Results
Odfjell's consolidated net result after tax was USD 83 million first nine months 2004, compared to USD 11 million the first nine months of 2003. The 2003 figure include net extraordinary cost of USD 49 million.
Time-charter results per day the first nine months of 2004 improved by 12% compared to the same period last year and 11% compared to the full year 2003. Earnings before interest, taxes, depreciation and amortisation (EBITDA) for the first nine months 2004 were USD 162 million, up from USD 125 million last year. The operating result (EBIT), including a USD 9 million capital gain on assets, was USD 99 million the first nine months of 2004, compared to USD 58 million last year.
Operating expenses as well as general and administrative expenses were higher than the first nine months 2003, mainly due to increased activity. If the full year result is in line with the development so far in 2004, performance bonus payments will be made to senior and middle management. Net interest expenses for the first nine months 2004 were USD 19 million, compared to USD 16 million last year.
The average USD/NOK exchange rate the first nine months 2004 was 6.89, compared to 7.13 last year. The USD strengthened against the NOK from 6.68 at year-end 2003 to 6.79 at 30 September 2004. The currency gain, primarily from hedging, was USD 14 million, compared to USD 21 million the same period last year. Taxes were USD 9 million the first nine months of 2004, compared to USD 3 million the corresponding period last year.
The third quarter 2004 net result of USD 27 million which compares with a net result of USD 22 million the second quarter 2004 and USD 34 million first quarter 2004. First quarter 2004 included a capital gain on fixed assets of USD 9 million. The improved third quarter 2004 result primarily reflects improved market conditions.
Business segments
Global trade
EBITDA for the first nine months 2004 was up 44% to USD 111 million, compared to USD 77 million the first nine months 2003. Operating profit (EBIT) more than doubled to USD 68 million first nine months 2004, compared to USD 31 million first nine months 2003. Improved market conditions led to time-charter income expressed in USD per day being about 12% higher the first nine months 2004, compared to last year, and time-charter income increased by 4.4% from the second to the third quarter 2004. The average cost of bunkers first nine months 2004 was USD 164 per ton (including compensation related to bunker escalation clauses), compared to USD 155 last year. Operating expenses on a comparable fleet basis were 1% lower the first nine months 2004 than the full year 2003 figure.
Late August 2004 we took delivery of ship no. 3 in what has now become a series of eight ships from Stocznia Szczecinska Nowa, Poland. The ship M/T Bow Spring is of 39,500 dwt. with stainless steel tanks and advanced equipment. Primarily because of increased stainless steel cost, the contract prices have been adjusted upwards, so that the average price for these eight newbuildings are now about USD 58 million per ship. We have also agreed to reschedule the deliveries. The remaining ships will be delivered with about six months intervals from ship no. 4 in March 2005 to ship no. 8 in March 2007.
We have reached agreement with the major Russian shipyard "Sevmash" at Severodvinsk near Arkangelsk to build a series of eight to twelve advanced product/chemical carriers, for delivery 2007 onwards. These will be IMO type II fully coated vessels of about 45,000 dwt. and will replace some of our older chemical carriers. Odfjell expects an enhanced commercial demand for such ships due to recently enacted stricter IMO rules and regulations for carrying vegetable oils and certain other bulk liquid products by double-hulled chemical tankers. The first eight of the "Sevmash" vessels will cost on average about USD 41 million each. The optional four vessels will be priced according to a mutually agreed market-related formula.
In October 2004, Odfjell entered into an agreement to sell the two sister ships M/T Bow Giovanni (11,290 dwt./built 1987) and M/T Bow Marino (11,289/1988) for an aggregate sum of USD 12 million. The sales price is slightly above the book value for the two ships. The two ships were acquired in connection with the merger with Seachem in 2000 and have primarily been operating in our regional trades, both in the Americas and in Asia. We expect delivery to their new owner to take place by the end of November 2004.
Regional trade
EBITDA for the first nine months 2004 was USD 11 million, compared to USD 12 million last year. EBIT for first nine months 2004 was USD 6 million, compared to USD 5 million first nine months 2003.
