Avance Fuel Holding Ltd (OTCPK:AVACF) Q3 2022 Outcomes Convention Name November 24, 2022 8:00 AM ET
Firm Contributors
Øystein Kalleklev – Govt Chairman
Randi Bekkelund – Chief Monetary Officer
Convention Name Contributors
Climent Molins – Worth Investor’s Edge
Operator
Good day, and thanks for standing by. Welcome to the Avance Fuel Holding Restricted Third Quarter 2022 Earnings Convention Name. Right now, all individuals are in a listen-only mode. After the audio system’ presentation, there might be a question-and-answer session. [Operator Instructions] Please be suggested that in the present day’s convention is being recorded.
I’d now like handy the convention over to your speaker in the present day, Øystein Kalleklev, Govt Chairman of the Firm. Please go forward.
Øystein Kalleklev
Okay. Thanks, and thanks, everyone, for becoming a member of this third quarter webcast for Avance Fuel. I am an Øystein Kalleklev, Govt Chairman of the Firm, and I am joined right here in the present day by Randi, who’s the CFO of the Firm, and she or he might be presenting the financials a bit later within the presentation.
Earlier than we start, I believe I simply wish to make you conscious of our disclaimer. We’ll present some forward-looking statements and a few non-GAAP measures. So please, we advise you to view the presentation along with the earnings launch, which we printed additionally in the present day earlier in the present day.
So let’s start Q3 highlights. TCE revenues for the quarter was $39.1 million, which is barely decrease than the $44 million we delivered in Q2. That is reflecting considerably a weaker spot market with our time constitution equal earnings coming in at $33,000 per day, which was in keeping with our steering of round $32,000 per day.
Internet revenue got here in at $11.6 million, which equals to our earnings per share of $0.15. Please additionally word that we’ve got had appreciable good points on our rate of interest swaps through the yr in complete $25 million of good points up to now this yr, and Randi will inform extra about this a bit later.
The freight market has turned from through the begin of Q3, so now the strongest spot market we’ve got seen since 2015 and truly, the Baltic LPG Index 1 from to Japan this week hit its all-time excessive. Throughout the — additional, we even have bought one in every of our older ships, 2009 constructed Promise.
Throughout Q2, we bought the sister vessel Windfall. The sale of Promise is giving us a guide acquire of $7.5 million, and the money proceeds from the transaction is round $20 million, and we anticipate the transaction to be finalized by finish of November, and this revenue will then be booked in This autumn.
We’ve additionally lately entered right into a 12-month time constitution for the non-scrubber ship Pampero 2015 construct, which then mainly changed the time constitution contract we had on Promise till November subsequent yr. After which we’re changing this with barely higher numbers for the time constitution. We’ve agreed with Pampero for our completely different shoppers.
We’ve now booked 93% for This autumn with our estimated TCE of round $50,000 — $50,000 to $55,000 on a discharge-to-discharge foundation after which $45,000 to $50,000 on a low to discharge foundation. The market has been transferring in a short time up after which generally you’ll be able to have a bit distinction in whether or not it is on a low to discharge foundation, which is the idea for the IFRS numbers after which discharge-to-discharge, which is what we often concentrate on commercially smart.
For the quarter, we’re additionally declaring our dividend as soon as once more of $0.20 per share, much like the one we’ve got supplied in Q1 and Q2. And this provides our year-to-date payout ratio of 85%. The inventory has been performing fairly unhealthy in the present day. So truly, in the present day, you get complete 11% of annualized yield, it is someplace nearer to 12-13% %. So that ought to give our buyers enticing direct yield by being invested within the Firm.
Let’s head for the subsequent slide and the fleet renewal, which is nice for the atmosphere, but in addition excellent for our revenue and loss assertion. We’ve now, through the yr, bought three for older ships with Thetis Glory in Q1, Windfall in Q2 and now in This autumn, we’re promoting Promise. Which means we’ve got divested three of the older ships in our fleet. In complete, this has contributed with a guide acquire of $18 million and money launch of $67 million.
So in the present day, given the inventory value, we’re highest round value guide [0.85] and we’re promoting our older ships at significantly increased costs than our guide worth. And likewise, we invested in six new ships there as we’ve got additionally within the slide, which had been purchased at round $80 million, whereas newbuilding costs for related property in the present day are $95 million. So with this renewal, we’re promoting off the older ships, preparing for IMO2023 after which delivering new twin gasoline LPG ships, all with A score on the EIA.
