Good morning, welcome to Höegh Autoliners second quarter presentations. This quarter, it's our pleasure to present you our result on board the beautiful Statsraad Lehmkuhl, right at the heart of the Arendal. My name is My Linh Vu, Head of Finance, Treasury and IR, I'm gladly introduce our CEO, Andreas Enger, and our CFO, Per Øivind Rosmo, who will be your main presenters today. The presentation will be followed by the Q&A session at the end, you can raise your question on the spot, or you can send out your questions to our investor relation mailbox at ir@hoegh.com. With that, I will hand over the stage to you, Andreas.
Thank you, My Linh. It's really a pleasure to have our presentation, this quarter in Arendal. We will, given that we've spent, big part of this week, discussing and debating, how to make, the green transformation happen in shipping, we will also use the opportunity to elaborate a little more on our progress on that journey. Starting with the highlights of the results and the numbers, we've had another record quarter, delivered an EBITDA of $181 million, transforming into a net profit of $133 million, and producing then, according to our dividend policy, a dividend for the quarter of $67 million.
This result is, created or produced, based on a good operation, continuing strong, slightly increasing rates, and is further strengthening both our ability to pay dividends to shareholders and to, you know, strengthen our financial platform, now, now with an equity ratio up to 64%, which is a robust, you know, platform for, for our, fleet transformation and, and for the future business, of the company.
I'm going through a little bit on the market today with expanding a bit on, on our progress on, on our contract structure, going through the capacity update, expanding also a bit on sustainability, looking a little bit into the impact of our new vessels coming, with the first vessels being delivered now in less than a year, before Per Øyvind takes over the financial update in more detail and we allow room for Q&A. Talking about the market, it's a continued strong market. All vessels are full, rates are slightly up, and the cargo mix is strong. All in all, it's a good quarter on, on the core operational side.
I would like to elaborate a little bit on, give some lights on how our contract portfolio is developing. I think I have, in several quarters, said that we are, have been working intensively through 2022 and into 2023 with, you know, firming up, solidifying, our contract structure. That has been quite a substantial effort. We have basically, I would say, been very clear that we want a, a revised contract format, where our commitment to provide services and transport cargo is mirrored in the customer commitment, you know, for, for the same. That led, in reality, to the fact that in, in 2022, second half of 2022, we entered into very few contracts.
We had lots of debates, but we chose to keep volume in the spot market, or enter into short, uncommitted contracts, until we had been able to arrive at the contract format that we are comfortable with, in the, in the, in the longer term. And we haven't been able to provide much detail on that, partly because it's been ongoing, ongoing, you know, negotiations, and also because we have confidentiality clauses in all our contracts that prevents us from, from, from, you know, giving specific, commercial details on, on individual contracts.
I'm pleased to now be at the point where we have aggregated a sufficient portfolio of contracts that we can provide some aggregated numbers, just warning that we are not going to engage into discussions on details and breakdowns of these numbers. The headline of that is that so far this year, we have signed mutually committed contracts with a total contract volume and a total value in excess of $1 billion. And the average rate in this contract is above $100 per cube, substantially above our current rate, and the weighted duration of the contracts is 4.2 years, meaning that we've now, I think, established some tangible success on.
on an effort that's been a key priority of the company for the last year. I think it's also looking a little bit into our legacy structure, which is important because these are the contracts that we are going to renegotiate and renew over the next years and is sort of also then looking at, giving some light into the future, sort of risk and prospects. The volume of annualized volume of contracts up for renewal in 2024, which is actually contracts we're then, you know, producing today, is 5.4 million cubic meter. The average rate, net rate on these contracts is below $50, and the average remaining duration is 11 months. So that is the rollover.
In the addition to that, we have a not insignificant volume of sort of more than 2 million cubes of contracts expiring beyond 2024. Those are actually also at a average rate of, of actually substantially below $50, which which I think in the current climate and, and with, with the level we're entering into new contracts provides, in our view, relatively limited downside risk to the renewal. This is kind of the summary of both where we are in terms of the legacy portfolio that is a part of our, obviously part of our quarterly numbers and operating run rate.
