Shipping presentation Leif Teksum, head of Large Corporates and International Oslo, 10 August 2011
Seaborne trade is expected to grow steadily, but we expect 2011 and 2012 to be challenging in the dry bulk and tanker sectors. Expected Worldwide Shipping Demand, Million dwt Demand for shipping services is 1800 according to Lorentzen & Stemoco expected to grow steadily, but the 1600 demand-supply balance for 1400 LPG carriers 1200 tankers and bulkers is unlikely to Chemical tankers 1000 Product tankers improve until 2012/13. Crude oil tankers 800 Dry bulk carriers 600 Containerships The orderbook is lower, but 400 remains high for dry bulk, tankers 200 and containers. The BDI is low, 2003 2005 2007 2009 2011 2013 2015 but has stabilized. Orderbook Early 2010 June 2011 70 60 50 40 30 20 10 0 Shipping, Offshore & Logistics 2
Dry bulk: Lower spot rates, as expected. Smaller sizes doing better than the larger capesize vessels. • Spot rates are low, but varies by size and by region. Some acceptable time charters are still possible. • The average contract coverage for the 10 largest clients, representing 62% of the dry bulk portfolio, is 60% in 2011 and 50% in 2012. Spot 1 yr tc 3 yr tc Cape 7.200 13.000 15.000 Panmx 9.100 12.000 13.000 Handy 10.400 12.000 12.000 Source: Clarkson Shipping, Offshore & Logistics 3
Dry bulk shipping demand and supply Tonnage demand Fleet development 5000 700,0 700,0 4500 600,0 600,0 Other 4000 Soybean 500,0 500,0 3500 Cement Mill. tonn 3000 Mill. dwt 400,0 400,0 Mill. dwt Fleet Steel products 2500 300,0 Grain 300,0 Actual delivery 2000 Steam coal Scrapping 1500 200,0 200,0 Met coal 1000 100,0 100,0 Iron ore 500 Ton-mile demand (right) 0,0 0 0,0 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 -100,0 Tonnage balance 700 105 % 650 100 % 600 95 % 550 500 90 % Demand 450 85 % 400 350 Supply 80 % 300 75 % 250 Utilization Source: Lorentzen & Stemoco 200 70 % (right) 1q 1q 1q 1q 1q 1q 1q 1q 1q 1q 1q 1q 1q 1q 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Shipping, Offshore & Logistics 4
Crude Tankers: Declining rates • Low spot rates, stable charter rates • The average contract coverage for the 10 largest clients, representing 2/3 of the portfolio, is 40% in 2011 and 30% in 2012 • Our tanker clients are typically involved in other shipping sectors as well. Spot 1 yr tc 3 yr tc VLCC 7.300 25.000 32.000 Suez 8.000 17.000 24.000 Afra 10.000 16.000 18.000 Source: Clarkson Shipping, Offshore & Logistics 5
Stable second hand tanker values, but falling dry bulk values. • 2nd hand values dropped in 2009/2009, but have remained relatively stable since. • Newbuilding prices have fallen and are under pressure for further reduction, which may impact 2nd hand values. Source: Clarkson Shipping, Offshore & Logistics 6
Containers: Acceptable rates, but lower than 2010. Lower volume growth. The Q1 results were generally better than last year, Maersk and MOL reporting profits, while China Shipping, NOL, K- Line, ZIM and RCL reported losses. Maersk expects the global demand to grow by 6-8% in 2011, but supply of new tonnage is expected to match or grow even more. Maersk expects a satisfactory 2011 result, but below 2010. Shipping, Offshore & Logistics 7
Shipping is more than tankers and bulkers • Offshore markets are booming • Container segment much improved • Stable and profitable logistics activities • LNG markets are attractive • Car carrier market has strengthened • Cruise is doing ok Shipping, Offshore & Logistics 8
SOL Overview We are long term and relationship driven • Our core clients are typically leading integrated shipping companies • We prioritize clients where we have a good and close dialogue and who use a broad range of DnB NOR products • We have a global approach • We will maintain a good credit quality Risk mitigation by the 4 C s Cash flow Covenants Client Collateral Shipping, Offshore & Logistics 9
We aim to have a diversified portfolio with a good credit quality. Shipping, Offshore & Logistics 10
The shipping, offshore and logistics portfolio has been relatively stable for the past 3 years. The shipping portfolio is ca 8% of the bank’s portfolio . Shipping, Offshore & Logistics 11
Our internal credit analysis is based on low rate estimates Tankers (USD/day) Dry bulk (USD/day) Spot rates for dry-bulk capesize vessels Spot rates for VLCC tanker vessels last 10 years vs. DnB NOR's assumptions last 10 years vs. DnB NOR's assumptions 250000 250000 200000 200000 150000 150000 100000 100000 50000 50000 0 0 SPOT RATES DnB NOR Base case DnB NOR Risk case SPOT RATES DnB NOR Base Case DnB NOR risk case Shipping, Offshore & Logistics 12
We have earlier stated that the shipping companies would take action during difficult times Reducing or stopping dividends Cancelling or postponing newbuildings Raising additional capital Scrapping vessels Cutting costs Shipping, Offshore & Logistics 13
Shipping has managed to minimize write-downs Actual write-downs 2009, 2010 vs. expectations Actual write-downs past 9 years 1600 MNOK 1600 1,00 % Net write downs 1400 1400 0,80 % % of drawn portfolio 1200 1200 0,60 % 1000 1000 0,40 % 800 800 2009 600 0,20 % 2010 600 400 0,00 % 400 200 -0,20 % 200 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 -200 -0,40 % 0 Expectations Expected loss Write-downs Shipping, Offshore & Logistics 14
DnB NOR has remained active throughout the financial crisis, delivering strong results each year. The Shipping division’s financial performance, 2007 -2010 NOK mill. 3 000 2 500 2 000 1 500 1 000 500 0 2007 2008 2009 2010 Gross income Operating profit Operating profit after wd including interest on allocated capital Shipping, Offshore & Logistics 15
2011 is a balancing act Scylla and Charybdis Maintain high earnings Maintain core client relations Minimize and prevent further loan losses Greek Mythology : • Two sea monsters Scylla and Charybdis were on each side of a narrow channel of water • Odysseus challenged several times but in the end paddled away to safety Shipping, Offshore & Logistics 16
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