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Good morning, everyone, and welcome to the first quarter 2022 results presentation of KCC. I'm Engebret Dahm, CEO of the company. And together with me, I have Liv Dyrnes, CFO. As novel, please choose the webcast solution to write in your questions, and we'll go through it at the end of the presentation.
So we in KCC, we own combination carriers that are both tankers -- product tankers and dry bulk vessels. And now in product tanker mode, they compete against MR and LR1 tankers. And in dry bulk mode, they compete against Panamax and Kamsarmax dry bulk vessels. We have 2 types. We have our CABUs, the traditional business, transporting mainly caustic soda in tanker mode. And we have new CLEANBUs that last delivered last year, which are also transporting various oil products.
Our business is to transport wet cargoes into regions that are big exposures of dry good commodities, which is typically South America and Australia. And the map we normally show is to Australia, where we combine southbound transportation of CPP and caustic soda with northbound driving volumes with a minimum ballast of 10%, very efficient. While competing standard Panamax and product tanker vessels sail long distances without any cargo on board due to the underlying trade flows.
So our ships transport far more cargo than the standard vessels, which has 3 implications. Firstly, we have lower fuel consumption and CO2 emission per tonne transporter. Secondly, we have far higher earning days that positively impacted the earnings. And lastly, we have a positive effect of higher fuel prices. Standard vessels get compensated through the freight mechanism of higher fuel prices, while we get overcompensated due to our efficiency. To share more insights into our business, how -- what's shaping our markets and how we are moving forward, we have started a podcast series where various team members of KCC will present the episodes together with invited guests. So you can find this podcast on our webpage or on Spotify or Apple or other places where you normally find podcasts. So please, tune them.
Looking at the first quarter, it was another very volatile quarter in both the tanker market and the commodity markets. The dry bulk market and especially tanker market had a slow start of the year, where the fuel markets rose and tightened consistently through the quarter. After Russian invasion in Ukraine, the product tanker market had a fantastic recovery, bringing all the 3 markets, which impacted earnings of our company at 2 strong levels. For KCC, we had a satisfactory earnings in the first quarter. The earnings of average time charter earnings of $21,600 per day, which is slightly above the earnings range we guided for in the last quarter. This matches roughly the earnings of the Panamax and Kamsarmax spot market and it's about twice the spot market earnings of product tankers in the quarter.
Looking at the adjusted EBITDA, it was $17.8 million, which is in line with the third quarter last year, but around 9% lower than the fourth quarter. The CABUs had very strong quarter. The CLEANBUs as expected and guided a weak quarter, while OpEx came down substantially below the fourth quarter results. After more than doubling the dividends from the third quarter to the fourth quarter last year, we are pleased to announce a dividend increase of 80% from the fourth quarter to the first quarter with a dividend of $0.18 per share, which equates to a dividend yield in excess of 11% running yield.
KCC, as we normally like to tell you, has the lowest emission shipping solution, the dry bulk and the tanker markets. Our customers can cut emissions by 30% to 40% from the seaborne freight by just replacing the standard vessels by our ships. As the shipping world is forced to decarbonize over the coming years, this competitive advantage will just increase in importance going forward. And that is why we believe in KCC that the best way to create value for stakeholders is to prepare for what's to come. And that's why we are scrutinizing every option we can to improve the energy efficiency of ships and to reduce the emissions and the efficiency of operations. So we have strong targets to improve further the carbon efficiency advantage of our operation over the coming years to at least 50%, 60% within 2025.
We have over the last 1.5 to 2 years, used a lot of resources to identify, to test and to start implementing various energy efficiency initiatives on our fleet. To date, it has been mainly small to medium-sized initiatives with a price tag from $20,000 to $250,000 per initiative per ship. And -- but since last summer, we have worked extensively on a large and complex retrofit involving Silverstream air lubrification system, a new version and innovative version, combined with an efficient shaft generator. In totality, these 2 initiatives shall reduce emissions by more than 10%. 2 weeks ago, we were pleased to announce that we've entered into a contract with suppliers for trial on 2 ships, 1 CABU and 1 second generation -- sorry, second generation CABU and 1 CLEANBU vessel, which will be implemented in second and third quarter next year.