These ships are then decreasing sulfur emissions by near 196%, particulate matter round 90% after which CO2, 40%. And this can be a mixture of the very fact the ship is larger. It is consumed much less gasoline than our 2010 constructed VLGC. After which as well as, we will use LPG as maritime bunkering gasoline, thus additionally shaving off 20% of the emissions in comparison with a daily gasoline.
So let’s head for the subsequent slide, then we may give an replace on the present fleet construction. As you’ll be able to see, Promise bought. So she might be out of the fleet, and we began the yr with 5 2008, 2009 constructed ships after which we’re left with two ships, each on time charters till finish of subsequent yr. So, we’re totally mitigated by costlier bunkers price in the present day as these ships are then on time constitution and fuels for the charters account.
So in the present day, we’ve got 17 ships, very shortly, this might be 16. As you’ll be able to see right here, there are some completely different specs on a few of the ships. So we’ve got the wind class, the 215 class, six of the eight ships are fitted with the scrubber, which is offering excellent economics in in the present day’s market. The 2 ships which isn’t fitted with our scrubber is Chinook and Pampero. Chinook Is on our variable time constitution till the center of subsequent yr.
So we’re not uncovered to gasoline price for this ship both and the identical goes with Pampero, which we lately lined on our contract now from November to November subsequent yr, changing the time constitution protection we misplaced on Promise. The 2 newbuildings, Polaris and Capella additionally on a variable index time constitution. They’re, as you’ll be able to see right here, fitted with LPG gasoline. They’re twin gasoline. After which the 4 subsequent ships Rigel, Avior, Castor and Pollux. We even have this ammonia prepared.
So, ship quantity three and 4, are ammonia prepared within the sense they will burn ammonia as maritime gasoline. After which, we lately additionally made a change order on Pollux. So each Castor and Pollux in the present day are totally ammonia prepared additionally for having ammonia as a cargo. In fact, these are very large ships. So, the parcel dimension for ammonia just isn’t actually at this degree in the present day, however there’s plenty of concentrate on blue ammonia, win ammonia. So this market is creating, and we’ve got 4 ships there that are very properly fitted for this commerce and likewise fitted for being nonetheless emission ships.
Sure. And basically, we’ve got a balanced portfolio. We’ve additionally taken out some FSA covers. That is ahead contracts mainly on freight. And we’ve got lately lined 63% of subsequent yr for one ship. After which we’ve got our legacy 33% protection for Q1. So, the brand new 63% protection we’ve got achieved for the 2023 is at $47,000 per day, and the protection we had from pre-existing offers achieved a few yr in the past, is at round $30,000 for the Q1.
So properly lined, after which we’ve got plenty of market exposures and all the brand new ships coming for supply, we’re totally open and may profit from a a lot stronger freight market in the present day. We’ve two ships arising in early subsequent yr, after which you’ll most likely discover there in slip, customized merchandise had been initially supposed for supply ’23 because of delays at yards because of varied causes, together with labor strikes. These ships would possibly very properly each of them find yourself in 2024, and that is a normal theme for the business, which I’ll come again to later out there part.
So, final slide earlier than handing over to Randi for our monetary evaluate is the dividend. We’ve simply included a bit extra colour on the dividend. And we’re sort of — to be frank simply copied a few of the ideas from complicated simply to present you some colour on how we’re fascinated about the dividend. The dividend is — it is not likely one thing you solely think about the quarter you might be in, however you might be additionally taking a look at how is the outlook for the subsequent quarter. How is our monetary place?
So by way of Q3 this yr, it’s kind of on the mushy aspect. That is why we’ve got a yellow mild. The market outlook has considerably improved from what we had once we had been reporting in August. So it is inexperienced mild on that. The one motive why it isn’t darkish inexperienced, given the truth that spot market is on hearth is, in fact, the truth that there are extra ships for supply subsequent yr. In order that’s why I am a bit cautious available on the market outlook.
Backlog and visibility won’t ever be Extremely inexperienced for Avance Fuel. That is commodity delivery, however we do have some backlog, as I discussed on the final slide. Liquidity place is tremendous sturdy. Covenant compliance, we’ve got achieved a mistake. This needs to be darkish inexperienced. We’re passing the compliance of economic covenants with flying colours. Debt maturities, nothing earlier than 2027. CapEx liabilities. Sure, we do have $242 million of remaining newbuilding CapEx. Nonetheless, that is lined solely plus some with the $250 million of debt services, which might be drawn on supply of the ships.
