IMSK - Half yearly financial result 2009

The (IMSK) yesterday announces another profitable quarter in these challenging macro economic times. The pre-tax profit was USD1.5 million for the 1H09 compared to USD16.8 million for the 1H08. The result of the 1H09 on an EBITDA basis was USD14.2 million compared to USD32.2 million for the 1H08.
The pre-tax profit was USD1.2 million for the 2Q09 compared to USD 8,6 million for the 2Q08. The result of the 2Q09 on an EBITDA basis was USD6.9 million compared to USD 17,1 million for the 2Q08 and  USD 7,4 million in 1Q09.
 We are pleased about the overall financial performance of the company under the  current economic  conditions in  the world.  The ongoing "Great Recession" could indicate that companies like ourselves could suffer a heavier decline in profitability than we have done.  Despite the  severe  global   recessionary  environment   we  are   currently experiencing, especially  in  the  "OECD countries";  IM  Skaugen  is capitalizing on a  few key  factors that are  risk mitigating.  Chief amongst these are the relative high contract coverage we enjoy in our core segments as well as our focus  on activities  for petchem  gas transportation for clients based in the "low cost" Middle East region and for markets in Asia. Adding to this the benefit we have from  the much more resilient business conditions in China. Finally we do enjoy a position of being "cost leaders" in many of our business units that enables us to  achieve a margin  where others are  operating at  loss making levels.
During 2Q09  we have  entered into  further contracts  at  acceptable margins, which underline the long term industrial commitment we  have in our specialized market niches. The contract coverage for the Group
currently stands at 77 % as of  end of 2Q09. Norgas (our gas  carrier activity) has  further  improved  its market  position  for  carrying cargoes out  of  the  Middle  East,  and  SPT  (our  marine  transfer activity) renewed  three contracts  for  full service  lightering  at favorable rates during 2Q09.
Throughout the  second  quarter we  have  seen some  improvements  in visibility regarding  the financial  "macro picture".  The  worldwide recession has reduced the global  output for many goods and  services and the surplus capacity from this reduction and the planned capacity increases  is  creating  significant  profitability  challenges   for businesses world-wide. This  will be  ongoing for some  time in  many
relevant industries.  We  see  that  "GDP  growth"  is  probably  now returning in many geographical regions perhaps with the exception  of many countries in Europe. The massive governmental capital injections have brought  the  banking  systems  into  safer  territory  and  the unexpectedly resilient growth  in the "extended  BRIC countries"  are also contributing factors.
Our two main strategic  geographical focus areas  - China and  Middle East have performed quite well. China has clearly passed the worst in the last two quarters, and growth  for the year is by many  estimated to end at a level close to  8% and probably even higher in 2010.  The Middle East economies are at the same time fuelled by the higher  oil prices, and will remain  a high growth  area going forward.  Combined
these factors should fuel a rise in consumption, investments and risk appetite.
The "decoupling" of our current  business,  with our focus on  Middle East  region  and  China  vrs  the  more  traditional  "OECD  related business", is demonstrated  by the below  graph and illustrating  the past vrs current. In the  past the Norgas earnings have  historically been quite  closely correlated  to global  GDP growth  (and at  times
where the OECD economies counted much more towards the world GDP than today). During this current global  downturn we have seen that  these two indicators are  decoupling. The emergence  of most new  economies that are in a growth modus vrs the traditional economies of the  OECD region as well as our strategy of building a higher contract coverage with key  costumers in  the higher  growth regions  are probably  the reasons for this decoupling.
We have also in the 1H09 been  able to reduce our cost of  operations almost across the board. This enabled  us to break a trend where  we, as most  others  in  the  maritime  related  industries,  experienced rapidly increasing cost of operations. The increases were mostly as a result of the  high utilization of  capacity available for  resources needed and as  a result  of the high  growth in  the marine  services value chain of the world since  2003. This trend has now been  broken and we have now turned the upward trend into reductions in most areas of our operations.  We have an  aim to remain  "cost leaders" in  our areas of business and we have  several ongoing programs to ensure  we remain in this position.
Issues related to capital and our debt financing The improved macro economic outlook in 2Q has driven credit spreads down, and the spreads in Norwegian high yield bond market has continued to tighten sharply over the last months. The market is still at extreme elevated levels, but is considerable down from the all-time-high-level seen in March this year. The banking systems availability of finance for shipping companies in general is quite difficult and it is an advantage to not have major refinancing needs at the moment. We as a company have no immediate needs for
refinancing or need for capital for our CAPEX. Our CAPEX program is fully funded and this mitigates the operational risks many suffer due to insufficient capital secured for their CAPEX programs.
Our Bond portfolio of outstanding loans  -  update Average interest cost (incl. of margin) for all of our bond financed funds and debt adjusted for ownership in JV`s now stand at 4,33 % given current USD short term interest rates.
During 2Q we repaid  the remaining IMSK 03  bond at maturity -  total amount issued was USD 75 million.  The repurchase has over time  been financed through operational cash flow and proceeds from issuance  of a new bond IMSK 06/ 07 (as described in 1Q09 report).
During 2Q we also formalized and concluded on a new credit  facility, of up to USD35 million, with our key Nordic based commercial  lending bank, which is an important  cornerstone in our financial  structure. Due to this we have secured an even better financial platform for IMS group going  forward -  a fully  financed new  building program  with solid counterparts  (construction finance,  sale-leaseback  solutions and take-out financing) and backup facilities if something unexpected
should happen.  In our  new facilities,  we have  also been  able  to reduce minimum value risk exposure re fluctuating vessel values going forward.
Buy back of shares
In 1Q we initiated a process to buy back shares as we found the share price to be attractive, and in 2Q we bought back a limited number  of shares. Our holdings after this transaction are 45,600 shares.
Share price development - relative  to indexes and peers (rebased  12 months performance) The IMSK share has performed reasonably well vs. its peers and  stock
market indexes over the last  12 months. After lagging behind  during the initial phase  of the stock  market recovery in  March the  share price has headed higher during the last month of the quarter.

Source: I.M. Skaugen