2023-11-22 13:02:06 ET
Company Participants
Conference Call Participants
Presentation
Andreas Rode
Good morning, everyone and welcome to Ocean Yield’s Third quarter 2023 Earnings Presentation. As usual, I will start today's presentation with the highlights of the quarter, details of new investments and go through the changes of the portfolio before our CFO, Eirik Eide, will take us through the financials and the financing activity for the quarter. Then the presentation will be concluded with opening for questions.
Starting off on Page 2. Q3 has been an active quarter for Ocean Yield and we are pleased to report another quarter with strong and stable performance. We report an EBITDA adjusted for finance lease effects of $79 million and a net profit of $18.5 million. We continue to allocate capital to accretive growth and maintaining a strong balance sheet and we are ending the quarter with $133.8 million in cash and an equity ratio of 30.6%. At the end of the third quarter, the EBITDA backlog was record high at $4.1 billion and the average contract duration is now exceeding 10 years.
Q3 was also another active quarter on the financing side and we issued a NOK750 million senior unsecured loan with a five-year tenner. We thank our bondholders for your continued support. We constantly work to optimize our cost of capital and actively manage our maturity profile. And during and post the quarter end, we have been proactively been buying back bonds and we currently hold $94.1 million in OCY06 and NOK460.5 million in OCY07. Eirik will cover the activity on the senior financing side in greater detail later in the presentation.
During and after the quarter, we have signed agreements to acquire seven modern and new-build vessels and during the fourth quarter we look forward to welcoming the new-build container vessel ZIM GANGES and two Suezmax tankers to our fleet.
Let us move to Page 3 for more details on the announced transactions. Building on the existing relationship with Braskem, on August 1st we announced the acquisition of four LR1 product tankers that will be constructed at GSI Shipyard in China. The vessels will have a methanol-ready design and will upon delivery in 2026 and 2027 commence 15-year bareboat charters to Braskem. In Braskem we have found a partner that shares our vision and ambition to contributing to the decarbonization of the maritime industry, and the lease was Ocean Yield's inaugural sustainability-linked lease. The day rate is effectively linked to the carbon intensity index score obtained for the vessels, giving the charter a clear financial incentive to reduce emissions throughout the life of the lease. Our ambition is to continue to develop this product, and the recent transaction with Euronav will have the same sustainability linked features.
Moving on to Page 4. On October 27th, we announced the acquisition of a 2016-built Suezmax tanker with eight-year bareboat charter to Nordic American Tankers. This transaction brings our total exposure with Nordic American Tankers to six modern Suezmax tankers. It is the third transaction with Nordic American Tankers and reflects the strong and long-term relationship between Nordic American Tankers and Ocean Yield.
Moving on to Page 5. On November 10th, we announced the acquisition of two 2022-built Suezmax tankers with 14-year sustainability-linked bareboat charters to guaranteed subsidiaries of Euronav NV. Building on the principles of the sustainability linked lease with Braskem, the bareboat charter rates will have a variable element linked to the respective vessel's actual carbon emissions, clearly incentivizing the charter to keep emissions low. There are purchase obligations at the end of the charter periods. Euronav is listed on the Brussels and New York Stock Exchange and will post the sale of the 24 VLCCs to Frontline, have a pro forma fleet comprising of 46 vessels and currently have a market cap of around $3.6 billion.
Moving on to Page 6 for an update on the portfolio. The new built 5,500 TEU container vessel ZIM Danube was successfully delivered from the shipyard in Korea in the beginning of October and commenced the seven-year time charter to ZIM Integrated Services. The two AHTS vessels, now renamed to Andreas Viking and Odin Viking have successfully been delivered to Viking Supply Ships and commenced the five-year bareboat charters with purchase obligations at the end of the charter period. Following previously declared and announced purchase options STI Supreme, Interlink Amenity and Navig8 Precision which was held in a 50% owned JV, were delivered to its new owners during the quarter.
