EBITDA for Lauritzen Kosan was USD 24.6 in 2004 compared to USD 7.5 million in 2003. The improvement in earnings was the result of better market conditions for transporting gas, reduced costs primarily due to the change in flag policy and finally changed ownership of vessels, which were owned in joint ventures during a substantial part of 2003.

Ordinary result before tax was USD 15.1 million compared to USD (8.2) million in 2003. The figure for results in 2004 included gains of USD 4.9 million from sale of vessels compared to a loss of USD (0.4) million in 2003.

The result is satisfactory and represents a significant turn-around for gas carrier activities.

In 2004, Lauritzen Kosan completed the move of the last four vessels from DIS (Danish International Ship register) to IOM (Isle of Man) register. The change of flag policy, implemented over a three year period, is an important part of the continuous process of keeping costs in line with the business environment.

In 2004, Lauritzen Kosan was very active in the second hand sales and purchase market, being involved in several transactions including a total of 15 second hand vessels.

All purchases were concluded during the first half of 2004, and apart from one (a sale and lease back), all sales were concluded in the second half of the year. Seven vessels were acquired jointly with partners and three as wholly owned by Lauritzen Kosan. Two jointly owned and two wholly owned vessels were sold.

In March 2004, Lauritzen Kosan together with Belgian shipping company Exmar NV, partner in the Exmar Kosan Ltd Hong Kong 50:50 joint venture, purchased a 4,000 cbm pressurized vessel built in 1996 from Korean interests.

In April 2004 Lauritzen Kosan again with Exmar NV, concluded the purchase of the activities of the Japanese gas shipping company Far East Shipping Co. Ltd Tokyo.

The transaction comprised 11 pressurized vessels in the 3,200 to 5,000 cbm range built between 1994 and 2003. As part of the transaction, Exmar Kosan Ltd Hong Kong took over responsibility for a range of the contracts held by Far East Shipping Co. Ltd. The contracts all relate to transport of LPG and petrochemical gases in the Far East region.

Exmar Kosan Ltd has grown from controlling eight vessels in 2002 to 23 vessels in 2004. The company has been instrumental in consolidating the market for small pressurized gas carriers in Asia and through Exmar Kosan Ltd, Lauritzen Kosan has achieved its strategic objective of establishing a significant position in Asia.

In November 2004, Lauritzen Kosan made an agreement with Camillo Eitzen for a commercial management contract for their four 3,400 cbm vessels to run from 1 January 2005. Camillo Eitzen and Lauritzen Kosan are already joint owners of the Sigas Kosan pool which operates 15 of the owners’ vessels and one chartered vessel in the segment below 3,000 cbm.

At the end of 2004, Lauritzen Kosan ordered four new-buildings from Korea for delivery from end-2006 onwards, and early 2005 Lauritzen Kosan exercised an option to further increase the newbuilding program to a total of six vessels. The 8,000 cbm vessels will be able to carry ethylene fully refrigerated at -1040C. The newbuildings will give Lauritzen Kosan the opportunity to enter the ethylene segment of the gas market, which is expected to be the fastest growing segment in the coming years.

The vessels are also a step up in size from the largest vessels in Lauritzen Kosan’s current fleet of around 6,500 cbm, however they are still close enough in size to ensure significant synergy between the two types. 

Market development


Demand for sea transport of liquefied petrochemical gases is driven by general global economic activity which includes such factors as construction, automobile production, demand for packaging and fluctuations in the global prices of petrochemical gases.

Demand for LPG (liquefied petroleum gas) transport in Europe was sound during 2004. The LPG market is driven by the continual interplay of the need for heating in the domestic and industrial sectors and the need for feed-stock in the petrochemical sector.

Over the past five years Lauritzen Kosan has reduced its dependency on transport of LPG. Transport of petrochemical gases now accounts for more than 55% of total revenues.

Developments in European as well as global economic conditions had a positive impact on the petrochemical industry in 2004.

Increased demand for consumer goods led to higher requirement for plastic, and this in turn resulted in a rise in petrochemical gas transport throughout 2004.

