Good day and welcome to the Stolt Nielsen Limited Third Quarter twenty seventeen Results Presentation Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Niels Stolt Nielsen, CEO. Please go ahead sir.
Thank you, operator. Thank you everyone for participating in this third quarter earnings release live from Oslo. I will be referring to a presentation, which is on our website. If you go to page three, together with me is Jan Kristianengelarsson, our CFO. Page four, go through the highlights of the third quarter.
Then I will go through each of the businesses talking about what we achieved in the third quarter and also a little about market outlook. Jan will take you through the financials and then we will open up for question and answers. Then if we go to page five, Tankers reported an operating profit of $34,400,000 and that is up from 27,600,000.0 And that is the main impact from that gain is the gain that we had in our bunker hedging program. Stolthaven Terminal very much in line with previous quarter of $16,000,000 Tank Containers operating profit $14,800,000 up from 3.7 Again, we see improvements in both margins and in utilization and the joint equity income from our joint ventures. Stolt Sea Farm's operating profit before fair value adjustment of inventories was 400,000.0 compared with an operating profit of 700,000.0 in the second quarter.
If you then do the fair value adjustment, had a negative impact of 2,900,000.0 that compares compared to 1,700,000.0 in the previous quarter. Corporate and others reported an operating loss of SEK6.7 billion and that is compared with a loss of SEK8.2 billion previous quarter, mainly reflecting lower restructuring expenses with the separation of Stolt Tankers and also the implementation costs related to the acquisition of JL. That brings us with a operating profit of SEK 56,000,000 and a net profit of SEK 18.5 comparing that to the previous quarter of SEK15.6 million net profit. If you look on page six, the net profit variance analysis. In the second quarter, we had SEK15.6 million.
Million dollars We had a $6,800,000 higher tanker operating profit. The terminal results basically the same, higher tank container operating profit of 1.1 We had a lower operating profit because of the fair value adjustment and then lower corporate and others of 1.4. Higher loss on translation of the FX and others bringing us to 18.5 net profit for the quarter. If we then move to page seven, Deep Sea revenue for the quarter increased by 3.5% and that is mainly due because of an increase in operating days as a result of more ships in the fleet. And that is two Deep Sea ships were delivered in the quarter and one was also delivered in late in the second quarter, but gave full impact in the third quarter.
Total volume shipped in the quarter increased 2.2%. The COA cargo volume dropped by 1.8%, so lower nominations and that was replaced by spot volume. So the spot volume increased 13.1%. The COA renewal rate in the quarter were on average down by 0.4% compared with a decrease that we reported last quarter of 4.9%. Though more negative pressure is expected in the fourth quarter.
The delays caused by the Hurricane Harvey will have a negative had a negative impact of $1,000,000 and we expect in the third quarter and we expect a further $3,000,000 because of the delays that so a further $3,000,000 in the fourth quarter. If we then move to page eight, the operating profit variance analysis. So in the second quarter, we reported $27,600,000 We had a slightly lower trading result. We had lower bunker costs, net of bunker surcharge of 1.2. We had a gain on the bunker hedge that we have in place of 6.7.
We released an excess provision towards bad debt of 2.4. And we had a 1.7 gain on the sale of assets, high depreciation because of our new ships being delivered, lower joint venture equity income of 700,000.0 and others of 1.2 bringing it up to 34,400,000.0 So if you take away all the one offs between the two quarters, the results reflect a weakening market. On page nine bunker costs. Bunker net sorry, bunker cost net of bunker surcharge, but excluding bunker hedges decreased by $1,200,000 The average IFO consumed during the quarter was $3.00 $7 per tonne versus the $317 in the second quarter. The average price of the IFO that we purchased decreased to $3.00 $6 from the $311 that we paid for the bunkers in the second quarter.
Our COA bunker surcharge clauses cover on average 70% of our total volume year to date. The bunker hedges that we have in place year to date or you can see in the third quarter, we had realized a gain of 1.4 of burning the actual bunker that we have hedged and an unrealized gain on our books of $3,400,000 with a total gain of $4,900,000 for the quarter. Moving then to page 10, the chemical tanker order book still stands at the same basically the same as previous quarter of 16%, all of which is stainless steel tonnage. And you can see here is the challenge that we have in our segment is that there is a significant order book to be delivered in 2018 and then falling off in 2019. We have two more ships from the Chinese yard, Hudong, 2017 and first quarter of twenty eighteen.
