Odfjell Group — Interim / Quarterly Report 2010

Aug 18, 2010

REPORT 2nd QUARTER 2010

ODFJELL

STORAGE AND CARRIER FOR EVERYDAY LIFE

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Report First Six Months 2010

ODFJELL SE – CONSOLIDATED

• Chemical tanker market at unsustainable level
• Second quarter net loss of USD 64 million following decision to enter the new Norwegian tonnage tax system at a total cost of USD 42 million
• First six months net loss of USD 68 million, EBITDA of USD 87 million and EBIT USD 9 million
• Time-charter results per day increased by 2% compared to first quarter
• Stable results from tank terminals
• Hedging of bunkers and currency increased EBITDA by USD 9 million for second quarter 2010

Results

The consolidated net result after tax ended at a loss of USD 64 million for second quarter 2010, compared to a profit of USD 11 million for second quarter 2009. Earnings before interest, taxes, depreciation and amortisation (EBITDA) first half 2010 were USD 87 million compared to USD 103 million first half last year. The operating result (EBIT) was USD 9 million first half 2010 as compared to USD 31 million the same period last year.

Operating expenses as well as general and administrative expenses were lower in 2010 than in 2009, principally because of cost reductions and recycling of ships. Net financial expenses, first half 2010 were USD 25 million, compared to USD 18 million first half 2009.

The increase is mainly due to unrealized losses on currency swaps intended for hedging, but which do not qualify for hedge accounting. The average USD/NOK exchange rate first half 2010 was 6.04, compared to 6.67 in the same period last year. The USD increased against the NOK from 5.76 at year-end 2009 to 6.47 at 30 June 2010. Taxes constituted a cost of USD 51 million first half 2010, compared to a cost of USD 10 million in the first half 2009, because of the implementation of the abovementioned Norwegian tonnage tax at a total cost of USD 42 million in 2010.

Business Segments

Parcel Tankers

EBITDA first half 2010 for our parcel chemical tankers was USD 32 million, compared to USD 49 million in the same period 2009. Operating result (EBIT) shows a loss of USD 30 million first half 2010, compared to a loss of USD 9 million in 2009. Time-charter results expressed in USD per day declined by 22% first half 2010, compared to same period last year but have increased by 2% from first to second quarter this year. Volume was only marginally lower during second quarter, whilst the CoA portion recovered to previous levels of about 50%. CoA coverage is crucial under the current market conditions. The average cost of bunkers first half 2010 was USD 377 per ton (including compensation related to bunker escalation clauses and hedging), compared to USD 402 same period last year. The average cost of bunkers increased from USD 366 per ton in first quarter 2010 to USD 385 second quarter. Bunker hedging gave an income of USD 9 million in the second quarter 2010 compared to USD 10 million first quarter 2010.

Operating expenses on a comparable fleet basis were 1.3% lower first half 2010 as compared to the full year 2009 figure.

In February Odfjell Tankers took the MT Southern Jaguar (19,997 DWT/built 2009), fully stainless steel and 20 segregations, on two years time charter for worldwide trading.

During first quarter, four ships, Bow Maasslot, Bow Maasstroom, Bow Power and Bow Fighter have been sold for recycling at a combined net loss of about USD 1 million. In June Bow Prima was sold for recycling at a loss of USD 4 million.

Late April Odfjell took delivery of Flumar Brasil, a new 51,000 DWT IMO III product tanker from SLS Shipbuilding Co Ltd, Korea, for trading in Brazil under Brazilian flag.

In June the proposed changes to the transitional rules from the old to the new tonnage tax scheme in Norway were finally enacted.

According to the new transition rules, companies may either elect to operate under the old scheme, where income earned under the previous tax scheme is taxed at 28% when distributed as dividends, or under a new voluntary scheme where profits earned under the old scheme is taxed effectively at 6.67% payable over a 3-year period.

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Companies must decide which scheme latest upon filing the tax return for the fiscal year 2010 in May/June 2011.

