shipping, offshore & oil services presentation · 2012. 2. 13. · presentation . stockholm ....

Shipping, Offshore & Oil Services Presentation Stockholm February 13, 2012

Hans C. Kjelsrud, Head of Shipping, Offshore and Oil Services

Disclaimer

This presentation contains forward-looking statements that reflect management’s current views with respect to certain future events and potential financial performance. Although Nordea believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of various factors.

Important factors that may cause such a difference for Nordea include, but are not limited to: (i) the macroeconomic development, (ii) change in the competitive climate, (iii) change in the regulatory environment and other government actions and (iv) change in interest rate and foreign exchange rate levels.

This presentation does not imply that Nordea has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided.

2 •

Key messages

• Nordea is a globally leading shipping and offshore bank with strong long term relationships with major shipping and offshore companies

• Operating profit after loan losses of EURm 233 in 2011 – third highest ever

• Near term outlook is weak for crude tankers, dry cargo and containerships but robust for offshore, oil services, cruise and LNG

• Orderbooks for major shipping segments are gradually reducing and we are getting closer to a balanced market

• Our strategy and commitment to the industry remains intact

3 •

• About our division

• Financial results

• Shipping markets

• Offshore markets

• Cruise and ferry markets

• Risk management

Our business

• A globally leading industry bank with a strong international brand name and robust historical returns

• Inherently cyclical and volatile markets, but our loan portfolio is well diversified across segments, geography and clients

• Long standing relationships with the worlds leading shipping, offshore and cruise companies

• Consistently ranked as a global leader in loan syndications

• Presence in all Nordic and key international markets

5 •

Our strategy

• Our strategy is global, but our core markets are Europe, North America and selected countries in Asia

• Focus on risk management, capital efficiency, and profitability

• Broad relationships with large, transparent companies that own and operate modern assets

• Market leadership built on strong industry and credit skills

• Leverage our relationship platform to grow products sales

• Our loans should generally be secured by 1st priority mortgages on modern assets

6 •

Diversified and balanced portfolio

7 •

Segments Geography Clients

Diversified across:

Exposure of EURm 19,700 with drawn loans of EURm 13,600

Drilling Rigs 10%

Supply Vessels 7%

Integraded Oil Services

4%

FPSO / FSO 3%

Other Oil Services 2%

Cruise 4%

Ferries / Ropax 2%

Miscellaneous 11%

11 %

10%

8%

6%

6%

4%

3%

2% 2% 1% 1%

Shipping 58 %

Crude Tankers

Dry Cargo

Product Tankers

Chemical Tankers

Car Carriers

Gas – LNG Gas - LPG RoRo Container Vessel Multi Purpose Other

Competitive landscape

• Ship finance market dominated by European banks

• Number of competitors and lending capacity significantly reduced since start of financial crisis

• New transactions executed on conservative structures

• Attractive pricing environment with new transactions priced in range of 250 – 400 bps

• Recently higher activity within the offshore and oil services segment than in shipping

• Limited number of capable lead banks for large transactions

8 •

A typical financing

• A fleet of modern ships or offshore assets

• Tenor of 5-7 years

• 1st priority mortgages in the assets financed

• Loan-to-value ratio of 50-75%

• Loan repayment profile steeper than asset depreciation

• Minimum security covenant of 120 -140%

• Covenants in respect of net worth, cash flow, leverage and liquidity

9 •






• Risk management

Financial results (2006 – 2011)

11 •

In EURm 2006 2007 2008 2009 2010 2011

Total income 216 236 313 370 393 433

Total expenses (42) (45) (50) (49) (56) (64)

Profit before loan losses 174 191 263 321 336 369

Loan losses, net 1 1 (11) (96) (45) (135)

