25th August 2016
PAO Sovcomflot: H1 2016 Results
Client news
On 23 August 2016, the Executive Board of PAO Sovcomflot (“SCF Group”), one of the world's leading shipping companies, reviewed the company’s financial and operating results for the first half year ended 30 June 2016.
Despite a tanker market downturn, the company was able to demonstrate strong performance and strengthen its financial position while continuing to enhance its industrial projects portfolio in accordance with its Development Strategy.
H1 2016 Highlights:
H1 2016
Gross revenue (Freight and hire) $680.2m (-9.2%)
EBITDA $385.8m (-1.9%)
Net profit $165.9m (-23.3%)
H1 2015
Gross revenue (Freight and hire $749.5m
EBITDA $393.5m
Net profit $216.3m
• Successful issue of USD 750 million, 5.375 per cent coupon, seven-year term unsecured Eurobonds;
• USD 260 million long-term loan agreement signed with VTB Bank in June;
• Five new vessels launched: pioneering 172,600 m3 capacity ice breaking LNG carrier (Arc7 ice class) for Yamal LNG project (January), three new Arctic shuttle tankers for Novy Port project (February, April, June), and a new ice-breaking supply vessel to serve Sakhalin-2 project (June).
Commenting on the Group’s performance Sergey Frank, President and CEO of PAO Sovcomflot, said:
“From January to July, there was a notable downswing in the global tanker market, with spot rates in certain market segments dropping by one third year-on-year, which has affected the financial performance of the entire industry.”
“Analysts foresaw this downturn, so, as part of its Development Strategy, Sovcomflot has focused its efforts on diversifying its business by beefing up its portfolio of long-term industrial projects with a fixed high rate of return. Participation in projects such as Sakhalin-1, Sakhalin-2, Varandey, Prirazlomnoye, Novy Port, and Yamal LNG will guarantee a reliable source of constant income for Sovcomflot even in times of market uncertainty and ensure the stable employment of a significant proportion of our fleet. As of 31 July 2016, future contracted revenue stood at USD 8.2 billion.”
Nikolay Kolesnikov, Executive Vice President, Chief Financial Officer, commented:
“Despite the tanker market downturn which has seen rates decline by 30% in some market segments, Sovcomflot’s net profit adjusted for non-operating revenues decreased by only 5.8 per cent. This matches the Group’s performance dynamics during 1H2016. Sovcomflot was able to enhance its debt repayment profile significantly following a highly successful unsecured USD 750 million Eurobond issue. The funds raised were used to refinance the Group’s debut Eurobonds issued in 2010.”
“The success of the Eurobond issue gave Moody’s sufficient grounds to upgrade the Group’s corporate rating from Ba2 to Ba1. Together with a new long-term loan agreement signed with VTB Bank, the amount of external debt financing raised by Sovcomflot during 1H2016 exceeded USD 1 billion, and SCF’s contracted shipbuilding programme is now fully financed.”
H1 2016 financial highlights
At the annual general meeting of PAO Sovcomflot, on 30 June 2016, it was agreed to pay a dividend of RUB 3.04 per share, amounting to a payment of RUB 5.972 billion (USD 92.2 million) and this was paid on 11 July. (2015: RUB 0.57 per share totalling RUB 1.126 billion (USD 20.5 million).
In June 2016, the Group raised USD 750 million of capital through the issue of new, seven-year term, unsecured Eurobonds. The bonds have a coupon of 5.375 per cent and the proceeds have been used to re-finance the Group’s debut unsecured bonds issued in 2010.
This transaction substantially improves the Group’s debt repayment profile. This was seen by the three main rating agencies as a credit positive event with, for example, Moody’s upgrading the Group’s corporate rating from Ba2 to Ba1.
The successful Eurobond issue was followed by a USD 260 million, 13-year loan agreement with VTB Bank. This agreement provides financing for the construction of the prototype Arctic LNG tanker for the Yamal LNG project.
A copy of the full consolidated financial statements is available in the investor section of the Group’s website: www.scf-group.com
Business segment highlights
Crude Oil Transportation
Time charter equivalent (TCE) revenues in the first half (H1) ended 30 June 2016 were USD 266.2 million (H1 2015: USD 280.5 million).
