Good day, and welcome to the Stolt Nielsen Limited Second Quarter twenty eighteen Results Presentation and Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Niels Boedt Nielsen. Please go ahead, sir.
Thank you. Good afternoon, good morning. Thank you for joining us for our second quarter twenty eighteen results presentation here in Oslo. I will be going through the normal presentation. Together with me here in Oslo is Jens Grinerhegge, Chief Financial Officer.
I will be referring to your presentation, which is on our website. On Page four, we have the agenda. We'll go through the second quarter highlights for the group, then I'll take you through all of the businesses. I will go through Jens will take you through the financials. And at the end, we will open up for questions and answers.
Then on Page five, we reported this morning a net profit of $9,500,000 and that is after an impairment of $11.8 which we took on our two bitumen ships. This compares to $38,700,000 in previous quarter. But as you might remember, we had a tax related gain of $33,100,000 in the first quarter, which we unfortunately don't have in this quarter. Stolt Tankers reported an operating profit of 26,500,000.0 and that is up from 10,900,000.0 in previous quarter. 9.2 percent of that is because of the paper hedge we have on bunkers, but there is also an underlying slight improvement in operations.
Stolthaven Terminals reporting operating profit of 20.2 That is down from $25,900,000 But also there, in the first quarter, we had an $8,200,000 gain on an adjustment to the deferred taxes that we had in our joint venture in Antwerp. So also here, taking away the one offs, we see an improvement in the operating performance. Stalled Tank Containers reporting operating profit of 18,800,000
and that is
up from $16.2 as shipments grew by 7,600,000.0 sorry, point 6%, which is a reflection of a solid and healthy tank container market. Stolt Sea Farm's operating profit before the fair value adjustment of inventories was up 2,400,000.0 compared to with 2,200,000.0 in the first quarter, reflecting improved margins. Corporate and Others reported an operating loss of 20,900,000.0 but again, the $11,800,000 is included here compared with a loss of $3,600,000 in the previous quarter, bringing then the second quarter at 9,500,000.0 year to date at $48,300,000 for the year. You can also see here that the weighted average number of shares outstanding is slightly down from 61,900,000.0 to 61,600,000.0, and that's because of our share buyback program that we have had or have executed upon in the quarter. Moving then on to Page six, the net profit variance between first quarter and the second quarter.
We reported a $38,700,000 net profit in the first quarter. We don't have the reduction in deferred U. S. Tax liability in the prior quarter of $24,900,000 We saw a stronger tanker operating profit by 15.7 slightly down of $5,700,000 in terminals because of the deferred tax liability there, too. Higher STC operating profit by $2,600,000 lower Stolt Sea Farm operating profit after the fair value adjustment of $1,600,000 and an impairment of the two bitumen ships, bringing them down to the current market price for those types of ships, dollars 11.8 And lower corporate and others of $5,600,000 and then others of 2,100,000.0 bringing us up for the quarter of $9,500,000 If we then move on to Page seven.
Out of the $4,500,000,000 assets that we have, dollars 2,500,000,000.0 of 2,400,000,000.0 are in ships, by far the biggest segment in our group. The total volume increased by 3.5% that we transported during the quarter. This increase was mainly driven by higher operating days and also higher volumes under our contracts of affreightment. The deep sea revenue for the quarter increased 4.3% as a result of the additional operating days. The regional fleet revenue also increased by 6%, and this is partly due to an increase in demurrage that we incurred during the quarter because of quite a bit of congestion, both in Europe and in The Caribs for the regional fleet.
The CAO rates decreased due to a product mix, while the spot rates were up. Now the CAO rate decrease is just of the product mix that's being nominated. During the quarter, we had quite a bit of sulfuric acid phosphoric acid that we transported, which is larger volumes and lower freight rates. But the positive note, spot rates that we booked during the quarter were up. COA freight rates renewals in the quarter were down on an average of 3.8%, which compares to 4.1% in the previous quarter.
So there's still a decrease in the contract of affreightment that we are renewing. There's still competition. But as I wrote in my comments, I think that maybe we're now starting kind of seeing it leveling off, hopefully. Moving to Page eight. Here, we analyze the operating variance operating profit variance between first and second quarter in sold tankers.
