.5 years with options to purchase the vessel after the third year at significantly below current market levels. The estimated cash breakeven for the vessel upon delivery is about USD 10 900 per day including operational expenses.
In June, Belships has exercised an option to purchase the Ultramax vessel BELISLAND and subsequently entered into agreement to sell and lease back the vessel on bareboat charter for 11 years with options to purchase the vessel again after the third year at significantly below current market levels. The new daily rate will reduce the vessels cash breakeven by about USD 1100 per day and have a positive cash effect upon delivery of about USD 2.5 million. Delivery into the new bareboat agreement is expected in September 2021.
In July, Belships entered into an agreement for the sale of BELFRI. Delivery of the vessel is expected to occur within September and Belships will realize a gain of approximately USD 4.6m. Net cash flow upon delivery will be approximately USD 9.0m after repayment of outstanding loans.
Belships has recently entered into an agreement for the acquisition of a further two 64 000 dwt Ultramax newbuilding resales under construction at a Japanese shipyard. BELTOKYO is expected to be delivered Q4 2021 and BELYAMATO is expected to be delivered Q4 2022. BELTOKYO will be leased on a bareboat charter for a period of 12 years. The estimated cash breakeven for the vessel upon delivery is about USD 11 750 per day including operational expenses. Belships will pay a sum of USD 4m upon signing the contract, expected to occur during Q3 2021. The agreement comes with purchase options significantly below current market values and can be exercised after the fourth year until the end of the charter. There are no obligations to purchase the vessel. A similar financing arrangement is expected to be arranged for BELYAMATO before delivery. The agreements are conditional upon certain steps to be completed by the parties involved. Conclusion is expected within Q3 2021.
Belships has recently entered into an agreement for the sale of BELCARGO. Delivery of the vessel is expected to occur within November 2021 and Belships will realise a gain of approximately USD 5.5m. Net cash flow upon delivery will be approximately USD 11.0m after repayment of outstanding loans. The agreements are conditional upon certain steps to be completed by the parties involved. Conclusion is expected within Q3 2021.
Belships’ fleet continues to increase and improve with only modest cash investments, signalling the competitive advantage Belships has in sourcing ship finance. The Japanese-designed Ultramax bulk carriers entering the fleet represent the highest quality and lowest fuel consumption available in the market today.
Lighthouse Navigation
Lighthouse Navigation expanded its commercial platform in 2020 and now have offices in Bangkok, Oslo, Singapore and Melbourne. The aim of this expansion is to further enhance the vessels earning capability and to generate profits around cargo trading opportunities in the market. We now see the impact of this growth with a record quarter showing EBITDA of USD 14.5m.
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 published a comprehensive sustainability report in 2020 (ESG Report) reflecting our ongoing commitment to transparency and meeting investor and stakeholder expectations.
Covid-19 has greatly impacted seafarers, and we have signed the Neptune declaration on Seafarer Wellbeing and Crew Change to join forces with more than 600 shipping companies to influence governments and policy makers to adopt relief measures for our essential workers.
Financial and corporate matters
At the end of the quarter, cash and cash equivalents was USD 63.4m, while mortgage debt was USD 123.2m.
Net leasing obligation at the end of the quarter was USD 156.1m. Leasing liabilities have been calculated under the assumption that Belships will exercise its options to acquire all Ultramax bulk carriers on bareboat charter, whereas we have assumed that the company will not exercise the purchase options on time-chartered vessels BELNIPPON and BELFUJI. Belships has no contractual obligation to acquire any of its leased vessels.
At the end of the quarter, book value per share amounted to NOK 7.03 (USD 0.82), corresponding to a book equity ratio of 38 per cent.
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 amortization of debt, share buy-backs or vessel acquisitions considered to be accretive to shareholders’ value.
Belships believes this approach will create value for shareholders and has the flexibility to manage the company and support the continued growth.
Dividend payment
Based on the financial result in the second quarter 2021 the Board declared a dividend payment of USD 11.4m (NOK 0.40 per share) equivalent to about 50 per cent of net result.
Market highlights
In the second quarter, we observed a further improvement in the spot rates with the Baltic Supramax 58 index averaging USD 24 261 net per day, up from USD 16 140 net per day in the preceding quarter. The third quarter has continued even stronger, with the Baltic Supramax 58 index averaging over USD 30 000 per day – the highest since 2008.
