This has positively affected the volumes of passengers and freight for our ferry business, Stena Line. By digital marketing our yields are also up. Our vacancies of office-space in the Netherlands starts to be filled.
Immigration into Sweden and the strong growth in Swedish economy has created a shortage of housing that will take years to fill and we have slots to continue to build on for the next eight years. Our reputation for understanding and reliably implementing care has also rendered us the possibility to acquire an office and laboratory building rented to a first class client and 1,250 apartments from the municipality of Landskrona. Our businesses in Stena Adactum are increasing their margins and are in total keeping their profits up.
Our tanker business is doing OK, but future deliveries of tonnage will saturate the market for the next two years. In April 2017 we acquired the other half of Stena Weco from Weco Shipping AS. Being the sole owner of this operation of 65 owned or chartered medium sized product tankers (47 000–58 000 tons), we can continue to develop the same into new trades with our light chemical tankers the IMOIIMAXes. The acquisition makes us a true leader in this field. Our SuezMAX operation in partnership with Sonangol will benefit from flexible chartering of tonnage. Our skills to operate LNG and LPG gas tankers have rendered us management of 45 ships. With zero lost time incidents 2016 for Stena Bulk we consider ourselves to be the leading operator. The LNG market went through its worst phase in 2016 and is now slowly recovering. Offshore drilling will be our biggest headache for years to come. Nevertheless we have entered into three new contracts for our Ultra Deep Water Drillships The DrillMAXes for drilling in 2017. EBITDA for 2016 was substantial. Our unit Stena Forth has worked for Hess for six years and has only exceeded its AFEs1) with 1,6% in total over these years. What the result of our negotiations with Samsung for the Stena MIDMAX will render is an open question, but somehow it will make us a stronger operator.
“To run a company is to live with change.”
With 43% of our assets in non-marine activities we can both rely on other income as well as other assets in case of a drawn out negative period for offshore drilling. With SEK 19.1 billion in liquid assets we have a good cushion. It might also be used for strategic acquisitions would the opportunity arise. Our strategic position is at present strong enough though to enable us to keep on operating the activities we have, without any other acquisitions then modernizing our fleet of ferries. In order to safeguard such a modernization, we have ordered four RoPax vessels in China with deliveries in 2019 and 2020.
Manufacturing is increasing worldwide but not as much as new services
The biggest changes in the GDP composition take place in increasing share of services. Our ferry services benefit from people´s wish for new experiences by travel.
Something that socially affects macro conditions are service jobs with low knowledge content and high content. As employment in many cases despite increasing production in the industrial sector goes down many of the unemployed, dependent on location and skills, cannot find jobs as well paid as the previous ones. Digitalisation and automation are amplifying these trends with social unrest as a consequence in most developed countries.
Manufacturing is nevertheless increasing worldwide with positive effects for trade of raw materials and energy as well as new services. Increasing needs for raw material and energy create opportunities for countries with natural resources. Oil and gas consumption in emerging markets is rising, which creates need for both transportation and drilling. Coal is in view of its negative climate effect still surprisingly popular as a resource of energy. Gas is taking market share. Oil is losing market share, but its consumption grows at present with close to two percent per year. Depletion of oil-wells will start to set in during 2017. It is already leading into increased offshore drilling enquiries and projects for new developments. The role of shale oil production is uncertain, but it will certainly bounce back.
Demand for clean energy is increasing
Investments in renewables start to equal investments in fossil fuels. In some developed countries the investments are already of such magnitude that electricity prices have started to go down. As nuclear energy in the developed world seems to be on its way out prices will no doubt start rising again. Our permits to build two hundred windmills on top of the one hundred, we currently operate in Sweden might then be highly valuable. As environmental concerns in cities are increasing, wishes for electric cars and means of electric transportation are increasing. Stena Teknik is already highly engaged in the conversion of the ferries running between Helsingborg and Helsingoer, a twenty minute journey. The vessels are to be driven by electricity stored in batteries. When stationed at port, most of our ferries are already powered by electricity from shore. A project for 2017/2018 will be to run one of our big ferries on electricity for a substantial part of its journey. It could well be that for our shorter routes t he next generation of ferry from 2030 will be totally run by electricity.
Our innovations are run by continuous improvements and transformational aspirations
Our first class operational success is built on care for collaboration as well as always repeating and adhering to our processes with ambitions for continuous innovations. It is performed by our operational people loyal to their tasks and ambitions to be the best or at least be second to none. By delegated authority and trust we have managed to achieve a culture, where we do not blame each other, but consistently help each other in individual decisions. Consistent measuring is a good help for communicating between each other as well as achieving important results.
Transformational innovation is not a complete new challenge for us. Over the years Stena has built more than one hundred ships, ferries, offshore vessels and drilling units. Some of these units have been revolutionary. Such as ferries with two cargo decks for lorries, extended accommodation decks to the stern enabled by twin-skeg Propellers. These propellers also reduced fuel-consumption and lead to shallow draft tankers such as the V-Maxes and P-Maxes with increased safety functions. The first purpose built sub-sea construction vessels the Stena SeaSpreads and the first purpose built well service vessels the Stena SeaWells were achievements in offshore subsea. The high speed ferries the HSSs were revolutionary by combining semisubmersible techniques with a catamaran hull feature. The Stena Tay and Stena Don were purpose built for Shell and Statoil. The Stena DrillMax concept has been the base on which Samsung has sold their drillship new-buildings. Our success has not only been due to our flexible technicians, but also to our habit to involve people from our operation in the development. Such new development is our new device developed by our team together with Cameron for low pressure drilling (the MPD) enabling faster drilling through porous layers. We are the first drilling contractor to both own and operate such a device.
Beside the technique to develop ships, digitalisation in combination with artificial intelligence is now on top of our list for developing new services and routines. The necessity is a consequence of new cheap easily accessible digital technologies. Developments will require flexible people capable to develop the techniques to our needs and will also require people to collaborate in handling the resulting installations. Our biggest steps of progress are in digital sales and yield of passenger bookings, where we now have achieved 80% digital share. Seamless digital communication with our freight customers is another area, where we make substantial progress. In all areas, such as ship equipment monitoring, ship journey monitoring, commercial communication exchange and services to clients, partners and suppliers, we are carrying out projects, being helped by an established virtual unit of people called the Digital Lab. By supporting the top management with young mentors we see to it that we do not loose speed neither in visualization nor in application.
So far digitalisation is a helper for our business and not a disrupter. It will be interesting to follow what new products and services we can develop by this technique.
Our belief in future success is strong despite present setbacks in offshore activities
2017 will be a tough year from a profit point of view. To run a business, though, is to live with change. With our strong base we feel secure in looking forward to our future with good confidence and long term optimism.
Thanks to consistent care and collaboration we keep on delivering innovation and performance. I want to thank everyone for their diligent work to achieve our objectives in 2016 and 2017.
Dan Sten Olsson
CEO Stena AB
Gothenburg March 2016