BW LPG Limited

Ladies and gentlemen, welcome to BWLPG Second Quarter 2020 Financial Results Presentation. We will begin shortly. You will be brought to the presentation by BWLPG CEO Anders Unnohain, CFO Elaine Ong, and ETV Commercial Niels Riegel. They will be pleased to address any questions after the presentation. Should you have any questions, please press star 1 on your telephone keypad or type your questions into the chat box on the website. You will receive further instructions as required. Certain statements in this conference call may constitute forward-looking statements based upon management's current expectations and include unknown and known and unknown risks, uncertainty, and other factors many of which BWLPG is unable to predict or control that may cause BWLPG's actual results, performance, or plans to defer materially from any future results, performance, or plans expressed or implied by such forward-looking statements. In addition, nothing in this conference call constitutes an offer to purchase or sell or a solicitation often offer to purchase or sell any securities. With that, I'm now pleased to turn the call over to DWLPG CEO, Mr. Anders Omaheim. Please go ahead, sir.

Thank you. Welcome to the presentation of our results for the second quarter of 2020. As you heard, I'm here joined by our CFO, Elaine Ong, and our EVP commercial, Nis Regal. We appreciate your interest, and we'll take questions at the end of the call. Let me start by saying that I'm very pleased with our 2Q results, particularly when we take into account the circumstances. Both the COVID-19 and oil price disruptions, they put our entire organization to the test, both at land and at sea. Crew changes became a huge challenge. Inspections were almost impossible to conduct. and the volatility in the market made it very difficult for the commercial team. In addition to Agile Work Challenge, they're working from home, of course. I'm therefore very proud to lead such a competent and agile team. So, if you go through the presentation, please go to the slide four, the highlights. The TCE rates on our VLGT fleet averaged 39,100 per day. This was generated in net profit after tax of 62 million for an earnings per share of 45 cents. With our continued strong financial performance in the second quarter, we have now achieved a year-to-date return on equity of 24 percent, and we have generated $300 million of free cash flow. We are also pleased to announce that we continue to return cash to our shareholders. The Board has declared a Q2 cash dividend of 15 cents per share, amounting to $21 million. And with this dividend, we have year-to-date paid 35 cents, which is about 34 percent of the $1 $1.03 in earnings per share that we first had. Our dividend policy remains to target a payout ratio of 50% on an annual basis. However, since we pay on a quarterly basis, the Board has found it prudent to pay out less than 50% for the first quarters. This, of course, leaves room for some upside in the last two quarters. We are retrofitting the world's first LPG dual-fuel engines on the BW Gemini and the BW Leo, and with this clearly taking the lead and advancing technology towards zero-carbon fuel propulsion. You can see the picture of the deck tanks ready for installation at the yard on the left side. They're huge tanks. We continue to be fully committed to our 12 dual-fuel engine conversions, given the substantial environmental benefits that this gives us. DMV has confirmed that installing new technology on existing vessels generates 97% less carbon emissions than the construction of a new vessel. This means that building new vessels with LPG propulsion is hard to justify from an environmental perspective when you can actually convert. And we hope that the industry will follow our lead and upgrade the fleet rather than build new. We also hope that our customers will see and take advantage of this benefit when tendering for their longer-term charging needs. Finally, we have also started to collaborate with Hafnia, our affiliate company, on bunker procurement. Hafnia supports bunkering over 450 ships, so they're a major player, bringing economies of scale and best-in-class bunkering logistics to our firm. As we also previously announced, we have concluded the sale and delivery of Berger Summit to our new owner for further trading. The sale has generated US$9 million in liquidity and a net gain of $4 million. The successful completion of that transaction, I think, demonstrates our asset management strategy. We will continue to evaluate for investment and divestment in the quarters ahead. We now own and operate a fleet of 46 modern VWCs with an average age of 8.7 years. Turning to page five, let me then review the key financials of the quarter. So in the second quarter, we positioned our fleet to capture the strong market in the first half of the quarter. and protect ourselves with increased time target coverage in the marketed bottom at the end of June. With a strong commercial and operating performance, we achieved a daily rate, as mentioned, of 39,100 for the VLDC segment. This allows us to continue generating strong returns for our shareholders with return on capital employed of 12% and return of equity on 21% for the quarter. The annualized earnings yield measured as EPS divided by our share price at quarter was 58%. Our net leverage ratio decreased from 58% in the second quarter of last year to 46% at the end of the second quarter this year. This is a level we are very comfortable with. Once again, we have returned cash to shareholders. At the same time, significantly paid down our debt to a comfortable level. REVP Commercial, Niels Vergaard, now we'll take you through the market review and commercial update. Niels.

