Good morning, everybody, welcome to Odfjell's presentation of our second quarter and first half 2023 results. This presentation follows a standard agenda. I will present the highlights. My colleague, our CFO, Terje Iversen, will present the financials, and I will then continue with an operational review, and we will conclude this presentation with a market update and prospects for the coming quarter. Then to the highlights. We delivered a robust and profitable quarter, record strong, and this came at the back of a very profitable and robust contract portfolio. Our time charter earnings for the second quarter ended at $185 million, and this compares to $181 million in the previous quarter.
The EBIT was $79 million, and this compares to $68 million in the first quarter. We had a record strong net result of $53 million and, corrected for one-off items, the $53 million compares to $46 million in the first quarter. The rates on renewed contracts were up 8% on average, but we were only renewing approximately 9% of our estimated total contract volume. The net result contribution from Odfjell Terminals increased to $2.3 million, and this compares to $2 million in the previous quarter. During the quarter, we have taken delivery of one new building on long-term charter, and we also declared purchase options on two vessels that are currently on financial lease. One vessel was sold towards the end of the second quarter.
We continued to reduce our environmental footprint, and I'm very pleased to report that we now report the lowest carbon intensity, the AER, that we have ever reported. 7.01 in the quarter, and year to date is 7.14. The board has also decided a dividend of $0.62 per share for the first half year. By that, I give the word to Terje, who will take us through the financials.
Thank you, Harald. Good morning to all of you. I will, as usual, start with the income statement for this quarter. As Harald mentioned, we saw time charter earnings this quarter at $185 million, which is up $5 million compared to the previous quarter. Main driver behind that is that we have more sailing days in this quarter and also that we see increase in the contract volumes this quarter compared to first quarter. Time charter expenses ended at $4.9 versus $4.3 in the first quarter, indicating a slightly increased number of vessels on short time time charters.
Operating expenses ended at $49.3, very much the same as in the previous quarter, so this is stable operating expenses. While we saw G&A decreased to $15.4 compared to $18.6 in the previous quarter. Main reason for that is due to seasonal effects, with holiday pays being accrued for through the year, and also some lower spending and also some favorable exchange rates when it got to currency in the quarter. That leads to an EBITDA of $117.9 compared to $110 in the first quarter. That includes a share of net result from joint ventures, being our terminal joint ventures of $2.3 compared to $2.0 in the first quarter.
We continue to see strong and stable earnings from our terminal joint ventures. Depreciation decreased somewhat this quarter due to sale of one vessel and also the fact that we got some refunds for some previous dockings that has been expensed earlier, so that ended at $39.3 million. After a limited capital loss this quarter, we ended down with the EBIT of $78.5 million, up from $68.3 million in the first quarter. We continue to see the interest expenses increase somewhat due to, to higher LIBOR or SOFR for our loans. That is also something we could expect going forward, but as you will see, we continue to decrease our debt, so at some point, we will see net interest expenses starting to decrease.
After taxes, we are delivering a net result of $52.6 compared to $46.7 in the first quarter. There was small adjustment on non-recurring items this quarter, so adjusted result is the same, $53 million. Versus the adjusted result in the first quarter of $46. So as Harald mentioned, that leaves us with a dividend for the first half of $0.62 per share. That will be paid approximately around 29th of August, and we will distribute the notice later today with more details around the dividend payments. If you continue with the time charter earnings compared to the cash break even, we see that time charter earnings this quarter was $30,842, which is more or less the same figure as in the first quarter.
This is well above our cash break-even in the second quarter, which ended at $23,341 per day, marginally down from the first quarter. Looking at the rolling 12 months average, we are at around $23,409 in cash break-even, versus our target, which is still is to be below $20,000 in the future. At the time, for the time being, we expect that cash break-even will be around this level for the remainder of this year. Of course, that partly reason for that is that the interest is quite high, and also that we see some inflation these days. Looking at the balance sheet, end of first half, we see a small increase in ship values. A decrease, I mean.
That is of course due to depreciation this quarter, and also the fact that we sold and delivered one vessel. In addition, we sold the Bow Pioneer for delivery in, in the third quarter, so that was moved down to asset held for sale end of first half, then also leading to a decrease in ship book values end of first half. Right of Use of assets increased somewhat due to delivery of one time charter vessel on a long-term charter. Where we see cash and cash equivalents ended at 131, up $45 million from the previous quarter. If you include undrawn loan facilities, we have available cash around $190 million US dollar.