Oil Products Transportation
Time charter equivalent (TCE) revenues in the first half (H1) ended 30 June 2016 were USD 105.7 million (H1 2015: USD 126.6 million).
Gas Transportation
Time charter equivalent (TCE) revenues in the first half (H1) ended 30 June 2016 were USD 72.6 million, a notable increase on the previous first half period (H1 2015: USD 63.6 million).
Offshore Development Services
Time charter equivalent (TCE) revenues in the first half (H1) ended 30 June 2016 were USD 115.1 million (H1 2015: USD 114.4 million).
Other
Time charter equivalent (TCE) revenues in the first half (H1) ended 30 June 2016 were USD 16.9 million (H1 2015: USD 32.5 million).
Key events
• In January 2016, the world’s first Arctic LNG carrier was launched. Ordered by Sovcomflot, this pioneering vessel will transport liquefied natural gas (LNG) for the Yamal LNG project. With a cargo capacity of 172,600 m3, the vessel is packed with unique new technical features. She will be of Arc7 ice class (RS classification), with the capability to break ice of up to 2.1 metres thick. The propulsion system (45 megawatt) is on a par with Arctic-type ice breakers. The vessel delivery is scheduled for 1Q2017.
• Three new 42,000 tonnes deadweight ice breaking shuttle tankers were launched for the Group in February, April, and June. These arctic vessels will be used to transport crude oil for Gazprom Neft from the Novoportovskoye field on the Yamal Peninsula. Shturman Albanov, the pilot vessel of the series, is expected to take its first shipment of oil from the Arctic Gate offshore terminal on the Ob River estuary to Murmansk in September 2016.
The design of these vessels takes into account the specific features of the waters in the Gulf of Ob, which features points of restricted depth (approximately 10 metres), and is covered with ice from October to July. The three tankers can operate in the Arctic with year-round navigation at temperatures up to minus 45°C and, without assistance, break through ice up to 1.8 metres thick.
• As part of a long-term agreement with Sakhalin Energy, 30 June 2016 saw a new ice-breaking supply vessel (IBSV) launched for Sovcomflot. This reinforced ice class vessel has a deadweight of 3,000 tonnes and is due to be delivered in Q4 2016.
This IBSV is the first of four ordered by Sovcomflot for operations at the Sakhalin-2 project. The other three are emergency response and rescue vessels (ERRVs), with a smaller deadweight (2,000 tonnes), but they offer enhanced functionality and can carry more maintenance personnel. The construction of all four vessels began in 2015.
• At the Saint Petersburg International Economic Forum, in June, Sovcomflot and Gazprom Neft signed a Memorandum of Understanding (MOU) for the supply of marine lubricants. This MOU anticipates the expansion of the existing marine lubricants supply geography and an increase in the number of the Group’s ships using these lubricants to 19 within the next two years.
Currently, Gazprom Neft’s marine lubricants are used on six Sovcomflot tankers, including its Arctic shuttle tankers Kirill Lavrov and Mikhail Ulyanov, which are used to transport oil from the Prirazlomnoye field owned by Gazprom Neft Shelf.
Fleet summary
As at 30 June 2016, Sovcomflot’s fleet (including vessels owned, chartered-in, and in joint ownership with third parties) comprised 140 vessels with a combined deadweight of approximately 12.3 million tonnes. At this time, there were eight vessels under construction (one Arc7 ice-breaking LNG carrier of 172,600 m3 capacity, one multifunctional ice breaking (“MIB”) supply vessel, three MIB standby vessels, and three ice-class shuttle tankers).
A detailed fleet list is available at the Group’s website: www.scf-group.com
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PAO Sovcomflot (SCF Group) is one of the world's leading shipping companies, specialising in the transportation of crude oil, petroleum products, and liquefied gas, as well as servicing offshore upstream oil and gas installations and equipment. The Group’s fleet comprises 145 vessels with a total deadweight of over 12.6 million tonnes. The company is registered in St. Petersburg with offices in Moscow, Novorossiysk, Murmansk, Vladivostok, Yuzhno-Sakhalinsk, London, Limassol, and Dubai.
The Group offers a wide range of vessels in the market segments most demanded by major Russian oil and gas companies. With its own technical development and unique approach to advanced technologies, Sovcomflot has the ability to meet the most demanding customer requirements, providing effective transportation for oil & gas companies. www.scf-group.ru