Himalaya Shipping : Q1 2024 results presentation

Himalaya Shipping Ltd.

Q1 2024 Results Presentation

23 May 2024

DISCLAIMER

Forward Looking Statements

This results presentation and any related discussions contain forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements that do not reflect historical facts and may be identified by words such as "aim", "believe," "assuming," "anticipate," "could", "expect", "intend," "estimate," "forecast," "project," "likely to", "plan," "potential," "will," "may," "should," "indicative," "illustrative," "potential" or other similar expressions and include statements about plans, objectives, goals, strategies, future events or performance, including outlook, prospects, contracts to acquire newbuilding vessels and associated financing agreements, including expected timing of delivery of our vessels under our newbuilding program, expected growth in the capesize market, cash return potential based on different scenarios and assumptions, statements about the benefits of our vessels, including the flexibility and ability to bunker with LNG, LSFO, or HSFO, fuel flexibility premium potential, estimated break-even, the terms of our charters and chartering activity, dry bulk industry trends and market outlook, including activity levels in the industry, expected trends, including trends in the global fleet, expected demand for and supply of vessels and utilization of the global fleet and our fleet, including expected average rates, fleet growth, new orderings, the impact of an aging global fleet, trends in iron ore and coal imports, limited supply growth of dry bulk vessels and yard capacity, replacement needs and capacity going into dock, statements about our dividend objectives and plans, and other non-historical statements. These forward-looking statements are not statements of historical fact and are based upon current estimates, expectations, beliefs, and various assumptions, many of which are based, in turn, upon further assumptions, and a number of such assumptions are beyond our control and are difficult to predict. These statements involve significant risks, uncertainties, contingencies and factors that are difficult or impossible to predict and are beyond our control, and that may cause our actual results, performance or achievements to be materially different from what is expressed, implied or forecasted in such forward-looking statements.

Numerous factors, risks and uncertainties that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed, implied or forecasted in the forward-looking statements include: general economic, political and business conditions; general dry bulk market conditions, including fluctuations in charter hire rates and vessel values; our ability to complete the purchase of the vessels we have agreed to acquire and on schedule; our ability to meet the conditions and covenants in our financing agreements; changes in demand in the dry bulk shipping industry, including the market for our vessels; changes in the supply of dry bulk vessels; our ability to successfully employ our dry bulk vessels at the end of their current charters and the terms of future charters; changes in our operating expenses, including fuel or bunker prices, dry docking and insurance costs; changes in governmental regulation, tax and trade matters and actions taken by regulatory authorities; compliance with, and our liabilities under governmental, tax, environmental and safety laws and regulations; potential disruption of shipping routes due to accidents, hostilities or political events; our ability to procure or have access to financing and to refinance our debt as it falls due; our continued borrowing availability under our sale and leaseback agreements in connection with our vessels and compliance with the financial covenants therein; fluctuations in foreign currency exchange rates; potential conflicts of interest involving members of our board and management and our significant shareholder; our ability to pay dividends and the amount of dividends we ultimately pay; risks related to climate change, including climate-change or greenhouse gas related legislation or regulations and the impact on our business from climate-change related physical changes or changes in weather patterns, and the potential impact of new regulations relating to climate change, as well as the impact of the foregoing on the performance of our vessels; other factors that may affect our financial condition, liquidity and results of operations; and other risks described under "Item 3. Key Information - D. Risk Factors" in our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission on March 27, 2024.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Unless legally required, Himalaya Shipping undertakes no obligation to update publicly any forward-looking statements after the date of this press release whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures

This presentation contains certain selected financial measures on a basis other than U.S. generally accepted accounting principles ("GAAP"), including average daily TCE earnings, gross, Adjusted EBITDA, and illustrative free cash flow. Average daily TCE earnings, gross, as presented here, represents time charter revenues and voyage charter revenues adding back address commissions and divided by operational days. Adjusted EBITDA represents our net income/(loss) plus depreciation of vessels and equipment; total financial expenses, net; and income tax expense. Adjusted EBITDA is presented here because the Company believes this measure increases comparability of total business performance from period to period and against the performance of other companies. For a reconciliation of Adjusted EBITDA and average daily TCE earnings, gross, to the most directly comparable financial measures prepared in accordance with US GAAP, please see the section of our preliminary results for the quarter ended March 31, 2024, Appendix entitled "Unaudited Non-GAAP Measures And Reconciliations". For a discussion of illustrative free cash flow see slide 17 including the footnotes thereto. We are unable to prepare a reconciliation of illustrative free cash flow without unreasonable efforts.

