BW LPG Ltd Q4 FY2024 Earnings Call

Afterwards, we will open up for a Q&A session. You can submit your questions in the chat or raise your hand, unmute yourself, and ask directly. Before we begin, I want to highlight the legal disclaimers on the current slide. Also, please note that today’s call is being recorded. I will now turn it over to our CEO, Christian.

Thank you, Aline, and hi, everyone, and thank you for taking the time to be with us today as we review our 2024 Q4 financial results and recent developments. Let's turn to Slide 4, please. For a large part of the quarter, the spot market rates fluctuated in the $35,000 to $40,000 range per day, and our TC income per available day ended at $37,900. This is somewhat lower than the previous quarter, but above our guidance of $36,000 per day. The board has declared a dividend of $0.42 per share, which consists of a 75% payout of the impact from our shipping activities, topped up with an additional dividend declared from product services for 2024. Total dividend for the year represents a 123% payout ratio of our total shipping impact. We're very happy with our product services results last year. The investment we made back in November 2022 has already returned with a tidy profit. We do recognize that the accounting result for product services is challenging to decipher. I would recommend that our investors and analysts focus on product services realized results as guidance on the actual trading performance. The unrealized cargo and paper positions are just showing the change in valuation from the end date of one quarter compared to the end date of the next quarter, and do not necessarily show a loss when the positions are realized. Moving on to our ship asset side, we closed the Avance Gas transaction as planned, and all 12 VLGCs were well delivered to BW LPG by New Year's Eve. The acquisition has further solidified our position as the world's leading owner and operator of VLGCs with a current owned and operated fleet of 52 vessels, of which 22 are equipped with LPG dual fuel propulsion technology. In addition, we have added to our own fleet with the previously declared purchase option of the 2019-built BW Kizoku, which was delivered to us earlier this month at a purchase price of $69.8 million. Some weeks ago, we also exercised the purchase option of the 2020-built sister vessel BW Yushi, with an equally attractive purchase price of around $70 million when the vessel is delivered to us in Q2. On the sale side, we concluded the sale and delivery of the 2007-built BW Cedar earlier this month, and it was generating about $65 million in proceeds and a net book gain of $32 million. Looking at our chartering activities, we have over the last months concluded several time charters with commencement throughout 2025, and at the moment, we have 31% of our fleet exposure covered by time charter out at $44,800 per day, and 2% covered by FFA hedges at $50,600 per day for calendar year 2025. This follows our strategy to maintain a solid time charter ratio to sustain the volatility in the spot market. On the market outlook, the VLGC market fundamentals are positive, although the spot market currently is battling in the seasonal winter trough, with fewer cargoes for export from the U.S. Spot rates are hovering in the mid-$20,000 per day from the Middle East, as well as from the U.S. Gulf, but we anticipate more volumes from the U.S. as we move into the April loading window. Together with the rest of the shipping industry, we're closely following the geopolitical and regulatory developments. I will take measures if necessary to optimize our company position by using our size and commercial platform. The Panama Canal is operating basically at full capacity, and the VLGC is currently absorbing about two to three canal slots per day, which is equivalent to 25% of the Neo Panama Canal traffic. Since the capacity is limited to around 10 transits in total per day, it goes without saying that the canal is very sensitive to certain increases or if one or two more dry cargo container or LNG vessels compete for the slots. Looking towards the