Hello, everyone, and welcome to BW LPG Q2 2019 Earnings Release Call. Throughout the call, all participants will be in listen-only mode, and afterwards, there’ll be a question-and-answer session. I will now hand the call over to your speakers. Please begin.

Welcome to BW LPG’s second quarter 2019 financial results Presentation. We will begin shortly. Thank you very much. Welcome to the presentation of BW LPG’s results for the second quarter of 2019, the financial period ending 30th of June. I’m joined by our CFO, Elaine Ong, as always. And we appreciate your interest and we will take questions at the end of the call. The Baltic Index for VLGC’s went up significantly by 129% in the second quarter of 2019 compared to the previous quarter, averaging at $49.8 per ton, or $34,300 per day. VLGC freight rate started to recover since the end of the first quarter and the positive momentum continued in the second quarter. In Q2, U.S. domestic LPG consumption has dropped to seasonally low levels and U.S. production remained strong. Consequently, U.S. exports reached the highest in history driving up the VLGC utilization rate. In addition, the Gulf Coast LPG export terminal capacity was tight in the second quarter and U.S. LPG inventory was kept very high. Together with low domestic consumption, U.S. LPG prices were on the downward pressures, supported by the arbitrage and freight recoveries. If you turn to Slide 4, we’ll review the highlights of the quarter. In the second quarter, we generated TCE income of $111 million, based on daily rates of $27,500 for the VLGC segment, with a VLGC contract coverage of 14% and the total contract coverage of 14%. EBITDA came in at $75 million, a strong EBITDA margin of 68% and we generated a profit margin of 23%, or gain of $26 million for the quarter, or $0.19 per share. This gives an annualized return on equity of 11% for the second quarter. On the back of a strong second quarter, the Board has declared an interim cash dividend of…

Thanks, Martin. Starting with our income statement on Slide 10. Operating revenue was $176 million in Q2 2019, while voyage expenses went up to $65 million due to higher bunker expenses and higher fleet utilization. Our TCE income for the quarter was $111 million, compared to $61 million in Q2 2018. This is mainly due to high VLGC freight earnings with the recovery of the market. EBITDA came in at $75 million, a strong margin of 68%. In the second quarter, our new Product Services Division lifted two VLGC cargoes out of the U.S. As a result, we recorded a net gain of $0.5 million, comprising the net settlement of physical cargo, buy and sell of contracts and the corresponding commodity derivatives. Even though we are pleased to see a net gain from the commodity contracts, our goal for Product Services is a more streamlined commercial management of our vessels, resulting in a higher utilization of our fleet. As stated in our last earnings release, we adopted the new IFRS 16 on leases with effect from 1st Jan 2019. With this, our five charter-in contracts with more than 12 months duration has been capitalized on our balance sheet. Our free charter-in contracts, which expire within the next 12 months, will continue to be reported as charter hire expenses. As such, our charter hire expenses for the quarter declined to $4 million. The expenses related to the other five charter contracts were greater than 12 months expiry are now reported under operating costs, depreciation and interest expenses. The net impact relating to the capitalization of these longer-term charter contracts is a decrease of $0.7 million in profit for Q2. Taking all this into consideration, our profit after-tax in the second quarter was $26 million, or a profit of $0.19 per share.…

Thank you, Elaine. So if you please turn to Slide 13, then I will summarize our earnings presentation. We generated a gain per share of $0.19 in the quarter on TCE income of $111 million and an EBITDA of $75 million, or strong EBITDA margin of 68%. We generated a gain of $26 million for the quarter, or $0.19 per share. For the second-half of 2019, we estimate that we will generate a net operating profit after-tax of approximately $100 million. During the quarter, BW LPG signed the new seven-year $458 million Senior Secured Facility to replace the $800 million facility maturing in the fourth quarter of 2020. The refinancing will lower the company’s cost of debt and our cash break-even levels. And on the back of the strong second quarter, our positive market outlook and a strong balance sheet, the Board declared an interim cash dividend of US$0.10 per share. Including this dividend, BW LPG have returned more than 80% of its accumulated net profits, showing the strong commitment to return cash to shareholders. In the short-term, we expect continued high U.S. LPG export to support the strong rates, and we maintain our downward view on Middle Eastern exports due to the imposed sanctions on Iran and extension on OPEC+ production cuts. We expect that increased demand from VLGCs from growing exports will in part be offset by a high level of newbuild deliveries and constraint from more people ordering ships. In conclusion, we have a positive freight outlook for the second-half of 2019 and 2020. And at the current market rate, we generated in excess of $1 million of cash per day. In the longer-term, we maintain our view that sustained U.S. LPG production growth and no further new building orders remain key to a balanced VLGC market. With that, we’d like to open up for questions.

