Avance Gas Holding Ltd

Welcome everybody to Avans Gas first quarter results. On the front page here, you will see our newest addition to the fleet. It's Avans Avior, dual-fuel, large BLGC, which we took delivery, not from DCME, but actually from Hanwha Ocean. It's the second ship delivered from Hanwha Ocean after they changed or rebranded the name from DCME to Hanwha Ocean just now, recently, and we took delivery of the ship 10.05 local time. She's just finished bunkering and ready to set sail into our booming spot market. So today, I also have Randi Navdal-Beklund, who is our CFO. We will go through the numbers a bit later in the presentation. But before we begin, I would like to highlight our disclaimer. And yeah, we will be presenting some non-GAAP measures as time charter equivalent earnings, TCE income, And of course, it's a rather short presentation, so there are limits to how much details we can provide. Also, just please note that you can ask questions either through our telephone conference or through our chat function. So we're going to do all the Q&A after we finalize the presentation of today. Okay, let's begin. Yeah, first quarter numbers. Actually, the highest profits we ever delivered before in our first quarter with net profits coming in at 36.3 million. The commercial figures were very much in line with guidance. We delivered the low to discharge numbers at 58,400 in line with the 58,000 dollars we guided and then on the discharge to discharge number 55,500 also in line with the 55,000 dollar guiding we provided in end of February. This means 47 cents per share in earnings, which is slightly higher than the numbers we delivered in Q4, which was actually the best number we have delivered since 2015. I've already touched upon the Avio, which we took delivery of this night. We also had the delivery of the third ship, Avion's Rigel, in early February this year. So this means that we will have more shifts in the full operations for the second and the third quarter. During the quarter, we have also increased our coverage through forward freight agreements, or FFA, and the coverage now is almost two shifts on FFA cover for the second half of the year, and I will provide more details on this shortly. Spot market after having a bit of a slip during the Eastern, it's bounced back. And we've been able to book very good numbers for Q2 as well. And we're guiding $50,000 per day on a discharge to discharge basis and low to discharge basis for the second quarter. And then with more ships in work for the second quarter than the first quarter, we do expect that the bottom line will not be far off the record high numbers we delivered for the first quarter. The market now is even better. Depending on the route, $80,000 to $100,000 per day for freight, where the shortest hauls are at $100,000 and the longest, like Houston to Far East, is trading at slightly above $80,000 per day. And this is the market we are putting Avior into today. And this is actually for modern non-scrubber vessels, or ships with dual fuel and bigger passenger sites have some earnings premium to this level. As I mentioned, we have pretty good coverage also for second half through both FF8 and some time charters, which I will cover shortly. So with the good numbers, very good strong financial position with $220 million of cash at Bordeaux. We don't see any need to reduce the dividend. We keep it at the 50 cents we paid out for Q4, and this gives a yield. If we look at the dividend the last four quarters, it's $1.4 per share, or about 18%. So I think this should give people a pretty good yield sticking to their avant-garde shares. Okay, let's just look a bit into the performance. With a good spot market, it's of course the spot rates that is driving the results. kept about 40% coverage for this year, and the TCE rates, some fixed, some variable, delivered $40,000 for the Q1. Spot rates, with the good rate levels at the beginning of the year, we delivered $71,000. We had some hedging through FFAs, which I will cover shortly. Excluding those, TCE for the fleet was $62,100. for Q1 and adjusted for those hedges we delivered for fleet 58,400. For Q2 we expect TC rates to be slightly lower 36 spot rates not that far away 60,000 dollars which means 50,000 for the fleet or 52 excluding the FFA hedging so good numbers for Q2 with more ship stays. Let's look at the fleet in total on page five. So we have some different kind of classes of ships there. We sold three ships last year of the 2008-09 vintage, and we have two more ships left, Iris Glory and Venus Glory. They are on fixed higher TC until Q3 and Q4 this year. Rate is at around $30,000 for these ships. Then we have eight Yangnan 2015 built ships. Two of these ships do not have a scrubber, and we decided in order to kind of hedge our diesel risk. It's been very unpredictable how this will play out with the war in Ukraine and sanctions on Russian products. We therefore decided to fix Pamperona, one 12-month time charter last autumn. At the same time, we actually sold a ship also, which had a time charter until Q4 2023. So we basically, when we sold the ship, we kind of replaced the time charter cover with Sampero, which is in the mid-30s on fixed higher TC. We also have one ship, Chinook, on variable time charter until early Q3 this