Good day. Thank you for standing by. Welcome to the Avance Gas Holding Limited first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one and one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Alternatively, you may submit your question via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Øystein Kalleklev, Chief Executive Officer of the company. Please go ahead.
Thank you, Heidi. Welcome everybody to Avance Gas first quarter results. On the front page here, you will see our newest addition to the fleet. It's Avance Avior, dual fuel, large VLGC, which we took delivery, not from DSME, but actually from Hanwha Ocean. It's the second ship delivered from Hanwha Ocean after they changed or rebranded the name from DSME to Hanwha Ocean just now, recently. We took delivery of the ship 10:05 local time. She's just finished bunkering and ready to set sail into our booming spot market. Today, I also have on Randi Navdal Bekkelund , who's our CFO. We will go through the numbers a bit later in the presentation. Before we begin, I would like to highlight our disclaimer.
We will be presenting some non-GAAP measure here as time charter equivalent earnings, TCE income, and of course, this is a rather short presentation, so there are limits to how much details we can provide. Also, just please note that you can ask questions either through our telephone conference or through our chat function. We're gonna do all the Q&A after we have finalized the presentation of today. Okay, let's begin. First quarter numbers. Actually, the highest profit we ever delivered before in our first quarter, with the earnings or net profits coming in at $36.3 million. The commercial figures were very much in line with guidance. We delivered the load to discharge numbers at 58,400, in line with the $58,000 we guided.
On the discharge to discharge number, $55,500, also in line with the $55,000 guiding we provided in end of February. This means $0.47 per share in earnings, which is slightly higher than the numbers we delivered in Q4, which was actually the best number we have delivered since 2015. I've already touched upon the Avance Avior, which we took delivery of this night. We also had the delivery of the third ship, Avance Rigel, in early February this year. This means that we will have more ships in full operations for the second and the third quarter.
During the quarter, we have also increased our coverage through forward rate agreements, our FFA, and the coverage now is almost two ships on FFA cover for the second half of the year. I will provide more details on this shortly. Spot market, after having a bit of a slip during Easter, it's bounced back. We've been able to book very good numbers for Q2 as well. We are guiding $50,000 per day on a discharge to discharge basis and load to discharge basis for the second quarter. With more ships in work for the second quarter than the first quarter, we do expect that the bottom line will not be far off the record high numbers we delivered for the first quarter. The market now is even better.
Depending on the route, $80,000-$100,000 per day for freight, where the shortest hauls are at $100, and the longest, like Houston to Far East, is trading at slightly above $80,000 per day. This is the market we are putting Avance Avior into today. This is actually for our modern non-scrubber vessels or ships, with dual fuel and bigger parcel size has some earnings premium to this level. As I mentioned, we have pretty good coverage also for second half through both FFAs and some time charters, which I will cover shortly. With the good numbers, a very good, strong financial position with $220 million of cash at quarter end, we don't see any need to reduce the dividend.
We keep it at the $0.50 we paid out for Q4. This gives a yield of 26%. If we look at the dividend the last four quarters, it's $1.4 per share, or about 18%. I think this should give people a pretty good yield sticking to the Avance Gas shares. Okay. Let's just look a bit into the performance. With a good spot market is, of course, the spot rates that is driving the results. We have kept about 40% coverage for this year, and the TC rates, some fixed, some variable, is delivered $40,000 for the Q1. Spot rates, with the good rate levels at the beginning of the year, we delivered $71,000. We had some hedging through FFAs, which I will cover shortly.
Excluding those, TCE for the fleet was $62,100 for Q1, and adjusted for those hedges, we delivered for our fleet, $58,400. For Q2, we expect TC rates to be slightly lower, $36,000. Spot rates not that far away, $60,000, which means $50,000 for the fleet or $52,000, excluding the FFA hedging. Good numbers for Q2 with more ship days. Let's look at the fleet in total on page 5. We have some different kind of classes of ships there. We sold 3 ships last year of the 2008-2009 vintage, and we have 2 more ships left, Iris Glory and Venus Glory. They are on fixed higher TC until Q3 and Q4 this year.
Rates is at around $30,000 for these ships. We have 8 Jiangnan 2015 built ships. 2 of these ships do not have a scrubber, and we decided in order to kind of hedge our diesel risk, it's been very unpredictable how this will play out with the war in Ukraine and sanctions on Russian products. We therefore decided to fix Pampero on a 12-month time charter last autumn. At the same time, we actually sold a ship also which had a time charter until Q4 2023. We basically, when we sold the ship, we kind of replaced the time charter cover with Pampero, which is in the mid-$30s on fixed higher TC.
