Good day, and welcome to the Stolt Nielsen Fourth Quarter twenty nineteen nineteen Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Neil 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 twenty nineteen 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, and then we will open up for question and answers in the end. Moving then 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 profit, 46,800,000.0.
That's up 9% from previous quarter. And net profit was of $5,500,000 and 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 fourth quarter the third quarter, we had a net profit of $3,400,000 Because of the incident we have on Stolt Grenfell and two other ships, we had a negative of $2,800,000 And we also had an impairment on Stolthaven in Australia of $5,500,000 But the underlying operating profit in Tankers improved in the fourth quarter by 2,400,000.0 Lower Stolthaven operating profit, I think seasonality higher STC operating profit of 3.6% higher Sea Farm operating profit after fair value adjustment of 2,100,000.0 FX in our favor this quarter of 2,700,000.0 and lower tax and financial expenses of $1,900,000 bringing the profit to $5,500,000 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 have 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, so a steady 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. However, 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's 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's why at Stolt, our employees that's 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. And 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 twenty five to thirty years and then we dispose of them or recycle them in a responsible way. And water use and the quality, minimizing the impact that we have on the water that we use and 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. But it's important for me that it's not just talk. I wanna talk about the real things that we're doing and that what we are working on are achievable targets. Our sustainable 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 going forward in detail going forward. Then moving on to Stolt Tankers on Page nine. So the fourth quarter, the operating revenue was down 6% to 74,800,000.0 our EBITDA was down 4% to 53,500,000.0 and our operating profit was down 2% to $14,600,000 and the operating days was down 5% to 6,047. The operating days were down because of the Stolt Grenland that we have an incident of the explosion, but also two other ships that were down because of technical incident. So if you take then the €15,000,000 operating profit that we reported in the previous quarter, we were down 3,900,000 because of the lower trading results.
Lower trading result is then impacted because of fewer operating days. We had a lower a positive €3,000,000 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 Gundlund incident and the off hire due to technical issues had a negative impact of 2,800,000 in the quarter. We also had a challenging market in our regional fleet, especially the Stolt Nielsen Asia Pacific service. We also had a loss of €1,800,000 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 negative 1.5% we had in the previous quarter. Utilization in our deep sea fleet also improved of 1.2%. And 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. And starting on the January 1, as you all know, the new IMO regulations came into effect.
Stolt Tankers was fully compliant with the IMO low sulfur fuel, and we are able to fully recover on the increased bunker costs through our COAs. So full pass through of the additional costs through our COA bunker clauses. I think this is the 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 $4.00 $8 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 01/01/2020. And again, subsequent to the quarter end, implemented the switch to IMO 2020 compliant fuels, and the fuel supply has been secured. So we have had no problem in securing low sulfur fuel or NGO. Moving on to Page 12, Stolt Tankers joint service sailed in 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 6,700,000 or 1,200,000 deadweight, and from 2020 to 2022, down from 8,100,000 in the third quarter. So 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, but you can see that the scheduled delivery of new buildings coming into this segment in 2020 is approximately the same as it was in 2019. So 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.
And then you see the dramatic drop in supply in 2021 and beyond. And I question, and here's where I'm turning quite bull on our segment, but I because I I I I wonder, in our own case, we, at a certain stage, need to to order new ships, both deep sea or large ships and regional ships. But 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? You know, when we order a series of ships, we're talking $5,600,000,000 investment.
So 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 are being imposed on us are targets which today's technology can't meet. So I was wondering, you know, who is today going to start ordering large amounts of ships? And if nobody's ordering ship, well, then you're going to certainly make it you know, the cargo still needs to be transported. So I think that going forward, we are already 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. But going forward, we also will see a drop, dramatic drop of new supply. And 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. Now, let's just talk about short term here, because I see some of the analyst reports in regard to earnings expectations. Yes, the spot market has gone up, and I remind you that 70% of the business that we do is from contracts of affreightments.
So 30% will benefit from the increased spot rates. And then you have 70% COA. We have fixed in 2019, we have now fixed 67% of the contracts that we are going to serve in 2020. Now those contracts were fixed as usual, this is the first quarter we are showing you an increased freight rate on these COAs, but in previous quarters they were all negative. So you have to remember the contracts that we're serving in 2020 are contracts that we have 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%. It will take a while. And you also have to remember that we have lived in a very challenging shipping market for a long time, so our customers have beaten us down not only on freight rates but terms and conditions. They are forced to take us on a multi year contracts. Multi year contracts is of course good when the market falls because you have the old freight rates, But multiyear 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.
