Welcome to the Stolt-Nielsen Fourth Quarter 2018 Results presentation. Today's presentation is recorded. Please let me hand the presentation over to Mr. Niels Stolt-Nielsen, Chief Executive Officer.
Good afternoon, g ood morning, and t hank you for joining us here in Oslo for our fourth quarter 2018 results presentation. Together with me is Jens Grüner-Hegge , Chief Financial Officer. The agenda, as always, we will go through the highlights for the fourth quarter, then I will take you through each of the divisions, and Jens will take you through the financials, and we will open up for questions and answers at the end. The highlights for the fourth quarter, a s you saw from the release this morning, Stolt Tankers reported an operating profit of $7.7 million, and that's down from $21.4 million in the previous quarter. That is mainly reflecting a lower or more competitive challenging freight market for tankers, but also higher fuel costs.
The loss of $4.1 million on the bunker hedges and that is compared to a gain that we had on those paper hedges in the previous quarter. Stolthaven Terminals reported an operating profit of $11.7 million, and that's down from $18.6 million. That is including a $6.1 million impairment, which I will go into later, and a $1.7 million decrease in equity income from our joint venture partners. Stolt Tank Containers reported an operating profit of $18.1 million, up from $17.7 million in the previous quarter. The operating profit rose despite lower revenues, and that is mainly because of actions to manage costs as markets soften. Stolt Sea Farm's operating profit before the fair value adjustment of inventories was $0.9 million versus $2.1 million in the previous quarter, mainly reflecting lower turbot volumes.
Avenir LNG, we successfully established a joint venture with our strategic partners, and listed the company on the OTC here in Oslo under the name Avenir. Corporate and others reported an operating loss of $11.9 million compared to a loss of $3.4 million in the previous quarter, mainly reflecting the final write-offs in the bitumen business. This brings us in at $3.6 million profit for the quarter, and a total profit of just under $55 million for the year. Looking at the variance analysis on the net profit basis between the third quarter and the fourth quarter, so $3 million for the quarter. We had a one-off charge of $12.9 million when we changed the accounting of Avance Gas when Jens and myself went off the board, which we didn't have in this quarter. We had an impairment of the terminals. I will go into that later.
Impairment of the bitumen, lower Stolt Tankers trading results, operating profit of $13.6 million, $0.9 million on the lower terminal operating profit, slightly higher in Stolt Tank Containers, $2.9 million higher in Stolt Sea Farm, and then the gain on the deal that we did with Avenir of $11.2 million, lower corporate and others of $2.6 million, and some lower FX losses versus third quarter of $2.2 million, bringing us off to $3.6 million for the fourth quarter. Looking at Stolt Tankers, our biggest division. The deep sea fleet, excluding the regional fleets, the volumes for the fourth quarter was approximately the same as the previous quarter, but revenue decreased 2.4%. That's a reflection of lower rates overall, but also more spot volume being moved versus contract compared to the previous quarter.
The contract nominations for the fourth quarter last year were down. Overall rates were down 3.1% versus prior quarter. That is a combination of, again, lower market rates, but also a mixture of what you carry. Even the COA nominations, if we have a quarter where we carry more large parcels of acids, that also influences the overall rate. COA rate renewals in the quarter were down on average 2.5%. The COAs that we renewed during the quarter were down 2.5% compared to the rate renewal decrease of just under 4% in the previous quarter. If you want to look at it positively, there is a slowdown in the decrease in our negotiations when we renew our contracts. Moving on to the slide, page eight, the operating profit variance between the third quarter and the fourth quarter. Again, $10.8 million lower trading results for the quarter.
Bunker cost increase, net of bunker surcharge, in other words, the bunker clauses that we have on our COAs, of $0.8 million. Lower bunker hedge results, as I mentioned earlier, of $5.3 million. We had a positive variance of lower depreciation, that is mainly due to the life extension that we did in the fourth quarter. Higher A&G of $1 million and lower equity income from the joint venture of $0.6 million brings us to a total of $7.7 million operating profit for the quarter. Bunker cost, the average price, and here is one of the big challenges, the average price of consumed heavy fuel or IFO increased to $465 per ton in the fourth quarter versus $437 per ton in the third quarter. The COA bunker surcharge clauses, the bunker clauses, covers us for 62% of our total volume.
If you include the paper hedges that we have in place, we are approximately 75% hedged on our bunker exposure. Again, the fourth quarter loss on the bunker hedges resulted from a drop in the bunker prices towards the end of the quarter, caused by the large drop in the global crude prices. If you look at the overall paper hedges gain and loss that we have in 2018, you can see overall we have gained, and it has been profitable, of a total of $6.2 million for the year. If you look at the hedges that we have in place for 2019, 80,000 tons and an average fair market value of $316, $317. I think the market price today is at around $350 for heavy fuel oil.
