Belships ASA : Report 2nd quarter 2014

· Operating income of USD 5.2 m (USD 6.4 m)
· EBITDA of USD 1.8 m (USD 2.4 m)
· Net income of USD 0.3 m (USD 0.7 m)
· All vessels operating normally – modern fleet – average age 4.1 years.
· Belstar was drydocked as planned in May, causing offhire of USD 0.3 m.
· Revised option agreement for CEO, as approved by the AGM in May, has been included in the second quarter result with an expense of USD 0.3 m.
· Contract coverage 100% for delivered vessels – USD 108 million fixed charter backlog.
· Newbuilding prices in Japan for Supramax now around USD 32 million – comfortably above our contract price of USD 28.25 million.  
· The long term lease agreement for a newbuilding with delivery Q1 2017 has been upgraded to the new 63,000 dwt design from Imabari Shipbuilding. 
· A dividend of NOK 0.05 per share for 2013 was paid out in May. 
Second quarter 2014 results    
Belships operating income in 2nd quarter 2014 was USD 5,224,000 (Q2 2013: USD 6,397,000), while EBITDA amounted to USD 1,764,000 (USD 2,411,000). The decrease in operating income is mainly related to M/T Belaia, which was redelivered in the beginning of March 2014. The company’s operating result amounted to USD 768,000 (USD 1,342,000), while total comprehensive income for 2nd quarter 2014 was USD 304,000 (USD 675,000). The decrease in operating result is mainly explained by drydocking of M/S Belstar and expensing of share-option to CEO. 
The accounts for 2nd quarter of 2014 have been prepared in accordance with IAS 34 Interim Financial Reporting and are consistent with the principles applied in the annual accounts for 2013 and relevant changes to IFRS effective from 1 January 2014. The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU.
Fleet status
M/S Belnor, M/S Belstar and M/S Belocean have continued the long term contracts to Canpotex of Canada. Canpotex is one of the world’s biggest exporters of potash, a fertilizer product imported in large volumes by countries such as China, India and Brazil. Net time charter rate is USD 16,000 per day, which is a favorable rate in the present market. 
M/S Belstar was in drydock in May, after 5 years in service. Total off-hire incl. deviation was 18 days. Otherwise all ships have sailed without significant off-hire, and operating expenses for 2nd quarter 2014 are close to budget. Technical management of our owned ships is handled by Belships Management (Singapore) with a fleet of 20 ships under technical management.
Newbuilding program
Belships newbuilding program with Imabari Shipbuilding in Japan includes 2 x 61.000 dwt eco-design Supramax bulk carriers for delivery 4th quarter 2015 and 2nd quarter 2016. In addition we have signed a long term lease agreement incl. purchase option for a sister vessel with delivery 1st quarter 2017. In June we agreed to upgrade the leased vessel to the new 63,000 dwt design from Imabari Shipbuilding, with further enhanced eco-design features. 
Financial and corporate matters
30 June the Groups’ cash totaled USD 11.1 million compared to USD 16.7 million as per 31 March 2014. 
A dividend of NOK 0.05 per share was paid to the shareholders in May.
The mortgage debt balance as at 30 June was USD 48.7 million and was reduced by USD 1.3 million during the quarter. Second instalment for the newbuildings amounting to USD 5.6 million was paid in June. Remaining newbuilding commitment amounts to USD 45.3 million, of which USD 2.8 million is due for payment in September this year. All payments in 2014 are financed by the company’s surplus liquidity. 
Received offers for funding of the newbuilding program has not yet been accepted, but we expect the long term financing to be in place within near future. 
In August 2011 Belships entered into an interest rate swap agreement with 2 years forward start at 2.2% with duration for 5 years covering USD 25 million, reducing by USD 5 million per year. Hedging the Group’s interest exposure is considered on an ongoing basis. We do expect a modest increase in the interest rate level for the coming 3-5 years, and we are therefore hesitant to additional hedge agreements at the moment. The hedging level of interest rate exposure is currently around 22%.    
