Solvang ASA 3rd quarter report 2014

Shipping activities yielded NOK 25 million in Q3 2014, where NOK 22.6 million came from the ship-owning companies (equity method), compared to NOK 11.3 million during the same period in 2013, where the ship-owning companies contributed with NOK 12.3 million. The result before tax for Q3 2014 was NOK 26.2 million compared to NOK 11.7 million in Q3 2013. The increased earnings from the shipping activities comes from substantially higher earnings in the LPG segment, where the VLGCs are the main contributor, but also the LGCs benefit from the strong VLGC market with further improvements in earning.

The strong LPG market from the second quarter, continued into third quarter and the VLGC segment set yet another record rate in the middle of July at USD 143 / ton, the equivalent to USD 4 million on time charter basis per month. Main reasons for the high level were continued strong export activity from the Middle East and USA, together with arbitrage opportunities from West to East, tying up several ships on long haul voyages. The market dropped from the peak in July and throughout August on lower spot activity, and moved horizontally through September, to end the quarter around USD 100 / ton, the equivalent to USD 2.55 million on time charter basis per month
In the ethylene segment, the third quarter improved compared to second quarter with higher export activity from the Middle East, where the Solvang fleet continued to take advantage of arbitrage opportunities from the West to the East, as well as the increased export from the Middle East.  
Solvang's share of revenues on time charter basis was NOK 60.9 million in Q3 2014, up by NOK 11 million from the same period in 2013, mainly due to better rates for the VLGC and LGC segments. The Baltic Index for VLGC has remained at a high level throughout the third quarter. The average level was USD 115 / ton, up from USD 75 / ton in Q3 2013.
Contract coverage for the fully refrigerated VLGC and LGC ships is 100% for 2014, and 94% for 2015 with one ship becoming available in June 2015 and one of the LGC new-builds are currently without employment. Ethylene tonnage operates mainly in the spot market and on consecutive voyage contracts.
VLGC 82k-84k cbm
The Solvang Group has one 82k cbm VLGC ship, which is on time charter until August 2016 on an index based hire, and took delivery of two 84k cbm VLGC in 2013. Both ships are on timecharter, the first until December 2016, on an index based hire from October 2014, while the ship delivered in December 2013 is on timecharter until December 2018 at a fixed rate.
The LPG export volume out of the Arabian Gulf is a central driver for this market, together with the increasing export out of U.S. As mentioned, rates climbed to historically high levels due to an active summer market together with a continuously increasing export from USA. As a consequence we saw yet another new Baltic index rate record at USD 143 / ton (USD 4 million). The average freight rate for the Baltic Index for Q3 was USD 115 / ton (USD 3 million), up from USD 75 / ton in the same period in 2013 (USD 1.6 million).
Panamax VLGC 75k cbm

The Solvang group has two Panamax VLGCs, both on timecharter, until September and December 2016 respectively. Both vessels operate in the market in the West, which has been consistently stronger than the East throughout 2013 and further into 2014. This is 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 and differentiated positively with significantly higher freight rates compared to the VLGC market and the West in general.
LGC 60k cbm
The LGC segment has stabilized at a good level, and seems to be making another positive boost in rates as a result of the strong VLGC market and exports out of the U.S. to Asia through the Panama Canal. The segment has as such a positive outlook. Solvang has ordered three 60k cbm LGC vessels with delivery in the first, second and third quarters of 2015. There is considerable interest in these ships, and only the third vessel is currently without contract.
Ethylene 12-17k cbm

The ethylene segment has improved in the third quarter with an increased export from the Middle East. The increased volume came mainly from the start-up of ethylene export from Ruwais in Abu Dhabi after a longer period of maintenance. The segment has as such improved considerably from the first half of 2014. Prospects within this segment are however uncertain with high and growing order book for ethylene in particular, but the increasing potential for ethane export from USA mitigate some of the concerns and is creating a certain optimism in the segment.
Financial Risk

Solvang Group's investments in ships, which are owned through participation in ship owning companies with joint responsibility, are USD based, and the group's revenue is mainly USD based. Furthermore, ship values and financing of ships are USD based. The Group's risk in currency exposure is as such limited.
There have been no incidents with a particular impact on the financial accounts during the period. After the balance sheet date, Solvang with partners sold the ship “Clipper Skagen”, a 25 year old semi-ref vessel, in October, with no significant earnings effect for the fourth quarter. The company has also sold off a part in “Clipper Mars”, a 2008 built LGC ship, where the new share is 15%. The sale will give a net positive earnings effect of NOK 7.5 million in the fourth quarter. The reason for the divestiture comes from the exercising of a purchase option by one of the co-owners.
Transactions with related parties follow 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 controlled by the Steensland family. All transactions comply with market terms.
The Solvang Group had one scheduled classification docking in the third quarter of 2014. For 2014 there are a total of two scheduled classification dockings.

Stavanger, 24 November 2014
The board of Solvang ASA
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