OREANDA-NEWS. April 12, 2012:

  • 2011 Gross revenue up 9.6 per cent to USD 1,438.9 million (2010: USD 1.312,9 million)
  • Net profit for 2011 USD 53.7 million (2010: USD 164.3 million)
  • Total fleet size 155 owned and chartered vessels, representing 11.5 million tonnes DWT (2010:147 vessels)
  • Consolidation of market position in shuttle tanker segment through acquisition of 6-strong fleet servicing Sakhalin projects
  • Strong growth of Offshore Development Services segment – TCE revenue up 49.7 per cent to USD 181.0 million (2010: USD 121,0 million)

Suezmax tanker Vladimir Tikhonov (160,000 tonnes DWT) becomes the largest vessel to transit the Northern Sea Route, carrying a cargo of 120,000 tonnes of gas condensate.

Contract with Gazprom Global LNG Limited (GGLNG) signed for time charter of two ultra-modern TFDE* ice-class LNG-carriers of nearly 170,000 cubic meters cargo capacity.

Aframax tanker Adygea begins serving Statoil-operated Peregrino oilfield in Brazil – marks entry to a new offshore sector

Marine seismic operations begun with new generation hi-tech X-bow 3D 1-A ice class vessel Vyacheslav Tikhonov.

First Group office opened outside Europe – SCF Unicom Singapore to address the potential of Asia

 * Tri-Fuel Diesel Electric

Comments from Senior Management on the 2011 Results

 Sergey Frank, President and CEO of OJSC  Sovcomflot said:

 “2011 has been one of the toughest years for the shipping industry for decades. Despite this, Sovcomflot increased its top line revenue and remained in profit. This achievement owes much to the continuing hard work and dedication of our people at sea and ashore – something for which I am extremely grateful. We managed to successfully launch the updated business strategy aimed at providing specialized offshore marine services for the Arctic projects on the continental shelf of Russia.”

 “Given consensus forecasts of future conditions in the freight market, we do not expect significant improvements for the tanker industry in 2012. Rates in the spot market and time-charter rates will remain under pressure, as a result of the imbalance between supply and demand. The market value of tankers looks set to remain at historic lows.

 “Despite the challenges, Sovcomflot’s business model gives us cause for cautious optimism. With our strong ‘blue chip’ client base, diversified business portfolio, significant forward revenues of USD 5.5 billion and good liquidity, we can face the future with confidence."

 Evgeniy Ambrosov, Senior Executive Vice-President of OJSC  Sovcomflot commented:

 “The Group operates a chartering policy that is designed to provide an optimal mix of long-term earnings visibility, through vessels engaged on long-term time charter, with the flexibility to take advantage of opportunities on the spot market.During the year we have seen the benefit of the Group’s growing commitment to its offshore and gas transportation businesses, with revenues up for these segments by nearly 50 per cent and two per cent respectively.”

 Nikolay Kolesnikov, Senior Executive Vice-President of OJSC  Sovcomflot, Chief Strategy & Financial Officer noted:

 “Sovcomflot continues to pursue a conservative financing strategy. This has enabled the business to maintain access to debt capital and to continue to invest in 2011 for the long-term, in markets with good potential such as Offshore and LNG, despite overall short-term market volatility.

 “There continue to be significant financial pressures on all shipping companies, due to factors such as very limited credit availability and depressed conventional tanker markets. However, Sovcomflot retains a competitive advantage from its high earnings stability and long-term earnings visibility.”

 Sergey Popravko, Senior Executive Vice-President of Sovcomflot added:
 “As a Group we are committed to leveraging our competitive advantage in ice navigation. We continue to deploy innovative solutions in the construction of our vessels, to enable them to operate in challenging conditions, whilst minimising their environmental impact. The priority for our company remain human resources, since we see a growing demand for a better trained and educated industry workforce”.
Financial Performance

 The Group reports a solid financial performance in 2011, despite the combined pressures of soft freight rates and growing bunker costs and operating expenses. Against this extremely challenging background, the Group still managed to increase 2011 revenue (Freight and Hire) by 9.6 per cent to USD 1,438.9 million. Time charter equivalent revenue in 2011 declined by 1.4 per cent to USD 927.3 (2010: USD 940.9 million).

