2016

2016 brought a significant improvement in our financial performance, in spite of a somewhat challenging market environment. Our net result ended up at USD 100 million – compared with a net result of USD negative 36 million in 2015 – and our balance sheet stands stronger with an equity ratio of 38.2% compared to 33.2% in 2015. Our results were helped by the sale of the Oman Terminal. 

Our competitiveness has also improved substantially. We continue to see positive effects in our financial performance from all the initiatives launched under 'Project Felix' and 'Project Moneyball', our operational process excellence programme.

The 2016 results showed continuous improvement in our financial performance for Odfjell Tankers. Our markets were challenging, but a strong contract portfolio softened the impact of the weakening spot market, which especially softened in the second half of the year. Our utilisation is also improving as a direct result of our operational process excellence initiatives in Project Moneyball. Our cost base continues to improve as well and, as an example, the average daily operation expenses for our vessels today is 24% lower than the average of the preceding five year period. This is a significant achievement, especially considering that we at the same time have delivered improved QHSE performance.

We believe that we have some of the best crew in the chemical tanker trades, and there is no doubt that our increase in performance is a result of the way our crews are performing every day at sea – around the clock!

Odfjell Terminals delivered improved results in 2016 as well. Most terminals delivered stable, positive net results, and we continue to see improvements at our terminal in Rotterdam (OTR), with high utilisation and increased distillation activity. Getting OTR back to profitability remains our number one priority, as the terminal is currently operating around 1 million cubic meter capacity, out of a name plate capacity of 1.6 million cubic meter.

Our key learnings from Project Felix and Project Moneyball are currently being applied in the ‘Value Creation Programme’ for Odfjell Terminals. The two main elements in the programme are: 1) Improve and grow the core, and 2) Grow outside the core. When it comes to improving the core, we focus on our key terminals in Rotterdam and Houston, aiming to improve our service level and operational performance. Furthermore, this element includes implementing the OTR specific strategy – the 'OTR Masterplan', aiming to get Rotterdam capacity back on line and developing available land banks. The principle for Odfjell Terminals is that the company needs to be self-funded, which means that the necessary capex most likely will be funded via changes in our portfolio; our focus should be on terminals operated by us.

For our gas vessels on order, we have been facing substantial delays and we are still targeting an exit from this segment. As per end of 2016, four out of eight newbuilding contracts were cancelled, and it is likely that the remaining vessels will be cancelled as soon as we can do this according to the contracts.

THE MARKET

The last two years have been relatively good years in the chemical tanker industry, although the market softened towards the end of 2016.

In our opinion, the market is fundamentally balanced, but the past two-three years have seen a lot of new vessels being delivered, and hence supply has outgrown demand. In addition, the market has witnessed a de-consolidation with new entrants looking to compete in the chemical tanker industry.

Going forward, the supply of new tonnage is limited and demand continues to grow, especially driven by more long haul movements. So even though 2017 may be under pressure as supply and demand rebalances, we believe that the market will be balanced in the coming years.

History has shown that predicting the market is difficult, and there could be other influencing factors – so Odfjell will continue to have a strict focus on our competitiveness to ensure that we can perform well even if the markets should disappoint.

THE ODFJELL COMPASS

I have been CEO of Odfjell for about 18 months, and it is only now that we can meaningfully talk about strategy. The reality is that strategy is about making choices, and the Company was simply not in a shape to make strategic choices until now. We had to start from within, build strength and make sure that our balance sheet, organisation, systems and cost structure could support growth.

It is therefore exciting for me to be able to launch the ‘Odfjell Compass’, which will guide us into the future. This means that we now know where we are going, we will focus on making good and sound decisions on the journey, and make sure we do not lose our strength in achieving these goals.

The key components of the strategy:
Our updated Mission statement: 'Our core business is handling hazardous liquids – safely and more efficiently than anyone else in the industry'. I want to highlight two specific points from this mission statement which are of paramount importance:

1) Safely! Odfjell does not compromise on safety. This is not only a statement we make, it is the starting point for how we think. We transport and store hazardous liquids. Our number one priority is that we do so safely for our people and for the environment.

2) Efficiently! We fundamentally believe that we need to think  efficiency into everything we do. It is good for the customers, it is good for the environment and it is good for our shareholders.

For 2017 and beyond, our key focus areas will be:

Growth
• Tonnage renewal/fleet growth
• Ideally take part in consolidation

High quality service
• Safety, predictability and reliability

Operational excellence
• Tankers: Project Moneyball and strong focus on utilisation
• Terminals: Implementation of the Value Creation Programme

Financial strength
• Solid balance sheet
• Competitive cost of capital

Terminals – back to meaningful profitability levels
• Focus on improving and growing our core terminals
• Fund growth via portfolio optimisation (capex to be self-funded)

All in all, we are satisfied with the progress we have made. 2016 was a good year, where Odfjell emerged as a healthier and stronger company, despite the somewhat challenging market environment. We have worked hard to regain our strength, and it is now time to put this strength to work in our new strategy, the Odfjell Compass.

This marks a turning point for Odfjell, and we are excited about the journey ahead.

Stay safe!

Kristian Mørch, CEO