BW LPG Limited

Welcome to BWLPG's fourth quarter 2023 financial results presentation. Bringing you through the presentation today are CEO Christian Sorensen and CFO Samantha Shee. We are pleased to answer questions at the end of the presentation. Should you have any, please type them into the Q&A function in your Zoom panel. You may also use the raise 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 Christian.

Thank you, Lisa, and hi, everyone. Welcome to our 2023 Q4 presentation. I'm joined today by our CFO, Samantha, and together we'll take you through the slides. Q4 ended the strongest year on record for BWLPG. We achieved a time charter equivalent income per available day of $76,000 in a steaming hot VLDC market. And together with a strong performance from our product services team, we had a net profit after tax of $162 million for a quarter. And a full year impact of $493 million, our highest ever. After the first full calendar year in operation, as the new and expanded trading team, Product services generated a net accounting profit of $18 million in Q4. This is after adjusting for G&A and tax provisions from the earlier announced $27 million quarterly profits. We've also scheduled to return $30 million to the shareholders in Q2 this year, following a substantial cash generation during 2023. Given the strong quarter for our company, our board has declared a dividend of 90 cents per share which brings our year-to-date dividend per share to $3.46, representing 98 payouts of our annual earnings and an annualized dividend yield of 28%. The quarter was eventful also in other fronts. We're moving forward with our dual listing in New York, which likely will take place in second quarter this year on the New York Stock Exchange. We had roadshows in the U.S., where we received strong interest in our companies and the sector's story. and we're confident that the listing in New York will expand our investor universe in the future and increase the liquidity in our share. Our company also made a milestone announcement on the 30th of November with the announcement of a signed joint venture with our Indian partners Confidence Petroleum and Ganesh Benzo Plus to invest in the development of a new LPG import terminal in India. In addition, and as part of the agreement, We have just concluded a $30 million investment in Confidence Petroleum, which gives us a strategic 8.5% ownership in the company to participate and get a foothold in the distribution of LPG in India. As we move into 2024, the VLGC market has again proven itself as exceptionally volatile, with rates dropping more than 90% in three weeks due to the cold weather in the U.S., which increased U.S. LPG prices and halted the U.S. exports. At the same time, the sudden availability of more Panama Canal transit slots reduces sailing distance and put pressure on rates. However, since January, rates have increased sharply and we're currently seeing rates in the $40,000 per day range in the Middle East, as well as the US Gulf, and with a contango in the FFA market for 2024. And on the back of this, we maintain our positive view for the year, backed by sound fundamentals. Those are the highlights. Next slide, please. The massive volatility is something we have experienced previously. And if we move to slide six, we have compared this year's drop and recovery in rates with year 2022 and 2023. And the story has repeated itself, starting with a cold front in the U.S., which closes the LPG price arbitrage between the U.S. and the Far East, and a willingness to pay for shipping. On top of this, we had a surprising turnaround in the availability of Panama Canal transits, as mentioned. We should use the sailing distance and increase the supply of ships. However, like previous years, when the temperatures in the U.S. Gulf Coast normalizes, the prices recalibrate and exports are restarted, which again puts shipping rates up. We are also now seeing a busier transit program in the Panama Canal driven by more container ships, which takes up capacity and is expected to reintroduce more inefficiency to the VLDC fleet. Turning to slide seven, the US exports for February are record high and driving the recovery of the rates together with the fleet inefficiencies absorbing capacity. And looking at the FFA market illustrated by the red line, on the left-hand side of the slide. It is pricing second half 2024 in the 50 to $60,000 per day range. The new billing deliveries have been a focus point over the last years and the pace in new vessels hitting the water is coming off sharply after the first quarter this year and remains limited for the next 24 months. We do, however, monitor the large number of VLAC new billing orders this quarter for 2027 delivery which may bring uncertainty to the development of the VLDC market in the longer term if the ammonia export projects do not materialize or are delayed. Turning to slide nine, we have reduced our forecast for North American exports for the year following the cold snap in January. In the Middle East, we anticipate Middle East and exports to be stable this year before they start growing on the back of the massive LNG expansion in the region from 25, 26, 27 onwards. And to sum up, we maintain our positive view for 2024 based on solid underlying fundamentals and added by returning inefficiencies in the fleet, especially around the Panama Canal and abating new building deliveries. Turning to slide 12, please. So moving on to the financial performance for our core shipping segment. We achieved a historical high TCE performance of $76,000 per available day for the fourth quarter. This figure includes fixed time charters and derivative hedges. The spot fleet achieved a TCE of $108,300 per day, excluding the waiting days. For the first quarter this year, around 93% of our available days are fixed at an average of $55,000 per day. As highlighted earlier, we saw a sharp decline in spot rates down to less than $10,000 per day in January, which impacts the guidance rate together with a number of previously fixed ships ending up sailing transatlantic voyage from the US after long ballast from the Far East. We anticipate that we will recoup this ballast cost for the voyages in the next quarter. Looking at their coverage for 2024, 23% of our feed is already fixed on the time charter with an average daily rate of $41,500. We balanced our TC-in and TC-out commitments for 2024 and have already secured a $23 million profit. And additionally, 14% of our days are hedged with derivatives at an average of $56,500 per day. And with this, I'm pleased to let Samantha take you through product services update and our financials. Over to you, Samantha.

