I. M. Skaugen SE Preliminary Result 2011
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The I.M. Skaugen Group (IMSK) today announces
The pre-tax result was negative USD10.8 mill in 2011 compared to negative
USD14.3 mill in 2010. The result of 2011 on an EBITDA basis was USD30.3 mill
compared to USD19.4 mill for the 2010. The pre-tax result for 4Q11 was negative
USD4.7 mill compared to negative USD5.7 mill result for 4Q10. The 4Q11 result on
an EBITDA basis was USD7.8 mill compared to USD4.8 mill for the 4Q10.
In 2011 we have implemented a process to reduce our involvement in certain
investments now considered non-core investments.
Going forward we focus even more on business activities which drivers are
depending on Asia and other relevant emerging markets.
We have in 2011 completed our fleet renewal program. These new ships, in the
Norgas fleet, have a far superior cash earnings capacity compared to the fleet
we have retired. This is due to not only size, but also their operational
capabilities.
Our view on the performance of the company in 2011 and the outlook for 2012
The Company is not satisfied with the overall financial performance for the year
as it showed a negative result. The operational performance is better in 2011
compared to 2010 as we have a 50% increase in EBITDA and EBIT results going from
negative to positive. We also have a 1/3 reduction in net interest bearing debt
and an improved equity ratio compared to the year before. About 20% of the
finance costs is extraordinary costs related to delivery of vessels. The year
also includes substantial one-time cost associated with new vessel delivery and
commissioning, as well as cost associated with organizational adjustments. Since
all these are one-time cost issues it should not effect on our performance in
2012.
We as a Company also experienced a somewhat turbulent and challenging year for
all of our business activities including the core business of Norgas Carriers in
2011. This comes as an after effect of the "Great Recession" in 2008/09 and the
output gap created by the financial crisis. The core business of the Company did
enjoy improved trading conditions in 2011 compared to 2010 and we see this
continuing into 2012.
With a succession of continuing financial crises, Governments in both Europe and
the United States appear often to be at a political impasse, amidst calls for
austerity, massive injections of financial aid, and strong ideological
disagreements over policy. The combined effect is low or no growth and
continuing, and perhaps rising, unemployment and with social unrest as a result.
This is perhaps now more of a Euro area problem than a US problem, but the
significant contagion effects on finances in most areas do affect our business
in both a direct and an indirect way. The challenges in financing have created
additional cost for us, but it also affects our clients and their business
needs.
The company took delivery of the remaining 5 of our SMC related newbuildings.
The vessels were all phased into our commercial program and technical operations
throughout the year. Often one will experience operational challenges with new
ships for an initial period of time. The five ships delivered at the same time
resulted in higher cost and more technical off-hire and some challenges in the
commercial scheduling than we expect under normal operations. The combination of
increased capacity and more normalized operations should improve the company´s
profitability in 2012.
The 16 month unfortunate retention and delay in delivery of the third Wintergas
vessel, Norgas Camilla, caused direct losses of about USD10 million from May
2010, when the vessel was ready to sail September 15, 2011 when she entered the
fleet. The ending of this retention of the vessel should directly improve our
future profitability.
Our specially designed "Wintergas" type vessels have contributed negatively to
the results, as they have entered the spot markets at a challenging time.
Reduced volume of export from Japan and Korea compared to Chinese imports growth
has been absorbed by more "long haul" business. These are "short haul vessels"
specially designed for a potentially growing intra-Asian trade in North East and
South East Asia. The ships are equipped with an innovative ship design combining
both petrochemical and chemical capacity. Contrary to the petrochemical gas
markets the markets for chemicals in Asia has been very weak. This has made it
hard to utilize the combination capacity in a profitable way. The concept is new
and unique, and we experience that implementation in these markets is a slower
process than first anticipated.
