BW LPG Limited

Welcome to BWLPG's second quarter 2021 financial results presentation. Bringing you through the presentation today are CEO, Anders Anaheim, CFO, Elaine Ong, EVP Commercial, Neil Srigu, 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. This presentation held on Zoom is also recorded. I now turn the call over to BWLPG CEO, Anders Ornheim.

Thank you, Lisa. Welcome to our second quarter results presentation for the period ended 30th of June this year. As Lisa said, as usual, I'm joined by my CFO, Elaine Ong, EVB Commercial, Niels Rigaud, and EVB Technology and Operations, Pontus Berg. It now has been over one and a half years since COVID-19 was declared a global pandemic. Our way of life has certainly been impacted, and how we do business must adapt to this new reality.

Thank you.

Our operations and crew changes continue to be challenged by travel restrictions as countries manage subsequent COVID outbreaks and new strains with varying degrees of success. We would like to thank port authorities and health facilities around the world who have set aside resources to vaccinate our crew. Without our crew, our ships cannot sail. If our ships cannot sail, we cannot deliver cleaner energy to the world. The second quarter this year was challenging. VODC freight rates fell below OPEX for several months before staging a modest recovery. We tried to navigate the market with the returns-focused mindset, selling two of our older vessels to generate attractive returns, secured our first ESG-related loan facility, and made good continued progress on our LPG retrofitting program. It's been nearly a year since we've begun this program with BW Gemini, the world's first very large gas carrier to be powered by pioneering LPG dual fuel propulsion technology. We are now more than halfway through this program, which is our keystone project for decarbonization. We now have eight vessels, soon nine, on water, serving customers with the sector's lowest emissions profile, and with seven more vessels to go, six more, that is. My thanks to our site team, officers, and crew who are working tirelessly to ensure the project progresses on time, on budget, and with zero harm. These vessels emit significantly less greenhouse gases compared to similar vessels running on compliant fuel. Once all 15 VLGCs are retrofitted, we will have saved 1 million tons of CO2 emissions. Showcasing an innovative approach to increasing operational efficiency, our VLGC, the BW Balder, was the first to receive LPG bunker via SGS, with LPG carrier Epic St. Martin from our sister company. Our retrofitted vessels refuel as they load, saving turnaround time and increasing operational efficiency. The infrastructure for distribution and bunkering is already largely available to serve potential marine market demand. There are many LPG storage facilities that can be used for LPG bunkering and over 700 small size LPG carriers that can be used for ship-to-ship or STS bunkering. And at BWLPG, we are convinced that LPG is part of the solution as we work towards a zero carbon future. It's an important step in that direction. As a world leader in LPG shipping, we can facilitate global decarbonization as we all work together to combat climate change. Turn to slide five. During the first quarter, reported TCE rates for our VLGC fleet averaged $25,500 per calendar day. Commercially, we achieved $27,500 per available day with a high commercial utilization of 96%. These performers contributed to a net profit after tax of $23 million, where an earnings per share was $0.16. Adjusted for accounting gains, however, the net profit came in at $3 million. And for the second quarter, we will distribute a dividend of $0.10 per share, amounting to a total of $14 million paid out to our shareholders. It's important for us to continue to pay our shareholders as long as our operations are running well. Looking at highlights for the quarter, I would like to commend our sailing crew, as well as our teams, who completed approximately 30 inspections and safely embarked and disembarked more than 500 crew with no delays to port operations. We also concluded the sale and delivery of BW Empress in April this year. This generated $40 million in liquidity and resulted in a $10 million net gain. Another gain of $10 million materialized after we increased our share in our Indian subsidiary from 50 to 88%. The Indian market is increasingly important to us. After the end of the second quarter, we have sold and delivered BW Confidence, BW Boss, and BW Energy. These three transactions added $81 million to our liquidity and resulted in a net gain of $9 million. In addition to the above, we also exercised our purchase option for the Eurocosmos, which is now a renamed BWNiGata. And finally, we secured a $45 million loan to finance the retrofitting of six dual-fuel LPG propulsion engines. As normal, Nils will talk more about the market, but we expect rates to remain above cashback even for the rest of the year. This view is driven by continued growth in U.S. exports, as well as recovering volumes out of the Middle East. Looking into next year and 2023, we continue to be constructive, but reiterate that sustained export growth of U.S. LPG and no further new bills are key to bring about a balanced market. Slide six. The soft spot market during the second quarter pushed our annualized return on equity down to 7% and our annualized return on capital employed down to 6%. Nevertheless, our operational and free cash flows remain healthy at $68 and $41 million, respectively, for the quarter. This gives us great flexibility and enables us to continue to return cash to our shareholders. Our net leverage ratio continues down from 42% at the end of the first quarter to now 40% at the end of the second quarter. This is the lowest level in five years. Next up is Nils. We'll take it in through the market review and commercial update. Nils.

