Torm recognised a loss before tax of USD 70 million in the third quarter of 2011. “Third quarter of 2011 proved to be a particularly challenging quarter, as the uncertainty on the global economy continued and freight rates came under massive pressure. We are now working on a range of initiatives to improve the liquidity situation and strengthen the balance sheet,” says CEO Jacob Meldgaard. EBITDA for the third quarter of 2011 was a loss of USD 17 million, compared to a gain of USD 23 million in the third quarter of 2010. The result before tax for the third quarter of 2011 was a loss of USD 70 million, compared to a loss of USD 27 million in the same period of 2010. The third quarter of 2011 was negatively impacted by mark-to-market non-cash adjustments of USD 5 million, compared to USD 0 million in the same period of 2010. For the first nine months of 2011, a loss before tax of USD 139 million was recognised, compared to a loss of USD 49 million in the same period of 2010.
The product tanker market experienced freight rates at low levels during the third quarter of 2011. Especially the freight rates in the larger segments, LR2 and LR1, suffered from the global economic uncertainty and oversupply of vessels. The US products imports fell by 29% in the third quarter of 2011, compared to the third quarter of 2010. The MR markets were affected by the traditionally weaker summer months, but spot rates on the Continent were slightly better than in the larger segments. The release of the Strategic Petroleum Reserves announced in June 2011 affected the markets negatively in August and September. Further, only limited arbitrage opportunities arose during the third quarter of 2011.
The bulk market continued to be under pressure in July and the first half of August driven by a typical summer market and the remaining impact of a slowdown due to the Japanese earthquake in March. The freight rates in the Pacific and the Atlantic markets improved during the later part of August and September. The main drivers were the US led grain season and higher than usual sugar exports from Brazil plus a continued appetite for iron ore and coal in China. The third quarter of 2011 continued to see a high influx of newbuildings in all the main segments.
As mentioned in announcement no. 18 dated 17 November 2011, TORM pursues long-term comprehensive financing solution. Therefore, TORM has entered into discussions with its banks and other main stakeholders. It is anticipated that a rights issue of up to USD 300 million will be a part of the comprehensive financing solution.
Net interest-bearing debt was up in the third quarter of 2011 to USD 1,836 million from USD 1,824 million as at 30 June 2011.
Undrawn credit facilities and cash totalled USD 237 million at the end of the third quarter of 2011, compared to USD 288 million as at 30 June 2011. Outstanding CAPEX relating to the order book amounted to USD 167 million. Equity amounted to USD 958 million as at 30 September 2011, equivalent to USD 13.8 per share, (excluding treasury shares), giving TORM an equity ratio of 31%.
By 30 September 2011, TORM had covered 25% of the remaining tanker earning days in 2011 at USD/day 13,925 and 5% of earning days in 2012 at USD/day 16,122. 97% of the remaining bulk earning days in 2011 are covered at USD/day 15,402 and 64% of the 2012 earnings days at USD/day 14,257.
TORM forecasts a loss before tax of USD 175-195 million for 2011 as stated in announcement no. 16 dated 31 October 2011.
Results
The result before tax for the third quarter of 2011 was a loss of USD 70 million, compared to a loss of USD 27 million in the same period of 2010. The result before depreciation (EBITDA) for the third quarter of 2011 was a loss of USD 17 million, compared to a gain of USD 23 million in the same period of 2010. The result for the third quarter of 2011 was not impacted by sale of vessels as also was the case for the same period of 2010. The Tanker Division reported an operating loss of USD 34 million in the third quarter of 2011, compared to an operating loss of USD 14 million in the same period last year. The Bulk Division had an operating loss in the third quarter of 2011 of USD 16 million, compared to a profit of USD 4 million in the third quarter of 2010. Other (not allocated) activities include a negative result from investments in joint ventures of USD 3 million, financial items of USD 17 million and tax of USD 0 million. Outlook and coverage
Since the second quarter release in August 2011, the global economic uncertainty and pressure on freight rates have persisted. In particular, the product tanker freight rates in the second half of 2011 have so far been lower than expected. As stated in announcement no. 16 dated 31 October 2011, TORM has revised its forecast for the full year to an expected loss before tax of USD 175-195 million. With 6,701 earning days for 2011 open as at 30 September 2011, a change of USD/day of 1,000 in freight rates will currently impact the profit before tax by approx. USD 7 million. As at 30 September 2011, TORM had covered 25% of the remaining earning days in 2011 in the Tanker Division at USD/day 13,925 and 97% of the remaining earning days in the Bulk Division at USD/day 15,402. The table below shows the figures for 2011 for the period from 1 October to 31 December. 2012 and 2013 are full year figures. Tanker Division
The product tanker freight rates have been adversely affected by the global economic uncertainty in the third quarter of 2011. In the West, the US products imports fell by 29% in the third quarter of 2011, compared to the same period of 2010. The gasoline demand was down by 3-4% year-on-year, and the US refinery production increased, especially due to the price spread between WTI and Brent crude. Finally, the release of the Strategic Petroleum Reserves announced in June affected the markets in August and September when the actual sale and release took place. On a positive note, September saw an increase in Brazilian imports, but it was not sufficient to offset the drop in the US imports and the release of products in Europe. The dirty market in the West continued at low levels, and most owners have traded below operating expenses levels for several months.
