BW LPG Limited

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, Ernest Onderhain.

Thank you, Lisa. Welcome to our Q4 and full year 2022 results for the period ending 31st of December last year. I'm joined today, as Lisa said, by Kristian Sørensen, Leigh Nong, and Neil Srigo. 2022 was a hectic year for us at BWLPG. First of all, The past year, I think, has clearly demonstrated the relevance of our business in the context of continued global geopolitical and economic uncertainties. Energy security has become more important than ever, and we are playing our part as the largest VLGC owner and operator. So many thanks for our employees at sea and onshore for their hard work in 2022. Together, we've delivered solid results. We completed the expansion of our product services business with the acquisition of the development team, We pressed on with our long-term commitment to fleet renewals, securing attractive prices for all the tonnage, while we continue to optimize operations and reduce costs with LPD propulsion and other onboard initiatives. We're also pleased to release our integrated annual report today, where we highlight how it's possible to combine profits with purpose. You can download the report from our website. We're well prepared for any and all market conditions, and we're confident in our ability to capture opportunities and create value for our shareholders. Let me move on to the highlights for the quarter, to slide four. With a strong Q4 performance, we drove our impact for the year 28% higher than last year in 2021. For the fourth quarter, the TCE equivalent earnings were $55,000 per available day. This number is based on low-to-discharge basis. However, in adjusting for IFRS 15, the discharge-to-discharge TC earnings would be about $5,000 higher, or around $60,000 per day, as also communicated by our friends at Avans earlier today. This allowed a 52-cent dividend representing a dividend yield of 26% for the quarter and 16% for the year. This is in line with our stated policy of paying out 75% of NPAT when leverage is below 30%. The Board has further upgraded the policy such that the intended payout will be 100% when leverage falls below 20%. And in the current environment, this could be a reality and not too distant future. We also bought back almost 6 million shares at around 60 Norwegian kroners per share, amounting to $35 million. We successfully incorporated Vilma's LPD trading operations into our product services business in November And with that, BWLPG got a new office in Madrid. The operations and the cooperation are going well, and Christian will give you more details on that later. There was another active quarter on the asset management side, and we concluded the sale and delivery of the BW Prince in October and entered into agreements to sell BW Astra, BW Odin, and BW Thor at prices averaging 35% above new build equivalents. We also exercise purchase options for the BW Messina and BW Kyoto as part of our active as a management strategy. Vessel sales were done comfortably above net book values, while the new ships coming into our fleet were done at discounts, thus providing good shareholder value. Notably, we further developed the BW LPG pool with the addition of nine vessels from VTOL and product services. I'd like to dwell here for a moment. I think it's a great testament both to our team but also to trust our clients the way they're showing us this confidence. Even though we're increasing our trading presence, we are still viewed as the premier shipping company within the VLGC space. On the market, we reiterate our positive view on 2023 despite the large new build order book. This is driven by strong U.S. export growth and steady growth from the Middle East Chinese PDAs plans starting up again after China's lockdown. Increased shipping inefficiencies from the heavy dry draft schedule and Panama Canal transit congestion. And also new regulations, notably the EXI and DCII. This will also slowly but steadily have an impact. With this, I hand it over to Nils.

