Welcome to the Stolt Nielsen Second Quarter twenty nineteen Results Presentation. Today's presentation is recorded. Please let me hand the presentation over to Mr. Niels Stolt Nielsen, Chief Executive Officer. Please go ahead, sir.
Thank you. Good afternoon, good morning. Thank you for joining us for our second quarter twenty nineteen earnings results. I'll be referring to a presentation, which is on our website. The agenda, I'll go through the second quarter highlights, then I'll go through each of the businesses.
Jens will take you through the financials, and then we will open up for question and answers at the end. If we move to Page four, the operating profit in Salt Tankers of $12,800,000 that's down from 14,300,000.0 but that was mainly due to an estimated $5,000,000 impact on the fire that we saw in Houston at ITC Houston Terminal. So if you actually take away that $5,000,000 the underlying, there was a slight improvement in the earnings in Stolt Tankers. Stolthaven Terminals, steady operating profit of $19,700,000 That's up from $18,000,000 partly due to $7,000,000 gain on sale of the rail transportation business that we had. Tank installed Tank Containers, the operating profit for the quarter was 12,600,000.0 and that's down from $15,700,000 as shipment related operating expenses increased and margins narrowed.
However, the shipments the number of shipments increased by 12.7. I will, of course, talk more in detail in each of the sections. Sold Sea Farm, the operating profit before fair value adjustments of inventory was $2,000,000 and that's up from $1,000,000 in the seasonally strong first quarter, but that quarter included a $1,700,000 onetime write off of inventory. Stolt Basin Gas, the operating loss for our investments there is 1,400,000.0 That's up from $500,000 in the prior quarter. And that is what we call the development expenses, primarily driven by Avenir LNG.
Corporate and Others, an operating loss of 2,100,000.0 compared to 3,700,000.0 in the previous quarter, mainly reflecting the lower profit sharing accruals that we need to do due to the lower earnings. That brings the total operating revenue of $42,400,000 compared to 42,800,000.0 in the previous quarter or net profit of 3,600,000.0 versus $7.9 in the first quarter of twenty nineteen. Moving on to Page five, which is the net profit variance analysis. The previous quarter of July we had a lower $1,500,000 operating profit in Salt Tankers, again mainly driven by the fire at in Houston, increase of $1.7 operating profit in Terminals, lower operating profit of 3.1% in Tank Containers, higher operating profit in Sea Farm before fair value and Stolt Nielsen Gas operating loss of 0.9%, higher than previous quarter and Corporate and Others of 1,600,000.0 Then you look at the finance expenses, it's 1,400,000.0 positive, mainly due to lower interest rates on our facilities. Then we had the FX loss of 2.3 Other noncorporate income of $900,000 and also higher taxes charge of $900,000 The higher tax charge is really driven by higher profits in the terminals.
And others of 1,300,000 bring us down to a meager $3,600,000 profit for the quarter. Then moving on to Page six, which is Stolt Tankers. Again, the fire caused a $5,000,000 approximately $5,000,000 It's difficult to see. And of course, we are trying to get that money back, but it's too early to say how much of we will be getting back. But the cost at this time is approximately $5,000,000 because of that fire.
The second quarter revenue increased by 2.1%, and that was due to increased demurrage of $2,300,000 higher bunker surcharge of 1.8 The deep sea rates increased marginally, but volumes were down 3% compared to previous quarter. And also a positive development in the regional fleet, especially in Europe. So we saw an increase of revenue of 8.4 percent, mainly driven by the European intra European business that we are engaged in. The bunker cost, net of bunker hedge results, decreased by 1% compared to the previous quarter. And the COA freight rates renewals in the quarter were 2.5% down compared with a decrease of 0.3% in the previous quarter.
But this is a seasonally low time slow time of the year. And I would dare say that the 2.5% on average that we saw was driven by one contract that we did renew. And that contract, I dare say, were healthy freight rates, so we were willing to give a decrease so that we would maintain that contract. So turnaround in the market, or at least the second quarter, we unfortunately weren't able to get a positive on average COA increase. If you then move to Page seven, the revenues.
The gross profit, operating profit and operating days, well, it speaks for itself. Revenue was 3,000,000 the gross profit of $32,700,000 and operating profit of 12,800,000.0 as we reported. Operating days were slightly down from previous quarter, mainly due to drydocking. Moving to Page eight, which is the variance analysis on the operating profits in Stolt Tankers from first quarter to second quarter. The second quarter, we reported a 14,300,000.0 operating profit.
Lower trading results, again, mainly driven by the fires. Lower bunker costs, net of bunker surcharge, of $4,600,000 positive and reduced bunker hedge results. We had a $3,700,000 gain in the previous quarter and a $700,000 loss in this quarter. So that's the variance that you see as a result of the paper hedge that we have on our bunkers. Higher depreciation of 1,200,000.0 slightly higher equity income and others, bringing the operating profit to 12,800,000.0 for the quarter.
