The new Group reports a strongly improved operating profit, largely due to the positive trend in the offshore market

 

Outcome January - March
- Net sales SEK 665 M (639)
- Profit before depreciation SEK 182 M (80)
- Pretax profit SEK 118 M (19)
- Net earnings per share
- after full tax SEK 3.80 (0.60)
- after current tax SEK 3.90 (0.60)

 

Earnings for the period, in accordance with the new IFRS rules and as a direct result of the merger with Gorthon Lines, were charged with SEK 74 M for the dissolution of negative goodwill

 

Full-year earnings, excluding capital gains and losses and IFRS effects, are expected to be improved compared with the pro forma results for 2004

 

Transatlantic's operations

 

Rederi AB Transatlantic was formed as a result of the merger of B&N Nordsjöfrakt AB and
Gorthon Lines AB.

 

Transatlantic conducts shipping operations in an organization comprising four divisions; Transatlantic Services, European Services, Icebreaking/Offshore and Dry Cargo. Transatlantic and European Services, as well as the Dry Cargo business area, specialize in contract shipping, primarily for the forest products and steel industries.

 

The operations of the Icebreaking/Offshore business area are based on combination vessels on long-term contracts and guaranteed income from icebreaking, in addition to other deployment, mainly for rig-relocation in the offshore market.

 

Transatlantic's business concept is to market, develop and deliver the market's most efficient transport solutions in close and active cooperation with customers.

 

Transatlantic's goal is to be the market leader in its segments, with profitability that generates a favorable return for the company's shareholders. This is to be achieved financially by attaining a return of 12% on shareholders' equity and maintaining an equity/assets ratio that does not fall below 30%.

 

General developments during the first quarter

 

The operational and financial merger of B&N Nordsjöfrakt and Gorthon Lines was completed in March. However, in terms of reporting, the companies are regarded as merged from January 1, 2005. At the Annual General Meeting of B&N Nordsjöfrakt on March 18, a decision to change the name of the Parent Company to Rederi AB Transatlantic was approved and this became the name of the merged company that was listed on the Stockholm Stock Exchange for the first time on March 29, 2005.

 

The favorable shipping economy that prevailed in 2004 continued during the first quarter of 2005. This meant that cargo availability was positive and, consequently, the demand for tonnage was extensive.

 

In Transatlantic Services, westbound capacity utilization was high, while cargo availability for traffic from the US and Canada was initially weak, but grew successively during the period. However, several breakdowns had a negative effect on operations. In January, a new bulk vessel of 16,700 DWT was delivered to the division. Earnings were somewhat better compared with the year-earlier period.

 

 

 

The European Services Division's operations developed according to plan for container traffic, and contract-based bulk traffic continued to report growth in terms of volume and earnings. Earnings improved compared with the year-earlier period.

 

Within the Icebreaking/Offshore Division, the demand for tonnage was extremely strong and the freight rates improved. Earnings rose considerably compared with the preceding year.

 

The Dry Cargo market remained strong. However, freight levels were lower than in the year-earlier period, but nonetheless at a historically very high level. Earnings were strengthened compared with the year-earlier period. The considerations announced earlier regarding a possible divestment of the Dry Cargo Division resulted in the initiation of a sales process and concrete negotiations are in progress.

 

Consolidated earnings

 

The Group's net sales rose by 4% and amounted to SEK 665 M (639) for the period. The comparative data for the preceding year, as in the following, were calculated pro forma for the new Group.

 

Profit after depreciation amounted to SEK 135 M (38) and the Group's profit after net financial items totaled SEK 118 M (19). Earnings were affected by restructuring items amounting to SEK 6 M (0), and a dissolution of negative goodwill, in accordance with IFRS, of SEK 74 M.

 

 

Earnings per share after full tax amounted to SEK 3.80 (0.60)

 

Transatlantic Services

 

The Transatlantic Services Division, operated by the wholly owned subsidiary Transatlantic Services, comprises three units, which cooperate on tonnage and customer contracts, with the aim of increasing capacity utilization and capitalizing on identified synergies.

 

In LoLo operations, which employ six vessels for the transport of such bulk goods as timber, steel and paper pulp, cargo availability was favorable during the period. Cooperation with the Canadian shipping company Kent Line was developed further. Compared with the corresponding period in 2004, large volumes were transported at better freight rates and the unit improved its earnings despite the negative impact of high costs for bunker oil and difficult weather conditions, with ice obstructions, in Canada.

 

A number of major incidents involving vessels had a negative effect on both of the Division's units. Extensive repairs needed to be conducted on the vessels Alida Gorthon and Acacia following damage resulting from difficult ice and weather problems. The vessel Corner Brook was taken out of service after a fire in the engine room and replaced by chartered tonnage. The Corner Brook was divested in April.

 

After a somewhat weak start, the cargo availability for the RoLo unit, as well as the division's traffic along the East Coast of the US developed according to plan and capacity utilization was generally satisfactory. However, the incidents described above had a negative impact on the units' productivity and earnings were less than in the corresponding quarter in 2004. In April, the tonnage situation has again been adapted to demand and improved productivity is anticipated.

 

In January, a new bulk vessel of 16,700 DWT was delivered from a shipyard in China. During the first quarter, the vessel was deployed in transatlantic operations, which employ a total of 17 vessels.

 

The Division's earnings for the first quarter amounted to SEK 1 M (0).

 

European Services

 

The operations, conducted by the subsidiary Transatlantic European Services, comprise scheduled container traffic to the UK and Germany, and contract-based bulk traffic within Europe.

 

During the period, container traffic developed positively and several new customer contracts have been added for 2005. Measures were also taken to secure the unit's long-term access to vessel capacity.

