OREANDA-NEWS. September 19, 2008. Gross revenue (freight and hire receivable) in first half increases 28 pct to USD 807.2 million - significantly ahead of budget due to strong freight market conditions.

Operating profit 26 pct ahead at USD 315.0 million and net profit 38 pct ahead at USD 330.1 million
Mandatory offer made by Sovcomflot to minority shareholders in Novoship, for their outstanding shares, fully in line with the best corporate governance practice
Significant progress made with the integration of Sovcomflot and Novoship, with commercial operations merged and international sales activities unified in Sovcomflot UK, since 01 July 2008
Shuttle tanker operations commenced from the Varandey offshore oil terminal in the Pechora Sea
Cooperation agreement reached with the Russian pipeline company Transneft
New Board of Directors elected, including four independent Directors

President & CEO Statement

Commenting on the 2008 first half results Sergey Frank, Sovcomflot Group President and CEO, said:

“The Group has reported record financial results in the first half, benefiting from strong freight market conditions and a clear strategy. Significant progress has been made with the ongoing integration of Sovcomflot and Novoship. At an operational level, we continue to add new and highly sophisticated tonnage to our fleet, while broadening our business model to provide customers with fully integrated seaborne energy solutions.”

In the first half of 2008, the tanker freight market has performed better than at any time in the past decade. Against this positive background and despite pressures on operating costs, the Group achieved a record first half performance. Importantly, significant progress was made with the integration of Sovcomflot and Novoship.

Over the period, unique and highly advanced new vessels joined the Group’s fleet. These are providing new commercial opportunities for the Group and its customers, for example by enabling large-scale and year-round exports of hydrocarbons from the Russian arctic region.

In addition to significant organic growth, supported by the merger with Novoship, the Group is broadening its business model to provide an integrated portfolio of seaborne energy solutions. In addition to current activities such as ship owning, ship management and terminal operations, in the future the Group plans to add new and related activities such as the operation of offshore supply vessels and drilling rigs.

With significant commercial opportunities lying ahead and ambitious growth plans, the ongoing support and professionalism of our seafarers and employees remains invaluable. Our strong performance in the first half is a credit to the whole team at Sovcomflot and I take this opportunity to record my thanks to all staff.

Financial results

In the first half to 30 June 2008 gross revenue (freight and hire receivable) was USD 807.2 million, an increase of 28 pct over the same period in 2007. Operating profit for the half increased by 26 pct to USD 315.0 million, while net profit rose by 38 pct to USD 330.1 million.

At the end of the period, the Group’s balance sheet remained strong, with net debt of USD 2,132 million and gearing of 42.2 per cent as of 30 June 2008. The Group had total assets of USD 5,827 million at the period end, an increase of 10 pct over the first half in 2007.

Operations

Integration with Novoship

During the first half Sovcomflot made a mandatory offer for the outstanding 9.66 pct of ordinary shares it did not already own in Novoship. As a result of this, as at 15 September 2008 Sovcomflot and its affiliates control 97.5 pct of the ordinary shares in Novoship.

At an operational level, significant progress was made in the first half following the merger with Novoship. The commercial operations of both groups were integrated and a new unified sales operation was launched to be run from the Sovcomflot (UK) offices in London.

Chartering

The Group maintains a freight policy where approximately 70 pct of the fleet operates on a time charter basis, with the remainder of the fleet operating on the spot market. This provides good earnings visibility and reliability, through time charter agreements with major customers such as Gazprom, Lukoil, Rosneft, Chevron, Shell,  Exxon  while providing some flexibility to pursue opportunities on the spot market. At the end of the first half of 2008, 68.5 pct of the Group’s fleet was employed on a time charter basis.

New vessels

The first half saw the delivery of a number of new and technically advanced vessels. These included Grand Aniva, an ice-class LNG vessel of 145,000m3 capacity with four Moss-type spherical tanks. She and her sister ship Grand Elena have been built for a Japanese-Russian Consortium, established in 2004 by Nippon Yusen Kabushiki Kaisha (NYK) and JSC Sovcomflot. The vessels will be employed in the Sakhalin-II project on a 20 year contract, transporting LNG from the Prigorodnoye terminal near Yuzhno-Sakhalinsk in Russia, to Japan, South Korea and Baja California (Mexico).

The new Varandey oil export facility became operational on 9 June 2008 when Vasily Dinkov began her maiden voyage bound for the Canadian port of Come by Chance. Vasily Dinkov is the first in a series of three advanced design 70,000 tonne deadweight arctic shuttle tankers, ordered by the Sovcomflot Group, which will all transport oil from the Varandey terminal. The second vessel – Kapitan Gotsky – was delivered at the end of May 2008 and the final vessel – Shturman Albanov – is due in March 2009. With a double, ice-enhanced, hull structures they can break ice of up to 1.5 metres thick, at a speed of two knots.