Earnings Call: Q4 2020

Mar 1, 2021

Gentlemen, welcome to BW LPG's 4th Quarter 2020 Financial Results Presentation. We will begin shortly. Bringing you through the presentation today will be CEO, Anders Onerheim CFO, Elaine Ong EVP, Commercial, Niels Rygiel And EVP Technical and Operations, Montesburg, they will be pleased to address any questions After the presentation, or type your questions into the chat box on the website. You will receive further instructions as required. Before we begin, I would like to highlight the legal disclaimers shown in the current slide. I'm now pleased to turn the call over to BW LPG's CEO, Mr. Anders Onerheim. Please go ahead. Thank you, and welcome to the presentation of our results for the Q4 of 2020 ending 31 December. As mentioned, I'm joined with our by our CFO, Elaine Ong our EVP, Commercial, Neil Frigault and our EVP, Technical and Operations, Paunte Thank you for joining us, and we will take questions at the end of the call. 2020 has been a year like no other. And into the Q1 of 2021, we still see COVID-nineteen continuing to threaten our health and disrupt economic activities. I would like to take the opportunity to thank our 2,000 plus employees onshore and at sea, who keep global trade going in the face of personal and professional challenges. It's this kind of resilience against strong headwinds, I think defines who we are as a company. If we go on to the next slide, Slide 4. In the face of challenges from COVID-nineteen, we continue our momentum act on climate change and decarbonization and deliver cleaner energy to world markets sustainably. Our program to retrofit our VLGCs with pioneering LPG propulsion technology is progressing on budget and with 0 safety incidents. Our retrofitted vessels, the BW Gemini, the BW LEO, the BW Orion and BW Libre are now on water, serving customers with the lowest emissions profile in the whole VLGC sector. VW Gemini has also completed her full Ron Voyage with LPG at Primary Fuel, and we are proud to partner with Antibody Products on this historic voyage. Our Proteus Services department has lifted the world's largest LPG cargo from the enterprise terminal 2020, we announced our commitment to retrofit an additional 3 VLGCs with this LPG propulsion technology. This is bringing the total to 15 vessels with an investment of over $130,000,000 And this is the largest single this is the sector's single largest commitment The decarbonization in 2020. We aim to show that while there are vast number of users for LPG, There's only one way to ship it sustainably with us at BW LPG. If we move into earnings on the Slide 5. We're proud to end 2020 on a strong note and once again to return cash to our shareholders. In the Q4, TCE rates in our VLGC fleet averaged $37,300 per calendar day with the fleet wide utilization of 89%. The off hire was mainly due to the retrofits of LPG repulsions on BW LEO, BWRI and BW Libre. Commercially, we achieved $40,700 per available day with consistently high commercial utilization of 97%. And this strong performance translates to a net profit after tax of $77,000,000 or an earnings per share of $0.55 This includes the write back of vessel impairment charge of $12,400,000 Excluding this effect, our net profit after tax was $64,800,000 and earnings per share of $0.46 This brings our full year 2020 net profit after tax to $244,000,000 or an earnings per share of 1.76 Full year return on equity was 20% with $331,000,000 of free cash flow. Once again, we're happy to announce that the Board has declared a Q4 dividend, cash dividend of $0.35 per share amounting to $47,000,000 This translates to a payout ratio of 73% for the quarter, excluding the write back of vessel impairment charges. And with this dividend, BW LPG has declared a total of $0.84 per share for 2020, representing about 50% with the $1.67 per share in accumulated earnings per share. This is in line with our target payout ratio of 50% on an annual basis. And notably BW LPG is the only listed BLGC company that has consistently paid dividends to shareholders throughout this volatile year of 2020. Turning to Page 6, where you quickly the key financials of the quarter. Following the V shaped recovery in VLGC freight rates in Q3, rates remain high and strengthened further in Q4 due to strong underlying fundamentals and high shipping inefficiencies. VODC freight rates have peaked at over $100,000 a day in December early January. Our VLGC day rate came in at $37,300 per in the Q4 and this allows us to generate an annualized return on capital employed of 15% and annualized return on equity of 25% for the quarter. Strengthening and deleveraging our balance sheet have been one of the key cast for 2020. Our strong cash