Good morning, and Welcome to Höegh Autoliners Third Quarter Presentations. My name is My Linh Vu. I' am responsible at Höegh Autoliners and with me today, we have our CEO, Andreas Enger, and CFO, Per Øivind Rosmo, who will walk you through our Q3 result. If you have any questions, please send an email to ir@hoegh.com. Without further ado, I will leave the stage to you, Andreas and Per Øivind .
Thank you very much, My Linh, and welcome everybody. We are pleased to be here for another quarter to present continued strong progress on both our financial performance and our strategic objectives. We will go through the presentation and then, as My Linh said, open for Q&A after that. We had an operating profit, EBITDA, of $114 million and a net profit after tax of $92 million for the quarter. That has made us declare a dividend of $20 million, which has been declared and will be paid in November. Just to briefly comment on the dividend calculation, how we get there.
The $92 million of net profit after tax includes gains from sales of two vessels and also some accounting gains related to the purchase or the call of the option on one vessel. The basis for the dividend is net profit from ordinary operations adjusted for non-payable taxes in the sense that it's basically profits from ordinary operations less payable taxes in the quarter. That then amounts to $20 million. The improvement of the results comes primarily from increased gross freight rate now at almost $81 per cubic. That increase is mainly due to increased BAF compensation with stable bunker cost. In the quarter, we've also been awarded EcoVadis Gold Medal for corporate sustainability.
EcoVadis is a leading supplier of those assessments, and we are proud to be in the top 5% of their scorecard. We are obviously continuing both by investing in vessels and improving our performance and improving our sustainability reporting. We are happy to be at a strong place and continue the effort going forward. We've also in the quarter joined First Movers Coalition, where we're committing to run at least 5% of our deep sea shipping on zero carbon fuels by 2030. First Movers Coalition is, I think, the most ambitious program among leading companies to basically commit to resolve carbon emissions in the hard-to-abate sectors.
We are proud to be part of a very exclusive global group of leading companies in that effort, and it's sort of underpinning the seriousness of our path to zero. We have recorded a profit of $21 million in the profit sharing agreement related to sale of two vessels, which has been announced previously. We've also called the option to purchase Höegh Tracer, and after the end of the quarter, also declared an option to purchase Höegh St. Petersburg, which are transactions that will, you know, strengthen our balance sheet and strengthen our long-term capacity cost, which is an important part of our strategic priorities.
Going into some of the details, starting with the market, you know, we have had, you know, as reported, a slight reduction in volumes, related to, you know, some capacity changes, dispositions, but we have continued to keep the trade volume out of Asia. We have kept roughly at the same level, the share of high and heavy and break bulk down from 33%-32%. We have, you know, increased our net rate during the quarter. As you said, from the results, the most important driver is really the improvement in profitability is the increase in the gross rate. I think we should also remind ourselves again of our contract structure.
We have been successful repricing cargo during 2022, leading to a quarter-on-quarter increase, a strong increase, in performance during the year. I think it's also important to remind that we have, you know, further contracts, many at legacy rates that are up for renewal over the coming years so that there is also a continued renewal of contracts going forward. The other one that I think it's important to mention is that, you know, the shipment of cars is still at a low level after the pandemic. There's still been various disruptions, and I think it's fair to say at least when we talk to our customers that, you know, the transportation volumes in many of our trade lanes are still limited by shipping capacity.
We've seen several global OEMs also you know reporting of that. From that view, I think we still have a robust volume of shipments more than filling the global capacity and definitely more than filling our capacity for the time being. Given the sort of low production volumes, we believe there is a potential for further volume increases also in shipments in the years to come. Obviously, there are risks connected to global macro situation, but we think the fundamental underlying you know volumes and capacities you know should give us some cushion against you know that type of of market volatility. Also, high and heavy demand is strong and expected to continue strong.
We're still in a situation where the exports out of China is the biggest driver. There is a strong momentum in global mining and as again, in all, summing up to a good access, also to high and heavy cargo. Turning to capacity, I don't think the picture has changed much from previous quarters. You know, capacity is tight. The net fleet growth is still low in the next couple of years. There hasn't been major changes in the longer-term situation. We see time charter rates are continuing in a very high level.
