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Final Results

26th Sep 2008 07:00

RNS Number : 3796E
TGE Marine AG
25 September 2008
 

Friday 26th September, 2008

TGE MARINE AG

Annual Results 

TGE Marine ("TGE" or the "Company"), a leading provider of engineering services for the design and construction of gas carriers and offshore units, today announces annual results for the year ended 30 June 2008.

Highlights

Financial

Revenue from continuing operations up 17% to €96.4m (2007: 82.3m)

Adjusted profits before tax up 26% to €17.7m (2007: €14.0) or €14.5 per share 

Raised new equity of €29.6m at IPO

TGE intends to perform a 29 for 1 bonus share issue after the AGM in November 2008

Operating

Awarded 14 new gas carrier contracts during 2008

64% market share in mid-sized semi-pressurised gas carrier market 

Delivered 13 gas carriers (FY 07:5) with all projects on time and on budget

Delivered first in class Type "C" LNG cargo tanks 

Contracted with new Chinese shipyard, Sinopacific

Outlook

Middle East capacity expansion to continue to drive shipping volumes 

High level of inquiries continue for new ethylene contracts 

Demand for LPG carriers set to rise in the coming years

Significant market activity in floating LNG

Commenting on the results, TGE'S Chief Executive, Manfred Kuver, said:

"I am delighted to be announcing our first set of annual results since our admission to trading on AIM. This has been a year of fundamental change for TGE, but also one of record performance. We have performed well in our core marketsdelivering thirteen gas carriers on time and within budget and winning 10 contracts for new mid-size LPG carriers.

"In ethylene we continue to see a high level of inquiries for new buildings and positive market forecasts. In mid-size LPG the picture is similar and our market position is good. In LNG, both for smaller carriers and FLNG, the market is looking increasingly active.

"The principal markets that we serve continue to be robust in the face of difficult global economic conditions. After a year of transition and remarkable success for TGE we look to the future with confidence."

There will be a presentation to analysts at 9.30am at the offices of Caledonia Investments plc, Cayzer House, 30 Buckingham Gate, London SW1E 6NN. 

The presentation will be hosted by Mike Alexander, Chairman, and Manfred Küver, CEO. For those analysts unable to attend there will be a dial in facility available on +44 (0)808 109 6544, pin 895035#. The slides will be available at www.tge-marine.com from 9am.

Enquiries:

TGE Marine AG

+49 (0)228 604 480

Dr Manfred KüverChief Executive 

Roland FisherChief Financial Officer

Kaupthing Singer & Friedlander Capital Markets Limited

+44 (0)20 3205 7500

Jos Trusted

James Maxwell

Pelham Public Relations

+44(0)20 7743 6676

Mark Antelme

Henry Lerwill

  

Chief Executive's report

Summary Results

Group revenue for the year was up 17% to €96.4m (2007 €82.3m). Adjusted profit before tax was up 26% to €17.7m (2007: €14.0), equivalent to €14.5 per share. Adjustments were made to strip out costs related to the IPO, the group restructuring and the losses on discontinued business disposed of during the year. At a normalised tax rate of 31.6%, we would report a normalised net profit of €12.1m, or €9.9 per share.

Cash generated from continuing operations was approximately €22.7m although due to the IFRS rules on accounting for discontinued businesses this figure is not reported separately in our accounts. During the year we raised net €29.6m in new equity through an institutional placing and admission of the company to AiM. This new equity has since year end enabled us to establish new bonding facilities sufficient to meet our forecast workload for the current financial year.

Operational Review

Overview:

In our core market segment, semi-pressurised gas carriers, the shipping market remains tight with time charter rates at or close to historical highs. Commodity prices are also high which is reflected in the price of building new ships, although more recently falling nickel prices and a depreciation of the Euro has reduced the overall building costs for owners. As critical as price levels, has been the severe shortage of shipyard capacity. Hopefully, as we reach a 'late' stage in the general shipping cycle the willingness of shipyards to build gas carriers may improve, which will be to our benefit.

