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spk00: Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the fourth quarter 2021 financial results. We have with us Mr. Doug Von Appen, Chairman, Mr. Niall Nolan, Chief Financial Officer, Mr. Oivin Lindeman, Chief Commercial Officer, and Mr. Michael Schroeder, Operating Officer of the company. At this time, all participants are in the listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, please press star 1 on your telephone keyboard and wait for the automated message advising your line is open. I must advise you that this conference is being recorded today, and now I pass the floor to one of your speakers. Mr. Appen, please go ahead, sir.
spk04: Good morning, everyone. Welcome to the NavigatorCast. fourth quarter earnings call, and I'm glad to give some introductory comments. As we conduct today's conference call, we will be making various forward-looking statements. These statements include, but are not limited to, the future expectation plans and prospects from both a financial and operational perspective. These forward-looking statements are based on management assumptions, forecasts, and expectations expectations as of today's date and are, as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecasts. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. Today's call will include comments from Niall Nolan, our Chief Financial Officer, and Eugen Lindemann, our chief commercial officer. As we are confronting special geopolitical times in Europe and in shipping, I wanted to share some thoughts with you. Of course, the overriding news of the last two weeks is Russia's invasion of Ukraine. The future geopolitical scenario in Europe is being reshaped as we speak. The sudden invasion of Ukraine will have major ramifications. not just for the energy market, but also for the security and well-being of Europe. Major ramifications in the energy, commodity, and shipping markets have already started. We all want to know the impact on shipping, but without knowing the end game of this invasion and the imposed sanctions, we can't estimate the scope and duration of potential disruptions. Praising sanctions to the Russian economy and its companies has impacted trade supply chains already and is increasing commodity prices. Open markets and free trade are about buying from the nearest, most competitive source. The political tensions and sanctions normally increased on miles because of shifting trade patterns, which require cargo shipping over longer distances. This, of course, supports increased trade rates. Europe will seek to become less dependent from Russian fossil fuels, oil, refined products, natural gas, LPG, coal, and others, which of course is not easy to tackle short term. Now, talking about Navigator, I would like first to thank the staff of the company for their continued hard work during the final quarter of 2021. As a result of their dedication to our company during the period, we started this year in a stronger position. Another thank you should go to the executive management team comprised by Niall, our CFO, by Oyvind, our chief commercial officer, and Michael Schroeder, our chief operating officer. They have been working very well together and leading the company as a strong team the last five months. Now let's go to slide three where we have some highlights. Operating revenues were up 26% compared to Q3 2021. And before impairment losses, net income was $16.7 million, up 149% when compared to the $6.7 million of Q3 2021. Neat utilization increased compared to the same period in 2020. Furthermore, the company has seen increased ethylene volumes from its Morgans Point ethylene terminal joint venture in Houston as well as increasing ethane exports from the United States, primarily due to pricing competitiveness compared with oil. In addition, we continue to see new synergies and contributions to our revenue as a result of the ultra-gas merger, and are delighted by the new opportunities this has brought us. In the face of uncertainty with world events, the company can be confident that its robust balance sheet, long cash positions, Flexibility and unique position in the market will continue to facilitate further growth. I would like to take this opportunity to welcome Dr. Anita Odedra to the Board of Directors of Navigator Gas. Anita was appointed as of 10th March, and we look forward to welcoming her to the Navigator Board and to benefiting from her considerable industry experience. In this exciting time for Navigator, Dr. Odedra will be an extremely valuable contributor to our Board of Directors. Okay, I would like now to hand over the call to Niall Nolan, our Chief Financial Officer, who will give you a more detailed financial review. Thank you.
