Avance Gas Holding Ltd

Good day and thank you for standing by. Welcome to the Advanced Gas Holding Limited Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link any time during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Austin Kelleclev. Please go ahead.

Thank you, and thank you, everybody, for joining this second quarter results presentation for Avans Gas. I'm Øystein Kalliklev, as mentioned, CEO of Avans Gas, and I will be joined here today, as usual, by our CFO, Randi Navdal-Bekkelund, who will run you through the numbers. As mentioned in the introduction, we will close the presentation today with a Q&A session where you can either ask a question by the conference call or by the chat function. So as you can see from our front page, we have found some inspiration in the Japanese icon, the Great Wave of Kanawaga by Hokusai. This picture was sold at Quidditch last year for $2.7 million. So we made our own edition, which we call the Great Wave of Dividends by Advanced Gas. And we paid out close to 270 million of dividends for the first half year of 2024, which means that our shareholders can buy close to hundreds of this picture. So let's begin with the disclaimer. During the presentation, we will be giving some forward-looking statements, wide non-GAAP measures like TCE, and there's limits to how much details we can provide in this short presentation. So we recommend that you also read the presentation together with the earnings release, which we published today. So let's kick off with the highlights, numbers, came in as expected. We delivered our time charter equivalent earnings on a discharge to discharge basis, which is the basis for our guidance, of 50,100 per day. The load to discharge number we said would be $3,000 to $5,000 lower, given where the market was trading, and we were also in line with that guidance measure with 46,700 on the load-to-discharge number. This resulted in strong numbers for the second quarter as well. During the quarter, we sold one ship, our last new building, VLGC dual-tool new building number six. That ship was sold In May, at $120 million, giving us a profit of $36 million. So altogether, for the second quarter, we delivered net profits of $61 million. That means for the first half of the year, as you might recall, we had fantastic numbers for Q1, driven also by the sale of three ships. So first half of the year, net profit is $207 million. This is not only the highest ever half-year result, it's actually higher than any full-year results we ever delivered. This results in our earnings per share of $2.7, and as we will touch upon, it's also a lot of cash release there, giving us ample room to pay very attractive dividends. Subsequent to quarter-end, Prior to us reporting, we announced the sale of the remaining 12 VLGC in our fleet to BWLPG for a sum of 1 billion and 50 million. This provided us with a gain of approximately 315 million dollars. So we will be trading now the chips until end of the year. Some chips might be delivered to BW earlier. So we also have some room to make a trading profit on the chips prior to delivery of the chips to BW, where we will also then become the second biggest shareholder of BW LPG. Cash proceeds from the transaction is 585 million. And we will now wait 132 million of debt. When we are concluding the transaction, we will also pay down all debts of Avantgas. So this gives us a performer cash Q2, adjusting for the sale of $485 million, which we do think, of course, we will also be making some free cash flow in Q3, given our bookings, and Q4, given where we see the FFA rates for that quarter. During the summer, we had a bit soft market. Q1, Q2, yeah, a decent quarter with 50,000 in TC. Given the improvement in the traffic through Panama Canal with more slots coming available, there's been more shifts in the market dragging down the freight economics. So currently, we are booked 79% of third quarter at $41,000, also on a discharge to discharge number. We don't expect much deviation this quarter or the third quarter for load to discharge and discharge to discharge. Q4 looks better, which is usually the case. You're getting into the winter season, more traffic, more weather, and usually more pull to Asia. So FFA rates or the freight forward rates are currently at around $55,000 per day for the fourth quarter. So with strong numbers, a very big cash balance, and even bigger on a performer basis adjusted for the transaction we recently announced, the dividend for Q2 will be $1.35 per share, bringing the dividend for the first half of the year to $3.50. That translates to $268 million of dividends being paid in the first half of the year, or equal to about 30% of the market cap. And there will be more dividends as we are closing the transaction with BW during Q3 and Q4. Delivering those chips to BW, we will be paid cash and shares. which will give us ample room to continue paying out dividends, very high dividends for the rest of