middle of 2025, we'll have a terminal expansion from energy transfer on the U.S. Gulf Coast, and this is an expansion which can flex between LPG and Ethane exports. We currently assume 50% of the volumes to be designated for LPG. We have more details on this on Slide 7, but for obvious reasons, we view the terminal expansion plans in the U.S. and the Middle East as a positive driver for the VLGC market when matched against the growing demand side in Asia. One thing to keep an eye on is the accelerating dry-docking program for the VLGC fleet this year, with about 80 of a total of 400 ships being scheduled for docking in 2025 compared to 35 last year. The FFA market is pricing in a substantial uptick in the spot rates later in the year and is currently trading at levels translating to low $40,000 per day, although with limited liquidity. So, let's turn to page 6 for a closer look at the market fundamentals, please. Looking at the details and the market in the first month of 2025, the spot market has shown a seasonal lack of momentum with fewer cargoes from the U.S. made available for exports compared to Q4. At the same time, the Middle East exports were dominated by cargo flows by Indian charters. Normally, this time of the year, we do see a turning point with an influx of U.S. cargoes made available for the international market. In the final balanced market like we are now, the sensitivity of plus or minus five to six cargoes a month is enough to drive the market up or down. The more exciting factor in the VLGC market this next year is the expansion of the U.S. export terminal capacity, which we anticipate will push U.S. VLGC exports towards the mid-60 million tons per year mark by the end of 2026. In such cases, it's representing an approximate 12% increase from the 2024 VLGC export volumes. On this slide, we summarized the export terminal expansion projects in the U.S. and Canada as well as the Middle East. The number of projects represents a substantial increase in LPG export capacity of about 45% by 2028, and for North America specifically, about a 66% increase. This is if we assume the flex capacity at U.S. terminals being in full LPG service. If all the flex capacity is designated for Ethane, which we believe is unlikely, it will still represent about a 29% growth in LPG export capacity for North America and the Middle East combined. As mentioned, we assume that the midpoint of about 50% of the flex capacity will be designated for LPG. Of course, the total LPG export capacity includes all vessel sizes. VLGCs historically account for about 85% of the export volumes. We know that some of the volumes will be lifted on smaller LPG vessels, but over time, VLGCs will remain the most cost-efficient way of transporting LPG over longer distances, with quick turnarounds at load and discharge port terminals allowing for higher terminal utilization. Next slide, please. The overall landscape remains largely unchanged since the last update. In Asia, demand for LPG continues to grow, driven by the residential sector in the Indian subcontinent as well as Southeast Asia, while China's petrochemical industry is steadily increasing its use of propane as feedstock for its PDH plants. What's interesting to note from last week's news is that there is increased attention at the government level about India potentially importing more of their energy from the U.S. in the future to diversify their sourcing of energy. If this materializes, it will add significant ton-miles compared to today's Middle East-India milk run trade. Another trend is that VLGCs cover a larger part of the Indian LPG imports at the cost of smaller vessels due to improved infrastructure and terminal capacity. More VLGCs are consequently going to serve the growing Indian imports of LPG. If you look at the VLGC fleet and new buildings, there is not much change from last quarter except for four more vessels added to the list with delivery in 2027-2028. There is good visibility on the new building deliveries over the next 18 months, and for 2025, we have 13 vessels on our list. Then I turn the microphone to you, Samantha.

