The consolidated 2015 net result amounted to a loss of USD 36 million, compared with a loss of USD 75 million in 2014. The 2015 result included negative effect from bunker derivatives of USD 64 million and also USD 20 million related to write-down of assets. Total assets by year-end amounted to USD 1,943 million, down from USD 2,032 million by the end of 2014. The cash flow from operations was USD 95 million in 2015, compared with USD 44 million in 2014, with liquidity of USD 127 million by end of 2015, excluding joint venture companies. Equity end 2015 amounted to USD 645 million compared to USD 638 million by the end of 2014, and the equity ratio increased to 33.2% from 31.4% during the year.
The Board is not satisfied with delivering a negative result, although we achieved a substantial improvement from 2014. We appreciate the many successful initiatives taken by the organisation during the year, which we expect will have full financial impact in 2016. Odfjell embraces an investor-friendly dividend policy, the goal being to provide semi-annual dividend payments. However, given the negative 2015 net results and the importance of maintaining strong liquidity, the Board does not propose payment of a dividend for the 2015 results.
The operating result (EBIT) increased to a positive result of 28 million in 2015 from negative 22 million in 2014. We delivered a substantial improvement in the underlying performance both from our chemical tanker business and from the tank terminals. Our gas vessels are still a marginally positive business, with limited impact on our overall financial results.
Odfjell’s balance sheet was strengthened during 2015 both with regard to the equity and the working capital. We refinanced long-term debt of about USD 340 million during the year including repayment of a NOK 600 million bond which matured in December 2015. The new loans were secured at market terms and were entered into with our long-term relationship banks. We have only limited refinancing needs in 2016.
The Board of Odfjell SE launched a cost reduction and efficiency project in June 2014. The mandate for this project, named “Felix”, was to significantly improve the financial performance of our chemical tanker business, including corporate overhead. Financial targets and implementation plans were approved by the Board of Odfjell in January 2015 and communicated to the market. The target to improve the net result by in excess of USD 100 million on a yearly run rate basis within December 2016 was already successfully reached in December 2015, one year ahead of schedule. We therefore expect full financial impact from the project in 2016. Odfjell has a reinvigorated focus on improving operations, and several new initiatives targeting operational performance have been launched during 2015 to further improve our strategic position and financial results.
Chemical spot freight rates were rather stable throughout the year, despite the reduction in fuel prices and a substantial influx of new tonnage, but fell gradually in the last quarter of the year. However, with the markedly reduced fuel prices the voyage earnings improved for most chemical tanker operators compared with previous years.
Activity and nominations under our Contracts of Affreightment (CoAs) were stable in most areas/trades, whilst there were more fluctuations in the spot market. The strong CPP market weakened towards the end of the year. The average bunker fuel prices almost halved during the year, which offered a potential relief also after CoA bunker freight adjustments. However, as we had secured a significant portion of our bunker exposure through hedging contracts done during the third quarter of 2014 and by bunker adjustment clauses, Odfjell had limited benefits from lower bunker prices in 2015. Throughout the year CoAs continued in general to be renewed at higher rates. The contract coverage for the year has on average been around 51.5 % of total volume shipped.
Net tonnage growth during the year for the chemical tanker fleet as a whole was 6.5%, while the core chemical deep-sea fleet grew by about 9.5%. This is considerably above average annual growth during the last decade, and the deep-sea core orderbook is now 24% of current fleet and thus, there will be a continued fleet growth over the next few years. If all current orders are delivered according to schedule, the core deep-sea fleet will grow on average by 6.9% per year in 2016 and 2017. As a consequence thereof, we do not expect the market to improve substantially in the short-term horizon.
Our chemical tanker fleet at the end of 2015 was 74 ships (of which 39 were owned), down from 77 at the beginning of 2015.This figure includes time-chartered and commercially managed ships as well as vessels managed on pool basis. We are predominantly a deep sea operator with 65 of the 73 ships being more than 12,000 dwt. The Company also operated eight smaller ships, whereof six were owned.
In January we took delivery of a 49,622 dwt coated newbuildings from Hyundai Mipo Dockyard in Korea, the last vessel in a series of four vessels. Odfjell has no further newbuilding contracts for chemical tankers.
