Costs hit Skaugen

Soaring expenses and higher finance costs set Norway’s IM Skaugen back in the third quarter as net profit slumped 60%.

The Oslo-listed owner put a brave face on the results which it termed “satisfactory” as it said it remains largely unaffected by the current global financial turmoil.

Revenues were up in the period and the Middle Eastern market remains robust, but its shipbuilding activities were hit with inflated expenses while the slump in Chinese oil demand remains a worry.

Despite revenues doubling year-on-year at the shipbuilding division, Skaugen Marine Construction (SMC), costs outpaced this growth.

“Our situation mirrors many shipyards in this area; they all suffer from the same issues that we are struggling with on cost,” Skaugen’s statement to the Oslo bourse read on Monday.

“For our case the main problems stem from the engineering and the design process. The delays have caused delays in purchases and made us suffer from the rapid cost increases in this industry.”

The picture was rosier in the gas-shipping segment, Norgas, however, where both revenues and operating income increased.

“The Middle East countries with exports continue to drive the increased demand

“ton miles” and the resulting increased demand for gas carriers,” Skaugen’s announcement read.

Although crude demand in OECD countries slowed down this was negated by growth in demand in non-OECD countries.

However, “reduced imports into China [raise] concerns about the demand outlook,” the owner continued.

“Signs of a slow down in some parts of the global economy, has not affected the demand for Middle East petchem mainly due to the substantial cost¿the region has over other producers.”

Added to this growth is expected to remain strong in the so-called BRIC economies of Brazil, Russia and Indo-China.

“A potential slower growth in the Western world may affect some of the ethylene demands, but we will see growth in demand for these products.

“The possible slower or no growth in the West may thus affect the growth of demand for volumes, but this will probably be balanced out by the “ton mile” effects due to the changing trade patterns.”

Skaugen was keen to distance itself from the turbulence in current financial markets, however.

“We have not experienced any negative developments in our counterparty risk for any financial obligations or receivables and thus have not experienced any effect of the prevailing financial crisis.

“We expect at the time of writing that our business will continue to operate in a normal way and do not expect a serious set back due to the crisis as we have seen it so far.”

Net profit for the three months to the end of September hit $4.41m, a drop of 60% from the $10.81m seen the previous year.

Total revenues rose from $77.53m to $79.92m but freight revenues actually fell while sales from the SMC division were well ahead.

It was the “cost of goods sold” figure which really damaged the bottom line, however, as this sum climbed from $15.26m a year ago to $26.32m this time out. Financial expenses also rose over $2m.