Q3 2020 Earnings Call
Hi, I'm all participants are they listen only mode.
Brief question and answer session will follow the formal presentation.
That's very minor this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian Lpgs Web site, which is www dot Dorian LPG dot com.
I would now like turn the conference over to Tatiana Chief Financial Officer. Thank you Mr. Young. Please go ahead.
Thank you Michelle and good morning, everyone.
Thanks to everyone for joining us for our third quarter 2020, <unk> results conference call with me today, or John Hadjipateras, Chairman, President and CEO, Dorian LPG limited and John Lycouris, Chief Executive of Dorian LPG USA. As reminder, this conference call webcast. A replay of this call will be available through February 12 2020.
Many of our remarks today contain forward looking statements based on current expectations. These statements may often be identify with words, such as expect anticipate believe or similar indications the future expectations.
Although we believe the such forward looking statements are reasonable we cannot assure you that any forward looking statements will prove to be correct.
These forward looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions should one or more of these risks or uncertainties materialize worst underlying assumptions are estimates proved to be incorrect actual results may vary materially from those we expressed today.
Additionally, let me refer you to our unaudited results for the period ended December 31, 2019. There were filed this morning on form 10-Q, and additional please refer to our previous filings on form 10-K in 10-Q, where you'll find risk factors that could cause actual results to differ materially from these forward looking statements with that'll turn over the call the John Hadjipateras.
Good morning, and saccule for joining our third quarter earnings call.
Today, I'm happy to have announced that based upon its assessment. The this is the best fuel. So it's just kind of should this time a board of directors has doubled the stock repurchase authority to 100 million.
Funded by strong cash flow the increased authorization allows us to capitalize upon the disconnect between the intrinsic value of the company and our stock market valuation.
Since the original authorization last August we have repurchased 1.397 million 662 shares at an average price of $12.
At 33.7 ship sets.
Management and the board continue to evaluate other options of enhancing shareholder value, including paying dividends prepaying debt.
Acquisitions.
Ted will be giving you the detailed breakdown of our T.C. and utilization number shortly.
It is important to note that one of the traditional definition.
Freight and high less voyage costs over available days. The he knows T.C. pair available day was 50141, but day, including earnings from several time charters, which were booked at the end of 28 Tiandun in early 2019 at sub 30000 per day levels.
Most of which expire as we speak.
Our scrubber retrofit program added some logistical complexity.
Positioning of ships can result in certain inefficiencies such as waiting time suboptimal rates and additional bunker cost.
When considering the effects of these challenges at the TC achieved then the Helios pool, we consider our chartering performance quite solid.
In addition to our own fleet, we have since April of last year had they ship on time charter at an attractive rate and as announced in our earnings release, we took delivery. This week of a new building all panamax type fitted with a hybrid scrubber.
Global seaborne LPG trade continues to grow increasing by 14% at 29 P. it to a record of 109 million metric tons.
Well the U.S., a middle east export it roughly the same amount in 2019. It appears that annual U.S. export volumes will surpass the middle East for the first time in Twentytwenty already during the last three quarters Ocala that 29, Dan the U.S. export at 500000 metric tons and fly VLGC Liftings on average more.
Per month than the middle East.
Our outlook for the come in calendar year remains optimistic the Corona virus is of course a potential headwind.
I am all the Twentyth why do you have strengthened the market position of Dorrance fleet increased bunker prices of enhance the value proposition of our young in fuel efficient eco ships.
As a cost differential between high sulfur at low sulfur fuel continuous we made competitively positioned with seven scrubbers equipped shifts at present.
And in the coming much more than half our fleet 12 shifts total will be scrubbers equipped.
Ted over do you. Thanks.
My comments today will focus on our unaudited third quarter results in our remaining Drydockings for discussion of our third quarter results. You also may find it useful to refer to the industrial highlight slides posted this morning on our website.
Beginning with our churn results, we achieved the total utilization of 98.4% for the quarter well the daily T C, which is PC revenue over operating days as defined in our filings a $43410 yielding utilization adjusted T C or T C per available day about 42 thought.
So $728.
Our spot T C, which reflects our portion of the net profits of that the Helios pool per available day for the quarter was 43949.