Including the grant from ENOVA, funding of NOK 8 million, we expect cash-on-cash payback of about 8 years based on the average fuel prices to date in 2022. This initiative is part of a bigger program as mentioned. We have identified in total 12 initiatives that will be rolled out on our fleet, bit differing from ships type to ship type where we put most efforts into the most modern ships that has the longer payback time and the remaining life. So we have the targets for these initiatives identified is to bring down emissions on our modern ships by 20% within 2025 and by 10% for older ships. We have more initiatives that we are studying carefully. So there are more to come.
We already see the effects on energy efficiency initiatives on our reported average CO2 emission per ship where we have a target of reducing the average emission by 15% from 2018 to 2022. The first quarter results were in line with the target. So we are -- even though that the quarterly reported figures may go up and down, we are confident that we will meet or exceed this target in 2022. We are admittingly behind when it comes to the carbon intensity.
We have -- the first quarter results on the carbon intensity is 7.3, which is fairly in line with the 2021. We see that we have a low EEOI for modern CLEANBU fleet, which is down at 6.3, which is very close to the target. But our cargoes have a average EEOI of around 8.5, which is impacted in the first quarter by some one-offs as we were positioning 2 CABU assets from Atlantic to the Pacific with -- in the dry bulk market. And due to the Ukraine crisis, there have been some delays and rerouting that has impacted results. So we're up for the next quarters to show improved EEOI coming closer to the target of 2022 of 5.8.
We have, as mentioned, earnings derived from 3 different markets, from the dry bulk market, the product tanker market and the fuel markets, which are uncorrelated and hence give the positive diversification effect and risk reducing effect on the earnings of our company. Looking at the different markets, the dry market peaked at $39,000 per day in October last year and fell down to around $16,000 in early February, and it's up again to $29,500 per day yesterday.
The tanker market had a fairly opposite development, keeping at very low levels from some of 2020 up to and February 20 -- this year 2022. After the sudden tragic invasion of Russia in Ukraine, the product tanker market has boomed. And we are now yesterday, we are at above $50,000 per day for the average for the LR1 tankers. The fuel prices have increased suddenly over the last 2 years from $200 per tonne up to around $900 per tonne this week. Looking, so basically, we have all 3 markets that are impacting KCC's earnings are strong for the first time since the China boom, which, of course, will drive the earnings of our company over the coming quarters.
Looking at the dry bulk market, it's keeping up speed. We are seeing that year-to-date, the demand increase measured as deadweight miles have increased by 2.5%, a seasonally low quarter. But a lot of things have happened, which are more macro and geopolitical events. Starting up at the top of this graph in blue, you see the effect of the ban on Indonesian coal exports, and the scale is 7 million tonnes per month. So you're seeing the enormous effect in terms of seaborne volumes of coal impacted by this ban in January, partly explaining the market development. You also see on the bottom the effect of Ukraine crisis, where you see the steep production in exports of the Black Sea grain. You also see the reduction in exports of Russian coal at the bottom.
So while the Russian Ukraine and grain export and Russian coal export fall has been mainly compensated by exports from other regions with increasing tonne miles, there is -- we are seeing also the China situation has with strict COVID lockdowns having the impact on the market, reducing imports, but at the same time, increasing substantially the congestion in the dry market and in the other markets. So in totality, the dry bulk market situation, there are uncertainties for sure. But the demand supply balance look solid. And the risk, of course, is reduced by a record low order book, now down at 6.6% of the current fleet and all-time low.
The tanker market, of course, it has been impacted by the crash in oil demand and oil production after the COVID in pandemic in 2020. And of course, we have seen that quarter-by-quarter, the fundamentals has improved and market has rebalanced. Looking out to the left, we see the increased oil and oil consumption and production increasing. As you see, the black line, which is production is below the demand line in blue, meaning that we also see that the oil inventories has been falling substantially both in 2020, 2021 and is now, as you see on the bottom to the left, at very low levels historically.
