Stolt Tankers

Deep-sea markets soften, but Stolt Tankers remains profitable

B U S I N E S S R E V I E W

Stolt Tankers is the world’s largest operator of sophisticated chemical tankers, providing safe, reliable and high quality transportation services for bulk-liquid chemicals, edible oils, acids and clean petroleum products.

74deep-sea parcel tankers

3mtotal deadweight tonnes

81coastal and inland tankers

KEY FIGURES

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“Our focus is on the long term

and our goal is to deliver sustainable returns over

the cycle, irrespective of market

conditions.”

Mark F. MartecchiniPresident

Stolt Tankers

Q&A with Mark F. Martecchini, President of Stolt Tankers

What were the biggest highlights and achievements for Stolt Tankers last year?

The fact that we successfully integrated the JoT fleet, the staff, its contracts and customers into Stolt Tankers – with a minimum of issues – was unquestionably a major highlight of 2017. But that’s actually only part of the story, because we also took delivery of 11 newbuildings last year. And those two things combined put considerable demands on our organisation. So, from both a trading and shipowning perspective, 2017 was a very challenging year. But I’m pleased to say that our people stepped up to those challenges. What was particularly impressive was that we accomplished all this while also markedly improving our safety and operational performance during the year.

The other big highlight of 2017 was that we maintained our strong contract base. So even though fuel prices went up and there was a substantial decline in freight rates, Stolt Tankers remained profitable. The same thing cannot be said for our publicly reporting competitors.

How do you see the market shaping up in 2018?

While the market has improved after bottoming out in 2017, we’re still not where we were in 2016 – or even 2015 for that matter. But we do believe that things will improve. Spot rates on the US Gulf-to-Asia and Asia-to-the-US tradelanes in particular have rebounded significantly since the lows of last summer. Spot rates are also improving out of the Arabian Gulf and in certain other markets.

On the downside, there are two main issues. First, there is still plenty of new tonnage entering the market in 2018, which will dampen rate increases, and, second, fuel prices are still rising. While it is true that spot freight rates are up, some players are aggressively pursuing COAs to secure base volumes for their new tonnage, so COA rates are lagging. So, 2018 is likely to be another challenging year.

All that said, the deep-sea freight market is our biggest challenge right now – that’s where we have seen the biggest decline in rates. At the same time, Stolt Tankers also has a very strong base in the regional markets, which have been steady performers. A mixed fleet is an integral part of our overall strategy, and helps to mitigate the weakness in deep-sea. Think of it as portfolio diversification. Our regional and inland presence complements our deep-sea fleet and provides diversification that yields steady returns, even when the more cyclical deep-sea markets are suffering.

What are the key challenges and goals for Stolt Tankers in 2018?

Our focus is on the long term and our goal is to deliver sustainable returns over the cycle, irrespective of fleet size. And that can only be achieved by optimising performance, regardless of market conditions. Based on extensive internal research and analysis, 2018 will see Stolt Tankers explore how to better manage virtually every aspect of our business. In recent years we have steadily ramped up our use of data and analytics to better manage costs, enhance our performance and achieve competitive advantage, enabling Stolt Tankers to outperform regardless of the hand we are dealt by the market. So that’s one key objective for 2018.

Our second key objective remains what it has always been: working collaboratively – and creatively – with our customers to find exceptional solutions to their transportation needs. Hurricane Harvey delivered a sobering reminder of how global supply chains can be enormously disrupted by just one storm. At the same time, our customers experience supply-chain challenges daily – production delays, uncertain sales, systemic port congestion from insufficient berths in Houston – and Stolt Tankers’ ability to help solve those problems is what creates both customer value and competitive advantage. Quality, reliability and flexibility – that’ s what defines Stolt Tankers.

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DIRECTORS’ REPORT FINANCIAL STATEMENTS STOLT-NIELSEN LIMITED ANNUAL ACCOUNTS

OTHER INFORMATION

STOLT-NIELSEN LIMITED ANNUAL REPORT 2017

Performance(US $ millions) 2017 2016 2015

Operating Revenue 1,158 1,061 1,137Operating Profit 111 138 122

Percentage of group total

of totalrevenue

58%of total

operating profit

57%

2017

MARKETSProvides the world’s leading manufacturers and consumers of chemicals, edible oils, acids and other bulk liquids with safe, reliable, high quality and flexible transportation services.