flows from operations have enabled us to return cash to shareholders, while at the same time paying down our debts. Our net leverage ratio has decreased significantly from 50% in the Q4 of 2019 to 44% in the Q4 of 2020, And we're very comfortable with these levels. Next up is Niels, who will take you through the market review and commercial update. Thank you, Anders, and good afternoon, morning to all of you. Q4 was a quarter of records, Supported by record high U. S. LPG export and widening LPG price arbitrage due to strong heating demand from Asia And the record high number of waiting days at the Panama Canal Transit. Towards the end of November 2020, We saw the largest daily movements on the VLGC Volpek Index with a jump of 25% in TCE or about $15,000 per day increase in one day. The positive momentum continues and we'll receive Baltic Index measured from Raptanura to Chiva Shortly rallied above $100 per metric ton for the first time since 2015. Consequently, The VLCC freight rate from Houston to Ziva also jumped and doubled from an average of $90 per metric ton in October to around $80 per metric tonne in December or a TCE equivalent of over $100,000 per day. However, the positive momentum from Q4 have changed completely to a negative sign in Q1, And we experienced a record drop in WLGC freight rates towards the end of January to OpEx levels today. And we expect the market in Q2 to be under pressure. However, We had most of our vessels fixed before the market collapsed to OpEx level. In Q1, we have fixed approximately 80% of our spot Despite the current correction in VLCC Freights, we continue to hold a positive market outlook for the second half of twenty twenty one. This is driven by continued high shipping inefficiencies, resilient U. S. LPG production, potentially recovery in the Middle East production due to strong oil price And still Robert's underlying demand for LPG. Let's turn to Slide 9 and talk about the LPG seaborne trade. In 2020, U. S. LPG production remained robust despite lower oil and gas prices compared to 2019. Growth in the U. S. LPG export continues to offset the falling supply from other export regions. U. S. Exported Number of VLCC cargoes in 2020 with an average of 70 cargoes loaded per month. BW LPG was the largest lifter out of the U. S. With a 20% total market share. We are twice as big as the 2nd lifter in the area. Due to the negative impact of COVID-nineteen, LPG import by most of the major importers have fallen excess India. India has proven to be the most consistent And meaningful driver of LPG demand in 2020. And its total LPG import have increased by 11% to 16,000,000 tons. BW LPG is proud to take part of the Indian growth story. We are now the largest We have the C operator in India with 9 GoToC in business, including 5 Indian flagged vessels. LPG import into China had decreased in 2020. However, we have seen Chinese import recovering towards the end of 2020. In 2021, we expect to see the newly commissioned PDA plant and thin crackers in China to ramp up production as well as In Slide 10, you will see EEI's short term energy outlook released in February. Interesting part here is that they have revised the 21 U. S. LPG production up significantly and had such expected the LPG export to grow by 4% from 2020 to 48,000,000 tons. Notably, This is the first time EAI estimated growth in U. S. LPG export in 2021 since the February release in 2020. Talking about in Slide 11, the VLCC fleet profile. As of 10 February 2021, the newbuild order book 14% of the current fleet of 3 0 5 units. Given the uncertainties of how technology will develop to meet the 2030 IMO targets, we see no benefit from ordering new vessels today. Our focus is to make sure we will have the right technology for the future. Over 80% of the order book is LPG propulsion. From an environmental and economic perspective, we want to continue To stress that there is no reason to order new ships to make the fleet more efficient. 50% of the current fleet can be retrofitted With the same technology for about $8,000,000 instead of $80,000,000 plus for newbuild. In Slide 12, we talk about inefficiencies, which continue to reduce fleet supply. In December 2020, long waiting days in Panamax Canal transit has been one of the key drivers for the stronger LNG freight rates. The concession in Panamakena was mainly due to seasonally high number of LNG and container carriers, transits and delays due to COVID-nineteen. Since January 1, Panmecanal Authority has implemented the new pre booking rules for Neo Panmec Transit, which will affect the VLCCs. We expect the new booking rule with the recent increase in Panmak Canal Transitory will lead to continued delays in transit Via the Cape is over 60% longer than from Houston to Chiva via the Panama, which of course will have Positive impact on freight rates. Other inefficiencies have been the dry docks. 