Directors’ Report 2012
Average T/C rates for supramax were USD 9 400 per day in 2012, down from USD 14 400 per day in 2011. Dry cargo volume carried was up approximately 6% on the year before, but demand for tonnage was up about 9% due to delays in port and lower utilization rates. Imports of iron ore to China were up more than 12%, which led to an increase in sailing distances. Much of these exports went to Brazil. Waiting time in port was up around 2% over the year, and the fleet sailed largely at reduced speed due to increased bunkerprices and lower freight rates. Both deliveries of newbuildings and scrapping of old ships reached record heights in 2012, at 95 million dwt and 22 million dwt respectively. The dry cargo fleet grew nearly 12% between 2011 and 2012 on average.
During 2012 our dry cargo ships, the M/S Belstar, M/S Belnor and M/S Belocean continued on their long-term charter parties to Canpotex Shipping Services Ltd. The company’s tonnage is modern, and all ships operated satisfactorily without significant off-hire. The operating expenses were, however, slightly above budgeted levels.
Our producttanker, the M/T Belaia, continued on its charter party to J. Lauritzen AS, and contributed positively as expected. The charter party has been extended until March 2014 at a rate which covers Belships’ leasing costs. Belships still has three one-year options to extend the charter-in period and also an ongoing option to purchase. The option strike price lies significantly above current estimated market value.
The operating company Belships Management (Singapore) Pte Ltd made a positive contribution.The company expanded its customer base, and currently provides technical management for 16 ships, including Belships’ own.
The Belships group had an operating income of USD 25 895 000 in 2012 (USD 26 855 000), giving a consolidated operating profit of USD
1 908 000 (USD 3 024 000). The figures include an impairment of ship values of USD 5.0 million and a reversal of pension commitments of USD 2.5 mill. The pre-tax result was USD -1 503 000 (USD -587 000), while the consolidated result for the group was USD -1 689 000 (USD -1 227 000). The group had a positive cash flow from operations of USD 8 503 000 (USD 9 689 000). USD 4.2 million of the bond loan was paid in July 2012.
The parent company’s net result for the year was NOK -26 947 000 (NOK 21 216 000). The loss in 2012 is mainly related to impairment of shares in its subsidiary Belships Supramax Singapore Pte Ltd, while the profit in 2011 included profit from the sale of the shares in Elkem Chartering AS. Belships ASA had a free distributable equity of NOK 185.6 million at the year end. The Board proposes the result for the year of NOK -26 947 000 to be charged other equity.
The annual accounts are presented on a going concern basis in accordance with § 3 – 3 of the Norwegian Accounting Act, and the Board considers that they give a true and accurate portrayal of the company’s business. The Board considers that the conditions for a going concern are in place.
The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The information in the accounts gives a true and accurate portrayal of the company’s and the group’s assets, liabilities, financial position and results as a whole. The annual accounts give a fair view of the development, profit and overall financial position of Belships ASA and the group, and describe the most significant risks and uncertainties facing the group and the parent company.
SAFETY AND THE ENVIRONMENT
Belships aims to minimize environmental impact from its activity, and strives constantly to improve safety. Measures are taken to prevent the business polluting the environment. We work consciously to improve standards, on board and ashore. Pollution from ships is governed by a number of national and international environmental standards and certifications. Belships meets official requirements in terms of safety and the environment.
The company’s headquarters are in Oslo, from where most of its commercial and financial business and insurance are handled. Technical maritime operations are handled from Singapore.
There has been no change within the senior management in 2012.
Commercial activities in Singapore increased over the year. The group employed 60 office staff at the end of 2012. Ships under management had 478 crewmembers on board. The sick leave was less than 2% in 2012. The group was not subject to any serious accidents in 2012.
Belships aims to have equal treatment of women and men, both on the Board and elsewhere within the organization, and no discrimination on the grounds of gender is tolerated. Of the company’s office staff, 31 are women. The working environment at the various companies in the Belships group is good.
FINANCIAL AND OTHER MATTERS
The company has conducted impairment tests in line with IAS 36, valuing the M/S Belstar, M/S Belnor and M/S Belocean based on observable market values of equivalent ships and contracts today, and including the discounted added value of the charterparties entered into. The Board considers the counterparty risk in the charter parties as moderate, and has included this uncertainty in the yield requirements used. These internal valuations indicated that there was a need for impairment of the company’s shipinvestments with a total of USD 5 million. In the financial statement for 2012 the book value of M/S Belstar and M/S Belnor were reduced by USD 4 million and USD 1 million, respectively.
