BW LPG Limited (BWLP) Q4 2021 Earnings Report, Transcript and Summary

The shipping industry as a whole has accelerated change and adopted a number of new technologies. We're also quite proud of the steps BW LPG has taken as we move closer to [Indiscernible]. Please go to Slide 4. We published our 2021 Annual Report, the Sustainability Report earlier today, with the theme, "Ship Amarter with LPG. " Behind the great presentation of data are hours of hard work by colleagues. The portion now available for download on our website and we hope investors and analysts will find them insightful. When reading the reports, you'll find that we can shift smarter because we have 2,000 talented and dedicated professionals. We can shift smarter because we actively use new technology to reduce our carbon footprint, make our operations more efficient. And we can ship smarter because we remain agile and make active decisions to optimize our assets through the cycles. And with these initiatives and more, we stand, of course, in a challenging year. Let me next give you some key highlights. In the fourth quarter, we reported $31,000 per day for our VLGC fleet per calendar day, with a 4% technical off-hire. Commercially, we achieved $32,400 per available day with consistently high commercial utilization of 97%. And this performance translated into a net profit after tax of $63 million or an earnings per share $0.45. For the fourth quarter, we will be distributing a dividend of $0.18 per share amounting to a total of $25 million. Moving on to the highlights for the quarter. We now report the highest available liquidity today at $453 million and a further decline in net leverage ratio to 35%. We have retrofitted for the two vessels with LPG dual-fuel propulsion, which raised the total up to 12 vessels on the water, with a combined runtime of 16,000 hours on LPG. That's a great experience for us to have. We concluded the sale and delivery of BW Sakura in December and BW Niigata in February. The sales generated $72 million in liquidity and a net book gain of $40 million. This is again in line with our spoken strategy. Our existing $221 million facility was sub-sized with a $40 million sustainability linked loan to finance the retrofit of four dual-fuel LPG propulsion vessels. In addition, $70 million under this term loan facility was converted to revolving credit facility. After the end of the fourth quarter, most capital subscribed for $50 million of new shares in BW India. We're very excited to welcome [Indiscernible], and we look forward to working with them going forward. BW LPG and our host approximately 67% for the equity in BW India. Switching gears to our market outlook. It's difficult to not recognize that the situation in the Ukraine continue to have a dramatic impact on energy markets, energy flows, and shipping. For the moment, this year political uncertainly greatly obscures any near-term market outlook, as unforeseen events such as shocks to the bunker price, rapid changes in trading patterns, or unexpected LPG inventory management can trigger intense volatility of spot rates. For 2023 and onwards though, we find the outlook to be quite healthy despite uncertainties, both from a heavy new building order book and the implementation of IMO EEXI regulations. Niels will talk more about this later. Returning quickly to page number 5 -- to 6, I'm sorry. The VLGC market firmed us on what to report in the fourth quarter compared to the preceding quarter. We generated annual -- annualized return on equity of 19%, with an annualized return on capital employed of 13%. For the full-year of 2021, we delivered return on equity of 14% at 10% return on capital employed. Our operational and free cash flow were $20 million and $47 million, respectively, for the quarter. Maintaining our flexibility and enabling us to continue to return cash to our shareholders. And finally, as previously highlighted, our net leverage ratio continued down with 36% at the end of third quarter to now 35% in the end of Q4. Next up, Niels will now take you through the market review and the commercial update.

