Stolt-Nielsen Ltd

OSE:SNI

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to today's Stolt-Nielsen Limited Presentation and Conference Call First Quarter 2019 Results. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, 4th of April 2019. And without any further delay, I would now like to turn the conference over to presenter today, Niels Stolt-Nielsen. Please go ahead, sir.

[Niels G. Stolt-Nielsen]

Thank you. Good morning, good afternoon. Thank you for joining us here in Oslo for our first quarter 2019 earnings presentation. Together with me, Jens Grüner-Hegge, CFO; and Julian Villar, Head of Corporate Finance. The agenda, I'll be referring to a slide presentation, which does not have any pages on it. But the agenda is, as always, I'll go through the first quarter highlights. I'll go through each of the businesses. Jens will take you through the financials, and then we will open up for question and answers.Moving on to highlights. Stolt Tankers operating profit, $14.3 million and that is up $7.7 million, but that is mainly due to a positive swing on the bunker hedges of $7.5 million. We'll talk in detail about each of the businesses later. Stolthaven Terminals. The operating profit, $18 million versus $11.7 million in the previous quarter, but the previous quarter had an impairment of $6.1 million mostly for the Lingang terminal. Stolt Tank Containers. Operating profit $15.7 million, down from $18.1 million, mainly driven by the seasonality in the first quarter -- the slowdown in the first quarter, driven by the Chinese New Year. But we're also seeing some softness in the market due to the uncertainty of the global economy.Stolt Sea Farm. Operating profit before the fair value adjustment of inventory was $1 million versus $0.9 million, reflecting strong turbot sales during the Christmas season, but that was offset by a write-down that we did in Sterling Caviar of $1.7 million due to some disease that we had in one of the farms. Stolt-Nielsen Gas. Again, that is our holdings in each of the 3 in Avance, Golar, but the main part is then the Avenir and that is $0.5 million cost -- our share of the cost reflecting the development expenses of Avenir. Corporate and Other operating loss was $3.6 million compared to a loss of $7 million in the prior quarter, which included a $5.9 million write-off of Stolt Bitumen in the fourth quarter of last year. That then brings the operating profit to $42.8 million and a net profit of $7.9 million, giving earnings per share of $0.13 per share for the quarter. I'd just like to highlight that we do have approximately 10 million of treasury shares or shares that we have bought back, but 7 million of them are being used as collateral on one of our facilities, and therefore, we don't get the -- had we deducted the 10 million from the 60 million shares outstanding, we would have an earnings per share of $0.15.Moving on to the variance analysis of net profit between the fourth quarter of '18 and first quarter of '19 -- the first time. The net profit of previous quarter -- let me just go ahead and I can see it. The net profit in the fourth quarter was $3.6 million, with -- as I said, we had the impairment in Stolthaven and Stolt Bitumen in the fourth quarter, which we don't have in this quarter, bringing it up by $12 million. Then the one-off gain that we had when we did the Avenir deal, which we don't have in this quarter for $11.2 million. Higher operating profit in Tankers by $6.6 million, slightly better in Stolthaven Terminals of $0.3 million. Seasonality lower operating profit in tanker tenants of $2.4 million. And then Sea Farm of $4.4 million lower operating profit after the fair value adjustment. And the lower operating loss in Stolt Gas, including the cost of establishing Avenir LNG, corporate higher operating loss excluding Stolt Bitumen impairment impact in the fourth quarter of $2.5 million and others of positive $1.5 million, bringing the net profit for the quarter of $7.9 million.Moving then on to Stolt Tankers' highlights. The revenue decreased by 5.1% compared to the previous quarter, and this was partly due to fewer days in the quarter and also dry docking. So 2.6% fewer deep-sea operating days as a result of that. Decline in the bunker surcharge revenue due to the lower bunker prices, and the -- but deep-sea rates were actually flat, and so are the volumes. As I highlighted earlier, we had a gain of $3.4 million on our bunker hedges compared to a loss of $4.1 million in the fourth quarter of last year. The bunker cost decreased by 8% compared to the previous quarter. The COA rates renewals, that we renewed in the quarter, were