BW LPG Ltd (BWLP) 0 Q0 法說會逐字稿

Welcome to BW LPG's fourth-quarter 2017 financial results presentation. We will begin shortly. You will be brought through the presentation by Martin Ackermann, CEO, and Elaine Ong, CFO of BW LPG. They will be pleased to address any questions after the presentation. (Operator Instructions). We will begin the presentation now.

Thank you, Anna. Welcome to the presentation of BW LPG's results for the fourth quarter of 2017, the financial period ending 31 December. I'm joined by our CFO, Elaine Ong. We appreciate your interest in our results and we will take questions at the end of the call.

VLGC rates improved in fourth quarter 2017, averaging $14,100 per day or $30 per tonne on the benchmark Baltic route, compared to $7,600 per day or $22 per tonne for the previous quarter. This was due to improving geographic LPG price spreads, with Asian LPG prices being led by significant restocking demand ahead of the winter heating season, as well as rising crude prices and delays in receiving US-sourced cargos.

Turning to slide 4, we will review the financial highlights for financial year 2017 and the fourth quarter, starting off with the fourth quarter. Our net revenues were $79 million, a decrease of 12% relative to fourth quarter of 2016, which was mainly driven by weaker spot rates. EBITDA was $26 million, 27% lower year on year. Net loss was $19 million for the quarter or $0.14 a share.

Moving on to the full-year highlights, the Company recorded a loss due to falling spot rates and weaker fleet utilization. We generated net revenue of $335 million, based on daily rates of $18,600 per day for the VLGC segment and $12,600 per day for our LGCs, with total contract coverage of 31%. Our EBITDA came in at $126 million, while net loss was $45 million or $0.30 a share.

Our book value leverage remained stable at 56%, in line with our target range of 40% to 60%. We also made divestments of five vessels for a total of $185 million, selling vessels above long-term parity values, generating additional free cash and reducing our average fleet age in the process. In October 2017, we established our joint venture with Global United India and the two ships to that joint venture are now delivered.

I will now turn to slide 5 for an overview of our commercial performance in financial year 2017 and the fourth quarter, focusing first on the fourth quarter. Coming out of the weakest quarter since 2009 and facing into a rising freight market, which was slightly offset by rising bunker prices, our spot fleet earnings was $12,200 per day and fleet-wide earnings was $18,400 per day. Nearly 40% of our revenue days in fourth quarter of 2017 were fixed in the preceding quarters at rates that -- higher than the market at the time of fixing. We continue to operate in both basins, east and west of the Suez Canal, serving a broad base of customers.

Our CoA portfolio accounted for 13% of the VLGC revenue days and generated rates of $34,700 per day. This is in line with the probable minimum guidance and is nearly three times that of the spot market for the same period. We do not have any fixed-rate CoA coverage heading into 2018. Our LGC fleet generated rates of $14,600 per day for the quarter and we operated roughly 72% of our ships on time charter and the remainder on the spot market.

For the full year, our spot fleet generated $13,600 per day, based on the utilization rate of 87% and calculated as revenue days divided by calendar days. Switching to LGCs, we are operating 62% of our ships on time charter and the remainder on the spot market.

Now please switch to slide 6. We see that the global fleet of VLGC stands at 270 vessels currently, after growing by 25 vessels in 2017 and by 4 vessels in January this year. 3 vessels were recycled in 2017 and 1 during the first quarter of this year, whilst 14 new buildings were ordered in 2017 and another 7 already this year. Global order book now stands at 36 vessels or, in total, 13% of current fleet for delivery over the next 3 years. Our VLGC market share is 17%, with an average of 7.5 years, versus the global fleet age of 9 years.

On slide 7, we provide an overview of seaborne LPG trade in the fourth quarter. VLGC seaborne LPG trade remains relatively flat at 16.5 million tonnes, with imports from India and China more than outweighing declines from Japan and South Korea. US seaborne LPG export volumes were 22% higher quarter on quarter, reaching 6.7 million tonnes. Middle Eastern LPG export volumes continued to decline, falling by 5% quarter on quarter to 7.9 million tonnes.

Turning now to slide 8. In 2017, VLGC seaborne trade increased by 2.5% to 67 million tonnes, with North America offsetting exports decline in the Middle East. While the Middle East, Gulf East route remains key, the increase in supply from North America illustrates the growing importance of the US Gulf East route. China and India continue to see healthy import growth, with Indonesia seeing a 17% year-on-year increase in imports.

Turning now to slide 9. On this slide, we provide an updated snapshot of LPG balances in the US that also includes a forecast for 2019. US LPG production grew by 2.9% in 2017, while domestic US consumption declined by [3.6]%.

