IMSK - 3rd Quarter 2009

 

The pre-tax result was negative USD2.8 million for the 3Q09 compared to a positive USD4.4 million for the 3Q08. The result of the 3Q09 on an EBITDA basis was USD4.6 million compared to USD14.5 million for the 3Q08. The pre-tax profit was negative USD1.3 million YTD 3Q09 compared to positive USD 21.2 million for the YTD 3Q08. The result of the YTD 3Q09 on an EBITDA basis was USD18.9 million compared to USD46.7 million for the YTD 3Q08.

 

 

The book equity, excluding minority interest, totaled USD101 million or USD3.72/NOK22.00 per share. The book equity represents about 29.3 per cent of the total assets. The net debt at the end of 3Q09 was USD55.8 million and the net interest-bearing debt totaled USD130.5 million. The ratio between current assets and current liabilities is 343 per cent.

 

Total liquidity as of the end of 3Q09 was USD74 million, which is regarded as sufficient for the company's ongoing business activities. The working capital requirements continue to be high in historical terms due to the current newbuilding commitments. Interest coverage ratio was 2.1 for 3Q09, as against 3.2 for 2008.

 

Steady as she goes - Steady performance in a challenging environment

 

We are not satisfied about the overall financial performance showing a negative result for the quarter, but acknowledge a few positives as well. Despite the decline in profits compared to first half, underlying earnings fundamentals remain fairly steady.

 

Under the challenging economic conditions around the world the company continues capitalizing on some key risk mitigation factors - a) the relative high contract coverage that we enjoy in our core segments, b) our focus on activities for petchem gas transportation for clients based in the "low cost" Middle East region and for markets in Asia, c) the benefit we have from the much more resilient business conditions in China and d) lastly 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 level.

 

These risk mitigating initiatives has led to a "decoupling" of our current gas business,  with our focus on Middle East region and China versus the more traditional "OECD related business", is visualized by the below graph.. 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 versus 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.

 

In the third quarter Norgas has further improved its contract position. At the end of the quarter the overall 12 month rolling contract coverage stands between 60-65 percent, which underline the industrial and long term commitment we have in our niche segments, a position we are continuously working on developing further.

 

 

Even though business conditions remain challenging, there is broad based evidence of a recovery in the global economy and most forecasters and policy makers have revised their economic projections during the past few months. According to IMF the recession is ending, but a subdued recovery lies ahead. While Asian economies and especially China has had an astonishingly rebound, the advanced economies are only stabilizing or showing a modest upturn.

 

In this environment we continue to focus on our two main strategic geographical focus areas - China and Middle East as we see these two areas as major sources of growth in the world economy going forward. The Middle East region are fuelled by higher oil prices and IMF estimate a growth of 4,2% next year, while China is most likely ending the first year with negative global growth in decades at an impressive + 8-9%.

  

As the economic outlook has improved, credit spreads has continued to narrow from elevated levels. The Norwegian high yield bond market has experienced some active autumn months, but it has been a selective market, and only a few shipping companies has been able to tap into the market at acceptable terms. Traditional bank debt capacity for shipping companies is still difficult to obtain, and in that context we are very pleased that our newbuildings are fully funded and that we do not have any imminent need for refinancing of debt.

 

At the end of Q3 total capex commitments on our newbuilding stand at USD 56M for vessels financed trough sale and leaseback solutions, and USD 36M (adjusted for ownership in JV's) for vessels financed via debt facilities.

 

 

In August the group completed a new bond issue with maturity in July 2011, a total of NOK 500 million (equal to abt. USD 83 million). The new issue is a floating rate note with a coupon margin of 6.00% over 3 months NIBOR and is unsecured and with other relevant covenant terms similar to our previous bond issues. The bond is listed on the Oslo Stock Exchange's ABM and the repayment obligation in NOK is swapped to USD.

 

This new bond is part of the company`s proactive efforts to reduce any potential refinancing risk in the bond loan portfolio for 2009 and 2010. The company has an ongoing new building program to satisfy its need for more tonnage. We currently have 8 ships to be delivered and of those 8 we have 6 Multigas carriers that are LNG capable gas carriers that also carry ethylene and LPG. These ships are all under construction with Skaugen Marine Construction (SMC) in China. Our longer term goal is to build 10 new Multigas carriers with LNG features and this new facility will be part of this process to finance our new building program. We are further building on our proven track records towards our debt investors.

 

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):

 

Proceeds of the transaction have been used to repurchase bonds maturing in 2010, extending the maturity schedule to 2011. In the quarter we also sold parts of our own share of IMSK04.

 

 

Average interest cost (incl. of margin) for all of our outstanding bonds financed now stand at 5,8 % given current USD interest rates.

 

We have USD3.3 million of bonds falling due for repayment within next 12 months. The bond with the longest duration matures in June 2012.

 

 

In 1Q09 we initiated a process to buy back shares as we found the share price to be attractive, and in 3Q09 we bought back a limited number of shares. Our holdings after this transaction are 59,600 shares.

 

The IMSK share has performed 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 and especially during the third quarter.