Annual Report • Mar 26, 2018
Annual Report
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I am proud to present the annual report for Belships ASA, and to introduce you to a company with a long history, extensive experience, strong expertise and a promising future.
From its origin in 1918 and focus on specialized heavy lift ships, the company made a valuable contribution for the Allied forces during World War II and during the Korean War. Later on, the company also entered both the tankerand the energy sector.
Today, Belships ASA has developed into a pure dry bulk tonnage provider with full concentration on one nonspecialized asset type. The company has been stock listed on the Oslo Stock Exchange since 1937.
Our subsidiary, Belships Management (Singapore) Pte Ltd, has made its mark on one of the world's most challenging industries for close to 35 years - an industry where clients manage valuable assets and demand the highest level of expertise and ability from their partners. We focus without compromise on strict risk management to minimize the hazards to both people and the environment and we appreciate the demands and challenges made by our esteemed clients
Belships ASA outlined in 2013 a bold newbuilding program for eco-design Ultramax bulk carriers to be constructed by Imabari Shipbuilding Group in Japan. This strategic move has transformed the business area into a state-of-theart dry bulk tonnage provider with high focus on quality, fuel efficiency and emission control. The Company took delivery of one 61,000 dwt Ultramax in September 2015 (Belforest), a sister ship in March 2016 (Belisland) and one 63,000 dwt Ultramax in January 2018 (Belnippon). Both Belforest and Belnippon are on charter to Cargill, whereas Belisland is on charter to Canpotex. Another 63,000 dwt Ultramax will be delivered from Imabari Shipbuilding within first half 2020.
Our corporate strategy is to provide our reputable clients a reliable transportation solution based on long-term charters and partnership. We will have focus on growth in fleet size and diversification of our customer base through a careful selection of counterparts.
Belships ASA will celebrate 100 years in 2018!
We are excited about our journey over the coming years.
dentifieder
Bernt Ulrich Müller Chief Executive Officer Belships ASA
| USD 1 000 | 2017 | 2016 | |
|---|---|---|---|
| Operating income | 27 309 | 25 4 15 | |
| EBITDA | 13 270 | 11 280 | |
| Operating result (EBIT) | 11 614 | $-8907$ | |
| Net result for the year | 6 3 6 4 | $-14593$ | |
| Total assets | 102 129 | 105 612 | |
| Equity | 26 382 | 20 144 | |
| Equity per share | NOK | 4.62 | 3.71 |
| Interest coverage ratio | 2.45 | $-1.84$ | |
| Current ratio | % | 84.56 | 97.16 |
| Equity ratio | % | 25.83 | 19.07 |
| Earnings per share | US cent | 13.60 | $-31.18$ |
| Proposed dividend per share | NOK | 0.10 | 0.00 |
| SHIP | OWNERSHIP | BUILT DWT YEAR |
EMPLOYMENT | T/C-RATE (NET USD/DAY) |
|
|---|---|---|---|---|---|
| Supramax | |||||
| M/S Belstar | 100 % | 2009 | 58 018 | T/C to 08/19 | 16 000 |
| M/S Belnor | 100 % | 2010 | 58 018 | T/C to 05/20 | 16 000 |
| M/S Belocean | 100 % | 2011 | 58 018 | T/C to 08/18 | 9770 |
| Ultramax | |||||
| M/S Belforest | BBC to 2027 +3 yrs | 2015 | 61 3 20 | T/C to 09/18 | 9986 |
| M/S Belisland | BBC to 2031 +5 yrs | 2016 | 61 252 | T/C to 03/21 | 17 300 |
| M/S Belnippon * | TC to 2026 +3 yrs | 2018 | 63 602 | T/C to 12/18 | 11 070 |
| Imabari newbuilding | TC to 2028 +2 vrs | 2020 | 63 000 |
*) Delivered 24th January 2018
Following the turnaround in the early part of 2016, the market continued to strengthen throughout 2017. The key drivers behind the increasing freight rates were higher Chinese imports of iron ore, coal, grain products and bauxite. Chinese imports rose by 6% in tonmile terms in 2017. It was a further decline in domestic Chinese iron ore production, and a continued substitution to imported highgrade iron ore from Australia and Brazil. Chinese imports of coal increased further in 2017, despite the environmental concern from Chinese authorities.
Turning to the supply-side, the dry bulk fleet expanded by 2.1% in 2017, down from 2.6% growth in 2016. However, scrapping activity fell sharply compared to 2016 on the back of rising freight rates.
The Baltic Exchange Capesize Index ended the fourth quarter at USD 19 341 per day, whereas the Panamax-index ended at USD 11 183 per day. The Supramax-index ended the fourth quarter at USD 10 478 per day. As per today, the Cape index stands at USD 8 825 per day, Panamax-index at USD 12 902 per day and Supramax-index at USD 12 567 per day.
The Baltic Exchange S&P Assessment values today a 5 year old Supramax at USD 17.8 million, which is up from USD 14.4 million one year ago.
M/S Belstar, M/S Belnor and M/S Belisland continued in 2017 on their long-term charter parties to Canpotex Shipping Services Ltd., Canada. Canpotex is one of the world's largest exporters of potash, a fertilizer product imported in large volumes by countries such as China, India and Brazil. The net time charter rate is USD 16 000 per day for Belstar/Belnor and USD 17 300 per day for Belisland. M/S Belocean and M/S Belforest are both chartered to Cargill until September-October 2018 at around USD 10 000 per day net. M/S Belnippon, the long term 63 000 dwt t/c-in ship, was delivered from Imabari Shipbuilding on 24 January 2018 and has been chartered out to Cargill for 10-13 months at USD 11 500 per day.
The company's tonnage is modern, and all ships operated satisfactorily without significant off-hire. The operating expenses continued at a competitive level.
Belships will take delivery of a 63 000 dwt Ultramax bulk carrier from Imabari within first half 2020 for long-term charter including purchase option.
The subsidiary Belships Management (Singapore) Pte. Ltd. made a contribution of USD 1.2 million in net result from technical management services. The company expanded its customer base, and currently provides technical management for 12 ships, including Belships' own ships, and provides crewing for 24 ships.
AMOUNTS IN NOK
The Group had an operating income of USD 27 309 000 in 2017 (USD 25 415 000), giving an EBITDA of USD 13 270 000 (USD 11 280 000) and a consolidated operating result of USD 11 614 000 (USD -8 907 000). Result before tax was USD 6 658 000 (USD -14 419 000), while net result for the Group was USD 6 364 000 (USD -14 593 000). The negative result in 2016 is explained by impairment of the fleet of USD 13.8 million. Net impairment reversal in 2017 amounted to USD 2.5 million.
The parent company's net result for the year was NOK 44 010 000 (NOK -143 824 000).
The Board proposes the result for the year allocated as follows:
| 39 275 000 |
|---|
| 4 735 000 |
The annual accounts are presented on a going concern basis in accordance with $\S 3 - 3$ of the Norwegian Accounting Act. Belships has three long-term T/C agreements with Canpotex and two short term T/C agreements with Cargill covering most of 2018. Current activity will generate sufficient liquidity to cover current debt and operating expenses throughout 2018. Based on this, the Board considers that the conditions for a going concern are in place.
In the opinion of the Board, the consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
The information in the accounts gives a true and accurate representation of the company's and the Group's assets, liabilities, financial position and results as a whole. The annual accounts give a fair view of the development, profit and overall financial position of Belships ASA and the Group, and describe the most significant risks and uncertainties facing the Group and the parent company.
Belships aims to minimize environmental impact from its activity, and strives to improve safety. Measures are taken to prevent the business polluting the environment. Belships works consciously to improve standards, on board and ashore. Pollution from ships is governed by a number of national and international environmental standards and certifications. Belships meets official requirements in terms of safety and the environment.
The newbuildings from Imabari Shipbuilding have low emissions of pollutants and are all installed with ballast water treatment systems.
Belships has it's headquarter in Oslo, from where most of its commercial and financial business including insurance is handled. Technical management is handled from Singapore. There has been no change within the senior management in 2017. Management activities in Singapore were stable over the year. The Group employed 52 office staff at the end of 2017. Ships under management had 205 crewmembers onboard.
The sick leave was less than 2% in 2017. The Group was not subject to any serious accidents in 2017. Belships aims to treat women and men equally. No discrimination on the grounds of gender is tolerated. Of the Group's office staff, 27 are women. The working environment at the various companies within the Group is considered to be satisfactory.
The Group's solvency and financial position is satisfactory. By end of 2017 the book equity of the Belships share was NOK 4.57 (NOK 3.71), while the book equity ratio was 25.8 % (19.1%). Added value related to the long-term charter for M/S Belisland is not included in the balance sheet.
Consolidated liquidity was USD 5.5 million as at 31 December 2017, against USD 7.9 million at the beginning of the year. Total mortgage debt had a balance of USD 28.3 million at year-end and was reduced by USD 8.0 million during 2017. Down payment of lease commitments in 2017 amounted to USD 1.8 million.
The waiver from the ship mortgage lender was terminated in 4th quarter and the on-demand guarantee from the main shareholder was returned. Main terms in the loan agreement are as follows: Minimum cash USD 3 million, annual instalment USD 5 million, minimum value 120% in 2018 and 125% in 2019 and payment of dividend is limited to 50% of net result.
The Group has conducted impairment tests in line with IAS 36, valuing the ships based on observable market values of equivalent ships today, and including the discounted added value of the charter parties entered into. Based on these internal valuations an impairment reversal was recorded in 2017.
Belships aims to provide its shareholders with a competitive dividend yield, and the board propose a dividend payment of NOK 0.10 per share.
At the end of 2017 Belships held 548 000 treasury shares in total at an average cost of NOK 9.91 per share. In August 2017, the employees were granted options to purchase 200 000 shares at a strike price of NOK 5.12. These options can be exercised from the annual general meeting 2018 until the annual general meeting in 2019.
The Belships' share value has increased by 21% in the course of 2017. By comparison, the OSEBX increased by 19%. A total of 17 535 000 shares were traded in 241 of 253 trading days. In 2016 a total of 5 501 000 shares were traded in 183 of the 253 trading days. The Group is exposed to market risks due to changes in FX rates, interest rates, freight rates and oil prices.
The Group's income and costs are mainly in USD. Belships' foreign exchange exposure is linked to administrative costs in Norway and in Singapore. Compared to the Group's cash flows, however, this exposure is limited. Hedging of the Group's interest exposure on bank loan is considered on an ongoing basis. The hedging level of interest rate exposure is currently around 78% (leases excluded). Fluctuating bunker prices will not affect the Group as the ships are fixed on long-term time charters where the charterers cover the fuel cost.
Belships aims to minimize counterpart risk by entering into long term time charter contracts with reputable charterers. The Group's limited tax cost is expected to continue. Three ships are owned by a Singaporean subsidiary within the local tonnage tax regime.
The Group's Norwegian entities have considerable tax loss carried forward.
Belships' corporate governance is based on the company's goals and strategy. The Company has since 1937 been listed on the Oslo Stock Exchange, and is subject to the Norwegian Accounting Act, the Securities Trading Act and the Public Limited Company Act. With exception of establishing election committee, Belships follows the Norwegian code of good corporate governance of 30 October 2014. Please see the separate statement of corporate governance that appears as a section of the annual report in its own right.
Belships is a shipping company with global reach and close to a hundred years history. The Board is well aware of the direct and indirect impact Belships' activities have on the outside world as well as the company's shareholders. Belships is determined to create long-term shareholder values and at the same time act as a responsible participant in the society. The most important issues for our business and our shareholders in respect of Corporate Social Responsibility (CSR) are considered to he.
It is our policy to follow the standards, laws and regulations set by the national and international maritime regulatory authorities, but also the moral and ethical behavior as set by our culture. Belships reports on safety and environment in the annual report. Belships does not tolerate any corrupt practices with our suppliers, customers or government entities affecting our business. Belships do pay attention to the working conditions and safety within our own operations. Please see the separate statement of corporate social responsibility that appears as a section of the annual report in its own right.
As expected, the market dropped ahead of the Chinese New Year celebration in February. However, last few weeks the spot rates have strengthened and the period activity has picked up. One year t/c-rates for Ultramax is now around USD 12 500-13 000 per day. Ordering activity has picked up considerably, but new orders now will be for delivery in 2020 or later. The 2020 sulphur cap regulations will probably trigger an increased scrapping and slower sailing speeds to mitigate higher cost for low-sulphur bunkers. Net supply the next three years is expected to increase by 1.7% on average, whereas the demand is expected to increase by 3% in tonmile terms.
Belships' ships are chartered out on fixed rates to reputable counterparts, representing a future nominal gross hire of USD 52 million. Focus remains to continue developing Belships as an owner and operator of modern bulk carriers to reputable counterparts, building a portfolio of quality ships and robust charter parties that will generate distributable cash flows.