So, we’ll truly be money constructive on taking deliveries of the remaining 4 newbuildings after which different concerns is probably going. So all in all, a bit softer quarter, however we’re preserving the dividend of $0.20, after which earnings for subsequent quarter goes to be quite a bit higher than for this quarter.
So with that, I give it again to you, Randi.
Randi Bekkelund
Thanks, Øystein. Let’s go to Slide 7 and take a look at our outcomes.
The third quarter was as Øystein already touched upon softer than the primary and the second quarter because of a slower freight market. The time constitution equal or TCE earnings for the third quarter was $39 million or TCE per day of $33,000, which is forward of our steering of $32,000 and is defined mainly by extra favorable place than anticipated.
Working bills had been $9.8 million, pretty in keeping with the earlier quarter, equaling a day by day common OpEx of $8,200. As commented within the second quarter, airfare is making crew modifications costlier, having a detrimental influence on our OpEx and represents about $300 per day for the third quarter.
When that mentioned, the OpEx per day is down from $9,000 a day degree we noticed in 2020 and 2021 and the rollout of the vaccine are having a constructive impact mixed with a decrease OpEx on our newbuilding.
Administrative and normal expense or A&G for the quarter had been right down to $1.5 million in comparison with $1.9 million and represents a normalized A&G expense, which is roughly $1,200 a day and has been and nonetheless is the bottom A&G in comparison with our friends.
Internet revenue for the quarter was $11.6 million or $0.15 per share. Trying on the year-to-date earnings, we’ve got $54.3 million and is the strongest 9 months for the reason that glory days in 2015 and is mainly defined by a stronger freight market.
As we’re reporting in accordance with IFRS, we’ve got an estimate or an prolonged P&L, additionally referred to as different complete revenue, the place we acknowledge our by-product portfolio consisting of our curiosity hedges.
As commented within the second quarter presentation in July, we blended and prolonged an present $50 million LIBOR rate of interest swap and transformed right into a software-based swap and enhance our hedging with one other $100 million, leading to a software-based hedge of $150 million at 1.87% maturing in 2030 and 2031.
Moreover, at quarter finish, we had a LIBOR hedge with a notional quantity of $202 million at a mean charge of two.82% maturing in 2025. We’ve benefited fairly properly on these positions, leading to a acquire of $7.8 million for the quarter, bringing the full good points for the yr about $25 million.
Subsequently, we’ve got terminated $100 million notional value of curiosity swaps through the fourth quarter because the rate of interest peaked. So of the $100 million $75 million was money settled, which resulted in a money receipt of $6 million, whereas the remaining $25 million was transformed right into a 30-month swap to take extra protection within the brief finish.
For subsequent yr, we’ve got 50% of our debt is hedged at a SOFR equal charge of two.6% and as well as, we’ve got a money reserve of $6 million from the terminated swaps. This compares to a one-year sulfur charge of 4.9% in the present day.
A couple of feedback to the fourth quarter outcomes earlier than we transfer on, as Øystein commented, we’ve got booked 93% of the vessel days, that is 60%. And as we’ve got seen earlier than, the IFRS 15 or low to discharge adjustment may have a major impact because the market has moved upwards by the top of the quarter in our books.
And we anticipate a detrimental impact of about $5, 000 a day, and this ends in the TCE expectation per day between $45,000 to $50,000 a day on a load to discharge foundation, which is our reporting figures in accordance with the accounting requirements. We even have some results on the sale of Promise. The acquire, in fact, of $7.5 million and a decrease depreciation expense of $300,000.
So transferring to Slide 8. On the steadiness sheet, we will see that we’ve got 77% of our steadiness sheet are vessels, consisting of 13 VLGCs turning into 12 very quickly as Promise is bought and the remaining 9 newbuildings at the moment below development and scheduled for supply in ’23 and ’24.
The newbuildings had been contracted in 2019 and 2021 on the backside of the cycle at a mean value of NOK80 million per vessel and is valued at mid-high $90 million in the present day. This provides as much as extra guide values of $90 million to our books. Now that may be very good so as to add this into our steadiness sheet. So this isn’t allowed in accordance with the accounting customary, as our fleet is carried at price much less depreciation and any impairment, which is probably the most used accounting mannequin throughout the delivery area.