In the Far East, the naphtha demand dropped as a reflection of the uncertainty in the world economy. The large number of gasoil movements from East to West continued to be transported in Aframax and Suezmax newbuildings, taking a large part of especially the LR2 market. The fuel oil market in the Far East, which increased in activity and earnings in the second quarter of 2011, has in recent months dropped back to levels before the Japanese earthquake.
The global fleet has grown by ~5% year-to-date. The slippage in newbuilding deliveries was low in the third quarter, but in the first nine months of 2011 there has been delivered 82 vessels less than predicted ultimo 2010.
TORM achieved LR2 spot rates of USD/day 10,836 in the third quarter of 2011, which was 45% below the same quarter last year partly affected by vessels trading in the dirty segment. LR1 spot rates were at USD/day 9,841, down USD/day 5,333 from the previous quarter, due to the difficult tanker markets in the East. During the third quarter of 2011, TORM decided to close down the LR1 Pool, and the four remaining pool vessels have been redelivered in early October. The MR segment is TORM’s largest and it proved to be the best performing segment with spot rates of USD/day 11,749 in the third quarter of 2011. Nevertheless, this segment was down by USD/day ~2,000 from the same period last year and down by USD/day ~3,500 from the previous quarter. SR spot rates were USD/day 10,582. Bulk Division
The bulk market experienced low freight rates in the third quarter of 2011 due to a typical summer market and the remaining impact of a slowdown due to the Japanese earthquake in March. The US-led grain season (including Europe and the Black Sea region) plus higher than usual sugar exports from Brazil provided additional demand, thereby creating a floor for the Pacific market, as vessels went in ballast to the more attractive market levels in the Atlantic.
The Capesize market rebounded first due to tightened availability of vessels and genuine re-stocking of commodities in the Atlantic and then a continued appetite for iron ore and coal in China. As a result, the Pacific spot market on Capesize more than doubled from around USD/day 11-12,000 to USD/day 25,000. Panamax was initially negatively affected by the swing, but then rebounded to USD/day 14-15,000 and Handymax returned to similar levels after a drop. After a quiet summer the short period market returned to a similar level as for the spot market.
The Atlantic spot market showed a similar trend, as Panamax dropped to USD/day 13,000 for Atlantic round voyages and increased to USD/day 17,000 as all segments were led by the stronger Cape market.
The number of newbuilding deliveries in the third quarter of 2011 continued at the high levels previously seen in 2011 with 53 Capesize, 61 Panamax and 81 Handymax vessels being delivered (source: SSY).
TORM’s Panamax time charter equivalent (TCE) earnings were in the third quarter of 2011 USD/day 12,140 or 41% below the third quarter of 2010. The realised third quarter 2011 TCE earnings for Handymax were USD/day 12,510, which is in line with the level in the previous quarter of 2011.