Our joint venture Odfjell Gas has eight LPG/Ethylene vessels on order. The construction of the four 17,000 cbm and four 22,000 cbm vessels is significantly delayed, and we are in discussions with the yard on how to resolve this. According to the latest production schedule from the yard, the first 17,000 cbm vessel will be delivered in September 2016 while original expected deliveries were October 2015 – May 2016.
Our tank terminal business improved significantly in 2015, with the change mostly attributed to the improved results from our tank terminal in Rotterdam. Our terminal in Charleston also delivered improved results during 2015. The construction of the new terminal in a new industrial zone near Tianjin, China was mechanically complete in 2015, with the jetties already receiving all trial operation permits from authorities. The explosion in the old Port of Tianjin in August 2015 resulted in a suspension of permitting for all hazardous material operations in the greater area of Tianjin. This affected the final operating permits for our new terminal. It is expected that the permitting process will resume in first half of 2016, with operations commencing later in 2016.
Since 12 November 2014 the Board has comprised of Laurence Ward Odfjell (Chairman), Christine Rodsæther, Jannicke Nilsson, Ake Gregertsen and Annette Malm Justad. At an Extraordinary General meeting 9 December, Klaus Nyborg was elected as an additional board member. The Audit Committee has consisted of board directors Ake Gregertsen (chair) and Jannicke Nilsson. The Nomination Committee has consisted of Arne Selvik (chair) and board directors Christine Rodsæther and Laurence Ward Odfjell. Former Board member Kristian Morch was in May 2015 appointed as the Company's new CEO.
CORPORATE SOCIAL RESPONSIBILITY
Since Odfjell signed up for the UN Global Compact programme, there has been continued focus on Corporate Social Responsibility from financial and commercial stakeholders. The UN Global Compact (UNGC) programme is structured in four areas: human rights, labour rights, environmental concern and anti-corruption. We have established an internal council to set goals for gradual implementation of the programme and to monitor overall and area specific progress. Annually we submit Communication on Progress to the UNGC secretariat, including current and new goals for the coming period. Our policies and other lead documents such as Code of Conduct, Competition Law Manual and Corporate Supplier Code Principles have been revised and harmonized with the programme. We have also been actively involved in projects in the Maritime Anti-Corruption Network (MACN) that aims to fight corruption on local and regional basis.
QUALITY, HEALTH, SAFETY AND ENVIRONMENT (QHSE)
In 2015 we had no fatality or work related injuries resulting in permanent disability. The general QHSE performance in 2015 was good. In terms of personal safety indicators, our shipping-related Lost-Time Injury Frequency (LTIF) indicator was 0.72, nearly the same as in 2014. Odfjell Terminals’ LTIF improved significantly to 0.30 from 0.80 in 2014.
There have been no security incidents on Odfjell ships in 2015, although piracy and armed robberies continue being a concern. Fuel efficiency and subsequent reduced emissions continues to have high focus. Status and progress is monitored through Annual report, Communication of Progress and participation in the Carbon Disclosure Project (CDP).
Based on the consumption of 82 vessels, total emissions of CO2 in 2015 amounted to close to 1.3 million tonnes, Based on all consumption in 2015 (both in port and at sea), Odfjell’s vessels
emitted on average 0.11 grams SOx per tonne cargo transported one nautical mile (10 % reduction). Total emissions of SOx decreased to 8,600 tonnes, reflecting reductions both in fuel volumes as well as in fuel sulphur content. The Energy Efficiency Operational Indicator (EEOI) in 2015 for the Odfjell fleet including fuel consumption both in port and at sea was 17.62 grams of CO2 per ton cargo transported one nautical mile (g/tnm), an improvement of 3.5 % compared with 2014 and the best result since we started our measurements in 2008.
In 2015 we decided to upgrade the propulsion line on our Kvaerner and Poland class vessels in order to further reduce fuel consumption by approximately further 20% and thus, to reduce emissions. New energy efficient propeller blades, rudder-bulb and technical upgrades of the main engine, turbo chargers and shaft generator gear were part of the project. The savings have been confirmed by full scale sea trials. The vessels will be amongst the most energy efficient chemical tankers in the world, and will achieve the highest score on the RightShip energy rating, A+. Four vessels have been retrofitted in 2015 and the remaining 15 vessels will be upgraded in 2016 and 2017.