The bunker cost, the average price for IFO I'm on Page nine. The average price for IFO consumed decreased to $417 per tonne in the second quarter from four twenty two tonnes in the first quarter. We are, through our bunker COA clauses, we are 65% covered through our bunker clauses and our COAs. And as I said in previous, it was $700,000 loss for this quarter on our paper hedges compared to a gain of 3.4 in the previous quarter. We still have 32,000 tonnes of bunkers hedged for the remainder of 2019, which has an average fair market value of 334.5 average of $334 per tonne.
Moving then on to Page 10, the Sailed In Time Charter Index and Sensitivities. As you can see here, we are at a record low in the market. No significant decrease from first to second quarter. And so as I stated in the earnings release, is that we haven't started to see a turnaround yet in this market. Moving to Page 11.
The order book stands at $7.2 Again, this is what we call our competitive fleet. Newbuilding deliveries of 1,300,000 deadweight or 45 ships still expected in the third quarter from the 2019 until 2021. So there's still ships coming out in 2019 and in 2020. But as long as there are no new ships being ordered and we have a positive global growth in the economy, there will eventually be a balance in this market. Even though we don't see it in the market in the short term right now, There are some positive signs, I would think.
If you look at Page 12, product tanker supplydemand balance, and this is influences our market. The swing tonnage comes into this market when the product tanker market is weak and the forecasted seaborne refined product export going forward and the supply of new ships coming into the segment. There is the opinion from Quincannon and Clarkson and all these brokers that there is going to be a strengthening in that market. And that will, of course, have a positive impact in our segment, too. So with the combined of a lower product tanker supply of new ships coming in and strengthened demand there and also a slowing of supply of new ships coming into our segment, And if we continue to believe that the demand growth will remain at 3.5%, we will eventually have a balanced market, and we should be able then to start pushing or getting higher rates, at least to a sustainable level.
Trade tensions are impacting trade flows between China and The U. S, but Stolt Tankers' overall volume has remained stable. So what we're seeing is that the trade flows may change, but we haven't seen any major impact in the tonnes carried. Even though that the order book will be coming off in this year and next year, the question is how to what extent is there oversupply amongst in the floating ships out there. So there will our it's not only the slowdown of new ships coming in but also the absorption of the existing fleet that needs to be happening.
But again, as long as we don't hear any announcement of newbuildings being ordered and there's a slowdown of delivery and we believe that there will be continued positive global GDP, there will be imbalance. We can still say that all of the IMO 2020 in regard to IMO 2020, all of the contracts that we have extended beyond December 3139, have a bunker clause, which passes through the full cost to the customers. But we also still have some customers that are reluctant to agree on a full pass through at this time. But then if we don't come to an agreement in October with them, it is open for either party to leave. Moving on to terminals.
On Page 14, we sold the Rail Transportation business. We saw it as nonstrategic. We got a profit of 700,000.0 was up by $1,000,000 while expenses increased slightly by $300,000 resulting in a $700,000 increase in the gross operating margin. Equity income from our joint ventures decreased by 5% to $5,400,000 That was due to lower utilization at our joint venture terminal in Antwerp. The utilization at our wholly owned terminals decreased slightly from to 91%, down from 92.3% in previous quarter.
However, the total product that we handled increased by three As point six of the May, Stolthaven Santos commissioned six new tanks with a total of 15,900 and a capacity of increase of 12% due to the throughput seen coming through the production line going forward. After the quarter end, Stolthaven signed the documentation for the sale of one of our terminals in Australia, the Altona, with a production gain of $600,000 The sale is expected to be closed by July, again, a nonstrategic terminal. The acquisition of the terminal company It mainly driven or was driven by the Newcastle terminal. So all the other terminals lower equity income from our joint venture, primarily driven by our joint venture in Antwerp and a gain on sale of assets of $700,000 and others of 800,000.0 which brings the operating profit of $19,700,000 in the terminal division. The Stolthaven terminal market development on Page 17.
The U. S. Market remained stable to positive, allowing for rate escalation at both Houston and the New Orleans terminal, both currently are close to fully utilized. So The U. S.
Market is relatively strong. And what we've been focusing on there, since we are not expanding further at this stage, is really to replace the lower margin business with higher margin business. So when the contract comes up for renewal, we have a further opportunity to further increase the rates. So a strong market both in Houston and in New Orleans. The Singapore market remains challenging, but currently working on multiple opportunities.
The China market shows the effect of The U. S. Trade sanctions, but also the slow growth in the economy in China. Brazil remains stable with stronger demand for chemical and CPP stores. Utilization at Santos is currently at 96%.
The New Zealand and Australia are stable for chemicals, working on opportunities to increase utilization, both in Newcastle and in New Zealand. The capacity expansion project in New Orleans, the Montmandung Nguyen New Zealand, Westport and Ulsan remain on schedule. So there are further expansion that has previously been approved that still will be coming through at these terminals going forward. So I do expect that we will continue to see improved earnings coming out of the Terminal division, both from the new capacity coming online but also by getting higher margin business on existing tanks. Stolt Tank Containers highlights.
