Stolt-Nielsen Ltd

OSE:SNI

Earnings Call Transcript 2021-Q2

[Niels G. Stolt-Nielsen]

Good afternoon, good morning, and welcome to our video conference presentation for our second quarter results for Stolt-Nielsen Limited, which we are streaming live from our office in London. My name is Niels Stolt-Nielsen, I'm the CEO of Stolt-Nielsen Limited. Together with me, as always, I have Jens Gruner-Hegge, our Chief Financial Officer. And I'm very pleased to also inform you that this time, Lucas Vos, our President of Stolt Tankers, is joining us and will present the Stolt Tanker part of the presentation.I'd like to remind you that you can post any questions anytime during the presentation. [Operator Instructions] And we will answer hopefully all of the questions at the end of the presentation.So let's then move on to the presentation. If we go to the next slide. Following -- next slide, please. So the agenda, I will go an overview of Stolt-Nielsen, we will talk about ESG, then we'll go through each of the businesses. Jens will take you through the financial highlights. And then we will try to respond to the questions that you post.Next slide, please. So second quarter highlights, the utilization is up, as we reported, but profits are still lagging. Net profit for -- from continuing operation came in at $7.8 million. The increase in EBITDA was mainly driven by the record number of shipments that we saw in Stolt Tank Containers. We saw an increased activity and high utilization at Stolthaven Terminals. We saw a slight improvement in the utilization in Stolt Tankers. We had lower results in Stolt Sea Farm, and that is due to the lower volume that we sell -- sold in the second quarter as the first quarter is the strong quarter with the Christmas sale.We improved our free cash flow due to lower capital expenditures. Jens and his team completed a $77 million financing that's secured by the 3 CTG ships that we bought last summer, and we also leased an additional 600 new tank containers. At the end of the quarter, we had $397 million of available liquidity, and we paid out the dividend on May 5 of this year of $0.25 per share.Looking at the operating revenue, $526.9 million, that's up from $480.2 million. EBITDA, up, $116.7 million, that's up from $109.2 million. Operating profit, also up from $36 million to $41 million, and I already mentioned the net profit. And also here is the free cash flow of $20 million as free cash flow is then after our capital expenditures and interest expense, so generating a free cash flow for the quarter. And tangible net worth rose slightly from $1.636 billion to up to $1.642 billion.Next slide, please. If we do then the net profit variance and compare first quarter of 2021 to second quarter, how we got there, you can see that we had a slightly lower operating profit from Stolt Tankers. We had a significant improvement in Stolthaven of $2.6 million. STC, with this record number of shipment, came in at an increase of operating profit of $4.5 million. Lower operating profit from Sea Farm, again, the second quarter, lower volume because of the Christmas sale in the first quarter. Stolt-Nielsen Gas is still in the development stage, but it came in at a lower operating profit of $1.1 million.Corporate and Other is $1.3 million mainly due to lower accrual for the profit sharing on short-term incentive. We had a lower operating -- lower net financing expense of $1 million, some FX change and slightly higher income tax, bringing the net profit for the quarter to $7.8 million.Next slide, please. ESG, as we promised, we'll be better at reporting what we are doing. At Stolt-Nielsen, our goal of zero harm for people and the environment is our #1 priority. We believe that we, as a corporation, as a company, even though we transport a lot of -- even though we consume a lot of fossil fuels in what we do and the products that we transport is created very much from fossil fuels, it is our responsibility to do what we can do to contribute to a more sustainable future.We have mentioned on the right-hand side before our targets. It's a -- for tankers a reduction of at least 50% of our carbon intensity relative to the 2008 levels, and that's we want to achieve by 2030. In terminals, as a primary activity, to be carbon neutral by 2040. And STC, Stolt Tank Containers, by 2030, 50% of the energy and the utilities consumed in our depots will come from renewable energy sources. And in Sea Farm, zero waste-to-landfill by 2030 and also to reduce our dependence upon fish oil and fish meal by finding substitutes in the feed.In Stolt Tankers, we have actually been doing some trials with biofuels on our ships from operating in the Rotterdam to use the [ TAW ] service. And Stolt Tankers has also joined the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping as a strategic partner, working together with other operators. Santos terminal in Brazil has been named as one of the top 3 bulk liquid terminals in Brazil by our customer, Raizen. The award was given based on safety, processes, productivity and controls criteria. And Stolt Tank Containers retained its silver sustainability rating from EcoVadis, and Stolt Sea Farm successfully completed annual food safety audit for Global GAP and SAE.And next slide, please. And then I'll give the word to Lucas.

