OREANDA-NEWS. December 16, 2011. JSC Latvian Shipping Company (NASDAQ OMX RIGA: LSC1R) revenues have declined substantially between 2009 (108.8 million LVL) and 2010 (58.8 million LVL) and into 2011 (9months – 35.9 million LVL), which is due to a deteriorating market over the past 2 years. Less demand for refined products in developed western economies has negatively impacted earnings for tanker owners. The "boom" years in the period 2004-2008 encouraged the construction of new tankers and as time charter rates decreased so did the value of tankers. Therefore Latvian Shipping Company (LSC) has, along with its peers, suffered due to the recent difficult economic conditions. However LSC is in a better financial position than many other ship-owners that have over-extended themselves in the boom years and have unsustainable debt obligations to their lending banks.

During 2009 LSC’s fleet decommissioned 7 ships and has over the same period re-focussed most of the business on the time charter market – away from the more volatile short term spot market. This has resulted in a significant reduction in revenue because daily rates have gone down, there are less ships and also less spot contracts, which allows LSC to be less exposed to the volatile and rising price of fuel.

Over the past 9 months LSC has made significant progress - the company has managed to maintain gross profit margin (9 M 2010 –14.4 million LVL; 9 M 2011 – 14.3 million LVL) with substantially fewer ships operating. Also there are now no middle men any longer taking any margin from the LSC.

Because LSC has fewer older ships it has managed to streamline many costs associated with managing the fleet which is demonstrated by the reduction in net income losses (pre-exceptionals) from 2010 (9 M 2010 – 13.8 million LVL) versus 2011 (9 M 2011 – 8.8 million LVL).

Significant additional admin expenses were experienced in 2010 versus 2011 in remunerating the Board – a cost that has been reduced significantly in 2011 by 5 million lats. In 2011 most of LSC admin expenses relate to legal expenses in relation to previous management’s actions.

A major highlight for Q3 2011 was the LVL 6.4 million impairment charge suffered by LSC. This is mainly due to the covenants of LSC’s bank lenders which have requested LSC to maintain a minimum cash balance. Due to LSC falling cash balances the lending banks have requested the company to sell 3 of the oldest K class vessels which LSC is currently actively pursuing. The impairment charge therefore arises due to an accounting rule which demands LSC recognise a valuation loss on assets that are now held for re-sale – not held on a long term trading basis. Therefore LSC is obliged to recognise such a non-cash loss in Q3 of 2011, a direct result of maintaining a minimum cash position with LSC’s lending banks.

Most recently LSC has taken delivery of 2 new ships in June and July this year which have been contracted out on long term contracts - 2011 was not an ideal time to be taking on new ships however these two ships were ordered back in 2007 by the previous management and significant deposits were paid at the inception and during their build. Therefore LSC was economically obliged to complete these purchases.

For LSC 2011 has been significant in contracting out most of its ships on long term contracts which made them much more predictable as revenue earners.