CEO comments

Ability to compete is built on ability to perform

Our business can only be sustainable if we every day, through effective performance, contribute to our clients’ success.

The successes this year for our clients, partners and society include our commitment to safe operations, which continues and our dedicated crews have managed to decrease Lost Time Incident Frequency (LTIF), further in most business areas from already low levels. Our officers and crew on board the ships that Northern Marine manage for Stena Bulk have delivered a fine result for safety and performance. The yearly average number of observations per vetting inspection was 2.6 – a record low. In October Stena Drilling could celebrate 12 months straight with zero Lost Time Incident (LTI) for their whole fleet; the remainder of the year was also LTI free. They also delivered best in class operational performance of 98% for the year, ensuring always to be our clients’ first choice. One example is our client Hess, who chartered our drillship Stena Drillmax and stated “we are amazed the unit could drill a well with zero Non Productive Time”.

Through several innovative projects our shipping and ferry operations have increased their energy efficiency and decreased the environmental footprint. Overall fuel consumption (measured in metric ton per kilometer) was this year reduced by an average of 15% for the whole fleet. Stena Property’s target is to reduce energy consumption in their properties by 20% over ten years. Since commencement in 2010 electricity has so far been reduced by 9.1% and heating by 8.1%.

The annual Customer Satisfaction Surveys for Stena Line once again showed that 51% of travelers gave us the highest grade possible (very satisfied) while freight customers rated our services 4.2 out of maximum 5. As one freight customer puts it; “I represent the ‘small customer’ who do not travel so frequently, but always feel welcome and always get a friendly and professional treatment”. No wonder the Stena Line network of 22 lines increased their freight volumes by 5%. In effect Stena Line is developing into a very important part of sustainable European infrastructure.

Stena Property continues to improve their service index and they are now among the best within their segment of companies with more than 9,000 apartments, a proof that caring for our tenants by close dialogue and mutual projects – “Relationship Management” is working very well.

Innovation is a way to constantly improve. Since commencement our internal innovation programme in Stena Line has generated 11,000 proposals for improvements of which 1,700 have been put into action.

When it comes to cost cutting Stena Line reduced their costs with MSEK 200 and the rest of Stena AB cut their administrative costs with an additional MSEK 135.

The mantra for each of us is education, education

Competence development

Our business is expanding. At present for instance 386 sea-­cadets are undergoing our education programme and we spent MSEK 160 last year on education.

Northern Marine Group, who provides ship management services, were trusted to open an advanced joint training center of excellence in Glasgow on behalf of their clients Chevron Shipping. First class instructors and simulators will enhance knowledge and safety at sea – the combined investment in this venture is in excess of MUSD 20.

Affecting Stena as everyone else the digital information and communication technologies are radically changing the way we produce, transport, trade, consume and train ourselves. It is evident that technology creates new products and companies as well as new ways of doing business. New options for products and services are developing. It gives us the chance to sell especially our travel services more cost effectively. It gives us also the chance to remain in constant contact with our clients and the chance to immediate communication between ourselves and our business partners. Although the transaction cost is cheaper over the internet, not everything will happen via the web. We still need to be in personal contact with each other in many cases. Many interesting combinations based on old businesses are developing. The common denominators though are more efficiency, more transparency and contact 24 hours a day seven days a week.

Knowledge develops fast at the moment and is in principle open for everyone, who is searching for it. The mantra for each of us is education, education, education. Every year everyone, especially Stena employees, must in addition to consistently acting adequately consider how to improve in order to keep abreast of their work. Apart from developing functional education with our employees, we are undertaking intense courses in leadership in a systematic way for 120 selected talents. It is our hope this programme for effective leading and managing effective teamwork can include more people over time. Every-one of our employees is this year undertaking exercises in care and results, we call it we-learning, one objective being to understand people´s feelings and help each other professionally and often with empathy to improve our business-performance.

Markets

Who had expected the oil-price for Brent to be under USD 80/barrel? Now it has happened with dire consequences for oil-companies and the oil-service industry. With five out of seven drilling units on long term contracts we are better placed than most companies to weather the storm, provided we pay consistent attention to everyday effective performance. Luckily the tanker market develops substantially better with rates at its highest for many years. Our ferry business is helped by the European economy doing better. Thanks to increasing volumes the results of our ferry business is now breaking even. With the acquisition of ten ships in the past three years, we are well placed to expand our business. With most of our property business invested in residential houses we have a steady income in our Swedish business area. Our commercial investments in the Netherlands are suffering from a bad market, whereas we are doing well in London, Sofia Antipolis in France and Houston. Stena Adactum, our area for new businesses, has now a cash flow representing one tenth of our consolidated cash flow.

It is of course positive that our properties increase in value. As their cash flow does not increase proportionately and we want to keep and develop our assets instead of selling them, we are not completely happy with the development.

Since year end we have sold three RoPax ships with profit and are happy that this market is stabilising.

