Dorian LPG Ltd. (LPG) Q4 2015 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, thank you for standing by. Welcome to Dorian LPG’s Fourth Quarter and Full Year 2015 Results Conference Call. All participants will be in the listen-only mode. [Operator Instructions]. This conference is being recorded today, June 4, 2015. I would now like to turn the conference over to Mr. Ted Young; Chief Financial Officer of Dorian LPG. Mr. Young, please go ahead sir.

Thank you, operator. Good morning, thank you all for joining us for us our fourth quarter and full year 2015 results conference call. With me today are John Hadjipateras, Chairman and CEO of Dorian LPG Limited and John Lycouris, Chief Executive Officer, Dorian LPG USA. As a reminder this conference call webcast, a replay of this call will be available through June 13, 2015. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those we express today. Additionally let me refer to you to our fourth quarter and full year 2015 results filed this morning with the SEC on Form 10-K, where you will find the risk factors that could cause actual results to differ materially from those forward-looking statements. With that I’ll turn over the call to John Hadjipateras.

Good morning and thank you for joining us. We are reporting our fourth quarter and full year 2015 financial results. I’ll provide a brief update on our operating performance in Q4, before handing over the call to Ted to review our financials. Ted will then pass along the call to John, who will give you some information on the market and our operating environment. Two ships, COUGAR and the COBRA which we expected to be delivered in April have been delayed. They together with the Concorde, the Continental and Constitution will now be delivered before the end of July. Further, the COMMODORE, CRESQUES, CHEYENNE and CONSTELLATION will be delivered before the end of September. We currently own and operate a fleet of six modern VLGCs and one pressurized LPG carrier, with newbuilding contracts for the construction of 16 new fuel efficient eco-designed VLGCs which will be delivered in the next nine months. As previously announced, the Helios LPG Pool commenced operations on April 1st. This is a culmination and an important step in our strategy. The Helios fleet hardly comprises three VLGCs owned by the company and four owned by Phoenix Tankers; a subsidiary of Mitsui OSK. Helios markets the ships from our London office and from the Singapore office of Phoenix Tankers. We are happy with the cooperation of these two offices in chartering and operating the pool ships in the east and west. We have two ships on five year Time Charters to Shell outside the pool. For the quarter ended March 31, 2015 our spot VLGC utilization was 87% and our overall VLGC utilization rate was above 90%, which translated to a full year spot utilization of over 90% and full year of total VLGC fleet utilization of 94%. These levels are reflective of the favorable conditions in which the VLGCs are operating, and the spot time charter mix in our employment strategy. LPG exports last year exceeded 14 million metric tons which is roughly a 45% increase over 2013. The trend continues globally for the first five months of 2015, with global LPG liftings up 11% to last year -- on last year's numbers at nearly 32 million. John will tell you more about that. We have new capacity, coming into production -- into new export capacity from Trafigura at Corpus Christi, Occidental at Ingleside, MarkWest at Marcus Hook and expansion of Enterprises Facility, as well as -- all this in the fourth quarter and as well as Phillips 66 in 2016 from Freeport, Texas. When the last of our newbuildings is delivered to us we expect to own and operate one of the world's largest and youngest VLGC fleets measured by number of ships and carrying capacity. Conditions in the pressurized market, where our pressurized carrier Grendon operates are challenging, but slightly improved in comparison to our prior quarter. We are now largely completely the build out of our personnel which will allow us to ensure the continued smooth operation of our fleet, as we enter into the heaviest part of our delivery schedule. Our people are a key reason that our charterers have faith in our ability to take delivery of and operate our newbuilding VLGCs on a trouble-free basis. Since our last call we have welcomed a new Independent Director, Christina Tan. Christina is an Executive Director of the MTM Group, where she has been an officer for over 30 years performing a variety of different roles including finance and chartering. With the addition of Christina and the retirement of Eric Fabrikant and Nigel Widdowson, Independent Directors now constitute a majority of the company's Board. The fundamentals in our business remain strong and we are positioned to take advantage of the trends that will benefit the LPG industry as one of the world's leading owners and operators of modern eco-fuel efficient VLGCs. We have delivered on two key promises, the completion of the debt financing for our newbuildings and the commencement of the Helios Pool. While our operational focus remains targeted on our chartering and newbuilding deliveries, the Board of Directors continues to evaluate how to best return capital of shareholders in light of the strong earnings environment. Let me hand over the call to Ted, who will discuss our results.

