For SHV's full Annual Report on 2007 please click here.

SHV Gas is one of the leading LPG retailers in the world. With a presence in 24 countries spread over 3 continents, SHV Gas manages a diversified portfolio of LPG distribution companies. LPG is a versatile fuel used for domestic, industrial, commercial, agricultural and automotive applications.

There are several issues which impact SHV Gas, given the evolving situation in the global energy market. These range from concerns regarding climate change to political regulation of energy supply.

There is growing concern that climate change is a consequence of greenhouse gas emissions. The fact that in the northern hemisphere ten of the last fourteen winters have been among the warmest ever, is an indication that climatic conditions are evolving. These climatic trends have led to a global debate about securing a balance in consumption of hydrocarbon and renewable energies, in an environment in which worldwide demand for energy is growing at a rate of 4% per year. Since LPG is a clean hydrocarbon fuel and a readily available energy source, it offers one solution to meeting the world’s energy and environmental requirements. SHV Gas is committed to playing a leading role in this regard, through an ongoing dialogue with policy makers in various parts of the world.

The growth in energy demand originates primarily from emerging markets like China, India and Brazil. A tighter balance between supply and demand is leading to volatile and high energy prices, with crude oil prices doubling in the course of the year. Oil demand and prices are expected to remain at or near historic highs in the immediate future. Against this background LPG prices rose to levels which were unthinkable a few years ago, reaching USD 890 per ton in North-West Europe. There may be some relief in the short to medium term however, as additional quantities of LPG are expected to become available from new LNG production mainly in the Gulf, Algeria, West Africa and Kazakhstan. As a result of this anticipated increase in supply, we expect LPG to become more competitive vis-a-vis other energies.

These developments lead to a change in customer behaviour. Customers, especially in Europe, favour more energy conservation but are uncertain how to achieve this in a cost-effective way. Hence they are increasingly receptive to advice on the best energy solution suited to their needs.

In this context, 2007 was a difficult year for SHV Gas. The winter of 2006/2007 was unseasonably warm, negatively impacting sales volume in the critical heating markets. Hedging instruments and improved cost efficiencies were not sufficient to compensate for these volume losses.

Western Europe suffered the biggest shortfall in terms of volumes. In France, all business segments were under pressure. Several hypermarket chains have introduced in recent years their own-branded cylinders and continued to promote them aggressively. The rate of growth in the creation of new bulk customers decreased sharply due to an aggressive campaign from EDF, the French electricity company, which is promoting heat pumps as a renewable energy and offering relatively low electricity prices. In response, a major cost reduction programme is under way in Primagaz and the company is positioning itself as an energy advisor to its customers. It aims to capture a higher share of new customers in the LPG bulk market and to offer a wider range of services.

Following allegations made by some hypermarket chains, the French competition authority is continuing with its investigation into the French cylinder market. Primagaz is among the companies being investigated.

In Great Britain, Calor Gas had a good year. The business mix in Calor is well-balanced across several market segments in both the cylinder and bulk categories. Calor continued to reorganise its network of Calor Cylinder Distribution Centres, increasing direct deliveries of LPG to end-users, while at the same time improving the quality of customer service. Calor Gas in Ireland continues to show good results despite a slowdown in the economy, and particularly the housing sector, which impacts new bulk customer creation.

The German LPG business is largely based on the bulk business of residential central heating and therefore highly sensitive to temperature variations. Volume was severely impacted and thus the profitability of the business declined compared with previous years. A cost savings programme was initiated leading to the closure of a regional administration centre. The German competition authority, the Bundeskartellamt, has been investigating the LPG sector. It has imposed heavy fines on a number of LPG players, including Primagas, our jointly owned and managed LPG operation in that country.

In Italy, sales volumes were substantially below 2006 levels. However, the impact on results was mitigated by the cost savings achieved through continuing reorganisation of the company’s logistic infrastructure, including the closure of some filling plants and bulk depots. Liquigas opened a number of shops in key cities in order to develop direct sales of cylinders and appliances. Also, as part of its customer service and operational efficiency enhancement programme, the company invested heavily in the installation of metering and telemetry equipment on its tanks at customer sites.

Performance in Slovenia was good in respect of new customer creation. We are in the initial phase of operations in Bosnia and Croatia, with very modest market shares. Both the cylinder and bulk volumes in these two countries grew during the year, but margins were under severe pressure, owing to the need to import product from Italy, following problems of access to supply from the local refinery.

In Poland, Gaspol continued its growth strategy in the cylinder segment. The domestic heating bulk market was also impacted by the higher temperatures during the winter, similar to our business in Hungary, Czechia and Slovakia. Our import terminal in Gdansk facilitated the supply of additional quantities of product to the Central European businesses, compensating for erratic overland supply from Russia during the year. Primagaz Austria also suffered from high temperatures and competition from renewable energies like wood pellets.

In the Benelux, Primagaz put in place a new organisation structure centralising back-office functions while keeping two customer-serving functions in Belgium and the Netherlands. Under the umbrella of our Danish operation, we acquired a company in the southern part of Sweden focusing on commercial and industrial customers. Our Spanish operations continued to grow, focusing on the commercial and industrial bulk sectors in the north of the country.

The LPG market in Turkey continued to decline, particularly due to the penetration of natural gas in the bigger cities. This is leading to more intense competition. Our companies, Ipragaz and Bizimgaz, are working at strengthening brand image through intensified promotional activities to end-users, and additional support for the dealer network. Ipragaz is successfully commercialising LNG for bulk applications outside the natural gas grid. Given the market circumstances, our LPG businesses in Turkey are performing satisfactorily.

Sales volumes continued developing well in Brazil. However, cylinder margins have been under extreme pressure which in turn reduced profitability compared to the previous year. SHV Gas Brasil continued developing its direct cylinder sales channels to end-users. Growth in the bulk gas segment remained satisfactory. During the year, a reorganisation at regional and head office levels was carried out, leading to a reduction in costs.

In the south of China, we continued to organically grow our business in the Pearl River Delta. We also started a new joint venture in the Shanghai area. Margins, however, remain under pressure. Automotive gas sales showed an increase. A gradual improvement in the legislative environment is becoming more evident with the enforcement of a cylinder decree aimed at protecting our exclusive filling rights to our cylinders. More stringent product quality specifications are also being enforced.

Our business in India performed well in an environment of continued discrimination through subsidies limited to local state oil companies involved in the distribution of bottled LPG. Results in the Philippines showed a good improvement over the previous year, owing to continuing strong wholesale performance. Pakistan had a difficult year owing, among other reasons, to supply problems.

We remain optimistic for the future of LPG. Thanks to its specific characteristics, LPG is well positioned as an energy of choice both in mature and developing markets.

Thus, our intention is to continuously improve the efficiency of our existing operations, adapt our services and commercial approach in order to better meet evolving customers’ needs, consolidate our position wherever and whenever possible by acquiring companies in order to increase customer density and grow into new areas.

To read SHV's full annual report of 2007 please click here.