So this was the reason this dynamics that we estimated when we met in the February, presenting our fourth quarter '21 results that the oil markets would recover in -- at the end of this year. But the Russian innovation to Ukraine, of course, changed everything and has had main impact on the tanker market, more the product tanker market than the fuel market. We are seeing a steep increase in oil product prices with a record high refining margins with a crack spread being 5x higher than the last -- average over the last 30 years.
And we've seen the problems with -- in Europe, with Europe being dependent on product imports from Russia and also crude imports from Russia that now has to be replaced by longer haul imports, driving up tonne miles and demand and tightening the supply/demand balance. So we think that the supply/demand balance and outlook for the tanker market looks strong. And of course, again, having a record low order book, now down at 5% of the fleet, of course, reduces the overall risks in the market.
Looking at how we are positioning ourselves, we are, of course, given that we are -- we know how -- fixed more or less the whole fleet well into June. We are 75% of the tanker capacity of the ships are now booked for the second quarter. And for the second half, it's slightly below 30%, which is mainly a contracts -- caustic soda contracts for our CABU fleet. For our dry markets, a bit the same. We have fixed around 80% of our dry bulk capacity for the second quarter. For the second half, we have some FFAs and also some options that in totality gives a coverage of around 1/3 of the capacity. And also, you see the same if you take the total capacity, both dry bulk and tanker capacity and contracts, we are covered at around 80% for the second quarter and around 30% for second half. So with the prospect of strong markets, we have a lot of upside potential in our business.
We have, over time, shown that we are able to more or less consistently deliver higher time charter earnings with relatively margin on the higher OpEx and CapEx than the standard markets. And over the last 6 years, we have had around 1.5 to 1.6x the standard tanker and dry bulk markets. The CABUs had a good start of the year. All our KPIs are impacted by this positioning of CABU ships from the Atlantic to the our new main trading area in the Pacific, after closing down the Brazil business last year. So we see that the CABUs have with a lower share in the tanker market than in dry bulk big market than what is normal. We also see how that the days in combination trade even though increasing are lower than what we normally have. The target in CABU should be something like 90%. But you see that the ballast are down any quarter to around 13%, which is quite strong.
So this has been a good quarter. As I said, with the earnings are up around $1,500 per day compared to the fourth quarter. And compared to the average for 2021 around $2,700 per day up. We are pleased to see that we are outperforming the standard Panamax Kamsarmax bulkers by 1.2 and also the standard MR tankers by more than 2. Looking on the CLEANBUs, we are pleased to see that we are step-by-step improving the business, adding on new customers and increasing the trading of our ships.
We are seeing here on the graph to the right that we now have fixed CLEANBUs with 14 customers and another 12 customers that have confirmed that the ships -- they are pleased to use the ships. We are not talking about customers within the clean petroleum markets. This is critical for us to build the CLEANBU business is to expand the number of customers to ensure that we have the right cargoes in the right trades at the right time and to improve the rental pricing compared to the standard markets. So we have shown solid progress on that over the recent quarter.
Looking at the first quarter, we see a good trading on the CLEANBUs and normal split between dry and wet. We see a high percentage of days in combination trading. We had only 1 ship trading in dry, which was a [ fix ] to be made before the New Year. And we expect this to go up again in the second quarter and the rest of the year. The target is to be above close to 90% in combination trade. We'd also have to see the efficiency of our business, where we have only 7% balance on the CLEANBUs in the quarter, yet again showing how we are improving step-by-step the business.
The earnings, unfortunately, are more -- what is a bump in the road, having the -- with earnings falling by around $5,000, $6,000 per day down to $18,990. And this is the fact of the extremely poor LR1 market in the Middle East in January and February, where we made some fairly low fixtures. The average TC5 index at the time was $1,500 per day for January and February, which is pretty low, I can tell you. We also were impacted by a low weak Atlantic market in February for the positions we had in South America. And also we had some waiting time. But still, we managed to narrow the gap to the Kamsarmax earnings, spot earnings, so adding that, then 0.9% and also outperforming the LR1 market by 1.8.
