Good morning, everyone, and welcome to the third quarter result presentation of Klaveness Combination Carriers. My name is Engebret Dahm. I'm the CEO. I have Liv Dyrnes with me, the CFO. Please use the webcast solution to write your questions, and we'll go through it after the presentation. The third quarter was a strong quarter for KCC, where we kept up both time charter earnings and profitability, despite weak product tanker and dry bulk markets. Time charter earnings average for the fleet ended at $32,314 per day, which is around $2,000 above the mid-range of the guiding we gave back in December. It's 1.2 times the product tanker spot market and 3.4 times the dry bulk market.
Other big events this quarter is the successful placement of NOK 500 million sustainability-linked bond, and also the completion of a large energy efficiency retrofit on one of our CABU vessels. Looking on the EBITDA is slightly down from the second quarter, ending at $27.9 million. It's impacted by a somewhat weaker CLEANBU earnings, reflecting a weaker spot markets, but offset by strong CABU earnings. There's also somewhat higher OpEx in the quarter. We continue to live up to our dividend policy of paying 80% of the free cash flow as dividends, and the dividend for this quarter ends at $0.25 per share, which is equal to last quarter.
This gives a 15% running yield, and I'm pleased to say that we, over the last four quarters, have paid out $67 million in dividends. Over the last eight quarters, we have paid $109 million in dividends. So let's first look on the spot market development in the three markets that impact KCC earnings. The other ones I have shown in light blue, the Capesize dry bulk spot market in dark blue and the fuel prices in gray. The gray spotted area is the months which are deciding the third quarter earnings for the company. So as we see, the product tanker market fell considerably during the late spring and the summer and hit the bottom in July before recovering in August and through the autumn.
The product tanker market has kept up at very strong levels, which is quite impressive given the stock draw during the summer. The LR1 tanker market, as the graph shown, has continued to increase over the autumn, while the MR tankers flattened out in September and has weakened somewhat over the recent months. You see a bit of similar development in the Panamax dry bulk market, the line at the bottom, which has fallen back during the late spring and the summer and recovered over in August and flattened out over the last month or two. The gray line showing the fuel prices show an increase over the recent months, which is benefiting the earnings of our company, given that we have a positive exposure to fuel prices.
Looking first on the dry bulk market, there has been a very positive demand development in the dry bulk market, mainly driven by increased Chinese imports of bauxite, iron ore, and coal. The development in other parts of the world has been negative to date this year. This positive development has been more than offset by increasing effective fleet growth in the dry bulk market to date this year, being in the area of 6%-7% to date, which has weakened the market balance in the dry bulk market. This is mainly caused by decreased congestion, which bottomed out in September and has since been on the rise, caused by increasing congestion in South America.
The ordering of dry bulk vessels has kept low, in fact, lower than in 2022, at the same period of time in 2022 and in 2021, keeping the order book at historically low levels at around 8% of the fleet. Looking ahead, we are cautiously optimistic for the dry bulk market for both the fourth quarter and for next year. The dry bulk fleet growth is under control. We expect considerably lower effective fleet growth, given limited potential for further congestion reductions and also lower deliveries in 2024, given our estimate of a 1.9% fleet growth in 2024. On the demand side, all eyes are on China, and for sure, there are mixed signals in the Chinese economy.
The property market is still weak, but we are seeing some positive signs, including a ramp-up of government stimulus targeting the construction industry. We also see low stock levels of raw materials, including record low stock levels of iron ore. We also see some positive signs in India and in Far East for demand for dry bulk commodities, and if the softer landing of the world economy comes through, we may also get some positive signs from other parts of the world coming into the second half of next year. The picture for the product tankers is solid, and we see a very strong demand development in the black line. And also, EIIA estimates a continued solid demand growth, as seen in the dotted line on the graph.
The OECD oil inventories has capped at historically low level, and as mentioned, we have seen a stock draw on of oil products in many regions over the summer, which is a good starting point for the tanker market. Ordering of product tankers have increased considerably over this year, increasing the order book from around 5%, 5.5% in early part of the year, up to currently around 10%, which still is quite modest. So looking at the market ahead in time, here we see the market balance as estimated by Clarksons.