We all know about the low sulfur fuel regulation that comes into effect in 2020, 1st of January, where we have to go over to a new fuel of less than 0.5% sulfur. As I've stated earlier, regardless of how many scrubbers you have, the majority of the global fleet does not have scrubbers, and the majority of our fleet doesn't have scrubbers or will not have scrubbers. We are dependent upon being able to pass on that additional cost from switching from heavy fuel oil to the only alternative that is in the market right now is marine gas oil. We have to pass that on to our customers. If we were not able to pass that on to our customer, our additional bill will be close to $130 million.
Looking at our results, you know that that's not possible. We will have to pass it on to our customers. In the negotiations that we are doing now for COAs that goes into 2020, we are successfully able to pass it on, in not all contracts, but we are not accepting anything beyond passing it on. If we are not able to come to an agreement, we have an exit clause saying that we will negotiate that towards October of this year, and i f we don't come to an agreement, both parties can walk away from the deal. I think we are in a fortunate position because we expect the market to recover. If it's end of 2019, 2020, but i f you look at the supply and demand side in the chemical tanker segment, I do expect the market to eventually recover.
I think we can be glad that we will be in a strengthening market when we need to negotiate these bunker clauses that we need to put in place. You can see at the bottom here, the reason why we have a challenging market. I've said it earlier, the only reason we made money in 2015 and 2016 and part of 2017, it's not because the volume went up, the total volume carried or the freight rates went up. It was because the bunker prices went down. Now that the bunker prices have come up again, the spot rates have not moved. We haven't been able to pass that additional cost on back to the spot market because of the supply situation. You can see then that even though the bunker prices have been going up, the rates have not.
You can see here on the blue, this is our average quarterly purchase cost, which is on $465 on the fourth quarter. While today's rate is closer to $350. Once we've burned off the expensive fuel, I think we will see improved earnings from us going in first quarter and the second quarter, based on the cheaper bunker fuel that we will be burning. Stolt Tankers Joint Service Sailed- In Time Charter Index, t his, we started in 1996. 1996 was at one. Today, as you can see, we are in an all-time low. You have to read the fine print at the bottom. The index is based on the sailed-in revenue, STJ Ships, plus net results of outside time charter ships, plus an adjustment for inflation on the sailed-in, which of course makes it looks worse.
I think that our operating cost has not gone up in line. It has been below inflation. We are a bit tough on ourselves on this chart, but it gives a reflection of the market situation. The poster side on page 12, the chemical tanker fleet and our order book, w e do not have any more ships to be delivered of chemical tankers. The blue line here in 2019 and 2020 is what is to be delivered in 2019 and 2020, of course, and t he order book now is just under 10% of what we are categorizing as our competitors. I think it is 31 operators. There has been a slippage, there were supposed to be more ships delivered in 2018 and less in 2019, but there has been a delay.
We do still see a number of ships being delivered in 2019, but we are not seeing any new buildings being ordered. Market development, w e see demand growth of 4%, and that is what we have in our model based on GDP. Of course, big uncertainty here of what is going to happen and the slowdown that we are reading about and seeing. Based on the feedback that we have, we estimate as a multiple of GDP that our growth, the demand growth, will be 4%. The core fleet deep sea growth will slow, has been 6% in 2017-2019, and 2%, 2020 and beyond. If the new building remain moderate, the oversupply should be absorbed by the growth in the market. We are cautiously optimistic that we will see a strengthening of the market end of 2019 into 2020.
We also see that the CPP market has also strengthened, there has been a correlation between those two markets. We are cautiously optimistic that things should start to improve. Stolthaven Terminals, I would say steady. Revenue and expenses were relatively flat between the two quarters. The operating income including or excluding impairment charges of $6.1 was marginally down by $9.9 from third quarter, reflecting slightly lower joint venture equity income, n othing to read from that, it is just timing. The impairment was on our terminal in China, in Lingang, where we had the explosion in 2015. We did not have an explosion, but there was a big, Tianjin was a big explosion. It has taken a longer time to fill up the utilization. You can fight with the external auditors about impairment, but this is what we came to.