In second quarter Odfjell decided to enter the new Norwegian tonnage tax system at a cost of USD 42 million, payable during the years 2011, 2012 and 2013.

Tank Terminals

First half 2010 EBITDA ended at USD 55 million, up from USD 53 million in the same period last year. EBIT first half 2010 was USD 39 million, compared to USD 40 million last year. The result is primarily attributed to increased capacity and continued high occupancy rates.

The Odfjell Terminals (Rotterdam) EBITDA was USD 24 million in first half 2010, compared to USD 29 million last year. The result was negatively impacted by a weaker EURO to the USD and also somewhat weaker results from the distillation business. Odfjell Terminals (Houston) shows an EBITDA of USD 14 million in first half 2010, same as last year. Odfjell's share of the terminals in Oman, Korea, Singapore and China turned in an EBITDA of USD 18 million.

Key Figures

First half 2010 return on equity was minus 8.5% and return on total assets was minus 1.6%. Return on capital employed (ROCE) was 3.2% first half 2010. Earnings per share amounted to minus USD 0.32 (minus NOK 5.08) first half 2010, compared to USD 0.03 (NOK 0.21) in 2009. Cash flow per share was USD 0.66 (NOK 4.00), compared to USD 0.87 (NOK 5.77). As per 30 June 2010 the Price/Earnings ratio (P/E) was negative and the Price/Cash flow ratio was 3.1. Based on book value the Enterprise Value (EV)/EBITDA multiple is 9.7 while, based upon market value as per 30 June 2010, the EV/EBITDA multiple is 8.5. Interest coverage ratio (EBITDA/Net interest expenses) was 4.7 in the first half 2010, compared to 4.5 last year.

Finance

Cash and cash equivalents and available-for-sale investments as of 30 June 2010 were USD 132 million compared to USD 184 million as of 31 December 2009. Odfjell had no undrawn amounts under our credit facilities as per 30 June 2010. Interest bearing debt decreased from USD 1 576 million year-end 2009 to USD 1 526 million per 30 June 2010. Net interest bearing debt was USD 1 394 million as per 30 June 2010. The equity ratio was 29.7% as per 30 June 2010 and the current ratio was 1.1. We have entered into a long-term secured bank facility of USD 25 million, which we expect to draw in August.

Sevmash arbitration

The Russian state-owned shipyard "Sevmash" has notified us that they do not intend to respect the arbitration award that went against them last year in Stockholm. Briefly, by the original shipbuilding contract, for up to 12 ships (as agreed and signed by the parties in 2004) any dispute was to be resolved by international arbitration, and thus Stockholm was mutually agreed. Following a lengthy and costly Stockholm hearing process, that concluded more than a year ago, and given the above, and the fact that the Russians went through this entire arbitration without in the least indicating that they would not honour a negative award, we are now utterly surprised. This the more so since, as late as April this year, during the official visit to Norway by Russia's President Mr. Medvedev, along with other high ranking officials such as Deputy Prime Minister Mr. Zubkov, the Norwegian Minister of Industry, Mr. Trond Giske, tabled the Sevmash matter with his counterparty, Mr. Zubkov. The Norwegian side was then encouraged to consider this a case easy to resolve. The total outstanding amount today is approximately USD 47 million, arbitration expenses and overdue interest since December last year at 8.5% included. We trust the Norwegian authorities will prevail in having the Russian Government honour the award and act in accordance with international law. Otherwise, if really necessary, we shall have to seek enforcement through the courts of Russia.

Shareholder Information

At the end of second quarter 2010 the A-shares were trading at NOK 40 (USD 6.18), down 23.1% compared to NOK 52 (USD 9.03) year-end 2009. The B-shares were trading at NOK 39 (USD 6.03), down 22.0% from NOK 50 (USD 8.69) year-end 2009. By way of comparison, the Oslo Stock Exchange benchmark index decreased by 11.7%, the marine index decreased by 15.4% and the

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transportation index weakened by 14.5% during the first half. The market capitalisation of Odfjell was NOK 3.0 billion (USD 0.5 billion) as per 30 June 2010.