For 2018, we have maintained our US production growth forecast of 7%, versus EIA's 7.5%, and corresponding 85 million tonnes. Similarly, we have maintained our net US LPG export growth forecast of 7.5%, which corresponds to US LPG exports of 29 million tonnes in 2018.

With the relative resilient oil prices supporting healthy production growth rates, we remain cautious towards factors of less productivity in terms of wells drilled per rig, cost inflation and shale producers emphasizing return over growth. And we remain more optimistic on continued US LPG production growth and recovering oil price fundamentally supporting the arbitrage trade and, in turn, VLGC freight markets.

So with that, let me turn you over to Elaine, who will walk you through the financial position and our results.

Thanks, Martin. Starting with our income statement on slide 10, our net revenue for the quarter was $79 million, compared to $90 million in the same quarter last year. This is mostly due to lower spot rates and lower fleet utilization.

Charter hire expenses for the quarter decreased, mainly due to lower hire rates for our charter-in vessels. Operating expenses saw a slight increase of $1.4 million due to a bigger fleet relative to Q4 2016. We generated EBITDA of $26 million in the quarter, compared to $35 million in the same quarter last year. Finance expenses were slightly higher, by $1.7 million, due to incremental interest-bearing debt from the Aurora acquisition. We recorded a loss of $19 million or $0.14 per share in the quarter.

Turning to slide 11, we provide a snapshot of our balance sheet and cash flow position. We continue to maintain a strong balance sheet, with a steady book leverage ratio of 56%, while still generating positive cash flow from operations in a very challenging market environment. We ended the fourth quarter with cash and cash equivalents of $57 million.

On slide 12, you will see our net debt position, at $1.3 billion at the end of the quarter. Total liquidity, consisting of available cash and undrawn facilities, was $267 million at the end of the quarter.

We currently have five debt facilities. The first is the $800 million facility, with $378 million outstanding and $210 million of undrawn credit. Then we have a $400 million ECA facility, with $346 million outstanding. Next, we have the $221 million ECA facility, with $193 million outstanding. The fourth is a $290 million ECA financing, with $274 million outstanding.

Lastly, I'm pleased to provide you with an update on the $150 million unsecured revolving credit facility coming due in March 2018 that we have been working on refinancing. We signed a new $150 million five-year senior secured term loan agreement in February this year. The facility is secured by five vessels. The all-in cost is Libor plus 170 basis points, with an eight-year amortization profile.

With that, I'd like to hand you back to Martin to conclude our presentation.

Thank you, Elaine. So if you please turn to slide 13, I will summarize the presentation and then we can open for questions.

We generated a loss per share of $0.30 for the financial year on a net revenue of $335 million and EBITDA of $126 million. The Board will not propose a final dividend for the second half of 2017, which is fully consistent with our policy of paying out 50% of NPAT.

We delivered the BW Boss to our joint venture in India in January 2018 and the two vessels for the JV are now fully delivered.

We signed a five-year senior secured term loan of $150 million at the attractive all-in cost of Libor plus 170 basis points. And with this refinancing, we will have no further debt maturities until November 2020.

Looking ahead, we expect total contract coverage for 2018 of 14%.

Freight rates remain at unsatisfactory levels despite a recovery from Q3. And we see further recovery being dependent on increasing US production, continued demand from Asia and geographic LPG price spreads supporting trade. We remain confident on the long-term fundamentals for LPG and continue to monitor the order book for 2018 and beyond.

This concludes our earnings presentation for the fourth quarter and full year of 2017. And I would like to open the line for questions.

We will begin our question-and-answer session now. (Operator Instructions). We will now take questions from the conference call first. Your first question comes from the line of [Jorgen Lehan] from [ZMB]. Go ahead.

Hi, Martin and Elaine. Can you hear me?

Not really. We need to adjust the volume a little bit. Can you try again?

Yes. There we are. Thank you for taking my question. I have a quick question regarding the CoAs that have been rolling off during 2017. I'd like to get your input on how the CoA coverage has perhaps been a contributor in terms of how you are available to play the spot market in terms of speculative cargos out in the Atlantic. Do you have any flavor on that?

Hi Jorgen. Yes, it's an interesting question, and I think what you are hinting at here is that the CoAs truly have been both a curse and a blessing for us over the past couple of years. They have provided sound coverage, but we did have challenges at times to predict exactly how much uptake under our CoAs we would have. And of course, the CoAs enabled us, also, to position our ships into both the east and the west markets.