Thank you, Christian. Good morning, good afternoon to everyone. Let me continue to add some colors to the product services performance. The net asset value of the product services increased by $18 million to $62 million at the end of December. The increase comes from positive gross profit after netting off other expenses. In Q4, products generated a gross profit of $32 million, which includes $50 million of unrealized cargo and derivative schemes, offset by $17 million realized loss during the quarter. The loss includes the depreciation from product services leased in vessels. Other expenses of the 14 million US dollars largely comprised of G&A expenses, including bonus provision and income tax provisions. The reported net profit does not include the unrealized mark-to-market valuation of physical shipping position, which was excluded from the accounting result. Our internal valuation of these TC-IN contracts at the end of December was 84 million US dollars. This positive value reflects the continuous strong development in the 12-month forward freight market for BLGCs, which is the period we used to evaluate freight position in product services. Due to an increased volatility in the LPG product and freight market back in Q4, we reported a higher average VAR of $8 million on a well-balanced trading book, including cargoes, shipping, and derivatives. We continue to see good collaboration and synergy between product services and our shipping business through improved information flow, optionalities, and enlarged footprint. Focusing on the profit, Product Services is also progressing in expanding the fiscal presence in key markets as we aim to broaden the platform and trading portfolio. Please go to the next slide, please. So, moving to the financial highlights. In Q4, we reported a net profit after tax of 162 million U.S. dollars on a consolidated basis. This includes $16 million in profit from BWLPG India and $18 million in profit from product services. The net profit also includes a downward adjustment of $4 million related to the effect of IFRS 15 for the quarter. As the TCE for the strangling voyage over the quarter end is recognized on a low to discharge basis. We reported an earnings per share of $1.14 this quarter, mainly contributed by our core shipping segment. This translates into an annualized earning yield of 31% when compared against our year end share price. We reported a net leverage ratio of 21% in Q4. The board declared a Q4 dividend of 90 cents per share, We have in total declared $3.46 per share, including Q1 to Q3, or a 98% payout ratio in year 2023. The dividend payout reflects our commitment to return value to our shareholders as we continue to deliver a high dividend yield of 28% when calculated on our share price at yesterday's closing. Our balance sheet ended the quarter with a shareholders equity of 1.6 billion US dollars. We continue to see a healthy headroom for more than $400 million comparing broker valuation with our fleet of book values. Our annualized Q4 return on equity and capital employed were 42% and 33% respectively. In Q4, our daily OPEX came in at $8,200 per day, due to slightly higher than expected maintenance and repair expenses. For 2024, we expect our own fleet operating cash break even to be about $17,600 per day. And this is $1,000 per day lower than previous quarter, driven by early debt repayment. On slide five, it provides a summary of our liquidity and financing structure. Excuse me. On a consolidated basis, we ended the year with close to half a billion in liquidity, consists of 162 million in cash, net of 126 million held in broker margin accounts, and 295 million in undrawn revolving credit facilities. As of end December, SHIB financing debt outstanding was $311 million, of which $257 million was term loans and revolving credit facility of $54 million. Looking at trade finance, $319 million, or 48% of our $660 million line has been used as of end Q4. with 85 million related to trade advances drawdown and 234 million in letter of credit, leaving a healthy headroom for further growth. As of January 2024, we upsized our trade finance line to 746 million with the two additional lenders, increasing our headroom further to support future growth. In terms of the overall repayment profile, Excluding short-term trade advances, settlements are well spread out with no major repayment until 2026. So with that, I'd like to conclude our Q4 update. Give it back to you, Lisa.