Previous quarter, 10,900,000.0. We had higher trading results by 6,000,000 We had bunker hedge variance of 9,500,000.0 that's the paper hedges. Bunker cost variance of net $0.3100000 dollars increased income from the joint venture of 700,000.0 gain and loss on sale of some assets that we sold of a loss of $800,000 and others of $05,000,000 bringing us up to $26,500,000 operating profit for the quarter. Page nine, the bunker costs. Bunker costs net of bunker surcharge, but excluding bunker hedges, increased $300,000 As a result of the bunker clauses that we have in our COAs, even though the average price of purchase IFRS during the quarter of $398,000,000 for the quarter versus $3.79 we only saw an increase in our cost of $300,000 because of the bunker clause.
And of course, on top of that, we also have the hedges that are reflected on the right hand side. We realized $3,000,000 in the quarter. We have unrealized gain of $6,300,000 which gives us a total gain of $9,300,000 We still have these hedges in place, the paper hedges in addition to our bunker clause. So the remaining volume under those contracts are 56,000 tonnes for the remainder of 2018 at an average weighted price of $263 And in 2019, 48,000 tons at an average price of $260 So if you kind of look at the percentage, 60% is hedged under the Seaways. And then I said half of that, the remaining that is unhedged, the remaining 40%, 20% are covered under these paper hedges for 2018.
Another 20% is covered in the first half of twenty nineteen. This is just for your reference. We have done some sensitivity analysis on Page 10 of how it impacts Powerline. So if you look at let's say, if we see a 5% increase in the bunker price, so bringing up to $4.00 $1 per tonne, will give us a cost of $60,900,000 for the quarter. That's an increase of 2.9 We expect out of the $2,900,000 increase to recover 1,300,000.0 through the bunker clause.
But we also have then the paper hedge, which will give us a $2,100,000 gain. So for your reference to see what impact it will have if you look at the COA bunker clauses and also the paper hedges that we have in place. Moving to Page 11, spot rates versus bunker and time charter index sensitivity. The top part here, you see clearly what happened in we had a challenging market in 02/2009, 2010, 2011, 2012, 2013 and 2014. Then in 2015, the oil prices started to fall, but you saw that the spot rates didn't fall.
So the reason that we weren't making money in 2015 and 2016 wasn't because the freight rates really went up or the volumes went up, but it was because the bunker prices went down. And then you see towards the 2016 or 2017 that the spot rates started falling, reflecting the of course, more supply of ships, but also the lower bunker prices. But then we see then that the bunker the challenge that we face with now is that the bunker stock prices spot rates have come down, the bunker prices have gone up. On the bottom left, you see the Sailed in Time Charter Index, what the sensitivity is. So if you see a 5% movement in the index, we'll have a $5,900,000 bottom line impact per quarter.
You can see that on the STJS sales and time charter index that we have reported for quite a while, we see a little uptick at the bottom there, which is a positive sign. Let's hope it continues. Moving to Page 12. This is the order book as we see it. These are a summary of what we call our main competitors and what is an order.
And according to our, these are ships that are 16,000 tons and above what we categorize as our competitors. And the order book currently stands at 11.2. And you can see that 2018, there is still ships to be delivered. There's still some ships to be delivered in 2019, but a dramatic drop off. And we're not seeing any orders coming in, hoping that it will remain so for a while for the market to be able to absorb the tonnage that has been ordered.
But the reason that we have a bit of optimism is that in 2018 once 2018 is passed, we see the supply of new ships coming into the market will hopefully be absorbed by the relatively healthy growth in demand that we are seeing. So moving to Page 13, market development. Most markets remain subdued as tonnage delivery continue to outstrip the demand of growth. Again, we hope that, that's going to be more balanced in 2019 and beyond. Now I'd just like to remind you that we are today renewing COAs, as you saw at the reduction.
And those COAs are carried usually twelve months, but sometimes also twenty four months, two years. And the charters are, of course, taking advantage of today's competitive environment. So they said like we would like to lock in these rates for one year or two years. They're trying to go long on duration because they also see the same picture. So even though we might we believe that there's going to be a recovery in the market in 2019, a lot of the business that we're locking in today will have to be serviced in 2019.
