Stolt-Nielsen sails on through

STRONG AND STABLE

FINANCIALS • STOLT-NIELSEN HAD A GOOD SECOND QUARTER, ILLUSTRATING THAT UNCERTAINTY AND VOLATILITY ARE NOT ALWAYS BAD FOR LOGISTICS OPERATORS

STOLT-NIELSEN LTD IS always the first to release its quarterly results, so the publication of its second quarter figures, which cover the three months to end May, offered the first opportunity to assess the impact of the Covid-19 crisis on operations and profitability. And, on the surface at least, it would appear that, if anything, Stolt-Nielsen has benefitted from the changing conditions. The sole exception is the Stolt Sea Farm business, which has suffered from the closure of its restaurant and catering customers.

Group revenues for the quarter came in at $503.5m, ahead of the $497.1m reported for the prior period but slightly down on the year-earlier figure of $518.0m. Operating profit of $49.4m was, though, well ahead of the first quarter’s $17.6m and also up on the prior year’s $43.3m.

Niels G Stolt-Nielsen, CEO, says: “The net financial impact of the Covid-19 pandemic on our businesses, excluding Stolt Sea Farm, has so far been relatively modest. That said, we are seeing indications that the third quarter will be more challenging.”

Given the uncertainty resulting from the pandemic, the company has taken “extensive actions” to reduce costs and improve liquidity. “We have thus far improved our cash position by $83m through cancellations or delays of capital expenditures, as well as reductions in operating and administrative and general expenses,” Niels G Stolt-Nielsen says. “In addition, the Board of Directors temporarily cut board fees by 50 per cent, and our senior management team took a voluntary salary cut of 20 per cent, both effective April 1. We are also diligently working to protect our revenue base, which includes working closely with customers to create solutions to help them adapt in this constantly changing environment.”

The financial markets are clearly comfortable with this approach: a NKr 1.25bn ($130m) unsecured bond issue in mid-June was significantly oversubscribed.

TALKING TANKERS Stolt-Nielsen’s largest division in revenue terms is its tanker shipping operation, Stolt Tankers. Revenues here rose from $280.7m in the first quarter to $293.9m, driven in no small part by an increase in chemical exports from the US Gulf to China and India following the reopening of markets in the region.

Cargo volumes in deepsea operations increased by 8.8 per cent over the quarter, with an increase in both operating days and capacity utilisation, although this had little impact on spot rates. Revenue growth was held back by a swing in bunker surcharge revenue as bunker prices dropped sharply compared to the first quarter. Stolt’s regional fleets enjoyed higher fleet revenue but this was offset by the drop in bunker surcharges and lower demurrage revenue.

The fall in bunker prices did, though, improve profitability, with operating profit rising from $4.7m in the first quarter to $20.0m.

“At Stolt Tankers, overall volume improved in the second quarter, driven mainly by strength in deepsea shipments, reflecting less MR tonnage

operating in the chemical trade,” notes Niels G Stolt-Nielsen. However, he adds: “While we enjoyed a stronger chemical tanker market in the second quarter, we expect the third quarter to be more challenging due to the combination of a weaker MR market and a slowing economy. To counter the impact of a possible slowdown, we have taken steps to protect our revenue base by increasing our contract coverage at improved rates.”

INTERMODAL ACTIVITY There are also glimmers of concern at Stolt Tank Containers (STC), despite an increase in revenues in the latest period, rising from $129.4m in the first quarter to $135.2m. Transport revenue was largely unchanged but there was higher demurrage revenue and ancillary charges, resulting from growing use of tank containers for temporary storage at a time of weak end-user demand for some chemical products. The number of shipments was steady compared to the first quarter, though utilisation improved by 1.7 per cent.

STOLT-NIELSEN HAS ENJOYED FIRM DEMAND FOR

ITS TANKER SHIPS AND TANK CONTAINERS BUT

IS WARY OF THE THIRD QUARTER

Second quarter operating profit almost doubled to $13.0m compared to the first quarter, following a surge in empty tank repositioning costs after the abrupt shutdown of business in China early in the year. Ocean freight costs also fell as a result of lower bunker prices. In addition, the company says, actions by STC to reduce operating costs and administrative and general expenses had a positive impact across the business.

Niels G Stolt-Nielsen comments that operating income for the quarter overall was “on target”, although, after a record number of shipments in March and continued strength in April, shipments slowed in May. “We are seeing signs of a slowdown in certain regions, which we suspect may be a result of consumption declining, but also the beginning of a seasonal summer slowdown,” he says.

TERMINAL ZONE At Stolthaven Terminals, Stolt-Nielsen’s bulk liquids storage unit, tank capacity utilisation rose from 90.5 per cent in the first quarter to 95.2 per cent, mainly on the back of increased activity in Australia and Singapore. Revenues declined slightly, from $61.7m in the first quarter to $59.7m, partly due to adverse currency exchange movements and partly to lower utility revenue in the US as a result of warm weather. Average marketable capacity remained steady at 1.74m m³.

Second-quarter operating profit rose from $18.9m in the previous period to $19.2m, which included a $1.3m accrual related to an incident at the Moerdijk terminal. Equity income from joint ventures improved by $0.5m, driven by reduced expenses at the Ulsan terminal and higher utilisation at the Lingang terminal following the reopening of markets in China.

“Results at Stolthaven Terminals were stable,” observes Niels G Stolt-Nielsen. “Demand for chemicals used in packaging and healthcare has remained strong, offset by weak demand for products bound for the automotive and construction sectors. We continue to see healthy demand in most regions and expect continued improved performance from our terminals.”

Stability is a regular feature in the bulk liquids storage business, acting as it does as a fulcrum around which the rest of the supply chain circulates. But the early indications of weakening demand in Stolt-Nielsen’s other operations do raise some concerns. It will be interesting to see how things develop and the company’s third-quarter figures will be eagerly awaited. www.stolt-nielsen.com