COASTAL SHIPPING – A NEW AGE

Coastal shipping companies have put a brake on investments over the last two years, while during the same period relatively new ships have been sold off. On the contrary, in the 1990s the listing of major companies from the sector on the Stock Exchange, combined with low petrol prices and international economic growth allowed the placement of orders for new ships which are the most important investments ever made in passenger shipping. During that period, in addition to other equity capital, around € 3 billion was invested in coastal shipping from two important sources, firstly from the Athens Exchange which over the last five years has raised € 926 million and secondly from banks which financed Greek shipping to the tune of € 2.05 billion. Overall, 36 banks from 12 countries have financed the market with portfolios ranging from just € 500,000 to € 550 million. 25% of borrowing comes from Greek banks and 51% from German banks while the remainder is from other countries. It is a fact that the options for raising capital from banks over the last period have been significantly limited. Many loans have been restructured primarily due to the fact that their initial terms were overly ambitious. The fact of restructuring lead to a drop in the desire of banks to continue closely supporting the sector before settling the existing loans and assessing again the emerging market capacity.

The new age

The new age for the Greek coastal shipping market began with a renewed fleet but with many problems. New investments were confronted with a market low in economic potential since the level of fares and the characteristic seasonality of the market did not justify the economic exploitation of new ships. The current situation is reflected by the fact that the five major companies which are listed on the Athens Exchange and which bear the brunt of bank borrowing to the tune of € 2.05 billion had, up until 2002, earnings before interest, tax, depreciation and amortization (EBITDA) of just € 172.4 million, of which around € 100 million was needed to cover the interest on bank loans alone. Thus, the likelihood of servicing bank loans, in the form obtained, is impossible. This fact alone limits the potential for new investments. According to research by Giorgos Xiradakis, Managing Director of XRTC Business Consultants and financial consultant for Credit Lyonnais, specialized in open sea and coastal shipping companies, the main features of the coastal shipping market can be summarized as follows:

1. A stoppage in fleet renewal;

2. The appearance of over-capacity in ‘rich’ lines where there is unfair competition and consequently ‘poor’ results;

3. A continuation of state interventionism which appears in matters such as the level of fares and discounts given the continuation of social policy, and also in relation to crews and the introduction of new laws establishing strict age limits, etc.

4. The lack of ships to serve lines of secondary importance to less populated islands (the so-called barren lines) for which the term 'quality transport' simply does not exist.

5. A stoppage of efforts to achieve mergers and acquisitions.

6. The restructuring of bank loans.

The impact of deregulation

According to Law 2932/2001 the thresholds for the withdrawal of vessels in the coastal shipping fleet is as follows:

• December 2004/5 for vessels up to 35 years old;

• December 2006 for vessels up to 34 years old;

• December 2007 for vessels up to 32 years old; and

• December 2008 for vessels up to 30 years old.

It is expected that the impact of this law will be significant in maintaining the problem-free operation of maritime transport in Greece. A survey on this matter found that withdrawals from service as a result of this law will have the following impressive results over the next five years if and where fleet renewal is not kept up:

• A 68% reduction in the number of vessels operating on the domestic market;

• A 88% reduction in passenger capacity;

• A 58% reduction in car capacity; and

• A 62% reduction in truck capacity.

It should be stressed that due to the particular geography of the market which requires a large number of ports, the reduction in the number of vessels places at high risk the continued service of many of these ports by vessels. It is a fact that Law 2392/01 can only be properly implemented if and where fleet renewal continues, which at present has stopped.

New investments

The impact of the law requires new investments in terms of both conventional vessels and high speed craft. It should be noted that new investments need not necessarily be made in newly built vessels, as was the case in the recent past, but may be done in second-hand, younger vessels, which is considered to be less of an investment.

Implementation of this law is certainly directly affected by the developments resulting from the extension of application of the Stockholm Agreement to the entire EU. Moreover, both the change in seaways required by the law and the implementation of community provisions based on this Agreement will require further investments by coastal shipping companies in their vessels, something which may make continuing business economically disadvantageous. The necessity of renewing the fleet is also affected by the demand for better service from customers themselves whether they are foot passenger or car drivers.