Our money place has been considerably improved this yr as we’ve got bought three older women producing approximate $67 million in internet money proceeds, and we’ve got refinanced the fleet, leading to a money launch of $83 million, mixed with a robust freight market contributing $88 million in money circulation from operations, we recorded a money steadiness of $188 million.
Trying on the right-hand aspect of our steadiness sheet. We’ve maintained our stable shareholder fairness above 50%. At quarter finish, we’ve got a shareholder fairness of $583 million, comparable to an fairness ratio of 54% and the full interest-bearing debt of just under $500 million, equaling a debt to complete asset ratio of 45%. The share has moved a bit down from yesterday, however it’s nonetheless supporting our guide worth considerably, and it is priced as dedicated by $0.08 at $0.85 in the present day.
The following slide illustrates the quarterly money motion. We began up with a money steadiness of $199 million at first of the quarter. And because the freight market is above our money breakeven degree, we generated $60 million in free money circulation or internet of money from operations of $26 million and scheduled debt compensation of $10 million.
We additionally paid pre-delivery CapEx of $9 million in relation to the third dual-fuel VLGC Avance Avior scheduled for supply in Q1 ’23. Just some months forward. Moreover, we’ve got distributed $0.20 per share or $15 million in dividend for the second quarter. Different money format of $3 million pertains to primarily transaction prices, in relation to the latest sale leaseback settlement and change charge impact because the U.S. greenback forex has strengthened in opposition to the Marbella, which we’ve got for primarily administrative prices solely.
This provides as much as a detrimental money motion of $11 million and a money steadiness of $188 million on the finish of the quarter. For the fourth quarter, we anticipate the money place to develop and to be properly above $200 million as we’ll obtain $20 million in internet money proceeds from the sale of Promise and obtain freight from a really supportive commerce market.
Transferring to the subsequent slide. Taking a look at our newbuilding CapEx, we’ve got now paid about 50% of the full capital expenditure and $242 million stays to be paid. The full expenditure contains improve for getting ready the vessel to sail on ammonia gasoline for all remaining newbuildings and carry ammonia cargo for brand spanking new constructing 5 and 6, which leads to a zero carbon answer from a properly to wake considering.
The 2 twin gasoline VLGCs, Avance Polaris and Avance Capella are financed by banks within the $104 million facility, which was drawn at supply in January and February this yr. The financing for the 2 subsequent years’ Avance Avior and Advance Rigel to be delivered in a number of months, are secured in $115 million financial institution mortgage facility as part of the fleet refinancing that we accomplished in Could this yr. And the 2 final vessels, Avance Castor and Avance Pollux scheduled for supply in Q3 ’23 and Q1 ’24 are secured in $135 million sale-leaseback settlement as introduced in August this yr.
So, which means we’ve got no unfunded CapEx, besides of the scheduled dry dockings and the financing of our newbuilding program is now accomplished. 75% of our financing portfolio has been considerably improved this yr, and we’ve got achieved longer compensation profile, now between 20 to 22 years. We’ve achieved longer time or nearer to 6 years, with the primary maturity in February 2027.
We’ve elevated our revolver capability to make the most of the pliability to handle and optimize money and keep away from related curiosity prices, and we’ve got decrease margins. So — and thereby, we’ve got truly improved our money breakeven by roughly $1,000 a day in comparison with earlier years.
So in the present day’s money breakeven is about $21,800 and assuming in the present day’s freight market atmosphere at $90,000 a day on scrubber vessel on a U.S. Asia voyage, the Avance fleet has the potential to generate about $50 million in free money circulation in quarter — on a quarterly foundation.
And with that, I hand the phrase again to you, Øystein, for the market replace.
Øystein Kalleklev
Okay. Thanks, Randi. Let’s do a brief evaluate of the latest market developments. Let’s begin simply with wanting on the LPG market, as a result of LPG is a really versatile gasoline. You need to use it for lots of various stuff. For those who take a look at the on a world foundation, it is mainly 40% of residential and industrial heating and cooking, after which one other 40% for the petchem business and likewise a fairly large stake for the refining.