In cooperation with the financial control unit, IT and the terminal division, Odfjell Corporate QHSE conducts system audits on operative and staff units to ensure compliance with regulatory, corporate and management level requirements and expectations. The scope of the audit programme shall ensure that we adapt to new regulatory requirements in our industry.
Odfjell has recycled one ship in 2015. To secure a controlled ship recycling process, Odfjell has audited recycling yards with follow up audits in 2016 and now use Baltic and International Maritime Council’s (BIMCO) new standard recycle contract (RECYCLECON). We also obtain “Green Passport” for all ships before the age of 25 years. Our vessels establish an Inventory of Hazardous Materials (IHM) that provides an inventory of materials on the vessel that could harm environment or personnel during the recycling. Odfjell use yards that are certified as compliant with the Hong Kong Convention and the 2012 Guidelines for Safe and Environmentally Sound Ship Recycling, and we also require that the recycling yard follow a “Ship Recycling Plan”.
CORPORATE GOVERNANCE
The framework for our corporate governance is the Norwegian Code of Practice for Corporate Governance of 30 October 2014. Odfjell is committed to ethical business practice, honesty, fair dealing and compliance with all laws affecting our business. This includes adherence to high standards of corporate governance. The Board’s statement regarding corporate governance is a part of the Group’s Annual Report. Our Corporate Social Responsibility Policy also encompasses high focus on quality, health, safety and care for the environment as well as human rights, non-discrimination and anti-corruption. The Company has its own Corporate Code of Conduct that addresses several of these matters. All Odfjell employees are obliged to comply with the Code of Conduct.
BUSINESS SUMMARY
We remain committed to our long-term strategy of enhancing our position as a leading provider of ocean transportation and storage of bulk liquids and gases. By focusing on safe and efficient operation of a versatile and flexible fleet of global and regional chemical tankers and gas carriers, together with cargo consolidation at our expanding tank terminal network, we aim to further enhance product stewardship in the solutions we provide to our customers. The fleet is operated in complex and extensive trading patterns, meeting our customers' demand for safety, quality and the highest standards of service. We have a critical mass that enables efficient trading patterns and optimal fleet utilisation. The industry as a whole suffers congestion in port due to lagging investment in port infrastructure.
Chemical Tankers
Gross revenues from our chemical tanker activities amounted to USD 940 million. EBITDA came in at USD 147 million, negatively impacted by bunker derivative hedges of USD 64 million. After a poor start of the year, the results improved during the year reaching an EBIT at the end of the year at USD 37 million, compared with USD 3 million in 2014. Odfjell SE corporate related costs are included in these figures. Total chemical tanker related assets at year-end amounted to USD 1,586 million. Time-charter income increased by about 1.5% compared with 2014.
Operation of chemical tankers is complex. During 2015 our ships transported in excess of 600 different products comprising more than 5,400 individual parcels. Unlike vessels in most other shipping segments, our ships call several berths in port, both for loading and discharging. This is time-consuming, fuel-inefficient and costly. We strive for optimizing the loading and discharging process, and have now launched a new initiative to further improve the load and discharging process. Successful consolidation of cargoes and time-efficient port operations will benefit our customers, ourselves as well as the environment and enhanced efforts in this regards is high on our agenda.
Our chemical tanker fleet at the end of 2015 was 73 ships, of which 39 were owned, down from 77 at the beginning of 2015. This figure includes time-chartered and commercially managed ships as well as vessels managed on pool basis. We are predominantly a deep sea operator with 65 of the 73 ships being more than 12,000 dwt. The Company also operated eight smaller ships, whereof six were owned.
In combination with and as an extension of our worldwide deep-sea service, our regional shipping activities encompass three distinct geographical regions; Far East Asia, South America East Coast and South America West Coast. Our largest regional operation is in Asia, covering a strategically important growth area for both our storage and transportation business. We currently operate ten ships in the region, in trades between Southeast Asia and the Far East, and to and from Australia/New Zealand.
During 2015 we discontinued our regional engagement in Europe and sold three vessels. The decision to close down the loss making business in Europe was one of many initiatives of Project Felix.