Thus the key element of the new coastal shipping market is the combination of the necessity for fleet renewals with the forecast increase in traffic.

The coastal shipping companies

The current status of coastal shipping companies listed on the Athens Exchange in terms of both their fleet and financial results are listed below.

ANEK

ANEK reported profits again for the first half of 2003 in the order of € 670,789 compared to losses of € 3.4 million for the same period last year. Company turnover was also up, reaching € 71.1 million during the first half of 2003 compared to € 60.8 million for the first half of 2002. According to the summary statement of account ANEK had total liabilities of € 359.9 million, of which € 294.7 million related to long-term liabilities and € 65.1 million were short-term liabilities. During the first half of 2002 total company liabilities were € 377.7 million, of which € 266.4 million were long-term liabilities and € 111.3 million short-term liabilities. ANEK’s fleet consists of 11 vessels, namely the "Hellenic Spirit" which is 3 years old, "Olympic Champion", 3 years old, "Eleftherios Venizelos" 20 years old, "Crete Ι" and "Crete ΙΙ" 22 years old each, "Lato" 27 years old, "Aptera" 31 years old, "Lefki Ori" 11 years old, "Preveli" 22 years old and "Sof. Venizelos" 12 years old.

Blue Star Ferries

During the first half of 2003 Blue Star Ferries increased its income by 11.8% compared to the same period last year. More specifically, Group income for the first half of 2003 stood at € 52.9 million compared to € 47.3 million for the same period last year. During the first half of 2003 Group liabilities dropped by € 21.3 million and in particular stood at € 272.7 million, of which € 240 million were long-term liabilities and the remaining € 32.7 million were short-term Group liabilities. During the same period last year, overall Group liabilities stood at € 294 million, of which € 244.9 million were long-term Group liabilities for that period and the remainder of € 49.1 million short-term liabilities. According to the statement of account, mortgages worth € 313 million approximately have been registered for the Group’s vessels to secure long-term liabilities while during the first half of 2003 the Group sold off the vessel “Cesme 2". The Group recorded losses of € 4 million for the first half of 2003 compared to losses of € 982.287 during the same period last year. The company’s fleet consists of "Blue Star Paros" and “Blue Star Naxos" 1 year old each, "Blue Star 1" and "Blue Star 2" 2 and 3 years old respectively, "Blue Star Ithaki" 4 years old , "Seajet 2" 5 years old, ""Blue Horizon" 16 years old, "Blue Sky" 29 years old, "Superferry II" 29 years old, "Cephalonia" 28 years old and "Blue Bridge".

Minoan Lines

Minoan Lines reported a significant drop in losses by € 2.3 million during the first half of 2003 compared to the same period last year. Moreover, during the first half of 2003 the company reported an increase in operating income by 46.3% compared to the same half of 2002. More specifically, during the first half of 2003 the company reported operating profits of € 15.9 million. An increase of 8.4% for the same period was also reported by Minoan Lines in relation to company turnover with total income for the company during the first half of 2003 amounting to € 77.8 million compared to € 71.7 million during the first half of 2002. The company fleet consists of "Festos Palace", "Knossos Palace", "Ikarus Palace", "Olympia Palace", "Europa Palace", "Ariadne Palace", "Daedalus", and "Pashiphae Palace". Recently the company sold the passenger – vehicle vessel "Prometheus” to the Italian company Caronte & Tourist SpA. According to Minoan the vessel was sold at a very satisfactory price with the Italian company having paid 10% of the sale price in advance into a joint account. Minoan Lines had chartered “Prometheus” to Caronte & Tourist SpA for the period from 10th September 2003 to 10th January 2004 to carry out itineraries on the line Livorno – Catania. The vessel will be handed over to its new owners within January 2004 after the end of the charter period and will continue the itineraries on the line it is currently serving, or some other line apart from those on which Minoan has a presence. Moreover, in March 2003 the company sold the vessel "Okeanos - Ariadne I" for USD 65 million, which was operating in the Mediterranean.

