Stolt-Nielsen Ltd

OSE:SNI

Earnings Call Transcript 2022-Q3

[Niels Stolt-Nielsen, executive]

Good afternoon, good morning. Thank you for joining us for our Stolt-Nielsen third quarter results. Together we here in London is Jens Gruner-Hegge, our CFO. We will be going through the agenda, which is we will take you through the highlights of Stolt-Nielsen for the quarter, then I'll take each of the businesses. Jens will take you through the financials, and then we will open up for Q&A, which you will submit to this discussion on teams where you write down your questions and we'll try to answer all of them.

Moving then to the third quarter highlights. You can see that most of the arrows are green and pointing upwards. Net profit for the quarter came in at $74.7 million, and that's up from $58.6 million in the second quarter. EBITDA of $184.4 million, and that is up $176 million.

That was mainly driven by the improvement that we saw in Stolt Tankers and the spot rates that increased significantly in the quarter, with slightly lower results from terminals as a result of one of maintenance and facility costs. Marginally lower tank container results, we had higher shipments and the merger revenue but was offset by lower margins. Excluding the fair value adjustment in sea farm, we saw an improved operating result, driven by higher prices for both turbot and sole. And then -- which I think surprised the market was also higher corporate costs, and Jens will take you through it, but that was mainly driven by when we make more profit. We have a profit-sharing plan in our company, both long-term and short-term incentives. We had to take additional accrual for that program.

Free cash flow increased to $140 million, that's up from $86 million as a result of higher cash from operations, lower working capital, lower interest expense and $20 million dividends from joint ventures. As it stands now, before the -- at the end of the quarter, our -- we had $568.5 million in available liquidity, which is a combination of both cash and overdraft facilities. But subsequently, to the end of the quarter, we paid back the $175 million of bond debt. As it stands now, we have around $100 million -- a little more than $100 million in cash and some $285 million in overdraft facility. So total liquidity available, $388 million. Jens will touch on that later.

Then if we go through the net profit analysis between first and second and third quarter, we had -- in the second quarter, we had the debt issuance cost write-off due to the early repayment of debt of 11.1. So a normalized profit for the second quarter should have been around $70 million. You see that we have a higher operating profit from tankers, lower operating profit from Stolthaven Terminals. I will go into details when I cover each section. SDC slightly lower operating profit, sea farm lower operating profit, mainly driven by the fair value adjustment. And then you see the $8.9 million, which is the higher corporate costs, again, that's primarily driven by the accrual of the low -- short-term and long-term incentive. And then we benefited a better FX benefit from the strengthening dollar, bringing us to $74.7 million net profit for the quarter.

Moving then on to Stolt Tankers, which I'm very pleased to say is really now starting to pick up momentum. You see that the operating profit last quarter was $40.8 million. We had higher trading results of [ 17.8, ] lower net bunker costs, higher -- slightly higher operating expenses due to inflation, high depreciation and better joint venture of joint venture equity income from our partners of [indiscernible], bringing it to $61.1 million operating profit for the quarter.

I will talk a little more about tankers in the next couple of slides here. So our ambition and our target is of course, to reduce our emission intensity by 50% starting on the baseline of 2008 and by 2030, reducing it by 50%. And we have so far become 30.5% more efficient since starting 2008 measurements. So we have another 19 live to go. I want to point out that really what we're doing here is becoming more efficient with the equipment that we have.

Of course, we install -- we installed new technology, but it's still based on burning fossil fuels and we're doing everything possible become more efficient. The next big step is, of course, what is the next fuel in the future. And whatever we build will have something ready, what the fuel will be, but we'll have to order ships, and we will have to make some tough decisions. But most likely, it will be fossil fuel, conventional engines, of course, new design with all the latest technology with the current what is available in the market. But the next big leap will be then to convert into a different fuel, which really -- it's not really a clear picture of what that will be, but we'll prepare our ships or build our ships so that whatever that new technology is we will be ready to install it or convert or add on to our -- the ships that we will order.

If it's possible to get another 19.5% efficiency, we hope so. But that most likely would mean that we will have to burn some biofuels in addition to the conventional fuel, which is, of course, you can question how much biofuel out there? And is it good to use soya or palm or to use a biofuel. So that's a big discussion. But we're participating and looking really into all the technology that is available out there, and we will be, of course, ready to move when that new technology arise.

