Stolt-Nielsen Limited (OTCPK:SOIEF) Q1 2022 Earnings Conference Call March 31, 2022 9:00 AM ET
Company Participants
Niels Stolt-Nielsen – CEO & Director
Jens Gruner-Hegge – CFO
Conference Call Participants
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.
Niels Stolt-Nielsen
00:08 Good afternoon, good morning. Thank you for joining us here in Oslo for our First Quarter 2022 Results Presentation. It is the first time we are having a live meeting face-to-face. It’s nice to see you all first time since January of 2020. So it’s very nice to see that some of you are in the office and are willing to take the time to meet with us. Here together with me, as always, Jens Gruner-Hegge, our CFO.
00:39 Our agenda. I’ll take you through an overview of Stolt-Nielsen highlights, then I’ll go through each of the businesses. Jens will take you through the financials and then we will open up question-and-answers. You can call in through the web. You can also post questions, I think on the website, so that we will be answering both here and through the social — the media.
01:03 If you go to Page four, the highlights for the quarter. The net profit from continuing operations came in at $52.3 million and that’s up from $35 million in the fourth quarter of ’21. The EBITDA was slightly down $158.5 million and that’s down from $163 million, and that was driven by the one-off — the positive one-off that we have in tankers of $12.5 million in the fourth quarter from the DNK distribution.
01:32 Stolt Sea Farm had a positive fair value adjustment in the fourth quarter, a small negative in the first quarter and that’s why you saw a slighter decrease in the EBITDA from Sea Farm. Stolthaven Terminals, the improved utilization driving higher storage and throughput revenue. And Stolt Tank Containers continued with high transportation margin and demurrage, but slightly lower shipments. I will go through more in details when I go through each of the businesses.
02:04 We saw strong improvement in our free cash flow, and that is due to a higher operating cash flow and a reduction in working capital. And I’m proud to say that our net debt to EBITDA of 3.82 is the lowest ratio that we had since 2016, and that’s driven by the strengthening of the EBITDA. At the end of the quarter, we also had $440 million of available liquidity at the end of the quarter.
02:33 The Board recommended a final dividend of $0.50 for 2021, making it a total of $1 per share for the year. We also announced an acquisition of 5% of Odfjell as an investment, it’s the cheapest chemical tankers ships that we saw out there, so we decided to take a position in the company. And I also announced my plans to step down as CEO, as soon as we found a replacement, and then I will take on the role as Chairman. Our CEO search is underway.
03:13 If we then go to Slide five, the net profit analysis between the fourth quarter of ’21 compared to the first quarter. If you take away the one-off that we had in the fourth quarter of ’21, the normalized net profit for that quarter would have been $41 million. So a stronger higher operating profit from Stolt Tankers of $9.7, higher operating profit from Terminals of $3.6, higher operating profit from STC for Stolt Tank Containers of $3.7. Lower operating profit again, that’s due to the fair value adjustment — positive fair value adjustment we had in the fourth quarter of last year.
03:51 Higher profit or contribution from our investment in SN Gas, the negative $4.7 million or slightly higher corporate costs is much to do with the profit reserves, for profit sharing bonus, and slight improvement, lower losses on FX and other expenses of $2 million, bringing the quarterly result to $52.3 million for the quarter.
04:22 If we move on then to Stolt Tankers. The freight rates were up 6.4%, driven by a 14.3% increase in the spot rates that we fixed for the quarter. The volumes were down by 3.3% and utilization is slightly down by 2.7%. The volumes were down primarily due to less operating days. We sent a couple of ships to recycling and also utilization down, also because of seasonality and weather delays that we usually see in the winter half of the year.
05:01 The contract [affreightment] (ph) that we renewed in the quarter increased by 1.8% on average. We had a higher net bunker cost as a result of the high bunker prices, we will go into further detail later. Higher owning expenses as a result of higher insurance costs, manning and other owning expenses, again due to — very much also due to the pandemic and the costs associated with the crewing and changing crew [indiscernible] the ship.
05:29 Lower depreciation due to disposal of ships, and the residual value adjustment due to the effect of the higher steel prices that you get when you recycle ships today. And we saw an improved results from all of the JV’s. So just quickly going through the variance analysis. So if you take away the one-offs in the fourth quarter, we had a normalized operating profit of $15.3 million in the fourth quarter of last year, higher trading results of $9.1 million, higher net bunker costs after the bunker surcharge that we get from our customers of $6.2 million, slightly higher owning expenses, lower depreciation, as we just explained, higher equity income from each of our joint ventures and slightly lower A&G, bringing the operating profit for the quarter up from $19.2 million to $25 million for the quarter.
