Ocean Yield ASA (OYIEF)
Q4 2022 Earnings Conference Call
February 16, 2023 3:00 AM ET
Company Participants
Andreas Roede - Chief Executive Officer
Eirik Eide - Chief Financial Officer
Karl Fredrik Schjott-Pedersen - Senior Vice President
Conference Call Participants
Presentation
Andreas Roede
Good morning, everyone, and welcome to Ocean Yield's Fourth Quarter 2022 Earnings Presentation. I will start today's presentation with the highlights of the quarter, details of the new investments and go through the changes to the portfolio before our CFO, Eirik Eide, will take us through the financials as usual. Then the presentation will be concluded with opening up for questions.
Starting off on page two. We are pleased to report another strong and stable quarter for Ocean Yield. We report an EBITDA adjusted for finance lease effects of $82.8 million and a net profit of $21.1 million. For 2022, we report an EBITDA adjusted for finance lease effects of $301.9 million and a net profit of $91.2 million. On the back of continued strong performance in most of the shipping markets, the counter-party risk in the portfolio remains low and continued strong asset values result in attractive lease to value on a portfolio basis.
At year-end, this figure was around 60%, providing substantial buffer and comfort. We are ending the quarter with a strong and robust balance sheet with $122 million in cash and an equity ratio of 30.3%. Several refinancing initiatives have been concluded, and we have $55 million of available additional liquidity currently undrawn.
We have called the bond loan OCYO5, which will be settled with cash on February 17. This is another measure to reduce our funding cost and optimize the balance sheet. Going forward, our ambition is to selectively use the Nordic bond markets. And as communicated previously, we remain committed to continued financial reporting.
Q4 was another active quarter on the acquisition side as we continue to build and renew our portfolio. We have agreed to buy a third 5,500 TEU newbuild container vessel. Upon delivery, the vessel will commence seven-year time charter to ZIM Integrated Shipping Services. Also during the quarter, we committed to the acquisition of up to 10 Newcastlemax dry bulk newbuildings with 15-year charters to CMB. I will cover this in greater detail later in the presentation.
At the end of the fourth quarter, the EBITDA backlog was $3.8 billion, with an average remaining contract duration of 9.3 years. 97% of the portfolio is employed on long-term charters, providing stable and predictable cash flows from our diversified and well-renowned customer group.
Moving to page three. On December 6, we signed an agreement for the acquisition of up to 10 Newcastlemax newbuilds with delivery from Qingdao Beihai Shipbuilding between Q1 ‘25 and Q2 ‘26. Upon delivery, the vessels will commence on 15-year bareboat charters to CMB with purchase obligations at the end of the charter period. The total transaction size is $576 million, and the full 10 vessels will add $950 million to the EBITDA backlog.
On January 31, WinGD and CMB.TECH signed an agreement to co-develop large ammonia fuel engines and the aim is to install these engines at the 10 vessels. An available ammonia two-strike engine will be an important step as the global shipping fleet prepares to adopt green fuels as a step towards meeting long-term decarbonization targets. This transaction is a testimony to Ocean Yield’s strategy of partnering with leading shipowners and facilitating their energy transition journey.
Moving to page four. On November 4, we signed an agreement to purchase a third vessel in the series of 5,500 TEU container vessels under construction at HJ Shipbuilding in Korea. Delivery is expected to take place during 2023. And upon delivery, the vessel will commence on a seven-year time charter to ZIM. This vessel, together with the two sister vessels purchased in June and July will add $240 million to Ocean Yield’s EBITDA backlog with a highly attractive front-end loaded cash flow profile. All three vessels are designed to be able to operate with methanol as fuel and fit our strategy of investing in modern future-proof vessels.
Moving to page five for the developments of the fleet. At the end of October, the container vessel MSC Fatma, was delivered to the joint venture Box Holdings, and she commenced on an 18-year bareboat charter to MSC. The vessel is dual fuel LNG and is the seventh vessel operating in the joint venture. During the quarter, the dry bulk vessel Interlink Activity was delivered to her new owner following Interlink’s exercise of an option to sell the vessel to a third party. Ardmore Dauntless and Ardmore Defender was delivered to Ardmore following the exercise of an ordinary purchase option.
