BW LPG Limited

Welcome to BWLPG's first quarter 2021 financial results presentation. Bringing you through the presentation today are CEO Anders Onderheim, CFO Elaine Ong, EVP Commercial Niels Riegel, and EVP Technical and Operations Pontus Berg. We are pleased to answer questions at the end of the presentation. Should you have any, please type them into the chat box in your Zoom panel. You may also use the raise hand option. Before we begin, we wish to highlight the legal disclaimers shown in the current slide. I now turn the call over to BWLPG CEO, Anders Onderheim.

Thank you, Lisa, and welcome to our first quarter results presentation. As you heard, I'm joined here by Elaine, Niels, and Pontus, and they'll all go through some of their throne sections. Before we begin, I would like to just speak on behalf of all the BWLPG employees to express our deep concern for the COVID-19 situation globally, and especially in India. Career changes have been extremely challenging due to global travel restrictions and other problems. We continue to support our seafarers with initiatives to protect their safety, support their mental health, and offer financial assistance where needed. Their lives are not very easy at the moment, and they deserve a big thank you. The first quarter of 2021 was eventful on several fronts. BLGC freight rates experienced a record drop from more than $100,000 per day to OPEX levels within one month. That's volatility for you. While navigating through the extreme volatilities and challenging marketing conditions, we have expanded our presence in India and secured security financing at attractive terms there. And we've also kept our LPG retrofitting program on track. We go to slide four. Our program to retrofit 15 VLGCs with LPG propulsion technology continues. It's on budget and with zero safety incidents. This translates to the commitment of over $130 million is the sector's largest investment towards decarbonization. And we are proud to lead the way and to act on our promise to decarbonize and transition towards cleaner fuels for a cleaner environment. To date, we have four vessels on water with help of deep propulsion, and four additional ships are being retrofitted at the Julian dockyard right now as we speak. Once all of our 15 VLDCs are retrofitted, we will save 1 million tons in CO2 emissions. That's a significant contribution compared to the current VLDC order book that will add 4.4 million tons of CO2 emissions. So retrofitting makes both environmental and economic sense. Retrofitting has an environmental payback of six months versus 15 years for a new building. Retrofitting costs $8 to $9 million, while it costs 10 times more or $80 million to order a new build with the same technology. So the price of one new build, we get almost 10 still modern and well-equipped ships. This is also aligned with our asset management strategy as we maximize the value of our current assets on water while considering the best way forward in our journey towards a zero-carbon future. If you look at the whole maritime industry, there's enormous potential in retrofitting. More than half of the current VLDC fleet and more than 7,500 merchant vessels in the world can be retrofitted with LPG propulsion. And we are therefore eager to share our experience, expertise, and technology to further grow LPG as a clean marine fuel alternative. If we turn quickly to page five, During the first quarter, reported TCE rates for VLGC fleet averaged $43,300 per calendar day. Commercially, we achieved $44,400 per available day with the high commercial utilization 97%. This performance translates into a net profit after tax of $71 million and an earnings per share of 51 cents. And for the first quarter, we will distribute a dividend of 18 cents per share amounting to a total of $25 million paid out to our shareholders. We have concluded the sale and delivery of BW Empress, which generated $40 million in liquidity and a net gain of $10 million for us. We're also happy to announce that we've increased our ownership in BW LPG India from 50 to 85%. Over the past The Indian government has expanded LPG access to hundreds of millions of people. And this access to LPG, a cleaner fuel, is making a huge difference to the quality of life there, especially when indoor air pollution is a major health concern. India is also an exciting market for us, and the growth and potential we see in India is significant. We are therefore very happy to invest further in this market. Subject to foreign documentation, BWLPG India has secured a $198 million five-year term loan from a syndicate of seven banks at an all-in cost of LIBOR plus 198. We think that's very competitive. Nils will talk more about the market later, but we remain positive for the remainder of the year. This is supported by recovery in US LPG exports after a cold winter and supplied side elements such as dry dockings and Panama Canal transit delays. Overall, demand for LPG continues to be strong, especially supported by retail usage and growing petrochemical demand. And looking into next year and 2023, we're still optimistic about the market, but new bill orders could likely put downward pressure on freight rates, especially for 2023, and particularly if we continue at the same pace as we're seeing now. If we turn to slide six. We continue our track record to deliver strong returns with 22% annual return on equity and a 14% annualized return on capital employed. We will continue to focus on strengthening and leveraging our balance sheet. With a strong cash flow from operations, we can both return cash to our shareholders while also paying down debt. Our net leverage ratio continues to trade down from 44% at year end of 2020 to 42% at the end of Q1 this year. That's the lowest levels in five years. With that, I'll hand it over to our UDP commercial, Niels Rigaud. He'll take you through a market review and a commercial update. Niels.