We're seeing the blue line is the expected demand growth, ton-mile demand growth, and we see 2024 keeps up very well at levels between 6%-7% demand growth, albeit somewhat lower than in the very strong levels in 2023. We see the black dotted line shows a further reduction in the fleet supply, ending at 1.3%. So in totality, this shows a continued tight market for product tankers for the next quarters and in 2024. So looking at how KCC is performing, I would like to remind you about the value creation of our combination carriers. High efficiency, diversified earnings base, more flexible vessels that we can shift from to the market, which is the relative strongest.
The graph here shows the KCC average earnings in the columns and the spot market for product tankers in blue and the dry bulk spot market in gray, showing the higher stability of earnings we produce and also the higher earnings over time. The year-to-date earnings for our combination carriers, so $34,353, is super strong, being close to the average spot market for product tankers and more than three times the earnings of the dry bulk vessels. You get a bit the same impression by looking at the development of the last five, six quarters, where we see again the product tanker spot market in blue and the dry bulk spot market in gray, and the time charter earnings of KCC in the columns.
We are not we cannot beat the both markets every quarter, and it differs by many reasons. But looking at the third quarter, the earnings of $32,314 is 1.2 times the product tanker spot market. And the earnings for the first two quarters was 0.9 relative to the product tanker spot market. So if our projections for fourth quarter comes through, we are likely to match the product tanker spot earnings for the calendar year 2023, which we did also in 2022. Looking at the CABUs, it's been a successful quarter, increased caustic soda contract volumes, increased slightly the share of tanker trading in the quarter.
Very high productivity of the fleet, with a very low ballast of 10% and a higher share of the capacity in combination trade, has produced a record high quarterly earnings of $37,130 per ton, which is the highest since 2010 for the CABUs. The CLEANBUs are benefiting from the strong product tanker market, which has partly been driven by trade changes and longer haul shipments. The other side of the coin is that the trade changes also impact the CLEANBU trading. This graph shows the share of Russian diesel in the Brazilian market this year. It was 0% in January, increasing to 80% in July, falling back to 59% in September. Needless to say, this has impacted our trading.
But to adapt to these changes, we started in the second quarter to shift capacity into our other main combination trading. And this graph just shows the percentage of the tanker days in the three main trades we do. We have East Coast of America, dark blue at the bottom. We have the US Atlantic Coast trading in light blue, and we have Australia trading in the very light blue on the top. So we see that US South American trading decreased from 71% in the first quarter to around 25% expected for the fourth quarter, while the totality of US Atlantic and Australia trading went from below 30% to 75% in the fourth quarter.
This successful trade changes is a testament to the ongoing work to build the strength and resilience of the CLEANBU business, which, remind you, is still a fairly new business for KCC. The key has been to substantially increase the number of terminal and customer acceptance, which opens up for the possibility to trade the ships in any trade. We work hard to make the CLEANBU the preferred transportation solution in all our main trade through the highest possible technical and vetting performance, and also highest possible service. And I think we are well on the way to deliver on these targets. So for the third quarter, the share of the capacity in tanker trading increased again, as we have talked about before in our presentations.
The share in tanker trading goes up and down, depending on the geographical positions of the ships that differ from quarter to quarter, but also is the deliberate choice to do more triangulation trading. And also we do, from time to time, some ballast to optimize the earnings in the tanker market. This shows that we have still both the part of the capacity in combination trading and also the ballast percentage is below our targets for the clean business. And this is also influenced by the one ship that we have on charter to Reliance. The earnings for the CLEANBU ended close to $28,800 per day.
It's a reduction around 5%, but mind you, the LR1 product tanker spot market decreased by 30% in the third quarter. So we are very pleased with the results of our CLEANBU in the third quarter. So over to you, Liv.
Thank you. We'll start with the EBITDA, which is down 5%, Q-on-Q. And the main changes are, as Engebret mentioned, a stronger CABU TCE earnings of approximately $2,600 per day, amounting to $1.7 million in change from Q2. The CLEANBU, on the other hand, had a negative change in TC earnings of approximately $1,500 per day, and total negative change Q-on-Q of $1 million. Then we had more dry docking days in Q3 compared to Q2, and the effect of this is a negative change of approximately $1.4 million. Operating expenses increased by $0.6 million, and SG&A increased by $0.3 million.
