Key financial indicators

In 2018 the tanker market remained at one of the lowest levels in the past 25 years. However, in 4Q 2018 there appeared some signs of recovery in freight rates in the tanker market due to a slight increase in cargo base and demand for energy shipping. Against this background, measures taken to diversify the fleet with a focus on the development of industrial business, as well as the Group’s balanced freight policy, enabled the Group to maintain a stable financial position in the reporting period.

The financial statements of Sovcomflot Group were prepared according to IFRS and disclosed online. Below is a brief overview and analysis of the key financial indicators of the Group.

The book value of vessels in operation decreased by 2% from US$6,291.3 million at the end of 2017 to US$6,165.7 million at the end of the reporting period. Total assets of the Group amounted to US$7,142.2 million as at 31 December 2018. The share capital at the end of 2018 was US$3,350,1 million, down 1.7% from 2017.

The Group maintains a stable programme of capital investments during all phases of the shipping cycle. Investments in fleet constructionInvestments are as reported in the cash flow statement in the consolidated financial statements of PAO Sovcomflot prepared under IFRS, which includes the costs of acquiring vessels during the reporting period and the costs of vessel construction in 2018 totalled US$379.3 million (2017: US$556.7 million), with the amount payable under current shipbuilding contracts in 2019-2021 at the end of 2018 being US$690.3 million.

The investment programme and operating activities were financed through secured bank loans (as at 31 December 2018, total debt to banks amounted to US$2,575.5 million thousand), proceeds from the placement of unsecured Eurobonds amounting to US$900 million, and operating cash flow.

Despite the continued volatility in financial markets and the unstable geopolitical and economic situation in the world, the Group retained access to both foreign and Russian debt capital markets.

The Group concluded seven new credit facility agreements for a total amount of US$ 866 million. Proceeds under these agreements were used to finance the construction of new vessels and refinance existing credit liabilities. The Company also drew down funds under previously concluded credit facility agreements to finance the delivery of new vessels in the reporting year. In the reporting year, the Group’s borrowers and guarantors fully complied with all requirements and terms («covenants») of corresponding credit facility agreements.

The Group carefully monitors its capital structure and works to optimise it. The Company’s credit metrics in the year under review were affected by an increase in credit exposure for financing the fleet construction programme and a fall in revenues amid negative tanker market conditions. Sovcomflot Group’s leverage (net debt to capital ratio) at the end of 2018 was 48.6%, net debt to EBITDA ratio was 5.46The figure indicated here and hereafter refers to adjusted EBITDA — see the definition in the glossary (Appendix to this Annual Report)..

The Group’s current leverage corresponds to the industry average, which is traditionally impacted by high capital intensity of investments and volatility of the freight market.

Capital structure dynamics, USD million
Name 2018 2017 % ∆
Secured loans and finance lease liabilities 2,575.5 2,601.0 -1.0
Eurobonds and other loans 902.7 905.9 -0.4
Less: cash and bank deposits, including restricted cash (307.4) (434.9) -29.3
Net debt 3,170.8 3,072.0 3.2
Equity 3,350.1 3,409.0 -1.7
Total capitalTotal capital = net debt plus total equity. 6,520.8 6,481.0 0.6
Net debt/capital ratio 48.6 47.4 2.5
Net debt/EBITDA ratio 5.46 5.63 -2.7