Good day, and welcome to the Stolt-Nielsen fourth quarter 2019 results presentation. Today's conference is being recorded. After the presentation, there'll be an opportunity to ask questions over the phone by pressing star and one. At this time, I would like to turn the conference over to Mr. Niels Stolt-Nielsen, Chief Executive Officer. Please go ahead, sir.
Thank you. Good morning. Good afternoon. Thank you for joining us here in Oslo for our fourth quarter 2019 earnings results presentation. I will be referring to a presentation which you can find on our website. As always, we have an agenda going through the highlights for the fourth quarter and 2019.
Then I will go through each of the businesses. Jens will take you through the financials, then we will open up for question and answers in the end. Moving on to page four, our operating revenue for the fourth quarter, down 4%, coming in at $497.5. Our EBITDA up 10% at $116.6 compared to the previous quarter. Our operating profits $46.8, t hat's up 9% from previous quarter. Net profits of $5.5 million, that's a staggering 63% increase from a very low number.
Going through the net profit variance analysis between the third and the fourth quarter. The third quarter, we had a net profit of $3.4. Because of the incident we have on Stolt Groenland and two other ships, we had a negative of $2.8 million, and we also had an impairment on Stolthaven in Australia of $5.5.
The underlying operating profit in Tank is improved in the fourth quarter by $2.4. Lower Stolthaven operating profit, I think seasonality. Higher STC operating profit of $3.6. Higher Stolt Sea Farm operating profit after fair value adjustment of $2.1. FX in our favor this quarter of $2.7 and lower tax and financial expenses of $1.9, bringing the profit to $5.5 million. I will go again through this more in detail when I go through each of the businesses. If you look at the year, 2019 was a challenging year.
The operating revenue was down, our EBITDA was down, our operating profit was down, and so was our net profit. I believe 2019 was the bottom. The chemical tanker market in 2019 proved to be a challenge. However, as you've all seen in our earnings release, we are seeing a recovery, and we are well- positioned for that recovery. Stolthaven Terminals results before one-offs improved with higher utilization across our own terminals and a reduction in operating expenses.
A continued steady improvement in our terminal division. Stolt Tank Containers faced a challenging year due to the continued increased competition and slower economic growth, which add pressures on the margins. Still a healthy business. Stolt Sea Farm continues to show underlying improvements in our turbot and sole business, and a significant financing has been closed during the year and have improved our maturity profile and strengthened our liquidity position.
Jens will take you through that in more detail. I've been encouraged to talk more about our ESG, environmental social governance. It is nothing new for Stolt-Nielsen, but we haven't been good enough at communicating it, and we will be doing so much more going forward. We require all of our businesses to operate responsibly with a relentless focus on safety, efficiency, and excellence.
This focus shapes everything that we do, from systems and processes to the way we manage and drive the environmental performance of all of our assets. Sustainability, of course, we have to deliver a financial, sustainable business model by improving our cash flow and, of course, improving the return on capital employed. This needs to finance everything that we do. Social. We recruit, we train, and we retain. That is why we at Stolt have a very long tenure amongst our employees.
Health and safety is, of course, our top priority, especially taking into consideration what we do. Diversity and inclusion. We have always had a highly diverse and an inclusive profile amongst our employees. Environmental. Yes, there is climate change. We're all aware of it, and it's all our responsibility to do something about it. Whatever you think the cause of the climate change, we have always been aware of or focused on polluting as little as possible, and we continue to do so.
Asset lifecycle management. We build the ships to our standard. We operate them from 25 - 30 years, and then we dispose of them or recycle them in a responsible way. Water use and the quality. Minimizing the impact that we have on the water that we use. Governance. Ethical business practices and compliance, health, and safety. Going forward, we will be emphasizing this.
Not that we will be talking more about it. We have always done it, but we will be disclosing it more. It's important for me that it's not just talk. I want to talk about the real things that we're doing, and that what we are working on are achievable targets. Our sustainability commitment on page seven.
