Smit Internationale NV Exceeds Record

Tuesday, March 10, 2009

Smit Internationale NV released the following financial updates:
•    Operating result for Harbour Towage increases, partly because of the extended interest in URS.
•    Commencement of new contracts leads to growth Terminals.
•    Result Salvage exceeds historical average.
•    Considerable increase result Transport.
•    Strongly improved result Heavy Lift in second half of the year.

Results in 2008
•    Net profit increases from EUR 105.6 million to EUR 107.8 million.
•    Operating result increases 19% from EUR 94.7 million to EUR 112.5 million.
•    EBITDA (including associated companies) rises 26% from EUR 159.4 million to EUR 201.0 million.
•    Net profit per share decreases 9% from EUR 6.68 to EUR 6.11, owing to the issuing of shares.
•    Proposed dividend per share remains EUR 3.00.

Ben Vree, SMIT CEO said, “We are proud that we have managed to exceed the record results of 2007, despite a major increase in our depreciation charges and the low US dollar rate. The growth was largely realised through our less cyclical activities. This underlines the success of the strategy we adopted of synergy and focusing on our more stable activities.

However, the economic downturn will not leave us unaffected, particularly in the harbour towage activities owing to the diminishing number of vessel movements, and in the spot activities of Transport & Heavy Lift. At the same time, the declining market will also offer opportunities for takeovers, which will accelerate consolidation in the sector. We remain positive for the long term, although it is still too early to make any concrete prediction for 2009.”

Despite the deteriorating economic circumstances in the second half of 2008, SMIT still managed to exceed the record net profit of 2007. There was also a clear improvement in the quality of the results. The more stable Harbour Towage, Terminals and Transport & Heavy Lift Divisions all contributed positively to the growth that was achieved, whereas in 2007 the unpredictable Salvage Division recorded an exceptionally high profit. Moreover, the net profit of 2008 was adversely affected by the value of the US dollar, which was on average 7% lower than the year before. In addition, the revaluation of URS’s assets caused the amortisation and depreciation charges to increase by almost EUR 13 million, which did not affect the company’s cash flow.

The forecast of August 2008 that there would be a marked increase in the net result in the second six months of the year was achieved. The results from the heavy lift activities, in particular, improved sharply during the second half of the year, owing to a higher vessel utilization rate.

Harbour towage services and related maritime services:
•    Revenue: EUR 185.6 million (2007: EUR 102.4 million)
•    Operating result: EUR 33.2 million (2007: EUR 23.8 million)
•    ROACE: 21% (2007: 28%). Target is an ROACE of 15%.
•    Result of associated companies: EUR 5.3 million (2007: EUR 19.9 million).

The revenue from the Harbour Towage Division rose sharply as a result of increasing the interest in URS to full ownership. The supply of work in the Belgian ports was high. Because of the revaluation of the vessels to market value and the valuation of intangible fixed assets, the depreciation charges rose by EUR 2.2 million and the amortization charges by EUR 5.4 million.

The URS transport activities are shown under the Transport & Heavy Lift Division as of the
acquisition date.

Owing in part to a significant contribution of special projects, the harbour towage activities in Rotterdam posted a good result.

In Canada the result from the activities was below that of the previous year, owing to the downturn in the forest industry that was caused in particular by the difficulties on the United States housing market.

The SMIT Rebras joint venture in Brazil launched 12 new vessels in 2008, which are being deployed in 4 Brazilian ports. The start-up costs of the new operations resulted in the joint venture not yet contributing to the profit in 2008. A further 6 new vessels will be delivered in 2009.

The joint ventures in Singapore achieved clear growth in the region, and once more recorded favorable results.

The formation of a joint venture with Towmar in the Baltic States has reached an advanced stage and is expected to be completed during the first six months of 2009. Ten larger and smaller tugs will be deployed. In Taiwan, a joint venture was agreed with Kueen Yang for five tugs. The joint venture became operational in January 2009. Owing to the start-up costs, this joint venture will not yet contribute to the result in 2009.

The Harbour Towage market is stable. SMIT set itself the target of increasing the net result in this division by 50% over the next five years (starting 2007) by means of acquisitions, expansion of activities and (fleet) expansions.

Towage services and related maritime and management services to offshore and onshore terminals results:
•    Revenue: EUR 70.6 million (2007: EUR 64.7 million)
•    Operating result: EUR 10.9 million (2007: EUR 10.3 million)
•    ROACE: 12% (2007: 17%). Target is an ROACE of 15%.
•    Result of associated companies: EUR 1.8 million (2007: EUR 0.5 million).

The operating result and the result achieved by the associated companies increased significantly during the year, as new long-term contracts commenced. However, the growth in the result suffered from the fall in the value of the US dollar in 2008 compared with the previous year. All five contracts that were eligible for renewal in 2008 were successfully extended.

New contracts started in Pakistan, Gabon and Kuwait in 2008. In Pakistan, the contract involves the deployment of two tugs and one pilot boat in Port Qasim. In Gabon, one of the new work vessels (L Class) has been deployed under a one-year contract. The activities in Kuwait, involving 10 vessels in all, started up during the fourth quarter. In addition, the existing terminal activities in the Bahamas were expanded during the fourth quarter, with the deployment of a new bunker barge.

The commencement of the 25-year contract for the deployment of 4 tugs through the Adriatic Towage joint venture for an LNG terminal in Italy was postponed until early 2009 because of delays in building the LNG terminal.

The result achieved by the associated companies rose sharply, owing to the expanded activities of the Octomar joint venture in Angola.

