20.03.2008 - Torm stays on edge for acquisitions

A Danish tanker player aims to double its fleet within three years.

Danish products-tanker giant Torm still has a thirst for acquisitions after swallowing OMI Corp and now setting a target of doubling its fleet size over the next three years.

Torm intends to increase its tanker and dry-bulk line-up to between 225 and 250 vessels under a new expansion blueprint.

"I have said it before and I will say it again, that if another OMI comes for sale at an attractive price and is a strategically good fit, then we can easily do a similar transaction," said chief executive Klaus Kjaerulff.

He describes the growth plan, entitled "Greater Earning power 2.0", as "dynamic and ambitious".

At the end of 2007, Torm had 128 vessels, including 42 pool ships. It posted a pre-tax profit of $819m, excluding restructuring costs of $15m in connection with the acquisition of OMI.

It benefited to the tune of DKK 3.98bn ($713m), however, from selling its shares in compatriot Norden. OMI was acquired in June 2007 in tandem with Teekay.

Torm now intends to cast the ruler across "existing fleets already in the water that we can buy", as well as building "more ships if that is feasible and at good levels".

Kjaerulff says that after mergers-and-acquisitions successes in the past couple of years, identifying further opportunities within its core businesses is the way to go. "We are in a period of nervous stock markets," he said.

He adds that Torm's strong balance sheet and good cash income over the next few years "will allow us to invest directly in ships, one way or the other".

As well as owned tonnage, its ambitions include expanding its charter fleet with both short one or two-year and long-term fixtures. It has become increasingly difficult in the current strong market, however, to find tonnage with purchase options, says Kjaerulff.

"We have said for years, cash is king," he commented. "We have close relations with our bankers and do not see any problems for us to finance our strategic plans."

Kjaerulff says Torm is also keen to expand its pool position with existing and potentially more pool partners. He plays down the loss recently of Mitsui OSK Lines (MOL) pulling seven products tankers from its long-range-one (LR1) pool.

There is no change in the pool's position because of MOL leaving, insists Torm, which says it already has sufficient tonnage to compensate through other pool partners.

Kjaerulff confirms six LR1 newbuildings were subsequently taken on long-term time charters for delivery this year and next ( see story below ). He insists Torm still has an "outstanding relationship" with MOL, which had "strategic" reasons for its move.

Quizzed during a conference call following the publication of the company's 2007 annual report, Kjaerulff said several newbuilding-resale opportunities could surface, as the credit crisis makes it more difficult for some owners to secure financing from banks.

On operating expenses, Torm says crew costs are expected to remain high and continue to be influenced by the dollar exchange rate.

However, Kjaerulff added: "Being a successful shipowner with a good name, we can attract the best people from India, the Philippines and Denmark and we have a solid base of sailing officers and crews."

Overall, the chief executive says he is "very confident" that operating expenses are under control and there should be no surprises in 2008. Not least in terms of insurance costs almost 10% of the company's operating expenses which are "fixed and locked in for the whole year".

On capital expenditure, Torm has committed $582m for the remaining tanker fleet to be delivered and $163m for dry bulk, all over the next three years. At the end of 2007, it had 21 vessels on order and had exercised one purchase option.

Torm says it expects a 10% cut in products-tanker income this year. Kjaerulff reckons it will be the most difficult year in the 2008-2011 period of its strategy plan, although on supply/demand concerns, the large global orderbook for newbuildings should be set against factors such as tanker phase-outs.

Meanwhile, although Torm did not sell any vessels in 2007, Kjaerulff says the company has a bunch of older ships ready for disposal. They will go when the time is right to "take a good profit" on them, he says. "You can expect we will sell some ships going forward but how many I can't say at this stage," he added.

Geoff Garfield, Tradewinds

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