Profit, equity, net worth and liquidity

This year’s profit before tax increased to MSEK 2,0531) in Stena GAAP and to MSEK 2,799 in IFRS terms and increase with MSEK 450 and MSEK 650 respectively. Our total equity including deferred taxes amount to MSEK 42,842 in IFRS terms excluding surplus values in ships. The marine side of our business today account for 57% of our assets while real estate and Adactum accounts for 43%. In 2018 due to relatively fast depreciation of marine assets we expect the marine side to equal the non-marine side of our business, asset wise. Excluding Properties and Adactum the marine side of our business this year generated an EBITDA of 14% to book value of our net assets and 9% to original investment.

To operate in several industry segments insures stability in today’s world with so many global economic, political and environmental uncertainties. It is an important task not only for now but also for the future to secure our company´s total resilience and at the same time implement leading ambitions in everything we do.

Normally we have liquidity to weather a three year storm. With more than SEK 20 billion in liquidity at present we feel secure to weather any storm for the next five to six years.

1) Learn more on Consolidated income statement.

Strategy

Pay attention to and transform mindfulness into action is one of our mottos. Another one is – Small enough to care and big enough to cope.

Regularly we follow up on our success factors namely Financial success factors, Customer related success factors, Strategic success factors, success factors related to Collaboration and success factors related to Communication. Our visions extends normally over five years, with three year objectives and one year objectives.

Our foremost strategy though is to be equipped and well prepared for opportunities, if and when they do arise.

Lately we ordered with partners seven Suezmax tankers and ten IMOIIMAX-product tankers at the lowest prices quoted so far. We have bought ten RoPax vessels on the second hand market. We have ordered two MidMAX semisubmersible rigs, with an option to cancel one unit, to replace very old mid-water units by far better performance criterions. We bought and sold two real estate properties in London. Beginning of 2015 we sold our line Helsingborg–Helsingör and in the past year we acquired the line Rosslare–Cherbourg.

A company that is not developing its activities will eventually have to close them. Our ambition is to keep on developing. We believe forecasting prices is not really doable. Securing competitiveness by effective performance we can control and we concentrate on that.

Values

Trading outside Sweden we meet more cost-conscientious cultures. Our strength is capacity to see concepts and to foster long term relations by living up to set standards. Our delegated system giving authority to and following up by objectives is good provided it is checked and supported by impeccable financial control and education in the trade. It is important to keep the trading or action style element of our culture alive and at the same time base our acts and performance on facts.

Care, innovation and performance are the lead-words for our organisation. It does not harm to repeat our beliefs. Our performance is measured by technical availability, safety, customers´ accolades, repeat business, costs and profit. Innovation is measured in terms of number of proposals by our employees and the proportion being implemented. In short we try to transform mindfulness into action. Care is about being the best in terms of our financial success, our customers´ success, our employees’ success, our partners´ success and our societal success. The words of our employees are:

  • Caring leads to Sharing – it is spelled Sustainable Development and Working Partners both inside company with visible employees and visible suppliers.
  • Caring creates a commitment to Service and Customers´ personal satisfaction fitting to customers’ systems with KPIs and technical solutions.
  • Care drives excellence – Excellence is not an act; it is a habit.
  • Care for Financial Results is Caring for Profit, Cash and Asset Maintenance
  • Care for Competence Assurance and Reassurance by training and education.
  • Care is much more than just four letters in a document...

Consequently one person is responsible to see to it that we live up to our soft values in form of style, skills and staff, while my deputy officer is responsible to secure that systems, structures and strategy are in place and adhered to.

So – Take Care!

With these words I would again like to thank everyone for their support and mindful contributions during 2014. As 2015 seems to be a better year for everyone except for Stena Drilling we have good reasons to continue living in hope.


Gothenburg 3 March 2015
Dan Sten Olsson
CEO, Stena AB

Highlights 2014

  • Revenues1) SEK 33.6 billion – 10% increase
  • EBITDA1) SEK 9.9 billion – ”all time high”
  • Income before tax SEK 2.8 billion

Strong liquidity and credit profile

  • Available cash, unused credit facilities and financial investments SEK 17.7 billion2)
  • Available cash, unused credit facilities and financial investments SEK 22.0 billion3)
  • Cash Conversion Cycle 19 days
  • Positive cashflow in the group – MSEK 1,500

1) Incl. net gain on sale of assets and net valuation on investment property
2) Per 31 December 2014
3) Per 28 February 2015

Strategic expansion

  • Total investments in 2014 of SEK 5.7 billion. Mainly SPS1) and BOP2) for ­Drilling, 1 new RoPax vessel and new construction for Stena Property
  • Newbuilding projects:
    – 4.5 IMOIIMAX vessels
    – Two drilling units

1) Special Periodic Service
2) Blowout preventer

Healthy balance sheet1)

  • Book value of vessel and rig fleet, SEK 46 billion
  • Market value property portfolio, SEK 29 billion with loan to value of 43%
  • Net debt excl. property loans, SEK 39 billion
  • Net debt to EBITDA excl. property loans 5.0x
  • Equity incl. deferred tax, SEK 42.8 billion

1) Per 31 December 2014

Next in Annual Review 2014

SHIPPING AND FERRY OPERATIONS

STEADY COURSE IN CHANGING CONDITIONS