Stolt-Nielsen Ltd

OSE:SNI

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Stolt-Nielsen Limited presentation and conference call for the third quarter 2020 results. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 8th October 2020.And now I would like to hand the conference over to your speaker today, CEO, Niels Stolt-Nielsen. Please go ahead.

[Niels G. Stolt-Nielsen]

Thank you. Good morning. Good afternoon. Thank you for joining us on this third quarter earnings video conference. Together with me, as always, Jens Grüner-Hegge, our CFO. I will be presenting, I guess, you can see on your screen, but you can also retrieve a copy on our website.Moving to the agenda. We will go through each of the businesses. Jens will take you through the financial highlights, and then we will open up for question and answers. The net profit from continuing operations came in at a nice $31 million. The strong improvement in EBITDA -- we saw a strong improvement in EBITDA from all of our business divisions. I think that one thing that was nice and what makes it a strong message is that the volume held up in all of our businesses.So in the beginning of the pandemic, we were expecting eventually the volume to start coming off as the global economy slowed down. That has not happened. And in the third quarter, we saw relatively healthy volumes. And on top of that, we also got our costs down, of course, much driven by the lower bunker cost because of the oil prices, but also the actions that we took early in the pandemic.Our gross debt also increased in the third quarter by $27 million. We have secured liquidity. Jens will take you more through that later. We have approximately $0.5 billion of liquidity. We also saw a strong recovery in Stolt Sea Farm in the third quarter, really the business division that was hit the most from the pandemic and the slowdown.And also, as we announced early in the quarter, Stolt Tankers, we took the opportunity to acquire 5 modern stainless steel ships from CTG, which is currently with Odfjell, but we will be taking them over towards the end of this year.Operating profits -- operating revenue slightly down. But EBITDA up to $139 million for the quarter. Operating profit up by $24 million to $74 million. Net profit up $26 million from previous quarter, up to $29 million in profit. And our debt, as I said, was down $27 million and a gross debt of $2.540 million (sic) [$2.540 billion]. And tangible net worth slightly up at $1.6 billion.Am I moving the -- okay. Sorry about that. So if you look at the net profit variance analysis between the second quarter and the third quarter, you can see the nice blue columns there: higher operating profit from tankers of $8.1 million; higher operating profit for Stolthaven of $3.5 million; STC, higher operating profit of $4.6 million; and a great recovery in Stolt Sea Farm of $8.6 million. Then slightly lower -- higher corporate costs. Higher net interest expense because of -- we have secured a lot of liquidity and that comes at an expense, some more losses of $1.6 million of FX and $2.9 million of higher income tax compared to previous quarter. And then we took, as you remember, a write-off of our sturgeon business -- our caviar business of $8 million in the last quarter, which we didn't have in this quarter, bringing the operating profit for the group in the third quarter to $29.2 million.Next, please. If we just quickly go back and see how the year developed, the pandemic started early in the year, but really, the big impact started when the lockdown was announced. We were active. Jens and the finance team did an issue in February of raising $141 million, really before the pandemic came out. But that was a nice timing and good pricing. So we took the advantage of the bond market. Then Europe went into lockdown and gradually, the rest of the world went into lockdown. And at that time, right away, we announced that we want to hope for the best but prepare for the worst, and we went really into kind of lockdown emergency mode.We declared that we weren't going to pay a final dividend for '19. We took initiatives of cutting costs, travel and training, professional fees. We did everything possible within -- on our cost structure, we also -- totaling $21 million. We also cut back on capital expenditure, either delayed or canceled $62 million. And then we started to talk to our banks. We looked at it and said we want to secure enough liquidity to be able to make certain that we have enough liquidity to repay the bond that matures in March of '21, but also to be able to face various downside scenarios. So we put ourselves a target of raising an additional $250 million.We talked to our banks, but while we were talking to our banks, the bond market opened up. So we tapped that -- we used that market and raised $132 million in June. And then Jens has also worked on financing several of our terminals, which then puts us in a position today of having $500 million of liquidity, which, I think, yes, puts us in a position of strength, definitely having enough liquidity to be able to pay back the bond coming due in March of '21, but also face -- if the market does turn or if the global economy does slow down significantly, we should be all right liquidity-wise.Next slide, please. ESG is becoming a big part of our lives in a good way. We at Stolt-Nielsen, we signed up for the United Nation Global Compact agreement. And we have adopted the General Reporting Initiative for sustainable reporting standards. I've always said that we shouldn't just talk the talk, but really also deliver, and that's what we're working on. And I'm quite proud when we start