However relying on the area to what the LPG is utilized for actually relies upon quite a bit, you will notice that in additional creating international locations. It is principally for rescomm. In U.S., it is — LPG is usually a petchem product, is a petchem or refinery mixing. After which when you take a look at Asia, it actually will depend on quite a bit on the completely different international locations. The most important importer is China, the place rescomm is simply 40% in keeping with the world mixture. Whereas in India, it is 90% for this use. After which the order about Europe with a fairly large auto fuel market the place LPG can also be utilized as gasoline for autos.
Let’s head into the market and the latest tendencies. On the export aspect, it is a pretty easy market. The 2 large markets are North America and the Center East. And we’ve got seen a really sturdy development of the exports this yr, 11% up first 10 months of the yr, pushed primarily then by Arabian Gulf international locations like Saudi Arabia, Iran, all having 30% plus out regardless of much less oil volumes from OpEx.
On the import aspect, it is wholesome development in every single place mainly China. China has been decreasing their LNG imports one hundred and first month of the yr by 22%. This isn’t the identical in LPG. LPG can also be, as I discussed on the earlier slide, very inexpensive. So, Chinese language imports are literally is 9% up to now this yr. Europe, with our vitality disaster are additionally substituting in additional LPG and has been rising 67% this yr, though from a a lot decrease degree than the Chinese language demand.
If we’re wanting on the spot earnings, good instances are again for positive. We at the moment are on the highest degree since we have been within the interval 2015. And as I discussed, AG China — AG Japan index, the Baltic 1 has been on the best degree ever this week. And that is represented by this smiling man with some cool form, as a result of final time it was good, then we had been again in 2015 and fairly all the time had an excellent smile when. If we take a look at the one-year time constitution charge, it is, in fact, a bit extra secure than the unstable spot earnings, however nonetheless at fairly wholesome ranges.
If we’re wanting on the subsequent slide on the arbitrage. So okay, why the charges transferring this shortly up, it is, in fact, a conductive atmosphere for the arbitrage. So, we do see the costs between Mont Belvieu, U.S. propane after which the Far East Index in Asia had been up 4.5 star. After which when you’re wanting on the arbitrage, which is then turning into mainly the restrict of feeling for what you’ll be able to pay on the delivery freight charges, it is nonetheless preserving an excellent degree.
And if we sort of assume all of the arbitrages for the advantage of our ship proprietor, which is usually the case in our sturdy market, then we’re taking a look at earnings degree for scrubber ship of $60,000 subsequent yr, $66,000 in ’24 after which, in fact, considerably decrease for our non-scrubber ships. And naturally, these will not be solely theoretical numbers, so we’ve got secured 63% of our ship within the FFA market lately at $47,000 per day for the AG to Japan route, so not really the arbitrage for ship house owners, however nonetheless a really conductive delivery market given these arbitrages.
If we’re taking a look at what’s occurring out there, it’s kind of much like what we have seen in LNG, the place ton mile is on the weak aspect as a result of you may have extra imports into Europe. Not on the identical scale in LPG as in LNG. However alternatively, we do see a while mitigating the sluggish tempo of ton mileage development and the typical velocity is down for the ships are down 4%. And naturally, that is additionally pushed by the congestion in Panama, the place ready time is above 20 days as of late, each on the north and the south certain. That is additionally the unpredictability of the Panama canal while you’re making an attempt to schedule a ship.
Additionally signifies that increasingly more ship house owners are taking the ships longer routes by Cape of Good Hope or alternatively to Suez with the intention to have our agency on the ship, which makes it simpler to repair it, as a result of when you’ve got an unpredictable date, it is arduous to repair the ship. So that is additionally driving up on time and ton mile finally. And naturally, with the Panama Canal now growing the charges by mainly doubling it within the subsequent couple of years, we do anticipate extra of the LPG commerce. We squeezed out of the Panama Canal leading to longer tailing distances than prior to now.
So attrition, in fact, now we’re in an excellent market and other people usually do not speak about attrition and scrapping of ships. However we’ve got been out there now even in our weak market for a few years the place we have nonetheless not seen any scrapping. And naturally, this has been good within the sense that secondhand costs for all of the ships have been very agency, and this is likely one of the the explanation why we’ve got additionally been promoting three ships this yr. However the final time you had scrapping right here was again in 2018. So you may have had very muted scrapping for a very long time.
