Hello, and welcome to the second quarter result presentation of Klaveness Combination Carriers. I am Engebret Dahm. I am the CEO of the company. Together with me, I have Liv Dyrnes, who is the CFO. Questions, please use the Webcast app to send questions, and we will go through this after the presentation. The safety, health, and the wellbeing of our crew is our first priority. In these difficult operation circumstances, we do whatever we can to minimize the risk of a COVID-19 contamination coming from shore to the ships. We're doing whatever we can to make the crew changes to ensure that our crew comes back to their families after minimum delay, after the end of their contractual periods. There are difficulties in the operations, and we are very thankful for the crew for their great job to keep the service running.
We are a quite special type of shipping company. We have our unique combination carrier solutions. We have two types: the CABUs, which can do both dry bulk and caustic soda. We have the CLEANBUs, the new generation, which takes more or less all type of wet commodities and dry bulk. Our business have three unique features. We provide the most carbon efficient transportation solution, being 30%-40% lower carbon footprint than standard ships. We have, over time, managed to deliver substantially higher earnings than the standard vessels over the cycle. Thirdly, given that we have a differentiated market exposure, we have much lower volatility in the earnings compared to the standard markets. Looking at the second quarter, the results set new records for the company and shows the earning potential in a market situation where only one of three markets are strong.
We had a booming tanker market for most of the second quarter, while the dry bulk market was very poor and we had low fuel prices. In these market circumstances, we delivered earnings on the CABUs over $21,300 per day, and CLEANBU earnings at around $31,000 per day, which gave an EBITDA of $15.9 million, 23% higher than last quarter, and a result before tax of $8.4 million, which is more than close to double the results for the first quarter. The return on capital employed is around 10%. Mind you, this is in a situation where we still have five new builds under construction, where the capital linked to these new builds are not giving annual returns during this quarter. The board decided yesterday to continue the dividend payments of $0.03 per share.
During this quarter and to date in the third quarter, we have shown the value of our combination business. The earnings differentiation is important. We show that after enjoying the boom months in the tanker market, the tanker market fell down. Just soon after, the dry market recovered. To give you an example of that, the effects for us, we can show you one example from one of our dry trades from Australia. In the second quarter, the standard Kamsarmax has earned around $7,000 per day. Our modern vessels would earn more than $10,000 per day in this core market, in this trade. Looking to date in the third quarter, the standard Kamsarmaxes have earned about $12,200 per day. We would, in this market, on our ships, earn $18,600 per day, close to doubling of the earnings compared to the second quarter.
Take a look on the spot market at the moment. It's very strong and again, had a very positive impact on earnings. The point is that the higher dry market helped by higher fuel prices, to a large extent offset the negative impact of a weak tanker market for our business and shows the value of diversification of earnings. The second point I wanted to point to you is the fact that our industrial focus on our business means that we have a large share of contracts in our business. We have the discipline that when markets are offshooting, as the tanker market did in the second quarter, we are increasing the coverage, chopping our ships on Time Charters and using the derivative markets.
Coming into the second quarter, as you see it to the graph to the right, you see that we had quite a good contract coverage coming into the second quarter on the CABUs. The CLEANBUs were open, but we chose to fix all ships on time charter, leaving only less than 20% of the total capacity in the spot market. The point was for us to extend the duration of the tanker market coverage as long as we could in this very strong market. You see the effects coming into the second half, where 50% of the tanker capacity we have actually is derived from what we did during one month in April, where we fixed the three time charters.
We did a contract renewals on two cargo contracts, and we sold FFAs. That is bridging the poor tanker market which we expect to continue in the second half. Also shows the way we reduce the cyclicality of the business. Jump over to the CABUs. We earn $21,300 per day for the CABUs in the second quarter, up $1,000 per day from the first quarter. The main reason is the fact that we managed to have more or less the whole capacity of the fleet in combination trading, and we also had post the effect of the booming tanker market on our index-linked contracts. Mind you, again, this is a market where the dry market was poor and fuel prices were poor. First half 2020 results ended at around $20,800 per day, slightly below the MR Tanker index.