The growth target for net profit is 100% over a five-year period (starting 2007).

Salvage, wreck removal, environmental care and consultancy results:
•    Revenue: EUR 116.7 million (2007: EUR 185.4 million)
•    Operating result: EUR 16.7 million (2007: EUR 36.8 million)
•    Net production ratio: 24% (2007: 37%). Target is a net production ratio of at least 10%.
•    Result of associated companies: EUR 0.5 million (2007: EUR 0 million)
•    Historical average operating result for 2008: EUR 16 million.
•    The operating result of the Salvage Division slightly exceeded the historical average.

Consequently, the historical average for 2009 is EUR 18.8 million. Compared with the previous year, the result dropped because there was an exceptional amount of work in 2007 following hurricanes “Rita” and “Katrina”. Moreover, considerable income from prior years’ salvage jobs was also accounted for in 2007.

Major projects carried out in 2008:
• “MSC Napoli”, North Sea
• “Haven”, Italy;
• “Hoegh Detroit”, Vietnam;
• “Zhen Hua 10”, North Sea.

In September, the “Pride Wyoming” project in the Gulf of Mexico was contracted following hurricane “Ike”. Salvage work on that platform commenced in 2008 and will be completed during 2009. The valuation of the “Thunder Horse” contract that was completed in 2005 remains unchanged. The arbitration proceedings in London commenced during the fourth quarter of 2008 and will continue in 2009. The level of activity in this division is unpredictable.

SMIT targets complex projects in this market, in which SMIT can use its expertise to offer a great deal of added value, particularly in environmental care activities. The target is to maintain a market share of 25% to 35%.

Transport & Heavy Lift Division results:
•    Chartering, barge rental, heavy transport and towage.
•    Revenue: EUR 215.2 million (2007: EUR 142.2 million)
•    Operating result: EUR 39.6 million (2007: EUR 29.1 million)
•    ROACE: 35% (2007: ROACE 61%). Target is an ROACE of 15%.
•    Result of associated companies: EUR 4.1 million (2007: EUR 3.5 million).

The transport activities of this Division showed a considerable growth in the result compared with the previous year. That growth stemmed in part from the consolidation of the URS transport activities early in 2008. The acquisition of URS led to increased depreciation charges of EUR 3.5 million and higher amortization charges of EUR 1.7 million because of the revaluation of assets.

The fleet utilization rate and the related fees remained at a high level. Three new work vessels (L Class) were put into operation in 2008 and chartered out under long-term contracts, which further improved the stability profile. A new bunker barge was also delivered in South Africa.

The increase in the result of the associated companies stemmed primarily from the contribution by the OMS joint venture in Egypt, which is an interest that was acquired in mid-2007.

The growth target for the transport activities is organic growth of 10% per year.

Heavy lift activities, implementation of maritime projects, marine support and subsea activities results:
•    Revenue: EUR 156.1 million (2007: EUR 88.0 million)
•    Operating result: EUR 19.5 million (2007: EUR 1.0 million)
•    Profit margin (operating result/revenue): 13% (2007: 1%). Target is a profit margin of 15%.
•    Result of associated companies: EUR 13.7 million (2007: EUR 9.9 million).

The Heavy Lift activities of this Division achieved an exceptionally good result during the second half of the year. The floating sheerlegs, Marine Projects and the subsea activities all experienced a very high supply of work during that period. The improvement in the results compared with the first six months stemmed in part from postponed projects and the performance of maintenance work early in the year.

Late in 2008, a 5-year contract commenced involving diving activities in Qatar.

Following protracted repairs, jack-up platform “Lisa A” became operational during the second half of the year.

The high demand for services in shipyards in Asia allowed the Asian Lift joint venture to record an excellent result once more.

The growth target for heavy lift activities is consolidation at the current level.

The Group’s effective tax burden in 2008 was 18.4% (2007: 21.1%). One of the factors causing that lower effective tax burden was a non-recurring tax benefit of EUR 1.0 million on balance.

In 2008, a total of 42 vessels were launched at the group companies and joint ventures. This represents a new record in the major investment programme that was initiated some years ago. During the reporting year, the group companies invested over EUR 170 million in tangible fixed assets (including the five-yearly vessel surveys). The largest portion of the investments related to the Group’s more stable activities. As of 31 December 2008, the outstanding

investment obligations of the group companies totaled more than EUR 100 million (excluding the surveys). In addition, a substantial investment programme for joint ventures in Brazil, Egypt and Singapore is being implemented.

In 2008, the Group’s existing credit facility with a syndicate of banks was raised to
EUR 400 million. At year-end 2008, EUR 218 million of that facility had been drawn. The credit facility is more than ample for financing the existing investment programme.

The proposal is to pay a dividend of EUR 3.00 per share (2007: EUR 3.00) in line with SMIT’s dividend policy. The dividend can be paid in cash or in shares. The value of the dividend in shares will be no more than 2.25% higher than the dividend in cash.

The current recession and the resulting market developments are also affecting Smit’s activities. A further drop in the number of vessel movements will have an adverse impact on the Harbour Towage Division. The Terminals Division is less sensitive to the recession, owing to its long-term contracts. The unpredictable nature of maritime accidents means that the Salvage Division is also less sensitive to economic developments. Only the spot activities in the Transport & Heavy Lift Division will feel the effects of the current recession.

Therefore, owing to the uncertain economic climate and in line with previous years, no profit forecast for the 2009 annual result will be made at this time.

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