BW LPG Limited

quarter 2021 financial results presentation. Bringing you through the presentation today are CEO, Anders Onerheim, 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 in the next slide. Again, 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 DWLPG CEO, Anders Onderhuis.

Thank you, Lisa. And welcome to our third quarter results for the period ending 30 September 2021. As always, I am joined by Elaine, Nielsen, and Pontus. Finally, the leadership team and I are on the road this quarter. We speak to you from various corners of the world. Me back in Oslo, Elaine from Frankfurt, Nielsen, Pontus in Singapore. And we certainly look forward to meeting our investors and business and bank partners face-to-face very soon. While we see a gradual easing of COVID-related restrictions around the world, operations remain challenged. We also continue to insist on strict measures to protect crew and staff from COVID-19 also going forward. On the business and commercial fronts, the third quarter allowed us to again deliver decent returns, and we remain optimistic for the rest of the year, and we think we'll provide another good year for returns from BWLPG. We turn to slide four. The shipping industry is really at a crossroads, and ship owners must plan the next steps carefully. Our decisions can not only cater to short-term market investor demands, but must also accommodate long-term developments in technology and regulations. At BWLPD, we strive to maximize the return on assets, and one important way we are doing so is through focusing on technology. The pioneering LPG propulsion technology now powers 10 of our VLGCs. This is the world's largest fleet of lower-emission VLGCs. And let me remind you, LPG has the lowest greenhouse gas emissions profile of any carbon-based fuel. With LPG, we benefit from a 17% decline in CO2 emissions versus MDL. And by retrofitting, we save over 1 million tons in CO2 emissions versus already new builds. With 10 vessels on water, 200 yards, and over 10,000 hours in operation, we have proved that the LPG propulsion technology works. Our program to retrofit 15 of our VLGCs with this technology will be completed in the first half of 2022. We also continue to invest in digitalization. Smart ship technology on board our ships enables real-time data transfers between ship and shore. And together with other initiatives, such as smart weather routing, reduced fuel consumption, which not only means lesser emissions, but also greater savings. So that's slide five. So in the third quarter, we reported $27,800 per day for our VLGCs, for the VLGC fleet for calendar days. Importantly to note, though, we had 8% planned off-hire on our fleet. This was driven primarily by our LPG dual-fuel retrofit program. Commercially, we achieved $30,100 per available day with consistently high commercial utilization of 98%. This performance translated to a net profit after tax of $29 million and an earnings per share of 20 cents. And for the third quarter, We will be distributing a dividend of $0.10 per share, amounting to a total of $14 million. Before we move to the highlights of the quarter, I'd like to again stress that our focus is to ensure the best long-term returns for our shareholders. This strategy includes optimizing the returns on our assets through LPG propulsion retrofits, buying and selling vessels opportunistically, having a strong balance sheet, and utilizing technology to optimize voice returns. And we do walk the talk. We've been strengthening our financial position and leveraging our balance sheets since 2020, including $256 million of undrawn revolving credit facility and $127 million cash. Our available liquidity is at $383 million with the lowest net leverage ratio in seven years at 36%. Discount balance sheets prepares us for all kinds of market conditions, and allows us to participate in sizable and attractive investments in the LPG value chain when we identified good opportunities. Our retrofit program remains on track. We have retrofitted further two vessels this quarter with LPG dual-fuel propulsion, bringing the total to 10 vessels of water. We continue to embrace technology in shipping and have fitted three more vessels with SmartShift technology, bringing the total now to 20 vessels. This technology, together with active weather routing, has given us fleet-wise fuel savings of approximately $1.5 million so far this year. Since 2020, we have been divesting our less economic and efficient vessels at very attractive levels and well above Newville's equivalent prices. During the quarter, we have concluded the sale and delivery of BW Confidence in July and BW Boss and BW Energy in August. generating $81 million in liquidity and a net gain of $9 million. Lastly, we have exercised the purchase option on Eurocosmos in August, now named VW Niigata. This transaction has generated an expected 8% return on capital and a gain on rightly used assets of $3 million. These asset transactions are an integral part of our strategy. In order to provide healthy returns over a cycle, we need to deliver steady operations and sound commercial decisions. Thus, we find it highly rational to sell our least favorable assets at prices at or above NAV, while the stock market is valuing these assets at more than a 40% discount. Looking at the market, we expect healthy TCE rates for Q4 2021, comfortably above cash break even. This is supported by continued growth in U.S. exports, recovering volumes of the Middle East, strong and stable end-user demand, as well as increasing shipping inefficiency, primarily in the Panama Canal. We also continue to be optimistic for the next year. As we look towards 2023, We reiterate the sustained export growth of US LPG and no further new builds are key to bring about a balanced market. Let's quickly go to key financials and prior to slide six. The VRGC market held relatively steady in June 3-Q compared to the preceding quarter. We generated an annual return on equity of 9% and our annualized return on capital employed came in at 7%. Year-to-date 2021, we have delivered a return on equity of 13% and a 9% return on capital employed. Our operational and free cash flows remain healthy at $6,306 million, respectively, for the quarter, giving us good flexibility and enabling us to continue to return cash to our shareholders. As highlighted earlier, our net leverage ratio continued down from 40% at the end of the second quarter to now 36% at the end of Q3, the lowest in seven years. Next up, Nils will take you through the market review and commercial update. Nils?