We made major organizational adjustments in 2011. These adjustments have had a
significant one-time cost of about USD 2 mill associated with it. These
adjustments have seen us concentrating our human capital resources for the most
part East of Suez and in Singapore. In 2011, we also closed down the
shipbuilding activity named SMC and reduced the organization accordingly. We
have by this achieved a reduction of shore side manpower in the group by more
than a third (not including JV companies based in China and USA). This should
give us a significant saving in overhead cost from 2012 onwards.
There are certain unresolved issues in China as a result of this past SMC
activity that is being harmonized with third parties and we expect these to be
resolved in 2012. With the exception of a possible gain on sale of all or part
of the Shenghui shares we own, we do not expect this to have any impact on our
profit and loss in 2012, but they should improve the balance sheet of our
Company.
We have for many years invested substantial amounts of resources and money into
"R&D" and business development. It is now time to harvest and gain on many of
the initiatives we have undertaken. The associated expenses have been charged to
the profit and loss statement of the company and have for the most not been
capitalized. With proper execution, we should be able to generate better returns
due to some of these initiatives, and this should then come to the direct
benefit our shareholders. These developments cover, amongst others, technology
and business solutions for "Small scale LNG" transportation, development of
combination ships for LNG and petrochemical gases (MG ships) and for chemicals
and petrochemical gases (WG ships) as well as ship building in China. We have
built a presence in the GCC region to use as a platform for further business and
other efforts have been made to gain more experience in China to enable us to
exploit the growth in both of these regions.
These undertakings have in sum been quite demanding for our resources, but
considered needed in order to lead the business and technological innovation
within our core field of interest. We will however, not be able to continue to
conduct as much "R&D" and business development and expense these to our profit
and loss statement in the years to come until our recent developments avail us
properly.
The company currently has no CAPEX projects initiated. The new initiatives we
have under evaluation are mostly tied to the LNG sector and will be considered
with long term contracts.
For the years to come, I.M.Skaugen SE will continue to pursue a niche strategy
in gas and petrochemical products and within the emerging markets specially the
markets East of Suez.
In order to continuously benefit from this growth trend, we as a leading company
with cost and service leadership as a goal will maintain our presence in the
regions East of Suez, where most of our clients are based.
We focus specially on the drivers arising from the developments in China and the
Gulf region of the Middle East and do this from a main base in Singapore.
International trade will continue to grow, predominantly in the emerging markets
- the key regions of the Company´s strategic focus. The double digit increase
in both exports and imports shows a booming trend of intra-emerging market
trades which have become more crucial than their respective trades with the
Europe and USA.
This makes the emerging countries more resilient to the economic crisis than in
the advanced economies. One of the key regions Asia, with China on top, will
continue to be a principal focus for us and it has been our focus at IM Skaugen
SE (IMS) for the last decade. With higher growth rates and the continual
emergence of opportunities, Asia has an aggressive optimism that no longer
exists in Europe and the United States, at least for the moment.
China remains the great "wildcard" of the region. According to the 12(th) Five-
year Plan, the country is encouraging domestic consumption over exports, to
develop the service sector, shift toward higher value-added manufacturing,
conserve energy and clean up the environment. The world has witnessed the
country´s willingness and capability of achieving its goals. With the upcoming
political shift in 2012, the new leadership is expected to be even more
ambitious about their plans. Despite the tremendous growth we have seen in
China, China is still a poor country which needs more development in
infrastructure and improvement in social living standards especially for those
in the rural areas. The massive urbanization has been a key driver for growth
and this will continue.
The rapid economic expansion in China has motivated the country to achieve self-
sufficiency in many fields including the petrochemical business. Nevertheless
own production at higher cost, due to the need to import naphtha as feedstock,
might not be sustainable for such a large country which makes us to believe that
China will face increasing need for imports from various lower cost regions to
meet its growing demand.
