3 years ago

Annual Report 2012

Annual Report 2012

Board of Directors’

Board of Directors’ reportA successful financial restructuring of Eitzen Chemical’s bank and bond debt was concluded in January 2013.The new financial structure will secure headroom and stable operations in the years to come, even in aslowly improving market. A term- and revolving credit facility of USD 30 million is secured to provide theCompany with sufficient available liquidity. The facility was undrawn as of year-end 2012.Eitzen Chemical will continue its focus on strengthening the Company’s capital situation and evaluatepotential partners who are willing to invest long term in the Company.The weak chemical tanker market continued in 2012. Eitzen Chemical experienced a firmer market in thefirst half of 2012 relative to 2011, driven by positive signals for the global industrial production andimprovement in the supply and demand balance in the chemical tanker market. However, spot volumes andspot market freight rates came under pressure in the second half of 2012 influenced by the uncertain andslowing world economy.Eitzen Chemical sold three older vessels in 2012. The vessels are considered non-core and the transactionsare expected to improve the Company’s operating performance. The average time-charter rate in 2012increased by 8.0 per cent to USD 10,275 per day, up from USD 9,516 per day in 2011.Consolidated Freight revenue in 2012 for Eitzen Chemical was USD 401.2 million, compared to USD 426.0million in 2011. EBITDA was USD 33.5 million, up from USD 25.6 million in the previous year. Net loss for2012 was USD 136.3 million, including impairment of USD 70.4 million of vessels in the Company’s leaseportfolio, which compares to a net loss of USD 154.0 million in 2011.The chemical tanker market improved towards year end 2012, and going into 2013 we have seen increasedactivity and higher fleet utilization in important trade lanes. Although we expect a challenging market in2013, the fundamental outlook for the supply/demand balance in 2013 is more optimistic than for 2012 dueto easing supply growth. Operationally Eitzen Chemical is focused on continuous improvements in alldisciplines of the Company’s business. Cost control, vetting performance, maintaining and establishing longterm customer relationships are key focus areas for the Company during these challenging marketconditions.Business summaryEitzen Chemical operates vessels ranging from 3,500 to 48,000 dwt, designed for the transport of IMO IIclassified chemical cargoes. As of 31 December 2012, the Eitzen Chemical fleet consisted of 50 vessels, ofwhich 46 were owned or on finance lease and four were on operating lease. As part of our strategy to improvefleet efficiency and operating cash flow, three older and non-core vessels were sold in 2012; the Sichem Pearl(10,331 dwt, built 1994), the Ievoli Silver (5,400 dwt, built 1992) and the Torquato (5,400 dwt, built 1992). Thestrategy of discontinuing as pool manager was completed in the first half of 2012, and we have consequentlyexperienced improved vetting performance and utilization within these ship classes. Eitzen Chemical has oneof the most modern chemical tanker fleets in the world with an average age of less than eight years. Thevessels are commercially operated through offices in Denmark, Spain, USA and Singapore. Eitzen Chemical’sheadquarter is located in Norway.The Company’s 16 stainless steel vessels below 12,000 dwt primarily operate on regional trades servicing ourcustomers in Europe, the Mediterranean and West Africa. This is an intensive industrial shipping operationwith several long running customer relationships. Through the City Class vessels, consisting of 15 vessels ofaround 13,000 dwt, Eitzen Chemical is trading both in Europe, Transatlantic, in the Americas and to a certainextent in Asia.The Company’s 10 vessels between 17,000 dwt and 30,000 dwt are trading in contract- and spot trades on aworldwide basis, with focus around the Middle East chemical exports. The IMO II MRs operates in global tradesand are commercially managed through Team Tankers. At year end Team Tankers consisted of 8 vessels, of14

which the Company financially controls all eight. The operation of Team Tankers is based on a portfolio ofContracts of Affreightment (CoAs) in the commodity chemicals trade.During 2012 the Company has renewed and entered into several longer term CoAs with major international oiland chemical companies at higher freight rate levels than has been the case in recent years prior to 2012. Theterm business coverage, measured in earnings, was 39 per cent for 2012, with the CoA cover at 34 per centand Time Charter cover at 5 per cent. In line with the Company’s strategy the CoA cover has increased over thepast years. The quantity and number of liftings under the CoAs increased during 2012, resulting in increasedrevenues under the CoAs.In the first quarter of 2012, the market conditions in all of the Company’s markets showed positive volume andfreight rate developments. The market development for the smaller vessels trading regionally was particularlystrong, where both CoA volumes and spot volumes improved, resulting in higher fleet utilization and upwardpressure on freight rates. The short sea European market also held up relatively well supported by strong CoAnominations throughout the second quarter. The intra Atlantic market had a continuous positive developmentthrough the first quarter but experienced sluggish spot volume and rate developments towards the end of thefirst half of 2012. Export volumes from both Europe and USA to Asia started 2012 at the high level from theprevious year. In the long-haul trades between the Atlantic and Pacific the spot volumes and freight ratescame under pressure while CoA volumes persisted and several of the Company’s larger vessels were scheduledon long CoA voyages at sustainable levels. The intra-Asia spot market experienced marginal improvements inactivity and rates. The long haul palm oil and bio fuels trades from Asia direction Atlantic had a weakerdevelopment with less volume. The Middle East market improved significantly through the first quarter butcame later under pressure.The weaker undertone that was experienced through the second quarter continued into the third quarter. Inmost trade lanes the market remained stagnant in the second half of 2012. The CoA volumes were overallstable but with geographic and product specific variances. The backwardation of product prices continued tonegatively impact shipped spot volumes resulting in lower fleet utilization. Although the market conditionscontinued to be influenced by the uncertain and slow world economy, at the end of the year the marketshowed improvements. In particular the freight rates in the USG/Asia and Middle East trades were strongerand the Asia export market for Palm oils remained firm.The continuing very high bunker price is an area of concern. The corresponding increase in voyage costs, evenif partly compensated for by our customers, challenges the development of net freight rates towards moresustainable levels. The average bunker price in 2012 was about USD 638 per ton, and the bunker prices haverisen from around USD 200 per ton at the beginning of 2009.The chemical tanker market is still negatively impacted by the extensive deliveries of new tonnage in the yearsprior to the financial crisis and downturn in the chemical tanker market. However, we experience that thedemand for chemicals and the seaborne transportation of chemical products is improving, driven by strongdemand from China and other emerging Asian economies. The supply side is also improving with around 6 percent of current fleet on order and about a 1.6 per cent fleet growth in 2012. Although the worldmacroeconomic indicators are uncertain and market improvements fragile, Eitzen Chemical believes that withthe improvements on the supply side, only a moderate increase in demand is required for a recovery.Financial reviewConsolidated freight income for the Company in 2012 was USD 401.2 million compared to USD 426.0 million in2011. Freight income on T/C basis was USD 194.6 million following the sale of three vessels in 2012, downfrom USD 200.6 million in 2011. The average time-charter rate in 2012 was 10,275 per day, up from 9,516 perday in 2011. Ship operating expenses of USD 119.4 million and Charterhire expenses of USD 20.7 million, weredown USD 3.7 million and USD 11.3 million, respectively, compared to 2011 following a reduction in the fleet.General and administrative expenses were USD 22.9 million, and down USD 2.6 million compared to previousyear mainly due to a reduction in overhead costs. Reported EBITDA in 2012 was USD 33.5 million, compared toUSD 25.6 million in 2011.15

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