Yes. Then over to some more financials. Adjusted EBITDA decreased 9% Q-on-Q. We sold 1 vessel in Q4 last year here, resulting in an effect Q-on-Q of $0.5 million negative. The CABU TCE earnings, as Engebret mentioned, increased by approximately $1,500 per day in total $1 million in change Q-on-Q. While the CLEANBU TCE earnings decreased by approximately $5,500 per day and total $4 million in change. We saw very low operating expenses for Q1, in total a change of $2 million Q-on-Q. Hence, adjusted EBITDA ended at $17.8 million for the quarter.
If we have a look on off-hire as well as operating expenses, you will see here that scheduled off-hire amounted to 40 days in Q1. They are all related to COVID-19. The main part, 32 days related to infection on board 1 vessel and hence, restrictions related to port calls. I think it's important to mention that it is 2 years since we last experienced infection on board. And we see related to COVID-19, like different developments. For example, we experienced that it's easier to change crew due to ease in restrictions in some parts of the world, while the closedown in China, of course, impacts trading and operating into the exports as well as dry docking negatively.
Operating expenses per day, approximately $7,000 for the CABU vessels and $7,750 for the CLEANBU vessels in average for the quarter. This is down between $1,100 and $1,300 per day Q-on-Q. We do expect this to increase over the coming quarters, and the general cost increase globally as well will probably impact these figures going forward.
How you see the full P&L for Q1 as well as Q4 last year. In addition to the items that I have already gone through, you will see here that the SG&A and depreciation is quite stable Q-on-Q. Net financial items has improved by approximately $1.3 million, mainly related to negative one-offs in Q4 related to foreign exchange. Profit for the quarter ended at $7.3 million, down from $15.1 million last quarter. However, if we do adjust for the one-off last quarter, mainly related to gain on sale of vessel, the Q4 as well came in at $7.3 million underlying profit and so stable development. Dividends per share, $0.18 for Q1, an increase as Engebret mentioned, of 80%, both based on the strong -- or continued strong financial performance in Q1 as well as the positive outlook for Q2.
As you can see here, no big events related to the cash flow this quarter, in addition to adjusted EBITDA and working capital changes amounting to in total approximately $25 million. You will see the usual elements such as CapEx related to dry docking, $1.2 million. Debt service, $9.5 million. We as well repaid the overdraft facility by $2.4 million and paid dividend in February of $5.2 million. Hence, the cash position for the quarter or the end of the quarter ended at close to $57 million and available liquidity close to $107 million.
The solidity as well improved through the quarter. Equity ratio at the end of March ended at 42%, up from 40% at year-end 2021. We have no major refinancings coming up before December 2023. We see stable margins related to mortgage debt, approximately 2.3%. And then I think in today's interest rate environment, it's important to tell you that we have hedged approximately 50% of the LIBOR exposure for -- and LIBOR exposure for 2022. To wrap up, I would say that we continue to deliver strong financials for Q1. We see improvement in both solidity and the liquidity position. Equity increases to 42%, as mentioned. Dividend yield 11%, up 80% Q-on-Q and a very positive outlook for Q2.
Engebret, you will give us some more details related to the outlook.
Thank you, Liv. So I have -- to summarize, I have stolen the heading from Jorgen Lian in DNB Markets latest report, illustrating that all our 3 markets are strong at the moment, which, of course, creates a fantastic earning capacity for our company. Even though there are increasing macroeconomic uncertainties, we believe that both the dry market and the tanker market and the fuel markets will remain strong for a number of quarters out in time. But of course, the risks are there. So but still, we -- the good thing is that in this market, we are able to better position to pull further our business, expanding the CLEANBU customer base and improving the trading, which, of course, creates the fundamental for the business, make it stronger and more resilient once the market may weaken at some stage in the future.