So going into a market now where we don't have any CoA coverage, we're relying fully on the time charter availabilities and, of course, our spot exposure. But I would like to emphasize that we have a fairly large fleet. We have most of the fleet - only 14% is contract coverage this year, so we have 86% of the fleet that is trading in the spot market, which means that we have ships in any of the basins at any given time. So I think we are able to service the client here, to that question.

Yes. And just a quick follow-up to that. So in terms of the spot performance that you guys have reported the previous quarters, would you say the CoA coverage has contributed anything to that?

Yes. Some quarters, yes and no, but mostly it has been -- the CoA coverage has actually affected our spot performance negatively or flat. So definitely I don't see this as a hindrance going forward.

Okay. Thanks very much.

I think the reason -- yes, I can maybe just elaborate on the spot performance. To take that there, this quarter was not satisfactory. And as I mentioned on the call, the main reason attributable to our performance was that we're carrying 40% of the revenues from fixtures made in Q3, even some in Q2. And of course, in a rising market, you're always lagging a little bit behind.

Okay. Thank you very much.

Thanks, Jorgen.

(Operator Instructions). Your next question comes from the line of [Lars Ostermig], Arctic Securities. Please go ahead.

Hello.

Hi Lars.

Hi. Yes. I'm just looking at your slide showing the US LPG disposition and I wanted to know how you think about, let's say, domestic demand because you forecast flattish growth in US LPG demand. And when I look at EIA's forecast, they forecast somewhat steeper growth, high single digit in fact in both 2018 and 2019. So I just wanted to know how you think.

Yes. There have been a few delays on some of the domestic demand on the pet chem side, and I think that's probably the main factor to us keeping a flattish number into 2018, as well as the fundamental decline in domestic LPG for heating and retail.

Okay, thank you.

Thank you.

(Operator Instructions). Your next question comes from Lukas Daul from ABG. Please go ahead.

Marin, I was wondering, we have already seen seven, eight new build orders so far in 2018. What do you think of that? Do you think that's going to continue? And at what level are you being concerned about the balance in 2020?

Hi Lukas. Thanks for calling in. Yes, as I said -- yes, as I talked about, the order book now stands at 13%. And then we do -- indeed have seen a flurry of orders coming here in the early months of 2018, as well as in the end of 2017. And all those orders seem to come at the -- towards the end of the year and then the beginning of this year.

So in totality, it's not frightening. But of course, we're certainly not encouraging anyone to order any more ships as there is, as we have talked about many times, quite a big overhang of ships. When we listen to the market right now, it does seem like ordering has slowed down for the time being. And we don't have any immediate rumors of any more activity on that front. And as always, I encourage anyone that's interested in investing in the VLGC segment to buy stocks in any of the listed companies on either OSE or the New York market.

To your question on 2020, when we get to 2020 there'll be 33 ships that'll be over 25 years old. So I think recycling is the thing to -- that we think a little bit about here. And as I also mentioned during the call, we have already seen three ships recycled in 2017 and already one in 2018 and we're hearing another one being rumored for sale. So I'm hopeful that the recycling will help us towards a sooner rebalancing.

Yes, you sounded a little bit more constructive on the scrapping potential going forward. But if you do a review of the fleet, would you put a number of what you think the potential could be for this year and next year in terms of vessels leaving the market?

No. I think we'd like to keep that to ourselves and I think we'll just let people count the amount of ships over 25 years of age. And the one thing I will say, that of course you have tightening regulations. You have the ballast water treatment systems, the ballast water maritime convention, in effect here in September 2019 and you have 2020 coming up as regards the new sulphur limits. And of course, any owner that have an old ship that's coming up for dry dock, whether it's a special survey, an intermediate survey, past the 23 years, is faced with a significant CapEx. And we think some of these owners will hopefully think twice before making strong investments or deciding whether to send the ships for recycling.

So there might be some support to find in 2020, but we're definitely -- we're still not overly optimistic. We're cautiously optimistic, so as I've been saying many times. And I still think that we have an overhang of ship that it will take time to absorb.

Yes. And you've been able to sell or divest some of your vessels at pretty healthy prices, I would say. Is there a potential for doing more of these kind of transactions?

We always keep our eyes out for divesting vessels at the right price and, of course, above long-term median prices. But I think the fact that we are a reasonably large player in this market enables us to have our eyes on the ball all the time and follow any opportunity that arises. And that might be why we have a slight advantage to follow all these opportunities and then execute on some of them, because it's not a very liquid market, as you know.

Okay. Thank you very much.

You're most welcome.

Thank you. There are currently no more questions in queue. We will now take the questions from the webcast. As there are no questions on the webcast, we have come to the end of today's presentation. Thank you for attending BW LPG's fourth-quarter 2017 financial results presentation. More information on BW LPG is available online at www.bwlpg.com. Goodbye.