BW LPG Limited

Welcome to BWLPG's first quarter 2024 financial results presentation. Bringing you through the presentation today are CEO Christian Sorensen and CFO Samantha Shi. 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.

Hi, everyone, and welcome to our 2024 Q1 presentation. Thank you for taking time to join us today as we present our financial results and recent events. It's been a busy period for our company, so let's turn to slide four, please. We delivered another strong quarter with a result of $150 million net profit after tax on the back of a strong time charter equivalent of $61,500 per available day, which includes a positive IFRS adjustment of $26 million. We booked a net gain of $20 million from the sale of the BW Princess and it was another good quarter by our trading unit BW Product Services showing a profit of $21 million where we subsequently returned $30 million to its shareholders in April through the pre-announced capital return. The quarterly NPAT translates into an earnings per share of $1.07 And the board has declared $1 per share in dividends, which is equivalent to 106% of the earnings from our shipping activities, which calculates to an annualized dividend yield of 22% basis Tuesday's closing price in New York. On the shipping side, we have mutually agreed with Vittel to terminate their pool and charter back arrangements. There is no financial impact anticipated from the termination of the agreement, and we look forward to continuing doing business together in the day-to-day chartering markets. For our trading activity, we are happy to announce that product services have concluded a multi-year extension of their cargo contract with enterprise product partners, which will significantly improve our optionality and ability to capture profit in the LPG value chain. In addition, the transaction is enabling us to grow our business at a time when growing in shipping is more expensive than ever, and it bolsters our business model for the future markets. The expansion of our trading volumes will be financed by trading facilities already in place, and the value at risk is anticipated to only increase from $6 million to $8 million, reflecting the balanced trading portfolio that Product Services is running. And finally, we are very proud about our milestone dual listing on the New York Stock Exchange. The reception in the US investor market has been very satisfactory, reflected in a 27% increase in our US dollar denominated share price since the listing, and the share trading volume in the US is picking up. Turning over to our market outlook, we remain positive on the sector with several indicators pointing in the right direction. both in the underlying LPG commodity market as well as the supply-demand balance in the VLDC markets. And this is even without disruptions in the Panama Canal. So let's turn to page six for a closer look at the market fundamentals. The US production and export volumes are still the locomotives in the LPG growth story and continue to deliver on the upside of the expectations. According to recent EIA figures, the production and export volumes are up 8% and 14% respectively year to date compared to the same period last year. We maintain a positive view on the US export volumes for 2024 and 2025. We regard the capex plans by the US terminal companies as a positive sign for the future US LPG export volumes and believe they will remove any potential bottlenecks for the medium term. The Middle East exports are expected to be stable for this year unless OPEC decides on any cutback reversals, while we anticipate more volumes to come on stream from next year onwards from Abu Dhabi and later Qatar. The increasing LPG exports from the US and the Middle East are meeting a growing demand side in Asia, both for industrial purposes, well represented by rapidly increasing demand by the Chinese PTH plants, and from the residential sector, especially in the Indian subcontinent and Southeast Asian countries. The Indian demand for LPG is now consuming about half of the Middle East exports, making the rest of the Asian market increasingly dependent on US LPG exports, to meet the underlying and high demand which follows growing population and prosperity. Also worthwhile to note is that LPG, by being a byproduct from oil and natural gas production, has a history of always being priced to clear and eventually finding a home since no producers want to store LPG for a prolonged period of time. And this market dynamics makes it a competitively priced energy source, which easily penetrates new markets since it's relatively easy to handle compared with other energy sources, which require much higher infrastructure investments. Let's turn to slide seven. Looking at the global VLGC fleet balance for the next 18 to 24 months, it is a sharply abating curve of new building deliveries when we move into the second half of this year. We only have a handful of VLGCs set for delivery from the yards, while the global fleet is approaching 400 units. And for 2025, only a dozen vessels are scheduled for delivery. yours are still talking deliveries for new orders more than three years forward and this gives us good visibility of the market the next 18 to 24 months so to summarize The market fundamentals for both the LPG commodity markets and the BLGC markets are strong and reflected in the current rate level, which is fluctuating between $60,000 to $70,000 per day. The FFA market is priced for the remainder of this year at levels in the region low to mid $60,000 per day. And this is without any serious delays in the Panama Canal, which continue to be a wild card also in the future. And with this, I'm pleased to let Samantha take you through the commercial performance and our financials.

