Welcome to the Spalt Nielsen Fourth Quarter twenty eighteen Results Presentation. Today's presentation is recorded. Please let me hand the presentation over to Mr. Niels, Spalt Nielsen, Chief Executive Officer.
Good afternoon, good morning. Thank you for joining us here in Oslo for our fourth quarter twenty eighteen results presentation. Together with me is Jens Grunhege, Chief Financial Officer. The agenda, as always, we will go through the highlights for the fourth quarter, then I'll 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.
As you saw from the release this morning, Stolt Tankers reported an operating profit of EUR 7,700,000.0, and that's down from EUR 21,400,000.0 in the previous quarter. That is mainly reflecting a lower or more competitive challenging freight market for tankers but also higher fuel costs. And the loss of €4,100,000 on the bunker hedges, and that is compared to a gain that we had on that those paper hedges in the previous quarter. Stolthaven Terminals reported an operating profit of 11,700,000.0 and that's down from 18,600,000.0 That is including a €6,100,000 impairment, which I will go into later, and then a 1.7% decrease in equity income from our joint venture partners. Stolt Tank Containers reported an operating profit of 18.1%, up from 17.7% 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 900,000 versus 2.1% 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% compared to a loss of 3.4% in the previous quarter, mainly reflecting write off the final write offs in the bitumen business. That brings us in at $3,600,000 profit for the quarter and a total profit of just under €55,000,000 for the year.
Then looking at the variance analysis on a net profit basis between the third quarter and the fourth quarter, so €3,000,000 for the quarter, we had a one off charge of EUR 12,900,000.0 when we changed the accounting of Avanskars, when Jan 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 tanker trading results, operating profit of EUR 13,600,000.0, EUR 900,000.0 on the lower terminal operating profit, slightly higher in Tank Containers, 2,900,000.0 higher in Stolt Sea Farm and then the gain on the deal that we did with Avenir of EUR 11.2 and lower Corporate and Others of EUR 2,600,000.0 and some lower FX losses versus third quarter of EUR 2,200,000.0, bringing us off to EUR 3,600,000.0 for the fourth quarter. Looking at Stolt Tankers, our biggest division. So the deep sea fleet, so 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. So the contract nominations for the fourth quarter last year were down.
Overall rates were down 3.1% versus prior quarter. That's a combination of, again, lower market rates, but also a mixture of what you carry. So even the COA nominations, if we have a quarter where we could carry more large parcels of assets, that also influences the overall rate. COA rate renewals in the quarter were down on average 2.5. So the rate 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.
So if you want to look at it positively, there's 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, 10,800,000 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 800,000 lower bunker hedge results, as I mentioned earlier, of EUR 5,300,000.0 and then we had a positive variance of lower depreciation, and that's mainly due to the life extension that we did in the fourth quarter Higher admin of €1,000,000 and lower equity income from the joint venture of 600,000.0 brings us to a total of €7,700,000 profit operating profit for the quarter. Bunker costs, the average price and here's one of the big challenges, the average price of consumed heavy fuel oil, or IFO, increased to $465 per tonne in the fourth quarter versus $437 per tonne 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 group crude prices.
If you look at the overall paper hedges gain and loss that we have in 2018, you can see overall we have a gain and it's been profitable of a total of 6,200,000 for the year. If you look at the hedges that we have in place in for 2019, 80,000 tonnes and an average fair value market value of $3.16 $317 I think that market price today is at $300 around $350 for heavy fuel oil. We all know about the low sulfur fuel regulation that comes into effect in January, where we have to go over to a new fuel of less than 0.5% sulfur. And as I've stated earlier, regardless of how many scrubbers you have, the majority of the global fleet needs does not have scrubbers, and the majority of our fleet doesn't have scrubbers or will not have scrubbers. So we are dependent upon being able to pass on that additional cost from switching from heavy fuel oil to what the only alternative that is in the market right now is marine gas oil to be able you have to pass that on to our customers.
If we were not able to pass that on to our customer, our bill additional bill will be close to $130,000,000 And looking at our results, you know that that's not possible. So we will have to pass it on to our customers. And 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. So if we're not able to come to an agreement, we have an exit clause saying that we will negotiate that towards October. And if we don't come to an agreement, both parties can walk away from the deal.
