Stolt-Nielsen Ltd

OSE:SNI

Earnings Call Transcript 2019-Q4

[Operator]

Good day, and welcome to the Stolt-Nielsen Fourth Quarter 2019 Results Presentation. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Niels Stolt-Nielsen, Chief Executive Officer. Please go ahead, sir.

[Niels G. Stolt-Nielsen]

Thank you. Good morning. Good afternoon. Thank you for joining us here in Oslo for our fourth quarter 2019 earnings results presentation. I will be referring to our presentation which you can find on our website. As always, we have an agenda, going through the highlights for the fourth quarter and 2019. Then I will go through each of the businesses. Jens will take you through the financials, and then we will open up for questions and answers in the end. Moving on to Page 4. Our operating revenue for the fourth quarter, down 4%, coming in at $497.5 million. Our EBITDA up 10% at 116.6% (sic) [ $116.6 million ] compared to the previous quarter.Our operating profit, $46.8 million. That's up 9% from previous quarter. And net profit of $5.5 million, and that's a staggering 63% increase from a very low number.Going through the net profit variance analysis between the third and the fourth quarter. The fourth quarter -- the third quarter, we had a net profit of $3.4 million. Because of the incident we have on Stolt Groenland and 2 other ships, we had a negative of $2.8 million, and we also had an impairment on Stolthaven in Australia of $5.5 million. But the underlying operating profit in Tankers improved in the fourth quarter by $2.4 million. Lower Stolthaven operating profit. I think due to seasonality. Higher STC operating profit of $3.6 million. Higher Sea Farm operating profit after fair value adjustment of $2.1 million. FX, in our favor this quarter of $2.7 million. And lower tax and financial expenses of $1.9 million, bringing the profit to $5.5 million. I will go again through this more in detail when I go through each of the businesses.If you look at the year, 2019 was a challenging year. The operating revenue was down, our EBITDA was down, our operating profit was down and so was our net profit. I believe 2019 was the bottom. The chemical tanker market in 2019 proved to be a challenge. However, as you've all seen in our earnings release, we are seeing a recovery and we are well positioned for that recovery. Stolthaven Terminals results before one-offs improved with higher utilization across our owned terminals and a reduction in operating expenses. So a steady -- continued steady improvement in our Terminal division. Stolt Tank Containers faced a challenging year due to the continued increased competition and slower economic growth, which add pressures on the margins. However, still a healthy business. Stolt Sea Farm continues to show underlying improvements in our turbot and sole business. And a significant financing has been closed during the year and have improved our maturity profile and strengthened our liquidity position. Jens will take you through that in more detail.I have been encouraged to talk more about our ESG, environmental, social governance. It's nothing new for Stolt-Nielsen, but we haven't been good enough at communicating it. And we will be doing so much more going forward. We require all of our businesses to operate responsibly with a relentless focus on safety, efficiency and excellence. This focus shapes everything that we do, from systems and processes to the way we manage and drive the environmental performance of all our assets.Sustainability. Of course, we have to deliver a financial sustainable business model by improving our cash flow and, of course, improving the return on capital employed. This needs to finance everything that we do.Social. We recruit, we train and we retain. That's why at Stolt, our employee -- that's why we, at Stolt, have a very long tenure amongst our employees. Health and safety is, of course, our top priority, especially taking into consideration what we do. And diversity and inclusion, we have always had a highly diverse and an inclusive profile amongst our employees.Environmental. Yes, there is climate change. We're all aware of it. And it's all our responsibility to do something about it. Whatever you think the cause of the climate change, we have always been aware of -- or focused on polluting as little as possible, and we continue to do so. Asset life cycle management. We build the ships to our standard, we operate them from 25 to 30 years. And then we dispose of them or recycle them in a responsible way. And water use and the quality, minimizing the impact that we have on the water that we use.And governance. Ethical business practices. And compliance. Health and safety.Going forward, we will be emphasizing this. Not that we -- we will be talking more about it. We've always done it, but we will be disclosing it more.But it's important for me that it's not just talk. I want to talk about the real things that we're doing and that what we are working on are achievable targets.Our sustainability commitments on Page 7. I'm not going to go through each of them, but these are posted on our website and will be disclosed more going