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Cruise Business Commentary - FOCL impairment charge highlights valuation concerns

KEY POINTS:

1.Company books NOK411 million impairment charges against fleet of four ships

2. These include 1993 built Braemar and 1988 built Balmoral

The decision of Fred. Olsen Cruise Lines to book an impairment charge against the value of its ships did not come as a surprise after All Leisure group in the UK had earlier this month booked a £6.7 million impairment against the value of its 1972 built Discovery of 20,636 gross tons.

However, what is noteworthy in the decision of Olsen is that it includes two ships that younger than 30 years, which is regarded as the depreciation time of major capital assets like ships. The company has reported losses for some time and as the valuation of any asset is ultimately dependent on its ability to generate profits for its owner, this could be understood.

Furthermore, all ships in the Olsen fleet have received major upgrades in the past decade, the two oldest units have been re-engined, while Braemar and Balmoral have been lengthened. This must have increased their book value.

A question that arises from today's news is whether the book values of third generation cruise ships, such as the Fantasy class of Carnival Cruise Lines and Sovereign class of Royal Caribbean Cruises Ltd. will require an impairment.

These ships that largely lack balcony cabins must obtain markedly lower yields than more modern tonnage that features more balconies. The question of valuation may, therefore, refuse to go away from the agenda.

Fred. Olsen books NOK411 million impairment charge against fleet

Fred. Olsen Cruise Lines (FOCL), which is jointly owned by Olsen family's two listed holding companies Ganger Rolf and Bonheur, has booked an NOK450 million impairment charge against its fleet of four vessels, Ganger Rolf said in a statement, adding that this dragged both the final quarter and full year 2013 results deep to the red.

"After an evaluation of estimated market values versus booked values of the vessels at year-end, FOCL has written down the book values of MV Braemar by NOK 145 million, MV Balmoral NOK 179 million, MV Boudicca NOK 46 million and MV Black Watch NOK 40 million," Ganger Rolf said.

Braemar is of 24,000 gross tons and it was built in 1993, while Balmoral is five years older and measures at 45,000 gross tons. Boudicca and Black Watch are of 28,000 gross tons and date to 1972-73. All ships are operated on the British market.

The news came about a week after All Leisure group, the listed British boutique cruise shippng company, had booked a £6.7 million charge against the 1972 built Discovery of 20,636 gross tons. The company said the values of mature cruise vessels had fallen markedly in recent times.

FOCL operating revenues in the final quarter of 2013 were NOK 349 million (NOK 337 million in 2012), while operating result before depreciation (EBITDA) was NOK - 9 million (NOK 15 million) and net result was NOK - 537 million (NOK -44 million). "Net result in the quarter is significantly influenced by an impairment of NOK 411 million on the cruise vessels," Ganger Rolf said.

For full year 2013,, FOCL had operating revenues of NOK 1,470 million (NOK 1,628 million). EBITDA were NOK 65 million (NOK 193 million) and net result was NOK - 637 million (NOK - 85 million), Ganger Rolf stated.

"The UK cruise market’s difficult economic conditions and overcapacity continued to result in lower sale and occupancy. The number of passenger days totaled 292 542 (301 935) for the quarter. Net ticket income per diem was 1 % lower compared to the corresponding quarter last year. The average spot price of fuel oil in the quarter was in line with 4 quarter 2012" Ganger Rolf commented.

TUI Cruises adds Black Sea, Arabian Gulf and Far East to portfolio 2015-16

TUI Cruises, the German premium market cruise shipping line that will have four ships in 2015 compared to two at the moment, says it will start the April 2015 to April 2016 cruise season with more than 50 different itineraries and 23 new ports. "Cruisers can choose from 166 departures between 4 and 17 days long. In summer 2015, two well-being ships per route will be travelling in the Mediterranean and in Northern Europe," the company said in a statement.


"With four ships and a total capacity of 8,848 beds, we are in an even better position to satisfy the demand for Mediterranean and Northern European travel, and we can now offer Mein Schiff fans new travel experiences with routes to Asia", says Richard J. Vogel, CEO of TUI Cruises.

The routes on offer on Mein Schiff 2 and Mein Schiff 3 can be booked from 5 March 2014 onwards, while journeys on Mein Schiff 1 and Mein Schiff 4 can be booked from 12 March 2014. Mein Schiff 4´s maiden voyage and following two runs are expected to be bookable from September 2014. For all who book their holidays on one of our well-being ships by 31 August 2014 can earn themselves a limited early booker discount of up to 350 euros per person.

