Ladies and gentlemen, good afternoon, and thank you for standing by. Welcome to today's EVENS Gas Holdings Ltd. Second Quarter twenty nineteen Earnings Conference Call. I must advise you that this conference is being recorded today, Thursday, August 2019. I would like now to hand the conference over to your speaker today, Ulrik Andersen.
Please go ahead, sir.
Thank you. Good morning and good afternoon, everybody. My name is Andersen and I'm the CEO of Avance Gas. I'm here today together with Peter Simonsen, our CFO to talk you through the company's Q2 results. I would like to start by saying we are happy to see the interest in the company and in this presentation as well.
Thank you for that. And otherwise, welcome everybody. The presentation will be kept short and focused. And in a moment, I will give the word to Peter, who will present the highlights from Q2. After that, I will talk about the market and the outlooks.
And after the presentation, we are looking forward to answering any questions that you may have. So without further ado, I'll give the word to you, Peter. Thank you. Thank you, Rick.
If you move to Slide four, the key highlights for the second quarter. We achieved TCE earnings of $40,400,000 which is up from $14,000,000 last year last quarter. And this represents 32,002 and $75 in TCE. If you adjust for the IFRS 15 adjustment that we need to make accounting that was implemented first quarter this year, our TCE on a discharge to discharge basis was $34,500 per day. We achieved operating expenses of $8,200 which is slightly up from previous quarter and normally is higher in the second quarter.
And this is due to storing up our ships and also MNR activity for this quarter. And we do expect that this level will return to below 8,000 per ship per day on an average for the year. The same goes for the A and G expenses that were slightly higher this quarter, coming in at $1,500,000 or $1,200 per ship day. This was mainly due to one offs relating to personnel and also office relocation that happened during the second quarter. Our non operating expenses were also impacted by our refinancing, which was concluded during the second quarter, in which we expensed previously capitalized debt issuance costs for the previous financing.
So we expect that this will return to the same level as before, in line with previous quarters going forward. Our net profit came in at $9,800,000 or $0.15 per share. As I mentioned, we completed the full refinancing as announced in our first quarter presentation and had an outstanding debt gross of $515,000,000 per end quarter. We have we are in this final process of ordering three additional scrubbers or exhaust cleaning systems, which we expect to conclude shortly. And these will be updated in the report.
We are expecting these to be completed by early first quarter twenty twenty. We are also considering what we are doing with further discovery investments, but this is what has been what we announced today. In terms of chartering, we entered into a one year TC, being the first TC we have done for quite a while at 1,200,000.0 per month for Mistral, which commenced in the July and will run until mid next year. Looking at our cash position, we came in with a cash position of $67,000,000 slightly up from the previous quarter. But if you look in our balance sheet, we had quite high receivables, and we have built that cash position up significantly up to $91,000,000 per today's date, which makes us able to pay down our additional tranche of debt that we have outstanding, which then will enable us today to return to normalized terms as we have before.
We have also announced that we have 80% of total ship days for Q3 fixed at approximately $45,000 per day. And with the cash breakeven that we have in our new financing maintained at around $22,000 per day currently, this would generate approximately approximately $150,000,000 on an annualized basis in free cash flow at the rate levels indicated. If we move to Slide five. As mentioned, we have a cash breakeven of $21,900 estimated for 2020. And this excludes scrubbers, scrubber investments and drydocking.
We continue to maintain this tight cost level, and this will enable us to generate significant cash flow at what looks to be a strong freight market outlook. I will then pass the word back to you, Ulrik.
Yes. Thank you, Gideon. So if we turn to Slide number six, I'm just going to give a quick look or give a quick explanation on what happened in the second quarter. The market followed what are the, call it, typical seasonality where we had a stronger Q2 than Q1. The market rose quite dramatically, in fact, during the quarter as it appears on the graph, almost doubled in the period.
This increase was mainly driven by a widening of the after product differential price between the Far East and The U. S. Gulf. This widening led to a tighter ship situation and then, of course, increased the rates at the same time. It did begin already in the end of Q1, we only really see it filtering down to the freight rates during Q2.
We also did see Marcus Hook come online with additional cargo, which of course aided the development. Finally, we had a couple of one off events in the sense that we had a hurricane and we also had a ship collision. But I'd like to underline that it was the fundamentals driving this increase and not these one off events. If we turn the page to Page number seven, I'd like to talk a bit about the supply and demand and what we can expect here. If we start with the fleet supply, we are currently looking at an order book which stands at 36 vessels.
Seven more to go this year. The 36 represent around 13% of the total fleet, which is not as significant as we have seen in the past. Also, have to remember that there's going to be some scrapping activity and we here at Avance Gas are assuming the twenty eighth year of a vessel's lifetime to be the scrapping year. It's just been the historic average and we think that's a fair assumption. And if we take the scrappings out of the equation and look at the net growth, we are looking at net additions to the fleet less than 5% over the coming over this year, the next year and the following year.
So what we believe to be reasonable additions when we look at the growth on the other side of the equation, which I will return to in a second. I think it's worthwhile pointing out also when we are talking about the fleet supply that any order for a new building placed today is unlikely to be delivered until the end of twenty twenty one, at least if you want an LPG dual fuel engine. So fundamentally speaking, the supply side is locked for the next one point five years, maybe a little less, but something like that. We also see some other factors impacting the fleet supply. We have obviously the IMO 2020 regulations coming up.
