BW LPG Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 2, 2024

Key Takeaways

  • Q3 shipping performance delivered a TCE of $46,800 per available day, exceeding guidance of $43,000/day thanks to effective chartering and downside protection via charter portfolio and FFAs.
  • The board declared a $0.42 per share dividend, representing a 100% payout of shipping activity impact and reaffirming commitment to return value to shareholders.
  • Product Services booked a $58 million net accounting profit driven by unrealized mark-to-market gains, though actual realized profits may fluctuate with market volatility before positions convert to cash.
  • Refinanced its $400 million revolving credit facility with a new $460 million, seven-year facility, boosting liquidity and extending debt maturity to support fleet delivery and growth.
  • Reported Q3 net profit after tax of $120 million (EPS $0.79) and ended the quarter with $750 million in liquidity; net leverage rose to 21% on temporary trade finance and margin requirements but is expected to normalize post-fleet delivery.
AI Generated. May Contain Errors.
Earnings Conference Call
BW LPG Q3 2024
00:00 / 00:00

There are 7 speakers on the call.

Operator

hi everyone a warm welcome to PW LPG's 3rd quarter 2024 results. The presentation today will be given by our CEO, Christian, and our CFO, Samantha. Afterwards, we will open up for a question and answer session. Before we begin, I would like to highlight the legal disclaimers displayed on the current slide. Please also note that today's call is being recorded.

Operator

I will now give the word to Christian.

Speaker 1

Hi, everyone, and thank you for taking time to join us today as we present our financial results and recent events. It's been another eventful quarter for our company. So let's turn to Slide 4 for the highlights and our market outlook. Our time charter income per available day ended at $46,800 somewhat lower than the previous quarter, but above our guiding of $43,000 per day. The market went through a roller coaster during the quarter with rates fluctuating in the range from low $20,000 per day and back into the $50,000 per day within a short period of time.

Speaker 1

In addition to a great job done by our chartering team by navigating through the ups and downs, we are pleased to see that our downside protection through our time charter portfolio and FFAs took out quite a lot of this volatility. We're also very happy with the new ships starting to enter our fleet. And as of today, we have 5 out of the 12 acquired Avan's gas ships safely delivered. As explained in this slide, another 4 ships are expected to be delivered, which share issued in time with right to receive dividends for Q3. The board has declared a dividend of $0.42 per share, which translates to 100% payout of the impact from our shipping activities.

Speaker 1

Moving on to product services and as for our trading update in October. Our trading activities benefited from a considerable uptick in the 12 months forward mark to market valuation of the trading portfolio, reflected in a net accounting profit of $58,000,000 Although we're glad to see that the forward trading portfolio is becoming more valuable, the volatility in the trading market may drive the portfolio valuation up or down before the positions are realized. And it's important to understand that it is the profitable realized trading positions which matter as we move forward when they are eventually converted to cash in the bank accounts. 2 subsequent events since end September were the refinancing of our $400,000,000 revolving credit facility, which is now replaced by a new 7 years and larger facility of $460,000,000 Samantha will comment more on this later. In addition, we recently announced 2 sale and purchase transactions where we sold the 2,007 vintage vessel BW Sedar from our India subsidiary at around $65,000,000 while declaring a purchase option on the 2019 build BW Kizuku at just below $70,000,000 which is equivalent to a new building price in the mid-eighty million dollars This is a strong testament to our business model, which creates optionality, we think, along the way, allowing us to harvest profits.

Speaker 1

Our market outlook for Q4 and next year is positive as export levels from the U. S. Gulf have stabilized after a period of maintenance and slightly reduced exports. However, it is important to note that the small market like the VLGC market is quite sensitive to only a few cargoes being added or taken out of the market. And at the moment, freight rates in U.

Speaker 1

S. Gulf seem to have found an equilibrium level plusminus $40,000 per day. There is currently little to no delays around the Panama Canal, which means that there is an upside potential from today's rate level the way we see it. Let's turn to Page 6 for a closer look at the market fundamentals. The market volatility we have been through lately is well illustrated in this slide.

