Good morning, everyone, and welcome to the fourth quarter results presentation of Klaveness Combination Carriers. I'm Engebret Dahm, CEO of the company. Together with me, I have Liv Dyrnes, the CFO. We encourage you to write your questions into that chat solution, and we'll go through it after we have completed our presentation. We in KCC, we are owners and operators of combination carriers, which are both tankers and dry bulk vessels. In tanker mode, they compete against MR and LR1 tankers. In dry mode, they compete against the Panamax and Capesize dry bulk vessels . We have two types of concepts. We have our caustic bulkers or CABUs, which in tanker mode are specialized to transporting caustic soda to the alumina industry. In dry bulk mode, they take all types of dry bulk commodities.
Our new CLEANBU, the last ship was delivered in and put in service in July last year. It can transport any type of the tanker cargoes in the market and can do the same work as the CABUs and the same type of dry bulk commodities as the CABUs. Our business idea is to transport tanker cargoes, caustic soda and clean petroleum products into regions that are big exporters of dry bulk commodities. These are regions where the standard tankers and dry bulk vessels are sailing long distances empty, so-called ballasts, and due to the underlying trade flows. Our ships, we combine the dry and the wet cargo with a minimal ballast in between, reducing the carbon footprint and increasing earnings for our company.
Looking at the three markets which we are exposed to, it has been an exciting and volatile market also this quarter. The dry bulk market ended at the more sober end to a spectacular 2021, with the market peaking in October, falling back in November and December, but still at very high and interesting levels. The product tanker market had a seasonal upturn in the fourth quarter, rather modest and rather short-lived. The fuel markets continued to improve and tighten during the quarter. We are pleased to present the fourth quarter results, which is the best results of KCC ever. With an average time charter earnings of around $23,600 per day, which is also the highest since establishment of the company.
This is a couple of $100 below our guidance, mainly caused by the CABUs ending at $22,700 per day, which is slightly around $1,700 below the guidance. We are extremely pleased to report the earnings of the CLEANBUs ending at $24,460 per day, which is at the very high end of the guidance range we get. We see from the graph that we didn't succeed to match the dry bulk market this quarter, but are outperforming the tanker market by 2x-4x .
Looking at the EBITDA, we had a 9% increase from the third quarter, $1.6 million increase, driven by the continued strong but a bit weaker dry market and the better clean earnings. We have a dividend policy in the company to pay 80% of our free cash flow as dividends and to try to have a fairly stable distribution of our dividends. We are very pleased to announce a $0.10 per share dividend for this quarter, which is more than double the level of dividends compared to the third quarter. Before proceeding, just wanted to remind you about the main advantages and strong points of our business.
We believe we have a more future-proof business model than the standard tankers and dry bulk vessels. We provide the lowest carbon emission shipping service in the dry bulk and tanker industry. We are exposed to three markets, which are less correlated, which evens out earnings and reduces risks. Due to efficiency, we have over time shown that we provide higher earnings than standard markets, providing positive value and positive results throughout the shipping cycles. In our company, we are the market leader in low carbon shipping in the dry bulk and tanker space, providing our customers in the main trades with a 30%-40% lower carbon footprint than standard vessels.
This gives us a unique competitive advantage, which we believe will be more and more important going forward. With the shipping industry needing to decarbonize its business with introduction of new regulations and a likely global carbon tax within this decade. This is why decarbonization and sustainability is the centerpiece of our strategy and why we concentrate on improving further our competitive advantage and increasing the lead compared to our competitors. We are doing this by focusing through our whole business to deliver large cut in carbon emissions of our operation. We do that by optimizing our trading pattern, which I will come back to later on in both the CABUs and the CLEANBUs. We do it by improving the operational efficiency, and we're also introducing, as I'll come back to, an ambitious energy efficiency program.
We are testing out new fuels, and we are planning for new generations of ships to come. To reach this, we are working close with our customers, and we are entering into what we call sustainability-linked contracts, where we, of course, are reporting our emissions based on high quality data. We are setting common targets for reducing emissions, and we target to introduce a mechanism whereby our freight will depend on our carbon emission performance. We are using our strong point in low carbon shipping to attract competitive finance. We have entered into two sustainability-linked bank financings, and we do hope that investors open their eyes for the fact that KCC has the best ESG case in shipping.
