…Well diversified group seeks higher returns
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SFS Group PCL (SFS), the diverse financial services, investments and asset holdings group, has increased its exposure to the shipping sector, raising its fleet from five vessels in 2005 to nine, becoming one of the largest shipping and ship management groups with local interests on the island.
SFS Vice-Chairman and CFO
Shipping is a highly capital-intensive business and now represents 31% of total Group assets and liabilities. All debt that the SFS Group has taken to finance its ship acquisitions is not a concern for Larkos since this came from international banks that specialize in shipping and know the business very well. Among the key data that these banks rigorously check is the cash flow generating ability of the assets (vessels) proposed for financing.
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Bulk carriers
Between 2002 and 2003, four newly–built Handysize Bulk Carriers (Lakers) of 27.000 tonnes dwt were delivered to SFS. The project had been conceived in 2000 with a bareboat charter (all costs incurred are on charterer’s account) contract on each of the four vessels for 12 years from its delivery date. Furthermore, at the expiration of the individual charters, the project partner, who owns 49%, is obliged to purchase the vessels at a specified price.
“SFS receives USD 21.600 per day for the four vessels, irrespective of market conditions for the duration of the twelve year contracts maturing between 2014 and 2015,” Larkos said.
Referring to the multi currency term loans taken to finance the purchase of the four bulk carriers, Larkos, noted that LIBOR has been hedged back in 2002 until 2008 at an average rate of 2.8%. The 1 month LIBOR currently, is approximately 2.5% higher than the one SFS pays on these loans.Â
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Paper carriers
Additionally, the Group has made an investment in another five vessels, under another subsidiary Lemissoler Shipping Group PCL. All five vessels are specialized in carrying forest industry products mainly in the North American East Coast with loading in Canada and offloading in several ports in the US and/or the Caribbean and northern South America (Venezuela, Colombia and Puerto Rico).
Four of these vessels were acquired in 2006 and their utilization rate in 2007 is expected to increase from 30% in 2006 to more than 95% in 2007 adding even more to the Group’s profitability from shipping operations. All five vessels are on a time charter (operating expenses are on owner account) for a period of 2 to 6 years and receive a total daily rate of US$ 40.750.
Larkos admits that full management of such type of vessels is challenging and complicated but says this is done by Lemissoler Shipping Group and its specialized ship management team in Limassol led by
The five paper carriers and their employment strategy matches SFS Group’s policy in shipowning, according to Larkos, which give a steady cash flow irrespective of market conditions.
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Container feedering operations in the Baltics
SFS Group, through its Inter Marine Container Lines (IMCL) subsidiary also charters on average five container vessels which are used to provide a container liner service between the ports of
“We are the leaders in container feedering in Poland, accounting for 22% of incoming container traffic via sea, outpacing the Danish owned Maersk Group, the largest shipping group in the world, which follows with a 17% market share” said Larkos.
The SFS Group is looking to expand its network to also serve other inner and smaller ports in the Baltic Sea and North Continent and the
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Much more than just shipping
So is SFS Group becoming a shipping company? Not according to Larkos who insists that SFS Group is a unique diversified financial group with exposure in all the major asset classes.
Larkos prefers investors to view the SFS Group as a combination of an American investment bank with a significant private equity and venture capital exposure through its own capital deployment. SFS Group is clearly divided into three core activities:
1. Â Financial & Other Services — generate 10% of total Group revenue, 20% of profits and account for 8% of total assets. Among others it houses the Sharelink KEPEY and Value Added-Online, the Group’s core financial services providers.
2. Investments — making up 15% of total assets and contributing 45% of profits are split into two, the Principal Investments which involves proprietary trading of its own capital in the capital markets, and the Strategic Investments comprising listed or unlisted associated companies where the Group holds equity stakes between 20% and 49%. The Strategic Investments include the likes of Athena Pcl with a 20% stake in net assets of EUR 70 mln, TFI Pcl, a 34% stake in net assets of EUR 18 mln, Ellinas Finance and Dotcy with a 27% stake in each and many more.
3. Asset Holdings — which are primarily the activities of White Knight Holdings Pcl, a 71% subsidiary, comprised of three main activities and 14 business units generating on average 80% of revenue, 35% of profits and accounting for 77% of total assets. The Private Equity division, includes the likes of Regis, Carmount and Chrikar, generally low margin but cash positive units, which are on target to be spun out to unlock value. The Property and Shipping divisions are the two other core areas of asset holdings.
Larkos explains that after the 2000 bear market, the Group decided to diversify in order to reduce its exposure to the ups and downs of the stock market and ensure that in future, irrespective of the performance of the stock market, the SFS Group would deliver positive results and pay a dividend to its shareholders.
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Still a financial player
Despite the diversification, Larkos says SFS remains a powerhouse in the financial services area with a fantastic network, excellent human capital, a well staffed back office and excellent research that all combined allow the Group to be among the top three firms transacting business on the CSE and probably one of the most profitable KEPEY in Cyprus.
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Also in property
One of the core activities of SFS Group is its huge property holdings, split into three main areas. These are properties for rent, development and those held for trading. SFS has been successful in all three areas, but Larkos says now the Group is moving to reduce its exposure to property held for trading (holdings reach EUR 74 mln at market value prices at end of 2005) and shift more to property for rental income. The property for development is doing so well that according to Larkos, the Group cannot build fast enough to meet demand for its properties on the beach such as the
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Ambitious targets
The SFS Group wants to maintain leadership roles in all its core areas of activity, expand its financial services in
SFS Group aims to maintain revenue growth rates of over 20% per annum during the next 3 years, contain fixed overhead growth below inflation rate plus 3%, sustain minimum Group Return on Equity of 15% and increase third party funds under management.
Larkos says the SFS Group wants to reduce debt at Group level by at least EUR 15 mln per annum over next three years, replace bank debt with own asset backed bonds and partly replace capital growth assets with income generating assets. The objective is to unlock shareholder value, increase the dividend pay out ratio and proceed with the spin off and listing of distinct sub-holding groups such as Shipping and Property.
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Top 15
The SFS Group employs 130 professional staff, and invests in its executive team and top management to maintain and improve the core competencies used to manage the challenges arising from its strategy. SFS is among the top 15 companies of
At the end of September 2006, the Group had a total of 5.800 shareholders, with the founders, directors and staff holding less than 30%, making it one of the most widely held stocks listed in the Main Market of the CSE.
