BW LPG Limited

Ladies and gentlemen, welcome to BWLPG's third quarter 2020 financial results presentation. We will begin shortly. Bringing you through the presentation today will be CEO Anders Ornheim, CFO Elaine Ong, EVP Commercial Niels Riegel, and EVP Technical and Operations Pontus Berg. They will be pleased to address any questions after the presentation. Should you have any questions, please press star one 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 unknown risks, uncertainties, and other factors, many of which BWLPG is unable to predict or control that may cause BWLPG's actual results, performance, or plans to differ 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 of an offer to purchase or sell any securities. With that, I'm now pleased to turn the call over to BWLPG CEO, Anders von der Heim. Please go ahead.

Thank you. Welcome to the presentation of our results for third quarter, the period ending on 30th of September this year. As usual, I'm joined by our CFO, Elaine Ong, our EVP commercial, Neil Frigaud, and also with us today is EVP technical and operations, Pontus Berg. Thank you for taking the time, and we'll take questions at the end of the call. The good old saying that when the going gets tough, the tough gets going. I think that's been, I think, a motto, I think, for all of the whole shipping community, and certainly it's also been that for us. And I want to start by really thanking and complimenting the whole team from officers and crew and colleagues for, I think, great effort in very, very difficult times. I think also, again, it's a very tough quarter. I think the team has delivered not just a solid Q3 result, but also I think we delivered the world's first VLGC that's powered by LPG propulsion technology. Of that, we're very proud. We've had to navigate COVID-19 restrictions, oil price disruptions, and uncertainties in both workplace and daily lives. And as I said also in the last quarter, COVID-19 has made career changes almost impossible, inspections were difficult to conduct, and volatile markets kept the commercial team certainly on their toes. So again, I'm very proud to lead such a competent team. If we go to slide four, the star for this quarter is clearly BW Gemini. It's the world's first very large gas carrier to be retrofitted with the pioneering LPG propulsion technology. The Gemini is currently on a historic Trans-Pacific voyage on full LPG propulsion to the Enterprise Terminal in Houston. We really think that LPG as fuel is a promising solution for sustainable shipping. And as you know, we have committed over $100 million to retrofit 12 of our VLGCs with this new technology. And because we think it makes sense from an environmental point of view, operational point of view, and economic point of view. We're pleased to bring BW Gemini to you. in the form of an augmented reality model that you can download using a mobile device. A video is also available on YouTube and on our website. So, to page five, the highlights. Again, I think, you know, we delivered a solid quarter despite significant volatility. TCE rates on our ability fleet averaged 26,800 per day, and generating then a net profit after tax of $25 million, or earnings per share of 18 cents. So far this year, we have now achieved a year-to-date return on equity of 19% and generated $400 million of free cash flow. And I'll continue to focus on returns. Again, I see the community very often talking about net asset value. In our business, we really think focusing on return on equity, return on capital employed, is really what matters. We're also happy to announce that we continue to return cash to our shareholders. The Board has declared a Q3 cash dividend of 15 cents per share, amounting then to $21 million. With this dividend, we have year-to-date paid $0.50 per share. This represents 42% of our accumulated earnings per share so far this year. Our dividend policy remains the target, a payout ratio of 50% on an annual basis. And this, of course, leaves room for some upside in excess of 50% in the last quarter. But again, that's for the Board to decide. Turn to page six. Our rates collapsed to OPEX levels at the end of the second quarter and recovered to above 40% later. And of course, this makes a huge challenge for the commercial team. At $8,000, you really start wondering if you should secure more at 15 or even 18 or 20. So it was a tough quarter for us to make decisions. Of course, the V-SHIP recovery in the market makes Q3 the weakest quarter in this year. And we can already say that looking ahead. So our day rate, including both spot and time of charging earnings, averaged $26,800 per day in the third quarter. And again, this allows us to continue to generate returns for our shareholders with the return of capital employed of 6% and return of equity of 8% for the quarter. We have significantly also paid down our debt. Our net leverage ratio has decreased from 54% in the third quarter of 2019 to 44% this year. So again, we managed both to earn good money, take down our debt, pay dividends, and still put some on the bank. Now, Nils Riegel will take you through the market view and the commercial update. Nils.