Moving on then to Slide 9. You can see that on the upper left-hand side that our total bunker cost is net of the surcharges is even though we have higher operating -- the slightly higher operating days, we're able to pass on that additional cost through our bunker clauses.

So it shows you that our bunker clauses are really serving its purpose. 98.5% of our COAs have bunker clauses, and year-to-date, the COA bunker clauses covered 64.3% of the bulk cost movement. If you look at on the upper right-hand side, you see that the order book, there's no additional new orders coming through. I'm certain with the market as it is heading. It's just a matter of time, it will happen. But as it stands right now, the order book for stainless steel is 6%. And if you were to order today, you would be lucky if you can get something in 25. On the bottom right-hand side, we show the sailed-in per operating day. I just want to point out that the peak, which suggests the last peak was in 2016, we sell in 26,841. The average size of ship at that time was 3,500 dead way. And today, in the third quarter, we recorded sale in of 24,341 and the average size for our pool or our fleet today is 31,686.

So with a smaller fleet, we're getting close to the previous peak of 26,000, and I would say that this is the end of the third quarter as it stands today, we are selling in excess of $26,000 a day. So the chemical tanker market is recovering after, of course, a very long and tough period of challenging market conditions. The upturn in the market coincides with the peak contract renewal season during the fourth quarter. I'll show you some slides later, but we are going into a heavy contracting period in the fourth quarter, and the strong market really comes at the right time. And we do expect to see a further increase in the COAs that we have and that we further increase in the rates that we're able to achieve. Yes, so it's a continued positive movement in basically all of the trade lanes. The regional fleets are doing well.

The chance, of course, that all ship owners have that whoever has the Russian or Ukrainian crew on board our ships. It's a challenge in regard to -- for them to travel home and also for them to come back on board, but we are managing the situation. And let's hope that we will come to end of this war soon. We have timed -- we currently have 164 ships. I think that's a record. We have 83 ships that are deep sea. So that's the, I think, the biggest fleet that we have had in the history of the company. And it really is -- the team in Stolt Tank has really done a very good job in securing tonnage without adding a total -- without building new ships, we've been able to acquire second hand ontologies too, attractively price second hand tonnage. So we're well positioned for this strengthening market.

If we move to page 11, I said that the conflict in Ukraine has rebalanced global crude and product trade flows. So we've seen that the MRs have left our segment. They are now focusing on transporting jet fuel, diesel and gasoline, which means there is -- there -- all of the chemical trade. And there's actually a shortage of chemical tankers as it stands right now. So the big -- the fundamentals on the supply side are in our favor. And then your question what's the demand going to look like? And historically, the demand for the transportation of chemicals have been pretty steady. It's been a multiplier of global trade and global trade is a multiplier of global GDP. But I will say that even if we had a 0 growth in global GDP, we will still have a healthy market because the MR is leaving and no new significant ships coming into the market.

So we are quite bullish and as I mentioned earlier, even if somebody starts ordering ships or even if we start ordering ships, I think that we will have a healthy market and this is a top global [indiscernible], which is a different picture. But historically, the demand for the movement of chemicals around the world has been pretty robust even in recessions. Inflation has risen sharply and remains elevated. There's limited capacity within oil and gas and a timing lab market, high inflation and rising interest rates could curb spending on goods and services and the risk of recession in certain markets is now material. But again, I'll just point out that the flow of chemicals at least historically, has been pretty robust even during recessions. Well, we might be going into new territory. Now I'd just like to talk about the contract renewals that we have reported.

So we reported that the spot rates are up 38% close to 40%. And the contracts that we renewed in the third quarter was up 11.4%. And that's, you would say, a bit disappointing that we haven't been able to get the contract rates up in the more than 11%. In the third quarter, we did renew a very big contract, which I would say we strategically decided to go and renew it before the end of the current contract because it was a what we call a repositioning contract. So we believe that the European market is going to be challenging because of the energy cost in Europe. So getting the ships from Europe out to the Far East or to the Middle East, we want to make certain that we have the business and we went out and secured that business long term. So it was -- and that -- without that contract, our COA renewals for the quarter would have been in excess of 20%. But we did strategically decided to kind of secure it because it was an important repositioning leg. I'd also like to remind you that the earnings improvement that you've seen so far in Store Tankers is mostly, I would say, almost all of it is from the spot rates.

