Ocean Yield ASA (OTCQX:OYIEF) Q1 2019 Earnings Conference Call May 8, 2019 3:00 AM ET
Lars Solbakken - Chief Executive Officer
Eirik Eide - Finance Director
Conference Call Participants
Good morning, everyone and welcome to this presentation of Ocean Yield’s Q1 2019 Results. With me, I have Lars Solbakken that will start going through the key highlights for the quarter. Then we have Eirik Eide, our CFO that will go through the financials for the quarter. And then, we'll finish with a Q&A session and we welcome questions directly from the web.
With that, I'll leave that floor you, Lars.
Thank you. Welcome, everyone. Ocean Yield declared a dividend of $0.191 in the first quarter of 2019. Annualized, that is $0.764; quite attractive dividend yield, 10.3%. We have now paid dividend every quarter since we went public in July 2013 and that is now 23 consecutive quarters.
EBITDA $51.9 million in the first quarter. If we adjust for finance leases, EBITDA was $67.8 million. The figures for the first quarter were quite substantially impacted by very limited revenues from Dhirubhai-1, the Connector and also the Far Senator/Far Statesman.
Looking at the net profit after tax, that was US$8.4 million. Adjusted net profit was equal to the net profit US$8.4 million. There was a substantial negative contribution from Dhirubhai and Connector of US$11.8 million. If you adjust for that, net profit was about $20 million
Recent events. We finally reached a final agreement with our former charterer Dhirubhai in February. Also, we enter into an option for a long-term charterer with Aker Energy, and that has been extended now to 30 of May. We also have recently made two short-term contracts for the Connector.
With respect to investments and deliveries, we acquired a Suezmax tanker in January, the Milos, which was a sale-and-leaseback transaction and we chartered it back to Okeanis Eco Tankers for 13 years. That vessel was acquired for $56 million with a $7 billion seller credits, so net purchase price was $49 million.
We also recently have, post quarter end, acquired two modern Ultramax dry bulk vessels, which I will come back to. And we are also taking delivery of the first of four VLCCs. The remaining three VLCCs will be delivered now in -- later in May, June, July. So those vessels will make a quite nice contribution to our earnings when we come to the third quarter.
If you look at the two Ultramax bulk vessels, we had a net purchase price of $21 million per vessels, in total $42 million. They're chartered back on 11 years bareboat charter. There are certain purchase options during the charter, and we also have agreed that we will finance installation of scrubbers in 2020, and we will finance about $1.5 million per vessel and the cost of the installation is about $2.5 million per vessel. These are 64,000 deadweight vessels built in 2017.
Going back on charterer to Scorpio Bulkers, which is listed on the New York Stock Exchange and they -- it’s a dry bulk vessel company with 57 vessels in their fleet.
If you look at our charter backlog now, we have 3.5 billion in total backlog, 11.9 years in remaining charter tenure. We have now a fleet of 60 vessels, very modern fleet. Only 3.6 years in average age, which is one of the youngest fleet of any of the listed company, I think, around the world. We have grown substantially on the tanker side in last two years. So now that is our largest segment with 25 tankers in our fleet.
If we look at the Dhirubhai, we finally, in February, reached an agreement with the former charter. That included a cash payment to ourselves -- to Ocean Yield of $25.4 million. We have received during the first quarter $23.7 million. And remaining $1.7 million is expected to receive in the second quarter, which is according to the agreement. We also successfully re-exported the vessel out of India. And it's now in Sri Lanka, and we're doing a lot of preservation work for the vessel and making it ready for new employment.
We entered into an option agreements with Aker Energy for a long term charter, for use in Ghana. The option runs now until the end of May. But we expect that option maybe extended. We do not expect that Aker Energy will be ready to make a decision within the 30 of May.
If we look at the Connector and Far Senator & Far Statesman, Connector is a very large sophisticated subsea vessel, and it had -- we got it redelivered in December. And, of course, its slow season and it had very limited revenues in first quarter.
We got a new charter for it starting in the 20th of March and that was -- and immediately after that, we got a new one for some work in the Irish Sea, and that is running until the 26 of May. With options, we expect that it may run into June. It is challenging to keep it continuously employed. It has been a number of requests and we have made a number of bids recently for work. So, of course, it's a seasonal business. And, of course, the summer season is the best season of the year. So, during the summer, but it is challenging to keep it continuously employed.
Though, our focus has been to go for a short-term contract in anticipation of a stronger market. And so that has been reasonably successful for the last two years. But first quarter was a weak period for this vessel.