Thank you, Anders. Good morning and afternoon to all of you. In slide 8, we are sharing our view of the market. Currently, the market is robust, and we expect rates to continue to firm up. This is driven by strong fundamentals such as winter heating demand in Asia and increasing shipping inefficiencies, especially for the Panama Canal. Last on picture we did for December lifting out of the US to discharge into Asia gives a round voyage rate of about $40,000 per day. we have fixed approximately 80% of our Q4 available fleet days at an average rate of $32,000 per day on the discharge-to-discharge basis. As Andy said, we continue to be optimistic for next year. The current high oil and gas prices will support stronger production growth out of both the U.S. and the Middle East. The shipping inefficiencies will continue to support the total amount offset vessel supply, and add market volatilities. Today, we have seen the Panama Canal waiting days increasing to more than one month for both lakes, and we believe the congestion in the Panama Canal will become the new norm. As a result, we expect more traffic around Table Good Hope for the U.S. product to Asia. Turning to slide 9, and talk about the seaborne LPG trade overview. Driven by high oil and gas prices, we continue to see a recovery in U.S. upstream activity. North American LPG exports have increased by 16% year over year. The strong exports, despite the high LPG prices, continue to illustrate the strength of the LPG import demand. Despite falling petrochemical margins, China's LPG imports recovered strongly by 30%. China is set to drive the most meaningful LPG demand growth moving forward. There are 21 PVH developments scheduled from 2021 to 2024 in China. Those plants will generate over 12 million tons of incremental import demand per year. Retail demand into India continues to grow, and the LPG import has increased by 20%. Significant infrastructure investments have taken place in India to encourage high levels of imports, such as new pipelines, port expansions, and storage facilities. Furthermore, the country is expanding into the petrochemical segment with PDA plants investments. This will unlock tremendous potential import demand growth for the petrochemical sector. petrochemical sectors in India. Turn to slide 10. As you can see, slide 10, we have the EIA short-term energy outlooks released in November. The forecast that US LPG exports will remain high for 2022. Production growth by 6% compared to 4.1% in 2021. Let's turn to slide 11. There will be C3 profile. So, 7 more vessels are expected to be delivered from 2023 to 2024 compared to last quarterly updates. This includes 19 in 2022, 42 in 2023 and another 8 in 2024. We have no new build orders, but we have the largest fleet of LPG propulsion vessels ready by Q1 next year. We continue to offload some of our non-LPG propulsion ladies at good premium to book values, and in line with brokers' valuations. These transactions crystallize the values for our shareholders, as our current share price is trading more than 40% discount to our book values at $9.4 per share. Turning to slide 13, and talk about our commercial performance. This slide is a 50% increase in bunker costs compared to only 4.5% percent increase in freight, we have achieved a commercial result of $30,100 per available day, with a strong commercial utilization of 98%. This is approximately 20% above the average voltage rate Rastanura to Chiba. RTC for calendar days came in at 27,800, and the result was mainly impacted by having 8% of off-hires. We decided to bring forward our dry dock LPG conversions so we can enjoy a more available or more available sailing days next year when we anticipate a stronger market. Turn to slide 14 and talk a little bit about our time charter portfolio. During the quarter, we have renewed three time charter contracts in our Indian subsidiary for two years at an average gross GCE rate of mid $30,000 per day. Our time travel out revenues for 2022 now stands at $75 million, with an average CCL rate of $33,100 per day. Our CCN costs remain low at $26,100 per day. As of today, we're happy with our spot exposure for next year. That's it for me, and sponsors work will take you through the technical updates.