The significant improvement in overall trading conditions in Europe and almost no additional supply of ships from newbuildings, resulted in much better earnings for vessels employed in the spot market. At the beginning of 2004, spot market earnings for a standard 6,500 cbm semi-refrigerated vessel were around USD 260,000 on a monthly time charter basis. At the end of 2004, this figure had risen to about USD 430,000 per month.

Another indicator of improved market conditions is in the idle time of the fleet; semi-refrigerated vessels above 3,000 cbm trading in Europe experienced almost a 30% reduction in waiting time.

Trading conditions in the Eastern Hemisphere followed the same trend as the West. The very positive development in the Chinese economy had a major influence on earnings, and in the second half of 2004 earnings for pressurized vessels operating east of Suez spot exceeded those of similar units employed in the western spot market. At the beginning of 2004, the market for a 12 month time charter for a 3,500 cbm pressurized vessel was estimated at USD 135,000 per month compared to a year-end estimate of USD 245,000 per month.

Earnings from long term contracts which accounted for slightly in excess of 60% of revenues in 2004 were not affected by the market changes. The majority of the contracts were made during Q3/ 2003 at rates which reflected the market conditions then prevailing.

The fleet
Lauritzen Kosan operated an average of 52 vessels over the year of which 17 were operated through associates and partners.



At the end of 2004, Lauritzen Kosan either directly, or indirectly via pooling arrangements, controlled a fleet of 58 vessels with a total capacity of 202,000 cbm.

Lauritzen Kosan owned or partly owned 31 of these with a total capacity of 122,000 cbm.

The Sigas Kosan pool, a 50:50 joint venture with Norwegian ship owner Camillo Eitzen operating from
Lauritzen Kosan's office in Copenhagen, managed 16 vessels with a capacity of about 30,000 cbm.

Exmar Kosan Ltd Hong Kong, a 50:50 joint venture pool company with Belgian ship owner Exmar NV, managed 23 vessels. At the end of 2004, the total capacity of the fleet was about 67,000 cbm.

At the end of 2004, Lauritzen Kosan controlled 20 vessels of about 91,000 cbm out of Copenhagen.

During 2004, the fleet underwent 383 inspections by customers, class and national maritime institutions. These resulted in only few, very minor delays which underlined Lauritzen Kosan’s firm focus on maintaining a high level of operational quality.

The average age of the company’s own fleet was 12.5 years. In comparison the average age of the international fleet in the 1,500 - 7,000 cbm range was 15.7 years.

Fleet management is carried out from Copenhagen and Bilbao, Spain, the latter through wholly owned Gasnaval S.A. Some of the pressurized vessels which mainly trade East of Suez are managed by Star Management Tokyo, an independent ship management company formerly part of Far East Shipping Co. Ltd. Technical operation of the fleet was satisfactory with 12 dry-dockings being completed (seven in 2003).

Lauritzen Kosan continues to monitor crew costs by benchmarking with peer companies although always with due attention to crew safety and well-being, environmental protection and operational quality.

In designing the newbuildings for delivery from end 2006, special emphasis has been put on ensuring minimal environmental impact. The vessels are the first gas carriers designed to obtain IMO green passports, reflecting materials being chosen with a view to environmentally friendly recycling. The vessels will also include a range of additional innovative design features aimed at protecting the environment.

The Lauritzen Kosan fleet operates under British (IOM), Spanish, Portuguese, Hong Kong and Panamanian flags.

Events after year-end
After year-end, Mette Kosan and Henriette Kosan both about 3,200 cbm were sold for delivery in March, another three partly owned gas carriers were sold, two of which were purchased in 2004.

The newbuilding program of four 8,000 cbm vessels with ethylene capacity was increased by an additional two vessels to a total of six vessels for delivery from end 2006.

Prospects for 2005
Lauritzen Kosan’s earnings are expected to improve in 2005. The market balance seen during 2004 influenced contract negotiations conducted in 2004 which form the basis for predicting improved results in 2005.

The market is expected to continue at the present acceptable levels since only a very limited number of newbuildings will come to the market in 2005. The present economic outlook supports a picture of continuing acceptable demand.

The change of flag from Danish (DIS) to British (IOM) has now been completed and will mean an improved cost structure in line with similar companies in the industry.

2005 is expected to provide satisfactory returns for Lauritzen Kosan with a result before tax of about USD 26 million.
 

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