Good morning and welcome to Höegh Autoliners' first quarter presentation. My name is My Linh Vu, Finance Manager and responsible for investor relations at Höegh Autoliners. We will start the presentation today with our CEO, Andreas Enger, followed by our CFO, Per Øivind Rosmo. You can ask questions by sending email to our investor relations mailbox, ir@hoegh.com. So with that, I will hand over the stage to you, Andreas.
Thank you, My Linh. Very glad to present our Q1 presentation today, our first presentation after we were admitted to listing on the main list on the Oslo Stock Exchange, one of the many milestones we've had over the last year. But I also want to say that, you know, in a good quarter for us, we are obviously very concerned with the human suffering and the political situation in Ukraine. We're following it closely, and although it does not have direct effects on our operation, it is a big concern for us as an international company with those types of things happening in the world. For Höegh Autoliners, this is another strong quarter, despite increased volatility, despite disruptions continued related to COVID in China, and despite disruptions in ports in many places around the world.
But we are delivering, despite all this, an Adjusted EBITDA of $78 million, which is more than doubled year-on-year, and a net profit of $36 million. We're also continuing strengthening our balance sheet with an equity ratio now approaching 50%, strongly supported by further improved vessel values. We are continuing our green renewal program. We did, earlier in the quarter, sign 4 fixed and 8 optional contracts for multi-fuel Aurora-class vessels with delivery from 2024, making us a leader in our segment in the ability to help our customers on their path to zero carbon. We have, in May, added on that, as you know, with signing the first 4 options, bringing our fixed orders to 8 vessels, all ordered on the initial specs and the initial price.
And in consideration for that early call of options, we've also been able to add an additional 4 slot reservations so that we have strengthened also our new build and renewal program. We have continued working on fleet optimization. We have sold some smaller non-core vessels. We have extended some charter parties, and we are working on optimizing our network to make the most out of our capacity in this current market.
After the end of the quarter, but very, very important for our situation, we have secured commitment letters from 9 leading international shipping banks to refinance our existing debt with a considerable reduction in amortization, a much better margin, and with a large number of vessels taken out of the collateral package, which is actually improving our free cash flow with up to $150 million over the next 4 years and is adding a substantial reserve in having more than $400 million of value in unencumbered assets, which is, for us, a fundamental strengthening of our financial situation and our financial flexibility. We will go through the standard sort of a little bit on the marketing capacity, touch on ESG update before Per Øivind will take over on the financial update. The market, there is still very, very good cargo availability in Asia. We have continued a favorable cargo mix, and the rate picture has improved and is continuing to improve. So we are delivering the same result, better rates out of a slightly smaller volume because we have decided to optimize our system by taking a little less volume out of the Atlantic in this quarter, but retained our position and volume out of Asia. High and Heavy, Breakbulk
And we have about a third of our business on rate agreements or spots, which is following the actual cargo market closely. If we look at the new car volumes, we are affected by lots of production issues around the world. We tend to believe that that might also build up some pent-up demand, but I think the most important picture of this is that the cargo situation is actually in a situation that, despite all this volatility, we've been able to fill our vessels. But there is clearly volatility, particularly on the supply and the production side. It is a continued trend towards increasing electric vehicle share, and that is driving the Chinese exports. It's driving exports in general of cars that is supporting our business. Also, High and Heavy demand is expected to continue. There are strong trends, positive trends across markets and sectors.
Shipment of construction equipment is high. Infrastructure spending is high, and we basically expect that to continue. That also goes for the mining cycle supporting the availability of High and Heavy and Breakb ulk cargo. In terms of capacity, first, on the broader situation in the market, we know the capacity situation is tight. We know the global fleet is aging. We are now seeing that after a long period of very, very low new builds, it is now slowly building up. We are obviously a strong player in that market. On the other side here, we see the time charter rates going up to very, very high levels, reflecting the strong cargo markets.
But I have to admit that we are quite pleased that we are able to optimize our network in a way that we do not have substantial new charter needs in order to maintain our business, maintain our system, and maintain our volumes and revenue levels. We have done some fleet optimization. There are inefficiencies, obviously, in the network with port delays and other things that we are working to weed out. We have chosen in this market to sell or disposal of some non-core or smaller vessels. We have extended some charters, and we're continuously working on optimizing our network to make the most out of the capacity we have available at any point in time.