Thank you, Samantha. We will open the floor for questions now. Should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking.

Hiya. Yeah, so we have one written question here from Johanna Nero asking if you could elaborate on how increased ammonia new buildings may bring uncertainties to the VLGC market.

Yes, thank you for the question. Ammonia has for several decades already been carried on board LPG vessels. And today it's the mid-size LPG. LPG vessels, which are the workhorses of the ammonia markets. And these new VLAC new buildings are essentially VLGCs, which are specced up and also have strengthened the tank structure to carry up to 98% ammonia. But they can also shift the trade into LPG if the ammonia trade is not as lucrative or attractive as they expect. So these ships can, in theory, also trade LPG.

We have a question. Please go ahead.

Yes, hello, Kristian and Samantha. This is Jørgen from DMB Markets, and I just want to ask if there can be, can we have a discussion on some more flavor on the considerations around the payout ratio this quarter on the dividend versus the EPS number you reported?

Yes, sure, Jørgen. First of all, we do, of course, not like to disappoint the market, but the fact is that We have a dividend policy which aims for an annual payout ratio of 75% of our shipping segments MPAT if the net leverage is between 20 and 30%. And 100% if it's below 20% net leverage. And we have a net leverage of 21%. And consequently, the board decided to pay out 98% of the MPAT for the year. which generates a dividend yield of 28%. So it's in accordance with our dividend policy, where we have an aim for an annual payout ratio.

Okay, thank you.

And secondly, if I may, the IFRS effects that you see with the very volatile markets, do you have any flavor on how that looks to be shaping up into sort of next quarter considering the guidance and what you've seen so far?

Yes, sure, Jochen.

From IFRS 15 impact perspective, first of all, let's put it that way. It's very difficult to anticipate what kind of effect it brings to the quarter until the quarter has ended because it very much depends on the vessel deployment, the loading and discharge locations as well. And Given that we have had, how to say, both negative adjustment in the previous quarter and Q4, we see that the negative impact should be less so, if not a reversal in this quarter. But as you can appreciate, I'm sure that from your side, you know very well as well, it's really hard to model this kind of impact out.

Okay, thank you.

Then we'll move to the next question here from Axel Stierman. Christian, you mentioned a risk that VLEC new builds potentially may trade in LPG, but you then referred to the ammonia trade. I assume you meant VLAC new builds.

Yeah, you're right. Actually, it's my English, which is a bit broken. So it's VLAC's ammonia carriers, not the ethane carriers.

We have a question here from Desmond Vimal. When do you expect environmental regulations concerning the slower ship speeds to materialize?

Well, the The world fleet of LGCs have already kind of reduced speed somehow on some of the vessels. So you can see, for instance, our fleet trading in and out of India is down to 14 knots these days. So we already now see the impact of slower speeds. So I would say that this is already ongoing.

