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PAO Sovcomflot Q3/9M 2015 Results

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SCF Sovcomflot's SVET underway

SCF Sovcomflot’s SVET underway

2015 – Third Quarter/Nine Months Results*

(*Q3/Nine months to 30 September 2015 – unaudited, prepared under IFRS)

Strong third quarter contributing to solid nine month performance and optimistic 2015 full year results

17 November 2015: PAO Sovcomflot (SCF Group) has today reported results for the third quarter (Q3) and nine month (9M) periods ended 30 September 2015.

Highlights (Q3/9M 2015)

  • Gross revenue: Q3 2015 USD 388.6 million (Q3 2014: USD 384.1 million) + 1.2 pct; 9M 2015 USD 1, 143.5 million (9M 2014: USD 1, 059.2 million) + 7.9 pct
  • Time charter equivalent revenue: Q3 2015 USD 329.0 million (Q3 2014: USD 304.9 million) + 7.9 pct; 9M 2015 USD 946.6 million (9M 2014: USD 795.6 million) + 18.9 pct
  • EBITDA: Q3 2015 USD 199.8 million (Q3 2014: USD 159.6 million) + 25.2 pct; 9M 2015 USD 567.9 million (9M 2014: USD 411.3 million) + 38.1 pct
  • Net profit: Q3 2015 USD 82.5 million (Q3 2014: USD 45.5 million) + 81.3 pct; 9M 2015 USD 298.8 million (9M 2014: USD 109.1 million) + 173.9 pct
  • LNG carriers SCF Melampus and SCF Mitre (each 170, 200 m3 capacity) delivered and commenced long-term time charter to Royal Dutch Shell
  • Sovcomflot awarded ‘Deal of the Year’ by Marine Money for the project financing of two new LNG carriers
  • LNG carrier Grand Elena completes her 100th voyage transporting gas from Prigorodnoye to Japan in March, together with Grand Aniva, providing safe and dependable transportation from the Sakhalin LNG liquefaction facility since 2009
  • Modernization programme completed for the propulsion complex of LR1 tankers (JV with Glencore),  with average age of 6 years, to improve their fuel-efficiency and further minimize their environmental impact in line with the latest IMO and European directives.
  • Sovcomflot became the title sponsor of the Black Sea Tall Ships Regatta – 2016, following in the Group’s longstanding tradition of providing support for professional maritime education and sailing sports.

3rd Quarter 2015 – Financial Highlights (IFRS accounts)

USD millions Q3 2015(3 months to 30 September) Q3 2014(3 months to 30 September) +/-Pct
Gross revenue (freight & hire receivable) 388.6 384.1 +1.2
Time charter equivalent (TCE)* 329.0 304.9 +7.9
EBITDA** 199.8 159.6 +25.2
Net profit 82.5 45.5 +81.3

*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, amortization and depreciation

Nine months 2015 – Financial Highlights (IFRS accounts)

USD millions 9M 2015(9 months to 30 September) 9M 2014(9 months to 30 September) +/-Pct
Gross revenue (freight & hire receivable) 1, 143.5 1, 059.2 +7.9
Time charter equivalent (TCE)* 946.6 795.6 +18.9
EBITDA** 567.9 411.3 +38.1
Net profit 298.8 109.1 +173.9

*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, amortization and depreciation

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

“Sovcomflot is satisfied with a strong set of third quarter results, which in turn have contributed to a very positive operating and financial performance for the nine months of 2015 results. This has been possible through a combination of positive underlying tanker market conditions, and the Group’s proven business model that continues to serve us well. We continue to improve the efficiency of our operations, and firmly believe that our significant industrial shipping activities are a source of strength and stability going forward. Whilst the geopolitical and economic outlook remains especially difficult to predict, we remain optimistic about the prospects for further tanker market growth during the final quarter of this year, with the outlook for both crude and oil product tankers in 2016-2017 looking positive, based on favourable supply-demand fundamentals across most tanker market segments.”

Nikolai Kolesnikov, Executive Vice-President, Chief Financial Officer, commented:

“Sovcomflot’s strong performance throughout the first nine months of 2015, with EBITDA up by close to 40 per cent year-on-year has resulted in a substantial improvement of the Group’s credit metrics. The Group’s leverage, for example, is down to 44 per cent and its net debt to LTM EBITDA ratio stands at below four times. This success owes much to Sovcomflot’s commercial team which has followed a highly effective freight policy, ensuring robustness during the industry downturn yet providing the necessary flexibility during the current market recovery.

“In line with our strategy, the Group has maintained a steady capital expenditure programme through the shipping cycle. The addition earlier this year of two high-spec LNG carriers, employed under long-term contracts, has contributed to a growth in operating profit of some 75 per cent from the gas transportation segment compared to same period last year. The fact that about 35 per cent of the Group’s operating profit is derived from long-term fixed-rate charters, in the gas transportation and upstream services segments, provides a welcome level of future earnings stability.  On the conventional tankers side, Sovcomflot has benefited from good exposure to the market during the industry upcycle.”

Business Highlights

Crude Oil Transportation

Time charter equivalent (TCE) revenues in the nine month period (9M) ended 30 September 2015 increased by 27.0 per cent to USD 402.5 million (9M 2014 USD 317.0 million). Operating profit for 9M 2015 increased by 70.9 per cent, compared with 9M 2014, to USD 190.0 million – reflecting the strong tanker market upcycle so far this year.

Oil Products Transportation

TCE revenues for 9M 2015 increased by 18.5 per cent to USD 187.4 million (9M 2014: USD 158.1 million). This segment saw a significant firming of freight rates with the Group achieving a near five-fold increase in operating profit to USD 68.2 million, compared with the same period in 2014.

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 9M 2015 increased by 67.5 per cent to USD 100.5 million (9M 2014: USD 60.0 million). Operating profit for 9M 2015 increased by 75.3 per cent to USD 62.4 million compared with the equivalent period last year. The Group’s LNG carrier fleet is engaged under long-term charters to oil and gas majors, meaning it has no exposure to the current slump in LNG spot market rates.

During the period the Group significantly increased its LNG carrier capacity with the delivery of two new LNG carriers,  SCF Melampus and SCF Mitre, the third and fourth vessels respectively in a series of advanced design Atlanticmax LNG carriers. Each vessel has a 170, 200 m3 cargo capacity and has an ‘Ice2’ ice class rating and they are employed on a long-term time charter to Royal Dutch Shell.

Offshore Development Services

TCE revenues for 9M 2015 increased by 2.4 per cent to USD 169.6 million (9M 2014: USD 165.7 million). Operating profit remained flat compared with 9M 2014, despite the deterioration of conditions in the oil services market segment due to the sharp decline in global oil prices. The Group’s business has benefitted from the long-term nature of its charter arrangements for both shuttle tankers and its ice-breaking supply vessels.

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.

Fleet Summary

As at 30 September 2015, the SCF Group fleet comprised 143 owned vessels (including vessels in joint ownership with third parties) amounting to 12.41 million tonnes DWT 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 Arctic LNG carrier; one multifunctional ice-breaking (MIB) supply 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.com).

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N.B.: A full version of the condensed consolidated financial statements of PAO Sovcomflot, for the nine month and third quarter periods, is posted in the Investor section of the Group’s website: www.scf-group.com.

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