We also have one ship, Chinook, on variable time charter until early Q3 this year. The other six ships with a scrubber, which is very beneficial in terms of fuel cost, those ships we are trading in the spot market. We have the new generation of ships. We took delivery of Polaris and Capella early 2022. Polaris is on our time charter until early 2024 on a variable time charter, we also had a similar contract for Capella until February 2024. We have mutually agreed to terminate the variable higher time charter, we have rather decided to replace that exposure with FFAs, I will come back to that. Rigel, the 3rd ship of that class, was delivered in February, Avior this night. Both of those ships are going directly to the spot market.
We've seen delays on deliveries. We've seen this on both Rigel and Avior, and Avior was delayed about 3 months. We see that also on the last 2 ships, the Castor and Pollux, which will probably be delivered early 2024. We actually had 4 ships for delivery this year. We're probably gonna end up with 2 ships. That gives you a bit of an idea about the high activity level at the yards and the risk of slippage. Those are also fully open, we have very high spot exposure for 2024, and we have taken some hedging throughout 2023 because people has been quite pessimistic on the outlook, given the big order book. We kept spot exposure as we felt the sentiment has been too pessimistic.
In terms of the FFAs, we have three different complex structures. We have one legacy FFA, which was done early 2022, for one-third ship in Q1 at $29,000. You can understand why we have some loss on FFA in Q1. Last November, we took a coverage on a full scrubber ship for the full calendar year 2023 at $48,000 per day, which is a pretty decent result, but of course less than the spot rates today, and that's why we're also taking some loss on that FFA contract in the quarter.
When we replaced the Avance Capella variable higher time charter and took it out in the spot, we hedged that position for the second half of the year, where we have done full cover for Q3 at $53,000 and 83% coverage for Q4 at $62,000 per day. What you have to be mindful of here is we have hedged VLSFO, very low sulfur oil. This ship can burn LPG, so in case we burn LPG, we can have significant savings, about $5,000-$8,000 per day. We have hedged a conventional size of around 45,000 tons, but this ship can carry about 5,000 tons more. In case we fill the tanks fully up, we also have some upside on that.
That could be possibly up to $10,000 premium on the FFA rate if we are able to utilize the larger parcel size and burn LPG rather than very low sulfur oil. I think that gives us a good coverage for the rest of the year. We are now booking ships into August. The market looks strong, and I'm gonna come back to that later in the presentation. Let's jump to slide 6. Just a brief touch upon the dividend. We have been ramping up the dividend. We, last quarter, paid out $0.50 compared to earnings per share of $0.45, 10 x higher than Q4 2021.
We are repeating this today with $0.50, and as I mentioned, with the bookings for Q2 and more ship days, we are not gonna be far off this for Q2. In terms of the drivers here, we have Randy will probably touch upon it. We have strong earnings, good outlook. Of course, it's not possible to get a huge backlog in this industry, but we have pretty good coverage for rest of the year. We have $220 million of cash, no covenants, no debt maturing before 2027. We are in a well position to pay very good dividend to our shareholders. Before I hand over to Randy, just a short summary on the VLGC market. It's been the strongest since 2015.
In 2015, I think this company made more than $180 million of net profit. I don't think we're gonna beat that this year, but I think we are in a very good position to beat the $90 million we generated last year. The market's been volatile, well, like it's always been. We had a slump in the market at the beginning of the year, but it bounced back very quickly. We had a new slump during Easter, but we also did have a recovery here, but we see it's been slightly weaker in Q2, and that's why the spot earnings are a bit lower in Q2 than Q1, but still at very good levels and much higher than the recent periods.
Of course, the average here is from 2016 - 2022, which has been a bit more challenging market. If you look at the blue line, you see the market for 2015. The dotted line here is the FFA, which is converging around $60,000, where we have done our Q4 FFAs. A very good market. Keep in mind, our cash break-even is in the low $20s. We are generating substantial cash on these levels, driven by strong export growth, very elevated arbitrage levels, especially between U.S. and the Far East, and also the uncertainty around Panama.
Waiting time's been lower recently, but it's still a gamble. These waiting times goes up and down rather quickly, and it's hard to schedule a ship through Panama then. Which means that more people are ballasting through usually Suez, but also to some extent, Cape of Good Hope, in order to avoid that risk and to have fixed scheduling dates for the fixing days. With that, I hand it over to Randy, and I will come back with some more market data afterwards.
