Belships ASA : Report 3rd quarter 2015

· Operating income of USD 5.5 m (Q2: USD 5.6 m)
· EBITDA of USD 2.7 m (USD 2.7 m)
· Net result of USD -4.2 m (USD -4.0 m)
· Impairment of the fleet included with USD -4.5 m (USD -5.3 m)
· All vessels operating normally – modern fleet – average age 5.3 years
· Contract coverage 100% for delivered vessels – USD 83 million fixed charter backlog
· Belforest delivered 25 September and employed to Cargill for a period of 10-14 months
Third quarter 2015 results
Belships operating income in 3rd quarter 2015 was USD 5,477,000 (Q2 2015: USD 5,594,000), while EBITDA amounted to USD 2,713,000 (USD 2,734,000). The Group’s operating result amounted to USD -2,882,000 (USD -3,640,000), while total comprehensive income for 3rd quarter 2015 was USD -4,163,000 (USD -4,007,000). Comprehensive income for the first nine months of 2015 was USD -10,156,000 (YTD Q3 2014: USD -2,019,000). The increased loss is mainly explained by impairment of the fleet.
Impairment tests of the company’s assets were performed in accordance with IAS 36. The ships, newbuildings and charterparties are valued based on observable market values. Based on these valuations and assumptions, book value of the fleet has been reduced by USD 4.5 million in the 3rd quarter, in addition to ordinary depreciation of USD 1.1 million.
Fleet status
M/S Belstar, M/S Belnor and M/S Belocean have continued the long-term contracts to Canpotex of 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. Net time charter rate is USD 16,000 per day, which is a favorable rate in the present market. 
The ships have sailed without significant off-hire, and operating expenses for 3rd quarter 2015 are close to budget. End of September M/S Belocean was positioned into China for drydock and special survey, and total offhire incl. positioning is expected to be around 20 days. Technical management is handled by Belships Management (Singapore), with a total 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 Ultramax bulk carriers for delivery in September 2015 and March 2016. In addition Belships has signed a long-term lease agreement incl. purchase option for a slightly larger sister vessel with delivery 1st quarter 2017.  
The first newbuilding, M/S Belforest, was delivered from Imabari on 25 September and subsequently chartered to Cargill for a period of 10-14 months. This c/p will generate an EBITDA of USD 1.15 million over the average period. 
Financial and corporate matters
As per 30 September the Group’s cash totaled USD 9.8 million compared to USD 6.9 million as per 30 June 2015. The sale lease back transaction for M/S Belforest explains the improved cash balance. 
The mortgage debt balance as per 30 September was USD 42.5 million and was reduced by USD 1.25 million during the quarter. Remaining newbuilding commitment amounts to USD 19.8 million. Belships has a loan facility covering 70% of the lower of contract price and market value at the time of delivery. 70% of contract price equals remaining newbuilding commitment. In addition Belships has a long-term loan facility of SGD 2 million, secured by the lease agreement for our Singapore office. On 25 September 2015, the Company entered into a 12 year sale and leaseback agreement for M/S Belforest, including purchase options. The lease back is assessed to be a financial lease, accordingly the ship was upon delivery from the yard reclassified from newbuilding installment to ships, with a corresponding financial lease obligation in the balance sheet (current and non-current).
In August 2011 Belships entered into an interest rate swap agreement with 2 years forward start at 2.2% with a remaining duration of 3 years covering USD 15 million, reducing by USD 5 million per year. Another interest swap agreement with forward start was entered into in June 2015 at a rate of 1.9% and with a duration of 5 years covering USD 20 million, reducing by USD 2 million per year. Hedging 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.     
At the end of the 3rd quarter of 2015, the book value per share amounted to NOK 9.96 (USD 1.17), while the equity ratio was 43%. 
Market highlights
The Capesize-index ended the third quarter at USD 13,832 per day, whereas the Panamax-index ended at USD 5,706 per day. The Supramax-index ended the quarter at USD 7,350 per day. As per today the Cape index stands at USD 10,577 per day, Panamax-index at USD 5,556 per day and Supramax-index at USD 6,814 per day. 
The dry bulk market has cooled down again after a few months with more activity and higher rates. China’s demand for imported dry cargoes (in particular coal) has been reduced and the oversupply of tonnage has pushed the freight rates down for all sizes.  
International iron ore prices are still very low, and the likely effect for shipping is that China will be forced to shut down loss-making inland production and import more of its iron ore, helping to absorb some of the tonnage overcapacity. This will be of vital importance for the capesize segment going forward. The smaller sized vessels will benefit from a growing Chinese imports of minor bulks like bauxite, fertilizer, soya beans and grains. 
Chinese steel mills have increased their efforts to sell more of their output abroad to make up for the slowing domestic demand, and recent trade figures indicate record high exports of steel. This steel export trade will also benefit the smaller vessel sizes.  
Belships is concentrating 100% on the dry bulk market, with 3 x 58,000 dwt Supramax plus 1 x 61,000 dwt Ultramax in service and 2 x Ultramax newbuildings under construction by Imabari Shipbuilding in Japan for delivery from March 2016 until 1st quarter 2017. Our ambition is to further increase the fleet of high quality dry bulk carriers in tandem with a growing customer base.
New vessel ordering is now down to almost zero and the high scrapping activity continues. Scrapping, cancellations and conversions together with very little new ordering are helping to mitigate the net supply growth, which for 2015 is expected to be about 2.5%. We have to go back to 2003-04 to find equally low net fleet growth figures.  
Belships vessels are chartered out on fixed rates to reputable counterparts, and short term market fluctuations will therefore not affect the Group’s cash flow. The charter parties represent a future nominal gross hire of USD 83 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.
Oslo, 22 October 2015

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