Stolt-Nielsen Limited (SOIEF) CEO Niels Stolt-Nielsen on Q3 2020 Results – Earnings Call Transcript

Stolt-Nielsen Limited (OTCPK:SOIEF) Q3 2020 Earnings Conference Call October 8, 2020 9:00 AM ET

Company Participants

Niels Stolt-Nielsen – CEO

Jens Grüner-Hegge – CFO

Conference Call Participants

Anders Karlsen – Danske Bank

Lukas Daul – ABG


Ladies and gentlemen, thank you for standing by, and welcome to Stolt-Nielsen Limited Presentation and Conference Call for the Third Quarter 2020 Results. At this time, all participants are in a listen-only mode. I must advice you that this conference is being recorded today, at Thursday, the 8th of October, 2020.

And now I would like to hand the conference over to your speaker today, CEO, Niels Stolt-Nielsen. Please go ahead.

Niels Stolt-Nielsen

Thank you. Good morning, good afternoon. Thank you for joining us on this third quarter earnings video conference. Together with me, as always, Jens Grüner-Hegge, our CFO. I will be presenting, I guess, you can see on your screen, but you can also retrieve a copy on our Web site. Moving to the agenda, we will go through each of the businesses, Jens will take you through the financial highlights, and then we will open up for question and answers.

The net profit from continuing operations came in at a nice $31 million. The strong improvement in EBITDA — we saw a strong improvement in EBITDA from all of our business divisions. I think that one thing that was nice and what makes it a strong message is that the volume held up in all of our businesses. So, in the beginning of the pandemic we were expecting eventually the volume to start coming off as the global economy slowed down. That has not happened, and in the third quarter we saw relatively healthy volumes, and on top of that, we also got our costs down, of course much driven by the lower bunker costs because of the oil prices, but also the actions that we took early in the pandemic.

Our gross debt also [increased] [ph] in the third quarter by $27 million. We have secured liquidity. Jens will take you more through that later. We have approximately $500 million of liquidity. We also saw a strong recovery in Stolt Sea Farm in the third quarter, really the business division that was hit the most from the pandemic and the slowdown, and also, as we announced earlier in the quarter, Stolt Tankers, we took the opportunity to acquire five modern stainless steel ships from CTG, which is currently with [indiscernible], but we will be taking them over towards the end of this year.

Operating profits — operating revenue slightly down, but EBITDA up to $139 million for the quarter, operating profits up by $24 million, to $74 million, net profit up $26 million from previous quarter, up to $29 million profit, and our debt, as I said, was down $27 million, and gross debt of $2.540 million, and tangible net worth slightly up at $1.6 billion.

Am I moving the — okay, sorry about that. I have to put on my glasses. So, if you look at the net profit variance analysis between the second quarter and the third quarter you can see the nice blue columns there, higher operating profit from Tankers of $8.1 million, a higher operating profit for Stolthaven of $3.5 million, STC higher operating profit of $4.6 million, and a great recovery in Stolt Sea Farm of $8.6 million. Then slightly higher corporate costs, higher net interest expense because of — well, we’ve secured a lot liquidity and that counts as an expense, some more losses of $1.6 million of FX and $2.9 million of higher income tax compared to previous quarter, and then we took, as you remember, a write-off of our sturgeon business, our caviar business of $8 million in the last quarter which we didn’t have in this quarter, brining the operating profit for the group in the third quarter to $29.2 million. Next, please.

If we just quickly go back and see how the year developed, the pandemic started early in the year, but really the big impact started when the lockdown was announced. We were active, or Jens and the finance team did an issue, in February, of raising $141 million, really before the pandemic came out, but that was a nice timing and good pricing, and so we took the advantage of the bond market. Then Europe went into lockdown, and gradually the rest of the world went into lockdown, and at that time right away we announced that we want to hope for the best but prepared for the worst, and we went really into kind of lockdown or emergency mode. We declared that we weren’t going to pay a final dividend for ’19. We took initiatives of cutting costs, travel and entertaining, professional fees. We did everything possible within our — on our cost structure.

We also top in $21 million, and we also cut back on capital expenditure, either delayed or cancel of $62 million, and then we started to talk to our banks. We looked and said we want a secure enough liquidity to be able to make certain that we have enough liquidity to repay the bond that matures in March of ’21, but also to be able to face various downside scenarios. So, we put ourselves a target of raising additional $250 million. We talked to our banks, but while we were talking to our banks the bond market opened up so we tapped that, we used that market and raised $132 million, in June, and then Jens has also worked on financing several of our terminals, which then puts us in a position today of having $500 million of liquidity which I think — yes, puts us in a position of strength definitely having enough liquidity to be able to pay back the bond coming due in March of ’21, but also face if the market does turn or if the global economy does slowdown, we should be alright liquidity wise. Next slide, please.