The latter is a change in salary for the three first quarters of the year, which were booked on voyage expenses and has now been transferred to SG&A. All in all, a strong quarter, EBITDA of $27.9 million. If we look closer at operating expenses, we continue to see variations from quarter to quarter. You will here see that the CLEANBU had an OpEx per day of $9,959, and the CABU, $7,963. These variations from quarter-to-quarter is mainly due to timing of procurement and crewing, as I probably mention every quarter.
This quarter, we as well had a negative effect of a provision made for a potential loss related to a yard claim of $0.4 million, which had a negative impact on the CLEANBU OpEx. But all in all, higher $0.6 from last quarter, a 5% increase. We had limited unscheduled off-hire of four days for the quarter, while we had scheduled off-hire of 108 days. 100 of these days relates to dry docking of two vessels, including Ballard, which installed air lubrication and shaft generator. One vessel will start dry docking in Q4 towards the end of the quarter, and you will see on slide 34, details both related to off-hire and the estimated cost for the next four quarters. Over to the full P&L. As mentioned, EBITDA down 5% Q-on-Q.
Depreciation quite flat, $7.9 million. Net financial cost down $1.4 million from last quarter. This relates to lower net interest cost as we had lower drawdown on debt. It relates to a negative one-off that we had in Q2, related to the refinancing of mortgage debt. And then we actually had a slightly positive P&L effect of the bond refinancing in Q3. The premium paid for the repurchase of the KCC04 bonds were offset by a positive mark-to-market effect that was transferred from other comprehensive income to the P&L. Profit after tax, $16.3 million, quite flat from last quarter. Return on capital employed on an annualized basis, 13%, and return on equity on an annualized basis, 18%.
As Engebret mentioned, dividend stable from last quarter, 25 cents per share, corresponding to a dividend yield of approximately 15%. Over to the balance sheet. The main changes from the end of June is the payment of the first installment on the new building contracts, in total, $17.5 million. Other current assets, down from approximately $46 million at the end of Q2, to $36 million at the end of Q3. This is mainly related to trade receivables. Equity, quite stable Q on Q. Mortgage debt, that's the normal repayment that we do every quarter, approximately $6.2 million. And then the main effect of the refinancing of the bonds, you will see here as a change in long-term financial liabilities.
Total assets, $628 million at the end of Q3, and a solid equity ratio of 56%. The cash flow was down, or the cash at the end of the quarter was $64 million approximately, and available long-term liquidity $177 million. That's down close to $20 million from last quarter. And in addition to EBITDA and positive change in working capital of 27.9 and 8.2 respectively, you will here see the newbuilding CapEx $17.5 million. We had CapEx related to dry docking and upgrading of $4 million, and then the usual debt service between 10 and 11 per quarter. And then the one-off, that was the bond refinancing of -$9.1 million. This includes both premium paid for the repurchased amount.
We repurchased a somewhat higher amount than what we issued, NOK 508.5 million versus NOK 500 million. It includes a fee, and then the main part here is the change in US dollar NOK from 9.2, approximately, in 2020 to 10.6 in 2023. 3 shareholders declared their warrants in Q3, positive effect of NOK 0.4 million. These warrants were granted in 2018 when the company was established, and after the declaration in Q3, there are no more outstanding warrants. Dividend for Q2 of NOK 15.1 million was paid in Q3. So still a very solid cash position and available liquidity position at the end of the quarter.
When adjusting for the commitments that we have for the new builds, as well as expected investments in energy efficiency measures, we still have a very strong cash buffer. Over to some more details on the bond issue. We issued NOK 500 million in bonds, 5 years unsecured. Pricing is 3 months NIBOR plus 365 basis points. The bonds have now been listed on Oslo Stock Exchange under the ticker KCC05. As mentioned, we repurchased NOK 508.5 million in the KCC04 bond issue, maturing in February 2025, and the outstanding amount here is now NOK 191.5 million, as you can see in the graph to the left, under the 2025 maturities.