So even if the market is recovering on spot rates in 2019, there will be a time before that will be showing in our earnings. Strong COA competition continues, driven by owners seeking to secure cargo in advance of newbuildings being delivered in 2018 and 2019. Outlook remains stable for fundamental petrochemical shipping demand. So I would say the demand is relatively healthy. The growing risk of adverse impact from new tariffs on chemical products, we haven't seen anything specific yet, but of course, that's always the risk in the escalating trade war that is growing between China and The United States.
The MR market remains weak, negatively impacting the chemical markets. Once you see the VLCC market, the correlation between the VLCC, the MR and the chemical, you'll see that more of the MRs will operate in the crude, and that will free up or that will mean less MRs going into our segment. So historically, there's quite a correlation between the three segments. Higher fuel prices and excess newbuilding tonnage will limit gains in the year ahead. Although we believe that the market has bottomed out, we do not expect to see a meaningful recovery until the start of 2019.
Let's hope it's in 2019. So I think we will see the recovery in 2019, but again, the impact on our results will take a little longer because we are being forced to lock in today's rate for next year. Stolthaven Terminals, steady continuously steady improvement every quarter. Revenue increased by 1.4% from last quarter. Utilization in our wholly owned terminals was at 90.2%, and that's up from 88.5%, and that's because we've been able to lease out more of our Houston, New Orleans and Singapore tanks.
Utilization in the joint venture terminal decreased to 92.2%, and that's not from 93.4%, primarily driven by the CPP the weak CPP market in Europe in our joint venture with Oil Tanking in Antwerp. The operating profit increased by EUR 2,500,000.0 from last year after excluding the first quarter one offs related to the reduction in the deferred tax liability in the joint venture terminal. So the underlying performance in the terminals continue to improve. Page $1,525,900,000.0 operating profit in the first quarter. We didn't have the tax deferred tax liability positive impact in the second quarter that which we had in the first quarter.
But higher equity income from the joint venture of 1,100,000,000.0 higher operating income of €1,400,000,000 now wholly owned, higher operating profit of $900,000 and others of $900,000 plus brings us to 20.2%. So a steady, nice improvement in the Terminal division. Houston is performing well with increased revenue driven by higher utilization, excess throughput and railcar activities. The exports remain strong, but again, a bit uncertainty in regard to The U. S.-China tariff dispute.
So what we're really working on is getting the utilization up but also getting rid of the lower paying, lower margin business, replacing it with higher margin business, taking advantage of the strong demand that is out there in Houston. Singapore market remains challenging, but we have had some good luck and good success in getting additional business. So we have seen improved utilization of Singapore terminal. South Korean market, where we have our biggest terminal in the joint venture, is stable with an increased lease increase in leased capacity. Europe remains stable for chemicals, but as I said earlier, there's a weak CPP market.
We continue to pursue the development of long term contract with potential pipeline connected industrial customers. Major capital projects in the Terminal Division agreement includes the Jetty 11 in Houston, which is expected to be finished this year or sorry, in the first quarter of twenty nineteen. And also, we have a nice expansion project in the strong market of Santos, Brazil. Stalled Tank Containers continues to be the star performer in our group. Revenue growth of 8%, reflecting both growth in shipments and higher demurrage revenue resulting from customer holding the tanks longer for inventory storage.
We've continued to develop a global depot network to support the business, which has served us well, having these depots strategically around the world. Utilization was slightly up to 74.6%, up from 73.9%, and margins remained stable. Healthy demand in this segment. Quickly through the on Page 18, the first quarter versus second quarter operating profit variance, 16,200,000.0 in the first quarter. Higher transportation demurrage and other revenues of EUR 10,600,000.0.
With that additional activity, we also have higher operating expense and depreciation of EUR 9,100,000.0, slightly lower A and G and others bringing it to EUR 18,800,000.0. Thinking we will continue to see an improvement in quarters to come from the Tank Containers division. So Tank Containers market, key initiatives, stronger demand driven, driving increased shipment in most regions, focused on improving both utilization and turns per tank. Fleet grown by 3.9% in the first quarter or in the second quarter. Operating revenue, up 8% from prior quarter.