06:19 So these results do not really yet reflect the strengthening in the market that we’re seeing today. And I’ll touch upon that in the next couple of slides. If you look at the bunker prices, I remind you that 97% of all of our contracts have a bunker clause, 97.4%, and we have around 65% of our business as COAs. So we are hedged through these bunker clauses. We do not have any paper hedges as it currently stands. So if you look at the price of bunkers that we consumed in the first quarter came in at $580 and the bunkers that we bought for the quarter on average was $610.
07:05 If you look at the sailed-in STJS, Stolt Tankers Joint Service sailed-in revenue index, it ticked slightly up. And if you look at the bottom right-hand graph, you can see the orange line, which is the sailed-in revenue for the quarter is — came in at $18,786. Just before I arrived here, I spoke to the — our Commercial — Chief Commercial for Stolt Tankers, and he said today it’s probably around at $20,000 a day. So we have seen a nice lift in the market in the last couple of weeks.
07:49 So, what are we seeing? The swing tonnage moving out of the chemical tanker segment. I think that is the prime driver right here, is that, the MRs, what we’ve — the product tanker, what we call the swing tonnage, they are now — their market has been strengthening. I assume that the world is now seeking other sourcing points for refined products, so that they get then a higher return from their intended trade and are leaving. We’re seeing more and more of these ships leaving the chemical space. And as a result, we are seeing more and more inquiries for spot business, which is strengthening our spot rates and that will eventually then move into our COAs.
08:39 But I do remind you that, we have, again, 65% COAs. We have consciously kept a relative high contract coverage in Stolt Tankers. We’ve been between 60% and 70%. We were at above 70%, we brought it down to 65%, because we expected the market to eventually strengthen. Our business is contract, most of our customers wants to do this through COAs. But instead of them agreeing to do multi-year contracts, two, three year contracts, we have basically only agreed to one year contract. So we are seeing a strong spot market or a strong improvement in the spot market today that will take time for us to push those rates into our contracts. Each quarter we renew COAs, so we will, of course, each contract that comes up for each quarter, we will push through higher, but it takes time for that to be reflected in the bottom line from ST in Stole Tankers in the chemical tanker segment, that’s the way it works.
09:43 But I think that this is sustainable. It’s — I think that the sourcing of — for the MRs, the trade lanes, the ton miles is going to change. And I don’t think that’s temporary. So I’m quite optimistic that we might be in for a good couple of years. And if you also then look at the — if you go to the — each of the regional fleets are doing very well. But if you look at the new building, I don’t think if we have that. I don’t think we show the new building. But the order book in our segment is around 5%. So — and even if you wanted to order ships today I don’t think you can get anything else for 25, 26 because of the yard being busy building other types of ships. So we might be in for a good ride. But there is, of course, a lot of uncertainty. It’s very, very difficult to predict in the current environment.
10:52 With the situation in Ukraine, the impact of inflation on the consumer confidence and if there is then going to be demand destruction because of the higher prices, we are already starting to see that in STC and I will talk about later that. When the price has come to a certain level, there are some products that can’t justify that kind of freight increase. We don’t — so let’s hope that we don’t go into a global recession and that we get control of the inflation that we’re seeing today.
11:30 Moving to Stolthaven Terminals. If you take away the impairment that we had in the fourth quarter of $10 million, the normalized operating profit came in at $18.4 in the fourth quarter. We had higher operating revenue of $4 million, $1 million higher operating expense, slightly lower depreciation, equity income, lower A&G and other, bringing in an operating profit of $22 million in the first quarter. And I think this quarter reflects the underlying normalized earnings that we should see coming out of Terminals, so higher revenue as a result of higher utilization, rate increases and higher ancillary revenue. Higher activity in US Terminal resulted in higher operating cost, passing inflationary cost increases on to customers via rate increases, but with delayed effect. So most of the contracts that we do have we do have an inflation adjustment if it’s a multi-year contract. The joint venture income decreased as a result of lower profit at JSTT, that’s the Terminal in Korea, due to higher utility and manning cost.