 Direct operating costs for the year were USD 405.9 million, 12.4 per cent higher than in 2010. Within this, the Group’s bunker costs increased by 43.9 per cent in 2011. Despite these challenges, the Group remained profitable during the year with a net profit of USD 53.7 million (2010: USD 164.3 million). Earnings before interest, tax, depreciation and amortisation (EBITDA) were USD 460.8 million, 13.6 per cent below that achieved in 2010. Net profit for 2011 was USD 53.7 million, a decline of 67.3 per cent on the previous year.

 In a market where credit conditions continued to be tight, the Group retained its strong liquidity position with cash balances of USD 389.7 million as at 31 December 2011. Importantly, contracted future revenues increased over the year from USD 4.2 billion to USD 5.5 billion as at 31 December 2011. This reflects the ongoing and valuable support of SCF’s chartering partners, many of which are large national and international energy majors.

 Sovcomflot ended 2011 with a Ba1 corporate rating from Moody’s Investors Service with a “stable” outlook. Fitch Ratings Limited and Standard & Poor’s had both assigned a BBB- rating, with a “negative” outlook.

 On 30 June 2011, the Group declared a dividend of RUB 0.51 per share (2010: RUB 0.47 per share), amounting to RUB 1,000.0 million (2010: RUB 920.6 million). The dividend was paid on 18 July 2011.

 2011 Operating Highlights
 Chartering
 Chartering activity is undertaken in accordance with set policies of the Group, which are subject to ongoing review. During 2011, 59.9 per cent of vessels’ total trading days were on time charter (2010: 61.4 per cent), representing 73.3 per cent of time charter equivalent revenues (2010: 72.8 per cent). As at 31 December 2011, 57.5 per cent of vessels were engaged on time charter (2010: 60.9 per cent).

 Business Segments

 Crude Oil Transportation
 This remains the Group’s core activity, accounting for 42 per cent of time charter equivalent revenues in 2011 (2010: 47 per cent). Throughout 2011 the segment has continued to suffer from depressed freight rates, reflecting an industry-wide over-supply of vessels, which contributed to a 23 per cent decline in the profit on vessels’ trading compared with 2010.

 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 period, SCF had four* crude oil tankers on order, for delivery by December 2013.

 The new order book includes two tankers that are the Group’s first Very Large Crude Carriers (VLCCs), following a long-term charter concluded in the first half of 2011 with Petrochina Company Limited, for two 320,000 tonnes DWT vessels. On 14 November 2011 a steel cutting ceremony took place to mark the start of construction of these vessels at Bohai Shipbuilding Heavy Industry Co. in China. The first vessel is due for delivery in the final quarter of 2012.

 During 2011, the Group further strengthened its long-standing partnership with Statoil when it became one of only two shipping companies to be selected by the Norwegian company as meeting its requirements for the transportation of crude oil from the Peregrino field in Brazil. Statoil is both the operator and retains a 60 per cent shareholding interest in Peregrino. The first cargo to be loaded under this agreement was by the SCF Novoship-owned crude oil tanker Adygeya, in August 2011. SCF will provide shipping for half of the oil produced using its Aframax-type ships, with three tankers already being engaged on the basis of time-charter agreements.

 On 30 August 2011, the 160,000 tonnes DWT Suezmax tanker Vladimir Tikhonov completed a transit along the Northern Sea Route (NSR) – the most difficult part of the high-latitude Arctic route from the Atlantic Ocean in Europe to the Pacific Ocean in Asia. The vessel began her journey in Murmansk, on 20 August 2011 and completed her voyage at the discharge port of Map Ta Phut (Thailand). Vladimir Tikhonov carried 120,000 tonnes of gas condensate belonging to the charterer OJSC  Novatek. She is the largest tanker to have made this transit so far.

 Oil Product Transportation
 Time charter equivalent revenues for 2011 were USD 251.9 million, a 9.3 per cent decline over the previous year. The segment continued to suffer from poor trading margins, given a global supply overhang of product tankers.

