Good morning, everyone, and welcome to the Klaveness Combination Carriers Q3 2025 financial report presentation. First up on the agenda today will be CEO Engebret Dahm, who will give you a brief summary of the report, followed by CFO and Deputy CEO Liv Dyrnes, who will walk you through the financials, as well as give you an update on the sustainability performance. Engebret will come back on to give you a market update and also run through the outlook for KCC in the coming quarters. At the end of the presentations, we have designated some time for Q&A. Feel free to submit your questions at any point during the presentation using the chat button on the bottom right-hand side of the screen. With that, I think we're ready to get started. I hope you enjoy the presentations. Engebret?
Thank you, Haley. Before starting the presentation, I just wanted to remind you that we are arranging our first Capital Markets Day on 10th of December , both physically in our office in Oslo, but also you can participate digitally. We will present an update on the markets we are serving, the outlook for 2026, as well as more insights into our revised strategy. The third quarter 2025 was quite an eventful quarter, both when you talk on geopolitics in the shipping markets, but also in the business of KCC . We are pleased to present results that are showing good progress, both with respect to performance and profitability across our business.
Time charter earnings showed earnings increased by $4,360 per day - $28,900 per day compared to the second quarter, which is in the very high part of the earnings range of $27,500 per day- $29,000 per day that we gave when we presented the second quarter results in August. Both the CABU and the CLEANBU performed well in the quarter. EBITDA increased by $5.9 million to $24 million, and earnings before tax increased by $5.3 million to $12 million. The board decided to increase dividend payments from $0.05 to $0.12 per share, implying a payout of $7 million to our shareholders for this quarter. The dividend policy is unchanged. We continue to pay quarterly dividends corresponding to a minimum of 80% of the adjusted free cash flow. You have to see this over more than one quarter.
In the third quarter, we pay out 75% of the adjusted free cash flow to equity, while year to date we are at 86% of the adjusted free cash flow. The $0.12 per share dividends correspond to around 6% current dividend yield. I would like to mention that the dividends are impacted this year by the very high dry docking activity, with seven ships being dry docked this year compared to normally four to five ships. In the third quarter, we had only one to two ships in dry dock. This will increase to three to four ships in the fourth quarter, which all other things equal will have a negative impact on the dividend paid out for the fourth quarter.
Looking on the markets, the product tanker market had an overall strong performance in the third quarter, starting up in the early part of the summer relatively weakly, improving over July, August, and the first part of September before falling back in September and early part of October. Pleased to see that the market has turned around in the recent weeks, and it looks promising for the next weeks and months. The dry bulk market has had a particularly interesting run in the third quarter and to date in the fourth quarter, with spot rates increasing by around 25% from average second quarter to third quarter. This has kept up to date in the fourth quarter with a further 15% increase in spot rates compared to the third quarter.
As the dry market and the product tanker market are aligning in terms of earnings, also the relative performance of the KCC fleet is improving. The $28,920 per day average results for the third quarter implies overperformance to the benchmark on product tankers of a factor of 1.2 and compared to the standard dry bulk vessels by a factor of 2.1. Going forward, the likely more normalized relation between dry bulk and product tanker markets is expected to lead to a continued improved relative earnings performance of our fleet compared to the standard dry bulk and product tanker markets, while we continue to have a lower earnings volatility than the standard markets. Turning to the CABUs, another strong quarter for the CABU activity in the third quarter, with close to perfect trading, full score on most of our KPIs.
The vessels kept up being fully employed in the combination trade back and forth to Australia with a perfect match between dry bulk and caustic soda cargoes, implying 95% of the capacity in combination trade and the ballast as low as 11%. We more or less fill up the ships on average shipment on caustic soda shipment in the quarter to the max capacity, increasing average cargo intake by around 10% compared to the first half. The capacity employed in tanker caustic soda trade fell back from 54% to 47%, which is a reflection of the normal variations in vessel positions over a quarter. The share in tanker trading will increase going into the fourth quarter. TCE showed earnings for the CABUs ended up at $30,062 per day, which is up around $3,700 per day compared to the second quarter.