We have, during the quarter, succeeded to show a substantial increase in our track record on the CLEANBUs. We have the number of terminal calls with good feedback from customers have increased over the quarter and this summer, and as have the number of voyages. We're also pleased to see we have expanded the combination trades for the CLEANBUs. This example shows one of the trades we have tested out, where under the charter we took in jet fuel from Middle East to Europe and are bringing back cranes from Europe to the Middle East. We also have a second trade starting up on the second trade, which we'll come back to you later on. This graph shows the days and the earnings in combination trades and outside combination trades for the CLEANBUs.
Over the previous quarters, we have seen that we have outperformed earnings in the standard markets substantially each quarter. This quarter, the second quarter is unique in the fact that we chose to fix the ships on Time Charters, which is here counted in as outside the combination trades. We had a few days in combi trades. It was only the last part of days on a grain voyage from Brazil, fixed in a rather poor market. The earnings for the CLEANBUs $31,000 per day for the quarter, $10,000 up compared to the second quarter. We are close to $26,000 year to date. If you compare it to the indices and the estimates from brokers giving the average LR1 earnings, we are well below.
It is difficult to beat such a volatile market when the market is peaking, and it gives some comfort to see on what other LR1 owners are delivering for the second quarter. All are well below this, what do you call it, broker estimates for the average LR1 tanker earnings in the quarter. We expect to substantially outperform the standard markets in the second half. Let's see what we end up with for the whole calendar year 2020. The operation of both the CABUs and CLEANBUs has been doing well this quarter. In this graph, we show the utilization, which is the sum of unpaid waiting days and off-hire. We had a 94% utilization for the CABUs. That includes off-hire connected to one docking starting up in June, and also some off-hire linked to the crew change we have done during the quarter.
The CLEANBUs had 99% utilization, just a couple of days off-hire. We had during the quarter two incidents of COVID-19 on board one of the CABUs this summer in July. There was two on-signers from the Philippines that brought COVID-19 on board the ships. The procedures we had to isolate the on-signing crew and to get the affected crew to medical treatment on shore worked well. I'm glad to see that the two crew members are safe and healthy back in the Philippines. We succeeded to retest the crew on board several times, and also the accommodation unit was cleaned and disinfected, and we continued trading after 14 days off-hire in July. After all, this went pretty well, but it shows the exposure in this business at the moment to COVID-19. The COVID-19 also impacts the delivery of our newbuilds.
We took delivery of the fourth CLEANBU, the Baleen, in early August, five months late. It has been a big challenge to get the ship started up. It's, to today, practically impossible to bring in crew to Chinese shipyards. To get the ship out, we recruited a Chinese crew, which will bring the ship to Korea. We'll send our crew into Korea to do the crew change there. Due to delays due to quarantine and visa problems and all the other problems we are seeing in the world today, this delays the startup of operation. We now expect the Baleen to start operation during late September, which is a substantial delay compared to the previous ships where we had used two to three weeks from delivery to start of operation. The fifth ship, which will be named the Bangus, will be delivered in early October.
We do expect the same problems on that ship. Probably have to recruit also Chinese crew to bring the ship out. We do hope we can optimize the crew change and bring down the time from delivery to start of trading. Operating cost has been more or less in line with expectations, a little bit over. We are expecting that the existing three CLEANBUs and the CABUs will have a slightly lower cost in the second half, while the new CLEANBUs being delivered will be higher during the first quarters, as was the case for the existing three ships. This graph to the left shows the boom and bust in the tanker market. Very poor market during the summer, the other one market improved later in the middle of August, while the MR market is still very bad.
The forward market, FFA market, predicts improvement over the next months, still at fairly low levels. As mentioned, the wet contract coverage for our business is high for the second half. We have 76% of the tanker days of the CABUs have been fixed on fixed rate contracts. If you add the index linked contract, we are above 90% coverage for the second half. For the CLEANBUs, the Time Charters we have on the three ships, where two were delivered in end of July, accounts for a bit more than 40% of the capacity. If you add FFAs, we are about 60% covered for the CLEANBUs. Totality of the total tanker days, we have fixed rate coverage for about 70% of the capacity for second half.