And then we have the joint venture with the JO Invest. We have one ship in the fourth quarter and also one ship in the first quarter. So four more large ships being delivered end of this year beginning of next year. Deep Sea on page 11, Deep Sea spot rate development. Overall freight rates decreased by 1.8 in the quarter, mainly driven by the spot market, which was down 7% quarter on quarter from positioning voyages for Our COA rates were unchanged.
Really our position towards the market going forward is very much the same as it was in the previous which we reported in the second quarter. Hopefully, we have seen a slowdown in the decrease. As you saw from in the second quarter, we had an on average 4.9% decrease in our COAs. This last quarter, we had less than 1% decrease on the COAs that we renewed. However, there are significant contracts coming up for renewal towards in the fourth quarter.
So we will see if it has actually leveled off or if we will see further decline. Just one more comment. I'll talk about that at the end. Stolthaven Terminals, page 12. Revenue remained unchanged from last quarter.
Lower utilization was offset by higher throughput. Our Houston terminal was shut down by for seven days with no damage incurred on terminal from the Harvey, unfortunately. So we were operational after seven days. The global utilization for our own terminals dropped to 85.6%, down from 87.5%, while our joint venture terminals remained at 91.7%. The drop in our terminals or our wholly owned terminals is our Houston terminal, our New Orleans and Singapore terminal.
Singapore probably being the biggest issue where we're struggling to find business for the empty tanks reflecting the economy in Southeast Asia, I guess. If you look on the page thirteen, second quarter to third quarter operating profit variance analysis very steady 16.1%, flat gross operating margin, higher depreciation due to increased capacity of 0.6%, higher equity income of 0.7% and slightly higher A and G bringing us to 16,000,000 for the third quarter. Stolthaven terminal market update and key initiatives. I already mentioned Hurricane Harvey caused no material damage to our terminal business in The U. S.
Gulf. All people are safe. Negative impact on the P and L in the third quarter was around $450,000 due to the suspension of operations. Even though our terminal was up and running quite quickly, the Houston Ship Channel was closed for quite a while. Asian market remained challenging as we are seeking opportunities to improve utilization.
The Korean market is performing well, stable demand. Europe remains stable for chemicals, but a slowdown in petroleum products. We are working on developing long term contract with potential pipeline connected industrial customers in order to improve throughput utilization and revenue. We also continue to focus on ship to shore interface including the construction of a new dock ship dock in Houston, which was started this summer. This will reduce the waiting time and the turnaround times for our ships, which will of course then increase the tonnes per hour that we load and discharge.
Quite exciting, page 15. You can see here the drawing of the jetty that we are under construction. The dredging has been completed. We have leveled the land as you can see here. And this is really in the middle of the Houston Ship Channel.
We are quite excited about having this big property in the middle of Houston where in The U. S. Gulf where we're seeing huge potentials due to the increased production capacity in The U. S. Gulf, the shale gas and the shale oil.
So this jetty we expect to be finished by the end of twenty eighteen, beginning of twenty nineteen, midnight. Stolt Tank Containers on page 16. Revenue up slightly due to increased market activity. Depot activity increased worldwide and utilization unchanged margins maintained quite steady. If you look then on page 17, the second quarter versus the third quarter profit operating profit variance analysis dollars 13,700,000.0 in the second quarter, operating gross margin, equity income from our joint venture debt of $400,000 and others of $600,000 bringing up to $14,800,000 operating profit for the third quarter.
On page 18, stronger demand in all regions, focus on increasing both utilization and turns per tank. Market deterioration has bottomed out. Price competition continues to limit revenue and margin growth. Of course, controlling the key is to control our operating expenses. We continue to focus on developing systems and implementation of a global platform to increase efficiency and scale while reducing overhead.
I think this is a business where you really see a platform value. The reason I think that we are making money while a lot of other the operators are losing money is because of the platform. The platform being the people, the operating systems that we have developed, the systems and the procedures, the operating procedures that we have in place. Being able to price the service, so that you have a balanced fleet globally, so that you minimize or limit the empty repositioning of tanks. So even under increased competitions as we are seeing now, we're still making a healthy profit from this business.
We're able to get utilization back up between 7075%. Yes, margin, but still a healthy business. And again, the demand for movement of products in tank containers is healthy and growing. So Sea Farm, page 19. Volume of turbos sold increased by 17% and oil prices decreased by 2.6%.