year. The other six ships with the scrubber, which is very beneficial in terms of fuel cost, those ships we are trading in the spot market. Then we have the new generation of ships. We took delivery of Polaris and Capella early 2022. Polaris is on our time charter until early 2024 on a variable time charter, and then we also had a similar contract for Capella until February 2024. We have mutually agreed to terminate the variable hire time charter, and we have then rather decided to replace that exposure with FFA and I will come back to that. Rigel, the third ship of that class was delivered in February and then Avior this night. Both of those ships are going directly to the spot market. We've seen delays on deliveries. We've seen this on both Rigel and Avior and Avior was delayed about three months. We see that also on the last two ships, the Castor and Pollux, which will probably be delivered early 2024. We actually had four ships for delivery this year. We're probably going to end up with two ships. So that gives you a bit of an idea about the high activity level at the yards and the risk of slippage. Those are also fully open. So we have very high spot exposure for 2024. And we have taken some hedging throughout 2023 because people have been quite pessimistic on the outlook given the big order book, but we kept spot exposure as we felt the sentiment has been too pessimistic. So in terms of the FFAs, we have three different contract structures. We have one legacy FFA, which was done early 2022 for one third ship in Q1 at 29,000. And then you can understand why we have some loss on FFA in Q1. Then last November, we took a coverage on a full scrubber shift for the full calendar year 2023 at $48,000 per day, which is a pretty decent result, but of course less than the spot rates today. And that's why we're also taking some loss on that FFA contract in the quarter. And then when we replaced the Capella variable hire time charter and took it out in the spot, we hedged that position for the second half of the year. where we have done full cover for Q3 at $53,000 and 83% coverage for Q4 at $62,000 per day. But what you have to be mindful of here is we have hedged VLSFO, very low sulfur oil. This ship can burn LPG, so in case we burn LPG, we can have significant savings about $5,000 to $8,000 per day. And then we have hedged a conventional size of around 45,000 tons, but these ships can carry about 5,000 tons more. So in case we fill the tanks fully up, we also have some upside on that. So there could be possibly up to $10,000 premium on the FFA rate if we are able to utilize the larger parcel size and burn LPG rather than very low sulfur oil. So I think that gives us a good coverage for the rest of the year, but we are now booking ships into August. So the market looks strong and I'm going to come back to that later in the presentation. So let's jump to slide six. Just a brief touch upon the dividend. We've been ramping up the dividend. We last quarter paid out 50 cents compared to earnings per share of 45, 10 times higher than Q4 21. We are repeating this today with 50 cents. And as I mentioned with the bookings for Q2 and more shift days, we are not going to be far off this for Q2. In terms of the drivers here, we have, Randy will probably touch upon it, we have strong earnings, good outlook. Of course, it's not possible to get a huge backlog in this industry, but we have pretty good coverage for the rest of the year. We have 220 million of cash, no governance, no debt maturing before 27. So we are in a wealth position to pay very good dividends to our shareholders. So before I hand over to Randy, just a short summary on the VGC market has been the strongest since 2015. In 2015, I think this company made more than $180 million of net profit. I don't think we're going to beat that this year, but I think we are in a very good position to beat the $90 million we generated last year. The market's been volatile, like it's always been. We had a slump in the market at the beginning of the year, but it bounced back very quickly. We had a new slump during Eastern, but we also did have a recovery here. But we see it's been slightly weaker in Q2, and that's why the spot earnings are a bit lower in Q2 than Q1, but still at very good levels and much higher than the recent periods. Of course, the average here is from 2016 to 2022, which has been a bit more challenging market. And if you look at the blue line, you see the market for 2015. And the dotted line here is the FFA, which is converging around $60,000, where we have done our Q4 FFA. So a very good market. Keep in mind our cash break even is in the low 20s. So we are generating substantial cash on these levels, driven by strong export growth, very elevated arbitrage levels, especially between U.S. and the Far East. And also the uncertainty around Panama, waiting times been lower recently, but it's still a gamble. And these waiting times goes up and down rather quickly. And it's hard to schedule a ship through Panama then, which means that more people are ballasting through usually Suez, but also to some extent Cape of Good Hope in order to avoid that risk and to have fixed scheduling dates for their fixing days. So with that, I hand it over to Randi, and I will come back with some more market data afterwards.