Speaker 1

When you see the rate movements against the variation in U. S. Gulf Coast loadings on the right side of the slide, it shows how finely balanced the VLGC market is at the moment with no delays in Panama. I used to say that our market is driven by 3 engines: exports from the U. S.

Speaker 1

Gulf, exports from the Middle East and the availability of Panama Canal slots for VLGCs. The next round of U. S. Export capacity increase starts second half next year as energy transfer increased their ethane and LPG export capacity at the Needland Terminal in the U. S.

Speaker 1

Gulf. The Enterprise Terminal follow-up in 2026 with their planned expansion, and we estimate that the North American export will increase another 10,000,000 tons from 24 to 2026 on the back of increased production of oil and natural gas in the U. S. Combined with increased terminal capacity. Looking at the Middle East, the growth in export volumes is expected to ramp up from 2026 as Qatar commenced the expansion of their new LNG trains.

Speaker 1

Abu Dhabi's LNG project is coming a bit later. We expect 2028. Looking at the Panama Canal, it remains a wildcard in our market, And unexpectedly, we can see that the number of container vessels passing through the Canal so far in Q4 has come down, leaving more slots available for VLGCs and consequently, more VLGCs sailing the shortest route from the U. S. Gulf to Asia.

Speaker 1

Whether we will see more congestion in Panama is hard to predict, but the number of daily slots in the Neo Panama Canal Locks is fixed at 10 transits totally both directions combined. So it takes only a couple of additional container or LNG vessels to pass through to tilt the availability of slots in the other direction. Let's turn to Slide 8 for a look at the LPG demand side. The picture is pretty much unchanged since our last update. And directionally, the Asian region continued to grow their appetite for LPG in the residential sector in the Indian subcontinent as well as Southeast Asia, while the petchem sector in China specifically continued to expand their consumption of propane as feedstock.

Speaker 1

The trade pattern, which has developed over the last years on the back of increased LPG demand in India, deserves attention. The country is absorbing close to 50% of the Middle East exports, and all countries further east in Asia are increasingly dependent on sourcing LPG from the U. S. Underpinning in a growing need for long haul shipping. If you look at the VLGC fleet and the newbuildings, there is good visibility on the newbuilding deliveries over the next 18 months.

Speaker 1

And for 2025, we have 13 vessels on our list over newbuilding deliveries. Worthwhile to note is that the number of ships going into drydocks in 2025 will more than double from this year as we count approximately 80 ships due for drydock next year. And then I leave the floor to you, Samantha, for an update on the financials.

Speaker 2

Thank you, Christian, and hello, everyone. Coming to Slide 11. We're very pleased to share that we delivered a solid shipping performance in a volatile quarter. For Q3, we achieved a 98% fleet utilization and a TCE of US46500 dollars per calendar day or US46800 dollars per available day. Maintaining a healthy time charter and FFA portfolio has been a key for success.

Speaker 2

In this quarter, the portfolio represents about 48% to 45% of our shipping exposure. With Q4, we have fixed 90% of the available base at about $36,000 per day. Looking at 2024, our time charter out fleet generates a profit of around 31 $1,000,000 of our time charter in fleet. The remaining of our fixed time charter out portfolio is estimated to generate $69,000,000 for year 2024. Next slide, please.

Speaker 2

As shared in our earlier trading update, product services booked a strong quarter and yield a net profit of US58 $1,000,000 The result was contributed by gross profit of US71 $1,000,000 after netting off G and A and tax provisions. The gross profit includes an unrealized mark to market gain of US86 $1,000,000 which consists of open cargo positions and hedges. This is offset by US14 $1,000,000 of a realized trading loss. The unrealized gain is expected to be realized in the future periods, although some volatilities are expected to impact the final realized result to be higher or lower. At the end of Q3, twenty twenty four, Product Services book equity position arrived at CHF 128,000,000 We would also like to highlight that the reported book equity does not include the unrealized physical shipping position of US17 $1,000,000 which was based on our internal valuation.

Speaker 2

You can recall we have announced a multiple year term contract with our Enterprise Products Partners back in Q2. The related fiscal volume has started to phase in our 12 months rolling mark to market valuation. As such, we expect greater volatility in our unrealized position in the future quarters. For Q3, our average VAR was US5 $1,000,000 on a well balanced trading book including cargoes, shipping and derivatives. Coming to our financial highlights.