[Lucas Vos, President Stolt Tankers]

Thank you very much, Niels, and thank you for having me in this session. I'd like to take you through the second quarter for Stolt Tankers.So if I can have the next slide. I think if I look at Stolt Tankers overall, the quarter was marked by substantial higher volumes, but unfortunately, lower spot rates. So our operating revenue has gone up with around $287 million, which is great. However, you do not yet see it coming back in our EBITDA numbers and our operating profit. It is on the back of substantial higher operating days, as you can see here, and that is very much driven by the 5 CTG ships that Niels was already mentioning at the beginning of the presentation, which has come into the fleet in quarter 1 and have been fully operational in quarter 2. The utilization, therefore, has gone up with 1.4%, but the main drivers are the rates and the bunker prices, and I'll come back to that on the next slide.Maybe one more item to mention on this slide is that you can see that our owning expenses have gone up partially because of the CTG ships, but also partially because we have decided to advance some of our dry-dockings to -- because it's a relatively weak market, get them done right now so that we are well-placed for hopefully a pickup in the market when we get there later in the year.If we can go to the next slide, you will see that the higher bunker costs have been a big hit on our numbers. Overall, prices have increased around somewhere between 25% and 16%, depending on how we look at it, consumed was 25%, purchased was around 16%. But you see that our overall costs have increased with only 7%. What is the differential there? The difference really is that we have a natural hedge in our -- through our contracted volumes. So 93% of our contracts with customers, they have a bunker hedge, which means that around 62% of our total volume is protected against the increases in the bunkers.However, that's not the whole explanation, it also is a show -- sign that the internal cost-saving program that we have now been conducting for the last 2 years and which is primarily focusing on the bunker consumption, that, that is now paying off. So we have been reducing our speed. We've been optimizing the trim of the ships. We have been purchasing bunkers in lower locations, and we have made sure that the optimal routing is continuously maintained. And we've done so by centralizing this function altogether in Rotterdam. So bunker costs are up, but we have a lot of mitigating factors in this to make sure that it doesn't hit our bottom line to the same extent.The other factor is the prices. If I can have the next slide, please. It's the market circumstances. We've seen our volumes -- our contracted volumes slightly lower than we normally have at the 62% level whereas in quarter 1, we were still at the 71% level. It's not an overall sign of weakness in the market. It's not that at all. There are some conscious choices, and there are some unfortunate events in here. One of them is also mentioned on this slide, is the cold snap that we saw in Texas or the Houston freeze, as we tend to call it. It has overall cost us around $5 million in the bottom line and because of our voyage accounting, most of that falls in quarter 2. The impact there is $3.9 million, as you can see, and that is very much contracted volume.We have also stopped calling the West Coast of South America, where we had one contract with a customer, which we decided not to continue. So it's a conscious choice from our side to reduce that volume. And we have been impacted by some assets -- factory being shut down because of refurbishing, and that has also hit our contracted volumes. But that is the bad news, but it's not that overall volumes are low.The good news is that my organization has shown quite resilience by getting a lot of spot volume in. Our spot volume has increased with around 4%, 5% quarter-on-quarter compared to the 6% decrease in contracted volume. However, that 4% to 5% increase in spot volume did come at a lower price. So the spot prices have decreased with around 6.5%. They were already at a low. They have gone down even lower. And if you set that off against the higher bunker prices, then you can imagine that's -- yes, that's not necessarily a good scenario. Overall, I think Deepsea has been very happy with the performance on the volume side and we are -- well, I'll take you through my outlook for the market later.If I look at some of our other services, look at Inter-European Service, I think overall, we're doing fine. It wasn't as strong as quarter 1, but quarter 1 had a bump because of the pre-Brexit movements that took place. And as you know, our December month is in quarter 1. I'm happy with the inland services. So our Rhine barging that takes place. Contracts are very stable. We haven't had the low waters as we had in previous years. So rates have been relatively okay, but not as strong as they may have been in past years, but overall, on track.Inter-Caribbean Service, very much impacted as well by the Houston freeze, but they're back to their normal levels. So good performance there. And we see a strong market, strong customers in Asia Pacific, and that also we see continuing in quarter 3.If I can have the next slide. As I talk about quarter 3 already, let me take a big look at the outlook. We look at all sorts of parameters. As you can imagine, these are 4 important ones. Of course, the overall global GDP because chemical volume is always a function of what happens in the global economy. We see clearly the recovery in 2021 and hopefully also continuing in 2022 and 2023. So that's a good sign.Underneath, you can