More importantly, the profile of the year to date contracts, which is at the level and on terms and with the duration that we are quite satisfied with. We also continue to see steady growth in deep sea vehicle shipments. Obviously, much debate around macro, but still, we are experiencing the fact that, you know, low replacement of vehicles for several years and the relatively still low sales figures compared to history, suggests that we are still experiencing a robust sort of volume development on our shipments. Same goes for high and heavy, although it's a bit flatter. We have a particularly strong growth of
There's strong, there's a strong growth of high and heavy exports out of China. Again, a strong picture on the high and heavy side. I can repeat once again that, you know, we are positioning ourselves to be able to move substantial amounts of high and heavy cargo. Our new builds have very, very strong cargo flexibility. The high and heavy new cars mix has become less important than it was a few years ago because we've got, you know, more robust, you know, a more robust market on the vehicle side. High and heavy remains and will remain an important part of our cargo mix. Capacity, not so much to say. You know, starting slowly delivery on a few new vessels.
I think, we are getting our first new build in July of next year. We are building at a very efficient, large, highly automated and, and capable yard, with, with big, strong capacity. We are actually, slightly accelerating delivery schedule, and after the first delivery, late July, we will get the first four vessels, a total of four vessels delivered within half a year from that. We are very much looking forward to being able to introduce new capacity to the market in 2024. Obviously, there is a further backlog into 2025 and 2026 that, that, you know, has been discussed, thoroughly, I think, through, through, through this year.
We have in the quarter, as you know, and as announced, declared another four options, secured another four options on, on top of that, which is customary when you firm up, there's no, no sort of implicit message on decisioning on what, what we do with it, but, but we do have the option. Total new build program is now up to, to 12, and again, with the first vessel delivered in, in July 2024, less than a year from now. Beyond that, we have a stable capacity situation around 37, 38 vessels. We own and control virtually all our vessels and have no near time, no expiring leases before we start getting our new builds.
Moving to sustainability and, which, clearly is an important topic here in Arendal, but is also becoming an increasingly important topic in our dialogue with customers. We have the benefit, I would say, of being in an industry where, you know, most of our large global customers have quite clear and ambitious and committed plans to decarbonize their supply chain. A very important part of our dialogue with customers, and a part of the reason to work with Höegh Autoliners is that we have a substantial capacity to deliver on near term and longer term decarbonization of the supply chain of our customers.
We are still in the level with, with, you know, a tight market, port congestions, lack of ability to actually slow down to, in order to reach, you know, commitments. Relatively flat, but slightly reducing, CO2 emission in the quarter. We have used 3,600 metric tons of biofuel in the quarter, which is about the same as all of 2022. That is an important all-time for the main current and short-term opportunity to provide carbon neutral transportation. We are pleased that we are, we, we, we have very strong believers in using 100% biofuel. It's a better controlled for us, fuel in the engine room than than blends.
More importantly, it means that to a large extent, we can get the carbon improvements from biofuel by replacing much more expensive MGO rather than using it to replace LSFOs. We still get the carbon benefit of that. We have a clear and ambitious biofuel strategy, where we basically clean tanks and bunker and operate on 100% biofuel at parts of voyages to provide the better carbon performance. Now I think this is a good time to start zooming in on what's really happening with the carbon performance of the car carrier fleet. You know, the EU ETS is being introduced from 2024.
We get clear feedback from customers that if you go a few years back, they didn't know, and they didn't care about the carbon footprint of the vessels. They're equally clear that, looking a year or two into the future, they will start to care. So we have just put together on, if you just model the CO2 emission per car using different types of car carriers, we have done this in our own vessels. We also have, you know, broader analysis on the industry. But, you know, better to, better to talk about ourselves.
What you see is that if you compare with C- and D-rated vessels, which actually make up large part of the global car carrier fleet, even our Horizon-class vessels, which is among the most carbon efficient vessels on the water today, would have almost a 40% reduction relative to a C CII-rated vessel, while the Aurora-class, from delivery, operating on LNG, will have approximately 50% reduction of the carbon footprint. This is not only vessels that has a clear, defined path to zero, and where we are in specific discussions with both engine manufacturers, the yards building the engines, and fuel suppliers on possibly, not guaranteed, but we're working for getting, you know, ammonia vessels in operation by 2027, if everything falls in place.
I think it's also important to say that from next year, we are able, with the new builds being delivered, to offer transportation services at, with carbon footprints that are substantially lower than the standard capacity available in the market. We believe that that will be a more important topic over the next few years. We are quite, again, quite pleased to, you know, both having done the first steps of repositioning our, our carbon footprint with the Horizon-class a few years ago, and then now adding an even stronger performance with, with the new Aurora-class coming in, in a year from now.