I think that the earning potential of this terminal is still there. It just takes time to fill it up. Utilization for our wholly owned terminals was 91.4% compared to previous quarter. An overall utilization above 90%. Quickly, the operating profit variance between the two quarters, page 15. Operating profit of $18.6 in previous quarters. The impairment that we just talked about, a $6.1, s lightly lower equity income of $1.6, and others of $+0.9, $11.7. The market update, s trong fundamentals in the U.S., we are well positioned for that strong market, both in Houston and New Orleans, with plenty of room for expansion. Singapore market remains challenging. We are getting utilization up, but it is a bit of a competition h owever, we are working on several very interesting long-term industrial customers, which can bring the utilization up to close to 100%.
South Korea, Brazil, and the Malaysian market looks stable. The European market remains stable for chemicals, but CPP, there are been an increase in inquiries, especially in bunker fuels storage, which is related to the IMO 2020 regulation. Major capital project includes the Jetty number 11, which is almost finished in Houston. Ulsan expansion of 163,000 cu, expected to be operational in the first quarter. The capacity expansion in New Orleans, in New Zealand, and in Santos, Brazil, remain on schedule. New Zealand and Australia are stable for chemicals, working on opportunities to increase utilization and potential expansion. I would say the terminal business is steady, and we will continue to see steady improvements in earnings from that division. Tank container, t he market did soften towards the end of the year.
Revenue decreased 5.8%, driven mainly by lower transportation revenue, a result of the 6.5% fewer shipments in the quarter, and i f there's a good indicator of what's happening in the world, it is really to see the movements and utilization and shipments and an inventory buildup in the depots of tank containers. What we saw towards the end of the quarter, in December, where you traditionally see a significant drop in shipment and that seasonality, this year, we saw a significant drop. We never seen that kind of drop before. It picked up again in January, which is normal, but it never came back to the normal level or to what we usually see as a recovery. It has improved as the weeks have gone by, but there was a big drop, which was a bit of a surprise.
The other thing that we saw towards the end of the year was a significant pickup of demurrage. When the customer ships, our tank containers, and lease our tank container, we deliver it at their factory. They have X amount of days they can use it, which is included in the freight they have paid, but i f they go beyond that, they have to pay demurrage. The demurrage income went significantly up. That's usually an indication that the customer receives the tank container, and are not using the product that they need for manufacturing as fast as they had expected, a nother worrying sign about what is happening. Operating expenses was reduced by 9.1% in the quarter, reflecting the lower shipping volumes. We had actually an overall improvement because of the operational efficiencies.
Utilization down to 68.2% from 71.6%, reflecting global slowdown due to economic uncertainty in the year inventory reduction and by the customers, as we just talked about. If you look at page 18, third quarter to fourth quarter operating profit variance, $17.7 in the third quarter. Lower transportation revenue, but lower operating expenses of $9.4. Slightly higher A&G expenses, 0.7 of other brings us to a operating profit of $18.1. Stolt Sea Farm, t urbot volumes decreased compared to prior quarter, which was partly offset by the increase in average price. The price of turbot for this quarter was the highest since the third quarter of 2011. We're getting close to EUR 9.50/kg . Remember, our year ends at the end of November, the low volume is really to build up for the Christmas sale in December.
We got record high prices, and that's why you see on the next slide, you see that the fair value adjustment was at $4.1 million up, bringing the operating profit for the quarter of $3.3 million. Stolt-Nielsen Gas, t he big thing, and very exciting thing is the creation of Avenir together with Golar and Höegh LNG. We put it together and the three of us combined committed $182 million to invest in the company. We raised $99 million right away, and we have a further $72 million to $73 million that we are committed to inject, and w e also raised $11 million through a private placement, and then we registered it under the OTC.
With that we have the money to finance and pay for the six ships, the four 7,500 m3, and the two 20,000 m3 , and to pay and build the terminal, which is on the way in Sardinia. I think that we will be the company, so S tolt will have the 45% interest, and the two other partners have 22.5% each. The business is really not to become a shipping company, but to be a supplier of small-scale LNG. Our long-term visionary is to source the LNG, ship it, store it, and distribute it. Not only making money on the logistics side, but also making money at sourcing it and supplying to remote locations.
I think with the partners of this, the 16 FSRUs globally, having access to competitively priced LNG, puts us in a unique position, not only with the assets, but also with the expertise that our two partners come with and also combined with our logistical experience, so v ery exciting, and we see huge growth opportunities in this segment. That brings us to the financial and over to Jens. Thank you.
Good afternoon to everyone here in Europe and good morning to those in the U.S. As normal, I will provide some further details on the financial results that were released earlier today for the fourth quarter of 2018, a lso touch a little bit on the full year results, and I will give you, per normal, some further guidance on some of the P&L items. I also want to remind you all that we have today posted with the Oslo Stock Exchange, the earnings release, and the interims. This have been filed for the year ended November 30 of 2018. Also on our website, you will find the press release, the interims, this presentation, and also for those that are calling in on the phone, we have posted a video on our homepage, which summarizes the year in figures, which I hope you will find interesting.