In South America, two Brazilian flagged ships are managed and operated by our wholly owned Brazilian company Flumar. In addition Flumar has two vessels on time-charter from Odfjell Tankers. This fleet is supplemented by our deep-sea vessels trading in South America.
In addition, we have a 50/50 joint venture in Chile with CSAV, with two ships transporting mostly sulphuric acid for the mining industry along the west coast of South America.
Odfjell has been promoting high safety standards for chemical tankers since the inception of the industry and thus, continues to take a proactive approach towards international regulatory bodies and major customers. We continue addressing key issues openly with all stakeholders in order to enhance safety in the business.
Gas Carriers
Gross revenues from our share in gas carrier activities in 2015 came in at 18 million, with an EBITDA of USD 4 million compared with USD 3 million in 2014. EBIT for 2015 amounted to USD 3 million compared with USD 8 million in 2014.
Odfjell re-entered the gas carrier market in 2012 by purchasing two 9,000 cbm LPG/Ethylene carriers: Bow Guardian and Bow Gallant. In September 2014 the two ships joined an external pool, to achieve synergies of a larger fleet that benefit utilisation.
In 2014 we continued the expansion of our gas carrier business by exercising newbulding options for four 22,000 cbm LPG/Ethylene carriers at Nantong Sinopacific Offshore & Engineering Co. Ltd. in China. Together with the orders for four 17,000 cbm units that we placed at the same yard in 2013, we have currently eight LPG/Ethylene carriers scheduled for delivery in 2016 and 2017. Through this expansion we will control a fleet of ten versatile gas carriers able to load a combination of LPG, ammonia and petrochemical gases, including ethane and ethylene.
Odfjell announced 1 October 2014 that the transaction with Oak Hill and Breakwater Capital had been closed. In accordance with the joint venture agreement, our new partners invested approximately USD 50 million for the 50% equity interest in Odfjell’s gas carrier business (Odfjell Gas AS). Odfjell and our new partners have agreed to commit approximately USD 50 million each to finance the joint venture's existing newbuilding programme.
The construction of the four 17,000 cbm and four 22,000 cbm is significantly delayed, and we are in discussions with the yard on how to resolve this. According to the latest production schedule from the yard, the first 17,000 cbm vessel will be delivered in September 2016 while original expected deliveries were October 2015 –May 2016.
Tank Terminals
Since November 2013 Odfjell’s tank terminal business is owned through a joint venture with Lindsay Goldberg through our joint investment in Odfjell Terminals B.V. Only Odfjell’s small tank terminal investment in Iran is not included in the joint venture.
2015 saw all terminals deliver stable earnings, with the terminal in Rotterdam finally turning the corner showing positive operating results each of the last four months of the 2015, from negative operating results after the shutdown in 2012. Gross revenues from our share of our tank terminal activities came in at USD 112 million, while our share of EBITDA for 2015 amounted to USD 40 million, up from a negative USD 4 million in 2014. Our share of EBIT for 2015 amounted to USD 4 million, compared with negative USD 31 million over the previous year. Included in the 2015 EBIT is our share of an impairment of USD 2.5 million related to Odfjell Terminals (Quanzhou) (OTQ).
At year-end 2015, the book value of our tank terminal assets was USD 629 million, compared with USD 650 million per end of 2014.
Odfjell’s existing tank terminals are located in Rotterdam (Netherlands), Antwerp (Belgium), Houston (USA), Charleston (USA), Singapore, Ulsan (Korea), Sohar (Oman), Jiangyin and Dalian
(China) and in Bandar Imam Khomeiny (Iran). Additionally, we have a beneficial co-operation agreement with a related party that partly owns 13 tank terminals in South America and one in Canada.
The construction of the new terminal in a new industrial zone near Tianjin, China was mechanically complete in 2015, with the jetties already receiving all trial operation permits from authorities. The explosion in the old Port of Tianjin in August 2015 resulted in a suspension of permitting for all hazardous material operations in the greater area of Tianjin. This affected also the final permit for new terminal, even if we are located far from the affected area. It is expected that the permitting process will resume in the first quarter 2016, with operations commencing later in 2016. Chinese authorities have announced that all new hazardous material projects must be located in the new industrial zone near our new terminal.
