IMSK- Preliminary result 2010
(Thomson Reuters ONE) -
IMSK- Preliminary result 2010
Our views of the performance of the company in 2010 and the outlook for 2011 -
"Steady as she goes", but with an even more narrow focus on the opportunities
"East of Suez".
We have in 2009 and 2010 been experiencing the follow on, or aftershocks, of the
"Great Recession" that started in the fall of 2008. For many it is also called
the "Financial Crisis". Just after the "Lehman bankruptcy", and in most segments
of the international shipping business, we could see international trade be
reduced and demand for seaborne transportation drop dramatically and perhaps
more as a result of the sentiment of the finance crisis rather than the "Great
Recession".
The effects of this drop we also could witness during 2009 and into the early
part of 2010. The demand dropped at the same time as supply of ships increased
due to capacity expansion and decisions made several years before. This created
the "Output Gap" that many industries; not only international shipping suffered
from. This overcapacity that we call the "Output gap" created difficulties in
getting paid sufficiently for our services to render due return on capital
employed; also for our key business areas at I.M. Skaugen Group of Companies.
Throughout 2010, the I.M. Skaugen Group thus experienced signs of improving
trading conditions for our core business; the gas carriers. This was especially
noteworthy from 3Q10 and onwards. The main reason is probably the decoupling of
growth in the world; with OECD countries or "old economy" growing slowly and new
economies or countries (that now often are called "BRIC", "CIVETS" or "N-11" )
are growing at high levels.
Most of the Asian economies and the "BRIC" countries are powering ahead, adding
up the majority of growth in demand for the products that we transport. The
rapid development of these large populated countries is driven by structural
changes through urbanization and the successive rise of the BRIC consumers in an
emerging middle class. We view the possibility that the growth in consumption in
the emerging markets will outweigh the lack of growth in the OECD countries
(primarily USA and Euroland) and thus the world trade and GDP will still grow at
a reasonable pace. If China succeeds in raising its consumption to GDP ratio
over the next few years, the Chinese consumer alone could challenge the US in
size and importance in the first half of 2020 shows a study released by Goldman
Sachs.
This is why we will continue to focus on clients benefiting from these trends
and these markets, and will build even more on our "East of Suez" strategy in
the years to come. A part of this strategy is also to attract capital - risk
capital and debt - for further expansions both in the GCC-region and in China.
The establishment of our new joint venture in Bahrain (ref below) is only one
such move, but also our ability to attract debt finance in China is another.
We as a company have for many years invested substantial amounts of resources
and money into "R&D" and business development and it is now time to gain on many
of the initiatives we have undertaken. The associated expenses has been charged
to the "PandL" of the company and for the most not been capitalized. With proper
execution we should be able to generate better returns due to some of these
initiatives and this should then come to directly benefit our shareholders.
These developments cover amongst others technology and business solutions for
"Small scale LNG" transportation, development of combination ships for LNG and
petrochemical gases (MG ships) and for chemicals and petrochemical gases (WG
ships) as well as ship building in China. We have undertaken establishment in
the GCC region and other efforts have been made to gain more experience in China
to enable us to exploit the growth in both of these regions.
These undertakings have in sum been quite demanding for our resources, but
considered needed at the time in order to lead the business and technological
innovation within our core field of interest. We will not, however be able to
continue to consume as much "R&D" and business development and expense these to
our profit and loss in the years to come until our recent developments avail us
properly. In 2010 we also started a process to reduce our involvement in certain
investments now considered non-core and in the Nordic region to focus even more
on our activities in Asia and other relevant emerging markets. We are confident
that we are able to benefit from the business opportunities between the "GCC
region" and China and to participate in business areas that benefit from the
developments in this area of the world.
The entry into the distribution of LNG
We as a company do believe that crude oil in the future is going to be too much
of a valuable commodity to be used for transportation, power generation and
heating. Crude oil should be used for life sciences and petrochemicals. For
power generation and transportation as of today we see heavy fuel, diesel and
coal being used. We envision that natural gas will be used in the future to
cover marginal demands and substitute where possible. We tend to view business
opportunities arising from this thinking. From this you can see another reason
for our desire to be in the petrochemical fields and in the distribution of LNG.