The revenue increased 12.2% in the quarter, and that was driven by 12.7% increased number of shipments, but that was offset by pricing pressure and increased competition. The increase in operating expenses reflecting higher shipment volumes, higher ocean and inland freight and repositioning expenses. The transportation margin per shipment decreased 14.7%. The utilization increased from 68.9% to 68.9% from 66.3% in the first quarter. Utilization continues to recover with the market activity picking up slightly thus far in the third quarter.
So what we really have seen here is that we have been able to increase utilization, do more shipments, but under heavier, which is really nothing new. But what has happened is that the cost of moving these containers, either by truck or by the container lines, have increased the cost. And there's a lag of being able to pass that cost increase on to the customers. So we actually do believe that as time goes by, those increases that we see in the transportation from the containerized and the truckers, we will and this is what we have historically been able to do, pass that on. But we are just seeing a lag right now.
So I'm still optimistic, and I'm still I don't think we'll be able to catch up to the same level as we had last year, but I'm still optimistic about this market and that the fundamentals there are still strong even though there's increased competition. Again, because of the transportation cost of through containers and trucks went up, that will be passed on to our customer, and then we will see an improvement in the margins. On Page 19, higher volume but margins squeezed, again reflecting. So you can see that the revenue went up to SEK 135,000,000 from SEK 124 while the shipments went up because we aggressively pursued to get our utilization up. If we move to Page 20, the first quarter versus the second quarter operating profit variance.
The first quarter was $15,700,000 We had higher revenue of $11,700,000 higher freight cost of $7,000,000 higher cleaning and survey cost of $2,000,000 and that's primarily driven by third party cleaning because, as you know, we have our 20 some term depots ourselves. Higher move related and repositioning costs, that's the ocean liners and also the sorry, the truckers. Higher other operating expenses of SEK 1,700,000,000.0 and lower equity income from the joint ventures of 600,000,000, bringing it down to SEK 12,600,000,000.0 for the quarter. Again, I do expect that this market will pick up again and that we will see an improvement in margins in the quarters to come. The market on Page 21, the market outlook remains promising.
We'll pick up in activity seen in multiple markets. Volumes are being beginning to recover after the softening of the third quarter that started in the third quarter of twenty eighteen. Margin pressure remained due to the oversupply of tanks and the slowdown in global trade. Ocean freight rates are expected to increase due to the Ocean Carriers consolidation and also the IMO 2020. But again, these are costs that we expect them to be able to pass on, tighter ocean freight capacity in certain markets.
Trade tensions are affecting trade flows but not volume, same as I said in tankers. But this one here, can see clearly China to U. S. Shipments are down 61% compared with the second quarter of twenty eighteen. But here, you really see impact.
But again, the total volume, what we're seeing is there's just change in how the products are flowing. And U. To China shipments are down 9%. Sea Farm, the turbid revenue on Page 22. The turbid revenue remained flat, driven by the 4.2% increase in volumes sold, offset by slightly lower average price.
The sold revenue was up 27.2%, driven by a 26.2% increase in volumes sold, while prices increased 3.3%, a positive development there. The fair value adjustment had a negative impact of 1,200,000.0 in the quarter compared with a negative impact of 2,100,000.0 in the previous quarter. The new state of the art sole farm under construction in Spain and Portugal using Stolt Sea Farm's recirculation technology. Production at Sadiovo is expected to commence at the 2019 in Spain, followed by Portugal in 2020. So this is really just I'm going to remind you that the Turbot business makes us around 10,000,000 to $12,000,000 net profit per year, But that is being used to finance the development of Sol.
So that's why you haven't seen these numbers from Solsea Farm. We're getting to a very exciting phase for Solsea Farm when these two this is the investments that we have been able to do to get the salt to breed and to grow in captivity. And with this technology, we think that we will succeed in increasing our production. And again, what I've said here before, with this land based recirculation technology, it is quite interesting to see where we can place these farms going forward closer to the market. You need to be very patient, but I think we're getting there now.
So I'm very excited to see the development in 2019 and 2020 when these farms come on-site. And if this recirculation technology works, it works at one farm, which has been researched. But if it works big scale like we're doing here now, we can start building these farms basically everywhere closer to the market. Quickly through the revenue remains the same. The operating profit up from 2,500,000,000.0 to 4.2 in the second quarter and the operating sorry, the gross profit from $2,500,000 to 4,200,000.0 and the gross operating profit sorry, the operating profit from $1,000,000 up to $2,200,000 in the second quarter.
I'm just going to jump the variance analysis. Going to Page 25. Avenir, as you may remember, in November 2018, Avenir raised EUR 110,000,000 through a combination of equity in kind and new cash, followed by the registration on the Norwegian OTC. Today, we are building an LNG receiving terminal in Sardinia, which Avenir owns 80%. We have four seven thousand five hundred cubic meter LNG ships and two twenty thousand LNG ships being built, all with bunkering capacity.