I'd like to point out the results are netted the administrative costs the pool and the time charters and a five ships it floating Baltic rates and the result is John already mentioned, our actual P.C. achieved in the pool is higher than this level.
Just elaborate on the difference between the 44 755 per day that I just mentioned pardon me the [noise].
43, 949 that I just mentioned in the 51 141 that John mentioned.
The 51 141 is the average rate achieved in our pool and that is the one that is most comparable analogous to what our competitors report and indeed, the Baltic benchmark.
Turning to Opex or daily Opex for the quarter was $8413 excluding amounts expensed for dry dockings, it was 9452, including those costs.
Opex per day, excluding the dry docking related costs was roughly flat compared to last quarter's eight four or three per day again, which also included a limited amount of drydocking costs.
Total DNA for the quarter was 5 million and cash DNA, which is genie, excluding non cash compensation expense was about 4.4 million.
Levels generally consistent with our expectations are reported adjusted EBITDA for the quarter was 59.9 million, which was a significant increase from the 35 million excluding costs related to the unsolicited BW LPG proposal recorded during the same quarter last fiscal year, the strong rate environment, a lower gionee kinda for most of the improvement.
[noise], we look at cash interest expense on our debt as the some of the line items interest expense, excluding deferred financing fees in loan expenses unrealized gain loss on derivatives on that basis total cash interest expense for the quarter was $7.4 million, which was down about 200000 from the prior quarter largely due to continued debt paid.
Down.
We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with the current interest cost fixed or hedged in a small flooding piece of about 4.3%.
For the quarter, we had cash outlays for capital cost associated with dry dockings of approximately $10.2 million or $4835 per fleet day.
Good day is calendar days plus time charter in days as those terms are used in our filings combined with amounts expensed during the quarter. Our total drydocking cash outlay was roughly $12.2 million.
We also made his repurchased 8.6 million of stock during the quarter, an additional 2.3 million since the end of the quarter.
Total, we've now repurchase $17.1 million.
Equal to about 1.4 million shares, which was nearly 2.5% of the shares outstanding prior to the announcement of the buyback.
Our cash flow liquidity remains strong.
Since quarter end through to February Threerd, 2020, or restricted and unrestricted catches up to around 106 million.
Although we hold an 80 plus percent economic interest in Helios, we do not consolidated balance sheet accounts, which has the effect of understanding our cash from working capital. Thus we believe it is useful to provide some additional detail in order to give a more complete picture as of Monday February 3rd the pool had roughly $30 million just cash on hand.
John what Chris will come in at a bit more detail about our dry docking plans, but delays in China krona virus related another of extended our dry docking program for the remaining five ships.
We now expect ever program completed by early May and the remaining cash outlays are estimated at 18 and a half million over the next three quarters.
That is the quarter ending March 31, and the subsequent to with up to 12 million incurred.
Or out late in the quarter ending March 31, given the uncertainties caused by the Corona virus outbreak there could be some movement in the schedule.
Upon completion of the program 12 to 23 vessels in our fleet will be able to profit from the expected fuel price differential between Gls AFFO and a low sulfur fuel oil.
Since the beginning of year the T.C. per day premium for scrubber equipped Vlgcs has ranged from 10 to $20000 per day, which supports our investment thesis in the scrubbers.
With a solid market backdrop in a strong balance sheet, we maintain a constructive view on our business and expect to continue to be able to generate solid cash on cash return for our shareholders with that I'll pass it over to travel of course.
[noise]. Thank you Ted.
The U.S.
NGL export growth is expected to continue in 2020 with a series of export capacity additions.
Enterprise Targa and energy transfer terms, that's all planned expansion starting in late 2019 and continue into late Twentytwenty early 21.
These NGL infrastructure developments are expected to eat the operating terminal limits, we had seen during 2019 with export and fractionation capacity able to meet increasing supply of products to 2021 and beyond.
The last quarter was 494, yeah do you see liftings from the U.S.
And Oh October has set a new record.
It was actually 70 Liftings in October.
Most likely the completion of the enterprise products terminal expansion on the ship channel contributed to that record as did 60, L.D.C. Liftings, Oh, sorry about 300000 metric tons from the U.S. the India.
