BW LPG Limited

Ladies and gentlemen, welcome to BWLPG's fourth quarter 2020 financial results presentation. We will begin shortly. Bringing you through the presentation today will be CEO Anders Omerheim, 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 1 on your telephone keypad or type your questions into the chat box on the website. You will receive further instructions as required. Before we begin, I would like to highlight the legal disclaimers shown in the current slide. I'm now pleased to turn the call over to BWLPG CEO, Mr. Anders Onerheim. Please go ahead.

Thank you, and welcome to the presentation of our results for the fourth quarter of 2020, ending 31st of December. As mentioned, I'm joined by our CFO, Elaine Ong, our EVP Commercial, Niels Rigaud, and our EVP Technical and Operations, Pontus Berg. Thank you for joining us, and we will take questions at the end of the call. 2020 has been a year like no other, and into the first quarter of 2021, we still see COVID-19 continuing to threaten our health and disrupt economic activities. I would like to take the opportunity to thank our 2,000 plus employees on shore and at sea who keep global trade going in the face of personal and professional challenges. It's this kind of resilience against strong headwinds I think defines who we are as a company. If you go on to the next slide, slide four. In the face of challenges from COVID-19, we continue our momentum to act on climate change and decarbonization and deliver cleaner energy to world markets sustainably. Our program to retrofit our VLGCs with pioneering LPG propulsion technology is progressing on budgets and with zero safety incidents. Our retrofitted vessels, the BW Gemini, the BW Leo, the BW Orion, and BW Libra, are now on water. serving customers with the lowest emissions profile in the whole BLGC sector. BW Gemini has also completed her full run voyage with LPG as primary fuel, and we are proud to partner with Enterprise Product on this historic voyage. Our Product Services Department has lifted the world's largest LPG cargo from the Enterprise terminal and delivered the world's first LPG cargo via LPG propulsion to our customers. In December 2020, we announced our commitment to retrofit an additional three VLGCs with this LPG propulsion technology. This is bringing the total to 15 vessels and with an investment of over $130 million. And this is the sector's single largest commitment to decarbonization in 2020. We aim to show that while there are a vast number of uses for LPG, there's only one way to ship it sustainably, with us at BWLPG. If we move into earnings on the slide five, we're proud to end 2020 on a strong note, and once again, to return cash to our shareholders. In the fourth quarter, TCE rates in our VLGC fleet averaged $37,300 per calendar day, with the fleet-wide utilization of 89%. The off-hire was mainly due to the retrofits of LPG propulsions on BW-LEO, BW-RI, and BW-Libra. Commercially, we achieved $40,700 per available day with consistently high commercial utilization of 97%. And this strong performance translates to a net profit after tax of $77 million or an earnings per share of 55 cents. This includes the right back of vessel impairment charge of $12.4 million. Excluding this effect, our net profit after tax was $64.8 million and earnings per share of 46 cents. This brings our full-year 2020 net profit after tax to $244 million, or an earnings per share of $1.76. Full-year return on equity was 20%, with $331 million of free cash flow. Once again, we're happy to announce that the Board has declared a Q4 cash dividend of $0.34 per share, amounting to $47 million. This translates to a payout ratio of 73% for the quarter, excluding the right back or vessel impairment charges. And with this dividend, BWLPG has declared a total of 84 cents per share for 2020, representing about 50% with the $1.67 per share in accumulated earnings per share. This is in line with our target payout ratio of 50% on an annual basis. And notably, BWLPG is the only listed VLGC company that has consistently paid dividends to shareholders throughout this volatile year of 2020. Turning to page six, we review quickly the key financials of the quarter. Following the V-shaped recovery in VLGC freight rates in Q3, rates remained high and strengthened further in Q4 due to strong underlying fundamentals and high shipping inefficiencies. VLGC freight rates have peaked at over $100,000 a day in December and early January. Our VLGC day rate came in at $37,300 per calendar day in the fourth quarter, and this allows us to generate an annualized return on capital employed of 15% and an annualized return on equity of 25% for the quarter. Strengthening and deleveraging our balance sheet have been one of the key tasks for 2020. Our strong cash flows from operations have enabled us to return cash to shareholders while at the same time paying down our debts. Our net leverage ratio has decreased significantly from 50% in the fourth quarter of 2019 to 44% in the fourth quarter of 2020. And we're very comfortable at these levels. Next up is Niels, who will take you through the market review and commercial update.

