Summary
For the year, I.M. Skaugen Group (IMS) reported a net pre-tax profit of USD20.8 million in 2007 (USD11 million in 2006). The result on an EBITDA basis was USD40.2 million in 2007 (USD34.6 million in 2006).
Norgas, our petrochemical gas carrier business, had a satisfactory performance, supported by continued global economic growth - especially in the emerging markets – and record high crude oil prices. Norgas’ performance benefited from an increase in export volumes from the Middle East to both Europe and Asia to meet petrochemical cracker demands. Overall, for the year, there was a solid increase in freight volumes and lower idle time.
Skaugen Marine Construction (SMC) is our Chinese-based shipbuilding activity and has responsibility for all aspects of our newbuilding programme - including managing our joint venture and alliance partnerships. During the year, SMC completed the construction of its first two vessels, both of them 3,200cbm pressurized LPG Carriers. These vessels have been sold by SMC to third-party customers – along with a third ship of the same design, once completed in early 2008. Additionally, the first LPG/ethylene/VCM/organic chemical carrier - built on behalf of Norgas and named “Norgas Pan”- was successfully launched on 25 December 2007.
During the year, SMC was affected by the pressure of high activity in the whole shipbuilding value chain. With rapid growth in the global economy in general - and in China in particular - coupled with very strong demand for the construction of new vessels, this impacted our new building costs. These pressures were augmented by similar pressures for construction of petrochemical plants and LNG plants onshore as many of the components and services we use for construction are from the same suppliers. Since the start of our new building programme we have, along with others, suffered considerable price increases in raw materials and specialised components. At the same time we have also encountered an unfavourable shift in exchange rates. These factors are not unique to us, as evidenced by the steep increase in prices for comparable activities, both on a global basis and in Asia in particular.
Despite these challenges, the work of SMC, in its first full year of operation, is a significant development towards the continued success of the company. Our innovative strategy of building tailored and specialized ships - both for our own Norgas fleet and to sell in the market - at costs below what others can offer, provides us with a financial and operational flexibility unavailable to other operators.
SPT - The performance of our Marine Transfer Operation, suffered due to challenging trading conditions across the year. During the first half of 2007, SPT had to hire-in additional shipping capacity - at high levels in a buoyant market - to meet customer contract obligations. The weak spot tanker market that evolved in the second half of the year, prior to the winter season, brought further difficult conditions for SPT, particularly in 4Q2007 when it had some excess short-term tanker capacity that was difficult to employ in a profitable way.
In the second half of the year, the first four of SPT’s six new Aframax tankers were delivered. Due to scheduling challenges in repatriating the vessels from Japan to USA, only two became operational before the end of the year, while a further two will become operational in early January 2008. The remaining two ships will be delivered early in 2008. Going forward, the new vessel additions will allow SPT to reduce tanker costs and improve competitiveness, offering the opportunity to revert to profitability.
