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.

Thank you very much, Nils. Turning to page 15 for some technical highlights. We continue our strong technical and operational performance for previous quarters with market leading open and safety stats, despite the again increasing global challenges from COVID-19. I'll begin with an update of our LPG propulsion retrofitting program progress. The progress remains on track and we now have four vessels in service and we have four vessels at the yard simultaneously. BW Gemini, the world's first LGIP, have sailed continuously for over six months and counting without the need to stop for bunkers. This saves voyage time and increases our commercial availability just as planned. In what will be another world's first, we will conduct a ship-to-ship LPG bunkering between BW Boulder and BW Epic St. Martin in just a couple of days' time. With this STS, we will demonstrate that the industry has infrastructure and the technical know-how for LPG to be a mainstream marine fuel. As we have said on many occasions, shipping is ready for LPG as a fuel. Currently, we are enjoying savings of approximately $4,000 to $5,000 a day by running on LPG versus very low sulfur fuel oil. Not a compelling reason to use LPG as fuel. Next to safety. Zero harm is a non-negotiable expectation from all crew and colleagues and a BW initiative we have been working hard on for years to ensure the best in class safety for our crew, cargo and the environment. I'm pleased to share that our joint efforts are paying dividend. For nearly two years, we have not had any serious injuries in our managed fleet. This means that our crew get to go home safely to their loved ones, and we deliver energy to the world's markets safely and reliably. We have seen limited impacts on operating from COVID-19. However, crew changes remain a difficult challenge, and it has the full focus of our crewing teams and everybody. We have actually managed about 600 crew moments during the first quarter. We continue to provide emotional and financial support to our crew and their families. A little bit on operations. Our crew continues to handle our cargo operations flawlessly. In Q1, we saw over 310 port calls and channel transits. Active voyage management and close follow up on the ship's performance through Alfa Aurea Smart Ship have enabled us to save approximately $300,000 in fuel costs just in the first quarter. Our strategic alliance with BW Epicosan for coolant storage and LPG fueling reduces the potential delays, costs and dependencies on terminal schedules for vessel undergoing retrofitting. This translates into a saving of approximately $200,000 per vessel. Finally, a few words on the OPEX. We continue to maintain consistent market-leading OPEX for our fleet. We see this as an important priority business practice despite the unprecedented global challenges to the operations. We do expect our projected fleet CAPEX to peak this year and taper off in 2022 with the completion of our LPG propulsion retrofitting program. And with that, let me turn over to our CFO, Elaine Ong, who will walk you through the financial position and results.

Thanks, Pontus. Here on page 16 is an overview of our income statement. Our TCEE income was $150 million for the quarter. This also includes a positive $18 million impact related to the effects of IFRS 15. Vessel operating expenses came in at $7,800 per day, This includes incremental manning costs incurred due to the pandemic. We have recorded gains of $2.8 million in the quarter relating to our investment in the shares of Avanz Gas. EBITDA came in at 113 million for the quarter, representing a continued high EBITDA margin of 75%. We sold the BW Elm during the quarter, realizing a net gain of $1.6 million. The vessel was delivered to our Indian joint venture in February for continued trading. Our net profit after tax for this quarter was 71 million or 51 cents per share, yielding a return on equity of 22%. Page 17 provides a snapshot of our balance sheet and cash flow statement. Our vessel's book values, supported by broker valuations, stood at 1.7 billion at the end of the quarter, after the delivery of BW Elm and the reclassification of BW Empress into asset held for sale. We delivered BW Empress to a new owner in April, and this will be reflected in our Q2 report. Shareholders' equity was $1.3 billion, or $9.04 per share. As mentioned earlier, we have increased our ownership in our Indian joint venture from 50% to 85%. our investment in India will now be accounted for as a subsidiary and its results will be consolidated from next quarter. Had this transaction happened with effect from 31st of March, the impact on our balance sheet would have been as follows. Approximately 200 million increase in vessel values relating to the five joint venture vessels, 80 million increase in cash, 180 million reduction in loan receivable from the joint venture, leaving us with $100 million increase in total assets and an $80 million increase in total liabilities. Looking at our cash position, we continue to generate positive cash flows from our operating activities and ended the quarter with $70 million of cash. We have $260 million of undrawn revolving credit facility, which gives us $330 million of available liquidity at quarter end. Our free cash flow has allowed us to invest in our LPG retrofit program, return cash to our shareholders, and pay down our debt. At the end of March, our net leverage ratio has come down to its lowest level in five years at 42%, with the highest available liquidity to date of $330 million. Our all-in cash break-even for 2021 is $28,000 per day, which is the average TCE needed in 2021 to cover all our cash costs, including capital spent. The higher all-in cash breakeven in 2021 is mainly due to our investment in LPG propulsion retrofits. Our operating cash breakeven is at $22,300 per day. Our net debt position at the end of the quarter was $930 million. Gross debt was $1 billion. of which $176 million relates to lease liabilities arising from our time chartered in vessels, while $24 million relates to borrowings from our trade finance facilities. This leaves us with approximately $800 million in debt outstanding, which relates to our remaining four term loans and revolving credit facility. In April, the outstanding revolving credit facility of $40 million was fully paid, and we will have no major balloon payments due in the next five years. On this note, I would like to open up the call for questions.