forward -- in detail going forward. Then moving on to Stolt Tankers on Page 9. So in the fourth quarter, the operating profit -- operating revenue was down 6%, $274.8 million. Our EBITDA was down 4% to $53.5 million. And our operating profit was down 2% to $14.6 million. And the operating days was down 5% to 6,047. The operating days was down because of the Stolt Groenland, that we had an incident of explosion, but also 2 other ships that were down because of technical incident.So if you take then the $15 million operating profit that we reported in the previous quarter, we were down $3.9 million because of the lower trading results, lower trading result is then impacted because of fewer operating days. We had a lower -- a positive $3 million, which -- as a result of the lower bunker costs net of our bunker surcharge and higher bunker hedge results of $1.2 million. Lower owning expenses of $0.8 million. And lower depreciation of $0.5 million. And a slightly lower equity income from our joint venture, bringing it to $14.6 million.The Stolt Groenland incident and the off-hire of -- off-hire due to technical issues had a negative impact of $2.8 million in the quarter. We also had a challenging market in our regional fleet, especially the Stolt-Nielsen Asia Pacific service.We also had a loss of $1.8 million, that was our share, when we sold 2 ships in our regional fleet.However, for the first time since 2016, the contracts that we renewed during the quarter was up, on average, 4.1%. That's an increase from the negative 1.5% we had in the previous quarter. Utilization in our deep-sea fleet also improved 1.2%. And subsequent to the quarter end, the positive trend in our contract renewals continue, and also in the spot rates. Again, we'll talk more about that. And starting on the 1st of January, as you all know, the new IMO regulations came into effect. Stolt Tankers was fully compliant with the IMO low-sulfur fuel. And we were -- we're able to -- we are able to fully recover on the increased bunker cost through our COAs. So full pass-through of the additional costs through our COA bunker clauses.I think this is the -- on Page 11, the bunker cost. This is really the last time you will see this format because this is, again, the HFO or IFO. The average price of IFO consumed decreased to $384 per tonne in the fourth quarter compared to $408 in the third quarter.Year-to-date, the COA bunker surcharge clauses covered 60% -- 65% of the total volume of bunker consumed.We have no further bunker hedges in place from January 1, 2020.And again, subsequent to the quarter end, successfully implemented the switch to IMO 2020 compliant fuels. And the fuel supply has been secured, so we have had no problem in securing low-sulfur fuel or MGO.Moving on to Page 12. Stolt Tankers Joint Service Sailed-in Time-Charter index and sensitivity. I think you all expected it to jump further up, but it hasn't. And I will explain why.The order book on Page 13 is now at 6.7% or 1.2 million deadweight. And from 2020 to 2022, down from 8.1% in the third quarter. So we're seeing, if you look at the chart here on the right-hand side, the yellow and the blue, and I guess, it should have been all yellow in 2019. But you can see that the scheduled delivery of newbuildings coming into this segment in 2020 is approximately the same as it was in 2019.So the recovery that we are seeing today is not really driven by the lower supply compared to last year. It's driven by the strong crude and MR market. And then you see the dramatic drop in supply in 2021 and beyond.And I question -- and here is where I turn in quite bull on our segment. Because I wonder, in our own case, we, at a certain stage, need to order new ships, both deep sea or large ships and regional ships. But with the uncertainty about what the regulatory requirement is going to be and what technology the new ships will have to meet that new regulatory requirement, is it right for us to order ships today with that uncertainty? And i.e., when we order a series of ships, we're talking $500 million, $600 million investment.So until we have a better understanding of what the regulatory requirement is going to be, what targets that we need to meet, I will be quite reluctant to put in an order, especially if these targets that are being imposed on us are targets which today's technology can't meet. So I was wondering, who is, today, going to start ordering large amount of ships. And if we -- nobody is ordering a ship, well, then you're going to certainly make it -- the cargo still needs to be transported. So I think that going forward, we are already now starting to see the recovery, not because of the lack of supply or new supply coming in, there is still supply coming in, as you see from the 2020 graph, it is driven by the strong MR market. But going forward, we also see a drop, dramatic drop of new supply.And if we believe that the global economy will continue to grow, and as a result, the global trade will continue to grow, I'm actually starting to think that this market is going to be pretty damn good going forward. Now let's just talk about short term here because I see some