Good day and welcome to the Stolt-Nielsen Limited fourth quarter 2017 and full year 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 G. Stolt-Nielsen. Please go ahead, sir.
Good afternoon. Good morning. Thank you for joining us here in Oslo for the fourth quarter 2017 results presentation. I will be referring to a slide presentation, which you can find on our website. Together with me here in Oslo is Jan Chr. Engelhardtsen, Chief Financial Officer. If we go to the agenda on page four, the normal agenda, where I'll go through the highlights for the quarter, go through each of the businesses, Jan will take you through the financials, and at the end, we will open up for question and answers. On page five, the highlights. I guess the big surprise is, of course, the decline in the performance of Stolt Tankers.
Stolt Tankers reported operating profit $20.4, down from $34.4, reflecting impact of lower COA volumes, and COA freight rates, and also the negative impact of Hurricane Harvey, and it was estimated to be $7 million. I'll go into more details later. The Terminals operating profit $5.4, down from $16 in the third quarter. We did impairment of assets in New Zealand of $8.4. Stolt Tank Containers, a positive development. Operating profit was up. We reported $17 million, and that's up from $14.8, and that was driven by firming markets. Increased the merged revenue and improved margins on our shipments. Stolt Sea Farm operating profit before fair value adjustment of inventories was $0.1 compared to $0.4. You had a positive $4.8 million positive valuation impact, versus a negative of $2.9 in the prior quarter.
Corporate and others, an operating loss of $9.4, compared to an operating loss of $6.7 in the prior quarter, reflecting a $6.9 million impairment of assets of the bitumen business assets and a gain of $7.2 million related to the changes that we did in the U.S. retiree healthcare benefit plan. That gives us a quarter result of $1.1 million, just above breakeven, and a full year result of $50.3 million. If we then go through the variance analysis of third quarter 2017 compared to fourth quarter 2017. We had a $18.5 million net profit in the previous quarter, $7 million lower operating profit from Tankers, $7 million impact from Harvey, $2.2 million lower from Terminals operating profit, very much also driven by the impact of Harvey. Higher Tank Container of $2.2, a higher Sea Farm operating profit after the fair value adjustment of $7.4.
The $4.5 million benefit from the retirement change in the medical plan, a one-time impairment of our terminal in New Zealand, and also a write-down of the assets in Stolt Bitumen, giving us $1.1 million. On page seven, I just want to talk a little more about Harvey because we underestimated the impact from Harvey. I just want to remind you that the Houston Ship Channel was closed down all activities on August 25th, and didn't open again until the 1st of September. The whole ship channel in Houston was closed down. Stolthaven Houston was one of the first terminals to become 100% operational on September 1st. Other terminals resumed operations gradually depending on the extent of the damage and flooding. Of course, many of our customers' terminals weren't operational, so we weren't then able to call and had to wait.
Stolt Tankers at that time, we had 17 ships in the region when the hurricane hit and made landfall. As a consequence, the port closure, the ships that were in port had to go out to sea. Following the reopening of the ship channel, the ships suffered severe delays due to congestion and unavailability of cargoes. They didn't want the ships to be in port when the hurricane hit, so we had to sail out, and then when we came back, of course, it took time before the terminals opened up. A number of customers declared force majeure due to the flooding, and 54,000 tons that were booked were canceled or delayed, requiring replacement to be found in the spot market. If we then move on to Stolt Tankers. The deep-sea revenue for the quarter decreased by 5.4%, reflecting a decrease in average COA rates.
Regional fleets revenue also declined by 6.7% during the quarter. Our two regional fleets, NEAS, the market didn't decline, but we had less operating days because we sold the ship. SNICS, our inter-Caribbean service, were impacted by Harvey. Total volume shipped in the quarter decreased 3.1%. COA cargo volume dropped 6.8%, while spot volume increased 5.7%. This is very much driven by Harvey, where the nominations that we received were canceled because of force majeure, and then we had to replace all of that volume, and that's why the spot volume increased by 5.7%. The COA rate renewals for the quarter were on average down 1.1%, compared with a decrease of 0.4% in the previous quarter. The contracts that we renewed during the quarter, on average, of the ones that we retained, on average, were renewed at a 1.1% decline.