Thank you. [Operator Instructions] The first question is from the line of Anders Karlsen from Danske Bank. Please go ahead. Your line is now open.

Yes. Good afternoon. I was wondering in terms of your commercial performance in Q2, you are weaker than your closest peers. Is there any reason for it, or can you elaborate a little bit around that?

Good morning, Anders, and thanks for calling in, and you put your finger in it right away. Even though our realized spot rates of 31,200 is below what it would normally expect, I would say, it’s in line with at least one of our peers. I mean, normally the Baltic with trade for the one-month lag is a good indicator of market spot earnings. And, however, due to the steep increase that we saw in rates during the quarter, the realized spot rates for second quarter was below this. And as we put in our presentation, you can see that the Baltic lagging one-month came in at 34,300 for the second quarter. If you lag that for one more week, the Baltic actually drops to $31,000, which is in line with our spot earnings and slightly above one of our peers in their spot and slightly below another one of our peers in their spot. So I think, it’s mostly because the market was rising so abruptly from the sec – from the first to the second quarter that you see this lagging behind in general.

Okay, pretty much what I thought. But you gave some guidance very quickly there on your second-half expectations on net results. Can you just repeat that?

Sorry, I didn’t hear that.

You kind of gave some guidance, it sounded like on your second-half expectations on net profit. Can you repeat that?

Yes, I didn’t give guidance on our net profit. But I was giving a slight bit of guidance by saying that at the current market levels, we are generating slightly in excess of $1 million per day.

Okay.

In cash, in cash, not an impact, right, so we just talk about cash generation. So, of course, we’re right now in a quite positive market. I think also one comment I can add to your previous question on spot market rates. We’ve seen for – probably more than six continuous quarters that on average, the West premium to the Baltic has been higher, I mean, thereby the premium than the East, and for the second quarter, we saw that reverse. So, say, on ballpark, the East was on average during the quarter approximately $5,000 per TCE and TCE per day higher than the West, and that has reversed again into the third quarter. So, of course, it depends on – your spot performance is quite dependent on whether more or less of your fleet is in the East or in the West, we had 52% of our fleet in the East during the quarter. And, of course, another factor is also if you, for example, have contracts pick to the Baltic, if they’re floating on the Baltic then you will get for this quarter at least paid out with the premium that the East was trading over the West.

Okay. In terms of your positioning towards Q3, if you’ve seen a little bit of a dip in rate, and I don’t know you come up again. But can you say anything about your kind of your fixed reposition when you enter the quarter? Was it part of on rates were very strong, or have you been averaging through the quarter?

Yes. I prefer not to give a very detailed answer on that. But we are at the current stage at what we consider ourselves in a comfortable position.

Okay, that’s all for me. Thank you.

Thanks. Thanks, Anders.

And next question is from Eirik Haavaldsen from Pareto Securities. Please go ahead. Your line is now open.

Yes. Hi, on the time charters just to try to understand the rate on your time charters in the second quarter, which was a bit lower than what you previously guided, but the rest of the year and the number of days and so on, this is pretty unchanged. Is there something that happened there, because the realized rate is so low?

Hi, Eirik. Let me just pull up no. I mean, there is no abnormalities that it’s – of number are you referring to specifically, sorry?

Your Q2 time charter TCE rate of $23,030 versus the rest of the year guidance of $27,000, I believe, you gave rest of the year guidance in the high almost $27,000 at the Q1 release. But this is minus, it’s not important. I just wanted to know if there was something normal there?

Nothing abnormal to report. We came in with $23,000 right, therefore 14% of the fleets.

Yes. And just to clarify, Martin, the rest of the year guidance and the 2020 guidance, which in terms of coverage days is unchanged from Q1, and there have been rumors that you have fixed some ships recently. Is it – is this guidance as of Q2, or coverage as of this date?