A further 72,000,000 of private placement is expected to be completed complete the equity funding of the initial asset portfolio with the remaining CapEx to be financed by that. The first ship of so the strategy in Avenir is really not to be a shipping company, it's to be able to supply small scale LNG to stranded customers to remote communities. And that's why we're focused on it. It's not really to be a tonnage provider. However, since the first the Sardinia project, the terminal is not going to be ready in time for the first ship, We are we might or we are considering doing a time charter of the first ship.
And we are very fortunate with the timing of the first ship because there's big interest. So we will look at maybe a three year time charter for the first ship at very, very healthy levels. And then, of course, going forward, the intention then is to for the second ship and third ship is to supply LNG to Sardinia, to the terminal and to the customers that we're building up there and also other projects that we are working on. Pictures of the new buildings being built and is expected to be delivered at the end of twenty nineteen, beginning of twenty twenty. That completes my part of the presentation, and Jens will take you through the financial, and then I'll return to start the question and answers.
Okay. Thank you, Niels. Good afternoon to everyone here in Oslo, and good morning to those of you who are calling in from The United States. As before, I'll provide the details on the financials as they were released today for the second quarter of twenty nineteen. I'll also give you some further guidance that's normally due on certain P and L items.
I want to remind you that we have also filed the press release and the interim financial statements with the Oslo Stock Exchange, and you will also find those on the company's website as well as this presentation. So that's www.stoltnielsen.com. Moving on to the net profit. Operating profit before the one offs, whereas you will see $41,500,000 in the second quarter, which is slightly down from the $44,600,000 that we reported in the previous quarter. But keep in mind, as Nils mentioned, we estimate an impact of the ITC fire of about SEK 5,000,000, which is pushing that number down.
So excluding that, we would have probably been around SEK 46,500,000.0. We had a gain on the sale of the Rail Transportation business and some other minor stuff that was done in the second quarter. And if you look then at the net operating profit as it was reported, it was then at $42,400,000 and that's in line really with what we had in the first quarter. Moving down, the net interest expense for the quarter was $32,800,000 That's slightly down from the $34,200,000 we had in the second quarter. This is due to lower rates on new financings.
And you will recall, we mentioned at the first quarter earnings release that we've done a Japanese operating lease secured for a number of ships, and it's the lower rates of that transaction that is coming through as well as lower floating rates. We also had some FX losses of about $1,800,000 versus a gain of $500,000 in the prior quarter. This is driven really by losses taken on maturities of forwards and swaps and also unrealized losses on some of the intercompany loans that we have. Income taxes were higher due to mix of the profits that we had between the businesses. And net profit, therefore, came in at SEK 3,500,000.0, net minority interest with EBITDA of 105,000,000 approximately.
Note that the EBITDA that we report here is before the fair value of the biological assets, insurance reimbursements and other onetime noncash items. Moving on to the balance sheet. Our total debt is unchanged from the previous quarter at just over $2,400,000,000 However, our liquidity position has improved. So if you look at the net debt, that's actually down for the quarter compared to last quarter as our liquidity position improved about 45,000,000 $50,000,000 Current maturities of our debt that you see there is quite a sizable amount of $510,000,000 and that includes our bonds maturing in September in April 2020 for a total of $3.00 $8,000,000 some financing secured by the Australia terminal as well as some ship financings. And I'll come back to in more detail about this later, but these refinancings have been covered already with the financings that we reported on earlier today.
Tangible net worth was down marginally at just under 1,600,000,000 and most of that really reflects the dividend payment that we made on May 9. That was at $0.25 per share. And as a consequence of that, the debt to tangible net worth ratio increased slightly from 1.5% reported prior quarter to 1.52% this quarter. If you look at the other ratios that we have in our covenants, you have the EBITDA to interest expense, that's at 3.2%, slightly down from the 3.38% reported last quarter. And also, the net debt to EBITDA is at 5.22%, and that's up from what we reported.
And most of this is driven really by having a the lower EBITDA that we've seen of $105,000,000 And also, since this is looking at a twelve month rolling basis, we've had a high EBITDA quarter from 2018 drop off. So it's not really a change in the underlying market. It is the effect of the twelve month rolling effect. Now the net debt to EBITDA drives the pricing in some of our loan facilities, and being above five:one means that also the margin goes up on some of these, particularly the revolving credit line that we have. There's a 25 basis point increase.
However, we expect, with the new financing we've done, to have most of that paid off. So it should not have a significant dollar impact, if any at all. But just as a guidance on the next quarter's interest expense, because of these refinancings, we're paying off facilities early. That will cause us to write off debt issuance costs on our books, and that will be shown in the interest line. So you will see a jump in the interest expense for the third quarter.
It should be probably in the regions of $6,000,000 or thereabouts, but that's a noncash item. Moving on to the cash flow. Cash flow from operations was $48,500,000 as you see. That's down from the $75,500,000 in the previous quarter. And of this swing, it's notable that $20,000,000 is due to timing of when we actually make interest payments.