see what that implies for the chemical trade. As you can see, overall, it is actually quite stable. The growth hasn't been as good in 2020 for normal reasons, of course. But it's jumping back already in '21 and continue so to do in 2022. So while our customers are trading, overall, that volume is really good. But as you well know, we now need to share it with more tonnage because we have the MR segment or the swing tonnage, as we call it also in our market, because of the depressed earnings in their own markets. So we are looking at when that's starting to move, and one of the indicators there is global crude floating storage, as you can see, which has now come back to normal levels, I would say. So -- and with the economies heating up, again, hopefully, the oil pipeline will return to open, and transportation of oil will also resume, and MR tonnage can move out to their own segments again.If you add on top of that in the left hand -- left top quarter, the supply and demand order book for our segment, it is still very favorable and also as you can see in the years ahead. There is very little ordering going on, which I think is a healthy sign for a good recovery. So I would say longer term, I see a lot of signs on green for a good recovery in the market.I, of course, look very diligently to our own asset composition. And I can show you on the next slide, there, we have also had some interesting development over the couple -- last few months. We're optimizing that asset base continuously as we speak. You have seen that we started a joint venture with Essberger called E&S Tankers in the inter-European market, where we now are by far the market leader with 48 tankers. The joint venture is proving to be very beneficial for both ourselves and for Essberger. The synergies that we beforehand thought we saw are actually proven to be there and actually a little bit more as well. So the business is quite complementary. Our customers are really appreciating the additional services and the additional offerings that they get through this, and it still remains a good complement to our Deepsea network. So overall, we're very happy with how that has been progressing.The CTG ships, I think it's been mentioned already a couple of times in this presentation. The ships are fully in service. They are going from transpacific to transatlantic. They are versatile ships, so they can go from the one trade to the other. And overall, they are a good complement to the overall service offering that we have, and they are already returning decent money, I would say.You will also have seen an announcement that we've made to the market around 2 weeks ago around a pooling agreement with Tufton. Tufton will add 7 of their 19 -- J19 ships to our pool. We already have one ship of Tufton on a contractual management. And there, we saw that the collaboration between Tufton and Stolt-Nielsen is very good, and they've decided to concentrate their ships -- instead of having them with different platforms, to concentrate them with Stolt Tankers. We have done a lot of work last year to renew our pooling agreement to make it more transparent and to make it more attractive for other players to join, and I think Tufton is an evidence of that. It's, for us, a new market. We -- J19s are not necessarily where we are operating now. So we're not -- we won't see any cannibalization of our contracts, but we will build up a new contract portfolio and show that Stolt Tankers is the leading platform in this industry, and we'll make a success out of this arrangement as well.If I then look at the Deepsea and go to our contract portfolio, which is on the last -- or the next slide. I think this is the big foundation of Stolt Tankers. This is our true differential, I would say, compared to some of our competitors. It is the long-term relationship that we have with our customers and the important part that we play in their supply chain. There's a lot of talk about commoditization of this market, and I don't agree with that necessarily, particularly if I look at some of these customers and the specific requirements they have on the types of ships and the type of service that they need, where I'm convinced that not many people can bring it, but Stolt Tankers can. So we have a best-in-class contract portfolio on it. We also see the contract rate have increased with around 5.9% quarter-on-quarter, and I'm sure that we'll see that coming into the results.Mind you, one of the maybe downsides of choosing to be so customer-centric is that if there is an increasing market, we may benefit from it at a lower pace than some of our competitors. But through the cycle, we believe this is the right strategy going forward and being that special part of the supply chain of our customers. But as you can see on our COA renewals, it has been going up steadily since quarter 4 2019, and I'm very happy with that development.If I add that then all together, I think we are well positioned, and that will be my last slide, to capitalize on the market upcycle. There's a favorable chemical tanker outlook. We're doing everything that we can to optimize our assets and also try to grow on an asset-light -- in an asset-light manner. We have a substantial cost-saving program over 2 years. We are aiming to save $60 million, which I see coming through on the bottom line. It may be difficult in the overall numbers because, clearly, we're also doing other things like adding the CTG ships. But we see it coming through in the numbers. And with that contract portfolio, I feel very confident that we are well positioned to make the upcycle in the markets.That's what I would like to give the audience, Niels. So back to you.