 During the year, 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). The 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 undertook a test sailing 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 on a regular basis from Ust-Luga terminal was SCF oil carrier Primorsky Prospect.

 Gas Transportation
 The Group’s fleet comprises six liquefied natural gas (LNG) carriers (four of which are owned jointly with third parties) and two liquefied petroleum gas (LPG) tankers. Time charter equivalent revenues for 2011 were USD 87.2 million, an increase of 1.9 per cent compared with 2010. SCF is the largest operator of ice-class LNG tankers. Gas carriers 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 is one of the key elements within the Group’s development strategy.

 Following a successful international tender, the Group signed a contract in June 2011 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 vessel deliveries scheduled for 2013-2014.

 On 11 November 2011 SCF Group celebrated five years of work as an independent operator of LNG tankers, following the Group’s original breakthrough into this new market segment, previously unavailable to Russian companies.

 Offshore Development Services

 The Offshore Development segment remains the most dynamic for the Group. In 2011, time charter equivalent revenue increased by 49.7 per cent to USD 181.0 million. The growth mainly reflects the acquisition by the Group of a modern ice-class shuttle tanker fleet, servicing both the Sakhalin 1 and Sakhalin 2 projects, at the beginning of 2011.

 On 6 July 2011 a steel cutting ceremony took place at the Vyborg Shipyard for the first in a new series of multifunctional supply vessels, ordered by the Group, to service oil production platforms. This follows an agreement signed in December 2010 by SCF Group and Exxon Neftegas Limited (operator of Sakhalin 1 project). The agreement envisages the long-term chartering out of two, high ice class, specialized supply vessels. The relevant shipbuilding contracts were signed by SCF Group and Arctech Helsinki Shipyard Oy – a joint venture of USC and STX Finland. Vyborg Shipyard will be engaged in construction of the hull elements of the new vessels.

 Other

 This business segment includes a coal carrier and a seismic vessel with its supporting supply vessel. The latter two vessels were chartered-in during 2011. The segment had time charter equivalent revenues of USD 16.8 million in 2011, an increase of 16.7 per cent over the previous year.

 A new state-of-the-art seismic exploration vessel Vyacheslav Tikhonov joined the Group’s fleet on 16 September 2011. This high-tech X-bow 3D specialized vessel was built in August 2011, and is the youngest of only six existing vessels of her type in the world. She has been acquired on a bareboat charter from Polarcus, one of the world’s leading companies specialising in marine seismic exploration. The vessel is engaged under contract for seismic exploration work at the Tuapse Trough Project, on behalf of OJSC  NK Rosneft and ExxonMobil. She is being operated jointly by SCF and OJSC  Sevmorneftegeofizika - one of the leading Russian seismic companies. The two companies participated together in a tender by OJSC  Rosneft, for the implementation of marine seismic surveys on the continental shelf in the Black Sea during 2011-2012.


Singapore Office

 In November 2011 the Group opened a new ship management office – SCF Unicom Singapore. This represents SCF’s first office in South-East Asia and its fourth international office. This is a first step in further planned expansion of SCF’s presence in South-East Asia, as transportation volumes increase.

 The main activity of the new office will be the technical management of vessels for a number of major industrial projects, such as Sakhalin-1 and Sakhalin-2. There will be seven ships managed by SCF Unicom Singapore that are chartered by Shell and Exxon, under the long-term charter agreements. All the vessels are engaged in the transportation of hydrocarbons to Asian markets. The main cargo consignees are from South Korea, Japan and China.

 Corporate governance

 On 3 November 2011, Ilya Klebanov was appointed Chairman of the Group’s Board of Directors. He replaced Sergey Naryshkin, Head of the Russian Presidential Administration, who had been a member of the Board of Directors from 2004 and Chairman of the Board from 2008.

 Outlook

 In December 2011, the Group’s Board approved a financial plan (budget) and business forecasts for 2012-2014. The plan supports the main development themes detailed in the Group’s strategy for the period to 2017. This includes: an increase in the Group’s share of servicing major Russian and international projects, connected with the offshore production of hydrocarbons and the transportation of LNG; entering new high-tech market segments involved with the development of Arctic oil and gas projects on the Continental shelf.