Odfjell Terminals (Rotterdam) reported substantially improved results in 2015, with the last quarter showing a positive EBITDA each month. In 2015, the facility commissioned a substantial amount of additional tank capacity and commenced a debottlenecking process of one of the distillation units that will more than double the total distillation capacity. EBITDA at OTR on a 100% basis was negative USD 9 million in 2015, compared with negative USD 80 million in 2014 and negative USD 65.6 million in 2013.
Odfjell Terminals (Houston) new 17,142 cbm tank pit (Bay 10) was completed in the fourth quarter against long-term contracts with an oil major and major chemical manufacturer. Odfjell Terminals (Houston)’s new total capacity is 394,193 cbm.
Management continues to focus on utilization of the assets. Year-end occupancy of commercially available tanks in 2015 was 93% versus 87% in 2014. This is driven in part by a contango in the petroleum market that is still showing strength into 2016. Management will continue to gradually introduce additional tank capacity at OTR, against contracted commitments. OTR’s distillation business will see a gradual ramp up of utilization of the new expanded capacity by second quarter 2016.
PROFIT & LOSS FOR THE YEAR - CONSOLIDATED
The Group’s accounts have been prepared in accordance with IFRS.
Gross revenues for the Odfjell Group came in at USD 929 million, down 12% from the preceding year. The consolidated result before taxes in 2015 was a loss of USD 30 million, compared with a loss of USD 76 million in 2014. The tax result in 2015 amounted to an expense of USD 5 million, compared with income of USD 1 million in 2014.
EBITDA for 2015 totalled USD 137 million, compared with USD 66 million the preceding year. EBIT was USD 28 million in 2015, compared with a loss of USD 22 million in 2014. The net result for 2015 amounted to a loss of USD 36 million, compared with a loss of USD 75 million in 2014. In 2015 we recognised an impairment of USD 20 million related to sale of, and planned sale of ships. In 2014 the result is influenced by impairment of USD 4 million related to sale of ships and USD 6.5 million in capital gain related to sale of 50% share in Odfjell Gas.
Net financial expenses for 2015 totalled USD 58 million, compared with USD 53 million in 2014. The average USD/NOK exchange rate in 2015 was 8.07, compared with 6.32 the previous year. The USD appreciated against the NOK to 8.80 by 31 December 2015, from 7.43 at year-end 2014. The cash flow from operations was USD 95 million in 2015, compared with USD 44 million in 2014. The net cash flow from investments was negative USD 25 million, mainly related to sale and new investments. The cash flow from financing activities was negative USD 43 million.
Odfjell SE posted a loss for the year of USD 16 million. The loss will be covered by a transfer from other equity. As of 31 December 2015, total retained earnings amounted to USD 648 million.
The Annual General Meeting will be held 9 May 2016 at 16:00 hours at the Company’s headquarters.
According to §3.3 of the Norwegian Accounting Act we confirm that the financial statements have been prepared on the going concern assumption.
SHARES AND SHAREHOLDERS
The Company is an SE (Societas Europaea) company subject to Act No 14 of 1 April 2005 relating to European companies. The Company’s registered office is in the city of Bergen, Norway.
The object of the Company is to engage in shipping, ship agency, tank terminals, real estate, finance and trading activities, including the transportation of freight in the Company’s own vessels or chartered vessels, the conclusion of freight contracts, ownership and operation of tank terminals, as well as investment and participation in other enterprises with a similar object and other activities related thereto.
By end of 2015, Odfjell A and B shares were trading at NOK 28.30 and NOK 26.50 respectively, against NOK 28.80 and NOK 26.20 respectively at the close of 2014. In the same period the Oslo Stock Exchange Benchmark Index increased by 6% and the Transportation Index lost 12%. As of 31 December 2015, Odfjell SE had a market capitalisation of around NOK 2,418 million, which was equivalent to around USD 275 million.
