Interimreport 9 months Concordia

OUR POSITION INTERIM REPORT FOR CONCORDIA MARITIME AB (publ) 1.1 - 30.9 1999 * Result for the period SEK -14.2 million (112.3) * Reported equity per share after full conversion SEK 20.04 (19.80) * Weak tanker market: 45% lower time charter net compared with previous year * Oil price doubled since 1 January - positive for FPSO projects - negative due to high bunker costs * Low oil stocks could result in more shipments * Continued effective ship operation SALES AND RESULT Consolidated sales during the first nine months amounted to SEK 587.4 (893.7) million. The result after financial items was SEK -14.2 (112.3) million and the result per share after tax was SEK -0.49 (4.29) and SEK -0.02 (2.65) after full conversion. VLCC During the period Concordia's five VLCCs (Very Large Crude Carriers) were employed on the spot market. The average freight rate was USD 15,400 (28,100) per day. A freight rate of USD 19,000 per day in 1999 is required to reach break-even, i.e. to cover the vessels' daily running costs and capital costs. ULCC The average freight rate for Concordia's ULCCs (Ultra Large Crude Carriers) STENA KING and STENA QUEEN was USD 21,200 (37,400) per day. The vessels are employed on the spot market. The break-even level for these vessels is USD 20,000 per day in 1999. OTHER VESSELS The product tanker STENA BARBADOS and the self-discharging salt carriers KURE and CONVEYOR are signed to satisfactory charters with Texaco and Mitsubishi, respectively. DRY-DOCKING The salt carrier KURE will be dry-docked in November. The next dry-docking of the fleet is planned for September, 2000, when shipyard maintenance will be carried out on the STENA KING. The loss of income from the dry-dockings will be charged to the result while allocations for the docking costs are distributed evenly over the period between dry-dockings. MANAGEMENT AND OPERATION The daily running costs for our vessels have remained at a low level at the same time as their high operational and technical quality has been maintained. Concordia's owned VLCCs will be operated in accordance with HBL from the end of the year. The majority of the large oil companies and all the major oil traders have approved Concordia's vessels for the transportation of oil in accordance with Hydrostatically Balanced Loading, HBL The high oil prices have resulted in sharply increasing bunker prices during the year. The effect of this has been reduced by about SEK 20 million during the year by purchasing oil and selling it at a later date. TWO STENA V-MAX NEWBUILDINGS Construction of the two tankers ordered at Hyundai Heavy Industries for charter to Sun Oil is planned to begin shortly with delivery set for the first half of 2001. The work on the details of their design is proceeding according to plan and we expect the tankers to be delivered in time and to be as efficient and first-class as planned. NET WORTH Concordia's fleet was appraised by three independent brokers on 15-06-1999. The value of the fleet according to these appraisals was USD 164.0 million. On 30-09-1998, the appraised value was USD 197.9 million. The decline in value is thus 17%. The appraisals exceed book value by more than SEK 200 million. On 30-09-1999, net worth, excluding deferred tax, was SEK 34.50 (41.05) per share and SEK 24.58 (28.29) after full conversion. The SEK/USD exchange rate was 8.20 (7.86) on 30-09-1999. Equity per share, after full conversion, is SEK 20.04 (19.80). LIQUIDITY AND INVESTMENTS The Group's disposable liquid funds, including unutilised credit facilities, amounted to SEK 700.6 (284.3) million while the corresponding figure on 31-12- 1998 was SEK 128.1 (196.2) million. The increase in the Group's liquidity is the result of a bank loan of USD 165 million raised during the spring which replaced an earlier bank loan of USD 65 million. This loan is intended to refinance the existing fleet and finance the two Stena V-MAX design VLCCs ordered at the end of 1998. Concordia's subsidiaries sold bonds, purchased in 1998, at a profit of SEK 6.5 million. This had a positive effect on the financial net. RELATED COMPANY TRANSACTIONS - CHARTER COOPERATION WITH STENA BULK At the beginning of this year, the joint charter business between Concordia and Stena Bulk consisted of one VLCC and two Aframax tankers. The Aframax tankers were redelivered during the year while the charter period for the VLCC, which is trading on the spot market, expires at the beginning of the year 2000. The collaboration with other departments in Stena, such as Technical, Finance, Bunker and Assurance, remains unchanged. In June, 1999, Concordia received an offer, via Stena Bulk and Chase Securities, to participate in an investment in two new VLCCs, with an option on a third VLCC, ordered by Golden Ocean. The duration of the investment was five years. Concordia's board decided to turn down the offer since the company had recently made a major investment in the order of two V-MAX tankers. Stena Bulk then decided to conclude the deal on its own account. INVESTMENTS Investments during the period totalled