Thank you, Elaine. We will begin our Q&A session now. Should you have questions, please type them into the Zoom chat box. You can also click on the raise hand button in the reactions tab to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once again, should you have questions, please type them into the Zoom chat box. You can also click on the raise hand button in the reactions tab to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. We have one question.

Hi, can you hear me? This is Anders from Danske Bank.

Yes, please go ahead.

Thank you. It's probably a question for Nils, but could you elaborate a little bit about the earnings effect that you see on the LPG propelled vessels? in terms of, you know, excess earnings compared to the other ships in your fleet.

Yes, I mean, well, the question was for me, you said. Yeah. I think what was mentioned, first of all, is obviously the price that we drive between compliant fuel and LPG prices, which today, in today's market, is around $4,000. So that's per day savings. And another big effect that we talked about the BWM Gemini, which was the first ship, she's now been sailing for six months and she hasn't, you know, we don't have any downtown for her to bunker. So you save also a lot of on the bunker operations also. Was that? The answer you wanted to hear?

Yeah, but there is probably a small effect from higher lifting capacity as well, isn't it?

Yes, of course. I mean, those ships could, the 84,000 cubic, which is the five or today's every LDC could carry about 46, 200,000 tons and ours could do 49, 300 tons. But, I mean, for a round voyage, Houston, Chiba, with a couple of discharge, we use about 3,000 tons. Okay.

Added flexibility, of course. Yes.

Okay. That's all for me. Thank you.

Okay. We have one more question here from... The web. This is from Eric Hovelsons at Pareto. Can you elaborate a little bit more on your India JV? What are the plans there? The debt facility of 198 million is sizable versus the five ships currently there.

Yes, I mean, I'll start in the lane, you can follow up. Obviously, it's up to 198 million facility. And, and, you know, we find India a very interesting market. And we will, we will, if we think there are good opportunities for us to expand our presence, whether it's more ships, or even looking at infrastructure, we will, we will consider that. I don't know if Elaine, if you want to want to elaborate a little bit more on the facility itself.

Sure. Thanks, Anders. Basically, as we've mentioned that the facilities for up to one hundred ninety eight million. So it doesn't mean that on day one we will be drawing on the full facility. It will be drawn on different tranches as we continue to look for options to grow and expand in the in the JV.

OK, there's a follow up from Eric from Beretta here. Given the success you've had so far with the retrofits, are all for pre-2014 vessels? Or, no, I mean, are all vessels built newer than 2014? What about the vessels from pre-2014s? will these also be candidates for retrofits?

I'll give a quick answer and Pontus, I'll let you follow through. I mean, obviously this is, This is a question both in terms of what's technically feasible, but it's also in terms of, you know, what's the expected lifetime of a ship. And I think, you know, of course, if we see increasing spreads, you know, in the fuels between conventional fuel and LPG, obviously it could make sense. But I think it's, you know, for now, we're very, very happy with the 15 ships that we have in the program. Papontis, do you want to elaborate on that?

Yeah, I mean, it is technically possible to convert the pre-14 ships as well. It is unfortunately going to take a little bit more time and money to do so because these ships are not all, not all of them have electronically controlled engines. So first you'd have to convert them up to a certain standard and then for that to be able to convert into LPG engines. And that together with the effective lifespan of the ship probably gives the answer of no right now.

Good, thank you for that. Yeah, so about half of the current BLGC LPG fleet can then be retrofitted with the technology available today. So then we move over to another question from the web here from Lucas Dahl. Why have the cargo ton miles been decreasing in recent quarters?

Nils?

So he's referring here to the fleet environmental data slide in the appendix. So it means why is voyage length in decreasing?

That's a good question. We do list most of our cargos out of the US and I don't have that sign in front of me, but if you look at in 2020, especially in Q2, we listed a lot with product services.

So here he's referring to the cargo tonn miles slide. You can put it up there. It's on the fleet environmental data showing that the cargo tonn miles have gone from 21 million to 18 million.

