Presentation of Q2 2009 results 1
Highlights • Profit before tax for the first six months of 2009 was USD 7 m and lower than expected Results • A loss of USD 33 m was posted for the second quarter. The result was affected by lower freight rates and negative mark-to-market non-cash effects of USD 25 m • Break-even result assuming no further vessel sales Guidance for full year • Global oil consumption decreased more than expected which lead to lower demand for Tanker Division transportation of refined oil products • A historically high number of newbuildings came into the market • Fuel costs increased significantly during the quarter both in absolute terms and relative to the crude oil • Freight rates were higher than expected driven by increased Chinese demand for iron ore and Bulk Division coal • Continued pressure on tanker vessel values ,but the market remains very illiquid and there are Vessel values no transactions with “willing seller - willing buyer” • TORM’s efficiency programme is almost fully implemented Greater Efficiency Power • In Q2, TORM realised reductions of 10% onaverage on OPEX/day and still aim to realise total reductions of 15-20% compared to 2008 • Savings of USD 40-60 m will be achieved from 2010 • Cash and unused credit facilities of app. USD 400 m Financial position 2
Company facts Tanker market was very depressed in the second quarter Tank market Dry bulk market Finance Strategy Freight rates (MR and LR’s ) TORM’s Tanker Division had an EBITDA of USDt USD 19 m in the second quarter of 2009 MR1 spot rates and 1 year T/C rates 50 Relative to the second quarter of 2008, freight 40 rates realized by TORM were 51% lower for the LR2 segment, 32% lower for the LR1 30 segment and 34% lower for the MR segment, 20 respectively 10 Low demand for tonnage, and at the same time a large number of newbuildings came into 0 the market Jan/08 Apr/08 Jul/08 Oct/08 Jan/09 Apr/09 Jul/09 MR spot rates MR 1 year T/C rates Main positive factors: • Arbitrage on gasoline from Europe to USDt LR1 and LR2 spot rates and 1 year T/C rates the Middle East and arbitrage on 90 middle distillates from the Far East to 80 Europe 70 • Floating storage (LR1 and LR2) 60 • Slow steaming 50 40 • Increased naphtha demand in the Far 30 East (LR1 and LR2) 20 10 Main negative factors: 0 • Decline in global oil demand Jan/08 Apr/08 Jul/08 Oct/08 Jan/09 Apr/09 Jul/09 • Higher bunker costs • Declining number of port days LR1 spot rates LR1 1 year T/C rates • Limited backhauls from the US to LR2 spot rates LR2 1 year T/C rates Europe (MR) 3 *Source: Clarksons • A large number of newbuildings came into the market
Company facts The depressed market was a result of a number of Tank market Dry bulk market Finance negative factors Strategy Oil demand decreased more than expected Less transport of products also reduced port days 2009 World Oil Demand est.* (m bpd) 89 50.0% Port days as percentage of total days 40.0% 87 30.0% 20.0% 85 10.0% 83 0.0% 2004 2005 2006 2007 2008 2009 Aug/08 Oct/08 Dec/08 Feb/09 Apr/09 Jun/09 Orderbook for 2009 is all time high Fuel costs almost doubled in first half of 2009 USD/day Bunker fuel price Product tankers by year of construction 450% 12000 300 400% 11000 250 No. of vessels 350% 10000 300% 200 9000 250% 8000 150 200% 7000 100 150% 6000 100% 50 5000 50% 0 0% 4000 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 -50 LR2 LR1 MR Bunker fuel costs Fuel costs relative to MR rates 4 *Consensus is average iof IEA, EIA and OPEC **Source TORM research
Company facts But the long term fundamentals are still attractive Tank market Dry bulk market Finance Strategy A number of factors support long term fundamentals World Oil Demand (m bpd)* 87 • Oil demand expected to rebound in 2010 86 • Regional product imbalances is expected to increase in short and medium 85 term 84 • New refineries cost advantage expected to pressure older refineries out of the market 83 2006 2007 2008 2009 2010 • Current market conditions increases the possibility of cancellation of new buildings and consolidation of the market Phase out (of single hulls) 2009-2011 • Scrapping of single hulls likely to be accelerated 140 120 No. of vessels • No terminal expansions and this will increase the number of waiting days 100 80 when demand rebounds 60 40 • Slow steaming will continue in periods with high bunker prices 20 - • Vessels used as storage capacity is a trend that is expected to continue as MR LR1 LR2 Total it gives traders great flexibility in volatile markets Actual Converted to standard MRs Tonnes miles will increase as demand rebounds and new refineries regain cost advantage Current depressed market can end up improving supply picture through accelerated scrapping, cancellations and 5 consolidation *IEA