doing this standard -- this reporting standard, I've always felt that we have operated in a responsible and sustainable way.And now when we start reporting it and measuring it, I'm quite satisfied to see what we have achieved so far. But of course, this is an exciting voyage and journey, which now we will report more -- be better at reporting on what we're doing, but also be part of the solution, trying to help innovate and work towards a more sustainable future together. So you will see more of this sort of reporting, and we will go deeper into the initiatives that we are taking in various -- each of our businesses. Next slide, please. Then going into Stolt Tankers. If you then look on Page 9, so the operating profit for the second quarter was $20 million, and I will explain the variance, how it came up to $28.1 million. So we had higher trading results of $8.7 million and higher ship management expenses of $4.5 million, lower depreciation and A&G that was driven by the initiative that has been taken of $3.6 million and higher equity income of $0.4 million, bringing it up to $28.1 million.The revenue decreased because we had less operating days. And the reason that we had less operating days is not our fleet shrinking, but it's -- because of COVID, we had 2 ships in quarantine. I think it was a week each. And also because of COVID-19 and the restriction associated with it, it has taken longer time to do the scheduled dry-docking. So lower number of operating days from 6,329 in the previous quarter to 6,118 this quarter.Utilization on the ships that we're operating was actually up, which is a good sign. The contract that we renewed during the quarter, we had, on average, an increase of 3.9%. So trading results were up as bunker costs fell and utilization rose.The manning cost increased $4.7 million as the cost related to crude changes increased due to COVID restrictions. So it is clear that the cost, when you have to -- I'm very proud, and it's really been the focus of the organization to change the crew that are overdue. I think we are down now close to a single digit of crew on board, or 155 ships globally that are overdue. And that, of course, comes with an additional cost. The airlines are jumping up the price, fully understandable. But also, we have taken the initiatives sometimes to deviate our ships to the Philippines so that we can change the crew. And that comes at a cost.So if you look at the increased ship management costs for the quarter, more -- if we didn't have the additional costs associated with changing the crew, that actually -- the ship management costs would have been lower. But we, again, feel that it is important to make certain that the people on the front line, especially on board our ships, that we spend whatever is necessary to get them back to their family and so that we can change them or let them have a break.Next slide, please. The bunker cost was, of course, a big reason why we had improved earnings in the quarter. You can see that the average price of the bunkers that we consumed for the quarter of IFO and low sulfur fuel was $275 versus what we consumed in the second quarter of $388. So it's a 29% decrease in the cost of the bunker that we consumed during the quarter. The cost of the bunker that we purchased was up 12% from $274 to $307.And then on the right-hand side, the Sailed-in index that we show of our deep-sea fleet made a nice jump for the quarter, and let's hope it continues.Next slide, please. Market highlights. So as I had mentioned on the previous slide, we were able to get higher contract rates, solid COA volumes in most regions, and we are approximately at 70% contract coverage. In other words, contracts of affreightments, COAs. As you can see on the slide here, the spot market actually did weaken during July and August. Now this usually do happen in July and August during the seasonal downturn. If it's anything beyond that, we don't think so. We are actually now starting, and you can see it slightly in the Middle East to Europe and also the TPW, Transpacific West, that it's -- have started to pick up again.So we are cautiously optimistic that, that was nothing more than a seasonal slowdown. But because of the contract portfolio that we've had in place, 70% contract coverage, we have relatively small volume of spot -- available for stock. And therefore, when we do fix spot, we can be more selective in which spot contracts that we go after. So I think that balance that we have, even though we see a small dip in the COAs, we don't see that clearly in our sailed-in because of our chartering strategy. Of course, the worrying thing is always that when the MR time charter rates have weakened, it did weaken in the third quarter, but again, it didn't impact us because of our strategy towards going long contracts.The Inter-European Service, these are the regional fleet, Stolt-Nielsen Inter-European Service. It was a weak spot marketing reflect -- spot market reflecting a slowdown in the European -- in Europe from the lockdown. Customers' outlook is slightly more positive in the fourth quarter. If there is one of our services in one of our regional markets that are having a challenging period, it is the Inter-European.SNITS, Stolt-Nielsen Inland Tanker Service, that's our barges on the Rhine, do healthy, relatively well. Even though this was a weak spot market, that is continuing to deliver nicely under our contract portfolio.SNICS, Stolt-Nielsen Inter-Caribbean Service, the contract of affreightment volume was -- COA volumes were stable at 80%. However, the spot market weakened slightly.And the SNAPS, that's the joint venture we have with NYK in