Stolt-Nielsen Ltd

OSE:SNI

Earnings Call Transcript 2022-Q4

[Niels Stolt-Nielsen, CEO & Director]

Okay. Good afternoon, and good morning, and thank you for joining us for our Fourth Quarter 2022 Earnings Release. Today, it will be presented by myself, Niels Stolt-Nielsen, and Jens Gruner-Hegge, our CFO.

The normal agenda, we will go through the fourth quarter results, take you through the highlights of Stolt-Nielsen Limited. I'll go through each of the businesses. Jens will take you through the financials, and then we'll open up for question and answers. I believe you can both call in or you can send messages through.

Yes. So if we go to Slide 4, the fourth quarter highlights. It was a strong quarter, giving us a record year for our company, a record year at least as long as I've been CEO. The net profit came in at $95.3 million, that is up from $74.7 million in the third quarter of '22. And the increase that we saw in the quarter was primarily driven by the improvements that we saw in the Tanker Trading division. EBITDA came in at $196 million, and that is up from $184.4 million. Again, strong tanker results due to higher spot rates and also higher volumes. Terminals, marginally lower results due to softness in the European market, but that was offset by higher utilization, partly offset by higher utilization in our U.S. terminals. Tank Containers had another strong quarter, and that's reflecting the success they've had in maintaining margin against a backdrop of declining ocean freight rates.

I will be talking more about that, of course. Still Sea Farm, the lower results, excluding fair value due to the seasonality, you have to remember the fourth quarter ends in November and the Christmas sales starts in December. Free cash flow decreased slightly $123.6 million, and that's down from $140.4 million. We declared an interim dividend during our November Board meeting of $1, which was paid out in 8th of December '22. And we continue to have a nice liquidity position of $473 million. That is down from $568 million from the previous quarter.

Jens will take you through that. Just on the net debt to EBITDA ended the year at 2.85 as a multiple of the EBITDA. Then doing the net profit and a variance of analysis from the third quarter to the fourth quarter, here you clearly see that Tankers operating profit increased by 17%. Stolthaven slightly higher of 0.1%, STC maintaining strong earnings of higher of 1.8, Sea Farm down by 2.4%, gas 0.9, lower corporate costs of $4.5, others of $3 million and lower income tax of $3.5 million bring us at 95.3% for the fourth quarter.

If you look at the year as a whole, what really happened, it's -- we've been waiting for this. And this year was finally the year where things really fired on all cylinders. And you see, if you go back from 2006, we saw an enormous increase in our net profit for the year of $281 million. It's nicely illustrated and also the EBITDA ended at $715 million for the year, which is also significantly up. It's driven by, again, by firming the tanker market, the fundamentals are strong. We've been seeing it for a long time. We know that the order book is low, and we were just waiting for that balance to happen. And as you know, the balance was pushed in our favor very quickly when the product tanker market strengthened because of the war in Ukraine. We are seeing, I'll talk about each businesses, but it was really -- so far, it's really primarily the earnings increase that we've seen is driven by the higher volumes in the spot market.

We also took the opportunity during the year to acquire also some nice secondhand tonnage, which brought our fleet to the record size of I think it's now at 164 ships. In Terminals, high utilization and throughput pushed operating profit up by 43% to $99 million in '22, and that is up from $62 million the previous year. Tank Containers, the Clear Star, a record-breaking year with higher transport rates and demerged revenue increasing operating profit for $273 million for the year, and that is up from $82 million in 2021. And even in the fish is went our way to the prices, both for sole and turbot were fantastic and gave us a result accordingly.

Then if we move to our biggest division, still Tankers, we can just start with the operating profit variance analysis, we had a higher trading result compared to -- comparing the third quarter '22 to the fourth quarter. We had a higher operating profit of $21.4 million compared to previous year. We had higher net bunkering cost of $7.9 million, higher operating expenses due to higher maintenance and repair costs, consumables and other owning expenses caused by inflation. Higher depreciation of $0.5 million, higher equity income from our joint ventures and higher others bring us the operating profit for the quarter to $78.2 million. The bunker cost, again, 99% of our COAs have bunker clauses at the end of the year, the total volume covered by those bunker clauses is 63%.