The Bulk Division’s results were a negative operating profit of USD 16 million. The main drivers were i) freight rates under pressure corresponding to a loss of USD 2 million ii) build up of the fleet with 18 vessels in anticipation of the US Gulf-Black Sea grain season with a negative third quarter effect of USD 7 million, which is hedged at a profit in the fourth quarter of 2011 and iii) a negative effect of USD 7 million from mark-to-market on bunker and FFA derivatives not qualifying for hedge accounting. Fleet development
No sale or purchase of vessels was concluded in the third quarter of 2011. Similarly TORM did not order any vessels in the third quarter of 2011. Thus the order book stood at four MR vessels and two Kamsarmaxes at the end of third quarter of 2011. Outstanding CAPEX relating to the order book amounted to USD 167 million. TORM’s current fleet is shown in the table below. At the end of the third quarter of 2011, TORM thus owned 67.5 product tankers and two bulk vessels. In addition, TORM had chartered-in 30 product tankers and 15 bulk vessels on longer time charter contracts (minimum one year contracts) and 25 bulk vessels on shorter time charter contracts (less than one year contracts). Another 26 product tankers were either in pools or under commercial management with TORM.a
The product tanker market experienced freight rates at low levels during the third quarter of 2011. Especially the freight rates in the larger segments, LR2 and LR1, suffered from the global economic uncertainty and oversupply of vessels. The US products imports fell by 29% in the third quarter of 2011, compared to the third quarter of 2010. The MR markets were affected by the traditionally weaker summer months, but spot rates on the Continent were slightly better than in the larger segments. The release of the Strategic Petroleum Reserves announced in June 2011 affected the markets negatively in August and September. Further, only limited arbitrage opportunities arose during the third quarter of 2011.
The bulk market continued to be under pressure in July and the first half of August driven by a typical summer market and the remaining impact of a slowdown due to the Japanese earthquake in March. The freight rates in the Pacific and the Atlantic markets improved during the later part of August and September. The main drivers were the US led grain season and higher than usual sugar exports from Brazil plus a continued appetite for iron ore and coal in China. The third quarter of 2011 continued to see a high influx of newbuildings in all the main segments.
As mentioned in announcement no. 18 dated 17 November 2011, TORM pursues long-term comprehensive financing solution. Therefore, TORM has entered into discussions with its banks and other main stakeholders. It is anticipated that a rights issue of up to USD 300 million will be a part of the comprehensive financing solution.
Net interest-bearing debt was up in the third quarter of 2011 to USD 1,836 million from USD 1,824 million as at 30 June 2011.
Undrawn credit facilities and cash totalled USD 237 million at the end of the third quarter of 2011, compared to USD 288 million as at 30 June 2011. Outstanding CAPEX relating to the order book amounted to USD 167 million. Equity amounted to USD 958 million as at 30 September 2011, equivalent to USD 13.8 per share, (excluding treasury shares), giving TORM an equity ratio of 31%.
By 30 September 2011, TORM had covered 25% of the remaining tanker earning days in 2011 at USD/day 13,925 and 5% of earning days in 2012 at USD/day 16,122. 97% of the remaining bulk earning days in 2011 are covered at USD/day 15,402 and 64% of the 2012 earnings days at USD/day 14,257.
TORM forecasts a loss before tax of USD 175-195 million for 2011 as stated in announcement no. 16 dated 31 October 2011.
Results
The result before tax for the third quarter of 2011 was a loss of USD 70 million, compared to a loss of USD 27 million in the same period of 2010. The result before depreciation (EBITDA) for the third quarter of 2011 was a loss of USD 17 million, compared to a gain of USD 23 million in the same period of 2010. The result for the third quarter of 2011 was not impacted by sale of vessels as also was the case for the same period of 2010. The Tanker Division reported an operating loss of USD 34 million in the third quarter of 2011, compared to an operating loss of USD 14 million in the same period last year. The Bulk Division had an operating loss in the third quarter of 2011 of USD 16 million, compared to a profit of USD 4 million in the third quarter of 2010. Other (not allocated) activities include a negative result from investments in joint ventures of USD 3 million, financial items of USD 17 million and tax of USD 0 million. Outlook and coverage
Since the second quarter release in August 2011, the global economic uncertainty and pressure on freight rates have persisted. In particular, the product tanker freight rates in the second half of 2011 have so far been lower than expected. As stated in announcement no. 16 dated 31 October 2011, TORM has revised its forecast for the full year to an expected loss before tax of USD 175-195 million. With 6,701 earning days for 2011 open as at 30 September 2011, a change of USD/day of 1,000 in freight rates will currently impact the profit before tax by approx. USD 7 million. As at 30 September 2011, TORM had covered 25% of the remaining earning days in 2011 in the Tanker Division at USD/day 13,925 and 97% of the remaining earning days in the Bulk Division at USD/day 15,402. The table below shows the figures for 2011 for the period from 1 October to 31 December. 2012 and 2013 are full year figures. Tanker Division
The product tanker freight rates have been adversely affected by the global economic uncertainty in the third quarter of 2011. In the West, the US products imports fell by 29% in the third quarter of 2011, compared to the same period of 2010. The gasoline demand was down by 3-4% year-on-year, and the US refinery production increased, especially due to the price spread between WTI and Brent crude. Finally, the release of the Strategic Petroleum Reserves announced in June affected the markets in August and September when the actual sale and release took place. On a positive note, September saw an increase in Brazilian imports, but it was not sufficient to offset the drop in the US imports and the release of products in Europe. The dirty market in the West continued at low levels, and most owners have traded below operating expenses levels for several months.
