Earnings call transcript: Ocean Yield Q1 2025 sees steady growth

Ocean Yield's Q1 2025 earnings call highlighted its financial resilience and strategic expansions. The company reported a slight increase in revenues and maintained a strong liquidity position, despite macroeconomic uncertainties. According to InvestingPro . The company's current ratio of 0.69 and Altman Z-Score suggest careful monitoring of financial stability is warranted. Unlock more than 30 additional financial metrics and expert insights with an InvestingPro subscription.

Executive Commentary

Andreas, a company executive, emphasized the strength of Ocean Yield's balance sheet and liquidity, stating, "We maintain a strong balance sheet with ample available liquidity." Erik Eide highlighted the favorable financing conditions, noting, "We are continuing to see attractive terms on the financing side."

Risks and Challenges

• Geopolitical tensions, particularly between the US and China, could impact financing strategies.
• The shipping and freight markets are normalizing, which may affect profitability.
• Regulatory changes could pose challenges to the company's expansion plans.
• Macro and political uncertainties may influence market demand for sale and leaseback transactions.

Ocean Yield's Q1 2025 earnings call reflects its strategic focus on growth and stability amid challenging market conditions. The company's commitment to long-term charters and diversified investments positions it well for future success.

Full transcript - Ocean Yield (OCY) Q1 2025:

Andreas, CEO or Senior Executive, Ocean Yield: Good morning, everyone, and welcome to Ocean Yield's first quarter earnings presentation. As usual, I will start today's presentation with the highlights of the quarter and go through the changes to the portfolio. Then our CFO, Erik Eide, will take us through the financials and the financing activity of the quarter. The presentation will be concluded with opening up for questions. Let me start off on Page two.

Q1 has been an active quarter for Ocean Yield, and we are reporting another quarter with stable financial performance. We report an EBITDA adjusted for finance lease effects of 91,600,000 and a net profit of $18,300,000 The difference compared with the net profit in Q4 twenty twenty four was primarily driven by a net negative change in foreign exchange losses and fair value of derivatives. Erik will come back to this. We ended the first quarter with $137,300,000 in cash and available liquidity under the revolving credit facilities of $63,800,000 bringing total available liquidity to more than $200,000,000 The balance sheet remains strong and the equity ratio was 31.7%. At quarter end, the EBITDA backlog was $4,100,000,000 and the average remaining contract duration is still exceeding ten years.

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Q1 and the following period have been an active period on the transaction side and we have, during the period, increased our ownership stake in France LNG shipping, invested in two Suezmax tankers with long term charters to Nordic American tankers and agreed to amend and extend the lease for three vessels already in place with Nordic American tankers. I will cover the details of these transactions on the following pages, but first, let us move to Page three for a summary of the portfolio at the end of the first quarter. Including the 12 LNG vessels in the France LNG fleet, the fleet now counts 66 vessels at quarter end with an average age of just around five years. The EBITDA backlog at the end of the quarter was SEK 4,100,000,000.0, and 100% of the fleet remains employed on long term charters. The investment in France LNG have significantly increased the diversification of the backlog and LNG and gas carriers are now making up 27% of the backlog.

So let us move to Page four for more details on the France LNG transaction. Post quarter end, Ocean Yield have agreed to purchase Axis Capital Partners share in Geogas LNG. This transaction will increase Ocean Yield's indirect economic interest in Geogas LNG subsidiary, France LNG Shipping, from 34% to 45%. Since joining Geogas LNG as a shareholder in December, we've been impressed by the high quality of the France LNG platform. We are therefore enthusiastic about increasing our shareholding and to continue the long term partnership with NYK and Geogas Maritime.

The transaction will add approximately $250,000,000 to the EBITDA backlog and closing is expected during the second or third quarter, subject to certain customary conditions. The transaction will be funded with available liquidity. Moving to Page five for more details on the transactions with Nordic American Tankers. We continue our support to Nordic American tankers in their fleet renewal efforts. And during the first quarter, we have invested in two Suezmax tankers with eight year charters to Nordic American.

Also post quarter end, we have agreed with Nordic American to amend and extend the lease for Nordic Aquarius and Nordic Cygnus, where Nordic American had previously declared the purchase options. The transaction also involves Nordic Teles, and all vessels will, upon closing, which we expect to occur during the second quarter, commence new eight year charters. In sum, these two transactions will add approximately two sixty million dollars to the backlog and bring the number of vessels financed by Ocean Yield to eight. Moving on to Page six for other changes to the portfolio. During the quarter and post quarter end, we have taken delivery of seven new vessels, two Suezmax tankers and five newbuilds.