12:48 But it’s a pretty steady business. I think that what we see during times of uncertainty, like we have today is that the customers wants to have a little extra buffer. They secure extra storage, so we’re seeing increased inquiries basically in all regions. So I think we will continue to see the high utilization that we saw in this quarter will continue. And hopefully, we will also be able to use that higher utilization and the higher demand to increase the storage rates. So pretty steady and I think it will continue to perform as we have seen in the first quarter.
13:30 Stolt Tank Containers, which is the clear star in 2021, also came out with a fantastic first quarter results. If you look at the operating profit for the fourth quarter, came in at $36.4, lower transportation revenue of $2 million, but higher demerge and other revenue of $5.8 million, lower move expenses of $0.4 million, higher reposition expenses of $0.3 million, higher operating — other operating expenses and A&G of $1 million, and higher gain and loss on disposal of assets of $0.7 million, bringing the operating profit for the quarter at $40 million. Fantastic.
14:14 Transportation revenue was down at 1.4% and shipments were down 6%. Demurrage revenue increased by 6% following the significant rise in the third and fourth quarter, driven by logistical bottlenecks and customers holding more tanks longer, so the customers — again, this is the buffer they build up in times of uncertainty, they hang on to it, they ordered more than they actually need and they rather pay little demurraged, so that they make certain that they have secured the product that they need.
14:47 Shipments were down to 30,694 and that’s down from 32,648 in the fourth quarter. Ocean freight costs increased by 4.3% following continued tight liner and trucking capacity during the first quarter and we had lower repositioning expenses as a result of fewer repositioning shipments, pretty logical.
15:14 Demand outlook, decline in bookings indicates lower demand expected in the second quarter. So as I said in the earnings that we sent out this morning is that, we don’t expect that the number of shipments will continue as they have. There might be some demand destruction due to these increased prices, we have just got a new container line rates with significant increases from the container shipping lines, which we then need to push on through to our customers. But some of those customers are not able to pay for that, just the value of the product is – we can’t justify those kind of logistical cost, so – but on the positive side, that – for example, used cooking oil which is being shipped all over the world, most likely some of these products might move back to chemical tankers. And we are seeing more and more enquires from our container customers wanting to ship, go back, looking both storage and shipping on our ships.
16:31 Transportation cost outlook, containership capacity limitations are expected to continue resulting in continued higher freight costs. Port congestion will put pressure on freight rates. That’s what we’ve seen. We don’t see any easing in that congestion and tight liner capacity. The container ship order book has increased from 8.3% in November to 24 point — in November 2020 to 24.8% in March of ’22. But delivery will start in ’23. So I do not expect a big change in the container line market in 2022. So even though shipments and margin might be coming under pressure, because we are not able to pass on the extra costs, it’s always with the lag. I expect the second quarter for STC to be slightly lower, but still a good healthy year overall in 2022 for STC.
17:36 Switching to a totally different business, Stolt Sea Farm, also did very well in the first quarter. First quarter is usually a slow quarter, especially, January and February. Operating profit of $11.3 million in the fourth quarter, lower turbot sales of $1.3 million, volume — higher sole sales, but lower operating expenses of $2.2 million, slightly higher A&G and depreciation and the fair value adjustment that we had in the fourth quarter of last year, we didn’t have it in this quarter, bringing in the operating profit for the quarter to $5.9 million.
18:22 Stolt-Nielsen Gas. So today we are shareholders in Golar, but also we are the majority shareholder, we have some 47% in Avenir. And Avenir today has five ships and one LNG terminal. The five ships, we have three ships on time charter, two that is currently running. But the third ship when it is delivered will go straight into — on the time charter — on three time charter. And then we have two ships that we are using, one that we are building up bunkering activity in the Baltic and the second one for bunkering activity and also to supply the LNG terminals in Sardinia in the Mediterranean.
19:09 Now, trying to sell LNG to new customers right now is a challenge. We’re seeing a strong shipping market, but we still believe that the long term trend of converting from oil to gas will happen. But of course, capturing new customers in Sardinia now with the current gas prices is a challenge. But again, the shipping revenue, the earnings from the time charters kind of is financing. And I think there’s quite a bit of upside potential with the two remaining ships and also when the LNG prices normalizes that we will also be able to get better utilization at our terminal in Sardinia.
20:01 That completes my part of the presentation. I give the word to Jens to take you through the financials.
Jens Gruner-Hegge
20:08 Okay. Thank you very much, Niels. Good morning to those in United States calling in and good afternoon to all of you here in Oslo and Europe. Just as a reminder, our first quarter runs from December 1 through February 28. So a little bit skewed, as you know. Also we have today posted on the company’s website www.stolt-nielsen.com, both this presentation as well as the earnings release from this morning and the interim financials. So, you will find it there and if you have any questions, please do not hesitate to contact me.