spk03: Thank you, Dag, and good morning. During the fourth quarter of 2021, the company, as Dag mentioned, generated a net income of $16.7 million, or $0.22 per share, before impairment losses on nine vessels of 63.7 million. This is shown on slide six. This is considerably higher than the net income of 3.4 million for the fourth quarter of 2020, or the net income of 6.7 million for the previous quarter, Q3 of 2021. And this 16.7 million is the highest quarterly net income since the first quarter of 2016. and relates to market improvements across the shipping segments, as well as increased volumes through the ethylene marine export terminal. Adjusted EBITDA for the fourth quarter was $55.2 million, compared to $32 million for the fourth quarter of 2020, and $40.3 million for Q3 of 2021. Total vessel operating revenue for the quarter was $129.4 million, compared to $87.4 million for the comparative period of last year, and the $102.7 million generated during the prior quarter, third quarter of 2021. The $42 million increase in revenue between the fourth quarters of this year and last was in part as a result of the seven additional handy-sized vessels joining the fleet as part of the Ultragas transaction in August 2021, which accounted for $11.5 million of that increase, and another $15.9 million as a result of revenues derived from the Unigas pool, representing revenues from the smaller Unigas vessels. As a reminder, the Unigas fleet consisted of 18 vessels, seven of which are handy-sized 22,000 cubic meter semi-refrigerated vessels, similar to those operated by Navigator, and 11 were smaller 4,000 to 12,000 LPG or ethylene vessels. Two of the older, smaller vessels have now been sold. The 1999 Happy Bride was sold in October 2021 for $4.75 million, and the 1999-built Happy Bird was sold for $6.1 million earlier this month. Average charter rates rose, too, to approximately $22,500 per day, or $684,300 per month for the fourth quarter, up from $21,123 per day for the fourth quarter of 2020, which accounted for an additional $5.1 million to total revenues. And utilization, too, nudged up from 91% for the quarter a year ago to 91.4% for this quarter. Three vessels were in dry dock for scheduled surveys during the fourth quarter, taking a total of 88 days. In total, 14 vessels have dry docked during the 12 months of 2021, at a total cost of $19.2 million. The company did not have any other capital expenditure during 2021 and does not have any planned capital expenditure for 2022 other than dry dockings. Operating revenue from the pool was $8.3 million for the quarter, representing our share of the other participants' revenues, which voids expenses from the Luna pool of $6.4 million, representing the other participants' share of our revenues from the pool. Consequently, our vessels had a net benefit of $1.9 million from the pool during the fourth quarter of 2021, compared to a $600,000 deficit from the fourth quarter of 2020. Voyage expenses increased by $5.4 million during the quarter to $21.9 million, principally as a result of the additional vessels in the fleet, most of which are under voyage charters, thereby incurring these pass-through voyage expenses. And we see bunker costs, which form part of voyage expenses, increasing dramatically as a result of the situation in Ukraine, as there is concern about the shortage of oil globally as a result of possible energy sanctions against Russia. Vessel operating expenses, or OPEX, increased by 43.8% to $40.8 million for the fourth quarter, all of which was a result of the additional vessels in the fleet. Vessel operating expenses per vessel per day actually reduced by $120 per day to $8,000 per day per vessel for the quarter, compared to $8,119 per vessel per day during the fourth quarter of 2020. I referred to impairment losses on vessels of 63.7 million at the beginning of my remarks. This related to impairment on nine generally older vessels, following a review in which we reduced the accounting estimated useful life of all vessels from 30 years to 25 years. As a result, the future cash flows of these vessels could not support the then carrying values of the nine vessels, leading to this impairment loss. As a result of shortening the estimated economic life of all vessels in our fleet to 25 years, Depreciation from Q1 2022, i.e. this quarter we're living in, will increase to approximately $30.9 million from a current level of around $25.7 million per quarter based on the existing fleet. General and administrative costs increased by $3.9 million to $10.3 million for the quarter. ostensibly as a result of incorporating the G&A costs of UltraGas of $1.4 million, severance costs of $1.1 million, and one-off legal and other costs associated with the UltraGas transaction of $1.3 million. And finally, other income being management fees earned from the other participant for our management of the Luna Pool was $100,000 for the quarter. Interest expense for the fourth quarter was $10.7 million, an increase of $1.6 million, or 18% on the fourth quarter of last year, all of which was as a result of interest on the additional debt taken on as part of the UltraGas transaction. That debt amounted to approximately $197 million and attracts interest at U.S. LIBOR, which is subject to a fixed rate swap of