Asia, improved results in the third quarter due to tighter tonnage supply and Chinese demand grew combined with the low fuel prices.Next slide, please. If you then look going forward, what does it look like? Well, we know what the supply side is and the supply side, even though there were additional tonnage announced by one of our competitors in the last quarter, the order book still remains at a total order book that includes coated less physical tonnage at 7.2%, which is low. If you look at what the stainless steel part of that order book is, it's at 4.7%. So a healthy supply side. And you can see then that -- I don't expect any huge orders going forward. So on the supply side, looks good.So the question is -- it's always been the supply side of our equation that has been the challenge because the incumbent owners and speculators have ordered too much ships. It's never really been the demand side. And if you look historically, the demand for this business, the service that we provide has steadily grown in line with the global GDP and the global trade, which is a multiplier of global GDP. So it's always been very steady. It's the supply side that's messed up the market. This time around, it's absolutely -- the supply side looks very healthy. Now let's see, it's very difficult to say what's going to happen in the world going forward. It's so much uncertainty. But if you took Richard Lawrie, which we follow, they are showing here that there is going to be a decline in trade volume in 2020 for what we transport, but then they show a nice gradual pickup of a compounded annual growth rate of 6.3%, taking all of the chemical -- all the chemical market. So if that happens -- and I hope they are, and now we do believe that they're right. If that happens, I think we will see a very healthy shipping market going forward. Next slide, please. Stolthaven Terminals, what can I say? It's only blue, blue, positive developments. Steady as she goes, operating revenue up to $59.8 million, slightly up. EBITDA, up from $52.2 million (sic) [ $35.2 million ] up to $36.4 million. Operating profit, $22.7 million, up from $19.2 million in the previous quarter. And utilization slightly down to 93.7%, down from 95.2%.The operating performance, excluding one-offs, improved as a result of cost-saving initiatives that we have taken throughout the group. The equity income improved as a result of prior quarter one-offs, higher utilization and change in product mix, so an increase in joint venture equity income. Strong and stable customer portfolio with underlying market conditions remaining stable in all regions and a lower impact of COVID-19 on the overall storage industry.We have seen that, yes, some of the areas, the throughputs, the number of moves that the customers use in the tank have come down. But when they want to renew and if the contracts are up for renewal, they all renew it because they don't want to lose that space. So maybe the throughput is down, but the contracts remain healthy in all of the regions.And of course, packaging and health care industries remain strong as we see during the pandemic. However, agro chems, industrial gases, paints and coating have positive outlook. And the auto industry has seen some recovery. Utilization in the industry remains stable with some weakening in petroleum.Next slide, please. Yes, this is just additional effect of how the utilization has since steadily improved. And we're now up at -- steadily around 94%, 95%, which is excellent.Next slide, please. The market outlook, the chemical activity in the U.S. Gulf and the United States rose by 2.5% on a 3-month moving average. The U.S. markets, we see steady overall, but chemicals and base oils in the automotive industry is still weak. Chemical capacity expansion is still active. Petroleum, LNG, LPG market has softened, and expansion have been put on hold. Steady flow of inquiries for additional storage in our both Houston terminal and our New Orleans terminal.Asia, the Chinese chemical market has showed signs of improved post lockdown, but full recovery will be subject to the export market, which has not started to take off yet. The Korean market remains stable for chemicals, but Southeast Asia is lagging in recovery. Our Singapore terminals overall chemical -- sorry, Singapore's overall chemical output fell by 2.4% year-on-year in July.The European market remained steady for chemicals, although the broader market remains weak due to exposure to the automotive sector, which accounts for 10% to 15% of the total chemical demand. Excluding pharmaceuticals, chemicals output fell by 3.6% year-on-year in the first half of the year.And in South America, our terminal in Brazil, the chemical market continues to show signs of weakness with approximately 20% to 30% drop in throughput in recent months, but signs of recovery for both petroleum and chemicals, we see at the current time.Next slide, please. Moving over to Stolt Tank Containers. So there we saw a slowdown in June and July. We actually saw a pickup in August. But we have -- so we had less shipments. We had lower transportation revenue of $9.6 million. That is lower rate and lower number of shipments. We had lower demurrage and additional revenues of just $200,000. But as a result of the lower number of shipments, we also had lower move expenses. And part of the move expenses is that the fuel surcharge in the second quarter was quite high, and that is something that we didn't have in the third quarter.We had lower repositioning expenses of $0.6 million and also here, saving initiatives, lower other operating expenses and A&G of $3.7 million, and slightly lower equity income