If we then go to page nine, the Tankers third quarter to fourth quarter operating profit variance. Here you see that we had an operating profit of $34.4 million in the third quarter. Lower trading results of $12 million. Estimated impact of $7 million from Harvey. We had slightly higher bunker costs, but the bunker surcharge improvement was $2.5 million. Actually, the surcharge improvement is actually that we gave back less to our customers because of the higher bunker price. The bunker hedge variance, because of the paper hedges that we have in place, an improvement of $3.6 million compared to the previous quarter. Slightly higher ship-owning expenses and slightly higher equity income from the joint venture, bringing us to $20.4 million. If you then go to page 10. The bunker cost net of bunker surcharge, but excluding the paper hedges, decreased by $1.4 million.
Actually, the bunker prices went up, but because we had to give back less to the customer under the bunker clause, actually, our total bunker cost decreased by $1.4. The average price for IFO consumed increased to $327 per ton, from $307 in the third quarter. The average price of bunkers purchased increased to $346 from $306 in the third quarter. The COA bunker surcharge clause covered on average 69% of total volume in 2007. Here you can see also that we have still paper hedges on the bottom right. You can see that we still have paper hedges in place for 2018 and beyond. Moving to page 11. The order book. It now stands at 15% of the fleet that we consider competitors or operators. The order book now stands at 15%, all of which is stainless steel.
Here you can see that there's a significant amount of tonnage coming in in 2018 and tapering off in 2019 and 2020. As we stated earlier in previous quarters, we believe that 2018 will remain a challenge because of this delivery, the increase. At Stolt, we have now finally taken delivery of all of our ships, so our new building delivery has now been completed. Market development. The Hurricane Harvey and resulting Houston Ship Channel closures severely disrupted U.S. cargo operations, we already talked about. The spot market actually at the end of December, in December, which is again in the new year, started to improve, and it's carried on into the new year. That is, of course, a good sign. However, the COA competition continues quite significantly.
Our main competitor, Odfjell, has taken on, as you probably have seen in their 100-ship strategy, have taken on quite a bit of new tonnage, which they don't have contract coverage on. They are aggressively going after all or many of our COAs. Needless to say, we are not going to let them go. We do expect that there will be continued competition for these contracts, which unfortunately may affect our Yeah, the renewals going forward. I question that we've said hopefully by the second half of 2018 that there will be signs of recovering, but I'm afraid that 2018 will be a challenging year, and I'm hoping that 2019, most of the new buildings have been delivered and the market have absorbed all of the existing tonnage.
On the positive side, 80% of the COA's volume that we will carry in 2018 has been renewed. If you look through the various presentations of the last previous quarters, we have shown you basically on average how the COA contract renewal have been. We have secured a lot of the COA business, but however, continuously every quarter, there are contracts coming up, and we expect significant competition in that renewal. We will, of course, defend the contracts. The MR market was up at the year-end, but has retreated again to below 10,000. Of course, that also has a slight negative impact in our segment. Higher fuel prices and excess ship new buildings supply will limit gain for improving spot markets.
Again, when you see that even though the spot market improved towards the end of the year and beginning of this year, I believe there is going to be limited improvement because of this supply of new ships coming in. Moving on to page 13, terminals. Revenue remains unchanged from last quarter. Global utilization of our wholly owned terminals went from 85.6% in previous quarter up to 87.6%. We improved our wholly owned utilization. If you look at the total, the utilization including the joint venture terminal remained basically unchanged at 91.4%. Again, we did an impairment of the asset in New Zealand of $8.4 million. I believe we have now taken the impairment that are necessary there.