We are quite pleased that we are mainly relying on owned, our vessels, so in a way that allows us to keep capacity cost under control and keep them low, you know, even in this pretty tight market on the capacity side. Fleet efficiency has improved in the quarter. Vessels are full, and as I said, our charter activity is limited. We have sold two Non-Core Vessels, but maintain a network as previously guided of 38-40 vessels, which is, you know, where we expect to stay working on operational efficiency and voyage efficiency to get the maximum volume out of that capacity, and in the current market.
To sustainability, we have had an improvement in our AER ratio in the quarter. It relates to a large extent to the sale of Höegh Singapore and Höegh Maputo, which are smaller and less efficient vessels, and also the increased use of sustainable biofuel in the quarter where we have announced that we have started a program to be able to offer 100% biofuel on certain legs and segments to customers and there is a take-up from customers on that offer.
I mentioned initially both the EcoVadis Gold Medal and the First Movers Coalition, which is, you know, important steps for us, to both confirm the relevance and underpin our commitment, to our, decarbonization journey and our path to zero, which is, an effort that is, clearly recognized, in the market and among our customers and helps us, you know, future-proof our company and remain relevant in, discussions with the most ambitious OEMs, in the world. That is, the brief review of, you know, the quarter from a strategic operational capacity side. I now leave to Per Øivind to go through the numbers in some more detail. Per Øivind ?
Thank you, Andreas, and good morning, everyone. Before we take the financial numbers, just a recap of the two main drivers for our top line, volumes and net rates. We see here that we had a small reduction in volumes from Q2 into Q3 and approximately 150,000 CBM, mainly coming from the sale of Maputo and Singapore. Less capacity, less volumes. Over the last five quarters, we see here that volumes are quite stable, reflecting that we have a stable fleet. The net rate, as Andreas mentioned, increased from $61.9 per CBM to $62.5 per CBM. The gross rate, however, increased from $75 to $81 per CBM, coming from the increase in compensation for higher bunker prices, the BAF, as we call it.
Looking at the revenues, they increased from $318 million in second quarter to $329 million. Again, the main driver here is the increase in the BAF. The volume was reduced. That led to a reduction in freight revenues of approximately $10 million. Then we had the net rate increase of around $2 million. Then the BAF revenues actually increased with $19 million. Going one year back, we see that revenues have increased with exactly $100 million from $229 million to $329 million. This has been translated into a steady increase in our EBITDA, and we are reporting now $115 million in adjusted EBITDA for third quarter.
That is up from $99 million in the previous quarter. We see that compared to third quarter 2021, we have an increase of $64 million, from $51 million to $115 million. The reason why adjusted EBITDA is $1 million higher than reported EBITDA is that we have some extraordinary expenses that we adjust for in calculating the adjusted EBITDA. We also see that the EBITDA margin is increasing and is now at 35%. This is also translated into healthy growth in net profit before tax. We see that it has increased from $64 million in second quarter to $95 million now in third quarter. Comparing to third quarter 2021, we see that we have increased it from -$12 million to +$95 million.
All in all, very, very good, solid, and continuous improvement in the financial results here. The balance sheet is also very solid. We see that net interest-bearing debt is now at $449 million. That includes both the mortgage debt and the lease liabilities that we have related to the right-of-use assets. The net interest-bearing debt EBITDA ratio is down to 1.2. Following the strong results, we also see that the equity has increased to $965 million. It is an increase of $76 million compared to second quarter. The difference between the $76 million and the net results of $92 million is the dividend that we paid in third quarter. The equity ratio is 57%.
This is also translated into increased cash and liquidity. We had a cash balance of $61 million by the end of second quarter. That has increased to $130 million by the end of third quarter. On top of that, we have an unused RCF of $97 million. Our total liquidity reserves by the end of third quarter is $227 million. If we look at what was the main drivers between the $99 million that we had in EBITDA in second quarter and the $115 million that we report now, we see here that cargo revenue is +$11 million. As I said, it is a mix of some reductions related to volume, some increase related to the improvement in net rates.