Thank you, John. We delivered very solid results for the quarter and we are pleased with the performance of the business. Before discussing those results I'd like to note that we accomplished a major milestone during the quarter, as John indicated, by finalizing our debt facility, commitments for which we had announced in January of this year, with the final facility amount of $758 million with support from a first class group of shipping banks lead by ABM Amro and Citibank our newbuilding program is now fully financed. We made our initial drawing under the facility at the end of March in the amount of approximately $81 million, which mostly comprised borrowings to finance the newbuildings and a small amount of financial guarantee and insurance premiums paid to the Korean export credit agencies. We expect to draw an additional $128 million as we take delivery of the COUGAR, the COBRA and CONCORDE. We will also make our first principal repayment of $1.5 million at the end of this month under this facility. Before I move on to discuss the results for the year and the quarter I would like to point out that our business should be viewed through a long-term lens. As a reminder we are affected by the seasonality of the market, it is important to understand how this seasonality may affect our quarterly financial results. The LPG shipping market is typically stronger in the spring and summer in preparation for increased consumption of propane and butane for heating during the Northern Hemisphere winter. For the quarter ended March 31, 2015 we reported total revenues of $35.3 million, representing charter hire and voyage freight revenue earned through the six VLGCs and the pressurized vessels. Time charter equivalent revenues from our VLGCs amounted to $27.7 million, corresponding to a daily TCU of $56,854 while our spot VLGCs earned a rate of just in excess of $73,000 a day for the quarter. Our voyage expenses were approximately $7.2 million and mainly related to the bunker cost of $4.6 billion. Though bunker prices remained relatively low this quarter we do see that we are getting a benefit from our ECO ships whose speed and consumption are performing ahead of expectations. Our vessel operating expenses for the fleet for the quarter were approximately $6.8 million or $10,881 per vessel per calendar day which is calculated by dividing the vessel operating expenses by calendar days for the relevant time period. Focusing for a moment on our VLGC-only vessel operating expenses we had average daily operating expenses of approximately $11,635 per day, which includes our investment in training officers for future deliveries of approximately $1 million for the quarter. We expect those training costs to continue through the quarter ending September 30, 2015. Adjusting for that investment, the daily OpEx for our VLGCs amounted to approximately $9,785 a day. Depreciation and amortization for the quarter was approximately $4.6 million and mainly relates to depreciation expense for our operating vessels. We also recognized an impairment charge of $1.4 million on the Grendon, reflecting the challenging market conditions for the smaller pressurized vessels. This charge equated to approximately $0.03 per share for the quarter and for the year. General administrative expenses for the quarter were approximately $4.8 million and were comprised of $2.5 million of salary, wages and benefits, $800,000 of stock-based compensation, $800,000 of professional, legal, audit and accounting fees and $700,000 of various other cost categories. Controlling [ph] for the non-cash comp expense we incurred approximately $4 million of cash G&A expense for the quarter. Note that some of the items that are contained in that amount reflect costs associated with our transition of being a public company and the establishment of certain infrastructure. Thus we don't expect all of those costs to recur. So based on the revenue and expenses outlined above we reported adjusted EBITDA as defined in our filings for the quarter of $17.3 million. If you work through the detail of our disclosures you will note that our interest expense adjusting for the effects of capitalized interest and including the expense on our interest rates swaps for the quarter was approximately $2 million. During the quarter we also repaid $3.5 million of bank debt under our RBS facility. We finished the year on March 31 with $205 million in unrestricted cash. Turning to some key statistics for the full year results, we reported revenues of $104.1 million for the vessels in the fleet. Revenues from our VLGCs amounted to $102.3 million or a time charter equivalent rate of nearly $54,000 per day. Focusing solely on our spot VLGCs we realized a daily TC of over $67,000 per day. Our vessel operating expenses for the year was approximately $21.3 million or $10,703 per vessel per calendar per day. Focusing again on just our VLGC-only vessel operating expenses we operated the ships at an average cost of $11,403 a day, again including our investment in training officers for the newbuildings. That amounted for $2.9 million for the year. Adjusting for that expense the daily OpEx for our VLGCs amounted to approximately $9,616 per day. For the year we reported adjusted EBITDA, again as we use that term in our filings of $47.3 million. Again if you work through the disclosures our interest expense for the year, adjusting for capitalized interest and including the expense on our interest rate swaps was $7.9 million. For the year we repaid $9.6 million under the RBS facility. For the full year we generated $25.6 million of cash flow from operations. As a company we remained focused on cash flow generation as we continue to believe this is an extremely way to measure the success of our company. In the current rate environment we look forward to good growth in this important metric. With that I will turn it over to John Lycouris, CEO of Dorian LPG USA.