unchanged and that is significant. As you probably remember, each time we had the presentation in the last -- since 2016, we have announced that, on average, the rates have been coming down. So this is the first quarter where they were flat. So you can hopefully take that as a sign that maybe we have finally reached the bottom. Moving on to next page. Revenue of $287.6 million in the first quarter, the gross profit of $34.9 million, operating profit of $14.3 million and here you see the operating days compared to the previous quarter.Moving then on to the operating profit variance between the fourth quarter and the first quarter. So operating profit of $7.7 million. Lower trading results, the lower trading results of $1.4 million, as we show here, is really not deep-sea, and deep-sea was pretty flat. That is primarily driven by SNIES, Stolt-Nielsen, into European service, so the regional fleet in Europe, which we were -- we saw a significant drop. It has started to pick up again, but that had the biggest impact. The bunker cost decrease more than offset by the reduced bunker surcharge of $1 million. We had higher bunker hedge results of $7.5 million, but this is, again, a variance. We had slightly higher owning expenses compared to the previous quarter, but we had lower depreciation from residual value adjustment because of the life extension that we did on our -- some of the ships. Lower A&G of $1.4 million, and higher equity income from joint venture of $300,000 and negative $0.4 million for others, bringing the total operating profit for the quarter of $14.3 million.The bunker cost and hedges. The average price of the fuel that we consumed decreased to $422 per tonne in this first quarter and that's down from $465 per tonne in the fourth quarter. The bunker clause that we have in our contracts covers about 56% of our total -- covered 56% of the total volume in the first quarter. If you see that used to be a bit higher, but because of the challenging marketing conditions that we have had, some of the customers in the COAs have not been willing to let us have a bunker clause. And this is what happens when you have an extended period of a challenging market. But if you take then the paper hedges that we have included, we are approximately 70% hedged on our total fuel exposure for 2019.The first quarter '19 gain on the bunker hedges resulted from an increasing bunker prices at the end of the first quarter compared to the fourth quarter as global crude prices recovered from a sharp but short decline. As you remember at the end of the fourth quarter -- our fourth quarter, there was a drop in the fuel -- oil prices. And at that time, actually, we were able to increase our paper hedges, so we timed that well. Moving on to the next page, Page 10. Stolt Tankers Joint Services Sailed-in Time-Charter Index and Sensitivity. And you can again see here the challenging market that we have had since 2016. It's maybe difficult to see here, but it did level off. So the fourth quarter '18 and the first quarter '19 is flat, which again, hopefully, is a sign that things have bottomed out.Moving on to Page 11. The chemical tanker fleet and order book. As it stands now, the fleet that we compare ourselves with is IMO 2 ships between the size of 15,000 tonne dead weight to 50,000 tonne dead weight, and the average segregation size is less than 3,000 metric tonnes and it excludes noncore coated ships, that's the fleet that we compare ourselves and say that that's our competitive fleet. The order book in that fleet is currently at 8.4% of the existing fleet. And all the orders -- the remaining orders that is coming into the market are stainless steel. And you can see here, there are significant -- it was supposed to be dropping down further in '19 not because -- [ but ] that has changed, not because there has been ordered more ships, but it's because the ships in '18 have been delayed. So we do have quite a bit of ships coming in, in '19, but then you see it drops off significantly, again, the total order book at 8.4%. Moving then to Page 12. Stolt Tankers market development. So our previous expectation for demand growth was at 4.5%. We have downed it to 3.5% based on the slowing GDP growth that we read and see. And this estimate is in the mid-range for forecasters of Richardson Lawrie, Drewry, Clarksons and Grieg. The potential tariff risk appears to have eased somewhat. The new building oversupply observation -- absorption will determine the pace of the market strengthening. And of course, it's also -- as I've been saying, as long as there is no new ships being ordered and as long as the market continues