With a sustained wide price ratio between crude oil and natural gas, this surge
in oil demand for power generation provide ample opportunities for the
substitution of gas for oil in the near future, with important market
implications in 2011 and beyond.
Over the past two years we have seen a dramatic divergence between natural gas
and crude oil prices, driven by the shale gas expansions in the U.S and
increased demand of Natural gas.
There has already been a rapid substitution of gas for oil in the petrochemical
sector in the US. Where the large price divergence is prompting a switch to
ethane-based petrochemical output during 2010, and thus improving the
competitiveness of the US producers. This will impact global petrochemical trade
flows, and development of new projects in the years to come.
On the other hand the ramp up of LNG production in Qatar and other similar
projects, potentially leading to the substitution of LNG for oil in the
transportation and power sector. The latter factor is particularly important as
2010 has seen a mini-repeat of the 2004/5 and 2007/8 oil markets where surging
emerging market economic growth constrained the power sector, causing increased
demand for fuel oil and diesel.
These developments should make our own initiatives to make an entry into small
scale LNG rather more promising and we see many relevant and interesting
projects on the horizon for our company in 2011. We will in 2011 have 6 LNG
capable gas carriers in our fleet and a company-wide expertise and know how re
LNG logistics covering most of our business units. We have a plan to complete
the construction of a total of 10 such LNG capable carriers and we are working
on the financial solution to order 4 more such ships to complete our program.
Further establishment in the GCC region
In 2010 we established a new joint venture. Skaugen Gulf Petchem Carriers B.S.C
is established in Bahrain and we have in 4Q10 successfully increased the share
capital of the company in favor of nogaholding a subsidiary of the National Oil
and Gas Authority - NOGA (35% shares) (www.noga.gov.bh/en) and Capital
Management House (www.capitalmh.com) with 30% of the shares in total. After this
initial call for new capital we at IM Skaugen retains 35% of the shares. The
company will aim to participate in the growing energy needs for LNG in the
region as well as the growing exports of petrochemical gases.
Norgas Carriers is a market leader within the narrow field of petrochemical gas
transportation business and with its dedication to the transport of ethylene.
Ethylene is the chief building block in the field of petrochemicals and is used
in the production of plastics.
For Norgas, 2010 was mainly driven by increased imports into Asia and inter
Asian trade due to the quite buoyant demand for petrochemicals in this region.
In addition new trading opportunities opened up from diverging regional cost of
production for ethylene. In the second half of the year we observed a general
increase in the capacity utilization of ethylene crackers and this is a good
sign of more trade especially if it is coupled with rising product prices. The
volumes exported and subject to seaborne transportation were lifted by the
efficient low cost producers in the Middle East and for overseas markets
following maintenance downtime earlier in the year. All of the above helped to
tighten the supply/demand balance, and the last half of 2010 was the best for
Norgas in 2010. This will enable us to profit more on our services in 2011.
When going into 2011 we are thus in a positive trend in most of our core
business segments. The market balance in the gas carrier business of Norgas and
TNGC is perhaps even better than expected with the peak of newbuildings
deliveries behind us.
Norgas have a clear focus on the growing markets within the geographic areas we
have named "East of Suez". The Middle East is the low cost producer, and Asia
and even more so China; the major source of demand growth. Together they make up
a dominant trade lanes for the commodities that occupy our type of gas carriers.
The Chinese economy is expected to continue to grow and its appetite for
petrochemical products is increasing. Despite the fact that China is expanding
its own capacity in order to gain on self-sufficiency, the country is still
relying on much of the import from especially the Middle East area. As the main
feedstock for Chinese ethylene production, the naphtha price has a substantial
influence on the cost of production which is then again determined by the
development in crude oil price. According to not only the IEA, the era of cheap
oil may be over and the future crude oil price is on an upward trend. Meanwhile
the Middle East as the world's lowest cost producer has a clear advantage
compared to higher cost countries in Europe and Asia due to their access to low
cost feedstock.