The bunker surcharge revenue was down by 20.3% as prices of the bunkers dropped. Even though the price of the product we consumed remained -- was higher. The bunker consumer was down by only 12.3%, resulting in a net increase in bank cost of $8 million. Strong fundamentals. And we have -- if you look at on the chart on the right-hand side, HBR, that's what we call from Asia back to Europe and the United States, and that's where we've seen a really strengthening of the market. Of course, you see a dip in January. I think that is driven by, I would say, year-end inventory adjustment, holidays, Chinese New Year's, we'll talk a little more specific about the market of how we see it now.

TransAtlantic is strong, Transpacific has had the right trend, but came off a bit towards the end of the year and the beginning of this year. And the Gulf West bound, that is AG to Europe has also come off in the beginning of the year. But still at a nice level. Now the sell-in for the quarter ended at 27,162. So the spot volume in the fourth quarter versus COA was 37% spot 63% contract. We -- approximately 55% of our COAs are renewed in the fourth quarter and in the first quarter of each year. So we are now in a heavy contract season.

As I wrote in the press release, we are pushing hard to get the contract rates up. But we have let go or have not renewed quite a bit part of the contract portfolio because customers haven't been willing to accept the rates that we have asked. So we are being quite aggressive, and that's why our spot exposure has gone up. Some of the customers, most of the contracts that we have not renewed have not gone to other owners. Some of them have gone to -- a few have gone to other ones, but the other ones are mostly in the spot market. And when they go to the spot market, we charge them the spot rates, which is currently higher than the COA rates. And we're also seeing some of -- they're also starting to come back to see if we can come to an agreement. So we haven't lost them. We just haven't renewed them. It has taken a longer time, and they are exploring the spot market. I don't think that they are structured in a way that they can handle their volumes through the spot market, but we are standing firm.

So we're not backing off on the rates that we're asking. And I think that we will continue to see that we will be able to get and push through the contract rates. So when we say that in the fourth quarter, we increased our COAs by 20% or 30%, you have to keep in mind that, that is a 30% increase on the contracts that we renewed. We are not telling you what -- which contract we renewed and what level those contracts are. So it's quite difficult for you to kind of predict our sales in based on just saying 29% because we haven't -- there's a lot of these contracts that haven't been renewed yet.

So I think what we discussed it long how we're going to kind of give you better guidance because just telling you what we were able to achieve on the contracts that we renewed doesn't give you the full picture. So we have kind of said that based on what we -- we have renewed over the first, second, third and fourth quarter of last year and based on what we see is coming through the pipeline and what we see in the spot market, we're going to give you a guidance of what we think the sales in on our fleet is going to be for the first quarter. Based on what we are seeing now and based on the contracts that we have renewed, remember, when we renew a contract, when we go into contract negotiation, it's usually 1 to 2 months before the existing contract expires.

They negotiate and then we come to agreement, hopefully. Then it takes 2 years before those new rates apply. But then new voyages has to start with the new rates. And a voyage takes 30 up to 60, even more days. So to get the full impact, that whole voyage or the 2 months have to go before the existing contract expires, and then the new voyage has to be completed fully before you get the full impact of the increased. So it's so difficult to explain in a simple way.

So I think the best way we can do is to give you kind of -- based on what we're seeing today, based on the contracts that we have renewed and what we believe the spot market is going to give us, we are indicating to you now that we believe 5% to 7% increase in sell-in for the first quarter of this year. Now 5% to 7%. It's actually -- is it slowing down? Well, if we use what we are selling in exactly now, it would be 7% up. But there is a bit -- as you read, the product take market has come off a bit. The market out of the AG has come off a bit. I think it's temporary. I think it's -- as I said, I think it's the year-end inventory adjustment. I think it's the holidays and the Chinese New Year.

And I think once the inventory has kind of stabilized, and we're getting into the new year, I think that you'll start to see a continued improvement in sales in and that we will be able to push through the increases in the contract. But we are being tough, and we're not backing off. And I don't see any reason to back off in what we're asking for.