Volume of sole sold increased by 15%. Price remained unchanged. The caviar volume because of seasonality decreased by 27%, however prices increased by 14%. I want to skip to fair value for the variance analysis of Stol Seafront. If we then move on to page 21, Jafu will take you through the financials.
Thank you, Nils. Good afternoon and good morning to those S. On the line. Let's start with page 22.
The net profit, the operating profit and this is before one offs, you can see here is $55,800,000 which is up from $53,700,000 We know and you heard from Anil that yes the market is quite challenging for the tanker business, but we were helped by a gain of $4,900,000 in the quarter of the from our hedging program. Altogether when you compare to the previous quarter, it's $6,700,000 So that makes a very huge improvement in the third quarter. With that being said, we also had a huge swing as Nils just skipped that slide with a fair market value adjustment, which was actually a negative adjustment between the two quarters of $4,600,000 offsetting quite a bit in P and L terms of the gain that we had on the bunker program. Again, there is some seasonalities in the fair market valuation of the inventory. Typically prices towards the end of the year, the holidays prices go up.
Well, we then and we see therefore a positive adjustment in the first quarter. Then as we go into the second quarter, we see the as a matter of fact, as we come to the end of the first quarter, prices typically come down. So there will be a reduction. So I stand corrected. There's a reduction in the market value.
In the second quarter, it typically goes up. And then in the third quarter as we saw here, it comes down. And then prices will go up as we go into the fourth quarter. And therefore, we expect that some of this swing will be eliminated. And you'll actually see on two slides prior to 2022, you will actually see the curve of what it looks like for a couple of years, three years I think.
Now, we did talk about the impact of Hurricane Harvey. For tankers it was 1,000,000 foot terminals and tank containers maybe in total $05,000,000 So we believe that the results for the quarter has been impacted negatively by 1,500,000 Nils was talking about delays. Yes, there were big delays even though we our terminal was up and running with delays with ships going in to unload and to load backing up. And therefore, we expect going forward in the fourth quarter maybe as much as $3,000,000 to $4,000,000 impact of this delay. Next, if you look at some of the one offs, we sold a Stolt Kite ship with a profit of $1,200,000 We had some implementation costs for JL Tanker acquisition of $100,000 We had a the reorganization.
This is the separation of our tanker business legally and to get a clean structure for that business activity of $900,000 and that brings the operating profit as reported down to $56,000 compared to $51,600,000 Interest income is also up slightly reflecting a couple of things. We got one new ship delivered in the tail end. This is from China. If you one of the C-38s delivered at the very end of the second quarter and will have the full impact on that in the third quarter in terms of the interest. And we also bought one ship out of our joint venture with Gulf Navigation.
We are in the process of altogether there were four ships and we are going to separate out and eventually close down that joint venture. Step number one was that we bought one ship Gulf Navigation bought one ship and we took that back into our fleet. And then we're working to do the step number two, which we expect will be done this month where we will take the second ship and Gulf Navigation will buy the one of the ships so that altogether we have two each. And Gulf Navigation will then place those ships. Those two ships will be in our pool as they are today.
So very little difference, but we have obviously taken on the debt associated with that purchase in our own balance sheet. Next FX gain is negative at 2.4. Most of that is loss translation loss unrealized loss on intercompany debt. As you know the U. S.
Dollar has during the quarter weakened quite a bit even though lately it has come back, but that has caused the translation of $2,400,000 loss, but not realized. And that brings us down to $18,300,000 versus 15.7 If we just look at year to date, you can see here that the operating profit before one offs at 162% versus 194%. So that's almost 23,000,000 sorry, $65,000,000 down. And most of that relates to the weakening that we've seen in the tanker market. And then with the additional interest that we have taken on in connection with the acquisition of J.
O. And we get the full impact of that in the first in 2017. You can see here that the interest is up from 95,000,000 to 77 So million you can see here that we're $40,000,000 down bottom line really between tankers on the trading side the weakening and also the increase in the interest. Then going on to the balance sheet. Shareholder equity now is 1,460,000,000, which is up from SEK 1.42 The increase is of course the equity of the bottom line that we had for the quarter, but also helped by other comprehensive income OCI positive because the when the dollar went down the other side of that is actually the fact that some of our overseas holdings are getting more valuable and that has actually had a positive impact on the equity of $29,000,000 Debt is slightly down.