Whereas subsequent yr, we may have the brand new IMO23 guidelines, EEXI and CII. And naturally, this may put extra stress on the compliance of the fleet, and we’ve got a sort of illustrated this by the CII score in the present day or anticipated subsequent yr after which the event. So you will notice plenty of the ships there may have struggling complying with the brand new IMO guidelines.
So we do suppose this may finally influence scrapping and staffing, which has been holding again for a very long time now, we’ll finally enhance. There may be one motive which I’ll come again to shortly, why we additionally see much less scrapping and that’s associated to the truth that increasingly more ships within the is leaving the normal worldwide delivery market and going into captive Iran, China aspect had as a substitute.
So let’s simply spotlight the order guide first. I discussed this, the order guide for subsequent yr is 45, 46, 47 ships relying a bit on the way you rely, though we do see slippage, we’ve got already seen it from the Avance ship the place one or probably two of our newbuildings will slip from ’23 to ’24. We’ve seen points on the Chinese language yards, the place due to the COVID locked on, this has delayed the development of newbuilds VLGCs, so with 12 VLGCs scheduled for This autumn supply subsequent yr, we’d anticipate a few of this to leap into ’24 and a few of the Q1 ships to stumble upon later within the yr and thus balancing the order guide a bit higher than what it appears to be like in the present day.
On the identical time, we do see plenty of deferred upkeep. So our numbers are on 70 VLGCs, which we’ll be doing the scheduled upkeep subsequent yr. With the scrubber economics in the present day very favorable, I would not rule out that a few of the house owners will even make the most of the chance to place in a scrubber within the ship to learn from the fee financial savings. And naturally, that can consequence within the dry dock usually doubling. So, you should have two results there. There’s only a common upkeep after which probably some scrubber installations as properly.
So if we take a look at the fleet steadiness then for ’23, it is a large order guide, as talked about. Nonetheless, U.S. is importing — exporting at wholesome ranges and EIA is anticipating this to proceed with round 10% export prices. And naturally, U.S. cargoes are typically crusing the longest. So that is good for ton mileage, particularly when the Panama Canal is congested. After which we’ve got had a velocity discount pattern, which I additionally identified earlier. You can have a reversal of the velocity discount pattern, however then you definately most likely would have increased ton mileage, as a result of as a substitute of ready within the queue in Panama, you might be crusing an extended distance and avoiding the Panama Canal solely.
Then, we do see the drydock off-hire which I discussed on final slide after which the potential slippage. So this market can steadiness out fairly properly. And I believe increasingly more individuals are realizing this, and that is why the sentiment round ’23, which was fairly dire this summer time, has now turned to be truly fairly good. If we take a look at the ahead freight charges, freight market needs to be fairly good subsequent yr, however let’s examine, we’ll discover out quickly.
Then wanting on the order guide, this can be a slide we’ve got added a few instances, as a result of we’ve got seen this spike of deliveries subsequent yr. However once more, order guide to fleet is 20% after which as I mentioned, there is a pent-up scrapping demand on this sector with plenty of ships above 20 years and even 25 years. After which additionally, you do have a market which is rising fairly quickly on the quantity aspect by way of exports as properly.
Final slide then earlier than going to the highlights, I discussed is I alluded to this, plenty of ships are leaving the worldwide commerce and ending up through the sort of captive Iran China commerce. My numbers, checking final evening is 44 ships now. This has grown from 30 to 44 ships. In order that’s additionally why you see much less scrapping. So it is a World Cup now in Qatar. The final time U.S. and Iran met one another was in ’98 and Iran gained 2:1. So, we’ll let see subsequent week whether or not what the outcomes might be of the brand new match.
So with that, I believe we conclude with the highlights revenues, $29 million, considerably weaker than Q2 because of our softer spot market. We’re producing $0.15 of earnings and paying out $0.20. Freight market has, nevertheless, turned the nook and gone from mushy in Q3 to tremendous sturdy now throughout This autumn. We’ve bought one other ship. We’re persevering with to resume the fleet by promoting the older ships and taking within the supply of our new twin gasoline ships. We’re 93% already lined for This autumn. The ships we’re usually fixing now could be for late December loadings, that means that these bookings might be turning up in our numbers in Q1 subsequent yr.
So we’re additionally then in the present day, we’re reserving excellent numbers for Q1 subsequent yr, and earnings relying a bit on the way you calculate it on $50,000 anticipated, for subsequent quarter, that means that we should always make much more cash for This autumn once we are presenting that in February subsequent yr. So with that, I believe I conclude, and I thanks all for collaborating. I want you all an excellent Thanksgiving. After which you’ll be able to get up tomorrow and it is Black Friday, and you should purchase our inventory, which has been tumbling in the present day.