the year. So let's see what we've done the last couple of years here now in our on slide four. We've sold all our VLG seats. We started off in 2002 by renewing the fleet. We sold three older 2008-09 built ships. for a profit of approximately 20 million. This was in connection that we took delivery of new buildings. So we took delivery of Polaris and Capella in 2022. Rigel and Avi ordered the year after. So our plan then was to sell off the older ships and renew the fit with the usual class of ships. We continue doing so. Last year, we announced the sale of Iris and Venus Glory. Iris at 60 million, Venus at 66 million. which gave us a profit on those two sales of close to 50 million. However, at that time, those ships were traded by us until Q1 last year. So those ships were closed in Q1 and we booked the profit from the sales in Q1. At that time, we also got a very good offer on a new building, being Castor and Pollux, which was scheduled for delivery in 2024. We contracted those ships at 78 million, upgraded them with ammonia spec for about $2-3 million, and we sold them prior to delivery for $120 million. So with those sales, we had a fantastic Q1. And of course, the Pollock sale was booked then in Q2, as that ship was delivered from shipyard to the new owners, Bertamina, in May. So we were left with 12 ships. a rather new fleet, then, as we have done the fleet renewal, eight 2015 Eco-class ships, of which six fitted with an exhaust gas scrubber, and then four dual-fuel 91,000 cubic larger VLGCs. We then found it in the best interest of the shareholders, given where the building prices are, where second-hand prices are, to sell them and block to BW for this And we concluded that sale on August 15, and I will provide more color on the sale. So altogether here, we have sold ships for 1,559,000,000, with gains of 455,000,000, of which 436 has been done this year, and with a cash release of around 474,000,000 plus We will also receive a 12.8% stake in BW LPG once the transaction is closed, where we put a value on that on the transaction of $333 million. So we calculated the NAV of the BW share in that transaction to $17.25. It's slightly higher than the stock price today, but we think they are well positioned with these shifts. with a fully integrated value chain with also product services. So I think that will be a good deal for the Avantgas shareholders. That leaves us with four new builds. These ships were contracted last summer. Four of them, these are medium-sized gas carriers or medium-sized ammonia carriers. They can carry both. And these ships are set for delivery in Q4-25 until Q4-26. And I will come back a bit more on what we are planning to do with these ships later in the presentation. So just a glance on the transaction with BW. We had a cash at quarter end, $268 million. We will receive a cash settlement from BW, where we will be repaying all the debts in advance cash, where we will have a remaining cash balance of $217 million. That gives us a pro forma cash, as I mentioned in the introduction here, of $485 million. Then we will receive 19.3 million shares in BW, where we peg the value at $333 million. Once we receive those shares, we will treat them as fair value assessments and basically take them to mark the market in our account. The MGC fleet has a value where we take in the Clarkson number. A Clarkson new building price for similar ships is around $70 million per ship. However, those are for delivery 27. We have delivery of our ships earlier, 25 and 26. Today, interest rates are quite high. So it has a value of getting the ships earlier, also given the fact that actually, as I will refer to, time charter rates for MGCs are quite attractive these days. So we've pegged those at 288 million, or about 72 and a half million each, or 72 million each. We then deduct the remaining capex on those ships. We paid in 43 million to the yard in pre-delivery installments. So we deduct the obligation to the yard of 203 million. And then we have to, once we're closing down the financing, we will have to terminate our interest rate swaps. As some of you might recall, we hedged our interest rate at very attractive level, basically more or less all our debt this year. at about 3% and also coverage well into next year. Mark the market on these swaps at end of Q2 was $89 million. So that we will also release. And then on top of that, trading ships in the freight market also entails having working capital. We have 27 million of net working capital at end of Q2, which we will release. And then finally, depending a bit on where the freight market is, we do expect a peak during Q3 and Q4, trading these chips in the market, given our guidance and forward the assessment of somewhere around 30 to 60 million, where we're then ending up at a NAV, a debt-free NAV of close to a billion dollars, which should translate into a value per share of close to $13 or about 135 pounds per share. So that is the value we intend