Good morning, and Welcome to the Klaveness Combination Carriers Q3 2026 Financial Results Presentation. We have had another eventful quarter, and we have a lot to get through this morning. I will just quickly run you through the agenda. First up, CEO Engebret Dahm will give you a summary of the results, followed by CFO and Deputy CEO Liv Dyrnes, who will walk you through the financials as well as the sustainability performance. Then Engebret will come back on to give you a market update, as well as the future outlook for KCC in the coming quarters. We will have a dedicated Q&A session at the end, so feel free to send through your questions at any point during the presentation, and we will pick them up at the end. With that, let's go ahead and get started. Engebret, you are up.
Thank you. Good morning to everyone. Yes, the third quarter has been another extraordinary quarter for the shipping markets and for KCC with ongoing disruptions and geopolitics impacting the tanker market and the dry markets. In the quarter, we have showcased the strength of our business model. We have, as tanker market earnings and dry earnings have been moving closer, we have shifted more capacity into the dry bulk market. We have significantly improved the trading efficiency of our fleet, together offsetting part of the negative impact from a weaker product tanker spot market. Equally important, we have maintained top quality safety and operational performance with zero injuries, zero accidents, and zero customer complaints. The top charter earnings ended at $36,116 per day, which is in the upper end of the guiding range of $34,800- $36,300 per day.
This is $1,667 lower than in the second quarter, with the CABUs performing better and the CLEANBUs earning considerably down compared to the second quarter. However, with more trading days, with the delivery of the last newbuild and lower off-hire, the EBITDA increased by $1.9 million- $40.4 million, and profit after tax increased by $2.9 million- $23.6 million. The board decided to pay $0.36 per share to the shareholders, increasing dividends by $0.06 per share, and in total, more than $3 million extra dividend payments to the shareholders in the third quarter compared to the second quarter. Let's take a look on the markets and the performance of KCC in the quarter.
After a fantastic run in the tanker market immediately after the U.S. invasion and attacks in the Middle East, the tanker market normalized in May and June and the summer, falling back from the spikes earlier. The market remained at lower levels, but still historically strong through the summer. The market bounced back in end of September, driven mainly by a booming crude tanker market. Dry bulk market has on average kept up well through the summer, supported by strong grain and coal shipments. I would mention that the Pacific market, as is seasonally the case, was lower than the average market. That had some negative impact on the CABU dry bulk earnings. But the Pacific market bounced back in September and trades now above the average, which again supports the fourth quarter earnings for the CABUs.
Bunker prices remain at high levels during the summer after the initial spikes, and prices have increased both in September and October, getting closer to the very high levels experienced after the outbreak of the conflict in the Middle East, supporting the earnings of our business. Looking at the CABUs, it was another strong quarter for the CABUs. As you may recall, the second quarter we experienced a lot of ripple effects from the outbreak of the conflict in the Middle East with long waiting time and more ballasts. This quarter, I am happy to say that the operation was close to perfect. The CABUs into Australia were trading consistently in combination between caustic soda and dry bulk, and the ship that we have employed in the Americas performed very well during the quarter.
The only abnormality to report this quarter on the CABUs is the positioning of Banastar which was trapped inside the Middle East Gulf for four months. We positioned the vessel in dry from Middle East to the trading area in the Far East, as the caustic soda trade from Middle East has been halted. With more normal operation, we are back to around 50/50 split between tanker trading and dry bulk trading. We see that the combination trading is getting back to their own 90% target, and we are happy to see that the ballasts reduced significantly compared to the first and the second quarter, getting closer to the 110% target for the CABUs. The time charter earnings ended at $34,499 per day, which is $420 higher than in the first quarter.
Dry bulk earnings were lower, partly due to the weaker Pacific dry market, but also the low-paying positioning voyage of Banastar. While the caustic soda earnings were higher due to the substantially improved operational efficiency. So a good quarter for the CABUs. Looking on the CLEANBUs, I am happy to say that we also in the third quarter demonstrated the large flexibility of the CLEANBU fleet and our ability to take benefit of the market opportunities in a very hot tanker market, together supporting earnings for the CLEANBUs.