Thank you, Einstein. And let's go to slide eight and have a look at our income statements and key financial figures. So as Einstein already touched upon, we are very pleased to present a net profit of 36.3 million, or earnings per share of 47 cents, which is the strongest net profit for the first quarter for Avanca's And this corresponds to an attractive annualized earnings yield of approximately 24%. So the average time charter equivalent rate on TCE rate for the quarter was $58,400 per day in line with the guidance of $58,000 a day and is considerably up from $46,500 a day for the fourth quarter. So the good results are explained by a supportive LPG price arbitrage between the US and the Far East, resulting in a high willingness to pay for the freight, combined with significant slippage of the new buildings and the villages carrying out special service this year. Our TCE earnings includes a negative effect of $3,700 a day, which relates to the forward freight agreements and bunker hedging, which is derivative where the spot market was considerably stronger than our FFA coverage of 1.3 ships at $42,000 a day for the first quarter. So just a reminder, the FFA and broker hedges are designated for hedge accounting, where the fair value movement is taken through the other comprehensive income and equity and hits the TC earnings when they become effective. Our operating expense, or APEX, were $9.7 million, equaling a daily average of $8,600 a day. This compares to $10.2 million, or $8,700 a day for the fourth quarter. The operating expense were down due to less ship or calendar days, as we saw promise in November, combined with improved crew change costs. Looking at our administrative and general expense, we continue to hold the lowest A&D expense by far compared to our industry peers. So for the quarter, we had an A&D of 1.3 million for the first quarter and equaling average per shift day of 1,200 and represents a normalized A&D going forward. Non-operating expense consists mainly of financial expenses, and it was recorded with 4.3 million compared to approximately 4 million for the fourth quarter. So even though we have seen rising interest rates during the quarter, this has been offset by recognized effectiveness of interest rate swap gain during the period and interest income on cash deposits, maintaining a relatively flat interest expense for the quarter. Moving to slide nine, a few comments to our balance sheet. So on our left-hand side of our balance sheet, we have approximately 75% consisting of our 13 real disease at quarter end, which became 14 today, as we took delivery of our fourth dual-fuel new building, Avance of York, at 10.05 local time in South Korea. So as of today, we have two dual-fuel new buildings to be delivered by early 2024 and will meanwhile be recognized as new buildings under construction in our balance sheet with amounts related to pre-delivery installments based on milestones. So looking at the right-hand side of our balance sheet, we have a balanced leverage ratio, 45%, and maintain our solid shareholder equity exceeding 50%. So the total shareholder equity was $601 million at quarter end, corresponding to an equity ratio of 54%, and has slightly decreased by 3.6 million during the quarter, mainly due to net profit of 36.3 million being offset by dividends paid of 38.3 million for the fourth quarter of 2022. As with the spot market, the share price has moved significantly upwards this past week, and it's for the first time in many, many years supporting our book values with a price-book ratio of one today. We have a robust cash position of 220 million at quarter end, and we will now move to the next slide showing the cash movements during the quarter on slide 10. So we started the year with the highest cash position recorded in Avanska's history of 224 million. And during the quarter, we generated 48 million in cash flow from operations coming from a strong freight market, which was offset by 38 million in dividend paid for the fourth quarter 22 and 10 million in scheduled debt repayment. Advance Ritual was delivered February 9th, which is the 61 million in investing activities. And in relation to that, we drew 57 million under the 555 million bank loan that we refinanced and secured in May last year. So this brings a total negative cash movement of 4 million, which explains the bridge from 224 to 220 at the end. Moving to the next slide, 11, on the right-hand side, we have an updated overview of our remaining new building capex. At quarter end, we had paid about 61% of the total capital expenditure of our new building program, and the remaining 39%, or 185 million, is fully financed with bank facilities for Avans Avior, which we drew today, while Avans Kastorp and Avans Polluk is financed with $135 million sale leaseback arrangement, which was signed in August last year. This means that we are cash positive of a total $8 million on deliveries. So as presented the past quarters, besides concluding the financing on our new building program last year, we also refinanced our fleet bank facility consisting of the nine VGCs and two new buildings. where we significantly improved the terms compared to what we had with the longer repayment profile. We increased our revolving credit facility to utilize the flexibility to manage and optimize cash and lower interest costs, lower margin, and we also pushed our debt maturity from June 24 to January 28. And we have also locked in 90% of our average debt the next two years at an interest rate of 3% basis offer and compares to 5% today which corresponds to a discount on interest rate of 40% compared to current levels so to shortly summarize we have a strong financial results very sound financial position with 220 million of cash at hand and we're fully financed and that combined with strong earnings into the second quarter we guided on $50,000 a day and current level varying between $80,000 to $100,000 a day with a cash break even of just below $22,000 today. We are well positioned to continue returning value by distributing dividends to our shareholders. And with that, I give the word back to you, Asim, for the market update on slide 12.

