I. M. Skaugen SE : Preliminary Result 2012

Sat Feb 16, 2013 4:58am EST

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The I.M. Skaugen Group (IMSK) achieved a negative pre-tax result for 4Q12 of USD4.4 mill, compared
to a loss of USD1.6 mill in 4Q11. EBITDA was USD2.5 mill for 4Q12 compared to USD2.3 mill in 4Q11.

The preliminary pre-tax result for 2012 was a loss of USD15.8 mill, compared to a loss of USD8.1
mill in 2011. EBITDA for 2012 was USD21.2 mill compared to USD23 mill in 2011.

PERFORMANCE 2012
Year 2012 was a year of many external challenges, testing our organisation in all aspects
imaginable. We experienced a "new high" in doing our first LNG cargoes and within ports in China,
but also experienced a new low point in the unfortunate and tragic collision involving our vessel
Norgas Cathinka in Indonesian waters.

The Company is not satisfied with the overall financial performance of the group as it shows a
negative result for the year.

IMS no longer considers the Skaugen China Activities nor the Marine Transfer Activities to be part
of the Group's core business activities.  IMS consider its investment in the related entities to
be financial investments as of 31 December 2012. The Group will now focus its resources primarily
on it Gas Transportation Activities.

Please refer to page 6 in attachment regarding segment changes.

Due to the underlying negative results in 2012, the equity ratio has shown a negative trend during
the year and ended at 25.7 % and a reduction from 30.1%.  Our target is to have an equity ratio of
at least 30% and we have and will take needed steps to maintain it above 25% and bring it back to
the target level.  Several projects have been initiated by the Board to accomplish this and
measures have been taken during 2012 in order to reduce the negative results in our non-core
businesses and we expect to see the benefits of these actions during 2013.

On a regular basis we collect "brokers' estimated values" for all the gas carriers in our fleet,
and these are substantially higher than their book value. Currently the brokers' values are 17%
higher than the average book value of the fleet. We also apply a "value in use" concept as an
estimate for the true earning capacity and thus the earning capacity adjusted value of our gas
carriers are substantially higher than the brokers' estimated values. We have also received offers
for sale of vessels and these offers are above the "brokers' estimated values". Historically, we
have most of the time been able to sell our vessels at a price above book value and thus with book
gain.

We are in the process of monetizing the investments we have made in China and specially the
investment in Shenghui Gas and Chemical Systems Ltd (50% ownership). We are reasonably confident
that these shares can be sold at a gain compared to book value of the investment and that the
process will be concluded in 2013.

We have taken decisive steps to reduce our cost of operations. 
Our "centralise and simplify program" initiated in late 2010 to reduce the headcount and by this
our overall cost of operations has delivered a positive contribution during the year. The
underlying 50 per cent reduction of head count of shore side staff from its start in the late 2010
will now have full effect in 2013. We have also further scaled down on our new business
development activities during the year and we will now start to capitalize on the investments made
in the core business activity.

After the repayment of IMSK10 in March, we are satisfied to have reduced significantly any
refinancing risk until 2015.
The bonds have however, increased our financing cost and their effective interest rate has
increased to 11.2%.

The company currently has no material capital commitments and remains fully financed. 

CORE BUSINESS - GAS ACTIVITIES, NORGAS
The result on EBITDA basis in Norgas Carriers segment for 4Q12 was USD3.6 mill and USD24.1 mill
for the year 2012. Compared with USD6.2 mill and USD30 mill,, respectively, for the same periods
in 2011.

Three short haul carriers (abt. 6.000 cbm size) within our fleet have had unsatisfactory
performance in their spot trade. As of second half of the year they are now better incorporated in
our contract portfolio with the rest of the fleet and we see now an improved performance going
forward.

A major challenge going forward for Norgas is to get paid in a way to match not only the increased
cost of operation and the cost of finance of the ownership of the vessels, but also the risk of
its operation. The below mentioned accident in Indonesia is only one of these risks that we have
previously not evaluated well enough and priced into these agreements. 

