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 EUR96.4m (2007: EUR82.3m)
* Adjusted profits before tax up 26% to EUR17.7m (2007: EUR14.0) or EUR14.5 per share
* Raised new equity of EUR29.6m 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 markets, delivering 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 Kver, 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 K. Chief Executive
Roland Fisher, Chief 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 EUR96.4m (2007 EUR82.3m). Adjusted profit before tax was up 26% to EUR17.7m (2007: EUR14.0),
equivalent to EUR14.5 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 EUR12.1m,
or EUR9.9 per share.
Cash generated from continuing operations was approximately EUR22.7m 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 EUR29.6m 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 EUR96.4m. 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 EUR1.0m, 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 EUR29.6m, however this ends our financial exposure
to this business. Restructuring costs of EUR2.85m relating to both the onshore disposal and to the IPO will also not recur nor will finance
expenses of EUR3.4m, 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 EUR0.8m this year but falls to EUR0.2m 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 EUR17.7m or EUR14.5 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 EUR29.6m 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.EUR22.7m although due to accounting rules we do not report this as a
separate figure. At year end we held EUR78.5m in cash and restricted cash which once adjusted for the repayment of the Caledonia loan in
July (EUR29.3m) and for cash due both to and from the discontinued business, leaves cash attributable to the ongoing business of
approximately EUR45.8m. 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
EUR25.8m was recognized. The full cash consideration of EUR11.1m 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 EUR24m 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 EUR30m 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 EUR85m with new
investors, raising EUR30m for the business and realizing EUR55m for our existing shareholders. We would like to thank our brokers, Kaupthing
Singer & Friedlander Capital Markets, together with our professional advisors, Simmons & Simmons and PwC for 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 a 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, (982) (2,145)
plant and equipment and
amortization of intangible
assets
Other operating expenses (3,546) (2,098)
Operating profit of continuing 15,781 10,419
operations before interest,
taxes, expenses for
restructuring and IPO
Expenses for restructuring and (2,854) 0
IPO
Operating profit of continuing 12,927 10,419
operations before interest and
taxes
Finance income 1,017 1,450
Finance costs (3,391) (1,975)
Profit of continued operations 10,553 9,894
before taxes
Income tax credit/ expense (4,384) 2,056
Net result of continuing 6,169 11,950
operations (Offshore)
Net result of discontinued (29,615) (23,701)
operations (Onshore)
Consolidated net loss (23,446) (11,751)
Earnings per share (in EUR), (22.51)
diluted and undiluted (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
1.7.2007 - 30.6.2008
in TEUR 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, 4,232 4,008
depreciation of property, plant and
equipment
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 (1,407) (5,680)
liabilities
Net cash used in/generated from 6,984 (17,162)
operating activities
Investments in property, plant and (916) (406)
equipment and in intangible assets
Sale of subsidiary, net of cash (19,915) 0
disposed
Cash from sale of fixed assets 0 1,943
Cash flows generated from/used in (20,831) 1,553
investing activities
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 0 30,356
Energy Services GmbH, Cologne
Cash from repayment of loans by Suez 0 (6,777)
Energy Services GmbH, Cologne
Cash flows generated from financing 8,879 38,843
activities
260 (502)
Net increase in cash and cash (4,708) 22,732
equivalents
Cash and cash equivalents at beginning 53,032 30,300
of year
Cash and cash equivalents at end of 48,324 53,032
year
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/
Total Equity
net loss for the
year
As of June 30, 2006/ July 1, 1,000 7,000 0 0 20
8,020
2006
Carry-forward of prior year 0 0 0 20 (20)
0
net result
Consolidated net result for 0 0 0 0 (11,751)
(11,751)
the period
As of June 30, 2007/ July 1, 1,000 7,000 0 20 (11,751)
(3,731)
2007
Increase of capital, net of 217 29,411 0 0 0
29,628
issue costs
Reclassification of prior 0 0 0 (11,751) 11,751
0
year net result
Consolidated net result for 0 0 0 0 (23,445)
(23,445)
the period
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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