of the analyst reports in regard to earnings expectations.Yes, the spot market has gone up. And I remind you that 70% of the business that we do is off of contract of affreightments. So 30% will benefit from the increased spot rates.And then you have 70% COA. We have fixed -- in 2019, we have now fixed 67% of the contracts that we are going to serve in 2020. Now those contracts were fixed, as usual. And this is the first quarter we are showing you an increased freight rate on these COAs. But in previous quarter, they were all negative. So you have to remember the contracts that we're serving in 2020 are contracts that we have to compete, so there are lower -- it will take time for the improved market to come through. It will have a good impact on the spot. But for us, it needs -- it will take a while for the -- it to -- that 70% will take a while. And you also have to remember that we have lived in a very challenging shipping market for a long time. So our customers have beaten us down, not only on freight rate, but terms and conditions. They have forced to take us on a multi-year contracts. Multiyear contracts is, of course, good when the market falls because you have the old freight rates. But multi-year contracts where the freight rates are fixed for 1 year, and then the second and third year, there's usually a cap, 5%, 7.5%, 10%, varies from each of the contracts. So even the contracts that we will be fixing going forward, a lot of them -- over 50% of them have caps of how much we're allowed to increase. So we are now seeing in December that we're able to renew, and we continually, every quarter, renew contracts, and we are seeing a full increase under the caps. Most of the contracts now, we're able to get full increase, but there's caps on them.So if you think that we're going to get 20% to 30% increase, yes, we might be able to do it with the ones that don't have cap, but a lot of them have caps. Because of the challenging market we've been in, we have had to accept it. So chemical tanker industry is quite boring. It goes slowly down, and it goes slowly up. So we have an upside potential, of course, in the 30% spot exposure that we have, but it will take time to get the impact from the improved contract renewals. And it's limited how much we can pass through and how quickly. But trust us, we are seeing, which is fantastic, we are seeing, for the first time in a long time, where we were able to get the full increase under these caps. Moving on to Stolthaven Terminals. Very steady and continuous improvement. Operating revenue is down for the quarter, 2%. EBITDA is approximately the same. Operating profit, down 40%. And utilization is slightly down 2%. The operating revenue was slightly down by $1.2 million compared to the third quarter due to lower utilization in Asia.In the fourth quarter, as I mentioned earlier, we impaired -- we did an impairment of $5.5 million of the capitalized expenses in Australia. And the operating expenses were flat compared to the third quarter. And the depreciation increased by $1.2 million as a result of asset commissioning in the U.S. Total product handled decreased 7.4% compared to the third quarter due to lower marine activity and activities pushed to December due to the weather condition in the Houston Ship Channel, that is, referring to the lower -- the seasonality.But overall, in the long run, it's steady. It will continue to improve the Terminal division. It is just one-offs and seasonality.On Page 17, just an illustration of our terminals around the world and the capacity that we have, and showing you that we are at 92.5% utilization on our wholly owned terminals and our joint ventures.And Guy, the Head -- the President of Stolthaven Terminals is doing a hell of a job. The EBITDA and the EBIT margin have been growing steadily as a result of the improving profitability, control and working to improve utilization and throughput. So what he's been doing is he's actually been removing lower-paying business in this strong market, pushing out lower-paying business, renew it with higher-paying business and has a sharp focus on our cost and our operating costs.In 2019, Stolthaven Terminals focused on organic and selective growth, while continuing to invest in safety and environmental projects.We expect 2020 to be similar as 2019, optimizing existing assets with minor expansion plans in the U.S., Malaysia and New Zealand. In the U.S., although the American Chemical Council (sic) [ American Chemistry Council ] reported a slowdown in the chemical industry, we are seeing a continuous flow of inquiries for chemicals, vegetable oils and base oils.In Europe, rather flat. Demands remain stable and petroleum products continue to show demand for IMO 2020 bunkers and jet fuel.Asia, more challenging. The Chinese chemical market remains weak, partly due to the U.S.