We are focusing also on providing a top quality and highly transparent ESG reporting, and we are working hard to improve that further, and we are pleased to see that the rating we get from from sustainability agencies like, The Governance Group and the CDP places us among the best in Norwegian shipping. We have set ambitious target to reduce emissions. As mentioned, we have two targets. We have the average CO2 emission per ship, which we have set the target to reduce by 15% from 2018 to 2023. We are pleased to see that we have achieved a 10% reduced average emission per ship in 2021 compared to 2020, and we are well on track to reach the targets for 2022.
When it comes to the carbon intensity, the so-called EEOI, we are lagging behind, partly due to the fact that we have employed our CLEANBUs in product trade for part of the year. Also we had certain operational challenges on the CABUs in the second part of the year. We maintain that we will show quarters this year where we are getting close to the target we set up for a 25% reduction in the EEOI compared to 2018. We appreciate that we will not reach the target for the calendar year 2022 overall. We note that in the fourth quarter, the CLEANBUs had an EEOI of around six, which is very strong.
We also see that in certain quarters this year, part of our CABUs have had a similar level of low EEOI. We will maintain that we will at the end of this year, reach quarters where we can show this level of EEOI. We raised $25 million to fund energy efficiency program for our fleet, and we're working hard to deliver on the introduction of various measures to cut emissions. We have to date introduced a large number of initiatives, which are to date fairly small and medium-sized, everything from $20,000 to $300,000 per ship, per measure. These are focused on reducing the hull friction of the ships.
We are focusing on improving the propeller and the hull efficiency of the ships, and we are also focusing on improving the technical and operational systems of the ships. Big initiatives are coming. We are in negotiations with suppliers and shipyards to introduce two specific initiatives which are both complex and costly, which we do intend and hope to present and to announce within this quarter. I believe we are well on track to reach our targets and hopefully you see or that we mean we walk the talk when it comes to emission reductions.
Looking at the fact that we have a more stable business than the commodity markets we are in. Our earnings are exposed to three markets, which are fairly low correlated. We also have the ability to shift capacity between the tanker and the product market, which in totality reduces the risks and the volatility of our earnings. If we look on the markets' development, we see the product market peaking here in October, pulling back through November, a bit up and down, pulling back further in January and improving in February.
You see on the tanker market, again, the spectacular boom in spring of 2020, being at fairly low levels since then. You note down the graph for that, the upturn in the fourth quarter, seasonal upturn, but again, pulling back into the first quarter. The fuel markets have continued to increase throughout the year, which again supports our business. In totality, we have two of the markets are fairly strong, and we are waiting for the tanker market to improve. Looking at the dry market first, the main reason for the strong market in 2021 is exceptionally high demand increase. With a demand increase of around 6%, which is highest since the China boom 15 years ago. The...
We see strong grain shipments in the first half of the year. Minor bulk has been strong throughout the years. Iron ore was strong in the middle of the year, while coal has underperformed. Looking, the market turned in October, partly mainly due to impacts from China, where the effect of a calming down property sector impacted the steel industry in China. You see on the blue line, the falling Chinese steel production, which went up again at the end of the year. We believe that Chinese steel production will gradually improve after the Olympics and the Chinese New Year celebration has completed.
We appreciate that China is not going to be the driving force in the dry bulk sector in 2022, but we are still optimistic about the dry market for 2022, partly due to a very low supply growth. We are talking about around 2.1% increase in supply in 2022 compared to 3.5% increase in 2021. There is a positive macro development in most other parts of the world outside China, which will support the market. We are seeing that the COVID inflicted inefficiencies in the market seem to stay for a rather long time. We also see positive effects from a booming container market absorbing capacity in the smaller sectors.
Jumping over to the tanker market, we see that the oil consumption has more or less improved back again to levels seen before the COVID pandemic. What we see from the dotted line is that the oil production is lagging behind. This results in a reduction in inventories and stock levels of oil throughout the world. You see that on the dark blue line that we are now getting through 2021. Stock levels has been falling, and we are now at a very low range, historical range of global stock levels of oil.