During 2008 we were awarded 14 contracts for new gas carriers (FY07:12). By our calculation this represented 64% of the new build contracts awarded in our core segment. This was a good achievement but was lower than we might have expected given the volume of contracts in discussion during the year. For the most part we believe these contracts have been delayed into FY 2009 but we cannot ignore the influence the international liquidity crisis may be having on new build investment decisions.

During the year we delivered 13 ships (FY07:5) with all projects delivered to budget. This represents 57% of global deliveries of semi-pressurised gas carriers and is again a strong market share for the company. Our Chinese tank fabrication competence also performed strongly this year delivering 19 cargo tanks to shipyards (FY07:8). These included the delivery of our first Type "C" LNG cargo tanks. 

In our core market segment, semi-pressurised gas carriers, time charter rates remain at or close to historical highs. This market tightness combined with favorable forecasts for new transportation volumes and fleet replacement are strong drivers for the new build market. High commodity prices and crowded shipyards have put some limit on the conversion of this demand into contracts. However, as commodity prices and general shipyard activity levels have started to fall both shipyards and ship owners are better placed to contract new gas carriers.

Ethylene Market:

12 new build ethylene contracts were announced during FY2008 of which TGE was awarded four. We do not believe this is a reflection of lost market share since market experts are sceptical whether all announced contracts will materialize. This point is borne out by our share of deliveries where our actual deliveries during the period (13 out of 14) was much higher than the share anticipated from market forecasts. 

Our competitive advantage for the ethylene market, like our other markets, is our combination of leading technical expertise with efficient execution. During the year we saw our technical strengths recognized by the Lloyd's List "Ship of the Year" award for the Isabella Kosan, an 8000m3 ethylene carrier. The modern ship design concepts of our naval architects and the efficient gas handling system lay-out of our gas engineers incorporated numerous operational and environmental innovations which were cited in the award. We were particularly proud that the Isabella, the first of a 10 ship series, was built by a new entrant to the gas carrier construction market, the Korean shipyard Sekwang Heavy Industries, which again highlights the support TGE is able to offer its shipyard clients.

The positive drivers for the ethylene market persist. The enormous investment program in capacity expansion of crackers in the Middle East will continue to drive shipping volumes higher and we believe that market forecasts for approximately 6% growth per annum to 2012 look prudent, particularly given the expanded distances new cargoes will be shipped from Middle East producers to Far East consumers. We continue to see a high level of inquiries indicating that newbuildings for ethylene carriers will remain high. 

LPG

During FY2008 TGE won 10 contracts for new mid-size LPG carriers which we believe represented 100% of contracts signed during the period, a significant achievement. However, we did not deliver any of the nine mid-size LPG carriers delivered during the year so we continue to forecast future market share in line with our historic share of approximately 30%.

In the sub 23,000 m3 LPG segment order volumes increased dramatically during 2008, probably driven by replacement of overage tonnage. Market commentators and competitors believe this trend for mid-size LPG carriers is set to continue in the coming years supported both by the fleet ageing and increased LPG cargoes coming from the start up of several large LNG liquefaction trains. 

One of the ways we maintain our competitiveness for contract execution is by supporting new, low cost shipyards to enter gas carrier construction. During FY2008 we were delighted to be appointed by Sinopacific Heavy Industries as the gas engineering contractor for three 16,500 m3 LPG-carriers they contracted with a European ship owner. Our contracts for cargo tanks and gas handling systems highlight both our long term relationships in China and the level of support we can offer a yard entering the market for the first time. 

LNG and New Markets

Smaller Carriers:

3-4 years ago we identified that a new market segment for small LNG carriers was developing, serving smaller LNG producers and consumers, e.g. coastal transport or island supply. Hence, we invested in upgrading our tank and gas handling technology for LNG service and achieved approval in principle by Bureau Veritas for LNG-carriers up to 35,000 m3 capacity. The FY2007 award of the contract with Anthony Veder group for the first combined LNG/ethylene carrier of 7,500m3 capacity was proof of the market development. Although during 2008 there were no LNG contract awards for mid size carriers we still remain very positive about this market and we have continued to invest in developing designs for larger carriers and submitting patent applications for our tank support systems.