On 2 March 2010 ChemLog Holdings Limited ("ChemLog") sold 13,802,366 A-shares in Odfjell SE at a price of NOK 44.00 per share. In addition, ChemLog terminated a total return swap agreement (TRS) for 3,000,000 A-shares which subsequently were sold at NOK 44.00 per share as part of the total transaction.

Following the transaction ChemLog owns no A-shares and 20,500 B-shares in Odfjell SE.

At the same time, Odfjell SE bought 2,892,166 shares at NOK 44.00 per share. On June 29th Odfjell Chemical Tankers AS bought 500 000 A-shares at NOK 40.00 per share. Following these transactions Odfjell SE owns 5,391,166 A-shares and 2,322,482 B-shares in Odfjell SE, and Odfjell Chemical Tankers AS 500 000 A-shares in Odfjell SE.

The Annual General Meeting (AGM) held 4 May 2010 elected Laurence W. Odfjell as new Chairman of the Board. At the same time Marianna A. Moschou and Ilias A. Iliopoulos resigned as Board members. Bernt Daniel Odfjell and Christine Rødsæther were elected new Board members. Odfjell SE would like to thank Marianna A. Moschou and. Ilias A. Iliopoulos for the excellent work they have done on the Board since 2003 and 2008 respectively. Accordingly the Board consists of Laurence W Odfjell (Chairman), B.D. Odfjell, Christine Rødsæther, Terje Storeng and Irene Waage Basili.

Prospects

For parcel tankers the outlook for the rest of 2010 remains weak. Deliveries of newbuildings continue, and the net supply will further increase in 2010. Most players in the chemical tanker market continue to either suffer losses or unsustainable returns, which implies this has become a "survival of the fittest."

Contracting has virtually ceased and many newbuildings are being delayed or cancelled. Scrapping is at healthy levels. Overall trading activity has slowed going into the third quarter, whilst certain segments are showing good activity. Competition remains fierce, as any cargo in any tradelane attracts a number of candidates. The rising bunker price is an additional concern.

We expect tank terminal results to remain stable as a result of continued demand for storage space and a solid contract base, whilst the income from our Rotterdam distillation services may be lower.

We estimate the operating results going forward to be in line with second quarter.

Statement of Responsibility

We confirm that, to the best of our knowledge, the condensed set of financial statements for the first six months of 2010, which has been prepared in accordance with IAS 34 Interim Financial Statements, gives a true and fair view of the Company's consolidated assets, liabilities, financial position and results of operations, and that the interim management report includes a fair review of the information required under the Norwegian Securities Trading Act section 5-6 fourth paragraph.

Bergen, 17 August 2010
THE BOARD OF DIRECTORS
OF ODFJELL SE

Laurence Odfjell
Chairman

Christine Rødsæther

B.D. Odfjell

Terje Storeng

Irene Waage Basili

Jan Hammer
President/CEO

The Odfjell Group is a leading participant in the global market of the seaborne transportation and storage of chemicals and other speciality bulk liquids. The Odfjell fleet comprise about 90 ships, trading both globally and regionally. The tank terminal division consists of eight fully or partially owned tanks terminals and nine associated tank terminals strategically located. The Odfjell Group is headquartered in Bergen, Norway and has about 20 offices located world wide. Odfjell has about 3 800 employees and an annual gross revenue of about USD 1.3 billion.

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ODFJELL GROUP

Basis for preparation

These consolidated condensed financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. The interim financial statements are unaudited.

Significant accounting principles

The accounting principles used in the preparation of these financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2009. These consolidated condensed financial statements should be read in conjunction with the 2009 annual financial statements, which include a full description of the Group’s accounting principles.

