BW LPG Limited

Welcome to BWLPG's first quarter 2023 financial results presentation. Bringing you through the presentation today are CEO Anders Ollerheim, Deputy CEO and Head of Strategy Christian Sorensen, CFO Elaine Ong, and EVP Commercial Niels Riegel. 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, or 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 Anderheim.

Thank you, Lisa. Welcome all to our Q1 presentation for the financial period and the 31st of March, 2023. As always, I'm joined today by Christian, Elaine, and Niels. The year started off very strongly. On the shipping side, with an expanded fleet through our pool vessels, we positioned ourselves to benefit from the strong market and capture value for our shareholders. Our product services division also delivered a solid first quarter, full quarter, as an expanded team. With this, let me move on to the highlights for the quarter. Please turn to slide four. Like many of our quarters, Q1 of 23 was also an eventful one. Our shipping business delivered the highest historical daily TC on record with $60,900 per available day with commercial utilization of 97%. This is despite taking some cover early this year at lower levels as Q1 is often challenging. This year certainly has been different. The payoff of investing in our 15 dual fuel propulsion vessels is now becoming more and more visible. In addition to the environmental benefits of using LPG as fuel, It also makes commercial sense as burning LPG is cheaper than burning compliant fuel. We are now experiencing great interest in our retrofitted ships from our customers. The sale of BW Thor in March generated additional liquidity of $54 million and a net book gain of $17 million. Q1 was also the first full quarter after the combination of BW product services and Wilma LPD trading. Corolla Services delivered a net result after tax of $3 million and traded about 1 million tons of physical LPG during the quarter. In sum, the above activities contribute to our strong liquidity position of $532 million, a net leverage ratio down to just below 21%. And with this liquidity position, we're able to return more dividends to shareholders. And for Q1, we announced a dividend of 95 cents per share. Equal and analyzed dividend yield of 43%. If this continues, that's a less than two and a half year payback. This is, of course, not a promise for the future. The board has also resolved to initiate a new share buyback program for the purchase of up to $50 million. We will conduct this through an open market purchase or as a tender offer. Details and execution will be provided when the new share buy program is launched. Switching to our market outlook, we're still positive, but we expect volatility to remain. The current oil price is conducive to continued strong export growth from the U.S. and steady growth from the Middle East. We also see that margins for Chinese PDX plants have been improving, which is important for LPG demand. Further, we expect fleet inefficiencies to continue to lend support to rates. 36 VLDCs are due to dry dock from June to the end of 2023, and waiting times at the Panama Canal are likely to increase as the world's merchant fleet expands in the coming years. Recently announced capacity expansion for US LPG export terminals also enabled more LPG to be shipped in the years ahead, clearly positive for our market. And finally, if I hand over to Niels, after the end of Q1, we sold and delivered BW Odin and BW Ostrom. These two sales generated additional liquidity of approximately $130 million, and they result in a combined net book gain of approximately $26 million. Those were the highlights. Nils is going to take you through the market and shipping performance segments. Nils.

Thank you, Anders, and greetings to all of you. So let's turn to slide six of the presentation. The VLC freight market had a very strong performance in the first quarter of 2023. The average spot TCE for the first quarter was set at 70,000 per day. Historically, the second strongest market performance for the first quarter and is significantly higher than previous years, surpassing expectations. Initial fears of a market downturn due to poor Chinese PDH margin, global economy outlook, new vessels delivery were proven wrong. Will this continue going forward? Well, we can't say for certain. We think there are good reasons to be optimistic, and I would like to highlight six of them. One, strong U.S. export growth. Record high inventories and expected decline in domestic consumption indicate robust U.S. export potential. Two, sustained Asian demand. Asian LPG demand remains strong. exemplified by increased run rates on Chinese PDH plants driven by improved operating margin. 3. Market inefficiencies. Various inefficiencies within the LPG trade, including congestions at the Panama Canal, port delays, weather conditions, and geopolitical and regulatory factors continue. 4. Observation of new building fleets. Although 28 VLDCs are still scheduled for delivery in 2023, the impact of this supply growth is expected to be partly mitigated by the dry docking of 36 VLDC throughout the year. Increased new building prices. Rising prices of new building vessels contribute to high time charter freight rates. And finally, six market dynamic shifts. Notably, a significant shift has occurred in the LPG shipping, where traders and oil majors have transformed into ship owners, resulting in a market increasingly oriented towards long shipping, reducing incentives to drive down rates. If we take a slightly longer view of the VLC market, we see a significant slowdown in fleet growth in 2024, with just 14 new buildings expected to be delivered Furthermore, concerning the substantial LPG export expansions in both the US and the Middle East, coupled with shipyards being fully booked until the second half of 2026, this scenario presents a promising opportunity in the LPG shipping sector. Now let's move to slide 11 to discuss our performance. RTC performance for Q1 2023 achieved a new record since our company listing in 2013. However, we did not expect the market to be so volatile and strong. At the start of this year, spot rates developed very much in line with seasonal trends, and conventional data implied that this would continue. As a result, we took cover in the TC and the paper market to protect the downside, which lowered our performance compared to the overall spot market. Our remaining TC out coverage for 2023 is 31%, with an average rate of 38,900 per day. And our TC Inbook for 2023 is covered with a $29 million profit. For 24, we currently only have 4% coverage, but we see strong demand from the market to fix two to three years time charter at historically strong rates. Our LPG retrofits are popular due to their fuel efficiencies and could obtain 13% to 15% unlevered returns for those CC contracts. For the second quarter, we have booked 90% of our available fleet days at an average rate of $50,000 per day. The lower fixed Q2 number compared to Q1 is due to the market dip we saw in March and April. The current spot market is on average $80,000 per day, so we expect to finalize the remaining days of Q2 at a strong note. The FFA market for Middle East Japan indicates TCE at mid to high $50,000 per day for the remainder of the year. That was it.

