Stolt-Nielsen Limited

Good afternoon and good morning. Thank you for joining us here in Oslo for our fourth quarter 2018 results presentation.

Together with me is Jens Gruner-Hegge, Chief Financial Officer. The agenda, as always, we will go through the highlights for the fourth quarter.

Then, I'll take you through each of the divisions and Jens will take you through the financials, and we will open up for question and answers at the end. The highlights for the fourth quarter, as you saw from the release this morning, Stolt Tankers reported an operating profit of $7.7 million, and that's down from $21.4 million in the previous quarter.

That is mainly reflecting a lower or more competitive, challenging freight market for tankers, but also higher fuel costs. And the loss of $4.1 million on the bunker hedges, and that is compared to a gain that we had on those paper hedges in the previous quarter.

Stolthaven Terminals reported an operating profit of $11.7 million, and that's down from $18.6 million. That is including a $6.1 million impairment, which I will go into later, and a $1.7 million decrease in equity income from our joint venture partners.

Stolt Tank Containers reported a operating profit of $18.1 million, up from $17.7 million in the previous quarter. The operating profit rose despite lower revenues.

And that is mainly because of actions to manage costs as markets soften. Stolt Sea Farm's operating profit before the fair value adjustment of inventories was $0.9 million versus $2.1 million in the previous quarter, mainly reflecting lower turbot volumes.

Avenir LNG, we successfully established a joint venture with our strategic partners and listed the company on the OTC here in Oslo under the name Avenir. Corporate and others reported an operating loss of $11.9 million compared to a loss of $3.4 million in the previous quarter, mainly reflecting write-off -- the final write-offs in the Bitumen business.

That brings us in at $3.6 million profit for the quarter and a total profit of just under $55 million for the year. Then looking at the variance analysis on the net profit basis, between the third quarter and the fourth quarter.

So $3 million for the quarter, we had a one-off charge of $12.9 million when we changed the accounting of [indiscernible] and myself went off the board, which we didn't have in this quarter. We had an impairment of the terminals.

I will go into that later, impairment of the Bitumen, lower tanker trading results, operating profit of $13.6 million, $0.9 million on the lower terminal operating profit, slightly higher in tank containers, $2.9 million higher in Stolt Sea Farm and then the gain on the deal that we did with Avenir for $11.2 million and lower corporate and others of $2.6 million and some lower FX losses versus the third quarter of $2.2 million, bringing us off to $3.6 million for the fourth quarter. Looking at Stolt Tankers, our biggest division, so the deep-sea fleets, so excluding the regional fleets, the volumes for the fourth quarter was approximately the same as the previous quarter.

But revenue decreased $2.4 million. And that's a reflection of lower rates overall, but also more spot volume being moved versus contract, compared to the previous quarter.

So the contract nominations for the fourth quarter last year were down. Overall, rates were down 3.1% versus prior quarter.

That's a combination of again lower market rates, but also a mixture of what you carry. So even the COA nominations, if we have a quarter where we could carry more large parcels of assets, that also influences the overall rates.

COA rate renewals in the quarter were down on average 2.5%. So the COAs that we renewed during the quarter were down 2.5% compared to the rate renewal decrease of just under 4% in the previous quarter.

So if you want to look at it positively, there is a slowdown in the decrease in our negotiations when we renew our contracts. Moving on to the slide, page 8, the operating profit variance between the third quarter and the fourth quarter.

Again, $10.8 million lower trading results for the quarter. Bunker cost increase, net of bunker surcharge, in other words the bunker clauses that we have on our COAs of $0.8 million, lower bunker hedge results, as I mentioned earlier of $5.3 million.

And then we had a positive variance of lower depreciation and that's mainly due to the life extension that we did in the fourth quarter. Higher admin of $1 million and lower equity income from the joint venture of $0.6 million brings us to a total of $7.7 million profit -- operating profit for the quarter.

Bunker costs, the average price, and here is one of the big challenge, the average price of consumed heavy fuel oil or IFO increased to $465 per tonne in the fourth quarter versus $437 per tonne in the third quarter. The COA bunker surcharge clauses -- the bunker clauses covers us for 62% of our total volume, if you include the paper hedges that we have in place, we are approximately 75% hedged on our bunker exposure.

Again, the fourth quarter loss on the bunker hedges resulted from a drop in the bunker prices towards the end of the quarter, caused by the large drop in the global crude prices. If you look at the overall paper hedges gain and loss that we have in 2018, you can see overall, we have gained and it's been profitable of a total of $6.2 million for the year.

If you look at the hedges that we have in place in -- for 2019, 80,000 tonnes and average fair value market value of $316 -- $317. I think that the market price today is at $300 -- around $350 for every fuel oil.