While the increasing energy demand has created bottle necks for the country to
continue the economic growth, China is opening its eyes on alternative energy
sources in addition to its insatiable needs for crude oil and now natural gas as
well as LNG. It is obvious that natural gas is a better and cleaner source for
transportation, heating and power generation. As the urbanization process
continues, China will need to supply its stranded consumers with natural gas in
the form of LNG and on small scale basis due to limitations with pipeline
network in the country.
As the below chart shows, China has a significant potential to reach higher
volumes in order to be closer to the per capita consumption of more developed
nations/regions.
Renewing the Norgas fleet - Completion of the newbuilding cycle.
Over the past 10 years IM Skaugen (and our co-investors), have built 18 gas
carriers in China at a gross investment of USD570 mill. 6 of these vessels are
Multigas vessels with the capability to carry LNG in addition to the
petrochemical gases. This newbuilding program, now completed, makes the Norgas
fleet the most efficient and modern fleet of all gas carrier operators in the
world. Without the courageous steps taken to renew the gas fleet from year
2000, and by our own developed technology, we would not be able to achieve the
status as the lead operator with the most advanced and a young fleet in this gas
carrier business.
10 years ago the Norgas fleet counted 14 vessels at an average age above 20 year
and an average size below 7,000 cbm. Most of these vessels were designed and
built for "short haul" and not one vessel were similar to the other and almost
all bought second hand from others. Most of these vessels also could not; or had
difficulties in being used in the demanding and emerging Ethylene trades due to
low and inefficient cooling capacity. Today the Norgas fleet counts 19 vessels
at an average age of 8 years with average size of 9,000 cbm including the three
smaller WG vessels. All but these, of the new generation vessels are designed
and built by us as "long haul" carriers and have superior cooling performance
compared with our peers.
Most of the vessels we now operate share the same basic cargo plant technology
and design features - that enable us to harmonize operations and achieve
efficiencies we have not seen before. The cooling performance is developed from
the use of our own technology and this enables us to stay ahead of most of the
competitors in this field.
Norgas Carriers
Global petrochemical consumption (as well as in Asia) weakened in the last
quarter of 2011. The spot market ended lower both on price and volume from the
higher levels as seen during the earlier quarters. For Norgas the effects were
mainly due to some production difficulties experienced at a few crackers in some
of the Middle East / Gulf region countries. A shortfall of nominations under our
COA contracts in the Middle East / Gulf region countries impacted us negatively
on the revenues due to this. Going into the first quarter of 2012, these plants
are expected to resume the productions and thus the export volumes from the
Middle East will normalize.
Most of the growth in the EBITDA generation from Norgas in 2011 is from
increased Middle East/Gulf region export volumes continuing the positive trend
seen from mid-2010 with significant volumes under our COAs in the region. Also
our EBITDA growth is coming from additional ships in the Norgas fleet. An
improved spot market due to increased fleet utilization throughout most of 2011
and the higher freight rates have had a positive effect on our earnings - and
for the gas seaborne transportation business in general. Norgas has been
operating with higher coverage by COA volumes and less ships on T/C or in the
spot markets. Hence the possibility to benefit more from the spot markets was
reduced. The balancing effects of this are that we are better covered with such
a risk profile than if one were to be exposed entirely to this spot market.
Going forward, we believe that the capacity additions in the Middle East and
continuous growing demand in China and other Asian emerging countries will
continue to strengthen the long-haul ethylene seaborne transportation.
The supply of ships - the order book for gas carriers and the recycling of ships
The current world fleet of Semi-Refrigerated (SR) gas carriers consists of 277
vessels above 3 000 cbm (2,548,889 cbm).The order book for semi refrigerated
vessels with cargo capacity above 3 000 cbm is currently at 26 vessels (total
240,600 cbm) and equal to about 9 % of current capacity.
132 of these SR vessels (1,162,437 cbm) have the capacity of carrying ethylene.
