Solvang ASA 3rd quarter report 2012

Shipping activities yielded NOK 21 mill in Q3 2012 compared to NOK 5.6 mill during the same period in 2011. The result from the ship-owning companies (equity method) was NOK 20.6 mill compared to NOK 6.4 mill in same period 2011. The result before tax was NOK 29.2 mill compared to a loss of NOK -15.4 mill for same period in 2011. The securities portfolio generated a gain of NOK 7.5 mill, compared to a loss of NOK -21.8 mill for same period in 2011.

The positive trend in the freight market from the second quarter continued into the third quarter with high LPG export volume from the Middle East to Asia. The market in the West was similarly tight with high export volume out of the U.S., along with delays in West Africa and labour strikes in Brazil further tying up already employed tonnage. The Ethylene market showed a significant improvement in volumes and rates throughout the third quarter, mainly from high export volumes from contract customers in the Middle East.
On time charter basis Solvang’s share of freight earnings for third quarter 2012 were NOK 56.4 mill compared to NOK 41.2 mill for same period in 2011, an increase of 37%. The Baltic Index, which stayed strong up to the last part of third quarter, has increased from an average of around USD 64/ton in third quarter 2011, which is an equivalent of USD 1 mill in monthly hire, to an average of around USD 71/ton in third quarter 2012, an equivalent of USD 1.3 mill per month.
A continued low USD/NOK exchange rate together with high bunker prices had negative impact on the results.
VLGC 82k-84k cbm
The Solvang Group has one 82k cbm VLGC ship, which is on time charter until August 2016 on a market based hire. The group has two additional 84k cbm VLGCs ordered at HHI Korea with delivery in the third and fourth quarter of 2013.
The LPG export volume out of the Arabian Gulf is a central driver for this market, and export volumes remained high until the latter part of September on high freight volumes from Saudi Arabia, but with the addition of strong export growth from Qatar, UAE and Kuwait. However, towards the end of the third quarter there was a significant reduction in volumes from Saudi Arabia and Kuwait, as well as maintenance shutdown from Qatar. This resulted in several open VLGCs, which in turn put rates under pressure. The quarter ended with a Baltic Index of USD 60/ton, the equivalent of USD 910K per month, which is a drop of over USD 17/ton from the top, or in monthly hire a drop of USD 600K. The downward pressure continued into the fourth quarter with the maintenance stop in Qatar.
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. 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
As previously reported, the market for ships in the LGC segment has had a positive trend over the recent years. Earnings are now 50% higher on time charter basis in the third quarter of 2012 compared with the same period in 2011. Particularly the market in the West has been tight with high ammonia activity from the Black Sea to the USA, where one of the main reasons is the 30% reduction in gas exports from Trinidad. 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 remaining 2012 and into 2013.  
Ethylene 12-17k cbm
After a weak first half of 2012 with production problems and maintenance shutdown at facilities of our COA customers, as well as sanctions against Iran, the third quarter has picked up considerably. The increased activity comes from higher export volumes from our COA customers, as well as an improvement in the spot market, where other ethylene-exporters have increased production to compensate for lost volumes from Iran. The outlook for 2012 is still lower than in 2011 but still more positive than the indications given in the beginning of 2012. In the longer term, there is some concern over the high newbuilding order book within the ethylene segment.
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 73.7 mill as per 30.09.2012. Solvang is responsible for the management of the portfolio, with a conservative investment strategy. The stock market improved considerably throughout the third quarter, and led to a positive value adjustment for the third quarter in 2012.  
Subsequent events
Solvang and partners have done a sale/leaseback transaction on "Clipper  Harald" where the ship has been sold and chartered back on a 10 year bareboat charter. The sale gave an accounting profit of NOK 1.5 mill, and had a net liquidity effect of NOK 26.5 mill for Solvang Group. The profit has been recorded in the 3rd quarter 2012.  Solvang had a 20 % ownership share in the ship, and has also a 20 % ownership share in the company which has the ship on bareboat.
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 done with other companies within Steensland group. All transactions are done at market terms.
The Solvang Group has completed three scheduled classification dockings in 2012, next classification docking will be in 2013.

Stavanger, 21 November 2012
The board of Solvang ASA

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