	1.1-31.3	1.4-30.6	1.4-30.6	1.1-30.6	1.1-30.6	1.1-31.12
PROFIT AND LOSS STATEMENT (USD mill)	2010	2010	2009	2010	2009	2009
Gross revenue	310	308	313	618	624	1 264
Net income from associates	0	0	0	0	0	0
Voyage expenses	(110)	(116)	(105)	(226)	(203)	(449)
Time-charter expenses	(48)	(49)	(50)	(97)	(102)	(191)
Operating expenses	(75)	(77)	(78)	(152)	(160)	(329)
Gross result	77	65	80	142	159	295
General and administrative expenses	(28)	(27)	(28)	(55)	(56)	(113)
Operating result before depreciation, amortisation and capital gain (loss) on non-current assets (EBITDA)	49	38	52	87	103	182
Depreciation	(38)	(35)	(36)	(73)	(72)	(151)
Compensation	-	-	-	-	-	43
Impairment	-	-	-	-	-	(14)
Capital gain (loss) on non-current assets	(1)	(4)	0	(5)	0	1
Operating result (EBIT)	10	(1)	16	9	31	61
Interest income	2	1	2	2	4	6
Interest expenses	(11)	(10)	(12)	(21)	(26)	(50)
Other financial items	1	-	6	1	2	9
Currency gains (losses)	(0)	(7)	4	(7)	3	0
Net financial items	(9)	(17)	0	(25)	(18)	(35)
Result before taxes	1	(18)	16	(16)	13	26
Taxes	(5)	(46)	(6)	(51)	(10)	95
Net result	(4)	(64)	11	(68)	3	121
OTHER COMPREHENSIVE INCOME
Cash flow hedges changes in fair value	5	(17)	43	(12)	55	85
Cash flow hedges transferred to profit and loss statement	(12)	(10)	8	(22)	24	23
Net gain/(loss) on available-for-sale investments	0	-	3	1	2	5
Exchange rate differences on translating foreign operations	(10)	(18)	12	(28)	(1)	1
Other comprehensive income	(17)	(45)	65	(61)	80	115
Total comprehensive income	(20)	(109)	76	(129)	83	236
Net result allocated to:
Minority interests	0	(0)	1	(0)	0	(0)
Shareholders	(4)	(64)	10	(68)	3	121
Total comprehensive income allocated to:
Minority interests	(0)	1	1	1	0	(1)
Shareholders	(20)	(110)	75	(130)	83	237
Earnings per share (USD) – basic/diluted – before retroactive tax	(0.04)	(0.26)	0.12	(0.32)	0.03	0.13
Earnings per share (USD) – basic/diluted	(0.04)	(0.74)	0.12	(0.84)	0.03	1.42

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	31.3	30.6	30.6	31.12
BALANCE SHEET	2010	2010	2009	2009
(USD mill)
Goodwill	10	10	10	11
Ships	1 231	1 248	1 309	1 272
Newbuilding contracts	133	136	121	126
Tank terminals	662	639	661	691
Other non-current assets	80	81	70	72
Investments in associates	2	2	2	2
Non-current receivables	75	71	77	83
Total non-current assets	2 193	2 187	2 251	2 256
Current receivables	206	181	143	212
Bunkers and other inventories	23	27	21	32
Derivative financial instruments	8	-	-	13
Available-for-sale investments	72	61	87	81
Cash and cash equivalents	117	71	75	103
Total current assets	425	341	326	442
Total assets	2 619	2 527	2 577	2 699
Paid in equity	80	80	83	81
Other equity	779	666	700	820
Minority interests	5	6	5	5
Total equity	864	752	787	906
Non-current liabilities	57	102	111	62
Non-current interest bearing debt	1 401	1 368	1 345	1 413
Total non-current liabilities	1 458	1 470	1 456	1 475
Current portion of interest bearing debt	153	158	150	163
Derivative financial instruments	-	28	19	-
Current liabilities	143	119	164	155
Total current liabilities	297	305	333	318
Total equity and liabilities	2 619	2 527	2 577	2 699
STATEMENT OF CHANGES IN EQUITY (USD mill)	Paid in equity	Exchange rate differences	Fair value and other reserves	Retained equity
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Equity as at 1.1.2009	83	19	(91)	704
Comprehensive income	-	(0)	81	3
Share sale/repurchase	(0)	-	-	(4)
Dividend	-	-	-	(12)
Equity as at 30.06.2009	83	19	(10)	690
Equity as at 1.1.2010	81	23	24	774
Comprehensive income	-	(29)	(33)	(68)
Share sale/repurchase	(1)	-	-	(24)
Equity as at 30.06.2010	80	(7)	(9)	682

