BW LPG Limited

Recording in progress.

Financial results presentation. Bringing you through the presentation today, our CEO, Anders Anaheim, Deputy CEO and Head of Strategy, Christian Sorensen, EVP Commercial News Review, and Interim CFO, Head of Investor Relations and Corporate Development, Eva Babsik. 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 raised hand option. Before we begin, we wish to highlight the legal disclaimers shown on the current slide. This presentation, held on Zoom, is also recorded. I now turn the call over to DWLPG CEO, Anders Onneheim.

Thank you, Lisa. Welcome to our Q2 2023 results presentation for the financial period and the third of June this year. It's been a strong first half year for BWLPG. We've been busy. On the shipping side, our Hispanic fleet with new full vessels allowed us to capture value in the buoyant market at an impressive 99% utilization. Kudos to the commercial team. The BOGC rate surged well above the seasonal averages from recent years. As an example, PCE rates from the Rastanur-Ashiva trade route was twice the average of that of the same period last year. Our India business is also delivering steady returns, and we are actively looking to increase our presence further in this fast-growing market. We are very pleased to see that a strategy developed over the last several years, including an expanded position in the value chain and disciplined fleet renewal, is starting to bear fruits. Our product services business is developing nicely, and KSTEM will give you some further details of developments here. Also, we're extremely pleased to see sharp improvements in the uptime on running our retrofits and LPG. The fuel savings are substantial, and the CO2 and other footprints drastically reduced. In this federal market, we continue to generate substantial free cash flow, and our balance sheet is rock-solid. Reflecting this, we did a share buyback to reverse book building process in June. We continue to return capital to our shareholders through attractive dividends. For the first half of 2023, we will have distributed nearly 20 Norwegian kroners per share. This equals to an analyst dividend yield of around 30%. Let me now move on to the highlights for the quarter on slide four.

Yeah, that's right.

For the second quarter, we announced a dividend of 81 cents per share, which translates into an annualized yield of 29%. We're also pleased to announce that we have decided to work towards a dual listing of LPG shares in the U.S. The U.S. listing is expected to expand the potential investor universe for the BW LPG share and thus improve the underlying trading activity. With a strong expected financial returns and an attractive dividend policy, We anticipate good interest from a broader group of U.S. investors. Also, given the increasing importance of U.S. sale activities for LPG Shipping, we also find it interesting to engage with knowledgeable shareholders and investors in that market. More information on this process will be announced when available. After the end of the quarter, we amended our $400 million senior security facility, converted $110 million of term loan, into revolving credit facility, but all of the terms have changed. Then switching to our market outlook. We reiterate a positive view for the remainder of 2023 and also for 2024, amid high volatility. Key reasons for this include an oil price that is very much conducive to continue strong US exports and steady export growth in the Middle East. and new PDH plans coming on stream in China, and we see that the new plans being commissioned often have a high operating rate. The delivery of LDC new buildings will slow down considerably after January 2024, which will set the stage for an interesting year. In fact, shipyards are now booked all the way into 2027, so there's little chance of increasing their to medium-term LDC deliveries. While the factors mentioned above do paint a positive picture for the VLGC shipping market, it's also important to remind ourselves that things can change quickly. We're mindful of the current uncertain macroeconomic environment, especially in China, and how much this can impact both investments in and demand for LPG. Also, let me echo Michael's quote from Hafnian. A continuous strong VLGC market requires a strong degree of discipline with respect to ordering new buildings. from leading players in this market. Those are the highlights. Nils will now take you through the market and shipping performance segments. Nils. Thank you, Anders.

