Dorian LPG Ltd (LPG) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Dorian LPG Fourth Quarter and Full Year 2017 Earnings Conference Call. (Operator Instructions) Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com. I'd like to turn the conference over to Ted Young, Chief Financial Officer. Thank you.

Mr. Young, please go ahead.

Thank you, operator. Good morning. Thank you all for joining us for our fourth quarter 2017 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Ltd.; 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 June 21, 2017.

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 to be incorrect, actual results may vary materially from those we express today. Additionally, let me refer you to our unaudited fiscal fourth quarter results contained in today's earnings release and our audited full year 2017 results filed this morning with the SEC on Form 10-K, where you'll find 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 afternoon, and thank you for joining our fourth quarter earnings call. After my intro, Ted will review our financials and John Lycouris will update you on the broader market and our operating environment. And finally, we'll take questions.

Dorian is the largest owner of eco VLGCs owning 22 all built to higher specifications and at the world's best shipyards. We commercially manage our spot ships through the Helios Pool, which we founded and jointly own with Phoenix Tankers, a subsidiary of Mitsui O.S.K. At the end of this month, the Helios Pool will comprise 29 VLGCs, including 18 owned by Dorian, 5 owned by Phoenix Tankers, a subsidiary of Mitsui O.S.K., and 3 controlled by Oriental Energy, one of the largest PDH plant operators and LPG importers in China and 3 chartered in VLGCs. 4 of our VLGCs are on time charters outside the pool. The technical management of our ship is performed by our fully owned company located in Athens.

For the quarter ended March 31, 2017, our overall VLGC utilization rate was 96.3%. As a reminder, we calculate fleet utilization as defined in our filings by dividing our total operating days in a period by the total available days in that period. The average TCE for our fleet, including time charter ships was $24,677 per day, and for our spot ships, $22,448 per day. We've been in the shipping industry for over 40 years and in the LPG market since 2002. And we've seen many market ups and downs. The past 12 months have been characterized by weakness in our segment, which has absorbed an extraordinary number of newbuildings. Against that backdrop, global demand for LPG continues its robust growth and LPG supply and export capacity are following positive trends. As fleet supply growth updates and minimal new ordering has taken place, we believe the market will soon begin to rebalance.

Following the end of the quarter, we took important steps to strengthen our balance sheet and improve our financial flexibility by answering an amendment to our 2015 bank debt facility and refinancing our facility with RBS. These steps, which Ted will describe, we believe strengthen our position to participate in the continuing favorable development in the LPG market, and our ability to manage through the current period of market weakness and our ability to take advantage of potentially interesting market opportunities. We continue to focus on customer service, on our chartering strategy and on managing our cost as the pillars of our strategy and of our aim to be best positioned to create value for our shareholders.

Let me hand over to Ted, who will discuss the financial results and other matters for the quarter.

Thanks, John. The quarter's results reflect the improvement that the LPG market has experienced due to the improved outlook for LPG shipping and more favorable commodity prices. Before I move on to discuss the results for the quarter, I wish to remind you that we look at our business from a long-term perspective.

The main developments for us recently have been the completion of the amendment of our $758 million debt facility and the refinancing of our facility with RBS through a bridge loan with DNB. The former resulted in the release of $26.8 million of cash, of which $24.8 million was used to pay down principal under that facility. Since the banks agreed to apply those amounts to the next 2 payments, our next full principal payment under that facility is not until December 23, 2017. The loosening of the covenants is also a positive development. The new DNB facility does not have any scheduled amortization compared to the $4.8 million that we would have amortized on average under the RBS facility over the next 6 months.

Thus the effect of these 2 financing changes is the elimination of $29.6 million of principal payments over the next 6 months. In addition, the DNB facility has the same margin, 250 basis points over LIBOR, as the RBS facility it replaced for the next 6 months. Thus, we have succeeded in significantly lowering our cash breakeven for virtually the entire remainder of calendar 2017. As of today, we have $742 million of debt outstanding under both facilities and are in compliance with all covenants, which now are virtually identical between the 2 facilities. During the coming months, we evaluate different alternatives to replace the bridge loan with longer-term capital.

I'd like to turn now to our quarterly performance. For the quarter ended March 31, 2017, we reported total revenues of $47.6 million, representing net pool revenues from the Helios LPG Pool, charter hire and voyage freight revenue earned for our VLGCs. As we've previously described, we report our share of the Helios results as net pool revenues in our income statement, which represents our percentage participation in the pool revenues less pool voyage expenses and pool general and administrative expenses.