Okay, thank you, Randi. Let's touch upon the market. We actually have very fresh data here. We were sitting looking at some data last night, and we're actually providing you with LPG export data from January to May, even though May is not finished yet, because we have predictive data based on loading schedules. So in any case, Volumes are up, especially driven on the export side by US, where they have very high inventory levels and where the oil fields are getting more gas use, which means more gas available for export. So 18% in US, North America, 2023 compared to 2021. And even more so in Middle East, despite the announced OPEC cuts, exports up 27%, relatively flat in other major regions. On the import side, it's driven by usually primarily Asia. It's China and it's India growing very steadily despite a period where there's been lockdowns in China. Chinese LPG imports grew close to 10% last year and it's gone 28% over this period. Driven, of course, by the affordability of LPG compared to other hydrocarbons. Europe, of course, with less LPG arriving Europe from Russia. Not really VLGC, these are smaller parcel sizes or by rail. Nevertheless, Europe been buying more LPG and also driven this to some extent by affordability in relation to the NAFTA. And the cargoes are getting bigger. We'll just see shares in terms of the exports going from two thirds to 70% from 21. Let's look at US in a bit more detail since this market is close to 50% of the VLDC exports. It's been growing steadily the last 10 years, 7% annual growth. It's tapering off a bit now, but still EIA forecasting 14% export growth from US this year despite only 4% production growth because more of the LPG is being exported also to some extent driven here by more use of ethane in US and then very high inventory levels in the US which makes the price in US low compared to international markets and this is driving the arbitrage which is the next slide number 14. The arbitrage here illustrated by the price difference of propane price from Montelvieu in US compared to the Far East Index for Asia. And of course, this is our main driver for freight rates. It became extremely elevated before New Year's and which really drove freight rates to new heights before Christmas. It's come down since then, but still at around $185 per ton, it's really supportive of the freight rates. And as you can see here on the right-hand side, these are very correlated, the spot freight rates and the arbitrage. So to kind of dumb it down and simplify it, so on slide 515, we have a graph showing the key trading routes. It's the traditional one, Baltic LPG-1. From Ratanura to Chiba, today, $107 per metric ton freight, which translates into about $92,000 per day on an eco non-scrubber ship. US trade, Baltic Cree, used to Chiba, Paris, It's $157 per metric ton. And of course, as you can see, the product arbitrage here is $187. That means the freight is $30 less than the arbitrage. Of course, you need some money for the terminal fees and other costs in order for the traders to make a profit. So right now, of course, the freight is getting close to the arbitrage. But when you have a very tight shipping market as you have today, the owners can take out a very big share of the arbitrage economics. The shortest route is the one that is most profitable these days, used in flushing. $96 is the lowest rate in terms of per metric ton. But since this is a short haul voyage, it calculates $110,000 per day, so what this course with this very elevated trade rates people like to lock in long voyages in order to get a good bottom line and that means that the shorter routes have to be trading at the premium for people to fix their ships for shorter routes rather than locking in longer term profits so let's head for number 16 this is something we have been talking about since at least last autumn we have said we don't believe We will see all the ships being delivered this year. We've seen it ourselves with slippage on boat number three and four and five and six. And we saw slippage in Q1, 16 scheduled ships were only delivered 12. Those are fitting into Q2 and it creates a chain reaction where you will see probably slipping throughout the curve and less ships than expected for delivery in 23 and somewhat more ships for delivery in 24. and that balance out the market better. We also have a lot of docking this year, so it means that fleet growth has been more muted than most people would expect. Slide 17, before I think I conclude, is the fleet overview. People have been worried about, you know, this big column here in 23 for deliveries. We have been less so because the feed has been growing so the relative growth is much less than the two spikes in 2016-17 when we had a time where freight rates stayed relatively low and then also the other spike here in 2008-9-10 where we had a lot of shifts for delivery. What's worth to say is scrapping has been extremely muted in this industry. A lot of the older ships are ending up in captive trade from Iran to China, and this is keeping older ships going with finally this year thin scrapping of two ships, both above 40 years old, but eventually decarbonization rules and a kind of probably more stringent rules will probably result in more of these ships being scrapped. And we see a large portion of the fleet being more than 25 years old, which is the normal economic life of these ships. So that's it for me. Just to summarize, good results, best ever first quarter profits of 36.3 million. Slightly better than the numbers we delivered in Q4. We have very good bookings for Q2. We are now booking at a very elevated level into Q3. And we have a good spot exposure, our balanced spot exposure for the rest of the year. The near term looks very promising. We will have more ships in work both in Q2, Q3 and Q4. So that bodes well for our bottom line. And with a good financial position at Strandiev. already touched upon. We keep our dividend at 50 cents, which gives our investor a very nice dividend yield. With that happy message, I think we conclude and open up for some questions.