With the tanker market coming off extreme peaks in April, into May, June, and the dry bulk market maintained strength, and trade flows starting to normalize, we increased combination trading and increased dry bulk trading as a consequence, which can be seen on the KPIs we have in front of us, where the share of the dry trading increased from 4% to 22% from the second to the third quarter. We also see the combination trades increasing and the ballast reducing as a consequence that the trade flows out of India and the trade flows into Australia normalized, enabling us to put more capacity into combination trade.
Looking at the earnings, we ended the third quarter at CLEANBU earnings at $38,164 per day, which is down around $4,100 compared to the second quarter. As mentioned, this is mainly the effect of a weaker product tanker market, partly offset by positive effects of the considerably improved trading efficiency with lower ballasts and higher combination trading. I leave the word to Liv.
Thank you, Engebret. I'll try to get through this without coughing too much. Now you're warned. Yes, over to the financials then for the quarter. EBITDA for Q3 was $40.4 million, an increase of 5% from last quarter. The CLEANBU rates decreased by approximately $4,000 per day from Q2 to Q3. A total effect of negative $2.6 million. We took delivery of one CABU newbuild this quarter. The EBITDA effect for this newbuild is $1.7 million. The main contributor to the positive change from Q2 to Q3 is more earning days. It's partly due to less dry docking, and it also includes Banastar that was trapped in the Middle East for close to entire Q2. This has a Q-on-Q effect of $8 million positive. Other income down $4.4 million.
This also reflects the Banastar being trapped in the Middle East as we were compensated for the off-hire days through the loss of hire insurance in Q2. Operating expenses for the existing fleet increased by $0.4 million and administrative expenses increased by $0.6 million. The latter is back to Q1 levels, as Q2 is impacted by holiday pay in Norway. If we look a bit more into the details of the income statement, you will in the graph to the left see net revenue from operation of vessels. That was $60.2 million in Q3, an increase of 15% from last quarter. To the right, you see profit after tax, which ended at $23.6 million in Q3, an increase of 14%. In addition to the EBITDA change as just mentioned, this also reflects decreased depreciation of $1.4 million, sorry, $0.4 million from Q2 to Q3.
This is mainly due to higher dry docking expenses in Q2 related to dry docking. Net finance cost improved as well, $0.6 million Q-on-Q. Higher interest costs due to the delivery of the newbuild and hence higher debt burden was more than offset by the one-offs in Q2 related to the refinancing. The return on capital employed Q3 on an annualized basis based on this ended at 15% and return on equity 24%. Over to the balance sheet. You will see in the graph to the left that the equity ratio ended at 49% at the end of Q3. This is down 1.6 percentage points from the end of Q2, and mainly reflects the higher interest-bearing debt and hence higher total assets. This is also reflected in the graph in the middle, where you see a net interest bearing debt of $307 million at the end of Q3.
The increase in interest-bearing debt relates to drawdown in connection with the delivery of the last newbuild. Net interest-bearing debt to EBITDA is slightly down to 2.3% for Q3, as higher EBITDA more than compensated for the higher interest-bearing debt. Over to the cash. The cash position at the end of Q3 was $65 million, flat from the end of Q2. We use revolving credit facility capacity to adjust the cash position, while you see here that available long-term liquidity increased by close to $9 million and ended at $154 million at the end of Q3. The increase both reflects higher RCF capacity as a consequence of the newbuild delivery, as well as positive underlying cash flow. Some more details related to the dividend for the quarter. As Engebret mentioned, the board has decided to distribute $0.36 per share.
This is 81% of the adjusted cash flow to equity, well in line with the dividend policy. On an EPS basis, it is equal to 90%. Dividend yield at 12% based on close yesterday. The distribution is supported by the higher EBITDA as well as lower maintenance CapEx this quarter. By this, we continue our unbroken quarterly dividend track record since the listing in May 2019. Lastly, a brief update on our carbon intensity performance as well. EEOI for Q3 ended at 6.4%, down from a record high Q2. We had improved trading efficiency for the CABU fleet, as Engebret mentioned in the business update after operational disruptions in Q2 impacted by the Middle East situation. It is quite interesting as well to see that the CABU newbuilds all have EEOIs below or better than the target of 5.8% in Q3. This looks promising.