OSLO, 21 MARCH 2018 BELSHIPS ASA
Sverre J. Tidemand Chairman of the Board
Sissel Grefsrud Board member
Leris. Pffer
Christian Rytter Board member
Carl Erik Steen Board member
Kiewh Ringdal
Kjersti Ringdal Board member
dentifielde
Bernt Ulrich Müller Chief Executive Officer
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| 1 JANUARY - 31 DECEMBER / USD 1 000 | NOTE | 2017 | 2016 |
|---|---|---|---|
| Operating income | |||
| Freight income | 22 646 | 21 3 38 | |
| Other operating income | 4663 | 4077 | |
| Total operating income | $\overline{4}$ | 27 309 | 25 4 15 |
| Operating expenses | |||
| Ship operating expenses | 8 | $-8175$ | -8 197 |
| Operating expenses ship management | $\underline{8}$ | $-3371$ | $-3405$ |
| Payroll expenses | $\overline{a}$ | $-1678$ | $-1659$ |
| Other general administrative expenses | 6 | -815 | $-874$ |
| Total operating expenses | -14 039 | $-14135$ | |
| Operating result (EBITDA) | 13 270 | 11 280 | |
| Depreciations on ships and other fixed assets | Z | -4 5 9 7 | $-4901$ |
| Reversal/Impairment of ships | Z | 2544 | $-13823$ |
| Loss on sale of ship/effect on onerous contracts | Z | 397 | $-1463$ |
| Operating result (EBIT) | 11 614 | $-8907$ | |
| Financial income and expenses | |||
| Interest income | 26 | 13 | |
| Interest expenses | 13 | -4735 | $-4833$ |
| Currency exchange gain/(loss) | 114 | 69 | |
| Other financial items | $\underline{8}$ | -361 | $-761$ |
| Net financial items | -4956 | $-5512$ | |
| Net result before tax | 6658 | $-14419$ | |
| Tax | 12 | -294 | $-174$ |
| Net result for the year | 6364 | $-14593$ | |
| Hereof non-controlling interests | 60 | 53 | |
| Hereof majority interests | 6304 | $-14646$ | |
| Other comprehensive income | |||
| Other comprehensive income not to be reclassified to profit or loss in subsequent periods: | |||
| Actuarial gain/(loss) on defined benefit plan | -6 | $-39$ | |
| Total comprehensive income | 6358 | $-14632$ | |
| Hereof non-controlling interests | 60 | 53 | |
| Hereof majority interests | 6 2 9 8 | $-14685$ | |
| Earnings per share (US cent) | 11 | 13.60 | $-31.18$ |
| Diluted earnings per share (US cent) | 11 | 13.48 | $-31.18$ |
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OSLO, 21 MARCH 2018 BELSHIPS ASA
Sverre J. Tidemand Chairman of the Board
Sissel Grefsrud Board member
Luis. Pffer
Christian Rytter Board member
Carl Erik Steen Board member
Gersh Ringdal
Kjersti Ringdal Board member
dentifielde
Bernt Ulrich Müller Chief Executive Officer
| 1 JANUARY - 31 DECEMBER/USD 1 000 | NOTE | 2017 | 2016 |
|---|---|---|---|
| CASH FLOW FROM OPERATIONS | |||
| Net result before tax | 6658 | $-14419$ | |
| Adjustments to reconcile result before tax to net cash flows: | |||
| Loss on sale of ship/effect on onerous contracts | Z | -397 | 1463 |
| Depreciations on ships and other fixed assets | Z | 4597 | 4 9 0 1 |
| Reversal/Impairment of ships | Z | $-2544$ | 13823 |
| Share-based compensation expense | 16 | 0 | 31 |
| Difference between pension expenses and paid pension premium | 17 | $-171$ | $-210$ |
| Net finance costs | 4956 | 5512 | |
| Working capital adjustments: | |||
| Change in trade debitors and trade creditors | 85 | $-212$ | |
| Change in other short-term items | $-345$ | $-241$ | |
| Interest received | 26 | 13 | |
| Interest paid | -4735 | $-4833$ | |
| Income tax paid | $-138$ | $-118$ | |
| Net cash flow from operating activities | 7993 | 5710 | |
| CASH FLOW FROM INVESTING ACTIVITIES | |||
| Payment on newbuilding | Z | 0 | $-20531$ |
| Sale of ship (net sales amount) | Z | $\mathbf 0$ | 23 637 |
| Payment of other investments | $-271$ | $-1923$ | |
| Net cash flow from investing activities | $-271$ | 1 1 8 3 | |
| CASH FLOW FROM FINANCING ACTIVITIES | |||
| Repayment of current debt | 13 | $-9835$ | $-6491$ |
| Paid costs related to financing | $-369$ | $-484$ | |
| Net cash flow from financing activities | $-10204$ | $-6975$ | |
| Net change in cash and cash equivalents during the period | $-2482$ | $-82$ | |
| Cash and cash equivalents at 1 January | 7918 | 7993 | |
| Change currency NOK deposits | 23 | $\overline{7}$ | |
| Cash and cash equivalents at 31 December * | 5459 | 7918 |
*) Includes certain restricted cash. See note 15.
| Majority interests | ||||||||
|---|---|---|---|---|---|---|---|---|
| Paid-in | ||||||||
| USD 1000 | Note | Share capital |
Treasury shares |
Share premium reserves |
Other equity |
Other equity |
Non- controlling interest |
Total equity |
| As at 31 December 2017 | ||||||||
| Equity as at 1 January 2017 | 14 27 2 | $-166$ | 13751 | 15763 | $-23888$ | 412 | 20 144 | |
| Net result for the year | 0 | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | 6 3 0 4 | 60 | 6 3 6 4 | |
| Other comprehensive income | 17 | 0 | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $-6$ | $\mathbf 0$ | $-6$ |
| Total comprehensive income | 0 | 0 | 0 | 0 | 6 2 9 8 | 60 | 6358 | |
| Share-based payment expense | 16 | 0 | $\mathbf 0$ | $\mathbf 0$ | 0 | $\mathbf 0$ | $\mathbf 0$ | 0 |
| Non-controll, interests transact. | $\mathbf 0$ | $\overline{0}$ | $\overline{0}$ | $\mathbf 0$ | $\mathbf 0$ | $-120$ | $-120$ | |
| Equity as at 31 December 2017 | 14 27 2 | $-166$ | 13751 | 15763 | $-17590$ | 352 | 26 382 | |
| As at 31 December 2016 | ||||||||
| Equity as at 1 January 2016 | 14 27 2 | $-166$ | 13751 | 15732 | $-9203$ | 445 | 34 831 | |
| Net result for the year | 0 | $\mathbf 0$ | $\pmb{0}$ | $\mathsf 0$ | $-14646$ | 53 | $-14593$ | |
| Other comprehensive income | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $-39$ | $\mathbf 0$ | $-39$ | |
| Total comprehensive income | $\mathbf 0$ | $\mathbf{0}$ | $\mathbf{o}$ | $\mathbf 0$ | $-14685$ | 53 | $-14632$ | |
| Share-based payments expense | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | 31 | $\mathbf 0$ | $\mathbf 0$ | 31 | |
| Non-controll, interests transact. | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $\mathbf 0$ | $-86$ | $-86$ | |
| Equity as at 31 December 2016 | 14 27 2 | $-166$ | 13751 | 15 763 | $-23888$ | 412 | 20 144 |
Belships is an owner and operator of dry bulk ships, presently operating a fleet of 6 ships (5 in 2017). The company is also providing ship management services.
Belships ASA is a public limited liability company incorporated and domiciled in Norway and listed on Oslo Stock Exchange. The head office is located in Lilleakerveien 4 in Oslo, Norway.
Copies of the consolidated financial statements may be downloaded from www.belships.com, or by inquiry to the company's head office.
The consolidated financial statements have been approved by the Board on 21 March 2018.
Belships has obtained approval from Oslo Stock Exchange and Norwegian tax authorities to publish its financial statements only in English.
All amounts in the notes are in USD 1 ooo unless otherwise stated.
The consolidated financial statements of Belships ASA (the "Parent Company"), and all its subsidiaries (the "Group"), have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). The Group accounts have been prepared on a historical cost basis, except for derivatives and shares held for trading, which are measured at fair value.
The Group accounts are presented with uniform accounting principles for identical transactions and events under otherwise identical conditions.
The annual accounts are presented on a going concern basis in accordance with $\S$ 3 – 3 of the Norwegian Accounting Act. Belships has three long-term time-charter agreements with Canpotex, which are favourable in the current market. The cash flow is positive in all entities. Based on this, the Board considers that the conditions for a going concern are in place.
The consolidated financial statements comprise the financial statements of Belships ASA and its subsidiaries as at 31 December 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.
Unrealised gains from transactions with affiliated companies are eliminated with the Group's share of the company/enterprise. Unrealised losses are likewise eliminated, but only to the degree that there is no indication of loss of value on the asset being sold internally.
Functional currency and reporting currency
Accounting transactions undertaken by respective Group companies use the currency ordinarily used by the financial environment in which they operate (functional currency). The Group accounts are presented in USD.
The accounts for the units in the Group which have a functional currency different from the Group's reporting currency, convert their accounts into the reporting currency according to the following guidelines:
Transactions in foreign currency are converted to the functional currency at the rate at time of the transaction. Monetary items in foreign currency are converted into functional currency using the rate at the balance sheet date. Non-monetary items which are measured at historical cost expressed in foreign currency, are converted into functional currency using the currency rate at the time of the transaction.
Non-monetary items, which are measured at fair value expressed in foreign currency, are converted at the currency rate on the date of measurement. Currency rate changes are recognised continuously against profit and loss during the accounting period. Currency rates at year end was USD 8.2050 (2016: USD 8.6200) and SGD 6.1410 (2016: SGD 5.9645).
Trade receivables are recognised at face value less any impairment. Provision for impairment is made when there is objective evidence of impairment that affects the estimated future cash-flow.
Tangible fixed assets are measured at acquisition cost, net of accumulated depreciation and impairments losses. When assets are sold or divested, the carrying amount is deducted and any gains or losses are recognised in the profit and loss account. Acquisition cost for tangible fixed assets is the purchase price, including taxes and charges and expenses directly related to preparing the asset for use. Expenses incurred after the asset has been put to use, are recognised in the profit and loss account, whereas other expenses which are expected to create future financial gains are capitalised. An estimated docking element is recognised as a separate component of the ship for depreciation purposes on the first occasion a ship is booked in the accounts. The amount corresponds to the estimated docking costs for the period. The docking component is depreciated on a straight-line basis the over the period to the next planned drydocking. Residual value has been taken into account, and this is estimated based on steel value of the ship at the balance sheet date less estimated cost to demolish the ship. Book value is compared to market value and value in use to assess the need for any further impairment compared to the ordinary depreciation plan. The depreciation period and method are assessed annually and are based on the management's estimates of the ships' future useful life. The same applies to residual value.
In accordance with IFRS, the ships have been separated into components for depreciation purposes. The ships are depreciated as one unit, as the value of any part of the ship with a useful lifetime other than 25 years is considered to be insignificant.
Newbuilding contracts are recognised as a fixed asset based on instalments paid to the yard. Building supervision costs and project costs related to the newbuilding contracts are capitalised.
See section P) regarding treatment of borrowing costs.
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date. Leases are classified as financial leases if the terms of the lease agreement transfers substantially all the risks and rewards incidental to ownership of an asset. All other leases are classified as operating lease.
Assets financed under financial leases are capitalized at inception of the lease at the fair value of the leased vessel or, if lower, at the present value of the minimum lease payments. The corresponding lease obligation is recognized as a liability in the balance sheet. Lease payments are split between interest cost and reduction of the lease liability. Interest cost is recognized in the income statement.
Financial leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. For operating leases, the payments (time charter hire or bareboat hire) are recognized as an expense on a straight line basis over the term for the lease.
Financial instruments under the scope of IAS 39 are classified in the following categories:
Financial assets with fixed or determinable cash flow which are not listed in an active market are classified as loans and receivables. Investments held to maturity, loans and receivables and other liabilities are measured at amortised cost.
A provision is recognised when the company has a liability (legal or constructive) as a result of a previous event and where it is probable (more probable than not) that there will be a financial settlement as a result of this liability and that the size of the sum can be reliably determined. If the effect is material, the provision is estimated by discounting the expected future cash flow with a discount rate before tax which reflects the market's evaluation of the time value of money and, if relevant, risks specifically connected to the liability
A provision is recognised for any unavoidable net loss arising from the contract, the unavoidable cost under a contract reflect the least net cost of exiting from the contract, i.e. the lower of the cost of fulfilling the contract; and any compensation of penalties arising from failure to fulfill the contract.
Financial instruments are classified as debt or equity according to the underlying substance of the contractual agreement. Interest, dividend, gains and losses related to a financial instrument classified as debt, is presented as income or expense.
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in share premium. Share options exercised during the reporting period are fulfilled with treasury shares.
Transaction costs directly related to equity transactions are charged directly against the equity after tax deductions.
Revenue is recognised when it is likely that the economic benefits which will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenues from time charter accounted for as operational leases are recognized on a straight line basis over the rental periods of such charters, as service is performed.
All employees are member of the company's defined contribution scheme. The premium is charged as incurred by operations. Social security tax expense is recognized based on the pension plan payments.
Actuarial gains and losses arising from changes in actuarial assumptions are recognised as other comprehensive income in the period in which they arise. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. The company has unfunded pension liabilities. These relate to early retirement and pension to persons, that have not been included in the service pension scheme. Pension obligations are estimated by an independent actuary.
An associate is an entity over which the Group has significant influence, but not control, and which is not a subsidiary. Significant influence is defined as the right to participate in the financial and operating policy decisions of the investee, but is not control over
Interests in associates are accounted for using the equity method. Under this method, the investment is carried in the Consolidated statement of financial position at cost plus post-acquisition changes in the Group's share of net assets of the associate, less any provisions for impairment. The Consolidated Income Statement reflects the Group's share of net income of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share in the Consolidated Statement of Comprehensive Income.
Contingent liabilities are not recognised in the annual accounts. Significant contingent liabilities are disclosed, with the exception of contingent liabilities in which the possibility of loss is considered remote.
Contingent assets are not recognised in the annual accounts but are disclosed if there is a certain probability that a significant benefit will be added to the Group.
Tax expenses consist of tax payable and changes in deferred tax. Deferred tax/tax assets are calculated on all differences between accounting values and tax values of assets and liabilities, with the exception of temporary differences related to investments in subsidiaries, affiliated companies or jointly controlled enterprises when the Group controls when the temporary differences will be reversed, and that is not expected to occur in the foreseeable future.
Deferred tax assets are recognised when it is likely that the company will have sufficient profit for tax purposes in subsequent periods that will enable the company to utilise the tax asset. Similarly, the company will reduce the deferred tax asset to the extent the company no longer regards it as being likely that it can utilize the deferred tax asset.
Deferred tax liabilities and deferred tax assets are measured on the basis of prevailing tax rates for the companies in the Group where temporary differences have occurred, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax liabilities and deferred tax assets are entered at nominal value calculated with the tax rate in the actual tax regime and are classified as long-term liability or intangible fixed asset in the balance sheet. Tax payable and deferred tax are entered directly against equity to the extent the tax items relate to equity transactions.
In addition to companies subject to ordinary taxation in Norway, Singapore and China, the Group consists of one company within the shipping taxation scheme in Singapore. The deferred tax positions associated with the different tax regimes cannot be offset. A corresponding situation also applies to tax positions between jointly controlled operations and the rest of the Group. These cannot be offset.