Floating LNG FPSO and FSRU concepts

TGE is a world market leader in cargo tank fabrication for offshore cryogenic storage applications and we are seeking to capitalize on this competence for LNG storage solutions. We have investigated the use of IMO type C and B cargo tanks for service in floating LNG storage barges of 40,000 up to 180,000 m3 capacity. The commercial advantage of this approach is seen both through operational benefits - longer storage, no 'sloshing' issues - and through lower construction costs.

During the year we were encouraged by approaches from several major offshore players to discuss co-operation for LNG floating solutions. None of these proposals have been translated into our forecasts for 2009, but in general we believe that the offshore LNG floating production projects will make significant progress during the next 18 months and TGE will be well positioned to participate.

CO2 carrier concepts

During the year we were asked to investigate conceptual designs for CO2 carriers, both through upgrading existing vessels or new builds. While it is unclear how the CO2 transportation market may develop, as it is only possible to store and ship CO2 in semi-pressurised vessels TGE should be well placed to benefit from any market expansion.

Financial Review

Revenue from continuing operations was up 17% to €96.4m. Revenue is recognized on a "percentage of completion" method and was generated from 47 contracts that were active during the year. Of these, ethlyene projects represented c.70% and LPG c.30% with one LNG/LEG contract ongoing. These proportional contributions are anticipated to remain unchanged next year with the proportion of LNG carriers and FLNG projects growing thereafter. The cost of materials has only risen 11% during the year which has clearly improved contribution. This improvement is largely attributable to volume discounts from our suppliers for higher purchases.

Personnel costs rose during the year as extra resources were needed to grow operations and meet the additional requirements of an independent listed entity. In total, our operating costs for continuing business (Personnel plus Other Expenses) were up almost 40% for 2008. This increase, though in line with our budget, was exceptional and we will ensure that costs do not grow ahead of our business going forward. 

Interest income for the year was €1.0m, a revenue stream which we count as part of our operating revenue. This is 30% lower compared to last year due to the significant allocation of cash towards discontinued business lines to meet historic liabilities. Our business model and terms of trade were unchanged during the year which is reflected by our balance sheet where payments in advance are up 13% compared with last year.

Our accounts include a number of one-off and exceptional costs which should be ignored in any analysis of performance against prior years. The discontinuation and sale of our onshore operation led to an associated loss of €29.6m, however this ends our financial exposure to this business. Restructuring costs of €2.85m relating to both the onshore disposal and to the IPO will also not recur nor will finance expenses of €3.4m, entirely attributable to the Caledonia loan that was repaid in full on 1st July with the proceeds of the IPO. Amortisation of intangible assets required under IFRS was €0.8m this year but falls to €0.2m next year and nil thereafter, assuming no acquisitions. 

These one-off expenses, combined with an inflated IFRS tax charge due to adjustments in treatment of deferred tax assets, all impact on any analysis of net profits or earnings per share. We therefore use an adjusted profit before tax on continuing operations as a yardstick for performance. On this basis we made €17.7m or €14.5 per share, an improvement of 26% from the equivalent figure for 2007.

In terms of our asset base, having completed the business disposal and raised net €29.6m from the IPO, the continuing business has the financial strength to operate as an independent engineering contractor. This is evidenced by the successful renegotiation of our bonding facilities post year end which gives us bonding capacity for all our anticipated needs over the next year.

Cash generation from continuing business was again strong at c.€22.7m although due to accounting rules we do not report this as a separate figure. At year end we held €78.5m in cash and restricted cash which once adjusted for the repayment of the Caledonia loan in July (€29.3m) and for cash due both to and from the discontinued business, leaves cash attributable to the ongoing business of approximately €45.8m. As our confidence grows in our banking relationships and our business forecasts we will endeavour to release any surplus cash from our business back to shareholders although no dividend is proposed at this time.

