Strong H1 performance reflects proven business model and tanker market resurgence

Company Profiles, Energy, Marine Equipment Products and Services, Safety and Security, Ship Finance, Shipfinance — By on August 28, 2015 at 12:05 PM

sovcomflot logoPAO Sovcomflot (“SCF Group”), a global leader in seaborne energy transportation and offshore services, and Russia’s largest shipping company, today announces its financial and operating results for the six month period ending 30 June 2015.

Highlights:

• Gross revenue (Freight and Hire) increase 11, 8 per cent to USD 754, 9 million (H1 2014: USD 675, 2 million)

• Time charter equivalent revenues increase 26 per cent to USD 617, 6 million (H1 2014: USD 490, 7 million)

• EBITDA increases 46 per cent to USD 368, 0 million (H1 2014: USD 251, 7 million)

• Net profit increases to USD 216, 3 million (H1 2014: USD 63, 6 million)

• LNG carriers SCF Melampus and SCF Mitre (each 170, 200 m3 capacity) delivered and start long-term time charter to Royal Dutch Shell

• Sovcomflot awarded ‘Deal of the Year’ by Marine Money for the project financing of two new advanced design LNG carriers

• The company has completed modernization programme of LR I tankers to improve fuel-efficiency of these vessels and further minimize environmental impact in line with the latest IMO and European directives

Commenting on the H1 2015 results Sergey Frank, President and CEO of PAO Sovcomflot, said:

“Sovcomflot achieved very strong results exceeding our own forecasts for the period and reflecting a sustained contribution from both the conventional tanker and industrial shipping segments. The tanker markets were favourable towards shipowners, and Sovcomflot was well positioned to benefit from the anticipated rise in the spot tanker freight markets given the quality and size of its fleet and efficient chartering policy based on in-house analytics.

“Sovcomflot is one of the few large tanker owners to have sustained the unprecedented industry downturn in previous years whilst maintaining a very sizable year-on-year investment programme aimed at diversifying our business and expanding the scope of marine services to our oil & gas clients. Sovcomflot’s strategy proved its resilience and offered us greater flexibility to capture the upturn in the conventional tanker market.

We are cautiously optimistic about the second half of the year with good trading continuing based on strong supply-demand fundamentals in most tanker segments which we operate in.”

Evgeny Ambrosov, Senior Executive Vice President of PAO Sovcomflot, Chief Operating Officer, noted:

“Sovcomflot is continuously expanding the spectrum of its services, based on long-term business relationships with key clients, who place trust in professionalism and expertise of the SCF team. During the first half of the year the company has grown its presence in LNG transportation through the delivery of two new state-of-the-art vessels, SCF Melampus and SCF Mitre, in the first half of 2015. These tri-fueled, ice class LNG carriers are operated on long-term charter to Shell. Time charter equivalent revenues in this segment during the reporting period demonstrated a visible increase. Our IBSV fleet and shuttle tanker squader continue steady development and expecting the delivery of three more ultramodern Arctic shuttle-tankers to operate in the extreme harsh environment of the Noviy Port loading facility in 2016, employed under the long-term time-charter agreement with Gazpromneft. I’m thankful to my colleagues at sea and ashore for their dedication which is reflected in these results. I should also like to acknowledge the continuing support of our customers, including many of the world’s leading energy companies, for the trust they place in us.”

Igor Tonkovidov, Executive Vice President, Chief Technical Officer of PAO Sovcomflot, said:

“Safety remains at the fore of everything Sovcomflot does, underlined by our corporate imperative of ‘Safety Comes First’. This draws upon a combination of having the right vessels, properly equipped, and manned by experienced crews. Human capital remains fundamental to ensuring the safety of Sovcomflot’s operations. Acknowledging this, and the importance of training and continued professional development, Sovcomflot was proud to reinforce its cooperation with the Admiral Nevelskoy Maritime State University, signing a new agreement in May. Such links are crucial to maintaining our competitive advantage and to raising industry standards. Sovcomflot operates one of the most technically advanced fleets in the world. We continued to invest over the period to develop the quality of services we offer our clients, whilst improving the energy efficiency of our fleet and minimizing the environmental impact of our operations.”

Nikolay Kolesnikov, Executive Vice President, Chief Financial Officer of PAO Sovcomflot, commented:

“During the first half of 2015 our business continued to benefit from an underpinning of stable cash-flows and predictable earnings that accrue from the industrial energy projects we serve and from the further increase in our fixed-rate and long term LNG transportation business. The Group’s total future contracted revenues stood at USD 8.7 billion at the end of the reporting period. Equally, we benefited for our exposure to the spot market in the first half on the conventional tankers side (both crude and oil products) which contributed to a very substantial (46 per cent) year on year increase in the Group’s EBITDA and respective improvement in its credit metrics. Importantly, the Group’s credit ratings were confirmed at their current levels during the period, and the Group continued to enjoy access to debt finance markets with financing of around USD 0.9 billion from a number of international commercial and export credit banks signed in the course of the past nine months.”

H1 2015 Results Summary

H1 2015 Financial Highlights

(1 January 30 June) USD millions

H1 2015 H1 2014 %

Gross revenue (freight & hire)

754.9 675.2 12%
Time charter equivalent 617.6 490.7 26%
EBITDA** 368.0 251.7 46%
Net profit 216.3 63.6 240%

* Time charter equivalent (TCE) represents shipping revenues less voyage expenses and is commonly used in the shipping industry to measure financial performance and to compare revenue generated from a voyage charter to revenue generated from a time charter.
**Earnings before interest, tax, depreciation and amortization.