from our joint venture of $1.4 million brings our operating profit for the quarter of $17.5 million.Next slide, please. Market outlook. STC, Stolt Tanker Containers, is always kind of a first in, first out, good indicator of where things are going. So the good news is that in the recent -- in August and September, things have been very active. And right now, they are very active. So we are short of containers everywhere, which is always a good sign. So that's -- I'm not saying that it's less competition. There's a lot of competition, but there's a lot of activity going on. So shipment levels expected to gradually return as economy rebound. But if we ask our customers, they don't expect levels to come back to normal until 2021.Yes, I think I've covered most of it. We will, of course, continue to focus on the digitization and optimization of our processes, and that is something that has served us well. We had a record number of shipments in the month of March when everybody was sitting at home. So our systems are working very nicely, and that's something that we will continue to work on, actually more now than ever.Next slide, please. Stolt Sea Farm, here we saw -- from a negative operating loss of $4.7 million, we saw a nice recovery, up to $3.9 million. And that is because of higher turbot sales, both the volume and the price; higher sole sales, both volume and price; slightly higher operating expense because -- sorry, lower operating expense of $1.6 million (sic) [ $1.4 million ]; and lower depreciation and others of $1.1 million, bringing it to $3.9 million.Next slide, please. So just a word on Stolt Sea Farm because the people I'm now talking to are mostly shipping analysts. And Stolt Sea Farm is not getting its fair share of analysis amongst the analysts that are following Stolt-Nielsen, and we need to do something about that. I truly understand that there's a conglomerate discount on Stolt-Nielsen because we are in shipping terminals, tank containers. We are being portrayed as a shipping company, even though half of our assets are in nonshipping activities. But we -- and the analysts, when they do some of the part analysis, are putting the right value on ships and terminals among containers relatively -- often pretty close to the right value. But they're not putting -- under the current structure, not putting any value on Stolt Sea Farm, basically nothing. So I think that this is something that we need to work on and making Stolt Sea Farm more transparent. I kindly ask the analysts out there, the shipping analysts out there to ask their Seafood division to have a look at Stolt Sea Farm, and we will be better at providing more information, more detailed information. But when I look at how aquaculture companies, land-based aquaculture companies that are trying to become land-based or trying out recirculation technology, and if I look at the pricing that they are achieving, I start wondering if we can continue with this current structure where Stolt Sea Farm is kind of not getting any visibility or value under the current structure.We have -- I'll just remind you, we have a unique position where we have a multi-site production. We have 13 farms around the world. So spreading out risk so that we don't have everything at one location. We have 2 hatcheries that supplies both sole and turbot. We operate -- our operations are in 5 different countries. We sell our products in 30-plus countries, and we have 450 employees globally.Next slide, please. Sustainability is, of course, a big part of our reality, our everyday life now. And land-based farming is something that a lot of companies are trying. I would like to remind or you can pass this on to the seafood analysts in your bank that we have been doing land-based aquaculture for 35 years, and we have done recirculation for 20 years. These are just 2 pictures of our farms, but this is real stuff. We have -- it's nothing that we promised to deliver. Yes, we're going to -- we have cracked the code of how to produce consistently juveniles for both sole and turbot, and we have done that over 20 years. We've done research on sole. We have cracked the code, and we are now ready to go on full scale. We have 2 recirculation plants, one that is up and running and one that will be completed by the end of this year.So this is something that -- it's nothing that we -- it's not a pie in the sky kind of thing. We are there. We have an EBITDA. We have proven technology. So this is something that we will work on. It doesn't have to talk to shipping analysts in the area to -- and that's our fault because of the way we're structured, but it's absolutely something that we need to work on.Next slide. Stolt-Nielsen Gas. I'm sorry, we didn't update the picture of the ship that is -- it's on sea trials. It's scheduled now to be delivered on the 12th of October, and the first ship will then go to Petronas for a 3-year charter. The second ship, probably at end of this year or beginning of next year, also on a 3-year bareboat to Hygo, formerly known as Golar Power. We have loans in place that is agreed upon that we will draw down upon delivery for the 2 first ships. We have 4 additional ships, which is being built with SOE in Nantong in China, and the delivery of that one is in the first half of 2021. And I believe we are also working on securing financing for those 4 ships.And our terminal in Sardinia is -- has been impacted by the COVID, but we expect that to be in operation. It's being delayed from the end of this year to the beginning of next year.Next slide, please. That, I think, completes my part of it, and then Jens will take you through the financials.