With an increased production capacity we will see more long haul trades from the
Middle East to Asia, especially China in the years to come. Overall the seaborne
petrochemical gas trade is forecasted to be back on 2008 level in 2011, with
steady and improved volumes going forward. The ton mile effects of the changing
trade patterns are evident and these could probably enable us to enjoy a double
digit growth in demand the next several years.
The completion of our current newbuilding program, through SMC, will provide
Norgas with one of the youngest and most advanced fleets in the petrochemical
gas carrier market. This will ensure that we can maintain and increase our
market share and also build up our new niche within small scale regional LNG
distribution.
Chemicals
Our specially designed "Wintergas" type vessels are planned for a growing intra-
Asian trade, with an innovative ship design combining both petrochemical and
chemical capacity. The concept is unique and thus new, and we experience that
implementation in current markets has been a slower process than previously
anticipated as both of these freight markets (gas and chemicals) in this
specific region have suffered from over capacity and/or lack of products to be
shipped. The overall improvement of the markets in the second half of the year
affected our Wintergas vessels carrying gasses in north Asia positively, but the
chemical markets are yet to see the same development. Waiting time for these
vessels was reduced as they were fixed on more consecutive voyages and reduce
the idle time. Our third ship of this type will be delivered in 1Q11, and we are
now allocating additional commercial resources on implementation of this
project. We view the Wintergas ships as promising based on growing increased
inter Asian trade (short haul) stemming from strong economic growth in the
region and we are counting on improved profitability in this field in 2011.
Small scale LNG
The demand from Asia especially China is also showing strength within the areas
of energy. With an increasing crude oil price and decoupling with natural gas
price, it will speed up the shift within power generation, heating and
transportation from traditional diesel or heavy fuel to natural gas in form of
LNG. The environmental and economic benefit is significant and it will
facilitate to ease the energy shortage many emerging countries are facing as the
bottle-neck of the overall economic growth. Our small-scale LNG concept is an
efficient solution for making natural gas available to the stranded customers
that are not connected to the pipeline networks. Additional effects with our
concept compared to large scale projects are - less CAPEX, fast track solution,
and a unique scalability and flexibility. We see potentials within many of our
core geographic focus areas such as South-East Asia, alongside the Yangtze River
in China, South East Asia, the Indian sub-continent and the GCC region in the
Middle East.
The orderbook for gas carriers and the recycling of ships
There are 15 Semi Refrigerated newbuildings of 4.000cbm and above (both short
and long haul vessels) delivered during 2010, with 8 of these having ethylene
capacity. The existing world fleet (4.000cbm and above) of 289 Semi Refrigerated
vessels (2.381.654cbm) has now an order book of 40 vessels (433 400cbm capacity)
to be delivered before end of 2014. Norgas has now 5 new ships or 53.600
(49.800) cbm capacity to be delivered in this period and that is about 17% of
the ethylene capacity to come in this period.
The growth in the supply or the fleet will be somewhat mitigated by ship
recycling in the period with 15% of the capacity (348.514cbm) that are now 25
years or more and thus eligible for recycling or alternative uses in the coming
years. During 2010 there were 16 Semi Refrigerated ships scrapped. The normal
age for scrapping of such vessels has been in the period between 27 and 30 years
of age. However at about 25 years of age it is quite normal for such ships to
cease carrying ethylene and concentrate on other less demanding products to
trade.
In the Skaugen China Activities we took successful delivery of three gas
carriers in 2010 and all made by the Skaugen Marine Construction (SMC) in
Shanghai and on an "EPCS" conceptual basis. Going into 2011 SMC will deliver
four combined LPG, Ethylene and LNG carriers, and one combined Ethylene / LPG /
Chemical carrier. We were not able to resolve the export license and VAT refund
issues related to the delivery of "Norgas Camilla" in the fourth quarter, but do
expect this to be sorted out within first quarter of 2011 and this will enable
SMC to deliver this ship in 2011. This is a serious delay caused by the trading
company involved and this event has absorbed about USD 35 mill in additional
working capital without proper returns and for many months in 2010. A delivery
will improve our profitability in 2011.