I think we're in a fortunate position because we expect the market to recover if it's 2009 end of 2009 to 2020. But if you look at the supply and demand side on our in the chemical tanker segment, I do expect the market to eventually recover. So we're very happy that or 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 earlier, the only reason we made money in 'fifteen and '16 and part of or '17 is because the bunker it's not because the volume went up, you know, the total volume carried or the freight rates went up, it was because the bunker prices went down.
And now that the bunker prices have come up again, the spot rates have not moved, and we haven't been able to add past that additional cost on back to the spot market because of the supply situation. And you can see then that the 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 cost, purchase cost, which is on the $1.04 65,000,000 on the fourth quarter, while today's rate is closer to $350,000,000 So once we have burned off the expensive fuel, I think we will see improved earnings from us going in first quarter and the second quarter based on cheaper bunker fuel that we will be burning. Stolt Tanker Joint Service sale in Time Charter Index, this we started in 1996. 1996 was at one, and today, as you can see, we're at 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 look worse. And I think that our operating cost or our operating cost has not gone up in line. It's been below inflation. So it's we are a bit tough on ourselves on this chart, but it gives a reflection of the market situation.
The positive side on Page 12, the chemical tanker fleet and our order book. We don't have any more ships to be delivered of chemical tankers. And the blue line here in 2019 and 2020 is what is to be delivered in 2019 and 2020, of course. And the order book now is just under 10% of what we are categorizing as our competitors. I think it's 31 operators.
There has been a slippage. So there were supposed to be more ships delivered in 2018 and less in 2019, but there's been a delay. So we do still see a number of ships being delivered in 2019, but we are not seeing any new buildings being ordered. Market development. We see demand growth of 4%, and that's what we have in our model based on GDP.
And it's, of course, big uncertainty here of what is going to happen and the slowdown that we are reading about and seeing. But 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, 6% in has been 6% in 2017, '19 and two percent 2020 and beyond. And if the newbuilding remain moderate, the oversupply should be observed by the growth in the market. So we are cautiously optimistic that we will see a strengthening of the market 2019 into 2020.
Now we also see that the CPP market has also strengthened, and there has been a correlation between those two markets. So 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 €6,100,000 was marginally down by 0.9% from third quarter, reflecting slightly lower joint venture equity income.
Nothing to read from that. It's just timing. The impairment was on our terminal in China, in Lingang, where we had the explosion in 2015. We didn't have an explosion, but there was a big Changjin, there was a big explosion, and it's taken a long time to fill up the utilization. You you can fight with the auditors about 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. So we're an overall utilization above 90%. Quickly, the variance operating profit variance between the two quarters, Page 15. Operating profit of 18.6% in previous quarters, the impairment that we just talked about of 6.1%, slightly lower equity income of 1.6% and others of positive 0.9%, 11.7%.
The market update, strong fundamentals in The U. S, and 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're getting utilization up, but it's a bit of a competition. However, 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 have been an increase in inquiries, especially in bunker fuel storage, which is related to the IMO twenty twenty regulation. Major capital projects includes the Jetty No. 11, which is almost finished in Houston Ulsan expansion of 163,000 cubic feet is expected to be operational in the first quarter. And 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, the 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 if there's a good indicator of what's happening in the world, it is really to see the movements and utilization in shipments and inventory buildup in the depots of tank containers.
And what we saw towards the end of the quarter in December, where you traditionally see a significant drop in shipment, and that's seasonality, this year we saw a significant drop. We've 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 in in, towards the end of the year was a significant pickup of the merge. So when the customer ships our tank containers and leases our tanker there, we deliver it to their at their factory. They have x amount of days they can use it, which is included in the freight they have paid.
But if they go beyond that, they have to pay demerge. And the demerge 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, another worrying sign about what is happening. Operating expenses was reduced by 9.1% in the quarter, reflecting the lower shipment volumes. We had actually an overall improvement because of the operational efficiencies.