Speaker 2

On the back of a good performance from both shipping and product services, we reported a net profit after tax of US120 $1,000,000 in Q3, including a profit of US12 $1,000,000 from BW LPG India and US58 $1,000,000 from product services. Profit attributed to equity holders of the company was $105,000,000 which translates to an earnings per share of $0.79 This translates into an annualized earning yield of 23% when compared against our share price at the end of September. We reported a net leverage ratio of 21% in Q3, an increase from 12% reported at the end of June. The net leverage ratio change was driven mainly by increase in short term trade finance and margin requirements, deposit paid for Advanced Gas fleet acquisition and increase in lease liability from the exercise of purchase option for BW Kisluku. These factors impacting the net leverage ratio as outlined above are mostly temporary.

Speaker 2

The delivery of advanced gas fleets commenced in November and is expected to complete by the end of this month. When the fleet delivery finalizes, we would expect that our net leverage ratio will gradually increase to approximately range of 30% to 35% as we draw down on our financing facility. For Q3, our Board has declared a dividend of $0.42 per share, a 100% payout of shipping impact. This excludes the dividend to be paid to newly issued share to Advanced Gas shareholders and ensures that the existing shareholders are paid fully paid for. This also shows our confidence to deliver growth to our business and our continuous commitment to return value to our shareholders.

Speaker 2

The balance sheet ended in quarter with a shareholder equity of $1,600,000,000 and our annualized Q3 return on equity, capital employed were 30% 26%, respectively. Looking at our year to date OpEx, it arrived at $8,400 a slight reduction than the previous quarter reported. For 2024, we expect our own fleet operating cash breakeven to be about $18,800 $22,800 for the whole fleet including time charter vessels. As you can see, we continue to have a healthy repayment profile with outstanding shipping loan at $216,000,000 of which $120,000,000 is a term loan for BW LPG India only due to be refinanced in 2026, a very manageable position. On the liquidity side, we ended the quarter with a strong position of $750,000,000 paving the way for advanced gas fleet delivery.

Speaker 2

The vessel's delivery have been smoothly taking place since November and scheduled to be completed at end of this month, as mentioned earlier. Post delivery, our liquidity is expected to remain healthy at a level of US552 $1,000,000 supported by our shareholder loan and a 7 year revolving facility of US460 million dollars newly signed in facility of $460,000,000 newly signed in November this year. We will also evaluate and start refinancing our vessels in early 2025 following the Avance Gas fleet delivery. We're very confident to maintain a healthy leverage and financing structure as well as a sustainable repayment profile with a larger fleet. On the product services side, trade finance drawdown stood at a moderate level of $248,000,000 or 30% of our available credit line, leaving a healthy headroom for the growth.

Speaker 2

With that, I conclude my update. Back to you, Kaia.

Operator

Thank you, Samantha. We would now like to open the call for your questions.

Speaker 3

Thank you. Good afternoon. Quick question on the process of taking those vessels from Avance. To what extent should one expect costs to come in earlier than revenues? Is it more or less back to back?

Speaker 3

Or should we, for instance, use a month of sort of overlap here? Yeah, that's the first question.

Speaker 1

Thanks, Peter. I can just start off with saying that, of course, we pay for the ships now. And when you fix the ships for the next voyage, we will not get we are not able to invoice before the vessel is about to discharge as per normal shipping practice. So there will be, you know, like normal, a delay you can say because we are not able to invoice our charters before the voyage that the ships have performed is finished.

Speaker 3

Okay. So, yeah, I understand there will obviously be a cash flow effects here, but in terms of your P and L bookings, I suppose that.

Speaker 1

Samantha, I don't know if

Speaker 4

you would you like

Speaker 1

to say anything about that?

Speaker 2

Yes. Maybe just from a well commercial side, Christian has just explained maybe a little bit from a financing perspective as the vessel is being delivered, we will be drawing down our financial facilities to finance each of the vessels. I think the details, Peter, you can very well refer to the earlier deal structure. So to get a sense of how much each needs to be drawdown, won't be able to give you absolute numbers. The delivery is spread across the November to end of December.

