Stolt-Nielsen Ltd

OSE:SNI

Earnings Call Analysis

Stolt-Nielsen Reports Strong Q3 Results with Strategic Guidance

In the third quarter, Stolt-Nielsen posted a robust operating profit of $139.3 million, driven by increased average freight rates and strategic adjustments despite a 1.2% decline in deep-sea revenue. They sold two ships, enhancing earnings by $6.7 million. Total cash generated reached $200 million. Looking ahead, the company anticipates a 7% to 11% decrease in TCE for the fourth quarter due to seasonal changes, but projects a strong winter rebound in 2025 based on favorable market conditions. With a focus on liquidity and debt management, they aim for a net debt-to-EBITDA ratio below 3.5.

Strong Performance Amidst Market Volatility

In the third quarter of 2024, Stolt-Nielsen showcased impressive resilience, reporting an operating profit of $139.3 million, a 9% year-over-year increase from $127.5 million in the same quarter of 2023. This performance stemmed, in part, from revenue growth despite challenging conditions in some segments. Total operating revenue was reported at $209.4 million, driven primarily by an 8% increase, attributed largely to the introduction of the SNAPS Regional Asia Pacific pool, which had a significant impact on revenue and expenses due to accounting rules.

Tankers Division Shows Mixed Signals

Stolt Tankers experienced a 1.2% drop in deep-sea revenue due to fewer operating days and lower volumes caused by transit restrictions in the Red Sea. Despite this, an increase in average freight rates by 23% offset these declines to some extent. Furthermore, the company achieved a record TCE (Time Charter Equivalent) per operating day of $33,355, marking a 17.3% increase year-over-year. However, upcoming guidance for TCE suggests a potential reduction of 7% to 11% in the fourth quarter, highlighting the expected volatility ahead.

Operational Efficiency and Cost Management

Overall operating expenses reflected an interesting trend; while they appeared to increase due to the new accounting treatment from the SNAPS pool consolidation, on a like-for-like basis, expenses actually declined. Specifically, expenses were down by $12.1 million due to reduced port charges and canal transit fees, emphasizing the company’s focus on operational efficiency.

Cash Flow and Capital Management Strength

Cash flow from operations was solid, reported at $200 million, even though it was lower than the previous year's $240 million due to negative swings in working capital. Total cash flows for the quarter were $221 million, leaving Stolt-Nielsen with a healthy cash and cash equivalents balance of $336.7 million, indicating strong liquidity to support future capital expenditures and shareholder distributions. The company is positioned well for investment opportunities that promise sustainable growth.

Stable Growth Expectations Across All Segments

Looking at Stolthaven Terminals, the business reported an EBITDA of $43.5 million, a 3.5% increase year-on-year. The terminal segment faced lower utilization, down by 7% compared to the previous year, but ongoing optimization strategies have begun to yield positive results. Stolt Sea Farm also had a record quarter with operating revenues of $33.6 million, representing an 8% increase attributed to strong market prices for fish, specifically turbot and sole.

Future Projections and Strategic Focus

The company anticipates continued strength in the chemical tanker market, forecasting a 3% growth in seaborne chemical trade for 2024. Strategic investments are in the pipeline, including the development of a green ammonia terminal and new vessel acquisitions, signaling Stolt-Nielsen's commitment to enhancing its operational capabilities and tapping into evolving market opportunities. Importantly, they aim to maintain a net debt-to-EBITDA ratio below 3.5, balancing capital expenditures with manageable debt levels.

Market Challenges and Strategic Adjustments

Events in the Red Sea are impacting shipping logistics and have necessitated contingency planning for managing operations effectively. Additionally, the ongoing disruptions in U.S. container ports due to labor strikes could affect Stolt's tank container business, though the impact on terminals and tanker operations appears limited. The management emphasized a proactive approach to navigational challenges posed by the external environment, with continuous monitoring and adaptation strategies.

Balanced Outlook with Cautious Optimism

In conclusion, while the company must maneuver through current market volatility, its financial health, operational efficiencies, and strategic investment plans position it favorably for sustained growth. The leadership remains cautiously optimistic about recovering TCE numbers in 2025 and is committed to maintaining strong customer partnerships and operational effectiveness amid these challenges.

Earnings Call Transcript 2024-Q3

[Alex Ng, executive]

Good afternoon, and welcome to Stolt-Nielsen's Third Quarter 2024 Results. As always, the earnings release and related materials are available on our website. We will also be recording this session and it will be available from tomorrow.

