The I.M. Skaugen Group (IMSK) today announces a return to profits in 1Q09 after negative 4Q08 results
The pre-tax profit was USD0.2 million for the 1Q09 compared to USD8.2 million for the 1Q08. The result of the 1Q09 on an EBITDA basis was USD7.4 million compared to USD15.1 million for the 1Q08 and USD3.2 million in 4Q08.
During the first quarter we experienced positive developments both re "macro- and micro levels" and resulting primarily from two of our core strategic focus areas; The Middle East and China. These are two regions of the world with a more significant growth outlook, especially if compared to the Euro area and USA. In the China and Middle East regions we have a stronger commercial focus for our marine transportation activities as well as investments in China through our Skaugen China Holding Co Ltd.
The Gas carrier activities.
In the first quarter we experienced much improved export volumes out of the Middle East and increased utilization of our fleet. This evolves into substantially reduced "idle time" for the Norgas fleet in the 1Q09 compared to 4Q08. The petrochemical product prices have strengthened, and the trade activity has come back with substantial export of ethylene to Asia and particularly to China. The Chinese activities in this area indicate to us the improvement in the Chinese economy resulting from the stimulus packages initiated in China.
Skaugen China Activities.
All of our businesses in China are now organized under the legal entity - Skaugen China Holding Co Ltd and established in Shanghai.
In 1Q09 SMC arranged delivery of the first vessel in the unique and innovative "Wintergas series", the M/V Norgas Pan. The ship was officially handed over to its owners in late March and is now trading in the Norgas pool of vessels. The SMC organization has reached an historical milestone and produced another "proof of concept" of our unique shipbuilding setup.
SMC is continuing its efforts to reduce overall costs of shipbuilding by working with our major suppliers to rearrange their supplies contracts and improve efficiencies where possible.
Marine Transfer activities - SPT.
In the first quarter SPT had an acceptable performance led by gains in the global support services segment of the company. Both in the US and worldwide, the numbers of ship-to-ship jobs increased as the volume of product transfers were greater.
SPT has renewed a contract for full-service lightering for an additional year at acceptable rates.
The overall market rates for crude tankers continued its softness due to a weakening US economy and market fundamentals. SPT currently enjoys contract coverage of about 70% of its capacity.
Outlook and issues related to our fleet renewal and our debt financing
In December 2008 we decided the following three proactive measures to safeguard our financial performance due to the current macro economic environment. These were also announced in the release of preliminary figures on January 16th 2009;
1. A decision not to pay any dividends for year 2008 in the spring of 2009. The Board considered this as a temporary suspension of our dividend policy based solely on the unclear macroeconomic outlook.
2. Implement cost reduction programs throughout the organization in order to roll back to the greatest extent possible the last years increases in OPEX and administration costs.
3. Reduce capital expenditures (CAPEX) where possible.
We also announced in early January that the contract coverage for the IMS group was at 70% and that we were to focus on work to increase this coverage and to improve margins of these contracts where possible. Since then we have been able to enter into contracts to increase the contract coverage at acceptable rates and expected margins and thus we are still pleased about this situation that we have achieved in these very trying economic times.
IMS has during the 1Q09 implemented several cost reduction initiatives, which both have short and longer term effects. We have implemented hiring "freeze", reduced number of staff and focused resources on restructuring of suppliers agreements to achieve cost reductions and efficiencies. These initiatives will give improved results which will be reflected in the financial performance in the quarters to come.
The reduction of capital expenditure has also been implemented for all but the construction of the 9 ships to be built for Norgas Carriers by SMC. The 4 remainder SMC planned new buildings and yet to be confirmed by IMS have been postponed and will not be initiated while the macro economic uncertainties are present and the availability of external financing is so challenging.
We have focused substantial resources on an extensive fleet renewal program. A renewal program that is not only renewing a fleet, but that is trying to be innovative and come up with new designs and concept to change the way the business is done. These new gas carriers are based on in-house design, technology and are tailor made for trades that we believe will suit our customers - all vital parts of our strategy of being the cost and service leader. The fleet construction activity is streamlined through our unique structure in Skaugen Marine Construction in China. This pioneering new building program currently stands at 9 gas carriers for delivery between 1Q09 and 1Q11.
