Stolt-Nielsen warns of upcoming slump

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RESULTS • THE ARRIVAL OF THE IMO 2020 RULE IMPACTED STOLT TANKERS’ PROFITS BUT THE STOLT-NIELSEN GROUP IS MORE CONCERNED ABOUT THE LIKELIHOOD OF GLOBAL RECESSION

STOLT-NIELSEN IS ALWAYS the first of the major chemical logistics firms to report its financial results, due to the fact that its financial year ends on 30 November. As a result, its first-quarter report, which covers the three months to end-February 2020, is the first chance to see exactly what impact the Covid-19 pandemic is having on business. In fact, the virus had not spread widely around the world by the end of February and it was only the extended Chinese New Year break that had any great impact. However, the three-month period also covered the arrival of the ‘IMO 2020’ rule restricting the sulphur content of maritime bunker fuels, which certainly did have a marked impact on Stolt Tankers’ results.

Stolt-Nielsen notes that, under the International Financial Reporting Standards (IFRS), the Covid-19 pandemic constitutes an event that triggers an impairment review of the company’s balance sheet. However, the company says, it has been unable at this point to quantify possible impairments of long-term assets, as it is still difficult to gauge the evolution of the pandemic and the effects it might have on the value of the company’s assets and on its operations.

As Niels G Stolt-Nielsen, CEO of StoltNielsen Ltd, says: “While the effects of the Covid-19 pandemic have substantially altered our outlook for 2020, Stolt-Nielsen Ltd’s first quarter results were only slightly impacted.”

Overall, group revenues of $498.8m were $1.3m up on the prior period and $3.1m below the year-earlier level. Operating profit, though, was well down at $16.6m compared to $46.8m in the fourth quarter of 2019, with a sharp downturn in profitability at Stolt Tankers, Stolt Tank Containers and Stolt Sea Farm. WHERE WE STAND Stolt-Nielsen’s first quarter results were released on 16 April, giving the company a chance to make some observations on the impact of Covid-19 on operations during the first half of its second quarter. Niels G Stolt-Nielsen says: “As the pandemic has escalated in the six weeks since the end of our first quarter on 29 February, the impact on our businesses has so far remained relatively modest. At Stolt Tankers, contract volumes remain relatively healthy and contract renewals continue with improved terms, though we are experiencing some port delays. Spot volumes in most markets, so far, have also been holding up.

“Stolthaven Terminals has seen an increase in enquiries for storage in most of its terminals, so utilisation is up, but throughput is slightly down. Stolt Tank Containers continues to see a robust market, reporting a record number of shipments in March and utilisation of 71 per cent, the highest we have seen in recent years, while we are also seeing increased inquiries by customers to use containers as storage. However, we continue to have significant repositioning costs as a result of the rapidly changing trade flows.”

Stolt-Nielsen is, though, more worried about what may come next: “I believe it is just a matter of time before we see a significant slowdown.

Most economic analysts are now forecasting an imminent and deep global recession, which is likely to be accompanied by substantial reductions in manufacturing worldwide.

“The severity and duration of the expected recession are, obviously, impossible to predict,” Stolt-Nielsen continues. “So, while we are hoping for the best, we are preparing for the worst. Actions include extensive measures to conserve cash and to reduce costs, while delaying or eliminating capital expenditures and projects across the full spectrum of our businesses. We have so far managed to find approximately $83m of savings from capital expenditures and operating and administrative and general expenses, including that the Board of Directors has agreed to cut board fees by 50 per cent and our senior management team has volunteered to take a salary cut of 20 per cent, effective 1 April. On the revenue side, we are diligently working to maintain our strong customer base by renewing contracts, while also aggressively pursuing new business and working closely with customers to create new solutions to help them adapt in this constantly changing environment.” TANKS AND TERMINALS Stolt Tank Containers reported first quarter revenue of $129.4m, unchanged from the previous period once one-off items are excluded. “Despite continued price competition, first quarter transportation revenue increased by 3.4 per cent, driven by a 1.5 per cent increase in total shipments and an increase in the proportion of higher revenue-generating inter-regional shipments,” the company notes.

First quarter operating profit fell from $15.7m in the fourth quarter 2019 to $6.7m. The previous period included a one-off $4.0m gain in demurrage and ancillary revenue, while the latest period witnessed a $3.0m increase in ocean freight costs related to low-sulphur fuel surcharges, which was not fully recovered from customers, and an increase in repositioning costs of $0.9m as empty tanks stacked up in China over the extended Chinese New Year break.

Stolthaven Terminals reported first quarter revenue of $61.7m, essentially unchanged from the prior quarter. There was increased revenue from Houston, as a result of higher demand for railcar storage and cleaning services, and from New Orleans, where new tankage was commissioned. This was partly offset by lower revenues from the Santos terminal in Brazil as a result of lower utilisation and throughput.

Stolthaven’s first quarter operating profit came in at $18.9m, well up on the prior quarter’s figure of $11.7m, which included $6.8m of write-offs and accelerated depreciation.

TANKER TROUBLES Stolt Tankers has not only had to face the onrushing pandemic but, perhaps more significantly to the maritime sector, the IMO 2020 rules on low-sulphur fuels; this has had a major impact on its first-quarter results. While on the one hand bunker surcharge revenue helped boost revenues from $274.8m in the fourth quarter 2019 to $280.7m, there was an additional cost of $6.9m net of surcharges, of which some $4.0m was unrecoverable. Average bunker costs rose from $384/tonne in fourth quarter 2019 to $506/tonne.

The market was doing well, though, as Niels G Stolt-Nielsen says: “The underlying recovery of chemical tanker markets that started in 2019 continued in the first quarter, with both higher spot rates and contracts renewed at an average increase of 4.74 per cent.” Deepsea freight rates rose by 1.2 per cent in the quarter and regional fleet revenue was up 6.2 per cent, driven by increased demurrage revenue, partly due to seasonal weather delays. On the other hand, there was a 2.0 per cent decrease in utilisation in the deepsea fleet due to scheduling issues arising from delays in drydocking associated with the installation of exhaust gas scrubbers and wastewater treatment units. www.stolt-nielsen.com

NIELS G STOLT-NIELSEN (ABOVE RIGHT) AND HIS BOARD

ARE PREPARING FOR THE WORST, THOUGH THE FIRST

QUARTER WAS LARGELY STABLE FOR THE COMPANY’S

TANK CONTAINER AND TERMINAL BUSINESSES