Moving on to the net profit, t he operating profit, the top line that we're showing on this graph for the fourth quarter of 2018 was $41.7 million. This is down from $54.6 million for various reasons, as Niels has touched on, but o f notable points are the one-offs. You will see $12 million mentioned as an impairment of the Stolthaven and bitumen assets. This is $6.1 million relating to the Stolthaven Australasia, and our investment in Lingang, and about $5.9 million of bitumen assets. This will have brought our bitumen assets down to zero, with the exception for the ships that we have. As you will recall, we wrote down about $11.8 million on the ships back in the second quarter of 2018. We feel that we are now taking what needs to be taken there.
For the full year, you see the operating profit after one-offs was $28.9 million. That's down from $54.8 million. Moving further down, the net interest expense was in line with the prior quarter at $33.7 million. One thing I want to point out is that under "other," we had a gain of $11.8 million versus a loss that we showed in the prior quarter of $12.6 million. Niels touched on this. The $11.8 million relates to the formation of Avenir as a joint venture and a gain that we took on that, and the $12.6 million includes the Avance Gas loss that we took when we changed the accounting method for Avance Gas back in the third quarter in July.
That brings us down to a net profit of $3.2 million for the quarter, slightly up from $2.3 million in the prior quarter, and an EBITDA of $102 million, which is considerably down from the EBITDA that we have in the third quarter, and to an extent really driven down by the results in Tankers that we saw drop. For the year- to- date, I will just highlight a few points. The operating profit after one-offs was just marginally down from last year at $187.1 million, and net profit slightly up at $54 million versus $50.1 million. I would like to remind you, if you look at the tax line for 2018 year- to- date, we're showing a positive number of $7.7 million.
That reflects the credit, really the gain that we took of $24.9 million at the beginning of 2018. That related to the reduction in the U.S. income tax rate from 35% down to 21%. Moving over to the balance sheet. I'm quite happy to point out that the debt has reduced further. It was down $54 million in the quarter. We're now down below $2.4 billion. Now I just want to point out also on the current maturities of debt, we're showing a rather significant amount of $473 million at the end of 2018. This includes the bond that is maturing in September, and that is about $150 million, $148 million. It also includes the Jo Tankers facility that we took on when we bought Jo Tankers back in 2016.
Current outstanding is about $150 million. We are very close to drawing down on a replacement facility for that, where we will draw some $240 million under a new facility. The last part there really is the Australasia financing, where we are in discussions on extending that facility for another year, so d on't get worried about those, those are well underway. Other things I would like to point out is our fixed to variable interest rate, so it remains relatively stable at 72%. It fluctuates a little bit depending on how much we draw on the revolving credit line, which is a floating rate facility. Our average interest rate is at 5%, slightly up during the course of 2018, reflecting the underlying interest rate environment.
Looking forward at the first quarter of 2019, we expect the interest expense to be marginally up at about $34 million. Two covenants I wanted to point out. One is the debt to tangible net worth. That was at 151 last time, and that with the reduction in debt has continued to drop to now 148. On a net basis, it is 144. We have seen an improvement there and we expect to continue to see an improvement as we go into 2019. The EBITDA to interest expense reflects the lower EBITDA for the quarter, and that was down from 360 approximately to 334.
The last one is net debt to EBITDA, which actually drives the pricing on some of our loan facilities. It is important for us to keep that below five to one, and that was at 4.89 for the quarter. We are left with about $240 million in available liquidity on our revolving credit lines. In addition, we had cash of $65 million, so $300 million in total available liquidity at the end of 2018. Going on to the cash flow, y ou will see the net cash flow generated in the quarter was $82 million.
You will see changes that we had were really related to timing of interest expense, that was down from $100 million, and we tend to have quite a bit of payments at the end of the quarter, the fourth quarter. We had used about $60 million in investments, and that was split between $46 million in capital expenditures on terminals, tankers, Stolt Sea Farm predominantly. We also had the $18 million that we put into the joint venture, the Avenir joint venture that was established also in the fourth quarter. During the fourth quarter, going back to financing, we did close on one facility, a $93.8 million facility with Danish Ship Finance. Part of those facilities were actually used to pay off other facilities, but also to reduce the drawn amount on the revolving credit line.
