Good day, and welcome to the Stolt Nielsen Limited Third Quarter twenty sixteen Results Presentation and Conference. Today's conference is being recorded. At this time, I would like to hand the conference today over to Mr. Neil Stolt Nielsen, CEO. Please go ahead, sir.
Thank you. Good afternoon. Thank you for joining us for our third quarter earnings release. Together with me here in Oslo is Jan Engelachtsen, CFO. The agenda, as always, the highlights for the third quarter.
I will go through each of the businesses. Jan will take you through the financials, and then we will open up for question and answers. The highlight for the third quarter, the biggest highlight, I would say, is the downturn that we saw in Tankers. Operating profit, 31,400,000.0, and that's down from $45,300,000 in the previous quarter. Most of that is a result of a reduction of $7,000,000 in our bunker hedge, but also lower trading results.
Stolthaven Terminal operating profit, 14,800,000.0, slightly up from $13,800,000 reflecting improved operations performance at nearly all of our terminals. Stall Tank Containers reported operating profit of 10.7%, and that's in line with prior quarter, as lower trading results were offset by higher income from our joint ventures, and most of those joint ventures are our is our depots. Stolt Sea Farm reported operating profit before fair value adjustment of inventory of 1,900,000 Corporate and overhead sorry, Corporate and Others reported a loss of $6,700,000 compared with a loss of $3,900,000 in the previous quarter. And this is mainly due to increased accruals for our profit sharing plan and long term incentive. You can say that we actually accrued too little in previous quarters, giving us a net profit for the quarter of $22,200,000 versus 37,800,000.0 in the previous quarter.
If we compare it to the third quarter of twenty fifteen, dollars 30,000,000, 30,100,000.0 versus $22,000,000 this quarter this year. If we move to Page six, we compare the net profit variance between the second and third quarter of twenty sixteen. And here, you can see, we previous quarter, we reported $37.813900000.0 lower because of the lower operating performance, operating profit from tankers. We had higher margins in terminals, stable performance in Stolt Tank Containers, lower Sea Farm operating profit after we have adjusted for the fair value and higher corporate, as I explained, lower interest rate, and that brings us to 22.2%. If we then move to stolt tankers.
The Deep Sea revenue decreased by 1.5% from previous quarters, and that was mainly due to a reduction in volume and freight rates as a result of weaker summer demand, weaker Asian exports and weaker CPP market, which influenced our market. I will talk more about that later. The average COA rate decreased by 3.4% during the quarter, and that's due to the cargo mix. So the cargo nominations, if the parcel sizes are different, can have an influence on the average COA rate that we booked for the quarter. And but also the spot rates decreased by 4.5% compared with the prior quarter.
However, the COA renewals during this quarter were on average up 4.1%. So the contracts that we renewed during the quarter, we were still able to get on average of the contracts that we renewed up 4.1%. We sold two ships during the quarter, and we also recycled two ships. Looking at Page eight, the second quarter and third quarter operating profit variance. As you can see here, 10,000,000 down on lower trading results.
Lower bunker cost, net of surcharge. So as a result, even though the bunker prices are actually higher, we had to give less surcharge to our customers. So we had lower bunker cost, net of surcharge. Change in the bunker hedge, previous quarter, as I explained earlier, our paper hedge, we took a $7,000,000 adjustment to the unrealized hedge. And then the lower manning cost of $1,900,000 higher loss on sale of assets, lower joint venture, etcetera, so that brings us to $31,400,000 for the quarter.
So the biggest impact really or the big part of the impact is, again, the hedge the bunker hedge. If you look at Page nine, Stolt Tankers bunker cost. Bunker cost net of bunker surcharge, but excluding the hedge the bunker hedge, decreased by $1,800,000 from the second quarter. The average price of the bunkers that we consumed increased to $232 per ton from $175 from the previous quarter. The average price of the bunkers that we purchased during the quarter was $245 versus $194 in the previous quarter.
COA bunker surcharge clauses covered on average approximately 77% of our total volume in the third quarter due to the continued high COA percentage that we have. You can see here that we had realized gain on our hedge of $1,100,000 year to date and unrealized gain of $2,900,000 on the hedge. So we have done actually well if you look at the year to date on the hedge that we did, the paper hedge. The on Page 10, STJS or Stolt Tankers Joint Service sale in Time Charter Index. Here, you can really clearly see the drop in the rates that we saw in the third quarter.