At the end of each quarter, every ship is assessed for impairment indicators. The same applies when events or changes occur that may entail that the asset's carrying amount may not be recovered. In assessing the need for impairments, assets are grouped at the lowest level at which there is identifiable and predominantly independent cash inflows, which means per ship. Impairment is calculated as the difference between the asset's carrying amount and the value considered as recoverable. The recoverable amount is the higher of the asset's fair value less cost to sell and its value in use to the Group. Value in use is calculated by discounting anticipated future cash flows from the asset. When it is assumed that the asset's value is lower than its carrying amount, an impairment loss is recognised.
Impairment loss recognised in earlier periods is reversed only in case of changes to the estimates used to determine the recoverable amount. However, the reversal amount may only be so high that book value after reversal at most corresponds to the value at which the asset would have been registered if it had not been impaired earlier. Such reversals are recorded in the profit and loss.
Financial assets classified as being available for sale are written down when there are objective indications that the asset has declined in value. An accumulated loss (the difference between acquisition cost and current market value, with deduction of impairments previously included in the result and any amortisation amounts) is included in the profit and loss account. If the market value of a debt instrument classified as available for sale increases in a subsequent period, and the increase can objectively be linked to an event that took place after the impairment was included in the profit and loss, the impairment loss will be reversed over the profit and loss account.
Impairment loss for an investment in an equity instrument classified as held for sale, will not be reversed over the income statement.
Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to get ready for its intended use are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
New information after the balance sheet date regarding the company's financial position as of the balance sheet date is taken into consideration in the annual accounts. Events after the balance sheet date that do not affect the company's financial position as of the balance sheet date, but which will have an impact on the company's financial position in the future are disclosed if significant.
Employees and management in Belships ASA received options to purchase company shares. Market value of the awarded options is measured at time of the award and charged to expense over the vesting period as a payroll cost with corresponding increase in other paid-in equity. The market value of the options granted is estimated using the Black and Scholes option pricing model.
Cash and cash equivalents include cash in hand, bank deposits and other short-term and in particular liquid investments to be redeemed within 3 months. Cash and cash equivalents are recognised at nominal values in the balance sheet.
Restricted cash include all deposits in separate accounts, which will be used to cover accrued taxes withheld for employees and deposits provided as security for certain guarantees.
Operating segments are components of a business that are evaluated regularly by the chief operating decision maker for the purpose of assessing performance and allocating resources. The Groups chief operating decision maker is the CEO. The operating segments consist in dry cargo and technical operations, which is how the information is presented to the Management and the Board. Transactions between the business units are based on market conditions. Segment turnover, segment costs and segment results include transactions between segments.
Transactions with related parties are carried out at market terms. See note 10 for further information.
The cash flow statement has been prepared using the indirect method. Liquid assets include cash, bank deposits (restricted and unrestricted) and other short-term investments which can be converted to cash within 3 months. For restricted deposits, see note 15.
The Group presents assets and liabilities in statement of financial position based on current/non-current classification. An asset is considered current when it is:
or
A liability is considered current when it is:
The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities
Disclosure Initiative The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). The Group has provided the information in note 13.
Except for the above change, the same accounting policies and methods of compultation are followed in this financial statement as compared with the annual financial statement for 2016.
Standards issued but not yet effective are as follows:
The standard (as revised in 2014) will supersede IAS 39 upon its effective date for annual periods beginning on or after 1 January 2018. The number of categories of financial assets have been reduced to financial assets measured at amortized cost and financial assets measured at fair value. However, the standard introduces a "fair value through other comprehensive income" measurement category for certain simple debt instruments. IFRS 9 also presents a new impairment model which is based on expected credit losses, rather than on incurred credit losses. Implementation of the new standard is not expected to have any significant impact.
IFRS 15, effective from 1 January 2018, covers the recognition of revenue in the financial statements and related disclosure. IFRS 15 will replace IAS 18 Revenue. The main part of the group's revenue is freight income on ships. All ships are chartered out on time charter. The group has assessed that IFRS 15 will not have impact on revenue recognition, however additional break downs of revenue will be provided in note disclosure.
IFRS 16, effective from 1 January 2019, covers the recognition of leases and related disclosure in the financial statement, and will replace IAS 17 Leases. The group is in the early phase of evaluating the impact of IFRS 16. The currently material lease contracts are related to ships and properties. Currently the company has 2 ships on financial lease in, and 1 ship on operational lease in. At this stage, the group does not intend to adopt the standard before its effective date.
Preparing the annual accounts in accordance with IFRS as adopted by EU requires the management to use estimates and assumptions affecting the amounts reported in the accounts with notes. The management assumptions and valuations are based on past experience and on miscellaneous other factors assumed to be reasonable and appropriate. This applies in particular to impairment assessment of ships and lease classification assessment. Future events can entail a change in these estimates. Estimates and the underlying assumptions are evaluated on an ongoing basis.
Changes in accounting estimates are entered in the period when the changes occur. If the changes also apply to future periods, the effect is distributed over the current and future periods and appears in the current note.
The Group assess, at each reporting date, whether there are any indications that the ships may be impaired, or if previous recorded impairment charges should be reversed. Each ship is defined as a separate cash generating unit. The recoverable amount is based on the average of two independent broker estimates (charterfree), in addition to the net present value of the estimated fair value of the belonging charters for ships under contract with Canpotex.
In 2017, the market conditions for bulk ships have improved with increasing freight rates and underlying ships values. When the freight rates increase, the net present value of ships on long favorable charters decreases. The key assumptions used for impairment testing of the ships are described in note 7.
The impairment calculation demands some degree of estimation. Management makes estimates and judgement of the estimated fair value of the belonging charters and the discount rate. For the broker valuations, management compares the value with comparable external non-distressed transactions of bulk ships, adjusted for size, yard and construction year.
Further, management also assess external available sources for the expected development in the world wide fleet, parity between newbuilding prices versus second-hand transactions and assumptions regarding future freight rates and implied capital cost to assess if the broker valuations used as basis are reliable. The dry bulk sector has several sources for second-hand prices and assumptions regarding future market development (rates and estimated fleet growth). Changes to these estimates could have significant impact on impairment/reversal of impairments.
Remaining useful life is estimated on the date of the presentation of accounts. The useful life of the assets and the method of depreciation are evaluated yearly. See note $7$ for additional details.
Based on the content of a leasing agreement, the Company determines whether the agreement is considered as an operating or a financial lease agreement. In this determination, assumptions are made and if the same assumptions were judged differently, it could have an effect on the income statement and the statement of financial position. One of the most significant judgements is the forecasted future market value of the leased ship at the dates when the purchase option is expected to be declared.
Based on an assessment of the terms of the lease contracts, including the levels of purchase options, the Management assessed in 2015 and 2016 that the leaseback is a financial lease for both M/S Belforest and M/S Belisland.
Leased ships are at the inception of the lease measured at the lower of the fair value and the present value of minimum lease payments and expected timing of declaration of the purchase option. For the purpose of calculating the net present value, the interest rate implicit in the lease or the Company's current incremental borrowing rate is used as a discount factor.
The Belships Group is divided into the operating segments dry bulk and technical management and segment reporting is in accordance with the reporting to the Chief Operating Decision Maker (CEO).
Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. The Group's financing (including finance costs and finance income) and income taxes are managed on a Group basis but are allocated to applicable operating segments.
Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.
The dry bulk segment consists of ships chartered to Canpotex Shipping Services Ltd and Cargill International, and revenues from those charterers are representing 64% and 18% of total turnover respectively. The Group had no other single customers in any segment neither in 2017 nor 2016 where revenue accounted for more than 10% of the total turnover.
The operating segments have worldwide activities. The shipping market in general offers a global service covering major global trade routes. There are no particular focus on geographic region as all of the group's ships are on time charter out, and the charterers decide the trade routes on individual basis, accordingly no geographical segments are presented. Due to this, financial position is not allocated to geographical segments.
| 1 JANUARY - 31 DECEMBER 2017 | DRY CARGO | TECHNICAL MANAGEMENT |
ADMINI- STRATION |
GROUP TRANSACTIONS |
TOTAL |
|---|---|---|---|---|---|
| Freight revenue | 22 190 | 0 | $\mathbf 0$ | 456 | 22 646 |
| Management fees - external | $\mathbf 0$ | 4374 | 289 | 0 | 4663 |
| Management fees - internal | $\overline{0}$ | 712 | 458 | $-1170$ | $\mathbf 0$ |
| Operating income | 22 190 | 5086 | 747 | $-714$ | 27 309 |
| Operating expenses | $-8887$ | $-3371$ | $\mathbf 0$ | 712 | $-11546$ |
| General administrative exps. | $-45$ | 0 | $-2450$ | $\overline{2}$ | $-2493$ |
| Operating expenses | $-8932$ | $-3371$ | $-2450$ | 714 | -14 039 |
| Operating result (EBITDA) | 13 25 8 | 1715 | $-1703$ | 0 | 13 270 |
| Effect on onerous contracts | 397 | $\mathbf 0$ | $\Omega$ | $\mathbf 0$ | 397 |
| Depreciations on fixed assets | $-4451$ | $-59$ | $-87$ | 0 | -4 5 9 7 |
| Reversal of impairment of ships | 2 5 4 4 | 0 | $\mathsf 0$ | $\mathsf 0$ | 2544 |
| Operating result | 11748 | 1656 | $-1790$ | 0 | 11 614 |
| Financial income | $\mathbf 0$ | 15 | 11 | $\boldsymbol{0}$ | 26 |
| Financial expenses | $-4844$ | $-138$ | $\mathbf 0$ | $\mathsf 0$ | -4982 |
| Result before tax | 6904 | 1533 | $-1779$ | 0 | 6658 |
| Tax | $\mathbf 0$ | $-294$ | $\mathbf 0$ | $\mathsf 0$ | $-294$ |
| Net result | 6904 | 1 2 3 9 | $-1779$ | 0 | 6364 |
| Hereof non-controlling interests | $\mathbf 0$ | 60 | $\mathbf 0$ | $\mathsf 0$ | 60 |
| Hereof majority interests | 6 9 0 4 | 1 1 7 9 | $-1779$ | 0 | 6304 |
| Assets | 94 207 | 4588 | 3 3 3 4 | $\boldsymbol{0}$ | 102 129 |
| Liabilities | 70 667 | 3571 | 1 5 0 9 | $\mathbf 0$ | 75 747 |
| Cash flow from operating activities | 8 2 6 4 | 1 5 9 2 | $-1863$ | 0 | 7993 |
| Cash flow from investing activities | $-140$ | 0 | $-131$ | 0 | $-271$ |
| Cash flow from financing activities | $-10204$ | 0 | $\mathsf 0$ | $\mathbf 0$ | $-10204$ |
| 1 JANUARY - 31 DECEMBER 2016 | DRY CARGO | TECHNICAL MANAGEMENT |
ADMINI- STRATION |
GROUP TRANSACTIONS |
TOTAL |
|---|---|---|---|---|---|
| Freight revenue | 20 903 | $\pmb{0}$ | $\mathsf 0$ | 435 | 21 338 |
| Management fees - external | $\mathbf 0$ | 3798 | 279 | $\mathbf 0$ | 4077 |
| Management fees - internal | 0 | 699 | 437 | $-1136$ | $\mathbf 0$ |
| Operating income | 20 903 | 4497 | 716 | $-701$ | 25 4 15 |
| Operating expenses | $-8896$ | $-3405$ | $\mathbf 0$ | 699 | $-11602$ |
| General administrative exps. | $-47$ | $\mathbf 0$ | $-2488$ | $\overline{2}$ | $-2533$ |
| Operating expenses | -8 943 | $-3405$ | $-2488$ | 701 | $-14135$ |
| Operating result (EBITDA) | 11 960 | 1092 | $-1772$ | 0 | 11 280 |
| Loss sale ship/effect onerous contr. | $-1463$ | $\mathbf 0$ | $\mathbf{0}$ | $\mathbf 0$ | $-1463$ |
| Depreciations on fixed assets | $-4779$ | $-53$ | $-69$ | $\mathbf 0$ | -4 901 |
| Impairment of ships | $-13823$ | 0 | $\mathbf 0$ | 0 | $-13823$ |
| Operating result | $-8105$ | 1039 | $-1841$ | 0 | -8 907 |
| Financial income | $\mathbf 0$ | 5 | 8 | $\mathsf 0$ | 13 |
| Financial expenses | $-5019$ | $-68$ | $-438$ | $\mathsf 0$ | $-5525$ |
| Result before tax | $-13124$ | 976 | $-2271$ | 0 | $-14419$ |
| Tax | $\mathbf 0$ | -174 | 0 | 0 | $-174$ |
| Net result | $-13124$ | 802 | $-2271$ | 0 | $-14593$ |
| Hereof non-controlling interests | $\mathbf 0$ | 53 | $\mathbf 0$ | $\mathbf 0$ | 53 |
| Hereof majority interests | $-13124$ | 749 | $-2271$ | $\mathsf{O}\xspace$ | $-14646$ |
| Assets | 99 749 | 3866 | 1998 | $\mathbf 0$ | 105 612 |
| Liabilities | 82 317 | 1880 | 1 2 7 0 | $\mathbf 0$ | 85 467 |
| Cash flow from operating activities | 6942 | 979 | $-2211$ | 0 | 5710 |
| Cash flow from investing activities | 1 3 6 6 | $\pmb{0}$ | $-183$ | 0 | 1 1 8 3 |
| Cash flow from financing activities | $-6975$ | 0 | $\boldsymbol{0}$ | $\mathbf 0$ | -6975 |
Belships ASA entered on 25 September 2015 into a sale and lease back agreement for M/S Belforest. The bareboat charter period is 12 years with purchase options from year 3 onwards.
M/S Belisland was delivered 15 March 2016 and leased on bareboat charter for a period of 15 years with purchase options from year 5 onwards.
Both leases are considered as financial leases.
In January 2018 the newbuilding M/S Belnippon was delivered and entered the 8-years time charter agreement to Belships. Belships has purchase options from year 4 onwards.
In June 2017 Belships signed an agreement to charter in an Ultramax bulk carrier of 63 000 dwt to be delivered from Imabari Shipbuilding first half 2020. The charter period will be for minimum 8 years plus two yearly options, with purchase option from end of fourth year.
