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1 Home Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Management team Addresses Company mainpage Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account Scroll To Top

2 Home COMPANY OVERVIEW Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Our business I.M. Skaugen SE (IMS) is a marine transportation service company engaged in the transportation of petrochemical gases, chemicals, LPG and LNG, marine transfer of crude oil and LNG, as well as design and construction of smaller, specialised high quality vessels. We are listed on the Oslo Stock Exchange under the ticker code, IMSK. IMS employs approximately 1,800 people around the world and currently operates about 37 vessels worldwide. The fleet comprises petrochemical gas, LPG and LNG carriers, Aframax tankers and lightering support vessels, barges and tugs. Management team Addresses Company mainpage Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account Scroll To Top

3 Home KEY FIGURES Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info USD million EBITDA EBIT Pre-tax result (10.1) Liquid assets Equity at book value Net interest bearing debt Equity ratio 1) 27.5% 30,8% 36 % 40 % 38 % Interest coverage ratio 2) Key figures per share Market value NOK Dividend NOK 3) EBITDA USD , EBIT USD Equity as book value USD No. of shares (excl. treasury shares) End of period Average number of shares ) Book equity divided by total assets 2) EBITDA divided by net interest expenses 3) Dividend for 2006 was paid in Dec 2005 Shareholder info The fleet Board members Management team Addresses Company mainpage Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account Scroll To Top

4 Home CEO'S REVIEW Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Management team Addresses Company mainpage Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account The good news is that the great recession of 2009, one that bit so hard in historical terms, has come to an end and this is appreciated by oil and gas transportation service companies like us. The challenges have not come to an end, but the challenges are more normal than those we experienced in the first part of We cannot claim to have seen the 2008/09 economic crisis long before it happened, but we did plan over the long-term to ensure that our business was better prepared for sudden changes in markets as they now have shifted. The changes now have caused the output gap for most industries that will cause lower margins for times to come for many with a lot of surplus production capacity. The changes ahead will also reinforce geographic shifts as well as changes in what type of goods are carried and where consumer demand alters and economics alter the trade flows. A change where the low cost producers will benefit in many industries. At I.M. Skaugen we believe the world has reached a turning point in its history, where the growth rates in the West will now decline and the East will rise. The West (meaning Europe as it was before the Berlin wall came down, along with the USA) has enjoyed, for a long time, access to cheap energy and it has consumed raw material supplies without competition and abused the environment in the world without any cash cost. The West now has competition for these raw materials and the cheap energy - primarily from the emerging nations in Asia. The environmental challenges for the world are also insurmountable with the rise of the emerging nations and it will slow the growth when we all have to pay for the rights to pollute. The people of Asia will regardless see a tremendous economic growth, stemming from the need to satisfy, primarily, domestic consumption from a rising middle class. Their savings rate is high in many of these countries and this can pay for a lot of infrastructure and also consumption. The West has for a long time seen economic growth fueled by consumption on the back of easy credit and as the backbone of progress. China as no other country has taken on these challenges at break-neck speed and illustrates the market model. Though growing at half the speed of China, India is making progress and the South East Asia region including Indonesia - is coming along as well. Add to that the Middle East region (predominantly the Gulf region called GCC) and Brazil and you have a few tigers that collectively add up to a significant amount of the people on the planet.on paper, in the West particularly USA and Euroland we have about 10 per cent unemployment right now. In reality it is higher. It is quite impossible for us to see where the drivers are going to be in order to push these unfortunate people into the active labour markets in the future. The public finances are for most in shambles. There are no special industry sectors that will take these people out of the ranks of the unemployed with our higher cost of operations in most areas. This as many, or most, industries are facing increasing competition from lower cost nations in Asia. Innovation is high in Asia and growing of significance and there are few areas that we can claim a superior performance in the West any longer. Most probably we will lose work places in the private sector in the West to companies in Asia and this will add to unemployment levels. That so large a per centage of our western population will remain unemployed for the rest of their lives will cause social