[Niels G. Stolt-Nielsen]

Thank you, Lucas. Then we go to the Stolthaven Terminal. Next slide, please. So we came in with: an operating profit in the second quarter of $60.6 million, that's up from $58 million; an EBITDA of $34.2 million, also up from $31.1 million. Operating profit coming in at $18.3 million, up from $15.7 million. And utilization went up from 88% to 90%.If we do the operating profit variance, again, higher revenue because of the higher utilization, slightly higher operating expenses and depreciation, higher equity income from our joint ventures and slightly lower A&G, coming in at $18.3 million.Next slide, please. In the U.S., we saw higher utilization and throughputs on volumes, increase in lease capacity as well as higher wharfage, cleaning and railcar activities. So a nice pickup in the U.S. Gulf. In Santos, we saw higher throughput and utilization remained stable. European terminal had lower throughput, but again, pretty stable performance even though with a slightly lower throughput.The Australia terminals utilization is stable with higher throughput. The New Zealand performance was flat compared to the prior quarter, and utilization is stable. We saw a slight down -- less utilization at joint venture, but the wholly owned terminals, again, utilization picked up.Next slide, please. Okay. Stolt Tank Containers, this is really where we saw a significant pickup comparing first and second quarter, where we had $18.3 million higher transportation revenue. That was up by $18.3 million, and that was driven by more shipment at an average rate increase of 6.1% on the freight revenue.We had a slightly higher demurrage, but the ocean cost increased with the rising shipment and carrier constraints, which are passed through to customers with lag, as we have said before. Move expenses per shipment increased by 3.5% in the second quarter.So we had a lower repositioning -- slightly lower repositioning cost this quarter. We had a higher other operating expenses and A&G. We -- again, the work amount needed to do a shipment now, because of the issues that we have -- we see in the container lines, there's a lot of rework that needs to be done because we are bumped up from one ship to another ship, and all the paperwork needs to be done. So we have hired quite a few additional operators to be able to handle that extra activity. Slightly higher equity income from our joint venture, bringing the operating profit to $12.5 million.Next slide, please. The demand continues to grow across all of the markets and sectors as the economies begin to rebound from COVID. We are seeing -- as you see from the shipment increase, we are seeing strong demand for the shipment of products in tank containers. In order to meet demand, STC has also placed an order to purchase an additional 1,000 tanks, and that will be delivered at the end of this year and into 2022.Customers are increasing production to meet their demand. And as a result, of course, that means our demand is also picking up.The container ship capacity constraints continue, while demand keeps growing. Supply chain transits are lengthening. So it is because of the port congestions that transit times are taking longer.The February cold snap, like, in tankers and in terminals, the cold snap in the U.S. Gulf and the Suez Canal closure and the recent congestion at Yantian in China, having causing supply chain disruption and an increase in transportation and demurrage costs. So you can see then the last 12 months, the number of shipments and the quarterly statements of the number of shipments. So you can see a nice growth development.You can see in the bottom graph here, this is a new part, which we're showing you. The percentage of revenue per shipment has not been growing as fast as the percentage increase in the transportation cost per shipment. But again, that is with a lag. So you can see the growth in the transportation cost per shipment grew, but it's been coming down. And we have been steadily been able to pass it on. So we're seeing revenue growth per shipment has been going up.Next slide, please. The global seaborne container trade is expected to grow by 6.6% in 2021, so this is very much driven by the container lines, while the container ship fleet growth is expected to grow by 4.5%. So you see that growth is higher than the new supply of tonnage coming in. The high demand for capacity allocation and the disruption and congestion in ports since the second half of 2020 are causing an increase of the ocean freight rates across the markets, which is expected to continue into 2022.And the new capacity, we've seen that the container ship order book has increased from 8.3% in November of '20 to 18% in May '21. But those -- that new additional container capacity, as you know, will not come into the market until 2022 and beyond.We are also -- the challenge with the availability of quality drivers and trucks is becoming a challenge in multiple markets. So we expect that transportation will continue to rise, and that additional cost will be passed on to our customers. And we're trying to pass them on as fast as we can, but there always is a lag.Customers are moving away from the unsustainable flexibags to tank containers. The flexibag is where you put a big plastic bag into a conventional container box. But our customers are seeing the dangers of shipping in flexibag and seeing the leakage coming from it. So we are seeing more of the products moving from flexibag into tank containers due to the global dry box shortage and focus on sustainable supply -- this sustainable supply chain. So when there's a shortage of these boxes to put these plastic bags in, of course, that