If the Company has an option to purchase a ship at a price, which at the inception of the lease is expected to be significant lower than the fair value at the date the option becomes exercisable, the lease payments comprise the payment required to exercise the option. Hence, the lease liabilities recorded in the balance sheet consist of one part which is deemed hire payments and one part which is the payment required if the option to purchase the ship should be exercised. The table below provides an overview of the split between hire payments and payments required if the option is exercised.
| NET PRESENT VALUE OF LEASE LIABILITY | $<$ 1 YR | 1-5 YR | > 5 YR | TOTAL |
|---|---|---|---|---|
| Maturity of financial lease liability | 2.594 | 15754 | 7653 | 26 001 |
| Whereof payments of purchase option | 16850 | 16850 | ||
| Hire obligation under financial lease | 2594 | 15754 | 24.503 | 42851 |
M/S Belstar, M/S Belnor and M/S Belisland are fixed on long-time charters to Canpotex Shipping Services Ltd from time of delivery from yard in 2009, 2010 and 2016 respectively, at a net rate of USD 16 000 per day for Belstar and Belnor and USD 17 300 for Belisland. The charter agreements expire in 2019, 2020 and 2021, respectively. There is no option to extend the charter period. M/S Belforest and M/S Belocean have been on time charter to Cargill in 2017 at net average rates of USD 7 375 per day for Belforest and USD 7 006 per day for Belocean.
M/S Belnippon was at time of delivery in January 2018 fixed on time charter to Cargill for 10-13 months at USD 11 500 per day.
| FIXED INCOME AND COMMITMENTS AS AT 31 DECEMBER 2017 | $<$ 1 YR | 1-5 YR | $>$ 5 YR | TOTAL |
|---|---|---|---|---|
| Contracted timecharter revenue | 26 431 | 25 371 | 51 802 | |
| Commitments related to long-term leased ships | 9 746 | 50 563 | 78 313 | 138 621 |
| FIXED INCOME AND COMMITMENTS AS AT 31 DECEMBER 2016 | $< 1$ YR | 1-5 YR | $>$ 5 YR | TOTAL |
| Contracted timecharter revenue | 19446 | 43 316 | 62762 | |
| Commitments related to long-term leased ships | 4 9 0 9 | 19650 | 37 210 | 100 486 |
Lease obligations are nominal amounts.
| OTHER GENERAL ADMINISTRATIVE EXPENSES | 2017 | 2016 |
|---|---|---|
| Office expenses | 200 | 204 |
| Furniture, office supplies | 80 | 66 |
| Travelling, entertainment costs | 43 | 117 |
| Other services | 266 | 217 |
| Other general administrative expenses | 227 | 271 |
| Total administrative expenses Norwegian companies | 815 | 874 |
| 2017 | 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Ships | Ships | ||||||||
| Ships excl. drv dock |
Capital. costs drv dock |
Total | Other fixed assets |
New- buildings |
Ships excl. dry dock |
Capital. costs drv dock |
Total | Other fixed assets |
|
| Cost per 1 January | 168 230 | 4849 | 173 079 | 4963 | 8475 | 145 490 | 3709 | 149 199 | 4920 |
| Additions | 0 | 140 | 140 | 235 | 20 5 31 | 22 740 | 1 1 4 0 | 23 8 80 | 183 |
| Disposals | $\mathbf 0$ | 0 | $\mathbf 0$ | $-1179$ | $-29006$ | 0 | 0 | 0 | $-140$ |
| Cost per 31 Desember | 168 230 | 4989 | 173 219 | 4019 | 0 | 168 230 | 4849 | 173 079 | 4963 |
| Depreciations per 1 Jan. | 77 905 | 2 1 6 5 | 80 070 | 3565 | 4 2 5 0 | 60 381 | 1088 | 61 4 69 | 3565 |
| Depreciation for the vear |
3 3 6 5 | 1086 | 4451 | 146 | 0 | 3701 | 1077 | 4778 | 123 |
| Impairment/reversal(-) | $-2544$ | $\mathbf{0}$ | $-2544$ | $\mathbf 0$ | $\Omega$ | 13823 | 0 | 13823 | $\Omega$ |
| Disposals | 0 | $\mathbf 0$ | 0 | $-1109$ | $-4250$ | 0 | 0 | 0 | $-131$ |
| Deprec. as at 31 Dec. | 78726 | 3 2 5 1 | 81 977 | 2602 | 0 | 77905 | 2 1 6 5 | 80 070 | 3556 |
| Book value per 31 Dec. | 89 504 | 1738 | 91 242 | 1417 | 0 | 90 325 | 2684 | 93 009 | 1407 |
| Other fixed assets | $\mathbf 0$ | 0 | 0 | 415 | 0 | 0 | 0 | 0 | 276 |
| Book value at 31 Dec. | 89 504 | 1738 | 91 242 | 1832 | 0 | 90 325 | 2684 | 93 009 | 1683 |
| SHIP | BUILT YEAR | OWNERSHIP | COST PRICE | ORDINARY DEPRECIATIONS |
ACCUMULATED IMPAIRMENTS |
CAPITALISED DRYDOCK EXPS. |
BOOK VALUE |
|---|---|---|---|---|---|---|---|
| M/S Belstar | 2009 | 100 % | 40 542 | $-10512$ | $-15.554$ | 208 | 14 684 |
| M/S Belnor | 2010 | 100 % | 39 891 | $-9705$ | $-13268$ | 65 | 16 983 |
| M/S Belocean | 2011 | 100 % | 38 317 | $-7309$ | $-18036$ | 393 | 13 3 65 |
| M/S Belforest | 2015 | BBC | 26 734 | $-1602$ | $-1372$ | 495 | 24 255 |
| M/S Belisland | 2016 | BBC | 22740 | $-1.363$ | 0 | 578 | 21 955 |
| Total fleet | 168 224 | $-30491$ | $-48230$ | 1739 | 91 242 |
M/S Belstar, M/S Belnor and M/S Belocean were delivered from Yangzhou Dayang yard in China in 2009, 2010 and 2011. Belstar and Belnor are employed on 10-year time charters to Canpotex Shipping Services Ltd from time of delivery, at a net rate of USD 16 000 per day. Canpotex is one of the world's largest exporters of potash, a fertilizer product imported in large volumes by countries such as China, India and Brazil.
M/S Belocean has from 2016 been fixed on time charter to Cargill International S.A of Switzerland. Net average rate in 2017 was USD 7 006 per day.
Reference is made to note 13 regarding financing of the ships.
M/S Belforest and M/S Belisland was delivered from Imabari Shipbuilding in Japan in 2015 and 2016. The ships are leased on bareboat for a period of 12 years with purchase options from year 3 onwards for Belforest and a period of 15 years with purchase options from year 5 onwards for Belisland. Both leases are considered as financial leases. Belforest was from time of delivery fixed on time charter to Cargill. Average rate in 2017 were USD 7 375 per day. Belisland was from delivery chartered on long-time charter contract to Canpotex Shipping Services to 2021 at a net rate of USD 17 300 per day.
All the ships have operated satisfactorily over the year. The counterparty risk with the charterers is considered to be low.
During 2017 the dry bulk market has improved (charter rates/ship values) and it is expected that the positive market momentum will continue. The Group has over the last years recorded significant impairment on its ships. As described in note 3, with improved
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The subsidiary Belships Management AS provides accounting services to Sonata AS, which is owned by the chairman and his family. Fees amounted to 130 (126) in 2017.
Sonata AS issued in 2016 an on-demand guarantee amounting to USD 5 million to the ship mortgage lender. The guarantee carried a commission of 5% which amounted to 238 (252) in 2017. The waiver from the lender was terminated in December 2017 and the ondemand guarantee from Sonata was returned.
All fees are in line with prevailing market rates.
No loans were issued or security provided with respect to the company's shareholders or associated parties. Certain members of the management have loans from the company. These amounted to 51 (64) as at 31 December 2017.
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| 2017 | 2016 | |
|---|---|---|
| Income tax expense | 294 | $-$ |
In accordance with IAS 12 for treatment of taxes, tax reducing temporary differences and tax increasing temporary differences that are reversed, or can be reversed in the same period and jurisdiction are assessed and the amount recorded net.
| RECONCILIATION OF THE YEAR'S INCOME TAX EXPENSE | 2017 | 2016 |
|---|---|---|
| Result for the year before tax | 6 6 5 8 | $-14419$ |
| Statutory tax rate (Norway) | 24 % | 25 % |
| Estimated tax expense at statutory rate | 1598 | $-3605$ |
| Non tax deductible expenses | -86 | 107 |
| Change in temporary differences | 1832 | 313 |
| Non taxed shipping income in Singapore | $-228$ | 1969 |
| Difference between Norwegian and Singapore regional national tax | $-74$ | $-70$ |
| Tax effect of deferred tax asset not recorded in the balance sheet including exchange rate effect | $-2748$ | 1460 |
| Total income tax expense/(income) | 294 | 174 |
The Group had a tax loss carried forward of USD 68.3 million as at 31 December 2017 (2016: USD 58.5 million) in Norway. No deferred tax benefits are recognised in the balance sheet. The Group's revenue is generated mainly by companies in Singapore that are either within the national tonnage tax regime or are subject to regular national taxation. Dividends from these companies are nontaxable to the recipients. Taxable income subject to ordinary Norwegian taxation does not indicate any reporting of deferred tax benefits.
Future tax payable in the Group is expected to be low, due to AIS registration in Singapore and tax losses in Norway.
| DEFERRED TAX PER 31 DECEMBER | 2017 | 2016 |
|---|---|---|
| Temporary differences | ||
| Deferred sales gain/(loss) | -696 | $-829$ |
| Accruals | 9690 | 2 1 1 6 |
| Pensions | $-529$ | $-648$ |
| Total temporary differences | 8464 | 639 |
| Tax loss carried forward | $-68257$ | -58 469 |
| Net temporary differences | -59 793 | $-57830$ |
| Nominal tax rate on deferred tax | 23 % | 24 % |
| Deferred tax assets | $-13752$ | $-13879$ |
| Deferred tax assets recognised in the Balance sheet | 0 | 0 |
| Deferred tax assets not recognised in the Balance sheet | $-13752$ | $-13879$ |
Calculation of deferred taxes is based on temporary differences between statutory books and tax values which exist at the end of the year.
| RECEIVABLES DUE LATER THAN 12 MONTHS | 2017 | 2016 |
|---|---|---|
| Loans to employees 1) | 116 | 178 |
| Other long-term receivables | 5. | |
| Total long-term receivables | 122 | 183 |
1) The average interest rate used for loans to employees was 2.25% (2.28%) in 2017. The repayment period is five years.
In 2014 Belships entered into a long-term financing agreement for M/S Belstar, M/S Belnor and M/S Belocean. The loan facility is secured for a period of 6 years. Main terms in the loan agreement are as follows: Minimum cash USD 3 million, annual instalment USD 5 million, minimum value 120% in 2018 and 125% in 2019 and payment of dividend is limited to 50% of net result. In order to avoid breach of loan covenants, Belships received a revised waiver from ship mortgage lender in November 2016. The waiver agreement included an on-demand guarantee from main shareholder of USD 5 million. The waiver was terminated in December 2017 and the on-demand guarantee from the main shareholder was returned. All the covenants were fulfilled as at 31 December 2017. The market value of the ships were 133% of the outstanding loan balance at year end.
Belships ASA entered on 25 September 2015 into a sale and lease back agreement for M/S Belforest. The bareboat period is 12 years with purchase options from year 3 onwards.
M/S Belisland was delivered 15 March 2016 and leased for a period of 15 years with purchase options from year 5 onwards. Both leases are considered as financial leases.
| REPAYMENT SCHEDULE | 2018 | 2019 | 2020 | 2021 | SUBSEO | TOTAL |
|---|---|---|---|---|---|---|
| Mortgage debt | 5 0 0 0 | 5 0 0 0 | 18 250 | 28 250 | ||
| Obligation under finance leases | 994 | 2 1 6 3 | 2 3 5 0 | 2536 | 33768 | 42 811 |
| Capitalized financing costs | $-123$ | $-123$ | $-26$ | $-1$ | $-27$ | $-305$ |
| Total | 6871 | 7040 | 20 574 | 2529 | 33 740 | 70 755 |
| 2016 Cash flows |
Non-cash changes | 2017 | ||||
|---|---|---|---|---|---|---|
| Deprec. financing costs |
Foreign exchange movem. |
Fair value changes |
||||
| Non-current mortgage debt | 32 290 | $-8000$ | 116 | 49 | 24 455 | |
| Current part of financing | 6778 | 162 | 6940 | |||
| Lease liabilities | 42 811 | $-1997$ | $-3$ | 40 818 | ||
| Interest swap agreements | 323 | 0 | $-315$ | 8 | ||
| Total liabilities from financing activities | 82 202 | -9835 | 123 | 46 | $-315$ | 72 221 |
Belships has an interest swap agreement with a fixed interest rate at 2.2%. The agreement covers USD 5 million and ends in August 2018. Another interest swap agreement started in September 2015 at a rate of 1.9% and with a duration of 5 years covering USD 17 million, reducing by USD 2 million per year.
Hedging the Group's interest exposure is considered on an ongoing basis. Hedge accounting is not used.
Current receivables consist mainly of accrued revenues, and receivables related to operation of the ships. Other short term liabilities mainly include short term liability related to the ordinary operation of the ships. All current receivables and liabilities are due within 12 months.
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The Group's bank balance amounted to 5 459 (7 918) at year end. Restricted cash amounted to 229 (3 203), of which 142 (125) to swap clearing account and 87 (77) to withholding tax employees.
The Group operates two equity-settled share-based payment schemes, one includes all the employees in the parent company and the other one relates to CEO.
At the Annual general meeting (AGM) in 2016, the Board was authorised to issue up to 200 000 share options to employees. The option price is 105% of closing share price on the day of the AGM. The authorization is valid for two years. In accordance with this authorisation, options to buy 200 000 shares at NOK 3.11 was awarded in August 2016. No options have been exercised. At the AGM in 2017, the Board was authorised to issue up to 200 000 share options to employees. The option price is 105% of closing share price on the day of the AGM. The authorization is valid for two years. In accordance with this authorisation, options to buy 200 000 shares at NOK 5.12 was awarded in August 2017. No options have been exercised.
The above mentioned option programs require a service period of 12 months before they can be exercised. The option can be exercised after one year from the date of the AGM which approved the option program and runs unto the date of the next AGM. The option programs include all employees in the parent company. The employees must be employed in the company at the time when the options can be exercised in order to have a right to exercise them.
