Shipping activities yielded NOK 5.4 million in Q4 2013, where NOK 7.5 million came from the ship-owning companies (equity method), compared to NOK 19.8 million during the same period in 2012, where the ship-owning companies contributed with NOK 19.4 million. The full year 2013 yielded NOK 46.2 mill, where NOK 47.9 mill came from the ship-owning companies, compared to the result for 2012 of NOK 59.7 mill, where the ship-owning companies contributed NOK 57.6 mill. The result before tax for 2013 was NOK 63.8 million compared to NOK 64.1 million in 2012. The reduced earnings from the shipping activities come mainly from significantly lower income in the ethylene segment, as well as the planned completion of 10 classification dockings.
Introduction
The strong VLGC market from second and third quarter continued into the fourth quarter on high export volumes of LPG from the Middle East exporters, as well as high export volumes from USA, where USA is the main reason the seasonal market slowdown in fourth quarter did not occur in 2013. The LGC fleet is securely employed on shorter and longer timecharter, with stable rate levels. The ethylene segment, which had high export volumes in second quarter, saw a significant decrease in third quarter, and a further weakening in export volumes in the fourth quarter, resulting in the lowest export volumes in several years.
On time charter basis Solvang's share of freight earnings for the fourth quarter 2013 was NOK 46 million, down NOK 6 million from same period in 2012, where improved freight earnings for VLGC and LGC segment was offset by the drop in the ethylene segment. For the full year 2013, Solvang's share of freight earnings was NOK 183.7 million, compared to NOK 197 million in 2012, representing a 7% reduction. The reduction in freight earnings comes mainly from significantly lower earnings in the ethylene segment, as well as the completion of 10 scheduled classification dockings, which reduced revenue earning days by about 210 days.
The Baltic Index, which remained at a high level all of the second half of 2013, averaged for the fourth quarter at USD 61/ton, up from the average in fourth quarter in 2012 of USD 44/ton. For 2013 the average was USD 59/ton, up from the average in 2012 of USD 56/ton. For 2013, with relevant bunker prices, the average of USD 59/ton is the equivalent of USD 1 million per month on timecharter basis.
Contract coverage for the fully refrigerated vessels, VLGC and LGC, are at 91% for 2014, with only three ships coming available during second half of 2014. The Ethylene tonnage operates mainly in the spot market.
VLGC 82k-84k cbm
The Solvang Group has one 82k cbm VLGC ship, which is on time charter until August 2016 on market related hire, and took delivery of two 84k cbm VLGC in June and December 2013. Both ships are on timecharter, where the first is on a short timecharter until September 2014, while the ship delivered in December 2013 is on timecharter until December 2018.
The LPG export volume out of the Arabian Gulf is a central driver for this market, along with the increasing export out of USA. Into the second quarter the market improved considerably from increased export volumes from Saudi Arabia and Qatar, as well as increased export from USA, predominantly from the Enterprise terminal in Houston. The high activity remained well into the fourth quarter, when freight rates fell on lower export volumes out of USA due to cold weather causing higher internal consumption. The average Baltic Index freight rate for the fourth quarter was USD 61/ton, the equivalent to USD 1.1 million per month on timecharter basis; this was up from USD 44/ton during the same period in 2012, which was equivalent to USD 0.55 million per month on timecharter basis.
Panamax VLGC 75k cbm
The Solvang group has two Panamax VLGCs, one on long-term timecharter, and one on short timecharter. Both vessels operate in the market in the West, which has been consistently stronger than the East during 2012 and 2013, mainly due to fewer available ships and high repositioning costs deterring speculative positioning of ships from East to West. The Panamax VLGCs have a favorable position in the market as there are only four such ships in the world, and these Panamax VLGCs have successfully utilized this unique position to achieve higher freight rates compared to the VLGC market in general.
LGC 60k cbm
The LGC segment has stabilized on a good level after the considerable increase from 2011 to 2013. Earnings are now 5% higher on time charter basis for fourth quarter in 2013, compared with the fourth quarter in 2012. The main reason for the continued strong LGC market has been a gradual shift in the ammonia trade from short to long haul trade routes, where the LGCs provide economic benefits to charterers. The high ammonia activity has been from the Black Sea to the USA, but also from the Black Sea to Asia. Main reasons are a considerable reduction in gas exports from Trinidad, that increases the export demand from the Black Sea, as well as sanctions against Iran. The segment has as such a positive outlook for 2014. Solvang ordered two 60k cbm LGC vessels in June with delivery in the first and second quarter of 2015, and contracted an additional 60k cbm LGC vessel in January 2014 with delivery in the third quarter of 2015.
Ethylene 12-17k cbm
Ethylene segment came to a standstill during the third quarter and remained subdued during the fourth quarter which was characterized by very low export volumes out of Saudi Arabia, mainly from production problems. Total export volume from the Middle East was at the lowest in several years, and about 800,000 tons less than in 2012. As a result 2013 was a year with considerably lower freight rates compared to recent years. Prospects in this segment are uncertain with already high and still growing order book.
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.
General
There have been no incidents with a particular impact on the financial accounts during the period.
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 made with companies within the Steensland group. All transactions are done at market terms.
The Solvang Group has completed three scheduled classification dockings in fourth quarter 2013. In 2013 ten classification dockings has been completed. For 2014 there are two scheduled classification dockings
Stavanger, 27 February 2014
The board of Solvang ASA