[Jens F. Grüner-Hegge]

Thank you, Niels. So good afternoon to those of you in Europe, and good morning for those of you in the United States. As Niels said, I'll review the financials and some balance sheet items. And I also want to remind you that we have not only this presentation, but also our press release that came out this morning together with the interim financials, they're posted on our website at www.stolt-nielsen.com.Also, our fiscal year runs from 1st of December through November 30, for those of you who weren't aware of that. And I also want to mention another thing in that 2020 is our first year where we report according to IFRS 16. So there are some 2019 and 2020 numbers that are not directly comparable, just keep that in mind when you look at the year-to-date numbers.What you have on this slide here is a view of our net profit. And if we start with the operating profit before one-offs on top, you see the quarter came in at $72 million, which was a substantial improvement, up from the $51.2 million that we had in the second quarter. Not many one-offs this quarter. We had one adjustment at Stolthaven, but operating profit, as reported, you see, was up about $24 million. And a significant part of this improvement came from tankers and STC. A lot of it was, as Niels explained, driven by lower bunker cost, together with also a strong recovery that we saw in Stolt Sea Farm from a relatively weak second quarter.In addition, it's worth noting that we had quite a significant reduction in our A&G, administrative and general expenses this quarter, and that's something that relates to the initiatives that we put in place early on in the pandemic. So our A&G costs, year-to-date, if you look at that, gives you better visibility of it, is actually down about $18 million or about 12%. Now some of this is due to FX impact, some of this is also due to the IFRS 16 treatment, but a good portion of it is also driven by the initiatives that we put in early on in the pandemic.Net interest expense increased as a result of the debt we took on, but also as we retired some of the March 2021 bond. We had a write-off of debt issuance costs that typically are amortized over the whole duration of the bond. So we retired about $80 million and had to take a related share of the debt issuance cost.Looking at the income tax expense, you see that for this quarter, it was $4.6 million, up $2.9 million, as Niels mentioned. That is really tied to a higher tax at Stolt Sea Farm due to the higher fair value of the inventory, the IFRS adjustment that we do to the inventory. Net profit from continuing operations, therefore, came in at $30.5 million, and that's up from $12.3 million that we showed in the second quarter. And as you will see below there, there was a $9.3 million loss in the prior quarter compared to $1.3 million this quarter from discontinued operations, so an $8 million swing. And that puts us at $29.2 million net profit this quarter. Also, if you take a look at the EBITDA, EBITDA is before the fair value adjustment of biological assets and insurance reimbursements, that came in at $139 million, which is substantially up on the $122.8 million reported in the second quarter. If you look at -- this is a slightly different view of the balance sheet, and I'm focusing here on the covenants. But you can see in the top left quadrant, you have our debt. This is gross debt of $2.54 billion at the end of the third quarter, slightly down from $2.568 billion in the prior quarter. And likewise, we're seeing an increase in our tangible net worth, which is the light blue column, going to -- coming up at $1.607 billion, up from $1.58 billion in the second quarter. And those 2 improvements combined resulted in our debt to tangible net worth coming down from 1.62 in the prior quarter, down to 1.58. Again, this is measured basis IFRS 16. So for those of you who are used to seeing this pre-IFRS 16, it means that we would have been about at the 1.5:1, perhaps even a bit lower this quarter, so commensurate with the target set by the Board. Going to the right-hand side, you see another one of our covenants, which is EBITDA to interest expense. With the improvement in the EBITDA, that ratio also improved to 3.41 for the quarter. And to the bottom left, you have our net debt to EBITDA, not exactly a covenant, but still an important measure of our leverage, and that dropped significantly down to 4.85 for the quarter, driven by the stronger EBITDA. If you look at the bottom right quadrant, you can see the part of the driver here in that we are seeing lower EBITDA quarters dropping off and higher EBITDA quarters