Included in this presentation are various forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, and we refer you to our latest annual report for further details.

I'm Alex Ng, Vice President of Corporate Development. Joining me today are Udo Lange; and Jens Gruner-Hegge, our CFO. At the end of the presentation, there will be a Q&A session where we'll be taking questions online. [Operator Instructions]

Thank you, and over to you, Udo.

[Udo Lange, executive]

Yes. Thanks, Alex, and hello to everyone here in Oslo and as well joining us online. We are really pleased to presenting our Q3 results to you today and to be able to share this with international participants online as well. I will begin our presentation with an overview of the group's results for the third quarter and share some key highlights. Jens will then cover the financial results, before handing back for me -- to me for the segmental analysis of our business, our view of the market outlook and a few closing remarks.

You might remember from the Capital Markets Day in June that at Stolt-Nielsen we aspire to be simply the best for our shareholders, customers and people. And I want to thank the shareholders for the support, our customers for their loyalty, and our people for their strong focus on safety, their passion and their dedication to delivering excellence every day. This focus on delivery is again reflected in the strong results presented today.

Overall, we have achieved near record levels of EBITDA for the second consecutive quarter. I'm pleased to report that our liquid logistics operations are performing at a higher level, supported by strong supply and demand fundamentals.

We continue to invest in our business, optimizing our fleet with the addition of 4 modern deep-sea vessels, 1 regional vessel and the retirement of 2 older ships as we continue to proactively manage our fleet profile and enhance operational efficiency.

We also continue to develop our investment pipeline. In July, Stolthaven and our partner GES won a tender to develop and operate a green ammonia terminal, further broadening our strong pipeline of growth investments in both our core markets and the energy transition.

In addition, we are happy to announce that Avenir LNG plans to refocus as a pure-play LNG shipping company. As a leader in small-scale energy bunkering, Avenir is ideally placed to capitalize on a market where the number of LNG fuel ships is increasing. Avenir is growing its fleet and exploring a capital raise and potential listing on the Euronext Growth.

We continue to be focused on our conservative balance sheet supported in the quarter with the successful $450 million private placement, resulting in a strong liquidity position, enabling future distributions and investments.

Let's turn the page to review our key performance drivers at a more granular level. Overall, we have delivered another positive performance with revenue and profit up on the year and strong balance sheet metrics. Results have been pleasing across our business units, and I will dive into the performance of our 3 liquid logistics businesses and Stolt Sea Farm later.

Operating revenue was 5.5% overall up, and you can see operating profit up more than 9% on the top right. This shows that our focus on margin and discipline on cost is rewarded. EBITDA was up 4% on the prior year and, at over $200 million, is at near record levels for a second consecutive quarter. Free cash flow for the quarter was at $212 million, slightly up versus Q3 '23. This is a result of strong cash flow from operations and proceeds from the sale of 2 ships, partially offset by working capital and higher investment.

We also have significant financial flexibility with a net debt-to-EBITDA ratio of 2.25 and strong liquidity.

As a reminder, our liquid logistics operations are the supply chain solutions across our tankers, terminals and tank container businesses. These have performed well in the quarter. Stolt Tankers has delivered a second quarter of record high TCE per day of $33,400 (sic) [ $33,355 ]. This is a growth of 17% on the same quarter last year and up 1.5% on Q2 '24, our previous record high.

Events in the Red Sea continued to impact the shipping markets as longer voyages consume additional capacity supporting freight rates and margins despite a lower total cargo volume. The ongoing situation in the Red Sea continues to impact the shipping markets with longer voyages pushing freight rates and ton miles up.

At Stolthaven, performance is being driven by strong storage rates. And here we are seeing margin improvements as a result of our ongoing optimization strategy. Whilst utilization was down 7% on the same quarter last year, Stolthaven have delivered EBITDA up 3.5%.

In STC, our strong focus on balancing margins and volumes has paid off. We saw year-on-year volume growth and quarter-on-quarter our gross margin increased. Elsewhere, Stolt Sea Farm had a record quarterly performance on both operating profit and EBITDA, excluding the fair value adjustment due to higher prices and good volumes.

That's all from me now. Jens, over to you to take us through the financial highlights.