So 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. So 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. So if you think that we're going to get 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. So we have an 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, and it's limited how much we can pass through or how quickly. But trust us, we are seeing, which is fantastic, we are seeing for the first time in a long time, we were 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, and utilizations slightly down 2%. The operating revenue was slightly down by $1,200,000 compared to the third quarter due to lower utilization in Asia. In the fourth quarter, as I mentioned earlier, we impaired we did an impairment of $5,500,000 of capitalized expense in Australia. And the operating expenses were flat compared to the third quarter and the depreciation increased by $1,200,000 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 in December due to the weather condition in the Houston Ship Channel, that is referring to the lower the seasonality. But overall, long run, 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, showing you that we are at 92.5% utilization on our wholly owned terminals and our joint ventures.
And Guy, the head the President of Salt Haven terminals, is doing a healthy 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. So what he's been doing is he's actually been, removing lower paying business in this strong market, pushing out lower paying business, renewed 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 Chemical 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 remained stable and petroleum products continued to show demand for IMO twenty twenty bunkers and jet fuel.
Asia, more challenging. The Chinese chemical market remains weak, partly due to The US China trade war, the slowdown in the economy, and new tax regulation. The Korean market, however, remains stable for chemicals, and Brazil remains stable for petroleum and ethanol and chemicals. Just to talk about the coronavirus, it's too early to say what 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. But I'm certain there will be an impact. To what extent it will be and for how long, this for you all to speculate on. Stall tank containers. Operating revenue down 1.3%, EBITDA up 30% to $22,600,000 operating profit up 29.8 to 15,700,000.0 and utilization slightly down 1.7% to 67.5%.
Operating revenue was slightly down from the third quarter. A $4,000,000 decrease in transportation revenue was partly offset by increases in demurrage and other revenue. During the quarter, the shipments remained in line with previous quarter. However, shipment mix had a higher percentage of low rate interregional shipment that caused the reduction in the transportation revenue. Operating expenses decreased by 5.9%, but that is driven by lower freight costs from the higher proportion of intra regional shipment 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. And utilization decreased 67.5% from 68.7% in the third quarter, 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 costs and increasingly competitive market. Again, it is an increased market increased competition in the market. There are more and more operators, but still a healthy business.
It's still a growing segment, so I am quite bullish for the segment. Despite geopolitical and macroeconomic challenges, the outlook for long term fundamental growth and the geographical expansion remains strong. Stolt Sea Farm, operating revenue down 5.3, EBITDA down 32% and operating profit up to $1,700,000 The revenue from TURBERT decreased by $9,100,000 as volumes sold fell following the seasonally strong third quarter. Average price for TURBERT increased marginally. Revenue from sold increased 9.1 as prices rose and volume was up 8%.
Operating profit increased as fair value adjustment had a positive impact of 800,000.0 compared with a negative impact of 2,500,000.0 in the previous quarter. A new state of the art sole farms under construction in Spain and Portugal using Stoltea Farm recirculation technology. Operations in Salvo is expected to commence in February, followed by Torsa five months later. The investment in the recirculation technology to enhance flexibility in production geographies and variety of new species. Leverage technology expertise to reduce production costs, expand markets to reduce dependency upon specific geographic 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, and what the new team has been working very hard on is developing new markets in Northern Europe and The United States and other markets. And also developing new projects, as you can see here, we have now done a contract with Ouchan starting in October where we deliver our own branded Le Turbo 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 Avanskast just before Christmas.
The proceeds, approximately $26,000,000 and the gain didn't go through the bottom line, but through went straight to the equity, so through OCI of $10,800,000 We are talking about Avenir, just to remind you, we have an 80% increase in the LNG terminal that we are constructing in Sardinia, and we have four seven thousand five hundred cubic meter and two twenty thousand cubic meter small scale LNG carrier newbuildings that are under construction in China. The first ship has been fixed with Petrolas with a bareboat charter for three years and its 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. And the second ship is expected to deliver in late July, most likely early August twenty twenty. 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. But 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 high gas terminal is scheduled to commence operation in August 2020. We have got an 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 US, 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 and 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.stoltnielsen.com. Also quite exciting, 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 $52,800,000 and that was up from $41,000,000 in the third quarter. You will have sort of gotten the tone from many of us that there are some improvements in the businesses, but a lot of this was a 6,200,000.0 positive swing in the Corporate 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 tank containers, they had a positive $3,600,000 increase, and that was, as Nils mentioned, due to the transportation margin and higher demerger revenue of $1,600,000 while Stolt Sea Farm's reported results were up by $2,100,000 but mind you, that includes a positive fair value swing of 3,300,000.0 in the quarter. Tankers operating profit decreased by $500,000 driven by the fewer operating days and also the $1,800,000 loss on the sale of the two JV ships being held for sale. At Stolthaven Terminals, we took an impairment, as Niels mentioned, of $5,500,000 at our Australasian Terminals.
