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2017 – Nine Months Results (nine months to 30 September 2017)

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Consistent strategy helps offset volatility in conventional tanker markets

PAO Sovcomflot (SCF Group), a world leader in energy shipping and servicing offshore upstream oil and gas projects, today reported its results for the nine-month (9M) period ended 30 September 2017.

As represented by a 70 per cent decline in the Clarksea Index, spot market freight rates in the conventional tanker sectors have reached their lowest levels of late, comparable to those experienced in 2011. Whilst this has impacted adversely upon the earnings of the Group’s conventional tanker fleet over 2017, it has been offset by the continued growth and resilience in the Group’s Offshore and Gas fleets.

Nine months 2017 financial highlights:

USD millions

9M 2017

9M 2016

%

Gross revenue (Freight and hire)

1,060.7

1,039.4

2.1

EBITDA[1]

408.3

554.5

-26.4

Net profit/(loss)

(6.8)

218.1

-

A copy of the full nine-month and Q3 period accounts is available in the Investor section of the Group’s website: www.scf-group.com

Nine months 2017 highlights:

·         A strong performance from the Group’s Offshore business division saw 9M 2017 time charter equivalent (TCE) revenue grow by 55.9 per cent to USD 274.6 million (9M 2016: USD 176.1 million), with operating profit over the period rising by 50.5 per cent to USD 131.2 million (9M 2016: USD 87.1 million)

·         Ice-breaking platform supply / standby vessels Gennadiy Nevelskoy and Stepan Makarov were delivered into long-term time-charters with Sakhalin Energy Investment Co Ltd. (SEIC) to serve the Sakhalin-2 project

·         In August, the ice-class shuttle tanker Vasily Dinkov’s (LU6, 71, 254 tonnes dwt) long-term time-charter with Lukoil Group, serving the Varandey project, was extended for a further five years 

·         The world’s first ice-breaking LNG carrier, Christophe de Margerie (Arc7 class, 172,600m3 cargo capacity), was delivered into long-term time-charter with Yamal LNG. In August, she successfully completed her first commercial voyage, transporting LNG through the Northern Sea Route (NSR) from Norway to South Korea, becoming the world’s first merchant vessel to travel the full length of the NSR without  icebreaker escort

·         Completion of series of refinancing deals totalling USD 324.0 million, including an additional USD 150 million tap of the 2016 USD 750 million Eurobond issue and a new USD 174.0 million long-term Sberbank facility for the Prirazlomnoye Project vessels, Kirill Lavrov and Mikhail Ulyanov

·         The Group has received a number of industry awards and notations including Seatrade’s ‘Deal of the Year’ award for its USD 750 million 7-year Eurobond bond offering and subsequent tap in 2017, and Lloyd’s List’s ‘Tanker Operator of the Year’ award at its annual Global Awards, as well as shortlistings in September for four separate Platts Global Energy Awards.

A detailed fleet list is available at the Group’s website: www.scf-group.com

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

“This year has proven to be a very challenging period for the tanker industry and the situation now faced by many conventional tanker shipowners is especially severe. An over-supply of tonnage and reduced demand, resulting from oil capacity cut-backs led by OPEC, have resulted in low freight rates over a sustained period which have weighed upon the earnings of all participants in the tanker shipping industry.  With tanker freight rates in some segments of the spot market declining by more than 50 per cent year-on-year, Sovcomflot’s results have not been immune from the earnings weakness affecting our industry. 

“Despite this, however, Sovcomflot has continued with its core strategy of developing its specialised offshore and gas transportation operations over 2017. Our Offshore and harsh environment business segment was certainly the stand-out performer, with nine-month TCE revenue and operating profits both up over 50 per cent.

“Looking ahead into 2018, we anticipate a soft freight rate environment to remain in the conventional tanker sectors, whilst Sovcomflot’s industrial shipping model will remain a source of strength and balance. In the near term, we expect to strengthen our industrial business portfolio with the addition, in Q4 2017 and Q1 2018, of two further offshore vessels into the fleet which will be employed under long-term time-charter agreements with key clients. We are also engaged in opportunities which will provide further growth for the Group in both the Offshore and Gas sectors.

“Regardless of the adverse market conditions, we continue to enhance further the quality of our operations and implement operational programmes designed to provide for safe shipping, environmental protection and risk mitigation, and to attract and retain talented seafarers and shore personnel, keeping in mind that human capital is one of SCF’s core competitive advantages”.

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

“Sovcomflot’s performance in the first nine months of 2017 reflects the harsh realities of the tanker market. However, the significant decline in tanker market freight rates over the period was countered by our higher value-added industrial shipping activities in offshore and gas transportation which we have been growing consistently over the past years and which currently account for up to 50 per cent of the Group’s total invested capital. Importantly, we can capture follow-on business from existing projects as demonstrated in the reporting period by the five-year extension of the time-charter for the provision of shuttle tanker services for the Lukoil-operated Varandey project. 

“The Group’s robust business model, with its balanced business portfolio and high levels of earnings visibility (total future contracted revenues of USD 8.1 billion), continues to make Sovcomflot attractive to international investors. This has enabled us to access the international debt capital markets, with innovative credit facilities secured on highly competitive terms. This was recognised in 2017, when the Group’s USD 750 million Eurobond in 2016 and its heavily over-subscribed tap in 2017, that attracted significant domestic and international interest and had one of the lowest ever yields for a global shipping company, were named ‘Deal of the Year’ by both Marine Money and Seatrade earlier this year.”

PAO Sovcomflot (SCF Group) Credit Rating (as at 30 September 2017)

In June 2017, Fitch Ratings improved the outlook of the Group’s BB credit rating from "stable" to "positive".

In August 2017, S&P confirmed the Group’s corporate rating at BB+ with a "stable" outlook.

Meanwhile, the Moody’s rating remained unchanged at Ba1, with a "stable" outlook (both measures coincide with Russia’s sovereign ratings).

SCF Press Service

 

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 150 vessels with a total deadweight of over 13.1 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 can meet the most demanding customer requirements, providing effective transportation for oil & gas companies.

www.scf-group.com


[1] EBITDA calculated on adjusted basis as operating profit before depreciation and amortisation adjusted by gain / (loss) on sale of subsidiaries, gain/(loss) on sale of equity-accounted investments, other operating revenues / (expenses) and interest income