In spite of a world economy still suffering from the financial crisis starting in 2007/2008 as
well as the political situation with the Iran embargo taking full effect, we have managed to
maintain our positions. Norgas Carrier's volumes held up well and continued the positive trend. 

The equivalent time charter rates for our fleet have stayed above the eight year average during
2012 and we see that trend continuing into 2013. 

Our contract covers (% COA volumes versus total volume transported) remains on a level between
60-70%. We have a number of good volume contracts with the key exporter in the GCC region, which
is the region with the lowest cost base for petrochemical products. 

In December we did our first LNG cargo on one of the Multigas ship, proving not only the
technology itself but also our small scale LNG concept. Loading at a large conventional LNG import
terminal and delivering the cargo to distribution terminal from where the LNG will be distributed
by trucks.

NORGAS CATHINKA
There was an unfortunate accident in Indonesia on September 26th 2012 involving our ship Norgas
Cathinka in a collision. The incident leading to the tragic loss of life for 7 passengers and 1
crew member, on the ferry called Bahuga Jaya. This was the worst incident, involving loss of
lives, for our Company since Second World War and thus a low in our nearly hundred years of
history and we need to make sure it will never happen again. 

We do sincerely regret the loss of lives and we do consider it an avoidable accident that should
not have happened and we regret the part we played in it. The ferry Bahuga Jaya was 40 years old
and evidently not maintained for its trade and it was probably unseaworthy and did most probably
sink for reasons of fatigue or construction failures.  The sinking caused in our views the loss of
lives and not the collision itself.  The loss of lives was also caused by the lack of proper
procedures on the ferry to evacuate passengers in an emergency and with inadequate lifesaving
procedures and equipment. 

The available data from the VDR data (Black Box) on our ship makes it possible to reconstruct the
events leading to the collision. From this it is evident that our vessel is not the vessel that
caused the collision. The aftermath has also proven to be very challenging due to a far from
transparent juridical process in Indonesia and we are still waiting for the ship and its crew to
be released. The long delays in release of the ship are costly for our Company and the loss of
earnings amount to USD 400,000 / month with full operational cost of the vessel with full crew and
with cargo of liquefied gasses on board.  This complex and not very transparent process in
Indonesia makes it appear much more like a "hostage situation". It is needed to designate the most
senior management` attention on settling the issues, with support from and in cooperation with the
insurance companies we have, and that is also difficult for a smaller company like ours. 

LONG HAUL TRADE OF PETROCHEMICAL GASES - NICHE MARKET FOR OUR CORE BUSINESS
Our long term niche strategy, focussing on the long-haul Petrochemical trade is sound and valid.
It is a market with more stable growth and more stable earnings compared to many or most other
shipping markets. The long term underlying growth in demand is ahead of the increase in the fleet
due to new building activities. With our recent renewal program we have maintained our position as
one of the market leaders in our segment with one of the largest and youngest fleet.

The split between the different products we transport has changed over the years and the two major
ones; ethylene and butadiene currently make up 80-90% of the total volumes transported.

The growth in world ethylene production has been closely correlated to world economic growth and
with a factor of 1.1 to 1.3 x GDP growth. The long haul trade of ethylene as a percentage of total
trade has also increased over time and the change in trading patterns has further supported the
growth in long haul transport with an increase in ton-miles.

The most important product for the butadiene market is car tyres (making up close to 60% of the
volumes) and thus vehicle use and production are key drivers. In 2012 the world's total car
production reached new heights mainly driven by the growth economies in Asia.

The current world fleet of long haul ethylene carriers (8,000-22,000 cbm) stands at 78 vessels
with our fleet making up 19% of this. New deliveries of such ships, that are expected for delivery
in 2013, will add a further 6 vessels by year end to the global fleet. Net of vessel becoming too
old for the ethylene trade, the world fleet will have grown with a more modest 6%. Taking a longer
view and looking towards 2018 and taking into account known new buildings as well as vessels
becoming too old for the ethylene trade, the average yearly growth will only be 2% and we do
expect growth in demand to be much higher than this in the same period.