also put pressure on them to come over to tank containers.Sustainability in the supply chain. STC has established its own sustainability goals, as I showed you earlier.Demurrage. Tank container costs have been rising, and demurrage has remained low. Higher demurrage rates and reduced number of free days is expected to incentivize faster tank container returns and generate higher revenue. So what has happened? Traditionally, the customer receives a certain number of days, which they can have on discharge port to be able to take the container from the port to their factory to discharge and return it. If they use more time than what is included in the contract, they pay demurrage.We have seen, and that's one of the reasons that we have seen, historically lower results in STC. We have seen that the demurrage revenue has come down because of the blockage and because of the delays caused by the congestion and the shortage of the container ships. We have seen the customers, once they receive the tanks, they take the tank right away because they are desperate to get the product into their factories. However, subsequent to the second quarter, we are now seeing demurrage rates -- demurrage revenue picking up.We continue to spend a lot of time and resources in our digital platform. Recent investment in systems -- in system application and digital platforms are key to offer improved flexibility and faster response times to our customers' demand. And direct integration with our customers and vendors is key to improve the operational efficiency, increase scale and higher returns per shipment.Next slide, please. Sea Farm. So we had an operating profit of $1 million in the first quarter. We had lower sales in the second quarter, again, because of the seasonality. We had higher sole sales because of the increased volume that we're getting out of our new Cervo recirculation farm in Spain, slightly higher operating expenses and higher A&G, bringing the operating profit of $0.6 million negative for the quarter. The higher A&G is also driven by the cost for the extra -- we went out and explored the opportunity of the possibilities of doing an IPO of Stolt Sea Farm.Next slide, please. Subsequent to the ending of this quarter and what we're seeing right now is a strong recovery in demand, and we expect that to continue. One, of course, they're opening up quite fast now in Southern Europe. So we are seeing an exceptionally strong demand this year. Actually, the prices are increasing as we speak because of this increased demand. One is restaurants are opening up, wild fish is over, but I also think there is the impact of the dispute between the -- usually, the supplier from the U.K. is not as big into the -- into Europe as it used to be. So we are seeing some very strong price increases, both in turbot and in sole, and we expect that to remain.The 2 RAS, recirculation farms in Cervo and Tocha are both performing beyond our expectations. And the first harvest in Tocha, so that's the one in Portugal, we are expecting to be 4 months ahead of our schedule. So we are actually expecting to harvest our first fish out of that farm in -- already in August.Our expansion plans continue, with the next stage focusing on a sole brood stock expansion and a new hatchery. So the growth plan that we have in Stolt Sea Farm remains and are basically on track.Next page, please. Stolt-Nielsen Gas, that is basically our investment in Avenir. We are 47% owners of Avenir. And I remind you, the strategy there is -- the mission is to provide assets and expertise to unlock stranded LNG demand, bringing clean, affordable and reliable energy to new markets by shipping and storing LNG.We have our investment program, which is due to be completed by the end of the first quarter of 2022. We have 2 LNG ships that are already on charter, with the remaining 4 to be delivered by the end of first quarter '22. And the new terminal in Sardinia, we will start commercial operation, I think, within this month of July.It is a strong or robust operational outlook. There is a lot of activity going on and a lot of inquiries. So the commercial pipeline remains robust and well diversified across segments and geographies. Strong fundamentals with significant acceleration in LNG adoption as a marine bunkering fuel.I remind you that we have injected -- the shareholders have injected $182 million and we -- including debt, we'll have a total investment of $330 million investment program based on our current asset portfolio. That is then again 6 ships and the terminal in Sardinia.I just wanted to give you an idea of what kind of earnings we see coming from Avenir, and I would say quite realistically. If we just say that we -- even though our long-term goal is to become a supplier of LNG to the -- to stranded demand, not only being a shipping company. But if we take and fill up all those 4 -- 6 ships that we have, being delivered by the first quarter of 2022, and use the rates that we are seeing in today's market, the EBITDA out of that business alone, just those 6 ships, will be in excess of $40 million.And then, of course, once we are able then to develop these supplier agreements, then the EBITDA is on top of that. And we are working on several very interesting and exciting opportunities there. So if you then -- I don't know what kind of EBITDA multiple that you would use, but if you do the calculation yourself and throw whatever multiple you want on that business, you will see that I think last traded was at around NOK 8 per share. I think that does not reflect what we're seeing as the earning potential in this business.Next slide, please. Yes. Over to you, Jens. Thank you.