This continues to be a preference for us to focus on. It's down to 2.05 Tangible net worth is just under $1,600,000,000 So the debt to tangible net worth is now 1.57 You may recall in the last quarter, it was high at 1.6. And I said that we had just done a refinancing in the second quarter end of the second quarter where we had quite a bit of cash left over and was holding it and that's why we ended up at 1,600,000,000.0 Now we're at 1,570,000,000.00 If you do a net cash to tangible net worth, we're at $1,520,000,000 slightly above the target that we have of not to exceed $1,500,000,000 Cash said, is down from 122,000,000 to $86,000,000 Uncommitted lines that we have on our revolver $255,000,000 And we also have $65,000,000 on noncommitted lines that we do dip into all the time to get the benefit of the lower interest rates. So altogether right now we have roughly $4.00 $6,000,000 of available liquidity should that be required. 70% is of the debt is fixed 30% is variable.
In the environment we are in today where interest rates are expected to go up. It's important to note that given the high ratio of fixed if for every 25 basis points that our debt that interest goes interest rates go up, the bottom line will be impacted by roughly $2,000,000 for us. The average interest rate is 4.64 as we end the quarter slightly up from 4.4%. And the main reason for this is the fact that during the quarter we or just at the end of the quarter, towards the end of the quarter we took on some fixed higher rates that brought it up to 4.64. Net interest expense is expected to be roughly $34,000,000 again reflecting delivery of one more C-thirty eight from China.
That is our as Niv showed that is our last ship that we own 100%. We do have one C38 and that's the last in the series that will be delivered next year in the first quarter and that's in joint venture with NYK. But in addition to that shipping delivered tail end of the fourth, we also will get in I mentioned from the Gulf Navigation JV that we're splitting up. There will be one more ship for about $36,000,000 Looking at the cash flow. The cash generated by operating activities didn't really change from last quarter, very much the same.
Capital expenditures, this reflects Stolt Sisto, which is the ship that came from GST, plus it also reflects some payments we made towards newbuilding our newbuildings and also a little bit not much, little bit of tank containers and ports terminals. Then moving a little bit further down in terms of the debt the $139,000,000 of debt that we repaid $80,000,000 of that was related to financing short term financing that we had taken up in connection with the JLT acquisition. And the rest were more or less regular bank principal payments. The $71,000,000 of debt that we're taking on is really from the primarily from the new ship that we took delivery of. So that basically leaves the cash at the end of the quarter at $86,000,000 which is down from 122,000,000 On the EBITDA slide this is page 25.
For tankers, you see the from 70,000,000 to 78,000,000 this certainly reflects the improved situation. But keep in mind that the we are treating the gains on the hedges really as an operating cost and but that's at least consistent through the whole. And as we know, it's only a portion of that that is realized. Terminals
more or
less the same. Tank Containers there was an improvement. So altogether, we're up from $16,000,000 to $122,000,000 A and G, not much really to say. We're at $54,600,000 which is very close to what we guided. And for going forward we're at $54,300,000 And the main difference here is the reduction in the cost relating to the reorganization.
We're very close to finalizing the separation of tankers. We have more or less done what we need to do in terms of the legal restructuring. And therefore the consulting fees, the professional fees, legal fees that we have in connection with this project will taper off as we go into the fourth quarter. Next is slide 27. Depreciation and amortization 66,800,000.0 which is up from 64,200,000.0 Again you get the full impact on the C-thirty eight Stoltenacity that we took delivery of tail end of the second quarter plus we get Stolt Sisto for the full period.
And then going forward updated guidance here is 67.9%, which will then reflect the last of the C-38s. We're going to have plus it reflects the second shift that we're going to end up with from the JV Gulf GST Gulfstalk Navigation Gulfstault joint venture. Share profit of joint ventures $4,700,000 The tanker JVs slightly down sort of reflecting the underlying weakening of that market that Niels was referring to. The terminal division doing slightly better. This is due to our terminal in Amsterdam with oil tanking that's doing better.
And we expect as we go into the fourth quarter to have a profit from or equity pickup there of 5,100,000.0 And the improvements in tankers is the fact that we will get additional two ships trading in the joint venture that we have with JO in a joint venture. Taxes, not really much to say there. The big swing obviously is in Sea Farm. We know that the tax is actually based after the fair market value adjustments. So profits have come down.
