IMSK - 1st Quarter 2010

We are not satisfied with posting a negative result for the quarter, but note that companies with a higher percentage of its ships exposed to the prevailing spot markets are under much greater pressure given the current market conditions. In that context we are very pleased with the strategic initiatives made over many years securing a larger part of our gas carrier fleet on long term contracts and specially with the key Middle East based exporters; clients which are enjoying a much higher profitability than their competitors due to the low cost of feedstock, lower construction cost and the use of best available technology.

 

The underlying operating performance of the company and its business units are basically unchanged from the performance of 4Q09, when we exclude the year- end adjustments and currency gain/losses.  On a general basis the operating performance of Norgas is somewhat better than in 4Q09 and the trend is positive. The results of Norgas are negatively affected by the performance of our new gas and chemical carriers (the Wintergas concept ships); these innovative ships has had a difficult time to enter the markets for chemical cargoes and have had to perform more or less in the North East Asian spot market for gas carriers. The spot markets for these types of cargoes are quite poor in this geographical region. Thus we are very pleased that the bulk of the Norgas fleet is operating under our contracts. 

 

SPT operating performance is down and mainly due to expiring contracts that has to be renewed with contracts that yield a lower margin due to the tanker markets in general.

 

The performance of the IMS China Activities is basically unchanged, but also here the trend going forward is positive for the key operating units.

 

During the first quarter the price of petrochemical commodities jumped to levels not seen in nearly one and a half years, in further evidence of the Asian-led recovery in manufacturing activity. The surge in petrochemical demand signals that a cyclical recovery for the broader economy is developing.

 

We foresee that the year of 2010 for our company will be negatively affected by a need to renew expiring contracts, in general on lower levels than the expiring contracts. We thus see a challenge to remain in the "black" for the company as a whole in 2010. This is a result of the "output gap" where the transportation capacity has been growing quicker than demand, and the demand dropped due to the finance crisis and the "Great Recession" lasting perhaps from 2Q08 and through to 2Q09. The current very positive economic and trade developments in the world will not be sufficient to eliminate this "output gap" in 2010. The exception here is probably our activities in China that are at the moment in a very positive trend when it comes to contract renewal levels as well.

 

For gas carriers, the deliveries of newbuildings in the Semi - Refrigerated gas carrier segment over the year, has increased the gap between supply and demand of tonnage for our fleet of ships. This leads to lower utilization levels in general and a softer spot market for ships. In this context we are pleased about the very high utilization of the Norgas ships with little idle time. This "output gap" is likely to be high in 2010. We also see the estimated newbuilding prices being lower or about 20 - 25 % down from its peak in 2008 (8 000 cbm ethylene gas carrier).

 

The rise of the East - IM Skaugen enters into new areas

 

The IMS group of companies continues to peruse its long term strategy of being a global company, with focus on marine transport niches in growth markets, leveraging our business units towards Emerging Markets. Of the Emerging Markets we have placed special emphasis on opportunities "East of Suez". In the aftermath of the financial crisis of 2008 the global economy has accelerated a development of a two-tiered growth; the "advanced economies" is more saddled with debt and higher unemployment, while many Asian countries (and especially China) is experiencing stronger growth on the back of key structural drivers; industrialization, urbanization and globalization. In this perspective we are very pleased that SPT is now also expanding their business into the Gulf or GCC region, announcing two new events. One is the establishment of a company in UAE for lightering support services and one LNG port management agreement in the GCC region. SPT is growing its global support services with a strong focus on cost and service leadership, enabling the division to gain market shares and deliver a significant part of SPT's overall profits, thus offsetting the effect of the weak crude oil tanker markets.

 

Delivery of Norgas Innovation - One step closer to realize the "Small Scale LNG concept"

  

In January the company reached another milestone, as our first "Multigas" gas carrier was delivered from our Chinese "EPCS" contractor; Skaugen Marine Construction or "SMC" (Ships More Competitive). The 10,000 cbm sized vessel, named "Norgas Innovation", has entered the pool of Norgas and is now trading with Ethylene from the GCC region to Asia, and during the quarter it has made its first successful voyages. However, this first Multigas vessel is intended to be dedicated to service Nordic LNG (www.nordiclng.com) from the last part of 2010, and the roll out of the Mini LNG business in Scandinavia. Our J/V partners in the Nordic LNG project is Skangass AS and this company has undergone a restructuring of its capital base and the main partner; Lyse Energi (www.lyse.no) has now enabled the Skangass company to build a better and longer term capital base. This should allow Skangass to complete the LNG liquefaction plant in Stavanger and to shoulder a start up period better. This should also allow Nordic LNG AS to develop better and closer to the expectations we have had for the project. Nordic LNG is a sales and marketing as well as distribution/logistic company without any infrastructure related assets on its balance sheet. The book value of our investment in this concept is approximately USD 0.5 mill and this is against 40 % of the shares in Nordic LNG AS that we own.