Ocean Yield ASA (OTCQX:OYIEF) Q1 2022 Earnings Conference Call May 25, 2022 3:00 AM ET
Andreas Røde - CEO
Eirik Eide - CFO
Conference Call Participants
Good morning, everyone, and welcome to Ocean Yield's First Quarter 2022 Earnings Presentation. With me today as always, I have Ocean Yield's CFO, Eirik Eide.
Let me start off on Page 2. Q1 2022 was a stable quarter with focus on operations for Ocean Yield. We are pleased to report an EBITDA adjusted for finance lease effects of USD 68.4 million and adjusted net profit of USD 21.4 million. 96% of the portfolio is employed on long term charters providing stable and predictable income for the years to come.
On the back of strong performance in the majority of the shipping markets, the counterparty risk in the portfolio has generally improved during the quarter, and rising asset values result in attractive leased values on a portfolio basis.
During the quarter, we extended the maturity on two existing financings and we now have no remaining maturities for the remainder of 2022. As a general remark, we can mention that we experienced strong appetite from both existing and potential financing partners for both current and potential projects.
During the quarter, we sold the product tankers Navig8 Pride and Navig8 Providence following the declaration of the option to sell these to a third-party declared by Navig8. These vessels were owned by a joint venture, 50% owned by Ocean Yield and the joint venture recorded a small profit from the declaration of these options.
Moving to Page 3. On May 13 we took delivery of Nordic Harrier from Samsung Heavy
Industries in Korea. Upon delivery, she commenced a 10-year bareboat charter to Nordic American Tankers, a leading tanker operator listed on the New York Stock Exchange. The delivery was financed by a new USD 40 million Korean export credit loan facility supported by Crédit Agricole and SEB at attractive terms, and we thank the banks for their continued support.
The sister vessel Nordic Hunter will be delivered in June 2022 and will be financed at the same terms. As reported by Nordic American Tankers both vessels will be employed on sub-charters to ASYAD Shipping Company, for six years. ASYAD Shipping is controlled by the Sultanate of Oman.
Ocean Yield have financed USD 44 million per vessel through the sale and leaseback. And with these vessels currently being valued in the high 60s, they represent an attractive investment, and we are pleased to continue our close cooperation with Nordic American Tankers.
Moving to page 4. Following the investment activity completed during the fourth quarter, we now have an EBITDA backlog of more than USD 3 billion. The average contract duration is more than 9 years, and 96% of the portfolio is currently employed on long term charters. This combined with a diversified fleet comprising 62 vessels with 18 different customers in 7 different segments provide the foundation for stable and predictable earnings in the years to come and serve as a strong platform for future growth.
So with that, I would like to hand the word to Eirik who will take us through the financials for the first quarter.
Thank you, Andreas.
So we move on to Slide 5, which shows a financial snapshot of the company as of the first quarter. We have recorded EBITDA of USD 41.1 million in the quarter, and EBITDA adjusted for finance lease effects of USD 68.4 million. Adjusted net profit USD 21.4 million, compared to USD 23.6 million in Q4.
The company's cash position was USD 89.3 million at the end of the quarter. The Board of Directors has decided not to declare any dividend this quarter. After the end of the quarter, we received an extraordinary dividend of approximately USD 30 million from our joint venture Box Holding. Hence we forecast a strong cash position for the end of the second quarter. The equity ratio was 29% at the end of Q1.
Moving on to Slide 6. Talking about the P&L, on operating revenues we have recorded USD 16.6 million compared to USD 17.8 million in the fourth quarter. The reduction is mainly due to lower revenues from the two anchor handling tug supply vessels operating in the Solstad UT733 pool.
On finance lease revenues, we had USD 22 million in Q1 compared to USD 21.3 million in Q4. The slight improvement here is due to full quarter earnings from those vessels delivered in the middle of the fourth quarter last year.
On income from investments in associates, which is related to the 50% ownership in full tankers and 49.9% ownership in 7 container vessels, that was USD 5.2 million this quarter, compared to USD 2.5 million in the fourth quarter.
Now, I should mention that in the fourth quarter, the figure was affected by swap termination costs in connection with the refinancing of the joint venture company Box Holding where we own 49.9%. So, for this quarter revenues are more or less back to normal in this segment.
So in total, we have total revenues of USD 43.8 million compared to USD 47.4 million last quarter. I will also mention that the comparable figure in the fourth quarter contained a one-off profit of USD 5.6 million in connection with the sale of two VLCCs. So operating profits USD 33.7 million compared to USD 34.1 million in Q4. So this is more or less in line with the previous quarter.
On financial expenses, they were USD 12.4 million compared to USD 17.2 last quarter. The previous quarter had costs related to the recognition of amortized loan fees in connection with the sale of two VLCCs and also bank and bond fees paid in connection with the change of control process that we went through in Q4. So this was higher than normal. So now we are back to more ordinary levels in terms of financial expenses. So net profit for the period of Q1 was USD 22.1 million compared to USD 17.9 million in Q4.
Moving on to the next slide, adjusted EBITDA and adjusted net profit. So EBITDA adjusted for finance lease effects was USD 68.4 million, which includes the repayments of finance lease element, which was USD 27.4 million. The adjusted net profit was USD 21.4 million, and includes adjustments for FX movements and change in fair value of financial instruments, plus also change in deferred tax.
Finally, some small comments on the balance sheet. There are not many elements to comment on this quarter. On the left-hand side, we have an increase in the investments in associates due to positive mark to market movements of interest rate swaps during the quarter for that investment. Cash and cash equivalents USD 89.3 million compared to USD 121 million last quarter.
On the right-hand side book equity was USD 663 million at the end of the quarter, and total assets was USD 2.283 billion. And that gives us then the equity ratio of 29% at the end of the quarter.
So that summarizes my part of the presentation, and I will now give the word back to Andreas to summarize.
Thank you, Eirik.
So to summarize on Page 9. Ocean Yield has a robust financial position and our access to financing remains strong. The Board of Directors have as Eirik said, elected not to pay a dividend for the first quarter resulting in a significant investment capacity for the coming quarters.
The portfolio is performing well across all segments and the counterparty quality remains strong on the back of strong performance of the underlying shipping markets. Ocean Yield is actively looking at various investment opportunities. Our focus remains on modern tonnage, commodity shipping and strong counterparts. And we have a clear ambition to continue to grow and diversify the portfolio.
So with that, I would like to thank you all for listening to the Ocean Yield Q1 earnings release. And I would now like to open up for questions from the web.
A - Eirik Eide
Thank you, Andreas. We have received one question from the web at this time. How may rising inflation and interest rates impact Ocean Yield? And what are you doing to mitigate these risks?
Yes, we can both answer that. I think in general, most of our leasing contracts have what we call floating LIBOR rate leases, which means that it's the counterparty who's responsible for the interest rate risk. And if we have an increase in interest rates, then they will compensate us for that.
In addition to that, we also have certain hedges on those charter contracts that are not subject to floating LIBOR rate leases. So overall, if you look at our sort of general hedging portfolio, we are approximately somewhere between 85% to 90% hedged on the outstanding debt that we have.
We can also add that in certain cases where our clients have requested a fixed rate lease that has been done back-to-back, i.e. we have hedged the bank that as well. So, from that perspective, I think we are in a fairly good position, taking into account the rising interest rate environment.
Yes. That seems to be the only question.
Okay. Thank you. Thank you all for listening. I think that concludes the call.