Dorian LPG Ltd (LPG) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Dorian LPG first-quarter 2015 results conference call.

(Operator Instructions)

This conference is being recorded today, September 3, 2014. I'd now like to turn the conference over to Mr. Ted Young, Chief Financial Officer of Dorian. Mr. Young, please go ahead, sir.

Thank you, Ed. Good morning and thank you all for joining us for our first-quarter 2015 results conference call. With me today are John Hadjipateras, Chairman of Dorian LPG; and John Lycouris, Chief Executive Officer of Dorian LPG (USA). As a reminder, this conference call, webcast and a replay of this call will be available through September 11, 2014.

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 stamens are reasonable, we can not 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 you to our first-quarter 2015 results filed this morning with the SEC on form 6-K and our 20-F annual report, where you will find factors that could cause actual results to differ materially from those forward-looking statements. Now I'll turn over the call to John Hadjipateras.

Good morning and thank you for joining us today as we report our first-quarter 2015 financial results. In the quarter we successfully concluded our IPO and since May 8 are listed on a New York Stock Exchange under the symbol LPG.

For any of you who are new to the Dorian story, we are in international liquefied petroleum gas, or LPG, shipping Company. We initially entered the LPG market in 2002 and currently own and manage a modern fleet of four very large gas carriers, which we refer to as VLGCs, and one pressurized LPG carrier.

During the last 18 months we contracted directly and by way of purchase to build a number of new eco VLGCs. In July we took delivery of the first of those, named Comet. And at the end of the month we expect to take delivery of the next one named Corsair.

The Comet has commenced a five-year charter to Shell. The Corsair will trade in the spot market. Both ships are built at Hyundai Heavy Industries in South Korea. When the last of the new buildings currently on order is delivered to us in January 2016, we expect to own and operate one of the world's largest VLGC fleets as measured both by number of ships and by their aggregate carrying capacity.

VLGCs are the most cost-effective and efficient ships for the transportation of increasingly larger volumes of LPG on longer routes between exporting and importing regions. Each of our new buildings will be eco-designed, incorporating fuel efficiency and emission reduction features, which represent a significant competitive advantage.

We work with the most demanding charterers, including companies such as Chevron, Exxon Mobil, Shell, Statoil, and other major global energy corporations and we operate our ships in-house. By focusing our ship management operation to provide safe, efficient and trouble-free transportation services to our customers, we aim to be their top choice, a strategy which enables us in turn to make the commercial decisions in the best interest of our shareholders.

We recently agreed with Phoenix Tankers, a subsidiary of Mitsui O.S.K., to form a pool which will operate utilizing personnel from both our companies in Singapore and London, to commercially operate our spot VLGCs, and possibly others, commencing January 2015. We consider this strategic alliance has the potential to be a very significant contributor to consolidation in the market.

Also, we signed a Heads of Agreement with HNA, the major Chinese conglomerate. Our agreement envisages a collaboration to explore shipping and infrastructure projects in the fastest-growing market in the world, where HNA has a significant presence. With Dorian providing shipping and LPG transportation know-how, HNA and Dorian expect to pursue opportunities with vitality over the next few months.

You will hear now from Ted and from John Lycouris. Ted.

Thank you, John. To echo John's remarks, we're very pleased with our progress, our successful IPO and the outlook for our business. Before I move on to discuss the results for the quarter, I would like to remind our listeners that our business should be viewed for the long term.

We are affected by the seasonality of the market and it is important to understand how this seasonality will affect our quarterly financial results. The liquefied glass carrier market is typically stronger in the spring and summer months in anticipation of increased consumption of propane and butane for heating during the northern hemisphere's winter months.

What this means is the demand for our vessels may be stronger in our fiscal quarters ending June 30 and September 30, and relatively weaker during December 31 and March 31. Although 12-month time charter rates tend to smooth these short-term fluctuations. You'll note that we do not provide comparative figures to the prior year, as the predecessor Companies had a different accounting policies, as they used IFRS.

For the quarter, revenues of $15.9 million represented charter hire and voyage charters earned for the three VLGCs and the pressurized vessel. Revenues from the Captain John NP, which operated in the spot market, amounted to $8.3 million, or a time charter equivalent rate of $64,340 per day. If you work through the details of our disclosure, you can calculate the daily TC for our VLGC fleet was in excess of $45,000 per day, which reflects our balance charter and the strategy of mixing time charters with profit sharing and spot chartering.

Our voyage expenses were approximately $2.8 million and mainly related to bunker costs of $2.1 million. Our vessel operating expenses for the fleet, which are affected by the age, size and condition of the vessel, were approximately $3.5 million or $9,569 per vessel per calendar day, which is calculated by dividing the vessel operating expenses by calendar days for the relevant time period.