These are for both "long haul and short haul" transportation. For "long-haul"
transportation needs (above 8 000 cbm) the fleet for ethylene carriers stands at
78 vessels or 863 682 cbm capacity by the end of 2011, while the order book for
the "long-haul" ethylene carriers is at 8 vessels (90,000 cbm) it equals to abt.
10% of the current capacity.
Concerning the age of the world SR ethylene fleet, the normal age for recycling
of such vessels has been between 27 and 30 years of age. However at about 25
years of age it is quite normal for such ships to cease carrying ethylene and
concentrate on other less demanding products to trade. There will be total of
40 SR carriers (331,103 cbm) equal to 13% of current existing capacity and 12
ethylene carriers (92 592 cbm) equal to 8% of total existing capacity, that will
be over 25 years in 2012. In addition, there are certain numbers of ships below
25 years old experiencing difficulties with cargo cooling systems. And thus, the
net supply of vessels could be reduced in the years to come with the current
orderbook in place.
Norgas is affected by the risk of Piracy
Piracy at sea is a major threat to the wellbeing of our teams of professionals
on the Norgas ships and to their families as well to the business of our
clients. It is also a financial risk re our ships and thus to our shareholders.
Piracy has become a well organized crime and it is now above all performed more
as a "professional business" which has been "booming" during the recent
years. Norgas is focused on prevention of piracy incidents through early
detection and evasive tactics. To enable us to do this we depend on our
professionals and their training and to acquire the best and most modern
equipment that can be sourced. We have so far not yet had an incident with our
vessels incurring violence or risk of capture of crew, cargo and property.
The Norgas vessels are as a matter of policy sailing in convoys and avoidance of
piracy hot spots is arranged through exchange of intelligence, rerouting and
route monitoring during transit. New electronic detection aids and active anti-
boarding systems have been tested and installed. Now we are adding the use of
new high performance radars specially sourced to detect small crafts with
pirates. "Safe rooms" or Citadels on the Norgas ships have been strengthened
through further developments and equipped with independent satellite
communications and being upgraded with CCTV and what humans needs for several
days stay at the time. The Crew training program is also in good progress and
masters receive specialized training at advanced training centers. We are also
testing new devices all the time which may have a deterrent effect on attacks.
The Norgas vessels do not currently have armed guards onboard, but this policy
is being evaluated as rules and regulations change and there are more
professional such services available.
The activities to avoid piracy carry a significant cost to our operations. Costs
spent on equipment, crew training, risk insurance and the cost of extra waiting
time for convoys in terms of lost turn-over have amounted abt. USD 5 mill over
the last 3 years. We do carry proper additional insurances to help mitigate the
economic loss for the company of such possible events, but this cannot
compensate for the suffering of the crew involved in such cases if they should
happen. We are now also conduction training of our team of professionals to help
these to manage and shoulder such an event should this happen.
The Future for us is LNG
I.M.Skaugen is beginning to transform itself also into being more of a LNG
infrastructure company. With significant investments in, and efforts to develop,
technology and design as well as in Business development, this will require us
to concern ourselves with virtually every aspect of the LNG value chain, from
transportation on sea and land to the design of port terminal facilities. The
future belongs to LNG not only because it offers environmental advantages as
carbon dioxide emissions are lower than piped natural gas emissions but also
based on a number of sound business reasons.
One of our goals is to become an integral participant in the LNG or gas
infrastructure industry. The project we have in Bahrain (BLNG) is our "proof of
concept". We have in 2012 been informed in that two bidders out of 9 in the
tender process have been chosen for final rounds of negotiations to build the
shore based LNG terminal needed and we aim to prevail in this competition. We
are offering to provide constructions and logistics for this project, however,
not being a gas supplier as a part of the tender. This project with terminal
will be owned and financed by a special purpose company in Bahrain with our
Skaugen Gulf Petchem Company partners involved. The terminal will have a long-
term contract with the government if initiated. The ships needed are similar to
the vessels in the Norgas fleet.