Our share of those revenues for the quarter was $35 million. Time charter equivalent revenues per day across all of our VLGCs, including those in the Helios Pool amounted to $24,677 per day, while our VLGCs employed in the Helios Pool on spot -- on COAs and under time charters of less than 2 years duration earned $22,448 per day for the quarter. Vessel operating expenses for the quarter were approximately $16.6 million or $8,363 per vessel per calendar day, which is calculated by dividing the vessel operating expenses by calendar days for our VLGCs for the relevant time period.

Our daily running costs were roughly flat year-over-year as our OpEx per day for our VLGCs was $8,350 for the 3 months ended March 31, 2016, reflecting our continued focus on balancing operational excellence with cost efficiency. We are pleased with this performance but remain vigilant on costs.

Total general and administrative expenses were approximately $5.8 million for the quarter, and excluding noncash compensation expense, amounted to $4.6 million. For the same period last year, and stripping out both noncash compensation expense and incentive compensation that is not included in the quarter just ended, G&A was $5.8 million, which represents a $1.2 million reduction year-over-year on a comparable basis, reflecting our focus on cost management. Depreciation and amortization for the quarter totaled roughly $16.1 million, which was primarily attributable to the depreciation of our operating vessels. Our reported interest and finance costs for the quarter was $7.4 million, which was comprised of interest expense on our debt, amortization and financing costs and other financing expenses compared to $7.2 million for the same period last year. The other piece of our cash interest expense booked within realized loss and derivatives amounted to $0.8 million, a decrease of $1.6 million versus last year, mainly due to the prepayment of our interest swaps related to the RBS facility during the prior quarter.

We also had an unrealized gain of $1 million from the changes in the fair value of interest rate swaps related to the 2015 facility due to the increase in forward LIBOR rates during the period. The unrealized gain on the derivatives amounted to about $0.02 per share for the quarter. We currently have approximately 81% of the debt under our 2015 debt facility hedged, while the DNB bridge loan facility currently remains unhedged. The weighted average LIBOR rate on the 2015 facility is approximately 1.51%, including the hedged portion, and the current interest rate on the DNB facility is 3.75%. On a weighted average basis, between the 2 facilities, our total interest costs is less than 3.7%.

Overall, for the quarter, we reported net income of $2 million or $0.04 a share and adjusted net income of $1 million or $0.02 a share. Adjusted net income for the 3 months ended March 31, 2017, strips out the effects of the unrealized gain on derivatives of $1 million. Our EBITDA, as defined in our filings for the quarter, was $26.5 million, and we also repaid $17.6 million of bank debt under the 2015 facility and the now fully repaid RBS facility.

For the full year, we reported a fleet-wide daily TCE of $22,037 and a spot TCE of $19,195. The only vessel OpEx for the year was $8,233, and excluding amounts expensed for 2 drydockings that we had during the year for the Captain Markos and the Captain John, that number reduces to $8,175 per day. EBITDA was $83.3 million, and we reported a net loss of $1.4 million or $0.03 per share or an adjusted net loss, excluding the unrealized gain on derivatives of $28.9 million or $0.54 per share.

With the recent enhancements to our capital structure, for the next 6 months, we estimate our cash breakeven cost per calendar day at approximately $17,000, which includes vessel OpEx, cash G&A, cash interest expense, and the required increase in the restricted cash account. We remain focused on managing our liquidity and risk profile to allow us to operate our business in all economic and market climates.

With that, I'll turn it over to John Lycouris.

Thank you, Ted. U.S. LPG exports hit new records in the first 4 months of 2017, offsetting declines in Middle Eastern volumes and increasing ton mile demand. Despite challenging arbitrage economics, more U.S. cargoes are being lifted in June than originally expected, and we have seen freight rates stabilize in the past 2 weeks. We believe that the overall trend for U.S. exports remains positive, and LPG volumes will grow well above that of last year.

Crude oil production and the drilling oil rig count have been steadily increasing since the middle of last year, with crude oil inventories above 5-year highs. In contrast, propane inventories have been falling since the end of last year and only in recent weeks have found a floor and started to build. The low U.S. propane inventories have likely been one of the main reasons prices have remained firm relative to West Texas Intermediate crude prices. With the current excess in crude stocks and the prospect of weakening crude prices, margins on natural gas liquids are expected to improve and the production of NGLs will show growth, increasing propane stocks in the process.

The Energy Department has revised their 2017 and 2018 propane production forecast numbers upward again in their June short-term energy forecast and simultaneously repriced their consumption forecast down.

India LPG imports registered a 17% year-on-year growth during calendar 2017. This is a testament to the Indian Government's commitment to replacing kerosene in households with LPG. Recent data provided by the Indian Oil Ministry reported that a record 32.5 million new LPG connections were added during the fiscal year 2016, 2017. This is a 20% increase over last year and raises the total LPG connections to 200 million. Plans are to add a further 70 million connections in the next 2 years. The Ministry estimates that 10 million new LPG connections lead to an expenditure of $1.5 billion in LPG infrastructure and distribution. Expanding import terminal capacity and volumes, adding more LPG bottling plants and commissioning new LPG distribution centers will be required to facilitate this rapid expansion demand.

