“Profit for third quarter 2009 is in line with expectations and better than the second quarter. Despite the continued low freight rates for product tankers we are satisfied with TORM's success in securing earnings above average market levels and at the same time deliver the planned cost reductions. We see, however, no signs of immediate market recovery, but our long-term strategic focus on the product tanker market remains,” states CEO Mikael Skov. Profit before tax for the first nine months of 2009 was USD 11 million, in line with the latest full-year forecast for 2009.
18 November 2009
• Profit before tax for the third quarter was USD 4 million, including a positive impact of USD 21 million from the sale of two bulk carriers. As announced earlier, the vessels were sold during the second quarter, but the profit was recognised in the third quarter in which delivery took place.
• The third quarter was negatively impacted by non-cash mark-to-market adjustments of USD 7 million, with USD 5 million on financial instruments and USD 2 million on FFA/bunker derivatives.
• In the third quarter, product tanker rates remained at the low levels seen at the end of the second quarter. The market is still suffering from the negative impact of low global oil demand and the addition of new tonnage. However, on routes to and from Asia, rates picked up considerably towards the end of the quarter, benefiting TORM’s LR1 and LR2 vessels.
• Third quarter spot earnings in TORM’s MR Pool were USD/day 12,580, which was higher than the average rate levels seen on the main routes in the MR market. In the negative market conditions, the pools focused on optimising the transport patterns of the global fleet and its access to cargo contracts. This resulted in more effective utilisation of the fleet and, consequently, higher earnings.
• Bulk Panamax rates fell back in mid third quarter, but regained some ground toward the end of the quarter. Due to TORM’s high coverage of earning days, the developments in bulk rates had limited impact on TORM’s earnings.
• TORM’s efficiency improvement programme – Greater Efficiency Power – had a favourable effect on performance in the third quarter as vessel operating costs per day dropped by an average of approximately 12% year-on-year across the fleet. Furthermore, the administration expenses have been reduced by 21% year-on-year. The efficiency improvement programme will, as planned, produce annual cost savings of USD 40-60 million from 2010.
• On a quarterly basis, TORM calculates the long-term earnings potential of its fleet based on discounted future cash flows. The value of the fleet thus calculated supports the book values.
• At 30 September 2009, equity amounted to USD 1,274 million, equivalent to USD 18.4 per share (DKK 93.4 per share), excluding treasury shares, giving TORM an equity ratio of 38%. TORM’s unutilised loan facilities and cash totalled approximately USD 400 million at the end of the third quarter. Net interest-bearing debt totalled USD 1,682 million at 30 September 2009. Around 70% of the debt is due in 2013 or later.
• At 30 September 2009, TORM had covered 49% of the remaining earning days for 2009 in the Tanker Division at USD/day 19,227 and 85% of the remaining earning days in the Bulk Division at USD/day 17,050. For 2010, coverage at 30 September 2009 was 24% at USD/day 20,033 in the Tanker Division and 46% at USD/day 16,650 in the Bulk Division.
• TORM maintains its forecast of a profit before tax of around break-even for 2009.
Tanker Division
The Tanker Division’s EBITDA for the third quarter of 2009 was USD 34 million. In the third quarter, product tanker rates remained at the low level seen at the end of the second quarter, and the market is still suffering from the negative impacts of low global demand for oil and the addition of new tonnage. However, toward the end of the third quarter, rates rose significantly for the large vessels, LR1 and LR2, driven by a demand for naphtha in the Far East and increased exports from new refineries in the East. At the end of September, spot rates were well over USD/day 20,000 for both LR1 and LR2 vessels, relative to a level of just over USD/day 10,000 at the end of the second quarter.
MR rates were low throughout the quarter, primarily as a result of limited US demand for gasoline. Third quarter spot earnings in TORM’s MR Pool were USD/day 12,580, which was higher than the average rate levels seen on the main routes in the MR market. In the negative market conditions, the pools focused on optimising the transport patterns of the global fleet and its access to cargo contracts. This resulted in more effective utilisation of the fleet and, consequently, higher earnings.
The tanker market was affected by the following main factors in the third quarter:
Positive impact:
• Use of LR1 and LR2 vessels as floating storage facilities and slow steaming reduced the supply of available tonnage. The vessels mainly stored gasoil off the coasts of the EU and West Africa
• Increased exports from new refineries in the East
• Higher demand for naphtha in the Far East
Negative impact:
• Continued low demand for gasoline in the USA
• Delivery of a large number of newbuildings
• High fuel costs
• Lower utilisation of refinery capacity squeezed the demand for crude oil transports and, consequently, the earnings of some of the LR2 vessels
In the third quarter of 2009, the Tanker Division achieved freight rates which, relative to the third quarter of 2008, were 64% lower for the LR2 segment, 30% lower for the LR1 segment, 42% lower for the MR segment and 8% lower for the SR segment.
The efficiency improvement programme, Greater Efficiency Power, produced an average cost reduction per ship day of 11% relative to the third quarter of 2008.
