I. M. Skaugen SE : Preliminary Result 2012
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For best results when printing this announcement, please click on the link below: http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20130216:nHUGcWRY 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: firstname.lastname@example.org mailto:email@example.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 ---------------------------------------------------------------------------------------------------- This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: I. M. Skaugen SE via Thomson Reuters ONE HUG#1678818