Demerger and divestment of 'Onshore' business

The board of Directors unanimously agreed during the year to demerge and divest the 'Onshore' business unit. It had become obvious that there was limited synergy in keeping the 'Onshore' and 'Offshore' businesses together and that the differing financial performance, risk profile and market position of the Onshore business was impacting negatively on the potential for TGE Marine.

It was established that the preferred bidder for this business was the incumbent management and the principal terms for this sale were agreed between the parties during 2007 with detailed terms finalised in February 2008. The sale completed on 7th May 2008 and a loss of €25.8m was recognized. The full cash consideration of €11.1m was received after year end, a year ahead of schedule, and we now retain no further financial interest in the business. We would however like to wish our former colleagues every success with their new venture and hope we may still be able to collaborate where appropriate in future.

Board Changes

During the year several new figures have joined both the Supervisory and the Management boards of the company.

We are delighted that Mike Alexander agreed to join us as Chairman.  Mike's extensive experience both in the gas industry and at the board table of several leading British companies is invaluable to us and we have all enjoyed working with him over the past year. We were also pleased to attract Alfred Thyll to join our board as a non-executive director, and Chairman of our Audit Committee. We all benefit greatly from Alfred's global experience over 20 years as a partner with Deloitte's.

On the management board we are pleased to welcome Ulrich Menninghaus as Director of Operations and Dr Klaus Gerdsmeyer as Director of Sales. Both Klaus and Ulrich have over 10 years experience with TGE during which they have enjoyed enormous success across numerous functions. Their presence at the management table is a great asset to the business.

Share split and dividend policy 

As mentioned in our financial review above, we do not intend to declare a dividend for the FY 2008 however we will be reviewing our dividend policy during FY2009 and will update investors with our interim results statement. 

As announced in July we intend to perform a 29 for 1 bonus share issue such that the unit price of our shares will be divided by 30. While this is essentially a cosmetic event we feel it will help bring TGE's share price into line with market norms. This will be completed after our Annual General Meeting.

IPO 

To meet both the original acquisition cost and to fund the operating losses incurred by the 'Onshore' business, by the end of 2007 TGE Marine had drawn loans of €24m from its largest shareholder, Caledonia Investments. The board determined it would be desirable to see the business ungeared and so during the year it was agreed that the company should seek to raise additional equity capital of €30m through an institutional placing of shares on the Alternative Investment Market of the London Stock Exchange (AiM).

We started our roadshow in April and spoke to investors in London, Frankfurt, Paris and USA. Despite relatively difficult market conditions our offering was well received by investors and we were significantly oversubscribed. We placed shares for €85m with new investors, raising €30m for the business and realizing €55m for our existing shareholders. We would like to thank our brokers, Kaupthing Singer & Friedlander Capital Markets, together with our professional advisors, Simmons & Simmons and Pwfor their diligent support during this process.

IT investment 

Our ongoing cost-efficiency depends to a great extent on our efficient integration and use of IT, particularly in the areas of design and project management.

During the year we decided to invest in new 3D design software from AVEVA which we feel will be particularly critical in our development of sophisticated floating LNG systems. Our engineers have started training on the new system and it will be operational during H1 FY2009.

We also decided to invest in a modern enterprise resource planning (ERP) system. This led to a significant implementation project during the last half of the year which affected every department. The system went live in July 2008 and we believe will lead to significant efficiency savings and reporting improvement in future.

QHSE Statement

Health, safety, environmental protection (HSE) as well as quality (Q) are critical factors in planning and executing our projects. To meet the demands and expectations of our clients and the classification societies, TGE Marine has established an integrated QHSE management system aligned with internationally recognized standard DIN ISO 9001. Its compliance was audited and re-confirmed this year by TUV Nord.

To ensure plant construction and operation without accidents, personal injury, environmental damage or financial loss, we seek to continually improve our QHSE activities. Recent initiatives have included preventive medical checkups and new safety equipment for all site staff and start-up engineers. We were proud that again during FY2008 we had no reportable accidents at work.