The impact from the renewals that we have in the first and second quarter, it's with a lag. We haven't started seeing that in our results, and that is yet to come. The COA renewals usually start to COA renewals 3 or 4 months before the contract expires. So even if we report an 11.4% increase in the third quarter, it takes 3 to 4 more months before the existing contracts expire and then the new rates could kick in. And even when that 3 or 4 months down the road, we might still have voyages because the voyages are long with fixtures from the old contract. So it's coming. The good news is that you haven't seen nothing yet, you [indiscernible] spot. You see in the spot market, the improvement in the spot market is coming through. But we still have yet to see the impact from the contract renewals.

And you can see here, we tried to illustrate the season for the contract renewals. And you can see that the fourth quarter is busy. So in the fourth quarter, so a lot of them are and the existing contracts end in the first quarter, so you negotiate them in the fourth quarter. So I'm looking forward to see the results from those contract negotiations, but from what I hear and from our -- hear from our chartering department that we are well positioned, and we do expect to see some significant increases in the rates, but not only the rates, but also the terms and conditions of the contract. After having had a poor shipping market for such a long time, it's not only the rates that you need to get up, but it's the terms and condition that needs to be tightened up so that we become more efficient as an industry.

Moving then on to the Terminal division. In the second quarter, we -- if you take away the one-offs that we have in the second quarter, the normalized operating profit for the quarter was $23.9 million. They had higher revenue, but that was offset by higher operating expenses, and that again was due to high utility costs mainly driven by inflation, but also maintenance cost expenses. We had slightly higher depreciation, slightly lower AMG, so the third quarter came in at $23.3 million take-off, one-offs that we have had in the third quarter, bringing the operating profit to 20.7%. Moving on. It's pretty steady. Most of our term utilization is hovering between 90% and 95%, and we expect that to continue. The only -- so the terminals of all the -- most of them are long-term contracts. It's a pretty steady business. What varies is, of course, the throughput and the number of turns. But we expect that in all markets, we will continue to have a pretty steady performance from the Terminal division.

Moving on to our Stolt Tank Containers. So the operating revenue -- the operating profit for the second quarter was 44.7. We had higher transportation revenue. That increased by 6.9% or 11.7%. That was driven by 4.8% higher shipments, so a higher number of shipments in the third quarter compared to the second quarter and 2% higher demerge -- sorry, higher transportation rates. We have higher demerge. I'll talk a little more about the container market where we are today and what we expect going forward. So with higher demerge and other revenue of 3.2 that was offset by higher move expenses as a result of the freight rate increases from the container lines. And again, this was in the third quarter, coupled with 4.8% increase in shipments, which then gives us a operating profit of $43.1 million, so very similar to the previous quarter. So you have to remember, if you look at STC has been an absolute star this year. Historically, this business pre the wave or the crest of the way we have been surfing the last year.

We used to have around $90 million to $100 million EBITDA in this business. And this year, the EBITDA is going to be around $200 million we expect, right? So that's -- it's been absolutely phenomenal. And as you know, when the container lines were busy and the space was tight -- and that was also driven then by the congestion that we saw in port, very much due to COVID and also under investment in infrastructure. Once that congestion cost voyages take a longer time, meaning that it was difficult to get all the space, it was difficult to get all of tank containers. So we were together with the container lines, able to purchase the rates up and the margins up. Well, that is changing now. As most of you know, the number of shipments and various trade-ins for the container lines are dropping significantly and so are the rates. So normally, when the rates go up, we push on to our customers and when the rates go down, we -- it was a lag on pushing the cost to the customer. And it's also a lag as long as possible to give back the reduction to our customers but there is a slowdown.

Even though we're seeing the number of shipments holding up, and we continue to see it. But because it takes a shorter time to ship the containers and that the container lines have more space; we do expect continued pressure on the margins. There's going to be more competition. So we do expect the shipments to hold up, but the margin to be under pressure. Where it will end up, even if it goes down to where it was, it was still a fantastic business, a pretty steady business. So we have been spoiled, we have enjoyed a fantastic run. But I do expect that the earnings from SEC will be coming down to a more normalized level going forward. Not right away because we're still enjoying margins, but there will be pressure going forward, I just be realistic about that. Then moving on to Stolt Sea Farm. The operating profit was 8.4 in the second quarter was lower turbot sales that was driven by the -- we ended our sales agreement from the traded fish of third-party sales ended.