Our other activities in China continued on a trend of acceptable progress
throughout the year. In the 4Q10 Shenghui (50%) retrieved some of the grounds
lost re the expected growth in revenues in the third quarter. The company
recorded 28% growth in volumes from last year.
The SMC managed shipbuilding activities in China has been restructured with the
activity level, this as the Norgas related newbuildings projects are about to be
completed. New ship orders in the future will be placed with a more traditional
setup based on the increased yard capacity and capability in China in general.
This will enable us to mitigate the risks and reduce the working capital
required and that we have experienced from our current "EPCS" setup at SMC. We
will put a lot of emphasis on utilizing properly the knowledge and skills within
SMC in the developments of activities that are properly tied into our core
business. We will also focus on visualizing and/or realizing values created in
Shenghui through an IPO process.
We are satisfied with the improved performance of TNGC (49%) in 2010 due to
increasing demand of petrochemical gases in China. Our revenue increased 92%
compared to the previous year with more profitable margins on petrochemical
gases and 31% of the total revenue was from LPG. This is a complete change from
prior periods with a significant improved business driven by strong
petrochemical gas. We have gained a new partner at TNGC and we expect to
experience further growth in seaborne transportation of not only LPG, but more
so petrochemical gases and LNG in the Chinese domestic market.
Marine Transfer Activities
The SPT (50%) ship to ship transfer activities suffered however from very weak
crude tanker markets over the whole of 2010 and more so in the 4Q, and with the
second half of the year being more difficult than the first. And in the last
quarter of the year we were not able to offset the losses in the tanker segment
with revenues from our promising global support service. However, we are growing
our revenues from emerging markets inclusive of "East of Suez" where we
experience increased demand for these types of services. For the SPT tanker
business we will continue to focus and grow in the global support segment in
order to reduce our exposure to the very volatile tanker markets, a market that
continues to look challenging ahead, as the massive delivery of crude oil
newbuildings still seems to be the case in 2011. It seems not very likely at
this point that the output gap will be closed for crude tankers in 2011.
Financial issues
The equity ratio at year end was 29% up from 26.9% in 3Q. This is as a result of
reduction in working capital tied up in the SMC newbuilding projects. In the
last quarter of this year reduction in short-term liabilities reduced the
working capital and thus the overall leverage of the company and increased the
equity ratio. The goal of the company is to be at all times above 30%. The
process of improving some of the key balance sheet ratios through optimization
of debt and working capital will continue through 2011, with the completion of
the current newbuilding program in 2011.
In September 2010 we refinanced part of the outstanding bonds due in 2011 to
reduce the refinancing risk. Part of the remaining balance will be extended
through refinancing in 2011, while some of it will be repaid by sale and
leaseback.
The IMSK share
Throughout 2010 the IMSK share has performed more or less on par with its peers,
including petrochemical and chemical shipping companies as benchmarks.
The share price has performed below the OSEBX index and the transport index
where we and similar shipping companies have suffered from the output gap
between supply and demand perhaps more than others.
In November the market maker agreement with Argo Securities expired, and the
share traded without any liquidity provider in December. We are currently
evaluating our options regarding these arrangements, and this in order to select
the solution which is of best interest for our many shareholders.
IMSK 2010 Preliminary result:
http://hugin.info/179/R/1479938/415533.pdf
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: I. M. Skaugen SE via Thomson Reuters ONE
[HUG#1479938]
Unternehmensinformation / Kurzprofil:
Datum: 14.01.2011 - 17:31 Uhr
Sprache: Deutsch
News-ID 50474
Anzahl Zeichen: 22668
contact information:
Town:
Oslo
Kategorie:
Business News
Diese Pressemitteilung wurde bisher 215 mal aufgerufen.
Die Pressemitteilung mit dem Titel:
"IMSK- Preliminary result 2010"
steht unter der journalistisch-redaktionellen Verantwortung von
I. M. Skaugen SE (Nachricht senden)
Beachten Sie bitte die weiteren Informationen zum Haftungsauschluß (gemäß TMG - TeleMedianGesetz) und dem Datenschutz (gemäß der DSGVO).