The one possible game changer for industry in general and the Petrochemical market in particular
is the shale-oil and shale-gas development and especially in the USA. In the past it was only the
middle-east based producers of Petrochemical products and gases that had access to low cost
feed-stock in the form of local ethane, but now also US based producers will have access to
competitively priced ethane which emanates from the increased shale-oil and shale-gas production.
We have started to see the effect during 2012. Not only is the US very likely to become net
exporter of oil and gas but the domestic  industry has started to benefit from lower electricity
prices due to low cost gas. Also, the fertiliser industry as well as the Petrochemical will
industry will benefit from lower cost of feed-stock. We will also see natural gas in the form of
LNG being used much more for transportation and power generation as a result of this. This will
further enhance our thinking re the Multigas carrier design and development. 

NON-STRATEGIC JOINT VENTURES AND ASSOCIATES
The results from our non-strategic investments were below last year's result; SPT delivered a
negative result and our investments in China had a positive result, but both below the 2011 level.

SPT's global support business continues to make progress and has now a presence in all key
geographical markets. It continuous to compensate for the very depressed STS business in US Gulf
region (also due to general crude tanker markets) and do it with a performance through earnings
and cash flow while the STS operations in US Gulf continuous to be negative.
The support services sector completed another first in 2012 with the successful completion of a
bulk transfer of coal. Working closely with our customer all necessary approvals were received for
this maiden event which would allow our customer to increase their market competitiveness through
shipping larger cargoes. 

A number of FSRU projects were supported during the year that provided our customers with both
engineering solutions and technical support. Again highlighting the depth of LNG experience within
SPT, an engineering contract for the provision of an alternative unloading solution was secured
from a large established LNG importation terminal.

Our main investment in China, Shenghui Gas and Chemical Systems (SGCS), performed in line with the
Chinese economy and delivered result on par with 2011. 

The weakening margins mainly attributed to increase in financing cost as well as effects from
increasing labour- and raw material cost during the year.

COMPANY OUTLOOK
With the consensus view that the world economy will perform better in 2013 than in 2012 we remain
cautiously optimistic looking forward. If demand for Petrochemicals will continue to mirror the
growth in GDP we can see volumes of Petrochemicals transported increase towards the 2011 level.
Adding to that a modest foreseen growth in the fleet we can see a tightening market. Also our
first LNG cargoes in 2012 could be the forbearer of better things to come for this new area for
our liquid gas transportation business. 

Oslo, 15th February 2013

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 mailto:bente.flo@skaugen.com . This press release is also available on the
Internet at our website: http://www.skaugen.com http://www.skaugen.com/ .

 

 

I.M. Skaugen SE is a Marine Transportation Service Company, with a focus on Innovative Maritime
Solutions.  Our core activity is the seaborne transport and logistics of liquefied gases, such as
petrochemical gases, LPG and now also LNG. 

 

The I.M. Skaugen Group of companies (IMS) currently operates a fleet of 39 vessels worldwide of
which 19 are gas carriers within the core business area. We are also capable to provide on- and
off-shore LNG terminal management as well as ship to ship transfer services of LNG/LPG and on a
global basis. We have in-house capabilities for the development and design of specialized high
quality gas carriers for our niche markets and we recruit, train and employ our own team of
seafarers. 

 

IMS employs approximately 2,000 people globally out of which 700 are within our core gas activity,
and with 23 nationalities represented. We manage and operate our activities and service our
clients from our offices in Singapore, Oslo, Shanghai, St. Petersburg, Houston, Sunderland and
Bahrain. 


This information is subject of the disclosure requirements pursuant to section 5-12 of the
Norwegian Securities Trading Act.


IMSK Preliminary Report 2012 http://hugin.info/179/R/1678818/548039.pdf 


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