If we then go to page 14 and compare the operating profit between the two quarters, $60 million last quarter, lower operating income from owned terminals, primarily driven by Hurricane Harvey and less throughput as a result of ships not being able to call the terminal during the closure of the ship channel. We had also a lower equity pickup from the joint venture, not reflecting the performance, but we had a one-off in the previous quarter, which we didn't have in this quarter from our joint venture in Antwerp. Again, the write-down of New Zealand bringing it down to $5.4 million. On page 15, Stolthaven Terminal market update and key initiatives. Hurricane Harvey, which is very proud to say that the terminal didn't sustain any material damage. All our people were safe.
No contamination or no pollution as a result of this unbelievable amount of rainfall that came in such a short period of time. The Houston market remains, I would say, strong. U.S. Gulf market remains strong. Both in Houston and New Orleans, we see optimism in the market. We see a lot of inquiries. We are positive about the U.S. Gulf terminal market. Singapore market remains challenging. I would say small signs of improvement or more inquiries coming our way. We are not at the utilization we want to be in. The Korean market is stable. Europe remains stable for chemicals, but weak for CPP. We continue to pursue the development of long-term contracts with potential pipeline connected industrial customers.
We focus on ship-to-shore interface, generating synergies between our ships and our terminals, including the construction of a new ship dock in Houston, which we announced earlier, which is expected to be completed in the first quarter of 2019. Not only will that give us the opportunity to develop the east property, but of course, when we have more jetty capacity, it means less waiting time for our ships. Moving on to Stolt Tank Containers, once again, a star performer. As you may remember, the market in 2015 and 2016 declined. The margins increased competition. We have seen a significant nice pickup again. A lot of activity. There's still a lot of new operators, new competitors, but the amount of product being moved in tank containers continues to grow. We have seen that we have been able to get margins improvement, utilization improvement.
As a result, we have seen an improved earning from the tank container business. I think we will continue to do so going forward. Page 17 on the operating profit variance. $14.8 million in the previous quarter, 3.3 of additional demurrage revenue. Slightly higher A&G expenses and others bringing it to $17 million. On page 18, strong market demand in most regions. Focus on increasing both utilization and turns per tank. At the top of the market, utilization, we're approaching 80%. I think 75% is a realistic utilization of a tank container, and we are around 73% now. We are seeing a nice improvement in our utilization. Then, of course, it's not only the market, but it's also the way you operate the tank container.
That you have the systems and you have the pricing mechanisms to make certain that you send the tank containers in the right direction. You have depots in key locations, so you can turn them around quickly. As a result, you are able to both get the utilization up and also turns per tank up. Margins improved despite strong competition. Controlling operating expenses, of course. We continue to focus on developing our systems and implementation of global platforms to increase efficiency of scale while reducing overhead, so becoming more productive. Digitalization, they call it. That's what we are really focusing and have always focused on. Now more than ever, knowing that the competition is there, that you need to be able to do more with less.
We opened two new depots in 2017, Laem Chabang in Thailand and in Vado in Italy. We have two depots under construction, one in Saudi and one in United Emirates, aimed at all improving turnaround times. Stolt Sea Farm. Volume of turbot sold increased to 21%, that is mainly reflecting the additional consignment sales that we are doing for one of the other big farmers. The prices increased during the quarter 6.7%. Volume of sole sold increased by 3%, while prices decreased just around 1%. Caviar volume stayed flat against the prior quarter, prices increased 4%.
Quickly going through on page 20, the variance analysis, a negative $2.5, slightly lower turbot prices, lower turbot gross profit, lower sole gross profit, lower caviar gross profit is all offset by the fair value revaluation of the turbot and also of the caviar inventory, bringing it up to $4.9 for the quarter. That brings us to the financial presentation. We'll come back for questions. Thank you.
Thank you very much, Niels. Good afternoon and good morning to those of you in U.S. on the line. In this earnings release presentation, which is my number 100 presentation that I've done, I will go through and provide you with some more background information to some of the figures we have presented today. Also give you some guidance, which I also have done in the past to some of the P&L line items. Before we start, wanted to just say that we have today filed with the Oslo Stock Exchange our interim financial statements. Again, they cover the fourth quarter and also the full year 2017. As before, the press release, the interim, and this presentation you'll find on our website. Going to page 22. If we look at the net profit, and this is before what we call the one-offs.