Taxes will therefore come down. And the increase in S and L corporate is really just tied to a the restructuring it's that we did separating tankers out in The U. S. Did cause on paper an increase in the tax of just short of 1,000,000 Page 29. We are now in our five year plan and in the projections now total $554,000,000 You can see here that €159,000,000 of that is for the fourth quarter.
Stolt Tankers at 102,000,000 is primarily again I keep repeating it's the last of the C-38s we are going to get plus the second ship from the GST joint venture. It may be that part of the 159,000,000 actually will move into 2018. When we look at the total adding up to the $554 in addition in tankers, it's some $54,000,000 in the plan that you see here for ballast water treatment systems and also some for planned drydocking and it's the part that is capitalized of the drydocking. For the terminals, which now is actually the largest outstanding here of $229 Neil showed you the photograph of the jetty that we're building in Houston roughly in this plan going forward $36,000,000 We then have more than $50,000,000 of other investments in Houston, part of what we previously have reported back as Project Phoenix, which is an upgrading and more of an automation of the terminal, but there are also some other specific projects. Then we have another project of fifth expansion project in Santos in Brazil for $15,000,000 And the rest is really capacity maintenance around at all the other terminals plus a little bit of capacity expansion also in Dagenham outside of London.
The other amount here worth mentioning is the stop loss in gas and that's for the payment of the two small LNG ships that will be delivered during 2019. Then page 30, just the debt maturity profile. You can see here the fourth quarter twenty seventeen is only very small. This is just regular principal payments. That's a small blue part.
As we go into 2018, the top part of
the
bar reflects the it's actually Snee03. And this is the bond issue that's maturing in March 2018 and it's $164,000,000 We actually did go out to raise a new bond issue that we did in this quarter for $175,000,000 So the $175,000,000 was done after the quarter end. So we have used the $175,000,000 just to draw down on our revolver and it will also increase slightly our as we go past year end our cash outstanding amount. But all of that will be used just to repay the maturity in March. So we've taken if you will the removed that refinancing risk.
The green part here on page 30 under two eighteen is refinancing of the remaining part of debt that we took over in connection with the JLT acquisition. Some of you may remember that part of the financing we went to the JLT banks and they agreed to give us a two year loan and we just renegotiated sort of the terms and not so much the structure, but the terms and the repayment terms of that loan. That is due at the very end of twenty eighteen, but we will start to refinance that in the first half of twenty eighteen. So I think that's all I have to say. Niels back to
you. So
on page 31, key takeaway. Dollars 18,300,000.0 net profit at the end of the third quarter. The integration of J O is progressing as planned and we are pulling out all the synergies operational efficiencies that we can get out of the deal. Hands down, we each quarter we do a competitor analysis. There's not that many of the competitors that publicly where we have numbers.
But it's interesting to see that we are consistently outcompeting our competitors significantly in tankers, which is nice to see. It's a tough market and we are approaching a breakeven level in tankers now unfortunately. So let's hope that our predictions are right that in the towards the end of 2018, we will see start to see a turnover once all of these new tonnage have come in. And hopefully, the economy global trade will continue. So we should see a recovery in 2019.
So continued soft market in tankers due to the newbuildings. We see strong demand in tank containers and the fundamentals in terminals remain solid. And the sole seafarm turbot volume is up and prices are rising. And the prices are rising significantly and we believe that that is actually sustainable. So in the fourth quarter, will see the reverse of what happened in the third quarter and hopefully you will see some nice contribution from that business.
We continue to focus on our debt reduction. Even though we have projects that we would like to pursue, we are holding back until we see a lowering of our debt level. As Jan showed you, the group has access to competitive funding. We have sufficient liquidity and much of our CapEx has already capital commitments are funded. So that completes the presentation, operator.
So now we will open up the floor for questions. And I will try to remember to repeat the questions, so that the people on the phone can hear. Yes, from Nordea. Thank you. Can you go into demand for specifically in the market weakening in four years of Asia.
So the question is the terminal in Singapore, why are we having problems filling up the business that we lost? And where do we see a weak market in that area. It's a difficult question. I think let's put it this way. We won the piece of land on Jurong Island, we won, because there was a shortage of storage capacity.
So they gave us the land to increase the supply of storage of chemicals and gases. And so I think maybe there's a we have created a little additional supply in that market. And at the same time, so it's still profitable. So it's a fantastic investment and it's still very profitable. But we are now seeing a we are seeing lots of inquiries, but there is a bit of uncertainty and we haven't been able to we don't want to go after these short term business, the spot business.