Our VLGC-only vessel operating expenses were slightly increased during the quarter due to the investment that we are making in training new officers for our VLGC new building program. That amounted to approximately $400,000. Adjusting for that, and again working through our filing, the daily OpEx for our VLGCs amounted to approximately $8,900 per day.

Management fees represent fees charged by Dorian Hellas and amounted to approximately $1.1 million for the quarter. Services rendered under the management agreement include technical supervision, marine operations and general administration services.

G&A relates to amounts not covered by our agreement with Dorian Hellas. It includes amounts for professional, legal and audit fees, some of which related to our transition to becoming a public company. Effective July 1, 2014, all management functions have been transferred to wholly-owned subsidiaries in the management agreement with Dorian Hellas is no longer in effect.

The components of our interest expense are detailed in our 6-K. And you should note that we report interest expense in two line items on our P&L, interest on finance costs and loss on derivatives net.

The notes describe the composition of these items. Note that interest expense related to our LIBOR hedges is part of the line item loss on derivatives net.

For financial modeling purposes only, we note that our gross interest expense, which is a non-GAAP measure and reflects the fixed and floating interest expense payable on our debt and excludes capitalized interest of amortized financing fees, amounted to approximately $2 million for the quarter. In addition, we repaid $1.3 million of debt during the quarter.

We finished at June 30 with $375.1 million in cash plus an additional $30.9 million in restricted cash, which represents the final payment on the Corsair, the VLGC to be delivered at the end of this month. As of today we have approximately $1 billion in remaining commitments under our VLGC new building program.

The equity portion of our new building program is fully funded and we continue to work to finalize our debt financing arrangements, having agreed terms and received credited committee approval from several banks. We will make further announcements in due course.

I'll now turn it over to John Lycouris, CEO of Dorian LPG (USA).

Thank you, Ted. The shale revolution in the United States has fundamentally changed LPG trading patterns, with the US becoming one of the leading LPG-exporting nations producing price-competitive LPG. LPG is a clean fuel, a by-product from natural gas production and crude oil refining. The end demand for LPG is split roughly 50% in domestic use like cooking and heating, 25% in petrochemicals and the remainder in varied industrial applications, such as auto gas, agriculture and industrial manufacturing.

Historically the main demand driver in the domestic segment was population growth. But that has changed as countries shift over to cleaner-burning fuels, including LPG, to support air quality and other important environmental factors.

Furthermore, the competitively-priced US-sourced LPG is increasingly seen as a cost-effective alternative to naphtha. We are witnessing the emergence of a new and significant customer base in the propane hydrogenation business, particularly in China, as that country looks to reduce its reliance on foreign-sourced propylene.

The recent record LPG export volumes from the United States, making the United States the largest over-water provider of LPG to the global marketplace. We affirmed the case for the demand of very large gas carrier vessels to transport large volumes of LPG over longer distances in a cost-effective and efficient manner. The significant opportunity for our Company to transport LPG from the United States dovetails with our recently-announced strategic relationship agreements with HNA Logistics Group Company in China.

Our current fleet consists of five LPG carriers, including one new eco 84,000 cubic meter VLGC, three modern 82,000 cubic meter VLGCs and one pressurized 5,000 cubic meter vessel. We have a further 18 new building eco VLGCs to be delivered in the coming months.

These vessels are being built in the best shipyards in the world, Hyundai and Daewoo, both of which are based in South Korea and are scheduled to be delivered between September 2014 and January 2016. We expect to own and operate the industry's largest eco VLGC fleet once these vessels are delivered.

All our new buildings are eco-designed 84,000 cubic meter VLGC vessels that incorporate new hull forms, utilize technologically advanced engines and equipment, which will consume less energy and produce fuel efficiencies, while reducing emissions. These eco vessels represent a significant competitive advantage for us, as the new features reduce fuel costs and provide the owner with a cost advantage over $4,000 a day on a typical voyage, compared to the previous generation of vessels.

Upon completion of our VLGC new building program in January 2016, the average age of our VLGC fleet will be below two years old. The current worldwide VLGC fleet is older, with an average age of approximately 11 years. Outdated ships do not represent an attractive option for customers.

We run our entire business aligned with the best interest of our customers, and as a result we do not outsource the management of our ships. Our commercial and technical services are in-house and fully integrated. We meet the most stringent requirements of major energy companies and the most stringent shipping regulations.

Our vessels are commercially managed with a mix of period and spot charters. Time charters allow for more visibility and predictability of the business cash flows. Spot charters, which have been hitting all-time highs recently over the past few months, provide attractive and profitable opportunities to employ spot vessels.

We generally expect the LPG market to remain tight for shipping, and as a result, produce attractive and profitable spot trading rates. Over time, we anticipate that up to two-thirds of our fleet would be employed on time charters of various lengths.

We are well positioned to take advantage of this market opportunity with a solid balance sheet and a strong and experienced management team. And we are confident in our ability to execute in line with our growth plan and achieve our objectives.