In the Far East, the naphtha demand dropped as a reflection of the uncertainty in the world economy. The large number of gasoil movements from East to West continued to be transported in Aframax and Suezmax newbuildings, taking a large part of especially the LR2 market. The fuel oil market in the Far East, which increased in activity and earnings in the second quarter of 2011, has in recent months dropped back to levels before the Japanese earthquake.
The global fleet has grown by ~5% year-to-date. The slippage in newbuilding deliveries was low in the third quarter, but in the first nine months of 2011 there has been delivered 82 vessels less than predicted ultimo 2010.
TORM achieved LR2 spot rates of USD/day 10,836 in the third quarter of 2011, which was 45% below the same quarter last year partly affected by vessels trading in the dirty segment. LR1 spot rates were at USD/day 9,841, down USD/day 5,333 from the previous quarter, due to the difficult tanker markets in the East. During the third quarter of 2011, TORM decided to close down the LR1 Pool, and the four remaining pool vessels have been redelivered in early October. The MR segment is TORM’s largest and it proved to be the best performing segment with spot rates of USD/day 11,749 in the third quarter of 2011. Nevertheless, this segment was down by USD/day ~2,000 from the same period last year and down by USD/day ~3,500 from the previous quarter. SR spot rates were USD/day 10,582. Bulk Division
The bulk market experienced low freight rates in the third quarter of 2011 due to a typical summer market and the remaining impact of a slowdown due to the Japanese earthquake in March. The US-led grain season (including Europe and the Black Sea region) plus higher than usual sugar exports from Brazil provided additional demand, thereby creating a floor for the Pacific market, as vessels went in ballast to the more attractive market levels in the Atlantic.
The Capesize market rebounded first due to tightened availability of vessels and genuine re-stocking of commodities in the Atlantic and then a continued appetite for iron ore and coal in China. As a result, the Pacific spot market on Capesize more than doubled from around USD/day 11-12,000 to USD/day 25,000. Panamax was initially negatively affected by the swing, but then rebounded to USD/day 14-15,000 and Handymax returned to similar levels after a drop. After a quiet summer the short period market returned to a similar level as for the spot market.
The Atlantic spot market showed a similar trend, as Panamax dropped to USD/day 13,000 for Atlantic round voyages and increased to USD/day 17,000 as all segments were led by the stronger Cape market.
The number of newbuilding deliveries in the third quarter of 2011 continued at the high levels previously seen in 2011 with 53 Capesize, 61 Panamax and 81 Handymax vessels being delivered (source: SSY).
TORM’s Panamax time charter equivalent (TCE) earnings were in the third quarter of 2011 USD/day 12,140 or 41% below the third quarter of 2010. The realised third quarter 2011 TCE earnings for Handymax were USD/day 12,510, which is in line with the level in the previous quarter of 2011.
The Bulk Division’s results were a negative operating profit of USD 16 million. The main drivers were i) freight rates under pressure corresponding to a loss of USD 2 million ii) build up of the fleet with 18 vessels in anticipation of the US Gulf-Black Sea grain season with a negative third quarter effect of USD 7 million, which is hedged at a profit in the fourth quarter of 2011 and iii) a negative effect of USD 7 million from mark-to-market on bunker and FFA derivatives not qualifying for hedge accounting. Fleet development
No sale or purchase of vessels was concluded in the third quarter of 2011. Similarly TORM did not order any vessels in the third quarter of 2011. Thus the order book stood at four MR vessels and two Kamsarmaxes at the end of third quarter of 2011. Outstanding CAPEX relating to the order book amounted to USD 167 million. TORM’s current fleet is shown in the table below. At the end of the third quarter of 2011, TORM thus owned 67.5 product tankers and two bulk vessels. In addition, TORM had chartered-in 30 product tankers and 15 bulk vessels on longer time charter contracts (minimum one year contracts) and 25 bulk vessels on shorter time charter contracts (less than one year contracts). Another 26 product tankers were either in pools or under commercial management with TORM.a