I'm not going to go through each of them, but these are posted on our website and will be disclosed more in detail going forward. Moving on to Stolt Tankers. On page nine. The fourth quarter operating revenue was down 6% to $74.8 million. Our EBITDA was down 4% to $53.5 million, and our operating profit was down 2%, $14.6 million. The operating days was down 5% to 6,047.
The operating days was down because of the Stolt Groenland that we have an incident of the explosion, but also two other ships that were down because of technical incident. If you take them, the $15 million operating profit that we reported in the previous quarter, we were down $3.9 because of lower trading results.
Lower trading result is impacted because of fewer operating days. We had a + $3 million as a result of the lower bunker cost, net of our bunker surcharge, and higher bunker hedge results of $1.2. Lower owning expenses of $0.8 and lower depreciation of $0.5, and a slightly lower equity income from our joint venture, bringing it to $14.6. The Stolt Groenland incident and the offhire due to technical issues had a negative impact of $2.8 million in the quarter.
We also had a challenging market in our regional fleet, especially the Stolt NYK Asia- Pacific Service. We also had a loss of $1.8 million. That was our share when we sold two ships in our regional fleet. However, for the first time since 2016, the contracts that we renewed during the quarter was up on average 4.1%. That's an increase from the - 1.5% we had in the previous quarter.
Utilization in our deep sea fleet also improved of 1.2%. Subsequent to the quarter end, the positive trend in our contract renewals continue, and also in the spot rates. Again, we'll talk more about that. Starting on the 1st of January, as you all know, the new IMO regulations came into effect. Stolt Tankers was fully compliant with the IMO low sulfur fuel.
We are able to fully recover on the increased bunker cost through our COAs. Full passthrough of the additional costs through our COA bunker clauses. I think this is on page 11, the bunker cost. This is really the last time you will see this format because this is, again, the HFO or IFO. The average price of IFO consumed decreased to $384 per ton in the fourth quarter, compared to $408 in the third quarter.
Year- to- date, the COA bunker surcharge clause covered 65% of the total volume of bunker consumed. We have no further bunker hedges in place from January 1st, 2020. Subsequent to the quarter end, successfully implemented the switch to IMO 2020 compliant fuels, and the fuel supply has been secured. We have had no problem in securing low sulfur fuel or MGO. Moving on to page 12.
Stolt Tankers Joint Service Time Charter Index and Sensitivity. I think you all expected it to jump further up, but it hasn't, and I will explain why. The order book on page 13 is now at 6.7 or 1.2 million deadweight, and from 2020 to 2022, down from 8.1 in the third quarter. We're seeing, if you look at the chart here on the right-hand side, the yellow and the blue, and I guess it should have been all yellow in 2019.
You can see that the scheduled delivery of new buildings coming into the segment in 2020 is approximately the same as it was in 2019. The recovery that we are seeing today is not really driven by the lower supply compared to last year. It's driven by the strong crude and MR market.
Then you see the dramatic drop in supply in 2021 and beyond. I question, and here's where I turning quite bull on our segment. I wonder, in our own case, we at a certain stage need to order new ships, both deep sea or large ships and regional ships. With the uncertainty about what the regulatory requirement is going to be and what technology the new ships will have to meet that new regulatory requirement, is it right for us to order ships today with that uncertainty? When we order a series of ships, we're talking $500 million, $600 million investment.
Until we have a better understanding of what the regulatory requirement is going to be, what targets that we need to meet, I will be quite reluctant to put in an order, especially if these targets that are being imposed on us are targets which today's technology can't meet. I was wondering, who is today going to start ordering large amount of ships?
If nobody's ordering ship, well, the cargo still needs to be transported. I think that going forward, we are now starting to see the recovery, not because of lack of supply or new supply coming in. There's still supply coming in, as you see from the 2020 graph. It is driven by the strong MR market. Going forward, we also will see a dramatic drop of new supply.
If we believe that the global economy will continue to grow, and as a result, the global trade will continue to grow, I'm actually starting to think that this market is going to be pretty damn good going forward. Let's just talk about short term here, because I see some of the analyst reports in regard to earnings expectations.