Just to sort of put that, and, and another one is that, you know, with CII ratings, with the ETS, with, you know, more focuses, we, we have already a, a strong fleet, our existing fleet, with a large proportion relative to the market of A and B-rated vessels. We have very few vessels below C. We have a clear program in place in terms of technical upgrades and, and engine de-ratings and those kinds of things to manage the tail end. More importantly, we are, you know, quite dramatically expanding the, the, the, the, the top end of our, of our fleet, through our, through our new build program, both then short term and longer term, going to zero.
This has been an important priority for us and will be an important topic with our customers in the market, with regulators in the years to come. With that, I leave to Per Øivind to go through some more details what, what the quarter was in terms of numbers. Per Øivind?
Thank you, Andreas. Good morning, everyone. It's very nice to be in this inspiring atmosphere, presenting the best results for Höegh Autoliners ever. Before we dig into the numbers, it's we're trying to just take a look at the volume development and the net rates development. That is the, the driver from our top line, over the last 12-18 months, the top line has been the driver for the improvement in our results. In second quarter, we had 4.1 million CBM transported. It's slightly up from first quarter. It's actually an increase of 48,000 CBM, the main reason for that is that we are utilizing the vessels better and better. We have full utilization.
All sailings are full, and we can lift more cargo with the existing capacity. We don't really have more capacity, but we are able to utilize the capacity. The net rates increased with $0.6 from $74.4- $75 per CBM, and that is also a new record rate for Höegh Autoliners. Strong results. We see that freight revenues came in at $356 million. It's pretty much the same as it has been the last three quarters. It's $2 million more than in first quarter, and it's a combination of volume and rates that gives us $6 million, but that was offset by somewhat lower surcharges, mainly BAF.
We reduced the BAF with $4 million in second quarter compared to first quarter, that is a consequence of the declining oil prices that we have seen through first half. That is, of course, offset by lower bunker prices. The adjusted and reported EBITDA came in at $181 million. It's up from $171 million, and out of that, it's $2 million coming from the increase in gross rates and $6 million coming from reduced voyage expenses. We also have a somewhat lower general and admin expenses in Q2. Small growth on the top line, but the declining expenses is explaining most of the, increase from first quarter into second quarter.
Net profit before tax increased to $136 million, up from $124 million, and if you, if we go back and compare it with second quarter last year, we see that we have increased the net profit from $64 million to $136 million. Diving a little bit into why we are able to increase the EBITDA, and as you will see, cargo revenues, account for most of the increase, both during 2022, but also to some extent from first quarter into second quarter. $2 million up, as I said, and then we have bunker expenses reduced with $5 million, but that was to some extent offset by lower BAF. Then we have other operating expenses, minus $3 million.
We had a reduction in voyage expenses of $7 million, but we had somewhat higher charter in expenses in the quarter. Cost reduction is our agenda, and we are able to make more efficient voyages. We have less port calls per voyage in this tight market. We also have some effects from the cargo mix. You have seen that our cargo mix has been.
We have reduced the high, heavy and bulk, break bulk on account of cars, and cars comes at lower handling cost than, than break bulk. That is also part of the explanation why we are able to reduce expenses. Again, going one year back, most of the increase is coming from increased rates, but on top of that, we are also able to control and reduce our expenses. Net balance sheet, very strong, very robust.
We have reduced the net interest bearing debt to $226 million. We are generating a solid cash flow from our operation, and even with dividend payments and CapEx installments for the new buildings, we are able to, to, to build cash. Reduce the net debt. We have taken on new debt in the quarter. We purchased one vessel and, and financed it with debt. The net debt/EBITDA ratio is down to 0.4. Book value equity 64%, and our equity is now- book equity is now $1.2 billion. Cash balance, as I mentioned, we are building cash. We had $253 million by the end of second quarter.
We have increased it to $306 million by the end of second quarter, and on top of that, we have an unused RCF of $87 million. We have a very strong cash position by the end of second quarter. How did the cash balance develop? We started out with $253 million, and we generated $168 million from the operation. We used $10 million in CapEx, and that is mainly one installment for the second new building. We paid $20 million in amortization and interest for the mortgage debt. We purchased the Höegh Trapper for $53 million, and as you see from the green bar here, we took $48 million in loan on that vessel.