Operating profit 175 192 253 225 292 233

Lending volume 9.371 11,253 13,820 12,852 13,608 13,561

RAROCAR 28% in 2011 Exceeding Nordea Group’s target of 21%

From 2008 to 2011 total income is up 38% while lending volume is down 2%

Continued increase in credit spreads

12 •

• We expect credit spreads to continue to increase

• New loans are typically priced between 250 and 400 bps

• Continued imbalances in supply and demand for financings

(*) From 2010 spreads are affected by a new funds transfer pricing model

Basis points

0

20

40

60

80

100

120

140

160

180

200

Q1/

06Q

2/06

Q3/

06Q

4/06

Q1/

07Q

2/07

Q3/

07Q

4/07

Q1/

08Q

2/08

Q3/

08Q

4/08

Q1/

09Q

2/09

Q3/

09Q

4/09

Q1/

10Q

2/10

Q3/

10Q

4/10

Q1/

11Q

2/11

Q3/

11Q

4/11






• Risk management

Orderbook shipping (as % of fleet)

14 •

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%19

96-0

119

96-0

919

97-0

519

98-0

119

98-0

919

99-0

520

00-0

120

00-0

920

01-0

520

02-0

120

02-0

920

03-0

520

04-0

120

04-0

920

05-0

520

06-0

120

06-0

920

07-0

520

08-0

120

08-0

920

09-0

520

10-0

120

10-0

920

11-0

520

12-0

1

Tanker Bulker Containerships

Source: Nordea/Clarksons

• Orderbooks peaked in 2008

• Limited contracting of new vessels since then

• Present orderbooks probably overstated

• Limited new orders will be key to restore market balances

Dry bulk freight rates and values (2001 – 2012)

15 •


-

20

40

60

80

100

120

140

0

2 000

4 000

6 000

8 000

10 000

12 000

Value USDm

Freight Index

Freight Index - BDI Value - Capesize 10Y Value - Capesize. NB

• Currently at record low levels, high volatility

• Weak outlook for the next 12 months

• Outlook hampered by double digit annual fleet growth through 2012

• Demand dependent on Chinese import of iron ore as input to steel production

Orderbook 30%

Crude tankers freight rates and values (2001 – 2012)

16 •

0

20

40

60

80

100

120

140

160

180

0

500

1 000

1 500

2 000

2 500

3 000

3 500

Value USDm

Freight Index

Freight Index - BDTI Value - VLCC 10Y value - VLCC NB


• Weak earnings and falling asset values during 2011

• Charter preference for modern tonnage

• Older vessel uneconomical due to high bunker consumption

• Strong Chinese growth partially offset by dampened OECD oil demand

Orderbook 20%

Product tanker freight rates and values (2001 – 2012)

17 •


0

10

20

30

40

50

60

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

Value USDm Freight

Index

Freight Index - BCTI Value - MR 45k. 10Y Value - MR 47k. NB

• Deliveries peaked earlier than for crude tankers

• Modest product tanker orderbook

• Closer to market balance

Orderbook 11%

Chemical tankers freight rates and values (2001 – 2012)

18 •

Source: Nordea

-

0,50

1,00

1,50

2,00

2,50

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Freight & Value Index

Freight index. 1Y TC Value index. NB Value index. 5Y

• Modest freight rates since 2008 as double digit fleet growth coincided with weak trade development

• Increased cargo volumes, but

suffers from overhang of capacity

• Small orderbook is a key factor for improved market ahead

Orderbook 9%

Container ships freight rates and values (2001 – 2012)

19 •


-

10

20

30

40

50

60

70

80

0

50

100

150

200

250

Value USDm

Freight Index

Freight Index Timecharter - Container Value - 3.5k teu. 10Y Value - 3.5k teu NB

• Marginal exposure for Nordea

• Reduced rates and softening vessel values through 2011

• Modest consumer demand in western economies a main contributor

• Signs of improvements in the US economy positive

• Assumed continued pressure on rates and values the next 12 months

Orderbook 27%

Other shipping markets • Liquified Natural Gas – LNG

• Strong present market

• Realisation of important LNG export projects in the Middle East have lifted fleet utilisation and profitability

• Positive outlook

• Liquified Petroleum Gases – LPG • Strong freight market through the 2nd half of 2011

• Major contributor were high Middle East LPG exports (+17%) and low fleet growth (2%)