Thank you, Anders. And good morning and afternoon to all of you. So let's turn to slide eight. We have fixed 83% of our Q3 available fleet days at an average rate of $32,000 per day basis discharge to discharge. We expect rates to be firm for the remaining of 21, but with high volatility due to voyage inefficiencies. In the medium term, we'll continue to be optimistic for 22. However, the high number of recent new orders have increased the uncertainty for 23. But the tightening of IMO regulation will lead to increased recycling of the aging B2C fleets and the recovery in production from the Middle East will partly offset the New Berlin deliveries. Let's turn to slide nine. During the second quarter, US LPG export increased by 22%. And with high domestic demand from extremely cold winter earlier this year has led to low inventories. which again leads US LPG prices to continue at record high levels. Despite the high US LPG prices, the strong US export illustrates the strength of the LPG import demand as more and more countries are building out the infrastructure to use LPG as a primary source. For the main import regions, South Korea was the only one to show a notable decline due to less retail demand and higher local refinery production. Let's turn to slide 10. On slide 10, you see EIA short-term energy outlook released in August. EIA forecasts that US LPG exports will remain high in 2021 and 2022. All but production growth slowed to 3.5% from over 10% in 2019. On the positive side, the oil price has been higher than forecasted, incentivizing US oil producers to increase production. Also, OPEC has gradually started to increase oil production. Therefore, if the entire 5.8 million barrels per day production adjustment is phased out, we expect a meaningful recovery in Middle East LPG export over the next years. Turn to slide 11 and talk a little bit about the VLGC fleet profile. The focus on this slide is the increase in the orders for VLGC. The last quarterly update, we expected 30 vessels for 2023, and none for 24. Today, another 14 vessels have been added to the order book, nine ships in 23 and five in 24. This shows that our industry has grown belief in LPG and developed the sea market in the future. All recent orders are with LPG propulsion. We take comfort in the industry following us and embracing the LPG propulsion technology. BW LPG has no new orders, but we'll have the largest fleets of LPG propulsion vessel ready by 22. We sold four ships, which generated a total free cash flow of 121 million, and exercised the purchase option of one of our long-term VCs. As a result, today, we control a fleet of 42 VLDCs, and eight of them are charted in. 2513, on our commercial performance, We achieved a commercial result of 27,500 per day with 96 commercial utilization. The result was impacted by positioning costs related to seven ships due for dry dock and two ships delivered for sale. Overall, we had 11% planned off-fire days driven by upgrading of vessel with LPG propulsion and smart ship technology. For Q3, we expect off-fire days to be at 6%. Slide 14, talk about the TimeShotter portfolio. As mentioned, we increased our ownership in the Indian joint venture from 50 to 88%. Our TimeShotter out revenues from 22 increased from $39 to $52 million, with the average TC out rates increasing from $32,900 to $33,800 per day. With expectation of a healthy shipping market for 22, we increased our TC in coverage with three real GCs at an average cost of 25 per day, bringing down our average GCN costs. That's it for me, and Pontus Berg will take you through the technical updates.