Thank you, Anders. Good afternoon from London. Since we have much to discuss this quarter, I want to start on page 10 with some key points about our operating fleet. Although we have been actively selling ships for the last three years, we still control a large diversified fleet of 48 guilded ships. We operate the largest LPG propulsion fleet of 16 vessels and the largest scrubber fleet of 14. In addition, we have the largest WC spot pool ready to benefit the solid and volatile market. Let's turn to slide 12 and talk about the shipping highlights for the quarter. Selling high and buying low is a simple strategy, but it's only sometimes easy to execute. We continue using the strong secondary markets to divest our older vessels. This quarter, we sold three ships with a total net book gain of 42 million. Buying vessels or building vessels in today's market is expensive. However, we grew our own fleet by two vessels at a discount using purchase options through the GCN fleet. VW Kyoto had a Japanese yen purchase option. We took the advantage of the historical weak yen and declared the option at an attractive arbitrage compared to today's high asset values. We also declare the purchase option of Messina at an attractive price to be an excellent candidate to retrofit with the LBC propulsion in the future. We keep benefiting from our TCE fleet and continue to explore arbitrage opportunities in the time charter market. We have now locked in 27 million net profits for 23 on the TCE book. The 2023 propulsion time charter rates remain strong at 40 to 50 K per day, depending on the propulsion technology. Our LPG retrofits continue to have a good interest in the market, and we have recently fixed out one of them for a three-year TC to an oil major at premium compared to a new building LPG propulsion vessel. This quarter, we have taken a big step on the BW LPG spot pool, growing the total pool to over 30 vessels. making it the largest VFDC spot pool in the world. We thank Vital, Exmar, and our product services for their trust in the pool, ability to continue outperforming the market, and we welcome more owners to join. An expanded pool for BW LPG allows us to provide even better services to our clients. In addition, it gives us better market intelligence and creates an additional revenue stream for the business. Let's move to slide 13 and talk about our performance. For this quarter, we illustrate the net gross profit generated for our TC-in and TC-out position. As mentioned, we have secured 27 million net profit for 23 for existing TC-in book. The remaining backlog of the TC-out book is expected to generate an additional 47 million in time charter revenues. We have covered 30% of all our 2023 days at 38K per day, with 84% fixed for the first quarter at 56 per day. For 2023, we will repeat a positive market outlook despite the order book. However, we continue to expect extreme volatility and abnormal seasonality. This was observed in the first quarter when spot rates quickly bounced back to over 70,000 per day driven by robust demand from China and export growth from the U.S. In hindsight, we were a bit conservative and early when taking the coverage for the first quarter. But with 70% spot exposure for the rest of the year, a positive market outlook, and a large diversified fleet, we are confident that we will be able to navigate through the market, and 2023 will continue to be a strong year for us. Let's turn to slide 14, talk about statistician fleets. We made another slide to illustrate the earnings power of the GC inflate. As an example, at 40,000 per day, our current GC inflate can generate around 30 million in a year. Now, we have nine vessels on time shorter at average rates of 27,600 per day. For my last slide, please turn to slide 15 to give some context on our business in India. We have eight VDCs sailing under the Indian flag and do about 20% of all LPG imports into India. Seven of them are trading in the teaser market at an average rate of 35k per day, and one is serving the strong spot market and is currently installing a scrubber during her dry dock. All shifts were dry dock due within 12 months, and six of them have completed their dry dock within budget. BW India is a perfect example, illustrating our strategy for maximizing the return on our assets. The lead organization structure, the low-cost operation, and stable earnings allow BW India to achieve a strong return on equity of 19% for 2022. With such a notable presence in India, we are regularly presented with new business opportunities and are constantly evaluating how we can best develop these prospects. for BW India. This includes both infrastructure and downstream activities. And with that, I will hand the floor over to Christian.