Thank you, Kristian, and hello, everyone. In the past winter quarter, where lower activities were experienced, we have achieved a 96% fleet utilization and a TCE of $36,700 per calendar day or $37,900 per available day. This is in part thanks to our consistent strategy execution using a healthy level of Time Charter and FFA for coverage, avoiding leaving earnings purely to spot market swings. The benefit is clear when you look at the difference between the spot rate excluding FFA, which is $31,600 this quarter, and the spot rate including FFA, which is $35,400 per day, as shown in the slide here. In Q4, the Time Charter portfolio was 38% of the total shipping exposure, supporting the earnings when the spot market softened. For Q1 2025, we have fixed 91% of the available fleet days at about $36,000 per day. Looking ahead, our Time Charter out fleet is estimated to generate a profit of around $22 million over our Time Charter in fleet, with the balance of our fixed Time Charter out portfolio estimated to bring an additional $137 million for 2025. Next slide, please. On the product services side, the business achieved a gross profit of $50 million, which included a remarkable realized profit of $59 million, representing the money in the bank from our successful trading activities. The unrealized cargo and paper position has seen some notable mark-to-market changes this quarter, totaling $44 million. After accounting for G&A, tax, etc., product services closed off the quarter with a net profit of $3.4 million. As we mentioned in previous quarters, the large sum of mark-to-market value is due to the gradual phase-in of our multiple year term contract. While the amount is significant, it is only a delta reflected on the balance sheet date and will continue to fluctuate before the positions are realized. As of the end of 2024, product services book equity reported $130 million. As usual, we would like to highlight that the reported book equity does not include the unrealized fiscal shipping position of $14 million, which was based on our internal valuation. In Q4, our average value at risk was $7 million reflecting a well-balanced trading book, including cargoes shipping and derivatives, even with the increased volume from the mentioned term contract. Coming to the financial highlights, the company reported a net profit after tax of $40 million in Q4, including a profit of $17 million from BWLPG India, and $3 million from product services. The profit attributable to equity holders of the company was $31 million per quarter, which translates to a earnings per share of $0.22 and an annualized earning yield of 8% when calculated on our year-end share price. The Q4 dividend concluded 2024 with a total dividend of $2.42 per share. We reported a net leverage ratio of 33% in Q4, an increase from 12% in Q3. This increase was mainly driven by the additional borrowings used to finance the Avance Gas fleet, with the last vessel delivered on 31st December, a perfect conclusion for the eventful year. Compared with the previous quarter, we increased borrowings by $628 million, including drawdowns from our revolving credit facilities, shareholder bridge loan, and transfer of Chinese leasing. For Q4, the board declared a dividend of $0.42 per share, which consists of a 75% payout of our shipping profits topped up by a $0.28 dividend from product services. The dividend showcases the function of product services to stabilize and enhance the returns to the shareholders when the shipping market softens. It also speaks to our strategy, execution ability, and our ongoing commitment to return value to shareholders. As Q4 ends, the balance sheet reported shareholder equity of $1.9 billion. The annualized return on equity and capital employed for Q4 were 9% and 7% respectively. Our 2024 OpEx concluded at $8,300 per day, a marginal reduction from the last quarter reported. For 2025, we expect the operating cash breakeven for our own fleet to be about $19,800, and for the whole fleet, including time charter vessels to be $22,200. The all-in cash breakeven is estimated to be $25,600, driven primarily by the dry dock program in 2025 and increased interest costs. On the liquidity side, we ended 2024 with a healthy position of $603 million post-completion of advanced gasoline delivery, supported by $232 million in cash and $371 million in unjoined revolving facilities. The repayment profile, as you can see here, is healthy and sustainable. We plan to refinance a few facilities starting from this year to achieve more efficient leverage. The refinancing is not expected to further increase the current leverage ratio. On the product services side, trade finance utilization is still at a moderate level of $168 million or 21% of our available credit line, giving sufficient room for future trading needs. With that, I would like to conclude my updates and back to you, Aline.