We all know about the low sulphur fuel regulation that comes into effect in 20 -- 21st of January, where we have to go over to a new fuel of less than 0.5% sulphur. And as I've stated earlier, regardless of how many scrubbers you have, the majority of the global fleet needs -- does not have scrubbers.

And the majority of our fleet doesn't have scrubbers or will not have scrubbers. So we are dependent upon being able to pass on that additional cost from switching from heavy fuel oil to what the only alternative that is in the market right now is marine gas oil to be able -- you have to pass that on to our customers.

If we were not able to pass that on to our customer, our bill -- additional bill will be close to $130 million. And looking at our results, you know that that's not possible.

So we will have to pass it on to our customers. And in the negotiations that we are doing now for COAs that goes into 2020, we are successfully able to pass it on in not all contracts, but we are not accepting anything beyond passing it on.

So if we are not able to come to an agreement, we have an exit clause and that we will negotiate that towards October of this year and if we don't come to an agreement, both parties can walk away from the deal. I think we're in a fortunate position, because we expect the market to recover.

If it's 2019 -- end of 2019, '20, but if you look at the supply and demand side on our -- in the chemical tanker side, I do expect the market to eventually recover. So we're very happy that we're -- I think we can be glad that we will be in a strengthening market when we need to negotiate these bunker clauses that we need to put in place.

You can see at the bottom here, the reason why we have a challenging market. I've said earlier, the only reason that we made money in '15 and '16 and part of -- or '17 is because the bunker, it's not because the volume went up -- the total volume carried or the freight rates went up, it was because the bunker prices went down.

And now that the bunker prices have come up again, the spot rates have not moved. And we haven't been able to add -- pass that additional cost on back to the spot market because of the supply situation.

And you can see then that the -- even though the bunker prices have been going up, the rates have not. You can see here on the blue, this is our average quarterly cost -- purchase cost, which is on the $465 million on the fourth quarter, while today's rate is close to 350.

So once we have burned off the expensive fuel, I think we will see improved earnings from the -- from us going in first quarter and the second quarter based on the cheaper bunker fuel that we will be burning. Stolt Tankers Joint Service Sailed in Time Charter Index.

This -- we started in 1996. 1996 was at 1.

And today, as you can see, we're in all-time low. You have to read the fine print at the bottom, the index is based on the sales and revenue, STJS ships plus net result of outside time charter ships, plus an adjustment for inflation on the sale then, which of course makes it look worse.

And I think that our operating costs or our operating cost has not gone up in line. It's been below inflation.

So it's -- we are a bit tough on ourselves on this chart. But it gives a reflection of the market situation.

The positive side on page 12, the chemical tanker fleet and our order book, we don't have any more ships to be delivered of chemical tankers and the blue line here in '19 and '20 is what is to be delivered in '19 and '20 of course. And the order book now is just under 10% of what we are categorizing as our competitors.

I think it's 31 operators. There has been the slippage, so there were supposed to be more ships delivered in '18 and less in '19, but there's been a delay.

So we do see -- still see a number of ships being delivered in '19, but we are not seeing any new buildings being ordered. Market development.

We see the demand growth of 4% and that's what we have in our model based on GDP and it's of course big uncertainty here of what is going to happen and the slowdown that we are reading about and seeing. But based on the feedback that we have, we estimate as a multiple of GDP that our growth, the demand growth will be 4%.

The core fleet deep-sea growth will slow 6% and has been 6% in '17 to '19 and 2%, '20 and beyond. And if the newbuilding remain moderate, the oversupply should be absorbed by the growth in the market.

So, we are cautiously optimistic that we will see a strengthening of the market, end of '19 into '20. Now, we also see that the CPP market has also strengthened and there has been a correlation between those two markets.

So, we are cautiously optimistic that things should start to improve. Stolthaven Terminals, I would say, steady.

Revenue and expenses were relatively flat between the two quarters. The operating income, including or excluding impairment charges of $6.1 million was marginally down by $0.9 million from third quarter, reflecting slightly lower joint venture equity income.

Nothing to read from that. It's just timing.

The impairment was on our terminal in China, in Lingang where we had the explosion in 2015. We didn't have an explosion, but there was a big -- Chongqing was a big explosion and is taken a longer time to fill up the utilization.

You can fight with the auditors about the externals or about the impairment. But this is what we came to.

I think that the earnings potential of this terminal is still there, it just takes time to fill it up. Utilization for our wholly owned terminals was 91.4% compared to previous quarter.

So, we're an overall utilization above 90%. Quickly, the operating profit variance between the two quarters, page 15.