Under some of the loan agreements that we have, we pay interest semiannually. In addition, we spent $8,000,000 on insurance premiums cash out, which is amortized over the year. And we also had $7,000,000 that related to the timing of voyage related expenses. So during the quarter, we also spent cash on some capital expenditures. This reflected terminal investments of just over $18,000,000 We had about $6,500,000 spent on dry dockings of ships, and it was a hefty dry docking quarter.
9,000,000 in regulatory tanker CapEx and about $5,000,000 on Stall Sea Farm expenditures, and that's related to the ongoing expansions in Serve and Torch that Nils talked about. Total cash flow for the quarter was a positive $9,000,000 resulting in a cash balance at the quarter end of 134,000,000 quarter end, as Nils explained, we reached an agreement on the sale of the Altona Terminal in Australia, and that will produce a gain of approximately $600,000 give and take. Proceeds the cash proceeds are about $7,000,000 and that will be shown in the third quarter. And in addition, we also reached agreement to sell a bitumen ship, the Stolt Kilarea, and that will produce a gain of some just in excess of $1,000,000 taken in the third quarter. Both of these are expected to close during July.
Again, I remind you all that our main objective is really to continue to increase free cash flow, reduce debt and maintain a strong liquidity for the group. So moving on to the EBITA slide. Again, as I said, this is excluding fair value adjustments of Stolt Sea Farm's inventory, gain and losses on sale assets and other noncash items. Tankers EBITA was flat, and that was really because of the impact of the ITC fire pushed it down, but some of that was made up by improvements in the regional fleets, particularly in Europe, which recovered after a tough sort of winter months in the first quarter. Terminals EBITDA was also flat as in the first quarter, with the cold weather that was in Houston, we had higher services revenues, which now falls fell away.
This was offset by the decrease in the equity income from the joint ventures. And SDC's EBITDA decreased due to the tightening of the margin, as Niels discussed. So as a result, we saw that the S and L EBITDA ended up at $105,000,000 slightly down from the first quarter, but relatively flat really over the last three quarters. Going on to capital expenditures. During the quarter, we spent $33,000,000 primarily driven by $16,000,000 in terminal expansions, 9,000,000 in Tankers for the regulatory CapEx, as mentioned.
And year to date, we have spent 60,000,000 Now for those of you that had a sharp eye, you would have seen that cash wise, we spent EUR 72,000,000 on the cash flow slide. The difference between the EUR 60,000,000 here and the EUR 72,000,000 there is the EUR 12,000,000 spent on drydocking, as this slide excludes drydocking. As of May 31, the remaining capital expenditures that we had for 2019 was $211,000,000 And we have a further 194,000,000 or almost $200,000,000 for the years 2020 through to 2023. Now it's a lot to squeeze in SEK $211,000,000 in six months. So expectations from our side are that some of that could be potentially pushed out to 2020.
And that will, of course, also help the year end covenants. What we have included is ballast water treatment systems for tankers, and that's in excess of $20,000,000 For terminals, we have $27,000,000 for the Houston terminal. And we also have ongoing expansions in New Zealand, as Niels mentioned. For tank containers, we have we're refurbishing one of our waste water treatments in Houston, spending some $5,000,000 on that. At Sea Farm, we have $13,000,000 relating to Serve and Torcha still to be spent.
And then you have the $36,000,000 for Stolt Nielsen Gas. And if you recall, we have the three founding shareholders have committed to inject further equity, and we're showing that as a EUR 36,000,000 in 2019 as our share. Moving on to the debt maturity profile, and I'll pause a little bit here because of the refinancings that we have done. This shows the maturity profile through 2024. You will notice the black at the bottom is the regular principal payments that we have.
The light blue are balloon payments on secured debt facilities. And then the gray boxes, they are the bonds that we have, with the first and the second representing the September 2019 maturity and the April 2020 maturity. As mentioned, we did in FebruaryMarch time frame, we did a $242,000,000 Japanese operating lease that's paid off the last remaining debt taken on as part of the J. O. Tankers acquisition and also reduced the drawdown under our revolving credit line.
And as we mentioned in the press release today that subsequent to the quarter end, we obtained a credit approved commitment on a $420,000,000 transaction, which is using 21 ships, most of which are currently in the revolving credit line as collateral. And in addition to that, earlier this week, with the support of Pareto Securities, we did a U. S. Private placement where we received final commitments this week on $200,000,000 This is secured by the New Orleans terminal. It's a ten year facility at attractive terms.
The private placement has the notes on the private placement have obtained an investment grade rating of BBB-. So we're very pleased to be able to announce this as a very attractive option for the company. There's minimal amortization of this, so it's cash flow benign. And we expect to close some drawdown on both of these facilities during the third quarter of this year. So with these two new facilities, we will repay the 148,000,000 bond in cash.