So as we stand, we are around 37% spot. It might increase even further. But in the long run, I think we will continue to have around 70% contract, but it needs to be at the right rates. Also, I think we have shown this before for each $1,000 in sale then increase that we're able to get through, that gives us approximately $7 million increase in net income on the bottom line per quarter. So we're giving you 5% to 7%. And what each $1,000 of increased sales in will give you on the bottom line. ESG.

So actually, the emission intensity reduction in the target of reducing it by 50% by 2030. As we stand now, we -- based on the reference date of 2008, we have reduced it by 30.4%. That is actually slightly less than previously reported, and that's because of the change of speed. We are still optimizing our fleet based on sold in. So actually, we have taken a slight step backwards. So we have a further 19.6% to go by 2030.

Moving over to Stolthaven Terminals, pretty steady. Comparing fourth quarter -- the third quarter with the fourth quarter in operating profit, it was one-offs that we had in the third quarter. So the normalized operating profit in the third quarter was actually 23.3 million, slightly lower revenue because of throughput, as we mentioned, lower throughput and slightly lower utilization primarily driven by our in Asia and in Europe, higher operating expense, primarily driven by inflation, lower depreciation and equity -- lower equity income because of, again, that's our joint venture in Europe, a slowdown in Europe in throughputs, bringing the operating profit for the quarter to $20.8 million.

What we're seeing right now is that we're seeing high utilization in the U.S., but slightly lower throughput. Same thing in Europe. We're seeing utilization pretty stable, but lower throughput, Asia, slightly lower utilization and throughput, but we're seeing a pickup as we speak right now, a significant pickup in China. This is an illustration that we have shown you before, but the blue -- okay the black is the total current capacity at each of our terminals. The blue is the organic growth that we can do at existing terminals, land that we have at existing terminals. To give you an idea of what the expansion capacity is through organic growth.

So we have currently 240,000 cubic meters that we are planning for Houston, New Orleans and Dagenham, Westport and New Zealand. The biggest part of that expansion is in Houston and New Orleans, where the market is quite strong and the margins are quite high. We have an additional 750,000 cubic meters that we can build at our existing terminal as we call organic growth. Then we also have some greenfield projects planned and also the potential for future expansion at those terminals that we are building, one in Turkey, one in Taiwan, and we're looking at also in Brazil. Moving to Stolt Tank Containers.

So the operating profit for the third quarter was $43.1 million. Lower transportation revenue decreased by 14.8%. That was driven by the lower transportation rates and fewer shipments, but primarily driven by lower transportation rates from the container lines. We had hired a merge and other revenue. The demerge increased by 18.6%. We actually had a record amount of tanks on the merge, and it's good business. But unfortunately, the mergers is during covid or during the logistic nightmare that we've been through or the realistic issue the world has been through, it was positive because customers ordered extra tanks, used them as storage and also to have a buffer to be able to have product available. Now we see -- it's too early to say what the long-term trend, but now that the merger is more driven by they're consuming less or taking a longer time to the logistical bottleneck has eased up.

So now the merge is more driven by products being consumed, taking a longer time to exit. So in the fourth quarter, we had a great part of the income was from the merge, but for the wrong reason. And we're seeing that the demerge is coming down going forward. When you have lower shipments and lower freight rates, we also lower move expenses. So that was a positive of $25.6 million, higher repositioning expenses. So we are starting to reposition empty tanks into areas where we are short tanks. And we're seeing right now that there's a big shortage in China. So China is picking up quite significantly. And then we had higher other operating expenses, bringing the operating profit to $44.9 million for the fourth quarter.

Market outlook. We say it in the headline margins expected to soften. Demand remains steady but sign of margin pressure. So there's more shipment container line space available. That shipment time takes longer because they're not waiting import load or discharge. So there are more Tank Containers available costing more competition and putting pressure on margins. However, volumes out of Asia and the Middle East, India, very strong, and we're seeing a significant pickup in China. America is pretty flat. The big change is in Europe. Europe is dramatically down. And that is, of course, driven by the energy prices where the -- we're not talking about the various markets, I've talked about the export markets from these markets from the various markets.