And hello to everyone listening. Let's direct our attention to slide six. The second quarter presented volatility, but showed stronger performance than expected, making it the third best quarter in the VGC history. This is notable, since Q2 is typically seen as the weakest quarter. Freight rates experienced a dip, reaching a low at 40,000 per day. However, throughout the quarter, spot freight rates displayed a sharp upward trend by the end of June. The number surpassed triple-digit TCE figures on all main routes. This quarter robust performance can be attributed to two main factors. One, China's substantial purchase to boost their LPG inventories in the response to heightened demand within their petrochemical sector. Two, a surge in export from the Middle East, especially from Saudi Arabia, due to reduced domestic consumptions. Compared to the same timeframe in 2022, there was a 19% growth in the Middle East. In sum, 562 VLCs were loaded worldwide in Q2, making a 5% increase from the record levels witnessed in Q1. As we look ahead, our outlook on the market remains optimistic, and concerns regarding the order book are reduced. The global fleet has already received 50% of the 42 VLC new buildings set for delivery this year. Neither utilization nor rates have been adversely impacted thus far. Let's move to slide 11. Our TCE performance for Q2 stood at 52,500 per available date for the entire fleet, accounting for our fixed TCs and derivatives. Our available dates for this quarter were bolstered by a booming spot market, where we realized an average rate of 63,900 per day, excluding waiting time and fixed positions. Considering the current unpredictable market, exported by several uncertain factors, we remain committed to safeguarding the downside at the optimal level. For the remainder of 2023, 34% of our fleet is covered on TC with an average rate of 38,200 per day. Evaluating our TC in and TC out balance, we are fully covered our TC in book for 23, securing a profit of 43 million. Additionally, 9% of our calendar dates are hedged through derivatives at an average rate of 36,800 per day. For 24, our fixed contracts coverage is currently at 12%. This figure sits at the lower threshold of our desired downside protection. We're targeting coverage similar to 23, aiming for 20 to 30% fixed rate coverage from the TC market and roughly 10% through the paper hedges. However, anticipated rates for 24 could surpass 23 levels. To provide some perspective on the potential achievements in the time charter markets, recent TC contracts for next year, spanning for a two-year period, are obtaining a range between $40,000 to $50,000 per day, depending on the chip technology. Predictions for the FFA or derivative markets next year hover around the mid-low to $50,000 per day. For Q3, approximately 85% of our available days are fixed at an average rate around 61,000 per day, inclusive FFA's and TC's impact. The achieved spot rate stands at 84,000 per day. Given the continued robust performance on the current spot market, Q3 final earnings are poised to be notably strong. Before giving the word to Christians, and since I have your attention, I would like to thank Anders Olmaham. Being head of commercial under your watch has been an honor. Your notes from good business and excellent decisions have made our shelter richer. Numbers never lies. And since you started on the 9th of December 2019, shareholders have experienced a 200% return on their equity. On behalf of everyone in BWLPG and your shareholders, thank you, Anders.

Christian, and I pass it to you. Thank you very much, Nils. Kind words here to Anders, well-deserved Anders. And let's move on to rolling services performance. As announced in July, we reported an accounting loss of $31 million in Q2 due to the time lag effect between the derivative positions and the 12 months forward rolling valuation of the physical shipping positions. For better transparency, we have illustrated the discrepancy between the accounting P&L and how the trading book is valued internally. Our internal valuation of the five TCN vessels increased with $34 million for the quarter, giving an estimated non-GAAP trading profit of $3.2 million for Q2. This reflects a continued strong development in the 12-month forward freight market for wheel disease, which is the period for which we used to evaluate freight positions in product services. As you also can see, the VAR is relatively stable and the portfolio is well balanced between cargoes, shipping and derivatives from a trading book perspective. And so far in Q3, we have seen that the tables are turning on the back of profitable positions. After nine months of operation, we're very happy to see how BW Product Services platform provides BWL4G with improved information flow, optionality and a large footprint. Product services are also looking at expanding the physical presence in key markets to broaden the platform and trading portfolio. Next slide, please. This slide is a tribute to our technical and operations team, as well as to our crew on board our vessels, who have enabled us to capitalize significantly on our retrofit program. As the spread between compliant fuel and LPG widen, our cost savings in the first half of the year is more than $4.5 million, on top of a considerable reduction in emissions from our fleet. We are realizing on environmental, operational and financial benefits of LPG propulsion, and LPG remains a cost-effective and readily available fuel, which we still believe is under-communicated as an important transition fuel towards our zero-carbon journey. First half of this year, our retrofit program generated an IRR of approximately 25% and shows our ability to develop projects that generate solid returns to our shareholders. BW Project Services, the development of BW India, as well as our dual-fuel retrofit program are examples of strategic decisions which have been made to build a more robust company that is well positioned to meet the regulatory requirements in the future, at the same time as we continue to generate solid returns to our shareholders. In the coming years, we will carry on the journey that was started under Anders Tenure, and the incoming management will continue to build a return-focused business, which is sustainable both financially and environmentally. And although asset prices currently are elevated, you can expect us to continue our pursuit to renew the fleet and to invest more into the LPG value chain. And with that, over to you, Ivor.