 

European bulk traffic continued to demonstrate stability and improved earnings. One vessel was divested in April and was replaced by chartered capacity.

 

As a result of the merger of B&N and Gorthon Lines, the Division has had the addition of a unit for systems traffic and forest products in terms of reporting. The unit also includes responsibility for building and financing of three specially adapted RoRo vessels for StoraEnso, a project in which Transatlantic has assumed the role of organizer and has responsibility for building and ship management.

 

The Division's earnings amounted to SEK 7 M (4) for the quarter.

 

 

 

Icebreaking/Offshore

 

The offshore market continued to strengthen during the first quarter of the year. The high price of oil and increased activity in terms of oil extraction and exploration resulted in highly favorable demand for tonnage, with strong rises in freight levels as a result. During the first quarter, which is normally a weak offshore period, freight rates rose to levels that even exceeded the record year of 2001. Accordingly, the deployment and degree of utilization and earnings for the three AHTS-class combination vessels were considerably better than in the year-earlier period. A strong offshore market is also expected for the remainder of the year.

 

The mild winter of 2005 meant that there were no icebreaking assignments from the Swedish and Estonian Maritime Administrations. However, under the contracted terms, a basic fee was received from the Swedish Maritime Administration.

 

The Division's earnings for the period January-March amounted to SEK 25 M (9).

 

Dry Cargo

 

The dry cargo market remained strong during the period. The market was characterized by China, India and other countries' need for raw materials and energy consumption. The long waiting times in ports in both Asia and Europe created further needs for vessel capacity, albeit temporary.

 

Cargo levels and prices for charter tonnage were at a historically high level during the period, but somewhat lower than during the first quarter of 2004. New production prices of Panamax vessels have also increased, as have delivery times from the world's shipyards. The strong demand has also impacted the prices for used tonnage, which have increased by about 20% compared with the price structure that prevailed six to eight months ago.

 

The Dry Cargo Division, operated by the Transbulk subsidiary, expanded its customer-contract portfolio during the period. The vessel Kookaburra was leased out and reported a somewhat better result than in the preceding year.

 

The Division's earnings amounted to SEK 15 M (13) for the period. The favorable market resulted in an improvement in the Division's business opportunities, while considerable surplus value was accumulated in the long-term charter contracts with call options that were signed earlier. In relation to this, the Board has been considering a divestment of the Division for some time and has also started an organized selling process, resulting that negotiations now are in progress.

 

 

 

Miscellaneous

 

The newbuilding project for StoraEnso involving three RoRo vessels is proceeding according to plan.

 

As mentioned above, a new bulk vessel was delivered to the Transatlantic Services Division in January.

 

The earlier reported sale of the two RoRo vessels Forte and Largo was completed and a capital gain of approximately SEK 9 M was recorded in the accounts for the first quarter.

 

In the report, a provision of SEK 3 M was made for estimated costs for the restructuring of Transatlantic's operations in the Netherlands.

 

The new IFRS rules had an effect of SEK 74 M on the earnings for the quarter. Negative goodwill, which occurred in the Group through the merger with Gorthon Line, was immediately dissolved and reorganized in shareholders' equity in the income statement.

 

Significant events after the end of the period

 

The 6,380 DWT bulk vessel was divested in April, with a capital gain of SEK 9 M. This amount will be reported in the interim report for the second quarter.

 

The contract for the sale of the side-door vessel Corner Brook was finalized in April. No capital gain is expected to occur.

 

Investments and divestments

 

Investments during the first quarter of 2005 amounted to SEK 24 M (231) and pertained mainly to the delivery of a new bulk vessel for transatlantic operations. In the first quarter, the vessels Forte and Largo were sold and delivered with a divestment gain of SEK 9 M.

 

Financial position

 

At the end of the period, the Group's disposable liquid assets, including unutilized credit facilities, amounted to SEK 295 M (SEK 262 M at December 31, 2004). The equity/assets ratio amounted to 27% at the end of the period (26% at December 31, 2004).

 

Parent Company

 

The Parent Company's operations comprise the Group operations and Group-wide expenses and central financial items. Sales by the Parent Company amounted to SEK 180 M (227) for the quarter. Net loss amounted to SEK 5 M (loss: 7) for the quarter. Total assets at the end of the period amounted to SEK 1,271 M (SEK 1,395 M at December 31, 2004). At the end of the period, the Parent Company's liquid assets totaled SEK 144 M (SEK 190 M at December 31, 2004). Investments were made during the period in an amount of SEK 4 M (225), pertaining mainly to the newbuilding of a new bulk vessel.

 

IFRS (International Financial Reporting Standards)

 

This report has been prepared in accordance with the IFRS rules, which apply to listed companies as of 2005. New rules and recommendations could be added during the year, which could affect the final values reported for full-year 2005.

 

The consequences of IFRS adaptation for the Transatlantic Group are presented in a special section of the financial report on the following pages. The Group has been affected to a limited extent and is subject to IAS 39, which refers to reporting of financial instruments.

 

Outlook for 2005

 

The generally favorable business environment for shipping is expected to continue for the remainder of the year and have a positive impact on the Group's development and earnings. The effects of the merger and the improved offshore market mean that the Group's earnings are expected to improve in 2005, compared with fiscal 2004, regardless of the application of the new IFRS rules and effects of any divestment of the Dry Cargo Division.

 

Financial reports 2005:
Second quarter: August 17
Third quarter: October 26
Year-end 2004: February 2006

 

Skärhamn, April 28, 2005
Rederi AB Transatlantic
Corp. Reg. no. 556161-0113

 

Board of Directors

 

For further information, please contact the President, Håkan Larsson, or
the Executive Vice President, Hans Carlweitz, telephone +46 304-67 47 00

 

 

 

(For complete report see attached file)