On Page 11, you can see the deep sea market spot rate development. Since the peak, specialty chemical freight rates have dropped about 16% versus approximately 30% reduction in the commodity rates due to the impact of CP's Clean Petroleum Products swing tonnage coming into our segment. Most commodity products move in spot markets, while most specialty chemicals move under COAs. The commodity segment is far more impacted by the MR market as MR can also handle commodities. So if you see here on the left hand graph, our biggest trade in is U.
S. Gulf to the Far East for the specialty. And there you can see that, yes, it's declined, but it's relatively the light blue one is relatively stable. Where we see the dramatic decline since the peak in 2015 is the return cargoes. That's Far East to The U.
S. Gulf and Far East to Europe is the green one. That's where we've seen the really big decline. And on the right hand side, this is on average of all trade lanes. And as I explained earlier, approximately 16% drop in the specialty, that's 1,000 ton stainless steel required cargoes, up from 16% since the top.
And on the commodity size, 5,000 ton parcels, really not the segment that we worked that much on, dropped approximately 30%. On Page 12, we have 77% contracts of affreightment. So that coverage protects us from impact of short term swings in the spot rates. As a result of us having such a large contract portfolio, we are not that dependent upon the spot market, and we can actually be more selective in the spot cargoes that we pick. So even though the spot rates fell quite significantly, you can see that our spot rates actually has held up quite nicely during this period.
With contract durations of one to two years, it will take time before the lower spot rates have a full impact on our COA rates. The impact on the COA rates typically is typically less than the fall in the spot rates. Of course, I'm not saying that we it doesn't influence us. When you have a drop in the spot rates, as we have seen and I would say, a weaker sentiment as we saw during the summer period, our contract customers, of course, will take advantage of it. So the contracts that are up for renewal that are currently up for renewal, we see pressure.
We can't deny that. But subsequent to the end close of the third quarter, we've actually seen a pickup again in the a slight pickup in the market on the spot volume. The order book is actually reducing, not because the ships have been delivered, but some of the ships have been canceled. If you look at this chart, you can see that the blue and the green, the blue being stainless steel and the green being coated. I doubt if all of this tonnage that you see on in 2016, I doubt that if all of that is going to be delivered in 2016.
I think it will be pushed into 2017 and some of the new buildings from 2017 will be moved into 2018. But it's still a large order book as we have been talking about. That has been my biggest concern and continues to be my biggest concern. It's encouraging to see that some of the ships have been canceled, but it is going to be a challenge, this order book. We are partly to blame because we do have our own newbuilding schedule here.
We have the Chinese newbuilding being built at Hudong Zhonggua in Shanghai. The first ship was delivered this summer, and the second ship will be delivered in October. And they are performing as per specification. Actually, the first voyage of the sold prior has been exceptionally well, excellent results. So we are actually very happy, and there's a lot of concern about the standards and the quality of ships being built in China.
But I must say that the quality that this yard has delivered has been excellent. Then this summer, we announced the acquisition of J. O. So the transition encompasses most of the organization, including five of their offices. They have currently 13 chemical tankers on the water, out of which we already have six on time charter.
In addition, they have a there's a fifty-fifty joint venture with TRF of eight newbuildings, out of which I think one or two has been delivered. And then it's the technical management complex for seven non chemical ships being retained by J O. We expect to close this acquisition by year end after receiving approval from the competition authorities. The three areas that we need approval from is Germany, Holland and South Africa. We don't foresee that as any issue.
Why did we buy Is one of the original three chemical tanker operators in addition to Odfjell and Stott. And we have always viewed JO as a quality operator with high standards of operations as evidenced by the six ships that we have had on time charter for an extended period of time from JO. Through this transaction, we will satisfy our fleet requirements of both chemical tankers and partial tankers, so both sophisticated tonnage and what we call chemical tankers, less sophisticated, which then will eliminate the need for us to order new ships for the next, I would say, four to five years. We operate in most of the same trade lanes.
One trade lane where we are not present, but they are, is on the West African trade. So from Africa South Africa up to Europe along the West Coast and down again, which again, through this acquisition, will expand our service towards our customer. We will leverage our systems, the investments that we have in our systems over recent years to gain scale at lower incremental costs. So if you look at the way or at least the way I look at this acquisition, it's really not Stolt Nielsen expanding within Tankers. It's really replacing or it's part of our tonnage plan.