The new bond issue was made under the sustainability-linked financing framework that we published in June. The pricing is very strong. It's down 110 basis points from the last issue in 2020, and I think 365 basis points for 5 years unsecured debt is very competitive. That was the short wrap-up of the financials for Q3. Over to you, Engebret.
Thank you, Liv. So as we all know, decarbonization in shipping is not easy. But I think it's fair to say that the progress the industry is doing is not very impressive, and I think that's the background for this headline in TradeWinds last week, commenting on the discussions in Global Maritime Forum in Greece a week ago. While Elvis is not very high on my Spotify list, I can assure you that decarbonization is the center of everything we do in KCC. We do what we say. We work across our business to reduce...improve efficiency and reduce emissions. And we do believe we can deliver on our promises and our targets with respect to decarbonization.
I'm happy to see that in our main KPI for decarbonization, the carbon intensity, measuring the carbon efficiency of transportation work, shows a good progress this year with the third quarter being at the level of 6.4, which is roughly the same as in the second quarter, substantially below both 2022 and 2021. The main event this week was the successful completion of the large retrofit upgrade of MV Ballard, built in 2017. The upgrade included a Silverstream air lubrication system, a shaft generator, which is providing the energy to the system, Mewis ducts, and 3-4 other measures that are targeted to reduce emissions and decrease fuel consumption.
We have tested out the ship during sea trial and one laden leg, and based on these results, we are very pleased that the effect is approximately what we expected, around 15%, based on investment of $4 million and the current fuel prices, this gives a payback of 8 years. We believe fuel prices will increase when you take into account carbon cost, and if we then use the current EUA price, adding to the current fuel price, the payback is 6 years. I think it is quite interesting to compare this to other measures that is possible to do. For instance, installing a dual-fuel LNG engine, which costs around 3 times what this initiative has done, and has a carbon emission reduction well-to-wake of around 15%-20%. But this gives no immediate financial payback.
So we believe in what we are doing, and we will start to roll this out on more vessels. We have the next ship is the CLEANBU MV Baru, which is going to dock in December. And we expect another 4 ships in 2020, in 2024 and early 2025. Looking ahead, let's first look at the market backdrop for how KCC will perform over the coming quarters. This graph shows the historical development in solid lines, the blue product tankers. The dark gray on the bottom is the dry bulk earnings, Capesize, and the dark blue on the top is fuel prices.
The product tanker market, in our opinion, has a larger upside potential than what you can see in the dotted lines, the blue dotted lines. The market is balanced, looks very tight, with limited supply over the next year or two, and expected continued solid demand growth. We are also moderately positive to the dry bulk market. The market is rather balanced, and seasonal variations and small positive demand effects can have rather large earnings effects, well beyond the black, the gray dotted line, which is pretty flat for the forward pricing for dry bulk in the derivative market. And we are adjusting our contract portfolio to this market view. And looking out on the CABUs, we are in the midst of the contract renewal season for the contracts for caustic soda for next year.
The graph to the right shows that we have a very positive market backdrop for these discussions. The graph shows the development of the 12-month time charter earnings, which is the best, the best indicator for how MR tanker owners, which we are competing against, are pricing contracts, one-year contracts for 2024. We see the blue line on the top shows the development to date in 2023, showing that we are somewhat below the very strong development in 2022, which indicates that we will end up with contract earnings on a time charter basis being somewhat lower than we achieved for 2022, but still at very high levels.
The graph to the left, I mean, shows we had a very high portion of fixed-rate contracts, caustic soda contracts in 2023, accounting for around 75% of the tanker capacity. Index-linked contracts accounted for around 25%. For 2024, we expect a higher portion of index-linked contracts, accounting for around 60%. Fixed-rate contracts is likely to be more around 40%. In 2023, we earned more money from the fixed-rate contracts than we did on the index-linked contracts, given that the product tanker market was somewhat weaker than expected at the end of last year. Next year, we hope that the development in the, on index-linked or the s- or the floating rate, as we see here on the graph, will, will overperform the fixed-rate contracts we are about to conclude.
