Board of Director’s preliminary report on Annual and 4th quarter results
In 1996 the transport activities operated by I. M. Skaugen ASA and Skaugen Petrotrans ASA in the oil, chemicals and gas sectors were joined in the newly established I. M. Skaugen ASA, through a merger of the two companies. Over the past 5 years the goal oriented efforts of the two companies have resulted in a considerable improvement in efficiency and operating quality. Increased profits over the past few years result primarily from a focusing on cost, efficiency, market contact and customer orientation, in addition to a generally improved freight market.
Since the merger, activities have chiefly centred around LPG/petrochemical gases transport services, marketed under the name 'NGC', and organic chemicals transport services, marketed under the name 'Princess Carriers'. These two sections alone represent 50% of group turnover. The other half stems from 'Ship to Ship Transfer' (lightering) of crude oil in the US Gulf, marketed under the name of 'SPT.' We operate a total of 28 units, out of which 16 are in NGC, 3 in Princess and 9 in SPT. Of the SPT fleet 5 ships are tankers of the Aframax type, and 4 are work boats for the lightering operation. Since the acquisition of the DS AS Idaho group, the company is also involved in certain other activities. These new activities will be a supplement to the company’s primary business, and will not in any major way impact on the Profit & Loss before 1997/98.
The market for NGC’s activities in the gas transport business was rather weak throughout 1996, resulting in a fleet utilisation that was far too low. The market was somewhat better for 'Ship to Ship Transfer' of crude oil for SPT. These two business areas, plus the integration of the Idaho-group acquisition, result in a total profit (after taxes and minority interest) of NOK 107 mill. for 1996 (Pro forma 1995 NOK 97 mill.)
In the board’s view, this result does not give a satisfactory return on the capital invested, in that we during the year have also suffered a general depreciation of the value of gas vessels, by independent brokers estimated at appr. 20%.
P&L and Balance sheet
Gross freight income for 1996 is NOK 815 mill. (NOK 824 mill. in 1995), operating profit before sale of ships is NOK 32 mill. (NOK 32 mill. in 1995). Ships were sold in 1996 at a profit of NOK 5 mill. as against NOK 50 mill. the year before. For 1996 gross freight income/operating profit is distributed as follows (MNOK):
NGC/Princess Carriers 435/21
SPT 380/11
Net financial costs amount to NOK 29 mill. (NOK 25 for 1995), and extraordinary items/minority interest/taxes positively affected profits with NOK 106 mill. (against a positive contribution of NOK 35 mill. in 1995). Together this resulted in a 1996 profit of NOK 107 mill., against NOK 97 mill. in 1995.
Group activities will in 1997 be adjusted to the newly adopted taxation of shipping activities through the inclusion of DS AS Idaho. P&L and Balance Sheet for the group have been prepared with this in mind, in that deferred group taxes have been counterbalanced, and the shipping part of the taxes estimated to the present value of these liabilities.
The company’s current assets are NOK 811 mill. and short term liabilities are NOK 711 mill., of which NOK 173 mill. is cash contribution related to the merger, to be paid at the end of February 1997. In addition, the board intends to propose to the General Meeting a declaration of dividend in the amount of NOK 50 mill. or NOK 7.50 for each new share in the merged company (nominal value NOK 60.- per share).
It is estimated by independent brokers that the company’s gas vessels have a market value of NOK 145 mill. in excess of the book value of NOK 1,083 mill. In 1997 the company has purchased an Aframax tanker, which we, through SPT, held on a long term financial lease. This vessel will be resold during 1997 at an anticipated profit as of today of appr. NOK 50 mill. which will give a liquidity effect of NOK 90 mill.
The company’s book equity is NOK 647 mill., representing 34% of the total book value of company assets as shown in the group balance sheet, before allocation to possible 1996 dividend, but after allocation to cash contribution related to the merger.
Merger and General Meeting
The merger will be effective as of mid-February 1997, at the end of the creditor notification period. The accounts are therefore termed pro forma. At that time the new shares will be listed on the Oslo Stock Exchange and the cash consideration may be paid to the shareholders. Since the merger has not been formally completed, the calculation of profit per share is deferred. A General Meeting has been set for
11 March 1997. The final figures for 1996, including the board’s possible proposal of a dividend, will be communicated to the Oslo Stock Exchange before 17 February 1997.
The market and the business activities
Earnings for NGC showed a slight improving tendency throughout the year, and the number of idle, freight-seeking days as well as docking time showed some reduction, from 21% in the first 3 quarters to 14% in the last quarter. The 4th quarter, however, showed NGC’s best operating profit for 1996, in line with 3rd quarter of 1995. Average earnings were USD 324,000/month in 1996 versus USD 364,000/month in the previous year. For 1997 NGC has a somewhat more 'open' situation in regard to contractual coverage compared to previous years. As of today appr. 40% of our capacity is tied up for 1997. It is further apparent that the Atlantic market is firmer than last year, with better earnings than may be currently obtained in Asia. We are therefore moving capacity from Asia to the Atlantic in order to take advantage of these possibilities. During 1996, 60% of NGC’s activities was in Asia.
Profit development for the global petrochemical industry served by NGC has been modest in 1996. An improvement is expected, as the world trade and business cycle outlook seems positive. Positive signals are also seen in product development and prices of raw materials. We anticipate an increase of long haul transport of several petrochemical gas products which will require an increased number of ships’ days as compared to last year. This will make possible a better utilisation of the tonnage in general. However, a large number of ships have been contracted over the past few years. This increased capacity may contribute to a lessening of expectations as regards earnings improvement, since the demand may not grow in step with the offering of new tonnage in our segment.
SPT earnings levelled off during the past four months of 1996, compared to an improved situation in the first 8 months. This is a seasonable picture that we have been able to observe for SPT’s activities over the past few years. In general, the SPT development is now more satisfactory. The enterprise has a position in the market, a cost level and contractual coverage for 1997 which lead us to believe that we shall achieve an acceptable result in this segment.
Princess Carriers has been able to cover all their expenses throughout 1996, which must be considered satisfactory, in view of the fact that the project was started in the 3rd quarter of 1996. Our third vessel in this segment will be operable during 1997.
We are now working on the final details of the contracting of 4 smaller gas vessels in China, to be operated under Chinese flag and owned by the Chinese company 'TNGC'. The company is owned 50% by I. M. Skaugen and was established in 1996.
In general, the ships’ operating and administration costs have continued the downward trend begun a few years ago. We expect continued improvement in 1997, although our efforts in Asia entail some extra expenses. 1996 was another year with few accidents and little damage. Overall, this puts us in a good position for 1997.
It is the goal of I. M. Skaugen to offer to our customers the most cost-effective products, while at the same time giving better service than our competitors. 1996 gave us the opportunity to initiate several projects which should improve our competitive ability and contribute to secure our earnings. Hopefully, these projects will aid us in attaining a return on capital invested which is commensurate with the risk attached to our type of business.
Should you have further questions, please contact Hege Anfindsen, tel. 22 83 30 60 or e-mail address: hege.anfindsen@ngc.no or X.400:G=HEGE;S=ANFINDSEN;P=NGC;C=NO
This press release and other information concerning I. M. Skaugen are also available on the Internet: http://www.huginonline.no/SKA/index_e.shtml
Income statement and balance sheet concerning this press release is available from Hugin Online at http://www.huginonline.no/IMS/rapporter_e.shtml
Oslo, 23 January 1997, 1600 hours.