Earnings 3rd quarter 2009

Belships' operating income in the 3rd quarter of 2009 was USD 14,643,000 (3rd quarter 2008: USD 22,569,000). The company's operating profit totalled USD 1,056,000 (USD 7,459,000). This reduction in operating income is essentially due to reduced activity in Elkem Chartering's handysize operations. The operating result for the 3rd quarter included a profit of NOK 3.5 million relating to the cancellation of a charter.
In the 3rd quarter, the company had net financial expenses of USD 632,000, and the net result of the period amounted to USD 387,000 (USD 5,024,000).
Profit after tax in the first three quarters of the year was USD 2,121,000 (USD 13,366,000).
The accounts for the 3rd quarter of 2009 were prepared in accordance with IAS 34, Interim Financial Reporting.  A statement on the accounting policies applied by the group in preparing the accounts appears in the 2008 annual accounts. The interim accounts have been prepared in conformity with the International Financial Reporting Standards (IFRS).
The rates for large bulkers fell considerably in the course of the period due to less activity among Chinese steel producers. For the smaller vessels, on the other hand, the rates were relatively stable and at a level that is strong historically, but far below the level of one year back.
Elkem Chartering continued its operations at a lower level of activity than what has been typical over the last few years. This reflects a lack of new interesting opportunities, combined with caution due to uncertain market developments.
In August, Belships received the first newbuilding from China, which was named M/S Belstar. The vessel entered immediately on its long-term charter for Canadian charterers and its technical performance has been excellent.
As reported previously, the option to purchase the M/S Belisland was exercised, and an agreement was signed at the same time on sale of the vessel to Greek buyers. Delivery took place in the beginning of October, and the profit of about USD 10 million will be booked in the 4th quarter. The M/T Belaia continued on its charter without any significant interruptions.
At 30 September, the group's liquid reserves totalled USD 17.5.6 million, against USD 30.0 million at 30 June. The M/S Belstar was delivered in the 3rd quarter. The vessel was financed through a long-term mortgage loan of USD 22 million. The bridge financing of USD 20 million was repaid in August. Of the total contractual liability of USD 77.6 million on the two remaining newbuildings, USD 23.4 million has been paid and USD 44 million has been secured through long-term debt financing. Belships has a bond loan of NOK 101.4 million (USD 16.1 million). An agreement was signed with the bondholders in May this year on partial extension of the term of the loan, and on an option for Belships to pay the current coupon with new bonds (payment in kind). This option was exercised in the 3rd quarter, and interest accrued during the period was added to the original loan amount. The loan has been hedged against USD.
The company has carried out impairment tests for its assets in conformity with IAS 36. The M/S Belstar and the remaining newbuilding contracts were assessed on the basis of observable market values and the time charters concluded, which, based on a discretionary assessment of counterparty risk, were discounted by 12%. Based on these internal valuations, there is, as per today, no need for impairment.
At the end of the 3rd  quarter, book value per share amounted to NOK 10.75, while the book equity ratio was 48.4%.
So far in the 4th quarter, the dry-bulk market has been strengthened, and this applies in particular to the rate level for the largest vessels. Newbuilding prices have dropped considerably, not unexpectedly, and this is spreading also to second-hand bulker prices.
Elkem Chartering's earnings in the 4th quarter are expected to be on the level of that of the previous quarter.
Oslo, 29 October 2009

Report 3rd quarter 2009