The table that you see on Page 16 reflects our coverage at the end of Q2.

Okay.

But what I would say, we have deliberately reduced our coverage to the current level and we have a 14% year-to-date and 11% for the rest of the year. And as you can see, we guide only 4% into 2020. So, of course, we’re open for contracts, but still we are – we have not been willing to lock in, let’s call it, shorter-term time charters giving away what we think will be, as I also say on the call, is a strong market for the next 18 months.

Okay. And then I have two more questions, please. So one is related to the $0.5 million of gain on the commodity trading part. Can you just walk us through how that works precisely? Is this one cargo that you have essentially lifted and made a profit of, say, $10 a ton, or how does it work? And do you hedge that exposure? How much risk is it really related to such a gain?

So I was just looking into the time charter just to get back to that. I mean, we did have one TCE that expired during the quarter. So when you compare Q1 to Q2, that’s probably why you’d seen that the slight reduction in earnings in second quarter, because the – we have this time charter that expired, which was making around 30,000 per day and that obviously brought down the number to 23. To your question on Product Services. As we sit on and on, we – we’ve done – we don’t take any flat price exposure. We hedge the position. As soon as we – as soon as we buy the cargo, we hedge the size – the position. So we don’t have any or minimal exposure to product prices. And so that’s the way we’re thinking about. This is – it’s again, it’s an only service to improve utilization or to take advantage of when we have ships that our clients can’t use or to basically reduce our waiting days. And just to be clear, we did two cargoes during the quarter, not just one.

Okay, thank you. And finally, one for Elaine, maybe on – you’re sending a pretty clear message on the dividend today in the second-half and obviously from the third quarter your cash flow is going to be substantially higher than now. And with, say, $30 million in normalized debt repayments, should we assume that this sort of $50 million cash level is where you would like to be under all excess cash beyond the three payments and some CapEx, et cetera, will be paid out, or will you be building cash or paying down the revolvers? Or how should we really model your intentions here on the dividend, given the current market prospects?

Well, Eirik, I think first of all, I think all of what you kind of said all possibilities of how we use our cash ideally, as you know, our leverage over the past, challenging 2.5 years have creeped up. So, one of the key goals would be to try and reduce that over a period of time as we build up cash. And as our orders demonstrated this quarter of – also a strong desire to return some of that positive profit back to you via our shareholders. I think, you can also expect the dividend coming and then, obviously, we have to meet all our capital requirements. So I think it’s going to be a combination of that. And it really depends on kind of the prioritizing, which one comes first as the cash is being built up. But if we do foresee a strong market in the next little while, I think you can assume a good chance of that combination of all of the above will happen.

So it’s fair to assume that the two or at least the revolvers can be paid down pretty quickly at the current markets?

I think, that’s safe to assume and that process has already started for us in Q3. And probably just also to remind you that, our dividend policy, even though we’ve not seen much dividends in recent years is 50% of that. So I think, that’s also a guided policy. So I think we will use a combination of that. You’re probably not going to be too far off.

Perfect. Thank you.

Thanks, Eirik. Thanks for calling in direct.

[Operator Instructions] And there currently one – we have one question just being registered at the moment. And that is Nick [ph] [indiscernible]. Please go ahead, Nick. Your line is open.

Thanks for taking my question. Do you have any view at the moment on whether U.S. exports are constrained by terminal capacity or by demand? So basically, do you expect exports just to ramp up in line with the expansion of terminal capacities as those come online, or do you think there’s a constraint on the demand side?

Thanks for calling in, Nick. I think the short answer to that is, we were close to maxing out terminal capacity here recently with expansions that we’re now seeing at enterprise. We don’t see any issues with the terminal capacity constraints with the expansions that we’ve seen, both with enterprise, with Targa, with Mariner East, et cetera. In terms of where the demand is a restriction, we don’t see that, to be honest. It certainly looks as if the market generally for LPG is supply-driven and with the current pricing of LPG, it seems like there’s sort of no shortage of demand for the products and we see that happening going forward as well. I also talked about through the call, we see general positiveness across Asia, both North and Southeast Asia and Indian and so forth.

Okay. So just as a follow-up, could you talk a bit about your view on the timing of each of the expansions you mentioned and how quickly you expect them to ramp up whether you kind of get the increase in stated capacity kind of within a very short period of time, or if it takes three to six months to ramp up the terminal?

