IMSK - Preliminary result 2009

Friday, 15. January 2010 17:11
The I.M. Skaugen Group (IMSK) today announced a negative result for the year
2009 - a year of much contradiction, challenges and transition

· The pre-tax result before tax was negative USD9.5 million 2009 compared to USD
8.2 million in 2008. The result of the FY09 on an EBITDA basis was USD24.7
million compared to USD50 million for the FY08.
· The 4Q09 pre-tax result was negative USD8.3 million compared to a negative
USD12.9 million for the 4Q08. The EBITDA result of the 4Q09 was USD5.9 million
compared to USD3.1 million for the 4Q08.
· The deviation in net profits and EBITDA earnings reflects a weaker operating
performance for all business units. For the gas carriers it reflects higher
share of spot voyages in the utilization of the Norgas fleet and a much weaker
spot market than the year before. For SPT it reflects a more challenging tanker
market and for the China based activities it reflects gain from sale of assets
in 2008 that was not repeated in 2009 and a loss on sale of 3 "WG" vessels in
Our Net result in 4Q09 has been charged with impairment cost and R&D cost
related to discontinued operations in the amount of about USD10,2 million. We
have also charged cost as awarded by an arbitration panel for RMB7.8 mill
(USD1.1 mill); these are cost related to a contract cancellation in 2007 for
newbuildings of two gas carriers that we elected to discontinue.
If we adjust for these charges our EBITDA and Net result would have been USD27
million and USD1.7 million respectively. These numbers reflects in our opinion
more appropriately the ongoing business and our core activities
· The book equity, excluding minority interests, totaled USD94 million or
USD3.46/NOK20.00 per share. The book equity represents about 27.1 percent of the
total assets. The net debt at the end of 4Q09 was USD62.1 million and the net
interest-bearing debt totaled USD116.3 million. The ratio between current assets
and current liabilities is 435 percent.
· Total liquidity as of the end of 4Q09 was USD96 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 1.6 for 2009, as against
3.2 for 2008.
· Given the net loss for the year the Board will not recommend any dividends for
the year of 2009.
· Issues related to CAPEX and debt financing
At the end of 4Q09 total capex commitments on I.M. Skaugen's newbuilding stood
at USD 47 million for vessels financed trough sale and leaseback solutions and
USD 31 million (adjusted for ownership in JV's) for vessels financed via
traditional debt facilities.
The IMS Company successfully tapped the Chinese debt markets for its overall
corporate purposes in 2009 and this shows the value of its presence in this
· Bond portfolio of outstanding loans
The company has benefited from the bond markets in Norway mainly to provide
construction finance or working capital for the 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 on 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" 12, 000 cbm sized
Average interest cost (including. of margin) for all outstanding bonds financed
now stand at 5.7 percent, given current USD interest rates. The company has
USD10.6 million of bonds falling due for repayment within next 12 months. The
bond with the longest duration matures in June 2012.
Our views on the performance of the company in 2009

The company is not satisfied with the overall financial performance for the year
which showed a negative result. The USD11.3 mill charges to the "pandl" of the
company in 4Q reflects charges related to discontinued operations and impairment
charges on activities that are considered non-core. As such we would like to
highlight the positives as the results from ongoing core operations are
considered more acceptable. Given the challenging macro economic conditions we
are in general pleased with our core activities performance at this point of the
economic cycle. A cyclical business like our will normally suffer in the
downcycle and the year 2009 is a year of the downcycle. We are benefiting from
our strategic decisions made several years ago - a focus on emerging markets,
reducing costs and building longer and better contract coverage.

In a year where global trade reported the largest contraction since World War
II, and where chemical production (a proxy for ethylene) was set back to 2006
volume levels; ethylene production itself ended the year positively compared to
2008 and only marginally lower than the peak year of 2007. This is mainly due to
a sharp rebound in demand from "non - Japan Asia" and especially Chinese demand
offsetting the weaker markets in North America and Europe.

The added volumes for Asia were covered for the most by imports from the Middle
East, which is the growth area "no. 1" for petrochemical industry. The low cost
Ethane-based ethylene crackers in the Middle East has made the region well
placed to cover production shortfalls in other regions as higher costs have
pushed many European and some Asian producers towards the uncompetitive end of
the global cost curve, thus making the Middle East the major net export area.
Over the year a good percentage of the ethylene fleet of the long haul carriers
(i.e larger ships) was being employed lifting tons from this region and a large
share of this going to Asia.

The implication of this trend is that we experience an increase in tonmiles per
product transported for these types of ships. And although 13 new ethylene
vessels where delivered in 2009, the resilient overall production volumes
absorbed to a great extent this additional capacity and prevented spot rates of
falling as much as most other markets.
We have suffered a USD7.3 million loss at the end of the year in 2009 on a non
core IT related investment within health care sector due to impairment
valuations made. This company has written off most of its R&D investment made,
over several years in a portal technology for the "e-health" sector. This as it
was proven that the commercial applications were not acceptable to the key
Norwegian client for their future needs. The loss is regrettable and the
investment was considered promising despite being outside of our core business
focus. The innovative solutions provided by this company were intriguing and did
fit our desire to work with such innovations. We will in the future, based on
this experience, not embark on a venture that is this much outside of our core
focus. The CSAM Health AS ( ) company has been
refinanced and will now be without external debts. Our investment has a current
book value of USD1.4 mill. We own 25% of the shares in the company and the
management team owns 50%.

1Q2010 Outlook

In the early part of 1Q10 we experience high utilization of gas carriers on
contractual terms and not so much tonnage in the sport market. Crude tanker
market has improved and SPT benefits from this. All China activities are
progressing better than last year.


IMSK - Preliminary result 2009:

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