25% of the fleet are due for dry dock in 2021, and this will offset the growth in fleet and support built to ship rates. Slide 14 and 15 is our commercial performance in numbers. In the Q4, we have maintained constantly high commercial utilization of 97%, which led to a strong spot $43,400 per day. However, we had a high number of off hire days Q4, due to the dry docking, and we expect this to continue in the coming quarters in line with our announced LVT retrofit program. In 2020, despite the volatilities and uncertainties in the market, we managed to achieve a very strong commercial results. This translates into high operational cash flows of $398,000,000 and enable us to return cash to shareholders, Strengthen our balance sheet and at the same time invest in LPG propulsion technology. Let's turn to Slide 16 about our time charter portfolio overviews. Our 2021 time charter out coverage stands at 24% with an average income of $3,200 per day. Our time charter in coverage Stands at 15% with an average cost of $26,300. Hence, we have a positive net position of $43,000,000 for our time charter portfolio. Most of our TET contracts will expire in 2021 and in 2022, And we are comfortable at the coverage level for now. That's it for me, and I will hand over to our technical and operation Headmarke, from Forsberg. Thank you very much, Neil. Turning to Page 18. We continue to deliver strong technical and operational performance in the quarter with market leading OpEx despite the unprecedented global challenges. We have in last week reached 600 days without any serious injuries or accidents on our in house fleet. This is an achievement we are proud of, It also showcased our seriousness towards safety and our Zero Harm initiative, which in all fairness is our ticket to trade. In Q4, the crude changing situation looked very promising with high numbers of crude movements. Unfortunately, the situation has worsened since due to increased number of COVID-nineteen cases and its mutated versions globally. During the pandemic time in 2020, we managed over 500 crew moments with 0 positive cases on board, all due very strict pre travel and quarantine procedures. In fact, we spent somewhat over 10,000 man days of quarantine in 2020. We have managed to save over 5,300 metric tons of bunker fuel in 2020. This is due to our usage of Smart Voyage Routing, And that equates to about $2,500,000 in direct savings. By the end of We will have approximately 22 vessels fully connected to our Alfaore SmartShip solution for even more accurate real time monitoring and support to the crews. Our LPG dry docks and retrofits remain on track, and the first four LPG propulsion retrofits have been Successfully completed on budget and with 0 safety incidents. And as Anders mentioned, they are all out sailing serving our customers. 11 retrofits remain with 8 scheduled for 2021 and the final 3 likely in 2022. The 5th 1, BW Balder, In response to the recent softening in the VLGC freight market, We are advancing 6 to 7 of our planned dry dockings and LGIP conversions for commencement in Q1 or Q2. We have also chartered a pressurized LPG vessel from our sister company, EPIC Gas, for storage of our LPG Hill during the dockings. This strategic alliance help us reduce potential delays, high cost and dependence on terminal schedules for gas up and LPG bunkering after drydockings. We expect a saving per docking of about $200,000 to $300,000 by doing this as well. This will also ensure that And with that, let me turn over to our CFO, Elaine Ong, who will walk you through the financial position and results. Thanks, Pontus. Here on Page 20 is an overview of our income statement. Our TCE income was $138,000,000 for the quarter $551,000,000 for full year 2020. Included in our TCE income for the quarter is a negative $13,000,000 impact Related to the effects of IFRS 15 were spot voyages that straddle the quarter end have to be accounted for on a low to discharge basis. Vessel operating expenses came in at $8,500 per day for the quarter and $7,700 per day for full year 2020. This includes additional crew costs due to the impact of COVID-nineteen. Excluding these one Our operating expenses are in line with our expected run rate for 2020. Starting this quarter, we have also presented separately on the income statement the vessel OpEx component relating to our time charter in contracts due to the requirements of IFRS 16 on leases. Doing so, we believe, will more clearly segregate the actual vessel operating expenses of our managed fleet from the effects of IFRS 