Of course, we are happy to see that the equity ratio continued to increase, and we have now a book equity ratio adjusted for IFRS 16 leases around 42% end of first half. On the debt side, as, as I mentioned, we are continuing to, to reduce our debt. But we see that we have a non-current debt Right of Use of assets slightly increasing due to, to one more time charter vessel. We also see that we have current debt Right of Use of assets still at a high number. Reason for that is, the, the vessel I mentioned on time charter and also the purchase price for the option that we declared in the 1st quarter for Bow Capricorn, which is being delivered in the 3rd quarter.
That is included here in current debt, but that will of course then be financed with traditional mortgage financing when that is going to be delivered. Cash flow this quarter, also a very positive development. We had operating cash flow around $100 million in plus, in plus. Of course, that is driven by the increase in the time charter earnings due to more revenue days, and also the fact that we have had a positive development in the working capital in this quarter. That led to $100 million in operating cash flow. At the same time, we see that we have a positive cash flow from investment activities at $7 million, and that includes then delivery of Bow Santos with $14.4 million in the second quarter.
We have some investments in our existing assets, being dry dockings and also some energy-saving devices, $8.7 million this quarter. We also received dividend from two of our terminal joint venture, in total, $2.8 million, which then led to a positive cash flow from investing activities at around $7 million, as I mentioned, compared to negative $29 million in the first quarter. On the debt side, we have been quite active, repaying debt $45.7 million repaid this quarter, of which $25 million is related to the sale of vessels and the attached financing on these vessels. That leads to net cash flow from financing activities, negative $62 million.
As a quarter of the whole, including operating cash flow, investment activities, we had done a positive development in the cash with $45 million, leading to a cash end of second quarter of $131 million. Looking at the more long-term picture on, on the cash flow, we see that we continue to see increase in our free cash flow. With free cash flow, we mean operating cash flow, including cash flow from, or to investments. This quarter, actually, we had $107 million in free cash flow, including the positive cash flow for investment this, this quarter. On the longer term, rolling basis, we had done $90 million in free cash flow.
If you adjust that for debt repayments related with Right of Use of assets being time charter payments on long-term charters, we are down at $74 million, up from $49 or around $50 million in the preceding quarters. We allocated the free cash flow to repaying debt. As I said, we have extraordinary debt repayments this quarter, and as well, we are continuing to strengthen our balance sheet and equity on our balance sheet. We've also been building up liquidity ahead of the upcoming payment of the dividend this quarter, and also, we are preparing a repayment of the bond that is maturing in September this year. Going forward, we expect to see continued strong free cash flow based on the fact that we have limited CapEx.
Going forward, of course, we have dry dockings and, and smaller investments. In the large picture, most of the operating cash flow will be then available for, for debt service and for returning to our owners. Looking at the debt situation going forward, we see that we have rather few upcoming balloon or repayments to be done in, in the coming quarters. We are, of course, addressing that up in advance. We are focusing then on refinancing these loans, extending the loan profiles to match the economic age of the vessels, and of course, also to reduce the cost of capital on the backbone of a strengthened balance sheet.
We are going to refinance two lease vessels that Harald mentioned that we are buying back and are going to refinance them in the bank market, which will effectually lower the break-even for these vessels with around $3,000 per day, despite a small increase in the total loan facility. Of course, the reason for that is the extended loan profile and also the fact that the margins are lower on the loans that we are refinancing today's market. We have a bond maturing in September this year of $113 million, a NOK amount corresponding to that. That will be repaid in full with the cash that we have on the balance sheet and partly also draw down on our existing revolving credit lines.
Today, we are not planning to do a refinancing in today's market, and we are not planning to do a tap on the existing bond that is maturing in 2025. Looking at the debt situation going forward, we see that this is kind of an illustration how that may develop. We expect to be around $881 million in interest-paying debt year-end, which is in within our targets, being between $750 million and $900 million. Going forward, we will continue to repay debt and also the back on situation with very limited CapEx. This is a kind of possible picture for the coming years, reducing the debt end of 2024 to around $800 million and also below $700 million interest-paying debt end of 2025.
Of course, that will depend on the earnings and the situation going forward. I will leave the word to you again, Harald.
Thank you. I will then continue with an operational review. The Odfjell Index is an expression of Odfjell's time charter earnings, and we saw a slight decrease of the Odfjell Index of 1.5%. At the same time, we saw the ClarkSea Index, Spot Index, reduced by 5%. If we look at the cargo segments that we are into, we saw that we maintained healthy rates and volumes for our specialties. We saw a somewhat soft, softer market for easy chemicals, and in total, those two segments, which are our core segments, accounted for some 87% of our total volumes.
Veg oils were approximately 5% of the volumes carried during the quarter, with soybean oil and used cooking oil as the two main cargo types. If we include lubricating oil to this group, then this the oils constitute approximately 9% of our total volumes. CPP is mainly for repositioning of our ships. We saw a slight increase to 4% of total volume, and that is very close to, to our historical averages for CPP. If we look at the contract volumes share of total volumes, then we saw a slight increase during the quarter to 53%. Contract renewals, we only renewed 9% of our total annual volumes, and the increase was approximately 8%.