around 2%. plus a bank margin, which varies depending on the facility, of between 1.9 and 2.65 percent. Our share of results from the ethylene marine export terminal was a profit of $6.4 million for the quarter, based on 241,500 tons of ethylene throughput charges. In addition, depreciation for the terminal was $1.5 million, giving an EBITDA for the quarter from the terminal of $8 million. On slide seven, we've got the balance sheet, which is showing the company had a cash balance of $124 million at December 31st, and a further $22.9 million available from undrawn revolving credit facilities associated with our secured vessel loans. Our minimum liquidity covenant from our various bank loans and credit agreements is a maximum of $50 million. Our total debt at December 31st was $932.8 million, comprising of loan facilities secured by our vessels of approximately $707 million, a credit facility associated with the terminal of $54.4 million, and two Norwegian bonds in aggregate amounting to $171.7 million. One vessel loan, as is outlined on slide eight, matures this current year. comprising of three six-year-old vessels in the amount of $50 million. And we're in the process of negotiating the refinancing of that facility, as well as focusing on refinancing two other facilities that mature in the second half of next year, 2023. Earlier this year, on January 14th, we sold Navigator Neptune, a 2000-built ethylene carrier for $21 million, The vessel acted as security under one of our outstanding Norwegian bonds, and in accordance with the terms of that bond, we tendered an offer for the net sale proceeds of $20.6 million to those bondholders at 102% of par, but there were no acceptances, and the bondholders preferring instead to retain the bonds, which have a maturity of November 2023. Consequently, the net proceeds from the sale of the vessel have been released to the company for general corporate purposes. The company does have an existing call option on that bond at a redemption rate of 102.864%. And that's it for me. I'll now pass you over to Wyvern for his remarks.
spk01: Thank you, Niall. And good morning, everyone. If we go to slide number 10, During 2021, last year, our fleet safely, reliably, and efficiently delivered 5.6 million metric tons on behalf of our LPG, petrochemical, and ammonia customers. 31% of this volume, being the largest portion by far, was exported from North America. And we anticipate this portion to increase this year. However, there will most likely be other changes in the near and medium term to our trade flows as a consequence of the Russia and Ukraine conflict. As you can see on the slide, on the pie chart, Ukraine is one of the largest exporters of ammonia, with an annual export volume of 2.5 million metric tons. This represents approximately 15 percent of global seaborne ammonia demand. Following the Black Sea port of Eugenie closing, international ammonia consumers will need to seek sourcing from other locations, which can have an impact on distances sailed. The world still needs ammonia as an input to the production of fertilizers for the agricultural industry. Similarly, LPG is regularly exported from the Baltic Sea. This is set to continue, subject to laws and regulations. We do, however, expect that the volumes will decline over the next nine months, in parallel with the EU's target to reduce its Russian gas imports by two-thirds by the end of the year. Europe's demand for LPG, however, remains in place, and we expect sourcing to switch to other locations close to Europe, such as Algeria and North America. On page 11, we can see Navigator's fourth quarter employment, and you can see that it's increasing both in LPG and petrochemical earnings days, and utilization peaking during the month of December at 95.4 percent. As we mentioned in the recent trade update, our estimation of first quarter utilization remains above the 90% level. February is typically a softer month due to slowdown in activity leading up to the Lunar New Year. In addition, for 2022, Chinese importers also limited buying demand during Beijing Winter Olympics, following government restrictions curtailing productions. If you look at page 12, detailing the rate environment, despite a step down in activity for February, the rate environment for hand-dissized gas carriers, both ethylene-capable semi-refrigerated and fully refrigerated vessels, remained steady during the period. Larger fully refrigerated LPG carriers came off, however, with little to no effect on the hand-dissized assessment. The very large gas carrier segment has, however, improved over the last week or so, responding to consumers securing LPG for energy demand in an uncertain environment. If you move to page 13, the global high cost of energy today with Brent above $100 a barrel significantly improves the competitiveness of North American natural gas liquids and its derivatives. While North American ethane volumes exported on handy-sized and medium-sized gas carriers declined during January and February on the graph, March is set to nearly match the record peak of December last year. Ethane used as feedstock for the production of ethylene is far more cost-effective against NAFTA, which is priced after oil, and therefore the petrochemical producers are motivated to import as