This is driven partly by considerably stronger caustic soda earnings, which is a reflection of the stronger MR tanker market. It is a reflection of a better match between fixed rate and index-linked contracts, and also the higher cargo intake on the vessels in the quarter. The CABU earnings also got positive support from the stronger dry bulk market with a considerably stronger spot earnings in dry for the fleet in the quarter. Also, the CLEANBU combination carriers had a strong performance in the third quarter with time charter earnings showed earnings increasing as much as $4,900 per day, up to $27,740 in the third quarter. Higher CLEANBU earnings can partly be explained by the stronger LR1 tanker market and also a stronger dry market, especially out of South America. The stronger earnings also are as much a reflection of improved trading and trading efficiency of the fleet.
We see a larger share of the fleet returned to the better west of Suez trades from 80% employed in these trades in the second quarter up to 90% in the third quarter. As you see to the graph to the left, the capacity employed in tanker trading increased from 55%- 60%, which also had a positive impact on earnings. We still see a considerable potential to improve the trading efficiency and the trading of the vessels. We still have in the third quarter too high waiting time. We still have too long ballast, which you see in the graph with a ballast percentage of 19%. With the continuous work to get the still hard to get customers and terminals on board, we expect to be able to improve this going forward. That summarizes the summary of the third quarter and leaving over to Liv.
Yes, thank you. Then over to the financials for Q3, and it's nice to be on here again presenting stronger financials for third quarter. EBITDA for Q3 was $24 million. That's an increase of 33% from Q2. As you can see here, that's mainly driven by stronger TCE earnings for both segments. I'm about to mention that the CLEANBU TCE earnings increased by $4,900 per day from Q2 to Q3, and CABU TCE earnings increased by $3,700 per day. In total, that's a change from Q2 to Q3 of $2.5 million and $3.4 million. In addition, we had some more off-hire days, a change from Q2 to Q3 of $0.5 million. OpEx, very stable as you can see here, while administrative expenses increased by $600,000. That is mainly periodization effects due to holiday pay in Q2, as well as some bonus provision changes.
All in all, strong development from last quarter. As mentioned, OpEx is very stable Q on Q, and as you can see here as well, average OpEx year to date for the CABU fleet of $8,535 per day. That's slightly below the average for last year, and you can see the same for the CLEANBU segment that had an OpEx of $9,816 year to date. Nice to see that costs are under control. When it comes to the off-hire, that as well was very stable compared to Q2. Scheduled off-hire, which means mainly dry docking off-hire and some deviation to and from dock, 60 days compared to 57 last quarter and 12 unscheduled off-hire days. The latter mainly related to upgrading of one of the 2001 built CABU vessels.
For the dry docking program, we have had four vessels in dry dock so far this year, and we will have four either starting or completing in Q4. A heavy dry docking program in Q4. One more thing about the dry dockings, you will find a full overview of both the dry dockings for Q4 as well as 2025 in total, and the first forecast for 2026 in the appendix. The income statement here, you see that depreciation as well is very stable from last quarter, while net financial cost increased by $700,000. That's mainly related to finance cost on interest-bearing debt. Profit after tax, $12 million, an increase from last quarter of close to 80%. This translates into return on capital employed of 10% and return on equity of 13% for Q3 on an annualized basis, an increase of 4 and 5 percentage points from last quarter.
Engebret already mentioned as well that dividend per share for Q3 is $0.12, up from $0.05 per share last quarter. I think it's important here to emphasize that the dry docking program is heavy in Q4. This will impact revenues and EBITDA through less on-hire days, and it will impact the adjusted cash flow to equity through higher capital expenditures, which means it's highly likely that dividends will come down in Q4. Over to the balance sheet. Total assets increased by $13 million from last quarter, so in line with expectations. This is driven by higher equity that increased by $8.7 million, and you can see here as well that interest-bearing debt is stable Q on Q. Ordinary debt repayments were offset by drawdown on RCF capacity, and this capacity was used to fund the newbuild contracts that you can see increased by $15.5 million.