Thank you, Christian.

Starting with the income statement, on a consolidated basis for the second quarter, we reported a net profit after tax of $78 million. This includes a 9.5 million profit from BW LPG India and a 31 million reported loss from product services, as well as a 27 million gain from the sale of BW Odin and BW Austria. As explained by Christian, our trading profit adjusted result ended at 112 million. which after adjusting for minorities, as we hold 52% of BW India and 85% of BW product services, translates into an adjusted earnings per share of 81 cents this quarter. Given a net leverage ratio at 19%, the board has decided to declare a Q2 dividend of 81 cents per share, equating to a payout ratio of 100% of our trading profit adjusted results. Our balance sheet ended the quarter with shareholders' equity of 1,532 million. If we adjust for the 460 million excess in broker values over book values, we reach an adjusted NAV per share of 150 Norwegian kroners. This is an uplift from book values of about $3 per share after adjusting for the minority interest in BWIndia. Our positive free cash flow of 195 million this quarter was derived mainly from our strong operating cash flows of $150 million and a positive capex inflow of 45 million. The capex inflow is a net from the purchase of BW Messina, selling of BW Austria and BW Odin, and through dry dockings in the quarter. Our return on equity and capital employed for Q2 2023 were 20% and 14% respectively. Next, we move on to some key statistics on our shipping business. Our daily OPEX came in at $8,800 per day, which is a flat development from the same quarter last year. For 2023, we expect our operating cash break even for our own fleet to be at $19,100 per day. This is down $500 per day from the Q1 report driven by the early debt repayment I'll mention on the next slide. Slide 15 provides a summary of our liquidity position. On a consolidated basis, we ended the quarter with close to half a billion in liquidity, made up of 251 million in cash, net of 80 million held in broker margin accounts, and 341 million undrawn in the revolving credit facility. SHIB financing debt at the end of June was 397 million. After the end of the second quarter, to reduce our debt costs but maintain financial flexibility, we made an early debt repayment of 110 million on our 400 million facility, and increase the revolving credit facility with the same amount with all other terms unchanged. We also reduced our interest rate hedges with about 100 million to 238 million, maintaining a hedge interest rate at 2.1%. The gain from unwinding of the interest rate hedges will be amortized over the remaining loan period. On the trade financing side, we are on track to further expand our lending group and upside our lines to 800 million. For perspective, these lines will allow up to about 8 million tons of yearly traded physical LPG volumes from the US to the Far East under current market conditions. At the end of June, Only 48 million or 7% of our current 360 million in lines have been used. The low utilization is due to timing effects and we expect it to average higher in the coming quarters, though maintaining a healthy headroom. Then, to just clarify on our guidance for Q3 2023, We had fixed 84% of our available fleet days at an average rate of $65,000 per day, including the impact from FFA.

Back to you, Anders.

Thank you, Ivor. I'd just like to take this opportunity to thank all the stakeholders on the call. It's been a privilege to interact with all of you. As I go into my last month as CEO, I can assure you that Christiaan Niels and the team will continue to work hard to create long-term value for all stakeholders. I will remain a keen shareholder in BWLPG, but I've also promised the team here that I will not ask difficult questions on the next earnings call. On this note, let me open the floor for questions. Back to you, Lisa.

Thank you, Andes. 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 speaking. One more time. Should you have questions, please type them. We have two. The first one. Petter, please unmute and ask your question.

Yes. Hello, guys. And you can hear me, I hope?

Yes.

You talked about renewal here, Christian, in a way which made me, well, it's not concerned, at least curious if that means lots of new buildings now being aimed to deploy the profits over the past quarters and probably coming quarters.

I know, Petter. We still believe the prices are too elevated, like I mentioned. So there are no talks about new buildings at the moment.

