Shipping activities yielded NOK 18.8 million in Q2 2013, where NOK 18 million came from the ship-owning companies (equity method), compared to NOK 7.8 million during the same period in 2012, where the ship-owning companies contributed with NOK 6.3 million. The result before tax for Q2 2013 was NOK 20.6 million compared to a loss of NOK 0.7 million during the same period in 2012. Improved results comes from better earnings in the ship-owning companies, mainly on positive impairment of interest swaps, as well as unrealized losses on market value adjustment of the securities portfolio in Q2 2012.
The result from the shipping activities for first half of 2013 was NOK 29.5 million compared to NOK 18.9 million in same period 2012. Freight income was higher in the first half of 2013, but was offset by the completion of the 6 scheduled classification dockings. The main part of the increase comes from the market value adjustment of interest rate swaps, as well as a positive trend in operating costs. The result before tax for first half of 2013 was NOK 44.9 million compared to NOK 16.1million for same period in 2012.
Introduction
The negative trend in the freight market in the first quarter 2013, mainly from maintenance in Qatar and increased internal LPG usage in Saudi Arabia, improved considerably throughout second quarter 2013. The improvement was particularly for the VLGC segment, but also for the ethylene segment. The market in the West remained tighter throughout second quarter with high export volume out of the U.S. The LGC fleet is securely employed on shorter and longer TC, with a continued positive trend in the rates.
The first half of 2013 ended on a positive trend, the outlook is still good for fully refrigerated LPG carriers, and the positive trend has continued in the third quarter.
On time charter basis Solvang's share of freight earnings for second quarter 2013 were NOK 43.8 million, in line with same period in 2012. For the first half year 2013 freight earnings was NOK 87.8 million, compared to NOK 90 million the first half year in 2012, where improved freight earnings in some segments were offset by 6 scheduled classification dockings, giving about 130 ship-days without earnings.
The Baltic Index, which climbed considerably from the first quarter, had an average of USD 60/ton for second quarter, slightly down from the USD 63/ton average in second quarter 2012. The average for first half of 2013 was USD 51/ton, down from the average of USD 54/ton for the first half of 2012.
A continued low USD/NOK exchange rate together with high bunker prices had negative impact on the results.
Contract coverage for the fully refrigerated vessels, VLGC and LGC, are 98% for 2013, with only one ship coming available towards the end of the year. For 2014 contract coverage is as of now 85%, with three ships coming available during 2014.
Ethylene tonnage operates partly in the spot market and partly in servicing contract of affreightment volumes.
VLGC 82k-84k cbm
The Solvang Group has one 82k cbm VLGC ship, which is on time charter until August 2016 on market based hire. In June the group took delivery of one 84K cbm VLGC, which is on timecharter to September 2014. The group has one additional 84k cbm VLGCs ordered at HHI Korea with delivery in the fourth quarter of 2013.
The LPG export volume out of the Arabian Gulf is a central driver for this market, along with the increasing export out of USA. Second quarter had a significant improvement in export volumes, mainly on increased volumes from Saudi Arabia, as well as start-up after maintenance shutdown in Qatar. This resulted in tight market balance, pushing the rates higher and has stayed high well into third quarter. The quarter ended with a Baltic Index average of USD 60/ton, the equivalent of USD 1050K per month in timecharter. The first half year of 2013, with an average of USD 51/ton, is the equivalent of USD 750K per month, waiting time excluded.
Panamax VLGC 75k cbm
The Solvang group has two Panamax VLGCs, one on long-term timecharter, and one on a short timecharter. Both vessels operate in the market in the West, which has been consistently stronger than the East in 2012, and has continued to stay stronger throughout first half year 2013. In addition, the Panamax VLGCs have successfully utilized the Panamax size, and have been able to differentiate with higher rates compared to the VLGC market in general.
LGC 60k cbm
The positive trend in the LGC segment has stabilized somewhat compared to the considerable increase from 2011 to 2013. Earnings are now 12% higher on time charter basis for second quarter 2013, compared with the average for second quarter 2012. The market has been tight with high ammonia activity from the Black Sea to the USA, but also from the Black Sea to Asia. Main reasons are the 30% reduction in gas exports from Trinidad, increasing the export demand from the Black Sea, as well as sanctions against Iran. As a consequence more long haul ammonia shipments have been available for the LGC segment, and the segment is now very tight in terms of supply and demand. The segment has as such a positive outlook for 2013. Solvang ordered two 60k cbm LGC vessels in June with delivery in first and third quarter 2015.
Ethylene 12-17k cbm
The first quarter stayed depressed on low export volumes from maintenance shutdown on our COA customers' facilities in Saudi Arabia and Qatar. In second quarter the maintenance shutdown was completed with subsequent improvement in export volumes from our COA customers.
Financial Risk
The Solvang group's investments in ships, which are owned through participation in ship owning companies with joint responsibility, are all USD based, and the group's revenue is all USD based. The group's risk in currency exposure is as such limited.
The Solvang group's security portfolio has a book value of NOK 17.8 mill as per 30.06.2013. Solvang is responsible for the management of the portfolio, with a conservative investment strategy. The security portfolio only had a minor negative market value adjustment of NOK -0.8 mill for end of second quarter 2013.
General
There have been no incidents with a particular impact on the financial accounts during the period.
After the balance sheet date, Solvang terminated the joint venture agreement with Evergas for Evergas Solvang KS and operation of ethylene tonnage.
The reason for the dissolution is that a deadlock had occurred under the terms of the joint venture agreement, and the parties were unable to resolve the deadlock. Solvang therefore requested that the joint venture was dissolved. The parties agreed to continue as is until December 31, 2013 in order to fulfil all contractual obligations. Solvang will market and operate the ethylene tonnage through its subsidiary IGC.
Transactions with related parties are as per the guidelines set within the code. The Group's principal broker for sale & purchase is Inge Steensland AS. There are also parallel investments done with other companies within Steensland group. All transactions are done at market terms.
The Solvang Group has completed five scheduled classification docking in second quarter 2013. In 2013 there are 10 ships due for classification dockings.
Stavanger, 30 August 2013
The board of Solvang ASA
