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Annual Report 2012

Annual Report 2012

The Company has

The Company has performed an impairment test at year-end and recognized an impairment of USD 70.4million (2011: USD 62.5 million). The impairment is related to vessels in the Company’s lease portfolio, andreflects the effect of updated assumptions of vessels in the lease portfolio including the contractual expiry oftwo vessels in 2013. The Company has sold three older vessels in 2012 and recognized a loss of USD 10.2million from the sales, compared to a gain on sale of assets of USD 3.7 million in 2011. Depreciation amountedto USD 64.8 million (2011: USD 77.6 million). The operating result (EBIT) for 2012 was negative USD 111.8million compared to negative USD 110.8 million in the previous year.Net financial items for 2012 were negative USD 24.5 million (2011: 40.7 million), of which interest expenseswere USD 47.0 million. This also comprises a finance income of USD 30.4 million mainly related to two of theCompany’s time charter contracts accounted for as finance leases which expire in the first half of 2013 andwhere it is assumed that the purchase options on these vessels will not be exercised. The estimated leaseobligations have been updated to reflect this assumption. Further, USD 2.2 million in net unrealized currencyloss on the NOK denominated bond loan and JPY denominated purchase options included in the finance leaseobligations have been recognized. Debt restructuring fees of USD 5.8 million have been expensed, and in 2012the Company has capitalized USD 6.1 million in fees related to the debt restructuring process.Net loss for the year was USD 136.3 million compared to a net loss of USD 154.0 million in 2011.As of 31 December 2012, Eitzen Chemical’s total assets were USD 962.6 million. Total fleet book value was USD858.6 million as of 31 December 2012. The book value of the Company’s vessels decreased by USD 136.5million in 2012, reflecting depreciation, impairment of USD 70.4 million, and the sale of three vessels.Cash and cash equivalents amounted to USD 30.9 million, a decrease of USD 35.9 million during the year. In2012, Eitzen Chemical had a net cash flow from operating activities of USD 36.2 million. Net cash flow frominvesting activities was negative USD 8.8 million. Net cash flow from financing activities amounted to negativeUSD 63.8 million.Total equity at the end of the year was negative USD 32.1 million, down from USD 104.1 million in 2011. On 5February 2013 the Company held an extraordinary general meeting where a reverse share split in the ratio100:1 was approved. The Company’s share capital is at the issue date of this report NOK 846,016,800 dividedby 11,280,224 shares, each with a par value of NOK 75. Eitzen Chemical’s market capitalization was USD 16.2million on 31 December 2012 compared to USD 30.1 million at year end 2011.Capital resources and investmentsIn 2012 Eitzen Chemical entered into a process with its lenders to restructure the Company’s debt as the debtmoratorium period, agreed with its banks in 2009, would expire in November 2012. A successful financialrestructuring of Eitzen Chemical’s bank and bond debt was concluded in January 2013. The new financialstructure will secure headroom and stable operations in the years to come, even in a slowly improving market.A term- and revolving credit facility of USD 30 million is secured to provide the Company with sufficientavailable liquidity. The facility was undrawn as of year-end 2012.Until January 2015, the Company’s cash commitments on interest payments are limited to LIBOR on therestructured bank debt. All other interest commitments may accrue on the balance of the bank and bondfacilities. When the market recovers and the Company has excess cash to service interest margins and/orinstallments, excess cash will be swept in accordance with the agreement between all the Company’s lenders.From January 2015, the Company is obliged to pay LIBOR plus a margin of 2.75 per cent on the majority of theloans. Fixed debt installments will commence in April 2015 with flexible repayment terms from then tomaturity in May 2016. More details regarding the agreements can be found in note 18 to the financialstatements.Total interest bearing debt per 31 December 2012 was USD 935.6 million down from USD 973.3 million at thebeginning of the year. Total interest bearing debt includes USD 668.7 million drawn on bank facilities and USD114.3 million related to the bond loan. Total interest bearing debt also includes USD 152.5 million in financelease obligations, of which USD 84.8 million is the potential payment if the Company declares its right, but not16

obligation, to purchase the vessels from its owners on certain dates in the leasing period. USD 769.8 million ofthe Company’s bank and bond debt has been classified as short term debt at the reporting date in accordancewith the presentation requirements under IFRS. However, both the bank and bond debt have beenrestructured and is not payable short term. The bank and bond debt will be reclassified to non-current in thefirst quarter of 2013 following the conclusion of the financial restructuring.Total equity at the end of the year was negative USD 32.1 million (2011: positive USD 104.1 million), and asstated in the minutes from the extraordinary general meeting held on 5 February 2013 and based on theagreements with the Company's lenders, the Board currently considers the Company's capital situation asadequate. Nevertheless, the Board considers the current net asset value to be below par value of theCompany’s shares in the current market situation. At the Ordinary General Meeting in 2013 a share capitalreduction through a write down of par value will be proposed.With challenging conditions prevailing and a historically long downturn in the chemical tanker market, EitzenChemical has since 2009 focused on improving its financial position. Eitzen Chemical will continue to focus onstrengthening the Company’s capital situation and evaluate potential partners who are willing to invest longterm in the Company.There is significant long term risk associated with the current leverage of the Company and the liquidity riskinherent in the Company’s financial liabilities is considerable. However, Eitzen Chemical remains confident thatthe chemical tanker market eventually will benefit from improved market fundamentals and fully recover.As of 31 December 2012, Cash and cash equivalents amounted to USD 30.9 million (2011: 66.8 million). Underthe new loan agreements the Company will have a minimum liquidity covenant of USD 30 million, measuredbased on the Company’s cash and cash equivalents and any undrawn amount under the new revolving creditfacility of USD 30 million.Eitzen Chemical invested a total of USD 14.8 million in 2012, mainly relating to upgrading and docking ofvessels, compared to total investments of USD 19.9 million in the previous year. Net proceeds from the sale ofthree vessels in 2012 amounted to USD 6.0 million.Based on the above and pursuant to Section 3-3a of the Norwegian Accounting Act, the Board confirms thatthe going-concern assumption applies and that the annual accounts have been prepared on the basis of thisassumption.Financial riskA successful financial restructuring of Eitzen Chemical’s bank and bond debt was concluded in January 2013(refer to the “Capital resources and investments” section above and note 18 for further information).Market conditions for shipping activities are typically volatile and results may vary considerably from year toyear. Furthermore, vessels and cargoes are subject to perils particular to marine operations, includingcapsizing, grounding, collision, piracy, and loss or damage from severe weather conditions. Such circumstancesmay result in damages to property, the environment or persons and expose the company to loss or liability. Inaddition, the Company is exposed to a number of different financial market risks arising from the normalbusiness activities. Additional risks not presently known to the Board of Directors, or considered immaterial atthis time may also impair its business operations and prospects.Fluctuations in freight rates and bunker fuel prices are key factors affecting the cash flow and the value of ourassets. The fluctuation in freight rates is to some extent reduced by the Company’s portfolio of CoAs and timecharters.The Company seeks to reduce the exposure to fluctuating bunker fuel prices through compensationclauses in contracts with customers. On CoAs where this is not possible, the Company may utilize commoditybased derivatives to reduce the bunker exposure. The Company does not hedge the bunker risk related to itsspot market exposure. Over time, freight rates should adjust to reflect changes in bunker expenses. However,this adjustment tends to lag in time.17

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