So Asia and Middle East, very strong, India, very strong. America, pretty flat. Europe is down dramatically. So we are seeing downward pressure on margins in regions where space on container lines is opening up, but we're seeing a significant pick up, as I said, in the China exports. Carrier spot rates dropped globally as space on ships open up in most regions, new container line capacity expected to be delivered in 2023. Just talk about the expectation in the container. So we are still doing quite well. If you look at historically, forget about 2022, it was an exceptional year. But at the historical levels, if you look at historical earnings, I think we're still going to be a very profitable division, but not that 2022 levels. Quickly Sea Farm comparing operating revenue. Turbot sales were down by $2.2 million lower sold sales, that's more seasonality. Low operating expense of $0.7 million, lower depreciation, higher A&G, okay, bringing the operating profit for the quarter of $1.4 million.

If you look at the right-hand side, on 2021 and '22, we are seeing phenomenal growth both for Turbo and sole. So our operation is doing fantastic. The growth on the Sole business, land-based recirculation of the sole, it is growing faster than we had in our models. It is just an absolute fantastic development. And the demand for Sole is phenomenal.

So we are very excited, and the next step is, of course, to expand the existing recirculation, where we are, but also build new and that's part of the growth plan is to go globally and develop these land-based recirculation farm. Another nice little recognition here. I know you guys are shipping analysts, we did win an award for Superior Taste Award from the International Taste Institute. And that is quite important to think about land-based recirculation, and that the taste that they gave us the 3 star, the highest award you can from these specialists. So that's a very -- for our industry, that's a huge achievement and a big kind of stamp of approval for our technology. Then I'll give the word to Jens, who will take you through financials, and then we'll come back and hopefully answer some questions.

[Jens Gruner-Hegge, CFO]

Okay. Thank you very much, Niels. As Niels mentioned, our quarter ends November 30. So we do have that skewed financial year, as you know. Also, for those who want to go in and download it, we have the presentation and of course, all the press releases that came out earlier today on our website, www.stolt-nielsen.com, under the Investors section. So feel free to go in there and take a look. We are also working on a year in review video, which we're actually proud of. We're very proud of what we do as a company and the function that we serve in the world, and we're happy to share that with you in the form of a video. Moving over to net profit. Niels has talked a lot about this already. I will do a quick reminder of some of the main items. You have the revenue slightly down from the previous quarter.

Tankers freight revenue was up. That was driven by good volume and spot rates, as Niels mentioned. However, the bunker surcharge revenue was down $20 million because of the lower rapidly falling bunker prices. And that's, of course, also reflected in operating revenue. We also saw a reduction in Stolt Tank Containers revenue, not because of a margin drop, but more because of the freight, ocean line of freight coming down. Those are really the big items there. But you see also that there is a similar or slightly larger reduction in the operating expense tied to very much the same events, bunker price and ocean liner freight, and that resulted in our sort of gross margin, if you like, to be improved quarter-on-quarter.

Other items to note, slight improvements in the joint venture, the sharing profit of joint ventures. Administrative and general expenses were down from last quarter. That's because of a slightly lower profit sharing accrual. We had a gain on sale of 2 ships. One was for recycling, Stolt Groenland, -- so that ends the whole saga with Stolt Groenland, and we sold a small ship for onwards trading. So that was a $4 million gain. And then net interest expense, you will see is flat, So even though we have a reduction in debt that I will come back to later, we are also seen an impact of rising interest rates, very small because we're still close to 80% fixed on the interest rates. Yes, it ends up bringing us down to the net profit of $95.3 million versus $74.7 million last quarter.

I noticed in the consensus that a number of analysts had a higher expectation. I think a big part of that difference is due to what happened with the bunker surcharge revenue versus the bunker cost, which now with the fall in bunker prices, you would have expected to see that as a positive in the results, but it actually turned out to be a negative because of how we continue to consume historically priced bunker.