When it comes to ESG and on the environmental side, I think, obviously, the most important project for us now is to realize the Aurora program and to create a real path to zero carbon. In the meantime, we are working on and do have an active offering to customers for the use of biofuel. And our vessels are capable of running on 100% biofuel, and we're doing that on a regular basis. So we are experimenting. But in the current picture, the fleet efficiency ratio on the carbon side is staying roughly flat. We expect that to, obviously, improve quite dramatically when we get our new build deliveries. I think that ends the introduction, and I will then leave it to Per Øivind to go a little bit deeper into our financial situation or financial case before we come back to looking at the outlook. Thank you.
Good morning, everyone. Before going into the detailed numbers, just a short recap on the volume and the net rate. That is the main driver for our profitability. As you will see, the volumes are quite stable over the last five quarters. We are around 4 million cbm per quarter. We see a small reduction from Q4 into Q1. That is because we decided to deselect some cargo out of the Atlantic and prioritize better-paying cargo in the Far East. Volumes in Q1 2022 is more or less the same as we had in Q1 2021. The rate increase has continued. It is now more than $10 higher than it was first quarter last year. We also see an increase from Q4 of $1.3 per cbm. This rate increase is something that we see in basically all trades and for all cargo segments.
Our revenues increased with $61 million compared to Q1 2021. This is driven by the increased freight rates. Comparing to Q4 2021, we see a small reduction in revenues, mainly because of the lower volumes without necessarily hitting the profits. Adjusted EBITDA is in Q1 2022, $78 million. That is more or less the same as we had in Q4 2021, but it is an increase of $40 million since Q1 2021. Our net profit is for the quarter, $36 million. Comparing that with minus $7 million in Q1 2021, we see it's a considerable improvement. A big portion of the increase in EBITDA is actually reflected directly into the net profit.
Comparing it with our net profit in Q4 2021, we see that it is a reduction, but in Q4 2021, we reversed impairments of $96 million, and we had an extraordinary dividend from DNK of $13 million. Comparing net profit with Q4, we see that we have an increase in the underlying net profit of $5 million from $31 million to $36 million. We are continuing to strengthen the balance sheet, and net interest bearing debt over EBITDA is down to 2.1. It comes from 3.9 in Q1 2021, and we see that we had 2.4 in Q4 2021. The net interest bearing debt is increasing somewhat. The reason for that is that we have extended two chartered vessels for two, respectively, three years, and that gives an increased debt in the balance sheet due to IFRS way of treating charter hire.
The book equity is $836 million by the end of Q1, representing 49% of the total assets. We see that it has increased considerably, more than $300 million since Q1 2021. It's also an increase since Q4 with the net profit of $35 million that we reported. Net cash flow from operation in Q1 was $80 million. The cash balance was reduced with around $20 million. The main reason for that is that we paid the first installment for the first four new buildings of $60 million. But the underlying cash flow here is very strong in this quarter. If we compare the EBITDA going back to Q1 2021 via Q4 2021 and into Q1 2022, we see that we had an uptick from $38 million in first quarter 2021 to $79 million in Q4 2021. That was driven by increase in cargo revenues following the rate increases.
That was partly offset by increase in bunker expenses of $19 million and also some increase in operating expenses. Comparing Q4 with Q1, cargo revenues slightly down because of the lower volumes, not fully offset by the increase in the rate. And we also had $1 million more in bunker expenses. This was to a large extent offset by reduction in operating expenses. Some of the increases that we have seen in operating expenses are flattening out and to some extent also reversed, mainly due to more efficient voyages than we have had historically. Cash balance and how we took it from $228 million to $207 million. As I said, cash from operation, $80 million. We had some of the proceeds from the IPO done in November coming in in January. That was the last portion of the Green shoe.
We sold a vessel, an old small vessel was sold in January for $12 million. That is the inflow in the quarter. And then we spent $63 million on CapEx, out of which $60 million on the first four new buildings. We amortized and paid interest on the mortgage debt of $37 million, and we had lease payments of $18 million, taking the cash balance by the end of the quarter to $207 million. We have a strong cash position. Looking at the balance sheet, by the end of March, we have $1.1 billion in other non-current assets. That is vessels that we own for all practical purposes. The first installment of the new buildings is also included there and some equipment and projects related to the vessels. But out of the $1.1 billion, approximately $1 billion is vessels that we own. $273 million is the right-of-use assets.