Utilization down to 60.2% from 71.6%, reflecting global slowdown due to economic uncertainty the year and inventory reduction by the customers, as we just talked about. So if you look at Page eighteen, third quarter to fourth quarter operating profit variance, point 7% in the third quarter. Lower transportation revenue, but lower operating expenses of 9.4%. Higher A and G expense slightly higher A and G expenses and 0.7 of Other brings us to an operating profit of 18.1%. Stolt Sea Farm.
Turbot 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 twenty eleven. So we're getting close to EUR 9.5 per kilo. Remember, our year ends at the November, so the low volume is really to build up for the Christmas sale in December. But we've got record high prices, and that's why you see on the next slide, you see that the fair value adjustment was at €4,100,000 up, bringing the operating profit for the quarter of $3,300,000 Stolt Nielsen Gas.
Well, the big thing and very exciting thing is the creation of Avenir together with Golar and Herc LNG. We put it together and we the three of us combined committed $182,000,000 to invest in the company. We raised 99,000,000 right away, and we have a further $145,000,000 that we have committed to inject. And then we also raised 11,000,000 through a private placement, and then we registered it under the OTC. With that, we have the money to finance and pay the six ships, the four seven and a half thousand cubic meter and the two twenty thousand cubic meter, and to pay and build the terminal, which is underway in Sardinia.
I think that we will be the company so Stolt will have a 45% interest and the two other partners have 22.5% each. Business is really not to become a shipping company, but to be a supplier of small scale LNG. Our long term vision here is to 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. And I think with the partners of this, I think 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 very 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 twenty eighteen, also touch a little bit on the full year results, and I will give you per normal some further guidance on some of the P and L items. Also want to remind you all that we have today posted with the Oslo Stock Exchange the earnings release and the interims. These
have
been filed for the year ended 11/30/2018. And 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. The operating profit, the top line that we're showing on this graph, for the 2018 was 41,700,000.0.
This is down from €54,600,000 for various reasons as Nils has touched on. But of notable points are the one offs. You will see $12,000,000 mentioned as an impairment of the Stolthaven and Bitumen assets. This is €6,100,000 relating to the Stolthaven, Australasia and our investment in Lingang and about €5,900,000 of Bitumen assets, and this will have brought our bitumen assets down to zero with the exception for the ships that we have. And as you will recall, we wrote down about 11,800,000.0 on the ships back in the second quarter of twenty eighteen.
So we feel that we are now taking what needs to be taken there. For the full year then, you see the operating profit after one offs was 28,900,000.0, That's down from €54,800,000 Moving further down, the net interest expense was in line with the prior quarter at €33,700,000 And one thing I want to point out is that under Other, we had a gain of €11,800,000 versus a loss that we showed in the prior quarter of 12,600,000.0 Nils touched on this. The 11,800,000.0 relates to our the formation of Avenir as a joint venture and a gain that we took on that. And the 12.6% includes the Avance Gas loss that we took when we changed the accounting method for Avance Gas back in the third quarter in July. So that brings us down to a net profit of 3,200,000.0 for the quarter, slightly up from 2,300,000.0 in the prior quarter, and an EBITDA of 102,000,000, 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 €187,100,000 and net profit slightly up at €54,000,000 versus 50.1 I would like to remind you, if you look at the tax line for 2018 to date, we're showing a positive number of €7,700,000 and that reflects the credit, really the gain that we took of €24,900,000 at the beginning of 2018 and that related to the reduction in The U. S. Income tax rate from 35% down to 21%. Moving over to the balance sheet.
Quite happy to point out that the debt has reduced further. It was down 54,000,000 in the quarter, so we're now down below $2,400,000,000. Now I just want to point out also on the current maturities of debt, we're showing a rather significant amount of $473,000,000 at the end of two thousand and eighteen. This includes the bond that is maturing in September, and that is about 150,000,000, 148,000,000. It also includes the JO tanker facility that we took on when we bought JO tankers back in 2016.