Then we paid $60 million to shareholders, and we used $20 million on bareboat leases and time charter hires, and that took us to $306 million. You will see from this slide that our free cash flow is, is, is very good. We had $168 million from from operation, and we basically used $40 million on on on financing and leases, leaving us with $128 million for for CapEx and and dividends. Strong balance sheet, simple balance sheet, as we have said before. We, we, we, we don't have a complicated business. We have we have vessels that we mainly own, and we don't do very much else. Our balance sheet consists of vessels and new buildings, $1.3 million.
We have right of use assets, that is the IFRS value of the vessels that we have on bareboat leases and time charter, $138 million. As I said, we have cash of $306 million, and then we have bunker and receivables of $154 million. Equity, $1.2 billion. Interest-bearing, bank debt gross, $370 million, and the lease liabilities related to the right of use assets is $161 million. We have current liabilities of $96 million, and all the current non-liabilities of $44 million. This gives us a book equity per share of $6.3, or if we convert it with today's exchange rate, that is NOK 66 per share.
If we take the book value of the vessels and replace it with the market value of the vessels, we will see that we have a net asset value of $2.2 billion. That calculates to $11.5 per share, or NOK 121, sorry. Again, very strong balance sheet, high equity ratio. We have a solid cash ba.ance, and we have a good ratio between current liabilities and current assets. Our working capital, for all practical purposes, consists of the bunker inventories that we have on board the vessels. Dividend, we are paying out again, 50% of the adjusted net profit.
We are adjusting for payable taxes, so the basis for dividend is $134 million, and that gives a dividend of $67 million. We have on aggregate, paid out $206 million now in dividend over the last 12 months. Dividend is part of our equity story here, that we like to, to, to pay dividend when we have the capacity to pay dividends, and, and we are doing so. Yeah, that ends the financial presentation. We are open for questions. Before we take the questions, Andreas will say a few words about the outlook.
Thank you, Per Øivind. Yes, just very briefly on our outlook, we are still we experiencing a strong market. Expect this to continue in during this year. We have a healthy rate development, you know, both obviously in the quarter, but also in the sense that we have fundamentally also improved our, our backlog at, at strong rates during the quarter. We are in the middle of the third quarter by now, so and a large part of the cargo for delivering the quarter is on board our vessels. We do expect another strong quarter.
As we always say, obviously, the world is a strange place these days, and we are closely monitoring all aspects of the global macro situation, and, and, you know, planning scenarios for, for things that may change. But, in our, our immediate outlook, that is the part that we are commenting on, it looks still very, very strong. Again, just to close off, very happy to both have been able to deliver a record quarter, at the same time as we have done, fundamental progress on strengthening our longer-term contract backlog. Also that we have a green fleet renewal program that is well on track and will give us substantial green capacity in starting in less than a year from now. Thank you.
We have received a few questions from our online audience. Yes. Yes. The first question, from our investor, from our analytics, Jørgen Lian. First question is about the voyage expense. There has been a very good development on the voyage, voyage expense over the last few quarters, and he can you elaborate a little bit about what has happened, and how do we see this develop going forward?
I think what we can say is that when we have this very tight market, we are able to take more cargo in each port. We don't really have to go to that many ports that we did before to fill up the vessels. We have, on average, reduced the number of port calls per voyage, with 1.7 port calls over the last three years. That, of course, reduces the expenses, as we have to pay less for port use and tugboats and pilots and everything. That is a direct saving. In addition to that, we have also seen increased utilization, and that is also contributing to reducing the voyage expenses. What we have seen over the last 12 months is that we also have seen a shift in our cargo mix.
We used to have more high heavy and break bulk, and that is cargo that comes with higher handling costs. When we replace that kind of cargo with big lots of cars in less ports, we also get a saving from that. I would say that that is the three main factors: reduced port calls, higher utilization, and to some extent, the cargo mix. How this will develop forward, that is, that is not a very easy question to answer, but we are focusing on these things in our company. We have always focused on costs and managing costs. Hopefully we can maintain where we are at least, and whether we can also achieve more, well, that's, we will try, but we cannot promise that.
Thank you. We have received a few questions about slide seven, where they talk about the contract renewals. The first question is that we mentioned that we have over $100 per CBM for the renew contract, and why the less under $50 per CBM average for contract up for renew the next 12 months? And the first question is that are the volume here is really comparable in terms of trade mix and the cargo?