5 strain. The cost of this burden is high and the social costs will be higher. Our democracies are not well equipped to deal with this. We have also a growing demographic problem in Europe that will increase the challenges in this field. We have labour unions that will resist change - more so in Euroland than in USA, but it is the same problem. Governments will have to add taxes to pay for the growing costs and to repair their finances. We will also see pensions being reduced; and the need to keep people working longer in order to pay for their pensions is also a reality now. The way out is a reduction in standards of living in order to adjust our competitive position. This is not going to be easy in our lifetime and will probably not happen. For too long the West has acted like the proverbial frog. When placed in a pan of cold water that is slowly heated, we have not noticed the rising temperature of the water and have cooked to death. It is only when suddenly placed in hot water equivalent to the economic shock or a crisis of the past year or so that we notice a life-threatening shock and jump out of the water. The rise of the East is now unceasing. The time to take heed is now - and quickly - if Western-based businesses are to be effectively positioned to take advantage of the new world order. I.M. Skaugen has for some time started to tweak its strategy business approach and concentrate its efforts more and more on activities that stand to benefit from the above trends. It will aim to be involved mostly in the business areas that are a direct beneficiary of these above mentioned trends and to position itself for this through access to debt markets and in the equity and bond markets. I.M. Skaugen will continue to pursue its strategy of developing as a global operator, supporting its customers as they extend the geographic scope of their activities. But the company will only remain competitive if it maintains its focus of developing innovative products and services that meet the demands of the oil and gas transportation industry. At the same time we will continue to concentrate on keeping costs competitive while improving its operational performance and service leadership. The company has recognized the growing need for environmental solutions to the world s energy challenges. This means amongst others that natural gas is beginning to replace oil as the fuel of choice for transportation and power generation - and with it the need to develop extensive LNG supply chain infrastructure. For this reason, we have spent upwards of seven years creating its small-scale Mini LNG service that will launch in the Nordic region in We are confident that this is a proof-of-concept that will enable a roll-out on a global scale and we hope to participate in its core markets. We should benefit from an early mover attitude and IMS innovations or Innovative Maritime Solutions (IMS). At I.M. Skaugen we have also spent more than a decade building our much improved presence in markets in the Middle East/Gulf region and Asia. As a service provider we have formed closer relationships in the Gulf region with companies that have access to most competitive feedstock for the petrochemical industry and state of the art technology. In China, where we have been for more than 15 years, we are building technologically the most advanced ships that take advantage of lower labour costs when compared not only to the West, but to Japan and Korea as well. In this annual report you will be able to see that we have managed to deliver a competitive return on our risk capital by our approach. We are aiming to continue to do so by our strategy as described above and our core focus on Asia and this is where the term steady as she goes applies as a motto. Morits Skaugen Chief Executive Officer Scroll To Top

6 Home IMS PAST ACHIEVEMENTS & FUTURE OPPORTUNITIES Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Management team Addresses Company mainpage Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account We have business activities under our management that generate revenues of about USD500 mill (including minority interest and 100% share of partnerships) and this is shared about one third on gas transportation, one third on China activities and one third for Marine transfer business. A review of the performance thislast decade - Steady as she goes Over the last decade I.M. Skaugen s core strategy has been to position the company not only as a global business, but centered more towards growth from areas such as Asia and the Middle East. The company has succeeded in identifying and developing higher growth/ higher margin market niches. Its Norgas Carrier division was able to position itself as the low cost provider in the exports out of the low cost Middle East region to Asia and especially to China, while at the same time forming strategic alliances to gain an improved market share in the Middle East region and achieve better utilisation of the assets. The Marine Transfer division partnered with Teekay and expanded the highend service capacity of the company onto the global markets from its presence in the US Gulf and also now with a new focus on LNG. The Skaugen company s pioneering efforts in China has produced significant results and has placed the company as the likely low cost logistics provider in this emerging market. The China activities, including the successful development of technologies for the cleaner energy and Mini LNG (MLNG) markets, should provide sustainable competitive advantage over the next decade. We have a strategy firmly founded on our Cost and Service leadership vision and we have built a portfolio of a great number of long-term customer contracts than before to enable us to smoothen out volatility in earnings, especially during economic downturns. The group has had a clear focus on developing the gas business with investments based on innovative business development processes, both in terms of research and development and soft cost. Our capital funding base has been diversified to better match both products and services offered and the geographical origins of our activities and clients. Benchmark In the 10 year period ( ) the IMSK share has generated about 17% annual return to its shareholders when we measure the share price (including dividends). Compared to a selection of relevant benchmarks we have done better than most in the period, which highlights the success of our long term strategic focus, both being a cost & service leader within our core niche markets, but also our geographical positioning towards growth markets in the Middle East and Asia. During the same period, as shown in the illustration below,