ESG is becoming big part of our lives in a good way. We at Stolt-Nielsen we signed up for the United Nations Global Compact agreement, and we have adopted the general reporting initiative for sustainable reporting standards. I’ve always said that we shouldn’t just talk to talk but really also deliver, and that’s what we are working on. I am quite proud when we start doing this standard -– this reporting standard, I have always felt that we have operated in a responsible and sustainable way, and now when we start reporting it and measuring it, I am quite satisfied to see what we have achieved so far, but of course, this is an exciting voyage and a journey which now we will report more — be better at reporting on what we are doing but also be part of the solution trying to help innovate and, yes, work towards a more sustainable future together. So, you’ll see more of this sort of reporting, and we will go deeper into the initiatives that we are taking in various — each of our businesses. Next slide, please.

Then going into the Stolt Tankers if you look on page nine, so the operating profit for the second quarter was $20 million, and I’ll explain the variance how it came up to $28.1. So, we had higher trading results of $8.7 million, and higher ship management expenses of 4.5, low depreciation and A&G that was driven by the initiative that has been taken of $3.6 and equity income of $0.4 bringing up to $28.1. The revenue decreased because we had less operating days, and the reason that we had less operating days is not our fleet is shrinking, but it’s because of COVID we had two ships in quarantine. I think a week each, and also because of COVID-19 and the restriction associated with it, it has taken longer time to do the scheduled dry docking. So, lower number of operating days from 6,329 in the previous quarter to 6,118 this quarter.

Utilization on the ships that we are operating was actually up, which is a good sign. The contract that we renewed during quarter, we had an average increase of 3.9%. So, trading is also up as bunker cost fell and utilization rose. The manning cost increased $4.7 million as the cost related to crew changes increased due to COVID restrictions. So, it is clear that the cost when you have to — I am very proud and it has really been the focus of the organization to change the crew that are overdue. I think we are down now to close to single digit of crew onboard our 155 ships globally that are overdue, and that of course comes with an additional cost. The airlines are jacking up the price; fully understandable, but also, we have taken the initiative sometimes to deviate our ships to the Philippines so that we can change the crew, and that comes at a cost. So, if you look at the increased ship management cost for the quarter, more — if we didn’t have the additional cost associated with the changing the crew that actually — the ship management cost would have been lower, but we again feel it is important to make certain that the people in the frontline especially onboard our ships that we are spending whatever is necessary to get them back to their family and so that we can change them or let them have a break. Next slide, please.

The bunker cost was, of course, a big reason why we had improved earnings in the quarter. You can see that the average price of the bunkers that we consumed for the quarter of IFO and low sulfur fuel was $275 versus what we consumed in the second quarter of $388. So, it’s 29% decrease in the cost of the bunker that we consumed during quarter. The cost of the bunker that we purchased was up 12% from $274 to $307, and then on the right hand side, the sailed in index that we show of our deep sea fleet made a nice jump for the quarter and let’s hope it continues. Next slide, please.

Market highlights, so as I mentioned on the previous slide, we were able to get higher contract rates, Stolt COA volumes in most regions and we are approximately at 70% contract coverage, of notes contracts of freight and sea. As you can see on the slide here, the spot markets actually did weaken during July and August. Now, this used to do happen in July and August during the seasonal banter. If it’s anything beyond that, we don’t think so, we are actually now starting and you can see it slightly in the Middle East to Europe and also the TPW, Transpacific West, that it’s as have started to pick up again. So we of course are optimistic that that was nothing more than a seasonal slowdown, but because of the contract portfolio that we’ve had in place 70% contract coverage, we have relatively small volume of spots available for stock, and therefore, when we do fix spots, we can be more selective in which spot contract that we go after so. So I think that balance that we have even though we see a small dip in the COA, we don’t see that clearly in our sale then because of our strap chartering strategy. Of course, the worrying thing is always that when the MR time charter rates have weakened, did weaken in the third quarter, but again, it didn’t impact because of our strategy towards going long contract. The inter-European services on the regional fleet mentioned Inter-European service, it was a weak spot marketing reflect stock market perfecting a slowdown in the European, in Europe from the lockdown.

