Kloster Cruise has reported a loss of $16.3 million on revenues of $918.2 million for the year ended December 31, 1993, compared to income of $13.6 million on revenues of $769.7 million for 1992.

For the fourth quarter, ended Dec. 31, 1993, Kloster reported a loss of $4.9 million on revenues of $225.6 million compared to a a loss of $8.8 million on revenues of $190.3 million in the same period in 1992.

Operating income for the year 1993 was $69.5 million compared to $49.9 million for 1992 and $14.3 million for the fourth quarter compared to a loss of $1 million for the same period last year.

Turn-around?

Adam Aron, President and Chief Executive Officer, said in a prepared statement that "While a net loss is not a satisfactory outcome, our earnings for 1993 are consistent with the company's earlier comments that 1993 would bring a significant loss. Nonetheless, there are signs that Kloster's turnaround is actually happening. Operating income has already improved, and advanced bookings for 1994 have strengthened year-over-year."

For 1993 revenues were up 19.2 percent over 1992 while operating expenses increased by 17.9 percent primarily due to the addition of the new ships, Dreamward and Windward.

The operating margin was 7.6 percent in 1993 compared to 6.5 percent in 1992.

Operating costs were 92.4 percent of revenues in 1992 compared to 93.5 percent in 1992.

On a quarter-over-quarter basis, fourth quarter revenues were up 18.6 percent in 1993 compared to 1992 and operating expenses were up 10.4 percent.

Kloster Cruise also reported 3,933,587 passenger days in 1993 compared to 3,222,906 in 1992 and 971,677 for the fourth quarter of 1993 compared to 828,878 for the same quarter in 1992.

According to a statement from VARD, parent company to Kloster Cruise, load factors for Norwegian Cruise Line have been satisfactory, but the prices achieved have not been sufficient to fully compensate for larger interest costs and depreciation relevant to the two newbuildings.

Vard also stated that while load factors remained flat for Royal Viking Line, year-over-year, "prices have deteriorated mainly due to stronger competition in this segment of the market."

For Royal Cruise Line, however, both load factors and prices improved during 1993, but the bottom line was negatively affected by what Vard called "unforeseen maintenance and repair costs in 1993."

Ship Values

Vard also stated the book value of the Kloster fleet to be $1.3 billion. Also presented were appraisals by two independent ship broker firms which valued the fleet at $1.6 and $1.5 billion respectively.

RCL and RVL were notably valued at $521 and $531 million respectively, that is, in the range of the initial price set by the now defunct AEA deal.

These evaluations, however, do not include good will and/or established market positions.

Interestingly enough, while Kloster estimates the value of the RV Queen at $85 million, roughly the building costs, both brokers estimate the current value of the 212-passenger ship, which was built in 1991, at less than building cost. That would seem to be a clear signal that the market is no longer enamored by small luxury ships.

The 740-passenger RV Sun is valued roughly at its original 1988 building cost at around $170 to $185 million.

Only the new ships, the Dreamward and Windward, are valued at slightly more than their original building cost of $240 million, from $240 to $250 million.

The Norway, meanwhile, which Kloster has repeatedly invested in, is valued from $170 to $195 million by the brokers.

Implications

The listing of ship values suggests two implications: First, and perhaps most important to Kloster, that the company's ships valued at some $1.5 billion are worth considerably more than its $1 billion debt burden.

Thus, in a sell-all scenario based on ship values, Kloster could have $500 million left for its 33 million shareholders, or $15 each, or about NOK 105 compared to the NOK 40 that Vard shares traded for at press time.

And, secondly, that ship values no longer automatically appreciate as they seemed to do during most of the 1980s and early 90s.

Future

While Kloster Cruise appears to be making money, its income is severely diluted by its debt burden requiring hefty interest payments.

In order for Kloster Cruise to become profitable the company has to reduce its debt burden, which means the sale of divisions or ships. It is unlikely to achieve better financing terms until it becomes profitable.

But the sale of ships and divisions is only a short term solution. The company will still operate diverse ships, small and large, old and new, and will not have the economies of scale that its competitors enjoy.

Thus, fleet upgrading and newbuildings are also required for long-term profitability.