OREANDA-NEWS. September 13, 2011.  13 September 2011 Sovcomflot (‘SCF Group’) announced its financial and operating results for the six months ended 30 June 2011:

H1 2011 Highlights:
SCF Gross revenues USD 732.6 million (+8.0 pct on H1 2010)
SCF time charter equivalent revenues USD 484.2 million (-2.4 pct on H1 2010)
EBITDA USD 262.8 million (-10.0 pct on H1 2010)
Net profit USD 64.2 million (-36.1 pct on H1 2010)
11 vessels delivered during the period (1.1 mln tonnes DWT) increasing the SCF owned and chartered in fleet to 157 vessels ( 11.7 million tonnes DWT) as at 30 June 2011
Consolidation of market position in servicing the Sakhalin I,II oil&gas subarctic offshore projects through the acquisition of six PRISCO’s shuttle tankers
Long-term charter with Gazprom Global LNG for two new generation ice-class “Atlantic-Max” 170,000 cubic metre LNG carriers
SCF Aframax tanker Primorsky Prospect (ice-class 1B) becomes first vessel to load at Ust-Luga’s new oil products terminal (Leningrad Region)
BBB- long-term credit rating with a stable outlook assigned by Standard & Poor’s

Commenting on the results Sergey Frank, President & CEO of OAO Sovcomflot, said:

“The financial results for the first half of 2011 demonstrate that Sovcomflot is one of the few tanker companies in the world to end the period in profit, despite the ongoing stagnation of the world shipping market. The first half of 2011 saw no signs of revival in the global tanker market, which continued to suffer from an over-supply of new vessels entering the market. Against this extremely difficult background, SCF Group demonstrated more resilience in the face of shipping industry bottoming. This was in part due to SCF Group timely reducing its exposure to the spot market. In line with its strategy, the company increased its focus on the Russian offshore sector and specialized energy shipping projects, such as LNG and shuttle tankers operations. We appreciate our shareholders support in putting these plans into effect. As ever, these results also owe much to the ongoing support of our clients around the world, professionalism and commitment of the SCF team - both at sea and ashore.”

 Evgeniy Ambrosov, Senior Executive Vice-President, Chief Operating Officer (Business development&Commercial issues), said:

"SCF has a strong position of an integrated provider of marine logistics serving the hydrocarbons market. The company will continue to focus on the sectors of the tanker market most demanded for Russia’s energy exports. Taking account of industry innovations and new technologies, we have opened up new possibilities: SCF was successful in a Gazprom Global LNG tender for the delivery of two new generation LNG carriers. We have increased our participation in the Sakhalin-1 and Sakhalin-2 major industrial projects, following the purchase of six PRISCO Aframax shuttle tankers and have consolidated the transportation elements of these projects. We’re planning further participation in complex industrial energy projects on Russia’s continental shelf, and have ordered two advanced design icebreaking supply vessels for the drilling platforms, which will operate under the agreement with Exxon Neftegas”.

 Sergey Popravko, Senior Executive Vice-President, Chief Operating Officer (Technical Performance&Innovations), noted:

“When planning for a new project, we apply an individual approach, offering our clients the best solutions that meet the growing needs of major oil companies. We continue to maintain and strengthen our industry-leading position in technical management of work in the harsh environment and closely monitor the quality of services we provide. After the acquisition of six ice class oil shuttle tankers from PRISCO Group, all these vessels were transferred to SCF’s technical management. In attempt to be closer to our clients and meet the evolving needs of Asian markets we opened up the office in Singapore providing technical management of the vessels. Providing safe shipping services continues to be the number one priority for all SCF’s marine operations. To strengthen the company’s efforts in the light of the challenging tasks of operating in harsh climatic conditions and the Arctic seas, we have launched a research and engineering centre for shipping safety in St. Petersburg.”

 Nikolay Kolesnikov, Senior Executive Vice President, Chief Financial Officer, added:

 “SCF continued to move into higher value-added and higher margin segments and build up its portfolio of fixed-term business. As a result, future contracted revenues increased to over USD 5.5 billion as on 30 June 2011. The share of gas transportation and upstream services which form the backbone of the Company’s Strategy going forward kept growing steadily and now accounts for over 35% of the Group’s total profit on vessels’ trading (increased from 25% at the end of 1st half 2010). As an investment-grade credit rated company SCF maintained access to capital through the trough of the cycle.”

H1 2011 Results

 Moscow 13 September 2011: SCF Sovcomflot (‘SCF Group’), Russia’s largest shipping company and a global leader in the provision of seaborne energy solutions, has today announced its results for the six months ended 30 June 2011.

 Gross revenue in H1 2011 was USD 732.6 million (8.0 per cent higher than H1 2010). Time charter equivalent (TCE) revenue was USD 484.2 million for the period, a 2.4 per cent reduction from H1 2010. During H1 2011, tanker freight rates continued to remain under pressure reflecting an over-supply of vessels in this market.

 The Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) for the first half were USD 262.8 million, a decline of 10.0 per cent on the corresponding period in 2010. This performance was ahead of most of the Group’s peer companies, over the same period. Net profit for H1 2011 was USD 64.2 million, 36.1 per cent below that achieved in H1 2010. This decline reflected lower profit on vessels trading, an increased interest expense and higher corporation tax than in H1 2010.
 
This segment remains the largest for SCF Group, and accounted for some 45 per cent of Time Charter Equivalent (TCE) revenues during H1 2011. During the period, the Group took delivery of a new Suezmax tanker (Leonid Loza – 156,572 tonnes DWT) and a new ice class 1B/1C Aframax tanker (Suvorovsky Prospect – 113,860 tonnes DWT).