Thank you, Nils. Yes, as Nils says, we have several transactions to report since last quarter, but it remains important for us to show the great benefits we and other shipping companies obtained from burning LPG as marine fuel. It's cleaner, cheaper, and comes with a higher energy equivalent than the LSFO, and burning LPG on our own fleet of 15 dual-fuel VLGCs is an important step on our decarbonization journey. It is with excitement we can say that the VLGC segment is a shipping segment which has fully embraced the new technology, with owners taking active investment decisions leading to a more environmentally friendly shipping industry. Moving on to our newly expanded business unit, BW Product Services, on slide 17. We are very pleased to advise that the company acquisition, integration of the Vilma team, its trading portfolio and time chart vessels have been concluded in a successful way. In addition to BW Product Services' presence in Singapore and Oslo, we have now also opened a new office in Madrid. Through the transaction, BW LPG have increased the fleet under our commercial control with five vessels. And in 2022, the combination of BW product services all trading portfolio and the acquired Wilma portfolio represented a total of 5 million tons of physical LPG cargoes traded. The charging activities between BW LPG and product services are done on market terms to ensure optimal commercial decisions are made on both sides. There is no obligation either side to charter spot vessels if more attractive alternatives are available in the market. However, as an example of our improved optionality, we swiftly secured off-the-market employment for a handful of our vessels in January when the freight market softened and our trading team needed the logistics flexibility that our fleet provides. As you will see from our financials, The BillMyTransaction came with a price tag of approximately $50 million for 85% of the company. The remaining 15% is held by key employees in BW Product Services. In addition, we have earmarked another $50 million as a working capital revolver for our trading activities. In order to give a correct picture of BW Product Services trading portfolio and its activities, we value all accepted time chartering positions based on the mark-to-market principle on a 12-month forward rolling basis. We believe looking 12 months forward gives a good estimate of the value of the portfolio, given the liquidity and availability of benchmark reference prices. This means that positions extending beyond 12 months are not reported in the financial accounts. However, since the mark-to-market valuation of the trading portfolio fluctuates from day-to-day and week-to-week, we will endeavor to announce a quarterly trading update after the expiry of each quarter so that our investors and analysts can manage their expectations ahead of our regular earnings release. In addition, we will also give a range guidance on the average VAR value-at-risk last quarter. And with that, Elaine, over to you.

Thanks, Christian, and a very good day to all of you. Before I walk you through the key financial highlights, let me explain some changes made to how we present our financial results in light of our recent acquisition of Wilma's LPG Trading Operations in November. First, you will see that product services performance is now presented on a gross basis, showing gross revenue and cost of goods sold. This provides better insights into the financial performance of product services increased trading activity. And we have also included segment reporting in both our quarterly and annual reports, which will show the achieved TCE income of our shipping segment and the gross profit of our product services segment. Now turning to the numbers. On a consolidated basis, we reported a total of $568 million in gross profit for the full year 2022. This was primarily derived from the strong TCE earnings of our shipping segment. EBITDA came in at $408 million, which represents an EBITDA margin of 72%. We recorded $21 million in gains from the disposal of four vessels during the year. We ended 2022 with a full year net profit after tax of $239 million and an earnings per share of $1.68. With our net leverage ratio at 24% this quarter, our board has declared a final dividend of 52 cents per share, equating to a payout ratio of 75% of fourth quarter NPAT. This brings our total dividends for 2022 to $1.28 per share, which translates into a 76% payout ratio on our full year NPAT. Our board has also further enhanced our dividend policy to target a quarterly payout ratio of 100% NPAT when the net leverage ratio is below 20%. At 31st December, we had $236 million in cash, $2.5 billion in total assets, of which $1.7 billion relates to the carrying values of our vessels. Based on the latest secondhand broker valuations, we still have a healthy $320 million headroom in the market values of our vessels over their carrying values. Our positive cash flow of $654 million this year was derived mainly from our strong operations with minimum capex as our LGIP retrofit program was completed by the first half of the year. During the year, we also received 183 million in sales proceeds from the sale of four vessels and a further 80 million as new equity from an external investor into our Indian subsidiary. The positive cash flows were used to repay our debt and for the expansion of our product services business. Our return on equity and capital employed for 2022 was 16% and 12% respectively. We ended the year with a total equity of 1.6 billion, which translates to an NAV per share of just under $11. Going forward, we also provide a breakdown of the financial performance of our two operative segments. Starting with our shipping business, our VLGC fleet generated $40,600 per day for 2022. Daily OPEX came in at $8,400 per day, largely due to higher manning expenses, escalation in cost of lubricating oils due to higher oil price, and inflationary pressure on the cost of stores and spares. Our shipping segment generated a strong TCE income of $568 million in the year. Looking at 2023, we expect our operating cash break-even for our total fleet including our chartered in vessels to be at $22,600 per day. Now shifting focus to our expanded product services business. In 2022, we listed a total of 22 cargoes, generating 730 million in gross revenues. Following this expansion, we listed eight cargoes in December alone, locking in approximately 200 million in gross revenues. Our product services team now operate a trading portfolio with a daily value at risk range of $5 to $8 million, based on the standard 95% confidence level. The 95% confidence level implies that we expect only a 5% probability that the trading portfolio will incur a change in value of more than the expected value at risk in the day. All in, we have committed $100 million in capital for this business, $50 million to acquire Wilmer's Trading Operations, and 50 million in a revolving working capital facility used mainly to finance margin calls on our paper hedges. Slide 20 provides a summary of our liquidity position. For better clarity, we have also separated our financings by business segments. On a consolidated basis, we ended the year with almost half a billion dollars in liquidity made up of 221 million in cash and 240 million in undrawn revolving credit facilities. Ship financing debt at the end of December is at $428 million. After all, our schedule was repayments of the existing term loans this year. Our revolving credit facilities remain undrawn. On the trade financing side, we have increased our facilities by over $200 million and now have $522 million in place at the end of 2022. Our trade finance lending group has also expanded from four to nine banks spanning across Europe and Asia. We look forward to further expand this lending group as we aim to upsize our lines to 800 million. At the end of December, only 219 million or 42% of our current 522 million in lines have been used, with 53 million related to advances drawn and 166 million in letters of credit issuances. On this note, let me open the floor for questions. Back to you, Lisa.