Business Segment Highlights

Crude Oil Transportation

Time charter equivalent (TCE) revenues in the first half (H1) period ended 30 June 2015 increased by 27 per cent and were USD 280.5 million (H1 2014 USD 220.9 million).

Oil Products Transportation

TCE revenues for H1 2015 were USD 126.6 million (H1 2014: USD 101.7 million), an increase of 24 per cent.

During the reporting period the company has completed a modernization programme of LR I tankers to improve fuel-efficiency of these vessels to further minimize environmental impact in line with the latest IMO and European directives.

Gas Transportation

TCE revenues for H1 2015 were USD 63.6 million (H1 2014: USD 38.2 million), an increase of 50 per cent.

During the first half the Group took delivery of SCF Melampus and SCF Mitre, the third and fourth vessels respectively in a series of advanced design Atlanticmax LNG carriers, built under a partnership agreement with STX Offshore & Shipbuilding. The vessels each have an Ice2 ice class rating and 170, 200 m3 cargo capacity, and they are employed on a long-term time charter to Royal Dutch Shell.

Offshore Development Services

TCE revenues for H1 2015 were USD 114.4 million (H1 2014: USD 109.8 million).

In April a steel-cutting ceremony was held at Samsung Heavy Industries (Busan, Republic of Korea) for the Group’s latest Arctic shuttle tanker of reinforced ice class Arc-7. The tanker is the first in a series of three, ordered by Sovcomflot under a long-term time charter agreement to transport oil from the Novoportovskoye oil field. Construction of this vessel is due to be completed in 2016.

Other
TCE revenues for H1 2015 were USD 32.5 million (H1 2014: USD 20.1 million).

Dividend
A dividend of RUB 0.57 per share was declared on 29 June 2015, amounting to RUB 1, 126.0 million (USD 20.5 million) in total, and was paid on 13 July 2015 (2014 – 0.15 RUB per share totalling RUB 300.0 million, equivalent to USD 9.0 million).

Corporate Governance
On 19 June 2015, the Group’s shareholder Rosimuschestvo (Federal Agency for State Property Management) agreed to extend the term of Sergey Frank’s appointment as President and Chief Executive Officer of PAO Sovcomflot by a further five years.

At the Annual General Meeting of PAO Sovcomflot on 29 June 2015 a new Board of Directors was elected. The following new Directors joined the Board:

• I.F. Glumov (independent director) – Deputy Chairman of the United Nations Commission on the Limits of the Continental Shelf; CEO of OAO Severneftegaz; Member of the maritime board of the Government of the Russian Federation

• V. Chammah (independent director) – Partner of Chammah & Partners, former Co-President of Morgan Stanley & Co.
Admiral Nevelskoy Maritime State University
Sovcomflot signed a partnership agreement with the Admiral Nevelskoy Maritime State University on 26 May. This envisages specialists from Sovcomflot being involved in teaching important disciplines and academic work, training opportunities for the university’s staff on board the Group’s vessels, preparing groups of students for future employment in the company’s fleet, the creation of grants for outstanding students, and also further modernisation of the university’s infrastructure and technology.

On the same day, at a meeting of the academic council of the Admiral Nevelskoy Maritime State University Sergey Frank, the Group’s President and Chief Executive Officer was elected as the university’s Honorary President.

Financing Award
In March 2015, Sovcomflot was awarded ‘Deal of the Year’, in the project finance category, by the international ship finance publication Marine Money. This was in recognition of the financing agreement for the construction of two new LNG carriers, SCF Melampus and SCF Mitre which were delivered in the first half of 2015. Sovcomflot has longstanding relations with the leading European banks behind this deal, and greatly values their long-term support and professional experience.

Fleet Summary
As at 30 June 2015, the SCF Group fleet comprised 150 owned and chartered vessels (including vessels in joint ownership with third parties) comprising over 12.8 million deadweight tonnes in total.

Assets under construction at the period-end comprised eight vessels, with a total deadweight of 233, 800 tonnes. This included: one ice-breaking LNG carrier; one multifunctional ice-breaking supply MIB) vessel; three MIB standby vessels and three Arctic shuttle tankers scheduled for delivery between June 2016 and April 2017 at a total contracted cost to the Group of USD 1, 279.0 million. All of the new build vessels are contracted to Oil Majors on long term fixed income charters.

A detailed fleet list is available on the Group’s website www.scf-group.ru

SCF Press Office

SCF Group (PAO Sovcomflot) is Russia’s largest shipping company and a world leader in the maritime transportation of hydrocarbons as well as the servicing and support of offshore oil & gas production. The company’s fleet numbers 150 vessels with a combined deadweight of 12.8 million tonnes. SCF Group specialises in the shipping of crude oil, liquefied gas and a wide range of oil products. The Group’s vessels perform complex towing operations and geophysical survey work at offshore oil & gas fields. Sovcomflot supports large-scale offshore energy projects in Russia and overseas, including: Sakhalin-I, Sakhalin-II, Varandey, Tangguh, Peregrino, Prirazlomnoye, Noviy Port, Yamal LNG and others. SCF Group employs over 9, 300 personnel both on land and at sea. The company is registered in Saint-Petersburg and has representative offices in Moscow, Novorossiysk, Murmansk, Vladivostok, Yuzhno-Sakhalinsk, London, Limassol, Madrid, Singapore and Dubai.

“Jo”

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