Consolidated liquidity was USD 10.2 million as at 31 December 2012, as against USD 14.7 million at the beginning of the year. Total mortgage debt had a balance of USD 53.1 million at the year end and was reduced by USD 5.2 million during 2012. Belships also had a net outstanding bond loan of NOK 33.3 million as at 31 December, which will be redeemed at maturity date in July 2013. NOK 6.2 million of the loan was repurchased over the year at an average rate of 99.5 %. The repurchase is reflected in the outstanding amount of the loan. The loan is hedged against USD currency risk.
The Group’s solvency and financial position is satisfactory. Current activity is expected to generate sufficient liquidity to cover net current debt as at 31 December 2012. The company aims to provide its shareholders with a competitive yield. In view of the company’s financial position, however, the Board will propose to the General Meeting (GM) that no dividends be paid for 2012.
At the end of 2012, Belships held 548,000 treasury shares in total at an average cost of NOK 9.91 per share. At the GM in 2012, new options were issued to staff totaling 200 000 shares at a strike of NOK 4.91, which will become effective from the GM in 2013 and until the GM in 2014. At the end of 2012, book equity of the Belships share was NOK 11.77, while the book equity ratio was 44.9%.
The company is exposed to financial market risks due to changes in FX rates, interest rates, freight rates and oil prices. Such changes affect how much the group’s assets and liabilities are worth and its future cash flows. We are working continuously to reduce and control these risks. To reduce financial market risks, we use derivatives when appropriate. Belships only uses derivatives to limit risks involved in changes in interest and FX rates.
The company’s income and costs are essentially in USD. Belships’ foreign exchange exposure is linked to administrative costs in Norway and in Singapore. Compared to the group’s cash flows, however, this exposure is limited. Belships’ strategy is to limit our exposure in relation to cash flow fluctuations linked to changes in interest rates. We have entered into interest rate cap contracts at some of the company’s mortgage liabilities. The company has also entered a 5 year SWAP-agreement starting August 2013. This agreement is covering about 40% of the mortgage debt balance.
Fluctuating bunker prices do not affect the group’s ships as they are contracted on long-term timecharter parties.
The company will always be exposed to credit risks, when it comes to its customers. Belships endeavors to ensure that contracts are included with creditworthy counterparties.
The group’s limited tax cost is expected to continue as its ships are owned by Singaporean companies which enjoy favourable tonnage tax regime, while at the same time the group’s Norwegian entities have considerable tax loss carried forward.
Belships’ corporate governance is based on the company’s goals and strategy. The Company is listed on the Oslo Stock Exchange, and is subject to the Norwegian Accounting Act, the Securities and Trading Act and the Public Company Act.
Belships follows the Norwegian code of good corporate governance of 23 October 2012. Please see the separate statement of corporate governance that appears as a section of the annual report in its own right.
The dry cargo ship market deteriorated over the fourth quarter, especially in the capesize segment. In this period the spot rates for capesize, panamax and supramax fell to around USD 5 600, USD
6 300 and USD 7 700 per day respectively. Values fell in line with rates and according to the Baltic S&P Index, a five-year-old supramax is now priced at USD 18.2 million. The transaction volume rose significantly towards the end of 2012 and into January this year, which may be a sign that the fall in values have bottomed out.
The net fleet growth after scrapping is expected to be moving in tandem with the demand growth in 2013, and we expect the demand to outpace fleet growth from 2014 onwards. We have seen increased ordering activity lately of “eco-design” newbuildings for delivery from late 2014, and this may influence the positive balance between demand and supply. However, we do not see a massive ordering to take place for “eco design” vessels. It will still take some time until these vessels will hit the water to prove the actual fuel efficiency currently being marketed by the shipyards.
Belships’ vessels are sailing on long-term charterparties with reputable charterers, so neither the company’s earnings nor cash flow will be affected by short-term fluctuations in the market. The charterparties represent future income of approximately USD 130 million.
We will continue to develop Belships ASA as a tonnage provider of modern bulk ships to counterparties with low credit risks. Our long-term goal is to build up a portfolio of ships with a long tail of charter parties producing a decent return and offering a reduced residual risk exposure. There will be many opportunities for buying quality tonnage going forward, and we are working actively to generate new projects.