Current outstanding is about 150,000,000, and we are very close to drawing down on a replacement facility for that where we will draw some $240,000,000 under a new facility. And then the last part there really is the Australasia financing where we're in discussions on extending that facility for another year. So don't get worried about those. Those are well underway. Other things I would like to point out is our fixed to variable interest rate remains relatively stable at 72%, fluctuates a little depending on how much we draw on the revolving credit line, which is a floating rate facility.
And our average interest rate is 5%, slightly up over the during the course of 2018, reflecting the underlying interest rate environment. Looking forward at the first quarter of twenty nineteen, we expect the interest expense to be marginally up at about $34,000,000 Two covenants I wanted to point out. One is that debt to tangible net worth, that was at 1.51 last time and that, with the reduction in debt has continued to drop to now 1.48%. On a net basis, it's 1.44%. So we have seen an improvement there and we expect to continue to see an improvement as we go into 2019.
And the EBITDA to interest expense reflects the lower EBITDA for the quarter, and that was down from $3.60 approximately to three thirty four. And the last one is net debt to EBITDA, which actually drives the pricing on some of our loan facilities. It's important for us to keep that below five:one, and that was at 4.89 for the quarter. We are left with about $240,000,000 in available liquidity on our revolving credit lines. And in addition, we had cash of 65,000,000, so 300,000,000 in total available liquidity at the end of twenty eighteen.
Going over to the cash flow, you will see the net cash flow generated in the quarter was €82,000,000 You will see changes that we had were really related to timing of interest expense that was down from 100,000,000 and we tend to have quite a bit of payments at the end of the quarter, the fourth quarter. We had used about $60,000,000 in investments, and that was split between $46,000,000 in capital expenditures on terminals, tankers, Stolt Sea Farm predominantly, and we also had the $18,000,000 that we put into the 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 $93,800,000 facility with Danish Ship Finance. And 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 then down at the bottom, we have the net cash flow for the quarter was a negative 20,000,000 after that debt repayment, and we ended up with $65,000,000 in cash at the end of the quarter.
Now when you look at the EBITDA figures here, 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 noncash onetime events, which would mean that the €11,200,000 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, Terminus 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.
And STC's EBITA continues to be strong, tied to really the improvements in operational efficiency that they have experienced. So as a result, we see that the overall S and L EBITDA was €103,000,000 down from 122,000,000 in the prior quarter. Moving over to capital expenditures. You'll see total expenditures for 2018 came in at 167. And for those of you that have been following us for a while, we'll see that as a good reduction from prior years.
So I'd like to say that we've sort of done what we said we were gonna 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 $255,000,000 in capital expenditures. This is an increase. It is tied to ballast water treatment systems that we're installing on our ships. It's tied to some $35,000,000 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 UK.
A lot of these are projects that have been carrying on, so it's not new projects that we are committed to, but that we are getting into this more final phases of them. For Sea Farm, we also have two new farms that are under construction. One is in Servo in Spain and the other one is in Torcha in Portugal, and these should be both completed in 2019. This slide now, this is the debt maturity profile. It could be a bit daunting, but I want to address the 2,000 and 19 maturities that we have.
If you look at the the top light blue portion, that is the bond that is maturing in September, and you will see in 2020, we have a further bond maturing in March. So between the two of them, it's about $300,000,000 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 $150,000,000 that I refer to the JO Tankers facility, which we will pay back February with the new facility. And also, it includes the Australasia portion, which we will extend for another year to buy us time for the refinancing exercise, and that is at $75,000,000 So the bonds, we are also pretty close to have finalized the refinancing of that without going back to the market. And considering where the bond market is today, which is higher than what we have appetite for on a cost basis, we're 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, this 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. And starting with the top left slide, this shows the debt to tangible net worth, a key metric in our key covenant in our financings. You will see the red line is the covenant limit at two:one. The blue dotted line is the board's self imposed limit of 1.5:one.