Thank you, Øystein. Let's go to slide 8 and have a look at our income statement and key financial figures. As Øystein already touched upon, we are very pleased to present a net profit of $36.3 million, or earnings per share of $0.47, which is the strongest net profit for the first quarter for Avance Gas ever. This corresponds to an attractive annualized earnings yield of approximately 24%. The average time charter equivalent rate, or TCE rate, for the quarter was $58,400 per day, in line with the guidance of $58,000 a day, and is considerably up from $46 and a half thousand dollars a day for the fourth quarter.
The good results are explained by a supportive LPG price arbitrage between the US and the Far East, resulting in a high willingness to pay for the freight, combined with significant slippage of the newbuildings and the VLGCs carrying out special service this year. Our TCE earnings includes a negative effect of $3,700 a day, which relates to the forward freight agreements and bunker hedging, which is derivatives, where the spot market was considerably stronger than our FFA coverage of 1.3 ships at $42,000 a day for the first quarter. Just a reminder, the FFA and bunker hedges are designated for hedge accounting, where the fair value movement is taking through the other comprehensive income and equity and hits the TCE earnings when they become effective.
Our operating expense or opex were $9.7 million, equaling a daily average of $8,600 a day. This compares to $10.2 million, or $8,700 a day, for the fourth quarter. The operating expense were down due to less ship or calendar days, as we sold Promise in November, combined with improved crew change costs. Looking at our Administrative and General expense, we continue to hold the lowest A&G expense by far compared to our industry peers. For the quarter, we had an A&G of $1.3 million for the first quarter and equaling a average per ship day of $1,200 and represents a normalized A&G going forward.
Non-operating expense consists mainly of financial expenses, and it was recorded with $4.3 million, compared to approx $4 million for the fourth quarter. Even though we have seen rising interest rates during the quarter, this has been offset by recognized effectiveness of interest rate swap gain during the period and interest income on cash deposits, maintaining a relatively flat interest expense for the quarter. Moving to slide 9, a few comments to our balance sheet. On our left-hand side of our balance sheet, we have approximately 75%, consisting of our 30 VLGCs at quarter end, which became 14 today, as we took delivery of our fourth dual fuel newbuilding, Avance Avior, at 10:05 A.M. local time in South Korea.
As of today, we have two dual-fuel newbuildings to be delivered by early 2024 and will meanwhile be recognized as newbuildings under construction in our balance sheet, with amounts related to pre-delivery installments based on milestones. Looking at the right-hand side of our balance sheet, we have a balanced leverage ratio, 45%, and maintain our solid shareholder equity exceeding 50%. The total shareholder equity was $601 million at quarter end, corresponding to an equity ratio of 54%, and has slightly decreased by $3.6 million during the quarter, mainly due to net profits of $36.3 million, being offset by dividends paid of $38.3 million for the fourth quarter, 2022.
As the, as with the spot market, the share price has moved significantly upwards this past weeks, and it's for the first time in many, many years, supporting our book values with a price book ratio of 1 today. We have a robust cash position of $220 million at quarter end, we will now move to the next slide, showing the cash movements during the quarter on slide 10. We started the year with the highest cash position recorded in Avance Gas's history of $224 million. During the quarter, we generated $48 million in cash flow from operations, coming from a strong freight market, which was offset by $38 million in dividend paid for the fourth quarter 2022, and $10 million in scheduled debt repayments.
Avance Rigel was delivered February ninth, which is $61 million in investing activities. In relation to that, we drew $57 million under the $555 million bank loan that we refinanced and secured in May last year. This brings a total negative cash movement of $4 million, which explains the bridge from $224 million- $220 million at quarter end. Moving to the next slide 11, on the right-hand side, we have an updated overview of our remaining newbuilding CapEx.
At quarter end, we had paid about 61% of the total capital expenditure of our new building program. The remaining 39%, or $185 million, is fully financed with bank facilities for Avance Avior, which we drew today, while Avance Castor and Avance Pollux is financed with a $135 million sale leaseback arrangement, which was signed in August last year. This means that we are cash positive, of a total $8 million on deliveries. As presented the past quarters, besides concluding the financing on our new building program, last year, we also refinanced our fleet bank facility, consisting of the 9 VLGCs and 2 new buildings, where we significantly improved the terms compared to what we had with a longer repayment profile.
We increased our revolving credit facility, to utilize the flexibility, to manage and optimize cash and lower interest costs, lower margin. We also pushed our debt maturity from June 24th to January 28th. We have also locked in 90% of our average debt the next two years at an interest rate of 3% business offer, and compares to 5% today, which corresponds to a discount on interest rate of 40% compared to current levels.