Thank you, Anders. Let me start with a summary of the VLTC market outlook. We are currently witnessing a strong V-shaped recovery in the VLTC market. At the start of Q2, we had a freight rate around $50,000 per day, but it declined sharply down to $10,000 at the end of the second quarter. Now, in the middle of the third quarter, will receive freight rates have recovered to level we last saw at the beginning of Q2. Looking forward into Q3, LPG production and export out of the US are holding up well with the export at similar level to 2019 and inventories still well above the five years average. LPG export out of the Middle East are up 17% or about 11 cargoes in August compared to the average export level from May to July. This as a result of OPEC gradually reducing their production cuts. For the medium term, meaning Q4 and 21, freight rates are also supported by inefficiencies from bunkering delays, crew changes, and heavy dry dock schedule. In 21, we expect that over 20% of the fleet will be dry docked. We maintain a cautious view for 21. but highlight that a recovery to a higher oil and gas price environment would support a more positive outlook. As you can see from slide 8, traded LPG volume fell by 9% in the second quarter, but we have seen recovery in import demand in both Asia and Europe in the third quarter. The positive news in Q2 on the demand side is that China is back and has started to import LPG from the U.S. again. Last time was in 2018. At slide 9, you will see EAEIA short-term energy outlook released in August. They still anticipate a growth in US LPG export by 13% in 2020, but expect next export to decline by 10% in 2021, up from their April update, which was expected an 11% decline. The forecast is based on the WTI price of $40 for 21. On the next two slides, we want to give you a better understanding of the LPG demand drivers. Global LPG demand is about three times larger than the seaborne LPG trade. The LPG domestic production in Asia is not able to meet the rapid growth demand. is the largest sector for the total LPG demand, consuming about half of all the produced LPG. 2.1 compound annual growth that we have seen historically would equate to roughly 3 million tons of LPG additional demand per year, or roughly eight additional VLTCs a year. In addition to retail, LPG demand is also driven by the chemical and refinery sector. On slide 11, we show that demand for LPG in China is driven as much by chemicals and refineries. In China alone, over seven PDH projects are under construction and scheduled to come on-stream from 2020 to 2023. The total propane requirements for these are estimated to be over 4 million tons per year. Turning to slide 12, the new building order book now stands at 11% of the current fleet, with two new confirmed orders since our Q1 earnings release. 60% of the order book is LPG propulsion. However, there are no reasons to order new ships to make the fleet more efficient. More than 150 existing ships can be retrofitted. From an environmental standpoint, New builds do not justify the CO2 savings, with a CO2 payback period of over 15 years, contrary to a retrofit of only six months. Think reuse. Turning to slide 14. Q2 was the quarter COVID-19 hit the WGC sector. Total sea-borne LPG trade decreased 9% year-on-year, mainly driven by decreased exports from the Middle East. OPEC Plus started the historic production cuts in May. As such, LPG export from the Middle East dropped by 12%. Anticipating less cargoes out of the region, we positioned our vessels toward the U.S. and fixed only 10% of our fixture in the Middle East. U.S. export remains strong, with volumes transported by VLDCs up 7% from the same period last year, despite oil production reduction. The WTI oil price went negative in April, disrupting WTC trade. During this period, product services demonstrated its capabilities in supporting shipping performance by improving our commercial utilization. European import demand came to a complete halt due to the lockdown measures. However, this was offset by the increases in India and Brazil, where the sudden increase in import caused delays and discharge ports and many ships were stuck for weeks. The decreasing import demand resulted in an oversupply of fleets in the market and freight rates started to drop. We reduced the fleet capacity by slow steaming and sailing the longer route to the Cape of Good Hope instead of via the Panama Canal. The collapse in VLC freight rates at the end of June will impact our Q3 performance. For Q3, we have fixed about 80% of our fleet-wide available days at an average rate of about $27,000 per day, basis discharge to discharge. However, the current strong rate environment will most likely translate to higher earnings in Q4, making the third quarter our weekly quarter this year. Slide 15 shows that our strong performance this quarter was driven by a high utilization in combination with a well-positioned fleet that allowed us to capture the strong spot market in the quarter. Turning to slide 16, in the second quarter, before the rates collapsed, we increased our time-sharded coverage from 16 to 25% for 20 and from 5 to 14% for 21. We have now covered our TUC-IN exposure for 2021 at a profit of $2 million. With that, I will hand back to Anders, who will share some technical highlights.