Should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your questions verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once again, we have a question from the channel.

Yeah, a question from . What is your estimate of negative ton mile demand impact for full year 2024 due to increased Panama Canal transits?

So negative ton mile demand, you can say that if you turn it the other way around, if the ships are sailing from the U.S. via South Africa towards the Far East, it's a 50 percent, approximately 50 percent longer voyage around voyage. So I think that is kind of the rule of thumb that you can have. So it's depending on where you discharge in Asia, of course, but if you go all the way to Japan via South Africa, back and forth, it's about 50% longer distance. And then more down to 45% if you go to the more western parts of Asia.

And we have a question here from Nick Linane. You had some tax expense in the fourth quarter of 2023. Can you explain what drove this? Sorry, another question went away.

Hi, Nick. This is Samantha.

I think you're referring to the tax we have disclosed for product services that just stands out in Q4. Maybe just a little bit, the way we accrue taxes on a quarterly basis and at the year end, we would trued up the tax provision for the year. So that is basically a year, the full year impact of the tax reflected in Q4. As you can see that we generated a positive profit for product services. So from a tax percentage, Tax rate perspective, we have a different tax rates in where the business was conducted, respectively in Singapore and Spain. So it's under a different tax scheme as well. So the effective tax rate, it's very difficult to calculate until at the year end. So I'll be happy to get back to you if you're interested after I have done some fact finding for 2023.

Then we have a question from Aspern Vatnemot. What is your view on demand from China? What is the latest on PDH utilization?

Well, our view on the demand from China is that, of course, we recognize that the Chinese economy is on a slower pace than what we, let's say, have been used to over the last years. The imports, especially last year, was very, very high in spite of this, because we know that they have a political... goal to capture more of the petrochemical markets. And we can see that the PDH demand is increasing, but it's not like... It's not like a linear increase going straight up. So for the moment, you asked also about the PDH rate, utilization rate, I believe, which I don't have the latest, but it's been down to 60%, 70% we have seen. So there is definitely upside potential. But I don't have the latest number in front of me just now, so I need to get back to you on that. But all in all, very positive for the increase of LPG imports to China, despite the economic challenges that they have.

Once again, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once more, should you have questions, please type them in the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking.

One more question from Nick Linane here. How many VLAC orders do you see in the order book?

Well, the vessels on order with ammonia lifting capacity is 73, as far as I can see from my list here. So these are both VLGCs with ammonia lifting capacity, and then there are these VLACs, which have a strengthened tank structure and hold more ammonia. And in combination, it's 73 in total in our list.

Once more, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once more, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. We have one question coming in.

We have one question from Desmond Bumil. Do you plan on re-purchasing any more shares?

Sure.

As you know that we had a SHERP repurchase program announced in May 2023, and we have already repurchased back 13 a million U.S. dollar worth of a share and then remaining 37 million U.S. dollar to go. Prior to that, we also had a 15 million U.S. dollar repurchase program in 2022, which we have finalized. We will continue to evaluate and get back to the investors.

We have another question here from . What do you think is current US LPG export capacity?

Well, we can see that in the US Gulf, they have increased the export capacity by removing the restrictions on nighttime berthing on Targa and Enterprise terminals. They have increased that up to, we count close to 100 listings in the Gulf Coast region per month, on a regular month only. And then in addition, you have the US East Coast. where there is another 5% of the U.S. export volumes are currently exported from the U.S. East Coast. And then you have on the West Coast of Canada and the U.S., it's another 2%. 2.5 million tons on an annual basis as export capacity. So what we have seen also is that about, according to Fernley's, the ship broker, it's about 6.5 million tons which are exported on mid-size vessels, which in theory can be you know, which are occupying the bergs. So if you exchange them with VLGCs, in theory, you can probably increase the VLGC lifting capacity out of the states even more. So, but we do see that the American terminals are, very efficient if they need to export more than what we anticipate. For instance, what we have seen now in February is higher than what we expected. And so about 100 birthings per calendar month in the U.S. Gold Coast alone is what we see approximately.

