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Since the founding of the Company in 1992, management has maintained a commitment to locking in its modern product ships on profitable time charters. Our philosophy has always been to utilize the time charter strategy in order to smooth out the tanker cycles. Since inception, our time charter strategy has enabled us to reduce earnings volatility and achieve consistent profitable growth.
Stelmar Shipping Ltd. is a holding company for a fleet of oceangoing tankers involved in transporting crude and refined grades of petroleum products. Stelmar Shipping operates 31 vessels that trade worldwide, operating primarily under the terms of time charter contracts. The company's charterers are oil companies, state-owned oil companies, and international oil trading houses. Relative to its competitors, Stelmar Shipping maintains a young fleet, with contracts ranging between one and seven years' duration for a majority of its fleet.
Origins
Stelmar Shipping was founded by a 24-year-old taking his first steps as an entrepreneur. At first blush, the prospect of a neophyte using a tanker company as his first start-up venture appeared odd, but Stelios Hagi-Ioannou was no ordinary 24-year-old. The second son of an immensely wealthy Greek shipping family, Hagi-Ioannou made his start in the business world with vast financial resources at his disposal, the fruits cultivated by his father, Loucas Hagi-Ioannou, and his maritime group, Troodos Shipping. Stelmar Shipping represented the first business venture started by the younger Hagi-Ioannou--Stelios, as he preferred to be called--the first venture in his career as a "serial entrepreneur," another epithet favored by Stelios.
After graduating from the London School of Economics in 1989, Stelios worked for his father's company, Troodos Shipping. Loucas Hagi-Ioannou bankrolled Stelios's start as an entrepreneur, staking his son with £30 million to follow in his footsteps. Stelios used the capital to start his own tanker company, Blue Weave Tankers, in September 1992. (Blue Weave changed its name to Stelmar Tankers (Management) Ltd. in February 1993, the new name a combination of "Stelios" and "maritime.") At the company's inception, Stelios recruited a management team that would remain intact during the company's formative decade. Key executives included Peter Goodfellow, Stamatic Molaris, Bruce Ogilvy, and Nick Hartley.
Stelios's petroleum transportation company, as it existed at the beginning of the 21st century, was cobbled from a patchwork of what would become subsidiary companies. The collection of companies were brought together under the corporate umbrella of Stelmar Shipping Ltd., a holding company formed in January 1997. In the five years separating Stelios's entry into the tanker business and the formation of Stelmar Shipping as a holding company, roughly a dozen shipowning companies were formed, each created to govern the operation of a single oceangoing vessel. These shipowning companies were controlled by several companies, the primary entities, along with several management companies brought together under the Stelmar Shipping corporate umbrella. These key components included: Stelmar Tankers (Management) Ltd., which provided a wide range of shipping services, including maintenance, technical support, and financial and accounting services; Martank Shipping Holdings Ltd., a holding company of shipowning concerns, which was formed in March 1993; and Marship Tankers (Holdings) Ltd., another holding company of shipowning concerns, formed in August 1993.
Stelios's tanker business became operational roughly six months after the formation of the shipping-services provider, Stelmar Tankers. The first vessel, controlled by Martank Shipping, was the Fulmar, acquired in April 1993. A second vessel, controlled by Marship Tankers, the Primar, was acquired in July 1993. Both vessels were acquired from Teekay Shipping Corporation. Before the end of the year, Stelios added two more vessels, both acquired from Amoco Corporation. In September, the Colmar was acquired, followed by the purchase of the City University in October. With the acquisition of his first four vessels, Stelios positioned himself in the two segments of the petroleum-shipping trade that would direct Stelmar Shipping's expansion strategy.
From the outset, Stelios shaped his shipping business to compete in the transportation of crude and refined petroleum products, commonly referred to as "dirty" and "clean" products, respectively. The National Petroleum Association (NPA) scale of color determined the classification of an oil product as either a clean or dirty grade, with the number one representing the cleanest grade and the number nine representing the dirtiest grade. The dividing point between clean and dirty products was typically defined as 2.5. Customers wishing to transport clean petroleum products nearly always demanded a vessel with an immediate history of carrying only clean products to avoid contamination of their clean products. Consequently, vessel owners, such as Stelios, eschewed switching the status of their vessels from clean to dirty. With the vessel acquisitions completed in 1993, Stelios positioned himself to transport both grades of petroleum products. Fulmar and Primar traded in clean products, and Colmar and City University traded in dirty products. Clean products commonly carried by Stelios's vessels included naphtha, gasoline, jet fuel, diesel, and gasoil. Dirty products carried by his company included fuel oil, low sulfur waxy residue, and carbon black feedstock.
As Stelios expanded his fleet, he did so by primarily acquiring vessels of two classes, which were defined by deadweight, the standard unit of measurement by which tankers were known. Deadweight represented the cargo carrying capacity of a vessel in metric tonnes, in addition to the weight of bunkers, stores, and fresh water. Stelios focused on two classes of vessels, Handymax tankers and Panamax tankers. Handymax tankers, such as Fulmar, Primar, Colmar, and City University, ranged between 30,000 deadweight and 50,000 deadweight. Panamax tankers were larger, measuring between 60,000 deadweight and 70,000 deadweight, the greatest dimensions able to transit the Panama Canal. To a lesser extent, the Stelmar Shipping fleet would include Aframax tankers, which measured between 80,000 deadweight and 120,000 deadweight.
