Dorian LPG Ltd (LPG) 2019 Q1 法說會逐字稿

Greetings, and welcome to the Dorian LPG First Quarter Fiscal 2019 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ted Young, CFO. Please go ahead, sir.

Thank you, operator. Many of the company's 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 the company believes that such forward-looking statements are reasonable, the company 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 the company expresses today.

Additionally, let me refer you to the company's fiscal first quarter 2019 results filed this morning with the SEC on Form 10-Q, where you'll find risk factors that could cause actual results to deliver -- to differ materially from those forward-looking statements.

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

Thank you, Ted, and welcome to our fiscal first quarter 2019 earnings call. The focus of today's call will be our quarterly results, which were published earlier today.

We continue to evaluate the BW LPG proposal along with all opportunities to create value and continuing -- and we continue to execute on our business plan to efficiently deploy our industry-leading fleet. We will not be discussing any aspects of the BW LPG proposal, including their proposed slate of directors on this call or during Q&A.

We continue to see that charters and owners are focused on preparation for the new fuel standards heading into 2020, and our fleet of ECO vessels continues to prove its value by achieving lower fuel consumption and reduced greenhouse emissions. John Lycouris will discuss this in more detail and which I think you will find very interesting.

In the quarter, the Baltic hit a low of $19.09 in April before recovering into the 30s in May and June. While competitors in the U.S. Gulf took a view to secure employment at discounted rates well below OpEx, we believe the recovery was eminent and the rising rates would justify some idle time. We additionally focused on short-haul premium cargoes, keeping vessels in the region for the recovery, which resulted in more ballast coming from the East, impacting the result, but paying back when the market recovered. We were not rewarded with a timely recovery. The winter in the U.S. and a continuous draw on Belvieu lasted much longer than expected, with snow even in mid-April. So more vessels entered the U.S. Gulf, creating a larger overhang. And even as rates recovered, our upside was dampened by increased idle time.

In July, 3.5 million tons were shipped from the Arabian Gulf and 2.9 million tons from the U.S., an increase of 450,000 and 600,000 tons over June, respectively, according to Waterborne, a record 62 VLGCs loaded in the U.S. The Baltic index peaked at just under $40, the highest since February 2016. It is noteworthy that the 2016 TC equivalent of -- was $35,000 a day versus $22,000 this last July. The difference, of course, is due to higher bunker prices. And this is a very vivid illustration of the vulnerability to higher bunker cost of non-ECO ships.

Now Ted will review our financials.

Thanks, John. In my remarks today, I'd like to focus on financing, liquidity and costs. The Japanese financing secured by the 3 captains that were completed at the end of the quarter were attractively priced with low all-in cash cost sub-$6,700 per day for all 3 vessels over the life of the deal.

The 26-year amortization profiles were particularly attractive compared to what we've typically seen from our traditional sources of debt capital and highlights our focus on all-in cash cost per day. With the completion of those 3 transactions in June, we have no debt refinancings until 2022.

At this point, we have over 90% of our debt fixed outright or hedged with a current weighted average interest rate of around 4.1%. Thus, we have long-dated, low-interest debt with very manageable financing cost per day.

Having closed the quarter with over $100 million in unrestricted and restricted cash, our liquidity position remains quite strong. Unfortunately, the weak market rates in March and April affected our cash flow from operations, as bookings in those months turned into cash during May and June.

On the upside, OpEx was lower versus the same quarter last year, reflecting some continued efficiency in crew cost. While we always look for areas to be more efficient in operating cost, we do expect some modest increase in repairs and maintenance expense this year, as we have several preventive maintenance programs planned for the remainder of the fiscal year.

Total G&A was comparable to last year, and excluding noncash compensation expense, G&A was actually down by 3.4% versus the same quarter last year in spite of unfavorable exchange rate movements.

I would note that our reported net interest expense for the quarter of $10.7 million or $9.4 million, excluding the deferred financing fees and other related expenses in that line item, was affected by the increased cost of the DNB bridge loan during the quarter. Going forward, for the remainder of the year, we estimate cash interest expense of roughly $8 million per quarter.

Finally, excluding professional fees associated with the BW LPG proposal, we maintain cash cost per day of approximately $23,000.

With that, I will turn it over to John Lycouris.

Thank you, Ted. As John mentioned, I want to talk about the 2020 SOx regulations and the upcoming scrubber discussions that many of you have had.

Since 2013, when the Dorian ECO VLGC fleet was ordered, the vessel specifications incorporated features to accommodate future retrofit of scrubber installation and/or engine upgrade for LPG as fuel. These were planned in anticipation of the upcoming 2020 SOx regulations and the progressive abatement of greenhouse gas emissions at sea and imports around the world.

Among the designed upgrade features, a number of our vessels were built with enlarged funnels to accommodate hybrid multistream scrubber installation, modified main engine and auxiliary engines, exhaust, and decks to support scrubber retrofit installation and also upgraded with surplus electrical power capacity to support large power consumer requirements in the future. We therefore expect that the Dorian LPG fleet will benefit from lower retrofit cost and faster vessel installation turnaround.

In the past month, Dorian LPG contracted with Clean Marine, an industry-leading scrubber manufacturer, for the delivery of 7 hybrid Allstream exhaust gas cleaning systems, which will be installed during 2019, ahead of the implementation of the 2020 IMO regulations. This upgrade project is consistent with Dorian LPG's forward-thinking approach to environmental initiatives and to regulation compliance. And it also provides an additional competitive advantage to the benefits already achieved by operating a fleet of vessels that is predominantly comprised of ECO VLGCs. The company expects a project cost of approximately -- to cost approximately $20 million for the supply and the installation of these scrubber systems.

Regarding our LPG as fuel initiative, Dorian LPG has actively engaged with MAN Energy Solutions in Copenhagen. They are the manufacturers of all Dorian LPG ECO vessel main engines. And to advance the development, MAN has developed an engine called ME-LGIP dual-fuel engine for LPG as fuel. We are now pleased to report that the upgrade option of our ECO VLGC vessels to consume LPG as fuel is coming closer to realization when next month we participate in the live presentation of the first MAN ME-LGIP engine in operation at the MAN Energy Solutions headquarters in Copenhagen.

Thank you very much. And I'll pass it over to John Hadjipateras for closing the meeting.

Thank you all for attending. And if there any questions, we'll pass it on to -- operator, please handle that for us. Thank you.

(Operator Instructions) Our first question is coming from Michael Webber from Wells Fargo.

This is Greg on for Mike. I know you said you weren't going to take any questions. But given the development of the public support from some of your shareholders, SEACOR, for example, how is that factored into the board's decision making for the merger?

John -- Ted, yes.

Look, that's a completely understandable question. But as we said, we're really not in the position to take -- to discuss it publicly. I would say that the board has been quite clear that it respects and appreciates the feedback of all shareholders. So you can read into that, what you like. But I think beyond that, we're really limited in what we can say at this juncture.

Okay, understandable. And then can you just remind us when your annual meeting is, if you've scheduled it yet?

It has not yet been scheduled.

Okay. And then just going over to the MOU with Hyundai, what do you think the time line would be like in the CapEx requirements for those conversions? Just your initial thoughts around there.

I think that we're looking into 2020 year before the engine will become commercially available and we will be able to do the upgrade on our engines.

Okay, so assuming everything goes well, we're looking at 2020 before anything actually goes into motion?

Correct.

(Operator Instructions) There are no further questions. I'll turn the floor back over to management for any further or closing comments.

Okay. Well, thank you all very much, and wish you all a happy rest of the summer. Thank you. Bye-bye.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.