This translates into an equity ratio of $56.4 million, which is very stable from Q2. Over to the cash flow, the cash position at the end of Q3 was $49.1 million. That's an increase of $2.5 million from last quarter. In addition to EBITDA of $24 million, we also had positive working capital changes of $4 million within the normal variations that we see from quarter to quarter. Net cash flow from investment activities amounted to $19.3 million in Q3, and it mainly, or a large part of it, consists of newbuild yard installments, of in total $14.4 million. The remaining part relates to dry docking CapEx and some investments into energy efficiency measures. The net cash flow from financing activities consists of debt service of $10.6 million. This is consistent with what we have seen over the last quarters as well.
RCF drawdown, as mentioned, $7 million, and dividends for Q2 paid in Q3 of $3 million. The available long-term liquidity, which is the cash position, and then the long-term available liquidity under the RCFs, were in total $127 million by the end of Q3, which is down $4.5 million from Q2. A solid cash position as well, and we are now fully financed to take delivery of the newbuilds next year as we signed the facility that we mentioned in the Q2 presentation. We signed that in late September, and we refinanced the existing carbo facility in October. Over from financials to our decarbonization efforts. The EOI, the carbon intensity of the fleet that we show every quarter, was 6.1 in Q3. That's a slight improvement from Q2, and you can see here we have had a positive trend through 2025.
That being said, we will see volatility in this between quarters. Both fleets had an EOI of 6.1 in Q3, and the explanation factors are mainly ballast and cargo intake or cargo weight. In the graph to the right, we have shown the EOI of all our vessels in Q3. This is the first quarter we see the full effect of the installations of the retrofitting of the shaft generator and the air lubrication on the three CABU vessels. That's the CABU vessels built in 2016 and 2017. As you can see here in the greenish color, they all have EOI of between 5.3 and 5.7. This is actually an improvement of more than 20% from the previous 12 months prior to the installations. This shows that efforts pay off. Over to the IMO.
We hoped that IMO would decide on adopting the net zero framework in October. Instead, they decided to postpone the decision by one year. Let's wait and see what happens in 2026. We strongly believe in the measures that are presented in this framework. We also believe that if IMO cannot agree on any global regulations of emissions, we will see more regional regulations of shipping emissions. We're definitely disappointed. That being said, this was mainly a potential upside for KCC in the concept, as lower emissions would reflect into higher TCE earnings for our fleet. As this was mainly an upside potential, we continue to work on our decarbonization efforts. We explore, we test, we install energy efficiency measures, we optimize the trading and the operational efficiency as well.
You can hear more about these efforts and the results of them in the Capital Markets Day presentation in December. Please sign up for the Capital Markets Day. Over to you again, Engebret.
Thank you, Liv. Let's take a short look on the markets we are serving. Both the product tanker and dry market have kept up well, despite the quite chaotic geopolitical situation. We continue to believe that the market balance looks pretty solid for the next year, despite the quite substantial risks connected to the market outlook. Let's start up with the product tanker market. The first one just shows the balance in the oil markets, where we see that on the green line, the total oil demand improved considerably through the summer and early part of the autumn of the quite weak late 2024 and first half of 2025. The demand development is expected to be not too solid, but not too exciting.
On the supply side, in the blue line, we see that the global oil supply has increased substantially and is expected to continue to increase following the reversal of OPEC + production cuts and also increased production in other regions. This will lead to oversupply, and it also will have a positive impact on especially the crude tanker trade volumes. Turning over to the product tanker market, it's especially interesting to take a look on the refinery runs. As normal, the maintenance season ends in November, where it's the low point of the refinery runs in this part of the year. Over the next month, refinery runs will increase, partly due to the end of the maintenance season, but also backed by relatively strong refinery margins. Looking at the ton mile development in the CPP market, we see here a positive development over the summer and into the autumn.