If we look at the total volumes, transported, those were well within historic averages. In total, 3.3 million tons lifted on Odfjell vessels, and we saw a slight increase in the contract volumes and a similar decrease on spot volumes. During the quarter, we had an average AER of 7.01. If we look at the first half year, we had an AER of 7.14. Both are historical low results and well below our 50% target compared to the 2008 IMO baseline. We are also very happy to inform that we have signed the two new novel technology projects with rollout in the second half of this year and early next year.
The first project, which will be installed on one of our vessel in October this year, relates to air lubrication, which basically is pumping out air bubbles underneath the hull, creating a cushion, and by that, reducing the vessel's friction through the water. We expect that we can save 6%-8% fuel by installing this system. Early next year, we will install suction sails on one of Hudong vessels. The expected fuel saving of this project is in region 9%, but deployed in the optimal trades, then we can see a significantly higher savings.
We are now also launching a project where we where we will study optimal operation of these of this system. When we previously had a focus on on taking the vessels out of heavy seas and heavy winds, we now have to find the optimal combination of sea state and wind state to to maximize utilization of of these sails. Both both projects are are very promising, and I can assure you that the organization is extremely enthusiastic about the our continued focus on decarbonization. Tank terminals, the $20, it is second quarter EBITDA and is slightly above the previous quarter.
Our terminals in Antwerp and Charleston continue to operate at full capacity, our terminals in Houston and Ulsan experienced a quarter-on-quarter increase in commercial occupancy rates. Therefore, the average commercial occupancy rate for the portfolio ended at 97.6, which represent the highest quarterly average commercial occupancy achieved since 2020. In the second quarter, we saw a reduced throughput with leading chemical producer reporting somewhat lower activity. The outlook for the terminal side, we still experience strong demand for storage capacity, and this is partly attributed to European and U.S. producers having high inventories. We therefore expect the portfolio's commercial occupancy to remain resilient for the remainder of 2023. Then to a market update and prospects going forward.
As already mentioned, we have seen spot markets softening in, in most trades, we have to remind you that the freight rates are still at strong levels. We also see that this weakening has not continued into the third quarter. West of Suez, we saw a softer CPP market and this spilled over to chemical tanker spot markets, which fell during the second quarter. Particularly, the trade lanes from the US Gulf to South America and the veg oil out of South America to West Coast India, saw the largest decreases. East of Suez, we also saw spot rates easing, still at historical high levels.
We saw some improvements in the Intra-Asia and Middle East trades towards the end of the second quarter. We also see that the trade lanes from Asia to Europe and to the US, they remain challenging with reduced volumes. Swing tonnage, we have seen a slow increase in swing tonnage lifting chemicals, and at the same time, we see that the total chemical and veg oil volumes are stable. While we saw a all-time low in March this year, we now see that somewhere between 4% and 5% of the chemical able MR tonnage is now trading in chemicals. This is still at extremely low levels.
Order book. The, the, the order book is still at historical low levels, and this goes particularly for the segments that Odfjell are in. There is some activity for, for medium-sized chemical tankers. There is, there are approximately six vessels on order for large chemical tankers, and there are zero orders for super segregators. When it comes to the medium segment, and I would also like to remind you that six of those vessels are on order to Odfjell. Average fleet age for, for the total chemical tanker fleet is 13 years, and presently, 16% of the fleet is more than 20 years old. Therefore, we maintain a very positive outlook on the supply side.
When it comes to to external factors that will affect the the chemical tanker markets going forward, we still see interest rates increasing. We have seen that inflation has gone up, but now has stabled, and we see the first signs of decline. We have also seen a disappointing development of the Chinese economy, and that will affect the the transportation of of chemicals. We see that consumer demand has rotated from goods to services, and we see signals from the producers that that they they expect a softer downstream demand.
If we then look specifically at the, the, the demand outlook, then, we expect a slight decrease in the chemical production, but we expect the, the, the present ton-mile picture to continue as is. We don't see any growth in on the supply side. We still see a very modest influx of swing tonnage. We still see that older chemical tankers, particularly those built before 2010, they continue to leave our core trades, and we see that we see no signs of average fleet speed being increased. We maintain a very positive supply outlook, and we see some clouds on the horizon for on the demand side.