On the bottom right, you have an EBITDA bridge that takes us from the full year 2021 EBITDA to the 2022 full year EBITDA. One thing I wanted to point out is you see Stolt Sea Farm is there with a negative 3%. But if you actually look under the hood of Stolt Sea Farm, you will see that there has been quite a good improvement in the operating results of Stolt Sea Farm. Niels mentioned a great performance on volume and price. The difference there is the fair value of the inventory. And they had, in last year, when prices were rising rapidly in '21, they took a gain on the fair value of about $18 million, and that was absent in this year.

So keep that in mind when you look at that -- look at Stolt Sea Farm. Going over to our capital expenditures, which, of course, impact also our future debt levels, you will see in fourth quarter, we took delivery of 1 ship in September. That was one of those K-Line ships that we bought. We also have then forecast that we will spend $42 million. That's also related to 2 smaller ships that we have bought as well as a barge that we're building for service to BASF, which is quite a fantastic groundbreaking project.

Then for the terminals, not much in the fourth quarter, but a significant jump that you see for 2023. A lot of this is the jetty that we then will finish off during the year at the Dagenham Terminal. And then otherwise, it's maintenance and repair. Once we finish off some of the project work for the other expansions that we talked about, you will see those also being reflected here, but those are not finally been approved by the Board yet. Tank Containers, the 97 and 50 reflect growth in the fleet. So there are -- because they are prime performing business, they are out and aggressively growing their fleet as well. And that's reflected in the $97 million and $50 million predominantly. And then Stolt Sea Farm that's expanding their capacity to continue to grow the business.

So compared to 2022, when we spent about $184 million for the year, we're looking at an increase to about $267 million. It's ambitious. I would expect when we stand here in a year's time that some of that will have dropped off to 2024. But yes, we'll see how far we get on that. Moving over to cash flow. I want to spend a little bit more time on this because the nice result of -- the nice consequence of improving results is that we're actually also improving our cash flow generation.

If you look at the top line, the cash generated by operating activities looks to be pretty much in line with the prior quarter. However, that is driven by the negative impact of working capital. So with an increase in our working capital, we've seen a drop a bit in the cash flow. Also on the next slide, the interest paid was up, but that is because we have a number of loan facilities that have half yearly interest payments. So every second and fourth quarter, you will see a higher interest expense. That leaves us with $164 million this quarter versus $170 million, $180 million in the third quarter, again, mostly working capital related.

Capital expenditures was about $68 million. That number in comparison with the previous slide show you includes also the drydocking of ships. And that's more notable when you look at the full year figure because we spent close to $90 million on drydocking of ships during 2022. Then you have investments and advances to joint ventures. That relates to the Taiwan project that Niels mentioned in the terminal section where we are contributing our part of the equity capital.

We bought $6.6 million worth of shares. That's relating to Kingfish that we bought during October, about a 10% stake. And you will see for the full year, we have spent $37 million, challenging in memory a little bit. That goes back to earlier in the year when we bought up in Odfjell, and we also bought the shares in CoolCompany. That means we spent for the quarter, about $78 million in investing activities versus $65 million in the previous quarter. And for the year, we spent about $245 million versus $180 million in 2021.

During the quarter, we also took our debt and we have every quarter a lot of debt activities, but you will see that the proceeds are not nearly as much as the retirement of debt of $287 million. The bulk of that was the bond that we retired in September, $175 million. And if you look at the year overall, we added debt of $484 million, but we repaid debt of $684 million, plus $40 million, which was short-term debt with -- on some credit facilities. We'd paid during '22 $1 per share in dividends, so that was $53.6 million. But as Niels mentioned, subsequent to the quarter end on December 8, we paid a further $1 per share, which was an interim dividend. So another $53.6 million.

That excluded from here, it means we had -- we'd spent about $173 million on financing activities. And that brought out the cash flow for the quarter to a negative $82 million, but we started out with a significant cash balance in order to be able to repay that bond in September. So now we're down at $152 million. And then subsequent to quarter end, we paid a dividend of $53 million. So we're barring any inflows of cash of about $100 million. You see on the bottom right, you have our available liquidity.