And as always, we focus on system development and implementation of global platform to increase efficiency and scale and improve margins. The key to the success in this market business, as I've said before, is to have the systems and the tools available so that you can price your service so that you ship your containers to regions where you're not long tank containers. But the key to
the game is to make
certain that you minimize the number of empty repositionings. That it's easy to ship a tank from Houston to Singapore, but if you have to bring it empty back, it will lose money. So if you have the right tools, pricing tools in place, you minimize the number of empty repositioning, which is the key to the success in this business. We continue to develop our depots, which serves us very well. We have one large depot under construction in Saudi Arabia, which will be finished by the end of this year.
Tisch, Page 20, small part of our business. We see that the turbot sales went down slightly in the second quarter. That's because the first quarter in our fiscal year includes the Christmas sales, but the price increase is 2.4%. The volume of Sol remains flat, but prices increased by 4.6%. I'm not going go through the variance analysis.
It's relatively small, but the outlook for both the turbot and the salt looks very promising. Salt mix and gas strategy. We continue to focus on the markets to deliver gas to stranded demand, people that are not connected to the grid that need would like to replace gas or LNG, replace diesel, heavy fuel with LNG or gas. We see a huge opportunity, many opportunities, not only in bunkering, but in power, in transportation in the form of trucks. We've seen an explosion in the use of LNG as a mode of transportation or fuel for trucks, in United States and China.
It's phenomenal, enormous growth. And then our strategy here is to be able to build heavy assets and build supply of small scale LNG to serve these, what we call, stranded demand. We have an order, 705 that we had ordered. We would like to order more to exercise the option, and we also like to order some larger ships that we see there's going to be demand for in 2020 and beyond. But we are, as you know, under restrictions on our investment capacity, so we will need to find other ways of achieving that same goal.
But this is an area which we have strong belief in and something that we will pursue. That brings us to Slide 23, financials. Jens will take you through financials.
Thank you, Nils. Good afternoon, and good morning to those in The United States. I will provide the details about the financial results released today for the second quarter of twenty eighteen, and I will also give some further guidance on certain of the P and L items for the next quarter. I also want to remind you that we have today filed our interim financials for the second quarter with the Oslo Stock Exchange. And you will also find the press release issued this morning together with the interims as well as this investor presentation posted on our website, which is www.stoltnilsen.com under the Investors section.
Going over to the net profit. Operating profit before the one offs for the 2018 was $61,000,000 and that's up from $46,700,000 that we posted in the first quarter. As mentioned by Nils, the Tankers performance improved from the prior quarter, and we also benefited from the bunker hedge gain of $9,200,000 compared to the bunker hedge loss that we had in the first quarter of $300,000 Before onetime adjustments, terminals operating results were slightly up. STC had another strong quarter with solid underlying demand, driving an increase in shipments. And Stoke Sea Farm's performance continued to benefit from rising turbot prices, although the caviar volumes and prices still remain below our expectations.
The major one offs for this quarter was really the $11,800,000 impairment on the two bitumen ships, and that contributed to the reduction in the operating profit. For the quarter, it went down by $6,400,000 to $48,500,000 compared to the prior quarter where we were at $54,900,000 Net interest expense, that was in line with the prior quarter. And the tax, as mentioned in the first quarter reflected the reduction of the lowering of The U. S. Income tax rate from 35% down to 21%, resulting in a €24,900,000 gain that we recognized in the first quarter.
And after all this, the net profit in the second quarter came in at 9.6% for the quarter. At the same time, we saw quite a substantial increase in the EBITDA, which increased by over $18,000,000 to $127,700,000 Going to the balance sheet. Debt decreased by $11,000,000 from the prior quarter to just over $2,500,000,000 And the debt to tangible net worth ratio, which is one of our key covenants, remained flat at 1.55. This is a marginal reduction, but not showing up here. The EBITDA to interest expense ratio for the quarter, which is another key covenant, that improved quite a bit from 3.49% in the first quarter versus 3.77% in the second quarter.