Christian, over to you. Thank you, Nils. Before we move to the product services part, we believe it's worthwhile to also say a few words about our strategy. which remains steadfast by building a robust return-focused company by actively searching for attractively priced investments in shipping, as well as LPG trading and onshore infrastructure projects. On the technology side, BWLPG pioneered into the dual-fuel LPG propulsion technology through our Retrofit program, a technology which today represents a fuel saving of approximately $6,000 per day. We are strong believers in the LPG dual fuel technology, as well as closely monitoring the developments on the ammonia side. Accordingly, we will continue to look for opportunities to create shareholder value through attractive asset pay transactions, as well as using our time-sharded portfolio and derivatives to adjust our market exposure. Looking at our India business... It's been instrumental in our efforts to participate in the upside potential of the Indian LPG markets, and we regard our presence in India as a beachhead of strategic importance we expect to build further upon. If you flip to the product services update on the next slide, you will see that we report a net profit after tax in line with our April trading update of $3.1 million. after depreciation of $17 million for the five timeshot rain vessels. You can expect product services to continue its conservative short-term approach to the markets while we prepare for an activity ramp-up in the medium term. Some of you have asked us about the synergies between shipping and trading, and as guidance for first quarter, our product services division fixed about 20% of our available ships for that specific quarter. with a total physical volume of about 1 million tons traded. And with that, over to you, Elaine.

Thanks, Christian, and a very good day to all of you. On a consolidated basis, we reported a total of 225 million in gross profit for Q1. This was largely driven by the strong TCE earnings from our shipping segment on the back of the sudden reopening of China with low inventories. EBITDA came in at $176 million, which represents an EBITDA margin of 78%. We recorded $17 million of gains from the disposal of the BW Tour during the quarter. This brings us to a full-year net profit after tax of $131 million, $3 million of which came from our product services segment. Our net leverage ratio came in at 21%, just above our 20% guidance for a payout of 100% of NPAT. Nevertheless, our board has still decided to declare a Q1 dividend of 95% per share, equating to a payout ratio of 100% of NPAC. At the end of March, we had $329 million of cash and $2.6 billion in total assets, of which $1.7 billion relates to the carrying value of our vessels. Compared to the latest second-hand broker valuations, we have a healthy headroom of $380 million in excess of our book values. Our positive free cash flow of $171 million this quarter was derived mainly from our strong operating cash flows and the net positive investing cash flow of $50 million, mainly from the sale of BWTor. The positive cash flows were used to repay our term debt, to return value to our shareholders, both in dividends paid and our continued share buyback. Our return on equity and capital employed for Q1 were 33% and 24% respectively. We ended the quarter with a total equity of $1.6 billion, which translates to an NAV per share of $11.38 or $119 per share. Next, we move on to the financial performance of our two operating business segments, starting with our shipping business per day statistics. Our VLGC fleet generated $200 million in TCE income, or $58,700 per calendar day for the quarter, which is a historical record high. Daily OPEX came in at $8,600 per day, largely due to higher maintenance and repair expenses. Our shipping segment ended the quarter with a profit after tax of $128 million. For 2023, we expect our operating cash break-even for our total fleet, including our chartered-in vessels, to be at $23,100 per day. Shifting focus to our expanded product services business. In Q1, we traded approximately 1 million metric tons of physical LPG, generating $25 million in gross profit. Depreciation relating to the amortization of five right-of-use assets was $18 million, resulting in a $7 million EBIT for this quarter. Other expenses comprised of the interest component of the RRU liabilities, G&A expenses, and estimated taxes approximates $4 million for the quarter. Net of depreciation and other expenses, our product services business reported a profit after tax of $3 million this quarter. Our trading portfolio reflected an average daily value at risk of about $5 million for Q1 based on the standard 95% confidence level. Our committed capital in this business remains unchanged at $100 million, which includes $50 million in a revolving working capital facility used mainly to finance margin calls on our paper hedges. Slide 15 provides a summary of our liquidity position. On a consolidated basis, we ended the quarter with over half a billion in liquidity, made up of $209 million in cash, net of $38 million held in broker margin accounts, and $241 million in undrawn revolving credit facilities. SHIP finance debt at the end of March is at $413 million after all our scheduled repayments of existing term loans. Our revolving credit facilities remain undrawn. On trade finance, We have expanded our facilities to 580 million with support from multiple banks across Europe and Asia. And we are on track to further expand our lending group and upsize our lines to 800 million. At the end of March, only 278 million or 48% of our current 580 million in lines have been used. 71 million related to advances drawn and 207 million in letter 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.