Operating profit of $18.6 million in previous quarters. The impairment that we just talked about of $6.1 million, slightly lower equity income of $1.6 million and others of positive $0.9 million to $11.7 million.

The market update, strong fundamentals in the US and we are well positioned for that strong market, both in Houston and New Orleans with plenty of room for expansion. Singapore market remains challenging, we are getting utilization up, but it's a bit of a competition.

However, we are working on several very interesting long term industrial customers, which can bring the utilization up to close to 100%. South Korea, Brazil, and the Malaysian market looks stable.

The European market remains stable for chemicals, but CPP, there has been an increase in inquiries, especially in bunker fuel short storage, which is related to the IMO2020 regulation. Major capital projects includes the Jetty number 11, which is almost finished in Houston, Ulsan expansion of 163,000 cubic meter expected to be operational in the first quarter and the capacity expansion in New Orleans, in New Zealand, and in Santos, Brazil remain on schedule.

New Zealand and Australia are stable for chemicals, working on opportunities to increase utilization and potential expansion. I would say the terminal business is steady and we will continue to see steady improvements in earnings from that division.

Tank Containers, the market did soften towards the end of the year. Revenue decreased 5.8%, driven mainly by lower transportation revenue, a result of the 6.5% fewer shipments in the quarter.

And if there is a good indicator of what's happening in the world, it is really to see the movements and utilization and shipments and an inventory buildup in the depots of Tank Containers. And what we saw towards the end of the quarter and in December, where you traditionally see a significant drop in shipment and that's seasonality, this year, we saw a significant drop.

We've never seen that kind of drop before. It picked up again in January, which is normal, but it never came back to the normal level or to what we usually see as a recovery.

It has improved, as the weeks have gone by, but there was a big drop, which was a bit of a surprise. The other thing that we saw in -- towards the end of the year was a significant pickup of demurrage.

So when the customer ships our tank containers and lease our tank, we deliver it to their, at their factory, they have x amount of days, they can use it, which is included in the freight they've paid, but if they go beyond that, they have to pay demurrage. And the demurrage income went significantly up, and that's usually the case in, the customer receives the tank container and are not using the product that they need for manufacturing as fast as they had expected, another worrying sign about what is happening.

Operating expenses was reduced by 9.1% in the quarter, reflecting the lower shipment volumes, but we have actually an overall improvement because of the operational efficiencies. Utilization down to 68.2% from 71.6%, reflecting global slowdown due to economic uncertainty and the year-end inventory reduction by the customers, as we just talked about.

So if you look at page 18, third quarter to fourth quarter operating profit variance, $17.7 million in the third quarter. Lower transportation revenue, but lower operating expenses of $9.4 million, higher A&G expense, slightly higher A&G expenses and $0.7 million of other brings us to a operating profit of $18.1 million.

Stolt Sea Farm. Turbot volumes decreased compared to prior quarter, which was partly offset by the increase in average price, price of turbot for this quarter was the highest since the third quarter of 2011.

So we are getting close to EUR9.5 per kilo. Remember, our year ends at the end of November.

So, the low volume isn't really to build up for the Christmas sale in December. But we've got record high prices and that's why you see on the next slide, you see that the fair value adjustment was at $4.1 million up, bringing the operating profit for the quarter of $3.3 million.

Stolt-Nielsen Gas, the big thing and very exciting thing is the creation of Avenir, together with Golar and Hoegh LNG. We put it together and we -- the three of us combined committed $182 million to invest in the company.

We raised $99 million right away and we have a further $72 million, $73 million that we are committed to inject and then we also raised $11 million through a private placement and then we've registered it under the OTC. With that, we have the money to finance and pay for the six ships.

The four 7,500 cubic meter and the two 20,000 cubic meter and to pay and build the terminal, which is underway in Sardinia. I think that we will be the company, so Stolt holds a 45% interest and the two other partners have 22.5% each.

The business is really not to become a shipping company, but to be a supplier of small-scale LNG. Our long-term vision here is to source the LNG, ship it, store it and distribute it.

Not only make money on the logistics side, but also making money at sourcing and supplying to remote locations. And I think with the partners of this, I think the 16 FSRUs globally, having access to competitively priced LNG puts us in a unique position, not only with the assets, but also with the expertise that our two partners come with and also combined with our logistical experience.

So very exciting and we see huge growth opportunities in the segment. That brings us to the financial and over to you Jens.

Thank you.

Good afternoon to everyone here in Europe and good morning to those in the US. As normal, I will provide some further details on the financial results that were released earlier today for the fourth quarter of 2018, also touch a little bit on the full-year results and I will give you per normal, some further guidance on some of the P&L items.