[Jens F. Gruner-Hegge]

Thank you, Niels, and good morning and good afternoon to all of you. I will, as normal, review the financials as reported, including -- cover a few key balance sheet items. I'd also want to remind you that we have, today, also posted the earnings release, the interim financials as well as this presentation on the company's website, which is www.stolt-nielsen.com. And also as a reminder that the second quarter runs from March 1 through May 31. So it's a slightly skewed quarter.If I could have the next slide, please. If you -- as mentioned by Niels, if you look at the second quarter, you saw increases of activity across the 3 logistics businesses, following what was -- what is really a seasonally weak first quarter because of the winter weather. But unfortunately, profits did not keep up with the improvement in activity. And as such, you saw operating profit was, therefore, up only slightly by $5.4 million to $41.4 million, which was up from about $36 million in the prior quarter before any one-offs.Now there's -- you will note that there were very few one-offs this quarter as was last quarter. Much of that is due to a lot of cleanup that was done on our balance sheet last year, where we took some impairments down in Australia, goodwill. And we cleaned up the Caviar business, and we hope that there will be less of these going forward.Looking at the year-to-date operating profit before one-offs, it was slightly down from the first half of 2020. That was due to the lower A&G in 2020 as we introduced, if you recall, significant savings initiatives related to the COVID-19 pandemic outbreak and also had lower profit sharing accruals because of the worry about what might happen from the COVID-19 pandemic.Looking at interest rates, they were down by about $1 million, as I mentioned earlier. And you will recall that in March, we had a bond that fell due that was about $154 million. And that has -- coupled with the general reduction of interest rates in the market, reduced our average interest rate down to approximately 4.3%. And I'll come back to that a little bit later.During the quarter, we had a gain on FX paper hedges of about $1 million and also income tax increased by $600,000 approximately. And that increase mainly reflects increased withholding tax on a dividend that we got from one of our joint ventures.Net profit, therefore, was up by $5.3 million to $7.8 million, and EBITDA was $116 million, as you will see at the bottom of the first column, and that's up from $108 million in the prior quarter. And if you compare to the same quarter last year, the net profit increased by $4.8 million due to the -- a $9.3 million write-off, but the EBITDA was higher in the prior quarter. And that $9.3 million write-off related to losses at Stolt Sea Farm, particularly in the Caviar business.If you look at the year-to-date, we have earned a profit of $10.3 million. That's a significant improvement on the loss of $17.2 million that we took in the first half of 2020 when Stolt Sea Farm, in addition to the Caviar write-off, also wrote down inventory value of its biomass due to the collapse of the hospitality industry that we saw tied to the COVID. And -- but year-to-date EBITDA, therefore, is pretty much in line with what it was last year.If I may have the next slide, please. This slide has 4 quadrants and they cover -- the 3 of them are covenant coverage. The top left looks at our gross debt to tangible net worth. You'll see there's a slight increase in our gross debt by about $21 million, but to just over $2.6 billion, and that was driven by the additional debt secured by the 3 of the CTG ships that were acquired. Those were the 3 ships that we took wholly on our balance sheet, where the other 2 remaining ships that went into our joint venture with NYK as well as additional drawdowns that we had of $75 million on our short- and long-term credit lines. This was offset by the $154 million repayment of the March bond and some other principal repayments.Now what you need to keep in mind, because those quick in math will say, well, then our debt should have reduced. But because of the cross-currency hedges that we had on the bond, gross debt only went down $104 million because that was what was booked against long-term debt. While the remaining $50 million was booked against derivative liability, which is why you saw that there was a slight increase in the gross debt.Tangible net worth, the blue column that you see there, was up by $10 million to $1.64 billion. That reflects the net profit and improvement in other comprehensive income driven by pension gains and some positive currency translation adjustments. That's all on the balance sheet, and that was offset by dividend payment in May of just over $13.5 million.We have 3 main financial covenants in our loan agreements: one is the debt to tangible net worth, which should be at max 2.25 as adjusted for IFRS 16; EBITDA to interest expense, which you see on the top right, of minimum 2:1 and a minimum tangible net worth for the group of $600 million. The EBITDA covenants are based on the EBITDA for the most recent 4 quarters on a rolling basis. And you see at the bottom right quadrant, which the EBITDA for the last 4 quarters was $499 million, so down about $5 million from what we reported last quarter.And therefore, we see that debt to tangible net worth was pretty much flat at 1.59 versus 1.58. EBITDA to interest expense was also pretty flat at 3.70 versus 3.69. And then at the bottom left, you will see that although not a covenant, but it's an important measure of our debt service capability, is the net debt to EBITDA. This increased from 4.78 to 4.97, and that's due to the added debt that I mentioned earlier as well as a slight reduction in the 12-month rolling EBITDA.Our target remains to reduce this to below 4. For those of you who want to track this going forward, you will note that when we report next quarter, the third quarter of '20 will fall off. That was a significant EBITDA quarter at $144 million. So it is a big quarter coming up. So it puts a bit of a challenge to the businesses on improving the EBITDA for the third quarter.If you could take the next slide, please. Looking at capital expenditures, this quarter, about $30 million, down from a significant $115 million in the first quarter when we acquired those CTG ships. But also note that this excludes dry-dock costs, which for tankers was $5.9 million during the quarter.For the full year '21, we expect to spend a further $127 million, which predominantly reflects the newbuild costs within tankers for the barge that we're building for BASF, some terminal CapEx that was postponed from 2020, construction of a new jetty at our Dagenham terminal and investment in STC depots and tanks. The Board recently approved the acquisition of a further 1,000 tank containers to accommodate further growth in STC.Next slide, please. Cash generated from operating activities, as you see on the top part of this slide, was for the quarter, $90.9 million. That was marginally down, and that was because higher operating results and JV dividend receipts of $8 million that we experienced during the first quarter was actually offset by an increase in working capital during the quarter of about $17 billion. And hence, we were slightly down quarter-on-quarter.Interest payments were up, and this is not reflecting of -- a reflection of debt or interest rate. But we have more -- we have a number of loans that are on 6-month rolling interest payment basis, and that typically falls in the second and fourth quarter. And that's why you have a higher interest loading during those 2 quarters. But as a consequence, the net cash generated from operating activities were down by just over $20 million from the prior quarter.Cash used in investments was $31.5 million, which included investments in JVs, and that was down quite a bit from the $119 million spend. I already talked about that. And during the quarter, we raised $77 million against the 3 CTG ships, drew down $70 million on the revolving credit line, but we also made principal payments of $202 million, and that included the $154 million in the bond as well as regular pension payments as well as $10 million in capital leases.So net cash flow for the quarter ended up at a negative $50 million. The difference between the free cash flow that was reported earlier and this number is predominantly the debt repayment. And this results in cash and cash equivalents of $122 million at the end of the first quarter, slightly down from the $173 million that we had at the end of the first quarter. But keep in mind, then we had put cash aside to support the repayment of the March bond maturity.That gave us a total liquidity position -- if you add in availability under our revolving credit line, which, at quarter end, was $274 million, give us total liquidity position of $396 million at the end of the second quarter.If you can go to the next slide, please. This is, as you're familiar with, the debt maturity profiles we've now shown for a number of quarters, and we differentiate between regular principal payments, which are shown in the very dark color. You have balloon payments in the light blue color, and you have bond repayments shown in gray. We currently have just over $81 million in regular principal payments remaining this year. So most of the debt maturity that we have for '21 is taken care of, and the next bond maturity is the $175 million in 2022. That matures in September of 2022. So there's still quite some time before that happens.During the quarter end, we completed the conditions precedents for a new $100 million revolving credit facility, which currently remains completely undrawn. And when I mentioned that revolving credit line was $274 million, that includes that $100 million as well.What we haven't showed you in the past is the bottom right graph, where we look at the average cost of our debt. And you can see that our interest expense and average interest rate on the debt has been coming steadily down as we have reduced our exposure to the bond market and benefited from lower interest rates in general. So if you look at the run rate, so year-on-year basis, we have reduced our interest expense -- annual average interest expense by about $11 million. And that, of course, helps lower the average cost base for the group.Now we're in a potential high inflation environment. And therefore, this could, of course, swing back up again. But as of the end of May, we had fixed approximately 84% of our existing debt, which does lock in quite a bit of that again. But as it stands, as new loans come up for renewal, we will, of course, have to renew whatever the market dictates at that point. But just want to share that with you.And Niels, with that, I would like to hand it back to you.