to grow or the global GDP is positive, they will eventually become a balance in this market. It's taken a awful long time, but I think that we are now starting to see that balance. Of course, what happens with the global economy is difficult to say, but if we assume less than 3.5% growth in demand and no more new buildings coming in, I think we should see market recovery. Increasing refining capacity in the U.S. Gulf should positively impact U.S. exports over time. This is the story that we -- the market has been telling for a long time. In the -- subsequent to the end of -- or actually during the first quarter, we had a extensive fire in -- at the ITC terminal in Houston, which is right next to or very close to our terminal, which has caused closing of the Houston ship channel. And they also spilled chemicals into the Houston ship channel. So when ships sail through -- and they have partly opened again, but when ships sail through it, they need to be disinfect -- or they need to be cleaned, so there is delays. There are customers that are not able to supply the cargo, the customers that are unable to discharge. There will be delays, and there will be impacts from this in the second quarter. There will also be opportunities for the terminal division and the tank container division because these cargoes needs to move. But I think we will see an impact in the second quarter on Stolt Tankers as a result of this. It is too early to say -- give a number, but it will be, I will say -- fair to say that it will be at least $1 million. Then moving on to Page 13. Stolthaven Terminals highlights. Revenue and expenses were flat compared to previous quarter, reflecting stable market conditions. Equity income from our joint ventures of $5.7 million was flat compared to the previous quarter, excluding one-offs. Utilization for our wholly owned terminals increased slightly to 92.3% compared to 91.4% previous quarter. The total product handled increased by 8.9%. And we have major capital projects that are being completed and that's the jetty in Houston is now fully completed and operational and also the expansion that we have done in Ulsan has now started its operation. And therefore, I will think that you will see a continued improvement in results from Stolthaven Terminals going forward. Quickly, the revenues, $63 million, same as previous quarter. Gross profit slightly down, net -- operating profit slightly up to $18 million; and utilization, as you can see, has increased from fourth to the first quarter.Quickly through the operating profit variance analysis for Stolthaven Terminals between fourth quarter and first quarter. The fourth quarter '18 was $11.7 million. One-off impairments of Stolthaven assets that the Lingang terminal that we did in the previous quarter, which we don't have in this quarter, of $6.1 million. Higher operating revenue of $300,000, lower operating expense of $600,000. Higher depreciation because of the assets that we have built or the jetties that we have built and the new tanks we built of $1.6 million and higher equity income from our joint venture, excluding impairment in the fourth quarter of $1.8 million positive and others of negative $0.7 million, brings it from $11.7 million operating profit to $18 million operating profit for the quarter. Page 16, market development in the terminal division. Strong fundamentals in the U.S. Gulf allowing for rate escalation at both Houston terminal and the New Orleans terminal. Both currently have high utilization. Impact of the fire at ITC terminal in Houston is not yet known, although increases in inquiries has been seen in the market. The Singapore market remains challenging, but currently working on multiple opportunities. The Chinese market has shown some improvement, although still negatively impacted by the uncertainty around the ongoing U.S.-China trade disputes and the general economic slowdown. Brazil remains stable and with strong demand for chemicals and CPP storage. Europe remains stable for chemicals. There has been some increase in inquiries for CPP, especially bunker fuel storage, which is related to the IMO 2020 coming up. New Zealand and Australia are stable for chemicals, working on opportunities to increase the utilization and potential expansion of CPP. Capacity expansions continue, projects continue in New Orleans, in New Zealand and in Santos, Brazil.Moving then over to Stolt Tank Containers, Page 17, highlights. Revenue decreased 7.1% in the first quarter versus the fourth quarter, consistent with the seasonal patterns. Shipments were down 4.7% and also lower demurrage billing during the quarter. Decrease