Business Model and Strategy 

TGE is an engineering contractor specialising in offshore cryogenic gas storage and shipping solutions. The market for our services is primarily to work with shipyards on the construction of refrigerated or semi-pressurised gas carriers but also on floating storage and offloading units. These carriers are technically challenging due to the low temperatures and volatile cargoes involved, are often heavily customised to suit a particular trade route, but to minimize construction costs tend to be built in smaller, generalist shipyards that lack any internal gas engineering capability. TGE has concentrated its activities on the sub 23,000m3 semi-pressurised market segment and here especially in the most sophisticated ethylene carrier part, but has also references and know-how for any other segment of the total gas carrier and floating storage market.

Over 20 years, and after working on over 100 gas carriers, TGE has grown to become leading player in this market. We achieved this by retaining our independence and ensuring we could offer shipyards and ship owners the most sophisticated technical know-how at the lowest price. We have grown a suite of highly specialised engineering competences to cover every aspect of a contract while consistently seeking ways to reduce costs through minimizing excess engineering and developing strong procurement and fabrication competences in Asia.

Since we listed in May 2008 our strategy has not changed. Having achieved a predominant market position, it has two core elements: to re-enforce our market position through continued investment in technical know-how and low cost sourcing; and to find new markets for our unique engineering skills. This strategy has been borne out by our actions this year and will shape our activities ahead.

Outlook 

The principal markets that we serve continue to be robust in the face of difficult global economic conditions. After a year of transition and remarkable success for TGE we look to the future with confidence.

A substantial element of our expected turnover for 2009 is underpinned by our order book and, subject to the successful completion of orders on which we now have visibility, we expect TGE to make good progress during 2009. TGE continues to benefit from strong revenue visibility as the typical build process for a ship takes approximately 24 months and revenues are recognised on a percentage-of-completion method.

We expect our product mix to remain weighted towards the ethylene and small LPG carrier market but in addition we are increasingly enthused by the growing interest in the LNG market. We expect to see ongoing growth in our core markets of ethylene and LPG, both in terms of market size and TGE market share, and we are now fully equipped to exploit the opportunities available to us. 

In addition, our core competencies position us well for the development of smaller LNG carriers and floating LNG infrastructure and we will continue to work to establish a leading position in these nascent markets.

We look forward to working with our staff, our shareholders and all our partners to take advantage of all the opportunities that will come during 2009.

  

Group Income Statement as of June 30, 2008

in TEUR

7/1/2007 - 6/30/2008

7/1/2006 - 6/30/2007

Revenue

95,249

82,280

Other operating income

1,159

71

Cost of materials and services

(69,531)

(62,624)

Personnel expenses

(6,568)

(5,065)

Depreciation of property, plant and equipment and amortization of intangible assets

(982)

(2,145)

Other operating expenses

(3,546)

(2,098)

Operating profit of continuing operations before interest, taxes, expenses for restructuring and IPO

15,781

10,419

Expenses for restructuring and IPO

(2,854)

0

Operating profit of continuing operations before interest and taxes

12,927

10,419

Finance income

1,017

1,450

Finance costs

(3,391)

(1,975)

Profit of continued operations before taxes

10,553

9,894

Income tax credit/ expense

(4,384)

2,056

Net result of continuing operations (Offshore)

6,169

11,950

Net result of discontinued operations (Onshore)

(29,615)

(23,701)

Consolidated net loss 

(23,446)

(11,751)

Earnings per share (in EUR), diluted and undiluted

(22.51)

(11.75)

Earnings per share for continuing operations (in EUR) 5.92 11.47

  Group Balance Sheet as of June 30, 2008

in TEUR

6/30/2008

6/30/2007

Assets

Goodwill

7,758

7,843

Other intangible assets

204

961

Property, plant and equipment

440

161

Other non-current assets

0

100

Long-term restricted cash

30,136

7,069

Non-current assets

38,538

16,134

Inventories

2,403

1,232

Trade receivables

5,181

7,834

Other assets

16,578

3,264

Cash and cash equivalents

48,324

12,350

72,486

24,680

Assets of discontinued operations

0

68,095

Current Assets

72,486

92,775

Total assets

111,024

108,909

Equity and liabilities

Subscribed capital

1,217

1,000

Capital reserve

36,411

7,000

Retained earnings

(11,731)