Customer’s outlook is slightly more positive in the fourth quarter. If there is one of our services and one of our regional markets that are having a challenging period, it is Inter-European. SNITS, Stolt-Nielsen Inland Tanker Service that is our barges on the right do healthy relatively well even though the resource the spot market that is continuing to deliver nicely under our contract portfolio. SNICS, Stolt-Nielsen Inter- Caribbean Service, the contract terminal was COA volumes were stable at 80%. However, the spot market weakened slightly, and the SNAPS, that is the joint venture we have with NYK in Asia improve results in the third quarter due to tighter tonnage supply and Chinese demand grew combined with the low fuel prices. Next slide, please.

If you then look going forward, what does it look like? Well, we know what the supply side is and the supply side even though there were additional tonnage announced by one of our competitors in the last quarter, the order book still remains that a total order book that includes less sophisticated tonnage at 7.2% which is low, if you look at what the stainless steel part of that order book is, it’s at 4.7%. So healthy supply side, and you can see then that I don’t expect any huge orders going forward. So, on the supply side looks good. So the question is, it’s all always been the supply side of our equation that has been the challenge, because we are the owners and speculators have ordered too much ships. It’s never really been the demand side. If you look historically, the demand for this business, the service that we provide has steadily grown in line with global GDP and the global trade which is a multiplier of global GDP. So it’s always been very steady. It’s the supply side that’s messed up the market. This time around it’s absolutely the supply side looks very healthy. Now let’s see, it’s very difficult to say what’s going to happen in the world going forward, it’s so much uncertainty, but if you took [indiscernible] which we follow, they are showing here that there is going to be a decline in trade volume in 2020 for what we transport but then they show a nice gradual pickup of a compound larger growth rate of 6.3% taking all of the chemical market. So if that happens, and I hope they are now we do believe that they’re right. If that happens, I think we will see a very healthy shipping markets going forward. Next slide, please.

Stolthaven Terminals, what can I say it’s only blue, blue positive development study as it goes, operating revenue up to 59.8 slightly up EBITDA up from 52.2 up to 36.4, operating profit 23.7, up from 19.2 in the previous quarter and utilization slightly down to 93.7 down from 95.2. The operating performance excluding one of improved results as result improved results as a result of the cost saving initiatives that we’ve taken throughout the group. The equity income improved these results of prior quarter one-offs high utilization and change in product mix, and increase in joint venture equity income, strong and stable customer portfolio with underlying market conditions remaining stable in all regions and a lower impact of COVID-19 on the overall storage industry. We have seen that some of the areas, the throughputs the number of moves that the customers use in the tank have come down, but when they want to renew if the contracts are up for renewal, they all renew it because they don’t want to lose that space. So maybe the throughput is down, but the contracts remain healthy in all of the regions, and of course packaging and healthcare industries rate remains strong as we’ve seen during the pandemic, however agrochemicals, industrial gases, paints, coating, has a positive outlook and the industry has seen some recovery. Utilization in the industry remains stable with some weakening in petroleum expected. Yes, this is just a visual effect of how the utilization has been steadily improved, and we’re now up at steady around 94%, 95% which is excellent. Next slide, please.

The market outlook, the chemical activity in the U.S. Gulf and the United States rose by 2.5% on a three month moving average, the U.S. markets we see steady overall but chemicals and base oil in the automotive industry is still weak. Chemical capacity expansion is still active, petroleum LNG, LPG market has softened and expansion have been put on hold, steady flow of inquiries for additional storage in our both Houston Terminal and our New Orleans terminal. Asia, the Chinese chemical market has showed signs of improved post lockdown, but full recovery will be subject to the export market which is not has not started to take off yet. The Korean market remains stable for chemicals but Southeast Asia is lagging in recovery. Our Singapore terminals overall chemical, sorry, Singapore’s overall chemical output fell by 2.4% year-on-year in July, the European market remains steady for chemicals. Although the broader market remains weak due to exposure to the automotive sector which accounts for 10% to 15% of the total chemical demand. Excluding pharmaceutical, chemicals output fell by 3.6% year-on-year in the first-half of the year, and in the South America, our Terminal Brazil, the chemical market, continues to show signs of weakness and approximately 20% to 30% drop in throughput in recent months, but signs of recovery for both petroleum and chemicals we see at the current time. Next slide, please.

Moving over to Stolt Tank Containers, so there we saw a slowdown in June and July. We actually saw pick-up in August, but we have so we had less shipments, we had lower transportation revenue of $9.6 million that this lower rate lower number of shipments. We had lowered additional revenues of just $200,000, but as a result of the lower number of shipments, we also had lower moving expenses and part of the move expenses is that the fuel surcharge in the second quarter was quite high, that is something that we didn’t have in the third quarter. We had lower repositioning expenses of 0.6, and also here saving initiatives and lower other operating expenses and A&G of 3.7 and slightly lower equity income from our joint venture of 1.4 brings our operating profit for the quarter at $17.5 million. Next slide, please.