Thank you, Anders. And good afternoon, morning to all of you. Q4 was a quarter of records, supported by record high US LPG export and widening LPG price arbitrage due to strong heating demand from Asia, and the record high number of waiting days at the Panama Canal transit. Towards the end of November 2020, we saw the largest daily movements on the VFDC Voltaic Index, with a jump of 25% in TCE, or about $15,000 per day increase in one day. The positive momentum continued, and the VLC Baltic Index, measured from Rastanura to Chiba, shortly rallied above $100 per metric ton for the first time since 2015. Consequently, the VLC freightway from Houston to Chiba also jumped and doubled from an average of $90 per metric ton in October to around $180 per metric ton in December, or a TCE equivalent of over $100,000 per day. However, the positive momentum from Q4 has changed completely to a negative sign in Q1. And we experienced a record drop in B2C freight rates towards the end of January to OPEX levels today. And we expect the market in Q2 to be under pressure. we had most of our vessels fixed before the market collapsed to OPEX level. In Q1, we had fixed approximately 80% of our spot and time charter available days at an average rate around $41,000 per day on a discharge-to-discharge basis. Then by the current correction in bill receipt rates, we continue to hold a positive market outlook for the second half of 2021. This is driven by continued high shipping inefficiencies, resilient U.S. LPG production, potentially recovery in the Middle East production due to strong oil price, and still robust underlying demand for LPG. Let's turn to slide nine and talk about the LPG seaborne trade. In 2020, U.S. LPG production remained robust despite lower oil and gas prices compared to 2019. Growth in the US LPG export continues to offset the falling supply from other export regions. US exported a record number of BWLPG cargoes in 2020 with an average of 70 cargoes loaded per month. BWLPG was the largest lifter out of the US with a 20% total market share. We are twice as big as the second lifter in the area. Due to the negative impact of COVID-19, LPG imports by most of the major importers have fallen, except India. India has proven to be the most consistent and meaningful driver of LPG demand in 2020. And its total LPG imports have increased by 11% to 16 million tons. BWLPG is proud to take part of the Indian growth story. We are now the largest VLDC operator in India with nine VLDC in business, including five Indian flag vessels. VLDC import into China has decreased in 2020. However, we have seen Chinese import recovering towards the end of 2020. In 2021, we expect to see the newly commissioned PDH plants and thin crackers in China to ramp up production, as well as another flurry of new PDH plants to come on-street. Turn to slide 10. In slide 10, you will see EAI's short-term energy outlook released in February. Interesting part here is that they have revised the 21 US LPG production up significantly and had such expected the US LPG export to grow by 4% from 2020 to 48 million tons. Notably, this is the first time EAI estimated growth in US LPG export in 21 since the February release in 2020. Talk about in slide 11, the VLDC fleet profile. As of 10th of February, 21, the new order book stands at 14% of the current fleet of 305 units. Given the uncertainties of how technology will develop to meet the 2030 IMO targets, we see no benefit from ordering new vessels today. Our focus is to make sure we will have the right technology for the future. Over 80% of the order book is LPG propulsion. From an environmental and economic perspective, we want to continue to stress that there is no reason to order new ships to make the fleet more efficient. 50% of the current fleet can be retrofitted with the same technology for about $8 million instead of 80 million plus. for a new world. In slide 12, we talk about inefficiencies which continue to reduce fleet supply. In December 2020, long waiting days in Panama Canal transit has been one of the key drivers for the strong WC freight rates. The congestion in Panama Canal was mainly due to seasonally high number of LNG and container carriers transits and delays due to COVID-19. Since 1st of January, 21, Panama Canal Authority has implemented the new pre-booking rules for near-Panama transit, which will affect the villages. We expect a new booking rule with a recent increase in Panama Canal transit fee will lead to continued delays in transit and potential a change in trade routes via the Cape of Good Hope. Bois Lake from Houston to Chiba via the Cape is over 60% longer than from Houston to Chiba via the Panama. which of course would have a positive impact on freight rates. Other inefficiencies have been the dry docks. 25% of the fleet are due for dry dock in 21, and this will offset the growth in fleet and support for the sea freight. Slide 14 and 15 is our commercial performance in numbers. In the fourth quarter, we have maintained constantly high commercial utilization of 97%, which led to a strong spot performance of $43,400 per day. However, we had a high number of off-hire days in Q4 due to the dry docking, and we expect this to continue in the coming quarters in line with our announced LPG retrofit program. In 2020, despite the volatilities and uncertainties in the market, we managed to achieve a very strong commercial results. This translates into high operational cash flows of $398 million and enable us to return cash to shareholders, strengthen our balance sheets, and at the same time, invest in LPG propulsion technology. Let's turn to slide 16 about our time chart and portfolio overview. Our 21 time-charter out coverage stands at 24%, with an average income of $31,200 per day. Our time-charter in coverage stands at 15%, with an average cost of $26,300. Hence, we have a positive net position of $43 million for our time-charter portfolio. Most of our TC contracts will expire in 21, and a few in 22. and we are comfortable at the coverage level for now. That's it for me, and I will hand over to our technical and operation headmaster, Pontus Berg.