Thank you, Anders. So let's go to slide eight. Good afternoon and good morning to all of you. So towards the second half of January, Extreme cold weather in the U.S. narrowed the LPG price arbitrage between the U.S. and the Far East from over $200 per metric tons to below $100. Falling LPG exports from both the U.S. and the Middle East have led to one of the quickest and most pronounced corrections in the building sea freight in history. Today, the sea freight market has recovered from the bottom. It seems like the world is behind us, with rates stabilizing above $40,000 per day. We keep our positive market outlook for the second half of 2021. This is supported by the recovery in LPG export from both the US and the Middle East, reduced fleet supply due to the dry docks, and the shipping inefficiencies. In Q2, we have fixed approximately 80% of our available days at an average rate around $28,000 per day on a discharge-to-discharge basis. During the quarter, we have witnessed a flurry of new building orders. The order book now stands at 20% with heavy delivery in 2023. We maintain a positive view for the medium-term VLC freight market at current order book. But more new building order will certainly put downward pressure on freight rates, especially in 2023. Turn to slide nine and talk about seaborne LPG trade overview. In the first quarter, LPG import into China has recovered and has increased by 18% year over year. This is supported by recovering retail demand and ramping up productions from the newly commissioned PDH plants. Retail demand into India continue to grow. India LPG import have increased by 15% year over year, the highest quarterly import in history. As mentioned by Anders, we are proud to take part of the Indian growth story and we see enormous potential in the country. We are now the number one operator of Indian flag LPG vessels and are exploring areas for further growth in India. both within LPG vessels and within LPG infrastructures. Let's turn to slide 10. At slide 10, you will see the EIA short-term energy outlook released in May. EIA estimates the US LPG export to remain at high level, both in 21 and 22, which is obviously good news. Turn to slide 11 and talk a little bit about the fleet's profile. So as we have mentioned, 23 new build orders have been placed since February. The new build order book now stands at 20% of the current fleets of 308 ships with heavy delivery scheduled for 23. From an environmental perspective, the 62 new building orders add 4.4 million tons of CO2 emissions. most of which could have been saved by retrofitting the existing fleets. Our 15 vessels retrofitting program saved one million tons of emissions versus the new building or alternatives with the same technology. From an economic perspective, the longer term LPG export growth is looking to normalize, meaning the new building ordering activity needs to slow down to keep the freight market balanced. The majority of the new building orders are backed by TC contacts to the traders in the high $20,000 per day. Furthermore, it is still uncertain how technology will develop to meet the IMO 2030 targets. And the vessels ordered today is still based on existing design and technology, which could very well be already old in a few years' time. New building prices have increased, and Korean new buildings with LPG propulsion now cost more than $80 million with 2024 delivery. In the second-hand markets, we are seeing increased interest, especially for vessels 15 years and older, at prices above new building equivalents. Let's turn to slide 13 and talk about our commercial performance. We have received a strong commercial results at $44,400 per day with a 97 commercial utilization. This translates into high operational cash flow of 156 million, allowing us to return cash to shareholders, reducing our cash break even by paying down our debt and making us more competitive. Due to the fall in LPG price arbitrage, our trading operation recorded a net loss of $2.4 million. Our goal for product services is to better serve our customer and achieve a high utilization of our fleets. Its success has been reflected in our high commercial utilization, even during the weak market. Turn to slide 14 to talk about our time charter portfolio. As we have increased our ownership in BW India from 50 to 85%, the time charter contracts in BW LPG India will be added back to our time charter portfolio from Q2 onwards. Our 21 time charter out coverage stands at 34%, with an average income of 33,700 per day. Our time charter in coverage stands at 14%, with an average cost of 26,300 per day, resulting in the positive net positions of $107 million for 21. We are comfortable at the coverage level for now, and we will continue to evaluate the opportunities for 22 at the right levels. We do see inquiries for one or two years time starter contracts at around $38,000 per day, which is in line with the current FFA market. That's it for me and our EVP and technical and operation, Pontus.