The ships are fully financed through a combination of sale and leaseback solutions and traditional construction finance/ take-out financing. The counterparty risk is assessed to be low, due to the financial position and commitments from our financial counterparties under these facilities. We have addressed the possibility of incurring delays either voluntary delays or involuntary delays with our financing partners in order to ensure this will not complicate the completion of the projects.
Going forward remaining capex in this 8 ship newbuilding program is estimated to be USD 118 mill. This is covered by a combination of financing made available by banks, the buyer of the ships under the sale lease back program and our cash position.
Capital issues
There has been quite challenging times for most companies to either raise new debt or to rearrange existing debt by refinancing or achieving alteration of covenants and/or repayment profiles. We are quite pleased that we have implemented a few successful initiatives in these areas to improve our cash position going forward to safeguard our position if the macro economic outlook should not improve.
New bond issues
IMS completed two new bond note issues in 1Q09, one USD denominated issue with a total amount of USD10 million and one NOK denominated issue with a total amount of NOK175 million. The new issues have maturity in April 2010. Both issues are floating rate notes with a coupon margin of 6.00% over 3 months LIBOR/NIBOR and are unsecured and with other relevant covenant terms similar to our previous bond issues. The repayment obligation in NOK has been swapped to USD.
The proceeds have so far been used directly and indirectly primarily to buy back bonds issued with maturity in 2009. The remaining maturity of bonds with maturity in 2009 is now USD10 million. There is sufficient liquidity to repay these loans on maturity. The action plans we made; where we wanted to postpone maturity of loans beyond 2009, is part of the company proactive efforts to safeguard our financial position given the "low visibility" in the financial markets as per now.
Maturity in bond portfolio will mostly be offset by sale and lease back payments from Teekay LNG Partners for three "Wintergas" vessels and two "Multigas" vessels - net accumulated until September 2011 (see overview):
Average interest cost (incl. of margin) for all of our Bond financed funds is 5,3 % and at current USD interest rate levels.
New credit lines
IMS has during the quarter increased and improved its credit facilities with leading banks both in the Nordic region and in China. The new lines will give us improved rights to draw capital if needed for our working capital needs including of covenants that in general terms reduce the operational and financial risks going forward.
Buy back of own shares
Board of Directors
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.
Listed on the Oslo Stock Exchange under the ticker code IMSK, I.M. Skaugen SE (IMS) - is a marine transportation service company engaged in the hassle-free transportation of petrochemical gases LPG and LNG, marine transfer of crude oil and LNG, and the design and construction of smaller and specialised high quality vessels.
We are a fully integrated shipping company that designs, builds, owns, mans and manages our own ships. IMS customers are major international companies in the oil and petrochemical industry, whom we serve worldwide from our presence in Bahrain, Freeport and Houston (USA), Oslo and Stavanger (Norway), Singapore, Sunderland (UK) and Nanjing, Shanghai, Taizhou, Zhangjiagang and Wuhan (China). We also operate recruitment and training programmes in St. Petersburg (Russia) and Wuhan (China) for the crewing of vessels.
IMS employs approximately 1,700 people and currently operates about 35 vessels worldwide. The fleet comprises petrochemical gas and LPG carriers, Aframax tankers and lightering support vessels, barges and tugs.
We have a comprehensive newbuilding programme in China, of which three 3,200cbm LPG vessels are delivered and sold; three purpose-designed combination carriers with LPG/Ethylene/VCM and Organic chemicals carrying capability; and up to ten advanced 10,000-12,000cbm LNG/ LPG/Ethylene gas carriers, with delivery from 2009 and onwards. IMS has invested and built up internal resources and infrastructure in China to ensure innovative and flexible vessels at lower cost. During 2008 we also completed our latest fleet renewal programme for SPT, with the delivery of six new purpose-designed and -built Aframax tankers on a long-term bareboat charter.