Thank you, Samantha. We would now like to open the call for your questions. We have Charles here raising his hand. Please proceed.

Thanks so much. Watching the financing process that you have used during the addition of new ships, could you explain to me and to us your strategy where you're using the ship as the issuance of stock for the ship, so as a financing method, and also connect that with your rationale of paying out more dividends than you are actually earning for that particular period? That's it. Thank you.

Thanks, Charles, for your question. If I understood it, I couldn't hear you that well. You broke up a little bit, but with regards to the share issuance, we issued shares back last year in connection with the Avance Gas transaction when the share price was trading close to our NAV. They were issued in a way which was regarded as accretive to the shareholders at the time, and we could use the shares as a currency. There was a second question. I didn't really catch it. If you could please repeat.

Of course. My second question is, what is your thinking and strategy in paying out dividends that are in excess of earnings? Is this a share stabilization strategy, and is this something that maybe is temporary?

Thank you. This is a temporary situation because we are paying out dividends from the product services result of 2024. If you look at how the dividend is constructed, it's 75% of the shipping impact, topped up with dividends that we are paid out from product services. So, we're not really paying out more than we earn in such case.

Okay, that's great. Thank you very much. That concludes my questions.

Thank you. If anyone else would like to raise their hand? We have John Dickson, please unmute yourself and proceed.

Kristian, my question is really related to the potential tariffs that the United States is leveraging against China. Do you have any idea of how that type of situation would impact trade between the United States and China as it relates to LPG?

That's a great question, which is not so easy to answer. I don't really want to speculate because, when it comes to the tariffs on LPG, there are not such tariffs at the moment. We are monitoring the developments closely, like I said, both on the regulatory and on the commercial side. When we have facts on the table, we will evaluate and take measures if necessary to position the company in an optimal way by using our size and also the commercial platform, which gives us significant flexibility to position the fleet and the portfolio in the most optimal way, depending on the prevailing market conditions and circumstances. But it's very hard for me to speculate on anything at the current moment. We need to act on facts when we have them in front of us.

I understand. Also, my second question is kind of related to Charles's question, when I'm looking at your shares, they're actually trading, at least in the U.S. market, at a discount to your last 10 years of net income. As you're paying down the debt, obviously, the other 25% of your earnings can either be used to pay down debt, cover operating expenses, or give out dividends. My question is, are you guys looking at any type of share buyback with your shares trading at such a reasonable level?

If you look back at last year, we activated our share buyback program for the last time, and we do have a mandate to reactivate a share buyback program as well. This is something we consider when we believe the time is right. We may do so in the future. We have done so in the past.

Is there anyone else who would like to ask a question? Yes, please go ahead.

Thank you. My question relates to the increased debt ratio. What is your strategy as far as reducing the ratio? Maybe you're going to keep it the same way, or how is that going to affect your dividend payout?

Maybe just to share a little bit of a history: through the past 2023 and 2024, because of the good earnings we have had the opportunity to pay down debt to the extent that there was one quarter reported leverage ratio of 12%. I think that is an extreme case where the equity holders probably rendered that not a very effective leverage level. Through the Avance Gas fleet acquisition, now the leverage ratio is just slightly above 30%. We believe we are at a healthy level, and over time, the cash flow from operations will gradually pay down the debt while equally paying out to the shareholders via dividends, provided that there are no other opportunities in the market. Happy to say that we have a very healthy liquidity right now, as we have shown in our liquidity slide, and the further refinancing is not going to further increase our leverage ratio. It's only to refinance the existing facilities.

And just to follow up on that, are you seeking to pay out 100% of the earnings over the longer term? Or are you looking to use some of the earnings to reduce leverage?

Well, I think that really depends. It's our responsibility to reduce the leverage. It will equally have to be considered to pay down our debt as well as give back to our shareholders. If you look at the history for 2023 and 2024, we have been both able to return a good dividend close to mid-90% for the past two years to the shareholders as well as significantly paying down the debt.

Next, we have Harry with Ford. Please go ahead. Harry, we can't hear you yet. I've noticed that you've unmuted yourself, but we cannot hear you. So maybe let's proceed with Axel Styrman, and please, Harry, come back if you can afterwards. Please, Axel, if you want to go first.

Yes, I have a question. You mentioned potential tariffs, Kristian. However, the latest developments from the U.S. regarding Chinese vessels have emerged. The proposal from a trade representative is currently open for feedback until March 24th. During the Avance transaction, you acquired eight ships built in China, and to my knowledge, you only have three other ships in the pool, which you might be able to redeliver or negotiate out of the pool if this new proposal is implemented with fees for trading at U.S. ports. Since the U.S. accounts for nearly 50% of the global LPG trade, this situation is quite significant. I'm curious about your plans for the Chinese-built vessels if this becomes a reality.

Thanks, Axel. Yes, like I said, it's hard for us to speculate on anything. We will, of course, evaluate and take the necessary measures if this is imposed. If you look at our commercial platform, which I alluded to also in the presentation, we have ways to employ our vessels outside of the U.S. market if necessary. We will come back with how we plan to deploy these ships if it's something that becomes necessary. So, apart from that, it's not easy for me at this point in time to be more specific. But I'm sure we will be able to navigate through challenging waters, thanks to our size and commercial platform.