7 investments exposed to demand from emerging markets has outperformed those more linked to advanced economies and the G7 countries. The S&P 500 has yielded a negative 0.9%, while the Bank of New York EM index has yielded 5% including dividends and OSEBX 7% annually. The marine indexes comprised of global shipping companies, OSEB Transport index and the MSCI World gross marine index are yielding about 7% per annum including dividends (more or less half of our return). Of a group of larger and most prominent shipping companies listed on the OSE, Solvang has yielded 6%, Wilhelmsen 15%, Oddfjell 12% and Stolt Nielsen a negative 3%, all including dividends. As liquidity in the IMSK shares can be somewhat limited and we know that the shares are trading at a discount we have alternative measures. From the third party fair value valuations made in the summer of 1999 (made in relation to the involuntary offer made for the shares of the Company and that was rejected by the shareholders), we estimate that the value creation in this subsequent 10 year period (including dividends paid) has been an annual yield of about 17%. If we measure the value creation of the company based on estimated earning capacity of our assets, and over the last cycle, we see that the company also has generated acceptable returns of 17-19% annually. This is measured from low point to low point in the cycle of 2003 and 2009 respectively. I.M. Skaugen believes the world has reached a turning point in its history, where the growth rates in the West will now decline and the East will rise. I.M. Skaugen has started to tweak its business approach and concentrate its efforts more and more on activities that stand to benefit from the above trends. Our presence in China and Middle East region will allow us to capitalise on this trend for the services we can offer in the markets we may enter on the back of this presence. The company has recognized the growing need for environmental solutions to the world s energy challenges. This means that natural gas is beginning to replace oil as the fuel of choice for transportation and power generation and with it the need to develop extensive LNG supply chain infrastructure. For this reason, it has spent upwards of seven years creating its small-scale Mini LNG service that will launch in the Nordic region in It is confident that this is a proof-of-concept that will enable a rollout on a global scale and it hopes to participate in its core markets. It should benefit from an

8 early mover attitude and its IMS innovations or Innovative Maritime Solutions (IMS). The company has systematically positioned itself to become a major player in the MLNG market. We expect the growth in these markets to be higher than originally expected due to global climate initiatives and the expansion of gas markets and also with the recent large scale emergence of shale gas. The company is aiming to be the likely winning orchestrator and partner of choice for building integrated logistics chains in the MLNG market. This should enable the company to earn returns beyond the level associated with regular transportation services. We have established and build a niche shipping market for Norgas with a solid foundation in the Middle East region for the exports of petrochemical gasses. We aim for this region to grow fast and assume an even larger share of the global markets and we will aim to grow with the region. We will continue to follow a strategy and our vision - being global, innovative and striving to maintain Cost and Service leadership in the business areas we operate. This will remain the core of our efforts. Scroll To Top