KEY FIGURES
The return on equity for 2015 was negative 5.6% and the return on total assets was positive 0.4 %. The corresponding figures for 2014 were negative 10.8% and negative 1.6% respectively. The return on capital employed (ROCE) was positive 1.7% in 2015. Earnings per share in 2015 amounted to negative USD 0.41 (negative NOK 3.31), compared with negative USD 0.95 (negative NOK 6.97) in 2014. The cash flow per share was USD 0.61 (NOK 4.89), compared with USD 0.19 (NOK 1.4) in 2014.
As of 31 December 2015 the Price/Earnings (P/E) ratio was negative 7.7 and the Price/Cash flow ratio was 5.2. Based on book value, the current Enterprise Value (EV)/EBITDA multiple was 12.3 while the EV/EBITDA multiple was 9.6 based on the market capitalization as per 31 December 2015. The interest coverage ratio (EBITDA/net interest expenses) was 3.3, compared to 1.7 in 2014.
FINANCIAL RISK AND STRATEGY
Our financial strategy shall be sufficiently robust to withstand prolonged adverse conditions, including long-term downturns in our markets or challenging conditions in the financial markets. Odfjell adopts an active approach to managing risk in the financial markets. This is achieved through funding from diversified sources, maintaining high liquidity or credit reserves, and through systematic monitoring and management of financial risks related to currencies, interest rates and bunkers. Hedging instruments are used to reduce the Company’s exposure to fluctuations in the above-mentioned financial risks. At the same time, it may limit our upside potential from favourable movements in these risk factors. We also closely monitor the risk related to market valuation of the hedging instruments and the effect this has on the equity ratio.
The largest single cost component affecting time-charter earnings is bunker consumption. In 2015 this amounted to about USD 142 million, ignoring the effect of any bunker adjustment clauses and bunkers hedging in place. A change in the average bunker price of USD 50 per tonne equals about USD 20 million per year (or USD 1,000 per day) change in time-charter earnings for those ships where we have a direct economic interest. A certain share of our bunker exposure is hedged through bunker adjustment clauses in the Contracts of Affreightment (CoAs). As at 31 December 2015, the Company had hedged about 7% of its 2016 bunker exposure, through swaps at an average price of about USD 225 per tonne. In addition bunker clauses in CoAs cover above 50% of the exposure. Odfjell expects, based on this, to benefit further from the reduction in bunker prices we have seen in 2015 and 2016. Under our cost-cutting and efficiency programme, we initiated several large and small activities to reduce the energy consumption on board our vessels. The result of this project when fully implemented, is a reduction of our total fuel consumption for our core fleet by more than 20%. (Should be moved to the HES section)
All interest-bearing debt, except bonds in the Norwegian bond market and debt borne by tank terminals outside USA, is denominated in USD. Interest rates are generally based on USD LIBOR rates. With our current interest rate hedging in place, about 4% of our loans were at fixed interest rates at year end.
The Group’s revenues are primarily denominated in USD. Our currency exposure relates to the net result and cash flow from voyage-related expenses, ship-operating expenses and general and administrative expenses denominated in non-USD currencies, primarily NOK. We have estimated that 10% decrease of the USD against the NOK would reduce the pre-tax 2015 result by around USD 5 million, ignoring the effect of any currency hedging in place. Tank terminals outside the US and our regional European shipping trade generate income in non-USD currencies.
Our currency hedging at the end of 2015, under which the Company sold USD and purchased NOK, covers about 42% of the Company’s 2016 NOK-exposure. Future hedging periods may vary depending on changes in market conditions. The average USD/NOK exchange rate for open hedging positions at 31 December 2015 for 2016 was 8.43.
LIQUIDITY AND FINANCING
Total interest-bearing debt as at 31 December 2015 was USD 1,168 million, while liquid assets amounted to USD 127 million, both figures excluding joint venture companies. At the same date the equity ratio, using the Equity consolidation method, was 33.2% compared with 31.4% per end 2014.
Odfjell’s balance sheet was strengthened during 2015 both with regard to the equity and the working capital. Odfjell SE Shipping/Corporate managed to refinance long-term debt of about USD 340 million during the year including repayment of a NOK 600 million bond which matured in December 2015. The new loans were secured at market terms and were entered into with our long-term relationship banks. We have only limited refinancing needs in 2016. The average maturity of the Group’s interest-bearing debt excluding finance leases is about 4 years, of which 10.3 % of the interest-bearing-debt matures in 2016.