[Jens Grüner-Hegge, executive]

Thank you very much, Udo. Good afternoon to everyone here in Europe, and good morning to those of you following us from the United States. So as normal, I will compare this quarter with the same quarter last year. And as a reminder, the third quarter for us goes from June 1 through August 31.

To really reiterate what Udo talked about, [ basis ] the favorable position of our businesses and the position they enjoy in their markets, and the outstanding performance within the market, the company is in a very strong position. In addition, with the recent refinancing of debt, we have a strong balance sheet with a smooth debt maturity profile and strong earnings, allows for a very strong liquidity position. But let's dive into the numbers.

So first of all, in the last quarter, there were some confusion, if you like, around our OpEx. People saw that this had been increasing quite rapidly. And I want to just demystify this.

If you look at the top highlighted bullet, like-for-like, OpEx is flat. And the increase is really driven by an accounting exercise or accounting rule. To take you back, in late 2023, we announced the establishment of the SNAPS/ENEOS pool, and that was for the regional trade within Asia, and accounting rules require us to consolidate the revenue and the OpEx of this business onto the SNL's financials. And that is what drove the increase of $32.6 million in revenue this quarter versus last quarter and an increase of about $31.5 million in OpEx this quarter versus same quarter last year. So this is not a cost creep that has come into our business; it is purely an accounting effect.

So on a like-for-like basis, as I said, revenue is mostly flat, except for a few items as follows. So due to the transit restriction that we have in the Red Sea, as well as a reduction in operating days, freight volume is slightly down. And that's partly offset by an increase in both COA rates and spot rates. So if you net that effect, deep-sea revenue was down about $4.2 million. However, this was more than offset by a reduction in deep-sea OpEx, which was down $12.1 million due to lower port charges and canal transit fees. So net to net an improvement.

Terminals and Stolt Sea Farm revenue were both up slightly, while STC remained mostly flat, and depreciation was up by $1.8 million driven by capitalization of tank container purchases and additional lease assets.

Equity income from joint ventures was up, driven by improved tanker JV results on the back of the strong tanker market and improved results at Avenir, albeit Avenir still at a loss.

A&G expense was up due to $1.4 million higher profit sharing accruals and $2 million in annual inflation adjustments taking effect on January 1 every year. Without this, A&G was mostly flat year-on-year. And then during the quarter, as Udo mentioned, we also sold 2 ships for a gain of $6.7 million. So after all of that, operating profit came in at a strong $139.3 million for the quarter, and that was up from $127.5 million in the third quarter of 2023.

Net interest expense was up, partly reflecting increased average interest rates and lower interest income on cash held in account. And also income tax expense was at $11.7 million, up from $9.3 million due to tax accruals, partly offset by tax credits and the fair value -- the tax impact of the fair value loss at Stolt Sea Farm. So with that, we ended up -- ended the quarter with a net profit of $99.2 million and with an EBITDA, as Udo mentioned, of $209.4 million.

So let us with that go over to the cash flow. This was, as Udo mentioned, another strong cash generating quarter, with a reduction from the same quarter last year really due to the negative swings in working capital, offset by improved earnings. Net cash generated from operations was down from [ $240 million ], but still a respectable [ $200 million ] due to those variables. Capital expenditures were at [ $58 million ], that includes also drydocking of ships. And that was predominantly driven by terminals and STC.

During the quarter, we sold 2 ships for a total of [ $33.2 million ] in proceeds. So if we look at net cash used in investing activities, this was only $22 million for the quarter.

We also had proceeds from the issuance of long-term debt, that was $349.6 million. And that represents the $450 million U.S. Private Placement that we issued and closed on in July, less $100 million approximately that we repaid on revolving credit lines. We also made repayments on long-term debt of $292 million. That was the repayment of the old U.S. Private Placement of about $230 million, plus regular repayments of debt or regular principal payments. And we also made $15 million repayments on these obligations. So net proceeds from debt issuance was $41.6 million.

So total cash flows for the quarter was, therefore, $221 million. And with that, we ended the quarter with cash and cash equivalents of $336.7 million and available credit lines of $431 million, so about $770 million of available liquidity. Now this liquidity is not going to stay just at the balance sheet. Our intended use for this liquidity position is continued investments that you will see later so that we continue to grow our businesses and grow our underlying cash generating capacity. It is for debt reduction and is, of course, also for distribution to shareholders.