9 Home LNG - FUELLING OUR FUTURE Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Management team Addresses Company mainpage Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account Environmental benefits Small-scale LNG will enable industrial users and power plants in these stranded markets to switch to cost efficient and environmental friendly gas. LNG has the potential to become the dominating fuel for the shipping industry in many regions in the years to come. Running the ships on natural gas will reduce emissions of CO2, NOx, SOx and particles significantly.innovative vessels. Innovative vessels The heart of the operation the sea-borne transportation of small-scale LNG - is provided by our unique and innovative Multigas carriers. In addition to LNG, the vessels are able to carry a wide range of other liquefied gas cargoes, including ethylene, LPG and vinyl chloride monomer (VCM). When LNG is being carried, an innovative Mini LNG plant will be utilised to reliquefy all natural gas boil-off. The Mini LNG plant s patented and licensed technology was developed by I.M. Skaugen in cooperation with SINTEF Energy Research in Norway. The flexibility inherent in the cargo handling system enables the Mutligas carriers to switch between the LNG, LPG and petrochemical gas trades as commercial circumstance dictate. However, it is the ability to transport LNG at cryogenic temperatures (-163 C) that makes these ships particularly notable. One of these vessels will be employed by Nordic LNG when services commence at the new LNG plant near Stavanger in late 2010.

10 We will continue to play a pioneering role in the local and regional distribution of small-scale LNG at a time when the demand for gas is growing strongly and the natural gas supply chains are extended to provide remote communities and industries with access to this clean-burning fossil fuel. We will continue to position I.M. Skaugen as the one stop shop for LNG solutions for the marine transportation industry. Specifically, this means developing our Mini LNG concept, whereby we manage the supply chain to provide natural gas to stranded customers; acting as a supplier of LNG as fuel to the maritime industry; expanding our ship-to- ship LNG marine transfer service for both small and large ships; operating Gas Port LNG, a management service for the operation of terminals around the globe; extending LNG project services, for maritime advice on all aspects of the LNG supply chain. Scroll To Top

11 Home SUPER COOLERS Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Management team Addresses Company mainpage Feedback to IMS Print version (PDF) Business review (PDF) Without proper cooling there is no such thing as a good semi refrigerated gas carrier today. Many older, but still sailing gas carriers are designed to operate with low efficient cooling capacity which limits their performance and lowers their customers trust and goodwill. In fact many of these were designed more to maintain temperature rather than cool down the cargo. This was sufficient during the 70 s and 80 s, even a period in the 90 s. However not so in this millennium. This is another reason that we will see many ships built before 1990 be retired from these trades earlier. The lack of cooling capacity while they are still adequate ships for other types of trades with simpler cargoes not requiring to cool down. At I.M. Skaugen we have taken this knowledge and experience seriously when we started to conceive our new building program back in late 90 s. A program which was commissioned in the year 2000 is still running today. We discovered that there was no contradiction between designing reliquefaction with higher liquefaction capasity and lower environmental impact with the same power consumption. This by selecting new refrigerants, more efficient heat exchange, applying better insulation materials and reducing heat transfer area. The first vessels in our new range of gas carriers, delivered in the period up to 2004, nicknamed Super Coolers simply because they outperformed any other gas carrier in the market with an ethylene cooling performance of about 2 C per 24 hours. Norwegian Report (PDF) Consolidated Accounts Parent Company Account This development led us to continue our innovative thinking within the field of cryogenic technology, where we knew there was still much room for improvement, in a way of optimizing energy consumption as well as becoming even more environmentally friendly by reducing emissions. Knowing that LNG would become a future commodity for smaller scale energy distribution network we decided already in 2003 to include LNG on our cargo commodity list. LNG with a boiling temperature of minus 163 C compared to Ethylene of minus 104 C became a new challenge to us where we had to do R&D as well as designing new arrangements and selecting equipment never used on gas carriers at our scale, as well as for any scale of gas carriers.

