Directors’ Report 2013
THE DRY BULK MARKET
Dry bulk freight rates improved in 2013 from the low levels of 2012. Tonnage demand increased significantly, driven by a new record in Chinese dry bulk imports and a substantial recovery in global grain trade in the latter part of the year. The dry bulk fleet increase was comparatively less, thereby improving the utilization rate.
The seaborne transportation of dry bulk commodities measured in ton-miles rose by about 7% compared to the year before, but real demand for tonnage was up about 9% due to lower fleet productivity. China increased its dry bulk imports by 12%.
Iron ore imports went up more than 10% and coal imports by 17%. There was also a strong jump in imports of bauxite, nickel ore and manganese ore. Australia increased its market share in minerals exports, whereas Brazilian iron ore exports remained unchanged. Deliveries of newbuildings and scrapping of old ships amounted to 59 million dwt and 23 million dwt respectively. The dry bulk fleet increased by less than 8% on average from 2012 to 2013.
M/S Belstar, M/S Belnor and M/S Belocean continued in 2013 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 very close to budgeted levels.
Belships entered in 2013 into a newbuilding program for eco-design Supramax bulk carriers to be built by Imabari Shipbuilding Group in Japan. Delivery is scheduled for 3 x 61,000 dwt ships from Q4 2015 to Q1 2017, where two ships will be owned by the Group and one ship will be time chartered from a sister company of the shipbuilder.
As part of this arrangement M/T Belaia will be returned to the owners, which are closely related to Imabari Shipbuilding.
The subsidiary Belships Management (Singapore) Pte Ltd made a positive contribution from technical management services. The company expanded its customer base, and currently provides technical management for 20 ships, including Belships’ own ships.
The Group had an operating income of USD 25 973 000 in 2013 (USD 25 895 000), giving a consolidated operating profit of USD 2 383 000 (USD 1 908 000). The figures include an impairment of ship values of USD 2.7 million. The figures for 2012 include an impairment of USD 5.0 million and reversal of pension commitments of USD 2.5 million The pre-tax result was USD 12 000 (USD -1 503 000), while net result for the Group was USD -157 000 (USD -1 689 000). The Group had a cash flow from operations (EBITDA) of USD 8 819 000 (USD 8 503 000).
The parent company’s net result for the year was NOK -9 043 000 (NOK -26 947 000). The loss in 2012 includes impairment of shares in its subsidiary Belships Supramax Singapore Pte Ltd. The Board proposes the result for the year of NOK -9 043 000 to be allocated as follows:
|The Board’s proposAL for allocation of the result of the year:|
|TOTAL ALLOCATIONS||NOK -9 043 000|
|PROVISION FOR DIVIDEND||NOK -2 340 000|
|TRANSFER FROM OTHER RETAINED EARNINGS||NOK 11 383 000|
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 newbuildings from Imabari Shipbuilding will have low emissions of pollutants and will be installed with ballast water treatment systems.
Belships is headquartered in Oslo, from where most of its commercial and financial business including insurance is handled. Technical management is handled from Singapore.
There has been no change within the senior management in 2013.
Commercial activities in Singapore were stable over the year. The Group employed 61 office staff at the end of 2013. Ships under management had 503 crewmembers on board. The sick leave was less than 2% in 2013. The Group was not subject to any serious accidents in 2013.
Belships aims to treat women and men equally, both on the Board and within the organization. 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 within the Group is considered to be good.
Henrik von Platen
It was with great sorrow that we received the news of Henrik von Platen’s death on 9 Febuary 2014. Henrik served on the Board of Belships ASA from 2004 to his death. His contribution to the company was invaluable. Henrik’s deep knowledge of the shipping industry, his integrity and wit was legendary to both the Board and the staff of Belships. He will be greatly missed.
FINANCIAL AND OTHER MATTERS
The Group 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 charter parties entered into. The Board considers the counterparty risk as moderate, and this is reflected in the applied discount rates. These internal valuations indicated that there was a need for impairment of the company’s ship investments with a total of USD 2.7 million. In the financial statement for 2013 the book value of M/S Belstar, M/S Belnor and M/S Belocean were reduced by USD 1.1 million, USD 0.8 million and USD 0.8 million, respectively.
Consolidated liquidity was USD 14.3 million as at 31 December 2013, against USD 10.2 million at the beginning of the year. Total mortgage debt had a balance of USD 47.9 million at the year end and was reduced by USD 5.2 million during 2013. In first quarter of 2014 Belships entered into a new term loan facility of USD 50 million for its three bulk carriers already in service. The new facility is secured for a period of 6 years from 5 March 2013, with annual instalments of USD 5 mill. The bond loan of NOK 33.3 million was redeemed at maturity in July 2013.