Bulk Division
EBITDA for the Bulk Division for the third quarter of 2009 was USD 26 million. USD 21 million of this was attributable to the sale of TORM Marta and TORM Tina. The vessels were sold during the second quarter, but the profit was recognised in the third quarter in which delivery took place.
Bulk Panamax rates fell back in mid third quarter, but regained some ground toward the end of the quarter, and their third-quarter performance was thus relatively better than that of the larger Capesize vessels. Chinese coal and iron ore imports remain the most significant driver of bulk rates. Going into the quarter, TORM’s coverage of earning days was high, and therefore the spot rate developments had limited impact on Bulk Division earnings.
The bulk market was affected by the following main factors in the third quarter:
Positive impact:
• Continued extensive Chinese coal and iron ore imports, which reached a new high during the third quarter
• During the quarter, the number of waiting days rose to its highest level in 2009, but subsequently fell at the end of the quarter
• Higher steel production, principally in China, but also to some extent in Europe and Japan
Negative impact:
• Delivery of a large number of newbuildings
• Slowdown in the phasing out of old vessels due to the higher freight rates
The Bulk Division’s earnings per day were 64% lower in the third quarter of 2009 than in the same quarter of 2008.
The efficiency improvement programme, Greater Efficiency Power, produced an average cost reduction per ship day of 28% relative to the third quarter of 2008.
Other activities
Other (non-allocated) activities are profits on investments in joint ventures of USD 0 million, financial expenses of USD 20 million and tax of USD 2 million.
Fleet development
In the third quarter, TORM took delivery of two MR newbuildings and delivered the two sold Panamax bulk carriers TORM Marta and TORM Tina to their new owners. At the end of the quarter, TORM’s fleet of owned vessels comprised 63 tankers and four bulk carriers. In addition to these, TORM had 25 tankers and ten bulk carriers on time charter. Additional 37 tankers were either in pools or under commercial management.
Third quarter 2009
The gross profit for the third quarter of 2009 was USD 54 million, against USD 152 million for the corresponding quarter of 2008. The administration expenses were USD 17.9 million, against USD 22.6 million for the third quarter of 2008, corresponding to a reduction of 21%. Profit before depreciation (EBITDA) for the period was USD 59 million, against USD 151 million for the third quarter of 2008. The decline in gross profit and EBITDA was due to significantly lower freight rates for both tankers and bulk carriers.
Depreciation was USD 35 million during the third quarter of 2009.
An operating profit of USD 24 million was posted for the third quarter of 2009, against USD 120 million for the same quarter of 2008. The Tanker and Bulk Divisions contributed profits of USD 0 million and USD 25 million, respectively.
In the third quarter, there was a negative effect from non-cash mark-to-market adjustments of USD 7 million, with USD 5 million on financial instruments and USD 2 million on FFA/bunker derivatives.
In the third quarter of 2009, financials amounted to an expense of USD 20 million, against an expense of USD 28 million in the same quarter of 2008. A profit after tax of USD 2 million was posted in the third quarter of 2009, against USD 91 million in the third quarter of 2008.
Assets
Total assets rose from USD 3,256 million to USD 3,360 million in the third quarter of 2009. On a quarterly basis, TORM calculates the long-term earnings potential of its fleet based on discounted future cash flows. The value of the fleet thus calculated supports the book values.
In addition, TORM receives quarterly valuations of its fleet’s market value from three internationally acknowledged shipbrokers. Based on the broker valuations, the market value of TORM’s fleet was below book value at 30 September 2009. However, as the market for product tankers is currently illiquid, the broker valuations are subject to significant uncertainty.
Liabilities
During the third quarter of 2009, the net interest-bearing debt rose from USD 1,670 million to USD 1,682 million. The item mainly comprised net borrowing in connection with the delivery of vessels and positive cash earnings of the period. Around 70% of the debt is due in 2013 or later.
Total equity
In the third quarter of 2009, equity rose from USD 1,270 million to USD 1,274 million, which is principally the result of earnings during the period. Equity as a percentage of total assets dropped from 39% at 30 June 2009 to 38% at 30 September 2009.
At 30 June 2009, TORM held 3,556,364 treasury shares, corresponding to 4.9% of the Company’s share capital, which was unchanged from 30 June 2009.
Liquidity
TORM’s unutilised loan facilities and cash totalled approximately USD 400 million at the end of the third quarter.
Outlook
TORM’s forecast for 2009 of a profit before tax of around break-even, as stated in announcement no. 11 dated 12 August 2009, is unchanged.
Sensitivity
At 30 September 2009, TORM had covered 49% of the remaining earning days for 2009 in the Tanker Division at USD/day 19,227 and 85% of the remaining earning days in the Bulk Division at USD/day 17,050. For 2010, coverage was 24% at USD/day 20,033 in the Tanker Division and 46% at USD/day16,650 in the Bulk Division.
TORM, press release