Also want to remind you all that we have today posted with Oslo Stock Exchange, the earnings release and the interims. These have been filed for the year ended November 30, 2018 and also on our website, you will find the press release, the interims, this presentation and also for those that are calling in on the phone, we have posted a video on our home page, which summarizes the year-end figures, which I hope you will find interesting.

Moving on to the net profit, the operating profit, the top line that we're showing on this graph for the fourth quarter of 2018 was $41.7 million. This is down from $54.6 million for various reasons as Niels has touched on, but of notable points are the one-offs, you will see $12 million mentioned as an impairment of the Stolthaven and Bitumen assets.

This is $6.1 million relating to the Stolthaven Australasia, and our investment in Lingang and about $5.9 million of Bitumen assets and this will have brought our Bitumen assets down to zero, with the exception for the ships that we have. And as you will recall, we wrote down about $11.8 million on the ships back in the second quarter of 2018.

So we feel that we are now taking what needs to be taken there. For the full year then, you see the operating profit after one-offs was $28.9 million, that's down from $54.8 million.

Moving further down, the net interest expense was in line with the prior quarter at $33.7 million and one thing I want to point out is that on the other, we had a gain of $11.8 million versus a loss that we showed in the prior quarter of $12.6 million. Niels touched on this, the $11.8 million relates to our -- the formation of Avenir as a joint venture and the gain that we took on that and the $12.6 million includes the Avance Gas loss that we took when we changed the accounting method for Avance Gas back in the third quarter in July.

So that brings us down to a net profit of $3.2 million for the quarter, slightly up from $2.3 million in the prior quarter and an EBITDA of $102 million, which is considerably down from the EBITDA that we have in the third quarter and to extent, really driven down by the results in tankers that we saw a drop. For the year to date, I will just highlight few points.

The operating profit after one-offs was just marginally down from last year at $187.1 million. And net profit, slightly up at $54 million versus $50.1 million.

I would like to remind you, if you look at the tax line, for 2018 year-to-date, we're showing a positive number of $7.7 million and that reflects the credit related gain that we took of $24.9 million at the beginning of 2018 and that related to the reduction in the US income tax rate from 35% down to 21%. Moving over to the balance sheet.

Quite happy to point out that the debt has reduced further. It was down $54 million in the quarter.

So we're now down below $2.4 billion. Now, I just want to point out also on the current maturities of debt, we're showing a rather significant amount of $473 million at the end of 2018.

This includes the bond that is maturing in September and that is about $150 million -- $148 million. It also includes the Jo Tanker facility that we took on when we bought Jo Tankers back in 2016.

Current outstanding is about $150 million and we are very close to drawing down on a replacement facility for that where we will draw some $240 million under a new facility. And then the last part there really is the Australasia financing.

We are in discussions on extending them, extending that facility for another year. So don't get worried about those, those are well underway.

Other things I would like to point out is our fixed to variable interest rate sort of remains relatively stable at 72%, fluctuates a little bit depending on how much we draw on the revolving credit line, which is a floating rate facility. And our average interest rate is at 5%, slightly up over the -- during the course of 2018, reflecting the underlying interest rate environment.

Looking forward, at the first quarter of 2019, we expect the interest expense to be marginally up at about $34 million. Two covenants I wanted to point out.

One is that debt-to-tangible net worth, that was at 1.51 last time and with the reduction, that has continued to drop to now 1.48. On a net basis, it's 1.44.

So we have seen an improvement there and we expect to continue to see an improvement, as we go into '19. And the EBITDA to interest expense reflects the lower EBITDA for the quarter and that was down from 3.60 approximately to 3.34.

And the last one is net debt-to-EBITDA, which actually drives the pricing on some of our loan facilities. It's important for us to keep that below 5 to 1 and that was at 4.89 for the quarter.

We are left with about $240 million in available liquidity on our revolving credit lines. And in addition, we had cash of $65 million.

So, $300 million in total available liquidity at the end of 2018. Going on to the cash flow, you will see the net cash flow generated in the quarter was $82 million.

You will see changes that we had were really related to timing of interest expense, it was down from $100 million and we tend to have quite a bit of payments at the end of the quarter, the fourth quarter. We had used about $60 million in investments and that was split between $46 million in capital expenditures on terminals, tankers, Stolt Sea Farm predominantly and we also had the $18 million that we put into the joint venture -- the Avenir joint venture that was established also in the fourth quarter.

During the fourth quarter, going back to financing, we did close on one facility, a $93.8 million facility with Danish Ship Finance and part of those facilities were actually used to pay-off other facilities, but also to reduce the drawn amount on the revolving credit line. Looking then down at the bottom, we have the net cash flow for the quarter, was a negative $20 million after that debt repayment and we ended up with $65 million in cash at the end of the quarter.