Thank you, Anders, and good afternoon, morning, and happy Friday to all of you. Today, the LDC freight market is strong. It seems like the world is behind us with rates stabilizing at around $50,000 per day. This is supported by resilient U.S. export, recovery from the Middle East, widening arbitrage, and reduced fleet supply due to shipping inefficiencies and dry docks. We have fixed approximately 80% of our Q4 spot and time charter available days at an average rate around $36,000 per day on the discharge to discharge basis. We have upgraded our view for the medium term, and we have a more optimistic view for 2021. We still believe that the US LPG production remains sensitive to oil and gas prices, but that has proven to be more resilient in a low-price environment. In the meantime, the pace of recovery in the Middle East follows the OPEC Plus production curve. medium-term B&C trade market also continue to be supported by shipping efficiencies from port delays, bunkering delays, crew changes, and heavy dry dock schedule. We expect that over 23% of the fleet will be dry docked next year. Slide nine. In Q3, US LPG exports continue to offset polling supplies from other regions. We have seen both Q3 and year-to-date import into China to fall. However, we now see Chinese import recovering with incremental demand from the new PDH plants. The decrease in Chinese import was offset by strong import into the other regions. Year-to-date imports to both Japan and South Korea have increased significantly. India continues as the most consistent and meaningful driver of LPG demand and is now the second largest LPG importer after China, with LPG demand up 12% year-to-date. Notably, India started to import from the U.S. since last year. The duration of the voyages is more than four times compared to the voyages from the Middle East, supporting Tongma demand. Since 2011, Number of cargoes imported into India has increased from 70 to 270, an annual growth rate of 19%. BW LPG has chosen to take part in the Indian growth story and has increased our presence with more TC fixtures and additional sale of one vessel into our JV in India. Turning to slide 10 about US LPG production, you will see robust US LPG production despite lower oil and gas production compared to 2019 levels. US LPG production has been strong. According to EIA, as of the 6th of November, average daily US LPG production is 2.6% higher compared to the same period last year. This is supported by higher gas content in oil-directed productions, higher amounts of NGL, and infrastructure development, which supported more efficient gathering, processing, and transportation of NGL. As a result, we have upgraded our view towards 2021 US LPG production and export on the current oil and gas prices. At slide 11, you will see EIA short-term energy outlook released in November. EIA re-estates a growth in the US LPG export by 19% in 2020 and has revisited its forecast for 2021 export by 1 million tons from its October release. Turning to slide 12, the new build order book has increased by five vessels in Q3. It's now signed at 12% of the current fleet. I'm glad to see that over 70% of the order book is LPG propulsion. But we want to continue to stress that there is no reason to order new ships to make the fleet more efficient. More than 150 existing buildings can be retrofitted. From an environmental standpoint, new builds do not justify the CO2 savings with a CO2 payback period of over 15 years Contra a retrofit of six months. Slide 13, due to the uncertainties of technology, will develop to meet the 2030 IMO target. Market sees an upfront benefit from second-hand vessels compared to ordering new ships today. Hence, new building prices have softened while the second-hand prices have firmed up and prices are well above new building equivalents. Also, following the V-shaped recovery in the VLDC spot market, we have also witnessed a similar recovery in VLDC time charter market. Activities have picked up, and current SFA market indicates for CAL21 VLDC rates to be above $35,000 per day. Despite the volatilities and uncertainties in the market, we have maintained high commercial utilization at 97.6%. In addition, a well-positioned fleet with strong earnings from our time-sharded coverage has also protected us in the market downturn. In Q3, we had one time-sharded contract being canceled with the cancellation fee recognized for Q3. We have kicked the ship again at the 12-month CC, which will be recorded in Q4. That was it for me and our EVP technical operation, Pontus, will take you through the technical update. Thank you.