This again creates the backbone for a turnaround in the tanker market, supported by a very low tanker fleet growth for next year, around 2%, and a very low order book. This looks very promising for the tanker market, but largely we need to wait until the second half before we see a major upturn in tanker rates. Looking at our contract portfolio and market coverage, we start off with the tanker market, where we see in gray the capacity which is fixed to date and the fixed rate contracts. You see in the first half of the year, we see contract coverage, fixed rate contract coverage around 45%.
Adding the tanker market, adding index-linked contracts, we are ending up at the coverage of about 57%. The fixed rate coverage is only linked to the contracts for the CABU business for caustic soda, while we have index-linked contracts both for CABUs and CLEANBUs. The second half, we see the coverage is less, mainly due to the fact that we there are no ships that are fixed for the second half of the year. We have a fixed rate coverage around 26% of the capacity, and including the index-linked contracts, we are up in 41%. Advancing to the dry bulk market, again, we see the gray line. The gray line shows the vessels fixed and the FFA portfolio we have at the moment.
We are at around 57% covered. At the top of that, we have options. The operational coverage is index-linked contracts and vessels fixed to date. For the second half, we see a lower level of coverage, partly due to the fact, again, we have not fixed any ships for the second half. You see the FFA portfolio accounts for around 25% of the dry bulk capacity, while the operational coverage is limited to the index-linked contracts. Advancing to the earnings level our company provides.
This graph shows the long history back in time, where we show in the light blue columns the average earnings of our fleet over time compared to the average tanker market and dry bulk earnings. We now tell that we have outperformed the markets every year over these 13 years we have in this graph, except we are somewhat below the dry market in 2021. Over the last six years, we have outperformed the dry market by about 1.5x, and the tanker market by around 1.7x. Looking at the CABU business, we have used the strong market to optimize the business.
After the redelivery to the new owner of the Banasol, older ship that was sold this autumn, we have decided to exit our Brazil business. From having two ships in the Atlantic trading and around seven in the Pacific, we will from April this year have eight ships employed in trades to Australia. We believe this will increase, all other things equal, the earnings of our CABU business. We have over the last four years had earnings around 20% higher, around $4,000 higher per day in the Atlantic business than in the Australia trade compared to the Brazil trade, mainly due to inefficiencies in the Brazil trade compared to Australia trade. We have succeeded to expand our business to Australia by booking more cargoes, caustic soda cargoes into Australia.
We have the best starting point of the year ever, with 37 cargoes fixed for the year, and we believe that we will add another minimum five cargoes on top, meaning that we are able to expand and absorb the increased ship volume to Australia. We have fixed four contracts, all contracts that we expected at higher levels than we had last year, around 10% higher as an average. We are particularly pleased with the announcement we made before New Year about the six-year extension of a contract with South32, which is index-linked. If you look on the CABU business, as mentioned, at the end of the year there were increasing congestion and COVID-related delays in China, meaning that we had to employ our CLEANBUs into service our caustic soda customers.
That meant that we had we employed more CABU capacity in the dry bulk market. Well, and we see here again the division between dry bulk trading, 75% trading in dry and 25% in the tanker market. Well, far lower tanker trading in the market than the previous quarters. The CABU, we see that again on the days in combination trading, falling down to 50%, and we also see it on the ballast increasing up to 20%. We are still ending up at earnings levels which are historically high for the CABU business at $22,776 per day, around $1,700 lower than in the third quarter.
Strong dry earnings around $30,000 per day, outperforming the dry bulk vessels. We had negative value of our FFA portfolio of around $5,000 per day. Again, we are seeing that, on the totality, we didn't match the dry bulk market, but we substantially outperformed the MR tankers. The same picture we see for the year as a total, where we ended up at around $21,500 per day, which is still close to the dry market earnings and substantially above the MR market earnings. Look on the CLEANBU business. We have expanded our trading and customers throughout the year.