12 Our more than three years R&D program resulted into new liquefaction technologies enabling an increase in performance by another 10%. The result of this development we can now observe in our Wintergas carriers (WG) which have superior performance by being able to cool down an ethylene cargo near to 3.5 C per day. Our first Multigas carrier (MG) was recently delivered and her reliquefaction capacity is outperforming the Super Coolers by up to 0.5 C per 24 hours. We have now selected propylene as refrigerant which enables us a considerably lower condensation temperature compared to Freon 404. Our new and innovative Mini LNG reliquefaction technology development has taken four years to design and build. Now the first such unit has been installed on the Norgas Innovation. Preliminary results indicate that this unit will live up to its promises by enabling a liquefaction capacity of up to 20 tons of LNG per 24 hours. A new type of Freon free refrigerant has been designed for this unit. Our R&D seems to pay of well. We are now performing better with less energy consumption. Our environmental profile has improved drastically. Less emissions of Co2 and NOx, and with our MG carries we can say we are Freon free as well. Scroll To Top

13 Home BOARD OF DIRECTORS' REPORT 2009 Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Board of directors' report 2009 Performance in 2009 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board Accounts - group For the year, I.M. Skaugen Group (IMS) reported a net loss of USD 10.1 million (profit of USD 7.9 million in 2008). The EBITDA was USD 24.1 million (USD 50 million in 2008). The Group s gross revenues totalled USD 108 million (USD138.6 million in 2008). The deviation in net profits and EBITDA reflects weaker operating market conditions for all business units. For the gas carriers it reflects higher share of spot voyages in the utilization of the Norgas fleet and a weaker spot market than the previous year. For SPT it reflects a more challenging tanker market and for the China based activities it reflects gain from a sale of assets in 2008 however not repeated in 2009, a loss on the sales of three Wintergas vessels in 2009/2010. The net result in 2009 was charged with impairment cost and R&D cost related to dis-continued operations in the amount of USD 10.2 million. We have also charged cost as awarded by an arbitration panel for RMB 7.8 mill (USD 1.1 mill); these are cost related to a contract cancellation in 2007 for newbuildings of two gas carriers. If we adjust for these charges, the EBITDA and net result would have been USD 27 million and USD 1.7 million respectively. In our opinion, these numbers reflect more appropriately the ongoing business and our core activities. Net cash flow from operations in 2009 is USD 26.5 million (negative USD 3.6 million in 2008). The newbuilding activities combining the Wintergas and Multigas vessels (classified as projects under construction) were the main reasons of the negative cash flow from operations in The vessels will be delivered in , thus they will improve the cash flow from operations. As of 31 December 2009, the group has USD 52 million tied up in working capital for the Wintergas and Multigas vessels (2008 USD 90 million). Total assets were USD million. Shareholders equity amounted USD 94.4 million or USD 3.48/NOK 20 per share. The equity ratio was 27.6 percent. The net debt at the end of 2009 was USD 72.6 million and the net interest-bearing debt totaled USD million. The ratio between current assets and current liabilities was 279 percent. Total liquidity as of the end of 2009 was USD 96.1 million, which is considered sufficient for the company s ongoing business activities. The interest coverage ratio (EBITDA / Net interest cost) was 1.6 for the year 2009, compared to 3.2 for Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Segment reporting Figures in the segment presentations below are taken from the management report, which provide a more detailed segment summary of the I.M. Skaugen Group s underlying operations other than the official published accounts. The former utilizes proportional consolidation for group activities pursued through joint ventures reflects I.M. Skaugen s share of these partnerships. Hence, it provides more detailed information on the total financial results achieved by the group through its various joint ventures. However, I.M. Skaugen s joint venture activities are reported on the official accounts using the equity method complying with the International Financial Reporting Standards (IFRS). Board members Management team Addresses Company mainpage Business Segments Gas Transportation Skaugen China Marine Transfer Total IMS Group Activities Activities Activities 31 December 2009 USD'000 Revenue from external customers Results