With the Geotankers acquisition, the red solid line, you see that's jumped up to 1.5:one where the dotted blue line is, and it increased a little bit following that. But we have since in the last number of quarters now been able to sort of steadily establish a downwards trending momentum. The yellow bars, just to have mentioned what that is, that's the debts. The blue bars, that's 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 two to one, 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, but we are expecting that to soon turn around and then 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'd like to keep that below the five:one. It went up a little bit this quarter, again driven by the lower EBITDA that we had, but we expect that to continue on the downwards trend. One thing in the middle there is the free cash flow, and 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 02/2009, and we have finally managed to get some positive traction there. And that is very much driven by the reduced capital expenditures, which used to be sort in the $300,000,000 region plus plus per year, which we have brought down, and also an improved cash generating capability, more focused on getting cash in from our joint ventures, etcetera.
So we're pleased to see that this is now up at close to $300,000,000 for 2018. And the last is just for those interested, it's the dividend per
year.
Moving over to the A and G expenses. For the quarter, we had total A and G of €56,300,000 This was up from 52,200,000.0 but 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 $56,000,000 as a guidance for the next quarter. Depreciation and amortization.
You will see that tankers' depreciation was down from 45,000,000 last quarter to 40,500,000.0 in the fourth quarter, and 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 twenty five years. We are therefore committed to life extensions. And 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 EUR 63,200,000.0, and that was down from the 68,600,000.0 as mentioned. I'd like to point out the impairments that you will now have seen a few times tied to the terminals, Corporate and Other. And we are expecting really for the next quarter our depreciation and amortization to come in at about $64,500,000 as a guidance. Share of profit of JVs and tax. The JVs contributed profits of $4,400,000 in the quarter, down from 6.9.
For Tankers, there's a slight reduction. That's really in line with what we saw as the drop in the overall tanker results. 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 twenty seventeen, so the third quarter was rather the unusual one. Our guidance for the next quarter is €6,600,000 where we expect terminals to come up somewhat.
And tax expense, to touch briefly on that, three point two for the quarter, and that was slightly down from EUR 4,000,000 in the prior quarter. And year to date, because of The U. S. Gain that we took of EUR 24,900,000.0, it's coming in at a tax gain actually of €7,700,000 versus more normalized €12,200,000 in 2017. We just thought I'd give you a brief update on our position with IFRS 16.
This the highlight is really that this will not apply to us until December 3, the quarter starting 12/01/2019. So and that's because our fiscal year ends November 30 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. But more importantly, this has no practical implications for us. One is, of course, noncash other than the potential tax impact if there is any.
But the other thing is also in all our facilities, bank facilities, our all our loan facilities, we are covered for a change in this accounting methodology, and therefore, will be no bank covenant impact. And with that, I would like to hand it back to you, Niels.
Thank you, Jens. Takeaways. Net profit of EUR 55,000,000 for the year compared to EUR 50,300,000.0 in 2017. The chemical tanker market remains challenging, but we are cautiously optimistic that it will eventually turn around, and we're hoping that towards the 2019 and beginning of twenty twenty, we should start to see improvement. Solid performance at Stolthaven Terminals, I think that will continue, and then we will see the new capacity coming online and the operational efficiencies that our team are working on will also have an impact.
So I think we will see a continued improvement in the performance of terminals. The market has softened installed tankers, but the earnings are still at healthy levels. And I think also the operational efficiencies that we're 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. Exciting things that I hope to share going forward with you.
So we have a strong earnings base from our businesses through the investments that we have done over the last, I would say, ten years. But we will then so we have enough assets. We have positioned ourselves well for growth going forward. And as Jens just pointed out, our focus now will remain on ensure that we have free cash flow and that we will continue to reduce our debt level. So 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. And 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 collateral unencumbered collateral that we can use to raise enough to repay those two bond issues that were that are coming due. That completes our presentation, and we will now then open up for questions. And we'll start here in Oslo.
And then afterwards, we'll take calls. Anyone in Oslo have a question?
Thank you. Lucas Dahl 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, you had a step increase in EBITA during 2018, up from 2017 in the container business. Now you have more containers. Do you think you will sort of lift the EBITA from that business again in 2019? Or have you sort of reached a steady level?
Well, so we have increased our fleet, and I think that you will see that the fleet will go above the 40,000 containers. Now, of course, utilization went from below 7%, just below around 74 down to 68%. And that's a reflection of of, two things, slowdown, but also more competition. Now more competition we can handle, we can we can compete more aggressively and adjust our rates and go after it and get utilization up. And historically, it's proven or what we're focusing on is being able to react more quickly to the market so that we keep our utilization up.