Once more, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Participants have been muted. Please press unmute before speaking.

Okay, that rounds off our quarterly earnings presentation. So thank you, everyone, and see you next quarter.

We have come to the end of today's presentation. Thank you for attending BWLPG's fourth quarter financial results presentation. More information on BWLPG and BW Product Services are available at BWLPG.com and BWProductServices.com, respectively. Have a good day and a good night. Thank you, Samantha. We will open the floor for questions now. Should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking.

Yes, so we have one written question here from Johanna Nero asking if you could elaborate on how increased ammonia new buildings may bring in certainties to the VLGC market.

Yes, thank you for the question. Ammonia has for several decades already been carried on board LPG vessels and today it's the mid-size LPG vessels, which are the workhorses of the ammonia markets. And these new DLAC new buildings are essentially DLGCs, which are specced up and also have strengthened the tank structure to carry up to 98% ammonia. But they can also shift the trade into LPG if the ammonia trade is not as lucrative or attractive as they expect. So these ships can, in theory, also trade LPG.

We have a question. Please go ahead.

Yes. Hello. This is Jørgen from DMB Markets and I just want to ask if there can be, can we have a discussion on some more flavor on the considerations around the payout ratio this quarter on the dividend versus the EPS number you reported?

Yes, sure, Jørgen. First of all, we do of course not like to disappoint the market, but the fact is that We have a dividend policy which aims for an annual payout ratio of 75% of our shipping segment's NPAT if the net leverage is between 20 and 30%, and 100% if it's below 20% net leverage. And we have a net leverage of 21%, and consequently the board decided to pay out 98% of the NPAT for the year, which generates a dividend yield of 28%. It's in accordance with our dividend policy, where we have an aim for an annual payout ratio.

Okay, thank you. And secondly, if I may, the IFRS effects that you see with the very volatile markets, do you have any flavor on how that looks to be shaping up? into sort of next quarter considering the guidance and what you've seen so far?

Yes, sure, Jochen.

From IFRS 15 impact perspective, first of all, let's put it that way. It's very difficult to anticipate what kind of effect it brings to the quarter until the quarter has ended. Because this very much depends on the vessel deployment, the loading and discharge locations as well. And Given that we have had, how to say, both negative adjustment in the previous quarter and Q4, we see that the negative impact should be less so, if not a reversal in this quarter. But as you can appreciate, I'm sure that from your side, you know very well as well, it's really hard to model this kind of impact out.

Okay, thank you.

Then we'll move to the next question here from Axel Stierman. Christian, you mentioned a risk that VLEC new builds potentially may trade in LPG, but you then referred to the ammonia trade. I assume you meant VLAC new builds.

Yeah, you're right. Actually, it's my English, which is a bit broken. So it's VLAC's ammonia carriers, not the ethane carriers.

We have a question here from Desmond Vimal. When do you expect environmental regulations concerning the slower ship speeds to materialize?

Well, the... The world fleet of LGCs have already kind of reduced speed somehow on some of the vessels. So you can see, for instance, our fleet trading in and out of India is down to 14 knots these days. So we already now see the impact of slower speeds. So I would say that this is already ongoing.

Should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your questions verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once again, we have a question from the channel.

Yeah, a question from . What is your estimate of negative ton mile demand impact for full year 2024 due to increased Panama Canal transits?

So negative ton mile demand, you can say that if you turn it the other way around, if the ships are sailing from the US via South Africa towards the Far East, it's a 50%, approximately 50% longer voyage on a round voyage. So I think that is kind of the rule of thumb that you can have. So it's depending on where you discharge in Asia, of course, but if you go all the way to Japan via South Africa, back and forth, it's about 50% longer distance. And then more down to 45% if you go to the more western parts of Asia.

