Directors’ Report 2015
THE DRY BULK MARKET
After a modest short-lived rally in Q3, dry bulk freight rates fell back again in Q4 to record-low levels. The key drivers behind the deteriorating freight rates have been falling iron ore, coal and steel product trades. The world wide fleet utilization rate has dropped to 84%*.
For 2015 as a whole, Chinese steel production fell by 2.3%, while Chinese iron ore imports rose by 1.8% due to a drop in domestic ore production.
Indian coal imports were up 50% during first half 2015, but recent figures show declining coal imports in the second half of the year due to a surge in domestic Indian coal production. The Indian steam coal imports declined by 5% during 2015.
A further negative factor in Q4 was a weaker than usual seasonal increase in US grain exports, which hurt demand for smaller bulkers.
The Capesize-index ended the fourth quarter at USD 4,695 per day, whereas the Panamax-index ended at USD 3,692 per day. The Supramax-index ended the quarter at USD 4,703 per day. As per today the Cape index stands at USD 2,221 per day, Panamax-index at USD 3,098 per day and Supramax-index at USD 3,875 per day. All these indices are close to all-time low levels.
*) according to Marsoft
M/S Belstar, M/S Belnor and M/S Belocean continued in 2015 on their long-term charter parties to Canpotex Shipping Services Ltd., Canada. Canpotex is one of the world’s largest exporters of potash, a fertilizer product imported in large volumes by countries such as China, India and Brazil. The net time charter rate is USD 16,000 per day. The newbuilding M/S Belforest was delivered to Cargill in September for a 10-14 month period at a net charter rate of USD 7,800 per day.
The company’s tonnage is modern, and all ships operated satisfactorily without significant off-hire except for the planned drydocking of M/S Belnor and M/S Belocean. The operating expenses were close to budgeted levels.
Belships’ newbuilding program with Imabari Shipbuilding Group in Japan includes 2 x 61,000 dwt eco-design Ultramax bulk carriers delivered in September 2015 and March 2016 respectively. In addition Belships has signed a long term lease agreement with purchase option for a slightly larger vessel with delivery Q1 2018.
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 22 984 000 in 2015 (USD 22 079 000), giving a EBITDA of USD 9 873 000 (USD 8 560 000) and a consolidated operating result of USD -26 660 000 (USD 1 086 000).
The decrease in operating result by USD 27.7 million is mainly explained by impairment of ships due to the weak market. The pre-tax result was USD -29 973 000 (USD -1 578 000), while net result for the Group was USD -30 150 000 (USD -1 601 000).
The parent company’s net result for the year was NOK -36 111 000 (NOK -10 447 000). The Board proposes the result for the year to be allocated as follows:
|Amounts in NOK|
|TOTAL ALLOCATIONS||-36 111 000|
|PROVISION FOR DIVIDEND||0|
|TRANSFER FROM OTHER RETAINED EARNINGS||-36 111 000|
The annual accounts are presented on a going concern basis in accordance with § 3 – 3 of the Norwegian Accounting Act.
Belships has three long-term T/C agreements with Canpotex. The sale & leaseback of M/S Belforest (Q3 2015) and M/S Belisland (Q1 2016) provided additional liquidity to the Group.
The main shareholder has provided an on demand guarantee of USD 5 million. Current activity will also generate sufficient liquidity to cover current debt throughout 2016. Based on this, 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 representation 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 to improve safety. Measures are taken to prevent the business polluting the environment. Belships works 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 have low emissions of pollutants and have 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 2015.
Management activities in Singapore were stable over the year. The Group employed 63 office staff at the end of 2015. Ships under management had 401 crew members on board. The sick leave was less than 2% in 2015. The Group was not subject to any serious accidents in 2015.
Belships aims to treat women and men equally. No discrimination on the grounds of gender is tolerated. Of the Group’s office staff, 33 are women. The working environment at the various companies within the Group is considered to be good.
FINANCIAL AND OTHER MATTERS
The Group’s solvency and financial position is satisfactory. By end of 2015 the book equity of the Belships share was NOK 6.56, while the book equity ratio was 33.7 %. After delivery of the M/S Belisland, the book equity ratio is reduced to around 30%. Current activity will generate sufficient liquidity to cover current debt throughout 2016.
Consolidated liquidity was USD 8.0 million as at 31 December 2015, against USD 8.1 million at the beginning of the year. Total mortgage debt had a balance of USD 41.3 million at year-end and was reduced by USD 5.0 million during 2015.