To shortly summarize, we have strong financial results, very sound financial position with $220 million of cash at hand, and we're fully financed, and that combined with strong earnings into the second quarter, we guided on $50,000 a day, and current level varying between $80,000-$100,000 a day, with a cash break even of just below $22,000 today. We are well positioned to continue returning value by distributing dividends to our shareholders. With that, I give the word back to you, Øystein, for the market update on slide 12.
Okay, thank you, Randy. Let's touch upon the market. We actually have very fresh data here. We were sitting, looking at some data last night, and we're actually providing you with the LPG export data from January to May, even though May is not finished yet, because we have predictive data based on loading schedules. In any case, volumes are up, especially driven on the export side by U.S., where they have very high inventory levels and where the oil fields are getting more gas use, which means more gas available for export. 18% of in U.S., or North America, 2023 compared to 2021, and even more so in Middle East, despite the announced OPEC exports up 27%, relatively flat to the other major regions.
On the import side, it's driven by, usually primarily Asia, it's China and it's India, growing very steadily, despite a period where there's been lockdowns in China. Chinese LPG imports grew close to 10% last year, and it's gone 28% over this period. Driven, of course, by the affordability of LPG compared to other hydrocarbons. Europe, of course, with less LPG arriving Europe from Russia, not really VLGC, these are smaller parcel sizes or by rail. Nevertheless, Europe been buying more LPG and also driven this to some extent by affordability in relation to the naphtha. And the cargoes are getting bigger. VLGC shares in terms of the exports, going from 2/3 to 70% from 2021.
Let's look at U.S. in a bit more detail, since this market is close to 50% of the VLGC exports. It's been growing steadily since last 10 years, 7% annual growth. It's tapering off a bit now, but still EIA forecasting 14% export growth from U.S. this year, despite only 4% production growth, because more of the LPG is being exported, also to some extent driven here by more use of ethane in U.S., and then very high inventory levels in the U.S., which makes the price in the U.S. low compared to international markets, and this is driving the arbitrage, which is the next slide, number 14. The arbitrage set illustrated by the price difference of propane price from Mont Belvieu in U.S., compared to the Far East Index for Asia.
Of course, this is our main driver for freight rates. It became extremely elevated before New Year's, and which really drove freight rates to new heights before Christmas. It's come down since then, but still at around $185 per tonne, it's really supportive of the freight rates. As you can see here on the right-hand side, these are very correlated, the spot freight rates and the arbitrage. To kind of dumb it down and simplify it, on slide 5-15, we have a graph showing the key trading routes. It's a traditional one, BLPG1, from Ras Tanura to Chiba.
Today, $107 per metric tonne freight, which translates into about $92,000 per day on a eco non-scrubber ship. U.S. trade, BLPG3, Houston to Chiba, Far East, it's $157 per metric tonne. Of course, as you can see, the product arbitrage here is $187. That means the freight is $30 less than the arbitrage. Of course, you need some money for the terminal fees and other costs, so in order for the traders to make a profit. Right now, of course, the freight is getting close to the, you know, the arbitrage, but when you have a very tight shipping market as you have today, the owners can take out a very big share of the arbitrage economics.
The shortest route is the one that is most profitable these days. Houston-Flushing, $96 is the lowest rate in terms of per metric tonne, since this is a short-haul voyage, it calculates $110,000 per day. What this means is, of course, with this very elevated freight rates, people like to lock in long voyages in order to get a good bottom line. That means that the shorter routes have to be trading at a premium for people to fix their ships for shorter routes, rather than locking in longer term profits. Let's head for number 16. This is something we have been talking about since at least last autumn.
We have said, we don't believe we will see all the ships being delivered this year. We've seen it ourselves with slippage on, both number 3 and 4, and 5 and 6. We saw slippage in Q1, 16 scheduled ships where only deliver 12. Those are putting into Q2. This creates a chain reaction where you will see probably slipping throughout the curve and less ships than expected for delivery in 2023, and somewhat more ships for delivery in 2024, and that balance out the market better. We also have a lot of docking this year, so it means that the fleet growth has been more muted than most people would expect. Slide 17, before I think I conclude, is the fleet overview.
People been worried about this big column here in 2023 for deliveries. We have been less so because the fleet has been growing, the relative growth is much less than the two spikes in 2016, 2017, when we had a time where freight rates stayed relatively low, the other spike here in 2008, 2009, 2010, where we had a lot of ships for delivery. What's worth to say is scrapping has been extremely muted in this industry. A lot of the older ships are ending up in captive trade, to from Iran to China, this is keeping older ships going, with finally this year, seen scrapping of two ships, both above 40 years old.