During the quarter, a purchase option was declared for Navig8 Prestige, which is also held in a 50% owned JV, was declared. Okeanis Eco Tankers also declared a purchase option for the Suezmax Tanker Milos. Both vessels are expected to be delivered to its new owners during Q1 next year. Finally, post quarter end purchase options have been declared for the PCTC Höegh Jacksonville and the Suezmax tanker Poliegos and they are expected to be delivered to the new owners during Q2 next year.
Moving on to Page 7. Including the investment activity year-to-date, we now have a record high EBITDA backlog as of the third quarter of $4.1 billion. The average contract duration of the portfolio is now more than 10 years and following the delivery of the two AHTS vessels to Viking Supply ships, 100% of the portfolio is employed on long-term charters. The diversified modern fleet have an average age of five years and comprise 65 vessels at the end of the third quarter. The vessels are on charter to 18 different customers in eight different segments providing both sector and client diversification.
Following strong continued performance of the majority of the shipping markets and despite some recent volatility in certain segments, lease-to-value stands at solid levels, and the portfolio of long-term leases to leading counterparties provide the foundations for stable and predictable earnings in the years to come.
So with that, I would like to hand over to Eirik, who will take us through the financials for the third quarter.
Eirik Eide
Thank you, Andreas. So we move on to Slide 8, which shows a financial snapshot of the company as of the third quarter. We have recorded EBITDA of $51.5 million in the quarter and adjusted EBITDA was $79 million. Net profit was $18.5 million and this quarter the board of directors has decided to declare a dividend payment of $30 million. This is the first dividend payment done in 2023. The company's cash position remains solid with $133.8 million at the end of the quarter and the balance sheet remains strong with an equity ratio of 30.6% at the end of the quarter.
Moving on to the P&L and operating revenues where we have recorded $15.6 million compared to $16.5 million in the second quarter. Operating lease revenue is slightly down from Q2 due to the sale and delivery of the car carrier Höegh Tracer in Q2. This is however partly offset by delivery of the container vessel ZIM Danube in September. Finance lease revenues were $33.1 million in Q3 compared with $33.6 million in Q2. The decrease here is related to the sale and delivery of the STI Supreme and also the interlink amenity during the third quarter.
Income from investments in Associates, which is related now to 50% ownership in one tanker and then 49.9% ownership in seven container vessels was $5.8 million compared with $5 million in Q1. The variance here is mainly due to movements on interest rate swaps. And then we had other income which was net negative with $0.1 million and this is related to the sale of the Interlink Amenity and also the declaration of the purchase option for the Suezmax tanker Milos. So that gives us total revenues of $54.5 million compared to $61.8 million last quarter.
On depreciation that was $6.2 million, which is slightly up from last quarter due to delivery of the container vessel ZIM Danube and operating profit was $45.2 million compared to $53 million in Q2. The decrease is mainly related to one-off items and other revenue recognized in Q2 in connection with vessel sales. Financial expenses $28.6 million compared to $27.7 million last quarter and this increase is mainly due to higher interest rates in the quarter and also drawdown on debt related to delivery of a new vessel.
Foreign exchange movements and mark-to-market of derivatives was net negative with $2 million and so the quarter ended then with a net profit of $18.5 million compared to $27 million in Q2. And as I mentioned, the net profit for the second quarter was affected by one-off items and profits in connection with vessel sales, so this number was unusually high.
We move on to the balance sheet and a few comments there. We have on the left hand side an increase in vessels and equipment compared to the second quarter and this is due to delivery of one new container vessel. Then under new buildings, we have made some further payments to the shipyard in connection with the new building program. And this is not including the payments relating to the Newcastlemax dry bulk vessels, which is shown under other non-current assets. So under other non-current assets you can see that this has increased to $72 million compared to $53 million last quarter. This is mainly then related to further payments to CMB and the shipyard related to the Newcastlemax new building program.
Then in terms of cash and cash equivalents, $133.8 million compared to $116 million last quarter. On the book equity side, we had $673 million compared to $664 million in Q2. During the quarter we have bought back further amounts of the hybrid petrol bond where the total nominal amount now outstanding is $30.9 million at the end of the quarter. Total assets were then $2.196 billion and that gives us an equity ratio of 30.6% at the end of the quarter.