So with that, Heidi, the operator, perhaps you’ll be able to open up for some questions.
Query-and-Reply Session
Operator
[Operator Instructions] We’ll take our first query.
Øystein Kalleklev
Someone is driving right into a tunnel. Okay. Okay. I believe why we’re ready you’ll be able to take a look at whether or not that connection is nice. We’ve had a chat query. It is a query I get each quarter on the Flex course as properly. It is mainly you may have plenty of money, easy methods to spend it. Liquidity with money steadiness, $188 million is big. It is inefficient to have a lot capital tied off since your new constructing program is already totally financed. What do you propose to make use of the money for? Will we see particular dividends like?
So it is a good query, a good query. I believe we’re paying out 135% of earnings on this quarter. For the yr it’s at 86% or so. We’ve had some asset gross sales, which is extra like one-off earnings, which has contributed to our earnings. What we did once we begin was — this spring was the sort of we noticed that we may get higher financing phrases within the banks. So when banks are keened to lend you cash, it is best to attempt to borrow. And so we refinanced mainly in virtually the entire fleet.
After which throughout this refinancing, we’ve got added plenty of money to our firm. How we’ve got structured that’s so as to add a major revolver capability, which at finish of the quarter is totally drawn. So — however how we handle that is to often draw it at finish of the quarter, after which we will repay this. So it is a versatile mortgage. After which when we’re not using the revolver facility, we’re solely paying a dedication price of 0.75%. So the price of having that revolver capability may be very low.
So I can perceive you suppose it’s extremely inefficient, however truly, we’re utilizing this revolver to flex down the money. So we’re sustaining a a lot decrease money steadiness frequently. After which one of many the explanation why we additionally did this was, in fact, the financing market was good, but in addition there was plenty of considerations about 2023 outlook with plenty of analysts placing in numbers the place folks had been bleeding.
After which the very last thing you wish to have is a state of affairs the place individuals are beginning to calculate your runway. How lengthy does the cash final? As a result of then you are going to destroy fairness worth, and we’ve got seen this on this identical firm prior to now when individuals are calculating how lengthy are you going to final. So what we’re doing then is so as to add plenty of money, which is a versatile money, in order that no person must make such calculations.
In fact, now the outlook for ’23 have turned over the past six months from being very dire to be very constructive. So no person is making this sort of calculations once more, however I believe it is smart for the Firm to have ample entry to liquidity, to alleviate any considerations if there’s a sure change in market sentiment that folks will suppose that, properly, I can sleep protected at evening. The Avance folks they’ve sorted out the financing properly, and we’ll be capable to stand up to even a tricky marketplace for one yr or two years and even three years. In order that’s why we’ve got plenty of monetary flexibility within the Firm.
That mentioned, I believe we’ve got adequate money. We most likely have greater than we want, as we at the moment are totally financed on the newbuildings. That is why we’re paying up 135% on payout ratio for the quarter, and we intend to not — a few of the delivery corporations, they brag, they’ll pay 50% of their earnings in dividends. We’re not going to brag about that as a result of we will pay 100%.
We’ve greater than adequate money, so we intend to generate all of the earnings we’re producing, we’ll ship again to you, buyers, in dividends. We’d have been fascinated about doing buybacks given the place the inventory is being priced in comparison with NAV. Nonetheless, we have already got exemption from the Oslo Inventory Change to be listed, as a result of the requirement there is no such thing as a shareholders ought to have greater than 75%.
Our greatest shareholder, Hemen Holding, managed by John Fredrikson & household personal 77% of this firm. In order that makes it a bit tough for us to purchase again the inventory. However as a substitute, we’re going to pay handsomely in dividends in the present day and going ahead.
So — after which, Heidi, did we handle to trace that man who’s driving right into a tunnel or no?
Operator
We’ve one query from the telephone line. So, this one is from the road of Climent Molins from Worth Investor’s Edge. Please go forward. Your line is open.
Climent Molins
Thanks for this very complete presentation. We’ll see plenty of deliveries in 2023, however the provide aspect outlook for ’24 and ’25 appear considerably extra enticing. You’ve got taken benefit of excessive secondhand asset pricing by disposing of a few of your strong property. Is there any urge for food to probably order extra new builds? Or is value unattractive at present ranges?
