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SUMMARY:

Things are bad – everyone knows it. There’s less visibility in the business with closer in bookings and therefore higher need to discount. Fuel is a huge tailwind although FX is a bit of a headwind. At the end of the day, CCL will still do over $2.00 a share and is trading at only 10-12x EPS. The stock is cheap and it should be. It seems like the delta on fuel could be negative. More importantly, supply growth is significant over the next few years. Cost of capital and supply are going up, ROI is coming down, and the credit markets present risk.

Here are our notes from the conference call. Think of it as a transcript with synthesis.

NOTES

General
- Fuel and FX act as somewhat of a hedge for each other
- Europe is holding up much better than US, which on the surface is positive because that’s where most of the capacity additions have occurred. However, the delta in Europe could be greater than North America. Research Edge maintains its negative European macro view
- Reduced Local Currency yields to -10% (from -6%) partially due to end of fuel supplement
- Booking patterns are closer in, trade down to value with shorter duration “value” Caribbean trips from exotic and longer ones. Because booking patterns are closer in its also affecting yields.

Liquidity:
- Company suspended dividend – saving $1.3BN
- Operating cash flow: $3.3BN
- Committed financing for ship delivery: 800MM
- Capex: $300-400MM
- Debt maturities: $700MM
- Are working new bank financing, have 1.3BN available on their credit line.

2009 booking patterns:

1Q09: Fleetwide capacity up 2.6% (1.9% in NA, 7% in Europe)
- Occupancy and pricing behind next year
- NA brands – 62% capacity in Carib, 12% in Mexico (Pricing slightly ahead and occupancy slightly behind for these two) while longer term and exotic running behind on both
- Europe Brands are running behind in occupancy and pricing, but Costa is running ahead.
- Estimated local currency yields to be 5-10% lower than 1Q08
- Forecasting 20-22 cents per share (vs 30 cents in 08)

2Q09:
- Fleetwide capacity up 4.4%
- Pricing and occupancy running behind
- Think that booking pace will improve in the back half
- Europe brand pricing is a slightly higher with lower occupancies.

3Q09:
- Overall occupancy and pricing significantly behind last year’s levels – evidencing that the US consumer is deferring vacation decisions
- Shaping up to be challenging – but expect the picture to improve given the closer in booking patterns.

Q&A:
Room to cut costs?
- Working to create more synergies and saving throughout the org. Think they can get back to 0% cost metric on a ABDL basis.
- Some improvement in booking post election but on lower yields. People not being able to get credit is affecting their business.

Opportunities:
- Post 9/11 there were a bunch of bankruptcies – so that may present an opportunity. Basically put – if CCL is having difficulty getting credit – everyone else is in a much worse position

General Comments:
- Bookings in 4Q08 better than expected – indication more of how conservative they were – not saying that there was any strength
- Volumes in Q109 are strong because the pricing has come in
- Export credits: Basically the government guarantees a piece of the loans
- Have 17 ships on order, have 3 export credits, have commitments for 3 more ships, 2 of the 3 will be signed in the next 2 weeks, last one in 30-60 days. But 5 of the ships are being built in Italy for an Italian flag so they don’t need any credits
- Italy, Germany & France performing the best in Europe, Spain is still a challenge, and UK which is performing worse than continental Europe. US seems to be performing the worse.
- Capacity growth beyond 2012 – (4% already) unlikely to do any more for that year. Still have time to order ships for 2012 if conditions improve.
- They have seen increases in cancellations across all brands. As the booking curve moves they also get less deposits and interest on deposits.

Will they cut costs:
- consolidate their multiple headquarters or cut sales commissions – will absolutely not cut their distribution in tough times… and will not consolidate since they have multiple brands
- They are working more on data center consolidation and sharing sourcing across brands- some of it is baked in and some not, 1% with fuel is 65MM and without 55MM

Can they delay deliveries or asked to?
- No they have not. Can mitigate capacity additions without delivery cancellation by moving inventory and selling older ships. Would rather take an old ship out of service than cancel a new ship