Product Tanker market – balance between supply and Company facts Tank market Dry bulk market Finance demand Strategy Based on TORM’s research there appear to be a good balance between increase in demand and supply in 2011 Demand and supply development in the Product Tanker market (2009-2011) Demand is primarily driven by: • New refineries coming on stream Demand Supply 1,000 Number of vessels* in Middle East and India 111 • Phase out 750 98 • Increased oil demand – negative 51 119 in 2009 but positive over the 70 500 913 period 68 546 4 • Increasing port days due to 404 534 250 bottlenecks 0 Supply side affected by: Growth in oil Increasing port Total supply Total demand LR1 into dirty LR2 into dirty Arbitrage Swing factors Order book gross expansions Phase out Cancellations • 37 LR1 vessels are replacing Refinery increase demand increase market market phase outs in the crude oil Est. days segment • 30% of LR2 vessels are expected (on average) to trade in the crude oil segment • Expected cancellations of 15% as a consequence of the financial crisis *The number of vessels reflects MR vessels – when necessary a conversion factor for LR2, and LR1 have been used A number of swing factors can based on their DWT relative to MR change the picture: • Delays in order book • Delays in refineries • Slow steaming 6 • Clean to crude swap
Company facts The value of pools materialize in a pressured market Tank market Dry bulk market Finance Strategy TORM’s Pool Business Model… TORM founded it’s first pool in 1990 and today operates three pools: .. has a number of advantages • LR2*: 30 vessels • Better optimization and planning LR1: 30 vessels • MR: 35 vessels • With a number of longer term contracts it is possible to triangulate Vessel owners Customers • Example from LR1 pool: 1 2 • Gasoline: Mediterranean-> Arabian Gulf • Naptha: Arabian Gulf -> Taiwan Reduced idle and • Middle destillates: Far East -> 6 3 ballast days Mediterenean POOL More stable earnings Less exposed to specific markets Cost advantages • As MR rates in the Far East were very low a 4 5 number of small players suffered as they TORM Suppliers were fully dependent on this market 1. Owners make vessels available for pool Stronger negotiation position 2. Customers charter vessels for one or more • Agents voyages • Customers 3. Customers pay charter hire to pool • Suppliers 4. Voyage related costs 5. Management fees to pool manager 6. Pool income distributed to members, based on point system and availability to pool 7 *Operated together with Maersk Tankers
Company facts Vessel prices have continued to decline and S&P activity is Tank market Dry bulk market Finance very limited Strategy Vessel price development* MR newbuild and second hand prices USDm New building and second hand prices 55 have continued to decline in the second 50 quarter of 2009 45 However, there is currently very limited 40 activity in the market and it is therefore difficult to estimate a realistic price level 35 30 Furthermore no new buildings have been ordered in the last 3-4 quarters 25 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 47-51,000 DWT Products Tanker Newbuilding Prices 47,000 DWT 5 year old secondhand prices MR - 1 year T/C and second hand prices (indexed) 200 180 160 140 Rates and second hand prices are 120 relatively well correlated and as the TC 100 market continues to decline slowly due to 80 the very low spot rates the vessel prices 60 are still under pressure 40 20 0 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 47,000 DWT 5 year old secondhand prices (index) 1 Year Timecharter Rate 47-48,000 Modern Products Tanker - index 8 *Source: Clarksons and TORM research
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