Impairment tests for the company’s assets were performed in accordance with IAS 36. The ships and charter parties are valued based on observable market values. Based on these valuations and assumptions, no adjustment has been made in the 2nd quarter.
At the end of the 2nd quarter of 2014, the book value per share amounted to NOK 8.86, while the equity ratio was 55.8%. 
Market highlights
The Capesize-index ended the second quarter at USD 14,177 per day, whereas the Panamax-index ended close to all time low at USD 3,397 per day. The Supramax-index ended the quarter at USD 7,062 per day. As per today the Cape index stands at USD 12,793/day, Panamax index at USD 5,883/day and Supramax index at USD 9,004/day. The valuation of a 5 year old Supramax is USD 24.0 million according to the Baltic Exchange S&P assessment.
Although the period rates have edged lower over the past months, they still remain well above spot levels. Cape one-year TC rates are holding around USD 19,000 per day, whereas Panamax and Supramax one-year rates remain around USD 9-10,000 per day. 
There is very little activity in the S&P sector as a natural consequence of the weak freight market, and very few newbuilding orders have been reported lately. Year to date Chinese iron ore imports are appox. 19% higher compared to last year, but the ton-mile growth is not equally high since a significant part of Chinese iron ore import is being sourced from Australia, rather than Brazil. However, initial numbers indicate a ton-mile growth of 6-7% year-to-date, which is significantly higher than net supply. The hidden supply in vessel slow steaming is likely to persist as long as bunker prices remain at current levels.
With increased capacity of iron ore from Australia and Brazil, the international iron ore prices have dropped below USD 100/ton. China will be encouraged to continue the import rather than exploit their domestic resources with low FE content.  
China currently uses coal for about 65% of its energy and air pollution has now reached intolerable levels. The recent agreement between Russia and China on natural gas supplies is an indication that China is serious about reducing its reliance on coal, mainly in an effort to reduce air pollution.
Belships is concentrating 100% on the dry bulk market, with 3 x 58,000 dwt Supramax in service and 3 x Supramax newbuildings under construction by Imabari Shipbuilding in Japan for delivery from 4th quarter 2015 until 1st quarter 2017. The newbuildings will be actively marketed for long term employment at a time closer to delivery, but we are in preliminary discussions with a few carefully selected charterers. 
Many market observers are expecting a rebound in the second half of 2014 and in 2015, particularly within the Capesize sector. The main driver will be sharply increasing volumes of iron ore, coal and grain, particularly into China, in combination with a falling fleet growth. Even though the outlook for Panamax and Supramax is less favorable, these smaller sizes will also benefit from a rising utilization rate for Capesize. 
There seems to be no demand problem in the dry bulk sector. Iron ore volume into China is expected to grow around 9.5% and 10% in 2014 and 2015, coal volume to grow between 4% and 5% and grain volume by around 8%. Growth in newbuilding orders has fallen sharply.  The total seaborne dry bulk trade is expected to increase by 6-7% p.a. in 2014-15, whereas the fleet adjusted for demolition is expected to grow around 4-5% p.a. in the same period after many years of double digit growth. The dry bulk fleet capacity utilization should therefore improve, and a gradual rate increase may be expected. 
Belships’ vessels are chartered out long term on a fixed rate to a reputable counterpart, and short term market fluctuations will therefore not affect with the company’s cash flow. The charter parties represent a future nominal gross hire of USD 108 million. 
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.
Directors’ responsibility statement
We confirm, to the best of our knowledge, that the condensed set of financial statements for the period 1 January to 30 June 2014 have been prepared in accordance with IAS 34 – Interim Financial Reporting, and gives a true and fair view of the group’s assets, liabilities, financial position and profit as a whole.
We also confirm, to the best of our knowledge, that the interim management report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year, and major related parties transactions.
Oslo, 14 August 2014
Sverre Jørgen Tidemand, Chairman
Christian Rytter   Kjersti Ringdal         Sissel Grefsrud       Carl Erik Steen
Questions should be directed to:
Ulrich Müller, CEO
+47 22 52 76 15

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.