Thank you, Anders. Good morning and afternoon to all of you. On Slide 8, we share our view of the market as Anders mentioned, the outlook for the near-term spot rate is highly uncertain. This uncertainty is already visible in the current spot market, as the market participants are sitting on the fence and are waiting more clarity before making any big decisions. Seasonally speaking, VLGC rates are already on the pressure before the inventory build up season. And the strong increase in crude prices affecting the bunker costs. It is pushing our earnings toward OpEx level and the current spot market is around $11,000 per day. At the beginning of the year, the compliance fuel prices were at $600. Today, we're paying around $800. This gives about $8,000 per day increased bunker cost. [Indiscernible] that [Indiscernible] can use has a benefit of $230 per metric ton. Therefore, they have an $8,000 per day higher earnings potential. LPG burning shapes are also benefiting from a cheaper fuel compared to compliance fuel. But the gain today is only around $1,000 per day. So far in Q1, we have fixed approximately 79% of our available suite space at an average rate of $42,000 per day on the discharge-to-discharge spaces. For the median term, our view is that we're facing healthy fundamentals. Yes, the current order book is significant, but it's also likely that high-low prices will stimulate increased oil and gas production. In the years ahead, we're also seeing growth in the market LPG, especially from retail and petrochemical sector. Turning to Slide 9, the seaborne LPG trade in '21 sold several encouraging developments. First, North America seaborne LPG export continued to grow. They increased by 13% for the whole year, helped by optimization of natural gas production, and reduction in drilled but uncompleted wells. Middle East LPG exports grew marginally in '21 to 36 million tons. This includes a significant export recovery from Iran, which grew 53% to 5.3 million tons. On the import side, the most robust growth came in China and India. Chinese imports grew by 23%. This was supported by new PDH trends at the start-up LPG-fed steam crackers. By '23, eight PDH plants are scheduled to come on-screen in China. India imports growth of 11% was encouraged by crew or by growing retail demand and new investments in infrastructure, allowing for more volumes to be received. On Slide 10, you see EIA short-term energy outlook released in February this year. The agency expects that U.S. LPG exports will grow by 4% in '22, driven for the most part by higher U.S. production, but also marginally lower domestic consumption compared to last year. For '23, the agency expect the trend to continue with even higher production and lower domestic demand resulting and the net export growth forecast at 11.2%. Also on Slide 11, the current VLGCs orderbook holds 70 vessels equating to 22% of the existing fleet. This orderbook is down slightly from our previous quarterly updates as a number of delivered vessel is higher than the number of ships being put on order. We still expect 42 vessels in fleet to be delivered in '23. For '24, however, we expect non VLGCs deliveries, which is one more than our last quarterly updates. We have no new-building orders, but we will have the largest fleet of LPG proportion vessels ready by the end of Q1 this year. We believe this will give us a strong position in '23 when the new regulation occurs. Please keep ahead to Slide number 15. Our time charter-out revenue for '22 now sums up $99 million with the average -- we're lagging a little bit on the slides here. [Indiscernible] All right. [Indiscernible] position. So our time charter-out revenues for '22 now sums at $99 million with the average TC out rate of $32.900 per day. Our TCE costs remain low at 2,600 per day. We have 28 vessel in fleet serving the spot market, which in our view is a comfortable position as we need the critical mass to optimize the spot earnings and help our clients with today's inefficiencies. That's it for me. Next, Pontus Berg.

Thank you, Niels. Turning to Slide 16, please. Are we there everybody? From a technical and operational perspective, it has been another good year for supporting the business with SMARTshipping. We continue our investments in technology, remaining focused on digitalizing our vessels. Harnessing data and automating workflows. While augmenting these new tools with solid operational experience, and this approach is now bearing fruit. We have invested over $92 million in fleet upgrades during 2021. This is to maximize the value of our assets, and enable smarter operations. This includes retrofitting another eight vessels with LPG dual-fuel, and another eight vessels with SMARTship technology, amongst other initiatives. With LPG propulsion technology onboard now twelve VLGCs, we can power the ship with cleaner burning LPG. Available data point to a promising potential of 15% to 20% reduction in CO2 emissions. As mentioned by Anders, with over 16,000 hours in operation and counting, we have proved that retrofitting vessels with this pioneering technology works. And we are encouraged. We encouraged our fellow LPG ship owners to do the same instead of ordering new [Indiscernible]. We complete the use of new technology with deep operational experience and innovative thinking. In total, we saved about $10 million and reduced greenhouse gas emissions fleet wide, by about 12% last year. For example, with [Indiscernible] SMARTship and active voyage management, we reduced fuel consumption by about 2,700 metric tons feet wide. This translates to about $1.5 million in savings and a reduction of 8,000 metric tons in CO2 submissions. Our team closely manages new Panama Canal transit, secure Suez Canal rebates and efficiently handled over 1,100 port calls in the year. Our innovative use of established ship-to-ship transfer practice for LPG bunker and coolant, pre and post dry docking has reduced turnaround time, increased commercial availability, minimized emission from gas [Indiscernible] and allowed us very sweet control over product origin compliance, which is increasingly important in these days. We continue to invest in R&D and position the company well for new technologies that are on the horizon. Plans for our next-generation VLGC is in full swing, and we appreciate the support and collaboration with market-leading partners and top-tier suppliers. All this will not be possible without good people. COVID-19 continue to loom large through the year. The pandemic has driven off operations costs and it has been hard on our seafaring colleagues, where rotations on our ships has been effected. The good news for us is that we have managed to vaccinate about 99% of our crew onboard and only a small number have been on board significantly beyond that designated sign-off states. We do thank the relevant port authorities and offshore and onshore officers, who have provided support. Vaccinating our crew go a long way to protect the livelihoods of our seafarers and our continued ability to deliver energy toward markets. Together with stringent preboarding and onboard management procedures, we have managed to keep cases of COVID onboard very low. Our Zero Harm approach guides how we protect the health and safety of our crew. Safety is a top priority, of course, and a nonnegotiable expectation for all. Where we saw trends in reported incidents, we ran specific initiatives to address that. Our 2021 outbreaks come in at $8,000 per day, of which nearly 5% or $380 went towards COVID-19 management measures. We continue to maintain market-leading OpEx trends for our fleet; we see these as an important priority and sound business practice. Of course, we are monitoring the situation and assessing our crew members from both Ukraine and Russia on recent difficult and other turbulent events. We and our local manning officers have been and are in contact with both the crew onboard as well as at home. With that, let me now turn over to our CFO, Elaine Ong, who will walk you through the projected fleet Capex and our financial position.