Neo Panama Canal LPG traffic continues to be very strong. LPG vessel represent 33% of the total traffic volume and are second only to container vessels, who have a 50% of the total traffic. This has resulted in a limited number of transit slots being available, both for southbound and northbound traffic, potentially causing some of the cancellations and deferments in liftings out of the U.S. Gulf. A toll increase has been announced by the Panama Canal Authority, effective October 2017, which will hike tolls to about 30% and will undoubtedly impact traffic and arbitrage margins. Subject to fuel oil prices being reasonably low, the longer voyages may become attractive again and may likely result in ship tightness and freight rate improvements.

Canadian LPG exports will undoubtedly benefit from the Neo Panama Canal toll increases, improving their competitiveness of LPG exports with freight cost savings and higher netbacks for the propane producers in Western Canada. These developments may accelerate completion of the AltaGas project on Ridley Island and the Pembina Pipeline and the planned export terminal in Watson Island, where completion is expected in first quarter of 2019 and 2020. The order book stands at about 12% of the VLGC fleet, while the over-20-year-old VLGC vessels stand at 15% of the fleet. We maintain our thinking that stronger demolition prices and new environmental regulations will make older VLGCs more attractive demolition candidates and remove them from the fleet.

With LPG export terminals now well established globally and LPG becoming less freight-constrained because of strong VLGC fleet growth, attention will turn to the management of the increasing LPG volumes and the receiving and distribution infrastructures. We believe these developments will help establish LPG as a mainstream fuel and feedstock to the global energy markets in the world economy.

Thank you, and that's over to you, John.

Thank you. And operator, we'll open up for questions now.

(Operator Instructions) Our first question comes from Noah Parquette from JPMorgan.

I just wanted to ask what drove the strength in the rates you accomplished this quarter. Looks like it's well above what market was, even including some sort of fuel efficiency premium.

I think the simple answer is, our chartering team did it. We're very proud of them and it was a good quarter. And the result speaks for itself. I can't point to any specifics for -- for the benefit of our competitors. But I can just say that, it is what you see. And we hope we can continue. And also, we hope the market just improves overall. I mean, we're not just looking at our delta with -- we're happy to see a continuing improvement in the market, which we're looking forward to as the fleet deliveries sort of taper off.

Okay. And I just also want to ask on the Panama Canal, the change in the toll. How do you view that? Is that simply Canal Authority trying to extract a little bit more from your segment? Or is it more like there -- they have plenty of container vessels going through, so that's their bread winner? I mean, how likely do you think you go back the long way instead of going through the canal?

Yes. I really don't know, but I think it is because they have enough volume and they can do it. It is simply demand and supply, frankly. There was, perhaps, a greater percentage of LPG ships going through than they had anticipated. So they see that they can up the ante a bit, and we'll see how it goes.

Okay. Have you changed any of your ship routes yet because of this? Or is it still...

No. Every call, every voyage is a different decision. Our chartering guys look at it, and they will decide whether to -- which way to route. We have slots booked and we have -- we make sure that when we want to use the canal that we can.

(Operator Instructions) And our next question comes from Mike Webber from Wells Fargo.

This is Donald Bogden stepping in for Mike. I just wanted to get your sort of forward expectations for the market. Obviously, you don't have a crystal ball, but as you think of sort of, Sunoco and Mariner 2 coming on this summer and some of the other positive demand fundamentals that you highlighted in your call. I mean, what's your outlook on rates? Are we going to move seasonally soft? Or do you think there is a clear sense from sort of your commercial team that the market's bottomed and you're optimistic about the second half of the year?

It's impossible to tell you what's going to happen in the market. All we see is that the supply of product is there, improving, like John Lycouris said. The demand is there. And the number of ships entering the fleet is waning. So we would like to say that we are positively inclined and that we're optimistic -- cautiously optimistic, but optimistic, nevertheless.

Got you. And then just a follow-up on asset values and sort of S&P liquidity. Obviously, some other peers in this space have sort of consolidated the market over the last call it 6 to 12 months. What's your sense on where VLGC resale values are? Do you see sort of upward pressure on there? Or are things sort of holding near that $65 million level?

We don't see any resales available, actually. And we hope not because we don’t -- we hope not to see any more orders for the time being. But such as they are, if there would be any resales, it would be Chinese and I expect that if there was -- if you have to put a price on it, which, I can't -- I mean, the ship brokers will do that. But I would say they would be somewhere between the $65 million and $70 million level as a resale.

This does conclude the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

No, thank you very much for attending and look forward to next time. Bye-bye everybody. Have a good summer in the meantime.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.