So 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 then 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 have we're currently working on a sale leaseback transaction where we're using four older ships. And here, you're looking at collateral values in the 110,000,000 $120,000,000 range. We have a New Orleans terminal, which is in the books for about $140,000,000 but probably with a borrowing value that is higher than that because of the performance of it. And we have some other 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 $300,000,000
And then 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 160,000,000?
Yeah. I can't talk I'm sorry. I can't take that off the top of my head, but I will come back to you on it.
Amos Karsten, Danske Bank. Can you shed a little bit of light of how many containers you're going to have at the end of 'nineteen? And what is the expansion that you will see on the thermal side in the same time frame? We have at the end of the year, I think we had around 39,000 tank containers, but we have orders that are being delivered in China that brings that up to close to 41, 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?
So it's I know by the top of my head. It's around 65,000 cubic meter in Santos, and the Ulsan expansion is a 163,000 cubic meters. By the end of twenty nineteen? No, no, earlier than that. I think that the expansions that we will see in Ulsan is first quarter twenty nineteen.
The same thing with Santos, it's almost finished. We also have expansion in New Orleans. I think it's 20,000 no, to 26,000 so 16,000, 40,000 cubic meters 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 the 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. So when we talk about free cash flow, it is really cash available to service the debts, repay the debts, and pay dividends. K?
Kepler Cheuvreux. Could you say something about the $130,000,000 you mentioned in the past year?
Sorry. A 100 and
A $130,000,000 in terms of that would be your cost increase if you didn't get the IMO 2020 added bill reimbursed.
So that's just the difference between what we pay for HFO and what we would pay for MGO?
That was my question, actually. So the second question would be then, as you say, you have some some trials now going. What do you pay for compliant 0.5% sulphur?
MGO? No. Well Well, that's the fuel that we're paying we're buying now.
Okay. So you are not currently using 0.5%? No.
So low sulfur fuel, no. We're using MGO. We're using HFO and MGO. So there is SECI restricted areas already, which we comply with. And when we go there, we switch and burn MGO.
A follow-up then. When would you think you have actually available o point 5% sulfur fuel oil?
That's tell me. You know probably better than me. So that's very different. But 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. And about within a year from so if the low sulfur fuel will be available after a year, the payback on the scrubbers has already been done.
Understood. My question was related to your comment about this being priced as an NGO minus and often EFO plus or HFO plus. So so I'm I'm just I'm as everyone is curious about, what will be the relative pricing of the new 0.5% sulfur.
I don't know.
No. Me neither.
First, we need to see the fuel and test it also to see how it works. Yeah. Yeah. We are.
When you talked about some of the COAs negotiations for 2020 and onwards, you say that if you don't agree on passing on the cost, you sort of delayed the discussion until October. And out of the agreements or out of the negotiations that you haven't had so far, how many percent would you say you have sort of 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 where and we before 2020, just as a principle, the and we are continuously renewing contracts throughout the year, evenly spread throughout the year. The percent I'm not going to go tell you exactly, but I would say the majority are still to be negotiated for a full pass through. So it's it's going to be a challenge. It's not only it's not only pass through, you know, or changing the reference from I f 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?
In a perfect I mean, you you can see our results. And if we don't if we don't pass it on, we will go out of business. And I think our competitors will go even faster out of business. So our our positions right now, our policy right now, you are not allowed to, take any of that cost. You have to pass along.
If you're not able to do it now, if the customer is not willing to commit now, we will we will have the discussion in the fall, and and, you know, our position won't change. And then we need to be prepared to walk away. We cannot take on the additional cost. But I'm not saying it's gonna be easy, but it it has to happen. Okay.
Thank you. But what is positive is that we're seeing some of the major customers. The major customers are, you know, they they are agreeing to the bunker clause that we propose, which which is customers that we have many contracts with. So when we expect that we renew, you know, with oil majors and the large chemical companies, they have they understand the situation, and we've been able to agree on the bunker clause.