SEK 287 million, of which SEK 147 million were made in the third quarter. A substantial portion of the investments consists of part payments relating to the VLCCs under construction in South Korea. Investments were negligible during the same period, last year. PARENT COMPANY The Parent Company's sales totalled SEK 23.5 (22.8) million. Intergroup invoicing accounted for SEK 5.7 (7.6) million of this amount. The result after financial items was SEK -12.6 (-39.6) million. The difference in result is due to exchange rate changes affecting receivables to foreign subsidiaries. In the Group, this currency effect is charged directly to equity and does not affect the result for the year. The Parent Company's disposable liquid funds, including unutilised credit facilities, amounted to SEK 11.1 (4.2) million while the corresponding figure on 31-12-1998 was SEK 6.7 (13.6) million. There were no investments during the period. MARKET Demand for VLCCs At the beginning of the year, oil prices fell to historically very low levels, below USD 10 per barrel, even though OPEC had cut production earlier. However, immediately after OPEC's decision in mid-February to further reduce oil production by a total of 15%, oil prices began to rise rapidly. In many cases, the oil companies sold oil which they had previously stockpiled in anticipation of an upswing in prices. As a consequence of this, the demand for oil transportation by VLCC and ULCC from the Middle East and West Africa dropped which resulted in lower revenues for these vessels. On top of this, the bunker price doubled and this reduced revenues still further. [REMOVED GRAPHICS] Source: Lorentzen & Stemoco World-wide, stocks of crude oil are at a historically low level. This is a result of the oil companies having tried as long as possible to avoid buying expensive oil at world market prices and, instead, using their own stocks of oil purchased when prices were lower. This strategy is utilised particularly when falling prices are anticipated. Oil consumption during the fourth quarter is expected to rise as the result of colder weather which, in turn, could generate higher demand for large-tanker tonnage. Supply of VLCCs The market improvement anticipated by Concordia is uncertain and is dependent on how OPEC acts, which affects both volumes and freight rates. The addition of new tonnage must be balanced by scrapping in order to avoid increases in the supply of VLCCs. VLCC Delivered Order-book Scrapped to date 1998 13 15 1999 23 12 19 (Jan.-Oct.) 2000 42 2001 27 As shown in the table above, deliveries from the newbuilding yards have been more or less balanced by a corresponding scrapping level. Today's bunker price, combined with a mediocre freight market, is resulting in large losses for the large-tanker shipping companies. Previously, the scrapping rate at such low freight-rate levels was high - about 30 vessels per year. Consequently, the necessary conditions exist for continued scrapping of older tonnage. High oil prices advantageous for conversion into offshore units (FPSO) With high oil prices world-wide, the oil companies are expanding their investments in fixed and floating production units. Several major oil companies have shown interest in purchasing one or more of Concordia's VLCCs. We are currently analysing and evaluating as well as negotiating with respect to these business opportunities. FORECAST FOR 1999 The freight market continues to be weak. With freight rates of about USD 13,000 per day for VLCCs and USD 19,000 for ULCCs during unfixed days, the full-year result before tax would be in the region of SEK -48 million. Concordia continues to anticipate a loss of between SEK 40 and 50 million. This would correspond to between SEK -1.47 and SEK -1.84 per share and between SEK -0.84 and SEK -1.04 per share after full conversion. SENSITIVITY ANALYSIS A change in the earnings level of USD 1,000 per day for the remainder of 1999 will affect Concordia's result by about SEK 4 million. Y2K PROBLEM The program initiated in 1997 to deal with the transition to the year 2000 is proceeding as planned. Equipment and systems which could cause problems were identified in 1998. A small number of systems on each ship have been marked for further examination. Safety checks of these systems were completed in August. Concordia does not anticipate any Y2K problems with its own ships. REPORTS The result for the whole of 1999 will be reported on 25 January. In addition to the presentation of the result for the whole of 1999, Concordia also publishes three interim reports. Further information may be obtained from Lars Carlsson, President, (tel. +46 31-85 50 03 or mobile +46 704-85 50 03) or Jan-Erik Hammer, Financial Manager, (tel. +46 31-85 50 46 or mobile +46 704-85 50 46). Gothenburg, 21 October, 1999 CONCORDIA MARITIME AB (publ) Lars Carlsson President This report has not been examined by the Company's accountants. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/25/19991025BIT00210/bit0001.doc The full report http://www.bit.se/bitonline/1999/10/25/19991025BIT00210/bit0002.pdf The full report