And without this, the results were down about $1,300,000 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 37,500,000 and also slightly below the prior quarter, and 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, so a non cash item. Income tax was $7,600,000 during the quarter, and that was due to higher tax charges in installed tank containers. Therefore, net profit to shareholders of S and L came in at $5,900,000 for the quarter, with EBITDA at $116,600,000. And you should note that, of course, that EBITDA is before the fair value of biological assets, insurance reimbursements, and other one time nonrecurring items.
If I can move over to the balance sheet. Again, I'd 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 reported in the 2017 of $2,530,000,000 and we ended the fourth quarter at $2,340,000,000 so about a $200,000,000 reduction despite what has been a very challenging market, particularly for tankers. This $2,340,000,000 is down slightly from the third quarter of twenty nineteen, where it was at 2.37. Our liquidity position was at just over $05,000,000,000 That was slightly down from €600,000,000 reported in the prior at the end of the prior quarter.
But keep in mind, we held liquidity at the end of the third quarter so we could pay off the bond that matured on September 4. On the ratios, we are finally seeing some more positive movements, where tangible net worth that held steady at €1,600,000,000 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, but it's a positive one in the right direction. The EBITDA to interest expense, was 3.12, and that's up from 3.05 in the prior quarter. And then finally, the net debt to EBITDA ratio was down at 5.11, and 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, so that's really our target to get down below the five:one. We expect to slightly we expect the interest expense for the next quarter of €35,300,000 If I moved on to the cash flow, cash flow from operations was a positive 68,900,000.0, down from 84,900,000.0 in the previous quarter. And 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, dollars 18,000,000 of that, $6,500,000 on dry docking of ships during the quarter. We had also $6,000,000 in regular tank regulatory tanker CapEx and $4,000,000 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, so we sold that down for 25,900,000.0, and in the process realizing a gain of $10,800,000 which we took straight to shareholders' equity. So that did not go through the income statement. During the fourth quarter, paid $2,450,000 of long term debt, and that included the bond that we paid off, which was about 148,000,000, I believe. And we also drew down on about 184,000,000 of new debt, and that was the last tranche of the $420,000,000 Chinese sale leaseback transaction that we did. Net cash flow for the quarter was negative 6,800,000.0 therefore, and that resulted in a cash balance at quarter end of 136,200,000.0.
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 $35,000,000 and that was, as mentioned on the previous slide, the terminal expansion tankers for regulatory CapEx. Note that the 35,000,000 excludes the drydocking component that I mentioned when talking about the cash flow. For 2020, our expectation is $214,000,000 so slightly up from somewhat up from what we've seen in 2019.
And part of that increase that you will have seen from previous presentations is because 2,019 projects were pushed over to 2020. Tanker CapEx going forward include about $25,000,000 for ballast water treatment systems. For terminals, we have $8,500,000 for new capacity in New Orleans and $6,300,000 for ongoing expansions in New Zealand. And most of the rest in tankers, sorry, in terminals is really earmarked for maintenance CapEx. Tank containers, we have 6,800,000 earmarked to improve our network of depots.
And at Sea Farm, we have about $7,100,000 remaining, for the two new farms. And the $36,000,000 that you see there for Stolt, Niels and Gas is earmarked for Avenir, and that's our share of the remaining $72,000,000 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 $161,000,000 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. It is 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 $232,000,000. 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. Yeah. With that $868,000,000 in new finance that we did during 2019, we have also seen that we've been able to push out maturities, so we are in a stronger position now than what we were at the beginning of the year.
I'd like to talk 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, but that's been sort of steadily coming down, and the aim is to continue that trend. EBITDA to interest expense has looks like it has bottomed out.
Key here is, of course, the EBITDA. I'll come back a little bit on that, but that was slightly up during the quarter. Note, on the bottom right, you have a visualization of the free cash flow after capital expenditures, and we are benefiting from that significant improvement that you're seeing there. That's 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.
And then to the bottom left, you have a visualization of the net debt to EBITDA, which is hopefully soon gonna be below five:one.
A few
financial items that we talk about, I'll be quick on those. The A and G was at $48,100,000 in the quarter. That was down mostly because of really reduction in the profit sharing accruals that we make because of the weaker results. And if you look for the next quarter, we expect therefore A and G to be increased to €54,900,000 as we get back to more normal profit sharing accrual. Depreciation and amortization for the fourth quarter was 63,900,000.0.
That was pretty flat from the 64,300,000.0 we had in the prior quarter. Guidance for the next quarter is 64,200,000.0 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. Then going to our share of profit of JVs. For the quarter, that was €5,000,000 You'll see the drop in tankers that was negative €200,000 and that reflects the loss of about 1,800,000.0 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. And then 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 $7,000,000 And then also looking at the tax expense, total tax was up this quarter at $7,600,000 That was an increase of about 3,200,000.0 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.