much ethane as they can possibly consume. And that is a reflection of our expectation for March. Just to give you an example, we currently have one of our hand-designed vessels carrying ethane from U.S. to China across the Pacific Ocean. This is a trade that is typically only open for very large and medium-sized ethane ships due to the economies of scale. And this indicates the tremendous value of U.S. ethane at this moment in time. In the same vein, ethylene exports reduced during February. Exports are, however, dramatically up for March. which may actually be a historic record of ethylene exports from the United States of America of more than 120,000 tons. And just to state the obvious, Navigator benefits from increasing North American C2 exports, irrespective whether it's ethane or ethylene. And both indications show that the demand is picking up for the month of March. Going to page 14, North American ethylene producers find themselves in a highly unique position. The graph shows U.S. ethylene cash cost compared to other parts of the world. In the current environment, with Brent above $100 a barrel, North American producers that are represented in the light blue color move further to the left, resulting in a significant competitive edge. It strengthens our belief for sustained and continued ethylene exports to Europe and Asia. Europe and Asia is represented in yellow and green and are located mostly in the third and fourth quartile on that graph. Therefore, in a global environment of high energy prices, high commodity prices, North America will further strengthen its leadership in natural gas liquids and derivative production and exports. And Navigator is in a phenomenal position as the logistic provider to connect U.S. producers and midstream companies with international consumers. And we are very much looking forward to setting new export records together with our partners in the coming months for this segment. And with that, I will hand it back to the operator that can open for Q&A. Thank you.
spk00: Thank you very much, ladies and gentlemen. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for the automated message advising your line is open. Please state your first and last name before you ask your question. If you wish to cancel your request, please press star two. And once again, please press star one if you wish to ask a question. And we will now take our first question. Please go ahead, your line is open.
spk05: Hi there. Yes, Omar Naksa from Clarkson Securities. Thank you. Yeah, hi, guys. Good morning and good afternoon. Hi, Omar. Hi. Nice to see the business, obviously, firing on all cylinders in terms of the fleet performance and also the terminal. I just wanted to ask maybe, you know, as you highlighted it, regarding the Russia exposure, you know, those four vessels that are on force but become void if the entities or the ultimate entities are sanctioned. Are there any restrictions at the moment, I guess, in terms of where those ships are able to transit, kind of under the current sanction framework? And are these going into Russian ports at the moment? Can you maybe just discuss that a little bit?
spk01: Yes. Thanks, Omar. So clearly it is something that we are highly focused on with continuous monitoring of all sanctions. So just to be clear, those ships and the existing charters comply with U.S., U.K. and E.U. sanction policies and regulation. And that might change, of course. In the contracts, which is quite typical and very normal across the industry, not specific to Navigator, sanction closes. So should something change, it will give you the option to terminate if sanctions are either on the product or the counterpart. Now, the counterpart for us is based in Austria. which is then, in turn, owned by Siebel Holdings in Russia. And that company is not sanctioned and complies with both U.S., U.K., and E.U. sanctioned policies as they are today. Should that change, now, that time will tell. At the moment, its products, which is propane, is being bought by European consumers. Nothing to do with Navigator, but European consumers are currently unrestricted in buying those products for the time being. And the ports that we go to are still allowing chips to call those ports. So a good question, and it's in flux and we're monitoring on an hourly, minutely basis. Thank you for that, Orvin.
spk05: That makes sense. And I guess, you know, should the sanctions get more stringent and the contract becomes void, is there any concern that the charter just doesn't get back the ship? Is that a possibility, or is that seemingly just a moot point, considering you are actually operating the vessel?
spk03: Sorry, one more question. Sorry. There is no chance, Omar. I mean, the ships are crewed by our crew, and they are not used for cabotage trade, meaning staying within any particular country, in this case Russia. So were there to go to international, were there some suggestion that that might happen and they went into international waters, then clearly we would direct the ship to go
spk05: Okay. Very good. Thank you. You know what? I've got a few more questions, but I'll hop back in the queue and let other analysts ask. Thanks, guys. Thanks, Yoma.
spk00: Thank you. I'll take our next question. Please go ahead, Cora. Your line is open.
