Report 1st quarter 2009

Belships’ operating income in the 1st quarter of 2009 was USD 13,268,000 (1st quarter 2008: USD 21,561,000). The company’s operating profit totalled USD 1,248,000 (USD 3,958,000). This reduction in operating income and operating profit is essentially due to the generally reduced rates in handysize bulk, besides slightly lower activity in Elkem Chartering’s handysize operations. Profit after tax was USD 1,425,000 (USD 3,865,000).
The accounts for the 1st quarter were prepared in accordance with IAS 34, Interim Financial Reporting.  A statement on the accounting policies applied by the Group in preparing the accounts appears in the 2008 annual accounts. The interim accounts have been prepared in conformity with the International Financial Reporting Standards (IFRS).
After having reached lay-up levels towards the end of the 2008, dry bulk rates rose considerably during the first weeks of the year, but then fell back somewhat. This is rather surprising, considering the strong setback in world trade due to the financial crisis.
The handysize operations of Elkem Chartering (EC) produced a good contribution, even if operations here are slightly reduced as a consequence of the weaker market.
The Handymax vessels M/S Pax Phoenix and M/S Legend Phoenix continued on their charters without any significant interruptions. The same applied to Belships’ own tonnage, the M/T Belaia and the M/S Belisland.
As reported previously, Belships has entered into an agreement on the sale of two of the company’s five newbuildings, with charters included. This will make it easier to obtain long-term financing for the three remaining vessels.
At 31 March, the Group’s liquid reserves totalled USD 41.6 million, against USD 47.6 million at 31 December. As scheduled, USD 8.1 million was paid during the 1st quarter on the first newbuilding. Delivery of the vessel is expected to be in the 3rd quarter. Of the total contractual obligation of USD 118.2 million, USD 43.7 million has been paid. At the end of the 1st quarter, the company had a debt of USD 20.0 million relating to the bridge financing of newbuildings. In addition, Belships has a bond loan of NOK 100 million (USD 16.0 million). This loan has been hedged against currency risks and the unrealised loss from this totalled USD 1.1 million at 31 March. This amount has been booked under Long-term liabilities.
Due to the general market decline over the past six months, the company carried out impairment tests for its assets in conformity with IAS 36.
Both Belships and EC have organised their operations in such a way that estimated tax payable is limited.
The remaining newbuilding contracts were assessed on the basis of observable market values for corresponding contracts today and the time charters concluded, which, based on a discretionary assessment of counterparty risk, were discounted by 12%. Based on these internal valuations, we assume that as per today, there is no need for impairment of any of the 3 newbuilding contracts at 31 March 2009.
At the end of the 1st quarter, book value per share amounted to NOK 12.24, while the book equity ratio was 46.9%.
Governments around the world have been seeking to counteract the financial setback following from the financial crisis by making big fiscal and monetary stimulies. Whether this will have the desired effect remains to be seen. With respect to the dry-bulk market, it is in any case difficult to see how we can avoid continued weak rates and ship values in the near future due to delivery of a great number of newbuildings. We have already seen a substantial increase in the scrapping of older vessels and this, in combination with cancellations of newbuilding contracts, will be necessary to be able to re-establish a balanced market. As the company’s own tonnage is operating on timecharter contracts, the current market situation is not expected to affect Belships greatly in the short and intermediate term. Nevertheless, ship values are expected to be affected by the low freight rates and the general pessimism.
Oslo, 23 April, 2009