Tankers, slightly down, but up from the same quarter last year. Terminals was up. Tank Containers was up. And therefore, those together with the Sea Farm helped improve the overall S and L EBITDA of $217,000,000 And, again, this is, before the fair value of biological assets, insurance, etcetera. And with that, I would like to hand over to Mills.
So the key messages, we 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 Containers is facing increased competition and a constant change of trade flows. However, it is still delivering solid results and the fundamentals in the industry is still strong. So 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.
And Jens and his team have done a tremendous job in in refinancing most most of the tanker debt, which has put us in a in a strong liquid liquidity position. Just also just going to repeat what I said about tankers. We are seeing subsequent to the end of the fourth quarter, we're seeing significant improvement in the tanker market, and we are able to get close to full increases within the caps that we have in our COAs, and we're pushing hard. That completes the presentation. Operator, now we will open up to the floor first, and then we'll take the phone afterwards.
And we have a microphone here so that people on the phone can also hear the questions.
Good afternoon. Thank you for your presentation. Axel Stroman from Nordea. I have a question regarding the potential spin off of tankers from from the company. Can you please update us on if you still are considering this, when you plan to 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 and that is very much part of his focus right now in preparing for an IPO. But I think that 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. So we'll have to see how this market develops.
But 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 $1,300,000,000 in tanker debt. I can come up with more exact number. There's also some intercompany balances, but 1,300,000,000.0 is external.
There's a question over here.
Thank you. Lucas Dahl 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 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 two fifty, Jens, is
30%, 75%. But, you know, it depends on the spot market. So
The so what kind of what
kind of rate increase in the spot market have you sort of used for visualizing the €250,000,000 increase?
There is one change that is important to keep in mind when you look at this one, and that is IMO 2020. IMO 2020 will have taken both the cost base up. So 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. So beyond that, for every 10% increase, you're looking at approximately $25,000,000 bottom line, everything else equal.
There's also a further upside potential in in high utilization. In a strong market, you get better utilization of all all the tanks aboard the ship.
Okay. And then you said that you don't have any bunker hedges going into 02/2020?
We have the we have the COA, which covers 65%, but we don't have any physical hedges going forward. No.
Okay. So 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 Yes. The
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 only covering the cost and another one which was strategic, we had to just take the contract.
Okay. And then on the investments that you are guiding for 2020, ballpark $200,000,000, 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 potential bond, really more to focus on the $232,000,000 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.
So when we show the liquidity that we have in place for 2020, that includes the cost of that CapEx.
And so 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 a couple of weeks from now?
Trust me. I won't let I'll raise the dividends as soon as 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? Then, operator, if there's any questions, on the phone.
We have one question from the line of Santiago Domingo from Sorventus. 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. But I think that, obviously, you have to require more to those investments. I would like to have a figure, I think, between 78% is okay. I don't know if I'm okay.
I'm right.
So if you look historically, tankers through the cycle up until 2000 had a return on capital employed of 8%. Since February, until today, it's been 5%. The last ten years, as you point out, has been between 23%, totally unsustainable. So 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 year three and a five year plan by reducing our costs, cost of operation, cost of our assets.
So our target is to achieve an 8% return on capital employed through the cycle.
Okay. My second question is also related to tankers and is related to the order book because as you mentioned in the call, the order book in 2021 is so, so low. And probably, it can be solved right now because if we order a vessel the next year, probably we are 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. And therefore, 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.
No, I tend to agree with you. That is that there will be no additional supply coming in, in 2020. And if you put in there an order today, you'll maybe get it in later half of twenty twenty one, maybe into 2022. But as I mentioned in the tanker segment, I question if you look at the order book that was 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.
So I wonder, one, if there's as big an appetite to come back into this segment by speculators. And 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?
And will that technology meet the regulatory requirement going forward? So I think with so much attention on which I think is good, but with so much attention about CO2, we need to be very careful be very careful thinking about what kind of ships you order. I don't wanna order ships today which will be obsolete in five years' time.
So I
think that there will be a reluctancy until the regulatory requirements regulatory, the targets are being put in place and until we know what technology, what type of technology is gonna be used, a proven technology. I I well, I'm just thinking about myself, our our own company. You know, if we're going to order we need to order ships. We haven't ordered a ship for a while. We bought J O, took over J O, and we had ships delivered the last three years ago, two years ago.
And having a fleet of 155 ships, we need to continuously look at new buildings. But it's a very difficult call, and I think that's the same for everyone. So therefore, I'm quite bullish. The demand side is pretty steady as you know. It's very much driven by global trade, is driven by global GDP.
And assuming, and historically, it's always been around three or 4% increase in global GDP. So 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 the years going forward.
Okay. Thank you very much.
You.
Thank you. There are no further questions No on the
other questions. Any further questions here in the room? Again, you very much for participating. That completes our fourth quarter earnings results. Thank