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 to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once again, 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 clicking. We have one question from Anders Coulson to Elaine. What is the purpose of increasing credit lines to US $800 million?

Hi, Anders. Good day to you. Well, I think we are looking to expand our product services business in the coming days. And as a result, we are trying to make sure that there is sufficient financing facilities available to support the growth in the product services business now that we have a much bigger team.

Thank you, Elaine. Once 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. Once 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 mute before speaking. We have no questions online. Anders?

Well, if it was this crystal clear, I mean, I'm happy to end it here. But often I know it takes a few minutes before, you know, we always like to have some difficult questions. So if you have some, please come with them.

If you have questions, please type them into the Zoom chat box. Otherwise, click on the raise hand button to ask your question verbally. Please note that you have been automatically muted. Please press unmute before speaking. We have one question. Raise hand from Desmond. Please go ahead, Desmond.

Good morning. Good morning. I apologize. My question in the chat didn't go through. Could you provide a little insight of where you see the inflationary environment impacting the company the most right now?

I can start, Elaine, and you can add, too. I mean, I think, first of all, of course, we are well hedged, you know, on our interests-wise. And, you know, of course, we also, we are, you know, predominantly in the spot market. So we will not, you know, it is not as important to us as it would be, for instance, in the LNG sector, where, of course, you have long contracts you need to really take into account. But so for us, it does not have any, any direct strong impact. But Elaine, do you want to elaborate a little bit or?

No, I think you've covered most of it. You know, our revenues and our costs are predominantly U.S. dollars and, you know, and we've hedged over 90% of our interest costs over the next four to five years. So we're in a pretty good place right now.

Thank you.

Could I ask

Yes, the question here, I think, you know, on the Wilma trading, do you want to comment on that?

Yeah, it's a question from, could you please provide some more color on how to think about Wilma trading earnings going forward? Well, as mentioned, we will come up or we will present a trading update at the end of the quarter. But we can say that It looks positive so far, but the first quarter is always a difficult quarter from a trading perspective, but it looks positive. So we will come back with more details sometime first half April, if all going according to plan.

I see there's also a question for Christian Faldnes. I think, will the interim shares be canceled? As of now, there's not been made a decision about that. So for now, they will not be canceled. But that's something we discuss every board meeting.

If you have questions, please type them into the Zoom chat box. You can also click on the raise hand button to ask your questions verbally. Please note that you have been automatically muted. Dispress unmute before speaking.

Well, it seems like there's no more questions, and thank you very much for your attention, and I wish you all a great day going forward.

Thank you. We have come to the end of today's presentation. Thank you for attending BWLPG's fourth quarter and full year 2022 financial results presentation. More information on BWLPG is available online at www.bwlpg.com. Have a good day and a good night.