We are especially pleased to see that we have now made the first CPP shipment into Western Australia, which is our home base for our caustic soda business. We're now servicing all coasts in Australia and have to date visited eight terminals in Australia. With more ships trading and ships into combination trade, we are seeing that we are able to expand the number of positions for CPP in the market, increasing the number of CPP shipments here in the second half and to date in 2022, and the number of switches. This is the prerequisite for expanding the customer base and the trading. Looking at the quarter, we see again the perfect combination trading for the CLEANBU in the quarter.
We're around 50/50 in dry bulk and tanker trading. We see an exceptionally high CLEANBU days in combination trading to at 94%. We also see a very low ballast for the CLEANBU down at 13% in the fourth quarter. We see the earnings ending at a stellar $24,460 per day. We see the positive effect we have had after we repositioned our CLEANBU back into combination trade in the third quarter, fixing them on tanker trades into dry bulk regions. The payoff came in the fourth quarter with strong dry bulk earnings, around $40,000 per day, which again outperforming the standard dry ships in the trade.
At the totality, we had negative effect of the FFA market, which meant that we are not matching the dry bulk market, but are substantially outperforming the standard LR1 tankers. Again, the year added up to around $20,200 per day for the CLEANBU, which is below last year, but still take into account the weak tanker market is at acceptable levels. Liv, will you continue, please?
Yes. Thank you. From TCE to EBITDA. Adjusted EBITDA increased by 9%, Q-on-Q and ended the year at $19.5 million. In addition, we had one-offs of in total approximately $7.8 million, mainly related to the sales gain on MV Banasol. Banasol was delivered to its new owners during Q4, and approximately 80% of the - $1.2 million that you see in the graph to the right relates to Banasol. CABU TCE earnings decreased by approximately $2,100 per day and total $1.5 million. Sorry. While the CLEANBU TCE earnings increased by approximately $5,700 per day, in total, approximately $4 million.
Engebret has been through the TCE comments in detail. I'll move on to operating expenses, which increased by $1 million, approximately 50/50 CABU/CLEANBU. The $0.9 million to the right, that's related to IFRS effects. If we have a closer look at off-hire and operating expenses, you will see that we dry docked two vessels in Q4, 53 days in total. In addition, Banasol was off-hire 18 days in relation to making the vessel ready for the sale, taking off the CLEANBU features, et cetera. We still see effects of the COVID. We have operational challenges and approximately 60%-70% of the 26 unscheduled off-hire days relates to COVID-19. Both directly, the crew changes, deviations, et cetera, and more indirectly, through delayed forwarding, et cetera.
Operating expenses per day for the CABU vessels increased by approximately $900 per day, and for the CLEANBU vessels, approximately $600 per day. The average operating expenses per day for the CABU vessels around $8,300 per day for Q4, and $8,900 per day for the CLEANBU vessels. The increase mainly relates to higher crew costs, both related to crew changes, the matrix, et cetera. We also saw some postponed maintenance costs, as well as some costs related to the sale of Banasol. In total for the year, the average operating expenses for the CABU vessels were approximately $7,700 per day, and an increase of 4% year-on-year.
While it's nice to see that the operating expenses on average for 2021 for the CLEANBU vessels decreased by approximately 9% and ended at around $8,300 per day. The total COVID effects for Q4 estimated to be $0.7 million, up from $1.5 million in Q3. In total for 2021, we have estimated the COVID effects to be approximately $6.3 million, whereof approximately 50%, related to new builds. In addition to the EBITDA comments, you will see the depreciation is slightly down from Q3, while net financial items are up approximately $0.6 million. Depreciation is a consequence of the sale of Banasol, while net financial items, that the increase relates mainly to FX.
Profit for the quarter, $15.1 million, an increase of close to 150% Q-on-Q, and EPS $29.7. DPS $0.10 per share, that's 122% up from Q3, while the return on capital employed about 8% on an annualized basis for fourth quarter. Let's have a look at the 2021 full year as well. Adjusted EBITDA up 25% to $61.8 million. The CABU rate increased by approximately $1,700 per day, partly offset by somewhat higher operating expenses. In total, EBITDA per vessel for between 2020 and 2021 increased by approximately $400,000. For the CLEANBU, you will see the opposite effect. The TCE down approximately $3,700 per day, while partly offset by somewhat lower operating expenses.