You can see it's down from $55.2 million down to $47 million in the fourth quarter. Again, while we have gotten a lot of benefits in both of these two quarters from the bunker hedges, and that's because the increase in the bunker cost. Needless to say, as Niels has pointed out, the underlying tanker market has continued to be very challenging. Of course, impacting in a significant way, and I think we all have underestimated the impact on Harvey in the quarter, which Niels mentioned was $7 million for tankers. If you also look at some of the other one-offs, we have the impairment on our Stolthaven New Zealand terminals, this is before tax, $8.4 million. We had impairment of some bitumen accounts of $1.5 million, also we had impairment on some other bitumen assets. One was a ship and also on our terminal in Vietnam.
We've written that basically down now. That was $6.9 million. Of course, all of this is also mentioned. We made a change in the U.S. medical insurance plan and tightened that up, that is resulting in $7.2 million going through the P&L in the quarter. You can see here, it's basically $17.7 million operating profit as reported that we are down for the fourth quarter. Net interest is up. That is reflecting the $175 million bond issue that we closed in September. That was done at interest 6.375%, and that has caused the interest rate to go up. Overall here, you can see net profit was just under $1 million, reflecting the impact of Harvey, the deterioration in tankers as well as the impairments we have taken.
Again, if you just look for the full year, you can see here that $113 million was the net profit in 2016 compares to $50 million, this is a significant drop in the profitability. If you want to look at the variance, half of that variance is coming from the declining earnings in the tanker business, and the other half is coming from the increase in interest, which is a direct result of the acquisition of Jo Tankers that we did at the very end, last few days in 2016. Again, the EBITDA for the quarter, $111 million versus $122 million. In terms of the cash, it's only $11 million impact, and we're just under at $468 million for the year. It's still up from the previous year. There's an increase in the cash flow.
If you go to page 23, balance sheet, we try very hard to watch the balance sheet and, of course, our liquidity. The debt at the end of the quarter, at the end of the year, $2.47 billion looks high, but it's still $50 million down from where it was at the end of the third quarter. The debt to tangible net worth, we have a 2-to-1 max there with the bank. It's at 1.55 to 1. If you take out the cash and make it net debt to tangible net worth, it's at 1.51, which is just about the self-imposed limit that we have put on ourselves, and we have told you about that before. EBITDA to interest expense, 3.16 down 0.365, again, ties with the reduction in the EBITDA.
We have cash of $58 million, unused committed lines of $449 million, and we have uncommitted lines in place of $65 million. We're right there at about half a billion dollars in liquidity. Good news, 77% of the debt is fixed going forward. Average interest rate is 4.85%. It did go up a little bit in connection with us doing the bond offering in September. For the first quarter of 2018, we expect roughly $34 million to be the interest cost. Next, page 24, the cash flow. You can see here, $62 million is the cash from operating activities, down from $104 million. You can see here that the biggest variance here is the change from one quarter to the other in the working capital, and that's really only an internal transaction. It ties to what we have mentioned before. It's the closing down of our joint venture with Gulf Navigation.
That's closing down that transaction where each partner purchased two ships each and took delivery of those, and we repaid all the debt in the JV. That transaction spanned both quarters. Most of the variance from one quarter to the other quarter is actually directly linked to that transaction. There's not really been any underlying, there's no change in any of the cash trends here other than the weakening, if you will, that we have seen in the tanker business. Capital expenditures, $80 million, is the last payment towards the last ship that we are taking ourselves from Hudong, from China, 38,000 deadweight. It also is the second ship of the two that I just mentioned that we're buying from when we're closing out the joint venture with GST, that's Stolt Factor. If you go down, look at the financing activities.