Thank you, Kristian. Just a follow-up. I mean, obviously, it's possible to trade the Chinese-built ships from the Middle East, for example. But these potential fees also apply if you own Chinese-built vessels, not only calling U.S. ports, but if you just own Chinese-built ships. Is this something you can comment on now?

As you said, the legislative proposal is out for public hearing. It's something that is difficult for us to comment on. If you look at the size of the world fleet, which is built in China, regardless of the shipping segment, I think as a general comment, it will have very disruptive implications on the whole shipping market. Most trading houses, shipping companies, oil, and energy majors all have Chinese-built vessels in their fleets. With that in mind, let's see exactly what comes out of the public hearing.

Thank you. Just a final question on the P&L on the charter expenses. You booked approximately $1.2 million profit. Can you comment on this? How did that actually happen?

Samantha?

Yes. Can you please specify, Axel, where you...

As a result of high charter expenses this quarter, you actually recorded a profit of $1.173 million. I'm curious about how that happened. How did you achieve a net positive charter expense?

Yes. That is pertaining to one of the vessels off hire, which is our higher income that's recorded.

Thank you. Harry with Ford, if you would like to try again to unmute yourself, please? Unfortunately, we still can't hear you, but you can also type your question in the Q&A chat, if you'd like. We can't hear you, unfortunately. Sorry about that. Anyone else who would like to raise their hand? If not, we would then proceed to the questions that were typed into the chat. So, in the chat, we have Tushar Chadha asking, do you expect the asset price to soften in coming years due to the increase in vessel supply? If yes, do you have any plans to further expand your fleet?

We do not see any signs of asset prices softening either on the newbuilding prices nor on the secondhand values. They're all holding up, also for forward delivery. We are happy with the fleet we currently have and don't have any plans to expand any further at this point in time.

Thank you, Kristian. We have another question in the chat related to the previous one on ships built in China from Cho Mars. Can you discuss the cost of new ships, also how much of the fleet is built in China? What would the impact be of charges on Chinese-built ships like charges by the U.S.?

Yes. This is partly the same question, which I replied to earlier. If you look at the fleet today, just to start with that one, it's 15% of about 400 ships on the water today, which are built in China. So, it's not such a big part of the fleet. Most are built in Korea, and about 25% is built in Japan. If you look at the ordering and the order book, we count about 24 ships on order in China at the moment out of nearly 100 ships. So, it's not a big share of assets, but it's obviously a substantial part of the new building order book. When it comes to the impact on charges on Chinese-built ships, the likely scenario is that you end up trading the ships elsewhere, and fewer vessels are available for trade on the U.S.

Thank you. We have one more question in the chat from Williams Squimaggi. What were the most recent challenges to motivate the team?

Well, a fantastic question. To motivate the team, we have done quite a lot over the last years in our company. I would say that just by the share activity level in BW LPG over the last couple of years, we have a very motivated team in general. I don't think there are any specific challenges I should list that have taken down the motivation of the team. But Samantha, I'll also leave it to you to reply on this.

I think it has been a remarkable two years, especially the past year, both from the market and most importantly as a company, for the milestones that we have achieved, including U.S. listing as well as the acquisition of the 12 vessels. These are landmark milestones. I think, from what I know, the company is very energized for these accomplishments that we have made. The team is in high morale at the moment.

Thank you, Samantha and Kristian. Back to a verbally asked question or raised hand from Desmond.

I just had a quick question. Regarding Avance Gas is now a major shareholder of BW LPG, do you anticipate any of their governance team taking a more active role in the company? Or is it a more passive kind of stake?

Yes. The fact is that Avance Gas has actually divested all their BW LPG shares to their shareholders. So, Avance Gas only holds a tiny portion left in BW LPG. When it comes to the new shareholders that we have, which we are very happy with and welcoming, there are no such plans.