EBITDA per vessel down approximately $850,000 from 2020 to 2021. Here you will see that the large increase is related to 3.4 more vessel years in the CLEANBU fleet coming on during 2021. In total, $14 million. Administrative expenses increased by $1.5 million, approximately 50% relates to project costs that were no longer capitalized on the balance sheet, while other is the IFRS effects again. Both depreciation and financial items increased compared to 2020, but that's a consequence of a larger fleet and hence higher interest-bearing debt. Profit $22.6 million for 2021, an increase of close to 50%, EPS $46.4, and DPS $0.22, an increase of more than 80% year-on-year.
Return on capital employed quite stable as both the increase in EBIT as well as the balance sheet mainly relates to a larger fleet. We had a very strong cash flow development during fourth quarter. We ended the quarter at, or the year actually, at close to $54 million in cash. That was an increase of $18 million during the quarter. In addition to strong underlying financial performance, we had positive working capital of $8.5 million, which also includes a repayment of clearing. The sale of Banasol contributed with $10.6 million. We also refinanced a bank facility amounting to $9.7 million positive, as well as the equity issue of $24.1 million net.
In addition to the ordinary items such as dry docking, debt service, as well as dividend payments amounting to - $12.5 million, we did an extraordinary repayment of debt of $42.8 million. This relates to an RCF, revolving credit facility, and a short-term overdraft facility, and can be reborrowed when if needed. All in all, available liquidity at year-end about $100 million. Equity ratio about 40% at year-end. It's many of the same items. Of course, the equity issue contributes positive for the quarter. We as well had a profit for the quarter, and other comprehensive income was close to $10 million positive. The ratio is, of course, also impacted by the extraordinary repayment of debt.
We finalized the refinancing, pushing the maturity to 2026, and the first debt maturity for us now is in December 2023, as you can see from the graph to the right. In summary, I would say for KCC, we had a strong underlying financial performance for Q4. In addition to some positive one-offs, we more than doubled dividend from Q3 to Q4. Yeah, and we have a positive outlook, market-wise for the rest of the year. Over to you for the outlook, Engebret.
Yes. As Liv said, it's been a good 2021. We have passed a number of important milestones for the company, taking delivery of the last new build, completing the new building program, improving and advancing well on our CLEANBU business. We have optimized our CABU business, selling one ship at the peak of the market and moving the business to Australia. We have the beauty of a business that we have two parts which are complementing each other and with a good link. We have a CABU business which is with a high contract coverage which has fairly stable earnings.
We have our CLEANBU business, which in the tanker space is 100% spot-based or index link contracts with a high volatility. We notice the same when we're looking at the guidance for the first quarter. We see earnings of the CABU's strengthening compared to the fourth quarter based on high caustic soda contract coverage and increasing earnings under these contracts. We're guiding between $23,500-$24,500 per day based on 77% of the capacity fixed. We are guiding on our earnings on the CLEANBU business with falling down to $17,500-$18,500 per day.
This is partly impacted by a very weak start of the tanker market in the first quarter, being $45,000 below the average fourth quarter level year to date in 2022. We have been hit by some weak Atlantic traffic market in the first part of the year. In addition, there are some one-offs in connection with what we call business development, introducing the ships to new customers. We expect this to improve over the coming quarters. In totality, we see that earnings, we are guiding at $20,500-$21,500 per day, which at the peak level is fairly in line with the earnings from the third quarter. Still at pretty good levels.
Looking at the total 2022, we see on the graph the historical development as well as the forward market pricing at the moment. We see that the market expects the dry market to be strong, the fuel market to remain strong, but the FFA market has not yet taken into account the upside in the tanker market. While we have good earnings at the current market levels and the forward levels that are seen here in the graph, the big and exciting upside potential is with a quicker recovery in the tanker market, which is our expectations in the second half of the year where we can get into a situation where we have all the three markets we are exposed to being high and healthy. We conclude on a positive outlook for 2022.
Before ending, just reminding you about our three main advantages, providing lowest carbon emission service in the dry bulk and tanker business, having a more stable earnings, lower better than standard tankers and dry bulk vessels, and delivering a higher earnings over time, providing a positive return even in the lowest markets. Thank you. We start off with the questions, please.