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Highlights

Q1 2024 Highlights:

• Total operating revenues of $23.6 million, an average time charter equivalent earnings of approximately US$30,600/day, gross.
• Net income of $2.5 million and adjusted EBITDA of $16.8 million for the quarter ended March 31, 2024.
• Successful delivery and commencement of operations of an additional three Newcastlemax dual fuel newbuildings in January 2024.
• Final instalments for two delivered vessels financed by sale and leaseback facilities provided by wholly-owned subsidiaries of Jiangsu Financial Leasing Co. Ltd. totalling $98.6 million.
• Final instalment for one delivered vessel financed by sale and leaseback facility provided by a wholly-owned subsidiary of CCB Financial Leasing Co. Ltd. ("CCBFL") totalling $49.2 million.
• Conversion of index linked charters on Mount Bandeira and Mount Hua to fixed charters from February 1, 2024 to June 30, 2024 at an average of $26,866 per day.
• Conversion of index linked charter on Mount Etna to fixed charter from April 1, 2024 to December 31, 2024 at $40,810 per day.
• Declaration and payment of cash distribution for January 2024 of $0.01 per common share.
• Declaration of cash distribution for February 2024 of $0.03 per common share, which was paid in April 2024.

Subsequent events:

• Declaration of cash distribution for March 2024 and April 2024 of $0.03 and $0.04, respectively, per common share.
• Conversion of index linked charters on Mount Neblina and Mount Blanc to fixed charters from May 1, 2024 to June 30, 2024 at $36,750 and $37,800 per day respectively.
• Delivery and commencement of operations of Mount Denali in April 2024.

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Key Financials Q1 2024

Income statement

US$ millions, except per share data	Q1 2024	Q4 2023	Variance
Operating revenues	23.6	18.3	5.3
Vessel operating expenses	(4.9)	(3.6)	(1.3)
Voyage expenses and commission	(0.4)	(0.2)	(0.2)
General and administrative	(1.5)	(1.1)	(0.4)
expenses
Depreciation and amortization	(5.4)	(3.6)	(1.8)
Total operating expenses	(12.2)	(8.5)	(3.7)
Operating profit	11.4	9.8	1.6
Interest expense	(9.1)	(5.6)	(3.5)
Other financial items	0.2	0.4	(0.2)
Total financial expense, net	(8.9)	(5.2)	(3.7)
Tax expense	-	-	-
Net income (loss)	2.5	4.6	(2.1)
Earnings per share	0.06	0.11
Adjusted EBITDA	16.8	13.4	3.4

Comments

• Increase in operating revenues of $5.3 million in Q1 2024, due to additional 3 vessels delivered in January 2024. Average TCE, gross of approx. US$30,600/day in Q1 2024 vs US$34,400/day in Q4 2023.
• Cash break-even TCE estimated to be approximately $24,600/ day.
• Increase in vessel operating expenses of $1.3 million in Q1 2024 due to additional 3 vessels delivered in January 2024. Average vessel operating expenses of approx. $6,200/day per vessel in Q1 2024 vs $6,500/day per vessel in Q4 2023.
• General and administrative expenses increased by $0.4 million in Q1 2024 mainly due to bonuses paid of $0.3 million.
• Increase in Interest expense of $3.5 million in Q1 2024 due to higher loan principal following the sale and leaseback financing on the 3 vessels delivered in January 2024.
• Increase in operating profit by $1.6 million in Q1 2024.
• Net income of $2.5 million in Q1 2024 vs $4.6 million in Q4 2023.
• Adjusted EBITDA of $16.8 million in Q1 2024, an increase of $3.4 million over Q4 2023.