20

Loss/profit for the year

(23,445)

(11,751)

Total equity

2,452

(3,731)

Deferred tax liabilities

6,138

2,939

Advance payments received

4,468

10,218

Shareholder loans

0

26,401

Non-current liabilities

10,606

39,558

Current income tax liabilities

1,117

39

Other current provisions

9,334

1,786

Advance payments received

32,211

17,141

Trade payables

10,055

10,363

Shareholder loans

27,765

0

Other current liabilities

17,484

6,274

Current liabilities

97,966

35,603

Liabilities of discontinued operations

0

37,479

Current liabilities

97,966

73,082

Total equity and liabilities

111,024

108,909

  Consolidated Cash-Flow Statement as of June 30, 2008

in TEUR

1.7.2007 - 30.6.2008

1.7.2006 - 

30.6.2007

Loss for the year

(23,445)

(11,751)

Adjustment of loss/profit after taxes for the reconciliation to cash flows from operating activities:

Amortization of intangible assets, depreciation of property, plant and equipment

4,232

4,008

Other non-cash transactions

0

0

Losses due to sale of subsidiaries

23,307

0

Profit due to sale of subsidiaries

(611)

0

Increase/decrease in assets and liabilities, after effects from changes in companies to be included in the consolidated group

Increase in inventories

305

(2,469)

Increase/decrease in trade receivables

12,288

(3,199)

Increase/decrease in provisions

9,686

4,067

Decrease/increase in trade payables

(22,876)

(5,180)

Increase in advance payments received

5,505

3,042

Increase/decrease in other assets and liabilities

(1,407)

(5,680)

Net cash used in/generated from operating activities

6,984

(17,162)

Investments in property, plant and equipment and in intangible assets

(916)

(406)

Sale of subsidiary, net of cash disposed

(19,915)

0

Cash from sale of fixed assets

0

1,943

Cash flows generated from/used in investing activities

(20,831)

1,553

Increase in equity

29,628

0

Change of long-term restricted cash

(20,749)

(736)

Cash from loans granted by shareholder

0

16,000

Cash from repayment of loans by Suez Energy Services GmbH, Cologne

0

30,356

Cash from repayment of loans by Suez Energy Services GmbH, Cologne

0

(6,777)

Cash flows generated from financing activities

8,879

38,843

260

(502)

Net increase in cash and cash equivalents 

(4,708)

22,732

Cash and cash equivalents at beginning of year

53,032

30,300

Cash and cash equivalents at end of year

48,324

53,032

Interest payments

0

0

Tax payments

0

160

  Consolidated Statement of Changes in Equity as of June 30, 2008

in TEUR

Subscribed capital

Capital reserve

Currency Reserve

Retained Earnings

Consolidated profit/ net loss for the year

Total Equity

 As of June 30, 2006/ July 1, 2006 

1,000

7,000

0

0

20

8,020

 

 

 

 

 

 

 

 Carry-forward of prior year net result 

0

0

0

20

(20)

0

 Consolidated net result for the period 

0

0

0

0

(11,751)

(11,751)

 

 

 

 

 

 

 

 As of June 30, 2007/ July 1, 2007 

1,000

7,000

0

20

(11,751)

(3,731)

 

 

 

 

 

 

 

 Increase of capital, net of issue costs 

217

29,411

0

0

0

29,628

 Reclassification of prior year net result 

0

0

0

(11,751)

11,751

0

 Consolidated net result for the period 

0

0

0

0

(23,445)

(23,445)

 

 

 

 

 

 

 

 As of June 30, 2008 

1,217

36,411

0

(11,731)

(23,445)

2,452

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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