-China trade war, the slowdown in the economy and new tax regulation. The Korean market, however, remains stable for chemicals.And Brazil remained stable for petroleum and ethanol and chemicals.Just to talk about the coronavirus. It's too early to say what impact is going to be, both for the shipping and for the terminals. If you ask, "Does it have any big impact right now?" No. But I'm certain there will be an impact. To what extent it will be and for how long, this is for you all to speculate on.Stolt Tank Containers. Operating revenue, down 1.3%. EBITDA up 30% to $22.6 million. Operating profit, up 29.8% to $15.7 million. And utilization, slightly down 1.7% to 67.5%. Operating revenue was slightly down from the third quarter. A $4 million decrease in transportation revenue was partly offset by increase in demurrage and other revenue.During the quarter, the shipments remained in line with previous quarter. However, shipment mix had a higher percentage of low-rate intra-regional shipments that caused the reduction in the transportation revenue.Operating expenses decreased by 5.9%, but that was driven by lower freight costs from the higher proportion of intra-regional shipments, from shorter shipments.Transportation margin per shipment increased 7.1% from the third quarter, reflecting direct -- lower direct operating costs and lower freight costs, again, from the intra-shipment -- intra-regional shipments.And utilization decreased, 67.5% from 68.7% in the third quarter, reflecting additional new tanks to the fleet.For 2020, we remain positive for the growth in the market, but forecast continued pricing and margin pressure due to the overcapacity, rising fuel costs and increasingly competitive market.Again, it is an increased market -- increased competition in the market. There are more and more operators, but still a healthy business. It's still a growing segment. So I am quite bullish for the segment. Despite geopolitical and macroeconomic challenges, the outlook for long-term fundamental growth and geographical expansion remains strong.Stolt Sea Farm. Operating revenue, down 5.3%; EBITDA, down 32%; and operating profit, up to $1.7 million.The revenue from turbot decreased by $9.1 million (sic) [ 9.1% ] as volume sold fell following the seasonally strong third quarter. Average price for turbot increased marginally. Revenue from sole increased 9.1% as prices rose and volume was up 8%.Operating profit increased as fair value adjustment had a positive impact of $0.8 million compared with a negative impact of $2.5 million in the previous quarter.New state-of-the-art sole farms, under construction in Spain and Portugal using some Sea Farm recirculation technology. Operations in Cervo, expected to commence in February, followed by Tocha 5 months later.The investment in the circular -- recirculation technology to enhance flexibility in production geographies and variety of new species. Leverage technology expertise to reduce production costs. Expand markets to reduce dependency upon specific geographies and/or distribution channels.One of the challenges that we've had with the turbot is that we have sold too much to Spain. And what the new team has been working very hard on is developing new markets in Northern Europe and the United States and other markets. And also developing new projects. As you can see here, we have now done a contract with Auchan starting in October, where we deliver our own branded le turbot in portions. Moving on to Stolt-Nielsen Gas. Just to remind you, Stolt-Nielsen Gas is today 2.3% ownership in Golar and 45% ownership in Avenir. We sold our remaining stake in Avance Gas just before Christmas. The proceeds, approximately $26 million, and the gain didn't go through the bottom line, but through -- went straight through the equity -- sorry, through OCI of $10.8 million. We are -- talking about Avenir, just to remind you, we have an 80% increase in the LNG terminal that we are constructing in Sardinia. And we have 4 7,500 cubic meter and 2 20,000 cubic meter small-scale LNG carrier newbuildings that are under construction in China.The first ship has been fixed with Petronas with a bareboat charter for 3 years and its expected delivery, March 2020. Unless this new virus closes down the yards, that's just kind of what we're aiming for. The second ship has also been fixed. It's gone to Golar Power, with, again, a 3-year charter. The agreement includes collaborating in the development of the Brazil downstream small-scale LNG market. And the second ship is expected, the delivery in late July or slightly early August 2020.Just to remind you, we are not a tonnage supplier. Our strategy is to be a supplier of small-scale LNG, source the LNG, ship it, distribute it and sell it to the end user, to stranded customers.But until we have the portfolio and the volume of offtake, where we have -- can use our own ships, we have chartered out and taken advantage of the strong market for these types of ships and chartered out -- we could have gone longer, but we have decided for 3 years. And then we still have 2 of the 7.5 (sic) [ 7,500 ], which we can use for our own volume.Sardinia. The HIGAS terminal is scheduled to commence operation in August 2020. We have gotten offtake for that business in Sardinia, and we're also talking to a major industrial offtake customer in Sardinia, which we are -- looks promising. That brings us to the financial segment, and I'll give the word to Jens.