And we have a question here from Nick . You had some tax expense in the fourth quarter of 2023. Can you explain what drove this? Sorry, another question went away.

Hi, Nick. This is Samantha.

I think you're referring to the tax we have disclosed for product services. That does stand out in Q4. Maybe just a little bit, the way we accrue taxes on a quarterly basis and at the year end, we would true that the tax provision for the year. So that is basically a year, the full year impact of the tax reflected in Q4. As you can see that we generated a positive profit for product services. So from a tax percentage, tax rate perspective, we have a different tax rates in where the business was conducted, respectively in Singapore and Spain. So it's under a different tax scheme as well. So the effective tax rate, it's very difficult to calculate until at the year end. So I will be happy to get back to you if you're interested after I have done some fact finding for 2023.

Then we have a question from . What is your view on demand from China? What is the latest on PDAH utilization?

Well, our view on the demand from China is that, of course, we recognize that the Chinese economy is on a slower pace than what we, let's say, have been used to over the last years. The imports, especially last year, was very, very high despite of this, because we know that they have a political... goal to capture more of the petrochemical markets. And we can see that the PDH demand is increasing, but it's not like a linear increase going straight up. So for the moment, you asked also about the PDH rate, utilization rate, I believe, which I don't have the latest, but it's been down to 60%, 70% we have seen. So there is definitely upside potential, but I don't have the latest number in front of me just now, so I need to get back to you on that. But all in all, very positive for the increase of LPG imports to China, despite the economic challenges that they have.

Once again, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once more, should you have questions, please type them in the Q&A channel. You can also click 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 Nick Linane here. How many VLAC orders do you see in the order book?

Well, the vessels on order with ammonia lifting capacity is 73, as far as I can see from my list here. So these are both VLGCs with ammonia lifting capacity. And then there are these VLACs, which have a strengthened tank structure and hold more ammonia. And in combination, it's 73 in total in our list.

Once more, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Please note that participants have been automatically muted. Please press unmute before speaking. Once more, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. We have one question coming in.

We have one question from Desmond Bumil. Do you plan on re-purchasing any more shares?

Sure.

As you know that we had a SHERP repurchase program announced in May 2023. We have already repurchased back 13 a million U.S. dollar worth of a share, and then remaining 37 million U.S. dollar to go. Prior to that, we also had 15 million U.S. dollar repurchase program in 2022, which we have finalized. We will continue to evaluate and get back to the investors.

We have another question here from . What do you think is current US LPG export capacity?

Well, we can see that in the US Gulf, they have increased the export capacity by removing the restrictions on nighttime berthing on Targa and Enterprise terminals. They have increased that up to, we count close to 100 liftings in the Gulf Coast region per month, on a regular month only. And then in addition, you have the U.S. East Coast, where there is another 5% of the U.S. export volumes are currently exported from the US East Coast. And then you have on the West Coast of Canada and the US, it's another two to two and a half million tons on an annual basis as export capacity. So what we have seen also is that about, according to Fernley's, the ship broker, it's about six and a half million tons, which are exported on midsize vessels. which in theory can be, you know, which are occupying the birds. So if you exchange them with VLGCs in theory, you can probably increase the VLGC lifting capacity out of the states even more. So, but we do see that the American terminals are very efficient if they need to export more than what we anticipate, for instance, what we have seen now in February is higher than what we expected. And so about 100 birthings per calendar month in the US Gold Coast alone is what we see approximately.

Once more, should you have questions, please type them into the Q&A channel. You can also click the raise hand button to ask your question verbally. Participants have been muted. Please press unmute before speaking.

Okay, that runs off our quarterly earnings presentation. So thank you everyone and see you next quarter.

We have come to the end of today's presentation. Thank you for attending BWLPG's fourth quarter financial resource presentation. More information on BWLPG and BW Product Services are available at BWLPG.com and BWProductServices.com respectively. Have a good day and a good night.