NORDEN reports third quarter results within expectations

Shipping company NORDEN reported yesterday its third quarter financial results within expectations.

Interim CEO Klaus Nyborg in comment:
”In terms of results, the third quarter ended as expected at the beginning of the quarter. The challenging market conditions in dry cargo continued, and the tanker market experienced good activity with further improvement at the beginning of the fourth quarter. NORDEN
outperformed the market in both segments and maintains its expectations for full-year results. The weak market development may provide attractive opportunities.”

DRY BULK
In the third quarter, the Dry Cargo Department realised an EBITDA of USD -16 million, which was down from the second quarter when EBITDA was USD -6 million. T/C earnings in Dry Cargo were 7% above average 1-year T/C rates and 55% above average spot rates from the Baltic Exchange.

In spite of the fact that the trend in average spot rates has been on the rise in the third quarter, the dry cargo market continued to disappoint throughout the quarter, and especially the weak Panamax market continued from the second quarter into the third quarter.
The primary reason for the low market is the weak demand for coal transportation. In the third quarter, Chinese import of coal was 22% down from the same period last year. The reason for this is mainly increased production of hydropower resulting from a unusual large amount of rain.

In spite of record-high iron ore exports from Australia and Brazil, the Capesize market is still marked by poor rates. This is i.a. due to Australia taking market shares in China’s iron ore imports at the expense of the smaller iron ore exporters in the Atlantic market due to the low price on iron ore. This has affected the market negatively as the average distance has been shortened.

Although iron ore exports have gone up in recent weeks, the demand for coal transportation will determine whether the fourth quarter will rise from the current level as it is unlikely that the North American grain season alone will be able to pull up the market in spite of the expectations of a strong harvest. It is expected that coal transportation will be weak for the rest of the year, i.a. since the Chinese government has introduced a tax on coal imports of 6% effective from mid-October and has furthermore imposed restrictions on the coal-fired power stations to import between 30-40% less coal in the last months of 2014 compared to 2013. It is doubtful if this can be fully effectuated, but the import restrictions have had a considerable negative impact here and now and on the forward-looking market expectations. In general, it is expected that the fourth quarter will be considerably weaker than the unusually strong fourth quarter last year as there will not be the same level of stockpiling this year as was the case at the end of 2013.

During the third quarter, 10.5 million dwt. was delivered, which is the lowest quarterly level since the second quarter of 2009. Total net fleet growth in the third quarter amounted to 1%. This supports an annual net fleet growth in the expected interval of 4-6%.
The ordering activity continued at a low level throughout the third quarter. At the end of the quarter, the order book constituted 23% of the total fleet.

TANKERS
EBITDA for NORDEN’s Tanker Department in the third quarter came to USD 8 million (USD 11 million). Earnings amounted to USD 14,517 per day for Handysize and USD 14,456 per day for MR, which was 10% and 3% above the 1-year T/C rates, respectively.

Activity and thus rate levels improved in the third quarter after a disappointing second quarter. The US refineries came back at full force at the beginning of the quarter after limited capacity due to maintenance. This resulted in significant improvement in rates in the first weeks of July, but the effect weakened as more vessels were positioned into the US Gulf.
Refinery capacity is continuously being added in the Middle East, and even though parts of the increased production of refined products are consumed in the region, exports from the region have also increased. The increase in exports has benefitted the MR vessel type both in the form of more cargoes, but also in the form of less competition from the LR1 and LR2 vessels, which are increasingly employed out of the Middle East. Activity and rate levels for the larger LR1 and LR2 vessels have thus increased considerably during the quarter and are at present higher than in any other period since 2008.

The significant drop in oil prices during the quarter has resulted in increased trade and thus need for transportation of oil. The market responded quickly, and generally, all tanker vessel types experienced a very positive start to the fourth quarter. The MR spot rates were e.g. around USD 20,000 at the beginning of November.

The number of deliveries from the yards has been smaller than expected during the year, but at the same time, scrapping has been limited, and fleet growth is therefore still expected to come to around 4-5% for the full year 2014. The order activity in 2014 remains at a low level, and the order book for product tankers now constitutes 18% against 20% at the beginning of the year.

OUTLOOK FOR 2014
NORDEN maintains its expectations for an EBITDA of USD -60 to 0 million. The middle of this range is based on the forward rates in Dry Cargo and the 1- year T/C rates in Tankers at the beginning of November.

EBITDA for 2014 in Dry Cargo is expected to constitute a loss of USD 30-60 million whereas EBITDA in Tankers is expected to be a profit of USD 15-45 million.

Expectations for CAPEX are changed to USD 100-120 million (USD 130-150 million) primarily as a result of a tanker vessel sale.

At the end of the third quarter, NORDEN sold a 2008-built Handysize product tanker with delivery in the fourth quarter. The sale set off a loss of USD 2 million compared to book value, and the amount is included in depreciation for the period.

At the beginning of November, there were approximately 1,600 open ship days in Dry Cargo, and a change of USD 1,000 per day in expected T/C equivalents would mean a change in earnings of approximately USD 1.6 million. Earnings in Dry Cargo are also sensitive to possible counterparty risks and changes in the rate level between regions and vessel types.
Earnings expectations in Tankers primarily depend on the development in the spot market. Based on 1,800 open ship days in Tankers at the beginning of November, a change of USD 1,000 per day in expected T/C equivalents would mean a change in earnings of approximately USD 1.8 million

MANAGEMENT’S STATEMENT
The Board of Directors and the Executive Management today reviewed and approved the interim report for the third quarter of 2014 of Dampskibsselskabet NORDEN A/S.
The interim report is prepared in accordance with the International Financial Reporting Standard IAS 34 on interim reports and the general Danish financial disclosure requirements for listed companies. In line with previous policies, the interim report is not audited or reviewed by the auditors.

We consider the accounting policies applied to be appropriate and the accounting estimates made to be adequate. Furthermore, we find the overall presentation of the interim report to present a true and fair view.

Besides what has been disclosed in the interim report, no other significant changes in the Company’s risks and uncertainties have occurred relative to what was disclosed in the consolidated annual report for 2013.

In our opinion, the interim report gives a true and fair view of the Group’s assets, equity and liabilities, the financial position as well as the result of the Group’s activities and cash flows for the interim period.

Furthermore, the management commentary gives a fair representation of the Group’s activities and financial position as well as a description of the material risks and uncertainties which the Group is facing.
Source: DS NORDEN