The coverage for next year is much lower, but we are in the process of starting up discussions with our customers for extending contracts for next year. We do expect the coverage to be much higher coming into the end of the year. As normal, we always target to book the full CABU tanker capacity with contracts on course next year. That's the target. The dry market, the graph shows the weak market persisting through the first and second quarter, and a quite nice recovery happening through the summer. The forward market predicts that the market to fall back over the fourth quarter and a seasonal low in the first quarter as normal, but still at acceptable levels. We have fixed and have contracts covering a little bit more than 60% of the dry capacity for this second half of the year.
The coverage for next year is very limited. As some of you remember, we presented our environmental strategy in January, where we set a number of targets to decarbonizing our business. We set targets to reduce the carbon intensity, the so-called EEOI, and also the average CO2 emission per ship by 20%-25% up to 2022. We set the target of step by step moving towards carbon neutral operation by 2030. We are committed to this decarbonization targets. To show that, we entered into the first sustainable linked financing for the two last new builds this summer. This facility is linked to the trajectory of our decarbonization targets. We are moving on to reach the targets. The individual quarterly performance on EEOI and CO2 is a bit mixed so far this year.
It's important to read to get a lot of sense out of the quarterly figures. You should look on more on an annual basis to see the trend. I can comment that for the second quarter, we see on the carbon efficiency is less favorable due to problem, mostly the time chartering out of the CLEANBUs as standard tankers, increasing the ballast. We have initiated a number of initiatives so far this year, firstly, to improve the energy efficiency and operation efficiency of our ships. We have then implemented the antifouling, which are fuel saving. We have an ultrasonic propeller protection system installed on the ships. We are also implementing a new system for weather routing and speed optimization.
We also this summer tested out the first sustainable biofuel on one of the ships, and that is based on our ambition to increasingly use biofuel on our ships. There are little biofuel available in our trades, but we do hope that we can stimulate the suppliers to increase the supply in our trades and work together with customers to start using biofuel. The first test was successful, and it was 100% carbon neutral fuel provided by a company called GoodFuels in Rotterdam. In addition, we are progressing with our zero emission project. We this summer had four bright students from NTNU to look into the alternative zero emission fuels and engine technology. They presented two concepts.
One, which is shown here on the graph, with something we call the Green Move, which is basically a concept where we use ammonia as fuel, and you place the ammonia fuel tank just in front of the superstructure, moving the superstructure back without impacting the transportation capacity or trading flexibility of the ships. This study, even though we have a number of steps ahead of us, shows that we can implement zero emission solutions on existing type of ships, which I think for me at least was a real mind-blower. I think that's the end of my first part. Leaving the word to Liv.
Thank you. Good morning, everyone. This is a nice quarter to present the results, I have to say. Adjusted EBITDA ended at $15.9 million. That's an increase of 23% compared to last quarter, and it's mainly driven by earnings. As mentioned, CABU earnings ended at close to $21,300 per day and an increase of $1,000 per day. That's mainly driven by higher caustic soda volumes, and it's not entirely reflected in the percentage combination trade made for the quarter as we had one long positioning voyage carrying caustic soda. The CLEANBU earnings ended at close to $31,000 per day and an increase of $10,000 per day driven by the TCs. Costs and depreciation, quite stable, with some minor periodization effects. Net finance cost, we see here an improvement of $1.2 million when comparing the two quarters.
That's mainly due to the bond refinancing in first quarter, with one-off costs of $1.2 million. All in all, earnings before tax for the quarter ended at a strong $8.4 million, an increase of close to 95% and $4 million. Earnings per share $0.17, up $0.08 per share. When we see the increase from last quarter to this quarter in EBITDA, we see that the CLEANBU net revenues are the main driver for the increase. However, I think it's important to emphasize that the CABUs have delivered two consecutive very strong quarters with above $20,000 per day in earnings. This segment has a higher contract coverage, less spot exposure, and hence more stable earnings than the CLEANBUs. The CLEANBUs, on the other hand, used the strong tanker market and fixed all three vessels on TCs.