Now, when you look at the EBITDA figures here, I just want to remind you that these include the impact of the IFRS fair value that we applied to the Stolt Sea Farm inventory. It also excludes gains and losses on sale of assets and also excludes other non-cash one-time events, which would mean that $11.2 million related to Avenir is not included here.

Tankers' EBITDA decreased in line with the market and because of the bunker hedge losses that we took. Also, Terminals saw a bit of a decrease and part of the reason for that is because in the two prior quarters, we had one-off income, which was not repeated in this quarter.

It was truly one-off and related to some termination fees that we charged our customers. And STC's EBITDA continues to be strong, tied to -- with the improvements in operational efficiency that they have experienced.

So, as a result, we see that the overall SNL EBITDA was $103 million, down from $122 million in the prior quarter. Moving over to capital expenditures, you will see the total expenditures for 2018 came in at $167 million and for those of you that have been following us for a while, we'll see that as a good reduction from prior years.

So, I'd like to say that we've sort of done what we said we're going to do and control the amount of money that we do spend, all in an effort to improve the free cash flow. In 2019, we expect $255 million in capital expenditures.

This is an increase. It is tied to ballast water treatment systems that we're installing on our ships, it's tied to some $35 million of further investments in our Houston terminal, some Jetty expansions that we have going in Houston and as well as expansions that we have at our Santos terminal in Brazil.

And also at Dagenham in the UK. Lot of these are projects that have been carrying on.

So it's not new projects that we have committed to, but that we are getting into this -- more final phases of them. For Sea Farm, we also have two new farms that are under construction.

One is in Cervo in Spain and the other one is in Tocha in Portugal. And these should be both completed in 2019.

This slide now, this is the debt maturity profile. Could be a bit daunting, but I want to address the 2019 maturities that we have.

If you look at the top light blue portion, that is the bond that is maturing in September, and you will see in 2020, we have a further bond maturing in March. So between the two of them, it's about $300 million.

The orange that are -- those are balloon payments that we have under our debt facilities and the dark blue are regular amortizations of debt facilities. If you look at starting with the orange one, that is predominantly the $150 million that I referred to the Jo Tankers facility, which we will pay back second half of February with the new facility.

And also, it includes the Australasia portion, which we will extend for another year to buy us time for the refinancing exercise, and that is at $75 million. So, the bonds, we are also pretty close to have finalized the refinancing of that without going back to the market.

And considering where the bond market is today, which is higher than what we have appetite for on the cost basis, we are also working on being able to repay the March 2020 bond without having to go back and do a full bond issue at that time. For some of you, that might not be good news, but we feel that at current levels, it's better to look for some cheaper alternatives using collateral assets that we have available.

The next slide, this is a new slide that we have put up and it's really to give you a flavor of the key metrics that we are focusing on a high level and starting with the top left slide, this shows the debt-to-tangible net worth, a key metric in our -- key covenant in our financings. You will see the red line is the covenant limit at 2 to 1, the blue dotted line is the Board's self-imposed limit of 1.5 to 1.

With the Jo Tankers acquisition, the red solid line, you see that's jumped up to 1.5 to 1 where the dotted blue line is and it increased a little bit following that, but we have since in the last number of quarters, now been able to sort of steadily establish a downward trending momentum. The yellow bars, just -- I have mentioned what that is, that's the debt, the blue bars, that's the tangible net worth.

The top right bar is the EBITDA to interest expense. The EBITDA is the yellow columns and the net interest are blue columns.

Here, the covenant is that we should have a minimum ratio of 2 to 1, so EBITDA twice as high as interest expense. That has been trending down a little bit, because of the deterioration predominantly that we've seen in the tanker market, but we are expecting that to soon turnaround and then start creeping up again to higher ground.

Bottom left, we have net debt to EBITDA, again this is a pricing covenant more than a real bank covenant. We like to keep that below the 5 to 1.

It went up a little bit this quarter, again driven by the lower EBITDA that we have, but we expect that to continue on the downward trend. One thing, in the middle there is the free cash flow and one thing we've talked a lot about is how we want to improve the free cash flow to make further cash available for debt repayment.

You will see this goes back to about 2009 and we have finally managed to get some positive traction there and that is very much driven by the reduced capital expenditures, which used to be sort of in the $300 million region plus plus per year, which we have brought down and also an improved cash generating capability, more focus on getting cash in from our joint ventures, et cetera. So, we're pleased to see that this is now up at close to $300 million for 2018.

And the last is just for those interested, it's the dividend per year. Moving over to A&G expenses.