14 Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account Segment profit (EBITDA) Depreciation and amortization (10 488) (2 275) (2 124) (14 887) (1 348) Unallocated costs (4 870) Depreciation (115) Share of profit/(loss) of strategic associates (1 125) Share of profit/(loss) of non-strategic associates (7 165) Net financial items (9 603) Other (1 283) Net result before taxes (10 029) Dividend The Group manages its capital structure and makes adjustments in light of changes in economic conditions. The Board does not recommend any dividends for 2009 or for the spring of This is considered a temporary suspension of our dividend policy, solely based on the net loss for the year and to safeguard our financial position. Issues related to CAPEX and debt financing At the end of 2009 total CAPEX commitments on I.M. Skaugen s newbuildings stood at USD 47 million for vessels financed through sale and leaseback agreements, of which USD 31 million (adjusted for ownership in JV s) for vessels financed via traditional debt facilities. The Company successfully tapped the Chinese debt markets for its overall corporate purposes in 2009 and this reflects the value of its presence in the market. Bond portfolio of outstanding loans The company has benefited from an improvement in the corporate bond markets in Norway which helped to provide construction on finance or working capital for the newbuilding programs at SMC. Maturity of the outstanding bond portfolio will mostly be offset by funds to be received from sale and leaseback arrangements on ships under construction by SMC. The counter-party in these sale lease-back structures are Teekay LNG Partners for one more Wintergas vessels and two Multigas 12, 000 cbm sized vessels. Average interest cost (including of margin) for all outstanding bonds financed now stand at 5.7 percent, given the current USD interest rates. The company has USD 10.6 million of bonds falling due for repayment within next 12 months. The bond with the longest duration matures in June 2012.

15 Home OUR VIEWS ON THE PERFORMANCE OF THE COMPANY IN 2009 Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Board of directors' report 2009 Performance in 2009 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board The company is not satisfied with the overall financial performance for the past year which showed a negative result. USD 11 million was charged to the result in the fourth quarter, reflecting charges related to impairment and discontinued operations on activities that are considered non-core. Adjusted for these charges, our EBITDA and net result would be USD 27 million and USD 1.7 million respectively which reflect more appropriately the ongoing business and our core activities. As such, we would like to highlight the positives from our ongoing core operations more acceptable. Given the challenging macro-economic conditions, we are generally pleased with our core activities performance at this point of the economic cycle. A cyclical business like ours will normally suffer in the down cycle as characterized during We are now benefiting from our long-term strategic decisions focusing on emerging markets, reducing costs and building longer and better contract coverage. In a year where global trade reported the largest contraction since World War II, and where chemical production (a proxy for ethylene) was set back to 2006 volume levels; ethylene production itself ended the year positively compared to 2008 and only marginally lower that the peak of This is mainly due to a sharp rebound in demand from non Japan Asia and especially the Chinese demand that offsets the weaker markets in North America and Europe.. Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Management team Addresses Company mainpage

16 Feedback to IMS Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account Source: Nexant Chemsystems The added volumes for Asia were covered by the most by imports from the Middle East, which is the highest growth area for petrochemical industry. The low cost ethane-based ethylene crackers in the Middle East have made the region capable to cover production shortfalls in other regions that suffer from higher costs. Many European and a few Asian producers are pushed towards the uncompetitive end of the global cost curve, thus making the Middle East the major net export area. Over the year a good percentage of ethylene fleets of the long haul carriers, i.e. larger ships, were employed lifting ton from this region and a large share of it went to East Asia. This particular trend implicates that we are experiencing an increase in ton miles per product transported for these types of ships. Although thirteen new ethylene vessels where delivered in 2009, the resilient overall production volumes absorbed this additional capacity and prevented spot rates from falling as much as most other markets. The net result in 2009 suffered an impairment of USD 7.3 million due to a non-core IT related investment within the healthcare sector. This company has written off most of its R&D investment, over several years in a portal technology for the ehealth sector. As it was proven, the commercial applications were unfortunately not attractive to the key Norwegian clients for their future needs. The loss was regrettable and the investment appeared promising despite being a non-core business. The innovative solutions provided by this company were intriguing and met our desire of innovations. Based on this experience, we will not embark on any venture that deviates from our core focus in the future. The investment has a current book value of USD 1.4 million. Outlook I.M. Skaugen s business aims for high contract coverage with the most reputable clients who we have provided service to for many years. I.M. Skaugen has an acceptable contract coverage for 2010 for our business units and we estimate that currently about 70 per cent of our expected revenue base, within our business segments, is covered with contractual agreements with clients. During the early part of 2010 we experienced high utilization of the gas carriers on contractual terms with less spot exposure. SPT will gain from an improved crude tanker market as well as our China activities show a better progress than last year. The IMSK share In 2009 the IMSK share yielded 12.2 percent, climbing from NOK 36 to NOK 40.4 per share at the end of the year. Compared to its peers, the stock has performed at average in 2009 as a whole. Vs. the OSEBX index and the transport index the stock price lagged the general market recovery and the IMSK share made its bottom at a later stage as shown in the chart below. Measured from the lowest point in the beginning of April to year end the yield was 102 per cent. Share price development relative to indexes and peers (rebased 12 months performance)