20:50 And moving on to the financials, the net profit. Niels has covered a lot of it. I’ll cover some of it in a bit more detail. Starting with the operating revenue, on the top right graph you will see, there is really not much change quarter-on-quarter, some improvement that we are happy to see. But if you compare it to the first quarter of 2021, you will see quite a substantial increase. As a reminder, if you go through and look at our sort of quarterly history, the first quarter always tends to be the seasonally weakest quarter that we have, marked by slowdown in demand after the holidays, or the holidays impeding demand, as well as winter weather impacting operations. But as you will see this quarter, we really didn’t see much of that.
21:38 The last — the improvement from last year to now is a reflection to the great extent of the rising container line of freight that we have seen, which we have passed on to our customers with some added margin on top. And also the significant increase that we have seen in the bunker prices that you saw in the bunker slide Niels presented. And those have accounted for a big part of the revenue increase.
22:06 Now, operating expenses have not increased as much. So we’ve been able to control our expenses, which, if you also then look at the other expenses that we have kept very much in line with the prior quarter and prior years means that we have seen a significant improvement in our operating profit with the last quarter showing $91.8 million versus $77 million in the prior quarter and $36 million in the first quarter of ‘21.
22:37 Just a few points to highlight. Niels mentioned, the depreciation and amortization is down. We do an adjustment every fourth quarter, we — we look at the steel values, we then take the steel values and we adjust the residual values of the ships. And this year we saw a significant increase in the steel values, so we’ve raised the residual value, which means the depreciation goes down. So, you will see that this will continue quarter-on-quarter throughout the year, the impact is about — roughly about $2 million, some of it was also reflecting the exit of the ground alone, because we are settled by the insurance company on the ships that we sold. But of that increase, you can assume that’s somewhere between $2 million to $3 million will be recurring in subsequent quarters.
23:27 We also had a significant one-off of $10 million that Niels mentioned, impairment of the Australia terminal. You see an increase in the share of profit from joint ventures and associates and that’s relating to the sale of the ship in Avenir, where our share was about $4.7 million. And I have also on the middle part of the right hand side, so detail a little bit the one off so that you can take that into your analysis and hopefully you can get a better feeling for the underlying operating performance.
24:03 If you go below the operating profit, you will see that interest expense is slightly up from the previous quarter. The reason for that is, because we renewed financings this last quarter, we closed on a new revolving credit line done by Julian. He has been rather busy over the last few quarters a $415 million facility. And with that, of course, we closed out the old facility and had to expense debt issuance costs related to the old facility and we also had some hedges on some other facilities that we closed out on with subsequent renewals, which took — increased our interest expense by $2.1 million. So if you look at the steady run rate, we are down about $1.6 million quarter-on-quarter. That reflects the continued debt reduction that we have been working on.
24:59 So, that brings us to the $52.3 million net profit that you see at the bottom, up from $35 million prior quarter and $2.5 million in the first quarter of ‘21 and an EBITDA of $158.5 million.
25:17 Moving over to capital expenditures. You’ll see, it was actually not that much that we did spend in this last quarter, $21 million. We have an ambitious program of $200 million, which is in line with what we did last year. If you look at for tankers, this reflects a barge that we’re building for our European barging business which has quite a fascinating new design, very low draft that allows us to carry much more volume at low water levels. We also are installing nitrogen generators for more operational efficiencies and ballast water treatment systems.
25:55 For Stolthaven Terminals, this is to a great extent related to capacity maintenance that are ongoing that we put on the capital expenditures list, as well as a new jetty at our Dagenham terminal and a few new tanks at our Maunganui and New Zealand terminal.
26:14 Stolt Tank Containers, they’re building new tanks and big part of the $38 million reflects that, as well as they are refurbishing depots on various locations and that’s what brings us to the $38 million for this year. And Stolt Sea Farm is more regular maintenance, while corporate and other, that’s mostly related to computer systems. So we’ll see if we get to the $200 million. It is an ambitious program. And if you look at what we did last year, it is in line, but we are going to keep our next spent down and work at it.