Thank you. As a reminder to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you wish to ask a question via the webcast, please type it in the box and click submit. Please stand by while we compile the Q&A roster.

Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our first question.

The question comes from the line of Clement Mullins, Value Investors Edge. Please go ahead, your line is open.

Hi, thank you for taking my questions. Hi, welcome again. Thank you. I wanted to start with a market-related question. Exports from the Middle East have increased materially year over year, and I was wondering, are you seeing any effects on volumes due to the recent OPEC production cuts?

Not yet. Of course, the OPEC cuts are for crude oil, so depending on the use of propane and the It's not really sure they will cut anything on propane. So far, we haven't seen any trend towards less exports. So, yeah, let's see.

Unfortunately, the line has disconnected from the call.

Okay. Okay. We have a question from the web here. We can take this in case it returns. If will GC spot rates remain above 50,000 during the remainder of the year? Will you increase charter coverage either via FFAs or by putting additional vessels on fixed rate CC? So that's a million dollar question, which I can only describe how we are thinking about it. Of course, we look at the market now, and of course, you can lock in 80, 90, even 100,000 on a spot voyage. depending on the route and the length so it's really something you need to calculate on let's say somebody is asking you if you want to fix a ship for cc for 52 000 a day for 12 months then we really need to calculate okay we can do one long voyage here that let's call it 80 000 and it takes yeah 80 days or so what is the implied value of the back end of the curve and then we look a bit at what we think the market will trade that and also the FFA and then we because you can also take that cover through FFA if that is more effective which is something we did last autumn so I cannot give you a definitive answer we will monitor the market if we feel that it's value in doing it I think right now we're quite comfortable with having 40% coverage for the second half of the year of course we are fully open for next year. So it's something we will consider day to day, monitor the market, do the calculations. I don't rule it out, but we actually also prefer having more spot ships available because if we have more of our fleet in the spot market, we are really one of the very big players in the spot market. If we fix all the ships out on TC, we become lesser in terms of size. We are the fourth biggest VLGC owner. So if we trade all the ship spots, we get a dominant position. And if you have a dominant position in the spot market, it's easier to position your vessels to trade ships on TBN where you can swap vessels. And maybe also invest, let's call it in an Atlantic position where you are trading one on the BLPG route two. So you have a ship with a very fixed schedule for a US loading if it pops up. So there are some synergies of being big in the spot market and also in terms of the Panama ranking. So we like the spot market. And I think we will probably grow our presence in the spot market rather than reducing it Let's call it the 60% exposure we have had to the spot market lately. And also we get more ships for delivery, which is also increasing our absolute size, not only the relative size. So I hope that was a satisfactory question. And then we can maybe check. We can take one more question from the web. From Eitan Wogen internally. How far into Q3 are ship owners now fixing? So we had delivery this night. We just bunkered up Avior. setting sales so basically you are then chasing loadings in us middle of july and then you have the return trip so basically to simplify you you're booking into middle of august i would say so that's that's basically in the middle of q3 So then you have a sense of you know appeal on how your Q3 backlog is building and of course we're building that backlog every week now. Yeah and then maybe we can check whether the value investor guy is still online.

The participant hasn't rejoined.

okay thank you but uh in any case i thank you for the questions uh i think we have to run this to make some uh advanced mercs there and and give it away on for best questions on the q a session so we get flooded with questions like we do in in flex so that may be something we will think about when we return in august before that which is locked in now with uh basically fully covered already and while we're booking the Q3 so hopefully we'll come back with some good messages for you in August and with that I thank you for joining and I wish you all a good summer. Thank you.