to deliver back to the shareholders in the coming quarters. Just a bit more on the transaction on page six. It's a bit repeating here. 585 cash BW shares. We will novate the two leases we have. That adds up to $1.5 billion. We have a $315 million gain on the sales. And once we are paying down the debt, the net proceeds is $217 million of cash, $333 million of BW shares, and then we can add top up with some trading profits in Q3 and Q4. Looking at the timing of the sales, we kind of crystallized the returns for our shareholders. Here we have the curve of Clarkson New Building prices. As you can see, We hit the bottom quite well on contracting ships in 2019 and 2021. We ordered altogether six dual fuel wheel chassis at the price of 78 million each. We did some upgrades on number three and four, where those could be fitted for burning ammonia at a later stage, once that combustion engine or the combustion or fuel gas system is ready. And we also added the specification on number five and six, where they could carry ammonia, which costs about $2 million. So altogether, around slightly less than 80 million on average on the ships. We sold the five and six for 120 million, We announced that last year and they were delivered to new buyers in March and May, and now we sold the remaining four usual new builds. If we then look down on the curve, these are quoted five-year resale prices, and then we have adjusted the curve for depreciation to also arrive at a 10 and 15-year curve. We see that we sold Tetis and Providence above the 15-year curve. And then Venus Glory, you know, we got a really good price on her for 66 million, but basically we're getting close to our 10-year price for our 15-year-old ship. And then the 8215 ships are now sold at an average of about 73 million, which is spot on kind of the 10-year retail price. So we've been able to sell ships at very attractive prices, both historically and in relation to the retail curve, which has resulted in pretty good shareholder results. We have started 1st of August prior to COVID. Stock was doing pretty well in 2019 and then COVID happened and basically all stocks in the world had a hard time before the world recovered. So if you had invested in the stock first of August and you have it today, you would have a 800% return in US dollars. If you were Norwegian, bought them in Norwegian corners, your return would be 1000%. So you would be doing a 10-bagger the last five years by being invested in Avanskas and now we basically crystallize that return for you because we're selling the fleet and we are receiving cash and shares in BW as proceeds from that sale, and we have a remaining investment in 4 MGC. So let's talk a bit about the numbers for the quarter. As mentioned, our numbers are in line with guidance. We guided 83% at 48,000. We delivered all in 50,100, where our numbers were pushed up slightly by our FFA hedges. hedging by using forward rate agreements, ending up at 50,100 when we include this. We also expect to make some profits on our FFA hedges in Q3, given the soft market. As mentioned, we are 79% covered, expect to arrive at around $41,000 per day. for Q3, including the FFA hedges, which are contributing $1,300 on average for that quarter. And as I mentioned, we don't expect much mismatch between the discharge to discharge and the low to discharge numbers, plus minus $1,000. So then before giving the world to Rande, just a bit on the dividends. So we had this huge hike in dividends in Q1, where we paid out $2.15 per share in just one quarter, the same amount we paid out in the whole of 2023. This translates to $165 million. For Q1, that was 99 cents was return of capital because we returned the capital for new building five and six, where we raised $65 million in April 2021 to finance that transaction. and then the return on the profits. In Q2 now, we are paying 135, $103 million for this quarter, and then as we are releasing money from the transaction in the coming quarters, we will continue to pay off the net proceeds as cash dividends to our shareholders. The dividend decision criteria are quite easy this time. know good profits we have fairly good bookings visibility is very clear because all the ships will be delivered to bw before before year end we have ample liquidity 268 million plus you know if the performer cash is higher we will repay all the debts but we are flying callers of course on on the debt governance and then we will maintain some cash for the capex liabilities for the MGCs. We paid in 43 million. As I mentioned in the earnings release in the CEO statement, we will preserve somewhere around 50 to 70 million for the remaining equity for those ships. But we are also assessing strategic alternative for those ships. So it could be that also those ships will be sold. And then if that is the case, the proceeds from such a sale will also be distributed as dividends to our shareholders. So with that, I hand it over to you, Randi.