So if you look really at the bottom half of the screen, you have the debt maturity following these refinancings. So the $148,000,000 bond will go away, the $160,000,000 bond maturing in April will be repaid in cash. And we're also now in a position to repay the $59,000,000 Australia the facility secured by the Australia terminals, and we also have some other ship maturities. However, you will see that the regular principal payments will increase somewhat going forward. But this puts us in a very good liquidity position.
And also, what is worth mentioning is that with these refinancings that we have done, we'll probably see a reduction in our interest expense in the region sort of 5,000,000 to $6,000,000 a year. Moving on, taking a look at the consolidated financial key metrics and matrices. The objective here is really to give you a bit of the history and the development of these indices. The debt to tangible net worth, which is in the top left quadrant, has remained stable at the quarter, and we expect that to remain stable at around 1.5:one until we get into 2020. EBITDA to interest expense has been slightly down compared with the prior quarter, and that reflects the weaker EBITDA.
And with the higher capital expenditures, looking at the bottom right quadrant, the higher capital expenditures, we're expecting a bit of a dip in the free cash flow during 2019, but expect that to reverse again as we get into 2020. And the size of the dip really depends on how much of that $211,000,000 remaining that we will actually end up getting through. On the net debt to EBITDA, which is the bottom left quadrant, this ticked up slightly to $522,000,000 as I mentioned. Going forward, we expect this ratio to improve, and we run our own stress test, etcetera. And even though we don't believe so, we test it against the market remaining the tanker market remaining as it is.
And even if the tanker markets continue flat as they at the level they are today, we will see this ratio improve to well below 5% in at the end of twenty twenty, even with flat tanker markets. Moving over to some guidance and expense items. A and G for the quarter decreased to $52,800,000 down from 53,300,000.0 The decrease was really due to lower accruals for profit sharing in the quarter. And our guidance for the third quarter of this year is a slight increase back up to sort of $55,000,000 We've had some positive impact of FX rates also on the A and G expense. So we're prudently forecasting a slight increase.
Depreciation and amortization for the second quarter was $63,800,000 That compares with just under $63,000,000 in the prior quarter. And we had a guidance at $63,700,000 so we actually came quite close. The higher depreciation from the prior quarter was driven really by depreciation, and that was a result of more calendar days. So pure mathematics, we take the have a daily depreciation charge multiplied by number of days. Our guidance for the third quarter is $65,100,000 as we expect an increase in tankers due to a large number of ships that have concluded the dry dockings during the first half of the year.
And also, we expect an increase in depreciation from the Santos Terminal, which just concluded its expansion of 15,900 cubic meters. Moving on to the share of profit of JVs and tax. Our share of profits was from the JVs was $5,300,000 That was down from $6,300,000 For Tankers' CVs, the higher earnings that you see there is due to the Chinese joint venture recovering from very poor weather conditions that we suffered through in the first quarter. And also improved DC results that we saw and lower I should mention also lower ship management costs in our joint venture with NYK. At Stolthaven, there was a slight decrease, reflecting somewhat lower utilization at our terminal in Antwerp, the joint venture terminal we have there, and partially offset with higher equity income from our Korean terminal.
Our guidance for the next quarter is $6,800,000 With tax expense for the quarter, we expect was at $4,300,000 That was up from 3,500,000.0 and that was mostly due to the mix of the profits that we have with more in terminals, which tends to have a higher tax rate. And also because we have no matter what the results in tankers, have we're part of the tonnage tax regime and the Dutch tonnage tax regime. I also wanted to explain the IFRS 16 impact on the Stolt Tanker results. This, unlike most other companies, does not yet apply to Stolt Nielsen. It becomes effective for us with the fiscal year starting December 1.
And based on the leases that we had outstanding as of May 31, so at the end of the second quarter, we estimate that there will be an approximate increase in assets and debt of about $186,000,000 on balance sheet impact. Also, if IFRS 16 had been effective in 2018, there would have been an increase in EBITDA for 2018 of $47,000,000 Also, this would be driven by operating lease expenses that would have been replaced with depreciation expense and interest on those lease liabilities. So consequently, interest expense would have been higher by about $10,000,000 in 2018 had we had IFRS 16. The actual transition amounts and how they will impact 2020 when we go forward will, of course, be dependent on the leases that we have in place at that time. The impact on our bank covenants are shown on the as per the table.
However, what is important to note that with in all our facilities, we have the option to calculate the bank covenants as per the old pre IFRS 16. So there will be no impact on our performance under loan covenants. And also, as a reminder, there will be no impact really on cash. And with that, I'll pass it on back to you, Niels.
Thank you, Jens. So just key takeaways. The net profit attributable to the shareholders, SEK 3,600,000,000.0, and that's after the impact that we saw on the ITC fire. The tanker market remains flat compared to the previous quarter. As newbuilding deliveries continue to reduce, the market, as I said earlier, I think will eventually return.
I would say that had you taken away the fire, we would have seen a little positive improvement. But the big we haven't seen anything significant yet. So really, the only good news that I have to say is that there's no new buildings being ordered. And as long as that's going, there will eventually be a balance. We will continue to see steady improvements from Stolthaven Terminals, both operationally operational costs, but also replacing old contracts with a better margin business and also increased earnings from expansions that are being completed.