Then moving on to talk a little bit about financing initiatives. The third quarter continued to be very active on the financing side for us. We have refinanced and upsized one loan facility relating to the two anchor handling vessels now on bareboat charter to Viking and both of those vessels are now being delivered and the debt has been drawn post quarter end. In addition, we have signed two new loan agreements for the financing of six of the Newcastlemax new buildings and also signed another two loan agreements for the financing of the two of the three Suezmax vessels that we have recently announced. And when it comes to the third loan agreement that is also expected to be signed shortly.
In addition to this, we have also issued a new five-year unsecured bond, OCY09, and as part of that process bought back significant amounts outstanding in OCY06 and OCY07. In addition, we've also bought back further amounts after the end of the quarter and as of today we currently hold $94.5 million in OCY06 and NOK460.5 million in OCY07. In terms of other debt maturities, we have addressed all maturities for 2023 and have very limited maturities coming up in 2024.
So that summarizes my part of the presentation and then I will give the word back to Andreas who will summarize.
Andreas Rode
Thank you, Eirik. So to summarize the quarter, Q3 was another active quarter on both the transaction and financing side and a continued testimony to the strong and stable performance of our vessels on long-term charters. We have a strong and robust balance sheet and continued strong access to financing with new financing banks coming into the Ocean Yield Banking Group, now comprising more than 20 active banks.
As Eirik explained, we are making good progress on finalizing the financing for the Newcastlemax newbuild program and we only have limited refinancing requirements for next year. Despite several shipping markets experiencing strong earnings, we've been able to transact with leading shipping companies and played an instrumental role in their fleet renewal, new build and S&P activity. As 2023 now are coming towards an end and we look ahead into 2024, we continue to actively monitor the performance and status of the underlying shipping markets.
Our ambition to selectively pursue growth with new and existing customers remains intact. As always, client selection remains paramount as we seek to partner with the right clients. The combination of newbuilds under construction and recent acquisitions of modern second-hand vessels on the water providing near-term cash flow will further improve the earnings in the years ahead.
So with that, I would like to thank you for listening to the Ocean Yield Q3 2023 earnings release. And I would now like to open up for questions.
Question-and-Answer Session
Operator
The first question is from Alexander Jost with Arctic Securities. How do the recent financings compare in terms of cost of capital?
Eirik Eide
Yes, maybe I should answer that. Thank you for that question. In terms of the latest announcements that we have made, I would say that the financing on those vessels are more or less in line with what we have done earlier. I'm happy to also comment that for the Newcastlemax dry bulk new buildings, we see that we are able to drive down the cost of funds even further and get even more attractive financing than -- that we have done previously.
Also very positive to see that we see a continuous sort of influx of new banks to the company. And recently I think we have more -- between four and five banks that are basically increasing their appetite and being introduced to Ocean Yield as a new company recently. So I'm very happy with that.
Operator
Thank you. The second question is from [indiscernible] with SpareBank 1 Markets. Can you elaborate on ZIM herein credit risk and risk development?
Andreas Rode
I can answer that. We don't have a habit of commenting on individual counterparties as such, but what we can say is, generally for the liner companies, they're all coming into this, call it, market downturn with very strong cash and liquidity positions. And this is also the case for ZIM. Clearly, our assets are modern, new builds with, I would say, very high fuel efficiencies. And we're confident that these vessels will be in high demand also for the years to come. And I think this is also supported by the recent statements of ZIM made in their recent Q3 reports.
Operator
Thank you. There are no further questions. So with that, I'll hand the word back to Andreas Rode for final remarks.
Andreas Rode
Thank you. Thank you all for dialing in and should there be any specific questions you know where to find us. So thank you everyone and I wish you a productive day.
For further details see:
Ocean Yield ASA (OYIEF) Q3 2023 Earnings Call Transcript