The options awarded in 2015 were in April 2017 canceled with an agreement between the company and the employees that the company paid out the difference between exercise and market price. The payment amounted to 32. In March 2018 options awarded in 2016 were canceled and the difference between exercise and market price were paid to the employees. This payment amounted to 59.
| SUMMARY OF OUTSTANDING OPTIONS | 2017 | 2016 |
|---|---|---|
| Outstanding 1 January | 400 000 | 400 000 |
| Awarded | 200 000 | 200 000 |
| Exercised | 0 | $\mathbf{0}$ |
| Not exercised | $-200000$ | $-200000$ |
| Outstanding 31 December | 400 000 | 400 000 |
Market value of options estimated using the Black and Scholes options pricing model. For the options awarded in 2016 and 2017 the market value per share was NOK 0.60 and NOK 1.97 respectively. The market value of outstanding share options are calculated at time of award and charged against profit and loss over the period until they can be exercised. In 2017 the calculated costs amounted to 7 and 25 for the 2016- and 2017-options respectively.
The following forms the basis for the calculation:
Share price at the time the option was awarded: The share price is set as equal to the stock exchange share price when the option was awarded
Exercise price per option: The exercise price was 105 % of the stock exchange market price when the option was awarded. Volatility: Historic volatility set as indication of future volatility. Expected volatility equals a historic volatility of 77.0%. Duration of options: It is assumed that all employees will exercise their options when the service period has been completed. The term
of the options is estimated at two years.
Dividend: Estimated dividend per share is NOK 0 per year.
Risk free interest rate: Interest rate used as a basis for calculating options is equal to the interest rate on government bonds over the duration of the options, i.e. 0.59% for 2017.
Decrease in the number of employees: Expected reduction is 0.
In addition to the above share option plan the CEO has a separate share option plan with the following conditions: The right to subscribe for up to 2 million shares in Belships ASA at a subscription price of NOK 5.00, of which:
The market value is the product of the volume-weighted closing price of the company's shares on the Oslo stock exchange in a 15-day period and the number of outstanding shares less treasury shares and/or shares Belships issues after the option agreement date. Suboption A expires 30 June 2018, while sub-option B expires 30 June 2020.
All the employees are member of the company's defined contribution scheme, which is in line with the occupational pension scheme for employees in Norway in accordance with the Act on Mandatory occupational pensions. Annual payable cost is reflected in the income statements and the company does not have any future liabilities related to this scheme. Total costs related to these schemes amounted to 123 (121) in 2017. Pension costs in Singapore is reclassified as operating expenses ship management and amounted to 181 $(210)$ in 2017.
In addition to defined contribution scheme, the company has unfunded pension liabilities which are covered through the daily operations. These relate to early retirement and pension to persons, that have not been included in the defined contribution scheme. There are 7 retired persons included in this scheme.
Pension commitments are calculated by an independent actuary. The basis for the calculation is shown below. The mortality table (K2013) for Norway is used in the calculations.
Social security costs are recorded based on net pension obligation in the balance sheet included estimate discrepancy.
| ASSUMPTIONS | 2017 | 2016 |
|---|---|---|
| Discount rate | 2.40 % | 2.60 % |
| Future wage adjustment | 2.50 % | 2.50 % |
| Pension adjustment/G-adjustment | 2.50 % | 2.50 % |
| Return on pension plan assets | 2.40 % | 2.60 % |
| 1 January | 648 | 796 |
|---|---|---|
| Interest cost | 15 | 19 |
| Benefits paid | $-171$ | $-229$ |
| Actuarial (gains)/losses on obligation | 6 | 39 |
| Currency exchange gain/(loss) | 33 | 23 |
| 31 December | 530 | 648 |
| PENSION EXPENSES IN CONSOLIDATED ACCOUNTS | 2017 | 2016 |
| Pension expenses defined benefit scheme | 15 | 19 |
| Pension expenses defined contribution scheme | 123 | 121 |
| Net pension expenses in consolidated accounts | 139 | 140 |
M/S Belnippon was delivered from Imabari Shipbuilding in January 2018 and has been fixed on time charter to Cargill for 10-13 months at USD 11 500 per day.
No other material events have taken place after 31 December 2017.
The company has not been charged any penalties due to breach of environmental rules and regulations, and is not committed to implement any specific actions in that respect. For further information see the Directors' report.
Belships ASA's 47 352 000 shares, each with a face value of NOK 2.00, was as of 31 December 2017 distributed among 594 shareholders (2016: 481). Each share has one vote.
The company holds 548 000 treasury shares in total with an average cost price of NOK 9.91 as of 31 December 2017. Belships ASA has lent 50 000 of the treasury shares to ABG Sundal Collier Norge ASA (ASC) in connection with ASC' role as liquidity provider for the company's shares on Oslo Stock Exchange.
At the Annual general meeting in 2017 the Board received authorisation to issue up to 4.0 million new shares. The authorisation has not been used and is valid to the next ordinary Annual general meeting.
The Board of Directors of Belships ASA will at the Annual general meeting on 24 April 2018 propose a dividend of NOK 0.10 per share for 2017 (2016: 0).
| THE 20 LARGEST SHAREHOLDERS IN BELSHIPS ASA AT 31 DECEMBER 2017 | NUMBER OF SHARES | PERCENTAGE | |
|---|---|---|---|
| 1 | Sonata AS | 31 747 492 | 67.05% |
| $\overline{2}$ | Tidships AS | 5 080 432 | 10.73% |
| 3 | Eitzen Rederi AS | 806 134 | 1.70% |
| 4 | Belships ASA | 498 000 | 1.05% |
| 5 | Carlings AS | 400 000 | 0.84% |
| 6 | Chrem Capital AS | 320 000 | 0.68% |
| 7 | Tidinvest II AS | 315 414 | 0.67% |
| 8 | Jenssen & Co A/S | 302 816 | 0.64% |
| 9 | Toru Nagatsuka | 270 000 | 0.57% |
| 10 | Carl Erik Steen | 269 154 | 0.57% |
| 11 | Jovoko AS | 250 000 | 0.53% |
| 12 | Danske Bank A/S | 245 339 | 0.52% |
| 13 | Liv Søland | 240 000 | 0.51% |
| 14 | ISLAS | 231 191 | 0.49% |
| 15 | ASL Holding AS | 225 000 | 0.48% |
| 16 | Arne Risøy | 217 902 | 0.46% |
| 17 | AR Vekst AS | 203 995 | 0.43% |
| 18 | Bernhard Kielland | 200 000 | 0.42% |
| 19 | HKD Holding AS | 198 117 | 0.42% |
| 20 | Jomaho AS | 160 000 | 0.34 % |
| Total 20 largest shareholders | 42 180 986 | 89.08% | |
| Other shareholders | 5 171 014 | 10.92 % | |
| Total number of shares | 47 352 000 | 100.00% |
| NUMBER OF SHARES OWNED BY BOARD MEMBERS IN BELSHIPS ASA | OWNED SHARES |
OUTSTANDING OPTIONS |
|---|---|---|
| Sverre J. Tidemand 1) | 31 747 492 | $\mathbf 0$ |
| Christian Rytter 2) | 320 000 | $\mathbf 0$ |
| Carl Erik Steen | 269 154 | $\Omega$ |
| Other members | $\Omega$ |
1) Includes shares held by Sonata AS, a company in which Sverre J. Tidemand controls
the only share with voting rights.
2) Shares held by 100% owned Chrem Capital AS.
| NUMBER OF SHARES OWNED BY THE MANAGEMENT IN BELSHIPS ASA | OWNED SHARES |
OUTSTANDING OPTIONS |
|---|---|---|
| Ulrich Müller, Chief Executive Officer * | 60 000 | |
| Stein H. Runsbech, Commercial Director | 30 000 | 33 000 |
| Osvald Fossholm, Financial Director | 33 000 |
*) See note 16 for more information about separate share option plan.
For changes in equity, see separate statement.
The Board is not aware of any material disputes the company may be in involved in at 31 December 2017.
Financial market risk is considered to be the risk of changes in foreign exchange rates and interest rates that may affect the value of the Group's assets, obligations and future cash flows.
Belships has a continuing focus on its risk exposure. Derivatives may be used to reduce financial market risk, but are only used to hedge specific exposures. When use of derivatives are considered appropriate, only well-known conventional derivative instruments are considered, i.e. OTC agreements such as swaps, options and forward rate agreements. Derivative transactions are only made with renowned financial institutions. Credit risk relating to these derivatives is therefore limited.
Belships is only using derivatives to reduce or limit risk related to fluctuations in interest and foreign exchange rates. Financial derivatives are not used to obtain financial revenues through fluctuating interest rates, nor are financial derivatives used when there is no underlying exposure.
See note $8$ for the specification of other financial items.
The long-term interest rate is still at a low level. Belships strategy is to manage interest risk. Hedging the Group's interest exposure is considered on an ongoing basis. Entering into interest rate hedging agreements are based on developments in the interest rate market and internal analysis.
In August 2011 Belships entered into an interest rate swap agreement with 2 years forward start at 2.2%. At year end 2017 the agreement covered USD 5 million and it ends in August 2018. The market value of the agreement amounted to -20 at year end (2016: -123). Another interest swap agreement with forward start was entered into in June 2015 at a rate of 1.9% and with a duration of 5 years covering USD 20 million, reducing by USD 2 million per year. Market value of this agreement amounted to 12 (-200) at year end. The hedging level of interest rate exposure is currently around 78% (leases excluded). The market value of the agreements are recorded as long-term liability.
The Group entered in 2015 and 2016 into two financial lease agreements, which also limit the interest rate exposure as the interest rate is fixed throughout the period.
The company does not use hedge accounting.
The table below shows the sensitivity related to changes in interest rate levels. The calculation includes total interest-bearing debt.
| SENSITIVITY TO CHANGES IN INTEREST RATE LEVELS | 2017 | 2016 |
|---|---|---|
| Change in the interest rate level in basis points | $-100/+100$ | $-100/+100$ |
| Effect on result before tax | 338/-338 | 388/-388 |
| AVERAGE EFFECTIVE INTEREST RATE ON DEBT (%) | ||
| Mortgage debt | 4.25 | 3.72 |
The primary objective of the Group's capital management is to achieve best possible credit rating, and to maximize the shareholders values. The company's goal is to maintain an equity capital ratio of at least 35%. Added value related to the long-term charter party for M/S Belisland is not included in the balance sheet. In addition an improved market is expected to increase the equity capital ratio up to 35%. The equity ratio is calculated by dividing the book equity to total assets as shown below:
| 2017 | 2016 | |
|---|---|---|
| Total equity as at 31 December | 26 382 | 20 144 |
| Total assets | 102 129 | 105 612 |
| Equity ratio as at 31 December | 26 % | 19% |
Net debt is defined as interest-bearing debt (short and long-term) and accounts payable less cash. Equity comprises paid-in equity and retained earnings.
| 2017 | 2016 | |
|---|---|---|
| Interest-bearing debt | 70 755 | 80 472 |
| Trade creditors | 573 | 256 |
| Cash reserves | $-5459$ | $-7918$ |
| Net debt | 65 869 | 72 810 |
| Equity | 26 382 | 20 144 |
| Total equity and net debt | 92 251 | 92 954 |
| Net debt ratio | 71% | 78 % |
All ships are secured on charter contract's which will generate sufficient cash flow to cover operational expenses and planned instalments. The ship management business also provide positive cash flow from operations. Further, the debt ratio was reduced in 2017 due to better earning, and with total current assets covering 85 % of total short term liabilities at 31 December 2017. After amendment in December 2017, the terms in the loan agreements also provides the Group with some financial flexibility. Based on this, the Group's solvency and financial position is considered to be satisfactory, and the board has further proposed a dividend on NOK 4.7 million (USD 0.6 million).
There will always be a credit risk related to the Group's business. Belships monitors this risk and the strategy is to carefully select counterparts. Historical losses have been small. The Group's ships are employed on long-term charter to Canpotex Shipping Services Ltd and to Cargill, which is considered to be solid and reputable counterparts.
There is no class of financial assets that is past due and/or impaired except for trade receivables. All accounts receivable in the balance sheet are due within 30 days from the balance sheet date.
The functional currency of all the consolidated companies is USD since the major part of revenues and costs are in USD. Belships currency exposure is related to administrative expenses in Norway, Singapore and China. This exposure is considered to be limited. Except for USD the Group had a cash balance of NOK 8.2 million, SGD 0.9 million and CNY 0.8 million at end of 2017. Belships has no currency hedge agreements as at 31 December 2017.
The valuation has the following classification of levels for measuring fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Valuation based on other observable factors, either directly (prices) or indirectly (derived from prices) than quoted prices included within level 1 of the asset or obligation.
Level 3: Valuation based on factors not taken from observable markets (not observable assumptions).
There was no change in levels in 2017. Interest swap agreements are valued in accordance with the principles described as level 2. Fair value is defined as present value of future cash flows. For the above derivatives, fair value is confirmed by the financial institution, which is counterpart. The fair values of current financial assets and liabilities carried at amortised cost approximate their carrying amounts. The long-term liabilities have floating interest rate with a fixed margin. The margin is considered not to have significantly changed since drawing date, thus carrying amount is considered a reasonable estimate of fair value.
| LOANS AND RECEIVABLES | CHANGE IN FAIR VALUE THROUGH PROFIT AND LOSS |
AVAILABLE FOR SALE | TOTAL | |||||
|---|---|---|---|---|---|---|---|---|
| SUMMARY OF FINANCIAL ASSETS AND OBLIGATIONS * |
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Financial assets | ||||||||
| Investments | 126 | 108 | 126 | 108 | ||||
| Other long-term receivables | 122 | 183 | 122 | 183 | ||||
| Trade debtors | 323 | 91 | 323 | 91 | ||||
| Other receivables | 1525 | 1 1 2 0 | 1525 | 1 1 2 0 | ||||
| Bank deposits | 5459 | 7918 | 5459 | 7918 | ||||
| Financial obligations | ||||||||
| Mortgage debt | $-28250$ | $-36250$ | $-28250$ | $-36250$ | ||||
| B/B commitment | $-42811$ | $-44647$ | -42 811 | $-44647$ | ||||
| Financial instruments | -8 | $-323$ | -8 | $-323$ | ||||
| Trade creditors | $-573$ | $-256$ | $-573$ | $-256$ | ||||
| Other short-term liabilities | $-2166$ | $-2231$ | $-2166$ | $-2231$ | ||||
| Total | -66 371 | -74 071 | -8 | $-323$ | 126 | 108 | -66 253 | -74 286 |
| *) The figures express both book value and fair value as these are identical. | ||||||||
| LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | |||||
| ASSETS AND OBLIGATIONS MEASURED AT FAIR VALUE |
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Financial investments | 126 | 108 | 126 | 108 | ||||
| Interest agreements | -8 | $-323$ | -8 | $-323$ | ||||
| Total | -8 | $-323$ | 126 | 108 | 118 | $-215$ | ||
| FINANCIAL LIABILITIES MEASURED AT AMORTIZED COST | 2017 | 2016 | ||||||
| Mortgage debt | -28 250 | $-36250$ | ||||||
| B/B commitment | -42 811 | $-44647$ | ||||||
| Total | $-71.061$ | $-80.897$ |
The fair value of credit facilities and obligations under financial leases is estimated by discounting future cash flows using rates currently available for debt on similar items. The obligations under financial leases as of 31 December 2017 reflects best timing estimate of declaring purchase options. Further, the lease agreements are newly entered into, and there has not been any significant changes in the credit risk of the Group. Fair value of the obligations under financial leases are therefore not considered to be materially different from book value as of the reporting date. Based on the discussions Belships have had with its lender over the last year related to amendment of the loan agreement, the Group has not made observations indicating that there has been any significant difference between the fair value and carrying amount except for un-amortised loan transaction costs.