We had higher sold sales and we had lower operating expenses due to fantastic growth, lower AMG. So if you look pre-fair value adjustment, it was a good quarter, but then because of adjusting the prices during the quarter, we took a fair value adjustment of negative 5.9%. We do expect there will be -- so the price for turbot right now is around -- just around EUR 10, which historically is a fantastic price. And we do expect prices to come down. The economy in Europe is slowing down.

So I do expect that the price to come down a little bit going forward, but still at a very profitable level even though that will be distorted by the fair value adjustment we have to take when we sit down the prices. Okay, I talked about the outlook. One thing that we announced is that at end of September, Stolt-Nielsen, I would say Stolt Sea Farm, we made a strategic investment in the Kingfish company. That is-- I'm on to the next slide, actually.

This is a part of our -- we have stated many times that we'd like to leverage our industrial knowledge and expertise. So let's use Kingfish as an example. Kingfish land-based, recirculation, high-value fish to develop a new fish a new species, it takes a long time.

We sit and it's risky. We've been doing so for 20 years, and now it's kind of going into the industrial production. But it's taken 20 years and a lot of money to develop. And I expect that also to be the case with Kingfish but it's a very interesting and attractive species with a lot of potential. So we thought it would be greater there for you, for us to use the expertise that we have had in developing the various species that we form. Using the same technology to kind of, hey guys, we're not going to -- let's turn it together. So we took a strategic position and would like to -- would most likely be on the board once that is approved, so that participate and try to develop this company successfully going forward and be in a position to continue to participate and if they need further equity going forward, we will be ready, but at least having our people in there and working together to develop an additional species, but not taking out all the risk ourselves, but joining up with others that we look at interesting companies that we believe have a chance of succeeding.

This slide shows you the investments that we have outside of our core businesses. Avenir, we have a 47.2% investment. Golar, we still have 2.5%. Cool Company, we participate in when they did an IPO, took a 2.5% stake. It's been a great investment. Hopefully, as you know we are just close to 8%, that has also been a fantastic investment. Ganesh Benzoplast Limited is a Indian terminal company, it's a long story behind that investment, but we converted the joint venture shares into the holding company shares and we own 9.8% stake. They have a chemical terminal in the port of Mumbai. Our total investment in these is significant, and that's why I thought it was kind of important to list it. As it stands today is in excess of $202 million market value. That ends-- completes my part of the presentation. I'll give it over to Jens, who will take you through the financials.

[Jens Grüner-Hegge, executive]

Thank you, Niels. Good morning to those of you in the U.S. and good afternoon here in Europe. As normal, we have now posted the earnings release, the interim financials as well as this presentation on the company's website. Also, as a reminder that I normally give you, it's that our fiscal year runs from December 1st through November 30th each year. So the quarter we are discussing now ended August 31st. Niels has covered the operating financials in quite some detail. So I will focus a little bit more on some other financial items, the capital expenditures cash flow and debt and some balance sheet items. If you look at the year-to-date 2022 versus year-to-date 2021, this covers 9 months, you can see the significant increase in revenue that we have enjoyed this year, driven by the higher liner freights where we have been able to pass that through, through our own operating revenue in STC by adding demerge revenue by the improving tanker markets, those items in particular.

And because some of it, it has been cost driven, such as our bunker search charge revenue, which is driven by higher bunker costs and the tanker container freight driven in part by higher line of freight, we've also seen an increase in our operating expenses. So that aside, it has still provided us with a good improvement in our net result, as you will see, done in the operating profit year-to-date, which is up to $350 million, up from $156 million in the first 9 months of 2021. Niels has covered what has driven this improvement. So instead, I'll go over look at some of the financial items in the quarter itself. Depreciation was up slightly, and this was related to the write-off of the IT projects that we did in Stolthaven Terminals. You will also see that the share of profit of joint ventures and associates was up to $14.1 million. This is predominantly in tankers, which is commensurate with the improvement in the tanker markets and the tanker results in general.

Administrative general expenses is up quite a bit, and that includes almost $6 million in the profit-sharing accruals this quarter, which is a bit of a catch-up from prior quarters, which is why that is so significant this quarter. Last quarter, we sold the terminal in Australia and this quarter, we have a slight loss on some disposals. And then finally, you have some other income, which is related to some VAT accruals, which brings us to an operating profit similar to that over the past quarter. Now with the top line having improved, why the same operating profit and Niels touched on it, it's the improvement in Tankers was offset partly by reduction in STC, Stolthaven and Stolt Sea Farm, but more so it was the fair value swing in Stolt Sea Farm, which went from a positive $3.7 million last year to a negative $2.2 million this year, and it was profit sharing accrual. So without those 2 significant items, you would have seen an improvement.