Market outlook, STC Stolt Tank Container is always that kind of a first in, first out, good indicator where things are going. So the good news is that in the recent — in August and September things have been very active, and right now they are very active. So we are short containers everywhere, which is always a good sign. So that’s — I’m not saying that it’s less competition, there is a lot of competition, but there is a lot of activity going on. So, shipping that was a success, we gradually return as economy rebound, but we ask our customers, they don’t expect levels to come back to normal until 2021. Yes, I think I’ve covered most of it, we will of course continue to focus on the digitization and optimization of our processes and that is something that has served as well, we had a record number of shipments in the month of March when everybody was sitting at home. So, our systems are working very nicely and that’s something that we will continue to work on actually more now than ever. Next slide, please.

Stolt Sea Farm here we saw you know from a negative operating loss of $4.7 million, we saw a nice recovery up to $3.9 million, and that is because of higher turbot sales both the volume and the price, higher sole sales both volume and price slightly higher operating expense because — low operating at 1.6 and lower depreciation and others of 1.1 bringing it to $3.9 million. Next slide, please.

So, just a word on Stolt Sea Farm because the people are now talking to our mostly shipping analysts and Stolt Sea Farm is not getting its fair share of analysis amongst the analysts that are following still make some — and we need to do something about that. I truly understand that there is a conglomerate discount on Stolt-Nielsen because we are shipping Terminals, Tank Containers, we are being portrayed as a shipping company even though half of us are non-shipping activities, but we — and the analysts when they do the some of the part analysis are putting the right value on ships, on Terminals, on Containers or relative you know, often they’re pretty close to the right value, but they’re not putting on the current structure, not putting any value and Stolt Sea Farm, basically nothing. So I think that this is something that we need to work on and making Stolt Sea Farm more transparent. I can’t be asked the analysts out there, the shipping analysts out there to ask their seafood division to have a look at Stolt Sea Farm, and we will be better at providing more detailed information, but when I look at how aquaculture companies — land based aquaculture companies that are trying to become land based or trying out recirculation technology, and if I look at the pricing that they are achieving, I start wondering, you know, if we can continue with this current structure where Stolt Sea Farm is kind of not getting any visibility or value onto the current structure. I just remind you that we have a unique position where we have a multi-site production. We have 13 farms around the world, so spreading our risks so that we don’t have everything at one location. We have two hatcheries that supplies both sole and turbot. Our operations are in five different countries. We sell our products in 30 plus countries and we have 450 employees globally. Next slide, please.

Sustainability is of course a big part of our reality of everyday life now, and land-based farming is something that a lot of companies are trying. I would like to remind or you can pass this on to this [indiscernible] in your bank that we have been doing land based aquaculture for 35 years, and we have done recirculation for 20 years. These are just two pictures of our farms, but this is real stuff. We have nothing that we promise to deliver, yes, we have cracked the code of how to produce consistently juveniles for both sole and turbot, and we have done that over 20 years within research and so on. We have cracked the code and we are now ready to go on full scale. We have two recirculation plants, one that is up and running, and one that will be completed by the end of this year. So this is something that nothing that we — it’s not a pie in the sky company. We are there. We have an EBITDA. We have proven technology. So this is something that we will work on, doesn’t have to talk to shipping analysts — and that’s our fault because the way we structure, but it’s absolutely something that we need to work on. Next slide.

Stolt-Nielsen Gas, I am sorry, we didn’t update the picture of the ship that is some sea trials is scheduled not to be delivered on the 12th of October, and the first ship will then go to Petronas for a three year charter. The second ship probably at the end of this year beginning of next year also three variables too high goal formerly known as Golar Power. We have loans in place that is read upon that we will drill down upon the on delivery for the two first ships. We have four additional ships, which is being built with SOE Nantong in China and the delivery of [indiscernible] the first-half of 2021, and I believe we are also working on securing financing for those four ships, and our terminal in Sardinia has been impacted by the COVID, but we expect that to be an operation that is being delayed from the end of this year to the beginning of next year. Next slide, please.

I think it completes my part of it, and Jens will take you through the financials.

