(Updated 10:15 am CET: A deficit EBITDA of USD 45.6 million dollars i the second quarter 2014 has been corrected to a profit (EBITDA) of USD 27.7 million. ShippingWatch apologizes for the mistake)
A composed Jan Kastrup-Nielsen sums up the first half of 2015 in which the dry bulk and gas carrier was forced to make impairments on asset values once again. This time for nearly USD 150 million.
This is simply due to the fact that nobody could predict that the dry bulk market would take so long to recover, says J. Lauritzen CEO Jan Kastrup-Nielsen in an interview with ShippingWatch.
"We had not expected to see such a deep and such a weak market. There's not much else to say. Some things have happened in the first half of the year which have turned out different than we expected, and now we are feeling the consequences," says Jan Kastrup-Nielsen.
J. Lauritzen published the carrier's interim report for the first six months of the year Thursday afternoon, showing a loss close to USD 150 million. Specifically, the carrier suffered a deficit of USD 144.6 million compared to a profit of USD 28.9 million in the same period last year.
Furthermore, the carrier had a negative operating result (EBITDA) of USD 17.9 million in the first half of the year, a setback compared to a positive EBITDA of USD 27.7 million in the same period 2014. And J. Lauritzen has leaned heavily on the carrier's liquidity.
Jan Kastrup-Nielsen highlights the decline in Chinese coal import as well as the huge influx of tonnage to the dry bulk market as the explanations for why the carrier had to impair values so significantly in the first half of the year.
He adds that, looking back, the carrier had planned the year with too many "open shipping days", and subsequently, exposure to the open spot market's low rates took a toll on the financial report. The reason for the extent of the damage in the impairment is the correlation between the valuation estimate of the ships and the contracts which they are on, which both lose value when the contract is terminated.
Continues with original segments
J. Lauritzen's interim report arrives on the heels of competitor Norden's, which actually managed to surprise analysts by earning money, although only a little, in the tough dry bulk market.
Jan Kastrup-Nielsen highlights that the carrier in spite of the result does not intend to change the strategy, but will continue with its core segments which are dry bulk and gas, where gas performed in accordance with expectations for the first half of the year. The mix between chartered and owned dry bulk vessels is not so important, he says, while the gas vessels are fully owned by the carrier:
"This is the way that works best on the gas market," he says.
In the course of the past few months, the carrier has divested its two remaining large dry bulk vessels - the last one in July - and the money from the sale of the Capesize vessels will arrive during the next two years. Jan Kastrup-Nielsen does not expect to return to this segment.
"We had a limited presence in Capesize and it was never our intention or our desire to have open Capesize positions. We entered Capesize because we had some long-term sales lots which enabled us to allocate some vessels and avoid any exposure to the fluctuations in the market," he says and adds:
"We ended up with Capesize vessels which were on long term charter for a strong counterpart. The counterpart wanted to avoid keeping these ships for as long as they were committed to," he explains referring to a deal between the carrier and the customer, signed about a month ago.
The carrier received a compensation and some vessels were returned which could be sold.
"Since we don't really have a strategical desire to be in Capesize, and at the same time we had the chance to increase liquidity, it was very suitable for us to exit Capesize," says Jan Kastrup-Nielsen.
Improvement in 2017
In the financial report, the amount of liquidities and credit has taken a big hit and fell from USD 284 million to USD 155 million. How long the carrier can lean on credit and liquidities is hard to determine, says the CEO.
"This is a question of how long the market stays at a historically low level. We do not expect that it will continue to be low but we don't expect that it will turn into an amazing market either. We expect that it will improve," he says and mentions that 2016 will be a "tough year", whereas things will look brighter in 2017.
The strategy seems to be "wait and see," where many players are willing to inject more money into the dry bulk shipowners until the rates go back up.
"If the dry bulk market is low for a sufficiently long period of time, then there will be no dry bulk carriers left. It's as simple as that," says Kastrup-Nielsen dryly and notes that the entry of capital is already taking place in the industry.
Comfortable with fund ownership
Jan Kastrup-Nielsen himself is optimistic about the access to capital in order to keep the carrier going. Even if it proves to be a game of who can stay in the market the longest while waiting for the low rates to fade away. The carrier also has support from its sole owner, the Lauritzen Foundation, says the CEO, adding that he cannot comment on behalf of the fund.
"They have told us that they are comfortable with what we are doing and we have no reason to believe that we don't have their full support. We have had this confirmed several times," he says and adds that there are many ways to handle this kind of situation.
In April this year, former CEO of the carrier and the current Chairman of the Lauritzen Foundation, Jens Ditlev Lauritzen, explained that the foundation does not expect to put money in the carrier.
"In spite of the difficult market, the carrier is in a situation where it can stand on its own two legs and does not need the fund's help. This is not the first time that the dry bulk market experiences ups and downs, but we work with a view that the low rates will continue. We believe that the carrier can handle this, considering the initiatives which have taken place in recent years," Jens Ditlev Lauritzen told ShippingWatch.
The carrier J. Lauritzen has lost almost USD 748 million over the past four years which is mainly due to impairments of ship values and also from canceled contracts from counterparts.