in operating expenses at -- of 7% reflects lower shipment volumes and reduction in inland and ocean freight cost per shipment. The utilization decreased by 1.9% to 66.3% compared to previous quarter, tied, again, to the seasonal slowdown. However, we have seen a nice recovery subsequently after a -- so we are seeing volumes being -- picking up again. Quickly through the highlights. Revenue slightly down, again, because of the seasonality. Gross profits, yes, you can see it's steady, it's seasonal. I'm going to say that there is -- okay, just I'll talk about the market going forward. On Page 19, $18.1 million operating profit in the fourth quarter, lower revenue of $9.5 million in the -- in this quarter, lower freight cost of positive $2.7 million, lower operating -- other operating expense of $3.8 million and lower A&G of $0.4 million bringing it to $15.7 million operating profit for the quarter. Market development for tank containers. We are starting to see signs that the market is improving following the prolonged downturn since the second quarter of '18. Margin pressure due to oversupply of tanks and smaller operators entering the global market is contained. So as we have said that there has been an increased number of operators in the segment, and we are seeing a squeeze on margins. STC tank supply is supplemented with short-term leases. There are greater leasing opportunities that we have captured. Ocean freight rates are expected to firm due to the ocean carrier consolidation of the operators and also the IMO 2020. But I remind you that ocean freight is then passed on to our customers and tight ocean freight capacity in certain markets. The -- our market outlook remains promising, with pickup in activity seen in multiple markets. But I can't deny that you -- if you look at the top right graph, those numbers are the rolling 4 quarters shipments. And we have seen a significant drop, more than seasonality. I think that, that is not because of more competition, because we can compete, but it's seasonality and also uncertainty in the market and the global economy.Stolt Sea Farm, very quickly highlights, Page 21. Turbot revenue increased by 2.9%, driven by a 4.4% increase in volume, partially offset by lower average price. The sole revenue decreased due to lower volume sold as a result of less available inventory and prices fell by 4.8% due to increased seasonal wild catch. The fair value adjustment and a negative impact of $2.1 million compared to a positive impact of $2.4 million in the previous quarter. We are completing -- building new -- 2 new sole farms, 1 in Portugal and 1 in Spain, using the recirculation technology that we have developed. It's land based, and it's about -- the first one is expected to commence production. When I say production, that means you start putting fish into the farm and takes a year to -- for the fish to be harvest. But we're already starting to put the fish in the farm already in '19 in Spain and then the following year in Portugal. And during the quarter, Sterling Caviar incurred a biomass write-down of $1.7 million because of disease that we had at one of our sites. Revenue from $24.9 million to $25.4 million, the operating profit down to $2.5 million and operate -- the gross profit, sorry, $2.5 million and the operating profit slightly up $1 million.I'm just going to jump over that one. Avance Gas or Stolt-Nielsen Gas. As you might know, we have then established Avenir as a stand-alone company. Stolt-Nielsen owns 45%, Golar owns 22.5%, Höegh owns 22.5% and the market which listed in the OTC owns the remaining 10%. In November, the company raised $110 million, $100 million from the founding partners and $10 million from the market. The founding partners have committed a further $72 million, so a total of $182 million of -- from the equity coming into that company. And with that money, we're building a terminal in Sardinia, and we have two 7,500 tonners and two 20,000 tonners and also two -- an additional two 7,500, so four 7,500 and two 20,000 cubic meter small-scale LNG. The market is very exciting. Lots of opportunities. Again, our stated strategy is not really to be a shipping company, it's to be a small-scale LNG supplier, supplying remote communities, stranded customers with LNG. Using Höegh and Golar's -- the thinking is to be able to use their fleet of FSRUs or their -- the unused capacity on their FSRUs around the world and also using our terminal capacity around the world to see if we can supply LNG competitively to the end user.That completes my part of the presentation for the time being, and then I will give the word to Jens.