I mentioned already the bond issue, we raised $275 million. This was really as the bond market was available for us in September, maybe a little bit too early, but anyway, the market was there. We went in, did it, and we used the proceeds to pay down on the revolver so that we now have capacity without really having to go to the market again to pay SNE 03, which is due in March of this year. Altogether, that means the ending cash here is $58 million, and that's down from $86 million in the previous quarter. Cash flow priorities, just to say that again, reduce debt, review CapEx, and we are going through an exercise now where we are actually reviewing very hard the outstanding commitments that we have. We also work on reducing the operating expenses. This is slide 25, the EBITDA.
Here, of course, we take out all the noise that we get from the fair value adjustments in Stolt Sea Farm. Also other non-cash one-off items have been removed from this calculation. You clearly see here the impact of tankers, which is down $15 million from the previous quarter. Terminals, I would say pretty much flat. Stolt Tank Containers, you can see here the whole nice progression and the improvement that we've had all through the year. Niels was talking about it. Utilization has come up, and the margins have come up. It's a very nice sign, and I think actually, the fourth quarter 2017 has been one of the better quarters we've had in STC for a long time. For Stolt-Nielsen, we're at $212 million for the quarter, and that is down $10 million from the previous quarter as we round off the figures.
Going on to next slide, which is the A&G, General and Administrative expenses. It's $52.1 million, and that is down from $54.1 million in the previous quarter. I think we guided at $54.1 or $54.2. The main difference why we are down is, of course, the impact of the changes that we did to the U.S. healthcare insurance plan. But by now you've seen a lot of different figures. You heard up front it was $7.2 million, but out of the $7.2 million, $3.9 million actually went through the A&G line and $3.3 million went through the operating line. That's why only $3.9 million actually shows up here as a reduction. The overall, the total amount was $7.2 million.
When we look at the quarterly guidance here of $57 million, which is, of course, we're not going to have the same benefit on the healthcare gain, not the same size. Of course, there will be a benefit going forward, but not at this proportion. We also expect to have an increase in the profit-sharing and LTIP provisions that we do for the quarter. $57 million is where we believe we're going to end up. Depreciation and amortization, you can see here that $68.6 million versus $66.8 million. This is pretty close, but we did make an adjustment to a group of tanks in STC. These were specifically bitumen tanks that we shortened a little bit the useful life on those, and that had the impact of around $1 million.
You can see here the guidance is $69 million, but of course we don't expect to do any more impairments. You see that listed here at the bottom of the table. Share of profits of joint ventures, again, pretty much in line with last quarter. Stolt Tankers a little bit better, Stolthaven Terminals a little bit worse, Stolt Tank Containers basically the same. We expect for next quarter $5 million as guidance. Taxes, also not really much to talk about here in terms of what we have recorded in the fourth quarter. Stolthaven Terminals, Stolt Tank Containers, and Stolt Tankers, you can see here, a little bit down for the quarter, but that ties in to the tax impact, if you will, the reduction in the tax, and that's tied to the impairment that we did on the Stolthaven New Zealand.
Stolt Sea Farm, tax up, of course, because we had a fairly large write-off from the fair value adjustment to the inventory. That basically left us at $3.4 million. For the full year, $12.2 million versus $15.7 million the previous year. I think here, by far, the most important thing or takeaway is really the impact of the tax cuts that Donald Trump has introduced that will become effective in January of this year. For us, that will lead to $25 million adjustment to our deferred tax liabilities, and that will go straight to the bottom line and the P&L, that will be recorded and reported in our first quarter of 2018. In addition, of course, going forward, there will be a small impact for our U.S. operations terminals and also our other operations in the U.S. because the tax rate is coming down.
The other takeaway, which also is very important, is the capital expenditure program that we have going forward. These are commitments that we have made, if you will, commitments by the board, by management and the board. It's not necessarily what we have committed to, if you will, the contractors and third parties. This is the CapEx program that we are working on going forward. In 2016, you may recall we did the JOT acquisition in November, that was $575 million, and that was on top of another almost $300 million CapEx. Very heavy in 2016. 2017 was just under $400 million, and now in 2018, it's $269 million, and then you can see it drops off very quickly to $155 million, et cetera. Basically, hardly any commitments. That will, of course, enable us to reduce the debt very quickly also as we go forward.