The Group’s solvency and financial position is satisfactory. In July 2013 the share capital was increased by NOK 45 000 000 through an issue of 22 500 000 new shares. Subscription price was NOK 4.00 per share. By end of 2013 the book equity of the Belships share was NOK 8.60, while the book equity ratio was 56.1 %. The company has received offers for long term financing of the two newbuildings, but currently no offer has been accepted. Adjusted for this unfinanced capital expenditure and assuming 70% loan financing, the book equity ratio is reduced to 41.9 %.
Current activity is expected to generate sufficient liquidity to cover current debt through 2014. Belships aims to provide its shareholders with a competitive dividend yield. In view of the improved financial position, the Board will propose to the Annual General Meeting to pay a dividend of NOK 0.05 per share for 2013.
At the end of 2013 Belships held 548 000 treasury shares in total at an average cost of NOK 9.91 per share. In 2012 employees were granted options to purchase 200 000 shares at a price of NOK 4.91. The options can be exercised until the annual general meeting on 8 May 2014. In 2014 the employees have been granted options to purchase 200 000 shares at a price of NOK 6.47. These options can be exercised from 8 May 2014 until the annual general meeting in 2015.
The Belships’ share value has increased by 46.5 per cent in the course of 2013. By comparison, the OBX increased by 22.7 per cent. A total of 4 891 000 shares were traded in 182 of the 251 trading days. 405 000 shares were traded in 2012 in 75 of the 251 trading days.
The Group is exposed to financial market risks due to changes in FX rates, interest rates, freight rates and oil prices. Such changes may affect the Group’s assets and liabilities and its future cash flows. Belships is working continuously to manage these risks. To reduce financial market risks, we use derivatives when appropriate. There is also a risk for not obtaining long term finance for the two newbuildings, but this risk is considered to be low.
The Group’s income and costs are mainly 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 the exposure in relation to cash flow fluctuations due to changes in interest rates. We have entered into a 5-year SWAP agreement that started in August 2013, covering about 40% of the present interest risk exposure related to the interest-bearing debt.
Fluctuating bunker prices will not affect the Group as the ships are fixed on long-term time charters where the charterers cover the fuel cost.
Belships aims to minimize counterpart risk by entering into long term contracts with the most reputable charterers.
The Group’s limited tax cost is expected to continue as its ships are owned by Singaporean companies within the 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 Trading Act and the Public Limited Company Act.
With exception of establishing a election committee, 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.
Belships is a shipping company with global reach and close to a hundred years history. The Board is well aware of the direct and indirect impact Belships’ activities have on the outside world as well as the company’s shareholders. Belships is determined to create long term shareholder values and at the same time act as a responsible participant in the society.
The most important issues for our business and our shareholders in respect of Corporate Social Responsibility (CSR) are considered to be:
– Health and safety
– Environmental impact
It is our policy to follow not only the standards, laws and regulations set by the national and international maritime industry as a minimum, but also the moral and ethical behavior as set by our culture. Belships reports on safety and environment in the annual report.
Belships does not tolerate any corrupt practices with our suppliers, customers or government entities affecting our business. We do pay attention to the working conditions and safety within our own operations.
Belships does not have any specific policy statements for the CSR area in place. Our strategy is to integrate sustainability on the matters mentioned above into all material business processes in order to ensure that Belships is a socially responsible enterprise.
The dry bulk market improved during 4th quarter, especially in the capesize segment. The current spot indices for capesize, panamax and supramax amount to USD 25 600, USD 9 000 and USD 12 600 per day respectively. Values increased in line with rates and according to the Baltic S&P Index, a five-year-old supramax is now priced at USD 26.3 million, up from USD 18.2 million one year ago.
From now on Belships will concentrate 100% on the dry bulk market.
Newbuilding prices for bulk carriers have tightened both in Japan and China, and the earliest delivery in Japan is now 1 half of 2017. Supramax contracts from Japan are today priced at about USD 32 million. The total seaborne trade of bulk commodities is expected to rise by 7% p.a. in 2014-15, while growth in dry bulk fleet adjusted for scrapping is estimated to be around 5% p.a. after many years of double-digit fleet growth. The capacity utilization is therefore expected to improve.
Belships’ ships are sailing on long-term charter parties to a reputable counterpart, and short-term market fluctuations will not affect the company’s earnings and cash flow. Existing charter parties represent future nominal revenues of USD 115 million.
Future focus will be to further develop Belships as a long term tonnage provider of modern bulk carriers to reputable charterers. We aim to build up a portfolio of ships and charters that will provide a steady return while minimizing the residual risk exposure through a duration spread.
Oslo, 20 March 2014