[Jens F. Grüner-Hegge]

Can you hear me? Okay. Yes, thank you, Niels, and good afternoon to everyone here and good morning to those calling in from United States. I'll provide some details about the financials, as I normally do, as they were released today for the first quarter of 2019 and also some further guidance on some of the P&L items for the next quarter. I also want to remind you that today, we have filed both the earnings release, the interim financials, we've also posted this presentation on our website, and we've also filed in with Oslo Stock Exchange. And in addition, for those of you that had been in to our website, you will have seen that we have posted our annual report during March. And with there -- that we also have included a few videos -- video interviews, I should say, with Niels and divisional presidents, which I hope you'll find interesting.Moving to the net profit. In the first quarter, if you look before one-offs, we had an operating profit of $44.6 million, that was up slightly from the fourth quarter of $41.7 million. And as you recall, it was rather uneventful when it came to one-offs this quarter with only 1 write-down of some of the biomass at Sterling Caviar written down by $1.7 million. And that compares to the previous quarter where we had -- took impairments at both Stolthaven Terminals and at Stolt Bitumen Services. Net -- well, after those one-offs, you have operating profit came in at $42.8 million and that's a significant improvement above $28.9 million in the fourth quarter. Interest expense, net interest expense came in as we guided pretty much at $34.2 million. Not much to say about income tax, but I would like to point your attention to the fourth quarter other, where we had $11.8 million, $11.2 million of that was a gain that we took related to setting up Avenir as a joint venture.That brings us down to a net profit of $6.6 million for the quarter and that's up from $3.2 million in the prior quarter. And also, if you look at the EBITDA of $109 million, that was up slightly from $102.6 million in the prior quarter.Moving over to the balance sheet. You'll see here that debt is slightly up from the previous quarter. We're at $2.43 billion and that's up from $2.39 billion in the prior quarter. And most of this is really -- if you look over at the cash and equivalents, you see that is now up at $125 million. So we had a buildup of cash during the quarter and this was very much because just around quarter-end, we were busy with refinancing, and we did not manage to turn around and use that cash to pay down on the credit line. If you adjust that to normal, we would have been slightly below or in line with the prior quarter's debt. So -- just so you are aware of that. Current maturities of debt stands at $322 million. This includes the bond that matures in September of this year. It also includes a short-term credit facility of $60 million, which rolls over on an annual basis and also some very smaller maturities that we have. Tangible net worth came in at $1.6 billion, and that's pretty much in line with where we were at the last quarter. And if you look at the debt to tangible net worth ratio, because the debt was slightly higher, we're at 1.5 versus 1.48 in the prior quarter. And EBITDA to interest expense, because EBITDA was slightly up, improved somewhat from 3.34 to 3.38. So mostly flat. Plenty of liquidity. At the end of the quarter, we had available credit lines of $240 million plus $125 million in cash, as I mentioned. So well over $350 million in available liquidity. Debt -- interest expense for the quarter was at an average rate of 5%, and you'll see we have increased the fixed portion, up to now 81%, from where we were before. With that, we expect that the net interest expense for the next quarter, the second quarter of 2019, will come in at approximately $35 million. One ratio I want to mention to you is the net debt-to-EBITDA because that drives the pricing on some of our facilities. That remains under 5:1 at 4.93, relatively stable. And we also hope to keep it that way.Moving over to the cash flow. Cash flow from operations was a positive $75 million and that was marginally down from $82 million in prior quarter and that's mostly related to working capital movements. During the quarter, we spent on the capital expenditures some $33 million and that's really split between terminals about $30 million -- $15 million, we spent about $5.5 million on dry dockings and another $5.5 million on tanker CapEx and an [ average of ] $3.6 million on Stolt Sea Farm expenditures back down in Spain and Portugal related to the new farms under construction. Also as mentioned, during the first quarter, we repaid $150 million balance on a Jo Tanker acquisition facility. That was financed with a Japanese operating lease based on 8 ships that we did, that was for $242 million, and the balance of that facility is then going towards reducing the outstanding on the revolving credit line.Also note that in the quarter, we paid dividends of some $13.5 million, and we also bought back shares for just over $4 million. That puts the total cash flow for the quarter at a positive $60 million and brought the cash balance up to $125 million, as mentioned.Moving over to the EBITDA. Just as a reminder, the EBITDA figures that we are presenting here, as you will see from the footnote, they exclude the impacts of IFRS fair value