The spot market has gone up, and I remind you that 70% of the business that we do is Contracts of Affreightment. 30% will benefit from the increased spot rates. You have 70% COA. In 2019, we have now fixed 67% of the contracts that we are going to serve in 2020. Those contracts were fixed. As usual, this is the first quarter we are showing you an increased freight rate on these COAs. In previous quarters, they were all negative.
You have to remember, the contracts that we're serving in 2020 are contracts that we had to compete, so they are lower. It will take time for the improved market to come through. It will have a good impact on the spot, but for us, it will take a while for that 70%. Will take a while.
You also have to remember that we have lived in a very challenging shipping market for a long time. Our customers have beaten us down, not only on freight rates, but terms and conditions. They're forced to take us on on multi-year contracts. Multi-year contracts is, of course, good when the market falls because you have the old freight rates.
Multi-year contracts where the freight rates are fixed for one year, and then the second and third year, there's usually a cap, 5%, 7.5%, 10%, varies from each of the contracts. Even the contracts that we will be fixing going forward, a lot of them, over 50% of them have caps of how much we're allowed to increase.
We are now seeing in December that we're able to renew, and we continually every quarter renew contracts, and we are seeing a full increase under the caps. Most of the contracts now we're able to get full increase, but there's caps on them. If you think that we're going to get 20%, 30% increase, yes, we might be able to do it with the ones that don't have cap, but a lot of them have caps. Because of the challenging market we have been in, we have had to accept it.
Chemical tanker industry is quite boring. It goes slowly down, and it goes slowly up. We have the upside potential, of course, in the 30% spot exposure that we have, but it will take time to get the impact from the improved contract renewals. It's limited how much we can pass through and how quickly.
Trust us, we are seeing, which is fantastic. We are seeing for the first time in a long time where we're able to get the full increase under these caps. Moving on to Stolthaven Terminals. Very steady and continuous improvement. Operating revenue is down for the quarter 2%. EBITDA is approximately the same. Operating profit down 40%. Utilization is slightly down 2%.
The operating revenue was slightly down by $1.2 million compared to the third quarter due to lower utilization in Asia. In the fourth quarter, as I mentioned earlier, we did an impairment of $5.5 million of a capitalized expense in Australia, and the operating expenses were flat compared to the third quarter, and the depreciation increased by $1.2 million as a result of asset commissioning in the U.S.
Total product handled decreased 7.4% compared to the third quarter due to lower marine activity and activities pushed to December due to the weather condition in the Houston Ship Channel. That is referring to the seasonality. Overall, Avenir . It's steady. It will continue to improve the terminal division. It is just one-offs and seasonality.
On page 17, just an illustration of our terminals around the world and the capacity that we have, and showing you that we are at 92.5% utilization on our wholly-owned terminals and our joint ventures. Guy, the President of Stolthaven Terminals, is doing a hell of a job. The EBITDA and the EBIT margin have been growing steadily as a result of improving profitability, control, and working to improve utilization and throughput.
What he's been doing is he's actually been removing lower-paying business in this strong market, pushing out lower-paying business, renewing it with higher-paying business, and had a sharp focus on our costs and our operating costs. In 2019, Stolthaven Terminals focused on organic and selective growth while continuing to invest in safety and environmental projects.
We expect 2020 to be similar as 2019, optimizing existing assets with minor expansion planned in the U.S., Malaysia, and New Zealand. In the U.S., although the American Chemistry Council reported a slowdown in the chemical industry, we are seeing a continuous flow of inquiries for chemicals, vegetable oils, and base oils. In Europe, rather flat demands remain stable and petroleum product continued to show demand for IMO 2020 bunkers and jet fuel. Asia, more challenging.
The Chinese chemical market remains weak, partly due to the U.S.-China trade war, the slowdown in the economy, and new tax regulation. The Korean market, however, remains stable for chemicals. Brazil remains stable for petroleum and ethanol and chemicals. Just to talk about the coronavirus, it's too early to say what the impact is going to be, both for the shipping and for the terminals.