We will get a little more than we presently need, but it will eliminate our need to go out and order additional tonnage. The value financing and the balance sheet impact, we try to illustrate here that the gross purchase price was $575,000,000 The estimated remaining joint venture newbuilding payments, the 50% share that we will take over is $145,000,000 So the subtotal is four thirty million dollars And then we will take on the debt of 156,000,000 So $274,000,000 we will pay for the equity. The acquisition will be funded with $125,000,000 bank financing and drawdowns on the company's revolving credit facility. In addition, the joint venture has its own separate limited recourse financing for the eight newbuildings, which will remain in place. Following the close, Stolt Nielsen will have a debt to tangible net worth ratio.
That ratio is expected to increase from an estimated 1.26 as it is today, up to 1.53 at the end of the year. Still well within our covenants, which is two:one. However, with the incremental cash flow from J O, this ratio is expected to rapidly decrease. The advantage, of course, is buying when the ships are on the water, they will be generating an EBITDA right away. So I think it yes, we have come up to 1.5 to one.
But following the closing, will still have a $300,000,000 worth of capacity under our revolving credit line at the end of twenty sixteen. So post closing, we'll still have liquidity available of $300,000,000 The expected EBITDA contribution from J O, including the joint venture, bases the equity method is $60,000,000 on takeover, raising to $80,000,000 when all of the eight ships have been delivered or the four ships that we have and then the eight ships that will operate in our pool. Based on the consolidated method, in other words, the four ships in the joint venture,
the 60,000,000 to $80,000,000
is on the equity. So we take the net profit from that joint venture, our share of the net profit. If we take 50% of the EBITDA, we're looking at $66,000,000 up to $92,000,000 of EBITDA increase from this acquisition. And if you then look at it as a multiple of EBITDA and what we bought from the company, I think we have done a reasonably good deal. Moving over to Stolthaven Terminals.
Positive picture. Revenue increased marginally due to higher throughput and increased capacity. The utilization margin increased to 90.9%, up from 19,500,000.0 And cost saving initiatives are slowly starting to have an impact per cubic meter. And it's always nice to report all these blue graphs. If you move to Page nineteen, second quarter to third quarter operating profit variance, dollars 13,800,000.0 previous quarter, dollars 0.7 higher operating margin gross operating margin from previous quarter, higher equity income from our joint ventures and others bringing it up to 14.8.
On Page 20, Stolthaven owned terminals. We have added capacity 5,000 tons of capacity in Daggerdam in outside of London and 60,200 cubic meters to be added in the next twelve months in Singapore, Moerdijk and Dagadan. The average lease capacity improved at almost all own terminals. The biggest improvement was in New Orleans and in our terminal in Newcastle, Australia. Saltaevan Houston continued its business optimization program.
Focus on the ship to shore interface to reduce ship time spent in Portugal with continued progress in Houston basis waiting time and tons per hour year on year, significant expansion opportunities at several of our terminals owned and at our joint venture under discussions. And the full impact, as I reported earlier, the full impact of the improvement programs that we are putting in place, primarily in Houston, you won't see in 2016, but I think you will see, hopefully some nice pickup in the performance of our Terminal division in 2017. The fundamentals in the Terminal business are still good. There's still demand for storage in Houston. We are getting a lot of inquiries for at most of our terminals.
So the fundamentals there are still good. Stolt Tank Containers. Revenue down 3.4% due to fewer shipments. Operating profit unchanged from previous quarter as marginally lower trading result was offset by gains in our joint venture. The joint ventures are primarily our depots.
Very quickly through Page 22, the operating profit variance, dollars 10,700,000.0 previous quarter, dollars 200,000.0 lower trailing results, a pickup of 0.5% from our joint ventures and others of negative 0.3%, giving us 10.7%. Page 23, the container market situation. There is still strong competition from new operators and availability of low cost new tanks from China are putting pressure on rates and margins. We continue to take an aggressive view on pricing. So we're actually dropping our price, reducing our margin actually to increase the utilization.