We're looking for the right business for long term contracts and we haven't gotten there yet. We have a lot of leads, a lot of meetings, but we haven't been able to get that. Is that a reflection of a fundamental something is shifting or something is changing? Or is it just there has been a period of a little too many tanks being built in that area and it takes some time to be able to absorb. I don't know.
I wouldn't say that there's a fundamental change in the demand for storage of products in Southeast Asia. So still a profitable terminal, very profitable terminal, one of our better performing terminals, but we lost we had a huge ExxonMobil contract and we didn't win we lost part of it. So it just takes time to find the right customer to be able to fill up that. We will, but it just takes some time. Yes.
As we have said all along, we have then separated out and we are just about to complete it. So now we are ready to either now we are ready to do another deal if that is out there. Another deal meaning acquiring a competitor or merging with a competitor using shares instead of cash. And if that doesn't happen, we're also ready to do an IPO if we so choose. We have all along said that we're just positioning ourselves to be able to pursue an opportunity quickly.
Had we not separated out, it would have taken us one year to do a deal with a potential acquisition. So we are now positioned to do it. We have not made a decision to do an IPO, but we are we can. That's an option that is there. But doing an IPO also needs to doing a potential IPO even though it hasn't been considered at the Board or hasn't been kind of been on the agenda.
It needs to be at the right time. And I don't think right now is the time either for the chemical tanker market. But it's absolutely an option that we're pursuing. We will prefer to continue to see if there are further consolidation opportunities. I think there it's very much room for further consolidation of the business.
It will help everyone. And if that's not possible, then we can look at doing an IPO. It's certainly big enough for the company to do be a standalone. Again, I want to repeat, it is not an instant intention to by no means end our chemical tanker business, but it's always our intention to be a significant majority owner, so that we can pursue and continue to pursue the terminal tanker strategy where we create operational efficiencies between our two businesses. The final question on the LNG side.
Previously you set up the contract coverage of 50% of two first ships would generate about $24,000 per day half of the year. And what do you expect to make for the other half of that year for those two ships? It's what we have said is that we have chart we have found business for half of one ship, which is the equivalent of you know the number 24 for the full chip. But I think that our strategy is we don't we will prefer not to time charter out the business. That's not really building an asset and time chartering out long term.
That's not our business. Our business is to work on logistics, provide economic solutions for our customers to ship their products. So customers that don't have enough business for a full ship, we're trying to gather three or four or five and do a pattern of trade and manage their inventory and so that they share in assets for a customer that doesn't. So I think that we would be able to to pursue that we will be able to get a better than $24,000 a day from the numbers that we're seeing today. So half of that business has been secured at that number.
But I think that's the other part. I think by parceling out the ship, we should be able to get higher than that. Now we are looking also at time charters, because we're looking at everything. And I think that the timing of those two ships and hopefully we can hang on to the options, because there's a lot of business coming, not only in the Mediterranean, but all of the states where the delivery slot that we have looks very good. So I'm if we're not able to partial out the business, we will certainly be able to time charter out the two ships.
But we're holding back a little again because I think time chartering out all ships is not our business. It's providing a logistical service that is our business. Yes? So are
we going more and more specifically on your focus on that production? Is this I mean, outside of a potential tanker spin off for IPOs. So this debt reduction, is that purely going to be made by deferring orders of moving CapEx or is it then also a
G and A reduction? I don't know what you're referring to, but I just said the competitive analysis shows us that we are even we are totally out competing any of our competitors after their initiatives. But I agree. I mean, so to go back, our debt reduction exercise is in the form of holding back on capital expenditures. And if you see then based on our five year plan based not committing any further capital expended CapEx, I see the cash flow from the investments that we have in hand and the assets that we have, the debt will significantly go down.
By the end of this year, will be below 1.5 to one and by the end of 2018, it will be further down. So it will quickly go down and we will be quickly in a position back where we can invest. Of course, we review our portfolio as a traditional conservative ship owner. We tend not to hang on to our assets, but we are reviewing our portfolio of in each of our businesses if there are things that we can sell which are nonstrategic. And we are willing to sell if the price is right, if the price is reasonable.