Looking down at the bottom, we have the net cash flow for the quarter was a negative $20 million after that debt repayment. We ended up with $65 million in cash at the end of the quarter. When you look at the EBITDA figures here, I just want to remind you that these include the impact of the IFRS fair value that we applied to the Stolt Sea Farm inventory. It also excludes gains and losses on sale of assets, and also excludes other non-cash one-time events, which would mean that the $11.2 million related to Avenir is not included here. Tankers' EBITDA decreased in line with the market and because of the bunker hedge losses that we took.
Also, terminals saw a bit of a decrease and part of the reason for that is because in the two prior quarters, we had one-off income which was not repeated in this quarter. It was truly one-off income related to some termination fees that we charge our customers. STC's EBITDA continues to be strong, tied to really the improvements in operational efficiency that they have experienced. As a result, we see that the overall SNL EBITDA was $103 million, down from $122 million in the prior quarter. Moving over to capital expenditures, yo u will see total expenditures for 2018 came in at $167 million. For those of you that have been following us for a while, will see that as a good reduction from prior years.
I would like to say that we've done what we said we were going to do and control the amount of money that we do spend, all in an effort to improve the free cash flow. In 2019, we expect $255 million in capital expenditures. This is an increase. It is tied to ballast water treatment systems that we are installing on our ships. It's tied to some $35 million further investments in our Houston terminal. Some Jetty expansions that we have going in Houston, as well as expansions that we have at our Santos terminal in Brazil and also at Dagenham in the U.K. A lot of these are projects that have been carrying on, so it's not new projects that we have committed to, but that we are getting into the more final phases of them.
For the Sea Farm, we also have two new farms that are under construction, o ne is in Cervo in Spain, and the other one is in Tocha in Portugal. These should be both completed in 2019. This slide now, t his is the debt maturity profile. It could be a bit daunting, but I want to address the 2019 maturities that we have. If you look at the top light blue portion, that is the bond that is maturing in September. You will see in 2020, we have a further bond maturing in March. Between the two of them, it's about $300 million. The orange, those are balloon payments that we have under our debt facilities, and the dark blue are regular amortizations of debt facilities.
If you look at starting with the orange one, that is predominantly the $150 million that I referred to the Jo Tankers facility, which we will pay back second half of February with the new facility. Al so, it includes the Australasia portion, which we will extend for another year to buy us time for the refinancing exercise, and that is at $75 million. The bond we are also pretty close to have finalized the refinancing of that without going back to the market. Considering where the bond market is today, which is higher than what we have appetite for on a cost basis, we are also working on being able to repay the March 2020 bond without having to go back and do a full bond issue at that time.
For some of you, that might not be good news, but we feel that at current levels, it's better to look for some cheaper alternatives using collateral assets that we have available. The next slide, t his is a new slide that we have put up, and it's really to give you a flavor of the key metrics that we are focusing on a high level. Starting with the top left slide, this shows the debt to tangible net worth, a key covenant in our financings. You will see the red line is the covenant limit at 2 to 1. The blue dotted line is the board's self-imposed limit of 1.5 to 1.
With the Jo Tankers acquisition, the red solid line, you see that jumped up to 1.5: 1 where the dotted blue line is, and it increased a little bit following that. We have since, in the last number of quarters now, been able to steadily establish a downwards trending momentum. The yellow bars, I have mentioned what that is, that is the debt. The blue bars, that is the tangible net worth. The top right bar is the EBITDA to interest expense. The EBITDA is the yellow columns, and the net interest are the blue columns. Here the covenant is that we should have a minimum ratio of 2:1 , so EBITDA twice as high as interest expense.
That has been trending down a little bit because of the deterioration predominantly that we've seen in the tanker market, we are expecting that to soon turn around and start creeping up again to higher ground. Bottom left, we have net debt to EBITDA. Again, this is a pricing covenant more than a real bank covenant. We like to keep that below the five to one. It went up a little bit this quarter, again, driven by the lower EBITDA that we had, we expect that to continue on the downwards trend. One thing in the middle there is the free cash flow, one thing we talked a lot about is how we want to improve the free cash flow to make further cash available for debt repayment.
You will see this goes back to about 2009, and we have finally managed to get some positive traction there that is very much driven by the reduced capital expenditures, which used to be in the $300 million region plus per year, which we have brought down. Also, an improved cash generating capability, more focus on getting cash in from our joint ventures, et cetera. We're pleased to see that this is now up at close to $300 million for 2018. The last is just for those interested, it's the dividend per year. Moving over to the A&G expenses, f or the quarter, we had total A&G of $56.3 million. This was up from $52.2 million and also slightly above our guidance that we gave at the last quarter presentation.