Jens Grüner-Hegge

Thank you, Niels. So, good afternoon to those of you in Europe, and good morning for those of you in the United States. As Niels said, I will review the financials and some balance sheet items and I also want to remind you that we have not only this presentation, but also our press release that came out this morning together with the interim financials. They’re posted on our Web site, Also, our fiscal year runs from first of December through November 30. For those of you who aren’t aware of that, and also want to mention another thing in that 2020 is our first year where we report according to IFRS 16. So there are some 2019 and 2020 numbers that are not directly comparable. Just keep that in mind when you look at the year-to-date numbers.

What you have on this slide here is view our net profit and if you start with the operating profit before one-offs on top, you see the quarter came in $72 million which was a substantial improvement up from the 51.2 that we had in the second quarter. Not many one of us this quarter, we had one adjustment at Stolthaven, but operating profit as reported you see was up about $24 million and a significant part of this improvement came from tankers and STC. A lot of it was as Niels explained driven by lower bunker cost, together with also a strong recovery that we saw Stolt Sea Farm from relatively week second quarter. In addition, it’s worth noting that we had a quite a significant reduction in our A&G administrative and general expenses this quarter and that’s something that relates to the initiatives that we put in place early on in a pandemic. So, our A&G costs year-to-date, if you look at that gives you a better visibility of it is actually down about $18 million or about 12%. Now some of this is due to FX impact. Some of this is also due to IFRS 16 treatment, but the good portion of it is also driven by the initiatives that were put in early on in the pandemic. Net interest expense increased as a result of the debt we took on, but also as we retired some of the March 2021 bond, we had a write-off of debt issuance costs that typically are amortized over the whole duration of the bond. So we retired about $80 million and had to take a greater share of the debt issuance cost.

Looking at the income tax expense, you see that for this quarter, it was $4.6 million up $2.9 as Niels mentioned, that is really tied to a higher tax at Stolt Sea Farm due to the higher fair value of the inventory first adjustment to the inventory. Net profit from continuing operations therefore came in at $30.5 million, and that’s up from $12.3 million that we showed in the second quarter, and as you will see below, there was a $9.3 million loss in prior quarter, compared to $1.3 million this quarter from discontinued operations, so a $8 million dollar swing, and that puts us at a $29.2 million net profit this quarter. Also, if you take a look at EBITDA, EBITDA this is before the fair value adjustment, or biological assets and insurance reimbursements that came in at $139 million, which is substantially up on $122.8 reported in the second quarter.

If you look at this is a slightly different view of the balance sheet, and I’m focusing here on the covenants, but you can see in the top left quadrant, you have our debt this is gross debt of $2.54 billion at the end of the third quarter, slightly down from $2.568 in the prior quarter, and likewise, you’re seeing an increase in our tangible net worth, which is the light blue column coming up at $1.6 or $7 billion, up from $1.58 billion in the second quarter, and those two improvements combined resulted in our debts to tangible net worth coming down from 1.6 to 2 in the prior quarter, down to 1.58. Again, this is measured basis IFRS 16. So for those of you who are used to seeing this pre-IRFS 16, it means that we would have been about at 1.5 to 1 perhaps even a bit lower this quarter, so commensurate with the target set by the board.

Going to the right hand side, you see another one of our covenants is EBITDA-to-interest expense with the improvement in the EBITDA that ratio also improved to 3.4 to 1 for the quarter. To the bottom left you have our net debt-to-EBITDA not exactly a covenant, but still an important measure of our leverage, and that drops significantly down to 4.85 for the quarter driven by the stronger EBITDA. If you look at the bottom right quadrant, you can see the part of the driver here and that we are seeing lower EBITDA quarters dropping off and higher EBITDA quarters being added to what is the 12-month rolling total of the EBITDA. I mentioned the impact of IFRS 16 and if you compare like for like the impact year-to-date of IFRS 16 on EBITDA was about $35 million. So if you compare those two that means overall EBITDA year-to-date is about a $5 million improvement, but that still does not negate a significant improvement that we have seen throughout the year where we started with a weak quarter, but not showing strong signs of improvement, that $35 million equates to about $11.5. So, still if you take out $11.5 of the third quarter, it’s still a very strong quarter EBITDA-wise.

Looking at our capital expenditures, year-to-date we have done $117 million, and for the quarter the third quarter alone, we spent about $44 million, and this is driven by $22 million spent in Tankers, and that includes about $14 million on the progress payments for the five ships that we had bought. We also spent about $16 million in Terminals, predominantly in New Orleans and New Zealand and also as part of our commitments to Avenir, we injected further $5 million in additional equity as they are getting ready to take delivery of their first ship. Sea Farm completed the construction earlier this year of the Cervo Recirculation Farm and the part that you see here is our net contribution for the Portuguese farm about $2 million in the third quarter and that farm is expected to come on in 2021, and then, the CapEx you will see for 2021 has now increased significantly for tankers and that’s of course reflecting the acquisition of the five ships from CTG. Next view here is really a development of our liquidity position as we go forward, and if you start on the left hand column, you will see where we ended the second quarter with $230 million in cash and $181 million in availability on the revolving credit lines, so for a total of $411 million.