Thank you, Isen. I think you have already addressed and summarized all of my slides, but I will go over them. Let's go to slide 10 and have a look at our income statements and key financial figures for the second quarter. RTT per day for the quarter was 50,000 on a round trip discharge basis. which is in line with the guidance of $48,000 a day for 83% of vessel days. As the market was stronger by the end of the quarter compared to the previous quarter, we had a discharge effect and adjustment in accordance with the accounting standard IFRS 15, resulting in a reported TCE per day of 46,700, which was also in line with the guidance. We successfully completed the sale of Avant Pollux during the second quarter for a cash consideration of 120 million. The sale resulted in a gain of 36 million and a net cash proceeds of 62. And this was the fourth Vessel sale completed this year. Actually, for the first half, bringing the total gain from Vessel sales to 121 million. and net cash proceeds of 189 million for the first half. Net finance expense was 1.5 million for the quarter and consists of net interest expense of 5 million, relatively low compared to the floating interest rates as we have hedged most of our outstanding debt at 3% SOFR compared to the floating SOFR of 5.3%. Additionally, we recognize the finance income of 3.5 million coming from interest income on cash deposits. Net profit of 61 million for the first quarter, 79 cents per share, and with the first quarter results of 146 million, net profit for the first half, 24, came in at 207 million, $2.70 per share. which is the highest half-year result, and as Asa mentioned, exceeds any full-year results recorded ever. Let's go to slide 11 and have a look at the key financial effects of the completion of the transaction with BW-LCG. The sale of the VLGC fleet at 1 billion and 50 million will result in a derecognition of the VLGC fleet. books at 750 million at quarter ends and 745 million at the announcement date august 15th the delivery window is between september 15 until december 31st and we estimate a total gain on sale of 350 million of which 305 will be recorded as gain on sale and 10 million in lower depreciation expense. Just a few comments on the IFRS standard. A reminder, the VGC fleet will be reclassified from long-term assets to current assets, presented as assets held to sale with effects from the announcement date August 15th. And with the total gain recorded for the first half, 121 million for the four vessels sales in the first half, we estimate the total gain on sale of 426 million and in addition 10 million in lower depreciation expense for the full year 24. We also estimate a positive effect of 4 million on net finance expense as we aim to terminate the interest rate swap hedges with a market value of 8 million as of June. This is probably going to be offset by approximately 4 million in expense debt issuance costs following the recognition of the outstanding debt. For the balance sheet, the settlement in BWLCT shares of 333 million will be booked at cost initially and subsequently measured at fair value with changes recognized in profit or loss. And this will be classified as current assets in the balance sheet. Further, we have or we will be recognized 500 million following repayment of bank and novation of sale-leaseback agreements at delivery, leaving us with a net cash effect of 270 million, which gives a pro forma cash of 485, which I will come back to. We will now move to slide 12. To make sense of the quarter, we started the quarter with a cash balance of 360 million, which was added by cash flow from operations of 25 million, sale of Avant Pollux in May of 62 million, and we also settled some interest rate swaps of 1 million. This was offset by some capex related to the first NGC of 6 million, where we now have paid 25% of the ship building contract. We also pay down some debts, schedule the debt repayments of 10 million. And lastly, as you might recall, we had a very high distribution to shareholders in May of 165 million, which was split into return of capital representing 79 million or 99 cents per share, and dividends of 86 million or $1.16 per share. And by adding these movements, we have a reduction of 92 million in cash of the quarter and gives us a cash position of 268 at quarter end. On slide 13, you will see that the cash will increase substantially after completion of the transaction and sale of the 12 UGCs. We expect a cash release of 217 million, I've commented already, after delivery of all the vessels within the delivery window in December 31st. Additionally, we aim to terminate interest swaps. of 8 million and some FFA position of 1 million as well as trading profits generated during the third and the fourth quarter in a range between 30 and 60 million depending on the spot rate market. We have already booked 79% at $41,000 a day and by applying the FFA curve for the fourth quarter, which is currently at $55,000 a day, uh this suggests the cash flow from operations of about midpoint 45 million so basis the cash quarter ends and the cash flow following the transaction gives us a pro forma cash of 539. moving to slide 14 there is an overview some more details on the outstanding debts as of june We have in total 500 million in interest-bearing debt, of which 368 is bank term loan facilities split in two. Nine vessels are financed by a bank syndicate consisting of seven banks, and one vessel, Pantero, is financed by a bank bilateral. So the remaining two vessels are financed in a salee spec arrangement with Bokom, which currently is 132 million in outstanding debt, and will be novated to BWLG. And with that, I leave the word over to you, Asim, for the market comments and the game plan ahead.