Thank you, Christian. And hello, everyone in the Gulf. Good to speak to you. For the first quarter of 2024, we deliver a TCE of $9,400 per calendar day and $61,500 per available day, a continued solid performance. We have a healthy coverage through our time charter and FFA portfolio, which represents about 37% of our shipping exposure. For the second quarter, we have fixed 84% of the available days at about 49,000 US dollars per day. For 24, Our time-chartered-out fleet generates a profit of around $25 million over our time-chartered-in fleet. Additionally, more shipping capacity that is fixed on time-chartered during the quarter is estimated to generate about $39 million for year 2024, up from $19 million as reported in Q1. Moving to slide 11. Product services deliver a solid performance in the beginning of the year. In Q1, it yielded a net profit of $20 million and increased its net asset value to $82 million as of end March. The net profit was contributed by a gross profit of $33 million after netting off G&A and tax provisions. The gross profit includes realized gain of $18.7 million and unrealized cargo and derivative gain of $14 million. The reported net profit does not include the unrealized fiscal shipping valuation, which is $31 million at the end of March, based on our internal valuations. This shipping valuation dropped from the previous quarter, reflecting a decline of a 12-month freight forward market at the end of March, compared with the substantially higher market in Q4. For Q1, we reported an average value at risk of $5 million on a well-balanced trading book, including cargoes, shipping, and derivatives. As announced earlier, we concluded a multi-year contract with the enterprise product partners in Texas. The contract will have the potential to double our volume out from the US Gulf, providing product services with a strong cargo position. Next slide, please. Moving to the financial highlights. In Q1, we continue a good business performance and report a net profit after tax of $150 million on a consolidated basis. This includes 10 million in profit from BWLPG India and 21 million from product services. The net profit also includes a positive adjustment of 26 million related to the effect of IFRS 15 for the quarter. as the TCE for the straddling voyages over the quarter end is recognized on the low to discharge base. We reported an earnings per share of $1.07, mainly contributed by our core shipping business. This translates into an annualized earning yield of 38% when compared against our share price at the end of March. We reported a net leverage ratio of 7% in Q1, a decrease from 21% at the end of December. This substantial decrease was due to repayment of shipping loan, decrease in restricted cash held for the derivative margin requirement, and decrease in product services and short-term trade finance drawn at the end of Q1. On the basis of a low leverage ratio and considering the business performance as well as the capital requirement ahead, the board has declared a dividend of $1 per share in Q1. This represents a 93% of payout ratio of a Q1 total profit or 106% of a shipping impact. The dividend payout reflects our commitment to return value to our shareholders as we continue to deliver a high dividend yield of 22% when calculated on yesterday's share price. Our balance sheet ended the quarter with a shareholders' equity of $1.7 billion. Our annualized Q1 return on equity and capital employed was 37% and 30% respectively. In Q1, our daily OPEX came in at $8,700 per day due to higher than expected maintenance and repair expense. For 2024, we expect our own fleet operating cash break even to be about $17,300 per day. As you can see, our liquidity continue to remain healthy. On a consolidated basis, we ended Q1 with $661 million in liquidity, including $340 million in cash, $347 million in unjoined revolving facilities, which will support us for upcoming CapEx expenditures. SHIB financing debt stood at $244 million as of March, comprised of the balanced SHIB financing term loan, was spread out with no major repayment until 2026. Trade finance drawn stood at a moderate level of 167 million, or 21% of our 796 million trading line, leaving a healthy headroom for growth. With that, I would like to conclude my update. And 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. Once again, should you have questions, please type them. We have two questions. Eric, please go ahead.

Yeah, hi. Just a question, Christian, because you're saying that obviously growing within shipping now is challenging or expensive or, I mean, depending on how you want to frame it. But then what's the alternative? Because, of course, you are now, I mean, you're basically now, if you exclude the debt on BW India, you're debt-free, right? So then what's the alternative? Because your cash earnings are significantly higher than your net profits. So obviously we're entering a stage where you're either going to build substantial cash coffers or you're going to have to pay out more. Are you considering doing some kind of extraordinary payout or how should we think about your balance sheet a year or two down the road at the current market outlook?

