DIRF. Martin Badsted Senior Vice President. Copenhagen, February 2010

Transcription

1 DIRF Martin Badsted Senior Vice President Copenhagen, February 2010 THE PREFERRED PARTNER IN GLOBAL TRAMP SHIPPING. UNIQUE PEOPLE. OPEN MINDED TEAM SPIRIT. NUMBER ONE. Dampskibsselskabet Presentation of NORDEN NORDEN Risk Management/ A/S 52 Strandvejen February DK Hellerup 1

2 AGENDA NORDEN in brief Shipping basics Risk management in NORDEN 2

3 NORDEN AT A GLANCE Dry Cargo Tanker Capesize LR1 Post-Panamax MR Panamax Dry Cargo offices Tanker & Norient Product Pool offices Handymax Handysize Port Captains Site offices at Shipyards Leading global tramp operator within Dry Cargo and Product Tanker Flexible, asset light business model with asset upside through purchase options 176 active vessels in one of the industry s most modern fleets Strong balance sheet with net cash of +USD 700 million Handysize 3

4 ASSET LIGHT BUSINESS MODEL Flexible fleet Coverage & customer focus Total capacity* Coverage Asset play Technical competences in-house Owned (20) Contracts of Affreightment Customer relations Logistical efficiencies Option based flexibility 5-7 year firm periods Chartered w. POP (31) TC out 2-5 year firm periods FFA market Quick and easy cover Flexibility / adds scale Arbitrage Single trip charters Other chartered (125) Spot market People Brand Systems *Note: Figures indicate active fleet, Dry Cargo and Tanker as end of Q

5 2008 CAPACITIES Dry Cargo Tanker Ship Days 100% = 68,172 3% Ship Days 100% = 9,276 5% 9% Capesize Aframax Panamax 25% MR 36% 52% Supramax Handysize 67% 4% LR1 Handysize Cargo volumes 100% = 23.2 million tons 2% 9% Coal 9% 10% 15% 17% 37% Salt Bauxite Iron ore Cement/clinker Grain Other Cargo volumes 100% = 23.2 million tons 7% 5% Fuel oil Gas oil 17% 22% 49% Benzin Other Naphta 5

6 LARGE, VALUABLE ASSETS Soccer field 110 m 5Y S/H Prices (Mill. USD) 30/06/ /12/2009 Handymax 190 m Panamax 225 m Capesize 290 m Source: Baltic Exchange 6

7 SHIPPING BASICS MARKET STRUCTURE Vessel owner Spot voyage Timecharter contract Bareboat contract Cargo owner/ importer Operator Operator Risk picture is complex and dynamic Shipping resembles interbank market every player can be both customer, competitor and supplier Exotic regions + low entry barriers = special counterpart challenges Fairly liquid secondary market for vessel leases = many tools to manage risks 7

8 SHIPPING BASICS VOLATILITY IS EXTREME Capesize, Average spot Spot earnings, Earnings, /00-built USD/Day % in 6 months -99% in 6 months Oil price Currencies Interest rates jan-07 mar-07 maj-07 jul-07 sep-07 nov-07 jan-08 mar-08 maj-08 jul-08 sep-08 nov-08 jan-09 mar-09 maj-09 jul-09 sep-09 nov-09 jan-10 8

9 RISK MANAGEMENT IN NORDEN Purpose Actively take risks, which we believe we should own and can make money on Proactively reduce / minimize all other risks Continuous monitoring of total exposure by risk category Market risk Counterpart risk Default risk Operational risk 9

10 ASSET LIGHT BUSINESS MODEL CATERS FOR MANAGEMENT OF MARKET RISK Building market exposure... Closing market exposure year assets Value risk Total capacity* Owned (20) Coverage Contracts of Affreightment Often years but longest is 15 years Secure freight income Remains: Oil price risk and operational risks 5-7 year firm periods Extention and purchase options 30 days 3 years Flexibility Arbitrage Chartered w. POP (31) Other chartered (125) TC out FFA market Spot market 1-5 year firm periods Fixed income per day Operational risk remains Paper derivatives Basis risk remains Cleared = minimal counterpart risk How much and where on the curve do we want exposure? Short term positioning changes week by week following management discussion Annual strategy planning defines fundamental view of market direction Scenario planning used in strategy process to identify new potential risks and opportunities, and estimate sensitivities to market movements *Note: Figures indicate active fleet, Dry Cargo and Tanker as end of Q

11 RISK MANAGEMENT IN NORDEN Proactively reduce / minimize all other risks... Market risk Hedge oil price exposure Hedge fixed, known currency exposures Cash balance only in short term deposits Counterpart risk Credit ratings of all counterparts Refundment guarantees on newbuilding contracts Downpayment on vessel sales Cash placed with large reputable banks Default risk Monitor gross and net gearing based on adj. Debt including all off-balance sheet items Maintain cash cushion (liquidity risk) Strict gearing and cash limits approved by Board Operational risk Insurance (mainly total loss) Culture & education (voyage calculations, legal issues, operational excellence) IT disaster recovery 11

12 WE TRY TO HEDGE REAL EXPOSURE NOT P&L EXPOSURE Focus is to improve predictability of real operating earnings not reported earnings Requirement to fully mark-to-market approximate hedging instruments is disadvantage In 2008, fair value adjustments exacerbated NORDENs earnings volatility Mill. USD Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Net Profit ex. IAS 39 IAS 39 12

13 MONITORING OF ADJ. NET DEBT AND CASH Net interest bearing assets and liabilities adjusted for off-balance sheet items to calculate Net commitment To avoid over-exposing the company, a limit is set by the Board for maximum gearing (netcommitment / book equity) Similarly a limit is set for minimum available cash in relation to next 12 month cash requirement Illustrative Free capital = limit minus net commitment Current gearing ~0,3x book equity TC debt N/B obl. Cover Net cash Net commitment 1.5x book eq. 13

14 EXTERNAL REPORTING OF EXPOSURE 14

15 HOW DID IT WORK IN THE ULTIMATE STRESS TEST? Active dry cargo fleet Active fleet - Dry Bulk Active fleet down 40% in 6 months Fleet flexibility proved valuable Rapid reduction of costs Full utilization of remaining fleet Probably the strongest financial position in the industry Ready to exploit opportunities Considered a safe haven by customers Disadvantage: Probably less room to renegotiate expensive contracts Good counterpart portfolio but too early for final conclusions Overwhelming majority of counterparts perform as agreed...but a handful of very expensive failures so far 0 Q Q Q Q Q Q Q A number of important lessons to improve further 15

16 FORWARD LOOKING STATEMENTS This presentation contains certain forward-looking statements reflecting the management s present judgment of future events and financial results. Statements relating to the remainder of 2009 and subsequent years are subject to uncertainty, and NORDEN s actual results may therefore differ from the projections. Factors that may cause such variance include, but are not limited to, changes in macro-economic and political conditions, particularly in the Company s principal markets; changes to the Company s rate assumptions and operating costs; volatility in rates and tonnage prices; regulatory changes; any disruptions to traffic and operations as a result of external events, etc. The presentation should not be interpreted as a recommendation to trade shares in Dampskibsselskabet NORDEN A/S. 16

17 THANK YOU FOR YOUR ATTENTION Q&A Session 17