Just a couple of comments in the Stolt Tankers. This does not include, by the way, for tankers, dry docking, because that's separate. That's just an operating expense. The $68 million, which is, if you will, primarily in 2018 and 2019 reflects the ballast water treatment installation that we need to do to comply. Terminals, which has a total of $253 million from 2018 through 2022. The most significant there, the jetty in Houston is going to be extremely important for us for that terminal. Also various maintenance capacity improvements in Houston. Also investments in Santos and of course, another jetty in Newcastle in Australia that we have mentioned before. The Stolt-Nielsen Gas, the $65 million there is, of course, tied to the delivery of the two small 7,500 deadweight LNG carriers. Again, important here to see the fact that the CapEx program is tapering off.
Debt maturity profile. This is slide 30. Blue part, as said before, it's just the bank debt, amortization of the bank debt. The green balloon payments or facilities that come to maturity. That is primarily the $156 million facility we put in place in connection with the JOT acquisition, and that will be replaced and refinanced later on this year. Of course, the bond, the top part of the bond we talked about, that's the SNE 03 which is due in March, we have the money sitting in the overdraft facilities. The 2022, that's just the repayment, if you will, of the bond issue that we just did. Back to you, Niels.
The key takeaways on page 31, net profit $50.3 million for the year. As you saw, we did a little cleanup at the last quarter by doing some impairments at the end of the year. We expect continued soft market for tankers as a result of the new buildings and the existing tonnage. We see strong demand in tank containers. The fundamentals in terminals are healthy. We also expect that the Stolt Sea Farm, the turbot prices will hold up. We expect prices to hold up or rise. We continue to focus on our debt reduction and cash flow improvement. As Jan showed you, our debt will be coming quickly down. Until that has happened, we will be careful with any further significant investment. Again, $25 million gain on this new tax bill that has been passed in the U.S.
We continue to have access to competitive funding and also as a result, we have sufficient liquidity already secured. That completes our presentation. We will open up for questions. I will start with questions here in Oslo, and then we'll take questions from the phone afterwards. Yes.
One point. Like previously, you mentioned private equity money destroying. Where are they now? Are they sort of completely out, or are they coming in again or?
The question is, what is the private equity money doing in our segment? They're coming in. We have not seen any new orders, so that's good. There's no new building orders. Let's hope that that continues for a while. I think it's going to take a while for the current order book to be absorbed. It's not only that the order book comes down and being delivered, but the amount of floating tonnage out there is too much, so the market needs to absorb it, and that will take time. I think that the money that's come in by non-traditional operators, they are deep pockets, so they're waiting. They are looking for consolidation opportunities and hopefully try to exit through some sort of consolidation. If anything, I think they are on their way out. Yes.
You say that you saw a decrease in COA cargo volume by 6.8%. How much of this would you say is Harvey related? All or is it kind of Harvey and normal operation?
No, I think that the majority of the reduction of the COA volumes that we saw is driven by Harvey and also a slightly less operating base for us. The volume side of the business, the demand side of the business is healthy. I think there's a bit of optimism because of all the things that When the U.S. economy is doing well, the global economy is doing well. There's a bit of optimism. I think that volume wise, it's okay. It is the supply side which is the concern. Of course, the main competitor that we have is Odfjell. We do expect vicious competition on contract renewal. Yeah, sorry.
Quick question. Could you talk a bit about what you've done so far on the LNG? How far down the road can we go before attacking
In that segment? Well, LNG is kind of a new leg that we would like to develop. The question is, what are we doing in LNG and when are we expecting to increase our investment in LNG? The answer I would say is that, okay, we have ordered two ships. We have committed to two ships. That's an $80 million investment, and those two ships will be delivered in the second half of 2019. Our strategy there is really to be an aggregator of demand so that we are able to utilize these LNG ships better than a supplier can or a consumer can. Instead of a supplier or consumer of LNG takes on the ship on time charter and uses it to grow up the business, only uses 30%.