26:51 Then moving over to the cash flow and liquidity position. You’ll see a significant improvement on the top line, $199 million in increased operating cash flow. As Niels mentioned, that reflects a reduction in the working capital. We reported in the fourth quarter a receivable for the Groenland settlement that we had with our underwriters and the DNK equity distribution that they did. So in total, that was about $55 million. And if you — So if you take that out, we’re still quite significantly up from the previous quarter. Interest was down about $10 million, that’s because the big interest payments typically happen in the second and the fourth quarter, while the first and third quarter are slightly lower. So, net cash generated from operating activities was $164.7 million.
27:53 Not much in terms of investments. As I mentioned, we had $24.5 million in CapEx and intangible assets, and then it was the $10 million that we invested in crude company. So that brought us to $33.1 million, up from $10.3 million in the previous quarter. And then also, not much in terms of debt activity, we did repay about $138 million, that what results on the $39 million in the quarter. The $61.6 million, half of that relates to debt that we paid off on the Groenland when we received insurance settlement and paid it off, but it was a nice debt reduction during the quarter.
28:40 So, net cash flow was therefore slightly negative. We ended the quarter with $114 million in cash. And if you look at the bottom right, you will see that we also had, at the end of the first quarter, $330 million in available credit facilities, so a total liquidity position of over $440 million. And you’ll see that when I come to the debt maturity, that’s, of course, because we are preparing ourselves for the bond maturity in September.
29:14 Going through the financial KPIs, starting with the bottom right quadrant. You see the EBITA development, and I’ll start with that, because it is a driver of some of the developments in our financial KPIs. The first quarter ‘22 was a significant quarter with $159 million, brought it up to $587 million on a last 12 month basis, so over the last four quarters. And that’s a good improvement very much also because the first quarter ’21 that dropped off in that 12 month rolling period, it was only $109 million. So, a good quarter replacing a weaker quarter drives up the overall EBITDA.
30:02 And that’s important if you look at the net debt to EBITDA on the bottom left, which now reduced to 3.82. And EBITDA to interest expense, on the top right, which improved to 4.68. I also want to point out two other things on the top left graph, you see that the debt at the first quarter is now down to $2.35 billion, that’s down from $2.44 billion, reflecting the debt reductions that we did during the quarter. And also the tangible net worth has improved by, say, about $53 million or so, reflecting the performance during the quarter, less, of course, the dividend that we paid out in December. And also, of course, the other dividend is not reflected here, that was recommended by the Board to be approved by the AGM and payable in May of this year.
31:03 And this brings me to the debt maturity. Now I mentioned that we have that at the end of the fourth quarter, we had $440 million in available liquidity. And if you add up those three columns, you get to about $450 million. So you’ll ask, what was the remaining $10 million. We have steady operating cash flow being generated. Julian has just also renewed a [indiscernible] which we will draw on in May. So that’s a 66 — $77 million maturity, which we have renewed with $128 million facility and we are doing a similar thing with the maturity that falls due in November, where we are also getting an uplift because of the quality of the containers and because of the quality of the cash flow. And we have few other things that are ongoing.
32:05 So, when we look at our position at the end of November, we expect to sit with about $250 million in available liquidity, having paid off the bond with cash and available resources, having paid off the balloon payments, have been paid off all our regular debt maturities, so — and still bit about $608 million in unencumbered assets on the balance sheet.
32:32 So we feel we are in a strong position with a lot of those — with all those maturities already taken care of. And this does not really account for a significant improvement in tanker markets that also adds to the upside. So, just one more thing mentioning that, our average cost of the debt during the quarter was 4.36% and that is pretty much flat. We are currently about 80% hedged, which has softened the blow so far, but when the bond matures and we’re going to go out and refinance, then we will be subjected to the new higher level of interest rates. I do therefore expect that that will come up as we go forward, but hopefully that will be offset by some lower credit spreads.
33:29 And with that, Niels, I would like to pass it back to you.
Niels Stolt-Nielsen
33:36 Thank you, Jens. So just key messages, the highest quarterly net profit since 2008, improved profitability as we have shown you from Sea Farm, from Stolt Tank Containers and from Stolthaven. The chemical tanker market remained soft, but we are seeing some nice improvements in that market as we speak. High inflation, rising energy cost and high interest rate could hurt demand growth basically, for all our businesses. So there is uncertainty out there.
34:10 Balance sheet is strengthening, as Jens just showed you. We continue to focus on cash flow generation and debt reduction and shareholder distribution and investments. Shareholder distribution, we do focus on dividends. Company, overall, is well positioned to capitalize on the up cycle in tankers and to ride out volatility in the other market should uncertainty persist.