NEL

NEL reported a 52% drop in losses during the first half of 2003 compared to the same period last year, reporting losses of € 800,000 for the first half of 2003 compared to losses of € 1.7 million for the same period last year. Moreover, NEL is currently examining the possibility of routing vessels belonging to its subsidiary companies Arisvi Shipping and Irina Shipping, and in particular the vessels “Aphrodite II” and “Aghios Andreas”, on domestic lines. Should NEL take this step, it will be done by establishing a new subsidiary company whose business will be to transport trucks and merchandise. The company fleet consists of "Aelos Express II” 3 years old, “Aelos Kenderis” 3 years old, “Aelos Express” 3 years old, “Theophilus” 29 years old, “Alkaeus” 34 years old, “Mytilene” 29 years old and “Taxiarchis” 27 years old.

Attiki Enterprises

An increase in turnover by € 41.65 million was reported by the Attiki Enterprises Group and in particular during the first half of 2003 total income stood at € 166.1 million compared to € 124.8 million during the first half of 2002. Of this sum of € 166.1 million, € 156.3 million comes from open sea and coastal shipping transports carried out by Group vessels while the remaining € 9.8 million from various services. Moreover total Group liabilities for the first half of 2003 according to the statement of account amounted to USD 1.078 billion, of which € 956.3 million relates to long-term liabilities and the remaining € 121.8 million to Group short-term liabilities. During the same period last year the Group reported total liabilities of € 977.3 million of which € 851.5 million were long-term liabilities and € 125.8 million short-term liabilities for the Group. Losses of € 4.3 million were reported by the Attiki Enterprises Group for the first half of 2003 compared to profits of € 2.5 million which the Group had reported for the same period last year. The Group’s subsidiary company "Super Fast Ferries" has a fleet consisting of the vessels "Superfast I"," Superfast V", " Superfast VI", " Superfast XI", " Superfast XII". On 30th September the company handed over “Superfast II", which has a capacity of 23,633 gt, to the government of Tasmania and the local shipping company TT Line. The ship will be put on the Bass Strait Line which links Tasmania with Sydney, Australia, and was renamed “Spirit of Tasmania III”. It will join forces with "Superfast IΙΙ" and "Superfast IV", built in 1998, which were handed over to the government of Tasmania in 2002. The total cost for acquiring the vessel was USD 71.4 million and includes the cost of purchasing the vessel, retrofitting, as well as the cost of receipt and the crew. As Attiki Enterprises stated, the entire price was paid in full.

Hellas Flying Dolphins

Hellas Flying Dolphins’ pre-tax profits soared to € 16.17 million for the first eight months of 2003 compared to profits of € 559,000 for the same period last year. Moreover, company operating profits also increased by 50.8% since they stood at € 25.4 million during the first eight months of 2003 compared to € 16.8 million for the same period last year. This year the gross profit margin stood at 37% compared to 29% for the first eight months of 2002. On the contrary though, turnover dropped by 4.4% compared to the first eight months of 2002. In particular, company income for the first eight months of 2003 stood at € 107.3 million compared to € 112.2 million for the same period last year. According to company analyses, this drop is due to the reduction in the number of scheduled vessels, the stagnation of the overall market and the continuation of discount policies required by the Greek State. According to company data, the financial results will reduce over the following months and pointed out that this is due to the fact that during the first eight months of every year the company brings in 80% of its income since it includes the summer period. In any event, HFD estimates that the financial results for the year 2003 will show a profit compared to previous years. Lastly, the company reported that based on calculations, by the end of the year its borrowing will stand at € 61 million. HFD has prepared a five-year plan whose priorities are based on planning around conventional vessels which will serve passengers all year round and on top of these foundations a fleet of high speed craft will be added which will serve demand which arises when it arises. In other words, these vessels will sail during summer and will be moored during winter. This five-year plan foresees the purchase of two high speed craft, one passenger – vehicle vessel and an exclusively passenger vehicle so as to replace older conventional vehicles and cover existing demand. The company is already engaged in negotiations to purchase vessels aged up to five years old. The company is also considering expanding further into the merchandise transport market using Ro-Ro vessels.