Lauritzen Kosan - larger vessels
EBITDA was USD 31.6m in 2007, in line with the USD 33.5m reported in 2006. The effect of the sale of the gas carrier fleet below 3,000 cbm at the end of 2006 was offset by stronger markets for the larger size segments and by entering the ethylene market.
Operating income was USD 24.5m, down from USD 38.6m 2006 due to the sale of the company’s small gas carrier fleet at the end of 2006. The sale also affected the net result of USD 22.9m compared to USD 35.2m in 2006. Results were better than expected and satisfactory.
Main events
Lauritzen Kosan took delivery of the first three technologically innovative and environmentally friendly 8,000 cbm ethylene gas carrier newbuildings from Sekwang Heavy Industries, Korea, in 2007, one of which was sold to Allocean Ltd., on delivery.
Lauritzen Kosan ordered two additional 8,000 cbm gas carriers from Sekwang Heavy Industries for delivery in 2009 and early 2010 which will give the company control of a total of 12 identical ethylene gas carrier newbuildings, four of which will be owned by partners Allocean Ltd, London (two vessels) and LGR di Navigazione S.p.A. of Naples (two vessels).
During 2007, Lauritzen Kosan acquired three 9,000 cbm ethylene gas carrier newbuildings currently under construction at STX Shipbuilding Co., Ltd., Korea for delivery in 2008. With a combined fleet of 15 modern vessels, Lauritzen Kosan will be a top tier player in the ethylene market.
With the company’s entry into the rapidly expanding ethylene market, Lauritzen Kosan’s market position will gradually change from European distribution to inter continental transportation of petrochemical gasses. This implies moving up in vessel size as well as building new long-term business relations.
On the basis of current contracts the fleet controlled by Lauritzen Kosan will increase by 13 newbuildings over the next few years with six scheduled for 2008.
Towards the end of the year Lauritzen Kosan acquired a 42% holding of East Gate Shipping Ltd. which was held by the Danish Investment Fund for Emerging Markets (IFV), thus providing sole-ownership of the company which owns two fully pressurized gas carriers.
Market trends
Market conditions for gas carriers improved compared to 2006 with twelve month period rates for semi-refrigerated 3,500-8,000 cbm gas carriers up by about 5% and by 30% for fully pressurized 3,500 cbm carriers. Demand pull from Asia together with the inherent volatility in LPG and petrochemical gas markets created a growing, although unevenly spread increase in demand which was reflected in a fluctuating spot market, cf. Figure 6.
Demand for gas carriers
Throughout 2007, strong economic growth continued to increase demand for plastics worldwide. The increasing availability of ethylene in the Middle East Gulf was a major driver of demand growth in 2007, as rising naphtha prices strengthened the competitiveness of Middle East Gulf ethylene producers. Volatility of butadiene prices for example helped boost demand growth due to the creation of long hauls.
The demand for seaborne transportation also benefited from rising LPG supplies leading to improved competitiveness of LPG compared for example to naphtha, which supported movements for propane and butane.
Supply of gas carriers
The 3,000-20,000 cbm gas carrier fleet increased by about 7% in 2007. New orders were up 15% on 2006 due to a doubling of fully pressurized tonnage contracts whilst orders for semi-refrigerated tonnage and ethylene carriers declined.
By the end of 2007, the order book for 3,000-20,000 cbm gas carriers amounted to 27% of the existing fleet, whereas it was 62% for ethylene carriers, cf. Figure 7. About 30% of the existing fleet including the ethylene segment are 20 years old or more.
Lauritzen Kosan’s fleet
In 2007, Lauritzen Kosan’s total number of ship days reached 12,921 for 35.4 vessels on average compared to 18,381 days for an average of 50.4 vessels reported in 2006, cf. Figure 8. The decline in ship days reflects Lauritzen Kosan’s strategic decision to exit the segment for gas carriers below 3,000 cbm, which was accomplished towards the end of 2006.
Lauritzen Kosan operated an average fleet of 18 semi-refrigerated/ethylene gas carriers (15 vessels on average in 2006) with a capacity of about 85,000 cbm.
Unigas Kosan Ltd, the 50:50 partnership with Othello Shipping, the Schulte Group and Sloman Neptun operating from Hong Kong, controlled a fleet of 22 fully pressurized gas carriers in 2007, up from 20 vessels in 2006, with a combined capacity of about 80,000 cbm.
Lauritzen Kosan’s fleet comprised 18 fully or part-owned vessels. The average age of the company’s own fleet was 11.3 years compared to 10.9 years at year-end 2006. In comparison, the average age of the global fleet in the 3,000-20,000 cbm range was 14.4 years.
Fleet management of Lauritzen Kosan’s fleet of semi-refrigerated gas carriers is undertaken by Lauritzen Fleet Management and by wholly-owned Gasnaval S.A., whereas fleet management of the fully pressurized vessels is handled by part-owned Star Management Associates. Five scheduled dry-dockings were completed during 2007 compared to eight in 2006. The figure for scheduled and unscheduled off-hire including scheduled dry-docking in 2007 was 5.4% compared to 3.1% in 2006. The increase in off-hire days was due to unscheduled rudder maintenance on certain vessels.
Vessels are registered in the EU, Isle of Man, Singapore, Hong Kong and Panama.
Lauritzen Kosan is highly conscious of safety, health and environment issues and complies with strict technical and operational standards and procedures for the fleet. Customer inspections and vetting of vessels are conducted at regular intervals and the company works closely with customers to ensure that the fleet complies with their requirements. During 2007, the company’s fleet passed more than 100 customer vetting inspections.
Events after year-end
In January, the fourth 8,000 cbm ethylene newbuilding was delivered from Sekwang Heavy Industries in Korea.
Prospects for 2008
It is expected that supply will increase somewhat faster than demand, the latter driven by the strength of emerging market economies, leading to a slight weakening of gas carrier freight rates. Freight rates are, however, expected to remain at healthy levels.
Further expansion of steam crackers in the Middle East Gulf and gas fields coming on stream in 2008 will support growth in demand for gas carriers.
With the delivery of three additional 8,000 cbm and three 9,000 cbm ethylene gas carrier newbuildings from Korea, Lauritzen Kosan’s fleet will expand considerably during 2008, cf. p. 8, and by the end of 2008, the company will control a fleet of nine modern ethylene carriers.
Lauritzen Kosan’s earnings before depreciation (EBITDA) are expected to be higher than in 2007 due to increased fleet capacity; however increased financial costs and depreciation and lower gains from the sale of vessels compared to 2007 will impact on earnings. Lauritzen Kosan is forecasting satisfactory profits before tax in line with 2007.