The bulk of that is really due to the profit-sharing LTIP, where we had under-accrued, as you will see in the third quarter. Going forward, for the next quarter, we are expecting something in between, so around $55.5 million, $56 million as a guidance for the next quarter. Depreciation and amortization, y ou will see that tankers depreciation was down from $45 million last quarter to $40.5 million in the fourth quarter. This was predominantly driven by life extensions that we did of some of our ship series built in the mid 1990s. The ships are in excellent condition. They have a longer trading life than the standard 25 years. We are therefore committed to life extensions. With that, we've also then reduced the annual depreciation, and that's coming through in the lower tanker depreciation.
Total depreciation for the quarter was $63.2 million and that was down from the $68.6 million as mentioned. I'd like to point out the impairments that you will now have seen a few times, tied to the terminals in corporate and other. We are expecting really for the next quarter, our depreciation amortization to come in at about $64.5 million as a guidance. Share of profit of JVs and tax, t he JVs contributed profits of $4.4 million in the quarter, down from $6.9 million for tankers is a slight reduction, and t hat's really in line with what we saw as the drop in the overall tanker results. A slight reduction also in Stolthaven , and that relates to some early termination fees that we got from one of the joint venture terminals in the prior quarter, more than really a deterioration of the results this quarter.
As you will see, the fourth quarter is more in line with the fourth quarter 2017, so the third quarter was rather the unusual one. Our guidance for the next quarter is $6.6 million, where we expect terminals to come up somewhat. Tax expense, to touch briefly on that, was $3.2 million for the quarter, and that was slightly down from $4 million in the prior quarter. Year- to- date, because of the U.S. gain that we took of $24.9 million, it's coming in at a tax gain, actually, of $7.7 million versus more normalized $12.2 million in 2017. We just thought to give you a brief update on our position with IFRS 16. The highlight is really that this will not apply to us until the quarter starting December 1st, 2019.
That's because our fiscal year ends November 30th, or our fiscal year started really before this became effective. We will come back to you at a later stage with what it actually means in terms of an EBITDA and debt implications. More importantly, this has no practical implications for us. One is, of course, non-cash other than the potential tax impact if there is any. The other thing is also in all our facilities, bank facilities, all our loan facilities, we are covered for a change in this accounting methodology and therefore there will be no bank covenant impact. With that, I would like to hand it back to you Niels.
Thank you, Jens. Takeaways, n et profit of $55 million for the year compared to $50.3 million in 2017. The chemical tanker market remains challenging, but we are cautiously optimistic that it will eventually turn around. We are hoping that towards the second half of 2019 and beginning of 2020, we should start to see improvement. Solid performance at Stolthaven Terminals, I think that will continue. We will see the new capacity coming online, and the operational efficiencies that our team are working on will, we also have an impact. I think we will see a continued improvement in the performance of terminals. The market has softened in Stolt Tankers, but the earnings are still at healthy levels. I think also the operational efficiencies that we are able to achieve through the investments that we have done over systems will also have a positive impact on our results.
Very exciting with the new joint venture that we have established in Avenir, e xciting things that I hope to share going forward with you. We have a strong earnings base from our businesses through the investments that we have done over the last, I would say, 10 years. We have enough assets. We have positioned ourselves well for growth going forward. As Jens has pointed out, our focus now will remain on ensuring that we have free cash flow and that we will continue to reduce our debt level. You won't see any major capital expenditures coming our way. Of course, there are things that you have to do by running the business, but nothing major until we have gotten our debt level down.
As Jens has also pointed out, we are in a situation where we are not dependent on going to the bond market to refinance our bonds for 2019 and 2020. We have unencumbered collateral that we can use to raise enough to repay those two bond issues that are coming due. That completes our presentation. We will now then open up for questions. We will start here in Oslo, and then afterwards we will take calls. Anyone in Oslo have a question?
Thank you. Lukas Daul from ABG. I was wondering about the container business. You increased the number of containers. Utilization came off a bit in Q4 and, you know, y ou had a step increase in EBITDA during 2018 up from 2017 in the container business. Now you have more containers. Do you think you will sort of lift the EBITDA from that business again in 2019, or have you sort of reached a steady state level?
We have increased our fleet and I think that you will see that the fleet will go above the 40,000 containers and, o f course, utilization went from just below around 74% down to 68%, and t hat's a reflection of two things, slowdown, but also more competition. Now more competition we can handle, so we can compete more aggressively and adjust our rates, and go after it and get utilization up. Historically, it's proven or what we are focusing on is being able to react more quickly to the market so that we keep our utilization up. I think that the combination of the operational efficiencies, the systems that we have developed, that even in a deteriorating or a higher competitive market we should be able to see continued growth in the EBITDA in Stolt Tankers for 2019.