On course for the Far East: Mein Schiff 1 - the first well-being ship in Asia In November 2015 Mein Schiff 1 will be heading towards the Rising Sun: winter 2015/2016 will see a TUI Cruises well-being ship discover Asia for the first time. Mein Schiff 1 will set sail from Singapore on three different journeys to Malaysia, Vietnam and Thailand. Guests there will be able to experience dream islands, vibrant cities and stunning nature. Highlights include the Thai capital of Bangkok with its majestic Royal Palace and the 46-metre long Buddha statue. But Ho Chi Minh City, Kuala Lumpur and Singapore will also be waiting to impress cruise lovers with their sights.

"Asia with Malaysia" from 2 to 9 December 2015 on Mein Schiff 1 from/to Singapore including our premium all inclusive costs from €798 per person in an inside cabin based on two people sharing; from €1,948 per person including flight from/to Germany.

"Asia with Vietnam" from 20 to 27 January 2016 on Mein Schiff 1 from/to Singapore including our premium all inclusive costs from €848 per person in an inside cabin based on two people sharing; from €1,998 per person including flight from/to Germany.

"Asia with Thailand" from 6 to 13 January 2016 on Mein Schiff 1 from/to Singapore including our premium all inclusive costs from €898 per person in an inside cabin based on two people sharing; from €2,048 per person including flight from/to Germany.

Mein Schiff 4: first season in Northern Europe and the Canaries. With Mein Schiff 4, spring 2015 will see the second new ship from TUI Cruises be put into service. The maiden voyage will take the newest member of the fleet towards South Norway. It will set sail from Kiel, heading north to the ports of Bergen, Geiranger, Hellesylt, Haugesund, Stavanger and the Danish capital of Copenhagen before heading back to Kiel. With Haugesund - situated on the Karmsund - there is a new port with a variety of excursions in the programme. In the summer season 2015, Mein Schiff 4 will be setting off on different routes in the Baltic Sea with the Baltic States and, together with Mein Schiff 1, in Northern Europe and around the UK.

The maiden voyage "South Norway with Copenhagen" from 23 to 31 May 2015 on
Mein Schiff 4 from/to Kiel including our premium all inclusive costs from €1,748 per person in an inside cabin based on two people sharing.

Springtime temperatures in winter and seven completely different islands: In winter 2015/2016, guests on Mein Schiff 4 will be able to discover the Canary Islands. On two different 7-day routes, the ship will set sail from Las Palmas in Gran Canaria to either Madeira, La Palma, Tenerife and Fuerteventura or Agadir (Morocco), Lanzarote, Tenerife and La Gomera. Brand new to the schedule: three 14-day trips "Canaries with Cape Verde" including Dakar (Senegal).

"Canaries with Cape Verde" from 4 to 18 October 2015 on Mein Schiff 4 from/to Las Palmas including our premium all inclusive costs from €1,948 per person in an inside cabin based on two people sharing; from €2,398 per person including flight from/to Germany.


Premiere in the Black Sea: Mein Schiff 2 meets the "Pearl of the Orient"
In spring 2015, Mein Schiff 2 will be setting off from Antalya for a 13-day trip to the Black Sea. Via Piraeus (Athens) it will sail through the Dardanelles into the trendy metropolis of Istanbul. After one night and a further full day, the ship will head to this year´s Olympic city Sochi and continue on via Sevastopol and Odessa in the Ukraine to Burgas and Marmaris before returning to Antalya. The second well-being ship will be spending summer 2015 on ten-day trips from/to Palma in the western Mediterranean.

In winter 2015/2016, guests aboard Mein Schiff 2 will be able to experience the magic of the Orient. Operating out of the hub of Dubai, the ship will set sail on one of two different tours around the Persian Gulf - calling in on Khasab (Oman), Abu Dhabi (United Arab Emirates) and Manama (Bahrain) or Khor Fakkan (UAE), Muscat (Oman) and Abu Dhabi. Both routes can be combined perfectly to form 14-day cruises.

"Black Sea with Sochi" from 4 to 17 May 2015 on Mein Schiff 2 from/to Antalya including our premium all inclusive costs from €1,748 per person in an inside cabin based on two people sharing; from €2,188 per person including flight from/to Germany.