[Niels G. Stolt-Nielsen]

Thank you, Jens. Key messages. We're seeing increasing activity across all of our businesses. We -- as we have said, we are -- have a positive market outlook also across all the businesses, though, yet that needs to be reflected in the earnings, but we are seeing a positive trend.We are well positioned on an improving market. We have a strong asset base, which supports the positive free cash flow. We have, as Jens showed you, a relatively robust balance sheet and a healthy liquidity position. And our focus is still -- we're keeping an eye on the debt level, and we'd like to continue to get that further down. We have access to competitive funding going forward, we believe, and our goal of zero harm for people and the environment is our #1 priority.Okay. So we will then start to answer questions. And now we'll kind of read them out and then pass them on to the right person.

[Niels G. Stolt-Nielsen]

The first question we have is from a shareholder, and that's good to hear. I had expected more gains from containers since there's such a boom there.Yes. There is certainly a boom or a strong activity in the tank container segment, but we need to be patient because with this high number of shipments, with the increased cost of transporting these containers, it is just a matter of time before we're able to catch up and pass on all of that additional cost to our shareholders. And we will then continue to see, I believe, the margins improve.I'd also like to remind you that a big part of our business in the tank container segment is also, like, we -- in tankage, we have contracts. And these are multiyear contracts that we have in Stolt Tank Containers. And some of these contracts, you don't really are -- you're not able to adjust the price. We only adjust the price on the service for 6 months. So when we see increased transportation costs from the container lines, we have to bear that cost until new rates come in and when they adjust it, and that we do twice a year. And that is a significant part of our business. And of course, that also helps us when the market changes. So long term, that's the right strategy.So the results will come. Just takes a bit of time. But it's extremely positive, the situation and the activity that we're seeing. And we don't see -- actually, to the contrary, we've seen continued demand -- growing demand for the transportation of our containers -- container ships.Next question, also on the shareholder. D&B have a SNI recommendation but say stock is a value trap. There are good values in the company, but the stock is topping off at $130 for many years.Yes. It's been topping off at $130, but we haven't had a good shipping market for many years. And I would expect that once we start seeing the -- an improvement in the shipping market, I do believe that, that will be very quickly reflected in the market.Also, as we've mentioned earlier, we have considered the value trap being -- that we have so many underlying things in our company that is of value but is not reflected in the share price, amongst other, Stolt Sea Farm. And we did explore the opportunity to do an IPO of Sea Farm in the beginning of the year. But we felt that in January, February, March, there was such a huge amount of activity, companies trying to do an IPO, raising equity.So we felt that we didn't get the necessary attention that we need to be able to sell our story and the prospects that we see in both turbot and sole. It's a relatively small deal. So I think that the market was prioritizing big deals that could be done with a simpler and easier story.So we will continue to explore. I think as we have said all along, we don't need to do an IPO of Stolt Sea Farm. We don't need to do an IPO of Stolt Tankers. The conditions need to be right. It needs to be at the right time when -- both for the shipping market, but also the right time for the equity market. And it's important for us that it's a fair price, both for the potential buyer, but also it needs to reflect the underlying values.So after the summer, we will continue to explore the opportunity for doing an IPO of Sea Farm. And hopefully, that will -- and the only reason to do an IPO of Stolt Sea Farm, the growth plan that we have for Stolt Sea Farm, we can handle with our own cash flow, both in Stolt Sea Farm, and if Stolt Sea Farm needs any more support, they can get it from Stolt-Nielsen. So the only reason that we are doing or considering doing IPO of Stolt Sea Farm is to make that underlying value more transparent for the Stolt-Nielsen shareholders.Lucas, this one is for you. If you unmute, you can just answer. How much must the product tanker rates have to rise in order to avoid spill or effects into the chemical fleet?

[Lucas Vos, President Stolt Tankers]

Yes. Thank you, Niels. I think then we primarily look at the midrange tankers, of course, if you look at the current earnings per day, it is sort of around the $7,000, which is off the historic low that we saw in the months of May, which was more around $5,000. However, for that segment really to move out, we would expect around $14,000 to $15,000. But the Tankers will start to move out at around $10,000 level also.If I can just add one more comment to that. If you look at the broker expectations of this segment, they sort of expect quarter 4, the earnings to be around $17,000. So it sort of gives us that sentiment that, yes, it is -- the time is coming that they will start moving out.

[Niels G. Stolt-Nielsen]

Thank you, Lucas. The next question, I think I can answer it. Is the acquisition of -- done with Jo Tankers?That was completed in -- that was done in 2016, and the integration has been fully done and all the synergies taken out.Will it mostly be joint ventures from now on? Now one of the reasons that we are or the main reason for us considering doing an IPO or wish to do an IPO of Stolt Tankers is to make Stolt Tankers a stand-alone company so that we can make it easier to, of course, value Stolt Tankers, but also explore opportunities of both joint ventures, acquisitions and mergers.So it won't mostly be joint venture. It will be acquisitions. It will be -- we look at -- we are interested in seeing if we can further consolidate this industry. So that was a big part of the reason of doing IPO of Stolt Tankers is so that we are in a position to both do -- use cash and shares in an acquisition, but also in a merger.Next question is, in the press release -- this, Lucas, is for you. In the press release, it was stated that bunker costs were up by $10.8 million [ and then they quote us ], the improvement in revenue mentioned above was offset by a $10.8 million increase in bunker costs. Why is the increase lower in Slide 9 bunker costs?