For the quarter, we had total A&G of $56.3 million. This was up from $52.2 million, but -- and also slightly above our guidance that we gave at last quarter presentation.

The bulk of that is really due to the profit sharing/LTIP where we had under accrued, as you will see in the third quarter. Going forward, for the next quarter, we are expecting something in between of around $55.5 million, $56 million as a guidance for next quarter.

Depreciation and amortization, you will see that Tankers depreciation was down from $45 million last quarter to $40.5 million in the fourth quarter and this was predominantly driven by life extensions that we did of some of our ship series built in the mid-1990s. The ships are in excellent condition.

They have a longer trading life than the standard 25 years. We are therefore committed to life extensions.

And with that, we have also then reduced the annual depreciation and that's coming through in the lower Tanker depreciation. Total depreciation for the quarter was $63.2 million and that was down from the $68.6 million as mentioned.

I'd like to point out the impairments that you will now have seen a few times, tied to the Terminals and corporate and other and we are expecting really for the next quarter, our depreciation and amortization to come in at about $64.5 million, as a guidance. Share of profit of JVs and tax.

The JVs contributed profits of $4.4 million in the quarter, down from $6.9 million. For Tankers, there is a slight reduction, that's really in line with what we saw as the drop in the overall Tanker results.

Slight reduction also in Stolthaven and that relates to some early termination fees that we got from one of the joint venture terminals in the prior quarter more than really a deterioration of the results this quarter. As you will see, the fourth quarter is more in line with the fourth quarter '17.

So, the third quarter was rather the unusual one. Our guidance for the next quarter is $6.6 million, where we expect Terminals to come up somewhat.

And tax expense, to touch briefly on that was $3.2 million for the quarter and that was slightly down from $4 million in the prior quarter and year-to-date because of the US gain that we took of $24.9 million, it's coming in at a tax gain actually of $7.7 million versus more normalized $12.2 million in 2017. We just thought to give you a brief update on our position with IFRS16.

This -- the highlight is really that this will not apply to us until December, the quarter starting December 1, 2019. So -- and that's because our fiscal year ends November 30 or our fiscal year started really before this became effective.

We will come back to you at a later stage with what it actually means in terms of an EBITDA and debt implications, but more importantly, this has no practical implications for us. One is, of course, non-cash, other than a potential, the tax impact if there is any.

But the other thing is also, in all our facilities, bank facilities, all our loan facilities, we are covered for a change in this accounting methodology and therefore, there will be no bank covenant impact. And with that, I would like to hand it back to you, Niels.

Thank you, Jens. Takeaways.

Net profit of $55 million for the year compared to $50.3 million in '17. The chemical tanker market remains challenging, but we are cautiously optimistic that it will eventually turn around and we are hoping that towards the second half of '19 and beginning of '20, we should start to see improvement.

Solid performance at Stolthaven Terminals. I think that will continue and then we will see the new capacity coming online and the operational efficiencies that our team are working on will also have an impact.

So I think we will see a continued improvement in the performance of terminals. The market has softened in Stolt Tankers, but the earnings are still at healthy levels and I think also the operational efficiencies that we're able to achieve through the investments that we have done over systems will also have a positive impact on our results.

Very exciting with the new joint venture that we have established in Avenir and exciting things that I hope to share going forward with you. So we have a strong earnings base from our businesses through the investments that we have done over the last, I would say, 10 years.

But we will -- so we have enough assets, we have positioned ourselves well for growth going forward. And as Jens has pointed out, our focus now will remain on ensure that we have free cash flow and that we will continue to reduce our debt level.

So you won't see any major capital expenditures coming our way. Of course, there are things that you have to do by running the business, but nothing major until we have gotten our debt level down.

And as Jens has also pointed out, we are in a situation where we are not dependent on going to the bond market to refinance our bonds for '19 and '20. We have collateral -- unencumbered collateral that we can use to raise enough to repay those two bond issues that are coming due.

That completes our presentation and we will now then open up for questions and we'll start here in Oslo and then afterwards, we will take calls. Anyone in Oslo have a question?

Thank you. Lukas Daul from ABG.

I was wondering about the container business, you increased the number of containers, utilization came off a bit in Q4 and you had a step increase in EBITDA during 2018, up from '17 in the container business. Now, you have more containers, do you think you will sort of lift the EBITDA from that business again in '19 or have we sort of reached a steady state level?

Well, so we have increased our fleet and I think that you will see that the fleet will go above the 40,000 containers. And of course, utilization went from below 7 -- just below -- around 74, down to 68 and that's a reflection of two things, slowdown, but also more competition.