Still, Tank Containers, there was some signs there is some sign of improved utilization, up from what we saw in the second and third third and fourth quarter of twenty eighteen. And again, I think the fundamentals, they are strong. Even though there's increased competition, the fundamentals in that market, it's a growing market, it's a big market. And I think with our platform, we will continue to see healthy earnings from that business. Sea Farm will continue to we will continue to see the underlying improvement from Seoul from Turbot and also the excitement of the expansion that we are completing in Seoul.
With the significant financing committed subsequent to the quarter end, which Jens and his team has done a tremendous job, as you saw, the Chinese sale leaseback, the JELCO refinancing, the new bank revolver and also with the just newly completed financing of the New Orleans terminal, our company has the liquidity in place to repay our Nordic bonds in 2019 and 2020 and even maybe in 2021 without having to go back into that market. So that's and also having close to $200,000,000 of liquidity at the year end of each year, which is a significant achievement in this market. Also, it's important to note that even if we assume that the tanker market will remain in 2020, will remain the same as in 2019, in other words, no recovery, and if we assume that the Tank Containers business this quarter continues into the next year, you will still see a reduction in debt in Salt Nation. So even without the recovery in tankers, debt level, which we've been very much focusing on, will be coming down in Salt Nation. So our focus remains on overall debt reduction, and that you will see from 2020 and onwards and then to strengthen our free cash flow.
That completes our presentation, and now we will open up for questions. Now we will start here in Oslo and then followed by people on the phone.
You. Ben Wicken Iglitzen from Danske Bank, Markets. Two or three questions from me. You keep talking about Singapore, the Singapore terminal, this is a challenging market. Could you talk a bit about how the utilization in this terminal has developed?
Is it possible that you will no longer consider it part of your core terminal assets? Can it be divested as we've seen in other parts of the terminal business?
It is a hub terminal, it's core. So it's nothing that has been discussed for divestment. And even with today's utilization, it is very profitable. So there are instead of pursuing short term spot opportunities, we are trying to find pipeline long term business, and that's what we're in. And we have several leads, which we are working on.
So to answer your question straight, we have no intention of selling that terminal. It is a profitable terminal. It's a modern. It's highly operational efficient through optimization. So no, we don't intend on selling that terminal.
And we are optimistic that we just having the patience, we will be able to get the utilization up and also expand the or build out the remaining land.
All right. Over to bunker surcharge clauses in contracts. You mentioned that all contracts extending into next year have these surcharge clauses. Could you talk a bit about is the contract coverage unchanged since earlier? Do you see more requests for short term contracts?
And what portion of your client base would you say have opposed including these surcharge clauses?
To answer the in a weak market, when customers believe the market is strengthening, they tend to ask for long term contracts. And we're actually seeing that now. So they are trying to then say, okay, we'll fix now, but they want the customers' option to do it year two and three. And this is the game that we're playing. We are saying we're only willing to commit to a one year contract.
Or if we have to commit to Year two and three, we want to have the window to plus or minus 10% or plus or minus 15% so that we can if the market comes, we have an opportunity to benefit from it. Of course, we are not living in isolation. So there are competitors out there that are willing to fix two, three year rates. So we do we have lost a couple of contracts. We have lost a couple of contracts in the last quarter because our competitors were willing to take on bunker clauses, which is not with full pass through of costs and which are at freight levels, which we don't think well, it's not sustainable.
So we rather take our chances in the spot market. But we also won some. So I think our contract overall contract coverage in tankers right now is at 60% just under 70%, so very little change. When it comes to the bunker clause, it still remains is that I would say that most of the major large customers, they are positive, and they have accepted the bunker clause. The big names are accepting the pass through.
You can really see that this is a pass through of an environmental cost that we need to do to clean up the air. So it is a joint responsibility to do this. So the majors, the serious, the big guys, they are responsible, and they are taking on that additional cost. And as we have stated many, many times before, the bank the industry the shipping industry is close to bankrupt. Everybody is losing money.
And for us to take on for Stolt Nielsen to take on the additional cost of $130,000,000 it's you can't do it. So if you can't pass it on, you shouldn't take the business and hope for that to market. I mean I think we're also fortunate in the timing of the market. I think everybody understands that this market will eventually strengthen. So I think with the strengthening market, we should have a bigger chance of being able to pass on that cost.
All right. Final question for me. The terminal business has been part of the unencumbered part of the salt maintenance assets as of late. And with this private placement, 200,000,000, do you still have unencumbered terminal assets in the portfolio?
Yes. We have three terminals that are unencumbered. So there are further opportunities, and it it was big interest in this part. So this is something, of course, we will continue to explore. I Very don't know if I may say, and I would like to complement Jens, but with this new financing that we have in place, when it's all drawn down and refinanced, we will have a $6,000,000 lower interest expense per year.
So it's a great job done by Jens and his team.
Thank you very much.