16. EBITDA came in at $107,000,000 for the quarter And $414,000,000 for full year 2020, representing a strong EBITDA margin of 78% 75%, respectively. As previously highlighted at the start of 2020, we revised our vessels useful life from 30 years to 25 years. This added $6,000,000 to our quarterly depreciation or $24,000,000 for full year 2020. We also recorded a mark to market gain of $8,300,000 relating to our investment in the equity shares of Avance Gas based on the closing price as of the 31 December 2020. Despite the recent correction in the VLGC freight market, VLGC asset values did improve towards the end of 2020. As such, We recorded a write back on previous impairment charges of about $12,000,000 as broker based fleet valuation has increased. Our net profit after tax for this quarter was $77,000,000 or $0.55 per share. If we adjust for the $12,000,000 write back Of impairment charges this quarter, our earnings per share would have been $0.46 for Q4 2020. For full year, our net profit after tax was $244,000,000 or $1.76 per share, yielding a return of equity of 20%. Turning to Page 21, we provide a snap Chart of our balance sheet and cash flow statement. Our vessels book values supported by broker valuations Stood at $1,800,000,000 at the end of the quarter after the delivery of BW Birch and BW SIDA to our Indian joint venture. BW Birch was delivered to a new owner in November and BW Cedar was delivered in December. Shareholders' equity was $1,300,000,000 or $9.06 per share. During Quarter, we continue to generate positive cash flows from our operating activities and ended the quarter with $56,000,000 of cash. In the Q4, we drew down $70,000,000 of our revolving credit facility, mainly for the early repayment of our $150,000,000 term loan, Equity investments and capital expenditures related to our LPG Propulsion retrofits. We have $230,000,000 of undrawn revolving credit Facility, which gives us $286,000,000 of available liquidity at quarter end. Looking at our cash position for the full year 2020, We have generated a strong cash flow from operations of $398,000,000 Throughout the year 2020, we have paid approximately $6,000,000 in total CapEx, of which $54,000,000 relates to LPG Propulsion retrofits, dollars 6,000,000 for scrubber installations and $6,000,000 in regular maintenance CapEx. This leaves us with $331,000,000 of free cash flow for the year, reflecting Our strong operating activities and commercial performance, prudent capital spending and disciplined operational execution. Our free cash flow has allowed us to pay down our debt and return cash to our shareholders. For full year 2020, we have declared a total of $160,000,000 in dividends, equivalent to $0.84 per share. As you can see here on Page 22, over the last 12 months, we repaid $236,000,000 of our debt, Thereby reducing our leverage significantly from 50% at the end of 2019 to 44% at the end of 2020. Our all in cash breakeven for 2021 is $28,000 per day, which is the average TCE needed in 2021 to cover all our cash costs. The higher all in cash breakeven in 2021 is mainly due to the equity portion of our expected 2021 LPG propulsion retrofit spend. Our operating cash breakeven remained low at $21,900 per day. Our net debt position at the end of the quarter was $990,000,000 Of this, $188,000,000 relates to lease liabilities arising from our time charter in vessels, while $34,000,000 relates to borrowings from our trade finance facilities. In October 2020, we fully repaid our $150,000,000 term loan, Which leaves us with approximately $830,000,000 in debt outstanding that is related to our remaining 4 term loans and RCF. And we will have no major balloon payments due in the next 5 years. On this note, I would like to hand the time back to Anders to conclude our presentation. Thank you, Elaine. So at Page 25, I'll try to summarize this presentation. So as you will see, despite a challenging 2020, we ended the year on a strong note and generated earnings per share of $0.55 in the quarter And with $1.76 for the full year 2020. And on the back of these strong earnings and taking into consideration our balance sheet, liquidity, CapEx and updated market outlook. The Board has declared a cash dividend for the 2nd quarter for the final quarter of $0.34 per share, a month of $47,000,000 And again, this brings total dividends declared for full year 2020 to $0.84 per share, amounted to $160,000,000 That translates to a payout ratio of 73% for the quarter and 50% for 2020. Subsequent to the quarter end, we have taken over the ownership of BW Empress in January 2021. And we have delivered the BW Elm to our Indian joint venture, Global United LPG Private Limited in February 2021. The sale of BW Confidence