Norden profit up

Huge vessel sales gains were needed for Norden to produce its best ever annual profit which still fell short of the forecasted figure.

Costs increased at a higher rate than sales while the Dane also took a massive bunker hedging hit.

Profit may have been eroded by the dry-bulk “market meltdown” in the fourth quarter and weaker tanker market, but this did not stop chief executive Carsten Mortensen picking up the maximum bonus of $2.8m.

CEO Carsten Mortensen.

Norden painted a relatively gloomy picture of prospects for the dry-cargo and tanker markets going forward with rates set to fall. Consequently the bottom line for 2009 is expected to come in vastly weaker to last year.

The bankruptcy of a dry-bulk operator in 2008 cost Norden $9m on two charter defaults with a further $17m-$19m hit to be felt from the same bankruptcy this year. The Dane warned that this may not be the end of such travails, however.

“There is a risk that Norden will not be able to realise its coverage fully in future because counterparties may be unable to meet their contractual obligations.

“In a number of situations, Norden has aided customers and business partners by deferring contracted cargoes, and even though Norden generally stands strong on entered contracts, the company will continue in future to act with empathy and flexibility in situations when this is deemed appropriate based on a commercial, legal and risk assessment.”

In any case the outlook for the dry-bulk market is “extremely challenging”, Norden said in Tuesday’s announcement to the OMX. Spot rates are due to come in “significantly below” 2008 levels and the Dane can see no significant increases for the year. Despite expected order cancellations and delays as well as increased scrapping, the global fleet is expected to increase at a higher pace than last year.

Global steel demand is also expected to slump 10% although Norden spies an upward trend in the second half of this year.

It is much the same for tankers where rates are set to be lowered while there will be higher supply and less demand. Oil consumption in the key US and European markets is likely to fall but increases should be seen in China and the Middle East, Norden predicted.

For most of 2008, however, dry-bulk rates remained high with tanker rates also relatively buoyant leading to a huge increase in sales from $2.93bn to $4.25bn.

Gains from disposals were massive at $298.97m as compared with $163.13m the year previous but Norden said on Tuesday it is only looking at a profit of $25m from ship sales this year.

Vessel operating costs, however, ballooned from $2.33bn to $3.65bn with staff costs also up around $12m while Norden booked an $81.13m reverse on bunker hedges as against a profit of $19.89m in that category in 2007.

The result was to leave net profit only marginally up from the $703.34m in 2007 at $707.83m this time out. This was significantly below the profit range of between $800m and $880m Norden said in early October it was aiming for and short of the range of $740m to $800m set in November. This was itself a vast reduction on the previously-announced target of between $950m and $1.03bn.

The bottom line was sufficiently pleasing, however, to trigger a bonus payment clause to Mortensen. The chief executive will get half of the maximum of $2.8m allowed under the agreement this month with the rest to follow in 2010 and 2011. This is, however, contingent on him remaining with the company and on Norden reaching certain targets for each of the next two years.

Against this payout Mortensen has waived any bonus agreement for 2009 while there was no increase in salary for any members of the board.

(To read Norden’s annual result in full click on the link in the related media section to the right of this article.)

Printable version Newsletter sign up