We guided on between $18,000 and $19,000, or was it $19,000 and $20,000 per day for the CABUs for the quarter and between $28,000 and $29,000 per day for the CLEANBUs. We came in above this mainly due to higher caustic soda volumes than expected when doing the guiding. For the CLEANBUs, it's mainly driven by some adjustments in voyages made prior to entering the TCs. All in all, we see a good combination of two different segments leading to a strong close to $16 million in EBITDA for Q2. First half EBITDA ended at $28.7 million, up from $9.9 in first half last year. However, there's a difference between these two periods as we have two more CLEANBUs on water this year. For the CABUs, however, it's the same fleet of nine vessels.
The increase of $8.8 million is mainly driven by two different things. It's higher caustic soda volumes, a substantially higher number of caustic days actually, and it's also a stronger tanker market, especially in Q2 this year compared to Q2 last year. For the CLEANBUs, the net revenues consist of two different things. Approximately $10 million is two more vessels on water. $3 million relates to Baru that was delivered last year in January 2019 was hence impacted by the phasing of this vessel, both when it comes to costs of hire as well as earnings as we did the introduction in caustic soda before doing a tank voyage and later starting combination trades. CABU OpEx, mainly periodization effects, CLEANBU OpEx, two more vessels on water, and the improvement in SG&A mainly relates to one-off costs related to the IPO in first half last year.
We end at, as mentioned, close to $29 million in EBITDA for first half. Equity ratio stable at 44% compared to first quarter. It's a bit down compared to year end as we refinanced and increased the bond debt in first quarter. We have, as mentioned, secured financing for the last two new builds. We signed that facility in July, which means that we are fully funded and remaining CapEx equity-wise is approximately $20 million compared to cash by the end of the quarter of $72 million and an overdraft facility of $10 million. Dividends, we continue to pay $0.03 per share as last quarter and total approximately $1.44 million for the quarter. Return on capital employed on an annualized basis for Q2, 10%. As Engebret mentioned, this is not adjusted for the new builds. A reminder at the end. We still have five CLEANBUs under construction.
If we adjust the Q1 and Q2 EBITDA figures based on CLEANBUs earnings of $21,000 per day and $31,000 per day, respectively, for the two quarters, and adjust these numbers for the additional five vessels, we will see an EBITDA potential of between $70 and $100 million on an annualized basis, compared to an actual figures of $51 and $63 for the existing fleet. Of course, this will impact the financials for the company and the return potential for the company. Yes, that's it.
Thank you. Just to wrap up, we have good progress on several fronts. We are seeing that we are after two of the CLEANBUs are delivered from time charter . We are expanding the combi trading for the ships. We are showing performance with improving vetting results. On the CABUs we are booking more caustic soda contracts and the outlook looks good. We are progressing with our decarbonization targets. Despite the poor tanker market, we are guiding for positive outlook for the business for second half. The high contract coverage in the tanker side, with 70% of the capacity booked at good levels, the stronger dry bulk market and also higher fuel prices will support the earnings for second half.
Based on actual fixture made and estimates for remaining capacity in the second quarter, which is not too much really, we are guiding on earnings on the CABUs between $17,000-$18,000 per day. On the CLEANBUs between $24,500-$25,500 per day. The outlook is, of course, one should have in mind the COVID-19 risks which are around. Firstly, we have COVID-19 risks on operation. It's impacting delivery of our new builds. It impacts the operation of our business. I believe we have done a number of initiatives to reduce risks and have good control, but still there are a lot of things we can't control. When it comes to the underlying market, COVID-19 also impacts, of course, the macroeconomics and the state of the three markets we are exposed to.
It seems to us that the market fundamentals are improving, despite the COVID-19 increase in contamination in certain countries. We see the tanker market is rebalancing. We see demand is up. We are hopeful that 2021 also can look well and that the world is improving after getting control of the COVID-19. I think that sums up the second quarter results and please, I look forward to hearing some questions.
First question from person in the room.
Hi, this is Bendik Larsen from Danske Bank. Thank you for taking the questions and congratulations with a very strong record quarter. Very impressed by these charter rates you've been able to achieve. First question about the CABU, the growth in EBITDA from the CABU fleet. Liv, you mentioned that the CABU fleet has scored higher earnings partly because of higher volumes in the first half of 2020. Could you expand on which areas have driven this expansion? How much has been related to Alunorte reopening or regaining capacity? Could you expand on that please?