During the third quarter, we saw operating cash flow of $107 million and we had the capital expenditures that just went through of $44 million. On the other investments, this includes money spent on drydocking, it also we sold, our drydocking was about $5 million for the quarter and in addition, we sold assets for about $10 million. So that actually had a positive impact of $5 million, and if you look at these three combined, that means our cash flow from free cash flow ended up being $68 million for the quarter, marginally up from $64 million in the second quarter. Also, we did the bonds in June that Niels mentioned SNI09 $132 million inflow and that was used to about $80 million of which was used to retire the March 21 bond and further $32 million on regular principal payments for a total of $112 million.

And then we had repayment of the outstanding balance on the revolving main revolving credit line that we have of $130 million. So after that repayment, we have not drawn anything on the revolving credit line that’s fully available to use. We also pay down $12 million on our finance lease liabilities and if you add in all the effect of the exchange rate effects, we ended up with cash of $184 million, so slightly down from the $230, but a substantial increase in our availability under our two revolving credit lines up to $311 million for total liquidity of $495 million at the end of the third quarter. Also to remind you of objectives is still that we want to improve our free cash flow, reduce debt to maintain a strong liquidity position going forward, and that leads us to find maturity profile, you see that we have about $48 million left for the rest of 2020 also with our liquidity position pretty much all of the 2021 is taking care of.

So we’re in a very good position going forward. The March 21 bond this SNI05 will be repaid with cash on hand, and in addition to what we already showed you on liquidity, we are working on additional facilities, one $65 million facility to be secured by the Moerdijk and Dagenham terminals expected to close in the next few weeks, and also the $100 million revolving credit facilities part of our COVID initiative, just to make sure that we have access should it be necessary to additional liquidity in case there should be what we call a worst case hits from the COVID-19 pandemic, and in addition, we will now start also working on financing the five CTG ships that were acquired, two of those will go into our joint venture with NYK, and there will be non-recourse financing secured for those two ships and then three ships we will take on our own balance sheet.

So with that, I’d like to pass it back to you, Niels.

Niels Stolt-Nielsen

So, key messages before we open up for questions, relatively strong quarter with nice contribution from all businesses. It makes us cautiously optimistic that maybe it’s not going to hit us as hard as we initially expected. However we are prepared, so we hope for the best and we plan for the worst, and we are ready if there is a further slowdown or if there is further restrictions in the world due to the pandemic.

Jens showed you that we have a strong liquidity position, and we have taken early actions, not only short-term action, but I think we have learned a lot of potential long-term savings coming out of that exercise. It’s a favorable supply-demand — at least supply side in tankers, so when the global economy eventually do recover we should have a strong shipping market, and then we will proceed with the IPO that we have planned for. We believe and we are seeing steady-as-she-go at Stolthaven, steady improvement there. Stolt Tank Containers, also great activity, so steady improvements as she goes in both Terminals and Tank Containers, and Sea Farm, we saw a nice recovery in the third quarter. Now, of course, a big part of that market is in the restaurants and the hotels sector, so that if there is a major lockdown again that might be impacted, but long-term prospect for that business continue to look fantastic. So I think we are in a strong position, and we are well prepared for whatever may come our way.

So, operator, that’s — or how does it work? We’re now open up for question. Hi, this is a test. Is that one?

Question-and-Answer Session


A – Niels Stolt-Nielsen

Regarding the COA renewals, is the 3.9% increase a number compared to the same period last year?

No, the 3.9% is what we achieved in previous — in the third quarter. So, each quarter we announce the results of if we were able to, on average, to get an increase or decrease. So, it’s comparable to the previous quarter.

How much of the cost reductions are sustainable versus temporary one-offs?

Well, that is a discussion that we have internally, and I don’t want to put a number on it. I mean a big part of it is because we have the hiring fees, we have promotional fees, we have cut back dramatically on consultants, we have — we’ve cut some salaries, which is not sustainable in the long-run, and we have the hiring fees, and then no travel and entertainment. So, of course we have learnt that we are able to do the same amount of business during — under this kind of structure — this kind of cost structure, and we are now analyzing what we can save long-term, and maintain long-term, and what needs to come back towards normal. So, I don’t want to give a number but I think there are savings that we can get out of this and this exercise.