17 Purchase of own shares In 2009 I.M. Skaugen initiated a process to purchase its own shares as it found the share price to be attractive. Its holdings following these transactions are 80,600 shares. For a review of longer term performance of the shares and the Company we refer to the section in the Annual Reports covered by I.M. Skaugen past Achievements and future opportunities. Innovation - Research and development One of the key foundations of the Company is Innovation. In order to be innovative we also need superior R&D to develop new concepts and to change the way business is done. Substantial resources and management attention is on this issue to ensure constant change and participating of the innovative processes. The Company has also recognized the growing need for environmental solutions to the world s energy challenges. As for natural gas, it has begun to replace oil as the renewable and compatible source of fuel for transportation and power generation which create the need of developing extensive LNG supply chain infrastructure. For this reason, the company has spent upwards of seven years creating its small-scale Mini LNG service that will launch in the Nordic region in It is confident that this is a proof-of-concept that will enable a rollout on a global scale and it hopes to participate in its core markets. I.M. Skaugen should benefit from an early mover attitude and its IMS innovations or Innovative Maritime Solutions (IMS). Risks The I.M Skaugen Group is, at all times, exposed to a number of different uncertainties arising from our normal business activities. These are financial, operational and market related risks. To successfully manage these risks collectively is one of the key skills that we require for the management of the company. The answer is not to seek hedging to mitigate all risks, but to actively pursue a sum of activities that enables us to navigate through the opportunities and challenges that will dictate the returns we may generate in the shorter term (next calendar year). The asset utilization is the key driver to profitability for the