Yes, I might not have the full overview for the call. But I mean, I can give you some flavor of it. We have enterprise that we expect to complete late September 2019 and that should be adding about 175,000 barrels per day, which in tons is about 5.3 million tons per year, or maybe it’s easy to think about there’s approximately 10 additional incremental VLGC cargoes of capacity per month. So that’s going to enable enterprise to load both butane and propane simultaneous and keep very high level of export for their terminal alone. And then they have a second expansion, which we understand is scheduled to complete in the third quarter of 2020. And that expansion will increase the LPG loading capacity by another, let’s call it 15 VLGC cargo – cargoes of capacity per month. So – but both of these expansions are completed, enterprise nameplate capacity will be more than 1.1 million barrels per day, or approximately 33 million barrels per day, the equivalent of 63 VLGCs per month. So that’s by far the largest of the terminals. Then we have Targa, which has a nameplate capacity of nearly 20 million tons per year or about 37, 38 VLGCs capacity per month, and they are expected to expand the terminal Galena Park by the third quarter of next year. So after that expansion, they should have an LPG export capacity somewhere between 11 million to 15 million barrels per month, say, let’s say, 22, 27 or 28 VLGC cargoes of capacity per month. So those are the big ones. The Mariner East, the first one was completed, but the 2x pipeline is still under construction. They had this delay on the pipeline, which we understand is now being sold it, and they – I expect it to complete this by the late 2019. So we don’t model that in before first quarter of next year, and that pipeline has a nameplate capacity of 250,000 barrels per day. But I think, maybe we can do that offline if you have questions to that. But I don’t think they have announced how much LPG and how much FA [ph] is going through the line at this point. So those are sort of the highlights I can give you.

Do you – for enterprise, if it complete Slide 10, but do you get kind of the extra 10 cargoes by October or by November or what’s sort of your sense of how quickly it comes?

Oh, sorry…

Whether there’s a ramp-up period or not. So if they completed in like September, they actually able to operate at that rate from October, or does that take a couple of months?

No, no, once they’re ready, they’re ready, then it’ll come straight off the manifold.

Okay.

So then it’s just a matter of them selling it. And the positive thing is, of course, that the fact that there’s so much capacity coming online is likely to keep a downward pressure on the terminal prices. And we still see, as I also mentioned, ample LPG production and a very positive outlook in terms of production outlook, very moderate outlook on domestic LPG consumption in the U.S. So that should also keep relative pressure on LPG pricing. So if we’re seeing both terminal prices and LPG prices on a downward trend, that ought to give us a positive outlook on freight in the short, medium-term.

Sure. Thanks a lot for taking my questions.

No problem. Thank you very much for calling in.

And there are currently no further questions registered. So I’ll hand the call back to the speakers. Please go ahead.

Yes, hello, then we’ll take one question from the webcast here. it’s from Santiago Domingo. And he says, could you give us more color on IMO 2020? What approach are you taking there and how do you think it’s going to impact the freight rates? Thank you, Santiago, for calling in. I think, well, IMO 2020 is, of course, a big thing looming over the industry and we have been preparing for a long time on that. We – our – I think our general view is that fundamentally, the oil price that we will see on – or the fuel oil prices will be absorbed over fuel in the freight rates over – at least over the medium to long-term. Short-term, we might see some turbulence in the market, and we are recovering that through a mix of having a few ships with scrubbers. We have our strong focus on LPG propulsion, where we have the first ship ready in the second quarter of next year. And with LPG prices, where there are the moment that looks like a very favorable decision, but, of course, the CapEx there is significant. And then we have done some financial hedges to cover our positions for next year. So we are taking sort of a mixed approach to the market developments of next year and we feel confident that we are able to handle that. Okay. Then there’s no further questions from the web. So I’ll hand it over to the operator.

Thank you. So no further questions registered on the telephone lines either. So yes, I’ll hand it to the main speakers. Please go ahead.

All right. Well, thank you very much for calling in, and thank you for showing your interest in our calls. As you can tell, we have a relative upbeat outlook, and we think we have an interesting period ahead. So thank you for your support and thank you for being a shareholder of BW LPG.

And this now concludes your conference call. Thank you all for attending. You may now disconnect your lines.