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	1.1-31.3	1.4-30.6	1.4-30.6	1.1-30.6	1.1-30.6	1.1-31.12
PROFITABILITY	2010	2010	2009	2010	2009	2009
Earnings per share (USD) - basic/diluted - before retroactive tax	(0.04)	(0.26)	0.12	(0.32)	0.03	0.13
Earnings per share (USD) - basic/diluted	(0.04)	(0.74)	0.12	(0.84)	0.03	1.42
Cash flow per share (USD)	0.43	0.22	0.53	0.66	0.87	2.10
Return on total assets *) – before retroactive tax	1.2%	(1.5%)	7.1%	0.1%	2.2%	2.3%
Return on total assets *)	1.2%	(4.8%)	7.1%	(1.6%)	2.2%	6.5%
Return on equity *) – before retroactive tax	(1.2%)	(7.2%)	5.7%	(4.8%)	0.7%	1.4%
Return on equity *)	(1.2%)	(12.6%)	5.7%	(8.5%)	0.7%	14.9%
Return on capital employed *)	1.9%	6.8%	3.1%	3.2%	3.0%	3.6%
FINANCIAL RATIOS
Average number of shares (mill.)	81.04	79.05	85.95	80.04	86.20	85.22
Basic/diluted equity per share (USD)	10.87	9.50	9.10	9.50	9.10	11.00
Share price per A-share (USD)	7.86	6.12	7.41	6.12	7.41	9.03
Debt repayment capability (Years)	9.6	8.5	7.3	8.5	8.9	10.7
Current ratio	1.4	1.1	1.0	1.1	1.0	1.4
Equity ratio	33.0%	29.7%	30.6%	29.7%	30.6%	33.6%
USD/NOK rate at period end	5.98	6.47	6.39	6.47	6.39	5.76
CASH FLOW STATEMENT
(USD mill)
Net cash flow from operating activities	43	38	45	80	108	189
Net cash flow from investing activities	19	(49)	(62)	(30)	(92)	(177)
Net cash flow from financing activities	(47)	(31)	(12)	(78)	(47)	(18)
Effect on cash balances from currency exchange rate
fluctuations	(2)	(3)	3	(4)	3	5
Net change in cash and cash equivalents	13	(45)	(26)	(32)	(29)	(1)
Opening cash and cash equivalents	103	117	101	103	104	104
Ending cash and cash equivalents	117	71	75	71	75	103
SEGMENT REPORTING
(USD mill)
Parcel Tankers	248	251	256	499	507	1 021
Tank Terminals	63	57	59	120	118	248
Gross revenue from internal customers	(1)	(1)	(1)	(2)	(2)	(5)
Total gross revenue	310	308	313	618	624	1 264
Parcel Tankers	19	13	25	32	49	73
Tank Terminals	30	25	27	55	53	109
Total operating result before depreciation, amortisation and
capital gain (loss) on non-current assets (EBITDA)	49	38	52	87	103	182
Parcel Tankers	(11)	(19)	(4)	(30)	(9)	(6)
Tank Terminals	21	18	20	39	40	68
Total operating result (EBIT)	10	(1)	16	9	31	61
Parcel Tankers	(15)	(74)	(3)	(89)	(21)	82
Tank Terminals	12	10	13	21	24	39
Total net result	(4)	(64)	11	(68)	3	121

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ODFJELL

ODFJELL SE
Courte Maîtrise 29
Postboks 6101 Postterminalen
5892 Bergen-NORWAY
Tel: +47 5527 8000
Faks: +47 5528 4741
E-post: iridodfjell.com
www.odfjell.com
Org. nr.: 930 192 503