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Key Financials Q1 2024

Balance Sheet Summary

Comments

US$ millions

Cash and cash equivalents

Vessels and equipment

Newbuildings

Total assets

Short-term and long-term debt

Total equity

March 31,

2024

25.7

647.7

67.1

748.6

583.3

155.1

December 31,	Variance
2023

25.60.1

428.6219.1

132.6 (65.5)

599.2 149.4

439.5 143.8

154.20.9

• Net cash generated by operating activities in Q1 2024 of $11.1 million.
• Net cash used in investing activities in Q1 2024 was $153.8 million, primarily relating to the final instalment on the 3 vessels delivered in January 2024, net of $5.1 million on the charterer's portion which was paid in December 2023.
• Net cash provided by financing activities in Q1 2024 was $142.8 of which $147.8 million was from the sale and leaseback financing on the 3 vessels delivered in January 2024, partially offset by deferred loan costs of $1.1 million, loan repayments of $3.4 million and cash distribution paid of $0.4 million;
• Vessels and equipment increased primarily due to the delivery of 3 vessels in January 2024.
• Decrease in newbuildings was primarily due to the delivery of 3 vessels in January 2024.
• Increase in short-term and long-term debt was primarily due to the closing of the sale and leaseback financing on the 3 vessels delivered in January 2024, offset by loan repayments.
• Total remaining shipyard capex (inc scrubbers) of $155.7 million. Current committed sale lease-back financing of $147.6 million.
• $10 million available to draw-down under the RCF with Drew Holdings Ltd.

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Chartering position

Fleet status report - May 2024

6

Strongest start to the year since 2010

Baltic 5TC index rate

90,000
80,000
70,000
60,000
		YTD average rate
50,000			$23k/day
		up 110% Y/Y
40,000
30,000
20,000
10,000
0
J	F	M	A	M	J	J	A	S	O	N	D
			2015-23max-min range		2015-23 average	2024		2023
						7

Strong demand

Tonne-mile demand historically outpaced volume growth

Solid demand YTD up 11%

Global seaborne trade volume (billion tonne-miles) 35,000

3.9% Tonnes (CAGR 2000 - 2023)

30,000

4.2% Tonne-mile (CAGR 2000 - 2023)

25,000

20,000

15,000

10,000

5,000

0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

	Iron ore		Coal		Grains		Minor Bulk

Source: Clarksons Shipping Intelligence Network (https://sin.clarksons.net/) as of May 20, 2024

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Capesize shipping - a growth market

Simandou Guinea iron ore project		A long-haul trade	Potentially requires 170 capesize

Million tonnes

Guinea to China	Australia to China
~11k miles	~4.8k miles

200

180

160

140

120

100

80

60

40

20

-

170 170 170

121

110 110 110

78

46

30

6

9

180
160
140
120
100	Capes
80
60
40

20

-

Simfer

WCS

Capesize equivalents*

Rio Tinto and CIOH targets 110 MT/year

~11,000 nautical miles - similar to

Project alone requires 170

of iron ore from mines Simfer and

Brazil to China trade

capesize equivalent ships vs

WCS by 2028 - start-up 2025

orderbook of 96 ships

Source: Clarksons

9

China - iron ore and coal imports gaining traction

China iron ore imports (MT/month)

120.0
100.0
80.0
60.0
40.0
20.0
0.0	2005
2004	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2017	2018	2019	2020	2021	2022	2023

Imported iron ore @ 62% Fe content vs China domestic @ 25% Fe content - imports to gain market share as higher quality iron ore reduces CO2 emissions - current market share 74%

China coal imports (MT/month)

50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0	2005
2004	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2017	2018	2019	2020	2021	2022	2023

Market share imported coal growing driven by higher quality coal

imports and environmental crack-down on high-risk mining production in China - market share now ~10% vs 3% in Q1 2022

10