Yes. We've had a few questions. You raised equity last year with weak development in price and volume afterward. Do you plan any more raises?
We don't foresee any raises. This year we have no capital needs. We raised money for the specific energy efficiency program. This is the policy that we do. We pay out the running cash flow as dividends. When we have big investments, we raise money. With all we call investment program and capital need well covered, we don't foresee any capital raise this year.
Could you elaborate on the breakdown of the emission reduction per ship, speed, hull, cleaning, weather routing, new devices, et cetera, and also explain why the EEOI is not showing the same reduction, higher dead freight, more ballasting, et cetera?
This was a quite comprehensive question, so I think I'll just concentrate on why the EEOI has not shown the same progress as we have shown on the average CO2 emission per vessel. This is mainly due to the trading of the ships. While in 2018 we employed the CABUs fairly efficient, we have introduced the big fleet of the CLEANBUs into the company. As we saw in the first half and partly into the third quarter, we employed the ships as dry bulk, the CLEANBUs as dry bulk vessels with an EEOI performance more or less in line with the standard markets. That means as long as we don't get the ships into combination trading, we do not achieve our EEOI targets.
Upside potential is again here, what we noted in the fourth quarter, where we see the CLEANBU reaching an EEOI of around six, which is very competitive, and which illustrates our ability to reach our targets when we get the trading right. I think that's the main message. We will and we shall get the ships into efficient combination trading, which together with our energy efficiency program and our other operational efficiency initiatives shall reach the targets.
Second question from the same sender. Q1 guiding. Could you state what is the FFA rates that is used in the guiding also for the tanker FFAs?
We do not have any tanker FFAs. What we have on the dry bulk FFAs, we are pricing that to the forward market. For the first quarter, I believe they on average are around, I can't recall, but they are at, I guess, something like $18,000-$19,000 per day for the first quarter for P4TC.
All right. How do you see CABU combination trade percentage-wise in Q1 2022? Can we expect continued strong percentages for the CLEANBUs?
I think for the CABUs you will see that we are positioning two ships from the Atlantic to the Pacific. As mentioned, only from April, we will have all the eight CABUs in trade to Australia, where we have confidence that we will achieve efficient combination trading. Meaning that the first quarter, you would see the effect of this positioning of the CABUs back to Australia also in the EEOI performance. On the CLEANBUs, we are confident that we will maintain a high percentage in combination trade, which is the key to achieve both in delivering on the emission reduction KPIs and on earnings. Of course, that could vary a little bit from quarter to quarter.
We see that the tanker market, when the tanker market is extremely weak and we have a much better and from time to time having a much better choice in the dry market, we may utilize that possibility to optimize earnings. Our target is to maintain about 80% of the capacity in combination trade at any time, hopefully getting closer to 90%, as we had in the fourth quarter.
Another question from the same sender. With the strong fuel oil prices, do you see that you get the ballast bonus as expected? What's the impact on TCE approximately?
I think the ballast bonus, of course, applies both to the tanker and the dry bulk market. We see the dry bulk market, we get the premium as all ships. We get the same price in the dry bulk market as the other ships, and hence we get the benefit of increasing fuel prices. We also get the benefit in the tanker market, but at the moment, we are giving discounts to tanker customers, which are partly offsetting the gains we get based on the higher fuel prices. To estimate the exact effect, we have previously said that for every $100 increase in fuel prices, we increase our earnings between $500 and $700-$800 per day.
The exact effect of first quarter 2022 compared to the previous quarters. It's a bit difficult for me to take just here.
Do we have an ambition to increase the CLEANBU fleet size owing to the fact that the concept is now accepted in the market and giving good returns?
I think over time, we believe we should be able to grow the business. Eight ships covers our need to operate the ships in two to three trades. Over time, planning development in the new building market, there should be possibilities to grow the concept further.
That's it.
Okay.
Owing to the fact that the concept is now accepted in the market and giving good returns.
I think over time, we believe we should be able to grow the business. Eight ships covers our need to operate the ships in two to three trades. Over time, planning development in the new building market, there should be possibilities to grow the concept further.
That's it.
Okay.