The main tool we have is the revolving credit lines. One is consisting of a fairly large facility with a number of banks secured by ships. The other one is a $100 million facility secured by shares in one of our joint venture terminals. And then you have the light blue is the $152 million in cash. We have talked about reducing debt and you get a bit of the view here on the top left side, where we -- from the same quarter last year, have actually now managed to reduce our gross debt by $246 million. That's about 10% reduction in the debt. It hasn't gone faster one because we have been active in building up the tanker fleet to the largest it's ever been. And we also have other projects ongoing. But we're also hampered by the maturity of the debt in order to avoid break fees, et cetera.

I'll come back to a little bit how we're looking now at cash going forward. But if you look at our average cost of debt, it has come up a little bit to about 5.1%, but with the reduction in the debt that remains steady.

Looking at the bottom there, you have our debt maturity profile. You have the June maturity of $132 million. That's a bond, a NOK bond. Our plan is to pay that off with cash on hand. And with the cash generation that we're going through now, we're building out that position. And likewise, as it stands now, depending on what we're going to do with capital expenditures and projects, our intention is to also pay off the February 2024 maturity of $141.5 million. And Julian is also already working on the Singapore loan, which matures in March or May 2024. And that's because that transitions from LIBOR to softer at the mid of this year. So we might as well get that done.

Now if you take those away, you will see that on average, we have about sort of, let's say, $35 million in maturities, regular debt amortization each quarter. If you add on to that interest expense of $30 million, maybe we say $35 million if interest rates continue to increase. And our interest rates will go up as we refinance new facilities and have to face today's reality.

So $35 million in amortization, $35 million in interest puts us at $70 million. From the previous slide, you saw the cash flow. If you assume that we are going to be at a cash flow generation of $175 million. That will leave us with $105 million per quarter, really to take care of our capital expenditures and pay dividends. Annualized $420 million. We had $260 million of capital expenditures. So it's been very nice to now see that we have a very good development on our cash, a good balance between cash generation, capital expenditures and debt service, which leaves a lot over also to service our shareholders. And I believe that with what we see fundamentally in the market, we will actually see this story continue to improve going forward.

Looking at financial KPIs, suffice to say, with a strong EBITDA all the EBITDA-related ones are improving. Our balance sheet is strengthening with our debt to tangible net worth now at 1.6 million and I'd say, a curiosity for those who have followed us for a while. If you go back to 2016, pre the Jo Tankers acquisition, that was the previous law at 1.20. So this -- finally, we have now gotten to a better position than when we bought Jo Tankers. And that's not a purchase we have every regretted by the way, so. So with that, Niels, I would like to hand it back to you.

[Niels Stolt-Nielsen, CEO & Director]

Thank you. Just so to again give you an idea how we look at the next year for each of the businesses. We think that we will see a continued strengthening of the tanker market or the chemical tanker market. Steady improvement across the terminals in most regions. We expect margin pressure in Tank Containers. But I think that we will kind of be at normal levels pre-2022 in STC. And I think that we will continue to see similar levels at Sea Farm as we did in the year-- in 2022 for 2023 in Stolt Sea Farm. So being -- tankers being the biggest part of the group, I think that we will see -- we will have also a nice year for the group in 2023.

So key messages. Performance across all of our business is robust, strong fourth quarter caps still at 2022, improved market and focus on delivering our strategy results in all businesses performing. Jens showed you the EBITDA increase that we were able to achieve year-on-year. The net debt-to-EBITDA is at below 3x. Stolt Tankers contract renewal season is ongoing. It's tough. We're remaining tough. But I think the market really is in our favor. The market volatility is expected to continue our expectation of solid cash flow generation for debt service and dividend and growth. So overall, I think that yes, we will have a good 2023. That completes the presentation. So I don't know where we should start with questions. We can start here if there's any questions in the room. I don't know if there's a microphone anything. We just talk up so that they can probably hear you.

[Unidentified Analyst]

Sure. . So you've been pretty good go over last year was in terms of consolidation and the chemical bank market, potential stand-alone entity? And has your views changed regarding them? Like as you've been saying, the tanker chemical tech markets is very strong. We were seeing some of the other segments maybe have gone up from one. So what's the remaining puzzle pieces that needs to be sold for work on that front?