The debt to EBITDA ratio, which is important in that it drives the pricing of our revolving credit line, that is now below five:one, and that puts us in an area where we'll see a reduction in the interest rate or in the margin on that facility. And hence, we should see a lower interest rate expense going forward or interest expense. Now at the quarter end, the availability that we had under the revolving credit line was €197,000,000 That's quite a reduction from last quarter, but I'll come back to that. As you will probably have seen, we did repay a bond in the second quarter. We also had cash of $80,000,000 And in addition to those two, we had uncommitted credit lines of $76,000,000 that we could draw on.
So in total, available liquidity just in excess of $350,000,000 The average interest rate for the quarter was 4.98%, marginally up from 4.92% in the first quarter. And we are expecting this to the interest expense for the third quarter to be in line with what we've seen so far, so around $34,000,000 Go to next slide, cash flow. The cash flow from operations was a positive $91,000,000 and that was up from $57,000,000 in the first quarter. This was primarily due to a $39,000,000 swing in working capital, and that came as a result of an increase in trade receivables that we saw during the first quarter and subsequently an increase in trade payables in the second quarter. Those two combined caused the $39,000,000 swing.
In March, we drew down $155,000,000 on the revolving credit line, and that was to repay the bond that matured on March 19 with an amount of $148,000,000 This, if you recall, this repayment of the bond was originally funded by the bond we issued back in September 2017. That was a 175,000,000 bond with a fixed rate of 6.375%. And that bond, the September bond, has now been listed on the Oslo Stock Exchange, and the ticker symbol is FNI-seven for those interested. Also during the quarter, we paid a dividend of €13,700,000 We also bought back shares, and you will have followed the buyback program. During the quarter itself, we bought back 6 and 21,000 shares and spent just about $8,700,000 doing so.
And now following the blackout period, we currently have $14,600,000 remaining under the buyback program. So with all that, the net cash flow for the quarter was $10,000,000 putting us at $8,000,000 at quarter end. And I'd like to remind you that our priorities cash flow wise still remains to reduce debt, carefully review our capital expenditures and continue to reduce our operating expenses. Next slide is EBITA. And just as a reminder, if you look at the Stolt Nielsen Limited EBITDA in the bottom right quadrant of the slide, the figures here are presented excluding an impact of the IFRS fair value adjustments to Stolt Sea Farm's inventory, gain or loss on sale of assets and other noncash onetime items.
In the top right quadrant, you have Tankers EBITDA, which increased mainly due to the improved trading and favorable bunkerhead variance that we have discussed. Terminals increased due to the improved EBITDA at Houston and the JVs, while STCs increased as trading results continue to improve. And as a result, we now have an EBITDA of 128,000,000 which was up from the $109,000,000 in the prior quarter. Next slide is the administrative and general expense. The A and G for the quarter increased to $57,500,000 That's up from $57,000,000 in the first quarter of twenty eighteen, but very close to the guidance that we gave at the end of the first quarter, which was $57,400,000 In the second quarter, we have higher corporate and other expenses.
These were pretty much offset by lower business A and G. And our guidance for the 2018 is a marginal reduction down to 57,000,000 so in line with what we had in the first quarter. Next slide, the depreciation and amortization. The depreciation and amortization for the second quarter was $68,200,000 compared with $67,200,000 in the first quarter and a guidance that we gave at the end of the first quarter of $69,200,000 The increase in tanker depreciation was the main driving force really behind the quarterly movement as a result of additional days in the quarter and slightly higher drydocking amortization. And as we noted earlier, as you see below there, there was an $11,800,000 impairment of the bitumen ships taken in the quarter to bring the value of those ships down with what we have been indicated in the market seen indicated in the market for the ships of that configuration.
So the guidance for the next quarter then is €68,800,000 which puts us slightly above the second quarter. Over to the next slide, share of profit and JVs and tax. Our share was $7,100,000 in the first quarter, and that compared with $14,000,000 in the previous quarter. But I need to remind you that in the previous quarter, we took an $8,200,000 gain at the Terminal JV in Antwerp. So removing that, there's a slight increase this quarter.
