Kloster Cruise has posted a loss of $7.4 million from ongoing operations in 1992 compared to a loss of $35 million in 1991.

After gain on the sale of the Sunward is taken into account, Kloster posted earnings of $7.3 million in 1992 compared to a loss of $19.7 million in 1991 including a foreign exchange gain.

Fourth quarter results showed that Kloster lost $17.1 million from ongoing operations in the quarter that ended December 31, 1992 compared to a loss of $9.2 million in the same period the previous year. Kloster Cruise attributed to the loss primarily to what it called poor peformance by Norwegian Cruise Line.

A prepared statement from VARD, parent company to Kloster Cruise, stated that results for Kloster Cruise in the first quarter of 1993 are expected to be weak. The statement also said that Vard/Kloster is working to achieve a long-term financing structure which is more in accordance with the life expectancy of the company's fleet. At the same time, efforts continue to improve the group's capital structure through a sale or equity partnership. Yard's holdings also include two ferry companies.


"Our results show a dramatic improvement from 1991," said Knut Kloster, Jr., CEO of Kloster Cruise. He underlined, however, that the results were not satisfactory, and that his goal was to improve earnings for 1994 and 1995.

Kloster said he had instituted a number of actions which will improve the company's earnings in the long term, he emphasized. He said that NCL has increased the number of reservations agents from less than 100 to 230; that resources have been transferred from staff functions to marketing and sales; and that the marketing budget has been increased from $30 million in 1992 to $48 million in 1993.

"We are now offering better service to travel agents than ever," Kloster said, "and agents' calls are answered immediately."

Reconsidering Itineraries

Kloster conceded that NCL was reconsidering the sailing program of the Dreamward. He said that the ship was "so good that it was competitive in a more upscale market" during its Caribbean winter season. He said that changes may include new ports of call.

Kloster also said that NCL was exploring an alternative summer program for the new Windward as well, which is arriving this summer and is scheduled to sail year-round from San Juan. He would not say whether an alternative summer program would include Alaska.

In addition, Kloster said the company was exploring alternative deployment for the two smaller white ships.

Positive Cash Flow

Kloster said that Kloster Cruise generates a positive cash flow after interest payments. "We are earning money," Kloster said, "our results show a $38 million improvement in 1992 over 1991. However, we need to refinance our debt which is too short term in relationship to the life expectancy of our ships."

Kloster noted that the results for 1992 and the fourth quarter of 1992 were presented according to Norwegian accounting rules. He said that if they were presented according to American accounting standards, Kloster would have showed a $2 million profit from ongoing operations in 1992 compared to a loss of $36 million in 1991. He added that the company may soon offer a presentation of its earrungs according to American account rules, in addition to Norwegian accounting standards to satisfy the Norwegian stock exchange.

Kloster said that the refinancing of the company's debt was proceeding according to schedule. A $270 million debt payment is due next year.

In Norway, meanwhile, there are new reports that Kloster Cruise is looking to sell Royal Viking Line. Among the interested parties are Erland Raastad who has formerly been Chief Executive with both RVL and Kloster Cruise and more recently part of the Seabourn Cruise organization. According to Norwegian press reports, neither Raastad nor Yard executives would not comment. Kloster also told this newsletter that he would not comment on the reports. He noted that another report stating that RVL and Royal Cruise Line may be sold was inaccurate.

Such reports and comments, or lack of firm comments, do little to quell the rumors that continue to surround the company. One Norwegian analyst, who asked not to be identified, said that the financial market there was looking for firm answers and better results. "Now, he said, everything is about as uncertain as they can get."

"Under normal circumstances," he said, "Yard and Kloster Cruise should be posting strong earnings. That they are not, is generating rumors and expectations that affect the investors' decisions more than facts."

He also noted the controversies surrounding the company's main shareholders including Trygve Hegnar, former CEO, who recently offered to purchase Yard's ferry division.

Timing is Off

The analysts also said that Kloster Cruise should have sold vessels earlier and that it now was too late. Potential buyers know that the company needs the money, he said, and will force the price down. He noted that the purchase of the Norway and RVL had been mistakes which had taken resources away from the development of new tonnage for NCL.

When Kloster Cruise ordered the Dreamward and the Windward, company executives said they had come up with a radical new ship concept and would release few details before construction got underway. While the new ships are very attractive, they can hardly be said to be radical. Besides, as market conditions change, they have to compete against much bigger ships offering better economies of scale.

Kloster admitted that the Dreamward needs to make more money. He said they had hoped that passengers would pay more to cruise on a relatively smaller ship offering higher quality. He noted, however, that the ship was perfect for the summer run to Bermuda.

Refinancing, Sale and/or Partner

Kloster is seeking to refinance the company's debt and to attract new equity capital or a new partner. "There are many alternatives," Kloster said. But he has to succeed if the company is going to continue to play a major role in the cruise industry.

ln the near term, Kloster can improve earnings by achieving better load factors and better yields on its ships. The new Windward will also provide additional capacity. The problem with the Dreamward and the Windward, however, is that they are expensive ships which require a higher per diem than comparable cruises in order to be profitable.

Thus, the question now is whether Kloster will be able to increase per diems for the NCL fleet. Kloster is trying by boosting sales and marketing.

In the long run, increased earnings can only come through increased efficiency and better economies of scale which translates into newbuildings. Thus, Kloster seems to have little choice but to refinance the company's debt and then, attract new capital by attracting new investors, partners, or by selling ships or divisions.

Despite all the turmoil surrounding this company, NCL, RCL and RVL remain some of the strongest brand names in the business. Kloster has an excellent starting position, but he has to act, otherwise NCL will be pushed aside by the competition, as will RCL facing the new ships from Holland America Line, and RVL facing a growing Crystal Cruises along with Seabourn Cruise Line and Cunard/Sea Goddess plus newcomers, Silversea Cruises and Swedish American.

At press time, Yard shares traded for NOK 33.25 on the Oslo Stock Exchange, compared to a 1991/92 high-low of NOK 93.50 - 28.00.

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