Now more competition, we can handle, so we can compete more aggressively and adjust our rates and go after and get utilization up and historically it's proven or what we are focusing on, it is being able to react more quickly to the market, so that we keep our utilization up. So I think that the combination of the operational efficiencies, the systems that we have developed that even in a deteriorating or higher competitive market, we should be able to see continued growth in the EBITDA in Stolt Tankers for '19.

Okay, thank you. And then on -- Jens, when you talk about using more collateralized financing going forward, do you have a ballpark number.

What's the value of your unencumbered assets?

We have -- we are currently working on a sale leaseback transaction where we're using four older ships and here you're looking at collateral values in the $110 million, $120 million range. We have a New Orleans terminal, which is in the books for about $140 million, but probably with the borrowing value that is higher than that because of the performance of it.

And we have some other -- we had the Dagenham terminal and the Moerdijk terminal also as un-collateralized. In total, I think we're looking at about book value wise, some $300 million.

And then finally, when you showed the free cash flow chart on page 29, how does that reconcile with your cash flow statement where your free cash flow is roughly 160 million.

I'm sorry, I can't take that off the top of my head, but I'll come back to you on it.

Anders Karlsen, Danske Bank. Can you shed a little bit light to how many containers you're going to have at the end of '19 and what is the expansion that you will see on the Terminal side in the same timeframe?

We have, at the end of the year, I think we had around 39,000 tank containers, but we have orders that are being delivered in China that brings that up to close to 41, it's an additional 2000 tanker tonnage coming in. The total cubic meter of terminal capacity on the construction, Jens, did we put that on the slide?

So, it's -- I know by the top of my head, it's around 65,000 cubic meter in Santos and the Ulsan expansion is 163,000 cubic meters. The -- by the end of '19, no, no, earlier than that.

I think that the expansions that we will see in Ulsan is first quarter '19. And the same thing with Santos, it's almost finished.

We also have expansion in New Orleans, it's 20,000, no two 8,000, so 16 -- 20,000 cubic meters in New Orleans.

I just wanted to come back on the cash flow comment that you had. If you look at the cash flow slide that we had, where we had numeric numbers, the top part that show the operating cash flow that actually is net of interest expense, whereas the graph that we showed in the back, that is before interest expense.

So when we talk about free cash flow, it is really cash available to service the debt, repay the debt and pay dividend.

[indiscernible] Kepler Cheuvreux. Could you say something about the $130 million in terms of -- that would be your cost increase, if you didn't get the IMO2020 added bill reimbursed?

That's just the difference between what we pay for HFO and what we will be pay for MGO.

That was my question actually. So the second question would be then, as we say, you have some trials now going, what do you pay for compliant 0.5% total?

MGO?

No.

That's the fuel that we pay -- buying now.

Okay, so you are not currently using 0.5%?

No. So, low-sulphur fuel.

No. We're really using MGO.

We're using HFO and MGO. So there is like restricted areas already, which we comply with and when we go there, we switch and burn MGO.

A follow up then, when would you think you have actually available 0.5% sulphur fuel oil?

That's, tell me, you know probably better than me. So that's very -- but I think that the payback time for the way we looked at it for the scrubber investments that we've done will be a year and that within a year from, so if the low-sulphur fuel will be available all year, the payback on the scrubbers is all that we've done.

Understood. My question was related to your comments about this being priced as an MGO minus and often EFO plus or HFO plus, so I'm just -- everyone is curious about what will be the relative pricing of the new 0.5% sulphur.

I don't know.

Me neither.

First, we need to see the fuel and test those to see how it works. Yeah.

We are.

When you talked about some of the COAs negotiations for 2020 and onwards, you say that if you don't agree on passing on the cost, you sort of delayed the discussion until October and out of the agreements or out of the negotiations that you haven' t had so far, how many percent would you say you have sort of closed on and how many did you postpone until October.

Well, it can be little deceiving because we have had a lot of discussions with our customers and before 2020, just as a principle, the -- and we are continuously renewing contracts throughout the year, even the spread throughout the year. The percent, I'm not going to go tell you exactly, but I will say the majority are still to be negotiated for a full pass through, so it's going to be a challenge.

It's not only pass through or changing the reference from IFO to MGO, but it's also going to be a discussion of how many cents of freight rate you would get for each dollar of fuel increase that you're getting compensation, that also is a quite a complex calculation, because you need to figure out also the distance of the voyage and the fuel efficiency of the ship.

Do you think that if you choose to walk away that there are others in the line willing to step in and take maybe something that is not fully compensating them.

I mean, you can see our results and if we don't, if we don't pass it on, we will go out of business and I think our competitors will go even faster out of business. So our positions right now, our policy right now, you are not allowed to take any of that cost, you have to pass along.