The main reason for the increase here is the higher BAF compensation. Bunker expenses was high also in third quarter, so they increased with $13 million. We have been able to reduce our expenses. We have a strong cost focus in this company. And we have been able here to reduce both Charter- hire expenses and voyage expenses. Charter- hire expenses mainly because we charter in less vessels. As Andreas mentioned here, chartering in vessels is quite expensive, and we try to avoid doing that. So we have done less of that, but we have been able to reduce our voyage expenses.
In a situation with high inflation and cost pressure, we have actually been able to reduce voyage expenses, port and cargo operation expenses, mainly because we have more efficient voyages and to some extent also the currency effects. The main reason here is that we actually are able to operate more efficient with the higher volumes. That takes us to $115 million as we have said several times now. Back to the cash flow. We generated $100 million in cash from the operation. We had the $21 million as our share of the profit from the sale of Höegh Maputo and Höegh Singapore, and we have some dividends received, $2 million. We have paid $10 million in installment on the mortgage debt, $3 million in interest.
That takes us to $13 million, and we also paid the dividend of $15 million. The - $21 million coming from all the cash from all the financing activities is basically lease payments. We still have vessels on leases, and that is around $20 million-$21 million per quarter. Then also there have been, as you know, big fluctuations for currencies this quarter, so we have a currency loss of $4 million, mainly related to receivables and bank deposits held in other currencies than USD. All in all this take us to $130 million, and as I said, on top of that, $97 million in unused RCF, $227 million in liquidity reserve by the end of the quarter. The balance sheet is strong.
It is strong and simple, I would say. We have vessels and newbuildings, $1.1 million. That is the fleet that we own. On top of that, we have the leased vessels with Purchase Options, the right-of-use assets, $270 million, and we have bunkers and trade receivables of $146 million by the end of the quarter. Our cash balance $130 million. Total balance sheet of $1,684 million by the end of the quarter. Equity, $965 million, and as I said, that is 57%. We have the lease liabilities related to the right-of-use assets of $305 million, and we have reduced our interest-bearing bank debt to $275 million.
Current liabilities mainly all of it is related to the trade operation that we have, $96 million, and we have $43 million in other non-current liabilities, and that is mainly deferred taxes. That takes us to a book equity of around NOK 54 per share. The value-adjusted equity replacing book value of vessels with market values that we get from the brokers and also replacing the Purchase Option price in the bareboat leases with the market value of those vessels gives us a value-adjusted equity of $1.7 billion, or if we calculate it back to Norwegian kroner, NOK 98 per share. That is the end of the financial presentation. All in all, a very good result for Höegh Autoliners.
Strong cash flow and a very strong balance sheet by the end of the quarter. With that I leave the word back to Andreas to say a few words about outlook.
Yes. We're going to give some comments about how we see the outlook for the near future. I think the most important one is that as we see it, the general fundamentals remains positive. The tonnage situation is tight. Repricing in cargo in most trade lanes is continuing. There are some volatility with delays and port congestions and supply chain disruptions, but from where we are, it looks like that is now easing slightly. There is, in our view, a strong underlying both market and capacity situation. We are obviously monitoring the macro situation. You know, high inflation, recession concerns, energy crisis, so on and so forth, is out there. It has so far not impacted our business.
It is not visible in our or our customers' forecasts into the fourth quarter. Obviously we are closely monitoring that situation. We had, you know, some impact of increasing bunker prices in the early part this year. Where we are now, most of the bunker increase is covered in by BAF for the third quarter, and bunker prices will not impact results materially going forward unless there are drastic movements in the price of the commodity. I think it's very important to reflect on the fact that, you know, during this year we have managed to actually combine paying an attractive dividend. The annualized dividend yield based on our declared dividend for the third quarter is slightly above 8%.
We are building financial capacity for further growth and investment, and we have substantially strengthened our balance sheet, creating resilience in the case that we'd be facing temporary setbacks in an unstable market situation. We believe we have, you know, a strong combination again of serving shareholders with an attractive dividend yield, building actually further capacity to do growth investments if and when that is deemed to be attractive, and strengthening the underlying balance sheet and our robustness as a company, and we think that's obviously a very attractive combination.
Looking forward, as I said, with increasing freight rates and lower bunker expenses, we are seeing, you know, we have a clear expectation of an increase in the EBITDA level in the fourth quarter compared to the third quarter. We are still in a positive momentum. We have, you know, a positive outlook from our own information and from the information we receive from our customers. That is the end of our presentation, and we leave it now for Q&A. , My Linh you received any questions so far?