To summarize this presentation, the second quarter of 2023 was one of the best quarters in Odfjell's history, and this was mainly supported by a robust and profitable contract portfolio. For offshore tankers, we saw stable development from previous quarter, slight increase in contract volumes, and we also benefited from strong contract renewals in the two previous quarters. We had a record-strong time charter result, and this was partly attributed to the fact that the, the second quarter had more revenue days than the first quarter. Stable performance at our terminals. We see a somewhat slower demand going forward. Weaker Chinese economy, and higher interests rates will have a cooling effect. Still, as I said, we think that the fundamentals remain favorable with a record-low order book.
To guide for the third quarter, the summer months are seasonally slower, and we therefore expect the time charter results for the third quarter to be slightly below the second quarter. We expect underlying results from Odfjell Terminals to remain stable in the third quarter. This concludes the presentation, and we will now continue with the questions, Nils.
Yes. There are a few questions that have been asked in the Vimeo broadcast here. I think we'll just start at the top, and the first one is regarding our contract portfolio, and I think this goes to you, Harald.
Yeah.
The question is: "Regarding the contracts that were renewed during the quarter, when were these contracts last negotiated, prior to the second quarter of this year?
Right. Almost all our contracts are renewed at an annual basis. Those contracts were renewed on or around the second quarter last year. We have to remember that that during the second quarter last year, that's when, when the really the market really took off. And some of the contract renewals for that reason were extremely time-consuming. I would say that those contracts were probably renewed towards the end of the second quarter or early third quarter.
Okay. Thank you. The next question, I think goes to you, Terje, and it is regarding the novel technologies that we have announced today. The question is: "Could you please elaborate on expected CapEx associated with these novel technology projects?
Yeah. These projects are kind of the price on these projects are more or less confidential, I would say. They are still in an early phase, but we are talking about rather modest CapEx investments, because it's only two vessels involved, two projects. Of course, if we are going, and when we are going to roll out this on a larger part of our fleet, it will be a more sizable CapEx we are talking about. I think if, if and when we do that, that will be based on kind of a viable business case for these projects. We are not talking about really large investments. This is good investments, hopefully, and based on the preliminary results, we think that will also make good sense financially.
Okay, thank you. There are actually quite a few questions, but they all sort of center around the same topic, I would say. That is the swing tonnage and the product market. I'll try to summarize a little bit here on three or four questions that came in. I think one of them is sort of just on the MR or the product tanker market, that's seen some uptick so far in the third quarter. If we see this sort of spilling over to the chemical tanker rates, and if so, if there's upside to our guidance for the quarter?
To follow up on, on, on, on that, what, what should we monitor to understand the potential impact for chemical tankers of swing tonnage, and are there risks for additional supply into our market? I guess it's, it's, it's a question of.
Yeah
... of swing tonnage in general.
Yeah. I think my first comment is that, for, for swing tonnage prefers to trade in CPP. For, for swing tonnage to, to, to take the decision to, to move from CPP to chemicals, then there has to be a clear upside on, on doing that move. My perception so far has been that, that, the, the shipowners of swing tonnage have not seen that, that, profitability in moving into chemicals. That is the main reason why, why swing tonnage is, remains in, in CPP. Going forward, we still see that, that, that, swing tonnage owners are making good rates and good earnings on the CPP side.
We don't see any imminent threat that, that swing tonnage will flow into to chemicals, at least in the near term. If analysts are, are trying to, to figure out, where the swing tonnage is going to end, they have to, to kind of compare, compare earnings, in, in the CPP segment, with, with earnings in the, in the chemical segment. Of course, then, then they also have to, to calculate in the, the time it takes to, to prepare a, a, a swing vessel for, for chemicals, and they have to, to, to take into account the additional cost of repositioning, and maybe the, the, the swing vessel is, is less well-positioned at the end of the voyage.
There are, the, the swing owners have to, to, to not only calculate the rates, but also the additional cost by, by swinging into new markets.
Yeah. Thank you. There is one more question that just came in here, and it's, it sort of touches on the same, I would say, with swing and MRs, but it also asks: "What are the main reasons for the weaker spot rates year to date? weaker global/Chinese demand, or weaker MR rates and more swing tonnage?" I guess we, we've just sort of touched upon the last part of that question, but maybe sort of more on the, I guess, the macro side of it.
We haven't seen a kind of substantial effect of swing tonnage. It's still at satisfactory low levels, that leaves reduced volumes as the explanation for why we have seen a reduction in during the second quarter. We still have to remember that during the previous quarters, the rates were at unsustainable levels. The anticipation that those rates would be maintained over time were simply not correct. That market, particularly before New Year, that market was overheated, it had to come down, the effect was that less volumes were transported.
Yeah. Great, thank you. I think that was the last of the questions that have come in. With that, that concludes our Q&A.
Okay. It remains for me to thank you all for following this webcast, and we look forward to seeing you again when we present our third quarter results. Thanks a lot!