Okay, thank you, and t hen on, Jens, when you talk about using more collateralized financing going forward, do you have a ballpark number? What's the value of your unencumbered assets?
We're currently working on a sale-leaseback transaction where we're using four older ships, and h ere you're looking at collateral values in the $110 million to $120 million range. We have a New Orleans terminal which is in the books for about $140 million, but probably with a borrowing value that is higher than that because of the performance of it. We have the Dagenham terminal and the Moerdijk terminal also as uncollateralized. In total, I think we're looking at about book value-wise, some $300 million.
Finally, when you show the free cash flow chart on page 29, how does that reconcile with your cash flow statement where your free cash flow is roughly $160 million?
Yeah, I'm sorry, I can't take that off the top of my head, but I will come back to you on it.
Anders Karlsen, Danske Bank. Can you shed a little bit of light on how many containers you're going to have at the end of 2019, what is the expansion that you will see on the terminal side in the same time frame?
At the end of the year, I think we had around 39,000 tank containers. We have orders that are being delivered in China that brings it up to close to 41,000 tank containers , so an additional 2,000 tank containers coming in. The total cubic meter of terminal capacity under construction, Jens, did we put that on the slide? I know by the top of my head. It's around 65,000 m3 in Santos, and the Ulsan expansion is 163,000 m3 .
That's by the end of the year?
By the end of 2019? No, no, e arlier than that. I think that the expansions that we will see in Ulsan is first quarter of 2019, and t he same thing with Santos, it's almost finished. We also have expansion in New Orleans. I think it's 20,000. No, t wo 8,000, 8,000. So 16,000, 20,000 m3 in New Orleans.
I just want to come back on the cash flow comment that you had. If you look at the cash flow slide that we had, where we had all numbers, the top part that showed the operating cash flow, that actually is net of interest expense. Whereas the graph that we showed in the back, that is before interest expense. When we talk about free cash flow, it is really cash available to service the debt, repay the debt, and pay dividends.
Okay.
Petter Haugen, Kepler Cheuvreux. Could you say something about the $130 million you mentioned in the start here?
Sorry, 100?
$130 million in terms of that would be your cost increase if you didn't get the IMO 2020 added bill reimbursed.
That's just the difference between what we pay for HFO and what we would pay for MGO.
That was my question, actually. The second question would be then, as you say, you have some trials now going, w hat do you pay for compliant 0.5% sulfur?
MGO?
No.
That's the fuel that we're buying now.
Okay. You are not currently using 0.5%?
No. Low sulfur fuel. No, we're using MGO. We're using HFO and MGO. There is SECA restricted areas already, which we comply with, and when we go there, we switch and burn MGO.
A follow-up, w hen would you think you have actually available 0.5% sulfur fuel oil?
Tell me, you know probably better than me, so t hat's very different. I think that the payback time for the way we looked at it, for the scrubber investments that we've done, will be a year, t hat within a year, if the low sulfur fuel will be available after a year, the payback on the scrubbers is already been done.
Understood, and m y question was related to your comment about this being priced as an MGO minus, and not an IFO plus or HFO plus. As everyone is curious about, what will be the relative pricing of the new 0.5% sulfur?
I don't know.
No, m e neither.
First, we need to see the fuel and test it also to see how it works, yeah.
Yeah, w e are.
When you talked about some of the COAs negotiations for 2020 and onwards, you said that if you don't agree on passing on the cost, you sort of delay the discussion until October. Out of the agreements or out of the negotiations that you have had so far, how many percent would you say you have closed on, and how many did you postpone until October?
Well, it can be a little deceiving because we have had a lot of discussions with our customers before 2020, just as a principle, we are continuously renewing contracts throughout the year, you know, evenly spread throughout the year. I'm not going to tell you exactly, but I would say the majority are still to be negotiated for a full pass-through. It's going to be a challenge. It's not only pass-through, you know, or changing the reference from IFO to MGO, but it's also going to be a discussion of how many cents of freight rate you will get for each dollar of fuel increase that you will get in compensation. That also is quite a complex calculation because you need to figure out also the distance of the voyage and the fuel efficiency of the ship.
Do you think that if you choose to walk away, that there are others in the line willing to step in and take maybe something that is not fully compensating them?
You can see our results. If we don't pass it on, we will go out of business. I think our competitors will go even faster out of business. Our policy right now, you are not allowed to take any of that cost. You have to pass it along. If you're not able to do it now, if the customer is not willing to commit now, we will have the discussion in the fall. Our position won't change. We need to be prepared to walk away. We cannot take on the additional cost. I'm not saying it's going to be easy, but it has to happen.