Yeah, I mean, it's a bit of a trade. So we lifted most of our cargoes out of the U.S. Obviously, then in Q4 and all that, we still have the lockdown in Europe. But a lot went into India. Some went to South America. I think that's basically it. I mean, it's just the trading, it's by demand. But for us, it's been, most of our lifting is from the US. But I think that's also the reason is that the ships went into India and then it was South America.

Okay, thank you, Niels. Then we have one more question here from Ulla Storberg. It is, why is the dividend less than 50% of net profits?

Well, as you know, we have an annual policy of 50%. And, you know, this is, as we've seen, it's a volatile market. And we think it's better to be conservative at the start of the year. And then, as we've shown in the past, if... if everything permits, we will do a catch-up later. So I think it's simply being fairly conservative in the market that we've seen be quite volatile. But for quarterly, so then quarterly, we're not committed to paying 50% every quarter. But on an annual basis, that's our policy.

Okay, so then we will take a live question here from Lucas Dahl from ABG.

Thanks, guys. I was just wondering on your outlook for 22 and 23. I mean, you remain optimistic bearing any further orders. But when you sort of show the volumes, you expect them to be flat or flattish from the US and the fleet is going to grow by 20 percent. So I was just sort of wondering how all that adds up. Are you sort of assuming that the fleet inefficiencies are here to stay or what is sort of behind that line of thought? Thank you. Yeah.

I will start, but Nils or Conte, feel free to fill in. I mean, I think we, I think you're right. We believe that in efficiencies, they will continue for quite some time. And we think also dry docks have been pushed back. And so I think, you know, and we feel also, you know, still the, underlying fundamental demand is going to be there. But obviously it's, and of course, if we do see a, both a decent market, but also with, you know, new regulations coming in, we might, and we traditionally are very conservative on the scrapping side, but I think, you know, we might start seeing some tough decisions having to be made with some of the older part of the fleet, you know, coming towards 2023. So I think a combination of those things makes us fairly comfortable.

Niels, do you want to add to that? I think the main thing in 2022 is the Panama. Until now, we could have pre-booked the Panama slots. Now, from next year, it's not possible. we always see one of the reasons why the market went that $100,000 per day in December, early or first half of January. That was the inefficiency from the Panama Canal, where you almost have the two weeks waiting to do a round voyage from Houston to the Far East due to the Panama waiting. For 2023, it's, as you mentioned, Anders, it's the environmental regulation and especially the EXI taking in. So, Those are the two main factors that we are quite positive going forward on the fate rates. So maybe due to inefficiencies. Yeah. Okay.

Okay. And then just to double check the guidance on the days that you provide in the appendix going forward, does it already include the Indian vessels that you will start consolidating from the second quarter?

Short answer, yes.

Okay, thank you. Okay, thank you, Lukas. Then we have another question from the web here. And this is from Nick Linane. And he asks, what sorts of LPG infrastructure assets would you consider investing into in India? How sizable might this investment be in terms of dollars?

Obviously, once we make a decision on that, we will communicate around it. So for now, I think we're... we are really spending time analyzing, looking at various situations. We're not going to jump in and make any huge investments at this stage, but we still think the Indian market is very interesting, also long-term. And if we can both both help our whole sort of shipping operations to be even more substantial and get better volumes and at the same time also contribute to the growth of LPG in India. We think that's a good proposition. So we are looking at several opportunities, but nothing concrete that we can communicate around at this stage.

Okay. He has... One more question here. It has a follow-up. Can you please explain the 18 million revenue benefit in Q1 from IFRS? Is a portion of this a benefit likely to reverse in Q2, or is it a one-off benefit that will not reverse unless the accounting treatment changes back?

Maybe, Alain, you will take that one.

I'll do that. Basically, this is a quarter on quarter impact. So we would expect a portion of this 18 million revenue benefit to reverse in Q2. Again, it really depends on the direction that the rates take at the end of each quarter. So it is a differential between the opening at the beginning of a quarter and the end of the quarter. And so if the rates continue to drop, basically move upwards, we will expect a reversal of this benefit.

Okay. Thank you, Elaine. I think that was clear. Then we have one more question from the web here. This is from Marcus. He says, hi, how much can you expect depreciation and interest expense to increase in Q2 2021 due to the consolidation?

I think you can see Q2 depreciation to be approximately $7-8 million. And interest, I think you can estimate it to be roughly between $1-2 million. It really depends on the amount that will be drawn down over the course of the quarter.

Okay. Yes, Lisa.

Should you have questions, please type them into the Zoom chat box. You can also click on the raise hand button in the reactions tab to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Okay, should you have questions, please type them into the Zoom chat box. You can also click on the raise hand button in the reactions tab to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. We have come to the end of today's presentation. Thank you for attending BWLPG's first quarter 2021 financial results presentation. More information on BWLPG is available online at www.bwlpg.com. Have a good day and a good night.