What about a partial spin-off of Stolt Sea Farm?

This is again [Philips, isn’t it?] [ph] Well, we need to do something because under the current structure, the analyst, I understand that maybe the shareholders or the equity market continue to price Stolt-Nielsen as a conglomerate, and they look at us as a shipping company, and shipping company — shipping is totally out of flavor these days, so — but there is justification for keeping tankers, terminals, and tank containers together, but the fish, the Sea Farm, I’ve always said that we have built up an absolute fantastic knowledge in both turbot and sole, and we have spent 20 years developing sole, and I don’t want to do anything with that business before we are able to show the EBITDA coming from that 20 years of investments in developing the species, but if you look at other industries — other companies that are listed, that are trying to develop land-based farming or recirculation farming and you look at their pricing, some of these companies haven’t produced a ton of fish and are priced higher than the market capital of Stolt-Nielsen. So we’re exploring the opportunities. We are looking at various ways of how to get the evaluation more transparent for Sea Farm.

You mentioned increased ocean freight costs for containers to impact margins. How big share of your container activity is seaborne traded versus land-based traded?

So, I would say that 90% of our business is seaborne, and 10% probably is domestic. Now, remember, both the trucking and the ocean freight is passed on through the customer, but it takes — it’s lagged. So if one day that when the costs goes down it takes a longer time to pass down on to the customer, when the costs go up it takes a — we have to try to be as quick as possible to pass it on. So there’s always a lag, but just to answer your question, I think that I can come back to you with the exact number, but I would estimate that 90% of the containing moves are over the ocean.

What kind of COA coverage should we expect going forward, for example, for the fourth quarter, and 2021?

I think that 70% is pretty correct. So you can plan on that.

Would a spin-off Stolt Sea Farm in a separate IPO through dividends to the existing share would be a potential structure that you could look at to achieve proper valuation?

Yes, there’s different ways of doing it. So we’re exploring to see what are the alternatives.

So, Mr. Stolt-Nielsen said that let’s hope it will increase when talking about SNI index, now at 0.61? However, looking at the report, chemical tanker spot rate reported quarter-to-quarter, that could perhaps seem a tiny bit optimistic.

So the index that we report are actually numbers, so that’s not being optimistic, that’s just reporting the facts, but as you correctly point out, the reports from July and August show a drop in spot rates. That is really why we went long — been focusing on long contracts, and that’s whey we have a 70% contract portfolio. The only thing I can say is we think it’s a — it was a slowdown as a result of the summer, and that we’re seeing in September, and also continue into October, that that denominations that we see on the contracts are healthy, so we are not seeing any kind of fundamental deterioration in the chemical tankers segment.

That is — okay, if there’s — sorry, go ahead, operator. There’s one on the phone.


Thank you. Your first question comes from the line of Anders Karlsen. Please go ahead, your line is now open.

Anders Karlsen

Yes, good afternoon. My question goes a little bit to the five vessels that you are acquiring. You said two will go to NYK, but the others, are they going to be replacing existing tonnage or are they going to be in addition to whatever you have today?

Niels Stolt-Nielsen

So, let’s look at the five. The five ships that we acquired this summer, they’ve been around for long — those — they were ordered for $42 million — $43 million, I think [indiscernible] bought them for around $40 million – $41 million a piece. I’m pleased to announce that we bought them for $27.1 million a piece, and then of course you have some takeover cost on top of — $27.2 million, some takeover costs. These ships will enter into the Stolt-Nielsen pool. It was an opportunistic buy. So in the short run it will be an increase, but of course, we have an ageing fleet, and we have no new building program, so I guess this gives us a little more room before we need to start ordering new ships again. So that’s — this is a win-win for everybody.

We don’t add additional tonnage into the total chemical fleet, and it replaces some of the older ships that are scheduled to be renewed. So we don’t have any like these will be replacing those ships. So they — it will — in the short run it will be an addition. There will be no total addition to the chemical fleet in the world, but they will be addition to our fleet, and then we will recycle ships that are between 25 and 30 years old as we feel when the time is correct for that.

Anders Karlsen

Okay, and a little bit of follow-up to an earlier question linked to G&A costs, it kind of seems very random how they and well, like you said. You said that they are very much down compared to where they used to be, but once again, can you say a little bit more about what level is a sustainable decrease and what can we expect to — how much can they expect to move up again when you do go back traveling and all of these other things that are closed down during COVID?