Our newbuilding order is complete. Off hiring of older and more expensive leased tanks and scrapping of older owned tanks has resulted in a slight fleet reduction. There is also opportunities for us now to take on additional tanks leased tanks at very attractive rates. We will continue to develop our depot network in strategic location in order to support global operations, and we believe the margin deterioration is bottoming out. And the reason we believe that okay, it's too early to say just after one quarter.
But if you take and we did this exercise, you take a new operator and take what he will pay, what we assume he will be able to book a cargo for on the revenue side, what it will cost him to ship this in with a liner, what it will cost him to repair, maintain it, turn it around, and his organization, what it will cost him to reposition the tank, we think that at today's level, a new operator is at best breakeven, most likely losing money, and we are still making money. So just based on our cost assumption, revenue assumption for a new player in this business right now, I think that we have really come to the bottom, at least I hope so. Stolt Sea Farm, very quickly. A better supply balance allowed for higher turboprices and increased volume. So we have seen a significant increase in turboprices the last six months.
We are now at, on average, above EUR 10 per kilo, and that's up from less around EUR 7. The average sold price improved marginally, and the volume was up 16% compared with previous quarter. But the growth is still not on target at our new farm in Iceland. The caviar prices increased during the quarter, but volume was down, mainly driven by seasonality. Fair value adjustment of inventory at a gain of $0.6 compared to a gain of $300,000 in the second quarter of twenty sixteen.
I'll skip this one. Stolt, Mixed and Gas, just a few words about it. We're kind of narrowing in and closing in on the strategy for our LNG strategy. We are focusing on really small ships, small scale distribution, as I mentioned earlier, but on the shipping side and on the receiving side. So either small storage tanks for the receiving on the receiving side or floating storage on the receiving side.
We're looking at several interesting projects, one in Sardinia, which is making nice progress. With the debt level that Stolt Nielsen has post J O acquisition, we will, of course, be careful in how we how aggressively we go into this market. But once we get long term contracts in place, we will most likely take FID both on ships and on terminals. That completes my part of the presentation. Jan will take you through the financials before we answer questions.
Thank
you very much, Nils. Good afternoon, and good morning to those on the phone. I will cover the and give a few more comments to the financial results that we have released today. I will also give some guidance on some of the P and L line items as I normally do. We have filed our nine months financial interim financial statements with OSE today.
And the press release, this investor presentation and the interims you will also find on our website. Now going to the next slide, net profit. You can see here that operating profit before one offs is down. It's down from SEK 73,400,000.0, down to SEK 57,700,000.0 in this quarter. Now half of this reduction we talked about earlier is the swing in the hedges that we have for our tanker business.
And basically, what has happened between the second and the third quarter is the fact that the forward the margins or the spread on the hedges have come in significantly. We took a big $6,500,000 uplift on the hedges in the second quarter, and we had to adjust that as the spreads came in. But when that being said, and I think this is important. I don't think that many of the you guys sitting here or the if you will, other analysts made adjustments for that in the reserve material that we have seen. Obviously, nobody can foresee it.
But now as we are already one month for us into the next quarter, we have seen the increase in the bunker prices significantly now above $50 a barrel. And as a result, this there will be an increase now in if you were to mark to market that the hedges. And to remind you, the hedges covers now 50% of the bunker requirement that we have through four COA cargoes covering the rest of fourth quarter twenty sixteen and also 2017. So 50% of the COA spot cargo related rates. And I would say that year to date, we're €1,000,000 up.
We have still mark to market. We're in the money. So for us, that those hedges that we put in place have exactly done what we wanted, which was to protect against quick rises in the oil price. Now I said that was half of the reduction. The other half is, as Nis has talked about, SEK 4,600,000.0 net lowering the results in tankers, basically tanker trading.
And the others, terminals slightly up, STC the same, and then we got the fair value adjustments in Sea Farm, a little bit against us, but not significantly. Also in terms of accelerated depreciation, you can see here that we took $3,100,000 in the quarter, and we have taken 13,700,000.0 for the first nine months of this year. What is this? Why do we call it accelerated depreciation? It relates to the fact that the steel price has come down so significantly, tail end of 2015 during 2015, so that it has impacted the residual value of the ships.
So we decided at the end of last year to write off the quicker the ships that are going to be recycled in 2016 and 2017. And I think that's also very important. You see what's written that year to date, our results are down, yes. But you can see, we have taken much more depreciation for the first nine months due to this that was not there in 2015. We also sold two ships and took a loss.