Speaker 2

Additionally, you would know that the depreciations will come in as we take ownership as well.

Speaker 3

Yes, naturally. Yes. Okay. Thank you. Just one more from me then because from the asset market, it seems as if prices are still holding up to, well, more or less the same levels that we saw in the first half of the year as well.

Speaker 3

If you were to do something on the Neur side now, how do you think that is going to compare to the Avanx transaction? Is it any sort of any data points that we could use to either mark the current resale price up or down from the Avanx transaction?

Speaker 1

I think the market for the assets, let's say, sale and purchase market is pretty much unchanged for the new ships since last quarter. So I think there is no real change from the last, I would say 6 to 8 months in terms of valuation for newer ships or new buildings. If that answers your questions.

Speaker 3

It does, Christian. Thank you. That was all for me.

Speaker 1

Okay.

Operator

Thank you, Peter. Jurgen Lian, you raised your hand. Please go ahead.

Speaker 4

Thank you. Hello, Christian Spansa. You are now taking on a bit more debt as part of the VLGC acquisition from Avance, and you have a pretty rigid net leverage ratio, dividend policy. So just any question or any more information about, what we potentially need to account for, to adjust the net leverage for the short term effects that you mentioned Samantha, or is that sort of set installment how to think about the dividend payouts going forward?

Speaker 1

Well, I can start off by saying that the dividend policy is what it is, but it's always up to the Board to finally declare the dividend. So it's not I mean, there's no change in that respect. So I wouldn't it's hard for the management to comment any further on the future dividend payouts. But the dividend policy is what it is.

Speaker 4

All right. And Samantha, I don't know if you have anything to add on or if that's then irrelevant in terms of the net leverage ratio where you talked about short term events or short term impacts from product services.

Operator

Yes, I think

Speaker 2

you're referring to my comments about the Q3, the elements that are driving up the leverage ratio. I have mentioned a couple of things that, for example, that the product services are drawing on the trade finance and the margin finance, etcetera. As you know very well that that's a reflection of a slight how to say a slight of time of the number of cargoes that are carrying on our balance sheet that will change by days. So that's what I meant as a temporary effect similarly for the purchase of a BWKizuku as well. So that's due to the accounting rules that we have to gross it up, which drives up the leverage ratio.

Speaker 2

Once we take over of the vessel, then it would just be normal asset.

Speaker 4

All right. Thank you. And then finally for me on the product services part of the business, just to make sure that we understand correctly, but the way you book this is sort of on a 12 month forward looking basis, right? So when we're talking about length in the unrealized positions, that would be sort of a fair working assumption.

Speaker 1

Yes. So the positions are, the forward positions are spread as we always have over a 12 months forward rolling period. That's right.

Speaker 4

Okay. Thank you.

Operator

Thank you, again. Then we have Rethan from Clement Mullins. The floor is yours.

Speaker 5

Hi, good afternoon. Thank you for taking my questions. I wanted to start by asking about the Q3 TCE. Considering the guidance you provided at Linkside Q2 earnings, it seems the low to discharge accounting had a positive impact on earnings. Could you talk a bit about that?

Speaker 5

And secondly, do you expect low to discharge accounting to once again have an impact on Q4 earnings relative to the guidance you provided?

Speaker 1

Are you now referring to the IFRS adjustment?

Speaker 5

Exactly, yes.

Speaker 1

Yes. So I can say on a general basis, and then Samantha can also fill in here that when the market is going up, there is the mechanism is that there is a negative IFRS adjustment. When the market is going down, you have a positive IFRS adjustment. So that is the way IFRS is smoothing out the fluctuations during the year. So that's just to kind of explain the mechanism on a general basis.

Speaker 1

Then Samantha, if you could just comment on the IFRS adjustment for this quarter specifically.

Speaker 2

Yes. So I think, Christian, you captured most of the elements impacting IFRS 15. So it also, of course, has something to do with when the cargo is when the vessels is being had a latent or in a last voyage. In such a case, often we are not able to give a forward looking estimate. It can only after we have closed a quarter, we know exactly what's the impact.

