Presentation of Q3 2009 results 1
Highlights • Profit before tax for the first nine months of 2009 was USD 11 m in line with latest forecast Results • Profit before tax for Q3 was USD 4 m, including: • positive impact of USD 21 m from the sale of two bulk carriers • negative impact of USD 7 m from non-cash mark-to-market adjustments • Q3 gross profits better than Q2 primarily driven by Bulk and lower Opex levels • TORM maintains forecast of a profit before tax of around break-even Full year guidance • Market is still suffering from negative impact of low global oil demand and influx of new tonnage Tank division • LR1 and LR2 rates picked up considerably towards the end of the quarter • TORM’s MR Pool has realised spot rates of USD/day 12,580 – significantly above market benchmark – reflecting the significant value of the pools in the low market • Bulk Panamax rates fell back in mid Q3, but ended at the same level as they started Bulk division • Due to high coverage the effect from spot rate development was limited to TORM’s earnings • 2009 Q4: 49% in Tanker Division at USD/day 19,227 and 85% in Bulk Division at USD/day 17,050 Coverage of earning days • 2010: 24% at USD/day 20,033 in Tanker Division and 46% at USD/day 16,650 in Bulk Division • The long-term earnings potential of the fleet supports the book value Fleet value • Continued pressure on tanker vessel values – but market remains illiquid • TORM has in Q3 realised reductions of 12% on OPEX/day compared to Q3 2008 across the fleet Greater Efficiency Power • Administration costs have been reduced by 21% in Q3 compared to Q3 2008 • Savings of USD 40-60 m will be produced as per plan from 2010 • Cash and unused credit facilities available of approx. USD 400 m Financial position 2 • Remaining capex related to TORM’s newbuilding programme of USD 483 m
Company facts Product tanker market continued at low levels in Q3 Tank market Dry bulk market Finance Strategy Freight rate development (MR and LR’s) USDt MR spot rates and 1 year T/C rates TORM’s tank division had an EBITDA of USD 34 50 m in Q3 2009 40 Market is still suffering from the negative impacts 30 of low global oil demand and the addition of new tonnage 20 10 Towards the end of Q3, rates rose significantly for the large vessels, LR1 and LR2, driven by a 0 demand for naphtha in the Far East and increased Jan/08 Apr/08 Jul/08 Oct/08 Jan/09 Apr/09 Jul/09 Oct/09 exports from new refineries in the East MR spot rates MR 1 year T/C rates Positive impact: USDt LR1 and LR2 spot rates and 1 year T/C rates • Use of LR1 and LR2 vessels as floating storage 90 facilities and slow steaming 80 • Increased exports from new refineries in the East 70 • Higher demand for naphtha in the Far East 60 50 40 Negative impact: 30 • Continued low demand for gasoline in the USA 20 • Delivery of a large number of newbuildings 10 • High fuel costs 0 • Lower utilisation of refinery capacity squeezed Jan/08 Apr/08 Jul/08 Oct/08 Jan/09 Apr/09 Jul/09 Oct/09 the demand for crude oil, primarily affecting the LR2 vessels LR1 spot rates LR1 1 year T/C rates LR2 spot rates LR2 1 year T/C rates 3 *Source: Clarksons
Company facts Currently lower demand for product tanker vessels Tank market Dry bulk market Finance Strategy • Blue: Primarily MR • Red: Primarily LR1, LR2 • Diesel • US to Europe • Crude oil and Gasoil • Middle East to • Gasoline The large Europe • Europe to US decline in oil • Naptha demand and • Middle East to Far East general • Gasoline economic • Europe to slowdown have West Africa • Gasoline reduced demand • India to US for transport of refined oil Product (% of TORM Pools total Use Drivers Current market products cargo volume in 2009 ) condition • Refinery production • Global economy Crude oil Crude oil (23%) WEAK • Etylene (plastic) production • Global economy (automobile Refined products Naphtha (19%) MEDIUM/WEAK – • Gasoline (via hydrotreater ) industry) light destillates • Car fuel (US is main importer) • US economy Gasoline (15%) WEAK • Power generation • Power consumption Refined products Gasoil (18%) MEDIUM – middle • Truck fuel • Global economy destillates • Car fue (Europe is main • Eúropean economy Diesel (8%) MEDIUM/WEAK importer)l 4 • Jet fuel • Airline indutrsy Jet fuel (8%) WEAK