• Positive market conditions expected ahead

• Car carriers • Highly industrialised segment with limited fleet growth

• Significant scrapping during 2009 helped restore the market

• Robust demand from US consumers

• Conditions expected to remain favourable 20 •

Factors that could improve market outlook

• Scrapping

• Charterer preference

• Delays, cancellations and conversions

• Slow steaming

• Lay up

• Floating storage

• Geopolitical events • Embargo against Iran • Unrest in Libya

21 •






• Risk management

Drilling rigs – day rate development from 2001 to 2012

23 •

Source: Nordea/ODS Petrodata Source: Nordea/ODS Petrodata

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

jan2001

jan2002

jan2003

jan2004

jan2005

jan2006

jan2007

jan2008

jan2009

jan2010

jan2011

jan2012

USD/day

Semi-submersible rigs Drillships

• Strong industry fundamentals driven by high oil price and increased E&P spending

• Global fleet of modern offshore drilling units at close to full utilization

• Incremental rig demand from West Africa, US Gulf, Brazil and South-East Asia

• Capacity added generally only against 3 – 5 years contract with strong counterparts

0

50 000

100 000

150 000

200 000

250 000

feb-

05

jul-0

5

dec-

05

maj

-06

okt-

06

mar

-07

aug-

07

jan-

08

jun-

08

nov-

08

apr-

09

sep-

09

feb-

10

jul-1

0

dec-

10

maj

-11

okt-

11

AHTS + 15,000 bhp PSV + 3,000 dwt

Supply vessels – day rate development from 2005 to 2012

24 •

Source: Nordea/ODS Petrodata

• North Sea market usually has a soft winter season

• High demand driven by increased oil and gas production from offshore deepwater fields

• Strong demand for modern sophisticated vessels

• Relatively large orderbook could limit future rate increase

North Sea USD/day






• Risk management

Cruise and ferries • Ferry and Ropax

• Our exposure concentrate on major operators on the northern European trade lanes

• Significant barriers to entry and a highly concentrated supply side in respective regions

• The outlook will be closely linked to the development in the northern European economies

• Cruise • Industry dominated by three major players with 80% market

share

• Remains profitable through economic cycles by flexible pricing and product development

• Profitability dependent on the US and European economies

26 •






• Risk management

Risk management framework

• Credit Policy reviewed and approved annually by the Board of Director’s Risk Committee, laying down principles for lending and customers

• An overall cap on shipping and other segments exposure is set

• Main rule is secured lending limited to 75% of market value of modern collateral vessels, protected by financial covenants

• Target a diversified Nordic and international credit portfolio with the leading names in each segment

28 •

Historical loan losses (2001 – 2011)

29 •

In EURm In bps

-20

0

20

40

60

80

100

120

-20

0

20

40

60

80

100

120

140

160

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Loan loss, net In bps

2005 – 2008: Average

loan margins ~ 100 bps

2011: Average

loan margins ~ 200 bps

Loan losses analysis (2008 - 2012)

• More than one third of our aggregate loan losses stem from certain holding company loans secured by shares and not by shipping and offshore mortgages

• Concentration of loan losses in the product and chemical tanker segments

• Proportionally higher losses for smaller clients and limited partnerships (KS financings)

• Lower losses in our international branches than in our home markets

30 •

Managing throughout the shipping cycle

• Tightening our credit standards

• Focus on our relationship strategy with leading companies within each segment

• Dedicated workout and restructuring team

• Increased frequency of stress tests for early detection of problems

• Accelerate against our collateral is always last resort, but we will not hesitate to take firm action, if needed

31 •

Key messages

• Nordea is a globally leading shipping and offshore bank with strong long term relationships with major shipping and offshore companies

• Operating profit after loan losses of EURm 233 in 2011 – third highest ever

• Near term outlook is weak for crude tankers, dry cargo and containerships but robust for offshore, oil services, cruise and LNG

• Orderbooks for major shipping segments are gradually reducing and we are getting closer to a balanced market

• Our strategy and commitment to the industry remains intact

32 •

Shipping, Offshore & Oil Services Presentation Stockholm February 13, 2012

Hans C. Kjelsrud, Head of Shipping, Offshore and Oil Services

shipping, offshore & oil services presentation · 2012. 2. 13. · presentation . stockholm ....

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