But I don't think that we are in a position where we have to start selling because as you can see from the numbers, the debt level is quickly coming down and it's manageable. When it comes to initiatives, I think that we will if we don't continuously have initiatives to do the same amount of business that we do today with much less people, a simpler organization by automating and robotics etcetera, we will die. So we have projects in our organization that are looking at radical change. And what do you call this? So but I tend to tell you what we have done rather to tell you what we are going to do.
So hopefully we can show you that gradually that our operating costs, AMG will be coming down. But I prefer to talk instead of announcing these type of projects, I'd rather show you the results because if you fit on. And also just on your
COA, the reduction in COA rate is perhaps a bit lower than from speculative this year. Can you give any I mean, how much of your COAs now are kind of legacy contracts from 2015 that were significantly better than now? Just trying to see if there is a strong So
the question was the contract renewal in the last quarter was lower than expected or the contract reduction rate reduction was lower than expected. And is that because we are living off legacy contracts Or is it a pure reflection of the current market? And I would say it's a combination. We have because of our conservative outlook of the market going back quite a few years, we have locked in business. So part of the reduction in the because of the low reduction in COA rate is driven by because we had multiyear COAs where the rates are locked in for one year and the second and the third year has a cap either plus or minus five percent plus or minus 7%.
So we're living off that. And some of these contracts we have given the MAX reduction. And we continue to have these which will carry us well into 2018 and 2019. But we also have all the contracts where we don't have it. So but we have renewed contracts outside of these legacy contracts where we saw a leveling off or a slowdown in the reduction.
I think the big test will be in the fourth quarter. But it's worrying. I see that our earnings level on the large ships now subsequent to the end of the third quarter is getting it's scaringly close to breakeven. On the tanker side, there's not much we can do. So the €165,000,000 that is committed.
Stolt heavy terminals, there are things that we can hold back on and not we can delay and things that are not committed to third party. So Jan out of the $229,000,000 how much you say that I would say €50,000,000 maybe that we can No more
75,000,000
€75,000,000 we can hold back on. Stone Tank Containers, the same. I think that most of that actually can be held back. Sea Farm, the $20,000,000 of the 17,000,000 and 10,000,000 we can hold back on. The gas is committed.
So let's say, if we say that we could maybe hold back on €150,000,000 out of the $550,000,000 if we had to.
Wondering how you think about the market? When are you when do
you think the optimal path to act if
you are going to act at all?
In acquisition and consolidation? Yes. I've been actively working on this for the last seven years and we continue. So we are continuously working on and talking to see if there are interested parties to merge, to be acquired. As it stands right now, we have no current talks.
We have talked, but not we have no active projects at this time.
And your market view, your committed CapEx and your leverage, all that combined with multiple bonds on $1 dividend?
Of course, we have two things which we can cut back on right away. One is which is not really on the stock mix now that we usually have what the Board delegates delegated authority of $60,000,000 they give to me, so that I can run the businesses without going to the Board. That we can call back on, which we have for which we have. And the other thing is dividend. It's naturally that we can that is one natural thing we can hold back on if we feel uncomfortable with our debt level.
But we also have to remind ourselves that we work for the shareholders and we want to give money back to the shareholders, but it has to be sustainable for the company. So that is of course something that will be considered by the Board. Just a follow-up. I can't say anything because it's the Board that decides that this I can propose something to the Board, but it's the Board that decides. So the Board will decide the final dividend for 2017 sorry for 2016 at this Board meeting 2017 sorry.
So we already paid an interim dividend of $0.50 and we'll see what the Board decides and we'll have our Board meeting in November. Yes? On the one time you're seeing a reduction in
the utilization of the bank, but you're also seeing two to what's going on.
Is that specific areas or is it on a global basis? It's in specific areas. The utilization issue is Singapore, Tianjin and Australia, Australasia, New Zealand. That's where we have the lowest utilization we have utilization problem. Throughput, I can't remember.
Where is the where did we have increased throughput in the last quarter? Houston. Houston. Yeah. So it's there's not a common trend anywhere.
So it's but the utilization being able to fill up the tanks is challenging because of the explosion. It takes a long time to we were down to zero utilization. Now we're back up to above 50, believe. Singapore, I've already explained. And then you have in New Zealand, is also a couple of terminal tanks where we have empty.
Any further questions before? Operator, do you would you ask the people that call in if they have any questions?
Certainly. You.
Okay. Any further questions here in Oslo? All right. That completes our presentation. Thank you very much everyone for joining us.
This concludes today's call. Thank you for your participation. You may now