If you ask us, does it have any big impact right now? No. I'm certain there will be an impact. To what extent it will be and for how long, this is for you all to speculate on. Stolt Tank Containers. Operating revenue down 1.3%. EBITDA up 30% to $22.6 million. Operating profit up 29.8% to $15.7 million, and utilization slightly down 1.7% to 67.5%. Operating revenue was slightly down from the third quarter.
A $4 million decrease in transportation revenue was partly offset by increase in demurrage and other revenue. During the quarter, the shipments remained in line with previous quarter. Shipment mix had a higher percentage of low rate intra-regional shipments that caused the reduction in the transportation revenue. Operating expenses decreased by 5.9%, that is driven by lower freight costs from the higher proportion of intra-regional shipments from shorter shipments.
Transportation margin per shipment increased 7.1% from the third quarter, reflecting lower direct operating costs and lower freight costs, again from the intra-regional shipments. Utilization decreased 67.5% from 68.7% in the third quarter, there reflecting additional new tanks to the fleet. For 2020, we remain positive for the growth in the market, but forecast continued pricing and margin pressure due to the overcapacity, rising fuel cost, and increasingly competitive market.
Again, it is an increased competition in the market. There are more and more operators, but still a healthy business. It's still a growing segment. I am quite bullish for the segment. Despite geopolitical and macroeconomic challenges, the outlook for long-term fundamental growth and geographical expansion remains strong. Stolt Sea Farm. Operating revenue down 5.3%, EBITDA down 32%, and operating profit up to $1.7 million.
The revenue from turbot decreased by $9.1 million as volume sold fell following the seasonally strong third quarter. Average price for turbot increased marginally. Revenue from sole increased 9.1% as prices rose and volume was up 8%. Operating profit increased as fair value adjustment had a positive impact of $0.8 million compared with a negative impact of $2.5 million the previous quarter.
A new state-of-the-art Stolt Sea Farm under construction in Spain and Portugal using Stolt Sea Farm recirculation technology. Operation in Cervo expected to commence in February, followed by Tocha five months later. The investment in the recirculation technology to enhance flexibility in production geographies and a variety of new species. Leverage technology expertise to reduce production costs, expand markets to reduce dependency upon specific geographies and/or distribution channels.
One of the challenges that we have had with the turbot is that we have sold too much to Spain. What the new team has been working very hard on is developing new markets in Northern Europe and the United States and other markets. Also developing new products. As you can see here, we have now done a contract with Auchan starting in October, where we deliver our own branded turbot in portions.
Moving on to Stolt-Nielsen Gas. Just to remind you, Stolt-Nielsen Gas is today 2.3% ownership in Golar and 45% ownership in Avenir. We sold our remaining stake in Avance Gas just before Christmas. The proceeds, approximately $26 million. The gain didn't go through the bottom line, but went straight through the equity. It's through OCI of $10.8 million.
We are talking about Avenir, just to remind you, we have an 80% interest in the LNG terminal that we are constructing in Sardinia, and we have four 7,500 cu m and two 20,000 cu me small-scale LNG carrier new buildings that are under construction in China. The first ship has been fixed with Petronas with a bareboat charter for three years, and it's expected delivery March 2020.
Unless this new virus closes down the yards, that's kind of what we're aiming for. The second ship has also been fixed. It's gone to Golar Power with, again, a three-year charter. The agreement includes collaborating in the development of the Brazil downstream small-scale LNG market. The second ship is expected to deliver in late July, most likely early August 2020. Just to remind you, we are not a tonnage supplier.
Our strategy is to be a supplier of small-scale LNG, source the LNG, ship it, distribute it, and sell it to the end user, to stranded customers. Until we have the portfolio and the volume of offtake where we can use our own ships, we have chartered out and taken advantage of the strong market for these types of ships and chartered out. We could have gone longer, but we have decided for three years, and then we still have two of these 7.5 , which we can use for our own volume.
Sardinia, the Higas terminal is scheduled to commence operation in August 2020. We have gotten offtake for that business in Sardinia, and we're also talking to a major industrial offtake customer in Sardinia, which looks promising. That brings us to the financial segment, and I'll give the word to Jens.