The U.S. propane inventories remain at the higher end of their five year range at 82.9 million barrels last week.
37.8% higher than same time last year.
As the global LPG supplies continue to grow we can expect more downward pressure on global prices, which will cause LPG cracking over NAFTA for the northwest Europe and far East petrochemical industries.
The arbitrage between the middle East propane and butane benchmark pricing for February versus the Mont Belvieu spot stands at about $300 per metric ton and $213 per metric ton respectively. This arb.
Arbitrage is exacerbated by the U.S., China tax dispute, which has resulted in significant carbon swapping in northeast Asia, maintaining China LPG price set a premium.
Perhaps the phase one trade do recently signed between U.S. in China will change straight for all the NGL products in the coming months as they're all included in the list of products with China has committed to import from the United States.
In such a case, where are likely to see LPG prices return to normal levels in Chinese LPG prices set closer to the far East index.
According to Clarksons that they'll just see fleet order books, that's kind of that about 50% or about 42 vessels.
With 40 vessels into fleet over 20 years of age we expect increased compliance in operating cost will drive older less efficient vessels to demolition.
[noise] Dorian LPG currently operates seven scrubber fitted vessels as John mentioned.
And that Oh, which five where fit it in the last five months.
Within a period of 33 days, including completion of their special survey dry docking.
And ballast water treatment installation.
In two of them.
Our hybrid scrubber retrofit program continues with two vessels currently being retrofitted.
During my recent visit to the far east nasal congestion and manpower and material shortages were discussed with a ship yards.
No further impacted by the corner virus epidemic, resulting to the voluntary extension of the Chinese new year spring basketball holiday too early next week.
One of our vessels well being retrofitted and China has been impacted by this extension of the Chinese new year holidays, and Oh, we have delayed it has delayed the works a completion beyond our expectations.
There are three more vessels plan for scrubber retrofit and dry docking. The next few months, which we expect to complete.
Timely subject to the corner bars.
During January 2020, we show shortages in price volatility in many areas for the newco blind fuels, the very low sulfur fuel oil, resulting in a wide price differentials versus the high sulfur fuel.
[noise] all Dorian LPG vessels that were not scrubber fit transitioned the average by the end of December two very low sulfur fuel without any issue.
We expect pricing differentials between the two fuels to remain around that 200 metric tempur up per month in the coming a year and that all scrubber eco vessels will continue to earn significant time charter equivalent all burden on scrubber ankle and modern VLGC vessels.
Thank you I'll pass it over now to John.
Thank you John Michelle we can go to questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is another question can you May proceed start to if you'd like to some of your question from the Q for participants you think speaker equipment, and maybe necessary to pick up your handset before passing the start cheese.
First question comes from the line of Omar Nokta with Clarksons Plateau Securities. Please proceed with your question.
Okay. Thank you hi, guys.
Hi, either yeah, just wondering maybe just a touch a touch on maybe during the course your last comments about the you're the vessel that's in the yard and China now you're expecting to see delays beyond what you had anticipated. The is that is that sort of like an open ended delay or is it more you know its.
Adding a couple of weeks to the expected that timeframe.
[noise] O. Moore as I said I subject to the Corona virus epidemic.
We expect that she will finish.
The next two weeks.
It's still has not recommenced operations and works because.
This extension has gone onto the nine for fiber.
So we expect that completion will happen.
However, there has been no work whatsoever for now two weeks.
To give you a picture Omar the ship is kinda loves downright and nobody can goes all the broken all go off there's nobody on the shipyard and and and I'd like John said 19, fabry, they're supposed to come back to work once once I.
<unk> Com's, we'll know whether what's happening.
I'll quickly is going up and I mean, when they work they weren't very efficiently. We haven't had many complaints with a work in the end there that we've been doing in China. Most of our work. So far has been done in Singapore and that we were very satisfied by China.
No not quite the same but but still still moving fine and until this the Chinese new year and the Corona virus on top of it.
Okay. So it's more like it's a function of both events happening simultaneously more more more the that's just a second though the because the Chinese new year. It was supposed to finished already so we're now the extension has been because of the growing a virus.
Okay and do you think that that maybe I just think about the next three scrubber installations does that maybe caused you to.