I'm OXXO Stilmann from Nordea. Thank you for your presentation. Very interesting as always. A couple of quick questions. First one is related to the Tianjin terminal.
What is the current utilization on that terminal? The second question is where do you see that increased competition on the tank container market? Is it from the Chinese? Thank you.
Starting with the terminal. I think that the Changjin terminal is at 50% utilization. But I think by the year end, we will be up at around 65. So there are things that we're working on getting business there. Remember, that joint that's two joint ventures.
One is for the Jetty and one is for the terminal. The Jetty joint venture has been profitable all along. The terminal, because of the explosion and the low utilization, has been but the Jetty has really been financing the terminal joint venture. So we are it's been tough. I mean when you lose your license to operate, when they closed on, when the authorities closed on and when it takes an enormous amount of time to get license per product that you want to store.
It's a bureaucratic process, but we have gotten those licenses now. And unfortunately, everybody has been through the same process. So when everybody got their licenses back, everybody is chasing the same business. But the business is there. It will just take time to build it up again.
When it comes to tank containers, we are seeing increased
competition.
You have the large operators, the Hoyers, the Birchies, the Bulk Holes, the Sinnochem or Newport. They are the big but in addition, you also have small operators. So yes, these big guys, we have all expanded and built new tank containers. But you also have a bunch of new operators, regional operators that are under the radar screen. We have 40,000 tank containers.
But if you look at operators with 10,000 tank containers and below, there's a lot of them coming up. Can't operate as internationally as with the quality, the reliability and the flexibility that we provide and which the large customers' needs and which you need a platform to be able to operate profitably. So there is increased competition, not only from the large guys, but also from newly established companies. But again, we remain as I've said before, with our platform, with our systems, and we have I've said many times, we have I think what the differentiator is, is that you have the right tools to be able to operate these profitably. The key to the trade is to make certain that you minimize the number of empty repositionings.
So you need to think not the next leg in it, you need to think three or four legs down the road to make certain that you make a profitable round voyage to be able to make this money out of it. So we are making money. That doesn't mean that all of the new operators are making money.
Peter Huggen, Kepler Cheuvreux. On the bunker exposure going forward, you have as of just to understand that correctly, in 2020, you have no contract hedges in place?
Beyond 2020, no, we don't have any paper.
Beyond 2019, actually?
Beyond 2019, no.
Right. This was well, I can't remember, to be honest, but I've seldomly seen the product tanker slides that you have shown now. To what extent do you believe as sort of a company, you were referring to those brokers? But from the company perspective, how important is that relationship to the product tanker fleet?
So we are 65% to 70% COH. That's filled up. So we are that 30% we have left is spot business, is commodity chemicals. So to make it so of course, when you have a strong market, you get the COA rates, and you most likely fill out most of that ship with COA nominations. But you're not always able to fill up everything with COA.
So our main business is contracts over rate. But then you're dependent upon the gravy on top of that is the spot business. And that spot business is, of course, influenced by the swing tonnage coming in. So I think that it's a very difficult question because it can't be proven, but we always believe that there are more of these big slugs that are being taken, which we sometimes use to use for repositioning of a ship, if you have to do that, or the to fill up the remaining 30%. You're dependent on the spot business on this commodity business, which we really don't focus on, but which is there to kind of get the utilization on your voyage up.
So it's just and you can see it from the historical earnings, there is a correlation even with crude tankers, product tankers and chemical tankers.
Agree. You were commenting on competition taking not sustainable renewals with no pass through on bunkers. Would that then be sort of liner competition? Or is that ramping tonnage coming in and trying to do coals?
Without mentioning names, there are we are not liners. But if you talk about the major operators, there are some major operators, not our main competitor, but other operators that are willing to take that took one of our contracts without the full pass through.
You.
You. Lukas Dahl from ABG. Just to follow on that IMO twenty twenty negotiations, and we have discussed it before, but how big percentage of contracts that you want to sort of renew are you still having on hold until October, where you either walk away or you agree on a full pass through?
There sort To of a commitment understand your question, of the contracts that we renew that goes that will be going into 2020, how many have an agreement that we will meet in October? Yes. Do you know? I need to come back to you. The majority has been passed through, but there are certain I'll come back we need to come back to you with the exact percentage.
But the majority of contracts that we renewed into 2020, the full pass through clause has been accepted.
Okay. And can you say the terminal that you have, what was the loan to value on that transaction? Could you disclose that?
The value is determined basis, the value of the land itself that we own in Ordinance as well as an estimate of a multiple of EBITDA. And we ended up at a loan to value of about sorry, value over loan of about 175% roughly.
Okay. Thank you.
I should just add that valuation was done by a third party agent.
But is that that's public information, right? It's in the loan document. So it's how much what was the valuation of the New Orleans terminals that you
got from third party independents?
Just under $350,000,000
That you can put in your model. Okay. Is there any other questions here before we then open up to
the sorry?
All right. Well, if there's no further questions, I wish you all a long and relaxing and warm summer. Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.