With the tight market situation we see at the moment, we expect this to continue for the remaining part of this year. Turning out to the supply side, there is a concern with the high newbuild deliveries for product tankers, especially LR2s. If you look on the next five quarters, the annualized growth is around 8% in nominal growth with no scrapping. There are two factors that are likely to improve the situation and reduce the effective supply. First is the strong crude market, that LR2s are likely to continue the switching from clean to DPP crude trading. If we use the same relation between LR2 tanker deliveries and LR2 tanker switching from clean to dirty, the fleet growth will increase to around 5% annualized over the next five quarters. The second effect is the increasing share of both crude tankers and product tankers that are sanctioned.
We see in the graph that getting closer to 20% of the crude tanker fleet and around 10% of the product tanker fleet is currently sanctioned by U.S. and EU. This reduces the effective supply of the compliant part of the product tanker fleet and the crude tanker fleet, which again reduces the effective supply in the market. The sanctioned ships are older with lower utilization and overall having a positive impact on the markets. Turning to the dry markets, the dry market has clearly beaten rather weak expectations that were in the early part of the year. We see from the graph a massive shift in dry build volumes in the third quarter, where both coal and grains recovered after a weak first half.
On the coal side, the year started up with a worrying high Chinese coal inventory and stock levels, and the high domestic coal production continued through the first half, having a negative impact on coal shipments into China. This has reversed in the second half with large production cuts of domestic Chinese coal production, having a likely positive impact on coal shipments into China for the fourth quarter. Looking on the grain side, we see that the ongoing U.S.-China trade war has shifted Chinese purchases of soybean from U.S. to South America. We see on the blue line that the Chinese purchases have been higher this year compared to last year, and they also have kept up better through this part of the year where the soybean season normally is in decline. We also see the green line that the Chinese purchases from U.S.
are substantially lower compared to last year. It will be exciting to see how this develops. We have seen some positive news in the China-U.S. trade negotiations that could change this picture. Overall, the high shipments off of South America compared to North America improves the ton mile for Panamaxes, with a typical duration of South America being 90 days to the Far Eastern China versus 70 days from U.S. The predicted harvest and export volumes out of South America are likely to continue to grow and to support the Chinese soybean shipments for 2026. This graph just shows the main trading houses' estimations for the remaining part of this year and for 2026, supporting the volumes out of South America and also then supporting the ton mile development for Panamaxes.
Looking into the outlook for KCC , we'd like to start up with the geopolitics and the impact it has had on our markets. One effect is the higher port fees charged in the so-called USTR regulations and the Chinese PLC MOT regulations that put high port fees on ships depending on which country the ships are built and the nationality of the owners and the operators. We have been concerned with the effect of USTR port fees on our CLEANBUs on important trade into U.S. East Coast, where the port fees increased that started up the 14th of October and were supposed to be up to $380,000 per port call. That would double over the next two and a half years.
We're extremely pleased to see that the more detailed wording for USTR port fees that were published two weeks ago gave an exemption also for tankers up to a deadweight of 80,000 ton. This will effectively mean that the CLEANBUs will not be impacted negatively by the USTR port fees and, of course, creates the predictability for this important trade for KCC. Also, the Chinese PLC MOT fees will not impact our business given that we mainly have Chinese-built ships and we are a majority, 95% owned by European and Norwegian owners and are operated out of Norway. Looking at the contract booking for the remaining part of this year and next year, we still have 30%, 40% and even more of the capacity open for the rest of this year. We are very early in the contract negotiations for next year.