Also during the quarter, Hoegh Autoliners exercised an option to repurchase Hoegh Trapper. Hafnia exercised an option to repurchase Hafnia Turquoise and Scorpio Tankers exercise an option to repurchase STI Sanctity and STI Steadfast. These vessels will be delivered in June, April, May and August, respectively. No purchase options have been declared since the announcement of the Q3 financials and including the 10 Newcastlemax newbuilds, the Ocean Yield fleet counted 70 vessels at the end of the year and 64 vessels adjusting for purchase options declared but not yet delivered.
Moving to page six. Including the investment activity completed during 2022, we now have an EBITDA backlog of $3.8 billion. The average contract duration of the portfolio is more than nine years and 97% of the portfolio remains employed on long-term charters. The residual 3% is the anchor handler vessels that operate in a pool with similar vessels managed and operated by Solstad. The diversified modern fleet comprising 64 vessels with the average age of 5.5 years on charter to 18 different customers in eight different segments provide the foundation for stable and predictable earnings in the years to come and also serve as a strong platform for further growth.
We remain segment-agnostic when evaluating new investment opportunities, but we're always cognizant of the development of the underlying market cycles as we seek to mitigate and manage risk appropriately. This will be increasingly important as we might be entering into a phase with lower global growth higher interest rates and a greater degree of macroeconomic uncertainty.
So with that, I would like to hand the word over to Eirik, who will take us through the financials for the fourth quarter.
Eirik Eide
Thank you, Andreas. So we move on to slide seven, which shows a financial snapshot of the company as of the fourth quarter.
We have recorded EBITDA of $51.8 million in the quarter and EBITDA adjusted for finance lease effects was $82.8 million. Adjusted net profit was $22.2 million, compared to $23.1 million in Q3. The company’s cash position remains solid with $122 million at the end of the quarter. And in addition to that, we had undrawn credit facilities of $55 million. The Board of Directors has decided not to declare a dividend for Q4. The equity ratio was 30.3% at the end of the quarter.
Moving on to the income statement. Under operating revenues, we have recorded $17.5 million, compared to $17.1 million in the third quarter. Operating lease revenue was positively impacted by higher interest rate in the quarter, which affected the floating interest rate rate-based operating leases, while the anchor handling vessels in the Solstad pool had lower revenues, compared to the third quarter. Overall, this gave a positive effect of $0.4 million, compared to Q3.
Finance lease revenues increased to $32.4 million in Q4, compared to $28.3 million in Q3. The increase here is due to substantially higher interest rates, which affected the floating interest rate rate-based leases. It's worth noting that there is a lag effect before higher interest rates have full impact on revenues, particularly given the sharp increase in interest rates we saw during the fourth quarter. In addition, it's worth noting that three vessels were sold and delivered to its new owners during the quarter, which had a negative effect on finance lease revenues.
On income from investments in associates, which is related to the 50% ownership in two tankers and 49.9% ownership in seven container vessels that was $3.9 million this quarter, compared to $4.4 million in Q3. The reduction here is mainly related to expenses associated with the delivery of the container vessel MSC Fatma in the quarter.
Then we had other income of $1.6 million, which is related to vessel sales, and that gives us total revenues of $55.4 million, compared to $51.1 million last quarter. Depreciation $6.6 million, compared to $6.5 million in Q3. So this was basically in line with the previous quarter and operating profit then improved to $45.2 million, compared to $42.3 million in Q3.
Financial expenses $25.1 million, compared to $20 million last quarter. The increase here is due to higher interest rates during the quarter, but also due to debt drawn related to the investment in the 10 Newcastlemax vessels and also one of the newbuilding container vessels and four existing container vessels on long-term charter.
Please note that the increase in interest expenses is offset by higher lease revenues, due to the floating LIBOR SOFR clauses in the charter agreements. But as mentioned earlier, there may be a lag effect before revenues are fully offset by the increase in interest expenses due to the nature of the contracts.