That is the IFRS again that we have the leased vessels now in the balance sheet. Cash, as we talked about, $207 million and other current assets, mainly freight receivables related to our commercial operation, $120 million. A total balance of $1.7 billion by the end of the quarter. Equity, $836 million, representing 49%. The interest-bearing bank debt by the end of the quarter was $411 million, and we had lease liabilities related to the right-of-use assets of $318 million. Other non-current liabilities related to trade is $103 million. So the working capital here is still low. The difference between $120 million and $103 million is $7 million. We have seen an increase in the working capital coming from the increase in bunker inventory. The higher bunker prices is, of course, also reflected in higher bunker inventory.
We have calculated the book equity per share by the end of the month to be $4.4 or NOK 41. We also calculate the value adjusted equity. We get broker values for all the vessels from three different ship brokers, and then we compare that to the book value of the vessels. In addition to that, we calculate the excess value in the leases, looking at the purchase options that we have for the leased vessels and comparing that with the market values for the same vessels. When we do that by the end of March, we have calculated the net asset value per share to be $6.2 or NOK 58. So the balance sheet is strongly supported now by the vessel values. Andreas mentioned that we have done a refinancing in the last couple of months.
We have a bank syndicate of nine leading Nordic and European banks participating in that syndicate. The structure will be that we will have a term loan of $300 million, and we will have a revolving credit facility of $100 million. The interest rate is very competitive compared to what we have now. It's a solid reduction in the interest rates. We have gotten a long tenor. The new loan will run into January 2028. The current loan is running into January 2025, so we have three additional years now for the financing. Amortization will depend on how we use the RCF. It will be in the range $39 million-$52 million. $39 million if we draw $300 million and $52 million if we draw $400 million.
We haven't concluded, but most likely we will draw in the lower end of that range based on the cash balance that we currently have. In the new loan, we have 14 vessels pledged. They have a market value of $756 million, representing 189% of the loan. So the security pack here is very solid. We have been able to take out 13 vessels from the current facility. We have 24 vessels pledged in the current facility. So we will, when we are done with this, have 13 vessels unpledged with a total market value of $437 million outside the facility. And as Andreas mentioned, this will considerably improve our free cash flow over the next years, reducing amortization from $80 million to around $40 million and also having lower interest rates and the flexibility that the unpledged vessels will give us.
So this is another step in deleveraging and making our balance sheet much more solid. Then I think, Andreas, that you can say a few words about Outlook.
Yes. First, I think it's important to highlight that the continuing strengthening or strong market fundamentals is still with us, and we see a continued tight supply-demand balance. We see freight rates continuing to increase into the second quarter. So the business fundamentals are strong. There is an instability on the energy side that created a sharp increase in bunker prices. So there will be some back delays hitting us to some extent in the second quarter. But overall, it's on the basis of a very strong and continuous improving underlying business. Our financial platform is fundamentally strengthened through the completion of the refinancing of the existing mortgage debt and the financial structure we now have in place.
And with that lower amortization and also with the flexibility from the unencumbered vessels, I would say that our availability of liquidity is strengthened more than the similar liquidity commitments that lie in our new build program. So in that sense, we feel that we're coming out of this quarter with a fundamentally stronger financial platform. We did also complete the uplisting to the main list at the Oslo Stock Exchange on the 2nd of May, which was part of our commitment to shareholders when we did our IPO back in November. And it's important to be where we belong on the stock exchange. We are concerned about the geopolitical situation. We're following it closely. As we said, we don't see the immediate effects, but it is concerns with the combination of what's happening in Ukraine with COVID-19 lockdowns in China and various supply chain issues around the world.
So again, we are monitoring it closely, and I think we have a strong capacity to adapt our business and our system to whatever happens. But I also want to emphasize that in the current situation, we are running as normal. Finally, based on the current earnings outlook, the company will consider commencing dividend payments in the second half of the year. And those of you who have looked at the DNK AGM agenda see that the board has shareholder approval to declare dividends if they see that to be the right thing to do. So we will consider that in the second half of the year. And that is the end of our presentation.
We're opening for Q&A. And My Linh, do we have questions coming?
We have received a few questions during the presentations. And the first question is from Petter Haugen.
The first question is about the volume growth and our capacity. So how should we think about the volume growth in 2022 and 2023 with a current fixed fleet of 39-40 vessels?
First, I think the most important thing on that is that we're focusing on earnings and value and not on volume. But to go to the next level, I think we see a lot of disruptions and inefficiencies due to port congestions, other things. We're talking about COVID in China that easily adds up to 2-3 days lost per vessel. We're continuously working on optimizing that. If you add that up over the fleet, that easily 3-4 vessels. So we are clearly working on the efficiency of our operation, the system, the way we structure our different routes to free up capacity. We are going to work on that.