Reject or the timeframe on that and maybe just keep the ships trading.
For a bit longer and then reassessing the scrubber down the line.
Yeah, I mean, we we I don't know bye bye.
I don't remember which of them are all three for Chinese yards drawn zero, yes are there all Chinese yards.
Well one of the things we might look at doing is doing them in another non Chinese YOD if.
But it's an open question.
Open question, we weren't we were we reject already a little bit the dates partly.
Because of the trading returns that we could have a so.
If if if we see difficulties in the yards coming up continuing and the trading returns are like they are now we would probably cheaper ships trading until we can see.
An opportunity to have a definite definitive timeframe for doing that the retrofit.
Yep no.
I think called out.
We've been doing we like John said, we are averaging about 35 days, which I think probably is a good industry or how many 33 less than 33.
You know me another pretty decent then relative to what we've been hearing right right.
Maybe just switching a slight gears, you'll still sticking with the yards, but Matt Omar I'm, sorry to interrupt you have to say that these are hybrid scrubbers, which is a lot more involved.
I'm sorry to interrupt yeah.
Okay No I appreciate that so that's even more impressive the 33 days.
And it just maybe thinking about you know the you know the fleet capacity, obviously, there hasn't been much ordering you know there's been a handful of workers recently I think I'll bonds was most recently ordered in December a couple of Vlgcs and John I Remember you if I recall in the last earnings call you were traveling and I had asked about Newbuildings and it was a word you didn't like.
The here how do you think just deal with the way the market's been shaping up and how it's been counter seasonally much stronger than expected and looking ahead and yeah. There's some uncertainty near term with Corona virus and whatnot, but you know how how do you think about the newbuilding.
Market for Dorian as it stands today.
Tim and I worry Korea recently 10 pounds in our Chief Commercial Officer, we were Korea and and.
The January and you know this ive to say the yards are keen to bill, but the interest there shang, including from US is tempered still by the uncertainties and whatever we've seen a ordered as it has been except for events.
Being against.
Chartering charter inquiries.
And.
So I I don't see us back, but you know I I would like to think there's not going to be a speculative wave of new buildings, and certainly we're not going to be oh.
During anything that would that would.
Be restless in terms of adding numbers to to the fleet. We think that fleet. The fleet is is fairly well balanced and and.
In our own clans, we could we.
We're not excluding the possibility of doing something but if it is if we do it will be.
Sorta proportion to your wood.
Not really affect the overall balance.
Well the demand and supply.
Yep understood. Okay, John Thank you and thanks, everyone for for the answers.
Sure. Thanks Omar Thanks.
Thank you. Our next question comes from the line of Michael Webber Weber Research and Advisory. Please proceed with your question.
Hey, guys is actually Chris on for Mike How's everyone.
Hey, Chris Good morning.
Hi, Chris.
Hey, guys. So thank you for all the color and the impact that you're seeing on the trying to buyers.
At the markets and I guess I was.
Seen protocols are down in some other sectors around 50% in China and wanted to see the impact setting on China, Chinese propane and butane exports.
Yes.
He didnt something similar you guys seem it.
We haven't actually seen.
Something.
That impacts I mean, we have we have a ship discharging in China as we speak.
We haven't seen anything very.
Significant to say that the.
About port calls.
Not yet, but frankly I'd expect that we would.
I'd expect that we would actually I've got no. We've got Tim Hansen on the line. He may be able to give you more up to date information on that but.
Tim because you have anything.
All right I don't think about everything they've also been I haven't seen nothing yet is that.
On today's the Chinese are basically they refused to impose over the holidays.
Because you know the poets will kind of stopped working so.
We might see once or they return after the holidays and then imports topic in some some today's but well just so probably haven't seen anything.
Alright, okay, Thanks, and I guess.
Like a.
Following today like have you seen or expect any sort of knock on effect.
For Chinese.
PDH plants coming online.
Or that was a question is whether we've seen anything new with the PDH Blanche delays any delays yeah, no, but no no no.
Well, it's a good question I mean, ultimately that would be another thing that will be affected.
Depending great [laughter] Uh huh.
I think we want it together with the rest of world, they're looking for a V shape recovery at some point.