Speaker 2

So I would say to answer your question is that yes, there will be impact. As for the quantum as well as the direction, it's hard to give you advice over there, Clement.

Speaker 5

Makes sense. Thanks for the color. And given the sale of the SEDAR, should we expect net proceeds to be distributed from the India JV to the parent? Or is there any appetite to buy another vessel in the JV level? And secondly, could you provide an update on the infrastructure investments in India?

Speaker 1

Yes. So on the sale of the SEDAR, it's something which will take place the delivery will take place in Q1. So then we will decide on how to distribute the net proceeds as and when we get to that point in time. So I am, we will get back to you in the next earnings release on how we have dealt with that. When it comes to the infrastructure investments, there haven't been any major change since the last time, but we are proceeding according to plan and hope to and expect to start the first phase of the construction of the terminal on this side of the new year, all going well.

Speaker 5

That's helpful. Thank you. That's all for me. Thank you for taking my questions.

Operator

Thank you, Clement. Appreciate your questions. Next question comes from Auguste Krem. Please go ahead.

Speaker 6

Thank you. A question kind of following up on your question about product services. Can you give some color on sort of I mean Q3 was a fantastic result in the P and L with a very large arb and kind of more normalized rate should we call it. Rates have been sort of flattish into Q4 while the arb has come down. Can you talk a little bit about sort of in general the environment this leaves for the Product Services division?

Speaker 6

Is it more difficult to extract value at this point? And secondly, seeing as it's unrealized a large portion of the gain in Q3, which you will then realize kind of in the following quarters there, is there an argument to be made for paying out more than 100% of shipping MPAT because you will have a cash flow contribution from Product Services as well? Thank you.

Speaker 1

Thanks, Auguste. I can start with the last one. I mean, if you look at how we distributed the profits from products, services and the capital return to us as shareholders, I think you will get kind of the answer to your last questions there. And I think with regards to I actually have if you can repeat your first question, I guess, because that was I lost my mind here

Speaker 6

now. Was a bit long, sorry. No, it's more about the market environment for product services now that the ARB has come in quite a lot, while shipping rates are more or less flattish from Q3.

Speaker 1

Yes, I would say it's hard to guide exactly on how product services is performing from week to week and month to month because they have many handles to pull. They have physical cargoes, FOB cargoes. They have outlet positions, in Europe and Asia where they have deliveries and commitments fixed on certain price mechanisms. They have derivative positions and shipping positions. So they have, I would say, a wide range of ways to create profit and value, even though the market is, like you say, in a state where the arb is coming down and the shipping is also kind of flattish.

Speaker 1

So I would say it's on a general basis, it's hard for us to comment specifically how they may perform in a market like this, except for that they have many ways of positioning themselves depending on the prevailing market conditions. So I'm sorry, it's hard to be more specific, August.

Speaker 6

No, no, that's great. Thank you very much. And then finally, just kind of a housekeeping question. G and A was down quite a lot this quarter. Any guidance there for Q4 and maybe also for depreciation as you take over the Avance vessels?

Speaker 1

I can just start off with the G and A because I think what we are doing is that we are accruing for bonus tax, etcetera, which is based on realized profits. And that will go a little bit up and down during the year because we do this on a quarterly basis, adjusting it. So I think you have to see the G and A over the year to get the full picture of how the G and A is playing out because there are certain elements of bonus tax, etcetera, which is being adjusted from quarter to quarter. And Samantha, would you like to add anything there?

Speaker 2

Yes. I think that's correctly said. I think if you're referring to contrast with the previous year, I would say that there are no drastic changes expected as we've seen last year.

Speaker 6

Okay. Thank you very much.

Operator

Thank you, August. I don't see any more raised hands. But if there are more questions you would like to ask verbally, please raise your hands. We have, during the Q and A session, also answered a few incoming questions on the chat channel. Are there any more Q and As you would like to raise on the chat?

Operator

If not, I will round off the Q and A session.

Speaker 1

It seems like we have answered all the questions here now. So so I'd like to thank everyone for joining us. And I think that concludes, our Q3 2024 result presentation. So thanks everyone for dialing in and we wish you a good rest of the day wherever you are in the

Powered by Quartr