Tank terminals
EBITDA for the first nine months 2004 was USD 37 million, an improvement from USD 32 million the same period last year. EBIT for first nine months 2004 was USD 23 million, up from USD 19 million last year.
EBITDA of Odfjell Terminals (Rotterdam) was USD 18.5 million first nine months 2004, up from USD 14.5 million last year. Odfjell Terminals (Houston) showed an EBITDA of USD 13.4 million first nine months 2004, compared to USD 13.0 million first nine months 2003. Our share of the terminals in Onsan, Korea, Singapore and the two terminals in China made an EBITDA of USD 5.5 million.
Tank containers
EBITDA the first nine months 2004 was USD 3 million, compared to USD 4 million the same period last year. EBIT first nine months 2004 was USD 2 million, compared to USD 3 million first nine months 2003.
Key figures
Return on equity was 18.9% and return on total assets was 8.0%. Return on capital employed (ROCE) was 9.7% first nine months 2004.
Earnings per share amounted to USD 3.84 (NOK 26.44) first nine months 2004, compared to USD 2.77 (NOK 19.73) first nine months 2003 before extraordinary items. Cash flow per share was USD 7.16 (NOK 49.31), compared to USD 5.85 (NOK 41.70).
As per 30 September 2004 the Price/Earnings ratio (P/E) was 8.7 and the Price/Cash flow ratio was 4.7. Based on book value the Enterprise Value (EV)/EBITDA multiple is 6.5 while, based upon market value as per 30 September 2004, the EV/EBITDA multiple is 8.1. Interest coverage ratio (EBITDA/Net interest expenses) improved the first nine months 2004 to 8.2, compared to 7.5 last year.
Finance
Cash and bonds as of 30 September 2004 increased to USD 220 million from USD 203 million as of 31 December 2003. Additionally, undrawn credit facilities equalled USD 60 million as per 30 September 2004. Interest bearing debt increased from USD 944 million year-end 2003 to USD 1,003 million per 30 September 2004 as a consequence of investment in ships. Net interest bearing debt was USD 783 million as per 30 September 2004. The equity ratio was 35% as per 30 September 2004 and the current ratio was 3.3.
Shareholder information
At 30 September 2004 the Odfjell A-shares were trading at NOK 303 (USD 44.6) up 104.7% from NOK 148 (USD 22.1) year-end 2003. The B-shares were trading at NOK 292 (USD 43.0) at 30 September 2004, up 103.5% from NOK 143.50 (USD 21.5) year-end 2003. By way of comparison, the Oslo Stock Exchange benchmark index rose 28.3% and the transportation index improved by 39.3% during the same period.
Dividend and Share Split
The Board of Directors have reviewed the dividend policy of the company and propose that the company hereafter consider distributing dividend twice a year as well as strive for an increased dividend level. Accordingly, the Board will call for an Extraordinary General Meeting, which will be held 30 November 2004, to distribute a dividend of NOK 6 per share (USD 0.92), equal to NOK 130.3 million (USD 20 million). The Board will furthermore propose to the same Extraordinary General Meeting that the company's class A-shares and class B-shares be split two for one with effect from 1 December 2004.
Legal Matters
We have previously reported extensively on the different actions related to the antitrust violations in the parcel tanker industry.
On 26 October 2004 the US Second Circuit gave its ruling stating that the customers who had contracts containing arbitration clauses, are bound by these. The relevant case(s) shall therefore be compelled to, and be dealt with by arbitration instead of in the ordinary courts.
Prospects
The world economy, helped by growth in Brazil, Russia, India and China (the BRIC-countries), continues to be strong. The current upward trend in our industry started late 2003 and is continuing. We believe recently introduced legislations from the European Union and the International Maritime Organisation (IMO) will further favourably impact the supply/demand balance of chemical tankers going forward. Furthermore, there seems to be a balance in newbuilding orders. Fewer yards are keen to build specialized chemical tankers and those that are, quote significantly higher prices. Accordingly, we expect a strong chemical tanker market the next few years.
Based on the above assumptions, we anticipate an improved operating result before capital gain and incentive bonuses also in the fourth quarter 2004 as well as further improvements in 2005.