Looking at the second quarter, we had fixed, as mentioned, close to 80% of the capacity based on the fixed earnings, the estimates and the forward market. We are guiding for a substantial increase in earnings for the carbon from $24,300 million in the first quarter, up to between $28,000 and $30,000 per day in the second quarter. [indiscernible], you see a big increase in earnings for the CLEANBUs, jumping up from close to $19,000 per day in the first quarter, up to $27,000 to $29,000 per day in the second quarter. So on average, we are up by -- substantially up in the second quarter, and we do look forward to show you what the earning capacity of KCC is when all stocks are aligned, which is the current situation with 3 markets strong.
So to wrap up again, we believe we have a business model that is more future proof and profitable than most shipping companies. We have the lowest carbon emission shipping solution, a competitive advantage step would become more and more important going forward. We have a much lower earnings volatility. And with the risks out in the market, that would be good to have in the coming years. And thirdly, our efficiency. Through efficiency, we are able to deliver higher earnings and higher profitability than the standard markets.
So that summarizes our presentation, and we are ready for questions.
Yes. Thank you, Engebret. I have a question here asking if you can say a bit more about your exposure to Ukraine.
So we don't -- our trading on the CABUs and the CLEANBUs, we have very seldomly in Ukraine and Russia. As mentioned, the situation in the first quarter was a bit special, given that we were repositioning 2 ships from our trading in the Atlantic, which we closed down in at the end of 2021 to Pacific, and we were supposed to load grain cargoes in the Black Sea and February and early March. So these ships were redirected to loading in U.S. Gulf. And we luckily avoided to have the ships into the Black Sea when the war broke out. Otherwise, we have no Ukrainian Russian crew. We have no financing in Russia or Ukraine. So we basically have very little exposure, direct exposure to Russia and Ukraine, which I think is good. We are lucky in that terms.
The next one. When do you expect to have higher income from CLEANBUs versus CABUs?
I think it may be even in the second quarter. It is -- I think we are -- the important thing for us, as mentioned, is to increase the number of customers, to increase the efficiency of the operation and a relative pricing. We have had a little bit too much waiting time. We have had some trades back in time, which are not ideal. We have had 2 long ballasts last year. So I think it's by working step by step, but to fine-tune the business, I'm pretty certain that coming into the second year with these market assumptions, the CLEANBUs will earn more than in CABUs.
Yes. Good morning, Liv and Engebret. Could you provide a sensitivity of fuel prices to earnings, i.e., what will be the average U.S. dollars per day effect from a $100 a tonne charge -- change in the fuel price?
So we are saying that -- all other things equal, and this is a bit difficult to calculate, but we are saying that $100 up on the fuel should equate to somewhere between $500 and $800 per day earnings increase. And that, of course, varies a little bit when it happens and how much impact are implemented or reflected into our contracts.
Next. Q2 guidance is strong, but are there any inefficiencies or improved combination opportunities that could improve the results even farther in the future, assuming same underlying dry and wet markets?
I think what we had experienced and also which is reflecting in the guiding is that we from Middle East typically have picked up MR-sized cargoes into the regions where we get the efficient combination, which, of course, is somewhat inefficient while the ships can transport close to 80,000 tonnes of clean petroleum products. We have in some fixtures made only booked cargoes for around 40,000 tonnes. So of course, that's the main driver. And also, we have had -- and also it's impacted in the earnings guiding, too much waiting time on some fixtures. Then, of course, as we book more customers and get up to volume, we expect this to improve further. So yes, there is definitely an upside potential in the CLEANBU earnings. And as we go forward, irrespective of the markets.
Investments have remained muted over the past quarter and since the company raised equity. Could you elaborate on your planned investments, including dry docking for 2022 - 2023?
I think we are -- given the lead time for these energy efficiency measures to get them delivered, the main investments will be in 2023, where the big ticket item will come. There is -- Liv, I think you have to complement me -- help on…
Yes, if you look at Slide 40 in the presentation, there, we'll see an overview of the upcoming energy efficiency measures and dry docking. So in Q2, the estimate is $3.6 million and $4.1 million in Q3 and then close to 0 in Q4.
Yes. That's it.
Okay. Thanks a lot. Thank you for joining. Stay tuned. Thank you.