Net interest expense is marginally up. Our debt, you will see shortly is flat, but we have a slight increase in the interest rates that we're being charged in line with what we're seeing going on in the market in general. Other than that, our income tax expense is slightly down, and you will see also more notably down from the same quarter last year, and this is very much driven by that swing in the fair value of the buying and mass that we have talked about. So with that having gone from a positive to a negative, it also means that our tax bill has been reduced. So that's how we end up at a net profit of $74.7 million for the quarter, and that's up from the $58.6 million. Moving on to the capital expenditures. It's actually nice that we are not spending a lot at the moment. We have been active leading up to the third quarter with the final ship that we announced having bought being delivered just subsequent to the third quarter.

So in the third quarter numbers, you will see on second-hand ship purchase for tankers. We have some maintenance and repair expenditures for Stolthaven Terminals, also related to the Dagenham jetty. We have new tanks being purchased by Stolt Tank Containers as well as some upgrading of depos that's in the 8 million in the third quarter and then some of the regular capital expenditure for Sea Farm. And going forward, we -- in the remaining 2022, there's one more ship that was delivered, as I mentioned just after quarter end in early September, plus we have a barge that is being built for the European water systems, which has some further progress payments. Terminals is, again, maintenance and repairs, expenses mostly plus the repair of the upgrading of the jetty at Dagenham and Stolt Tank Containers includes acquisition of more containers to grow the fleet in line with market growth and for Sea Farm, it is continued expansions that we're working on going forward.

So of the $135 million that we are showing as a total for the remaining 2022, we think that it's probably a bit on the ambitious side. We do expect some of the terminal’s expenditures to be pushed out into 2023 and expect that to come down, which of course, will be good for cash flow for the balance of the year.

Moving on to Slide 25. Talking about our cash flow and liquidity position, which Niels mentioned is very strong at the moment. You see year-to-date quarter -- during the quarter, we generated cash from operating activities of over $200 million, which is one of our best [indiscernible] recall. And that's substantially up from the second quarter. This is driven by the improved results. But also, we received a dividend payment from one of our tanker joint ventures of $20 million, which helped quite substantially. We also saw a slight reduction in interest paid. Just to remind you that we have some of our loan facilities that have interest payments every 6 months, whereas some of them is every quarter, and that's why you will have every other quarter have a higher and every other quarter, lower interest payment.

And that brings us down to net cash generated by operating activities of almost $180 million versus $111 million in the prior quarter. Just looking at the cash generation and the improvement in cash that we're generating from operating activities becomes more apparent when we look at the year-to-date, which year-to-date '22 was up at almost to $560 million versus $335 million, same 9 months for 2021. So there you can see the improvements, particularly in STC, but also now starting in Tankers.

Moving down to investment activities. You can see the capital expenditures of $61.9 million is picked up from the previous Page. but added to that, we also have some dry docks of ships of about 4 million to 5 million. And some investments in advances to joint ventures. So that means that investment activities consumed $65 million of cash.

If you take that away from the $179 million, you will see that we generated the free cash flow, which is really our operating cash after interest payments and CapEx of about $114 million during the quarter. Then you have net debt movements were not significant this quarter. We took on $5 million additional debt. This was partly in preparation for the bond maturity in September, and I'll come back to that shortly. So net cash flow for the quarter was $118 million, and that brought our cash balance at the end of the quarter up to $234 million. And if you look at -- according to the bottom right, you will see that on top of that, we had available credit lines of $334 million, so about 500 -- almost $570 million in available liquidity at the end of the quarter. Moving over to our debt profile. You see, as I mentioned, that interest rates were slightly up in the quarter, so 4.81%, up from -- sorry, 4.81% were up from 4.45% in the prior quarter. This is driven by the variable rate debt that we have, which at quarter end stood at 17% versus a fixed rate debt of 82% of our total debt portfolio.