But but you know it's it's.
Unfortunately, it's a play that is still in on stage and we won't know.
Well yet.
Well no.
Okay, Yeah, and and I guess.
Topical and best covered this a bit around the volatility fuel spread but I know you guys has done have done work with LPG as amongst fuel I want to see if you can get its any details or updates since the last call.
[noise] <unk> well, we do have we continue.
Our assessment and trying to see if we can bring.
The but.
Participants in a in a project like not which would be the engine manufacturer the engineering company, though shipyard and all that to a point, where we think the prices are.
More affordable, but so far we've been making progress, but when were still.
Our position is still to wait and see how our French though with the for first four ships that their retrofitting this quarter.
Okay. Thanks, John Thanks.
That's it for me.
Thanks, Chris Thank you Chris.
Your next question comes from the line of Sean Morgan with Evercore. Please proceed with your question.
Hey, guys. So in light of the disruption you guys are seeing now with krona virus in China the yards for the scrubbers.
A couple of questions just sort of <unk> in that vein. The estimated quarterly cash outlays is that take into account. The that everyone is back to work on February 9th or should we expect that that March 31st quarter quarter cash outlay of 11 might get pushed back ended the following quarter.
Ted Ted Ted will add too I mean, if this point is basis people going back to work as John indicated because that's our best guess you know when we put it together you know when you even if it you know slips a couple of weeks they shouldn't have a material impact on the timing.
You know, it's John as John John Both said, there's still a bit of a wildcard right. If the if it's if there's further.
Slowdowns or because of the current a virus outbreak you know it can move things around further.
Okay.
And then back in 2018, you guys talked about and I'm all you with high in that undertake the examining retrofitting. The build you season that was just touched on but could you could that be done in a Korean yard or is a possibility to do that in lieu of I guess additional scrubbers. If there is really.
Material delays and kinda in light of what you're seeing in terms of the fuel spread between Pos up Boeing and high sulfur fuel.
Well, we had earmarked the ships that would not be fitted with scrubbers to be a candidates for the LPG.
Oh, great modification so.
I think there's we're still there and also regarding where it could be done yes, it could be done in Korea or a in a Chinese shipyards.
Okay, great. Thanks, guys.
Thanks.
Thank you. Our next question comes from the line of Matt I would then Dave. Please proceed with your question.
HM.
Yes.
Yep.
First.
Hi.
Differential.
[music].
And then.
Looking further ahead, how do you see its ritchie <unk> these vessels.
<unk>.
Yes.
We're able to strong market.
Yes.
Since I don't want to answer that question, [laughter], which [laughter] weekend, where we don't we don't at the moment have.
Any shifts to sort of put aside for sale I mean that ships up performing.
Very well and.
Happy with that I have them in this market. So I think that probably isn't the best answer I can give you.
Yeah in terms of.
<unk>.
Well only what you know I mean holiday that you know the eco ships are are more economical and I think we've given those numbers are the differentials, obviously change with the price of the fuel oil.
And so so I know overall basis was a prices have gone up then the eco ships.
Greater advantage to that to the.
To the three captains by the captains you know, we kind of sketch tried to schedule them on shorter voyages.
And do it and where the impact of the higher fuel costs would be mitigate.
Okay.
Thank you so watch.
Hi, thanks much.
Thank you once again as a reminder, if he would like to ask a question. Please press star one on your telephone keypad for participants using speaker equipment, and maybe necessary to pick up your hands that before pressing the star keys.
Our next question comes online.
Our next question comes from the line of Thomas course, Allen with Arctic Securities. Please proceed with your question.
Good morning, gentlemen, or just how the general question with the reference to the paragraph where you discussed the markets.
And the seasonality.
Hi, I'm not quite sure devoting here, how I should.
See this but when you say that <unk>.
The activity has not to use the expected seasonal results I read this as it's been better than what you should expect from this quarter is these correct.
Correct.
Thank you very much that whistle [laughter]. Thank you. Thanks.
Thank you there no further questions at this time I'd like to turn the call back over to Mr. Hadjipateras for any closing remarks. Thank you Michelle. Thank you everyone for joining and we look forward to next quarter.
And onboard and.
Thank you bye bye.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
[music].