So moving over to our debt maturity profile, having talked about the USPP and other debt repayments. By repaying that old USPP, we actually took away a big chunk of debt balloon payments that were looming in 2025 and we have now a much flatter profile, hovering sort of just at or below $300 million per year over the next number of years until we get to 2028 when we need to repay the outstanding bond that we issued in September and December last year.

If you look at the bottom left graph, gross debt during the quarter was slightly up due to the new U.S. Private Placement facility. You'll also see later in a later slide that net debt is down due to the cash on hand. Average interest rates were slightly up from 5.58% to 5.65%. Going forward, we don't really expect any major volatility in the interest rates. Yes, the dollar interest rate is looking to come down, but it will take time before that shines through in our financials.

And also, as an aside, you can now find our bond is listed on the Oslo Stock Exchange under the ticker symbol SNI10.

Looking at the capital expenditures. Third quarter capital expenditures were a modest $50 million. That excluded the dry docking. So if you compare with the $58 million I mentioned in the cash flow, that's the difference. And this was driven predominantly by Stolthaven Terminals and STC. We expect this to increase in the fourth quarter to about $100 million, give and take, as we are going to buy 4 small ships for regional trade. We're going to take delivery of further tank containers during the quarter, and we're going to continue our organic growth in both Stolthaven Terminals and Stolt Sea Farm with ongoing projects that are under development. Some of this may move over to the 2025, but we're working hard to make sure that we get this money put to work.

The continued strong performance of the company has really translated into a good performance in all our various KPIs. The top 2 are bank covenants. The top left shows our debt to tangible net worth, which has remained under 1:1 for now a number of quarters in a row. We ended the third quarter slightly up at 0.98, and that's because of the increase in debt, and this is not net debt, it's gross debt. But you'll also see that on the bottom left, net debt was down from $1.97 billion to $1.9 billion.

At the bottom right is our EBITDA with our -- another quarter above $200 million, and that translates into strengthening strong performance on the EBITDA to interest expense as well as strong performance on the net debt to EBITDA, which is now down to 2.25. It's not a goal in itself to keep that level, but we have communicated before we want to keep this ratio below 3.5:1. But it's not necessarily an ambition to bring it all the way down either because we need to put capital to work to grow the businesses.

And with this, I would like to hand it back to Udo for the segmental analysis of our businesses, our view of the market outlook, and a few closing remarks.

[Udo Lange, executive]

Yes. Thank you so much, Jens. As usual, I will begin with Stolt Tankers. We saw operating revenue increased 8% versus third quarter of 2023, mainly due to the establishment of the SNAPS Regional Asia Pacific pool which changes the accounting treatment of the revenue and related expenses, as outlined by Jens.

Deep-sea revenue was down 1.2%, reflecting fewer operating days and lower volumes due to transit restrictions in the Red Sea. These lower volumes were partly offset by an increase in average freight rates of 23% compared to the same quarter last year.

Operating profit came in above $100 million, with a decrease in deep-sea revenue more than offset by a reduction in port charges, again, as a result of the Red Sea situation. The establishment of the SNAPS pool also means we show a related increase in operating expenses a result of accounting treatment. On a like-for-like accounting basis, operating expenses would have declined by 4.7%.

Overall operating profit increased an impressive 23% year-on-year. And given operating days are down 7%, this is a particularly strong achievement. So many thanks to Stolt Tankers President, Maren, and the whole team at Stolt Tankers for delivering this excellent result.

As I mentioned at the start, Stolt Tankers also sold 2 ships for a gain of [ $5 million ], positively impacting this quarter's results.

We are very pleased to have achieved a TCE per operating day of $33,400 (sic) [ $33,355 ] this quarter, up 17.3% year-on-year and the second consecutive quarter of a record TCE. This is due to an excellent focus and execution of our Stolt Tankers team and was enabled by increasing average COA rates supported by the ongoing transit restrictions in the Red Sea, maintaining spot rates at firm levels. However, going forward, it appears that we have now entered a phase with higher volatility that makes providing TCE guidance more challenging. As a reminder, we typically fix cargo bookings 30 days in advance of the start of a voyage, with voyages being renewed on a rolling basis, which results in a lag effect of around 90 to 120 days between changes in rates and the full impact on earnings.