adjustments to Stolt Sea Farm's inventory, also excludes gain or loss on sale of assets and other noncash onetime events. Tankers EBITDA increased mainly due to the bunker hedge gain, as Niels explained. This was partly offset by the lower trading results at SNIES into European fleet. Terminals increased due to higher operating income from Houston and higher equity income from our joint venture terminals. STC's EBITDA decreased slightly as discussed earlier due to the seasonality. And as a result, you saw the -- see the SNL's EBITDA increase from $103 million in fourth quarter to $109 million in the first quarter of '19.Moving over to capital expenditures. During the first quarter, we spent $27 million, and this excludes the $5.5 million that we spent on the dry docking of ships. So if you add that in, we get up to $33 million, rounded. Tankers CapEx came in at $5 million. I won't go into further details on that. Just mention that we have remaining for 2019 $241 million. And as we explained at the fourth quarter presentation, we've seen an increase in the first quarter over the fourth quarter because of projects that we moved over. For the 5-year period that we're showing here, we have a total of $433 million in CapEx. So bulk of this is really coming in 2019.Moving over to the debt maturity profile. If you look at the coloring, just to reminded you, that's the black, it looks like a very dark blue, that's the normal amortization of debt. The blue, the lighter blue, those are the bond maturities that we have. And orange ones, those are balloon payments that we have on our various debt facilities. You will -- with the $242 million Japanese operating lease that we just closed, puts us in funds to repay the $148 million bond maturity that matures in September, so that leaves really,, for the rest of the year, just normal amortization as we progress. We're working on refinancing or providing the cash for a repayment of the bond that matures in March 2020 that you see there of $161 million. The mature -- the balloon in maturities that we have in 2020 of $115 million, the biggest part of that, again, is the -- [indiscernible] terminal facility of some $70 million.Just to take a different view of the financial key metrics that we introduced last quarter. The top left shows -- quadrant shows the debt to tangible net worth. And the covenant limit is 2:1, which is marked by the dotted red line. We're currently at around a sort of a self-imposed limit of 1.5:1 that we don't want to go over. And we aim to reduce this going forward. EBITDA to interest expense is hovering to above 3:1, but the limit there is 2:1. Bottom left, you have the net debt-to-EBITDA, which you see, is just under the 5:1 mark, and you can see we have dipped above a little bit -- we're gone above a little bit, but aim is to, again, get that down. And then you have the free cash flow, and this is before interest, that's shown on the bottom right quadrant. So despite the expected increase in capital expenditures for 2019, we do expect to end up with a positive free cash flow, not as much as we had in 2018, but still positive.Moving over to some of the cost categories that we have. The A&G expense came in at $53.3 million for the quarter. That's down from $56.3 million in the prior quarter. And really most of that move is related to professional fees, legal expenses, some auditor fees, et cetera, that we had in the fourth quarter. So maybe got a little bit of help from the exchange rates as well, but that was really the big move. Looking at the guidance going forward, our expectations is that for the second quarter of 2019, we'll end up at $54.5 million.Moving over to depreciation and amortization. We had a total depreciation in the first quarter of $62.6 million. Worth noting here is the tankers depreciation is down slightly because we have life-extended some ships, some Danish build 37,000 tonners. And we have -- as we do once a year, we'd look at the residual value and that has been adjusted up a little bit and that has -- had effectively reducing the depreciation for tankers. The terminals' depreciation is because we have brought on more capacity that's become operational and that's when we stop capitalizing and start depreciating. The guidance for the next quarter is a slight increase up to about $63.7 million. More calendar days, et cetera, that accounts for more depreciation, but otherwise it's rather uneventful. And finally, the share of -- profit of our joint ventures and the tax review. Our joint ventures contributed with $6.3 million and net profit for the quarter, that's our share. Our tankers is pretty much flat. Stolthaven Terminals was up partly because some expenses -- some onetime expenses that we had in the fourth quarter plus some improvements that we had in the -- this quarter that just was. Looking at the guidance, we expect a slight increase to $7.8 million, not much coming from tankers as we maintain a cautious outlook on the tanker market, but more because -- in terminals because we now have the Ulsan terminal, that 160,000 cubic meter expansion is now operational and that should start trickling through an improved equity income.On taxes, we came in at $3.5 million, that's up slightly from the prior quarter and this was predominantly driven by the increase in profits in terminals rather than anything else. And with that, I'd like to hand it back to you, Niels.