Looking on the CLEANBU, we see the graph to the right, that we, over the recent quarters, have increased the share of the capacity in the tanker market for the CLEANBU. We had 75.4% of the capacity in the first half, and we expect also the second half to end at approximately the same level. For 2024, we expect to maintain a high share of the capacity in the tanker trading, given the expected large difference between the earnings in the product tanker and the dry bulk market. Our guesstimate would be between 65% and 70% of the capacity. On the tanker trading, the most important thing for the CLEANBU is to maintain the trading in the best and most efficient combination trades.
We do that partly through index-linked contracts and partly through repeat business on a spot basis with our customers. In 2023, contracts of affreightment accounted for around 16%, and the spot earnings in spot days in the tanker market was 70%. We expect this to be approximately the same for next year, a little bit increase in index-linked contracts. We see at the bottom, we have the one ship that we have fixed on a two-year term charter running up to February 2025, which account for around 20%. So looking at the fourth quarter, we are confident we will end 2023 on a strong note.
We see that CABUs will continue with very strong earnings, but we expect slightly lower than the record high second quarter results. So CABUs ending at between $34,500 and $35,500. The CLEANBUs will see good progress compared to the last two quarters, with earnings estimates made by that to $32,000-$34,000 per day. This is mainly driven by a stronger dry bulk and product tanker spot market. So as an average, we'll earn between $700 and $1,700 higher per day than in the second quarter, and maybe we will outperform that as well. 2024 looks also solid based on our market expectations and based on how we are, we are positioning our fleet.
But we are mindful that there are increased geopolitical risks, partly as a consequence of what's happening in Israel and Gaza, and are still high due to macroeconomic risks, despite recent signs of a soft landing in the world economy. So in this market circumstance, it's good to know that we have a more low-risk business model than most in the tanker and dry bulk market, and meaning that we could tackle quite well should our market expectations not come through for the next year. And to illustrate this point further, we just showing a graph illustrating the average quarterly return on the vertical axis, and with the volatility of earnings on the horizontal axis.
So this shows the relation between return and risk, and as we see from the graph, KCC has the best relation between risk and return compared to the other listed dry bulk and product tanker and chemical tanker companies on Oslo Stock Exchange. So this one shows, and in our opinion, that KCC maintains the best risk-adjusted return in dry bulk and tanker shipping, and it's one of the good reasons why our investors should take a good look on our share, both current and new investors. So that summarizes our presentation for the third quarter, and we are pleased to take questions.
Yes, Engebret, we have a few questions, so we'll take them in order. First up, asking which product market is the benchmark for KCC when it says it will match the earnings in Q4?
We are using two different indices. We are using Clarksons' average long-term MR market spot index, which we are measuring the CABUs against, and we are using Clarksons' average LR1 spot earnings for the CLEANBUs, which are for the LR1s.
Next question, regarding your move to trade more of the CLEANBU's in USAC, are you trading more with known counterparties, or have you increased the number of counterparties? If so, has this resulted in higher rate discounts?
I think for the U.S. Atlantic Coast, it's, it's mainly to date, one customer. But for the trade to Australia, we have been successful to expanding a number of customers. We do, do.
Do you expect to continue with dividends in the same magnitude as Q3?
I think the dividend strategy policy remains as it is, meaning we are paying 80% of our free cash flow to our shareholders. So that means that the future dividend flow will be dependent on our earnings.
There was another question from the same person. Do you expect to draw more from the $190 million term loan/RCF from Q2?
Maybe, Liv, will you comment on that?
Yeah, maybe not from Q2. But of course, when we come closer to the next yard installments, then we need to draw more on the debt as well.
Yeah, and then Engebret, referencing slide 25, when you calculate payback for your energy efficiency installments, isn't additional expected off-hire days taken into consideration?
They are not. This does not take into account extra off-hire. We do these installations during dry dock, so we expect that the extra days on the Ballard account for roughly 20 days. So that will of course extend the payback somewhat.
Can you remind us, what is the implied TCE for the CABU COAs for 2024? And has the charterers any optionality in these contracts?
We have advanced well with the contract negotiations of in total five different contracts for which will be fixed rate. We have not concluded any of them, so I will not like to comment on the exact level. As mentioned, we expect them to be somewhat lower than last year, which was historically high, given the booming MR tanker market during the autumn of last year.
That's it.
Thank you. Thank you all for joining this result presentation, and please reach out to us if you have further questions. Thank you.