Delivers global deep-sea services and integrated regional services in Europe, Asia Pacific, the Indian Ocean, the Caribbean and the US.

STRATEGYStolt Tankers works collaboratively with its customers to enhance bulk liquid supply-chain efficiency, optimise asset management, reduce costs and leverage technology, all while operating in a manner that is safe for people and the environment.

OUTLOOKWith markets expected to remain soft in the near term, during 2018 Stolt Tankers will continue to focus on increasing efficiency, managing costs and optimising operations, while delivering superior service to customers, with a focus on safety for people and the environment.

Stolt Tankers

B U S I N E S S R E V I E W

Stolt Tankers operates the world’s largest and most sophisticated fleet of chemical parcel tankers, with a global fleet of deep-sea tankers that is fully integrated with regional fleets in Europe, Asia and the Caribbean, and with inland barging services in Europe and the US Gulf. This global network gives our customers access to key hubs and markets worldwide, while delivering the quality, reliability and flexibility required to meet the often-changing requirements of their dynamic and complex global supply chains. In an environment where bulk liquid supply-chain efficiency is paramount, Stolt Tankers is increasingly working with its customers to capitalise on synergies with Stolthaven Terminals, creating integrated transportation and storage solutions that deliver the utmost in flexibility to the world’s premier manufacturers and consumers of chemicals and other bulk liquids.

Review of 2017Stolt Tankers’ results weakened in 2017, driven largely by softness in deep-sea freight markets. The average contract of affreightment (COA) rate for 2017 decreased by 10% compared with 2016. The average spot rate fell even further in 2017, dropping 18% on a year-over-year basis. The effects of Hurricane Harvey had a negative impact of $7 million on Stolt Tankers’ performance, from lost revenue and delays to ships in Houston at the time. Reduced earnings on positioning voyages from newbuilding yards held down revenue by $5 million. With the average price of intermediate fuel oil/low sulphur fuel consumed jumping to $314/tonne in 2017 from $216/tonne in 2016, total fuel costs (excluding the Jo fleet expansion) increased by nearly $5 million. Despite these challenges, Stolt Tankers reported an operating profit of $111.0 million for 2017.

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While 2017 proved to be challenging, our regional fleets and joint ventures generated steady results over the course of the year. Stolt Tankers also completed the operational integration of Jo Tankers, which we acquired in November 2016 – a transaction that added 13 ships to the fleet, along with a 50% share in a joint venture with eight chemical tanker newbuildings. The JoT ships and sea staff proved to be a perfect fit, generating trading synergies, market expansion and cost efficiencies. Stolt Tanker’s fleet expanded further in 2017 with the delivery of 11 new ships. As always, safety for people and the environment is our first priority. During 2017, Stolt Tanker’s performance for both quality and safety improved on a year-on-year basis.

Successful integration of Jo TankersSince 2016 eight joint-venture newbuildings together with JoT’s existing 13 chemical tankers have joined the Stolt Tankers fleet. These, along with JoT personnel and customers have been successfully integrated into the business, enhancing trading synergies, offering new tradelanes and significantly reducing administrative and general costs.

Achieving competitive advantage and delivering sustainable financial results over the business cycle requires more than simply responding to market conditions. During 2017, Stolt Tankers launched a major initiative focused on innovative ways to increase productivity and efficiency, reduce complexity and costs, improve voyage management and reduce port time, and increase revenue with less invested capital. Considerable research and analysis was completed in 2017 in support of the project, with plans to implement a number of initiatives in 2018.

OutlookThe chemical tanker market is unlikely to improve, at least until the latter half of 2018, when the orderbook is expected to shrink and the balance between tonnage supply and demand improves. In the meantime, Stolt Tankers continues to focus on the development of innovative processes and solutions that yield benefits – and competitive advantages – for both Stolt Tankers and its customers, regardless of changing market conditions.

Mark F. MartecchiniPresident Stolt Tankers

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DIRECTORS’ REPORT FINANCIAL STATEMENTS STOLT-NIELSEN LIMITED ANNUAL ACCOUNTS

OTHER INFORMATION

STOLT-NIELSEN LIMITED ANNUAL REPORT 2017