Thank you, Niels. Good morning to everyone in the U.S., and good afternoon to all of you here. As per normal, I'll provide you some further financial details about the fourth quarter, and also give you some further guidance on some of the P&L items that we have for the next quarter. Also, just to remind you, we did file our financial statements with the Oslo Stock Exchange today, and you will find all of that on our website, both the press release, this presentation, our interim financial statements on www.stolt-nielsen.com.
Also quite exciting, I think, is that we posted a video on our homepage that also summarizes the year-end figures, which I hope you'll find interesting. Focusing on the operating profit before one-offs to start with, you see we're at $52.8 million, and that was up from $41 million in the third quarter.
You will have sort of gotten the tone from Niels that there are some improvements in the businesses, but a lot of this was a $6.2 million positive swing in corporate, and that was really due to lower profit sharing, driven by the lower overall profit for the year, and also accruals and lower insurance deductibles.
In addition, we saw that Stolt Tank Containers, they had a + $3.6 million increase, and that was, as Niels mentioned, due to the transportation margin, and higher demurrage revenue of $1.6 million. Stolt Sea Farm's reported results were up by $2.1 million. Mind you, that includes a positive fair value swing of $3.3 million in the quarter. Stolt Tankers operating profit decreased by $500,000, driven by the fewer operating days and also the $1.8 million loss on the sale of the two JV ships being held for sale.
At Stolthaven Terminals, we took an impairment, as Niels mentioned, of $5.5 million at our Australasian terminals. Without this, the results were down about $1.3 million after a few other minor adjustments, as we did have a gain on sale of the Altona terminal in the third quarter. Net interest expense was below the prior quarter guidance of $37.5 million and also slightly below the prior quarter.
That's because in the prior quarter, in the third quarter, we did a lot of refinancings, concluded those, and wrote off debt issuance cost. A non-cash item. Income tax was $7.6 million during the quarter. That was due to higher tax charges in Stolt Tank Containers. Therefore, net profit attributable to shareholders of SNL came in at $5.9 million for the quarter, with EBITDA at $116.6 million.
You should note that, of course, that EBITDA is before the fair value of biological assets, insurance reimbursements, and other one-time non-recurring items. If I can move over to the balance sheet. Again, like to emphasize when we're talking about the balance sheet, that our focus is to reduce the debt and maintain a strong liquidity position.
Just as a note of interest, debt has reduced from its peak, which was what we report in the second quarter of 2017 of $2.53 billion. We ended the fourth quarter at $2.34 billion, so about a $200 million reduction despite what has been a very challenging market, particularly for tankers. This $2.34 billion is down slightly from the third quarter of 2019, where it was at $2.37 billion. Our liquidity position was at just over half a billion dollars.
That was slightly down from $600 million reported at the end of the prior quarter. Keep in mind, we held liquidity at the end of the third quarter so we could pay off the bond that matured on September 4th. On the ratios, we are finally seeing some more positive movements where tangible net worth that held steady at $1.6 billion and consequently, with the debt reduction, the debt to tangible net worth decreased down marginally to 1.47 and we were at 1.48 last quarter.
It's a small change, it's a positive one in the right direction. The EBITDA to interest expense was 3.12, that's up from 3.05 in the prior quarter. Finally, the net debt to EBITDA ratio was down at 5.11, that was a reduction from 5.27. When we get below five, we get certain benefits on some of our financings on the margin terms. That's really our target to get down below the five to one.
We expect the interest expense for the next quarter of $35.3 million. If I moved on to the cash flow. Cash flow from operations was a + $68.9 million, down from $84.9 million in the previous quarter. This was primarily due to timing of interest payments, which are for a number of our facilities done only semiannually, so it takes a bit of a cash drain at the second and the fourth quarter. The capital expenditures reflected the terminal investments, $18 million of that, $6.5 million on dry docking of ships during the quarter.
We had also $6 million in regular regulatory tanker CapEx and $4 million on the Sea Farm for the ongoing constructions of those two new farms in Spain and in Portugal. Also, we divested our 8.3% holding in Avance Gas during the quarter. We sold that down for $25.9 million, and in the process realizing a gain of $10.8 million, which we took straight to shareholders' equity. It did not go through the income statement.