Total Supramax shipment volumes ended at 268 million tons in Q2, up from 256 million tons in Q1 and a record high quarter. Close to 90 million tons were shipped in each month, which is very high historically but still slightly below the record of 93 million tons shipped in March. However, preliminary estimates for shipments in July show another all-time record of 96 million tons.
Demand growth has been strong across almost all commodities and regions, as the global manufacturing boom continued through Q2. Shipments of Iron Ore, Grains, Fertilizers, Steels and Minor Bulks are all on track for all-time highs this year, whereas Coal shipments are still lagging. If the year-to-date run rate of Coal shipments on Supramaxes and Ultramaxes continues in the coming months, shipments will end below both 2020 and 2019 levels. However, the macro backdrop remains highly supportive, lockdowns in South East Asia are hopefully temporary, and the Winter restocking season will also begin in a few months. It is also undeniable that the fleet productivity is lower than usual as caused by the continued disruptions stemming from the COVID-19 pandemic. Port waiting times, general congestion and many vessels having to deviate and wait in order to manage crew changes is absorbing vessel capacity.
According to Fearnleys, vessel deliveries dropped to 23 in the second quarter, down from 27 in the first quarter, which marked the lowest number of deliveries since the fourth quarter of 2018, when 14 vessels were delivered. Without assuming any slippage or cancellation (which is usually between 10-20 per cent), the vessel delivery schedule for the remainder of this year says 44 during the third quarter, and 30 during the fourth quarter. This would take the full year total to 133, which is lower than last year’s 143. Next year, the delivery schedule points to a further reduction in fleet growth, with only 109 vessels scheduled for delivery. The number of new vessels is on track to be the lowest since 2007, when 86 vessels were delivered. However, in relative terms, it is approaching the lowest level in several decades.
The publicly quoted orderbook indicates fleet growth will drop next year and then even further in 2023, according to Clarksons. There will be changes to this outlook for fleet growth as the amount of newbuilding orders being placed over the next 12 months are uncertain and it is also normal that 10-20 per cent of the orderbook ends up being cancelled, deferred or simply incorrect. However, we expect relatively low newbuilding activity as the lack of conviction and alternatives for fuel and propulsion systems will continue to restrain ordering activity in the near term. Most importantly, demand for newbuildings in other segments than dry cargo is absorbing most of the shipbuilding capacity for 2022-2023 and has led to strong increases in newbuilding prices.
Prices for secondhand vessels have increased considerably since before the summer and appear strongly supported to increase further on the back of a very strong freight market.
Outlook
The Baltic exchange Supramax index YTD 2021 has averaged USD 21 100 net per day. There has been a remarkable development over the past months and is continuing with strength. Freight Forward Agreements (FFA) currently indicate a market for Supramax and Ultramax of about USD 33 000 and 35 000 per day for the remaining part of the year. FFA for next year, 2022, is currently indicating an average of USD 20 000 per day for Ultramax bulk carriers.
As we mentioned in previous reports, the supply side has passed the peak of deliveries and the publicly quoted orderbook for our segment is historically low. On the back of a wide rally in commodities this year we remain optimistic in terms of market prospects. For the next four quarters, Belships has secured contract coverage for approximately 40 per cent of available ship days. At the time of writing, Belships has 80 per cent of next year uncovered representing a substantial exposure to a firm dry bulk market.
We will continue to pursue opportunities for further growth whilst being selective and disciplined in the use of our capital. The purpose of growth is to increase profitability and the value and attractiveness of owning our shares. 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. Based on current market expectations, we expect to generate significant free cash flow and aim to pay a quarterly dividend as announced with our dividend policy.
Belships has a uniform and modern fleet of 27 Supra/Ultramax bulk carriers well positioned to capitalise on a strong dry bulk market. We are focused on maintaining a solid balance sheet and liquidity position. Our strategy is to continue developing Belships as an owner and operator of geared bulk carriers, through quality of operations and accretive growth opportunities.
18 August 2021
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 stock exchange announcement was published by Edwin Johansen, Accounting Manager in Belships ASA on 18 August 2021 at 07:01 CET.
This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act
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