Ocean Yield ASA (OTCQX:OYIEF) Q 2, 2019 Earnings Call July 12, 2019 3:00 AM ET
Marius Magelie - Senior Vice President, Finance and Investor Relations
Lars Solbakken - Chief Executive Officer
Eirik Eide - Chief Financial Officer
Conference Call Participants
Mats Bye - DNB Markets
Good morning, everyone and welcome to Ocean's Q2, 2019 Results Presentation. My name is Marius Magelie, Head of Investor Relations. As usual we are here at the Thief, in Tjuvholmen. I am very glad that some of you showed up during the summer. As usual, we'll start up with our CEO, Lars Solbakken that will go through the key events for the quarter. Then our CFO, Eirik Eide, will go through the financials.
And with that, I'll leave floor for you, Lars.
Thank you. So welcome everyone to the second quarter presentation for Ocean Yield. Ocean Yield declared dividend of $0.1910 per share for the second quarter. This is $0.7640 per share annualized, giving a dividend yield of 11.3%. And we have now declared a cash dividend for 24 consecutive quarters which is every quarter since the company went public in July 2013.
EBITDA for the second quarter was $56.8 million and EBITDA adjusted for finance lease was $74.5 million. And it was very limited contribution in the second quarter from the vessels we have without long-term charters, and that includes the Dhirubhai connector and the Far Senator and Statesman.
If you look at the net profit after tax was US $5.3 million, but if you split that between vessels on long-term charter and without long-term charter, the net profit was $19.2 million for vessels with long-term charter and negative $13.8 million from vessels without long-term charters. If we look at adjusted net profit that was $11.3 million and then we split it between vessels on long-term charters and without long-term charges, it was $20.1 million from vessels with long-term charters and negative $8.8 million from vessels without long-term charters.
Looking at recent events. We have acquired two modern Ultramax vessels, dry bulk vessels in May. Also acquired recently Newcastlemax dry bulk vessel and we also taken delivery of three in a series of four VLCCs newbuildings. Two of the VLCCs were taken delivery of in Q2 and one in early July.
Respect to financing, we have refinanced the two PSVs on long-term charter to Aker -BP and we also arranged financing for the two Ultramax dry bulk vessels. With respect to Dhirubhai-1, we extended the option agreement with Aker Energy and we also have renewed the charters for connector during the second quarter.
Looking at the investment in the Newcastlemax dry bulk vessel, we bought that vessel for US $40 million. The vessel has a market value of about $53 million, so that of course a substantial seller credit of course substantially reduces the risk in the project. It's on a 15-year bareboat charter to CMB which is a reputable Belgium shipping company. And the delivery of the vessels will be in Q1, 2020.
Looking at our charter backlog, it's now US$3.3 billion with remaining charter tenure of 10.9 years. We have this quarter taken out the contract backlog for the two vessels on long-term charter to Solstad due to the standstill agreement.
Looking at the total number of vessels, it's 61 now with a very low average age of 3.7 years in average age, which is probably the lowest age of the fleet of any of the listed companies. We see that the largest number of vessels is tankers with 25 vessels.
Looking at our FPSO order by one, the current status is that it's the vessel is in Sri Lanka and preparing for a new employment. They -- we have performed very extensive preservation work, which has now successfully been completed and we are also now reducing further after the completion of the preservation work, the number of seamen on board. We also are preparing for the remaining demobilization activities in India. We have to go back to India with a subsea vessel in Q4 to remove some risers, umbilicals, buoy and some moorings and in that respect we have increased the provision for that by $4.5 million.
So the total provision is now $16.9 million. If you look at the contribution from the FPSO in the second quarter, it was negative with $10 million that includes the $4.5 million increase in provision for the demobilization and other large contribution -- contributed toward the negative amount is of course a depreciation which was $6.9 million. We also have extended the option agreement to Aker Energy during the second quarter and it's now extended until the first of September. And we, of course, now get additional compensation for that, paying for a lot of the cost-- the operating costs related to the FPSO. We also now established the project organization together with Aker Energy for basically following up the technical work and the commercial work related to the project in Ghana.
We're also in parallel pursuing other employment opportunities and in this respect we have entered into an engineering study on behalf of an unrelated independent oil company. If you look at the connector, Far Senator and Far Statesmen which are the three other vessels without long-term contract. Connector is trading a short -term charters, and is now performing sub installation and cable work in the North Sea during the second quarter. And we have entered in now into a new contract which starts 11th of July and is for 55 days and with another 50 days extension options.
