The pre-tax profit was USD1.5 million for the 1H09 compared to USD16.8 million for the 1H08. The result of the 1H09 on an EBITDA basis was USD14.2 million compared to USD32.2 million for the 1H08.
The pre-tax profit was USD1.2 million for the 2Q09 compared to USD 8,6 million for the 2Q08. The result of the 2Q09 on an EBITDA basis was USD6.9 million compared to USD 17,1 million for the 2Q08 and USD 7,4 million in 1Q09.
We are pleased about the overall financial performance of the company under the current economic conditions in the world. The ongoing "Great Recession" could indicate that companies like ourselves could suffer a heavier decline in profitability than we have done. Despite the severe global recessionary environment we are currently experiencing, especially in the "OECD countries"; IM Skaugen is capitalizing on a few key factors that are risk mitigating. Chief amongst these are the relative high contract coverage we enjoy in our core segments as well as our focus on activities for petchem gas transportation for clients based in the "low cost" Middle East region and for markets in Asia. Adding to this the benefit we have from the much more resilient business conditions in China. Finally we do enjoy a position of being "cost leaders" in many of our business units that enables us to achieve a margin where others are operating at loss making levels.
During 2Q09 we have entered into further contracts at acceptable margins, which underline the long term industrial commitment we have in our specialized market niches. The contract coverage for the Group currently stands at 77 % as of end of 2Q09. Norgas (our gas carrier activity) has further improved its market position for carrying cargoes out of the Middle East, and SPT (our marine transfer activity) renewed three contracts for full service lightering at favorable rates during 2Q09.
Throughout the second quarter we have seen some improvements in visibility regarding the financial "macro picture". The worldwide recession has reduced the global output for many goods and services and the surplus capacity from this reduction and the planned capacity increases is creating significant profitability challenges for businesses world-wide. This will be ongoing for some time in many relevant industries. We see that "GDP growth" is probably now returning in many geographical regions perhaps with the exception of many countries in Europe. The massive governmental capital injections have brought the banking systems into safer territory and the unexpectedly resilient growth in the "extended BRIC countries" are also contributing factors.
Our two main strategic geographical focus areas - China and Middle East have performed quite well. China has clearly passed the worst in the last two quarters, and growth for the year is by many estimated to end at a level close to 8% and probably even higher in 2010. The Middle East economies are at the same time fuelled by the higher oil prices, and will remain a high growth area going forward. Combined these factors should fuel a rise in consumption, investments and risk appetite.
The "decoupling" of our current business, with our focus on Middle East region and China vrs the more traditional "OECD related business", is demonstrated by the below graph and illustrating the past vrs current. In the past the Norgas earnings have historically been quite closely correlated to global GDP growth (and at times where the OECD economies counted much more towards the world GDP than today). During this current global downturn we have seen that these two indicators are decoupling. The emergence of most new economies that are in a growth modus vrs the traditional economies of the OECD region as well as our strategy of building a higher contract coverage with key costumers in the higher growth regions are probably the reasons for this decoupling.
We have also in the 1H09 been able to reduce our cost of operations almost across the board. This enabled us to break a trend where we, as most others in the maritime related industries, experienced rapidly increasing cost of operations. The increases were mostly as a result of the high utilization of capacity available for resources needed and as a result of the high growth in the marine services value chain of the world since 2003. This trend has now been broken and we have now turned the upward trend into reductions in most areas of our operations. We have an aim to remain "cost leaders" in our areas of business and we have several ongoing programs to ensure we remain in this position.
Issues related to capital and our debt financing
The improved macro economic outlook in 2Q has driven credit spreads down, and the spreads in Norwegian high yield bond market has continued to tighten sharply over the last months. The market is still at extreme elevated levels, but is considerable down from the all-time-high-level seen in March this year. The banking systems availability of finance for shipping companies in general is quite difficult and it is an advantage to not have major refinancing needs at the moment. We as a company have no immediate needs for refinancing or need for capital for our CAPEX. Our CAPEX program is fully funded and this mitigates the operational risks many suffer due to insufficient capital secured for their CAPEX programs.
Our Bond portfolio of outstanding loans - update
Average interest cost (incl. of margin) for all of our bond financed funds and debt adjusted for ownership in JV`s now stand at 4,33 % given current USD short term interest rates.
During 2Q we repaid the remaining IMSK 03 bond at maturity - total amount issued was USD 75 million. The repurchase has over time been financed through operational cash flow and proceeds from issuance of a new bond IMSK 06/ 07 (as described in 1Q09 report).
Despite an illiquid bond market, we have proven our strength via the issuance of three new bonds the last 9 months at terms/rates, which the company find acceptable - one of very few companies which have been able to issue new bonds in the Norwegian bond market. We are further building on our proven track records towards our debt investors.
We have USD36 million of bonds falling due for repayment within next 12 months. The bond with the longest duration matures in June 2012.
We have tapped the bond markets mainly to provide construction finance or working capital for our newbuilding programs at SMC. Maturity in the outstanding bond portfolio will mostly be offset by funds to be received from sale and lease back arrangements of ships under construction by SMC. The counter party in these sale lease back structures are Teekay LNG Partners for two more "Wintergas" vessels and two "Multigas" vessels - net accumulated until September 2011 (see overview):
Credit lines/ other financial issues
In addition to the credit lines reported in 1Q report, we have secured further credit facilities in China with major Chinese banks for an initial total of USD32 million, based on our unique position and structure in China. These loan facilities will add to the flexibility needed going forward to adjust our activity to the opportunities as we see them. For us it is a major achievement to tap the Chinese credit markets to fund our China based operations going forward. We envision to also be able to source capital for our non Chinese operations in China in the future.
During 2Q we also formalized and concluded on a new credit facility, of up to USD35 million, with our key Nordic based commercial lending bank, which is an important cornerstone in our financial structure. Due to this we have secured an even better financial platform for IMS group going forward - a fully financed new building program with solid counterparts (construction finance, sale-leaseback solutions and take-out financing) and backup facilities if something unexpected should happen. In our new facilities, we have also been able to reduce minimum value risk exposure re fluctuating vessel values going forward.
Buy back of shares
In 1Q we initiated a process to buy back shares as we found the share price to be attractive, and in 2Q we bought back a limited number of shares. Our holdings after this transaction are 45,600 shares.
Share price development - relative to indexes and peers (rebased 12 months performance)
The IMSK share has performed reasonably well vs. its peers and stock market indexes over the last 12 months. After lagging behind during the initial phase of the stock market recovery in March the share price has headed higher during the last month of the quarter.
Oslo, 14th July 2009
Board of Directors and CEO
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.