ORGANISATION, WORKING ENVIRONMENT AND JOB OPPORTUNITIES
Odfjell aims at being a company for which it shall be attractive to work, with a professional work environment both at sea and ashore.
Odfjell maintains a policy of providing employees with equal opportunities for development of skills and offering new challenges within our Company. All employees shall be treated equally, irrespective of ethnic background, gender, religion or age – and they shall be offered equal opportunities for development and promotion to managerial positions.
We carry out employee surveys at the headquarters in Bergen and at our overseas offices. In addition we continue our programme for improved health care for seafarers, focusing on exercise and a healthy diet on board. The work environment on shore and at sea is considered good.
Discrimination is not accepted in terms of recruitment, promotion or wage compensation. Of about 148 employees at the headquarters in Bergen, 71% are men and 29% women, whilst the corresponding global figures (about 752 employees in our fully owned onshore operations) are 72% and 28% respectively. Three of the six Directors of the Board of Odfjell SE are women.
Compared to last year the recorded absence rate at the headquarters has decreased to 1.9% from 2.8%. For the Filipino mariners the absence rate in 2015 was 1.0% and for Europeans 4.0%.
The Board takes this opportunity to thank all employees for their contributions to the Company during 2015.
REMUNERATION OF THE MANAGEMENT GROUP
Salary and other remuneration to the CEO shall be determined by the Board. A description of the remuneration of the Management Group and the Group’s remuneration policy, including the scope and organization of bonus and share-price-related programmes, is given in the Board of Directors’ statement of guidelines for the remuneration of the Management Group. A ceiling has been set for performance-related remuneration. The Board of Directors’ statement of guidelines is considered by the General Meeting and made available to shareholders together with the notice of the Annual General Meeting. See Note 22 to the Odfjell Group accounts for details about the remuneration of the Management in 2015.
MARKET DEVELOPMENT
The recovery of the world economy has still not materialised, despite widespread political efforts and expansive fiscal policies to boost activity, trade and employment. Global economic growth slowed slightly during the year, from about 3.4% in 2014 to estimated 3.0% in 2015.
Oil prices continued to fall throughout the year, with Brent Blend dropping below USD 30 per barrel for the first time since 2004. The price reduction came as a result of the glut on the supply side. Marine fuel prices dropped accordingly, with the price of both heavy fuel oil and marine gasoil being about halved through the course of the year. Although the energy prices show some signs of getting firmer again into 2016, the reduced fuel costs offer a relief to the shipping industry at large.
For the oil tanker industry 2015 turned out a relatively good year, with healthy earnings as a result of strong demand and reduced bunker prices. However, towards the end of the year the market deteriorated also for the crude and CPP tankers. The other main shipping segments continued suffering from slow freight markets combined with a general oversupply of tonnage. Despite the unsatisfactory earnings and a considerable remaining order book that should curb a rapid recovery of the shipping markets, ordering of new tonnage in several segments remained high with owners investing in more modern and fuel-efficient tonnage. The development of vast shale oil and gas resources in North America, and the potential thereof for very competitive feedstock prices for the US petrochemical industry, has been seen as a real game-changer for the chemical industry and also for the chemical tankers. The rapid expansion of American ethylene crackers was expected to come at the expense of naphtha-based production in Europe, Northeast Asia and South America, which would change the previous trading patterns for bulk liquid chemicals. The large drop in oil prices may alter this situation. Although the shale oil producers in the US and Canada have managed to keep up the production even at oil price levels that only a year ago were considered to be substantially below production cost, there is uncertainty whether there will be any margins justifying development of new shale oil and gas reservoirs. At the same time, low oil prices improve substantially the cost competitiveness of the naphtha-based crackers, which may allow producers in Europe and Asia to get a larger share of the market. Oil and gas-rich countries in the Middle East continue building up their production capacity, with the ambition of capturing a larger share of the market for sophisticated products. With Iran coming back into the market after sanction have been lifted, there will be yet another player in the market to supply the important Chinese market. It is too early to have a clear opinion about how these development trends will affect the market balance and thus, the trading patterns for chemicals and other relevant products, but the need for vigilance and flexibility to adapt to rapidly changing market conditions will continue being crucial also going forward.