About small small gas dispute here, could 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 few quarters now with a little well, not that much happening.
Sorry? I mean, we it's 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 not difficult to get permits to and it's a process to build there.
So that is the easy part. The the the challenge of the whole concept is, of course, the timing to get commitments, off take for the small scale. And it's a lot of work, but 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. But they I think that the Sardinia project looks very interesting.
We're in the process of building the terminal. We're in the process of building up offtake, and the economics looks very good. But it takes time, and I'm certain we will announce it we have achieved what we have set out for. There are opportunities, of course. So our our thinking is there are so many opportunities out there.
And this small organization, we need to kind of focus We can't chase every everything. We need to focus on on, you know, the ones that are are the most realistic to be able to close. It's important to achieve, you know, the first one to get the proof of concept and see the numbers ourselves. So I don't want to run out and buy, order more ships on speculation. I think that we have a we have now proven to the potential customers that we're willing, you know, to to commit and put money and build, you know, build the ships.
But now, I think we have enough assets for the time being on the shipping side. On the terminal side, there are opportunities, and we're 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. But I wanna be careful in giving numbers at this stage. So we are now focusing on getting offtake. Is there a phone yes, go ahead.
There's somebody on the phone.
Right now, we have one question, and that question comes from the line of Claire Pennington. Your line is now open.
Oh, hello. Yes. Hi. Yeah. No.
I just had a question about going back again to the 2020 IMO low sulfur coming up. Obviously, you're looking at marine diesel at the moment. I just wondered if if you have any kind of game plan in terms of looking at using low sulfur fuel oil, you know, in 2020 or whether you'll sort of assess that in the first six months and then look at the decision on that.
I just I just wondered if you had sort of
a timeline of of what kind of plans you have for your fuel for your bunker balance in terms of what fuel to use.
Yes. We would be we have not fitted scrubbers on the whole fleet, so Mhmm. Far from it. So we would be very interested in in burning low sulfur fuel when it's available.
Mhmm.
We have yet to see the the performance of the low salt fuel and the availability and the price of the low salt fuel. Mhmm. That's definitely the alternative that we will. And I think that's the long term solution.
Yeah.
Okay. The scrubbers is just a a short term transition solution
Okay.
Which which with the the spread as it is today, we'll have a payback period, which we estimate is a year or a year and a half.
Yeah. Okay. And do do you have I I can't say
anything more about the low self view because the information is not readily available.
Sure. Okay. And the other the other thing that my understanding is is that because the new low sulfur fuel oil could could that could essentially to achieve that have sort of blends from the hot sort of lighter distillates middle distillates, etcetera. And and that kind of equivalence will will lower the sulfur in in the fuel. What what I was just kind of interested in as well is just, you know, I wondered if you've looked at any of the costs that might be associated with carrying a type of fuel and then not being able to mix it when you've got a different spec because you might have a a risk of of solids forming in the in the fuels with with those different chemical combinations and stuff.
It's the specs aren't exactly the same even if they're both, you know, is there two different types of I just wondered if you looked at any of those kind of expenses or had any worries around the sort of logistics of of the different, you know, the availability of different spec, those type of fuel oils at different ports?
I think it's best if you actually contact Jens off you know, outside of this meeting, and we can put you in contact with the, our department that is working on it. But what Okay. What I'm saying is, right now, we are preparing ourselves for scrubbers and burn f h s HFO and Mhmm. Passing the additional cost of the MGO, through our bunker clauses. And, of course, when the the low sulfur fuel becomes available Mhmm.
That is absolutely a the you know, that's the long term solution.
Mhmm.
The price is difficult to determine at this time. The availability is also uncertain at this time, but it will definitely come. When it comes to the characteristics and the the operational and technical challenges for it, I I can't I can't give you a proper answer. It's better that you you contact, the company, and we I will put you in contact with the with the people that have deep understanding or following it more in more detail.
Okay. Thank you very much.
Okay. Once again, if you wish
in Oslo. Alright. Thank you very much for taking the time to come and see see us, and we'll see you for the second quarter Oh, sorry, the first quarter.
Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.