[Jens F. Grüner-Hegge]

Thank you, Niels. Good morning to everyone in the U.S., and good afternoon to all of you here. As per normal, I'll provide you with some further financial details about the fourth quarter and also give you some further guidance on some of the P&L items that we have for the next quarter. Also, just to remind you, we did file our financial statements with the Oslo Stock Exchange today, and you will find all of that on our website, both the press release, this presentation, our interim financial statements, on www.stolt-nielsen.com. Also, quite exciting, I think, is that we posted a video on our homepage that also summarizes the year-end figures, which I hope you will find interesting.Focusing on the operating profit before one-offs to start with, you see we were at $52.8 million, and that was up from $41 million in the third quarter. You will have sort of gotten the tone from Niels that there are some improvements in the businesses, but a lot of this was a $6.2 million positive swing in the corporate -- in corporate, and that was really due to lower profit sharing driven by the lower overall profit for the year and also accruals and lower insurance deductibles. In addition, we saw the tank containers, they had a positive $3.6 million increase, and that was, as Niels mentioned, due to the transportation margin and higher demurrage revenue of $1.6 million. While Stolt Sea Farm's reported results were up by $2.1 million, but mind you, that includes a positive fair value swing of $3.3 million in the quarter.Tankers operating profit decreased by $0.5 million, driven by the fewer operating days and also the $1.8 million loss on the sale of -- or the 2 JV ships being held for sale. At Stolthaven Terminals, we took an impairment, as Niels mentioned, of $5.5 million at our Australasian terminals. And without this, the results were down about 1.3% -- no, sorry, $1.3 million after a few other minor adjustments as we did have a gain on sale on the Altona terminal in the third quarter. Net interest expense was below the prior quarter guidance of $37.5 million and also slightly below the prior quarter. And that's because in the prior quarter -- in the third quarter, we did a lot of refinancings, concluded those and wrote off debt issuance cost. So a noncash item.Income tax was $7.6 million during the quarter, and that was due to higher tax charges in Stolt Tank Containers. And therefore, net profit attributable to shareholders of SNL came in at $5.9 million for the quarter, with EBITDA at $116.6 million. And you should note that, of course, that EBITDA is before the fair value of biological assets, insurance reimbursements and other onetime nonrecurring items.If I can move over to the balance sheet. Again, I'd like to emphasize, when we're talking about the balance sheet, that our focus is to reduce the debt and maintain a strong liquidity position.And just as a note of interest, debt has reduced from its peak, which was what we reported in the second quarter of 2017 of $2.53 billion. And we ended the fourth quarter at $2.34 billion, so about a $200 million reduction despite what has been a very challenging market, particularly for tankers.This $2.34 billion is down slightly from the third quarter of 2019, where it was at $2.37 billion.Our liquidity position was at just over $0.5 billion. That was slightly down from $600 million reported in the prior -- at the end of the prior quarter. But keep in mind, we held liquidity at the end of the third quarter so we could pay off the bond that matured on September 4.On the ratios, we are finally seeing some more positive movements, where tangible net worth, that held steady at $1.6 billion. And consequently, with the debt reduction, the debt to tangible net worth decreased, down marginally to 1.47, and we were at 1.48 last quarter. It's a small change, but it's a positive one in the right direction.The EBITDA-to-interest expense was 3.12, and that's up from 3.05 in the prior quarter. And then finally, the net debt-to-EBITDA ratio was down at 5.11, and that was a reduction from 5.27.When we get below 5, we get certain benefits on some of our financings on the margin terms. So that's really our target, to get down below the 5:1.We expect to slightly -- we expect interest expense for next quarter of $35.3 million.If I move on to the cash flow. Cash flow from operations was a positive $68.9 million, down from $84.9 million in the previous quarter.And this was primarily due to timing of interest payments, which are, for a number of our facilities, done only semiannually. So it takes a bit of a cash drain at the second and the fourth quarter. The capital expenditures reflect the terminal investments, $18 million of that, $6.5 million on drydocking of ships during the quarter, we had also $6 million in regular tank -- regulatory tanker CapEx and $4 million on the Sea Farm for the ongoing constructions of those 2 new farms in Spain and in Portugal.Also, we divested our 8.3% holding in Avance Gas during the quarter. So we sold that down for $25.9 million, and in the process, realizing a gain of $10.8 million, which we took straight to shareholders' equity. So that did not go through the income statement.During the fourth quarter, we paid $2.45 million (sic) [ $245 million ] of long-term debt, and that included the bond that we paid off, which was about $148 million, I believe.And we also drew down on about $184 million of new debt. That was the last tranche of the $420 million Chinese sale-leaseback transaction that we did. Net cash flow for the quarter was negative $6.8 million, therefore, and that resulted in a cash balance at quarter end of $136.2 million. I'd like to remind you that we do have a bond maturity coming up in April, and hence, why we're also maintaining significant