[Niels G. Stolt-Nielsen]

Key takeaways. A net profit of $6.6 million for the quarter, that's up from $3.2 million in the fourth quarter. The tanker market has stopped falling. And I would hope that, that is a sign that we have reached the bottom, and I expect a gradual improvement. How fast is difficult to say, but I don't expect further decline. Stable performance in Stolthaven Terminals as new capacity comes on, I expect then also the earnings will improve. Tank containers market has remained soft since last summer due to the economic uncertainty, but we're seeing a nice pick up in recent weeks. Avenir LNG, we are building, we're going to try to build a leading provider of small-scale LNG. Strong earnings base from the businesses supported by a positive free cash flow and continued debt reduction that we have been focusing on. And Stolt-Nielsen continues to have access to competitive funding and, as Jens showed you, healthy liquidity. That completes our presentation. And we now will then open up for questions. And I think that if you have any questions, you need to get a microphone, so that people on the phone can hear you.Start with Axel.

[Axel Styrman]

Axel Styrman, Nordea. Just one quick question regarding the order book. Perhaps we know the current ordering is quite slow in general in almost all market segments. So there is ample ship capacity -- shipbuilding capacity available in Korea and China and elsewhere. Just wondering the order book now is coming down to lower level. How was your estimated -- looking at the core segment and if someone came around and wanted to order new ships, how do you think that order book should [indiscernible] if it increases again within 2020, we are in, assuming, the middle of '19 for that? Is that...

[Niels G. Stolt-Nielsen]

Come on, let's be positive here. We are rather -- if you look at 2014, in the beginning of 2014, the order book was at 7%. At the end of the year, it was at 30%. That's how quickly it could change. And that increase in '14, that's what we're kind of finally now seeing -- that's what we are absorbing. And the reason it's difficult to say that, where is the balance? Or how much surplus is there? Yes, the order book will come down, but how much existing surplus is there? So to answer your question, the order book can quickly come, but I would say that the next 2020 and 2021, I'm certain if there is not a demand collapse, which we have rarely seen, we saw a short reduction in demand after the financial crisis in '08. In 2009, there was a slowdown in demand, but that actually picked up very quickly. So if you look at the demand for the services that we provide, it's very steady. So if we assume that, that demand continues and even if people start ordering now, I would expect that '20 and '21 should be healthy years. Having said that, again -- well, you guys follow the market as well as us, I think there is, for the time being, a bit of a reluctance to come in to shipping, but -- especially in to chemical tankers. They understand -- I mean, you look at the historical return on this business, it's been 8%. It was 8% until 2000. From 2000 until today, it's been around 5.3%. The last 10 years, it's been 3.4%. So it's expensive ships. They are highly operational. It's not just to buy an asset, you need to have -- as I said before, you need to have the right platform to be able to operate those assets. So I -- maybe I'm naive, but I believe that the people that came in, in '14, I think that they're still trying to get out.

[Axel Styrman]

So that -- then you actually answered my follow-up question because that was related to why you think your order book is coming down actually. And so your [indiscernible] is that lower returns over the last 10 years, that's the -- probably one of the prime reason.

[Niels G. Stolt-Nielsen]

I think a lot of people have burnt themselves. I mean -- and we know that [indiscernible] they have taken care of their fleet renewal program. We have, through our new buildings and through the acquisition of Jo, so the main operators have taken care of. So I think I'm cautiously optimistic that we will see a nice run.

[Unknown Analyst]

[indiscernible]. You previously said that you worked on refinancing for older -- or say leaseback financing for older tankers. I wondered if you could give an update on that.