 At the end of the first half, SCF had six crude oil tankers on order, amounting to 1.12 million tonnes DWT, for delivery by December 2013. This includes an order for the Group’s first Very Large Crude Carriers (VLCCs), following a long-term charter concluded in H1 2011 with Petrochina for two 320,000 tonnes DWT vessels.

 Oil Product Tankers

This segment accounted for just over a quarter of SCF Group’s TCE revenues and whilst profitable over the period it saw trading margins adversely impacted by poor market conditions, reflecting a global over-supply of vessels. During the period, delivery was taken of three LR1 products tankers, the SCF Pioneer (74,602 tonnes DWT), the SCF Provider (74,548 tonnes DWT) and the SCF Prime (74,602 tonnes DWT). These vessels form part of a joint-venture with Glencore, in which SCF Group has a 51 per cent shareholding.

 On 31 January 2011, the Group’s ice-class products tanker SCF Neva set a test sail from the port of Ust-Luga, bound for Tallinn (Estonia). She was the first vessel to load at this new oil products terminal in Leningrad Region, which was opened for regular loading later in H1 2011. The first vessel to load at Ust Luga on regular basis was SCF tanker Primorsky Prospect.

 Gas Carriers

Gas carriers accounted for over 10 per cent of TCE revenues in H1 2011 and performed well compared with the Group’s other deep sea operations, reflecting the more positive dynamics of the global LNG market. LNG transportation by sea represents a growing part of SCF’s portfolio of interests and one which is a key element within the Group’s development strategy.
 Already the largest operator of ice-class LNG carriers, following a successful international tender, the Group signed a contract in June with Gazprom Global LNG Limited (GGLNG), a subsidiary of Gazprom. The contract is for the long-term time charter of two ultra-modern ice-class LNG-carriers, providing for a minimum of 15 years’ employment for both ‘Atlantic-Max’ vessels. Each vessel will be of nearly 170,000 cubic meters cargo capacity and Ice 2 Class, with deliveries scheduled for 2013-2014.
 
Offshore

The offshore market segment performed well in H1 2011, with TCE revenues up 59.1 per cent on the first half of 2010. Over the period, the offshore segment contributed 18.4 per cent of the Group’s TCE revenues and almost a quarter of the profit on vessels’ trading.
 During H1 2011, the Group took delivery of six ice-class 1C Aframax shuttle tankers acquired from Primorsk International Shipping (PRISCO Corporation), amounting to some 622,000 tonnes DWT in total. This significantly expanded SCF’s role in servicing the Sakhalin-1 and Sakhalin-2 projects. At the end of H1 2011, the Group also had two new Multifunctional ice-class (ICE-10) vessels on order at Archtech Helsinki Shipyard Oy, a JV between Russian and Finnish shipbuilders for delivery by April 2013. Both ships will operate at Sakhalin projects under the agreement with Exxon Neftegas.

Fleet Summary

The SCF Group fleet comprised 157 vessels, as at 30 June 2011, amounting to a total of 11.7million tonnes DWT. During H1 2011 four dry-cargo vessels were sold, representing 28,794 tonnes DWT in aggregate.

 Assets under construction at the period end comprised: two VLCCs; one oil product LR1 type Panamax tanker (part of a joint-venture with Glencore in which SCF Group holds a 51 per cent share); six Aframax tankers (four crude oil and two LR2 type oil product tankers); two LNG carriers; two Multifunctional Ice breaking supply vessels and four Panamax bulk carriers - all for delivery at various dates up to May 2014.

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

Financial Position

The Group continues to pursue a conservative financing policy and benefits from strong future contracted revenues, from reliable ‘blue chip’ charterers, which gives improved earnings visibility. At the end of 1st Half 2011 total future contracted revenues amounted to over USD 5.5 bn.

 SCF Group’s strategy, approved by the Board, has mandated a steady move into higher value-added and higher margin sectors such as offshore services. During H1 2011, this offset the Group’s exposure to the conventional tanker market, which remains at a low point in its cycle.

 Looking ahead, the total contracted cost of the 17 new vessels SCF Group had on order at 30 June 2011 was USD 1,373.9 million. Of this USD 266.7 million had already been paid at the end of H1 2011. The remaining funding requirement stays undemanding for a Group of the scale and nature of SCF.

 SCF continues to maintain a strong liquidity position, with cash balances of USD 319.4 million as at 30 June 2011. At the period end, the net debt ratio was 47 per cent making it one of the most conservative debt ratios amongst its peer group of tanker companies. At the end of H1 2011, net assets were USD 3.15 billion (H1 2010: USD 3.04 billion).

 During the period, SCF Group’s USD 800 million 7-year debut Eurobond issue was awarded ‘European Public Debt Deal of the Year’ by the influential publication Marine Money. This followed SCF’s landmark bond issue in October 2010, which was priced at par to yield 5.375 per cent, making it the lowest coupon ever achieved by a Russian company for this tenor of loan.

 During the six months ended 30 June 2011, dividends of RUB 0.51 per share were paid, amounting to RUB 1.0 billion (equivalent to USD 35.6 million).

 The Group has maintained an investment grade credit rating, over the first half of 2011, with BBB- from Fitch and Baa3 from the Moody’s rating agency, both with a stable outlook. In June, the international ratings agency Standard & Poor’s awarded SCF Group a long-term credit rating of ‘BBB-’ also with a stable outlook.