Thank you, Ted. Our newbuilding program is in full swing with three vessel deliveries coming up in the next 30 days. We expect multiple monthly deliveries to continue throughout the remaining months of the year and early into next year. There has been slippage with our vessel deliveries in one shipyard, actually with all their ship projects due to an overhang of offshore projects there. The shipyard expects those offshore projects to be completed in the third quarter, which will allow their resources to be fully directed and focused on all their ship projects. The other two shipyards are on schedule with our forthcoming deliveries and we do not expect any slippage at this time. Our crews and site teams are currently performing a number of sea trials on the forthcoming vessel deliveries that deliver later this month, as our customers and we continue to benefit from the competitive advantage our ECO VLGCs deliver to the Dorian LPG fleet. During our last call we briefly mentioned about the exhaust gas cleaning system of our newbuilding vessel Corvette and wanted to briefly mention that it had been operating very successfully in the U.S. and European emission control zones, producing emission substantially below the 0.1% SOx while consuming regular grade fuel oil. We have continued to see softness in the propane prices, both in the Arabian and the U.S. Gulfs with [indiscernible] for CP declining steadily over the last 12 months from a high of 835 per metric ton last June to a 405 per metric ton currently. Similarly Mount Belvieu last June was at a level of 545 per metric ton while now is trading at about $230 per metric ton for propane. Butane has followed a similar pattern over the last year. We continue to see consistently higher LPG volumes from the U.S., from the Middle East and from the Mediterranean with other areas holding their previous levels. The best performance again has been from the U.S. Gulf where LPG exports are running at a higher monthly level, likely to reach close to 20 million tons per annum, which is not what we had projected during our last call which was close to 17 million tons. Actually the U.S. exports year-to-date are at a 24% level of the global supply volumes versus a 19% global supply last year. The higher reported inventories in the U.S. have been of concern recently. However with a number of existing and new terminal capacities developing [indiscernible] storage place are becoming more prevalent. The propane forward market is about $0.10 per gallon of propane higher for delivery in January 2016 versus the spot price which corroborates such storage place in the Gulf Coast and elsewhere. The destination of LPG export from the U.S. has shifted to about 29% to the Far East with 30% heading South to South America and a further 17% heading across the Atlantic. The balance is headed to a number of contract destinations. The demand of shipping has remained strong and as a result the Baltic LPG rate has consistently remained at high levels for this season. We expect Baltic rates to remain firm during the forthcoming months while shipping remains tight. To summarize we continue to see increased supply of LPG being shipped, supporting the continued growth of LPG as a significantly cleaner fuel to the global energy market and to the world economy. Thank you, John. Over to you.

Thank you, operator, thank you gentlemen for attending the call and we are opening up for questions now.

[Operator Instructions]. Our first question is from George O'Leary, TPH & Company. Please go ahead.

Good morning guys.

Good morning.

Good morning.

You talked a little bit about returning cash to shareholders and given that the good results and increasing EBITDA quarter-over-quarter, I was just wondering if you can walk me through your thought process around the path to returning some cash to shareholders and maybe what sort of timeframe you think about that occurring over.

Certainly can, yes, thank you. We have been thinking about that, as we said in our previous calls. And we're mindful that there is a, certainly amongst and beyond this community a big interest in this and even among some of our shareholders. Our Board considered it at the last Board meeting and decided to defer until we have our financing done with, which now has been, and we -- and considering that we're producing good earnings and that we have our financing in place, we feel more confident now to make a recommendation. So it will be way -- whether it's a dividend or buyback or any combination of that will be considered at our next Board meeting at the end of this month.