Thanks, Eric. Like you say, and again, it's not our aim to be debt-free or anything, but it's simply hard for us to find any profitable ways to invest at the moment and thereby increase our debt side. So I think when it comes to the dividend, that's something, and the balance sheet composition is something which we always discuss with the board. So I don't want to rule out anything, but again, this is something which is at the board's discretion and we'll see what the future brings. But you're right, we are a bit, I would say, too robust on our balance sheet. But again, it's not an aim for us to be debt free or anything. So, but we like to, if we raise debt, it should be against projects that we believe are creating value for the company and the shareholders.

Okay, thank you. That's fair. And just on the market now, I mean, we're seeing some time charter activity and I think we're seeing two, three year deals now being done, you know, $50,000 a day, which is Approximately where it should be also based on share prices at least. What are you seeing? And if I also may ask, are you surprised about the strength you've seen over the past few months compared to where we were? I mean, it's been quite a turnaround in sentiment at least in a few months' time.

Yeah, I think if you look at the US exports specifically, they have, I think it's fair to say that they have surprised us on the upside. The resilience in the US production and export volumes is more than also we anticipated. But again, we do see that on the time charter front, this is, There are definitely discussions out there with and among market players who are in need for shipping going forward. And if you need a ship these days, you simply have to pay up. I think that's the way it works. So I believe you refer to a three-year deal around $50,000, which is something we are not surprised to see. And there are other market participants also looking for ways to cover their shipping needs in the future. So I wouldn't be surprised if we see other time charters done around the same level.

Okay, and one final one. I mean, we're sitting some distance away from this, but obviously you are seeing quite decent investment activity into both fractionating capacity, export capacity, et cetera, out of the US. So given your relationship to enterprise, I mean, on the production side, is that potentially becoming a bottleneck as you see it? I mean, it doesn't look like infrastructure is going to be a bottleneck, but given the drilling activity we're now seeing and expectations ahead, is that at all becoming anyone's fear or is it just, you know, business as usual?

I would say that we wouldn't have seen the recent investments done by the terminal operators and other players in the US shale gas market had it not been for them actually believing in the shale gas story also going forward. And the fact that, for instance, energy transfer bought WTG midstream, I think is another sign of these big operators and terminal operators consolidating because they see there is still an upside potential in the US.

Thank you very much.

Thank you. Erik? Petter, please go ahead.

Yes, hello. Just firstly, a quick question on the Vittor ships. You write that there is no financial impact from it, but could you share some of the background behind those ships being pulled from the pool?

Yeah, well, this was a COA, sorry, a pool participation with, you know, shipping capacity, charter back kind of COA, which was tested for a year and it didn't work out as intended. And then we... have amicably agreed with Vittal that let's rather meet in the spot market. So it's very, you know, dramatic in all ways.

Okay, good to hear. You also write that the Panama passages now is normalized, but I suppose then you refer, of course, to your market. In the overall market, it's still a substantial reduction in the number of transits. And to the best of my knowledge, there is still a substantial auction premium to be paid. So question part one is, what is the auction premiums these days? And two, Very good if you can elaborate on what the consequence of still hefty payments to use the canal is impacting the VOGC markets.

Yeah, so on the Panama Canal side, there have been great fluctuations in the auction price. And we have seen levels from $600,000, $700,000 per day up to $1.8 million a couple of weeks ago. And then it fell back to $500,000 again. And now I think it's, as far as I can recall, it's back to $700,000 thereabout. So this is a daily auction, which is hard to predict, but there is definitely big fluctuations from week to week. And I think in general, you can say that there is... There's been a willingness to pay up to get the ships through the canal, both from the charter side and also from the owner's side. But... In general, you can say that the Panama Canal capacity, it is what it is. The more ships coming into the market and we anticipate that there will be congestion in and around the Panama Canal also in the future because the capacity is pretty much fixed. And especially during the high season, it's going to be more congestion coming than what we see today. That's what we anticipate at least.

Okay. But I read you as if you now pay the auction fees and use the canal predominantly and opt not to do the long kept good hope rounds.