Yeah, I mean, I think the, the contracts we have made actually goes in multiple trade lanes, eastbound, westbound, and it includes high and heavy. So we haven't done the full sort of breakdown. I said that no, we're not going to get that full breakdown. Our new contracts reflects really most trade lanes, both eastbound, westbound, and both vehicles and high and heavy. We believe it's fairly well reflecting, you know, our operation.
Yeah. Thank you. And also another question from analyst Eirik Haavaldsen from Nordea, and it's also about the same slide. The question is, as contracts so far are done above the $100 per CBM, and the 32% or 5.4 million CBM rolling off in 2024 has an average rate below $50 per CBM, could you say a little bit more about the 2024 earnings if rates over the next 12 months should come in around or above or over $50 per CBM?
I think, you know, we are commenting on what we have done, and we're guiding for the next quarter. I think we'll, we're going to stop there, and we're going to continue stopping there. We're not going to comment on next year. Obviously, the fact that we are building long-term backlog on committed contracts at high rates is, is, you know, firming up our, our, our longer term platform. We're not going to add that up to a total yet.
Yes. Thank you. I can see that we have received a few questions about the commercial slides, and the next one from analyst Frederik Ness from SEB. Could we comment about the spot cargo rates development over the recent months?
No, I mean, like, the spot, spot cargo rates, it remains robust, but, you know, we are increasingly giving up spot opportunities to, to shift into longer-term contracts. For us, that is at the level we are, that is sound, and spot opportunities are there. They're at strong rates, but that's really not our main priority now, and we are increasingly, you know, selling out our available capacity to customers that are engaging in longer-term contracts.
Thank you. Also, the next question is, how is the increasing order book impacting the contract negotiations, and are customer increasingly pushing for shorter contracts?
No, I, I don't think that has been a particular issue at all. You know, we have, we have customers that, you know, number one, have big problems and challenges, pain points in their logistic structure that they want our help to resolve. They have experienced the pain of, you know, not having a robust outbound logistic structure. They're talking about how to decarbonize over the next years, and, and actually, the new build backlog has not been important topic in those conversations.
Thank you. The next questions is, what is the contract and spot strategy for the next two and three years? With contract rates averaging over $100 per CBM, is it a good time to increase contract coverage?
Yeah, we basically said, and, and I mean, I think, little context here. We have said for more than a year that all our available capacity, it will be made available with priority to customers that are willing to engage in long-term, committed contracts, you know, that, that, that, that are truly committed. In terms of, it's balanced in terms of, of, our commitment is balanced with, with their commitment, and, you know, that has been, that has been our clear strategy for a year. The big change is that last year, you know, it took time. It takes time to get large organizations to enter into contract formats they haven't had before with us.
It obviously takes some conviction, and during 2022, that, that progress was quite slow, meaning that we chose to make our capacity available to a larger extent in the spot market. Now we have good traction on that, and clearly we are shifting capacity to the contract market, and we will continue to do so. Our main strategy is to be a partner with the largest, strongest automotive and equipment manufacturers in the world to basically create robust and increasingly decarbonized supply chains for them, and that's that's our business.
I think the spot focus of last year was basically just a reflection that the customers have been a bit slow on, on, on, on actually approving more balanced contract frame- fra- frameworks.
Yes. Thank you, Andreas. I can see that the next question coming in from analyst Petter Haugen, ABG. It's also about the renewal. I think you already touched up on that, but, okay. When we say rates for the new contract are above $100 per CBM, can we say a little bit about how much of the total volume is renewed at this level for 2024 and 2025?
Not in detail. Basically, what we've said, we've said the annualized- we've said the annual volume that is renewed, and we said the average duration. You can sort of, you can do the math from that. We, we are not, sort of, going, going to translate it in, but it is, it is, it is a total volume in excess of $1 billion, which we mean, it reveals an indication that it is, it is the market. It's not something that, some exotic, contract. It is a duration of 4.2 years in average. And, and you have the volumes, and, you can sort of do the math.
Yes. Thank you. Yes, I can see that that's the last question has, that has coming in for now.
Yes.
I will say, if you have further questions, please send us an email to our investor relations mailbox at ir@hoegh.com. We'll gladly come back and answer your questions. With that, we would like to wrap up this presentation. Thank you for your attention. We look forward to seeing you next time.