Results
Odfjell's consolidated net result after tax was USD 11 million for the first nine months 2003 compared to USD 31 million in the same period 2002. The 2003 figure is after net extraordinary expenses of USD 49 million, including a fine from the US Department of Justice of USD 42.5 million and other costs directly related to this issue.
Time-charter results per day remained stable during the first and second quarter 2003, but fell 5% in the third quarter. Time-charter results per day in the third quarter 2003 were 2% higher than in the same quarter 2002. Voyage expenses were higher than in the same period last year due to high bunker cost. Earnings before interest, taxes, depreciation and amortisation (EBITDA) for the first nine months 2003 were USD 125 million, up from USD 117 million for the first nine months 2002. Operating result (EBIT) was USD 58 million in the first nine months 2003, compared to USD 53 million in the same period 2002.
Operating expenses as well as general and administrative expenses were higher than in the same period 2002, mainly due to a weaker USD. We have reclassified legal costs and other expenses directly related to the antitrust case and have included these costs under extraordinary items. The accounts for previous periods in 2003 have been adjusted accordingly. The effect of this change is reduced General & administration expenses by USD 0.5 million in the first quarter and USD 2.1 million in the second quarter 2003.
Net interest expenses for the first nine months 2003 were USD 17 million compared to USD 21 million the first nine months 2002, a reduction due to lower interest rates. The average USD/NOK exchange rate for the first nine months 2003 was 7.13 compared to 8.21 for the same period 2002. The USD/NOK rate strengthened slightly from 6.96 at year-end 2002 to 7.02 at 30 September 2003. Compared to 2002, the weaker average USD positively impacted our currency hedging portfolio, but increased our non-USD costs expressed in USD. The currency gain was USD 21 million compared to USD 10 million the same period last year. Taxes on result before extraordinary items were USD 3 million in the first nine months 2003 compared to a USD 9 million tax cost the same period 2002.
The net result in the third quarter 2003 was a loss of USD 30 million, primarily due to extraordinary costs of USD 47 million. The result before extraordinary items was USD 17 million in the third quarter 2003 compared with a result of USD 10 million in the third quarter 2002, USD 18 million in the first quarter and USD 24 million in the second quarter 2003.
Business segments
Global trade
EBITDA for the first nine months 2003 was USD 77 million compared to USD 75 million the same period 2002. Operating profit (EBIT) was USD 31 million in the first nine months 2003, the same as for the first nine months 2002. Higher bunker cost led to time-charter income expressed in USD per day being about 2% lower in the first nine months 2003 compared to the first nine months 2002. The average cost of bunkers in the first nine months 2003 was USD 155 per ton (including bunker clause compensations), compared to USD 132 per ton the same period last year. Operating expenses on a comparable fleet basis were 9% higher in the first nine months 2003 than 2002, primarily caused by a weaker USD.
On 1 August 2003, we took delivery of the 39,900 dwt. newbuilding M/T Bow Sun from Stocznia Szczecinska Nowa in Poland. Bow Sun is the first ship in a series of six to eight newbuildings from the Polish yard.
Late September 2003 we entered into agreements with Japanese interests for the long-term time-charter of two 30 000 dwt. newbuildings. The ships will be built at Kitanihon Shipyard in Japan with deliveries in August 2005 and May 2006 respectively. The initial time-charter period is nine years with our options to extend the charters another two or three years. Furthermore, we have purchase options for the ships throughout the charter period. The ships will have 28 cargo tanks, all made of stainless steel. From Japanese owners we have now altogether five newbuildings, two 30 000 dwt. and three about 19 000 dwt. ships under long-term contracts with deliveries over the next three years. These ships will partly replace older ships which will be retiring in the coming years.
Regional trade
EBITDA for the first nine months 2003 was USD 12 million compared to USD 11 million the same period last year. EBIT for the first nine months 2003 was USD 5 million, the same level as the first nine months 2002.
In August 2003, Odfjell signed an agreement with Christian F. Ahrenkiel GmbH & Co. KG of Hamburg, Germany, to establish a 50/50 joint-venture for marketing and operation of chemical tankers in inter-European trade. The plan is for the joint-venture to become operational by year-end 2003.
Tank terminals
EBITDA for the first nine months 2003 was USD 32 million, an improvement from USD 27 million in the same period last year. EBIT for the first nine months 2003 was USD 19 million up from USD 16 million in the first nine months 2002.
The EBITDA of Odfjell Terminals (Houston) was USD 13 million for the first nine months 2003, in line with the same period 2002. Odfjell Terminals (Rotterdam) showed an EBITDA of USD 15 million for the first nine months 2003 compared to USD 10 million in the same period 2002. Our share of the terminals in Ulsan, Korea, in Singapore and the two terminals in China made an EBITDA of USD 4 million.
Tank containers
EBITDA for the first nine months 2003 was USD 4 million, the same level as last year. EBIT for the first nine months 2003 was USD 3 million compared to USD 1 million in the same period 2002.
In line with industry practice the depreciation period for tank containers was changed from 12 to 20 years as from 2003. This has a positive effect on the net result of USD 0.9 million for the first nine months 2003.