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| AS AT 31 DECEMBER/ NOK 1 000 | NOTE | 2017 | 2016 |
|---|---|---|---|
| NON CURRENT ASSETS | |||
| Tangible assets | |||
| Ships | $\overline{2}$ | 386 529 | 368 567 |
| Prepaid time charter hire | $\overline{2}$ | 3323 | 12 9 30 |
| Other fixed assets | $\overline{2}$ | 6 172 | 5745 |
| Total tangible assets | 396 024 | 387 242 | |
| Financial assets | |||
| Shares in subsidiaries | 8 | 207 136 | 207 136 |
| Other shares | 141 | 141 | |
| Other long-term receivables | 12 | 952 | 1581 |
| Total financial assets | 208 229 | 208 858 | |
| Total non current assets | 604 252 | 596 100 | |
| CURRENT ASSETS | |||
| Prepaid time charter hire | 9029 | $\mathbf 0$ | |
| Other receivables | 9845 | 4702 | |
| Cash and cash equivalents | $\overline{5}$ | 13714 | 4962 |
| Total current assets | 32 589 | 9664 | |
| Total assets | 636 841 | 605 764 | |
| EQUITY Paid-in capital |
|||
| 94 704 | 94 704 | ||
| Share capital | $-1096$ | ||
| Treasury shares | 93 333 | $-1096$ 93 333 |
|
| Share premium reserve | 106 729 | 106 727 | |
| Other paid-in capital Total paid-in capital |
293 668 | ||
| 293 670 | |||
| Retained earnings | |||
| Other equity | $-73155$ | $-117116$ | |
| Total equity | 6 | 220 514 | 176 552 |
| LIABILITIES | |||
| Non current liabilities | |||
| Bareboat commitment | 12 | 334 908 | 369 032 |
| Provision for losses on contracts | $\overline{2}$ | 0 | 17612 |
| Pension obligations | $\mathbf{Z}$ | 4 3 4 0 | 5 5 8 3 |
| Financial instruments | 14 | 0 | 1480 |
| Intercompany balances | $\underline{4}$ | 5927 | 5848 |
| Total non current liabilities | 345 175 | 399 556 | |
| Current liabilities | |||
| Bareboat commitment, current portion | 12 | 15918 | 15 3 26 |
| Public taxes and duties payable | 1 2 7 6 | 2 4 4 7 | |
| Trade creditors | 531 | 281 | |
| Intercompany balances | $\overline{4}$ | 47 192 | 4546 |
| Other current liabilities | 6236 | 7056 | |
| Total current liabilities | 71 153 | 29 657 | |
| Total liabilities | 416 327 | 429 213 | |
| Total equity and liabilities | 636 841 | 605 764 |
BELSHIPS ANNUAL REPORT 2017
OSLO, 21 MARCH 2018 BELSHIPS ASA
Sverre J. Tidemand Chairman of the Board
Sissel Grefsrud Board member
Leris. Pffer
Christian Rytter Board member
R
Carl Erik Steen Board member
Gersti Ringdal
Kjersti Ringdal Board member
dentifielde
Bernt Ulrich Müller Chief Executive Officer
| 1 JANUARY - 31 DECEMBER/ NOK 1 000 | NOTE | 2017 | 2016 |
|---|---|---|---|
| CASH GENERATED FROM OPERATIONS | |||
| Net result before tax | 44 010 | $-143824$ | |
| Adjustments to reconcile result before tax to net cash flows: | |||
| Depreciation on ships and other fixed assets | $\overline{2}$ | 15 7 74 | 14 0 65 |
| Reversal/Impairment of ships | $\overline{2}$ | $-33013$ | 34717 |
| Gain/loss from sale of fixed assets/effect on onerous contracts | $\overline{2}$ | $-21058$ | 31 108 |
| Share-based payment transaction expense | $\overline{3}$ | $\overline{2}$ | 263 |
| Difference between pension expenses and paid pension premium | $\overline{Z}$ | $-1291$ | $-1761$ |
| Net financial items | -6 186 | 54 744 | |
| Working capital adjustments: | |||
| Change in trade debitors and trade creditors | 250 | $-507$ | |
| Change in intercompany balances | 42725 | $-1495$ | |
| Change in other short-term items | $-2730$ | 2656 | |
| Interest received | 88 | 71 | |
| Interest paid | $-26701$ | $-26889$ | |
| Net other financial items | 3778 | 3852 | |
| Net cash flow from operations | 15 647 | $-33000$ | |
| CASH FLOW FROM INVESTING ACTIVITIES | |||
| Investment newbuildings | $\mathbf 0$ | $-174043$ | |
| Investments in tangible assets | $\overline{2}$ | $-1571$ | $-1426$ |
| Sale proceeds from tangible asset disposals | $\overline{2}$ | 425 | 202 204 |
| Dividends/Group contribution received | 8 | 8725 | 3 1 1 3 |
| Change in other investments | 585 | $-12747$ | |
| Net cash flow from investing activities | 8 1 6 4 | 17 101 | |
| CASH FLOW FROM FINANCING ACTIVITIES | |||
| Instalments b/b commitments | $-15060$ | $-15061$ | |
| Net cash flow from financing activities | $-15060$ | $-15061$ | |
| Net change in cash and cash equivalens | 8752 | $-30960$ | |
| Cash and cash equivalents at 1 January | 4962 | 35 922 | |
| Cash and cash equivalents at 31 December | $\overline{5}$ | 13714 | 4 9 6 2 |
| Restricted bank deposits | $\overline{5}$ | 1877 | 1749 |
Belships is owner and operator of dry bulk ships on long-term charter to reputable customers. Belships ASA is registered in Norway and listed on the Oslo Stock Exchange. The head office is located in Lilleakerveien 4 in Oslo, Norway.
The financial statements have been approved by the Board on 21 March 2018.
The accounts are prepared in accordance with Norwegian Generally Accepted Accounting Principles (NGAAP). The accounts form part of the consolidated accounts of Belships ASA. The consolidated financial statements have been prepared in accordance with IFRS as adopted by EU.
All amounts in the notes are in NOK 1 000 unless otherwise stated.
Belships has obtained approval from Oslo Stock Exchange and Norwegian tax authorities to only publish its financial statements in English.
Assets intended for long-term ownership or use are classified as fixed assets. Other assets inclusive accounts receivable within 12 months are classified as current assets. Liabilities due within 12 months, are classified as short-term liabilities. Current assets are reported at the lower of cost and net realisable value, while current liabilities are carried at the nominal value at drawdown date.
Tax expenses consist of tax payable and changes in deferred tax. Deferred tax/tax assets are calculated on all differences between accounting values and tax values of assets and liabilities.
Deferred tax assets are included in the balance sheets when it is likely that the company will have sufficient profit for tax purposes in subsequent periods that will enable the company to utilise the tax asset. The company records previously unrecorded deferred tax assets to the extent it has become likely that the company can utilise the deferred tax asset. Similarly, the company will reduce the deferred tax asset to the extent the company no longer regards it as being likely that it can utilize the deferred tax asset. Deferred tax and deferred tax asset are measured on the basis of expected future tax rates for the companies in the group where temporary differences have occurred.
Deferred tax and deferred tax assets are entered at nominal value and are classified as financial fixed assets (long-term liability) on the balance sheet.
Tax payable and deferred tax are booked directly against equity to the extent the tax items relate to equity transactions.
Tangible fixed assets are measured at acquisition cost, net of accumulated depreciation and impairments losses. When assets are sold or divested, the carrying amount is deducted and any gains or losses are recognised in the income statement. Acquisition cost for tangible fixed assets is the purchase price, including taxes and charges and expenses directly related to preparing the asset for use. Expenses incurred after the asset has been put to use, are recognised in the income statement, whereas other expenses which are expected to create future financial gains are capitalised.
An estimated docking element is recognised as a separate component of the ship for depreciation purposes on the first occasion a ship is booked in the accounts. The amount corresponds to the estimated docking costs for the period. The docking component is depreciated on a straight-line basis the over the period to the next planned drydocking.
Residual value has been taken into account, and this is estimated based on steel value of the ship at the balance sheet date less estimated cost to demolish the ship.
Book value is compared to market value and value in use to assess the need for any further impairment compared to the ordinary depreciation plan. The depreciation period and method are assessed annually and are based on the management's estimates of the ships' future useful life. The same applies to residual value.
The ships are depreciated as one unit, as the value of any part of the ship with a useful lifetime other than 25 years is considered to be insignificant.
Newbuilding contracts are recognised as a fixed asset based on instalments paid to the yard. Building supervision costs and project costs related to the newbuilding contracts are capitalised.
At the end of each quarter, every ship is assessed for impairment indicators. The same applies when events or changes occur that may entail that the asset's carrying amount may not be recovered. In assessing the need for impairments, assets are grouped at the lowest level at which there is identifiable and predominantly independent cash inflows, which means per ship. Impairment is calculated as the difference between the asset's carrying amount and the value considered as recoverable. The recoverable amount is the higher of the asset's fair value less cost to sell and its value in use to the Company. Value in use is calculated by discounting anticipated future cash flows from the asset. When it is assumed that the asset's value is lower than its carrying amount, an impairment loss is recognised.
Impairment loss recognised in earlier periods is reversed only in case of changes to the estimates used to determine the recoverable amount. However, the reversal amount may only be so high that book value after reversal at most corresponds to the value at which the asset would have been registered if it had not been impaired earlier. Such reversals are recorded in the income statement. Financial assets classified as being available for sale are written down when there are objective indications that the asset has declined in value. An accumulated loss (the difference between acquisition cost and current market value, with deduction of impairments previously included in the result and any amortisation amounts) is included in the income statement. If the market value of a debt instrument classified as available for sale increases in a subsequent period, and the increase can objectively be linked to an event that took place after the impairment was included in the income statement, the impairment loss will be reversed over the income statement
Impairment loss for an investment in an equity instrument classified as held for sale, will not be reversed over the income statement.
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date. Leases are classified as financial leases if the terms of the lease agreement transfers substantially all the risks and rewards incidental to ownership of an asset. All other leases are classified as operating lease.
Assets financed under financial leases are capitalized at inception of the lease at the fair value of the leased vessel or, if lower, at the present value of the minimum lease payments. The corresponding lease obligation is recognized as a liability in the balance sheet. Lease payments are split between interest cost and reduction of the lease liability. Interest cost is recognized in the income statement. Financial leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. For operating leases, the payments (time charter hire or bareboat hire) are recognized as an expense on a straight line basis over the term for the lease.
Investments in subsidiaries and jointly controlled companies are accounted for in the parent company using the cost method.
Accounts receivable are booked at nominal amount less expected loss.
The cash flow statement has been prepared using the indirect method. Liquid assets includes cash, bank deposits (restricted and unrestricted) and other short-term investments, which can be converted to cash within 3 months. For restricted deposits, see note 5.
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in share premium. Share options exercised during the reporting period are fulfilled with treasury shares.
Transaction costs directly related to equity transactions are charged directly against the equity after tax deductions.
All employees are member of the company's defined contribution scheme. The premium is charged as incurred by operations. Social security tax expense is recognized based on the pension plan payments.
The company has unfunded pension liabilities. These relate to early retirement and pension to persons, that have not been included in the service pension scheme. Pension obligations are estimated by an independent actuary.
Actuarial gains and losses arising from changes in actuarial assumptions are charged and credited to equity through other comprehensive income in the period in which they arise.
A provision is recorded when the company has a liability (legal or constructive) as a result of a previous event, where it is likely (more likely than not) that there will be a financial settlement as a result of this liability and that the size of the sum can be reliably determined. If the effect is considerable, the provision is calculated by discounting the expected future cash flow with a discount rate before tax, which reflects the market's evaluation of the time value of money and, if relevant, risks specifically connected to the liability.
Provisions for loss-creating contracts are included when the group's expected income from a contract is lower than the inevitable costs which were incurred in discharging the obligations of the contract.
Gains will be taken to income when it is likely that transactions will generate future financial gains which will be attributable to the company and the sum can be reliably estimated. Interest rate income is taken to income based on effective interest method according to when it is earned.
Dividend received from subsidiaries is accounted for in the same year as dividend has been accrued for in the subsidiary. If such dividend exceeds the prorata share of retained earnings after the acquisition of the shares, such excess portion represents repayment of capital and reduces the acquisition cost accordingly.
Transactions in foreign currency are converted at the rate at the time of the transaction. Monetary items in foreign currency are converted into Norwegian kroner using the rate on the balance sheet date. Non-monetary items which are measured at historical rates expressed in foreign currencies, are converted into Norwegian kroner using the currency rate at the time of the transaction. Non-monetary items which are measured at market value expressed in foreign currency are converted at the currency rate on the balance sheet date. Currency rate changes are charged against income during the accounting period.
Provisions are made for contingent losses deemed probable and quantifiable. Contingent gains are not recognised.
Transactions with related parties are carried out at market terms. See note 15 for further information.