Thank you very much for your time today. Operator, please open the call for questions.

(Operator Instructions)

Michael Webber, Wells Fargo.

Hey, good morning guys. How are you?

Terrific, Mike.

Wanted to ask a couple questions around the chartering of your fleet and some new business lines, and then a financing question. But to kick it off in terms of chartering. I know you've mentioned that in your recent trips to China and through Asia, it seemed that there was a bit more of a bit of an uptick in demand for period interest for LPG tonnage.

Can you talk to, or get some more color around, where that demand really is? Then when we look at that, at your forward order book, how should we think about that in terms of what percentage you think actually can feasibly get locked away on contracts that are five years in length or longer? And how much would you really even want to?

I think you heard in John Lycouris's closing remark there that we'd like to end up with a two-thirds on long-term charters. But whether we can achieve that is a question of we'll have to wait and see.

What are we seeing now? As you say, we are seeing an uptick. Predictably it's coming from the East, but also from some major oil companies. I don't think we want to discuss any details, but we have been negotiating with a number of good counter-parties.

Got you. Okay, that's helpful. Forgive me, I think you probably mentioned this in your commentary and I just missed it. When you're talking to your newbuild suite, what percentage of the financing are you guys in discussions for right now? I know all the equity is taken care of, but on the debt side, what are you guys negotiating at this point?

We're negotiating for the whole balance, including with the export agencies. So to conclude the total of all our requirements until delivery of all the ships.

Got you. Do you have a rough timeframe at this point in terms of when you think you'll be able to nail that down?

We hope that it will be -- well, maybe Ted and John can answer that better than me. We are in active discussions.

Mike, it's Ted. I think it's, as John said, we're in active discussions. I think I would describe it as relatively imminent. But I don't want to promise specifically what that means.

Suffice it to say, as I mentioned in my comments, we do have credit committee approval from several banks. And that's pretty important in any of these processes.

Got you. Okay, that's helpful. It seems like there's some progress there from the IPO.

And one more for me and I'll turn it over. But around HNA and that strategic agreement, that can obviously could end up meaning a lot of things down the line.

Can you prioritize for us and hopefully assign some probability to how you think that relationship can end up bearing fruit for you all? And what's the most likely first step you think you'll see, and investors will see, in terms of how that relationship with HNA might actually impact your results?

Mike, it's a great question, but I feel that at this moment it's not something that we would want to define. Because we're in an active mode of discussions and if something firms up it will be coming out in the public quite early date. So I think at this moment I wouldn't want to say it's going to be an infrastructure distribution type of project or anything else.

Fair enough. Would it be fair to say that if it was something along the infrastructure and or terminal category that that would be a bit longer dated then your current lines of business simply because it's new? Or would there be a shorter lead time purely from a construction perspective?

It could be either way.

Okay. Fair enough. I had to ask. I will stop there in turn it over for other questions. Thanks, guys.

Thanks, Mike.

Mike, thank you.

George O'Leary, TPH and Company.

Hey, guys, good morning. This is Brad Olsen from TPH. Really just wanted to ask about the ethane export opportunity to the extent you guys are investigating that. Looks like we've seen a lot of new charters and announcements of newbuilds here recently.

If the US midstream guys are to be believed, I guess it looks like the market could still double from here. In light of the robust growth out of that market, any comments you might have about what you're seeing?

Yes. John Lycouris, can you take that?

Sure. Hi, Brad. We are very happy to say that the growth of the supply of LPG out of the US Gulf is continuing, with imminent shipments from a number of new places. And we have also done some research and some travels in the East, as Mike suggested. That has also given us a lot of opportunities.

We feel that the supply from the US will definitely be marked up from the East with a substantial demand. As a result, we think that shipping will play a very important role here.

Brad, I just want to add that we've also talked to shipyards about various designs that they have. When we were there a month ago, we discussed with both the major shipyards there what they have on the table, and what they're building now for Reliance.

We're very cognizant, like you pointed out to us even at an earlier stage when we were on our road show, about these possibilities. And we are pursuing them. But we don't have anything to report right now that would excite anybody.

Okay, great. And a quick follow-up if I may, you mentioned looking at some of the shipyards where Reliance is building their VLEC fleet right now. Would it be fair to say that you guys would be more focused in on the very large segment of the ethane trade, as opposed to some of the smaller pressurized vessels?

And is it also fair to say, as some of your competitors have indicated, that as we see ethane tankers built out, there might actually be a crowding out effect at some of the shipyards that might prevent further build-out of the VLGC fleet? And that is all for me, thanks.

Brad, every order for a ship that's not a VLGC is welcome at these shipyards. We think the order book for the smaller ships is a bit heavy. We are concentrating on our inquiries on the big ethane carriers.

Great. Thank you.

(Operator Instructions)

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

Thank you, Ed. Thank you very much, gentlemen. Thank you for attending and listening to us and for your questions. Have a great day.

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