SFS Cyprus to launch $200 mln shipping fund in 2008

— Reports increased 9M profit

 

SFS Group Public Company Ltd (SFS) will launch a USD 200 mln Shipping Fund, the first among many to be introduced from 2008 onwards as the Group implements its new policy of full alignment of its interests with those of its clients and investors.

SFS Chairman Christodoulos Ellinas said the Group will launch several funds with the first being the Shipping Fund, to be followed by Property, Equity and Venture Capital as part of the new diversification action plan to streamline earnings, but more importantly, align SFS interests with those of its clients and investors who participate in the various funds.

Ellinas made the remarks during the presentation of the 9M results of the SFS Group, which reported net profit of EUR 18.7 mln, in line with the company forecast for total net profit of EUR 27.3 mln for 2007 on the back of improvements in all the principal areas of activity.

Vice-Chairman Phillip Larkos said SFS will invest USD 20 mln of its own funds in the Shipping Fund, which aims to invest in new and old ships, and only after being convinced that the ships can be chartered to first rate clients, so that the objective of 12% annual return is achieved.

Subscription to the Shipping Fund is expected to open in early 2008. Ellinas said plans are underway for the launch of property funds, one of which will be called the Nicosia Property Fund investing exclusively in the old city centre area and worth EUR 100 mln, of which EUR 30 mln will be invested by the Group. The other property fund will invest in the Balkans and Russia.

Executive Management Committee member Ioannis Pitsillos said the Venture Capital Fund will invest in new companies with a view to go public.

Group Chairman Ellinas said the objective is to have EUR 1 bln funds under management within the next years, making the SFS Group a significant player in the capital markets. All the funds will be offered to investors in Cyprus as well as abroad, including Dubai where the Group recently established a subsidiary.

Ellinas added that the profitability outlook for the SFS Group is favourable and future profits sustainable. A new guideline will be issued in February when the full 2007 preliminary accounts are released.

 

— 9M performance

 

The main reasons for the increased 9-month profitability are the disposal of investment properties, the increased profitability of the shipping segment, the disposal of an associated company, as well as the negative goodwill from the public offer for The takeover of White Knight Holdings Public Co. Ltd (WKH).

Total Group revenue for 9M 2007, including the profit from the disposal of investment properties, increased by 51% compared to the total revenue of the first nine months of 2006. Revenue from financial services increased by 115%, from EUR 4.8 mln to EUR 10.2 mln. Revenue from property (including the profit from sale of investment properties) reached EUR 11.4 mln in 2007 compared to EUR4.4 mln in the same period in 2006, an increase of 158%. The third segment which contributed to the increase of total revenue were shipping with an increase of 28% in 2007 to EUR 26.7 mln compared to EUR 20.9 mln for the same period of 2006. Revenue from other activities increased by 552% due to negative goodwill of EUR 4.8 mln which arose from the increased stake in WKH and increased interest earned through treasury management.

The total contribution from operations recorded a significant increase of 83% to EUR 45.3 mln compared to EUR24.7 mln for the corresponding period in 2006.

 

— Costs under control

 

Selling and distribution costs recorded a marginal increase of 3% whereas administrative expenses recorded an anticipated increase of 42% (from EUR 7.5 mln in 2006 to EUR 10.7 mln in 2007), mainly from the increased activity in shipping and financial services. Financial expenses increased 10% to EUR 6.6 mln in 2007 due to the new loans for funding the acquisition of four ships and exchange differences from foreign currency loans. The reduction in bank debt shown at the balance sheet date did not reduce financial expenses significantly during the first nine months of 2007 as the reduction took place towards the end of June.

Profits from Group operations in the first nine months of 2007 increased to EUR 21.6 mln from EUR 4.8 mln in 2006. The results from the principal activities of the Group are considered very satisfactory since they recorded an absolute increase of EUR 16.8 mln or 345%.

The share of profit of associates for the first nine months of 2007 was restricted to EUR 0.75 mln compared to EUR 1.3 mln for the first half of 2007 and EUR 3.9 mln for the corresponding nine month period of 2006. The main reason for the drop was the negative contribution from the associated TFI PCL which recorded significant losses during the third quarter of 2007, reversing a steady trend of profitability and had a negative impact on SFS results of around EUR 0.7 mln. The losses incurred were due to the USA subprime crisis which impacted emerging capital markets in which TFI PCL operates. The company has been recording profits again from September 2007 to date.

Profit attributable to SFS shareholders reached EUR 18.7 mln for the first nine months of 2007 compared to EUR 5.3 mln for the same period in 2006, an increase of 250% for an annualized return on equity (RoE) of 31.0% (9M 2006: 13.9% and 24.6% for the whole 2006).

 

— Cash flow improving

 

Group cash inflows have improved significantly in the first nine months recording an increase from operating activities (before working capital changes) of EUR 15.7 mln compared to EUR 11.2 mln in the same period of 2006 and EUR 8.0 mln for the whole of 2006.

The financial position in the third quarter of 2007 improved considerably compared to previous periods. The contributing factors to this improvement have been the repayment of bank debt of EUR 22 mln, coupled with a significant increase in net working capital (from EUR 5.1 mln at December 31, 2006 to EUR 32.9 mln at September 30). According to the announcement, the repayment of substantial bank debt by the Group depicts its financial strength and stability as well as its future potential. The reduction in bank debt is within the quantitative strategic targets set by the Group for the three year period 2007-2009 and announced on February 27 this year.

 

— Assets increasing

 

Total assets reached EUR 300.5 mln at September 30. Total equity attributable to equity holders of SFS as well as the total equity of the Group increased to EUR 97.0 mln and EUR 125.6 mln, respectively, at September 30 compared to EUR 64.2 mln and EUR 112.5 mln at December 31, 2006.

The Group announced its strategy and targets for the period 2007-2009 in February. The targets set were both qualitative and quantitative (financial).

The Group has already established a new subsidiary, Gulflink International Securities Limited in the Dubai International Financial Centre (DIFC). The Group has already obtained a preliminary license for the provision of financial services in the DIFC from the Dubai Financial Services Authority and is expected to commence operations within 2007.

As far as the objective set for the increase of funds under management in the shipping and property segment, the Group has already initiated procedures and consultations with associates and potential investors, in order to raise the target funds (property, shipping and venture capital) towards the end of 2007 and early 2008.