liquidity on hand. Going over to capital expenditures.During the quarter, we spent $35 million. And that was, as mentioned on the previous slide, the terminal expansion, tankers for regulatory CapEx. Note that the $35 million excludes the drydocking component that I mentioned when talking about the cash flow.For 2020, our expectation is $214 million, so slightly up from -- somewhat up from what we've seen in 2019. And part of that increase that you will have seen from previous presentations is because 2009 -- '19 projects were pushed over to 2020. Tanker CapEx going forward include about $25 million for ballast water treatment systems. For terminals, we have $8.5 million for new capacity in New Orleans and $6.3 million for ongoing expansions in New Zealand. And most of the rest in tankers -- sorry, in terminals, is really earmarked for maintenance CapEx.Tank containers, we have $6.8 million earmarked to improve our network of depots. And at Sea Farm, we have about $7.1 million remaining for the 2 new farms. And the $36 million that you see there for Stolt-Nielsen Gas is earmarked for Avenir. And that's our share of the remaining $72 million commitment that the 3 founding shareholders made.Just as a general note, because people often comment at the significant drop in CapEx going forward and that, that's not sustainable, which may be true, but we are not in any rush to invest, as Niels indicated. Each of our businesses are focusing on improving utilization and asset turnover, and thereby, also focusing on improving margins.The debt maturity profile. Going through 2024, you will see the dark blue consists of regular principal payments. And then you have balloon payments in light blue, and it's very hard to differentiate between that and the gray, which are the bond maturities.We have the bond coming up in April of $161 million. And as you saw on earlier slides, we have sufficient liquidity to pay that off in cash. There was an announcement yesterday that we are going on a roadshow and we are contemplating doing another bond issue. It is -- we've seen the bond market is very active. We haven't been in the market for a long time.We have, as you will see there, maturity in 2021 of $232 million. If the market is there, it's good to take in the liquidity and be a bit opportunistic about it. But it really comes down to the pricing that we can get.Yes. With the $868 million in new finance that we did during 2019, we have also seen that we've been able to push out maturities. So we are in a stronger position now than what we were at the beginning of the year. I'd like to talk -- just visualize a little bit on the trends of the key covenants that we have. The top left is the debt-to-tangible net worth, where we now are down below the 1.5. That was the self-imposed limit by the Stolt-Nielsen Board. We were as high as 1.6 on that, but that's been sort of steadily coming down, and the aim is to continue that trend.EBITDA to interest expense has -- looks like it has bottomed out. Key here is, of course, the EBITDA. I will come back a little bit on that. But that was slightly up during the quarter. Note, on the bottom right, you have a visualization of the free cash flow after capital expenditures, and we are benefiting from that significant improvement that you're seeing there, slightly down from where we were in 2018. And that's driven by slightly weaker results, as you will have seen, as well as the CapEx. Going forward, looking at 2020, that, of course, will depend on the tanker markets, but we are projecting more capital expenditures, as you saw. And then to the bottom left, you have a virtualization of the debt to -- net debt to EBITDA, which is hopefully, still going to be below 5:1. A few financial items that we talk about. I'll be quick on those. The A&G was at $48.1 million in the quarter. That was down mostly because of really a reduction in the profit sharing accruals that we make because of the weaker results. And if you look for the next quarter, we expect, therefore, A&G to be increased to $54.9 million as we get back to more normal profit sharing accrual.Depreciation and amortization for the fourth quarter was $63.9 million. That was pretty flat from the $64.3 billion we had in the prior quarter. Guidance for the next quarter is $64.2 million. So consistent, really with what we've seen as of lately. We expect perhaps a slight increase in tankers due to assets capitalized during the quarter, mostly drydockings. Then going to our share of profit of JVs. For the quarter, that was $5 million. You'll see the drop in tankers. That was negative $0.2 million, and that reflects the loss of about $1.8 million on those 2 ships held for sale in our joint venture. We don't expect a repeat of that. So that should bring that back up to a more normal tanker JV profit. And then the development of that going forward, of course, depends on development of the tanker markets and the earnings for tankage at large.We're, therefore, expecting a share of profit for the next quarter of about $7 million.And then also looking at the tax expense. Total tax was up this quarter at $7.6 million. That was an increase of about $3.2 million from the third quarter. And most of that is in Stolt Tank Containers.Finally, I just want to give you a visualization of the EBITDA. We are seeing some improvements that are coming through, and that is important because it is also driving our performance under some of the covenants. Tankers, slightly down, but up from the same quarter last year. Terminals was up. Tank Containers was up. And therefore, those together with the Sea Farm helped improve the overall SNL EBITDA up to $117 million. And again, this is before the fair value of biological assets, insurance, et cetera. And with that, I would like to hand it over to Niels.