Okay great, that's very helpful. And then maybe just provide a little more color, you mentioned in your comments, shipyard delays from one of your yards. How material are those delays, maybe just quantify the average magnitude of delays across that portion of the newbuild suite that’s been delayed?

Yes, the average is -- well we have three shipyards and in the one yard, the Hyundai Ulsan we have six ships, there are no delays. In Daewoo we have three ships, there are no delays. At Samho there are delays, the first two ships have been delayed by a little over a month each and the balance we figure at, on average will be delayed a month or less than a month, for the whole 10 ship range. John Lycouris can give you a bit more color on that because he is following day-by-day and as he said in his remarks we got two ships that are in trails right now. So the delays, I just should say are not occasioned by anything that's happened on our ships, it's a general problem that the shipyard has faced and all the ships that are being built at Samho at the moment are subject to delays, as a result of two projects, major projects that they’ve being involved in that -- on offshore, which have caused them to have a ripple effect on the rest of their building projects. John, maybe you want to say a little more on this.

Yes, thanks, John. There is a number of drillships and a floating production unit that have been delayed at that shipyard and they have caused problems with the rest of the building schedules as a result of this delay. A number of shipping projects have been delayed as well and we feel that we will be able to get those ships finished and conclude in less than 30 days, as we go on and those big projects leave the yards on trial, which is expected to happen during July and August.

All right, great, that's very helpful color, thanks for that. And then maybe one more from me if I could, just on the long-term contracting front, I know the market is perceived as very maybe -- day rates are perceived as high by buyers of LPG. But is there some level at which you guys could contract that’s still attractive to you on a long-term basis, not at the very high spot rates that we see today but some level maybe slightly below that or is there an opportunity to contract in the $70,000 to $80,000 a day rate range with anyone today. Just curious how that long-term contracting market looks today.

Well, if long-term you mean more than a year.

Yes, multi-year, so something that would be potentially MLP above I guess is how I would phrase it.

Yes I think the numbers are there on a five year charter, are not very different to the numbers that we’ve got on our Shell charter.

Okay, all right thanks very much guys.

Okay.

Our next question is from Michael Webber of Wells Fargo. Please go ahead.

Good morning gentlemen. This is Donald Bong [ph] slipping in for Mike. My question is on current spot market, as we transition into the summer, as of a couple of weeks ago and even recently there is virtually no prompt spot tonnage available in the U.S. Gulf. I think there were actually three or four week delays. Can you comment on current earnings and where it’s [ph] based and what your expectations are moving into sort of the next three to six months, do you think there is further upside or do you think given the really firming rates and utilization we are sort of in a holding pattern.

Frankly, we think there is further upside. We have reasonable confidence that there is further upside from here, but we have been hoping that and so far our hopes have materialized but it’s still only a hope, going forward.

Thanks for that. And then as you think about sort of longer term into 2016 as the bulk of the VLGC order book starts to deliver, do you think there is a potential inflection point where rates would level off given the current strength, I mean is that a late 2015 event or do you see that more as a second half ‘16 event?

Well, we continue to be surprised by the -- pleasantly surprised by the expansion in trade. So we know already what the order book is and even if it creeps up a little bit it won’t be material, we believe going forward now, at least not until later in 2017. So our view is that the trade expansion so far has been increasing at a level which will absorb or can absorb to be more precise, can absorb the order book or a good part of it. So it’s anybody’s guess when the inflection point will happen, I think and how deep it will be but we are confident that there is not -- that the large order book can be absorbed by the increasing trade. And I can give you more specifics on why we think that and why we think that the numbers we are seeing out of the U.S. Gulf, which I alluded to briefly in my remarks but John can give you more specifics John would you please expand a little bit on trade and there was a good report from one of you this morning which actually analyzed the trade patterns and the number of ships required for and I think you -- John will expand on that.

Yes we have seen the exports from the U.S. Gulf significantly stronger than we expected even three months ago and we are seeing export closing into 20 million tons this year, if this pace continues. We have seen that most of the terminal capacities being put in place sooner rather than later of course, the capacity at what some point is going to outpace the exports. However we do not see this at this time we are really using almost full capacity as it comes online and we have seen India continuing to be very strong importer of LPG and has been driving and employing a number of ships in that business. So all-in-all we have seen a general strength in the market both in the supply and the demand side of the product.