No, it depends on where we are discharging in Asia. So basically, if you are in Northeast Asia, you try to see whether it's possible to go back via the Panama Canal. If not, you go around South Africa on the way back to the U.S., But it depends on where you are coming open after discharge. And then there is obviously a view on the situation in and around the Panama Canal before you decide on which direction to go.

And that applies also to the Leyden Lake, the front haul.

On the front haul, it's negotiated on a case-by-case basis with the charter. And then you typically have a rate to go around the Cape, or you can have a rate to go via Panama. But this is something which is discussed with the charters on a case-by-case basis, depending on the situation at any point in time in the Panama Canal.

A final question from me, as also Povalsen alluded to. It's pricey, but just how pricey is it really? Because you sold some old ships last year, which I think is fair to say surprised most people on sort of the upside of that price or those prices. But if you were to dispose of some of your 16 ships, 15, 16 tonnage. What would that price be?

Well, I think the last reference point is a deal done by Petrodeck where they sold it in the low 80 million, wasn't it? So I think that is the last reference point. But I can double check that, Petro, so I'm not misguiding you.

Would you sell on those prices, Christian?

We have no plans to sell any more ships at the moment, Patrick.

Okay.

Thank you. And the reason for that is also because if you sell ships, at one point you start reducing your capacity to generate revenues. So it's important for us to keep a certain size to be able to generate revenues also in the future.

Understood. Thank you.

The next question comes from Axel. Please go ahead.

Thank you. Axel Sturman from Kepler. I have a question related to the PDH plants in China. If you can comment related to recent market intelligence regarding the margins there, which has been... weak lately. Do you think this is a consequence of increased capacity or do you think it's a consequence of softer demand?

I think, you know, when you look at the PDH plants run rate, they have been weak to relatively weak for quite a long period of time. But we still see that they continue to run and new PDH plants are opening and many of them are also linked to other petrochemical plants. projects in China. So we don't really see any big change in this since the last half year or so or even longer. So for us, there is no change in the way we regard the Chinese demand from the PDH side.

Thank you.

Over to you, Kaya, for questions from the Q&A channel.

Sorry, thank you, Lisa. We have one question here from Nuno Rodriguez asking about the TCE guiding for the second quarter, which is lower than the actual Q1 TCE. And does this mean that the net profit for Q2 is expected to decrease?

Yeah, I'm happy to answer the question. I think let's remember the timing when we fixed for the TC out in order to secure our earning and hedge for it. It's earlier than the quarter. So that's why let's also don't forget that the last quarter we come from an extremely strong, historically high freight market. Hence, by comparison, we feel it's a little bit low. But let's reassure that compared with our 17,300 operating cash break even, 49,000 is a very healthy rate. And also, that doesn't mean that the net profit will necessarily be a decrease in compared with this quarter. The reality is that we do not know until the book is closed. But there are also other elements, for example, product services performance, as well as other accounting related factors can impact the net result.

Next, we have a question from Blaise Francis Ndolomingo. I apologize for the pronunciation. A question slightly overlapping with the previous one. Your guidance of TCE revenue per available day for the second quarter, $49,000 per day, is down compared to last year's TCE revenue of $52,500 per available day. Can you go a bit more in detail with regards to the reasons? What is your guidance with regards to the impact of this on earnings? Will the decrease in net finance expenses, which help earnings in the first quarter, also be able to offset the TCE revenue per available day decline in the second quarter?

Well, thanks for the question. I believe that was also answered early on. As for the net finance expenses, I will assure that that's a natural outcome of a very, how to say, we're almost debt-free at the moment. In addition to that, we also run a very healthy cash management program, which means that the net finance expenses will be trending low as well.

And if I can also make a comment to the reasons why it's coming off compared to TCE revenue of 2,500, it's because of the events in the first quarter. And there is a backlog on the earnings and revenues. So since we had this sharp rate drop in January, we are not immune to it. and it affects some of the positions also into the second quarter.

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 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. Finally, a question from the chat channel, Kaya.

Yeah, another question there from Blaise Francis Ndolo Mingo. Yeah. Oh, thank you for your answer. Highly appreciate it. No question. Sorry.

Okay, final. 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.

I think we are coming to the end of the presentation here. So thanks, everyone, for the questions and for your participation. And I think we can round it off there. Thanks, everyone.

Thank you for attending BWLPG's first quarter 2024 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 a good night.