Niels Stolt-Nielsen

It’s very difficult to say. I think that we should be able to retain some of these savings permanently, but as we grow as an organization and as you have a salary inflation, et cetera. So I think overall we should become more productive and more efficient. I don’t think it’s necessary — I don’t think people want to travel as much as we did before. I think that the way we are doing and talking to each other now, I think it’s very, very, very imp to have face-to-face meeting, but maybe not as much as we used to. So I think the world has changed, and so will we. It is too early, and we will work it, and now we are working on it to see what is permanent savings and what we have to go back to. I mean we can’t forever have a hiring freeze, and we need to do promotions, and we need to a certain extent have external consultants help us, but of course we have learned during this lockdown that we actually were able to deliver an excellent service working from home, not traveling, not promoting, not hiring, just with the current resources that we have we delivered excellent uninterrupted service to our customers. So we need just to find the right balance. The only thing I say is that that — there will be permanent savings from this exercise, but you’re not going to get me to say what number that is going to be, but trust me, it is very much a focus of the organization.

Anders Karlsen

Okay, and a quick question on the container side, the movement cost per container this quarter was the lowest that I have seen, at least dating back to 2008 or something. You said something about you expected it to come back. Is it going to come back to more the normalized levels, is this a one-off quarter with such low cost base for the container segment or can we expect to lower costs moving around containers as the standard going forward?

Niels Stolt-Nielsen

I think that the costs — the move-related costs came down significantly because they were, I wouldn’t say artificially, but they were high in the first and the second quarter driven by the fuel surcharge because of the low sulfur fuel coming into effect 2020. I also think that there was a lower number — that the trucking costs were low because of low activity during the pandemic, so that cost came down. The ocean freight didn’t come down because they were able to manage the supply side or the numbers sailing, but I will, instead of me guessing, let me ask Jens, make certain I would come back with that information to see if we believe that we will come back to normal costs or if there is permanent savings on the transportation costs. So we’ll come back to you.

Anders Karlsen

Okay, and just a final — you know, a little bit in defense to the shipping analysts, you’ve never been very open about anything [indiscernible] it’s kind of difficult to judge, and I have been following the company for a few years, so I mean there has never been any volumes or anything on a quarterly basis, and yes, it makes it difficult to address. So that…

Niels Stolt-Nielsen

I fully understand.

Anders Karlsen

Yes, feedback from our shipping outlets, but…

Niels Stolt-Nielsen

Yes. Yes, thank you very much. I don’t want to — it’s our fault the way that that current structure is. My message is that we need to make Stolt Sea far more transparent so that it gets the proper valuation both by the analysts that follow the company, but also by the market. So we will look into that and look at our alternatives. We have not received any further questions here. Operator, are there any other questions?


We do have one more question on the phone line. This comes from Lukas Daul of ABG. Please ask your question.

Lukas Daul

Thank you. Good afternoon, gentlemen. I was wondering the financing plans going forward that you have put on slide 39, when that is carried out will you have any unencumbered assets left that you can use as collateral?

A – Jens Grüner-Hegge

Yes. We still have some terminals that are unencumbered and investments in joint venture terminals that are unencumbered. So, I think if you look at more specifically, the Australia/New Zealand terminals have no debt against them, neither the Brazil terminal, and neither the Korean terminal that we have — are holding in that terminal.

Lukas Daul

Okay, very good, and then, on the bunker costs that you sort of touched upon in the beginning of the presentation, I mean going forward, could the rule of thumb be that whatever your purchase cost was in the prior quarter that’s what going be the consumed cost in the following quarter?

A – Jens Grüner-Hegge

Not directly. The lead time isn’t the full whole quarter. So, it’s difficult now to say that looking at the purchases on this slide that is on the screen now, the 307 in the third quarter may not be exactly what we’ll have a consumed cost in the fourth quarter. That the second quarter purchase equals to third quarter consumed pretty much is bit more of a coincidence because the prices came down, and then it came slightly back up again, but if you assume that the 307 gives us some visibility into the fourth quarter, then we have to apply a bit of delayed impact from what we see happening in bunker prices that should give you a way of getting an approximation of what the consumed cost might in the fourth quarter.

Lukas Daul

Okay, that sounds good. Thank you.


Thank you. There are no further questions at this time, please continue.

Niels Stolt-Nielsen

Thank you very much for attending our earnings call, and we’ll talk again for the fourth quarter. Thank you very much.


That does conclude our presentation for today. Thank you all for participating. You may now disconnect.

Be the first to comment

Leave a Reply

Your email address will not be published.