34:38 That completes our presentation, and we will open up for questions. Maybe we should start with anybody calling in, if there is anyone.
Question-and-Answer Session
Operator
34:51 [Operator Instructions]
Niels Stolt-Nielsen
We can give them some time. Anybody here has any questions? Yes.
Unidentified Participant
35:23 Hi. I’m [indiscernible] Kepler Cheuvreux. I was wondering your tankers. If you look at the regional tankers, they seem to be pretty flat quarter-over-quarter.
Niels Stolt-Nielsen
35:32 Pretty flat. Yeah.
Unidentified Participant
35:35 And you see the improvement on the ocean-going fleet. Is that what you expect going forward as well? Or is there going to be an improvement also on the regional fleets?
Niels Stolt-Nielsen
35:46 I think we will see a strengthening in the regional. We are seeing it also in Asia, in our joint venture in Asia. We are seeing it — we had a record booking in our regional fleet in the Caribbean just two days ago. So I think we will see an overall across the board tightening of supply, so a strengthening of demand as there is a strengthening of rates.
Unidentified Participant
36:11 And on contract rates, what percentage of contracts did you renew this quarter? And how do you expect that to roll forward? Is that pretty even?
Niels Stolt-Nielsen
36:23 Yeah. So we told you that in the first quarter we renewed, on average, 1.5% [indiscernible] 1.6% increase. So we weren’t able to get any of the significant improvements yet. Again, we have continued to renew the core business that we are involved in with the core customers. But we have been holding back on doing multi-year. Or if we do multi-year we have made certain that the year two and three has big window, so 20%, 30% increase for the year two and three.
37:01 So, as I said — start saying, as the spot rates go up, I think that we will be able to push through that into the COAs. But it will take time, because each quarter we are evenly spread throughout the year on contract renewals. So we are renewing it all the time. So we’re hopeful we’ll be able to report a significant increase, but it takes time for that to show on the bottom line. That’s why the business is steady, it’s been steady at too low level, but it’s pretty steady because of these contracts.
37:42 Just one other thing, one significant — we have been able to get a bunker clause on our spot fixtures. And that’s the first time, and it’s gaining traction. So spot fixtures, where there is only upside for us. So if the bunker prices go down, we don’t give anything back. But if the bunker price from the day we fix it to the day we service the — do the shipment, if the bunker prices go up, we have been able to get a clause in our spot fixtures to be compensated for an increase in the bunker costs. Yes.
Unidentified Participant
38:19 [indiscernible] ABG . Could you — Well, it’s been a few years now when I wish you’ve talked about the possibility to spin off the tank freights. Could you shed some lights on what sorts of events you would like to see happen in order for that to materialize? And if so, how should we think about how that spin-off or what sort of spin-off is it? Is it an IPO or is it something else?
Niels Stolt-Nielsen
38:52 So we have said since 2017 that we would like to separate out Stolt Tankers as a standalone clean cut entity to do an IPO at the right time. I think that an IPO at the right time is, you need to have a several quarters behind you showing the actual earning potential from a strong market. Instead of [indiscernible] trying to do an IPO based on the market is coming, I want to have a couple of quarters behind us with good earnings from that.
39:26 I’ve also stated that I think that the reason we do an IPO of Stolt Tankers is that, we haven’t lost faith in the chemical tanker and this is what we do, this is what we — this is where we come from, this is what we’ll continue to do. But the reason I wanted to do — we want to do it is, I think we need to further consolidate the industry, it’s too fragmented and have a standalone pure play chemical tanker company that is publicly traded. I think it will be easier to do further consolidation. We can do a share deal, we can do a combination of share and cash. So it gives us better flexibility to pursue that goal a further consolidation.
40:07 And that leads us to — we bought a stake in all [indiscernible] because I think the share price is cheap, like Stolt-Nielsen share prices cheap. It’s the cheapest chemical tankers like in [indiscernible] but there is also a message, I think that this business, the chemical tanker business hasn’t been sustainable for the last, I would say, 20 years. If you look at what we have achieved in last 20 years, it has been 5% return on capital employed, less than our cost of capital. So we need to do — and I’m convinced that we will have two, three years of very good market now, but that doesn’t change the structure of industry.