Okay. Thank you.
What is positive is that we're seeing some of the major customers, the major customers, you know, t hey are agreeing to the bunker clause that we propose, which is customers that we have many contracts with. When we expect that we renew with oil majors and the large chemical companies, they understand the situation, and w e have been able to agree on the bunker clause.
About small gas distribution here, c ould you say something about the timeline you are thinking about when expanding? Because I suppose that's just a matter of timing when that is going to be expanded. Is there any leads now? There has been a few quarters now with not that much happening.
Sorry? It's easy to order ships. It's easy to, I hate to say it, but easy to raise equity and debt. It's easy to build tanks. It's difficult to get permits. It's a process to build. That is the easy part. The challenge of the whole concept is, of course, the timing to get commitments off take for the small scale, and i t's a lot of work. We're getting there. We're getting some interesting, I'd rather like to announce it when we have achieved it rather than talk about what we are about to achieve. I think that the Sardinia project looks very interesting. We are in the process of building the terminal. We are in the process of building up off take, and the economics looks very good.
It takes time, and I'm certain we will announce it when we have achieved what we have set out for. There are opportunities, of course. Our thinking is there are so many opportunities out there, and t his small organization, we need to kind of focus. We can't chase everything. We need to focus on, you know, the ones that are the most realistic to be able to close. It's important to achieve the first one, to get the proof of concept and see the numbers ourselves. I don't want to run out and order more ships on speculation. I think that we have now proven to the potential customers that we are willing to commit and put money and build the ships. Now I think we have enough assets for the time being on the shipping side.
On the terminal side, there are opportunities, and we are looking at, you know, building the hub in remote communities so that we can service the industry, power industry, manufacturing industry and, of course, bunkering. I want to be careful in giving numbers at this stage. We are now focusing on getting off take. Is there a phone? Yes, go ahead, if t here's somebody on the phone.
Once again, if you wish to ask a question, please press star and one. Right now, we have one question, and that question comes from the line of Claire Pennington. Your line is now open.
Hello. Yes. Hi. I just had a question about going back again to the 2020 IMO low-sulfur coming up. Obviously, you are looking at marine diesel at the moment. I just wondered if you have any kind of game plan in terms of looking at using low-sulfur fuel oil in 2020 or whether you will sort of assess that in the first six months and then look at the decision on that. I just wondered if you had sort of a timeline of what kind of plans you have for your bunker balance in terms of what fuel to use.
Yes, we have not fitted scrubbers on the whole fleet, far from it. We would be very interested in burning low-sulfur fuel when it is available. We have yet to see the performance of the low-sulfur fuel and the availability and the price of the low-sulfur fuel. That is definitely the alternative that we will. I think that is the long-term solution.
Yeah. Okay.
The scrubbers is just a short-term transition solution.
Okay.
which with the spread as it is today, will have a payback period, which we estimate is a year or a year and a half.
Yeah. Okay. Do you have?
I can't say anything more about the low sulfur fuel because the information is not readily available.
Sure, o kay, and t he other thing that, but my understanding is that because the new low sulfur fuel oil could essentially to achieve that, have sort of blends from sort of lighter distillates or middle distillates, et cetera, and that kind of equivalence will lower the sulfur in the fuel oil.
What I was just kind of interested in as well is just, I wondered if you'd looked at any of the costs that might be associated with carrying a type of fuel oil, and t hen not being able to mix it when you've got a different spec, because you might have a risk of solids forming in the fuels with those different chemical combinations and stuff if the specs aren't exactly the same, even if they're both, you know, I just wondered if you looked at any of those kind of expenses or had any worries around the sort of logistics of the availability of different spec low sulfur fuel oils at different ports.
I think it's best if you actually contact Jens offline, you know, outside of this meeting, and we can put you in contact with our department that is working on it.
Okay.
What I'm saying is, right now we are preparing ourselves for scrubbers and burn HFO, and p assing the additional cost of the MGO through our bunker clauses. Of course, when the low sulfur fuel becomes available, t hat's the long-term solution. The price is difficult to determine at this time. The availability is also uncertain at this time, but it will definitely come.
Yeah.
When it comes to the characteristics and the operational and technical challenges for it, I can't give you a proper answer. It's better that you contact the company, and I will put you in contact with the people that have deep understanding or following it in more detail.
Okay. Thank you very much.
In Oslo. All right. Thank you very much for taking the time to come and see us and we'll see you for the second quarter. Oh, sorry, the first quarter.
Okay. That concludes our conference for today. Thank you for participating. You may all disconnect.