[Niels Stolt-Nielsen, CEO & Director]

So the plan is to do an IPO of Stolt Tankers at the right time. As we explained during the third quarter earnings release, we need to have the right debt level remaining at Stolt maintenance and we're approaching that now. So now it's more the timing opportunity. So we are looking at 2023 IPO for Stolt tankers. When it comes to the purpose of the IPO and making a stand-alone entity, Stolt maintenance will still be a big part of Stolt Tankers, but we would like to create this stand-alone entity to look for further consolidation.

I think for this business, this industry to be sustainable through the cycle, there is room we have to build scale. So the market is what the market is on the revenue side, but we need to build scale. And the only way to do that is to become bigger. Now most shipping companies in this segment is now making money. So that's not really on the top of their agenda right now. So we haven't given up. We still stand by that this is what is needed for the industry, but I don't think that's going to happen while the market is as strong as it is today. Any other questions in the room here?

[Unidentified Analyst]

Okay. So I have quite a few questions. Tanker values have gone up 40%. Could this be reflected in asset values over time or eventually less depreciation? Tanker values have gone up by 40%. Could this be reflected in asset value over time?

[Niels Stolt-Nielsen, CEO & Director]

We operate the ships ready for life from beginning to end. We don't write up our assets on the books because market values increase. So as such, that should not have any impact on the depreciation.

Your fleet size is up compared to earlier. What is the reason behind the increase in the number of vessels as you have also upped your fleet size in prior quarters? Can you comment a bit on this secondhand purchase or other reasons your fleet size is up compared to earlier. What is the reason behind the increase in the number of vessels as you have also upped your fleet size in prior quarter.

[Jens Gruner-Hegge, CFO]

This may be related to the yardstick in the earnings release.

[Niels Stolt-Nielsen, CEO & Director]

The yardstick -- the answer should be in the earnings release, in the yardstick there.

[Jens Gruner-Hegge, CFO]

In the back.

[Niels Stolt-Nielsen, CEO & Director]

So Anders, if you go in the -- back on the yard stick you will see the answer to the question.

[Unidentified Analyst]

At the last earnings presentation, you mentioned that 50% of net profit is a reasonable dividend level. Any updates or comments about increasing dividends?

[Niels Stolt-Nielsen, CEO & Director]

While we did increase dividends, we called an interim dividend instead of being $0.50, we increased it to $1. And we'll see what the Board will decide in February when we have -- when we make a decision about what the final dividend for the year should be. But we were around 50% dividend out of net profit, I think, is a reasonable assumption. But again, that is determined by recommended by the Board and approved by the AGM.

[Unidentified Analyst]

Can you comment on the impact of new carbon regulation on market balance? Do you see increased scrapping or slow steaming as a result of this? What is the impact on your fleet? And do you expect any significant capital expenditure to stay compliant?

The answer for us is derating some of our engines on the older ships and also slow steaming. And of course, slow steaming means less tonnage available or less operating days or less tonnage available. So that will strengthen the market. Capital expenditure to meet these targets, no, there will be some capital expenditure associated with derating of the engine, but nothing significant. We continuously always look at way of becoming more fuel efficient. But the real capital expenditure will be, of course, when we order new ships and when we then determine what kind of power generation to ships will have.

[Unidentified Analyst]

You have had a few extremely well-timed fleet acquisition over the past 5 years. How satisfied are you with your fleet today?

[Niels Stolt-Nielsen, CEO & Director]

Yes, we have had some good acquisitions. We have been patient. We decided not to go and order new ships and instead try to acquire existing tonnage in the market, which we have successfully done. So -- and today's fleet, yes, it is an average age, I think, 15 years. So it is aging. We are aware of that, but we felt that we needed to get our debt level down. The market needed really to improve before we were again going to start to order new ships. But of course, we are an industrial shipping company, and we will always have to order new buildings. So if we want to maintain our current position, of course, we will have to eventually order new ships. We continue to also look at acquiring existing tonnage, but also through consolidation or acquisition of one ship there and one ship there. But I think that the price expectations are -- is not the right time to try to buy secondhand tonnage at this time.