During the fourth quarter, we paid $2.45 million of long-term debt, and that included the bond that we paid off, which was about $148 million, I believe. We also drew down on about $184 million of new debt, and that was the last tranche of the $420 million Chinese sale leaseback transaction that we did.
Net cash flow for the quarter was a - $6.8 million, therefore, and that resulted in a cash balance at the quarter end of $136.2 million. I'd like to remind you that we do have a bond maturity coming up in April, and hence why we're also maintaining significant liquidity on hand. Going over to capital expenditures.
During the quarter, we spent $35 million, and that was, as mentioned on the previous slide, the terminal expansion tankers for regulatory CapEx. Note that the $35 million excludes the dry docking component that I mentioned when talking about the cash flow. For 2020, our expectation is $214 million, so somewhat up from what we've seen in 2019. Part of that increase that you will have seen from previous presentations is because 2019 projects were pushed over to 2020.
Tanker CapEx going forward include about $25 million for ballast water treatment systems. For terminals, we have $8.5 million for new capacity in New Orleans, and $6.3 million for ongoing expansions in New Zealand. Most of the rest in terminals is really earmarked for maintenance CapEx. Tank containers, we have $6.8 million earmarked to improve our network of depots.
At Stolt Sea Farm, we have about $7.1 million remaining for the two new farms. The $36 million that you see there for Stolt-Nielsen Gas is earmarked for Avenir , and that's our share of the remaining $73 million commitment that the three founding shareholders made. Just as a general note, because people often comment that the significant drop in CapEx going forward, and that that's not sustainable, which may be true, but we are not in any rush to invest, as Niels indicated.
Each of our businesses are focusing on improving utilization and asset turnover, and thereby also focusing on improving margins. The debt maturity profile going through 2024, you will see the dark blue consists of regular principal payments, and then you have balloon payments in light blue, and it's very hard to differentiate between that and the gray, which are the bond maturities.
We have the bond coming up in April of $161 million, and as you saw on earlier slides, we have sufficient liquidity to pay that off in cash. There was an announcement yesterday that we are going on a roadshow, and we are contemplating doing another bond issue. We've seen the bond market is very active. We haven't been in the market for a long time. We have, as you will see there, a maturity in 2021 of $232 million.
If the market is there, it's good to take in the liquidity and be a bit opportunistic about it, but it really comes down to the pricing that we can get. That $868 million in new finance that we did during 2019, we have also seen that we've been able to push out maturity, we are in a stronger position now than what we were at the beginning of the year.
I'd like to just visualize a little bit on the trends of the key covenants that we have. The top left is the debt to tangible net worth, where we now are down below the 1.5. That was the self-imposed limit by the Stolt-Nielsen board. We were as high as 1.6 on that's been steadily coming down, the aim is to continue that trend. EBITDA to interest expense, looks like it has bottomed out.
Key here is, of course, the EBITDA. I will come back a little bit on that. That was slightly up during the quarter. Note on the bottom right, you have a visualization of the free cash flow after capital expenditures. We are benefiting from that significant improvement that you're seeing there. Slightly down from where we were in 2018. That's driven by slightly weaker results, as you will have seen, as well as the CapEx.
Going forward, looking at 2020, that of course will depend on the tanker markets, but we are projecting more capital expenditures, as you saw. To the bottom left, you have a visualization of the net debt to EBITDA, which is hopefully soon going to be below five to one . A few financial items that we talk about, I'll be quick on those. The A&G was at $48.1 million in the quarter.
That was down mostly because of really reduction in the profit sharing accruals that we make because of the weaker results. If you look for the next quarter, we expect, therefore, A&G to be increased to $54.9 million as we get back to more normal profit sharing accrual. Depreciation and amortization for the fourth quarter was $63.9.
That was pretty flat from the $64.3 million we had in the prior quarter. Guidance for the next quarter is $64.2, so consistent really with what we've seen as of lately. We expect perhaps a slight increase in tankers due to assets capitalized during the quarter, mostly dry dockings. Going to our share of profit of JVs. For the quarter, that was $5 million. You'll see the drop in tankers.