Looking for the dry bulk first, and here we look at the total KCC fleet capacity. We are around 68% covered for the fourth quarter with fixed rate contracts or booked cargoes. 32% are still not fixed. Looking for next year, we have no fixed rate coverage yet. The index-linked contracts booked to date are amounting to around 6% of the capacity. We expect over the next two months to book fixed rate contracts, which will account for around 20% of the capacity, and that the index-linked contracts will, in terms of percentage of capacity, increase up to closer to 20%. It's a little bit the same picture on the tanker exposure of the KCC fleet. We have around 65% of the capacity booked either fixed rate or on floating rate contracts for the remaining part of the year, and 35% is spot.
Looking for next year, before we have concluded any contracts for new contracts for 2026, we have 11% of the capacity booked on floating rate contracts and 3% on fixed rate contracts. We are in the process of negotiating the contract extensions for next year for the CABUs. We expect to fill the full capacity of the fleet over the next two months for the CABUs in the caustic soda trade to Australia, which will imply that the fixed rate contracts for next year will, as a totality, be around 20% of the capacity, and the floating rate contracts will be approximately the same. The backdrop for the contract negotiations is positive. We have been looking here on the forward pricing for Panamaxes. Last year, when we looked at the 2025 calendar year pricing, we saw that the market and expectations weakened throughout the autumn.
This year, we have the opposite development where the 2026 calendar year FFA pricing has improved through the autumn, giving a good backdrop for the upcoming contract negotiations for the fixed rate dry contracts. The picture is a little bit the same on the dry side. We saw that the 12-month time charter rate for MR tankers, which is the best estimate for how our competitors are pricing the caustic soda contracts into Australia, weakened substantially in the second half of the year. The first contracts we did in October last year for this year were relatively good, but the last ones we did towards the end of the year were weaker.
We see in the blue line, the dark blue line, that the 12-month time charter rates for MR tankers have improved over the recent one to two months, which again is positive for the contract negotiations that we are about to conclude. We expect the fixed rate contract earnings to end somewhat lower than last year, but still at acceptable levels. For the CABUs, it's important to note that next year we will have approximately two ships more in our fleet, which is a reflection of mainly the delivery of the three CABU newbuilds. The first one you see in the picture will be delivered in only three months in early February.
The three new ships are bigger and more effective than the current vessels and have been very well received by our customers and are supported in the ongoing contract negotiations, partly as they effectively reduce the freight rates for our customers, as well as substantially reduce the carbon footprint of the services we provide. We continue to aim to keep the old CABUs running. We expect to put the first 25-year-old ship into dry dock now in the fourth quarter, assuming that we succeed to book a two to three-year contract, which we hope to announce over the next weeks to come. On the CLEANBU vessels, the focus is all about improving the trading and the trading efficiency. As we mentioned before, the main activity of the CLEANBU to date has been west of Suez, which has been the best performing trade.
The confirmation of the USTR regulation and that the CLEANBU vessels will not be affected gives the predictability that we need to improve further the trading in this important trade for KCC. Also, on the east of Suez trades, which so far has been more 10% of the trade volumes of the CLEANBU vessels, we expect to see improved trading and trading efficiency, partly linked by getting the last customers and terminals that still have not accepted the CLEANBU vessels on board. That means improving waiting time, improving ballast, and also improving pricing of this trade. To summarize, looking at the fourth quarter will be another strong quarter for KCC. We see that the CABU vessels are guiding between $30,000 and $31,000 per day, indicating a small increase compared to the third quarter.
We see the CABU vessels are fully booked on the caustic soda side for the fourth quarter, a tight schedule, but looks to be manageable and to deliver strong earnings. The CLEANBU vessels, we have less booking to date for the fourth quarter, meaning a bit more uncertainty. We give a guiding in the range of $27,000 - $29,000 per day, which is approximately flat compared to the third quarter. With the tightening tanker market at the moment, there could be some upside compared to the third quarter for the fourth quarter. To summarize, the fourth quarter looks good. The 2026 also looks good from what we can see with expected strong contract packing and also the prospect of improved trade. We do hope that we will continue to deliver what we promise.