For the CLEANBUs, we also saw improved EEOI in Q3 compared to Q2, partly reflecting ballasting which were down to 19% in Q3 compared to 32% in Q2. The CLEANBU figures are still somewhat impacted by trade flow disruptions and the elevated tanker market incentivizing us to ballast more. By this, we will likely fall short of our 2026 target of 5.8%, but this reflects a year of extreme market volatility, significant differences between the two markets, and operational disruptions. However, our long-term ambition is to continue to improve our carbon intensity in line with our targets. Engebret, the outlook.
Thank you, Liv. Looking first at the market development for the dry and the tanker market, and at the end, going into the outlook for the KCC business. I just would like to remind that we are in a quite unique period of time in the shipping markets with geopolitical disruptions and disruptions to especially oil market and tanker market and to less extent, the dry market, which raises uncertainty when looking ahead at markets. With no resolution to either the Ukraine war or the conflict in the Middle East at site, for us, we believe both markets are fundamentally strong for the next quarters. Looking at the tanker market, as mentioned, the product tanker market improvements has been driven by a booming crude tanker market.
The increase in exports of crude through the Strait of Hormuz, with short shuttling of crude tankers and ship-to-ship transfer, reduced the efficiency of the fleet and sailing distances for the ocean-going ships increased driving demand. This has led trickle down to the Aframax market, and here we see the quite extreme earnings spread between crude, Aframax crude, and LR2 product tanker earnings, incentivizing owners of LR2s to shift capacity into the crude tanker market. We are at the moment at record high when it comes to LR2 trading in dirty at around 70%. This reduced supply in the product tanker market, spilling down to the earnings for LR2s and LR1s and MRs, which has driven the demand and the rate development in the product tankers.
Global refinery runs are one of the most important drivers for the product tanker market and the conflict in the Middle East and also effects on Russian production and production in Asia has reduced the refinery runs substantially this year compared to last year. We have seen a positive development in refinery runs in the third quarter compared to the second quarter. If we trust Rystad Energy's estimate marked here in gray, this situation will normalize over the coming quarters, incentivized by strong crack spreads, which will be positive for refinery runs. This is expected to have a positive effect on CPP shipping volumes and ton miles. Here we see the ton mile development for product tankers in blue, which are substantially lower than the recent years. It has been improving but still below historical levels.
But as we know, the inefficiencies caused by longer waiting time and longer ballasts has to date been more than offsetting this negative development in ton miles. Looking at the dry market, it's been a good year for the dry market being year- to- date, around 40% higher than the average of the three preceding years. The tight Capesize market has provided support to the Panamax market, which has increased its market share in coal shipments at the expense of the Capesizes. The outlook for the Capesizes remain positive. Stronger front haul shipments driven by growing bauxite and iron ore shipments out to West Africa. The good news, as the graph here shows, the large Simandou iron ore mine in Guinea has been ramping up well ahead of schedule, giving good support to the ton mile growth of the Capesizes.
Looking at the Panamax ton mile demand for grain shipments has been weakening in the second half of the very strong grain season in the first half of the year. This is partly due to the seasonal reduction in shipments out of South America. But also we see effects of struggling Black Sea exports and also some delays in grain exports out of East Gulf. On the other hand, the growth in the coal shipments and ton mile for Panamax have increased quite a bit, offsetting the weakness in the grain market. High energy prices favor demand for cheaper coal. We see longer haul shipments of coal into Asia in combination with increasing market share for Panamax that are increasing ton mile demand for Panamax for shipment of coal. But we still are optimistic for the shipments of grain over the coming months.