When it comes to Far Senator and Far Statesman, we agreed to a standstill agreement in December that runs until the 20th of June, no cash revenues have been recognized in the first quarter. There is -- in the agreement with Solstad, there is a cash flow that draws, so if cash in the relevant subsidiary exceeds $300 million that will be shared pro-rata between the creditors.
At year-end, the cash position was about $200 million. They're not building much cash during the winter season, which is the low season. But when you get to the summer season, you will expect to build cash.
If we look at the quarterly financials, we had an EBITDA for the first quarter of $51.9 million. As I said that is lower than we have had historically. And it's mainly the fact that we have substantial or very limited revenues from, thereby, Connector and also the Far -- vessels Far Senator and Far Statesman.
Net profit, $8.4 million. It's the -- it's not only the lack of revenue, but it's also negative contribution from Senator -- from thereby and Connector of $11.8 million. If you look at the adjusted EBITDA, $67.8 million and adjusted net profit exactly the same as before adjustment. If you look at cash dividends, stable. And we had then maintained a $0.0191 per share for the first quarter, which gives very attractive dividend yield of 10.3%.
Then I'll leave the floor to the Finance Director.
Thank you. Good morning. As usual, I will make some comments to the profit and loss and the balance sheet. So, on operating revenues, $26 million as you can see, recorded this quarter compared to $34 million in Q4.
As Lars has mentioned a couple of times, the decrease here is mainly related to the Connector, which was idle for most of the first quarter and we have also not recognized any cash revenue from the two vessels on chartered to source so.
Then we have finance lease revenues. They were pretty much in line with the fourth quarter and we have also here reflected the delivery of the latest Suezmax to Milos, which was done on the 7th of February.
Then we have income from investments in associates, which is related to the six container ships in joint venture with the Quantum Pacific, nothing to report there, all the vessels are delivered and on 15-year bareboat charters, so in line with the previous quarter.
Then we have a new line this quarter, which is other revenue. This is related to the portion of the option premium being paid by Aker Energy for the option on the FPSO. So we have recognized $1.8 million of this, this quarter and the remaining $1.2 million will be recognized in the second quarter accounts. So that brings us to total revenue of 58.4.
If we move on to operating expenses, they are $1.8 million compared to $4.2 million in the previous quarter. This is now entirely relating to the vessel connector as all operating expenses relating to the FPSO has been booked towards the decommissioning expenses in the balance sheet.
Then we have a small write-down of receivables, $0.4 million and that's related to the previous time charter contract on the connector, which was completed in the fourth quarter.
So that brings us then to an EBITDA of 51.9, compared to 35.5 in Q4. But as you can see, we had a write-down of receivables in the fourth quarter of 19.5. So if we adjust for finance lease affects, the cash EBITDA that we receive is $67.8 million, compared to $51.3 million in the fourth quarter.
On depreciation, amortization, there's nothing specific to comment. Financial expenses slightly up as we have taken delivery of yet one more vessel. Movements on foreign exchange and mark-to-market of derivatives were relatively small this quarter. So if you add those two up together, we have a net positive movement of 0.4 million. So that gives us then profit before tax of $9.1 million and a net profit after tax of $8.4 million.
And as usual, we adjust for non-recurring items that we show you on this slide. And also currency fluctuations, change in fair value of financial instruments and deferred tax. And as you can see, based on those adjustments, we are actually at the same adjusted net profit as we have reported on the IFRS. And this compares to $12.5 million in the fourth quarter. And as Lars mentioned, we have very little revenue on the connector and also negative contribution also from the FPSO, which explains these figures.
On the balance sheet, we have on the left-hand side, you can see finance lease receivables and there we have included the delivery of the Suezmax tanker, which was delivered in February. So this has now increased to $1.2 billion to $4.6 billion.
If you look at trade receivables, this has now decreased to $8.1 million. The majority of the 25.4, which was due from the former charter of the FPSO has now been received and only $1.7 million was still outstanding at the end of the quarter. So, this will be received during Q2.
Relatively healthy cash position, we have a $105.8 million of cash and I'll give you also some more details on our CapEx requirements on the next slide. Book equity $831 million, so slightly down the book equity ratio was 30.2% compared to 31% in the last quarter.
Then on the right hand side, field abandonment provisions now at $15.6 million compared to $25.7. And this is related to the decommissioning of FPSO in India and also decommissioning on the remaining subsea equipment on the field. So, that item has been reduced by 10.1 million during the last quarter. So that brings us to total assets of 2,747 at the end of Q1.