40:48 So the goal here is not for Stolt Nielsen to reduce its exposure towards the chemical tanker industry, it is to — it’s an aggressive move, it’s to separate out to seek opportunities or try to further consolidate the industry. Timing wise, if we have second, third quarter, I mean, if we see good earnings coming in, we are ready. We’ve been preparing this since 2017, so we are ready to go. And either it’s a consolidation story or it’s a — we are big enough to do it ourselves, but I’ll keep you posted.
41:32 There is one the question from — on the email here. I don’t know where it comes in. But it says, will shares in Golar LNG be sold, when they get in the money. Has been a long struggle, will help in funding Avenir ships?
41:50 We have no intentions of selling out Golar, we are a long-term — we believe strongly in the company and it’s a long-term position. To the contrary, I think it’s a very exciting phase Golar is getting into. And Avenir, I think we do have the resources if Avenir comes up in with a good investment opportunities, I think Avenir will be easily be able to get the funding for that.
42:16 Are there any other further questions here. Yeah, please.
Unidentified Participant
42:19 [indiscernible] form a critical part of supply chains from many different industries. And given what we see going on today with the war in Ukraine. And we see companies and organizations moving from maybe just in time supply chain frameworks to more just in case. What do you think will be the long-term consequences of this? Will it be more globalization, but more fragmented? Or will it be the overall de-globalization?
Niels Stolt-Nielsen
42:58 It will be what?
Unidentified Participant
42:59 De-globalization, less trade.
Niels Stolt-Nielsen
43:03 That’s difficult. I can only say what we are seeing. And we see that the customer, they’re willing to pay a little extra or to have a little extra inventory, to have a little extra volume, to ship a little more, so they’re willing to pay a little extra both for the storage part and for the amount that they ship in tank containers. To make certain, it’s much, much more expensive for them to run out of product. So we’re seeing that they are building up a buffer. So that they — if shipments are – if there are port congestions or if there is lack of capacity, it’s much more expensive to run out of product than paying up a little more. So that’s what we’ve been seeing in STC. I think we will also be seeing it on the terminal side, that customers wants to have a little extra storage. And I believe also in the chemical tanker business, as the market strengthened, I think that the contract customers will be more dependent upon securing space and then hopefully we’ll be able to get the rates up.
44:18 If we’re seeing – if we are going to see de-globalization, you guys are economist, you can speculate that on yourself. Of course, that would hurt a business like us. We trade internationally, that’s why we are depending upon people buying products where it’s cheapest. So it’s difficult to say.
44:52 Are there anybody on the phone?
Operator
44:56 There are currently no questions coming from the phone.
Niels Stolt-Nielsen
44:58 All right. Well, we take it here.
Unidentified Participant
45:01 Okay. You are, as you just said, very global around the COVID situation as to some extent, if not forgotten, at least not focused upon that as it was. But coming back now, due to the COVID strategy in China. So what would happen with your supply chains? If — well, what could happen if China is finally coming into a sort of critical pandemic phase, would you —
Niels Stolt-Nielsen
45:34 They are already starting to lockdown.
Unidentified Participant
45:37 Right. Precisely. So where does that go from here? And are you making or you have people there, so what do they tell you about? How things will develop if these lockdowns drags out in time?
Niels Stolt-Nielsen
45:53 Well, I think we saw it from the first lockdown is that, business continues. So it all comes down to at the end of the day to the consumer. So we are seeing less import to China, we’re seeing more export out of China. We’re seeing what used to be the outbound, the main leg for us used to be US, Gulf to the Far East. And we called HBR, the homebound — the return leg was from Asia, back to the United States and back to Europe. Now that’s the strongest market we are currently experiencing is from Asia to the United States and Asia to Europe. But I think that is much more driven by the strong demand that we’ve seen in the United States. And we continue to see in the United States that products are coming in both to Europe and to the United States.
46:51 So we’re not seeing from this latest lockdown, we’re not seeing anything. People are still working, they’re working from home or some are even working from the office, but staying in the office. So we have not seen any change in trade flows yet as a result of the resurgence of the pandemic in China.
47:22 All right. Unless there are any further questions. Operator, do you have any questions?
Operator
47:28 No, there are no further questions coming through in the queue.
Niels Stolt-Nielsen
47:31 All right. Thank you very much for participating. Good to see you all face-to-face and hopefully even a bigger crowd in the second quarter earnings release, which is scheduled to be in the beginning or end of June or early July, before you go on summer holiday. Thank you very much.
Operator
47:51 Thank you everyone for joining us on today’s call. You may now disconnect your handsets.
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