spk06: Hi, guys. This is Sean Morgan calling from Evercore. So, hey, how's it going? So, you know, I'm And, you know, setting base rates for the rest of the year. I mean, there's been so much volatility in terms of the volume of production on a quarter-to-quarter basis. So should we be planning for, is there seasonality there? Should we be planning for sort of fully ramped up, you know, high utilization once we get kind of past all these different operational issues we've had with chillers and construction? Will that start to happen? Is there going to be, you know, a fair amount of variability in the utilization of that terminal going forward? Yeah, I shall try to answer that one.
spk01: So, the operational issues from a year ago, February 2021, are, you know, they're ironed out. So, the terminal itself is operational. Everything is working. So then the question is really regarding the fundamental dynamics of U.S. gasoline production and its effectiveness in international markets. And I was speaking to our enterprise partners earlier this week. Indication shows that we have illustrated on page 13 that March, looking to be from our terminal more than 100,000 tons. So looking at the record, and in addition, you have export . Their commentary for April is very strong. Why? It's exactly what we talked about on page 14. The unique position of America, access of cheap ethane that will produce cheap ethylene, and the rest of the world, Europe and Asia, compared with them using NAFTA, which is highly priced, it just makes the environment we're in. I believe you'll be seeing strong numbers from the terminal for North America.
spk06: Okay. And that's sort of given the current markets. But so I guess we can infer from that, though, if, like, in, you know, three years from now, things are kind of more normalized, you know, maybe crude prices have kind
spk01: The terminal itself has almost fully contracted. There's discussion to see. We talked about this 10%, 20% above nameplate capacity, and our friends at Enterprise have definitely shown it's So you have the base, which is almost 100 percent, which is a million tons per annum, and then they have shown their capability of doing 20 percent more than that for peak demand.
spk06: Okay. All right. And then if I could just squeeze in one model question. The rate on the 13 ships for the new UltraGas,
spk03: Yeah, no, so the fiber is fixed, Sean. That's 2%. On top of that, you have a bank margin between 1.9 and 2.65.
spk06: Gotcha. Okay, so you're fixing the base rate, and then the spread still applies. Okay, thanks. That helps clear that up. Okay, great.
spk00: Thank you. We will now take our next question. Please go ahead, caller. Your line is open.
spk07: Hey, guys. This has been Nolan over at Stiefel. A couple of other follow-ons. I did want to just clarify a little bit of what you're talking about with respect to Russia, not necessarily your contracts with CBIR, but when you're looking at whether it's the ammonia coming out of Ukraine or the LPG coming out of Russia, it's your view that... there's excess capacity elsewhere in the world such that there won't be necessarily fewer cargoes or less capacity of those products. It's just it'll be produced elsewhere and probably go a longer distance. Is that how you're thinking about it?
spk01: Interesting question, Ben. So let's try to go to basics. Europe... million tons of LPG from Russia last year. 350,000 tons of that was by sea, and the rest was on rail. Now, so the largest portion of Russia's supply of LPG to Europe is therefore on rail. Some of that will be restricted, I am sure, or the largest portion of it, and that amount Therefore, which I mentioned briefly, the law of close proximity will kick in. So where is it, then, that Europe can source that 1.5 million tons, or whatever that shortfall is coming from? And that is the Mediterranean. They have capacity. But the largest one, as you know and you're living in, is the United States of America and the transatlantic trade. There's a huge opportunity for North America to supply any shortfall of LPG that comes from this conflict for the European continent. And if that is the case, which I think, then that increases what Doug mentioned at the opening remarks, longer ton mile. And then the question follows, what ships, what vessels will be doing that? Well, that will be our mix. What I tried to point out was that for navigators, cargo shifted last year. Less than 5 percent came from Russia. So should that go away, it's only a small, small part of the business. Even Trinidad and Tobago was bigger for navigators.
spk07: No, that's helpful. I appreciate that. Just switching gears for a moment, you guys sold the Neptune, which was a 22-year-old ship, but it is an ethylene carrier in a market where clearly that's there's a lot of tightness in the athlean carrier side, specifically on the handy side portion of the fleet. Can you maybe talk through that a little bit, what the thinking was behind that asset?