[Niels G. Stolt-Nielsen]

So the key messages. We have remained profitable since 2004 even during the financial crisis that we had and the prolonged weakness in the shipping market.Stolthaven Terminals performance is steadily improving, with a stable -- and I believe in continued improvements from the Terminal division. Tank Containers is facing increased competition and a constant change of trade flows. However, it is still delivering solid results and the fundamentals in the industry are still strong. Stolt Sea Farm continues to show improvement in turbot and sole as we continue to push the international markets and also in the opening of the 2 new recirculation farms. And Jens and his team have done a tremendous job in refinancing most of the tanker debt, which has put us in a strong liquidity position.Just also just going to repeat what I said about tankers. We are seeing -- subsequent to the end of the fourth quarter, we're seeing significant improvements in the tanker market. And we are able to get close to full increases within the caps that we have in our COAs, and we're, yes, we're pushing hard. And that completes the presentation. Operator, now we will open up to the floor first, and then we'll take the phone afterwards. And we have a microphone here so that people on the phone can also hear the questions.

[Axel Styrman]

Axel Styrman from Nordea. I have a question regarding the potential spin-off of tankers from the company. Can you please update us on if you still are considering this? When you plan to do it, if the answer is yes?

[Niels G. Stolt-Nielsen]

The answer is yes. Everything is ready to go. We have a new President in Stolt Tankers, and that is very much part of his focus right now in preparing for an IPO. But I think that we need to see an improvement in the earnings, not just the expectation of an improvement in the earnings, but we need to have some proper earnings behind us for the right time. So if -- we'll have to see how this market develops. But if the market develops in the right direction, and there's appetite for a clean chemical tanker company in the market, we will absolutely do an IPO.

[Axel Styrman]

Just a follow-up question there. How much debt is actually allocated to tankers on the balance sheet right now?

[Jens F. Grüner-Hegge]

We have about $1.3 billion in tanker debt. I can go with more exact number. There's also some intercompany balances, but $1.3 billion is external.

[Niels G. Stolt-Nielsen]

There's a question over here.

[Lukas Daul, Analyst]

Lukas Daul from ABG. If you could go back to Slide 14, where you are showing the sort of revenue potential from the spot exposure that you would have. Can you explain to us what that means? What kind of upside are you sort of referring to?

[Niels G. Stolt-Nielsen]

Well, if you look at the upside potential in the revenue part of the spot segment of 30%, the $250 million -- Jens, if...

[Jens F. Grüner-Hegge]

[indiscernible] but that depends on the spot market. So...

[Lukas Daul, Analyst]

So what kind of rate increase in the spot market have you sort of used for visualizing the $250 million increase?

[Jens F. Grüner-Hegge]

There is one change that is important to keep in mind when you look at this one and that is IMO 2020. IMO 2020 will have taken -- botched the cost base up. So if we have flat spot rates, we're actually losing out. The estimated percentage was about 8%.

[Niels G. Stolt-Nielsen]

8.2%.

[Jens F. Grüner-Hegge]

Yes, 8.2% that we need as an increase in spot rates to be equally off. We're seeing more than that in pockets so far. So beyond that, for every 10% increase, you're looking at approximately $25 million bottom line, everything else equal.

[Niels G. Stolt-Nielsen]

There's also a further upside potential in high utilization. In a strong market, you get better utilization of all the tanks and all the ship.

[Lukas Daul, Analyst]

Okay. And then you said that you don't have any bunker hedges going into 2020.

[Niels G. Stolt-Nielsen]

We have the COA, which covers 65%, but we don't have any physical hedges going forward, no.

[Lukas Daul, Analyst]

Okay. So and on the new contracts that you have been signing in the spot market so far, you have seen full pass-through over the bunker costs, on to the client.

[Niels G. Stolt-Nielsen]

Yes. Under the COAs, full pass-through, or to be specific, 98%. 2% was actually decisions that we made: one contract that didn't have a bunker clause because the rates were only covering the cost; and then another one which was strategic, we had to just take the contract.

[Lukas Daul, Analyst]

Okay. And then on the investments that you are guiding for 2020, ballpark, $200 million. Are you going to raise any debt to finance those? Or what is your thinking there?