Now we mentioned that after quarter end, we repaid the U.S. dollar bond of $175 million that was repaid on September 22nd. You see that at the graph at the bottom on the fourth quarter. That was a fixed rate debt, as I said. After repayment of that, we saw that our fixed rate debt dropped from the 82.5% down to 78%. So not a significant impact on our debt hedge as such. And we are still inclined to keep -- maintain that relatively high fixed rate debt. Of significant maturities coming forward, there is very little other than the $61 million in -- at the end of November. That's a JOLCO that matures on the 25th. That has already been refinanced, and we will draw down on the new loan as that matures. And other than that, we have the bond in June of 2023, another bond in February 24, and then a terminal financing that matures in the second quarter of 24. So significantly more modest cash outflows to -- for debt repayments.

Talking about our balance sheet and our financial KPIs, you will see on the top left that our debt marked by the dark column increased by $6 million. This was really in preparation for the bond repayment, but it has remained relatively flat. Our tangible net worth, which is really net equity plus other comprehensive income, less any intangible assets, was up from $1.77 billion to $1.85 billion. And that helped drive down the version of debt to tangible net worth to 1.27x and well below the covenants in our debt agreements. If you go to the top right, accordingly, you see the EBITDA to interest expense, another covenant in the loan agreements. That is now above 5:1 where we need to keep further covenant above the 2:1. Interest expense is mostly flat, but the EBITDA has improved, as you know and that has helped that ratio. Talking about the EBITDA. In the bottom right, you have the EBITDA development, it is on a positive trend.

And last 12 months, we stand at $683 million, significantly up from the same period last year when we broke through the $500 million mark. That means that our net debt to EBITDA in the bottom left quadrant, which is a measure of our leverage has improved. It stood at just above 3:1 at the end of the quarter, much driven by the EBITDA, but also the net debt down because of the cash that we had on the balance sheet ahead of the bond maturity. With that, I will pass it back to you, Niels.

[Niels Stolt-Nielsen, executive]

[indiscernible] Jens. So key messages. All the cylinders are firing at the same time, improvement in quarterly net profit driven by solid Tank Container results and improved tanker results. As Jens showed you, the last 12 months EBITDA represents 35% higher year-on-year at $683 million. And net debt to long-term last 12 months EBITDA is at 3.1%. As I said, we look at the payroll market tanker fundamentals for us, chemical tanker market fundamentals, and we see a further upside. Again, what we have seen so far is the impact of the spot. The COAs are being renewed at significant increases and we will start seeing that fourth quarter but more and more in the first and second quarter of 2023. Tank container shipments are holding, but margins are under pressure. And Stolthaven and Stolt Sea Farm will continue, I believe, to perform with solid performance.

So a solid outlook for the fourth quarter and beyond. And we will continue to focus on generating cash flow for a robust balance sheet, especially taking into consideration the uncertainty that we're living in today. And also with the higher cash flow, stronger earnings, I would also expect that we should reflect that in our dividends going forward. And also, we are well positioned to grow -- continue to grow our business. That completes the questions as far as the presentation. And I will now start reading the questions that are coming in.

[Niels Stolt-Nielsen, executive]

Petter Haugen from ABG. What would the price of a super segregator be today? And when will it be delivered?

It depends super-segregated -- it depends on, of course, it will be stainless steel, how many tanks and how sophisticated, but if -- we would estimate for 30,000 deadweight stainless steel relatively sophisticated. It would cost around $65 million and if you're lucky, delivery by end of '25.

Next question, and is what are the risks client dropping COAs in the recession scenario, for example, how bulletproof are these and has this happened in previous downturns?

Well, once you commit to a COA, you are contractually obliged to honor that COA. But there is -- because of the weak market that we have had for such a long time, usually, there are Minimax under the contracts. I would say very few contracts today because of the weak market has a minimum, but there is a maximum volume. So if they don't have product to move, they won't even though we have a contract, they most likely want move it. But if they move the product, they will move around the COA. So they don't drop the COA, but they ship less under the contract. But again, I just want to point out that these are feedstocks to everything that we consume, everything that we produce needs everything that detergents, medical suppose even during recessions, we have basically seen that there is still demand.

So I don't think there might be -- when there's less consumption, of course, there's going to be less production. But it tends to produce cheaper goods and alternative products, but the products are still moving. So I -- we're going into on-charter territory, at least during our lifetime. So I'm not going to say it's recession proof, but I feel relatively confident talking to our customers, they will continue to ship their products.

Moving then to the next question -- sorry, can bear with me here. How long contracted duration was the large contract out of Europe down at a lower rate [indiscernible]?