Our tanker JVs saw an increase due to more operating days and a reduction in the operating expenses. And also worth mentioning that in our terminals division, in our Terminal JV in Antwerp, we also took a $1,600,000,000 gain related to a cancellation fee that we collected from our customer. And our guidance for the next quarter is $7,000,000 so pretty much flat with what we had in the first quarter. Tax expense for the quarter was 4,900,000.0 The prior quarter included that gain related to U. S.
Tax. And excluding this gain, the taxes for the terminal division increased from first quarter to second quarter by about $800,000 And that was due to an increase in taxes that we saw in New Zealand and a reduction in our tax loss carryforwards. Moving over to the capital expenditures program. We spent $31,000,000 during the second quarter and have year to date 2018 spent $61,000,000 The quarter expenditure was primarily driven by terminal expansions, including capital expenditures for improvements, the jet expansion in Houston and the jet expansion in Newcastle, Australia. With the completion of our tanker newbuilding program at Shudong Songhua Shipbuilding in China, our capital expenditures for tankers have declined substantially, as you will see.
What you have left there is predominantly related to ballast water treatment systems. And if you look at the overall capital expenditures, that has now declined to $4.00 $1,000,000 from what we've showed in last quarter, $435,000,000. For terminals, just to give you some detail on the what we spent in the second quarter, You'll see that terminals is now the biggest portion of our capital expenditure. It was $24,000,000 for the Houston Jetty. We have spent $27,000,000 for capital improvements at Houston Terminal.
We have $12,000,000 coming for expansion in Santos, and most of the remaining capital expenditures for terminals is really earmarked for maintenance and CapEx. And at Stolt Sea Farm, we are constructing two new farms in Servo and in Toxa for the production of Sol, and that's what that CapEx expenditure predominantly relates to. Stolt Nielsen Gases CapEx expenditure relates to the two seven thousand five hundred cubic meter LNG newbuildings. The debt maturity profile, next slide. Debt repayments for the next five years includes our regular scheduled principal payments, and you see those in the dark blue at the bottom part of the columns.
The orange section or yellow, depending on how it shows up on your screen, those are regular debt secured debt balloon payments. And the light blue on top, that's the bond maturities that we are coming over the next four years. The $156,000,000 balloon payment that you see in 2018, That is the remaining debt that we took on when we bought JO Tankers and refinanced their debt. That matures at the end of the fiscal year, and we're in the process of dealing with that. The 2019 bond repayment of €148,000,000 is on the next big maturity that we have, and that is in September 2019.
You will also see that we have added a big orange block in 2022, and that's the new bond that we issued in September 2017. And we feel that with these changes that we now have to the debt maturity profile, we have a well balanced and evenly spread profile on our debt. With this, I hand it back to you, Hinrich.
The key takeaways for the second quarter, 21,500,000.0 if you take away or exclude the one offs. Slight improvement in Stolt Tankers, but still a challenging environment, hoping for an improvement or a turnaround in 2019 continued strong demand for Stolt Tank Containers and strong fundamentals for the Terminal division Sea Farm, turbid and salt prices should continue to increase, which we are achieving by expanding the market for these products. Strong earning base from the businesses ensure positive free cash flow, which will reduce our debt, which is very much our focus. I'd just like to remind you that we have been growing our businesses aggressively in the last ten years. Since 02/2007, 02/2008, we have spent over $3,000,000,000 investing
in our businesses, and we have
grown them. We are now very much focusing on getting a return on those investments. But I think we have positioned ourselves quite well. In tankers, we have expanded our fleet by over 20%. We have acquired newbuildings.
We have consolidated by buying JO. And I think the earnings potential there, just with realistic earnings scenario, if you take the second quarter of twenty sixteen, which was really the last peak we had, unfortunately, again, by the bunkers. But if you take the sale in from that period and apply it to today's fleet, I don't think that's unrealistic assumption. I think you should be able to see an EBITDA for closer to $400,000,000 just from our Tanker division alone. From the Terminal division, by the improvements, just by the capital expenditures that we have done, that we have committed to, that we're in the process of delivering.