Eventually, decarbonization rules, and a kind of, probably more stringent rules will probably result in more of these ships being scrapped, and we see a large portion of the fleet being more than 25 years old, which is the normal economic life of these ships. That's it, for me. Just to summarize, good results, best ever first quarter profit of $36.3 million, slightly better than the numbers we delivered in Q4. We have very good bookings for Q2. We are now booking at a very elevated level into Q3, and we have a good spot exposure, our balance spot exposure for the rest of the year. The near term looks very promising. We will have more ships in work, both in Q2, Q3, and Q4.
That bodes well for our bottom line, and with our good financial position, as Randy has already touched upon, we keep our dividend at $0.50, which gives our investor a very nice dividend yield. With that happy message, I think we conclude and open up for some questions.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it in the box and click Submit. Please stand by while we compile the Q&A roster. Once again, if you wish to ask a question, please press star one and one on your telephone. We will take our first question. The question comes from the line of Clement Mullins, Value Investors Edge. Please go ahead. Your line is open.
Hi. Thank you for taking my questions.
Hi.
I-
Go ahead. Welcome again.
Thank you. I wanted to start with a market-related question. Exports from the Middle East have increased materially year-over-year. I was wondering, are you seeing any effect on volumes due to the recent OPEC production cuts?
Not yet. Of course, the OPEC cuts are for crude oil. Depending on the use of propane and, well, it's not really sure they will cut anything on propane. So far, we haven't seen any trend towards less exports. Yeah, let's see.
Unfortunately, Clement Mullins has disconnected from the call.
Okay.
There's been-
Okay, we have a question from the web here. We can take this if in case he returns. From Friedrich Kostas, if we just see spot rates remain above $50,000 during the remainder of the year, will you increase charter coverage either via FFAs or by putting additional vessels on fixed rate TC? That's the $1 million question, which we. I don't have a. I can only describe how we are thinking about it. Of course, we look at the market now, and of course, you can lock in $80,000, $90,000, even $100,000 on a spot voyage, and depending on the route and the length. It's really something you need to calculate on.
Let's say somebody is asking you if you want to fix a ship for TC for $52,000 a day for 12 months, we really need to calculate. Okay, we can do one long voyage here at, let's call it, $80,000, and it takes, yeah, 80 days or so. What is the implied value of the back end of the curve? We look a bit at what we think the market will trade at, and also the FFA. Because you can also take that cover through FFA, if that is more effective, which is something we did last autumn. I cannot give you a definitive answer. We will monitor the market if we feel that it's value in doing it.
I think right now we're quite comfortable with having 40% coverage for this second half of the year. Of course, we are fully open for next year. It's something we will consider day to day, monitor the market, do the calculations. I don't rule it out, we all actually also prefer having more spot ships available, because if we have more of our fleet in the spot market, we are really one of the very big players in the spot market. If we fix all the ships out on TC, we become lesser in terms of size. We are the 4th biggest VLEC owner.
If we trade all the ships spot, we get a dominant position, and if you have a dominant position in the spot market, it's easier to position your vessels to trade ships on TBN, where you can swap vessels, and maybe also invest, let's call it in an Atlantic position, where you are trading one on the BLPG route two. You have a ship with kind of a very fixed schedule for a U.S. loading if it pops up. There are some synergies of being big in the spot market and also in terms of the Panama ranking.
we like the spot market, I think we will probably grow our presence in the spot market rather than reducing it from, let's call it the 60% exposure we have had to the spot market, lately. Also, we get more ships for delivery, which is also increasing our absolute size, not only the relative size. I hope that was a satisfactory question. We can maybe check. Yeah, we can take one more question from the web, from Ethan Morgan in Turnleaf: How far into Q3 are shipowners now fixing? We had a delivery this night. We just bunkered up our view and setting sail. Basically, you are then chasing loadings in U.S., middle of July, and then you have the return trip.
Basically, to simplify, you're booking into middle of August, I would say. That's basically in the middle of Q3. Then you have a sense of, you know, a feel on how your Q3 backlog is building, and of course, we're building that backlog every week now. Yeah, then maybe we can check whether the value investor guy is still online.
The participant hasn't rejoined.
Yeah. Okay. Thank you. In any case, thank you for the questions. I think we have to round it to make some advance work there and give it away on for best questions on the Q&A session, so we get flooded with questions like we do in Flex. That's maybe something we will think about when we return in August.
For that.
Which is locked in now with, basically fully covered already and where we're booking the Q3. Hopefully we'll come back with some good messages for you in August. With that, I thank you for joining, and I wish you all a good summer. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.