Company facts TORM's pool spot earnings reflects a premium to the main Tank market Dry bulk market Finance routes Key advantages of TORM’s pools… ..lead to significant premium in earnings Better optimization and planning USD/day TORM Pool spot earnings vs Benchmarks (since2005) 35,000 +3% • With a number of longer term contracts and global +10% presence it is possible to triangulate and get backhauls 30,000 • Reduced idle and ballast days +17% • Example from LR1 pool: 25,000 • Gasoline: Mediterranean-> Arabian Gulf • Naphtha: Arabian Gulf -> Taiwan 20,000 • Middle distillates: Far East -> Mediterranean 15,000 Less exposed to specific markets 10,000 LR1 LR2 MR • As MR rates in the Far East were very low, a number of Pool Benchmark small players suffered as they were fully dependent on this market Benchmarks are based on: • Possibility to swap between clean and dirty market • LR1: TC5 (Ras Tanura-> Chiba) spot earnings from Clarksons • LR2: TC1 (Ras Tanura-> Chiba) spot earnings from Clarksons • MR: Avg. of spot earnings on TC2 (Rotterdam->NY), TC4 (Singapore-> Chiba) Advantage of scale and Curacao->NY from Clarksons • Market intelligence TORM pool earnings have been adjusted to reflect Clarksons ’ earning definition • Vetting coordination (earnings before commissions and excl. idle days) • Bunker purchase The TORM Pools earnings have clearly outperformed spot rates on main routes since 2005 5 reflecting the significant value attached to TORM’s business model
Company facts Scrapping and cancellations to improve supply picture from 2010 Tank market Dry bulk market Finance Order book peaked in 2009… Strategy Order book - Product tankers by year of construction 300 250 No. of vessels 200 150 100 The influx of gross new tonnage peaked in 2009 50 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 -50 LR2 LR1 MR … and net fleet growth is declining No of % growth Net fleet growth in product tankers* vessels MR equiv. 250 16% 14% So far the number of cancellations have been 200 12% 13% limited – TORM estimates 15% cancellations from 10% 150 2010 and onwards 8% 100 6% Phase out of single hulls is expected to be accelerated by the low freight rates in addition to 6% 4% 50 the legislative phase out requirements from 2010 4% 0% 2% 0 0% Thus, total net growth in the fleet declines to from 2009 2010 2011 2012 13% in 2009 to 0% in 2012 LR2 LR1 MR Change in % 6 *Note: Net fleet growth: Gross order book adjusted for scapping, phase out of single hulls, expected cancellations and vessels going in to dirty (Source: Inge Steensland and TORM)
Product Tanker market – balance between total supply Company facts Tank market Dry bulk market Finance and demand development from start 2009 to end 2011 Strategy According to TORM’s research, increase in demand and supply will be balanced going forward Demand and supply development (start 2009- end 2011) Demand is primarily driven by: • New refineries in Middle East and India • Phase out of single hulls Demand Supply 1.000 • Increased oil demand over the Number of vessels* 61 period 104 750 • Increasing port days due to pick 66 117 up in activity/bottlenecks 500 37 4 6 895 510 463 546 Supply side is affected by: 250 • 68 LR1 vessels are replacing 0 Panamax phase outs in the crude Increasing port Growth in oil Total demand Total supply LR1 into dirty LR2 into dirty Order book expansion Cancellations Arbitrage Swing factors Phase out Refinery oil segment increase demand increase gross • 30% of LR2 vessels are expected market market Est. days (on average) to trade in the crude oil segment • Expected cancellations of 15% from 2010 as a consequence of the financial crisis A number of swing factors can change the picture: *The number of vessels reflect MR vessels – when necessary a conversion factor for LR2, and LR1 has been used • Delays in order book based on their DWT relative to MR • Delays in refineries • Floating storage • Slow steaming • Clean to crude swap 7
Company facts Tanker vessel prices have continued to decline and S&P Tank market Dry bulk market Finance activity is very limited Strategy Vessel price development* MR newbuild and second hand prices USDm Newbuildings and second-hand prices have 55 continued to decline in Q3 2009 50 However, there is currently limited activity in 45 the market and the indicated levels are subject 40 to significant uncertainty 35 30 Currently prices are well below historical avg. (since 2001) 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 47,000 DWT 5 year old secondhand prices historic average MR - 1 year T/C and second hand prices (indexed) 200 180 160 140 120 TC rates and second-hand prices are relatively 100 well correlated 80 60 As the TC market has declined the vessel 40 prices have been under pressure 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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