We are focusing on short-term contracts for the connector in expectation of a stronger market, but we will say that the market for subsea vessels have been disappointing. We have to hope that it should be stronger by now but the connector is a very sophisticated vessel that has a substantial upside in a stronger market.
Net profit from the vessels negative was $2 million in the second quarter. With respect to the Far Senator and Statesman, we agreed to extend the standstill with Solstad until a 31st of October, and therefore there had been no cash revenue recognized from these two vessels in the second quarter. If cash in the relevant subsidiaries which are the counterparty to our vessels, if this cash exceeds $300 million, the excess cash will be distributed among the creditors on a pro-rata basis.
If we look at the net profit from these two vessels in Q2, it was negative at $1.8 million and that is of course will also continue into the third quarter due to the standstill. If you look at the financial highlights for second quarter, the EBITDA, $56.8 million which is up from first quarter; reason for that is mainly a connector which had stronger earnings as connector was in lay-off most of the first quarter. Also delivery from two VLCCs and two dry bulk vessels, but those were in our portfolio only part of the quarter, so contribution from those will be higher in third quarter and then we also will get delivery of two more VLCCs in the third quarter.
Net profit, $5.3 million, of course negative impacted by the $4.5 million increase in provision and of course the negative contribution from the vessels without charter. If you look at the adjusted EBITDA net profit, US $74.5 million in EBITDA adjusted for finance leases in second quarter which is up from $67.8 million in the first quarter. And adjusted net profit $11.3 million which was up $8.4 million in the first quarter.
If you look at the dividends, stayed stable at $0.1910 per quarter, giving a very attractive dividend yield of 11.3%. By press release, the 28th of May, we announced that if we have not secured any new long-term charter for the Dhirubhai by the reporting of the first quarter results in 2020, the Board will consider reducing the dividend from $0.1910 to $0.15 per share per quarter.
Then I'll hand it over to Eirik. Eirik?
Thank you, Lars. Good morning and I'll as usual go through some of the comments on the income statement and the balance sheet. So starting off with the operating revenues and as you saw we have recorded $30.1 million of operating revenues this quarter, compared to $26 million in Q1, and the increase here is as Lars touched upon, they now related to the vessel connector which was idle for most of the first quarter.
Also this quarter, we have not recognized any cash revenue from the two vessels on charter two Solstad due to the standstill agreement. Finance lease revenues, $26.6 million in this quarter compared to $24.9 million in Q1, reflecting then the delivery of the two dry bulk vessels to Scorpio Bulkers and the two VLCCs to Okeanis. So as Lars also touched upon, we expect that to also give an additional improvement in the Q3 financial results.
Income from investments in associates which are the six containerships that we own in joint venture or long-term charters to MSC $5.9 million so that is more or less in line with the previous quarter. Other revenue which was a new line in Q1, $3.9 million compared to $1.8 million in the first quarter. The amount is related to the option agreement for the FPSO with Aker Energy which runs until 1st of September. So, in total that gives us $66.5 million of revenues which is up by $8.1 million from the last quarter.
Moving onto operating expenses, $4.6 million compared to $1.8 million in the last quarter. This is entirely related to the FPSO and the vessel connector. Of the $4.6 million, $2.9 million is related to the connector and $1.8 million in related to the FPSO. And as you may recall in Q1, most of the operating expenses related to the FPSO was booked against the commissioning expenses and hence we have an increase compared with the first quarter for the FPSO.
Also, I would mention for the connectors since this vessel was idle for most of the first quarter, we have also increase in the operating expenses in Q1.
So, in summary that gives an EBITDA of $56.8 million compared to $51.9 million in Q1. Adjusted for finance lease effects, the cash EBITDA was $74.5 million compared to $67.8 million in the first quarter. Then we have an additional provision for the commissioning expenses of $4.5 million, which you can see on the line below depreciation. Financial expenses, $25.7 million which is slightly up from the $24.6 million in Q1 and this is as result of vessel deliveries and higher interest bearing debt during the quarter that we've drawn upon related to these vessels. When we come down to foreign exchange and changing fair value on financial instruments, the movements there were relatively small during this quarter. So we had a net negative movement of $1.5 million in total. So that gives us a net profit before tax of $6.2 million and a net profit after tax of $5.3 million.
If we look at the adjusted net profit, this is a slide that we include every quarter and here we adjust for the non- recurring items which in this case also includes the provision. We adjust for currency fluctuation, fair value of financial instruments and deferred tax. And that brings us down to a net profit of $11.3 million which is up from $8.4 million in Q1 and reflects in the full quarter earnings of the connector and also delivery of further vessels to the fleet.