[Lucas Vos, President Stolt Tankers]

Yes. It's good observation from a sharp reader. I think -- so the difference between $10.8 million, the one you saw on Slide 8 -- 9, sorry, is what I said is the natural hedge that we have because of the contracts. So if you look at our surcharge revenue, in quarter 1, it was around $50.6 million. And in quarter 2, it went up to $54.2 million. And the differential of $3.6 million, that explains the difference between the 2 numbers.

[Niels G. Stolt-Nielsen]

Thank you very much. The next question, and Jens, this is -- the first part is covered by -- for you, it's for you. You repaid one Norwegian kroner bond in March, and you have a U.S. dollar bond coming up for maturity in September next year. How do you view the outlook for refinancing these in the current bond market?

[Jens F. Gruner-Hegge]

The bond market has been giving us a lot of flexibility, and we are in constant contact with the market to understand where we can appraise ourselves. What is nice with the bond market is that it's cash flow benign and that you don't have principal payments until the balloon at the end, and we like to maintain that kind of flexibility. And therefore, the intention is to maintain the kind of maturity profile that we have in the market.We want to get away from the big issues that we've had in the past where we have had up sort of $200 million maturities, but keep it more in the $120 million, $150 million, sort of steadily rolling. So the intention is for us to be back in the market when the timing is opportune, but we won't go too early because then we have to carry that on our books for a long time.

[Niels G. Stolt-Nielsen]

Thank you, Jens. Then the second part of the question, could you give an update on the strategic initiative in Stolt Sea Farm and Stolt Tankers? Are public listings with certain cornerstone investors still the goal?To start off, with Sea Farm, I just mentioned that, yes, it is. We are not in a rush, but we want to make certain that we find the right shareholders that understand the potential of what we have created. So we will continue our efforts in Stolt Sea Farm.And in Stolt Tankers, we have worked since 2017 in separating out Stolt Tankers as a stand-alone entity and clean up the corporate structure there. Lucas has come onboard and built up a team, and we are basically ready to go for an IPO. But again, it needs to be under the right market conditions. To sell something in today's market, I think, is the right thing to do. And it's also -- we don't have to do it. So yes, we are -- we'll do an IPO of Stolt Tankers, both Stolt Sea Farm and Stolt Tankers at the right time.And hopefully, Stolt Tankers' IPO will be sooner. I really do -- as Lucas showed you and as I very carefully started to say that I am quite bullish about the situation in the chemical tanker segment going forward. So hopefully, that opportunity will arise sooner rather than later.Next question, you are ordering 1,000 tank containers. What is your current and targeted market share in this business? How much capital would you like to deploy here, given it is your most profitable segment from a return on -- ROA perspective?So a tank container costs anything from $15,000 to $20,000 to build. So we're not talking about a lot of money. It is more what utilization you can have on the containers that you buy. So we are basically growing as fast as we can. And Mike and his team are doing a tremendous job in growing the fleet. And really, ordering or leasing new tank containers is -- we will go as fast and grow as hard as we can, and we will continue to do so. But of course, we need to be able to maintain the utilization. If the utilization falls off, there's no reason to add additional tank containers.So we have bought -- I think we bought 2,000 last year. We have bought 2,000 for this year and next year. And most likely, either we will buy and continue to lease more tank containers as we go along.Could you offer some more comments on the risk from port congestion and COVID-related disruptions, et cetera, to your businesses and an expected earnings recovery in second half '21, '22? I give it to Lucas.

[Lucas Vos, President Stolt Tankers]

Yes. Thanks, Niels. I think, of course, there is port congestion out there right now, and it's primarily around Southern China, which is Yantian, Shekou, Shenzhen area. And as you well know, that's not necessarily where Stolt Tankers is. STC will have some impact of that. But if I look -- so as I'm not concerned with port congestion, maybe some concerns around the Panama Canal, congestions over there, but it's not yet material.I think the biggest impact that I now foresee on COVID-related disruption is still related to the seafarers and the ability for us to change the crews as quickly as we would want. And there, we primarily see cost increases, and we see the cost of flights going up, particularly towards into Manila. But I think for an economy ticket, it's already a $2,000 charge these days. So that goes up. And we also see that because of the situation of the pandemic in Manila, that a lot of shipping companies are going to different countries for getting their seafarers. And therefore, we see increases in the salaries of seafarers. So that's the only thing I see right now, but I don't think there is a material impact on the expectation of the earnings recovery for Stolt Tankers in this respect.

[Niels G. Stolt-Nielsen]

Thank you very much. Unless there are any further questions, that was the -- I don't see any more new questions coming in. So thank you very much for participating. Thank you, Lucas and Jens, for your excellent job. That completes our second quarter earnings release. Thank you for joining us, and I wish you all a healthy and relaxing summer. Thank you.

[Lucas Vos, President Stolt Tankers]

Thank you.