I think that what we try to do is to collect COAs or parked time charters so that we can offer the people that are developing the LNG business in small scale, offer them a better logistical cost structure than they can do themselves. That also includes making investments on land too. Terminals, we can even do containers delivering all the way to the factory if there's not a pipe there. The target is, again, small scale, remote communities stranded from not having access to pipe gas. We're seeing lots and lots of inquiries, lots of interest. I think that this is the first one. It's a proof of concept. It's a lot of work. It takes a long time. What we have learned from LNG, it takes a long time before people make an FID, takes a decision.
We are now building up demand for the ship. That's our main business. Now, of course, we also look at the time charter market. If somebody comes to us and wants to time charter a ship, of course, yes, we will look at that, but that's not really the business that we're in. We might be lucky with having ordered at the right time, and the ship is being delivered on time, so you can get a good time charter return. The long-term strategy for us is to actually build up these logistic aggregation of demand and build up a logistical change for the customer. Of course, everybody knows about the 2020 with the new sulfur regulations coming into effect, and that there's quite a bit of expected LNG demand as a fuel for the ships.
Container ships have already announced, some of container owners have already announced conversion. We are seeing ferries. The bunker market is also of interest. This is part of it. We could have taken a more aggressive approach had we had more investment capacity. I think that as it stand now, it's not because of we don't believe that this market is going to be hot. It's really looking at the scope of We want to be disciplined now and get our debt level down before we make any big jumps. Of course, there are different structures that we can pursue, so we also have to be a bit realistic. If you look historically, what happens is that the ships comes before the gas. Both in LPG and LNG, you've seen that owners and speculators have been very aggressive in ordering assets.
Because everybody expects that the demand is going to be there because LNG is going to be produced, but it always happens that there's too many ships being delivered too early, and then you sit around and wait for the gas. We have to be also a bit We are analyzing. What we would prefer is actually build up a portfolio of COAs. When we have enough of this, then we can order more tonnage. Yes.
This is a follow-up. Where do you think you're going to trade the ships? I mean, what volumes are you going to carry? Is it going to be a quite regional trade on the small scale volumes, or it's going to be deep sea? Then obviously you get larger ships, right?
Yeah. The first one we're looking is in the Mediterranean, It's a nice little triangular trade there, where there's ferries there are cruise ships there are power stations there's Sardinia is there. There's a nice little You can't trade those ships long haul. We're looking at business in Southeast Asia, small regional trade. That's where we're looking.
Have you concluded the COA volumes yet?
We have built up firm off-take commitment, which is on subject because we don't want to lift those subjects until we have a. We're willing to take risks. If we build up COA volume for 50% of a ship, I think, okay, let's do 60%, We'll do it. By 2019, the second we build that, we have enough. What we're doing now is that we're just gradually working on putting this aggregation together.
The thinking is to kind of start to create around the world in order to small scale.
Yeah. In Sardinia, we have a piece of land with a jetty, with a permit to build an LNG tank in place. The tank is not placed, but we have the permits for that. We are now building up our customers. We're getting close now to being able to take the final investment decision to build the tank and commit one ship to this project, and then bring stock. The challenge here is to get people. This is small scale. This is not large power companies that are 30 year con. These are, I would say, mom and pop shops or small industries that are making a commitment. I say, "Okay, you need to make a 10, 15 year commitment." Even though on paper it looks fantastic because of the clean prices et cetera, you need to convince them to make that commitment.
That takes time, but it's coming.
Pricing structure, is that going to be very similar to how you work in the chemical tank market? Or how do you-
What do you?
I mean, is it going to be kind of the volumes where you have a take or pay, or is it going to be like, how do you actually price your service?
