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Solvang ASA 4th quarter report 2012

27.02.2013
Shipping activities yielded NOK 19.8 mill in Q4 2012, where NOK 19.4 mill came from the ship-owning companies (equity method), compared to NOK 14 mill during the same period in 2011, where the ship-owning companies contributed with NOK 14.9 mill. The full year 2012 yielded NOK 59.7 mill, where NOK 57.6 mill came from the ship-owning companies, compared to the result for 2011 of NOK 38.4 mill, where the ship-owning companies contributed NOK 36.4 mill. The result before tax for 2012 was NOK 64.1 mill compared to NOK 14.2 mill for 2011. The securities portfolio contributed with NOK 0.8 mill, compared to a loss of NOK 32.6 mill for 2011. The Board propose a dividend of NOK 0.5 per share.

Introduction
The positive trend in the freight market from the second and third quarter with high LPG export volume from the Middle East to Asia came to a stop in the fourth quarter, mainly on maintenance in Qatar and increased internal LPG usage in Saudi Arabia. The market in the West remained tight with high export volume out of the U.S., along with delays in West Africa further tying up already employed tonnage. The Ethylene market remained strong throughout the year and showed a significant improvement in volumes and rates in the second half of 2012 compared to the first half. Main reason was high export volumes from contract customers in the Middle East.

On time charter basis Solvang's share of freight earnings for fourth quarter 2012 were NOK 52.1 mill compared to NOK 50.9 mill for same period in 2011, an increase of 0.2%. For the full year 2012 the freight earnings were NOK 196.9 mill, compared to NOK 174.1 mill in 2011. The Baltic Index dropped from an average of around USD 68/ton in fourth quarter 2011 to an average of around USD 44/ton in fourth quarter 2012. The average rate / ton for the full year 2012 were USD 56/ton, compared to USD 55/ton for 2011.

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, 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 56/ton, the equivalent of USD 800K per month, which is in line with 2011. The downward pressure continued throughout the fourth quarter and into the first quarter 2013, mainly from 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 40% higher on time charter basis for 2012 compared with the average for 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 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 and fourth 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 full year 2012 was somewhat 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 74.2 mill as per 31.12.2012. Solvang is responsible for the management of the portfolio, with a conservative investment strategy. The stock market improved considerably throughout the third and fourth quarter, and led to a positive value adjustment for end of 2012. 

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 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. In 2013 there are 10 ships due for classification dockings.
 

Stavanger, 27 February 2013
The board of Solvang ASA

 


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