Moving on to foreign exchange movements and mark-to-market of derivatives. That was net negative with $0.5 million. And as we have mentioned earlier, this is mainly related to the cross-currency swaps for our bond loans that are denominated in NOK, which has then been swapped into U.S. dollars. So the quarter then ended with a net profit of $21.1 million, compared to $23.4 million in Q3.
Moving on to adjusted EBITDA and adjusted net profit in more detail. So EBITDA adjusted for finance lease effects was $82.8 million and which includes then the repayment of finance lease element, which was $31.1 million. The adjusted net profit, $22.2 million and this includes then adjustments for FX movements and also change in fair value of financial instruments plus an adjustment for deferred tax.
And then we move on to the balance sheet. On the balance sheet, we have on the left-hand side, a slight increase in vessels and equipment this quarter, compared to the third quarter. And the increase here is mainly due to further installments paid to the yards in connection with the construction of the container vessels that are commencing long-term charters to ZIM.
Further down on other non-current assets, you see that this has increased to $65 million, and this is related to the newbuilding installments for the 10 Newcastlemax vessels with long-term charter to CMB. Since this is structured as a predelivery loan, it is then booked under other non-current assets while those vessels are under construction.
On the right-hand side, cash and cash equivalents $122 million, compared to $122 million also last quarter. In addition, we had restricted cash deposits of $13 million that are paid in connection with the cross-currency swaps. Also, as mentioned earlier, there are also $55 million of undrawn available credit lines that we have available for drawdown. Finally, the book equity, $706 million and total assets was $2.328 billion, and that gives us an equity ratio of 30.3% at the end of the quarter.
Moving on to the next slide, financing initiatives. As Andreas touched upon, the fourth quarter has also been a very active quarter in terms of financing where we have refinanced and upsized five existing loan agreements, where of $55 million of this remains undrawn.
During the quarter and also after the end of the quarter, we have signed loan agreements for all three newbuilding container vessels and in addition, we are in advanced discussions with banks for the long-term financing of the two LEG vessels with long-term charter to Braskem.
And finally, after the end of the quarter, we issued a call notice for the bond loan OCY05, which then will be settled in cash on the February 17. Following this, Ocean Yield has one unsecured bond loan in the market with a nominal amount of NOK750 million and maturity in December 2024. And then also we have one hybrid perpetual bond of $125 million.
And that concludes my part of the presentation, and I will give the word back to Andreas, who will summarize.
Andreas Roede
Thank you, Eirik. So to summarize on page 11. Ocean Yield has a robust balance sheet position and our access to financing remains strong. This enables us to move quickly and secure attractive financing for both new transactions, as well as existing. And once again, we thank our banks for their continued support in financing both new deals, as well as existing transactions during the quarter. The portfolio of long-term charters are performing well and the counter-party quality remains strong on the back of the strong performance of the underlying shipping markets.
Following an active year on the investment side, growth still remains on the agenda. The changes to the portfolio during 2022 have seen 12 vessels with conventional fuel being sold, and the new investment activity have added three methanol-ready container vessels, two ethane-fueled gas carriers and 10 ammonia-fueled Newcastle dry bulk vessels to the fleet. This is in line with our strategy of investing in modern tonnage with future-proof and energy-efficient engines and technology as we continue to renew and modernize the fleet.
We have a strong and robust balance sheet and our access to attractively priced capital remains intact. The recent transaction with CMB is a testimony to our long-term ambition of partnering with industry-leading players and facilitate their shift towards more future-oriented engine technology. Ocean Yield has a clear strategy and ambition of playing a leading role with our partners as we collectively embark on the energy transition journey.
So with that, I would like to thank you all for listening to the Ocean Yield fourth quarter earnings release. And I would now like to open up for questions from the web.
Question-and-Answer Session
Operator
A - Karl Fredrik Schjott-Pedersen
Yes. So if you have any questions, please use the chat function below the webcast. There are no current questions. So just as a reminder, if you would like to reach out directly, you can always feel free to do so as well.
So with that, we hand it back to Andreas Roede.
Andreas Roede
Well, thank you all for dialing in and listening. I think that concludes the call.
For further details see:
Ocean Yield ASA (OYIEF) Q4 2022 Earnings Call Transcript