[Niels G. Stolt-Nielsen]

Jens, why don't you...

[Jens F. Grüner-Hegge]

Yes. That is in term sheet stage, so it's under progress. We expect to have that financing ready in good time before it actually will be needed, and I think more important for us, it's -- we're not going to -- we don't want to take on debt unless it is needed because you have to carry it on your books, you have to pay the fees, et cetera, that are needed. Main thing is we have taken care of the September maturity. We're making good progress on taking care of the March maturity.

[Niels G. Stolt-Nielsen]

The bond maturity.

[Jens F. Grüner-Hegge]

Sorry, the bond maturities, yes. And the rest is rolling as a part of your normal cash flow planning.

[Niels G. Stolt-Nielsen]

Our goal is to be in a position where we don't have to be dependent upon the bond market this year or next year.

[Lukas Daul, Analyst]

Lukas Daul from ABG. Last time we talked about you talking to clients about contract renewals for 2020 and beyond, then having the sort of bunker discussion around it. What is the latest on that front? Have you sort of been able to sign any agreements where you have a full pass-through of the bunker cost increase? Or have you sort of pushed that further to the right as you alluded to us then?

[Niels G. Stolt-Nielsen]

I just got off the phone, and we just renewed a major contract with full pass-through of the IMO 2020, which is a very, very important achievement. But I will also say that we cannot -- you can see that the state of our industry and the challenges that we have. So we have to pass it on. So we have not accepted any contracts where we don't recover our -- the increase in fuel costs. But there have been contracts, as you pointed out, that has -- we've renewed a contract, but we have agreed to address the bunker clause in October, and that's when we start purchasing low-sulfur fuel. So -- but we are seeing a nice development towards being able to include a bunker clause where we're able to pass it through. To give you specific numbers of percentages about contracts, I don't have. But I can tell you that we haven't taken on any contracts where we will take the -- we haven't made a commitment where we will take the cost increase.

[Anders Redigh Karlsen, Analyst]

Anders Karlsen, Danske Bank. You partly answered the question, but you also said something that you have now less bunker coverage in your contract of affreightment. Is that the recent trend? Or is that old contract?

[Niels G. Stolt-Nielsen]

These are old contracts, but there has been contracts where the customers are not willing to give us a bunker clause. But then we of course adjusted in the freight rate, so that -- so you have a negotiation, and it's okay, you're not going to give, then we adjust it based on the freight rate, based on the current bunker cost, but the fluctuation of bunker cost is our risk and that's why you have seen that the bunker clause in the COA used to be around 65%. And as I showed you here, it was 56%. But you have to understand that the challenges of having an extended period of bad market doesn't only affect the freight rates, the dollar per tonne, but it's also a -- the duration of terms in the contracts. So they negotiate longer lead times, lower demurrage, putting pressure on every part of the contract, which once the market turns around, it's not just to jack up the freight rates, it's also to recover some of these favorable terms that we have been forced to accept in the contracts.

[Petter Haugen, Equity Research Analyst]

Petter Haugen from Kepler Cheuvreux. You've written the report now that you have seen an increase in inquiries for CPP bunker storage related to the IMO 2020 regulation. Could you expand somewhat on that? And what -- to what extent is that expected to be meaningful in terms of your terminals?

[Niels G. Stolt-Nielsen]

So we primarily focus on chemicals in our terminals. That comments refers to our joint venture in Antwerp with oil tanking for the capacity that we have available there. I don't know exactly which inquiries is being referred to, but I can find out and come back to you. Any other questions here in Oslo? Operator, we -- can you ask if there is anybody on the phone that would like to ask questions?

[Operator]

At the moment, we do not have any telephone questions. [Operator Instructions]

[Niels G. Stolt-Nielsen]

Okay. That completes the first quarter earnings release. Let's hope that when we come back here in the second quarter, that we have seen a significant and nice recovery in tankers. We deserve it, and we need it. Thank you very much.

[Operator]

That does conclude the conference for today. Thank you all for participating. You may now disconnect.