Shipping activities yielded NOK 15.7 million in Q1 2014, where NOK 14.7 million came from the ship-owning companies (equity method), compared to NOK 10.7 million during the same period in 2013, where the ship-owning companies contributed with NOK 10 million. The result before tax for Q1 2014 was NOK 16.9 million compared to NOK 24.3 million in Q1 2013, which included NOK 14 million in gain on sale of equity shares. The increased earnings from the shipping activities come from significantly higher income in the VLGC segment, as well as a strong LGC market.

In the ethylene segment, low export volumes from the Middle East continued in 2014, but the Solvang fleet, which is now released from contractual obligations in the Middle East, could take considerable advantage of the arbitrage opportunities arising from low volumes from the Middle East. In this case in the form of several ethylene cargoes from Europe to Asia, where our 17,000 cbm vessels have been very well suited, but positioning costs reduced earnings below satisfactory level.

Solvang's share of revenues on time charter basis was NOK 53.2 million in Q1 2014, up by NOK 9.3 million from the same period in 2013, mainly due to better rates for the VLGC and LGC segments, partially offset by lower income from ethylene.

The Baltic Index for VLGC, which started the quarter on a downward trend, but picked up considerably towards the end of the quarter, reached an average level of USD 57/ton, up from USD 41/ton in Q1 2013.

Contract coverage for the fully refrigerated VLGC and LGC ships is 98% for 2014, with only one ship becoming available towards the end of 2014. 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 based hire, and took delivery of two 84k cbm VLGC in June and December 2013. Both ships are on timecharter, the first until December 2016, 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, together with the increasing export out of U.S. As mentioned, rates fell slightly in the first quarter based on lower U.S. exports due to cold weather and higher internal consumption. But by the end of February, exports increased significantly and resulted in a new Baltic Index rate record at USD 88.75/ton, and further into April it reached USD 137.5/ton, equivalent to USD 3.79 million on timecharter basis. The average freight rate for the Baltic Index for Q1 was USD 57/ton, equivalent to USD 950,000 per month on timecharter basis, up from USD 41/ton in the same period in 2013, equivalent to just USD 350,000 per month on timecharter basis.

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 Q1 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. Furthermore, the continued strong LGC market comes from a shift in the ammonia market from short to long haul trade routes, where the size of LGCs provides economic benefits to charterers. The high ammonia activity has been from the Black Sea to the U.S., but also from the Black Sea to Asia. Main reasons are a considerable reduction in ammonia exports from Trinidad that increases the export demand from the Black Sea, and the loss of volume from Iran. 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.

Ethylene 12-17k cbm
The ethylene segment, which partially came to a standstill in Q3 2013, and where Q4 was characterized by very low export volumes out of Saudi Arabia, mainly due to production problems, continued with the same low volumes in Q1 2014. This low volume of exports from the Middle East created a shortage of product in Asia and opened for ethylene exports from Europe to Asia. Solvang's ethylene fleet was well positioned to utilize this opportunity since the fleet is free from contractual obligations in the Middle East. However, the first quarter is still characterized by the repositioning out of the Middle East, resulting in lower than satisfactory earnings. Prospects within this segment are uncertain with high and growing order book.

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.

General
There have been no incidents with a particular impact on the financial accounts during the period.

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 has completed one scheduled classification docking in the first quarter of 2014. For 2014 there are a total of two scheduled classification dockings.