Okay, appreciate the color gentlemen, thank you.

You are welcome.

Our next question is from Spiro Dounis of UBS Securities. Please go ahead.

Good morning, gentlemen, how is it going?

Pretty good.

Good, good. So I would presume that you share my view that stock price is trading below NAV, especially in this rate environment but just wondering if selling some later delivering vessels makes any sense at all to move the stock price closer to NAV or is this really just a short-term stock price solution with maybe less obvious long-term benefits for the business?

I would choose the second, your second argument.

Yes, fair enough. And then I guess, just second question is we’ve seen some recent reports I guess, I guess cold methane and cold olefin projects being scrapped in China, I guess due to naphtha and ethane. Just wondering if your counterparts in Asia are seeing any elevated LPG interest, maybe on the back of that, just as those projects are being scrapped and if you could remind us again how much new Chinese TDH capacity we should expect by maybe 2018?

TDH capacity, Spiro has been going really well in China. We've seen a number of imports into China, actually our vessels have delivered on a number of projects there and we continue to see good movements of cargos to that end.

Great price sensitivities.

When the price fell a couple of months ago, we saw a dramatic increase in imports. Now China is erratic in all their imports as you know in every commodity, but they have an incredible capacity to increase and we think they could go up to 20 million tons.

And then just maybe last modeling question, training costs appear to have ticked up a bit this quarter. I think there were $1 million versus maybe the $750,000 guided. Is that because we're entering a heavy delivery period and I guess should we expect that to normalize next quarter or was something else driving that up this quarter?

As we take more ships Spiro, we put more officers on those ships. So it is a bit -- it is a bit duplicative for lack of a better term, I mean, right. So I think that's probably -- this last quarter is probably, if you look we averaged about $1 million per quarter for the year as we didn’t start the program till May of last year. So I'd expect that for -- through the end of the quarter, third quarter September 30th, I'd expect that number to -- I'd expect we're probably going to run that between $2 million to $2 million and change a quarter, just because as we enter in to the bulk of these deliveries, we're going to increase the number of crew, that we are -- the aggregate number of crew we're training.

Got it. Great. Thanks guys. Appreciate the color.

Pleasure. Thank you.

[Operator Instructions]. Our next question is from Erik Stavseth of Arctic Securities. Please go ahead.

Hey guys. Just a few quick ones from me. I see that from the Q1 or the previous report that Dorian Holdings has reduced its ownership from 9.8% to 8%, is that something I haven't picked up or what’s the story there?

No, Ted will explain it to you.

It's a technical issue. Some shares were reshuffled out of joint holdings in a certain individual’s hands. So the aggregate holding by the individuals Dorian Holding is completely unchanged. We would have had to make a filing if any of those shares have been sold. So it’s just a -- it was reshuffling out of the entity into people's hands.

Okay.

We've increased our shareholding marginally in fact during this period.

Okay. Just wanted to check if there’s something I missed, but that's perfectly fine. It sounds to me that based on John H's comments on the long term market, there are more plants [ph] that are on the back burner at this point or are you still pursuing that as a path once get more vessels on the water and shift to from sort of two-thirds spot to two-thirds time charter which has been the communicated strategy.

No, if we manage to book some more time charters which we hope we do, it is certainly part of the rationale in doing that is the MLP potential.

Okay, and then my last question, I mean there was a comment or a question earlier about the U.S. Gulf and lack of vessels there. Are you trading vessels in the Gulf now or are you primarily focusing on the Middle East and Indian cargoes that's been going, that’s been the scene of higher rates?

India has absorbed tonnage in the overall market and I think proportionately that's absorbed our tonnage too. But we have two ships trading in the Gulf and we intend to position or to try and position our newbuildings as they come in the Gulf as well or a good number of them. So we are focusing on the Gulf and we are taking risk by going there even without having a fixture in advance because we consider it to be a growing market which will have enough volumes to be able to accommodate that.

I think so too. I can follow up with the technicals on the mobile line [ph] afterwards, that's fine. Thanks.

Thank you, Erik.

This concludes our question-and-answer session. I'd like to turn the conference back over to Hadjipateras for any closing remarks.

Well thank you for your questions. Thank you all. I hope you have a great summer and I hope we provide you with more cheer in the months to come until our next meeting. Thank you and bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.