SCF’s offshore and gas sectors offset dismal tanker results

Nov 24 2017

PAO Sovcomflot (SCF Group) reported a net loss of $6.8 mill in the first nine months of this year, compared with a net profit of $218.1 mill for the same period of 2016.

EBITDA was $408.3 mill for the period, compared with $554.5 mill in the first nine months of 2016.

As represented by a 70% 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, SCF said.

Commenting on the results, Sergey Frank, PAO Sovcomflot president and CEO, 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% 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%.

“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 4Q17 and 1Q18, 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,” he said.

Nikolai Kolesnikov, executive vice president, CFO, 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% 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 timecharter 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 $8.1 bill), 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 $750 mill 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.”

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). 

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