There are record high large outstanding U.S. grain sales, which are the volumes that are sold but not shipped, which looks promising and looks to support the market over the coming months. Turning over to KCC's performance, we start up with the contract coverage. We have, as of today, around 74% of the CABU days booked. The CLEAN days, we have booked around 50%, but with the ongoing discussions, we expect to be covered around 70%-75% of the fourth quarter CLEAN days within the end of this week. Looking at 2027, we have rather limited contract coverage at the moment. On the dry side, as you see on the graph, we have around 9% of the capacity fixed on FFAs at attractive levels. If you add a few shipments fixed into next year, we are around 10% fixed rate coverage.
Adding floating rate contracts, we have 17% coverage, meaning we have 83% of the capacity unfixed. We target to increase somewhat the coverage for next year, but realistically, we will go into 2027 with 70%-80% of the dry bulk capacity unfixed. As we have talked about previously, we are happy with having a high unfixed and high dry bulk market exposure, which is the flexible element in our operations. We believe the dry market is fundamentally strong. We believe the good support of our repeat customers will give us sufficient volumes anytime in our main trades. Looking at the tanker market, we have around 18% of the tanker capacity of the full KCC fleet booked on fixed rate contracts for 2027. Floating rate contracts next year account for 10% of the capacity, meaning we have 72% of the capacity unfixed.
We expect over the coming two months before Christmas to increase the tanker market coverage substantially. We are as normal in this part of the year, we are amidst of the annual contract renewal season, where we discuss with our caustic soda customers contract extensions, primarily for 2027. Negotiations are progressing. Two contracts are fixed with subjects, which we expect to be lifted over the coming weeks, and discussions are ongoing with another four to five customers. Within end of 2026, we target to book 95%-100% of the CABU tanker capacity with a mix of floating and fixed rate contracts, meaning close to full contract coverage for the CABUs on the tanker side for 2027. The commercial backdrop is positive.
The MR spot market, as you see on the graph in blue, has spiked, and the medium-term pricing, as expressed in a 12-month time charter rate, has increased substantially. We always have a balanced approach when we discuss with our long-term customers, but I think the graph illustrates that the outlook for the pricing for next year's fixed-rate contracts looks attractive. We are also looking into to secure fixed-rate coverage for our CLEANBUs and will inform you as we progress in this respect. We have at the end the outlook for the fourth quarter, and we are going to have a spectacular end to 2026 with a fourth quarter time charter earnings and results likely to set new records. The market backdrop for the fourth quarter is quite exceptional. We have a booming tanker market. We have a supportive dry market.
We have a higher bunker costs, meaning all three markets impacting the KCC earnings are strong, creating this rare sweet spot for KCC's business. The CABUs in fourth quarter will get the positive effect from the strong product tanker market through its floating rate contracts. The strong Pacific dry market and high fuel prices deliver strong dry bulk earnings, and with 74% of the capacity fixed at around $44,000 per day. We expect earnings for the quarter to be in the range of $43,000-$48,000 per day. For the CLEANBUs in the fourth quarter, we have brought back the full capacity into the tanker trades given the spectacular earnings in the tanker spot markets. We expect the CLEANBUs to benefit strongly from the very strong spot market. We have fixed at the moment, as mentioned, 50% of the capacity, which is fixed at $65,000 per day.
We estimate CLEANBU earnings in the fourth quarter between $57,000 and $67,000 per day. As normal, this guiding is calculated based on the actual fixtures made, and with our best estimates for the remaining open days. We have when giving the range, have calculated a lot of sensitivities. Of course, needless to say, given the volatility in the markets, there are still uncertainties to these figures. Irrespectively, we are going to have a spectacular result for the fourth quarter, and looking forward to report this coming into the new year. At the end, I think many people will say, let's see if we managed it. There we are. Many people will say that the shipping business and KCC currently earns money for all the wrong reasons with wars and conflicts ongoing. Of course, there are some merits to this statement.
But for me, these market circumstances is really a test to the robustness of our business model and to the quality of the craftsmanship of the KCC teams. Are we able in these extreme markets conditions to maintain top service and keep our customers happy? Are we able to build a business? Are we able to take advantage of the extreme market movements that are around? I believe the answer to all these questions are yes. So we continue to believe that our unique business model can deliver value through the cycles.