The Brilliant Future was delivered from the yard on January 14 and she commenced the fifteen year bareboat charter to Braskem. The second vessel in the series is expected to be delivered during the third quarter. '4 Newcastlemax newbuild vessels from CMB have been delivered and commenced a fifteen year bareboat charters to CMB. The remaining two newbuilds in the series is expected within the coming months. Purchase options have been declared for Hafnia Asotik, which will be delivered to the new owner during the third quarter and the VLCCs on charter to International Seaways, which will be delivered to their new owner during the fourth quarter.

Finally, during the quarter, the dry bulk vessels Interlink Fortuity and Interlink Celerity have been delivered to their new owners following previously declared purchase options. So I think with that, I'd like to hand the word over to Erik, who will take us through the financial and the financing activity of the quarter.

Erik Eide, CFO, Ocean Yield: Thank you, Andreas. So as usual, let me start with taking a look at the financial snapshot of the company as of the first quarter. We have recorded EBITDA of $51,400,000 and adjusted EBITDA of $91,600,000 Net profit for the quarter was $18,300,000 and the Board of Directors has not declared a dividend for this quarter. We had available liquidity of million and the equity ratio stood at 31.7%. So, let us move on and take a look at the headline figures of the income statement.

Overall, we have recorded total revenues of $56,600,000 which is up from $56,100,000 in Q4. More specifically, operating lease revenue was $19,200,000 compared to 19,500,000.0 in Q4. Finance lease revenue was 30,700,000.0 compared to 29,600,000.0 in Q4. Income from our joint ventures was $5,700,000 compared with $4,800,000 in the fourth quarter. Now the increase here is mainly driven by the higher income from the investment in Geogas LNG.

And then we have other income of SEK0.9 million and this is mainly related to one off gains related to these lease modification effects for two tankers and one chemical tanker where the purchase options have been exercised and also from delivery of one gas vessel during the quarter. And that brings us to an operating profit of $45,600,000 for the quarter compared to $43,900,000 in Q4. Financial income was $4,800,000 and that is compared with $4,700,000 in Q4, so more or less in line. And then in addition to that, we had interest on cash deposits And this also includes interest on pre delivery loans to CMB for the Newcastle Max newbuildings and interest on shareholder loans related to the Geogas LNG investment. Overall interest expenses were SEK29 million for the quarter, which is up from SEK28.7 million in Q4.

Then we have foreign exchange movements and change in fair value of derivatives, which are related to our bond loans in Norwegian krone. And these are all non cash items. This was in total negative with SEK2.8 million in Q1 compared to a positive effect of SEK5.9 million last quarter. So in essence, this is the main driver for the variation in net profit compared to last quarter. If we adjust for these effects, the underlying net profit would have been SEK 21,000,000 this quarter compared to SEK 19,900,000.0 in Q4.

So overall, the quarter ended with a net profit of 18,300,000.0 compared to 25,800,000.0 in Q4. If we then move on and look at the historical adjusted EBITDA for the company, and this is actually the cash EBITDA that we receive under our lease agreements. And this was $91,600,000 in the quarter compared to $86,900,000 in Q4. Now in addition, in order to fully reflect the investment in Geogas LNG, we have included also the interest on shareholder loans in the investment in this figure, since this is partly invested as equity and partly as shareholder loans. So as you can see here in this slide, how the adjusted EBITDA compares with the historical development back to 2022.

If we then turn to the balance sheet, we had total assets of $2,400,000,000 which is up from $2,300,000,000 in Q4. And this is mainly due to delivery of vessels and two tap issues in the bond market, which I will come back to. On cash and cash equivalents, that was 137,300,000.0 compared to 110,600,000.0 last quarter. And in addition to that, we have undrawn credit lines of 63,800,000.0, which brings the total available liquidity to 201,100,000.0. Further on the balance sheet, book equity was $771,000,000 compared to $723,000,000 in Q4.

So overall, we ended the quarter then with an equity ratio of 31.7 compared to 31.2% in Q4. Then let us move on to look at financing initiatives. We have mentioned the financing of the LR1 newbuildings before and since our last report, we have now signed loan agreements for two of the four newbuildings and expect the final two to be signed within the second quarter. In addition, we have signed loan agreements for the two Suezmax vessels that were acquired and chartered to NAT in the first quarter. And this loan was drawn upon delivery of the two vessels and that happened after the end of the quarter.

As a general comment, we can see that we continue to see attractive terms in the bank market with continued downward pressure on margins. On the bond side, we were in the market in this quarter with two separate transactions. First, we did a tap issue on OCY10, which is the hybrid perpetual bond where we raised $35,000,000 with an implied margin of 4%. This is accounted for as equity under IFRS. Following this transaction, the total outstanding amount under OCY 10 is now $110,000,000 Then a few days later, we raised another NOK 300,000,000 in the unsecured bond loan OCY nine with an implied margin of 2.75%.