Once equipped with vessels, Stelios espoused an operating philosophy that focused on time charter contracts. There were three main types of charter contracts: spot charter, bareboat charter, and time charter. Under the terms of a spot charter contract, the charterer hired the vessel for a single voyage. A bareboat charter contract provided the vessel for a set period of time--typically several years--with the contractor taking responsibility for all operational matters, including maintenance, insurance, and crewing. Under the terms of a time charter contract, charterers hired the vessel for a set period of time, ranging between several days and several years. Unlike bareboat charter contracts, time charter contracts stipulated that the owner of the vessel, rather than the charterer, assumed responsibility for operational matters, for which the owner charged a daily hire rate. As Stelios's shipping business expanded, nearly all of the vessels would be hired under time charter contracts.
Fleet expansion continued in 1994, when the company ordered the construction of its first new vessel. A South Korean shipyard constructed a 46,000-deadweight Handymax tanker christened Nedimar, which Martank Shipping took delivery of in January 1996.
By the time Stelios ordered the construction of Nedimar, his attention already had begun to stray into different business pursuits. The serial entrepreneur was about to proliferate. Stelios met Richard Branson, the founder of Virgin Airlines, in 1994 and became entranced with launching his own airline, whose inspiration was drawn from Branson's highly publicized venture and from the success of U.S.-based, regional carrier Southwest Airlines. Aping the flamboyant, media-savvy behavior of the Virgin Airlines founder, Stelios flowered into a highly public figure--"Since very early on in my shipping days, I've immersed myself in the media world," he said in a September 13, 2002 interview with PR Week. Before the end of 1994, with his sights set on launching his own airline, Stelios relinquished day-to-day management of his shipping business, although he remained the company's chairman. In 1995, after receiving $7.5 million from his father, Stelios launched easyJet Airline Co., a short-haul, low-cost carrier relying, like Southwest, on the Boeing 737. The successful start of easyJet gave birth to Stelios's "easy" empire, leading to the formation of easyGroup in 1998, easyEverything (later rebranded as easyInternetCafe) in 1999, and a slew of other "easy" business ventures that combated competitors by offering discount prices.
Fleet Expansion During the Late 1990s
Although Stelios's other business ventures stole the headlines, Stelmar Shipping continued to expand, operating beneath the media radar. In 1997, after Stelmar Shipping was formed in January, three more vessels were acquired, increasing the company's Panamax and Aframax tonnage. In June, the company purchased the Loucas, an Aframax tanker, followed by the October acquisition of the Kliomar, an Aframax tanker, and the December acquisition of the Polys, a Panamax tanker. By the end of 1997, Stelmar Shipping was generating $33.6 million in revenue from its fleet of nine vessels, from which the company earned $5.1 million in net income.
In the last two years of the 1990s, Stelmar Shipping continued to emphasize increasing the number of its larger vessels. In 1998, the company acquired three Panamax tankers, the Keymar, the P. Alliance, and the Takamar. In 1999, another Panamax tanker, Jacamar, was acquired, bringing Stelmar Shipping's fleet to 12 vessels and doubling revenue volume from 1997's total to $68.5 million by the end of 1999.
2001 Debut on the New York Stock Exchange
As Stelmar shipping entered the 21st century, it embarked on a period of rapid expansion. The company divested its first vessel, Loucas, in 2000, but compensated for the loss by renewing its new-building activity. In July 2000, Stelmar Shipping signed an agreement with Korea-based Daewoo Shipbuilding to build four Panamax tankers, which were scheduled for delivery during the first half of 2002. Less than a year after signing the agreement with Daewoo, Stelmar Shipping positioned itself for further expansion by completing its initial public offering (IPO) of stock. In March 2001, Stelmar Shipping began trading on the New York Stock Exchange, netting $89 million in proceeds from the IPO. The company used the proceeds to finance the purchase of ten Handymax tankers, a $128 million deal that increased the size of its fleet to 21 vessels. By the end of the year, the company recorded its seventh year of profitability, posting an impressive $34 million in net income--nearly a sevenfold increase from 1997's total--on $111.2 million in revenue.
Stelmar Shipping celebrated its tenth anniversary year by continuing to exhibit encouraging financial performance and physical growth. Stelios stepped aside as chairman at the end of 2001 to devote more time to his ever expanding business interests, paving the way for the ascension of Nick Hartley as Stelmar Shipping's chairman. Peter Goodfellow served as the company's chief executive officer. In the wake of Stelios's departure, the company completed a secondary offering of stock in April 2002, raising roughly $69 million in gross proceeds. With the capital gained from the 4.9 million shares sold, Stelmar Shipping financed the acquisition of two Handymax vessels and ordered the construction of two Panamax vessels, which were delivered in July 2002. The additions increased the size of the company's fleet to 31 vessels. Before the end of the year, the company pressed ahead further with expansion, commissioning the construction of four new Panamax tankers, which were scheduled to be delivered by mid-2004. With existing expansion plans slated to increase Stelmar Shipping's fleet to 36 vessels, company management celebrated their 10th anniversary in September in Athens with a fireworks display and cake-cutting ceremony, confident that the years ahead would solidify Stelmar Shipping's position as a leading tanker company.
Principal Subsidiaries: Stelmar Tankers (Management) Ltd. (Liberia); Stelmar Tankers (UK) Ltd. (U.K.); Marship Tankers (Holdings) Ltd. (British Virgin Islands); Martank Shipping Holdings Ltd. (British Virgin Islands).
Principal Competitors: Frontline Ltd.; OMI Corporation; Teekay Shipping Corporation.
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