You can see, for example, on the chart that both TCE peaks lagged versus the related spot index rates. Assuming this correlation continues, it is then expected that TCE for quarter 4 will be weaker in line with the Q3 rate decline in the spot index rates. Basis what we see today, we expect the TCE for Q4 to be lower by between 7% to 11%. Following the overall industry sentiment that porter tankers expect a stronger winter, continuing to keep swing tonnage out of the chemical tanker segment, TCE should then increase again beginning of 2025 because of the explained lag effect. However, it should be emphasized that due to this increased volatility and the uncertainty of political backdrop and prediction basis, today's information can quickly change as the markets evolve.

Finally, as a reminder, a $1,000 swing in TCE impacts quarterly net profit by approximately $6 million. Despite this volatility, TCE continues to stay at a high level. We have talked about rates being at a new plateau, and we believe that the favorable supply-demand fundamentals remain and expect rates will continue to stay firm for the foreseeable future, notwithstanding the potential geopolitical headwinds.

Moving on to Stolthaven Terminals. Overall, EBITDA came in at $43.5 million, up 3.5% year-on-year. Year-on-year performance across both revenue and operating profit has been strong with revenue up 3% and operating profit up 5% as [ spot ] rates have increased and our ongoing margin optimization strategy bears fruit.

Partly offsetting the strong revenue generation was lower utilization levels. As a reminder, we are focusing on replacing lower-margin contracts to optimize our portfolio. Utilization in the quarter was at 90%, a similar level as in Q2. And based on our contract discussions, we expect to progress back towards the levels seen in the prior year through 2025 with the corresponding flow-through into the earnings. Thanks to Guy and his team for the strong focus on margin improvement and discipline on cost control. While A&G increased slightly due to annual cost increases, operating expenses at wholly-owned terminals were flat year-on-year.

Moving on to tank containers. The tank container market continues to be challenging, and this is reflected in our earnings. I'm proud of the way that Hans and the STC's team are navigating these markets and continuing to deliver. Revenues were flat year-on-year due to higher volumes and freight costs [ period ] by space constraints with carriers, particularly out of Asia. The competitive trading environment and reduced demurrage revenues have resulted in lower gross profit per shipment. This meant that operating profit was down $16.6 million compared to the third quarter last year.

Looking on a quarter-by-quarter basis, we have seen an uptick of both transportation margins and demurrage revenues. And whilst volumes were lower versus Q2, profitability was slightly up. Looking ahead, we expect margins out of Europe and spot freight out of Asia to soften in the near term as we balance margins and volumes. The International Longshoreman's Association strike has closed container ports on the East Coast of the U.S.A. and U.S. Gulf this week. This is a fluid situation that the STC team are monitoring closely. Our focus is on working with our customers to [ minimize ] their disruption and to support them in the safe and most timely delivery of their products. The financial impact isn't clear as of yet. Transportation revenue and demurrage will be impacted to an extent, but the key variable is the length of the strike and the time taken to clear the backlogs at ports.

Finally, turning to Stolt Sea Farm. Jordi and the team here have delivered record results on both operating profit and EBITDA. Operating revenue came in at $33.6 million, up 8% versus the same period last year with continued strong prices for both turbot and sole. We also saw a 6% increase in volume demand for sole, so turbot sales volume decreased by 6%. Production costs were impacted by inflation on energy and feed costs but improved production offset the OpEx increase.

Operating profit, excluding fair value adjustment was therefore strong at $8.7 million, which is an increase of 43% on the year. EBITDA, excluding the fair value adjustment was $11 million, up 18% versus Q3 last year. Q4 is usually a very good period for fish growth. So our focus will be to maintain a good level of sales, prepare our customers for the seasonal peak demand of the Christmas period, and balancing prices and volume through Q4.

Looking forward, we believe that favorable market fundamentals are expected to remain across our businesses. Industry analysts continue to expect the seaborne chemical trade to continue to grow 3% in 2024, benefiting our liquid logistics operation. As a leading operator of chemical tankers, a global provider of safe storage services for bulk liquids and a leading provider of tank containers, we think we are well positioned to respond to this growth.

From a supply perspective, we see limited impact from swing tonnage in our markets. While there has been a recent drop in MR rates during the summer, a sustained softening of MR rates would be required for MRs to swing back significantly into our market. Commentary from product players suggest that they expect a firming of rates into the winter season, and it is too early to see any meaningful impact of the supply of tonnage in our markets. We continue to monitor this.

Although we have seen an increase in newbuild ordering during recent quarters, many of these orders will only be delivered from 2027 onwards. Newbuild prices continue to be at an elevated level, and with the uncertainty on propulsion, this continues to be complex. We continue to expect muted net supply growth for at least the next few years, which aligns with demand growth.