Thank you very much, Nils. Turning to slide 15, please. And as I mentioned at the date, we have actually 11 LPG-powered VLGCs serving our customers with the lowest greenhouse gas emission profile in the sector in the water. BW Freya is currently undergoing sea trials following her conversion. She is expected to be re-delivered to commercial by the end of next week, and she will thus be number 12. The three final vessels in the retrofitting program are planned for conversion during Q1 of next year. Furthermore, we have five vessels due for normal dry docks, where the majority are scheduled in the second half of 2022. In total, we estimate 290 days of planned off-fire due to scheduled dry docks in 2022. As we progress our retrofitting program, we also continue to invest resources to answer the question of what's next. Our engineering and innovation teams are busy working on the tasks, and in an uncertain future, our next generation BLGCs must comply with long-term trends in emission regulations and yet make business sense in the short term. We remain convinced that LPG propulsion is part of the solution as we wait for technologies to progress and for alternative fuel supplies to mature and reach the scale needed to make economic sense. In the meantime, we are exploring hydrogen, batteries, rotor cells, and ammonia as alternative fuel sources. We continue to optimize our assets and operations by looking at how we can improve hardware systems and designs. We are also exploring the feasibility of carbon capture onboard for future compliance requirements. As we explore what is next in terms of technology and design, we are also making good progress with the digitalization of our fleet. Over 50% of our ships are now connected to Alcore's smart ship system, sharing real-time data with our offices. This allows for better and more efficient support to our teams at sea. With better data, we provide better support and improve our operational performance. This translates to real savings for our business. For example, we have saved over nearly 2,500 metric tons of fuel since January by usage of active weather and voyage routing. Now on our crew. We continue to navigate operational challenges from COVID-19. To mitigate complexities in embarking and disembarking crew, as well as with port calls, we focus on getting our crews vaccinated. Having fully vaccinated crew on board reduces time spent in quarantine, minimizes vessel delays, and helps protect our team members both at sea and on shore. We now have 12 fully vaccinated ships and approximately 85% of the total crew pool vaccinated. Finally, on OPEC. We continue to maintain market-leading OPEX trends for our fleet. We see this as an important priority on business practice, despite unprecedented global challenges to our operations. However, our vessel operating expenses came in higher than normal this quarter, at $8,400 per day. This was due to incremental manning and logistic costs incurred due to the pandemic. Now, let me turn over to Elaine, who will walk you through the projected CAPEX in our fleet positions and results.

Thanks, sponsors. Let me just begin with a few comments on the table on this slide. Thus far this year, we have spent $89 million on fleet upgrades. This relates to the retrofitting of nine dual-field propulsion engines, as well as installations of balanced water treatment systems and smart ship technology onto our vessels. We plan to spend a further 31 million on these fleet upgrades in 2022, of which the remaining three retrofits will be financed by new debt. The remaining capital expenditures relate to the regular scheduled maintenance on our vessels. Let me now provide a few highlights on our income statement here, where we reported 29 million in net profit this quarter. Our TCE income was 105 million for the quarter, Similar to the previous quarter, we have a higher-than-usual plant-off hire with four of our vessels at the yard undergoing LPG propulsion retrofits. The TCE number includes a net positive impact of 1 million related to the effects of IFRS 15, which is an adjustment to the guided TCE that we provided earlier on a discharge-to-discharge basis. Vessel optics was 8,400. per day, which was explained earlier by Pontus. We concluded the sale of three vessels during the quarter, realizing a net gain of $8.7 million. The vessels were delivered to its new owners for further trading in July and August. We also exercised the purchase option for the Eurocosmos in August, reporting a $2.5 million gain, which represents the difference between the lease asset and lease liability on our balance sheet. Page 17 provides a snapshot of our balance sheet and cash flow statement. On our balance sheet, we ended the quarter with $127 million of cash and $1.8 billion in vessel book values. We also had $1.3 billion in shareholders' equity at the end of the quarter, which translates to $9.35 per share. Our operating cash break-even for 2021 is at $22,200 per day. And at the end of September, our available liquidity is at $383 million, with our net leverage ratio at its lowest level in seven years at 36%. Our net debt position at the end of the quarter was $765 million, and we will have no major balloon payments due in the next five years. Lastly, let me provide a quick update on our financing. We are in the documentation stage for the financing of the remaining LPG retrofits, which we expect to close by year-end. On this note, I would like to open up the call for questions.