At the moment. Okay. That was good to hear. Another question. I might be too demanding, but within our modeling, we expected actually higher rates for Q3 compared to what you guide for now. But in order to try to understand where we are sort of too greedy here, if you will, to what extent does the Panama Canal... We've heard others talk about the Panama Canal being... not longer an option meaning that the conventional voyage calculations I suppose many of us use return a too high number as the alternative would incur longer sailing days and higher fuel costs as well. So could you share something, some more details on how you do the actual sort of post-voyage calculations compared to what the market is over the past few months. Yeah.

Nils, you want to have a go on that? I mean, I can just say before Nils goes, of course, Nils, he does not get totally free reigns to just go out and, you know, be in the spot market, you know, the whole year. I mean, both myself and the board, we, of course, we want to make sure that we have, we take some downside protection. So that's the stated policy, you know, from companies that we do not want to be, you know, 100% exposed to the stock market. And then sometimes that makes a lot of sense. Sometimes we leave something on the table. But I think that's a planned strategy. But, Nils, why don't you fill in?

Yeah, and I'm going to go into detail. We can do that in the technical better of voice calculations. But I would say just that, yes, the market is high. And one of the reasons is also because of the inefficiencies. And you're right that we do see a lot of, several more shifts using the Cape or Suez Canal. The Panama Canal has in Q2 and continuing in Q3 to be A little bit sometimes a bingo. Sometimes you can go straight through, although you have to wait for a week or two. We also see that when the Panama Canal are opening up for auctions, the prices some of the VWC owners are willing to pay just to pass the Panama Canal is up to $2 million for one leg. So that obviously has an impact on the voice calculations. But yeah, we do as best as we can, Petter.

I don't doubt that at all. But in order to try to be more specific, in our numbers now for Q3, if we assume one month of lagging, we would expect the spot market in that time period to be around $90,000 per day. But by just how far off are we if we were to compare it with what is actually done on a TCE basis on them of course spot voyages.

Yeah, I mean, I just guided that, you know, for the Q3 numbers, and that's obviously including the relative positions and RTC coverage. But I also mentioned our stock performance, and that was in the mid $80,000 per day so far.

Okay, okay, okay. That's very helpful. I wasn't paying any attention. I'm sorry. Thank you so much, guys.

Thank you very much. Desmond, please go ahead.

Hi. Good morning. My question was concerning the Panama Canal, which was actually just addressed by the previous question. I would like to thank Anders for being such a wonderful CEO. It was a pleasure meeting you in New York. Best of luck on your future endeavors. One thing of concern I had is the U.S. listing that you plan on doing. Is there any timeline, specific goal for that listing in 2024?

I think at the moment it's, you know, obviously we want to take our time and do things properly. So we haven't, you know, we haven't said anything specifically, but, I mean, you can assume that we are working diligently and as quickly as we can. And so, you know, it would most likely be early 2024 that we are ready.

Excellent. Thank you so much. Best of luck to you, Anders. Thank you very much.

And we have one question from the chat from Fred with Ness. He asks, how has vessel speed development been in 2023? Why has it changed and what do you expect for 2024 and 2025?

That's maybe a question for me. So far in 2023, we haven't seen any big speed reduction. I mean, I think that the average speed for the fleet is about 50 knots. uh but we do expect that and because of the uh the new regulation kicking in uh that's uh going forward 24 and 25 uh some of the well i would say 60 of the fleets will need to reduce speed in order to be uh compliant so um but uh the effects as of now we haven't seen it so Again, that's a little bit of some of the bull stories for next year is that, you know, a majority of the fleets or a big chunk of the fleet need to reduce speed.

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. We have another question from the chat channel, Glenn.

I think that question disappeared.

The next question is from Matthias with UBS, and he asks, could you please comment on the increase of the voyage expenses quarter on quarter by $90 million?

Ivor, can you help me with that?

That's a good question here. I think it's mainly due to higher port costs.

Port and canal costs related to the Panama Canal.

Thank you. 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.

Okay, with that, then I thank all for listening in, and I wish you all a great day.

Thank you. We have come to the end of today's presentation. Thank you for attending BWLPG's second quarter and first half 2023 financial results presentation. More information on BWLPG and BW Product Services are available at www.bwlpg.com and www.bwproductservices.com respectively. Have a good day and good night.