But I think the most important thing in terms of our fleet situation is that we are in a situation where we're able to maintain the current volumes and earnings without renewing or taking on existing chartered tonnage. Because in the current market, volume growth that comes from chartering in additional tonnage will give a strong increase in cost and will give a strong increase in the financial commitments if those are long. And even maintaining volume, if you have to do that through renewing charters, will drive costs. So I think the most important thing there is that we have a fundamentally stable capacity base that will allow us to work on efficiency and maintain our volumes without incurring additional capacity costs. And we obviously have the Aurora program that will help us grow in slightly longer term.
Yeah. Thank you. Yes, the second question is about bunker cost and BAF. I know that you already mentioned something about bunker cost and BAF in the Outlook sections. But do you want to comment anything more about that?
What we can say is that for all practical purposes, we are covered from bunker price increases through the BAF. But there is a time lag. And since the prices really started to increase towards the end of Q1, we don't really see a big effect of that increase in second quarter. But in third quarter, we will have—sorry, in second quarter, we will have a situation where BAF will not cover the increase in the bunker prices. That's because of the 3-4 months time lag. But back when we enter into third quarter again, if the prices stabilize, that will be neutralized.
But we will see a negative effect on the BAF-bunker ratio in second quarter.
Thank you. And the next question is from Jørgen Lian. So the first question is about contract negotiations. What is the status about the contract negotiations? We have seen a meaningful increase from the Q1 increase of Q2 Q1 rate. But is there any more potential for upside going forward?
I mean, I think we had a slide on it and said that we are now in a situation where we have negotiated most of the contract cargo for 2022, further things coming in 2023. I think we're still in a situation where new contracts are ticking in at high rates. So we are still in a period where we see effective rate increases from negotiated contracts.
But I think it's also important to emphasize that we have that one-third of our cargo volume, which is more on a spot basis and will obviously be repriced on a more continuous basis. But for the contracts, I think we're more or less done with 2022, although there are still some effects on actual earnings given that the contracts initiate at different points in time. But I think it's also important looking forward. We do not have big single chunks of—we are basically renegotiating contracts on a continuous basis, but we're more or less done with the 2022 vintage at this point in time.
Yes. Thank you. And yes, the next question is about the short-term efficiencies. So how are the short-term inefficiencies, congestions, for example, impacting the supply and demand at the moment? Do we see anything in volumes?
Supply and demand, I mean, clearly it is obviously impacting our effective capacity because any lost day in port delays and congestion is lost time and is lost capacity. And as such, it's also, I think, I assume that many of the other industry players have the same situation. So there is an increased, I think, capacity shortage. But there's also, as you say, there are some disruptions on demand. We see some sort of short-term issues out of China due to the COVID lockdown. But the fundamental situation is that particularly out of Asia, there is more than enough cargo for all the vessels. And I think there is also enough cargo to streamline the operations further and increase capacity a little more that way.
I think it's also worthwhile to add that there are car inventories in many markets that are very low.
There is a pent-up demand for cars. So even if there is probably less cars transported than needed in many markets, this is just something being pushed forward in a way that if the capacity is stringent releases, it will probably still be enough cargo to transport because there are low inventories and big demands in many markets. Many of us experience that if we order a car, we have to wait a long time to get it. So our thinking is that even with the constraints that we see now, if they should ease, there will still be a lot of volume to transport, actually.
Yeah. Thank you. Very good. Yes. The last question is about our refinancing. How do you see interest from banks to leverage unencumbered vessels for any cash needs for the new build? You want to comment about that?
We don't really have any firm thing to say about that. We have the unencumbered vessels. It represents a reserve. If we will use it to finance new vessels or not, that is not a decision that we have taken. That is something we will evaluate and also compare to other financial possibilities for the new buildings.
Yeah. But I think it's fair to say that we are receiving pitches and interest for financing. And our belief is that that is a substantial financial resource. The point is that we don't need it, right? We don't need additional liquidity right now. So we consider it as a reserve rather than something we are planning to use at the moment.
Yeah. Very good. Thank you. So with that, we conclude the Q&A session today. If you have more questions, please send us an email at our investor relations mailbox, ir@hoegh.com.
Thank you. We see you next time.
Thank you.