Well, we take a time charter equivalent, and then we split up the boat and then say, a company that is only willing to commit to 5%, he's going to take 5%. We're going to charge him the full rate for the ship, so he's taking his portion, so we need to price accordingly. That is, of course, why we're holding back with making the commitment until we have enough volume and enough confidence that we can do. The pricing on parceling out the capacity, the numbers look very good. I don't want to talk too much about it. It takes a long time. You need to be patient and it takes anybody. We are learning about LNG, and people have been in the LNG business for a very long time.
One thing that I have learned is that these projects take damn long time. Yep.
On the terminal side, you improved utilization quarter-over-quarter, despite what happened in Houston and the Harvey. Do you expect that to continue? Do you expect to continue to improve margins throughout the whole thing?
Yes to both. Utilization in Singapore is a challenge, where we are seeing 75%. Still a highly profitable terminal, but the Singapore market has been a bit oversupplied. The positive trend there is that we are seeing more inquiries coming. Antwerp, our Antwerp terminal, which is the joint venture with Oiltanking. There we are seeing pressure because of the CPP market. There's an oversupply. We are expecting utilization actually to fall. When it comes to margins, yes, I think all the investments that we are now doing to upgrade maintenance, but also modernize automate, that will also give improved margins. I think that it's a very steady business. Of course, there will be quarters. I think that the trend will, that we will get utilization up and margins also up.
These are investments that we're doing, work that we're doing, and it takes time. Yes.
How much of your COAs is renewable in Q1?
Q1 is quite busy. It's evenly spread throughout the year, each quarter. I would say if you say that, I think Q1, first half of the year is more busy than second half of the year.
Given on what you have executed so far in the quarter, it's been flat. What are your thoughts on the renewals, given your comments on the competitive pressure that you mentioned, will that continue?
I think that there will be further declines in the COA renewals.
To your expectations towards 2018 versus 2017, because everybody interpretation correctly that it's probably going to be doubtful negative.
I would say guidance wise, we still expect to make money in 2018. If you look at right now at our market, we are slightly better than breakeven.
You reduced the interim dividend in November. This time you will announce the final dividend of a little bit behind the final process that you had in November.
I don't want to announce what we're going to do before the board has decided what we're going to do. It is clear, we have for X amount of consecutive quarters paid dividend, and it's been $1 per share per year. We have on one earlier occasion in the last 15 years. 2001?
2012, I think.
2012, we did the same thing. When the market recovered, we actually paid up. It is our long-term plan is actually to continue with steady $1 dividend. When we took on JO, which was a strategic acquisition, we want to do this once in a lifetime deal. I think it was the right deal. It was a good deal. It was good for the industry. I think that as a result of that deal, it also triggered other consolidations. Right. Other people have actually, instead of ordering new ships, the other operators have actually started to consolidate. I think it's a positive thing for the market. Of course, when you take on that debt and the market is weak, we want to be conservative and protect our balance sheet.
You guys know that if we get higher debt level, when we refinance our existing debt, it's going to become more expensive. We just want to hold back on further investment. We want to cut the dividend by half for the last of the interim dividend. Hopefully once the market recovers, once our balance sheet has strengthened, we will continue with the $1, I think that will happen quite quickly. As soon as the debt level will be coming quickly down now, based on our budget that we don't announce, of course, but based on that, we will see a significant reduction in debt this year. Then we will be back to pay our normal dividend, I believe. Hopefully in the future, growing the dividend. That's what we're here for.
We have the liquidity to do it, we have the balance sheet to do it, we just want to be conservative and careful in the way we manage it. Any other questions in Oslo? Operator, is there anybody on the phone that would like to ask any questions?
Ladies and gentlemen, to ask a question over the phone, please press star one now. There are no questions over the phone.
Okay. Unless there's any other questions here, I would like to thank you for taking the time to come and listen to us, hopefully I'll see you next quarter. Thank you very much. That completes this presentation.
Thank you. That will conclude today's conference call.
Thank you.
Thank you for your participation, ladies and gentlemen. You may now disconnect.