Chemical spot freight rates were rather stable throughout the year, despite the reduction in fuel prices and a substantial influx of new tonnage, but fell gradually in the last quarter of the year. However, with the markedly reduced fuel prices the voyage earnings improved for the chemical tanker operators in general compared with previous years. The chemical tanker fleet as a whole had a net growth of 6.5% in 2015, which is slightly less than average compound growth the last decade. The deep-sea core fleet grew by as much as 9.6%, of which the stainless steel fleet expanded by about 3.6%. The deep-sea core orderbook is now 24% of current fleet and thus, the fleet growth may appear to be quite rapid also over the next few years. If all current orders are delivered according to schedule, the core deep-sea fleet may grow on average by 6.9% per year in the period to 2018. However, with a certain degree of slippages and cancellations of orders, a more moderate fleet expansion seems more likely. Forecasts from a sample of analysts of the chemical tanker industry show on average a fleet growth of 4.1% per year to 2018. IMF forecasts suggest that the global economy will expand by about 3% per year over the next few years, traditionally indicating an average annual increase in the demand for seaborne chemical transportation of 4-5%, which is in line with demand forecasts from external chemical tanker analysts. However, there is still a considerable market slack in terms of slow-steaming, ballasting or only partly loading as well as inefficient port operations that need to be absorbed before we see any real tightening of the supply/ demand balance. Hence, the market situation appears not likely to improve substantially in the short-term horizon and we need to be prepared for down side risk if world GDP growth is lacklustre.
COMPANY STRATEGY AND PROSPECTS
Odfjell strives to provide safe, efficient, and cost-effective chemical tanker, gas carrier and tank terminal services to our customers worldwide. Close co-operation between our shipping activities and our tank terminals offers substantial operational and commercial benefits. In addition, the tank terminals themselves have proven a stabilising factor in our overall financial performance over time, as earnings from this area are less volatile as compared to earnings from our shipping activities.
World GDP growth, one of the main factors affecting overall chemical tanker demand, is expected to grow steady, but moderate. The latest economic outlook sees only a modest recovery in advanced economies and slower activity in emerging markets, with the world economy being likely to expand no faster in 2016 than in 2015.
As volatility remains high in most markets with no clear direction, traders are cautious, and volumes are reduced. We benefit from the lower level of bunker prices, but will continue to be negatively affected by the bunker adjustment clauses in our freight contracts. The last of the loss-making bunker hedging contracts entered into in 2014 matured in December 2015.
The demand for specialty chemical tanker services is slightly firming going forward, with CoAs being renewed at somewhat improved terms. However, although ordering of new chemical tankers was drastically reduced during in 2015 compared to previous years, the core deep-sea fleet order book is still 24% of current fleet. As a consequence thereof, we expect the supply/demand imbalance to persist, at least through 2016, and not likely to improve substantially in the short-term horizon. Our main risks relate to very competitive markets also in 2016, fuel costs and potential further increased order book within our core segment.
Early 2015 the Board approved an ambitious cost reduction and efficiency plan that, when fully implemented, was estimated to improve the net result by in excess of USD 100 million on a yearly run rate basis within end 2016. The target was successfully reached in December 2015, and we therefore expect full financial impact from the project in 2016, one year ahead of schedule. Through these measures we have achieve enhanced competitiveness that will enable us to regain our position as a profitable global logistics provider.
Odfjell has a reinvigorated focus on improving operations, and several new initiatives targeting operational performance have been launched during the year to further improve our strategic position and financial results. Despite a somewhat uncertain market outlook, we expect 2016 results for Chemical Tankers to improve based on a more competitive cost structure and expiry of loss-making bunker hedges.
We expect Odfjell Terminals 2016 results to be improved on strong distillation activity and better storage results at Odfjell Terminals (Rotterdam) on top of the slightly improving overall result for the other terminals.
Key focus going forward will be to continue implementing initiatives that further improve our cash and balance sheet, combined with our reinvigorated focus on operational improvements and quality of service. Other high priorities involve finding a solution for our gas carrier newbuildings and evaluating possibilities for a continued renewal of our advanced chemical tanker fleet.