Overperformance in earnings compared to the standard market with lower volatility, meaning that we can continue to deliver the best risk-adjusted return in dry bulk and tanker shipping. That concludes the presentation, and we are ready for the questions.
Yes, we have a few questions. First, 58% fixed for Q4 is lower than normal. Why is that? What would you say the current forward markets indicate for the 42% not fixed?
I think the fixing level is partly a reflection of the timing where we are today. We are presenting earlier in knowing for the third quarter than we typically presented the second quarter results in August. It is totally normal in terms of where we are on the bookings for the remaining part of the year. The forward markets look strong both for the dry bulk and the tanker markets. I think which we have used when we have calculated earnings for the open capacity for the remaining part of the year.
Okay, thank you. In regards to the IMO , in which regional jurisdictions do you expect to see carbon emission reduction efforts first implemented?
I guess the question relates to if IMO regulations are not concluded, which regions will we see the new regulations? Of course, we have the IMO, we have the EU ETS and EU fuel maritime regulations that have been in effect now the last one, two years, which will reach the maximum level in terms of effect on the markets. It seems that China at least has a similar, what we call, emission trading scheme as Europe, but to date not included shipping. That could typically come. You could also see countries like Australia, Japan, Korea also having implemented these types of arrangements, but again, still uncertain. We expect that over the next year, we'll see what happens depending on how the IMO discussions are progressing.
Okay, now we have a question regarding the two vessels turning 25 next year. Are you discussing with clients that aim to increase the useful life of these vessels, or is it the plan to scrap these ships?
We have one ship that turns 25 in early March next year. We are in discussions with a customer for a two to three-year contract that will back taking the ship through the 25-year docking. We hope to, as I mentioned, to conclude that contract over the next weeks, meaning that we can put the ship into dry dock already now in November. The second ship is not turning 25 before in October next year, meaning that we are likely to trade her in the trade into Australia up to that time. We target to be able to put her into a new trade and bring her through the 25-year docking in the last part of next year. The intention, as mentioned, is to keep the two ladies running given the high quality, technical quality, and performance.
Okay, we have a few questions around the newbuilds. Newbuilding prices are coming down. Should we expect to order new vessels in 2026?
I think when we, of course, are following the newbuilding markets very closely, I think to date we still are at a higher level than what we contracted the CABUs back in 2023. At these levels, we surely will not contract any ships. We are hopeful that we'll see a weaker newbuilding market coming into next year. We will evaluate possibilities depending on how the newbuilding prices will develop. As we have mentioned before, we do not have what we call a fiscal need for renewal nor a trading need for adding more ships, but we see the potential that we could develop markets and trades where added ships could fit in.
With the three new vessels scheduled for delivery in 2026, what is the outlook for efficient deployment trading of the CABU fleet?
We are, as mentioned, in the early phase of the contract negotiations, but based on the feedback and the input we have got from customers to date, indicate that we will be able to grow the caustic soda bookings for next year considerably. At least at the moment, it seems to fully employ the increased capacity and the full CABU fleet in the trade into Australia.
Okay, and who are the new CLEANBU customers you will onboard in Q4 2025, 2026? Are these customers linked to trading east of Suez?
It's a mix. Part of the customers are trading both east and west of Suez, but given that we have advanced better west of Suez, it's more critical to get these customers on board east of Suez. These customers are top-notch oil companies, oil majors, and we are hopeful that we can report some good news over the coming months in this respect.
Great. I think we have time for one more question here. What is the approximate cost of a 25-year special survey for your CABUs?
We have put a lot of money into these ships over the last dockings because as the ships get older, we need to show a top performance and a top quality technical standard when SAIA and Port State inspectors come on board. That means that the docking cost for getting the ships through a 25-year docking is not that much higher than what we have seen on some of the 20-year dockings and 22.5-year dockings we have had recently. Roughly up to $3.5 million per ship.
Okay, I think that's all we have for now. Thank you.
Thank you. Thanks all for joining.