was not completed as final agreement was not reached with the buyer. There are still interested parties there are several interested parties in the vessel There's no monetary loss via the VLPG on the cancellation of the sale. Finally, I would like to just comment briefly on our outlook for the VLGC market. As Neil said, despite the recent correction in the VLGC freight rates, we continue to hold an optimistic market outlook the second half of twenty twenty one. Having said that, we expect the market to remain extremely volatile, and it's going to take a little bit of time before we Can see the good rates that we're looking forward to enjoying. So with that, I'd like to open the call for questions. Thank you, sir. Ladies and gentlemen, we will begin our question and answer session now. We will now open the lines for questions. And wait for your name to be announced. You can also type your questions online on the webcast. We have a question from the line of Lucas Sir, Duane, please ask your questions. Thank you. Good afternoon, everyone. Anders, I was just wondering, obviously, you are making 15 retrofits. It seems to be good economics in it for you, and it makes sort of perfect sense. But I talking to the investor base, I think there is a bit of a split view on LPG in terms of its carbon footprint. So Why don't you sort of share some of your thoughts of what your financiers are telling you when you are sort of undergoing this So, referencing program. I can start and I can also let Alain give Details if you want. But I think in general, we get very positive response from all our financiers. And I think some of the, I call it initial, at least question marks, is that it this is sort of the first time it's being used. And I think and I'm sure the investors and others want to see a little bit over time, how in fact how the operations are working and What are the financial or economic benefits also? So I think we are very encouraged by Feedback and we also we think it's a good long term investment also in our fleet. So And while the prices will vary and so the economic benefit will vary depending on what the spreads are between LPG and compliant fuel, We think it's over time is going to prove to be very beneficial. And I think again, we These days when we talk so much about sustainability and ESG, I think for us this is important to show that we're actually doing something. It's I've said it before, it's not just a page a glossy page in our annual report. We're actually making investments and showing that We will be part of driving the shipping industry towards 0 carbon. So and I think for us also, It's clear that this is at least an important first step. And so again for us, it's doing the conversions rather than doing new. As Neil said, it Makes a lot of sense. Both the carbon footprint is much better and we think economics are better also. Okay. And you obviously made a strong case for people rather doing the retrofits So then ordering your electrodes, but I think Nigel mentioned sort of An 80 plus figure in terms of what it costs to order a new bill today. Is that did I catch it correctly, Nigel? I think Anil is up. I mean, I think, yes, it's more than 80, yes. Including the dual fuel? Yes. Okay. Thank you, guys. Thank you. Okay. Operator, we have a question from the webcast From Anders Karlsson in Danske Bank Markets. He asks, can you quantify the estimated savings in fuel From the initial phase of LPG propulsion experience. Okay. I mean, this very much depends on what the price spreads between LPG and compliant fuel. At the moment, it's given that LPG prices have Quite high given the cold streak we had in the U. S. That spread is not going to be very large. But it's still at levels today, we're still saving more than $2,000 per day. And of course, when we look going forward prices, It indicates a spread of somewhere around $125 and that gives us Savings of about $6,000 per day. And wait for your name to be announced. Okay. There is no further question on the webcast. I would just like To add a short detail to Lucas' question on the environmental benefits of LPG proportion and highlight that we're also out with a new sustainability report That goes into detail of the benefit of LPG proportions. So we encourage everyone to take a look at that report. If there's no further questions, I think we can close the call. Thank you, sir. There are no further questions on the line. Well, thank you very much everybody for attending, And have a great day. Thank you, sir. We have come to the end of today's presentation. Thank you for attending BW LPG's 4th quarter 2020 financial results presentation. More information on BW LPG is available online at www.bwlpg.com. Goodbye.