18 company. We have achieved historical high contract coverage for the petrochemical gas carriers of Norgas for the year of 2010 and the balance of the days are subject to spot market returns. The contract coverage also has the flexibility between agreed high and low volumes and the difference will affect the levels of utilization. These fluctuations will dictate how we utilize the capacity. We have, for most of our other business units, achieved lower contract coverage ratios for the assets than within the Norgas Gas carriers. This is where we subject to various degrees of market related risks that will influence the returns we can generate form the services we offer. The change in price levels of the commodities we transport may affect the volumes offered for transport thus the demand for our services. The most relevant of the commodities we transport are crude oil and natural gas as well as LNG. The four key petrochemical gases - especially ethylene, propylene, vcm and butadiene as well as LPG and the naphtha prices, they all need to be monitored. On an operational level we are subject to changing costs for the services we require related to the operation of the vessels and for the shipbuilding activities, including the sourcing of raw materials and labor as well as procurement of components. Again, a significant part is related to the oil and bunker prices, of which the fluctuations in prices will affect our operating costs. For some contracts we have achieved a contractual coverage against such changes. Fluctuations in steel and metal prices also affect the newbuilding programs. We carry insurances that will protect us from losses or damage to our ships or for other ships if we damage them, as well as damages to the environment and accidents causing harm to human beings. We carry insurances to cover for the potential losses related to the pirate activities in the Gulf of Aden and similar places. In all cases, we carry a higher deductible than many others to ensure lower costs due to the well functioning management of the company. This has paid off historically. From a financial market risk point of view, the main risk areas are the USD interest rates related to our mortgage debt and bond portfolio, the currency risks associated with USD/RMB, USD/Euro as well as USD/NOK fluctuations mostly related to our newbuilding program and, to some extent operational cost. Most of our revenues are in USD or in currencies effectively tied to the USD. In addition, we are closely monitoring covenants in our debt portfolio and our cash management activities at all levels, as a normal part of our business. Risk management includes maintaining both sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The group is also exposed to counter party risks regarding financial matters. However, it trades only with recognized and creditworthy third parties. We have had very few disputes, if any, only with our clients regarding payment and performance that have caused a loss to the company. In connection with the Group s shipbuilding projects the Group has entered into sales and leaseback agreements to sell three of the newbuilding vessels to Teekay LNG Partner L.P, upon delivery in 2010 and We have also entered an agreement with a banking syndicate to fund four of the newbuildings of the MG series. Both types of agreements depend on certain conditions being met, which are customary of the trade. These also rely on the counterparties being willing and able to fund their obligations. We are quite confident that we have chosen the correct counterparties for these transactions. The key risks we focus on today are the possibility of delays of these newbuildings beyond the cancellation date of the leases, the availability of bank financing, as well as the possible reduction in value of those ships subject to bank finance. Such reductions is expected and may require the Group to pledge additional capital in the future for those ships. As a global business, we are also subject to political risks associated with disruptions in certain geographical areas of the world and the current pirate activities in the Gulf of Aden, which is a risk that we must take countermeasures against. Scroll To Top

19 Home GAS TRANSPORTATION ACTIVITIES - NORGAS Company overview Key figures CEO's review IMS past achievements & future opportunities LNG fuelling our future Super Coolers Board's report Board of directors' report 2009 Performance in 2009 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Norgas runs one of the most successful petrochemical transportation operations in the industry. The main customers are from the Middle East GCC region. Norgas maintains its focus on our long term commitment in the Gulf region (GCC) and in a growing supplier/customer partnership. Norgas has its regional office in Bahrain. Norgas generated an EBITDA of USD 25 million for the full year 2009 (USD 47.7 million in 2008). The deviation in operational profits is mainly due to a higher share of spot voyages combined with softer spot prices. Overall utilization of the fleet ended at approximately 90%, net of commercial idle time and technical offhire due to drydockings, about the same level as T/C spot rates Corporate governance Shareholder statement Appreciation by board Accounts - group Accounts - parent Auditor's report Responsibility statement Analyst info Shareholder info The fleet Board members Management team Source: Inge Steensland AS Q In the fourth quarter, Norgas further strengthened its market position by renewing an one-year COA contract with a major GCC based petrochemical producer and a one year TC for SEA trade. The existing world fleet of 326 vessels has an order book of 39 vessels (382,000 cbm capacity) or about 15 percent of capacity to be delivered before end of In new S/R vessels were ordered (none of these Ethylene) while 10 vessels were scrapped. Norgas has 7 new ships or a capacity of 73,600 cbm to be delivered in this period and that is about 43 percent of the ethylene capacity to come in this period. Mostly due to the financial situation in general with lack of financing sources we envision some delays/postponements compared to what is reported to the market for all types of newbuildings including gas carriers. Addresses Company mainpage Feedback to IMS

20 Print version (PDF) Business review (PDF) Norwegian Report (PDF) Consolidated Accounts Parent Company Account The growth of the fleet will be mitigated by ship recycling in the period. 88 ships equal to 21 percent of capacity that are older than 25 years thus eligible for recycling or alternative uses in the coming years. The normal age of scrapping of such vessels has been in the period between 27 and 30 years. Clarkson s newbuilding index indicates that prices are in fact decreasing somehow after a steep run up in previous years. We have noted that there are very few new orders in 2009 on tonnage relevant to our ships. Scroll To Top