Øystein Kalleklev
Okay. Thanks. Good query. Sure, as Randi mentioned, we contracted six newbuildings that, I’d say, name it, the underside of the market, $80 million. So they’re $95 million in the present day on our steadiness sheet. They are going to be — have a historic price of $80 million, not $95 million, which is the value in the present day. So, it is mainly virtually 20% above guide values in sort of asset values for these ships. After which we’ve got been promoting ships at round 12%, 13% uplift to guide values as properly on the older ships. That is on price. So it would not actually have an effect on view by way of making new investments.
I believe one of many difficult issues for us is that we’ve got a inventory value, which is buying and selling properly beneath guide worth, and the guide worth is properly beneath NAV worth. After which, if it is advisable to elevate fairness, you might be diluting shareholders. So, it is not likely accretive development for the Firm. Nonetheless, we do have some surplus money we may most likely to work. Nonetheless, we additionally wish to pay the excess money as dividends. In order that’s — it is a high-quality steadiness for public listed delivery corporations, the place it is arduous to be concern if you end up within the public market as a result of most delivery buyers will not be actually opposite and they’re cyclical.
In order that signifies that plenty of the delivery corporations, they may have an excellent inventory value when the markets are purple sizzling. And often, when the market is purple sizzling, newbuilding costs are additionally fairly agency. Which means the general public delivery corporations like my colleague Olga has mentioned prior to now, this system to do unwise funding choices as a result of they’re investing on the prime of the market that precipitated the inventory value is on the peak then.
So we attempt to be a bit smarter on this group of corporations. We’ll think about it. I believe we’ve got had the order guide 20% of fleet. Newbuilding costs have been selecting up. Deliveries tons now are extra ’26. So, sure, we’ve got regarded into it. However up to now, we’ve got thought of that the most effective various for our shareholders is that we concentrate on chartering our present ships, taking supply of our present ships and maximizing dividends for our shareholders somewhat than constructing extra ships.
Climent Molins
That is very useful. And certainly on buying and selling beneath NAV, issuing doesn’t seem to be the most suitable choice. And turning in direction of Pampero, you fastened it on a one-year contract. May you present some perception on the speed you locked it in? And also you additionally talked about the 2023 FFAs implied this yr of round $40,000 per day whereas freight charge from the arbitrage is even increased. How is the 2024 FFA curve taking a look at like in the mean time?
Øystein Kalleklev
Okay. A few questions there. So it is advisable to begin with the primary one. Sure, we did the Pampero, it is reported to be mid- 30s. So, we fastened this some time again earlier than the market took off. So in the present day, that may sound a bit low-cost when you are able to do the FFA at $47,000. Nonetheless, you are evaluating a bit apples and bananas there, as a result of the scrubber unfold is $10,000, $12,000.
So the Pampero fastened is a non-scrubber ship and once we are doing the FFA, we’re getting into the FFA. After which we’re hedging the IFO 380 heavy gasoline oil as a result of our final spot ships are scrubber fitted. In order that when you’re making mid-30s on a one-year time constitution non-scrubber, you need to be making mid-40s on a scrubber ship. In order that was query primary.
And then you definately had one thing concerning the FFA for ’24. Sure, it is round $45,000 for scrubber ship in ’23. Subsequent ’24 is decrease. So for scrubber, I haven’t got the quantity in entrance of me, however I’d — my guesstimate in the present day is someplace round $35,000 to $40,000, however please do not shoot me down on that, however it’s softer and that is why we’ve not fastened something for that calendar yr. And take into accout, the FFA market can also be very illiquid. However if you’re out there for a time, you will get some offers achieved.
Sure. Was there any extra questions? I believe there was a 3rd one, was it?
Climent Molins
Sure, that was it. That is all for me. Thanks very a lot for taking my questions.
Øystein Kalleklev
Okay. Thanks. Okay. Then I believe we conclude. Thanks once more, everyone, additionally for contributing questions. That is all the time probably the most nice a part of doing this webcast.
So thanks once more, everyone, and have an excellent Thanksgiving, and we’ll discuss to one another once more in February once we are reporting tremendous sturdy This autumn numbers. Thanks.
Operator
Thanks. This does conclude the convention for in the present day. Thanks for collaborating, and you could now disconnect.