Let's now turn to our closing remarks. In summary, our strong Q3 results reflect the strength of our constituent businesses and our commitment to deliver our simply the best strategy. At Stolt Tankers, we expect TCE to remain at elevated levels despite a softening. At Stolthaven Terminals, ongoing margin gains will support earnings and we continue to see utilization improvements which will benefit 2025. We will also continue to balance volume and margin improvements at STC as we navigate the uncertainty in the market due to the strike action in the U.S. ports. And on the back of the record performance at Stolt Sea Farm, we expect stable year-over-year volumes at firm pricing levels. As a result, we expect to deliver a strong overall earnings result for the full year.

As laid out in our Capital Markets Day, we have an attractive pipeline of investment opportunities and have the balance sheet strength to execute for sustainable earnings growth and shareholder returns. Thank you for your attention, and I will now pass you back to Alex as we open up for questions.

[Alex Ng, executive]

Thank you, Udo. That completes our presentation, and we will now begin the Q&A.

[Alex Ng, executive]

[Operator Instructions] Yes? [indiscernible]

[Unknown Analyst]

So in the Capital Markets Day, you were very clear that you wanted to deepen your interaction with the customers on the transportation side, using your terminals, your tankers and your [ tank containers ] more as one offering. Do you want to update us on that in any way?

[Udo Lange, executive]

Yes. So I think we shared at the Capital Markets Day how customers are really looking at us really as a liquid logistics provider. And just to give you examples of what happened recently. For example, 1 large chemical provider actually reached out and said, well, we'd classify you overall as a company as a strategic supplier, and as such, you need to pass also our cybersecurity assessment. So that tells you that we are not just seeing as a tactical provider in their supply chain, we're really seen as a strategic supplier.

We had also since then several strategic workshops with our customers where we really show, well, these are the capabilities that we have. And on the other side, the customers are sharing their strategies.

Again, the idea is not to sell an integrated service in 1 contract. The idea is to work with our customers, understand their supply chain at a deeper level. And from there on, really see where can we add the most value. And I think that's progressing quite nicely.

[Alex Ng, executive]

Any more questions in the room?

[Unknown Analyst]

So the last couple of days have been very dramatic. In the Red Sea, you mentioned several times that the situation is probably fueled by the stuff that happened in the past 2 days. How do you see -- and some of the [ tanker stocks ] are reacting very sharply to what's been happening. Have you seen anything in the market as you [ chartering people ] from customers, from business partners in that region? Any sort of update on that?

[Alex Ng, executive]

Just for the webcast, this question relates to the current situation in the Middle East.

[Udo Lange, executive]

Yes. So of course, as a company, our #1 priority is safety of our seafarers. And so with that, we, of course, monitor this very closely and we also work really closely with security agencies. So on that side, so far, we have no indications that there is a risk. But of course, we need to monitor this very carefully and see how the situation develops. But so far, no impact yet.

[Alex Ng, executive]

Okay. Any further questions in the room? If not, then I will pass over to the web stream.

So first question is, how do you specifically see the ILA strikes affecting your container business?

[Udo Lange, executive]

So of course, the ILA strike right now, if you think about import and exports into the U.S. on the U.S. East Coast as well as Gulf ports, that's more than 50% of the total import/export volume. So of course, this is significant for the container trade in the United States.

So going through our business, it has no impact for our terminal business, and there is no impact for our tanker business. However, it is highly relevant for our tank container business. So there, of course, we have worked since many, many weeks with our customers on contingency plans. And what we are doing now is really enacting those contingency plans with our customers so that we ensure the best service delivery for them.

Strategically, we have an advantage here because, as you know, we operate our own depots in several markets. So what that does for us is that the customer actually can continue their production output and restore the containers at interim in our depots, and then when the supply chain disruption hopefully resolves, then we basically continue the shipping. Of course, that solution only holds so long as you have space in the depot. So it then really depends how long this strike will last.

[Alex Ng, executive]

Thank you, Udo. Next question. We have a couple of questions related to TCE guidance for the fourth quarter. If you could provide a bit more detail at all. And also how that combines with expectations around the COA spots contract mix.