Yes, we actually have received a few, quite a few questions from our audience. One of the first questions we received quite early during the presentations is about the macro picture mainly. I can just. It's a very long question, so I will try to sum up the questions. From investor Trond Syversen. Yeah. Autoliners have now reduced the fleet to around 40 vessels in a market condition which may be the best ever, and that means it can have an impact on the relative market shares. How this will affect the company if the market downturn, and any thoughts about the current conditions, how long it would prevail?
No, I mean, I think to the size, I mean, we have reduced a couple of what we call Non-Core Vessels, and we're maintaining our position in our core trade lanes. In that sense, I think we're not particularly concerned about that, and we are, I think, in terms of resilience. You know, we have been quite successful both through our new build program and what we're doing with our existing fleet to you know, maintain a long-term attractive capacity cost, which is important. I think it's important that the capacity changes has happened in the periphery with less efficient vessels. We are quite confident on that side.
When it comes to the broader things, I mean, I think everybody sees that, you know, there are uncertainties in the market. Still, there is a firm expectation, I think, at least in the industry, that, you know, the combination of the capacity situation and the low car sales volumes during the pandemic and actually production where, you know, OEMs are still reporting that shipping capacity is a constraint in terms of moving even already produced volumes. We believe that we are in a strong market situation and that the low starting point is creating some cushion.
You know, we don't have a crystal ball, but it looks very good.
Yes. Thank you. Yes, the next question is from analyst Erik Hovi from Nordea, and I think it's about BAF. I guess, Per Øivind, you would like to take these questions. I wonder if you can elaborate a little bit more regarding the bunker cost and BAF. It seems that the recovery rate is higher in third quarter, and how the lagging effect will imply the BAF will have impact on BAF on a relative basis on the lower fuel price.
The BAF, it can be somewhat complicated, but it's not really that complicated. It is a 3-4 months delay, basically, from the oil price change until we get the compensation through the higher freight rates. Meaning that in situation where oil price is increasing, we are not really compensated before or after the quarter after the increase, just to say it very simple. There is also a delay in from when we buy the bunkers until we use the bunkers because we have an average stock of approximately 60-70 days consumption on board the vessel.
Yes, it is correct to say in the third quarter, we had much higher BAF compensation than in second quarter because the oil prices really started to increase in second quarter, February and onwards. We were not compensated for that before into third quarter. Yes, in third quarter, we had a high compensation, and the compensation was actually higher than the net increase in the bunker expenses in third quarter. As Andreas said here, in where we are now, if the prices is not really changing that much, we will be compensated for the increase in oil prices that we have seen so far this year.
Yeah.
Going forward.
Thank you, Per Øivind.
Mm-hmm.
A few questions from analyst Jørgen Lian from DNB. The first question is that there has been a sharper increase of net rate in Q2 compared to Q3. Is it possible to comment on any difference in market sentiment in Q3 compared to Q2, and is it because the rising path that limiting the markup of the net freight rates?
Yeah, I think if we should comment on the market sentiment, I think our experience is that the market sentiment had increased, improved from Q2 to Q3, so that we see a strong. I also think, you know, with contracts and negotiations, I think you have to look at the net rate development over time, and we obviously have the monthly updates that you know you can have variations, you know, in certain months or. I don't because that it is coming in sort of with new agreements coming on.
If you net it down to a view on the sentiment, the sentiment, I think, is really at its strongest this year, right now if I should comment on that. That's why we're also, you know, expressing some level of optimism for the fourth quarter.
Yeah.
Mm.
Yes, could you also comment a little bit more about the shares of contract versus spot liner volumes for Q3? Do we have figures?
We don't have any further details on that. There is a rolling contract portfolio and we had the chart in there saying that it's sort of gradually now, we've done most of the contract price adjustments or renewals or all the contract for almost at for 2022, but we then have some batches coming into 2023 and 2024 where you know we still have contracts that are at legacy pricing, which would be below the current market, so that there is some potential in that also going forward.
The next question is about the capacity. You can see that our vessel capacity remains to be maintained for 2022. Can we share any view about how the capacity will develop in 2023?