This LNG strategy sometimes puts us into head-to-head competition with
International Energy and Oil Companies. IM Skaugen must be more nimble and
innovative than those companies - at lower cost and with far greater
efficiency. We will offer better, more personalized, services and at a lower
price.
In November, one of our Multigas vessels was officially named "Bahrain Vision"
by HRH Prince Khalifa bin Salman Al-Khalifa, the Prime Minister of Bahrain. This
vessel offers a simple, safe and flexible small-scale LNG transport solution.
Fitted with onboard re-liquefaction facilities, the vessel eliminates the loss
of energy associated with the "boil off" gases, a maritime landmark in the
transportation of LNG in the GCC region. The ship itself is a combination of
Norwegian technology and Asian workmanship; being built in China, operated by a
Singaporean based company that is carrying products from the GCC region, for its
clients and to clients in Asia which will be operated from Bahrain.
China activities
During the last quarter of 2011, IMS has successfully taken delivery of two
Multigas vessels and 5 sophisticated gas carriers in all of 2011, thus
completing our current newbuilding program under the Skaugen Marine Construction
(SMC) umbrella. Under the SMC project we have built 12 gas carrying vessels in
China of which 9 have been retained by Norgas and 3 have been resold. Of the 9
vessels retained by Norgas, 6 of these are the Norgas unique design of LNG
capable ethylene vessels and the other 3 vessels are with our unique
gas/chemical design. We have decided to discontinue the SMC shipbuilding project
and activity.
The competitive environment for shipyards has changed and we believe we now can
achieve our commercial objectives better by using the traditional ship yards
with reduced risk profile and much less working capital required than under the
SMC model.
The industry manufacturing company Shenghui Gas and Chemical Systems (Shenghui)
had EBIT results of RMB100.6 mill in 2011 vs. RMB75.8 mill for all of 2010
(RMB50 mill in Q4, compared to RMB34.5 mill in Q3). For the full year of 2011,
Shenghui delivered a strong revenue growth of 25% compared to 2010. This growth
materialized in EBIT margins of 11.2% compared to 10.5% in the year before. The
net profit after tax margin was however weaker at 6.5% compared to 7.1% and due
to the reason that the financial costs rose followed by the severe monetary
tightening in China.
The company also experienced inflationary effects from rising labor cost and raw
material prices during the year and also reported elevated competition in the
Chinese markets that created pressure on margins of new orders. We have worked
hard for the company to focus even more on the cryogenic markets in China and
outside China and especially the needs for infrastructure for LNG distribution
that we feel are promising. We joined the company as a shareholder in 2006 to
build the cargo tanks for our series of gas carriers under the SMC project.
Since then the EBIT result has increased from RMB 12 mill in 2006 to RMB100 mill
in 2011 or 8 times without additional capital injection by the shareholders. As
all of our new ships are completed we at IMS, and our JV partners in Shenghui,
will continue to consider the opportunities within the Chinese capital markets
(full or part sale of our shares to Private Equity investors and/or combined
with an IPO) in order to visualize the values that have been created.
SPT - Marine Transfer Activities
The Marine Transfer activities achieved a negative EBIT of only USD 0.3 mill in
4Q2011. We are pleased with the improved results in this quarter where the
general tanker markets for aframax sized ships were weak. Out of the year 2011
we have had two reasonable performance quarters and two quarters where we did
not succeed in our goal to mitigate the dramatic low returns for our crude
tankers with ship to ship transfer business.
During the year 2011 the severe crude tanker market unbalance caused by rapid
fleet growth of crude oil tankers continued to impact the entire tanker markets.
The exposure to tanker spot market conditions yielded unsatisfactory financial
results for SPT. However, the core businesses (ship-to-ship transfers) achieved
more positive results which were above the expectation for the year, offsetting
partly the negative result from the tanker activities throughout the year
despite the tanker market condition. The new markets in West Africa, SEA and the
Middle East which had been challenging in the establishment phases have begun to
contribute steadily growing volumes in support services.