With the normal utilization and margins where they have historically been, I think we should get an EBITDA close to $150,000,000 from that division. Tank Containers will continue to grow. Even though it's a low cap asset base, it's healthy. I think we should be able to achieve an EBITDA of $100,000,000 not too far in the future. So we are very well positioned in each of our businesses.
We don't need to do any more further capital expenditure to be able to achieve significantly improved earnings in our business. And our focus will still continue to be to reduce our debt level. But there are still huge opportunities that we would like to pursue in the terminal division. There's growth potentials just by organic growth that we would like to continue or to develop, but again, not before the debt level has come down. With that, that completes the presentation.
And we will start off by asking questions here in Oslo before we open up for people on the phone. Any questions in Oslo? A couple of questions from me, Maxim, Chairman, Nordea. First, on the tank containers. You previously mentioned there's been competition, in particular, from the Chinese, and that seems to have leveled off.
Today in today's market, is this improvement driven by the reduction in the price pressure from the Chinese? Or is it driven by underlying growth in demand? So the question is what is the underlying driver for the improvement in tank containers? I would say that the it is if you looked at, we went from $67,000,000 at the top, and we went down the year before last to 32,000,000. And you can see that, that was very much utilization falling from 75%.
We were even up at utilization at 80%, and that fell down to 65%. Now we're back at 75% again. The margins are lower. So the biggest driver is, of course, stronger competition, but we've been able to aggressively compete and winning and getting the utilization up and turns per tank up. So there's strong competition, but there's healthy growth in demand.
So we're doing more shipments at a lower margin. And I think this is as I've said before, it's unrealistic to believe that you can be in such a fantastic business for such a long time alone, return on capital employed at 25%. That has come down. Well, what and I think we have now reached as I also said before, I think we reached a level that where not everyone is making money or has healthy returns at these levels. So if you have the systems in place so that you can achieve that utilization and that the number of turns per tank, you can make money.
And we see growth today driven by more products being produced in more locations
being shipped to new locations. So there's a
growth not only by taking distances away from drums or taking distances away from chemical tankers, but there's more products being produced in more locations being shipped to more destinations. But again, there's a lot of new operators that compete. But we are able to make money, lower margin, but making more shipments, more higher utilization. And I think that will continue. Second question is about the freight tensions.
Mentioned it, but have you seen any changes in volumes going from The U. S. To China
so far? Nothing. Nothing. I checked before because I
knew you were asking. So we haven't seen anything yet. And the third question, For scrubbers? For scrubbers? Or do you think there would be, for example, how much you blend this here that the price is down there, and maybe it's not going to be any bigger challenge for us.
That's the biggest challenge that we have is that what are the alternative fuels, the low sulfur fuels. So today, with the difference between heavy fuel oil and the premium that you have to pay for the marine gas, the scrubbers makes huge sense. But if there's an alternative fuel that will be developed where the difference is not as big, it is a more difficult decision to make. We have a case internally now to look at installing 27 scrubbers. We haven't made a decision, but these are primarily focused on the large ships and the younger ships.
We haven't made a decision yet, but as it looks now, it's a strong pace to go towards we already have five scrubbers, but to do it further. One thing is clear is that if the owners this is still a very small percentage that have announced that they're going to do scrubbers. It's growing, but if you look at the global fleet, it's very small. So I think if we're not able to pass this cost on to our customers, we will go very quickly out of business. Everyone will.
So I think a lot of companies are believe that they will be able to pass that on. And the question is, of course, how will your customers react when you put a scrubber on? Will you be able to achieve the freight rate based on MGO prices versus heavy fuel oil prices? So it's a tough decision. It's not a no brainer, but we are now leaning towards scrubbers.
Next question?
You said we are under restrictions in terms of the investment plan, just to clarify that, that's not imposed, Chris.
Yes, yes.
And how in terms of ranking your priorities, restoring dividends versus further injections into R and D chip options, for example, what's the hedging there?
I was thinking it's as you have seen, the smartest investment we can do now is buying back shares, which we are doing. We are under these we impose on ourselves this safe harbor rule, so there's limited amount of shares that we can buy per day. So that's what we do. And it is also a priority to once the earnings in the company comes back to continue with the $1 dividend. So we have a self imposed capital expenditure.