We expect to see vessels going into drydock to retrofit scrubbers. This will of course take out capacity. But there's also all vessels that are not already installed with the or have already installed scrubbers will have to clean up their tanks. It will take some days to clean the tanks. And all of this will of course disrupt the ship owners' program.
So we think that will add a bit of additional ton mile in the end of the year, maybe also in the beginning of the year for that matter. So all in all, we are relatively comfortable about supply side and we remain positive that it will not grow significantly seeing that most traders have placed orders in recent years and the owners seem to be happy with their current situations. If we turn the page again to the Page number eight, we'd like to look at the other side of the equation, the production and the export side. And what we can conclude is that The U. S.
Continues to be the growth engine for the LPG VLGC market. This year EIA forecast another 7,000,000 tons of U. S. LPG production followed by another 4,000,000 next year. And yes, obviously these numbers are very significant and means that The U.
S. Is very, very full with LPG. At the same time, we see the export capacity growing as well, which I will return to in just one second. One point with regards to the production is that the domestic consumption is expected to be very low, which means that you have basically all of this cargo available for export if the prices are correct. So we don't see the production in The U.
S. As a bottleneck at all. On the contrary, there's plenty of LPG available for export. So that leaves or begs the question whether that export will actually be exported. And if we turn to Page number nine, we can see that U.
S. LPG export capacity continues to rise. We saw already, as mentioned, coming online with four to five cargoes this year. And we have two enterprise expansion projects coming onstream in the near future as well. The first already in Q3 and a second quite large expansion in Q3 next year.
On top of that, Targa is also expanding. So altogether, The U. S. Export capacity is really growing. The important thing to note here is that we are talking export capacities, not actual export.
So whether this goes or not will depend on pricing and on other factors. But it's important to underline that the capacities are really growing significantly and not looking to slow down. This is obviously positive. So if we turn to Page number 10, the next question that is interesting to ask after having concluded that we have plenty of LPG production and plenty of export capacities. Is this also moving and other capacities being utilized?
We cannot say for sure, but what we can say and what we can see is that the trend has been positive. Year on year terminal capacities and the terminals continue to rise on their utilization. They continue to export more tons. And what we also note is that more and more tons go to the Far East, which obviously is good for the ton mile because it's a long haul route. We don't see that changing in the future.
So all of the extra tonnes that come out will for the majority of the additional tonnes will go Far East. That's the expectation that we have. All good for the market, of course. Arguably, S. Is the engine for the VLGC markets.
But then nonetheless, if you turn to Page eight, I'll just quickly spend a few moments talking about the Middle East exports as well. Obviously, the region is important because there's a lot of tons coming out. But going forward, it will be The U. S. That is going to drive the growth.
What we see in The Middle East at the moment is a flat development. We have some Iran sanctions that are hampering a little bit some of the Iranian export, although some of it is moving on Chinese ships and others who can lift out of the country, then it is capping what is coming out a little bit the way we see it. And it means that basically The Middle East will be flat in the coming years. This of course in turn means that any additional demand, which is likely to come from China, from India and from Southeast Asia has to be sourced from The U. S.
Obviously, at the moment China cannot source from The U. S, but I'll come back to that. But all additional demand will somehow have to be sourced from The U. S. Because there is no more product to come from out of the Middle East Gulf.
There are other regions as well that are producing LPG and coming on stream. We have had Australia with some minor projects, which are also helping the market. We also see AltaGas in Canada coming on stream later this year. I have not put them in here, definitely worthwhile mentioning as well. So we think that's a quite positive story.
And before I jump into concluding remarks, I just want to bring up S. Trade war. It has been I think for good reason on everybody's lips for the last maybe twelve months or more and it has had a massive impact on many different sectors. However, what I want to show here today is that for the VLGC shipping, the impact is limited going forward.
What impact has been is sort of absorbed. What we can see on the graph is that today there is no import from The U. S. Into China. So what has happened is that the traders and importers have reshuffled their programs.
They have taken the tons now that they used to take from The U. S. From the Middle East Gulf. And those tons that China has taken from Middle East Gulf have been replaced by U. S.
Tons. So in turn the parcel sort of works out at the end of the day. We have seen cargo now go from The U. S. To India, which is a trade we have never seen before.
The point I want to make here is that since this is now accounted for even if the trade war continues, which we don't hope for, we want to see free trade in the world. But if it continues, the impact for the VLGC segment is very limited, if there is any at all. Good. On that note, I'd like to turn to our last slide of the presentation today, which is just recapping a few of the points we have tried to bring across to you. What we see today is a very positive market outlook, and we feel that Avance Gas is in a very comfortable place.
We have a significant cash generation as shown by Peter earlier in the presentation. We have a very attractive cash breakeven. And we feel that with the markets how we expect the markets to develop, we are in a very strong position to capitalize on that. Finally, the final point here on the slide is a business review process, which we will also initiate. I've only landed here in the chair not so long ago, but naturally the next weeks and months will be spent on getting a deeper understanding for the organization and see if there are any places where we can change and improve.
We will come back on that as and when we can.
With
that, it concludes the formal part of the presentation. And yes, I'll hand the word over to the mediator, and thank you for your attention.
We are now open for questions, operator.
Thank We have no questions for the moment. You can continue.
Okay. Then I would like to thank you for dialing in and joining us, and see you next quarter. Thank you very much.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.