being added to what is a 12-month rolling total of the EBITDA. I mentioned the impact of IFRS 16 and if you compare like-for-like, the impact year-to-date of IFRS 16 on EBITDA is about $35 million. So if you compare those 2, that means overall EBITDA, year-to-date, is about a $5 million improvement, but that still does not negate a significant improvement that we have seen throughout the year where we started with a weak quarter but now showing strong signs of improvement. That $35 million equates to about 11.5%. So still, if you take out 11.5% off the third quarter, it's still a very strong quarter, EBITDA-wise. Looking at our capital expenditures, year-to-date, we have done $117 million. And for the quarter, the third quarter alone, we spent about $44 million. This is driven by $22 million spent in the tankers, and that includes about $14 million on the progress payments for the 5 ships that we have bought. We also spent about $16 million in terminals, predominantly in New Orleans and New Zealand. And also as part of our committed -- commitment to Avenir, we injected a further $5 million in additional equity as they are getting ready to take delivery of their first ship. Sea Farm completed the construction earlier this year of their several recirculation farm. And the part that you see here is our net contribution for the Portuguese farm, about $2 million in the third quarter, and that farm is expected to come on in 2021. And then the CapEx you will see for 2021 has now increased significantly for tankers, and that's, of course, reflecting the acquisition of the 5 ships from CTG. Next view here is really a development of our liquidity position as we go forward. And if you start on the left-hand column, you will see where we ended the second quarter with $230 million in cash and $181 million in availability under our 2 revolving credit lines. So for a total of $411 million. During the third quarter, we saw operating cash flow of $107 million. And we had the capital expenditures that I just went through of $44 million. Under other investments, this includes money spent on dry-docking. It also -- we sold -- our dry-docking was about $5 million for the quarter. And in addition, we sold assets for about $10 million. So that actually had a positive impact of $5 million. And if you look at these 3 combined, that means our cash flow from -- free cash flow ended up being $68 million for the quarter, marginally up from $64 million in the second quarter. Also, we did the bond in June that Niels mentioned, SNI09, $132 million inflow, and that was used to -- about $80 million of which was used to retire the March '21 bond. And a further $32 million on regular principal payments for a total of $112 million. And then we had repayment of the outstanding balance on the revolving -- the main revolving credit line that we had of $130 million. So after that repayment, we have not drawn anything on the revolving credit line. That's fully available for use. We also paid down $12 million on our finance lease liabilities. And if you add in also the effect of the exchange rate effect, we ended up with cash of $184 million, so slightly down from the $230 million, but it's a substantial increase in our availability under our 2 revolving credit lines, up to $311 million, for a total liquidity of $495 million at the end of the third quarter. Also to remind you of our objectives, it's still that we want to improve our free cash flow, reduce debt and maintain a strong liquidity position going forward. And that leads us to finally the maturity profile. You see that we have about $48 million left for the rest of 2020. Also with our liquidity position, pretty much all of the 2021 is taken care of. So we are in a very good position going forward. The March '21 bond, this SNI05, will be repaid with cash on hand. And in addition to what we already showed you on liquidity, we are working on additional facilities: one $65 million facility to be secured by the Moerdijk and Dagenham terminals, expected to close in the next few weeks; and also, the $100 million revolving credit facility as part of our COVID initiative. Just to make sure that we have access should it be necessary, 2 additional liquidity in case there should be, what we call a worst-case hit from the COVID-19 pandemic. And in addition, we will now start also working on financing the 5 CTG ships that we acquired. Two of those will go into our joint venture with NYK, and there will be non-recourse financing secured for those 2 ships. And then 3 ships, we will take on our own balance sheet. So with that, I would like to pass it back to you, Niels.