New information after the balance sheet date regarding the company's financial position as of the balance sheet date is taken into consideration in the annual accounts. Events after the balance sheet date that do not affect the company's financial position as of the balance sheet date, but which will have an impact on the company's financial position in the future are revealed if significant.
The management has used estimates and assumptions that have affected assets, debt, income, costs and information on potential liabilities. This applies particularly to pension liabilities and share-based remuneration. Future events can entail a change in these estimates. Estimates and the underlying assumptions are evaluated on an ongoing basis. Changes in accounting estimates are entered in the period when the changes occur. If the changes also apply to future periods, the effect is distributed over the current and future periods.
Earnings per share are calculated by dividing the net result by a weighted, average number of shares in the reporting period. Diluted earnings per share are calculated on the basis the dilution effect of issued options and convertible loans, if any.
The employees in Belships ASA have received options to purchase shares in the company. The market value of the awarded options is measured at the time of the award and charged to expense over the vesting period as a wage cost with corresponding increase in other paid-in equity. The market value of the options granted is estimated using the Black and Scholes option pricing model.
Financial instruments are valued at lowest of cost and estimated fair value.
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yzzzz}v }- - of loss of NOK 0.7 million was entered in 2016 regarding the previous timecharter period with Cargill. The provision was reversed in 2017.
Reversal of previous impairments for M/S Belforest amounted to NOK 33 million in 2017. See note 7 in the consolidated accounts regarding impairment.
M/S Belocean is owned by Belships Supramax Singapore (BSS) and is on time charter to Belships ASA at USD 16 000 per day. The ship is employed in the market on time charter to Cargill at USD 9 770 per day.
In 2016 a provision of NOK 21.3 million was recorded as estimated net loss on the timecharter agreements for M/S Belocean and M/S Belisland. Due to improved market, this provision was reversed in 2017.
Prepayment of timecharter hire amounting to USD 1.5 million is related to the newbuilding delivered in January 2018.
Depreciable assets include vehicles, office furniture and office equipment. Depreciation period is 3-5 years. Non-depreciable assets include apartment and art, which is being tested for impairment annually.
At the Annual general meeting (AGM) in 2016, the Board was authorised to issue up to 200 000 share options to employees. The option price is 105% of closing share price on the day of the AGM. The authorization is valid for two years. In accordance with this authorisation, options to buy 200 000 shares at NOK 3.11 was awarded in August 2016. No options have been exercised. At the AGM in 2017, the Board was authorised to issue up to 200 000 share options to employees. The option price is 105% of closing share price on the day of the AGM. The authorization is valid for two years. In accordance with this authorisation, options to buy 200 000 shares at NOK 5.12 was awarded in August 2017. No options have been exercised.
Both option programs require a service period of 12 months before they can be exercised. The option can be exercised after one year from the date of the AGM which approved the option program and runs unto the date of the next AGM. The option programs include all employees in the parent company. The employees must be employed in the company at the time when the options can be exercised in order to have a right to exercise them.
The options awarded in 2015 were in April 2017 canceled with an agreement between the company and the employees that the company paid out the difference between exercise and market price. The payment amounted to 32. In March 2018 options awarded in 2016 were canceled and the difference between exercise and market price were paid to the employees. This payment amounted to 454.
| SUMMARY OF OUTSTANDING OPTIONS | 2017 | 2016 |
|---|---|---|
| Outstanding 1 January | 400 000 | 400 000 |
| Awarded | 200 000 | 200 000 |
| Exercised | 0 | $\Omega$ |
| Not exercised | $-200000$ | $-200000$ |
| Outstanding 31 December | 400 000 | 400 000 |
Market value of options estimated using the Black and Scholes options pricing model. For the options awarded in 2016 and 2017 the market value per share was NOK 0.60 and NOK 1.97 respectively. The market value of outstanding share options are calculated at time of award and charged against profit and loss over the period until they can be exercised. In 2017 the calculated costs amounted to 56 and 208 for the 2016- and 2017-options respectively.
The following forms the basis for the calculation:
Share price at the time the option was awarded: The share price is set as equal to the stock exchange share price when the option was awarded.
Exercise price per option: The exercise price was 105 % of the stock exchange market price when the option was awarded.
Volatility: Historic volatility set as indication of future volatility. Expected volatility equals a historic volatility of 77.0%. Duration of options: It is assumed that all employees will exercise their options when the service period has been completed. The term of the options is estimated at two years.
Dividend: Estimated dividend per share is NOK 0 per year.
Risk free interest rate: Interest rate used as a basis for calculating options is equal to the interest rate on government bonds over the duration of the options, i.e. 0.59% for 2017.
Decrease in the number of employees: Expected reduction is 0.
In addition to the above share option plan the CEO has a separate share option plan with the following conditions: The right to subscribe for up to 2 million shares in Belships ASA at a subscription price of NOK 5.00, of which:
The market value is the product of the volume-weighted closing price of the company's shares on the Oslo stock exchange in a 15-day period and the number of outstanding shares less treasury shares and/or shares Belships issues after the option agreement date. Suboption A expires 30 June 2018, while sub-option B expires 30 June 2020.
No interest is calculated on short-term intercompany balances, as these items are only considered as ordinary operating balances.
Interest at market terms is calculated on long-term intercompany balances, and the balance fall due when the cash position allows it. Interest cost of 128 (2016: 131) are paid to a subsidiary due to long-term intercompany balance of 5 927 (5 848) at year end.
Total bank deposit amounted to 13 714 (4 962) at year-end. Restricted funds for withholding tax for employees amounted to 712 (668) and other restricted deposits amounted to 1166 (1081) as at 31 December 2017.
| PAID-IN | |||||||
|---|---|---|---|---|---|---|---|
| NOTE SHARE CAPITAL | SHARES | TREASURYSHARE PREMIUM RESERVES |
OTHER EQUITY | OTHER EQUITY | TOTAL | ||
| Equity per 31 December 2016 | 94 704 | $-1096$ | 93 333 | 106 726 | $-117116$ | 176 551 | |
| Actuarial gains/(losses) obligation | 0 | $\mathbf{0}$ | 0 | 0 | $-48$ | $-48$ | |
| Share-based payments | $\overline{3}$ | 0 | $\mathbf 0$ | 0 | $\overline{2}$ | 0 | $\overline{2}$ |
| Dividend | 0 | $\mathbf 0$ | 0 | 0 | 4735 | 4735 | |
| Result for the year | 0 | $\mathbf 0$ | $\Omega$ | $\Omega$ | 39 275 | 39 275 | |
| Equity per 31 December 2017 | 94 704 | $-1096$ | 93 333 | 106 728 | $-73154$ | 220 515 |
Belships ASA's 47 352 000 shares, each with a face value of NOK 2.00, was as of 31 December 2017 distributed among 594 shareholders (2016: 481). Each share has one vote.
The company holds 548 000 treasury shares in total with an average cost price of NOK 9.91 as of 31 December 2017. Belships ASA has provided 50 000 treasury shares to ABG Sundal Collier Norge ASA (ABGSC) as a facility for ABGSC' role as liquidity provider for the company's shares on Oslo Stock Exchange.
At the Annual general meeting in 2017 the Board received authorisation to issue up to 4 million new shares. The authorisation has not been used and is valid to the next ordinary Annual general meeting.
The Board of Directors of Belships ASA will at the annual general meeting on 24 April 2018 propose a dividend of NOK 0.10 per share $(2017:0).$
| THE 20 LARGEST SHAREHOLDERS IN BELSHIPS ASA AT 31 DECEMBER 2017 | NUMBER OF SHARES | PERCENTAGE | ||
|---|---|---|---|---|
| 1 | Sonata AS | 31 747 492 | 67.05% | |
| 2 | Tidships AS | 5 080 432 | 10.73% | |
| 3 | Eitzen Rederi AS | 806 134 | 1.70% | |
| 4 | Belships ASA | 498 000 | 1.05 % | |
| 5 | Carlings AS | 400 000 | 0.84% | |
| 6 | Chrem Capital AS | 320 000 | 0.68% | |
| 7 | Tidinvest II AS | 315 414 | 0.67% | |
| 8 | Jenssen & Co A/S | 302 816 | 0.64% | |
| 9 | Toru Nagatsuka | 270 000 | 0.57% | |
| 10 | Carl Erik Steen | 269 154 | 0.57% | |
| 11 | Jovoko AS | 250 000 | 0.53% | |
| 12 | Danske Bank A/S | 245 339 | 0.52% | |
| 13 | Liv Søland | 240 000 | 0.51% | |
| 14 | JSLAS | 231 191 | 0.49% | |
| 15 | ASL Holding AS | 225 000 | 0.48% | |
| 16 | Arne Risøy | 217 902 | 0.46% | |
| 17 | AR Vekst AS | 203 995 | 0.43% | |
| 18 | Bernhard Kielland | 200 000 | 0.42% | |
| 19 | HKD Holding AS | 198 117 | 0.42% | |
| 20 | Jomaho AS | 160 000 | 0.34% | |
| Total 20 largest shareholders | 42 180 986 | 89.08% | ||
| Other shareholders | 5 171 014 | 10.92% | ||
| Total number of shares | 47 352 000 | 100.00% |
| NUMBER OF SHARES OWNED BY BOARD MEMBERS IN BELSHIPS ASA | OWNED SHARES |
OUTSTANDING OPTIONS |
|---|---|---|
| Sverre J. Tidemand 1 | 31 747 492 | $\Omega$ |
| Christian Rytter 2 | 320 000 | $\Omega$ |
| Carl Erik Steen | 269 154 | $\Omega$ |
| Other members | 0 | 0 |
1) Includes shares held by Sonata AS, a company in which Sverre J. Tidemand controls the only share with voting rights.
2) Shares held by 100% owned Chrem Capital AS.
| NUMBER OF SHARES OWNED BY THE MANAGEMENT IN BELSHIPS ASA | OWNED SHARES |
OUTSTANDING OPTIONS |
|---|---|---|
| Ulrich Müller. Chief Executive Officer * | 60 000 | |
| Stein H. Runsbech, Commercial Director | 30 000 | 33 000 |
| Osvald Fossholm, Financial Director | 33.000 |
*) See note 3 for more information about separate share option plan.
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| BUSINESS OFFICE |
TIME OF PURCHASE |
COST PRICE |
SHIP/ VOTING SHARE |
OWNER-COMPANY'S SHARE CAPITAL |
NUMBER OF SHARES OWNED |
PAR VALUE |
BOOK- VALUE |
|
|---|---|---|---|---|---|---|---|---|
| Shares in subsidiaries | ||||||||
| Belships Management AS | Oslo | 09.12.85 | 7493 | 100 % | 100 | 2 | TNOK 50 | 657 |
| Belships Management (Singapore) Pte Ltd 1) | Singapore | 31.12.83 | 12075 | 100 % | TSGD 60 | 60 000 | SGD 1 | 12076 |
| Belships Supramax Singapore Pte Ltd | Singapore | 18.06.09 | 253 782 | 100 % MSGD 58.5 | 58.5 mill. | SGD 1 | 189 000 | |
| Belships Chartering AS | Oslo | 27.01.93 | 221 181 | 100 % | 5403 | 2 700 | TNOK 2 | 5403 |
| Total | 207 136 |
1) The company has provided dividend of 7 225 (3 113) in 2017.
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| 2017 | 2016 | |
|---|---|---|
| Office expenses | 1650 | 1712 |
| Other services | 1689 | 1692 |
| Data, office equipment a.o. | 662 | 552 |
| Communication, advertising | 451 | 301 |
| Travel expenses | 358 | 954 |
| Other general administrative expenses | 1414 | 1582 |
| Total | 6 2 2 4 | 6793 |
Belships ASA entered in 2015 into a lease agreement for M/S Belforest. The bareboat period is 12 years with purchase options from year 3 onwards.
In 2016 Belships entered into a bareboat lease agreement for M/S Belisland. The ship is leased for a period of 15 years with purchase options from year 5 onwards.
Both leases are considered as financial leases.
In January 2018 the newbuilding M/S Belnippon was delivered and entered the 8-years time charter agreement to Belships. Belships has purchase options from year 4 onwards.
In June 2017 Belships signed an agreement to charter in an Ultramax bulk carrier of 63 000 dwt to be delivered from Imabari Shipbuilding first half 2020. The charter period will be for minimum 8 years plus two yearly options, with purchase option from end of fourth year.
See note 13 in the consolidated accounts for payment schedule.
In 2015 Belships entered into an interest swap agreement at a rate of 1.9% and with a duration of 5 years covering USD 20 million, reducing by USD 2 million per year.
Loans to employees amounted to 952 (1 536) as at 31 December 2017. The average interest rate used for the loans was 2.20% (2.28%) in 2017. The repayment period is five years.
All short-term receivables and liabilities are due within 12 months.
M/S Belnippon was delivered from Imabari Shipbuilding in January 2018 and has been fixed on time charter to Cargill for 10-13 months at USD 11 500/day.
No further material events have taken place after 31 December 2017.
The functional currency of the company is USD and the presentation currency is NOK. Balance sheet items in USD have been converted to NOK at currency rate 8.2050 (8.6200), which was Norges Bank's exchange rate at 31 December 2017. Income and expenses related to the ships occurs in USD. The company makes ongoing currency exchanges to cover the administrative expenses in NOK. At year end the deposit of NOK amounted to 8.2 million (NOK 2.9 million).
No hedging agreement towards NOK are concluded.
The company does not use hedge accounting.
An interest swap agreement was entered into in 2015 at a rate of 1.9% and with a duration of 5 years covering USD 20 million, reducing by USD 2 million per year. Market value of this agreement amounted to 100 (-1 480) at year end. The amount is not recorded in the books.
There will always exist a credit risk related to the company's business. Belships monitors this risk and the strategy is to carefully select counterparts. Historical losses have been limited.
The company performs management services for a subsidiary and receives a fee for this. The fee amounted to 4 976 (4 773) in 2017.
The company receives a commission for acting as guarantor for mortgage debt in the subsidiary Belships Supramax Singapore Pte Ltd. The fee amounted to 7 061 (9 491) in 2017. See note 9 for further details.
All intercompany transactions have been conducted to market terms.
Sonata AS, the main shareholder in Belships ASA, issued in December 2015 an on-demand guarantee amounting to USD 5 million to the lender of the Group's mortgage debt. The guarantee carried a commission of 5% which amounted to 1978 (2103) in 2017. The guarantee was returned in December 2017. Except for this, it has not been issued loans or provided security to or from shareholders or related parties.