These are smaller ships, took a loss of $1,900,000 in total in the year. And that's part of a deal to sell four of the smaller ships. The next two will be sold in the fourth quarter, and they will be sold at a small profit. Next, in terms of interest expense, it's down slightly. And of course, that ties in with the fact that we have repaid our bond issue, dollars 300,000,000, which was more expensive.
That has been replaced by drawing down on the revolver and other lower cost facilities. Taxes, also a little bit up, but that is really because of the fact that we have higher earnings in our terminals in U. S. And also in Australasia. Just a comment about the nine months because I think this is important to understand that the operating profit before these one offs were actually up for the nine months when you compare 2016 to 2015.
We then if you then look at the accelerated depreciation and you take into consideration that we had a gain of nearly $20,000,000 when we closed down a defined benefit plan in U. S. And that hit you can see here that hit the nine month results for 2015. And those two items alone explains more than the drop in the bottom line for the first nine months of this year. Now going to the balance sheet slide.
Shareholder equity, 1,400,000.0. That is up from 1.85%. Improvement there, of course, it's the earnings that we made that has gone through retained earnings, but also positive impact on OCI, other comprehensive income, where, among other things, the improvement in the Golar investment we made has had a positive impact. Next, debt, 1,900,000.0, and that's up from SEK 1,850,000.00. And the fact that it's more or less stable means that the capital expenditures that we've had more or less has been paid or funded by a reduction in our cash on hand and also cash from operations.
So I'll come into that a little bit later. Debt to tangible net worth, 1.19 to one. The 1.26 Nils was referring to is what we expect at the end of the year before the acquisition of J. O. With J.
O, if as Niels said, point five three. EBITDA ratio to interest, 4.52. That has come down from 4.82. Cash and, if you will, the liquidity when you include the unused committed lines is, at the end of the quarter, dollars $427,000,000. In terms of fixed to variable debt, 76% almost 77% is fixed and 24% less than 24% is variable.
Average interest rates have come down from just under 5%, so 4.9% to 4.57%. I mentioned the $300,000,000 bond, Snee, a one that we repaid that had a coupon after we had fixed it of 6.61%. And of course, that the savings here in interest relates then to the fact that we drew down on the revolver instead. Then we also had some other full impact of some other very attractive container financing, which brought the interest down to the 4.57. And again, for the fourth quarter, interest around $2,000,000 I don't think that, that is going to change much when you take the JL acquisition into consideration because Nils said that we will close we expect to close by the end of the fiscal year.
Our fiscal year is November 30. We're already in the October. So the interest rate is not going to be very significantly or will not be significantly impacted. Just looking at the liquidity position after we have closed JL deal, we still believe that it's going to be just shy of $300,000,000 That is taking into consideration. Bernice gave you the details on how the loans are, but this is all the debt that will come on our balance sheet from the acquisition.
Now going to the cash flow. Cash flow from operations, dollars 90,000,000, up from $82,000,000 I think the only thing worth mentioning here is the fact that we have been a little bit aggressive on collections of our receivables, and that has had a positive impact on our working capital. If you look at the capital expenditures, just over $100,000,000 most of that relates to the ships. We took delivery of the first newbuilding ships, Stolt newbuilding in China, Stolt Pride. And we also had projects that we entered into on the terminal side.
And as you heard, we took delivery of the last containers in STC. So overall, just under $100,000,000 And I'll come back to give you the total picture for capital expenditures a little bit later. In terms of during the quarter was a lot of financing activities took place. We repaid SNE $1,300,000,000. We prepaid $74,000,000 of ship financing loans.
And this was aimed at freeing some of the collateral so that we could improve the collateral utilization by putting those ships into the new revolver that we are negotiating. And if you will, that took $74,000,000 And then we had $122,000,000 of regular scheduled principal payments with the banks. The on the other side, we some of you may know that we did go in and tapped $130,000,000 in various bond issues we had. We drew down in connection with the delivery of the first new building in China, we drew down $57,000,000 And we also drew down on a top up financing of $45,000,000 on our on the facility that we have with Danish Ship Finance. And finally, the last $45,000,000 came from drawing down on the on our line of credit.