[Udo Lange, executive]

So let me start first with the COA spot mix. As mentioned in the past, we don't have a target where we are like saying we need to be at this COA rate or at this spot rate. That is really a consequence of how we negotiate and what we think is the right approach in the market. If you look at the past performance where we have now in the tankers business delivered several months of record earnings, I think the team has done really an excellent job in finding the right balance between COA and spot. And that's what we're going to continue to do.

If you then look at the guidance as I laid out, of course, what you need to always understand for our business is that we have this 90 to 120-day lag. So if you go into all the product tankers, and they may have reported before a slower summer period, then we have not seen this right now here. As we have shown today, we have actually record earnings in this quarter. But you have this lag effect, which means the summer effect moves into the next quarter.

But then on the other hand, in addition, right now, everybody expects that the winter again is going to be strong. So you don't see that in our Q4 numbers, but you will then should expect an increase again in Q4. And so that's the volatility that we are seeing right now, and that's why we guided in the way that we did.

[Alex Ng, executive]

Next question is to our CFO. Are there any goals or financial targets for Q4 and/or 2025?

[Jens Grüner-Hegge, executive]

We talked about the balance sheet goal, and we want to maintain the net debt to EBITDA below the 3.5 level, very much because that gives us the flexibility between the cash flow we generate between our debt service. We still have ample capacity available then for continued capital expenditures to grow our businesses and also having cash over for dividends for our shareholders.

Other than that, it is really balancing out the capital allocation between the different businesses to make sure that we grow as per their strategic ambitions, that we allocate the money to where we see the returns, opportunities are, and that we also balance it a bit against certain investments taking a long time to realize versus other investments are realized faster, and having a good mix of -- or good balance, if you like, of those.

[Alex Ng, executive]

Thank you, Jens. Strategic question for you, Udo. [indiscernible] considering spinning off [ Stolt Tankers ] to highlight the value of the company and potentially focus the remaining assets of the logistics company?

[Udo Lange, executive]

As mentioned in previous earnings calls, so right now we do not intend to do an IPO at Stolt Tankers. And as also mentioned previously, this is always a function of we are the earnings, and on the other hand, we are the IPO market. We are very satisfied right now with the earnings that we achieved, and on the other hand, the IPO market is not in a way that we would say this makes a lot of sense at this point in time.

[Alex Ng, executive]

Question to you, Jens. Can you give the specific adjustments in consolidated EBITDA as reported in the press release?

[Jens Grüner-Hegge, executive]

I'm not sure I understand the question, but specific adjustments to EBITDA. So if you look, the main one is really the fair value of Sea Farm biomass, which normally when we reported, we reported excluding that. That's because the fair value tends to be quite volatile, go up and down, whereas we think it's more interesting for the markets for investors to really see the underlying performance development of the group and of Stolt Sea Farm where this becomes more periodic noise. Other than that, we don't really have any significant adjustments to the EBITDA.

[Alex Ng, executive]

Thank you. And a final question I have right now for you, Udo. Can you talk a bit more about the strategy of -- our strategy into Avenir? Is it something you're able -- do you plan to divest or more strategic long term in nature?

[Udo Lange, executive]

So as you remember [indiscernible] my first earnings call, I talked at the time that we are looking at a strategic repositioning of Avenir. And we had great discussions with the other shareholders. And I think we have found a great path forward, because what we now do is we really focus our businesses. On the one hand, we take the gas terminal in Sardinia, and we have that as a one business. And then on the other hand, we look at the LNG bunkering business, and they are really lean and stronger and consider now the listing as well.

And we're really excited about the opportunity that we have in that business. And I think it's a great next chapter that Johnny and the team have in front of them. But Alex, you are super close to this transaction. So maybe you can share more of the excitement.

[Alex Ng, executive]

Yes. I guess we talked in the Capital Markets Day about that excitement about the supply-demand dynamics that exists with -- we believe exists within Avenir, how the LNG-fueled fleet is growing from 400 to over 1,000 by '27, '28. But there's not enough assets there to do LNG bunkering. This is an interesting dynamic that we want to explore. And from a Stolt perspective, we are helping to support that business in the future capital raise as they continue, providing an underwrite in the capital raising that they are looking at and announced yesterday.

Okay. With that, that's the last question that we have. So thank you very much. Just a reminder, we'll post the recording of the call on our web page tomorrow.

Udo, back to you.

[Udo Lange, executive]

Yes. Thank you so much for joining us today, and I look forward to talking to you again when we present our results for the third quarter of 2024 -- our fourth quarter of 2024. Again, thank you, and I wish you all a good day.