"Dubai with Bahrain" from 30 November to 7 December 2015 on Mein Schiff 2 from/to Dubai including our premium all inclusive costs from €848 per person in an inside cabin based on two people sharing; from €1,588 per person including flight from/to Germany.

In the summer of 2015, Mein Schiff 3 will explore many exciting and partly new ports to the line. In addition to the popular "Adriatic with Croatia" route from Valletta via Brindisi, Dubrovnik, Kotor and Corfu, it will also be setting sail to the Eastern Mediterranean in the coming season. Here, guests can look forward to the city of Bodrum on the Turkish Aegean, which will start running on this route for the first time.

In the winter season 2015/2016, Mein Schiff 3 will be setting sail to the Caribbean for the first time. Altogether, two different one-week trips are offered, which can be combined perfectly. Guests can therefore board or disembark in La Romana (Dominican Republic) and Barbados. On the southern Caribbean trip, in addition to the ABC islands Aruba and Curaçao, the cruise also stops at Grenada and Tobago. On the northern Caribbean tour, the islands of Dominica and Guadeloupe as well as Antigua and St. Maarten await the guests of Mein Schiff 3.

"Southern Caribbean with Tobago" from 13 to 20 November 2015 on Mein Schiff 3 from/to La Romana to Bridgetown including our premium all inclusive costs from €1,098 per person in an inside cabin based on two people sharing; from €2,248 per person including flight from/to Germany.

"Northern Caribbean with Antigua" from 4 to 11 December 2015 on Mein Schiff 3 from Bridgetown to La Romana including our premium all inclusive costs from €998 per person in an inside cabin based on two people sharing; from €2,148 per person including flight from/to Germany.

TUI Cruises is a joint venture of TUI AG and the globally active cruise ship company Royal Caribbean Cruises Ltd. The Hamburg-based company, founded in April 2008, has been offering holidays at sea for the German-speaking market since May 2009. The TUI Cruises Mein Schiff fleet now has over 3,836 beds at its disposal and focuses on well-being and relaxation from bow to stern. With its premium all inclusive concept, TUI Cruises is primarily aimed at couples and families who prioritise space, generosity, quality and individual service. The variety of service restaurants, the SPA & sport area, the personal Nespresso machines in the cabins, spacious balconies as well as relaxation islands on deck ensure that holidays with TUI Cruises have a profound affect on body and soul. Two new ships will be joining the Mein Schiff fleet, one in May 2014 and the other in spring 2015.

Norwegian forecasts strong rise in yields and EPS for 2014

Norwegian Cruise Line, the listed company that is the world’s third largest cruise shipping group, forecasts strong rise in yields and earnings per share (EPS) for 2014.

The company expects EPS to reach $2.20 to $2.25 range in the current year compared to $1.41 it achieved in 2013. Yields should rise by a further 4% following a 4.3% rise last year.Net cruise costs should decline between 1% and 2%, the company said in a statement.

Norwegian reports strong final quarter, rise in costs hits full year

Norwegian Cruise Line, the listed company that is the world’s third largest cruise shipping group, has reported a sharp increase in final quarter net profit, but the figure for the full year fell due to rise in costs

Norwegian’s final quarter 2013 net profit rose to $36.0 million from just $1.0 million in the same period a year earlier, when financial items reduced the bottom line. Revenues rose to $600.3 million from$503.1 million.

 Full year 2013 net profit fell to $101.7 million from $168.5 million in the previous year despite a rise in revenues to $2.57 billion from $2.27 billion as cruise operating expenses rose by the region of $200 million to $1.65 billion. Marketing expenses and depreciations increased as well. Full year net yields rose 4.3%, while the final quarter figure came higher, at 4.8%.

"A year that began with a highly successful initial public offering, followed by other transactions which resulted in a strong balance sheet and credit metrics, and the launch of the first ship in our Breakaway class, Norwegian Breakaway, will undoubtedly be remembered as one of the seminal years in Norwegian’s 47-year history,” said Kevin Sheehan, president and chief executive officer. 

“The hard work of 25,000 Norwegian team members, all with a keen focus on our vision and mission, has been the catalyst for reaching these milestones, reporting solid financial performance in a challenging year for the industry and positioning the Company for measured, disciplined growth,” continued Sheehan.

 

Viking Star