[Unidentified Analyst]

Is there any way you can give a little more guidance on Tank Containers EBIT development? Rates coming down, but utilization improving again due to stronger demand in some regions. Do we give any EBIT guidance, Jens?

[Jens Gruner-Hegge, CFO]

No, we haven't done that for tanker.

[Niels Stolt-Nielsen, CEO & Director]

We don't -- the only thing I can say is that the guidance I can give you is that we expect that the year will be more similar to pre-2022 levels, and that varies between $30 million net profit for the year up to $65 million, still a very, very profitable and a good business, but we do not expect and we are seeing the pressure in the market. We do not expect that we will have a 2022 year ahead of us.

[Unidentified Analyst]

As you closer or more motivated to look at tanker listing at this point or Sea Farm?

[Niels Stolt-Nielsen, CEO & Director]

We're not considering Sea Farm, but again, as I said, we are looking at an IPO of Stolt Tankers. Again, we need to get the right debt structure remaining at Stolt Nielsen before we do it. The cash generation from Stolt Tankers is now causing our debt level to come down. So we are approaching that level that where we feel comfortable. And now it's more timing about how the market looks for an IPO of Stolt Tankers.

Terminals, interesting side. Can you please elaborate more on the organic CapEx expansion plans for terminals, CapEx cubic meter capacity in cubic meter for the next few years.

So if we go back to -- we -- Sorry. I think he's referring to that slide. So planned is on the drawing board right now, but not necessarily approved yet, but most likely it's going to be approved within the next couple of quarters. The size of the CapEx, is that something that we -- it's 240 million in total, but we haven't -- yes, but the -- yes, I think we can... Rough guidance is around $1 million per cubic meter. So the total capital expenditure will be around $240 million.

[Unidentified Analyst]

Bond, how should we think about your presence in the Nordic bond market? Jens.

[Jens Gruner-Hegge, CFO]

We've been benefiting very much from the bond market over the years, and we were at one point over $900 million, which was very too high for us and our balance sheet, we felt having gotten it down has put it all in a much better balance. Ideally, we would like to see the debt down into the businesses rather than have that on an SNL corporate level. But the bond market, if there is a need or an interesting opportunity that has a yield on that investment that would justify going to the bond market, I think that is something we would have to consider. But at today's levels to use bonds as a regular financing source, it's a bit too expensive review.

[Unidentified Analyst]

So we'd like to have a presence, but it needs to be at the right price. Yes. And the last question from Peter Hagen, -- what is your plan for newbuildings in tankers?

[Niels Stolt-Nielsen, CEO & Director]

Yes. Again, we eventually will have to order new ships. We don't have anything on order now, but at sometimes we need to put in new orders for the next generation of ships. When we have something ready, we will announce it. But of course, being an industrial shipping company, we need to build the core fleet, which is the large 30,000 deadweight plus stainless steel chemical tankers.

That was all the questions on the page here. Is there any call-ins, I don't know if – operator? No. Any further questions here in the...

[Operator]

There are currently no questions on the phone lines.

[Niels Stolt-Nielsen, CEO & Director]

And no further questions here. Thank you very much for participating in the meeting in the presentation. I hope that the guidance that we gave you on the sale then is going to help your model. It's very difficult for us to kind of explain. There are so many different variables and moving parts within the CEO in negotiations. I can only emphasize that we were able to get 30% increase on the contracts that we did renew, and some of those contracts actually had caps on them, some were 15%, 20%. The other ones, we were talking 50% to over 100% increase.

So we are pushing very hard. And most of the contracts coming up do not have caps. And I think that takes a while for some of our customers to accept. But I do feel -- I don't feel guilty. I'm not taking advantage of the market. For us to make a sustainable business out of it, we have added a historical return of around 5% in the last 20 years in the tanker market to be able to justify for us to spend $0.75 billion in ordering new ships, we need to have the proper earnings. We need to get the rates and we need to get the terms and conditions at the right level before we make that such commitment. That completes our presentation. Thank you very much for participating. Thank you.