Thank you, Pontus. And a very good day to all of you. Let me begin with a few comments on the capital spend table here on Slide 16. In 2021, we spent a total of $92 million on fleet upgrades. Of this, $85 million was on retrofitting of vessels with dual-fuel propulsion engines, and approximately $7 million on SMARTship technology and [Indiscernible] water treatment systems. To date, we have 12 LPG-powered VLGCs on the water, with three more on the way. Nineteen VLGCs are equipped with SMARTship technology. We plan to spend a further $31 million on fleet upgrades this year, most of which relate to the retrofitting of our remaining three vessels. The financing for these vessels is already in place with the up sizing of our existing $221 million facility, which Anders mentioned earlier. These last three conversions will mark the completion of our multiyear $130 million investment to retrofit 15 of our vessels with LPG dual-fuel propulsion technology. These retrofit at vessels are an important intangible step forward in our journey towards a zero-carbon future. Let me now provide some color on our reported financial results. Net profit for the quarter was $63 million, bringing our full-year NPAT to $186 million. Included in our fourth quarter NPAT of $63 million are two non-recurring items that I would like to highlight. The first stems from a $2.7 million gain realized from our disposal of the BW Sakura for further trading. The second relates to a $32 million right back of vessel impairment previously taken on our vessels back in 2016. Over the past years, we have seen broker-based valuation strengthen, hence, we are now able to recover most of the vessels impairments previously taken. If we exclude the non-recurring items, our net profit for the fourth quarter will be $28 million. Let me comment briefly on our EBITDA. EBITDA for the fourth quarter came in at $79 million, bringing our full-year EBITDA to $312 million. This translates into a strong EBITDA margin of 68% for the quarter and 67% for the full-year 2021. Our fourth quarter EBITDA of $79 million stems from a $117 million of TCE income, net of a $5 million impact related to the effects of IFRS 15. This was largely driven by higher fleet utilization for the quarter at 96% with fuel vessels at the yard undergoing retrofitting despite the lower VLGC spot rates earned during the quarter. This is partially offset by higher-than-expected vessel operating expenses during the quarter at $7,700 per day, reflecting increased green costs associated with the lingering pandemics. Let me now highlight a few things on our balance sheet. At the end of December, all available liquidity at $453 million was at the highest level since our listing back in 2013, and our net leverage ratio at 35% is at the lowest level in seven years. In 2021, we generated $307 million in operating cash flows and $330 million in free cash flows. Our strong cash flow has allowed us to aggressively pay down our debt, while continuing to return cash to our shareholders. Including the $0.18 per share of dividends just declared for the fourth quarter, we will have paid a total of $77 million in dividends for 2021, equivalent to $0.56 per share. This translates to a payout ratio of 51% of impacts, excluding the non-cash write back of impairments. Looking forward into 2022, we expect our operating cash break-even for our total fleet, including our chartered and vessels to be at $21,000 per day this year. A quick update on our financing structure and debt repayment profile. Our net debt position at the end of the quarter was $745 million, and we will have no major balloon payments due in the next five years. In December, we upsized our $221 million facility with a $40 million sustainability-linked loan to finance the retrofitting of four dual-fuel LPG propulsion engines. This is our last -- sorry, this is our first sustainability-linked facility aligned with Poseidon Principles and demonstrates BW LPG's continued access to highly-competitive funding and commitment to decarbonize shipping. At the same time, we also converted $70 million of this same term loan facility to a revolving credit facility. This gives us financial flexibility and allowing us to accelerate the repayment of our debt with our strong free cash flows while still maintaining our liquidity line should we need to draw on it in the future. On this note, I would like to open up the call for questions.

We will begin our Q&A session now. [Operator Instructions] We will pause for a few minutes to take your questions. [Operator Instructions]. So we can take some questions from the participants that raise their hands up. Okay.

Please go ahead, Brian.

All right. Thanks for taking my question. Just curious if you can give a quick comments about just the global energy crunch in Europe right now and how potentially LPG could see a pull for U.S. or Middle East and LPG had towards Europe and you could see ultimately an increase in demand and tightening of LPG shipping supply. Thanks.