Members of the management have loans from the company. These amounts to 419 (550) per 31 December 2017.
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| BELSHIPS ANNUAL REPORT 2017 | Side 65 av 74 |
Statsautoriserte revisorer Ernst & Young AS
Dronning Eufemias gate 6, NO-0191 Oslo Postboks 1156 Sentrum, NO-0107 Oslo
Foretaksregisteret: NO 976 389 387 MVA Tlf: +47 24 00 24 00
www.ey.no Medlemmer av den norske revisorforening
To the Annual Shareholders' Meeting of Belships ASA
We have audited the financial statements of Belships ASA comprising the financial statements of the parent company and the Group.
The financial statements of the parent company comprise the balance sheet as at 31 December 2017, the income statement and statements of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies.
The consolidated financial statements comprise the statement of financial position as at 31 December 2017, statements of comprehensive income, cash flows and changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies.
In our opinion,
We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Norway, and we have fulfilled our ethical responsibilities as required by law and regulations. We have also complied with our other ethical obligations in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.
Valuation assessment of ships
Based on current market conditions as of year-end 2017, management updated their valuation model for each of their ships and calculated the recoverable amounts, which in the group financial statements resulted in an impairment charge for USD 5.0 million and reversal of previously recorded impairment of USD 7.5 million. In the parent company financial statements a reversal of NOK 33.0 million in previous recorded impairment charge was recognized.
When estimating recoverable amount for each ship, management's valuation model takes into consideration the average of two independent broker valuations (charter free) and the net present value of the estimated fair value of the related time-charter agreements for the ships, which has a remaining contract period of 2-4 years. Considering the extent of estimates and assumptions applied in the valuation assessment of ships, and management's involvement and judgment in establishing them, we determined valuation assessment of ships to be a key audit matter.
Our audit procedures included, among others, an evaluation of the valuation model prepared by management, including a comparison of the average independent broker valuation to external observable transactions of similar ships, market data and external analysis of long-term expectations in the dry bulk market sector. Furthermore, we compared the risk premium used in the weighted average cost of capital with external data and considered management's adjustments for company specific factors, and further evaluated the level of consistency applied in the valuation methodology from previous years. We also tested the mathematical accuracy of the valuation model and performed sensitivity analysis of the most critical assumptions.
Refer to note 3 in the consolidated financial statements regarding estimation uncertainties and
note 7 in the consolidated financial statements and note 2 in the parent company financial statements regarding ships, applied valuation model and sensitivity to key assumptions.
Other information consists of the information included in the Company's annual report other than the financial statements and our auditor's report thereon. The Board of Directors and Chief Executive Director (management) is responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway for the financial statements of the parent company and International Financial Reporting Standards as adopted by the EU for the financial statements of the Group, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Independent auditor's report - Belships ASA
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with law, regulations and generally accepted auditing principles in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors' report concerning the financial statements and in the statements on corporate governance and corporate social responsibility, the going concern assumption and proposal for the allocation of the result is consistent with the financial statements and complies with the law and regulations.
Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000. «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that management has fulfilled its duty to ensure that the Company's accounting information is properly recorded and documented as required by law and bookkeeping standards and practices accepted in Norway.
Oslo, 22 March 2018 ERNST & YOUNG AS
$(0x)$
Jon-Michael Grefsrød State Authorised Public Accountant (Norway)
Independent auditor's report - Belships ASA
Good corporate governance is a prerequisite for cooperation based on trust between the company's owners, its Board and management, with a view to achieving the objective of long-term growth.
All relevant parties must be confident that the company is soundly operated and that the corporate governance is well defined, fit for purpose and carried out with integrity and independence.
Belships competitiveness hinges on stakeholders and prospective customers trust in the company's integrity and ethical behavior. Board members, management and employees will therefore always strive to uphold and develop trust in the company. Belships' values and ethical guidelines are intended to safeguard good corporate ethics.
The company's business is operation, purchase and sale of ships as well as participation in companies with similar objectives. The company is listed on the Oslo Stock Exchange and is for the time being engaged in dry bulk and technical management of ships.
Belships aims to maximize the value for the company's share through an efficient and profitable management of the company's resources. A competitive return is to be obtained through growth in the value of the company's shares and the payment of competitive dividends. When increasing share capital through the issue of new shares for cash payment, the company's shareholders have normally a pre-emptive right of subscription.
The Board will propose private placements or the issue of shares as consideration in connection with investments only when this will safeguard the long-term interests of existing shareholders.
Until the coming General Meeting (GM), the Board is entitled to acquire on behalf of the company 200 000 own shares and to issue 4 700 000 new shares under conditions determined by the GM.
The company has only one class of shares and the company's articles of association contain no limitations on voting rights. All shares carry equal rights and can be transferred freely.
In situations where the Board proposes that existing shareholders should waive their right to subscribe for shares, this will only be done where justified in light of the company's and the shareholders' interests. The justification shall be published in connection with the announcement of the increase in capital.
Belships provides limited management services to the company's principal shareholder. These services are provided at market terms. Any material transactions with closely related parties follow from sections 3-8 and 3-9 of the Norwegian Limited Liability Companies Act, and the agreements are adopted by the GM on the basis of a report submitted to the GM beforehand. The option programs are adopted by special authorization from the GM.
The GM is the company's supreme authority. The GM elects the Board and the auditor. Pursuant to the Limited Liability Companies Act, notice of GM must be sent to the shareholders no later than 21 days before the GM is to be held. The GM must be held by 30 June. Shareholders are registered in the Shareholders' Register with address. All shareholders are entitled to attend the GM and must give notice of attendance two days before the meeting is held. The Board, the company's management and the auditor attend GMs.
Considering the scope of the company's operations, the Board considers it reasonable and appropriate that the company should only have one board committee: the audit committee. The committee is made up of Christian Rytter (Chairman), Kjersti Ringdal and Sissel Grefsrud
Members of the Board represent, directly and indirectly, more than 50% of the shareholdings in Belships ASA. For this reason, no election committee has been established. The Board fulfills this role itself, and the work to review candidates for the Board is handled by ad hoc committees of the Board and chaired by the Chairman.
The Board shall consist of 3-7 members. The Board elects its chairman. Members may be re-elected every two years. Board appointments are communicated through the notice of GM and the members are elected by majority vote.
The Board is made up of directors with broad experience and knowledge of the sector. Four directors are independent of day-to-day management, the majority shareholder and major business connections. Three directors own shares in the company.
The Board supervise the work of the administration. This means that the Board must review and approve strategies and follow up the implementation of the resolutions adopted.
Strategic decisions or decisions of material importance must be approved by the Board. The Board also appoints the Chief Executive Officer and determines his/her remuneration and the general framework for the Group's wage level.
The Board has prepared rules of procedure for the Chief Executive Officer, which specify his responsibilities and the decisions that have to be approved by the Board. The Board's duties comprise the review and supervision of the Group's internal control procedures and risk management. The same applies to ensuring that the company's integrity is safeguarded.
Focus is on ensuring that the Board functions as a team of independent members. The Board has also prepared rules of procedure for the Board's audit committee, which is to support the Board in performing its duties relating to reporting, audit, internal control and overall risk management.
The Board has an overall responsibility for safety, security and the environment. Our subsidiary in Singapore, which is responsible for the technical operation of Belships own and other ships, concentrates in particular on these matters.
The Board meets at least six times a year and receives a monthly report on the company's operations. In addition, the Board is consulted on or informed about matters of special importance.
Remuneration of directors is approved by the company's GM. The remuneration is granted at the end of the year of service. Directors have no options to buy shares in the company, nor do they receive compensation other than the Board fees. The company endeavors to grant directors a remuneration based on market terms.
The Board prepares guidelines for the remuneration of officers, pursuant to the law, which are submitted to the GM. Remuneration to the Chief Executive Officer is approved by the Board on the Chairman's recommendations.
The company has a share option scheme that applies to all employees in Norway. In addition The Chief Executive Officer has an option to purchase shares. Details concerning the remuneration of the company's officers are provided in a separate note to the accounts.
The company keeps Oslo Stock Exchange, the stock market and shareholders fully updated through interim reports, annual reports and press releases on important events. The company also has a website, which is regularly updated. Belships regards timely and accurate information as essential for obtaining a price for the share that will reflect the company's underlying value and prospects.
The Board has not prepared any principles for how to act in the event of a take-over bid. If such a bid should be made, the Board considers it important that shareholders are treated equally and that the company's operations are not unnecessarily disturbed. The Board's actions will take this into account in such a situation.
The company's auditor attends at least one Board meeting a year, normally in connection with the presentation of the annual accounts. In its meeting with the auditor, the Board focuses in particular on procedures relating to the company's internal control as well as current accounting issues.
The Board and the auditor meet at least once a year without the Chief Executive Officer or other executives being present. The auditor also attends the company's GM and has access to the company's minutes of board and GMs. The Board reviews the auditor's engagement on an annual basis.
The company's auditor is Ernst & Young. Besides ordinary audits, Belships receives assistance from Ernst & Young in connection with accounting and tax issues within the field in which the auditor can assist under the rules of independence. The auditing and counseling fees appear from the notes to the accounts.
The company's management meets the auditor regularly to discuss current tax and accounting issues.
The Board makes a running assessment of whether the audit is performed in a satisfactory manner.
Belships main contribution to society is to grow a long-term, sustainable value-creating business for our stakeholders. Our aim is to ensure that our business practices as well as investments are sustainable, and contribute to long-term economic, environmental and social development.
Belships has a clearly defined vision and mission statement and a set of core values, which we believe will ensure that the Company grows a value-creating and sustainable business.
Strong commitment to customers and quality creates value.
We are an ambitious global organization with focus on:
Core values
Our core values are reflected in everything we do. They are an integrated part of how we conduct our business.
Belships has identified the Company's material sustainability issues and their potential impact on our business. With reference to the Norwegian Accounting Act section 3-3c, the following chapters present how Belships integrates the most material sustainability issues into its business strategies and processes.
International shipping contributes significantly to global emissions of greenhouse gases (GHG) through consumption of bunkers. Although international shipping is a significant contributor to global emissions, it produces substantially less emissions per unit distance when carrying a shipment than other methods of transportation.
Belships recognizes its environmental responsibility and strive to comply with and maintain high standards in order to reduce the environmental impact from its operations. The Company is focusing on reducing bunkers consumption, which is the main source of the shipping sector's emissions of CO2, NOX and SOX.
Belships ambition is to optimize bunker consumption and the company conducts improvement projects and testing aimed at reducing its environmental impact, including hull cleaning and propeller polishing in addition to testing of fuel additives for improved combustion, both aimed at reducing fuel consumption and air pollution.
Belships are further certified with Environmental Management Systems Certificate ISO 14001 as well as ISO 9001:2000. The certificates are issued by the classification society and establish environmental standards and implementation routines. Continuous efforts are made in order to reduce the general waste produced by the ships and to dispose of waste onshore in a controlled manner at approved port waste reception facilities. The fleet complies with the IMO recommendations on waste management.
Pollution by invasive species carried with ballast water has become an important issue. M/S Belforest and M/S Belisland have ballast water treatment systems in place. Belships is actively preparing for the expected implementation of regulations on ballast water treatment entering into force. In fact, some of our third party managed ships have already started to use ballast water treatment system.
Belships is closely monitoring the development of all environmental regulation. The Company will continue to comply with all legislation and follow best practices to minimize the Company's impact on the environment.
It is Belships policy to integrate attention to human and labor rights into its existing business processes. In practice, a large part of the human and labor rights agenda is covered by the Company's health and safety efforts. The health and safety of our employees is a key priority for Belships. As an international and multi-local industrial employer, the Company respects international and local legislation, including the provision of the International Labor Organization's Maritime Labor Convention of 2006 (the "MLC"). The MLC is widely known as the "seafarers' bill of rights", and sets out seafarers' right to decent working conditions, including
elements such as minimum age of seafarers, payment of wages, hours of work or rest, onboard medical care, paid annual leave and freedom of association
Belships values its emplovees as a key resource. The Company will continue to focus on attracting and keeping the best qualified and motivated employees. As a global organization, Belships has a diversified working environment in which employment, promotions, responsibility and job enrichment are based on qualifications and abilities and not on gender, age, race and political or religious views The Company does not tolerate discrimination in any form.
Belships aims to continuously provide and enhance healthy, high-quality working conditions, both onshore and onboard vessels. Crewing and technical management are handled by Belships' subsidiaries in Singapore and China. These companies also have external customers and offer ship management-services to ship owners worldwide. A dedicated and well-trained ship- and onshore team is monitoring the health, safety, environment and quality performance.
Belships' goal is to run the operations of the Company with zero fatal accidents. This goal was achieved in 2017.
Attracting and retaining qualified seafarers remains an area of strategic importance for Belships. The objective is to strengthen Belships' brand and image. To ensure a continued recruitment of dedicated and qualified officers, Belships is engaged in training of seafarers and education of cadets and has 140 cadet positions onboard the Company's vessels. The Company will further develop the crewing strategy and the implementation of crew welfare initiatives in order to meet the Company's ambition of maintaining the officers' retention rate at a high level and maintaining a challenging and motivating work place, thus creating top performing vessels.
Belships faces same challenges as other shipping companies when it comes to piracy. Piracy is still a challenge for the shipping industry and cannot be solved by the Company or the shipping industry alone. It must be dealt with by the international community and relevant authorities of UN working together. To create a secure environment in which our crew feels safe, the company has adopted a best management-practice consistent with the industry standards and under suggestion by Intertanko and Oil Companies International Marine Forum to deter piracy. All of our ships are registered with the EU Naval Force (Maritime security centre) which co-ordinates ship's transit schedules with the appropriate naval ships in the Gulf of Aden and Somali basin. Depending on the present conditions and individual risk factors for the particular ship, preventive measures are evaluated for each transit in accordance with Belships' piracy policy. There were no incidents of attempted hijackings of ships in the Belships-fleet in 2017.
Belships has defined a set of core values being reflected in everything the Company does, and are an integrated part of how the Company does its business.
Belships believes that corruption prevents well-functioning business processes and curbs economic development. Corruption or corrupt behavior is not accepted by the Company. Belships focuses on transparency in its business practices, supports free enterprise and competes in a fair and ethical manner.
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