That was - $0.2 million, and that reflects the loss of about $1.8 million on those two ships held for sale in our joint venture. We don't expect a repeat of that, so that should bring that back up to a more normal tanker JV profit. The development of that going forward, of course, depends on the development of the tanker markets and the earnings for tankers at large. We're therefore expecting a share of profit for the next quarter of about $7 million.
Also looking at the tax expense, total tax was up this quarter at $7.6 million. That was an increase of about $3.2 million from the third quarter, and most of that is in Stolt Tank Containers. Finally, just want to give you a visualization of the EBITDA. We are seeing some improvements that are coming through, and that is important because it is also driving our performance under some of the covenants.
Stolt Tankers slightly down, but up from the same quarter last year. Stolthaven Terminals was up, Stolt Tank Containers was up, therefore, those together with the Stolt Sea Farm helped improve the overall SNL EBITDA to $117 million. Again, this is before the fair value of biological assets, insurance, et cetera. With that, I would like to hand over to Niels.
The key message is w e have remained profitable since 2004, even during the financial crisis that we had and the prolonged weakness in the shipping market. Stolthaven Terminals performance is steadily improving with a stable, and I believe continued improvements from the terminal division. Tank Container is facing increased competition and a constant change of trade flows.
It is still delivering solid results and the fundamentals in the industry is still strong. Stolt Sea Farm continues to show improvement in turbot and sole, as we continue to push the international markets and also in the opening of the two new recirculation farms. Jens and his team have done a tremendous job in refinancing most of the tanker debt, which has put us in a strong liquidity position. Just also going to repeat what I said about tankers.
Subsequent to the end of the fourth quarter, we're seeing significant improvement in the tanker market. We are able to get close to full increases within the caps that we have in our COAs. We're pushing hard. That completes the presentation. Operator, now we will open up to the floor first, then we will take the phone afterwards. We have a microphone here so that people on the phone can also hear the questions.
Good afternoon. Thank you for your presentation. Axel Styrman from Nordea. I have a question regarding the potential spinoff of tankers from the company. Can you please update us on if you still are considering this, when you plan to do it, if the answer is yes?
The answer is yes. Everything is ready to go. We have a new president in Stolt Tankers. That is very much part of his focus right now in preparing for an IPO. I think that we need to see an improvement in the earnings, not just the expectation of an improvement in the earnings, but we need to have some proper earnings behind us for the right time. We'll have to see how this market develops. If the market develops in the right direction, and there's appetite for a clean chemical tanker company in the market, we will absolutely do an IPO.
Just a follow-up question there. How much debt is actually allocated to the tankers on the balance sheet right now?
We have about $1.3 billion in tanker debt. I can come up with a more exact number. There is also some intercompany balances, but $1.3 billion is external.
There's a question over here.
Thank you. Lukas Daul from ABG. If you could go back to slide 14, where you are showing the sort of revenue potential from the spot exposure that you would have. Can you explain to us what that means? What kind of upside are you sort of referring to?
Well, if you look at the upside potential in the revenue part of the spot segment of 30%. The $250, Jens is?
It depends on the spot market.
What kind of rate increase in the spot market have you sort of used for visualizing the $250 million increase?
There is one change that is important to keep in mind when you look at this, that is IMO 2020. IMO 2020 will have brought the cost base up. If we have flat spot rates, we're actually losing out. The estimated percentage was about 8%.
8.2%.
Yeah, 8.2% that we need as an increase in spot rates to be equally off. We've seen more than that in pockets so far. Beyond that, for every 10% increase, you are looking at approximately $25 million bottom line, everything else equal.
There is also a further upside potential in high utilization. In a strong market, you get better utilization of all the tanks aboard the ship.
Okay. You said that you don't have any bunker hedges going into 2020.
We have the COA, which covers 65%. We don't have any physical hedges going forward, no.
Okay. On the new contracts that you have been signing in the spot market so far, you have seen full pass-through of the bunker costs onto the client?
