Latvian Shipping continues fleet upgrade

RIGA - Latvian shipping company Latvijas kugnieciba’s (LK) net loss in the first quarter of 2010 reached 10.6 million U.S. dollars, according to the company’s quarterly report on the NASDAQ OMX Riga Web site, reports Nozare.lv. This result is 35 percent below company forecasts.

Despite the long-term stagnation on the global shipping market, which has been seen most vividly in the dramatic drop in shipping rates and the forced stoppage of ships because of the equally dramatic decline in cargo amounts, LK ensured carefully-considered and balanced results in its operations during the first quarter of 2010, the company’s report says.
The company has not been able to avoid the consequences of the global economic decline, even if its strategy has been fully in line with market trends. Unaudited consolidated results during the first three months of 2010 were better than expected.

LK did not earn much money from its fleet, something that reflects the overall situation in shipping markets. The operating costs of ships were not even covered. The results were also worsened substantially by unplanned losses caused by currency exchange rate shifts, particularly in terms of the U.S. dollar. During the first quarter of 2010, LK earned 25.2 million dollars, which was in line with planned results in terms of shipments, the company’s budget, and the net turnover of the concern’s subsidiaries.

Effective management of financial resources allowed the company to cut administrative costs by 60 percent during the first quarter in comparison to the same period last year.
Company management believe that the low point in operations has probably been reached and overcome, this after a careful evaluation of operations and a look at what the company might be able to do in global shipping markets. There is reason for cautious optimism that LK’s results will improve as shipping rates increase.

Marsh McLennan, which is one of the world’s leading insurers of maritime risks, continues to list LK among the most attractive business partners in the shipping industry. This clearly shows the company’s long-term stability, despite the crisis and short-term difficulties which it and the subsequent process of stagnation have caused. Over the course of many years, LK has been seen as a major player in the niche of medium-sized tankers, and this continues to be the case now, the company shows in the report. This is a niche in which highly qualified crews are needed onboard ships, which means that the company’s operational risks are minimal.

The first quarter of 2010 was a time when the shipping business saw low market activity and much lower rates, but LK minimized its risks and losses. In comparison to other participants in the market, it has concluded advantageous short-term shipping rate agreements for nearly all of its tankers, thus implementing effective policies that make it possible to use the fleet in accordance with market circumstances. During the course of the first quarter, the company concluded 35 transactions involving its ships.

LK is continuing to improve the competitiveness of its tankers at the international level by concentrating resources on the strategy of upgrading the fleet. This is an opportunity which the crisis has created. Older ships are being sold as advantageously as possible to allow LK to maintain and increase its role in the segment of medium-sized tankers. Two tankers were sold in the first quarter of the year, and five others are planned to be sold.
The consistent updating of the fleet has allowed LK to reduce the average age of its ships by more than one-half: from 17.5 years in 2005 to 7.9 years right now. During the first six months of this year, the average age of the fleet will decline to five years.

The upgrade program allows LK to put together a fleet that is in line with international standards. As the economic situation in the world recovers, that will be a cornerstone for the company’s success, says management.
LK is a public stock company with shares listed on the NASDAQ OMX Riga exchange. All of the company’s shares are traded publicly on the exchange’s official list.

Both at the beginning and the end of the first quarter of 2010, the share price was 0.40 lats (0.57 euros), and during the three months it has ranged from 0.35 lats to 0.52 lats.
On March 31, 2010, capitalization of LK shares on the exchange was at 80 million lats.

LK is among the world’s leading owners of small- and medium-sized tankers, and in terms of oil product deliveries, it is among the top shipping companies in Northern Europe. LK owns 23 modern ships with experienced and well-trained crews. The company manages a total of 25 ships - two of them belong to other owners. During the next few years, the fleet will be supplemented with four new medium-sized ships for oil product transportation.