Going forward, SPT will retain a strong focus on its marine transfer expertise
with the goal of continued improvement of the results in our already profitable
markets at the same time bring the expanded markets into sustained
profitability. For the LNG business, SPT will continue on devoting its knowledge
and experiences, and thus secure projects globally with potentially significant
returns. We are pleased that SPT has been engaged by clients in the GCC region
to manage LNG import terminals as this is a sign of the deep know how that SPT
now commands within the LNG field. During the recent quarter, SPT has also
successfully accomplished the task of the very first LNG ship-to-ship transfer
in the Japanese water.
Financial issues
The equity ratio at year end was 30% up from 28.5% at year-end 2010 mainly due
to reduction in working capital upon completion of the SMC project and its
related newbuilding of ships. The reduction in short-term liabilities was mainly
achieved through repayment of bank in China and repurchase of corporate bonds.
The Company´s goal is to maintain an equity ratio above 30% measured at book
value of its assets/liabilities and at all time. This ratio and related key
balance sheet ratios are expected to improve throughout 2012 as earnings
capability will increase based on the new deliveries in 2011 of the newbuildings
into the Norgas fleet. These vessels have all an improved cash earning
capability compared to prior ships we have had in the Norgas activity.
The Company has for some years used bonds issued by the parent company in the
Norwegian market as a primary source of its debt funding. Bond debt is thus only
taken by the parent company and the JV companies we own or our subsidiaries are
being financed with bank debt as their primary source of funding and against
security in vessels or property. This has given us flexibility to arrange our
business better and we thus aim to continue our business this way.
The Company has four bonds outstanding as follows:
Bonds Maturity Outstanding amount
IMSK 04 06.06.2012 NOK243 mill
IMSK09 13.09.2012 NOK150 mill
IMSK10 15.03.2013 NOK350 mill
IMSK11 29.03.2013 NOK75 mill
The Company plans to refinance all or part of IMSK04 with NOK243 mill
outstanding which is maturing in June 2012.
The IMSK share
The global financial markets were constantly subjected to volatility during
2011, mostly due to turbulence caused by the European debt crisis and gloomy
outlook on economic growth in OECD countries. Compared to the peer group, the
IMSK stock price has been stable during the second half of the year. The stock
price performance for the whole year is in line with the overall condition in
the financial markets however less volatile. SEB has been actively increase the
stock trading liquidity and tightening the trading spreads. Compared to the
period without a market maker, the trading volumes have improved significantly.
Oslo, 16(th) January 2012
I.M. Skaugen SE
Board of Directors
I.M. Skaugen SE
If you have any questions, please contact:
Bente Flø, Chief Financial Officer, on telephone
+47 23 12 03 30/+47 91 64 56 08 or by e-mail: bente.flo@skaugen.com. This press
release is also available on the Internet at our website:
http://www.skaugen.com.
I.M. Skaugen SE (IMS) focus is on Innovative Maritime Solutions and we are a
Marine Transportation Service Company. Our core business is seaborne transport
and logistics of liquefied gas such as petrochemical gasses and now also LNG.
IMS currently operates about 40 vessels worldwide engaged in the transportation
of petrochemical gases, chemicals, LPG and LNG, marine transfer of crude oil and
LNG as well as LNG terminal management. We have an in house capacity for the
development and design of specialized high quality vessels within our niche. We
are listed on the Oslo Stock Exchange under the ticker code, IMSK.
IMS is a global company and employs approximately abt. 2.000 people with 20
nationalities represented.
This information is subject of the disclosure requirements pursuant to section
5-12 of the Norwegian Securities Trading Act.
IMSK Preliminary Result 2011:
http://hugin.info/179/R/1577978/492156.pdf
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originality of the information contained therein.
Source: I. M. Skaugen SE via Thomson Reuters ONE
[HUG#1577978]
NO0003072803