Yes. Under the COAs, full pass-through, or to be specific, 98%. 2% was actually decisions that we made. One contract that didn't have a bunker clause because the rates were already covering the cost. Another one, which was strategic, we had to just take the contract.
Okay. On the investments that you are guiding for 2020, ballpark $200 million. Are you going to raise any debt to finance those, or what is your thinking there?
In the plan that we operate with now, we talked about the potential bond really more to focus on the $232 million maturity that we have in 2021. As far as 2020 goes, we're pretty much well covered when it covers debt maturities as well as the capital expenditures that we have.
When we show the liquidity that we have in place for 2020, that includes the cost of that CapEx.
Okay. Given what you said about the earnings maybe lagging a little bit, the improvement in the spot market, and the investment plans that you have, is there any expectations about raising the dividend couple of weeks from now?
Trust me, I will raise the dividends. We have to see the earnings first, and then we will raise the dividends.
Okay. That's all I have. Thank you.
Any other questions here in Oslo? Operator, if there is any questions on the phone?
We have one question from the line of Santiago Domingo from Solventis. Please go ahead.
Hello. Thank you very much for taking my questions. I have two. The first one is related to the return on net assets that you require to your investments in tankers, I mean, across the cycle, because we are seeing right now that you are around 2%, 3% of return on net assets. I think that obviously you have to require more to those investments. I would like to have a figure, I think between seven, 8% is okay. I don't know if I am okay, I am right.
If you look historically, tankers through the cycle up until 2000 had a return on capital employed of 8%.
Yeah.
Since 2000 until today, it's been 5%. The last 10 years, as you pointed out, it's been between 2% and 3%, totally unsustainable. We have our own program in place to get it back to 8%. Of course, the market needs to help us, but we have a three and a five-year plan by reducing our cost of operation, cost of our assets. Our target is to achieve an 8% return on capital employed through the cycle.
Okay. My second question is also related to tankers, is related to the order book, because as you mentioned in the call, the order book in 2021 is so low. Probably it can be solved right now, because if we order a vessel to the next year, probably we are not going to have it, because it takes time to build that vessel.
Therefore, probably in 2021, we are not going to have more supply than what we see in that graph. If the demand remains strong, the oil tankers rates are also high and all that kind of things, we can see some kind of very strong improvement in the spot rates in the chemical tanker market. I know that there are a lot of assumptions there, but I would like to know if it's something that is wrong.
I tend to agree with you that there will be no additional supply coming in in 2020. If you put in an order today, you'll maybe get it in later half of 2021, maybe into 2022. As I mentioned in the tanker segment, if you look at the order book that came in in 2014, it went from 7% up to 30% in one year, and that's the deliveries that you see in 2016, 2017, and 2018.
Most of those investors that went in, or a lot of them that went into this segment, are now trying to get out. I wonder, one, if there's as big an appetite to come back into this segment by speculators. Number two, as I mentioned, with the uncertainty about what the regulation will be going forward and also the next technology, what are we going to build?
What is going to power our ships going forward? Should we really build the next series of ships based on oil? Should it be gas? Will that technology meet the regulatory requirement going forward? I think with so much attention on, which I think is good, but with so much attention about the CO2, we need to be very careful thinking about what kind of ships you order.
I don't want to order ships today which will be obsolete in five years' time. I think that there will be a reluctance until the regulatory targets are being put in place, until we know what type of technology is going to be used, a proven technology. Well, I'm just thinking about myself, our own company. We need to order ships. We haven't ordered a ship for a while.
We bought Jo, took over Jo, and we had ships delivered three years ago. Having a fleet of 155 ships, we need to continuously look at new buildings. It's a very difficult call, and I think that's the same for everyone. Therefore, I'm quite bullish. The demand side is pretty steady, as you know. It's very much driven by global trade, which is driven by global GDP. Historically, it's always been around 3% or 4% increase in global GDP. If that continues, we should see what I believe a pretty strong market. It takes time, but I think we will see a healthy market in years going forward.
Okay. Thank you very much.
Thank you.
Thank you. There are no further questions on the phone.
No other questions. Any further questions here in the room? Again, thank you very much for participating. That completes our fourth quarter earnings results. Thank you.