I mean, yes, I think we have guidance on that there won't be much change on capacity, we expect. I mean, I think we've communicated a lot. You know, we are focusing on maximizing the value from our current fleet. We have a sufficient controlled fleet to, you know, serve our core trade lanes. We are continuously looking at options. I think it's no secret that we would have liked to, you know, have a vessel or two more if we could get it at sustainable terms.
We do not believe, given our own sort of market or our own capacity outlook and the cost of and quality of our newbuilds. I've also said that we are quite reluctant to go into long charters of what we consider to be quite mediocre vessels compared to what we're building at costs that are really higher. But that doesn't mean that we are not looking for solutions and that we are working on the whole capacity and fleet picture. The underlying thing is that we have a trade network, and we have a structure that we are intending to maintain. We have the vessels to do that, and we will you know always look for ways of improving further from that baseline.
That is for us a, it's a quite robust baseline.
Mm.
You know, with the Aurora vessels coming in in the second half of 2024, it's not so long before we are really looking at the opportunities to grow and to offer, you know, customers transportation solutions that are fundamentally better and more energy efficient than what's available in the market today.
Yes. Thank you, very detailed answers, Andreas. I think the last question from Jørgen Lian, I'm not sure if I understand correctly, but his question is, could we share a little bit about which quarters will benefit the most from the contract volumes rolling over to new contracts? I would assume this question about this year, which quarter we will see the biggest effect of, new contract in our EBITDA.
I don't think we want to sort of give any. I don't know, Torunn, if you want to say specifically.
No
because there are many moving parts in the
Yeah, many, many moving parts.
In the contract picture. Not all contracts are, you know, renegotiated exactly at contracted maturities either in the current market. I don't think we would want to provide any guidance on that, or we are able to provide any guidance on that.
Yes. Yes. Thank you. Just, building on the contracts, we also have a question from Analyst Petter Haugen about the contracts. What share of 2023 and 2024 contracts have been renegotiated in 2022? I guess this would be more commercials.
No, I'm not sure I fully understand the question because I think in 2022, we've obviously renegotiated contracts expiring, but we have, well, we've at least not concluded contracts that expires in 2023 yet.
Yeah. I guess we also have a slide in the commercial sessions that,
Mm-hmm
that detail more about that.
I think it's fair to say on that one that we have a, given the market situation and given the lack of capacity. You know, we have a broad set of, you know, I think constructive strategic dialogues with a number of our customers to find solutions to their transportation needs, and that's an ongoing process that is not, you know, necessarily directly linked to contract expiries as such.
Yes. Thank you. The next question is about a little bit more elaborating, a little bit more about our look sessions. Could we provide a bit more specific reasons why Q4 EBITDA is expected to be higher than this quarter? I guess so.
I think Andreas mentioned it. We are seeing a continuous rate increase. If you look at the trading update that we gave for September, we reported a net rate of $67.6. The average net rate in third quarter was $62.5. We continue to see rate increases and as we also mentioned, the bunker prices are stable or actually coming down. The combined effect of increased top line and continuously reduced expenses is the main reason behind our guidance that we say that we expect Q4 to be better than Q3.
Yes.
I think also it's obviously that, you know, if you look at it. I think it's also fair to say that both the forecast and the actual bookings from our customers for Q4 is strong. We have a good-
Yeah.
Good outlook on that.
We are already more than almost one month into Q4 and we have a pretty good visibility of our bookings. Yeah.
Thank you. Yes, the last question is from our audience, Ola Stuber. I think it's basically builds upon the last question we already have. What do you expect contract renewals for 2023 to land on compared to legacy contracts? Can you lock in rates for longer and the EBITDA contributions? I guess you already mentioned a lot about the ongoing.
Yeah. No, I think we will not go much further than the fact that we have good constructive discussions with a number of our customers on how to solve their transportation needs, and they're eager to secure capacity. That's, I think, the context of that work. It's complicated because there's not capacity. I mean, it's not enough capacity to go around. It is complicated processes.
Yes. Thank you. Yes, that is the last question we see so far today. Of course, if you have further questions, please don't hesitate and send a question to ir@hoegh.com, and we'll be happy to address your questions. Thank you very much, and we look forward to see you next time.