spk03: Hi, Ben. I think it was probably twofold. One, commercially and financially. It is, as you say, a 22-year-old vessel, and therefore there is a timeline. And I also mentioned we've revised our, albeit accounting, estimated economic life to 25 years, so it's got three years of life. If you look at any of the analysts, the shipping analysts who are valuing the ship, nobody valued it at anywhere approaching $21 million, so it was a very good price. And I guess, thirdly, the purchaser is a Chinese counterpart, who we understand is going to use the ship for their own purposes in or around China, or at least at that side of the world. But we do not believe that it is going to be competing with us
spk07: That sounds good. I appreciate the color. Thanks, guys.
spk03: Thanks, Ben.
spk00: Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for the automated message stating your line is open. If you wish to cancel your request, please press star 2. And we will now take our next question. Please go ahead. Your line is open.
spk02: Good morning. I'm from Ballymester's Edge. Following up on the terminal, you expect March throughput to be very strong, and you also underline how higher prices increase the competitiveness of North American ethylene benefiting your terminal. And I was wondering, are you currently looking at increasing throughput capacity? And if so, what kind of timing would be looking at for the facility to come online?
spk01: It's an interesting question, which is very relevant in this environment. high commodity price, high oil price definitely puts U.S. ethylene exports in the boardrooms internationally for people whose business is to produce polyethylene or ethylene derivatives. So the last two years of COVID and the press market, arguably, then that hasn't really featured in people's minds. But now, few weeks, security of ethylene from the States is definitely back on the agenda. So we will be working extremely hard and diligently with our partners to drum up interest internationally for a possible expansion. Absolutely.
spk02: All right, that's very helpful. And you've been divesting the oldest portion of the fleet after the merger with UltraGas, and you're now also sitting on a comfortable financial position. Could you provide some commentary on what your capital allocation priorities will be going forward?
spk03: A good question, too. I think the first part of that would be debt reductions. We would also be looking at other options, alternative investments, and then considering introducing a dividend or share buyback policy. That's obviously a matter of subject for the Board, which have yet to consider that, but that would not be unreasonable. But certainly in the short term, I mentioned we've got a number of facilities coming up for maturity next year. So we would look at reducing some of our debt in the initial phase.
spk02: All right, that's fair. Thank you very much for taking my questions. You're welcome.
spk00: Thank you. And we will now take our next question. Please go ahead, caller. Your line is open. Mr. Nolan, your line is open.
spk07: Sorry, I was muted. I didn't want to overstay my welcome the first time, so I appreciate you taking another question from me. There had been some noise in the market over the last three or four months about you guys having a partnership that was moving to possibly moving into the transportation of CO2. I'm curious if you could frame that in a little bit. And then also, given everything that's going on in Russia and energy prices and everything else, do you think maybe CO2 or carbon capture and the movement of that has sort of taken a little bit of a backseat to introduce security and that kind of thing, and maybe it's being a little bit more slow-played than it had been.
spk01: Yeah, an expansive question. So it's twofold. So you're correct. So Dan Unity, which is a joint venture between UltraGas and Evigas, which is now Navigator Gas, is to develop... CO2 transportation services for that. So what they've done so far is to design a fully-fledged CO2 ship type with a particular containment system that is needed to transport CO2 in a CO2 supply chain. There are a couple of projects and a lot of discussions going on in Europe, across the Atlantic as well, about the possibility, logistics, economics, and practicality in Denmark, specifically called Green Sand Project, which this joint venture is part of. So it is definitely moving in the right direction. Baby steps at the moment, it could be something much bigger. The second part of your question is, is this a backseat at the moment? I think quite the opposite. So if you read the news in Europe trying to reduce energy dependency of any other region, then environment and alternative sourcing is coming big time. So in that scope, Europeans will have to address the carbon issue that Europe has, among others, and therefore I don't think there's any stopping or reduction in interest in CO2 transportation. Quite the contrary. Okay.
spk07: That's helpful. That was my only other question. I appreciate it. Thank you.
spk00: Thank you. There are no further questions at this time. Gentlemen, back to you.
spk03: Okay. I would thank you all for attending our fourth quarter earnings call, and we will speak to you all again at the first quarter of 2022. Thank you very much, and goodbye.
spk00: Thank you, ladies and gentlemen. That does conclude your conference call for today. Thank you for participating, and you may now disconnect.
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