[Jens F. Grüner-Hegge]

In the plan that we operate, we now -- we talked about the potential bond really more to focus on the $232 million maturity that we have in 2021. As far as 2020 goes, we're pretty much well covered when it covers debt maturities as well as the capital expenditures that we have.

[Niels G. Stolt-Nielsen]

So when we show the liquidity that we have in place for 2020, that includes the cost of that CapEx.

[Lukas Daul, Analyst]

Okay. And so given what you said about the earnings may be lagging a little bit, the improvement in the spot market and the investment plans that you have, is there any expectations about raising the dividend a couple of weeks from now?

[Niels G. Stolt-Nielsen]

Trust me, I want -- I will raise the dividends as soon as -- we have to see the earnings first and then we will raise the dividend.Any other questions here in Oslo? Then operator, if there's any questions on the phone?

[Operator]

We have one question from the line of Santiago Domingo from Solventis.

[Santiago Domingo;Solventis;Portfolio Manager]

I have 2. The first one is related to the return on net assets that you require to your investments in tankers, I mean, across the cycle because we are seeing right now that you are around 2%, 3% of return on net assets. But I think that, obviously, you have to require more to those investments. I would like to have a figure, I think, between 7% and 8% is okay. I don't know if I'm okay and right.

[Niels G. Stolt-Nielsen]

So if you look historically, tankers through the cycle, up until 2000, had a return on capital employed of 8%. Since 2000, until today, it's been 5%. The last 10 years, as you pointed out, has been between 2% and 3%, totally unsustainable. So we have our own program in place to get it back to 8%. Of course, the market needs to help us. But we have a 3-year -- 3- and a 5-year plan by reducing our costs, cost of operation, cost of our assets. So our target is to achieve an 8% return on capital employed through the cycle.

[Santiago Domingo;Solventis;Portfolio Manager]

Okay. My second question is also related to tankers. It is related to the order book because as you mentioned in the call, the order book in 2021 is so, so low. And probably, it can be solved right now because if we order a vessel to the next year, probably, we are not going to have it because it takes time to build that vessel. Therefore, probably in 2021, we are not going to have more supply than what we see in that graph. And therefore, if the demand remains strong, the oil tankers' rates are also high and all that kind of things, we can see some kind of very strong improvement in the spot rates in the chemical tanker market. I know that there are a lot of assumptions there, but I would like to know if it's something that is wrong.

[Niels G. Stolt-Nielsen]

No. I tend to agree with you. It is that there will be no additional supply coming in, in 2020. And if you put in there an order today, you maybe get it in later half of '21, maybe into '22. But as I mentioned, in the tanker segment, I question, if you look at the order book, that was -- came in, in 2014, we went from 7% up to 30% in 1 year. And that's the deliveries that you see in '16, '17 and '18. Most of those investors that went in -- a lot of them that went into this segment are now trying to get out.So I wonder, one, if there's as big an appetite to come back into this segment by speculators. And number two, as I mentioned, with the uncertainty about what the regulation will be going forward and also the next technology, what are we going to build? What is going to power our ships going forward? Should we really build the next series of ships with -- based on oil? Should it be gas? And will that technology meet the regulatory requirement going forward? So I think with so much attention on -- which I think is good, but with so much attention about the CO2, we need to be very careful and have to be very careful thinking about what kind of ships you order. I don't want to order ships today which will be obsolete in 5 years' time. I think there will be a reluctancy until the regulatory requirement -- regulatory, the targets that are being put in place and until we know what technology, what type of technology is going to be used, a proven technology. I -- well, I'm just thinking about myself, our own company.If we're going to order -- we need to order ships, we haven't ordered a ship for a while. We bought J.O. -- took over J.O. and we had ships delivered in the last 3 -- 3 years ago, 2 years ago. And having a fleet of 155 ships, we need to continuously look at newbuildings. But it's a very difficult call. And I think that's the same for everyone. So I -- therefore, I'm quite bullish.The demand side is pretty steady, as you know. It's very much driven by global trade, which is driven by global GDP. And assuming -- and historically, it's always been around 3% or 4% increase in global GDP. So if that continues, we should see, what I believe, a pretty strong market. It takes time, but I think we will see a healthy market in years going forward.

[Operator]

There are no further questions from the phone.

[Niels G. Stolt-Nielsen]

No other questions. Any further questions here in the room? Again, thank you very much for participating. That completes our fourth quarter earnings results. Thank you.