Then a couple of comments also on the balance sheet. We, as we mentioned several times the two dry bulk vessels to Scorpio and the two VLCCs delivered quite late in the quarter. All those four vessels are booked as finance lease receivables. So on the left hand side you will see that that figure has improved to $1.348 billion so $1.348 billion on the left hand side. Also cash and cash equivalents at the end of the quarter $86.9 million. Now, I'll give you a little bit more detail on the CapEx and the liquidity situation on the next slide.
On the right hand side book equity is $796.6 million. The book equity ratio was 28.4% compared to 30.2% in the last quarter. Then also a short comment on interest bearing short-term debt, which was now $329 million compared to $193 million in the last quarter. And the increase here is due to that the bond loan OCY03 has maturity in April 2020, and is now then classified as short-term debt. The plan then is to refinance that bond loan probably after the summer in the second half of this year.
The net outstanding under this bond loan is NOK897.5 million. In addition, we have also classified the loan on the SBM Installer as short-term debt as this loan has maturity in December. And we have initiated the refinancing process on that facility. Field abandonment provision, this is related to also the $4.5 million that we touched upon. This is now increased to $16.9 million compared to $15.6 million in the first quarter.
That brings us down to total assets of $2.8 million at the end of this quarter. Then looking at the CapEx and financing overview. On the left-hand side, you will see we have CapEx requirements for the VLCCs of $85 million. We have $40 million related to the dry bulk vessels, the latest dry bulk vessel, which gives us a total remaining CapEx of $125 million at the end of Q2. On the VLCCs, we have secured and committed $76 million of external debt and then we recently did a refinancing of the two vessels on charter to Aker BP which freed up $80 million of cash. And that facility was closed yesterday.
Then we are working on the financing of the latest dry bulk acquisition and we expect to raise about $37 million of long-term debt related to that vessel. So, overall, we're actually coming out cash positive out of this exercise with $6 million positive. And that compares then to the outstanding cash position at the end of the quarter which was $87 million in total.
So that summarizes my part of the presentation. I'll give the word back to Lars who will do a quick gear summary.
If you look at the outlook and we have currently a very strong focus on securing new employment for FPSO. And a lot of resource is put into that. We also see a number of attractive investment opportunities across several segments. We have -- recently have very strong focus on tankers and bulkers and continues to see interesting opportunities in these two segments. But we are also closely following other segments. With respect to dividends, as I mentioned earlier, we announced at the end of May that if we do not have a long-term contract for the Dhirubhai by the reporting of Q1 results, the Board will consider to adjust dividend from $0.1910 to $0.15. Of course, we hope that all the efforts with respect to securing new employment will basically result in contract before that.
Okay, then we can open up for questions.
I can start with one question from the web. Can you please give a comment on the equity ratio going forward?
Yes. The equity ratio is 28.4% and of course in order to continue to grow, we are continuously looking at a number of alternatives for raising capital. That includes everything from equity but also hybrid debt which is perpetual debt is one instrument we have spent quite some time looking at but also other sources of capital is continuously being considered. And of course there are in addition to improving the equity ratio, we can also raise, for example, hybrid debt which would count as equity. So you can raise that without dilution.
Mats Bye from DNB. In your most recent company presentation you said that the FPSO is not current candidate for Pecan field in Ghana. I know it might be challenging but can you give bit more flavor on how you are working with Aker Energy to secure employment. And maybe when you could expect to see the unit being at the field operating?
We are working very closely with Aker Energy and we've put together a joint organization for basically the FPSO. The main Pecan field, they are looking at another development solution than our FPSO. We are focusing on one particular field and we are performing now a concept study which will then going to more field study and approval processes. So you are quickly going to 2020 before any decision can be made. Any more questions?
[Indiscernible] first off, I am getting that selling the FPSO isn't the first choice for you but would that let hypothetically if the talks with Aker Energy don't come to fruition, would selling the FPSO assets debt free be a solution if things drag in far into 2020?
Of course it's all as an alternative. And I think the challenge with FPSO that if the value of FPSO is very much higher if you have a particular field which can be used and substantially lower if someone should buy it more on the speculative basis. So, it's therefore we are spending a lot of time to find or identify field where it can be used and then a lot of technical studies are needed to see what kind of investments are then necessary in order to that it can be used. But it seems that we need to have that approach that may result in a sale or a long-term charter.
End of Q&A
Okay. If there are no more questions then I thank you everyone for the attendance. Thank you.