[Niels G. Stolt-Nielsen]

So key messages before we open up for questions. A relatively strong quarter with nice contribution from all the businesses makes us cautiously optimistic that maybe it's not going to hit us as hard as we initially expected. However, we are prepared. So we hope for the best, we plan for the worst. And we are ready if there is a further slowdown or if there's further restrictions in the world due to the pandemic. Jens showed you that we have a strong liquidity position. And we have taken early actions, not only short-term action, but I think we have learned a lot of potential long-term savings coming out of that exercise. It's a favorable supply/demand, at least supply side in tankers. So when the global economy eventually do recover, we should have a strong shipping market, and then we will proceed with the IPO that we have planned for. We believe and we are seeing steady as she goes Stolthaven, steady improvement there. Stolt Tank Containers also a great activity. So steady improvements as she goes in both terminals and tank containers. And Sea Farm, we saw a nice recovery in the third quarter. Now of course, a big part of that market is in the restaurants and the hotel sector. So if there is a major lockdown again, that might be impacted, but long-term prospects for that business continue to look fantastic. So I think we are in a strong position, and we are well prepared for whatever may come our way. So operator, that -- or how does it work? We're now open up for questions.

[Niels G. Stolt-Nielsen]

Hi, this is a test. Is that all? Regarding the COA renewals, is the 3.9% increase a number compared to the same period last year?No, the 3.9% is what we achieved in previous -- in the third quarter. So each quarter, we announce the results of, if we were able to, on average, to get an increase or decrease. So it's comparable to previous quarter. How much of the cost reductions are sustainable versus temporary one-offs? That is a discussion that we have internally. And I don't want to put a number on it. A big part of it is because we have hiring freeze; we have promotional freeze; we have cut back dramatically on consultants; we have -- we've cut some salaries, which is not sustainable in the long run; and we have a hiring freeze, and then no travel and entertainment. So of course, we have learned that we are able to do the same amount of business during -- under these kind of structures -- this kind of structure, this kind of cost structure, and we are now analyzing what we can save long term and maintain long term and what needs to come back towards normal. So I don't want to give a number, but I think there are savings that we can get out of this and this exercise. What about a partial spin-off of Stolt Sea Farm? This is, again, Philippe Sissener.Well, we need to do something because under the current structure, the analysts, I understand that maybe the shareholders or the equity market continue to price Stolt-Nielsen as a conglomerate, and they look at us as a shipping company and shipping company -- shipping is totally out of flavor these days. So -- but there is justification for keeping tankers, terminals and tank containers together. But the fish, the Sea Farm, I've always said that we have built up an absolute fantastic knowledge in both turbot and sole. And we have spent 20 years in developing sole. I don't want to do anything with that business before we are able to show the EBITDA coming from that 20 years of investments and developing the species. But if you look at other industries, other companies that are listed, that are trying to develop land-based farming or recirculation farming, when you look at their pricing, some of these companies haven't produced the ton of fish and are priced higher than the market cap of Stolt-Nielsen. So we are exploring the opportunities. We are looking at various ways of how to get the valuation more transparent for Sea Farm. You mentioned increased ocean freight costs for containers to impact margins. How big share of your container activity is seaborne traded versus land-based traded?So I would say that 90% of our business is seaborne and 10% probably is domestic. Now remember, both the trucking and the ocean freight is passed on through the customer. But it takes -- it's a lag. So when the cost goes down, it takes longer time to pass down to customer. When the costs go up, it takes -- we are trying to be as quick as possible to pass it on. So there's always a lag. But just to answer your question, I think that I can come back to you with the exact number. But I would estimate that 90% of the container moves are over the ocean. What kind of COA coverage should we expect going forward, for example, for the fourth quarter and 2021? I think that 70% is pretty correct. So you can plan on that. Would a spin-off of Stolt Sea Farm in a separate IPO through dividends to the existing shareholders will be a potential structure that you could look at to achieve proper valuation? Yes, there's different ways of doing it. So we're exploring to see what are the alternatives. Sir, Mr. Stolt-Nielsen said that, let's hope it will increase when talking about SNI index, now at 0.61. However, looking at the report, chemical tanker spot rate reported quarter-to-quarter, that could perhaps seem a tiny bit optimistic. So the index that we report are actually numbers. So that's not being optimistic. That's just reporting the fact. But as you correctly pointed out, the reports from July and August show a drop in spot rates. That is really why we went long -- been focusing on long contracts. And that's why we have a 70% contract portfolio. The other thing I can say is we think it's a -- it was a slowdown as a result of the summer. And that we are seeing in September and also continuing into October that the nominations that we see on the contracts are healthy. So we are not seeing any kind of fundamental deterioration in the chemical tanker segment. That is -- okay. Sorry, go ahead, operator.