We have another question in the chat from John. Can you provide information on upcoming CapEx in Q1 and FY '25?

Samantha, would you say it's dry-dockings and so on? Maybe you can give some more color to it.

Yes. I think on the CapEx, primarily reflecting in 2025, is also reflected as part of the cash breakeven primarily contributed by our planned dry docking program. If I do not remember wrongly, it's approximately $4,000 per day for the CapEx projects. That's on average for 2025. Hopefully, that gives you a little bit of color.

We have Harry raising his hand again. Do you want to try again, Harry? Unfortunately, we can't hear you. I'm sorry. Is there anyone else who would like to ask a question? We have Michail, but we can't hear you right now. Michail, can you try again? We have Charles up again, please.

Kristian, can you comment on what you see as the global perception problem with the shipping industry in general? We all see that the price-to-earnings multiples for shipping on a global basis are both extremely low and seem to be lately perpetually decreasing. Is there a public persona that maybe this is going to be the subject of some sort of a global war, sabotage, or terrorism? What do you think is the global perception that is causing these incredibly low PEs? Do you see any hope on the horizon that they will be viewed with a lesser risk factor? That's it.

Thanks. That's a very interesting question, actually. I think the main reason for it is the volatility in earnings over the cycle. It's typically shares that you would like to hold when the expected earnings are on the rise. Due to the nature of the shipping industry and the various shipping segments, this is a very volatile market that most of us operate in. Having said that, that's also one of the reasons why we, in our business model, maintain a relatively high portion of our fleet in the time charter market to smoothen out this volatility. If you look at our strategy over the last years, we are expanding into adjacent parts of the value chain so that we can reduce some volatility on the shipping earnings, while participating in value creation in other parts of the LPG value chain, like, for instance, now with product services, as reflected in the dividend for Q4. Of course, at the moment, with increased geopolitical risks and the questions you have about global trade patterns and trade in general, shipping is, in many ways, exposed to that because what's typically good for trade is good for shipping in general and vice versa. The industry is suffering a bit under the current geopolitical landscape and the circumstances.

John Dixon, up next.

Kristian, Samantha, I'll just add one other question. I believe it was a year or so ago, maybe 1.5 years, BW announced a joint venture in India with a port over there for distribution. I know you're talking about the other aspects of the value chain. Can you just give us a follow-up on how that joint venture is proceeding along?

Thanks, John. Yes. We will hopefully have some more to inform on the term loan next quarter. We are currently in a phase where we're putting all the last parts of the puzzle together to start the construction of the terminal. Hopefully, next quarter, we will be able to give a more detailed update on the progress there. It's moving forward according to the plans we had. It's going to be an exciting new part of our business when it's up and running in two years, three years' time as we plan for now. The Indian market is obviously on the back of that becoming even more important for us, but we do believe and see that the India LPG market is increasing. There are great prospects for the future growth in India, and we are happy to participate in that, both on the shipping sourcing of LPG and eventually on the terminal side. We expect to update our investors in more detail by next quarter.

Michail, could you please try to unmute yourself again?

I was just curious, is there a proposed date for payment of the dividend?

The proposed date for the dividend payment depends on the market where you hold your shares, Michail. If I refer to the press release from yesterday, the dividend payout for shares on the Oslo Stock Exchange will be around the 24th of March, and for shares on the New York Stock Exchange, it will be approximately the 19th of March for this quarter.

Harry with Ford, do you want to try again? Unfortunately, we still can't hear you. Anyone else who has another question? If not, then let's proceed. I will hand back to Kristian for some closing remarks.

Yes. Thank you, Alina. I think that by then, we are coming to the end of this presentation. I would like to thank everyone dialing in and listening to us. We look forward to seeing you again in the next quarter. Thanks, everyone.

Thank you very much. That concludes BW LPG's Fourth Quarter 2024 Financial Results Presentation. The call transcript and the recording will be available on our website shortly. Thank you all for dialing in, and we wish you a good rest of your day.