I think the expansion of Alunorte capacity took place basically last summer. We had more or less full volumes on Alunorte contract through the second half of last year and also first part of this year. If you compare to last year, I think the effect of Alunorte volume is limited. It is more that before Christmas, we booked a lot of good caustic soda contracts at good levels, which we have performed well over both the first quarter and the second quarter. I think the key on the CABUs is to make sure that they get into the combination trade because they are a little bit less flexible than the CLEANBUs. I think that is what we have shown in both the first and the second quarter. Right.
Just to emphasize that I also think it's partly that the first half last year, we saw quite low caustic soda volumes. We see the rates were quite low and impacted by doing more dry bulk last year.
Yeah, that's right. Again, comparing to the first quarter last year, you get that Alunorte has a big impact. Yeah.
Right. Okay. Thank you very much. Then back to the contract coverage that you now have. You mentioned that you have roughly on average roughly 70% of the second half of 2020 covered. As you take more CLEANBU vessels on water, you have two more vessels coming in late September and early October. Will we be able to see the same extent of contract coverage in half a year? Is that a level that you try to approach?
I think when it comes to the CABUs, when you're coming into the start of the year, the target for us is to have 100% of the nine ships covered on contracts. Which then partly be index-linked and partly be fixed rate. On the CLEANBUs, it is a more spot business, meaning that we are targeting to do contracts, but these contracts will be index-linked because that's the way the tanker market is working. We will try to utilize that same market to stabilize earnings. That means that we will see a much lower, we'd call fixed rate coverage for the CLEANBUs. We expect to get the combi trading going. Our target is to do contract coverage. As I said, will be index-linked and earnings will fluctuate together with the spot market.
Again, you are depending on three markets, so that will even out, given that you will both have the impact of the dry, the tanker, and the fuel.
Sure. Yeah. Thank you. Right. The one contract you have now on one of the CLEANBU vessels is, if I remember correctly, roughly nine months. Is that the length that you can obtain for these contracts? Is that particularly long?
That is for the time charter.
Right.
Of course, that was basically what was available. If we could have fixed the ships at that rate, we could have fixed it for three years, we would have done it at these rates. I think, when it comes to the contracts, at least where we are in the discussions with potential customers, we believe it is likely to book one or two or even perhaps three-year contracts going forward. Again, it has been important for us to show the performance of the ships before we are entering into a lot of contracts. Also we are in a process of exploring the combination trading possibilities for the ships.
Thank you. The final question about this incident of the virus on one of your ships. You mentioned that you had two crew members with proven infection. Is that something that took place in Q2? Did you book those costs in Q2 or will we see that in the next quarter?
You will see that in the next quarter. That happened in July. It impacted mainly off-hire on the ships, but we also had to relet one cargo for one customer because of the delay, which was a small loss, but again, mainly off-hire is the impact.
All right. That's it from me. Thank you very much.
We have a question from one of our webcast viewers. The first question is, with few CLEANBUs in combi trade due to being out on time charter, how is the development of industrial COAs going? Do you expect any concluded COAs in the near future?
As mentioned, we have in process of expanding the combi trading. We are testing out two new trades during the third quarter. The next step would be to try to discuss Contracts of Affreightment. I'm uncertain whether we would succeed to conclude one this half-year, but it's a target that I think we are likely to reach within the next 12 months. I think it's been important for us to show performance before booking contracts.
The second question, with the new build program fully funded and strong rate coverage through 2020, what are your thoughts on using excess cash? Also, what minimum level of cash on the balance sheets do you feel comfortable with?
I think I'll take the first one and Liv will take the second one. I think the policy we have is that we will pay out 80% of the free cash flow to shareholders as dividends. That means that we have fairly limited flexibility when it comes to using the cash on the balance sheet to new projects. Meaning that in reality, we will need to raise more capital should we choose to expand the fleet further. Liv, the other question, better you take.
Yeah. We haven't guided on a specific level on minimum cash. I think for a fleet of the size that we will have going forward, it depends on how stable the earnings for especially the CLEANBUs are. Yeah, I do not have a specific target at the moment.
That's it from the webcast in terms of questions.