Then looking at the CapEx requirements as we are buying more ships, we're also doing a lot of financing. So, at the end of Q1 -- and this is also adjusted for the last transaction with Scorpio Bulkers, we had remaining payments relating to the four VLCCs of a $165 million. We have secured bank financing of $147 million related to these vessels, which means that the remaining cash to be paid as of Q1 to these four vessels was $18 million.
So, if you then look at the dry bulk transaction, we have $42 million net cash price for these two vessels and we have secured bank financing of $33 million. So, for this transaction, we have a cash payment of $9 million on delivery and that is expected to happen during the next couple of weeks. So, if you add this together, the total remaining deliveries as of Q1, the remaining cash to be paid is then $27 million which compares to available liquidity of $139 million in total.
So, that summarizes my part of the presentation and then I'll give the word back to Lars who will summarize. Thank you.
If you look at the outlook going forward, we have a very strong focus at the moment on the redeployment of the FPSO. But we expect the current option agreement runs until the end of May. But we -- as I mentioned earlier, we expect that it will probably take longer than that before any final investment decisions can be made. So, we expect that an extension of the option agreement will be made later in the May.
And we continue to see attractive in investment opportunity across several segments. We have had a strong focus on the more liquid segments tankers and bulker and a lot of what we have done the last two years have been on the tanker side in the expectation of a stronger market which we also have experienced. And so that focus has been positive. And we expect also an even stronger market for tankers going forward.
Based on opportunity for long-term contract for the FPSO, we intend to continue our policy of paying attractive dividends to our shareholders and we have kept that now stable for the last few quarters.
Okay. Then I think we can open up for questions.
Q - Unidentified Analyst
Okay. Hello. Regarding the extension of the option for Aker Energy, you said that's quite likely, right? As a price and market compensation, did you agreed on that?
Now we, of course, that there was -- first we had -- we got $3 million up to the end of April, then there is a higher compensation day-by-day of goes to $50,000 or $49,000, about $49,000 per day in May, because a lot of -- also preservation work is now done on the vessel. We have not yet agreed on any the payments post the after the end of May, so that will be discussed.
Yeah, I have a quick question. On your FX exposure, you have a gain and loss and just interesting, but what's beneficial for the company, weakening of the Kroner or a strengthening of the Kroner?
We try to be as balanced as we can. And it's complicated to see because it won't -- if you look at cash then if you look at more in economic terms and accounting is a third one. But our intention is to stay as balanced as we can in economic terms. That is what we try to achieve and to hedge. That we may not be 100% balanced in accounting wise, but in economic terms we try to stay fully hedged.
Any more questions? Okay.
On the Connector, you are saying you expect a strong market going forward. When it comes to the Connector you stated that you expect a strong market going forward. What do you base that sentiment on?
I think that -- it's -- we have seen in the last few months a substantial increase in requests for the vessel. But it's both short-term and then some of them are a little bit more longer term. But it is always difficult to say what is seasonal and what is real strengthening of the market.
It's still over-supply but our feeling is that there is a -- we are moving to a reduced overcapacity and towards a stronger market. The vessel is a very attractive vessel. It's a modern large vessel. And we expect that, we can have substantial earnings from that vessel when we have somewhat stronger market than we are seeing. But of course, first quarter is slow season and – we were a little bit unlucky with the timing of it, getting it re-delivered at the end of December.
The second question there that I've seen there are some tenders coming out in non-North Atlantic region. Do you – are you focusing mainly in North Atlantic? Or do you also put it into Asia, Africa, Latin America?
Yeah. We are marketing it worldwide. So there -- we are looking at the opportunities in West Africa, Brazil, also Mexico in addition to the North Sea.
Follow-up question on the Connector, is she a potential sales candidate?
That has not been the strategy. The strategy has been to try to rate and trade it more short-term in anticipation of a stronger market and to fix it then long term. We may, of course, sell it also if there is an opportunity for that. But, we have not been willing to sell it in the current market.
One more question. With your organization and how are you equipped to trade a ship like this?
I think that the -- technically, it's run by Soulstar [ph]. So they have the technical management. Whereas we have handled the commercial management ourselves, because it's a conflict of interest, whoever you ask to assist you and those that are equipped to market this, that they have other vessels and there's a conflict of interest. But of course, it's brokers. Of course, you use old broker. So with that – around the world for marketing the vessel
Any more questions. Okay. Then I'd say thank you to everyone.