There are things we're looking at several contracts for the terminal division, where you have to spend a couple of $5,000,000 to upgrade a tank or build a new pipeline. That will continue. We have to run the business. But major investments, you will not see until we have got our debt level done.
So for instance, a listing of your R and D venture is
that's going to be
a self funding term or something you plan on checking for equity?
We have said that we would like to develop this business. And because of our own capital constraint, we it is an intention for us not to commit further beyond the two ships that we have committed to, but see if we can bring in partners so that we can continue to pursue.
So in Norway, that's how long?
Something like that, Yes?
In terms of the containers, you have $15,000,000 net of zinc CapEx this year. So that's a bit before or is
it That's primarily depots. There are also some tank container acquisitions or buying new ones, but it's primarily debt offs. We are leasing quite the leasing rates for tank containers are quite attractive, and the leasing commitments that we are taking, even though it comes up like that, is not included in the CapEx list. How many components?
We are Adding on.
Adding on, I think we are committed to add on another 2,600 around 3,000 over next this year and next year. Difficult to say, but I think that the uptick that you saw in the second quarter is just it's too early to say if that's the beginning of a recovery.
It's too early to say.
But we will not see anything fundamental until we see a reduction of supply of new ships. And that is, as you can see from the chart, going to happen in 2019 and 2020 and beyond. So 2019, in your analyst report, I don't think you should expect that they take off of the market or at least in our earnings. That, unfortunately, I don't think it's going to happen until 2020 and beyond. It will hurt us more for not having that volume in 2018 and 2019 and rely on the spot business.
Remember that most of the business that we carry of specialty chemicals are carried under COAs. So if we don't take those contracts, I mean, if we don't compete 10%, 15% down or 3% or 5% down, we will not be able to replace with better paying spot rates. So we know from experience that, unfortunately, we are trying to hold back. And all the time, there are we are only referring to the contracts that we did renew. There are some contracts that we didn't renew because they ask for too much.
And then we say, okay, listen, we believe the alternative of going to the spot market is better. But in most cases, the COAs are better alternative to compete with than losing the business.
On the topic of CO2As, do
you think you'll be able to maintain such a high CO2A coverage in your fleet that should be 5% next year? Yes. Why wouldn't I mean, we have to compete yes. I think we actually, right now, we used to be more at 70%, 75%. So we are now at about 65% to 63% contracts 65% to 70% contracts.
So yes, I think we will continue to have that. But in terms of COVID, looking into 2020, why don't you give them the same price then for the scrubber fitted vessels in 2020? And then you can take back what you lose on the 2019 low price. So we don't fix any contracts. We just have a clause stating that we are able to negotiate either leave the contract or negotiate a compensation for the higher fuel price.
So nobody is willing to give you the benefit yet, but they have they for having scrubbers, but they're willing to let us sit down and talk to them where we are free to drop the contract if we don't come to an agreement. Terms of the scrubbers and competition, how important is it for you to sort of adapt to what the competition would do in this context? Our decisions are driven by what we think is the right decision. Of course, we are not blind, so we listen to what the market trends are. But our decision process is driven by what we think is right.
So looking at what Odfjell or any of the other competitions are doing, I think yes, it's really it's our own decision. We it's driven by what we think is the right thing to do. Last question on bunkers. Just to understand that table you've shown on Page 10. Is it so that you're on long bunkers now?
What do you mean long bunkers, that we are over It gives us that your hedging result is more than offsetting your P and L losses after the bunker escalation. So the 1.3 versus no, I'm sorry, the 1.6 versus the 2.1? Yes. So you can say that we are actually under that scenario making the cost of the paper hedge in addition to the bunker clause, yes. Yes.
When you get it right, yes. But it's really not our business. So that's why we try to cover as much as possible with bunker clauses in our COAs. Any other questions? Operator, are there anyone on the phone call that would like to ask any questions?
There appears to be no questions over the telephone.
If there's no question, that completes the second quarter earnings presentation. Thank you very much, and please enjoy your summer. Thank you.
This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now