No, we got -- we did get higher rates, but not as high as -- so we got an increase but we didn't get as high as I said, without that contract, it will be a 20% increase on average for the COA. So we've got an increase, but not a significant increase. And it's a multiyear contract with a window of moving up year 2 and 3.

How long are the average terminal contracts?

It varies from 1 to 3 years. We have some ten-year contract; we have some 15-year contract. But if I would have to say in average, I would say around 3 years.

What’s the ratio between COA and spot in the tanker and is that for deep sea or total?

I think we rolled it in the presentation. In the third quarter, the spot was 32%. The contract with COA and that's 60% was COA. And that's for deep sea. But I think that's very much similar in the regional fleet, too. So overall, I think that gives the correct picture of our COA to contract.

What -- this is Petter Haugen again for his model. What is a reasonable expectation for future G&A costs?

You don't give guidance, did you?

[Jens Grüner-Hegge, executive]

No, we stopped giving a guidance. The run rate, if you look at used the 2-- the second quarter rate of I would say, 60 million, probably I would assume somewhere around 55 million to 60 million is a reasonable estimate on a quarterly basis.

[Niels Stolt-Nielsen, executive]

55 to 60.

[Jens Grüner-Hegge, executive]

Yes.

[Niels Stolt-Nielsen, executive]

So I think what confused the market a bit was the accrual of this -- so we -- of the bonus system. So our bonus is a profit sharing. So we take a percentage of our profits. So when the profit goes up, the accrual and goes out and that's why you saw this accrual that we had to take both for the short term but also for the long term.

Given the debt and liquidity-- this is also for Petter Haugen. Given the debt and liquidity position, what should we expect for dividends in Q4 and 2023?

Well, it's really the Board to decide what-- and the AGM to decide what the dividend is. The Board recommends the AGM approves. But I would say that we have historically paid a $1 dividend which was around actually at times more than 50% of our net profit. So it is not unreasonable to kind of say about 50% of our net profit is -- we don't have a specific target, and we want to discuss it on the Board because there's a lot of uncertainty. It depends also on the investment program that is needed going forward, et cetera. But I would expect dividends to increase in line with the profit of the company. But again, it is for the Board to decide. And Petter Haugen, thank you for asking all the questions.

What is the current status on the potential spin-off of Stolt Tankers?

So we're ready to go. We have said that the shipping market needs to be there, but also the equity market needs to be there. We are really go. There's one thing that we need to kind of make certain that once we spin off, we've got to make certain that the Stolt-Nielsen has the right balance to be able to continue to pursue the growth strategy for the remaining businesses. So it's also to make certain that the debt level, both in Stolt Tankers and in Stolt-Nielsen is at the right level so that once we spin off and we don't have access to the debt and the cash flow from Stolt Tankers will make certain that they go up still and the remaining data stolen is at the right level. But I would say that we didn't close the shipping market is absolutely there. We also have to kind of follow what's happening in the equity market.

This is a good one. This is from Eirik Haavaldsen. What do you see as long, medium-term margin target for terminals?

Utilization is increasing steadily, but margins are a bit volatile. So as we have said, once first you need to get utilization up and once you get the utilization up, then you kind of start to call out and remove the low-paying business, and that's what he's done. I will have to come back to you what—do you know what margin targets? We do have-- I have to admit that I need to talk to guy, who runs the terminal division. But I believe that since the utilization in most of our terminals are now high, he has now -- and you see the performance, the improvement in Stolthaven Terminals is by us being able to get rid of the lower-paying business and replace it with higher-margin business. So the EBITDA margin, Jens can you take it, you saw that came in [indiscernible].

[Jens Grüner-Hegge, executive]

[indiscernible].

[Niels Stolt-Nielsen, executive]

Yes, it should be at around 40%, I would say, between 45% and 50%, the margin for the terminal business, and we are now currently at around 44%. And if you still look at the other terminal companies, that's also where they are. It's all actuation utilization and getting the throughput through it up. And then by getting the throughput up and the utilization I'll be [indiscernible] able push models. That completes unless there's any other questions. I don't see any more questions coming in.

That completes our third quarter earnings release. I thank you for participating. If you have any further questions, please feel free to reach out, and we will answer you by e-mail or please pick up the phone.

Thank you very much for participating. Thank you, everyone, for helping prepare for this. And I wish you a good afternoon, and we'll talk again in -- at the fourth quarter earnings release. Thank you.