Just to have said that because it's not in the slides, we are renegotiating our revolver. It's going to be brought up to $650,000,000 We have the approvals we need, and we expect to close within the next, let's say, two to three weeks, if not sooner. So again, at the end of the day, you can see here that the cash impact from all of these transactions has brought the cash on hand from 150,000,000 to $75,000,000 Going to the EBITDA slide, which is Slide 31. In these slides, we have, of course, taken out the unrealized gain on the bunker hedges. We've, of course, taken out any impact on fair value adjustments, positive or negative, on the in Sea Farm and also any gain or loss on sale of assets.
So in the EBITDA slide here, you can see that time periods is down basically $6,000,000 overall. And that's the true contraction of that of the tanker market. Terminals, you can see basically a little bit flat from an EBITDA point of view. Tank Containers, you can see a SEK 1,000,000 improvement. And then Stolt Ilson consolidated, we're basically down from 118,000,000 to $112,000,000 and that reduction is the $6,000,000 that you basically see in tankers.
For the full year 2016, I. E, nine months with SEK $347,000,000 EBITDA, which compares to SEK $243,000,000 for last year. A and G expenses, not really much to say. All our businesses benefit from a stronger dollar than what they had in the overall in the second quarter, even though the dollar has come off a little bit now lately. The main reason for the increase here is the we had to true up our profit sharing and long term incentive plan provisions, and that is with as much as 1,900,000.0 that has hit the third quarter results.
The and going forward, we're basically guiding at $53,400,000 Now looking at the slide next Slide 33, depreciation and amortization. Again, very much in line with the second quarter. Some people there are some we got the new ship from China in July, and we also sold some ships. So overall, you can see it's for tankers, it's slightly down. Terminals, a little bit up, and the rest is more or less the same.
And in terms of guidance for next quarter, we're saying $60,600,000 That's, of course, we will take delivery of yet another Chinese newbuilding. And we also have three smaller ships that we've had in the service that we actually take that we have exercised our purchase options on previously in the year, but the cash out to complete the transaction will be in the fourth quarter. Next, 34, profit joint ventures. Again, 8.8% it's or 8.6% versus 8.8%, very much in line with the previous quarter. Tankers, little bit down because that ties in with the contraction we've seen in the earnings in the pool at the tanker level, and the rest is more or less the same.
And we expect that, that contraction, if you will, will also go into the fourth quarter. So we have scaled back the tanker profit from the JVs in the fourth quarter. So the guidance is 7.5%. Taxes, I think I also mentioned earlier, improved results on the terminal side in U. S.
And Australasia. And also, we had improved earnings on the Rail side in U. S. Now I said I was going to cover the capital expenditure, the big picture. Year to date, we have SEK $226,000,000.
Of that, SEK 100,000,000 a little bit more than SEK 100,000,000 was in the third quarter. And you can see the fourth quarter, including the JL Tanker acquisition, is bringing the third quarter up to
Ladies and gentlemen, we are experiencing a momentary interruption. Please stay on the line and we'll continue the conference in a moment.
Run down the debt. And as you can see, the commitments from
Hello?
Hello? So the commitment is being leveled up very quickly. I think it's just important to make that point. Next slide, which is the debt maturity profile. It looks like there's a the blue are regular scheduled bank payments, principal payments.
The green are bullets, end final payments under borrowing facilities. And the orange are bonds. You can see the next bond payment now is not before 2018. But the 2016 bullet here, which looks big, that is we are prepaying, I said, a ship loan so that we can free those up and put those ships into the revolver. Also in 2017, here we have in terms of the green part, that is, first of all, the short term loan that we need of EUR 125,000,000 that we need to repay or refinance in connection with the J.
O. Acquisition. This is there is a short term tranche there. And it's also the refinancing of our terminal in Singapore. And that is actually not due before later on, but we've already started to work on that replacement.
So as far as the debt side is concerned, both the repayments and new transactions we're working on is seems to be very well in hand. Yes?
Thank you, Jan. Takeaways. Third quarter net profit, 22,100,000.0 EBITDA of 111,000,000 Third quarter annualized EPS, earnings per share, almost $2 PE ratio of 6.87 and price to net asset value of $0.53 The current dividend yield based on today's share price is 7%. We have, as Jan showed you, a good liquidity position with approximately $430,000,000 available at the August through our revolving credit line and cash on hand, and CapEx is partly funded. Good performance in tankers, steady in tank container results in a competitive market.