Turning to slide 15. In Q2, it was business as usual on the technical and operational front, in spite of increasing challenges from COVID-19, as earlier mentioned. We continue to be a reliable partner for our customers and commercial colleagues as we manage our LGIP retrofitting program, as well as baseline priorities with market-leading OPEX and safety performance. We remain focused on the safe and disciplined conversion of our vessels with LPG propulsion technology. As earlier mentioned by Anders, we are now more than halfway through our program with eight vessels in the water and one at yard and one at gas trial. VW Brage is scheduled to be completed in the next few days, and thus we will have nine VLGCs serving our customers. As with all pioneering technology, we expected this ambitious retrofitting project to have its share of tipping issues. It turns out, nearly a year in, the main challenges we face are from the logistics of moving people and materials. Our sincere thanks to committed colleagues and partners for taking these challenges in their stride and keeping to timelines and budgets. We continue to demonstrate the industry is ready for LPG to be a mainstream marine fuel. Ship-to-ship bunkering in international waters continue flawlessly with 14 STSS conducted to date. We have confirmed LPG fuel contracts with suppliers in the US to ensure uninterrupted supply for our retrofitted vessels. In Q2, we lifted five LPG fuel stems in Houston and Nederland. Our crew continued to handle our cargo operations flawlessly. In the first half of the year, we had nearly 600 port calls, which means that our team manages an average of three port calls per day. In Q2, we managed about 30 mandatory inspections with zero screening rejections from our customers and the oil majors. These inspections were conducted either at safe ports or done remotely. We credit the excellent result to our crew and marine colleagues who have worked hard to maintain our vessels to industry-leading standards, despite the worry and challenges from COVID-19. Planned special and intermediate survey dockings were also carried out on time and on budget, To protect the safety of our crew on board, colleagues from the office undergo two to three weeks of quarantine, and vessels follow strict cordoning rules while at yard. Lastly, some words on the impact of COVID-19 on crew changes. Our thanks to the crewing team who currently holds one of the most complicated jobs in shipping, juggling ever-changing regional and international travel restrictions, in finding connecting flights to get our crew safely home to their families. In Q2, over 500 crew joined or left our vessels safely, with only minor impact to port operations. We remain vigilant, quarantining and testing crew before they leave their home country and before they board the vessel. Every port call is also analyzed for local restrictions and quarantine requirements, so that we are prepared and are in full compliance at all time. Let me now turn over to our CFO, Elaine Ong, who will discuss our financial position and results.

sponsors and good day everybody. Here on page 16 is an overview of our income statement. Our TCE income was $94 million for the quarter. As Niels mentioned earlier, we had a higher than usual plan off hire this quarter with four of our vessels at the yard undergoing LPG propulsion retrofits. In addition, our TCE income also includes a negative $5 million impact related to the effects of IFRS 15. Vessel operating expenses came in at $8,100 per day. This includes incremental manning costs incurred due to the pandemic. EBITDA came in at 55 million for the quarter, representing a continued high EBITDA margin of 58%. We sold the BW Empress during the quarter, realizing a net gain of $9.9 million. The vessel was delivered to its new owner for further trading in April. We increase our equity share in our Indian joint venture from 50% to 88% during the quarter. Our equity investment is now counted for as a subsidiary and the remeasurement of our existing equity interest was a gain of $9.8 million. This gain was derived from an uplift in asset values relating to the vessels in the joint venture prior to the transaction. Further details can be found in notes 15 and 16 in our financial report. Our net profit after tax for this quarter was 23 million or 16 cents per share, yielding a return on equity of 7%. Page 17 provides a snapshot of our balance sheet and cash flow statement. Our vessels book values supported by broker valuations stood at 1.8 billion at the end of the quarter. This is after the reclassification of BW Confidence, BW Boss, and BW Energy as assets held for sale. We concluded the sale and delivery of these three vessels after the quarter end. These transactions will be reflected in our Q3 report. Shareholders' equity was $1.3 billion, or $9.17 per share. As mentioned earlier, we have increased our ownership in our Indian joint venture from 50% to 88%. Hence, the financial results of our Indian business have been consolidated from April this year. The impact on our balance sheet are as follows. Approximately 200 million increase in vessel values, 100 million increase in cash, and 180 million reduction in loan receivable from the joint venture. giving us $120 million increase in total assets and $100 million increase in total liabilities. Looking at our cash position, we continue to generate positive cash flows from our operating activities. Including the positive cash flows from divesting our older vessels, we ended the quarter with $134 million of cash. We also have $256 million of undrawn revolving credit facility, which gives us $390 million of available liquidity at quarter end. At the end of June, our net leverage ratio is at its lowest levels in five years at 40%. Our available liquidity at $390 million is at the highest level to date. Our operating cash break-even is at $21,300 per day. Our net debt position at the end of the quarter was $872 million. Gross debt was $1 billion, of which $175 million relates to lease liabilities arising from our time chartered investments. This leaves us with approximately $830 million in debt outstanding, which relates to our five-term loans, including our new 198 million facility for our Indian subsidiary, which was concluded in May. This new facility was partially drawn during the quarter with the remaining 92 million reserved for future growth. In August, we have also secured a 45 million transition revolving credit facility to finance a retrofitting of six VLGCs with dual-fuel LPG propulsion engines at a margin of LIBOR plus 1.7%. This is an upsize of our existing 290 million term loan facility, whose terms remain unchanged, and it's our first transition financing done in tandem with our journey towards net zero carbon emissions. We have four remaining LPG propulsion retrofits still to be financed, for which discussions are already well underway. 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.

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