Key figures
Before extraordinary items the return on equity was 14.8% and return on total assets was 6.6%. The corresponding figures including extraordinary items were 2.7% and 2.6%. Return on capital employed (ROCE) was 6.2% in the first nine months 2003. Return (before extraordinary items) on market capitalisation as per 30 September 2003 was 19.9%, caused by the share trading at a discount to book value.
Earnings per share before extraordinary items amounted to USD 2.77 (NOK 19.73) in the first nine months 2003 compared to USD 1.39 (NOK 11.40) in the first nine months 2002. Earnings per share after extraordinary items amounted to USD 0.50 (NOK 3.59) in the first nine months 2003. Cash flow per share was USD 5.85 (NOK 41.70) compared to USD 4.23 (NOK 34.72).
As per 30 September 2003 the Price/Earnings ratio (P/E) before extraordinary items was 5.1 and the Price/Cash flow ratio was 2.4. Based on book value the Enterprise Value (EV)/EBITDA multiple is 7.4 while, based on market value as per 30 September 2003, the EV/EBITDA multiple is 6.6. Interest coverage ratio (EBITDA/Net interest expenses) improved in the first nine months 2003 to 7.5 compared to 5.7 the first nine months 2002.
Finance
Cash and bonds as of 30 September 2003 were reduced to USD 175 million compared to USD 230 million as of 31 December 2002. This as a consequence of repayment of debt during the first nine months 2003 of USD 120 million, payment of dividend of USD 24 million as well as investments in newbuildings. Interest bearing debt was reduced from USD 957 million as per year-end 2002 to USD 892 million per 30 September 2003. Net interest bearing debt was USD 717 million as per 30 September 2003. The equity ratio was 35% as per 30 September 2003 and the current ratio was 2.1.
Shareholder information
At 30 September 2003 the Odfjell A-shares were trading at NOK 133 (USD 18.9) up 20.9% from NOK 110 (USD 15.8) year-end 2002. The B-shares were trading at NOK 120 (USD 17.1) at 30 September 2003, up 9.1% from NOK 110 (USD 15.8) year-end 2002. By way of comparison, the Oslo Stock Exchange benchmark index rose 23.8% and the transportation index improved by 52.9% during the period. The A-shares traded between NOK 102 (USD 19.4) and NOK 156 (USD 21.3) during the period whilst the corresponding figures for the B-shares were NOK 102 (USD 19.4) and NOK 150 (USD 19.7).
Investigations by Competition Authorities
Since EU started its investigation and the receipt of a US grand jury subpoena on 19 February 2003, Odfjell has been fully cooperating with the EU Commission and the US Department of Justice in their investigations of possible antitrust violations in the parcel tanker shipping industry. As part of its cooperation, Odfjell ASA's wholly owned subsidiary Odfjell Seachem AS on 29 September 2003 entered into a voluntary plea agreement with the US Department of Justice. Odfjell Seachem AS agreed to plead guilty to a single-count violation of the US Sherman Antitrust Act for allocating customers and thereby fixing prices on certain contracts of affreightment from 1998 to 2002. There are no allegations of improper conduct with regards to spot business contained in the plea agreement.
Odfjell Seachem AS accepted a fine of USD 42.5 million. The fine is to be paid over five years in instalments of USD 8.5 million annually, the balance carrying an interest rate of currently about 1.3% per annum. The fine is included in full as an extraordinary item in the third quarter 2003 accounts.
As part of the global settlement two Odfjell executives also agreed to plead guilty to single count violations. Bjørn Sjaastad, President/CEO, agreed to incarceration in the US for four months and a fine of USD 250 000. Erik Nilsen, Vice President, agreed to incarceration for three months and a fine of USD 25 000. As part of the overall solution the company will reimburse the individual fines. Both Mr. Sjaastad and Mr. Nilsen were granted salaried leave of absence.
Terje Storeng was appointed interim CEO/President with effect from 30 September 2003. Mr. Storeng has resigned from his position as Managing Director of AS Rederiet Odfjell. He has been a Member of the Board of Odfjell ASA since 1994.
The plea agreements were approved by the US District Court for the Eastern District of Pennsylvania on 22 October 2003.
Since the investigations began, Odfjell ASA has strengthened its internal competition compliance program and has conducted training of all relevant personnel.
Odfjell has initiated contact and is cooperating with the EU Commission with the purpose of resolving the issue in Europe. Various private lawsuits, asserting "class action" claims on behalf of customers, have been filed in the US against Odfjell and three other major parcel chemical tanker carriers, Stolt-Nielsen, Tokyo Marine and JO Tankers. Because these matters are still at an early stage, we are unable to give further information for the time being.
Prospects
World economy seems to be recovering, and there are positive growth signs in the US as well as continued economic growth in China. Other economies still lagging, however, there is still uncertainty as to the future growth of the world economy and its impact on the chemical tanker industry.
For the last quarter 2003 we expect a result in line with the average result before extraordinary items and taxes for the first three quarters 2003.
Bergen, 4 November 2003
THE BOARD OF DIRECTORS
OF ODFJELL ASA