Turnaround in terminals has started. Our energy into the LNG space will be leveraged our space will leverage our experience in chemical logistics, targeting small scale LNG demand. Just to talk a little more about the chemical tanker market and what has happened. We've always been quite conservative in predicting the future of the chemical tanker market. I think that the reports that we have I've seen has been a little too negative.
There was a summer slowdown, and we talked about the primary market, U. S. Gulf and the Far East, we saw that the traders pulled out. So there's basically no trader volume because of the margin of the trades disappeared. We subsequently have seen them come back again.
So during the summer months, July and August, they weren't there. Now we're actually seeing traders coming back and volumes in the spot market is starting to pick up. Another big impact a significant impact was also a big part of the business that we do is asset from Africa to India. And those negotiations were yearly negotiations were ongoing, and they hadn't been completed. And as a result, less asset volume, which takes up a lot of stainless steel space, were not moving.
And we're now seeing that the asset space the assets are now moving back again to India. The contract nominations, in general, has been healthy. So even though the spot rates have fallen and lower volume in the spot market, I think it's very much driven by these factors and the seasonality. If you look at the nomination that we get under the contract, which are very good indicators, all the major chemical companies, they move their products under COAs. The nominations under those contracts have been continued to be healthy.
So yes, there is a downturn. And yes, there will be pressure on our COA renewals because of the sentiment right now. But I'm cautiously optimistic that once the volume starts picking up again in the spot market that we won't see any big dramatic change. So if if I had to predict what the fourth quarter in Tankers would look like, I would say it will be similar to the third quarter. That completes our presentation and our comments, and we will open up for questions.
And we'll start here in Oslo. Any questions? Yes?
On Page 29, you do give an overview of expected operating cash flow for the fourth quarter. So is that on the bottom right there? So is that because you had $90,000,000 in the third quarter, but $6.7000000 dollars of working capital. So is that based on a similar development from third quarter? Or is how do you get that number?
In there, it's basically the third quarter plus some takeover expenses tied to the JL transaction.
Okay. So but then when you say fourth quarter, you expect it to be fairly similar on tankers, that means that it's also fairly similar on containers and terminals?
Yes. I would say that the terminal should continue to show small improvements. They will come through. Tank Containers?
I would say that terminals, gradual improvement. I don't think that we will see a dramatic change in tankers. Tank Containers, we hope that we have seen the floor of the margin squeeze. We saw that in the from the second to third quarter. I'm cautiously optimistic that we will see not a pickup, but a similar level from the Tank Containers side, too.
And since the third quarter, you actually reduced some kind of bit your CapEx guidance, right? If I read the chart correctly, slightly down just for the J and I position. Is that fair to say?
Yes. And
the question relates to the LNG investment because that's been hanging over you for several quarters now. When do you think we should see position that has been market chatter about two ships ordered? Should we expect anything anytime soon? Or how close are you with?
So the situation is that we have two ships ready to be confirmed. We are working on offtake agreements on the Sardinia project. We have gotten volume I mean, not only LOIs, but proper offtake agreements signed agreements. And that's what we're working on, the wording of the agreement. So I want to make certain that we have a proper solid offtake agreement.
We will discuss how much risk we will if we wanted to have 100% utilization on the ships before we take an FID. So that's what we're working on now. But if you ask me when we will take a decision on the ships, we'll most likely do it in the fourth quarter. And then you have one more question. One or two ships, yes.
So one more question. Because you have $1,200,000,000 of remaining CapEx of $1,100,000,000 of remaining CapEx, mainly from now through 2018. And then you have $1,000,000,000 in debt maturities. So that's 80%, 90% of your current enterprise value in business. And you're comfortable going ahead with investing $150,000,000 in on another leg?
We will I agree with you that after the J O acquisition, we will be more cautious in taking on additional debt and particularly in LNG. So if we have a solid deal in place, we will look at it. But there are we will at all the time, we will look at what our debt situation is, how the market develops in each of the businesses before we take on significant additional debt.
Thank you.
Any other questions? Okay, operator. Any questions amongst the callers?
We have no callers in the queue at the moment, sir.
All right. If there's no further questions, we will complete the presentation. Thank you for joining us.
That will now conclude today's conference call. Thank you for your participation, ladies and gentlemen.