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CEO's Column - NORDEN News Magazine Autumn 2008

In rough seas

The heavy downturn in the financial markets and the related drop in freight rates in dry cargo illustrate that the shipping business is cyclical and is naturally influenced by the global economic development.

NORDEN has also taken a hit. Early October, we adjusted the 2008 guidance to a net profit of USD 800-880 million as earnings on open ship days were affected by the plunging dry cargo freight rates and, on top of that, we had to book a negative fair value adjustment on hedging instruments. Still, we are well on track to post a full-year profit, which will exceed last year’s record result of USD 703 million significantly. A net profit of more than DKK 4 billion must be perceived a solid performance in today’s world.

We are all looking for answers to today’s key questions: where is the financial crisis leading us and when does it stop hurting the global economy? But I am afraid that there are no precise answers to these questions. In times of such uncertainties, it is imperative that we in NORDEN rely on our own skills, stay 100% focussed and customerorientated – and that we all do a good job even better.

In 137 years, NORDEN has, as a global shipping company, experienced many up- and downturns in the markets. We have learned from rapid changes to think long-term and constantly to focus on risk management and high tonnage coverage. DryCargo has managed to increase next year’s coverage markedly, and 65% of the 32,000 known ship days are fixed at rates considerably above the current spot rates. Our “book” remains very cost-effective with average costs of USD 13-16,000 per open ship day in Handymax and Handysize next year and approximately USD 13,000 going forward. This provides us with a strong off-take in Dry Cargo. Moreover, our Tanker Department continues to produce fine and better than expected results as they benefit from their positions in strong markets.

NORDEN’s business model has demonstrated its viability both in calm waters and heavy sea. It will now prove its worth once again. At the same time, we must examine our costs and internal practices  on a continuous basis so that what we do is both efficient and adds value for our customers. Our organisation has very quickly readjusted to the challenging market conditions, and we must stay flexible and willing to readjust. When the going gets tough, the tough gets going. Also, we must continue to look for the opportunities. An expected year-end equity of USD 1.8 billion, expected net cash positions of USD 7-800 million as well as substantial cash-flow from fixed coverage provide NORDEN with the financial strength to both resist fluctuations and take advantage of the opportunities that may arise.

And let’s not forget the nuances. Even though rates in some segments have dropped 70% in just one month, the dry cargo rates still remain well above the historic average – currently at the level seen in the summer of 2006. It is also important to remember that the baton in the shipping market is not being hold solely by the USA and Europe, but to a large extent also by the strong economies in Asia.  China and India are crucial to the dry cargo market, and the growth rate in the world’s two most densely populated countries makes our confidence in the longterm story in dry cargo remain undiminished, although the road may get very bumpy in the near future. We follow the development in Asia closely and will in NORDEN News focus especially on the Asian markets. In this issue, we concentrate on the dry cargo market in India. Enjoy your reading.

CARSTEN MORTENSEN