In Q3 Belships entered into a 12 year sale and lease back agreement for M/S Belforest, including purchase options. The contract price for the M/S Belisland, which was delivered 15 March 2016, amounted to USD 28.25 million. Instalment of USD 2.8 million was paid in 2015 and financed by the company’s surplus liquidity. Remaining newbuilding instalments were at year end USD 19.8 million. In Q1 2016 Belships entered into a sale and leaseback agreement for M/S Belisland. The ship was sold and leased back for a period of 15 years with purchase options from year 5 onwards. Sales amount was USD 24 million. This transaction improved Belships cash position with USD 7 million. Both leases are considered to be financial leases.
The Group has conducted impairment tests in line with IAS 36, valuing the ships and the newbuilding contract based on observable market values of equivalent ships and contracts today, and including the discounted added value of the charter parties entered into. These internal valuations indicated that there was a need for impairment of the company’s ship investments with a total of USD 31.8 million in 2015. In March 2016, M/S Belisland replaced M/S Belocean for the remaining 5 years of the charterparty with Canpotex, resulting in an impairment on M/S Belocean of USD 14.9 million. The corresponding value of M/S Belisland’s charterparty is not included in the Group’s balance sheet as the ship is held at cost, however when testing for impairment going forward, the value of the charterparty will be included.
Belships has reached an agreement to postpone the delivery of the t/c-ship. The ship will be delivered in Q1 2018 instead of Q1 2017 as previously agreed.
Belships aims to provide its shareholders with a competitive dividend yield, but the current market do not allow any payment of dividend.
At the end of 2015 Belships held 548,000 treasury shares in total at an average cost of NOK 9.91 per share. In February 2015 the employees were granted options to purchase 200,000 shares at a strike price of NOK 5.89. These options can be exercised until the annual general meeting in 2016. Additional 200,000 shares were awarded in August 2015 at a strike price of NOK 3.89. These options can be exercised from annual general meeting 2016 until the annual general meeting in 2017.
The Belships’ share value has decreased by 40 per cent in the course of 2015. By comparison, the OSEBX increased by 6%. A total of 2,112,000 shares were traded in 124 of the 251 trading days. 2,448,000 shares were traded in 2014 in 146 of the 250 trading days.
The Group is exposed to market risks due to changes in FX rates, interest rates, freight rates and oil prices.
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. Hedging of the Group’s interest exposure is considered on an ongoing basis. The hedging level of interest rate exposure is currently around 70%. The long-term interest rate is at a historical low level.
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 time charter contracts with reputable charterers.
The Group’s limited tax cost is expected to continue. 3 ships are owned by a Singaporean subsidiary within the tonnage tax regime.
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 election committee, Belships follows the Norwegian code of good corporate governance of 30 October 2014. 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:
– Human and labour rights
It is our policy to follow the standards, laws and regulations set by the national and international maritime regulatory authorities, 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. Belships do pay attention to the working conditions and safety within our own operations. Please see the separate statement of corporate social responsibility that appears as a section of the annual report in its own right.
The spot rates for all bulkers have continued to fall in early 2016, plummeting to less than USD 3,000 per day. This is well below the operating cost levels.
New vessel ordering is now down to almost zero and the high scrapping activity continues. Scrapping, cancellations and conversions together with little new ordering activity are helping to mitigate the net supply growth, which for 2016 is expected to be about 1.5%*. The scrapping is expected to increase from 32.6 m dwt in 2015 to around 38 m dwt in 2016, and a growing number of non-deliveries may further dampen the fleet growth.
Belships’ vessels are chartered out on fixed rates to reputable counterparts, representing a future nominal gross hire of USD 78 million. M/S Belisland with delivery in March has replaced M/S Belocean for the remaining 5 year period of the c/p with Canpotex, adding USD 1,300/day to net t/c hire. M/S Belocean was in February chartered to Cargill for 10-15 months at a net charter rate of USD 3,750 per day.
Focus will be to further develop Belships as an owner/operator of modern bulk carriers to reputable counterparts. Our ambition is to build a portfolio of quality vessels and robust charter parties that will generate distributable cash flows.
*) according to Fearnleys
Oslo, 18 March 2016
Sverre J. Tidemand
Carl Erik Steen
Bernt Ulrich Müller