We are confident that the efficiency of the ships, the diversified market exposure, the flexibility to optimize by shifting capacity to the best-paying trades, deliver resilience. The graph shows that our historical performance has shown this is the case. It creates what we repeatedly say is the best risk-adjusted return in tank and dry bulk shipping. Ladies and gentlemen, we work hard every day to secure that we can repeat this going forward. So that ends the presentation, and we are ready for your questions.
Yes. We actually have quite a few questions. I will try to lump them into categories. The first questions will be around the newbuild program. Now that you have completed the current program, what are your thoughts on further fleet renewal?
I think as we have told before, we believe that we have the market to grow our business over the coming years. I think everyone following the newbuilding market will know that prices have spiked, making it impossible for us to defend ordering new ships today. Of course, we follow this market carefully, and I think as we have shown over time, also the newbuilding market moves up and down, and we do everything we can to prepare ourselves to act when the timing eventually becomes right.
Are you evaluating to build newbuilds that are not combination carriers like MR or LR1?
I think if you follow the stock market, you will know there are more than enough shipping companies having normal dry bulk and tanker ships. Our strategy is to keep with the ships that are unique, creating the values that no other ships can make.
Okay. In your presentation, you state that you are considering additional CLEANBU fixed rate coverage. How many vessels are you looking to fix and for what duration? One year or three years and longer?
I think I have to be a bit careful on commenting on this. We have, as you know, we fixed one CLEANBU on a two-year charter in February. While we had hoped to get what we call fixed rate contract coverage, this is difficult at the moment in the current tanker market, meaning that the options to secure fixed rate coverage is TC. So we are looking at one more ship that we target to fix for another two to three years.
Where do CLEANBU TC rates currently sit?
Well, as mentioned, the earnings to date in the fourth quarter with the 50% of the capacity fixed equates to $65,000 per day.
Okay. Let's see. How do you assess the current level of contract coverage for 2027, and what mix of fixed rate, floating rate, and spot exposure are you targeting?
I think if you start up with the CABU fleet, which is 11 of the 19 ships, we are likely going to end up with a fixed rate coverage of between 40%-50% of the tanker capacity, and remaining part being floating rate. This can ± 5%, but at least in that range is where we target to end.
Okay. Let's look at a few questions around the older vessels. What economic useful life are you assuming for the older CABU vessels?
Yeah, I think everything has an end. Of course, the operation life, of course, is partly linked to the markets. But we are planning that these ships, we run them on, they're getting close to 28 years, and we have done that with the Barcarena we talked about. We put into the trade in Brazil this year. We have, as also mentioned previously, decided to take the second ship, the Banastar, through docking and life extension, in fact, next week, and put that into the trade in Brazil in early next year. We do believe at the moment that there could be potential to add another ship into that trade. But again, this is something we are working on. Of course, we are super happy to keep these wonderful ladies sailing.
What impact on earnings and cash flow do you expect in 2027 with all three CABU III newbuilds in full operation?
I am very happy to say that the CABU IIIs are performing well. We see the benefit to the bigger size in the dry bulk trades, where they are able to take in considerably more cargo than the older ships. Also on the caustic soda side, they are performing well, and it takes a little bit more time to build up the full loading on these ships, but the customers are excited to see they can utilize this capacity coming into next year. I think it is too early to give any detailed guidance for next year. We are with a strong contract coverage that we expect to get when coming into 2027. Again, the two old ladies fixed in Brazil and with the strong performance of the CLEANBUs, I believe the CABU earnings looks very good for next year.
Just to comment on that as well, if you base it on vessel years capacity, the newbuilds will be close to one additional vessel year next year compared to 2026. If you adjust for somewhat less dry docking expected as well, we are slightly above one additional vessel year in 2027.
Okay. I think that is all we have for now.
Thank you, Haley, and thank you to all of you listening in. Again, you know where to find us if you have further questions. Thank you.