[Operator]

Your first question comes from the line of Anders Karlsen.

[Anders Redigh Karlsen, Analyst]

My question goes a little bit to the 5 vessels that you are acquiring. You said 2 will go to NYK, but the others, are they going to be replacing existing tonnage? Or are they going to be in addition to whatever you have today?

[Niels G. Stolt-Nielsen]

So let's look at the 5. The 5 ships that we acquired this summer, they've been around for a long -- those -- they were delivered -- they were ordered for $42 million, $43 million. I think Odfjell bought them for around $40 million, $41 million apiece. I'm pleased to announce that we bought them for $27.1 million apiece. And then, of course, you have some takeover costs on top of $27.2 million, some takeover costs. These ships will enter into the salt lakes and pool. It was an opportunistic buy. So in the short run, it will be an increase. But of course, we have an aging fleet, and we have no new building program. So I guess this gives us a little more room before we need to start or bring new ships again. So that -- this is a win-win for everybody. We don't add additional tonnage into the total chemical fleet, and it replaces some of the older ships that are scheduled to be renewed. So we don't have any like these will be replacing those ships. So in the short run, it will be an addition. There will be no total addition to the chemical fleet in the world, but there will be an addition to our fleet. And then we will recycle ships that are between 25 and 30 years old as we feel is the -- when the time is correct for that.

[Anders Redigh Karlsen, Analyst]

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

[Niels G. Stolt-Nielsen]

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

[Anders Redigh Karlsen, Analyst]

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

[Niels G. Stolt-Nielsen]

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

[Anders Redigh Karlsen, Analyst]

Okay. And just a final -- a little bit of defense to the shipping analysts. You've never been very open about anything in Stolt Sea Farm. So it's kind of difficult to judge. And I have been following the company for a few years. So I mean there has never been any volumes or anything on a quarterly basis. Yes, it makes it difficult to address.

[Niels G. Stolt-Nielsen]

I fully understand.

[Anders Redigh Karlsen, Analyst]

So that is a feedback from a shipping analyst.

[Niels G. Stolt-Nielsen]

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

[Operator]

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

[Lukas Daul, Analyst]

I was wondering the financing plans going forward that you have put on Slide 39. When that is carried out, will you have any unencumbered assets left that you can use as collateral?

[Jens F. Grüner-Hegge]

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

[Lukas Daul, Analyst]

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

[Jens F. Grüner-Hegge]

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

[Operator]

There are no further questions at this time. Please continue.

[Niels G. Stolt-Nielsen]

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

[Operator]

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