I will start and then I'll let Niels answer that question also. Clearly, we -- as we mentioned, we do expect to see some change trading patterns given all the activity we're seeing. And so I think we can expect that Europe will be the best destination for LPG than it has been previously. But Niels, why don't you give a little bit more flavor on that?

Yes. The Western LPG exports to Europe is not very big. I mean, I think the seaborne trade is mainly done on smallest ship. It's around 50,000 to 70,000 tons per month. So importantly, LPG export on Russia is 300,000 tons per month. So obviously, if Europe need to substitute that the LPG should come from north of -- from Norway or from the Mediterranean or the U.S., and that's -- in VLGC terms, it's around seven VLGCs. So that will be -- if it's coming from the U.S., that will be approximately 50% increase of LPG coming from the U.S. to Europe.

Great. Thanks, and then, just as a quick followup, do you see the potential for LPG to help replace some LNG flows given that U.S. LNG and global LNG capacity might be nearing full utilization here in 20 -- in the next 12 months?

I think we -- that's clearly something that I think is possible. Being LPG shippers, we actually hope so too. We think LPG is a great product, and I think this will definitely at least be put in the agenda. So we're starting to see what the capacity is, and I think we will certainly be watching very closely to see if there's an opportunity for us to contribute to that somewhat.

Great. Thank you for taking my questions.

Okay. Thank you very much. Then we have one more participant raising their hands and we'll take a question from Climent Molins. Please?

Good morning. I'm Climent Molins from Investor's Edge. Could you provide some further commentary on the investments you're making on next-gen VLGCs? When do you believe this new technology vessels will be available for ordering?

That's -- that's a -- that's a good question. A difficult question to answer. We are spending time and resources to understand what technology is available and as soon as we have decided on one of those, we will let you know. I still think that that is still some time -- time out because I think there is still -- we see many talk about new opportunities and we talk to -- we hear many looking into ammonia as fuel, but when we look at it, it's still -- it has -- does not have material impact so far. We haven't seen any real business to justify propositions. But we will -- of course, we will continue to look for opportunities, and we are working internally to -- with several tracks. But it's too early for us to talk about it and I think still we're looking at least a few years out.

All right. That's helpful. And regarding BW LPG India, after the entrance of Mass Capital, what will the main priorities be? In past conference calls, you had mentioned you will look into infrastructure projects in the country. Does that still remain a priority, how should we think about next steps?

I think you're right. We will continue to look for those opportunities. Right now we are also making sure at first of course, to close to integrate Mass Capital in for corporate governance and get the team on board so we can work well together. But that's still in the agenda, for us to look for opportunities to take a greater share of the value chain in India, that's an important market for us. I think we've said previously also we will look for similar opportunities in other places if it makes sense, again, with a strong balance sheet, and we see, we see that are also with our small sort of product trading, we are seeing good opportunities to find ways to increase both our footprint in the market and our profitability.

Sounds good. That's all for me. Thank you for taking my questions and congratulations for this quarter.

Thank you.

Okay. Thank you very much. We'll take one more question from participant raising their hand. We'll go to Anirban Bhadra (ph). Please unmute yourself and ask your question.

Yes, Hi. Good evening to the panelist. My one question is specifically on the technical point of view directed towards Mr. Pontus. So, with respect to the [Indiscernible] that we have, so is there any further development taking place in order to minimize it more or are their any talks of Mika engines coming into the picture because Mika as we know is having more [Indiscernible] when we compare to their [Indiscernible]. So anything else has been done on that aspect, that is my question.

Hi. From our point of view, we have not looked at any media Indians, and I don't see them coming into play in the LPG market either. As you know the LGIP, the L stands for liquids. So we have the liquid injections in to our cylinders compared to the gases into maybe. So the short answer is no, I don't believe so. And I haven't seen or even heard of any development for such thing and I think that's a short answer.

And of course, we don't have any meantime slipped on our engines.

Right, guys. So basically you had only focused on the LGIM and the LGIP model. Is that what I understand. Correct?

Yes, that is correct. So we are working very hard on the LGIP engines and both gaining experience and optimizing them. And then we are looking into little bit together with the providers -- the builders what comes off the LGIP with a -- with the -- whatever it comes but, as Anders mentioned, it's a little bit too early to stipulate and talk about that in public just yet.

Okay. Anyway, thank you. Thanks for the reply.

Thank you.

Okay. It looks like there is no more questions. So if there's no more questions, then we have come to the end of today's presentation. Thank you for attending the BW LPG's fourth quarter and full year 2021 financial results presentation. More information is available on the BW LPG, homepage. Have a good day and a good night.