If you're not able to do it now, or if the customer is not willing to commit now, we will have the discussion in the full, and our position won't change. And then we need to be prepared to walk away.

We cannot take on the additional cost. But, I'm not saying it's going to be easy, but it has to happen.

Okay, thank you.

But what is positive is that we are seeing some of the major customers. The major customers, they are agreeing to the bunker clause that we propose, which is customers that we have many contracts with.

So when we expect that -- we renew with oil majors in the large chemical companies, they have -- they understand the situation. And we've been able to agree on the bunker clause.

And about small gas distribution here, could you say something about the timeline, your thinking about when expanding, because I suppose that's just a matter of timing, when that is going to be expanded, is there any leads now, there has been a few quarters now with little, well, not much happening?

Sorry. I mean, we -- it's easy to order ships.

It's easy to -- I hate to say it, but easy to raise equity in that. It's easy to build tanks, it's not as difficult to get permits.

It's a process to build there. So that is the easy part.

The challenge of the whole concept is of course the timing to get commitments, off-take for the small-scale. And it's a lot of work, but we're getting there, we're getting some interesting, I'd rather like to announce that when we have achieved that rather than talk about what we are about to achieve, but I think that the Sardinia project looks very interesting.

We're in the process of building the terminal. We're in the process of building up off-take and the economics looks very good.

But it takes time. And I'm certain we will announce it when we have achieved what we have set out for.

There are opportunities of course. So our thinking is, there are so many opportunities out there.

In this small organization, we need to kind of focus -- we can't chase everything, we need to focus on the ones that are the most realistic to be able to close. It is important to achieve the first one to get the proof of concepts and see the numbers ourselves.

So, I don't want to run out and buy -- order more ships on speculation. I think that we have now proven to the potential customers that we are willing to commit and put money and build the ships.

But now, I think we have enough assets for the time being on the shipping side. On the Terminals side, there are opportunities and we're looking at building the hub in remote communities, so that we can service the industry -- power industry, manufacturing industry and of course, bunkering.

I want to be careful in giving numbers at this stage. So, we are now focusing on getting offtake.

Is there a phone? Yes, go head.

There is somebody on the phone.

Oh, hello. Yeah.

Hi. Yeah.

I just had a question about -- going back again to the 2020 IMO that we are hopeful of coming up. Obviously, you're looking at marine diesel at the moment.

I just wondered if you have any kind of game plan in terms of looking at using low-sulphur fuel oil in 2020, or whether you sort of assess that in the first six months and then make a decision on that. I just wondered if you had sort of a timeline of what kind of plans you have for your bunker balance in terms of what fuel to use?

Yes, we would be -- we have not fitted scrubbers on the whole fleet. So, far from it.

So, we would be very interested in burning low-sulphur fuel when it's available. We have yet to see the performance of the low sulphur fuel and the availability and the price of the low sulphur fuel.

That's definitely the alternatives that we will -- I think that's the long-term solution.

Yeah, okay.

So, the scrubbers is just a short term transition solution, which -- with the spread as it is today, we will have a payback period, which we estimate is a year or a year-and-a-half.

Yeah. Okay.

And do you have...

I can't say anything more about the low-sulphur fuel, because the information is not readily available.

Sure. Okay.

And the other thing -- my understanding is that because the new low sulphur fuel oil could essentially achieve that sort of blends from sort of [indiscernible] that kind of equivalents will lower the sulphur in the fuel oil. What I was just kind of interested in as well as just I wondered if you'd looked at any of the costs that might be associated with carrying a type of fuel and then not being able to mix it when you got a different spec, because you might have a risk of solids forming in the fuels with definitely chemical combination and stuff, is the stack count actually the same, even if -- is there two different parts of, I just wondered if you [indiscernible] any worries around the sort of logistics of the different, the availability of different spec for low sulphur fuel oil with different ports?

I think it's best if you actually contact Jens offline or outside of this meeting and we can put you in contact with our department that is working on it.

Okay.

What I'm saying is, right now, we are preparing ourselves for scrubbers and burn of HFO and passing the additional cost of the MGO through our bunker clauses. And of course when the low sulphur fuel becomes available, that is absolutely -- that's the long-term solution.

The price is difficult to determine at this time. The availability is also uncertain at this time.

But that will definitely come. When it comes with the characteristics of the operational and technical challenges for it, I can't give you a proper answer.

It's better that you contact the company and I will put you in contact with the people that have deep understanding or following it in more detail.

Okay. Thank you very much.

Any other question in Oslo? All right.

Thank you very much for taking the time to come and see us. And we'll see you for the second quarter, oh sorry, the first quarter.