This loan has maturity in 2028. So these transactions brought us to a total liquidity position of just over CHF200 million at the end of the quarter. So, have a strong liquidity position and a strong balance sheet and is well positioned to meet our future obligations.

Andreas, CEO or Senior Executive, Ocean Yield: So, with that, I give the word back to you Andreas to summarize. Thank you, Erik. So let me summarize the quarter on Page 11. This year has started well, and at Ocean Yield, we remain busy. The portfolio of long term leases to leading counterparties continued to perform well.

We maintain a strong balance sheet with ample available liquidity. Our access to capital in both the bond and banking markets remain strong, and we would like to thank our creditors for their continued support. On the back of increased macro and political uncertainty and the rising tension between The U. S. And China, we have experienced increasing demand for traditional sale and leaseback transactions.

And as such, we remain constructive for the remainder of the year as shipping and freight markets continue to normalize. So with that, I would like to thank you for watching the Ocean Yield Q1 earnings presentation, and I would now like to open up for questions. So

Erik Eide, CFO, Ocean Yield: Andreas, we have received a few questions this morning. The first is, during the quarter did you experience any changes to market dynamics both financially and operationally from the changes to regulatory and financial landscape?

Andreas, CEO or Senior Executive, Ocean Yield: Okay. Well, clearly, the world is ever changing and we're having indeed experienced, I would say, an increasing amount of uncertainty. I think it's fair to say that increased volatility and increased uncertainty have a tendency to increase cost of capital for our existing and our potential clients. So as such, we have indeed experienced an increasing demand for, call it, conventional sale and leaseback transactions. And I think with respect to geopolitical uncertainty, clearly the increasing tension between particularly sort of U.

S. And China has, I would say, also resulted in several players that previously have used China as a dominating source of financing that they are now seeking other sources of financing, which could include sale and leaseback. Then I think with respect to tolls and tariffs, etcetera, I think it's still early days. And we do see that the first proposals that were out for hearing have been significantly moderated. So we're clearly sort of monitoring this.

But I must say that shipping industry overall has proven, I would say, ability to adapt and to basically change. So we're monitoring that. But so far, sort of no material implications on our business, bearing in mind that predominantly our business is bareboat charters, meaning that we do not have any operations as such.

Erik Eide, CFO, Ocean Yield: Okay. Thank you. And the second question is related to the NAT transaction. Do you expect to do more amend and extend exercise that you did on the three Suezmaxes to NAT to be applicable to other future cases? Is this something you will strive for going forward?

Andreas, CEO or Senior Executive, Ocean Yield: Well, I think we've said many times before that we do have a continued ambition to continue to grow and develop the business. I've always said that by partnering with the right clients, one of the best ways of growing is to grow with your clients. And that also means that maintaining the clients. So absolutely, if we can find transactions that are sort of mutually beneficial and where we can keep clients instead of them buying the vessels back through utilizing the purchase options, that is something that we would seek to explore absolutely.

Erik Eide, CFO, Ocean Yield: Good. The next question is related to the France LNG shipping investment. What are your ambitions for that platform and should we expect this platform to grow the fleet in the future? Well, let

Andreas, CEO or Senior Executive, Ocean Yield: me start with saying that since becoming a shareholder in France LNG in December, we are very impressed by the team and also very pleased with the cooperation with Geogas and with NYK. I think primary focus going forward is to take delivery of the five newbuilds that are currently under construction. That said, we are also, I'd say, exploring and working closely with GeoGas and NYK also looking into potential other transactions or additional growth to the platform. So if we find the right transaction, absolutely yes.

Erik Eide, CFO, Ocean Yield: Good. Also another question. It seems to have been yet another active quarter on the financing side. What do you see now in terms of margins and general terms on the senior financing you achieve?

Andreas, CEO or Senior Executive, Ocean Yield: Sounds like a question for you.

Erik Eide, CFO, Ocean Yield: That's probably for me. Well, I think I have to say that we are continuing to see attractive terms on the financing side. It's downward pressure on margins. We continuously work with between twenty five and thirty banks on the financing side and we are still seeing very attractive margins on the financing. I mean maturity may vary from five to ten years.

But overall the last couple of years, we have seen margins probably reducing somewhere between thirty and fifty basis points on the margin side. So still a very attractive banking market for us.

Andreas, CEO or Senior Executive, Ocean Yield: I think that was the last question we have received. So I'll give the word back to you Andreas. Thank you, Erik. So if there are no further questions, that concludes today's Q1 presentation. And I would like to thank all of you for watching.

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