Q2 2021 Dorian LPG Ltd Earnings Call
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Greetings and welcome to the Dorian LPG second quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
<unk> said that after a softer will follow the formal presentation.
As a reminder, this conference is being recorded.
Additionally, a live audio webcast for today's conference call is available on Dorian LPG is web site, which is www dot Dorian LPG dotcom.
I would now like to turn the conference over to Ted Yes.
So officer. Thank you Mr. young please go ahead.
Thank you Doug Good morning, everyone and thank you all for joining us for our second quarter 2021 results conference call.
With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG limited.
I'm, a Christian Chief Executive Officer of Dorian, LPG, USA, and Jim Hanson, Chief Commercial officer.
As a reminder, this conference call webcast a replay of this call will be available through November nine 2020.
Many of our remarks today contain forward looking statements based on current expectations. These statements may often be identified with words, such as expect anticipate believe or similar indications of future expectations. Although we believe that 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 uncertainties and other factors as well as general economic conditions should one or more of these restaurants surgeons these materialize or should underlying assumptions or estimates prove to be incorrect actual results may vary materially from those we express today.
Additionally, let me refer you to <unk> on audited results for the period ended September 32020, there were filed this morning on form 10-Q.
Also please refer to our previous filings on form 10-K, where you'll find risk factors that could cause actual results to differ materially from those forward looking statements with that I will turn over the call to John Hadjipateras.
Thank you.
Good morning from.
John The course in Athens.
Tim Hudson in Copenhagen.
Ted young clever.
Myself and Stamford, Connecticut, and thank you for joining us today for our financial year, a 2021 Q2 earnings call.
Following our AG I'm on Wednesday last week went to about director Christina Tan and Tom common were reelected and our regular quarterly board meeting on the same day.
We expect to continue our focus on capital allocation to pursue opportunistic share repurchases.
Well, let's consider dividends de leveraging further.
Although opportunities.
I'm happy to report that our seafarers and short stuff are safe and continue to aid bleep, a form that deal with it.
With the cooperation of our cost the most local and flag authorities and classification societies, we've been performing many statutory surveys remotely.
In addition to the health benefit or reduced exposure did that did utilize jason on remote monitoring enhance efficiency and reduce costs.
During the quarter our crew rotation has been successfully restored to normal levels.
The industry wide crisis caused by the disruption to the free movement of seafarers. During the shutdown has somewhat abated no restrictions continue in many ports and they result.
Logistical challenges and increased costs.
Okay.
Our last quarter's results largely reflect the poor market of the previous April to June quarter.
Many analysts understandably base their forecast on the Baltic published great.
I would like to share a word of caution about that.
The Baltic index for LPG as a daily forecast by a panel of brokers, reflecting their assessment, yes, well the rate fixed on the spot fixture within 10 to 40 days on the remote middle East to Japan.
As well as the obvious and the lag effect of time elapse between fixture and voyage completion, there are other inherent distortions, which make extrapolating from the single route to publish the Baltic rate an unreliable forecasting tool for time charter equivalent earnings.
These include sailing speed actual cost of bunkers, Panama and other port delays routing changes for weather deviation for extraordinary crude changes outdoor four guards add of course idle time.
We have communicated our appended to the Baltic and hope that they will open a dialogue with stakeholders with a view to making their index more useful.
You asked production is 10% below the all time high in January but nearly 14% above the years low in may and exports are up 15% year on year through September thirtyth.
Yeah, there's imports are up 14% year to date.
You asked storage is 10% above the five year average.
These are some of the factors, which together with fractionation capacity being added in the U.S. and PDH plants being commissioned in China give me cause for optimism.
As usual on our calls your well hear an analysis of our quiet quarterly financial from Ted and industrial market updates from Johnson <unk> Johnson.
Jim over to you.
[laughter].
[laughter].
Thank you John.
No. Its exports continue its also <unk> all your last quarter, but it was not enough to generate a global growth for the quarter lower volumes decreased by 8% compared to 19 year to date, the global volumes totaled 80 million tons. It was a 2.6 year on year decrease.
American export volumes increase.
Increased by 15% to 33.3 million times yesterday, which compares to only 28 pardon.
8 million tons during the same period last year.
In the third calendar quarter, you most export volumes you had record levels growing 11% year on year to the every 11 million tons, the highest level ever be cold.
For the same period of time or at least volume decreased by roughly 11% to nine in Hopkinton challenge.
Despite the initial weakness the freight market improved during this quarter, the poultry market index or the middle East.
To date, and we began the quarter at around $30 per metric tons, Washington, <unk> in early August through the low sixtys or metric tons range.
On the call moderating it.
Page from Middle of course add ons from at the end of the core U.S. export up yet to be to set the freight right rate recovery into motion American export volumes hit record levels in July.
Open 3 million tons, the strongest level ever recorded by marching up 360000 tons. According to U.S. She liftings owns a piece in July seven three cargoes people stabilizing to average 65 cargoes in August and September.
Record shattering U.S. export cargoes and that's why this weather condition to poor congestion in Asia and India towards the end of the quarter that we should make it couldn't delays around the world South Korea like so for instance, some significant delays, adding about six days or about 10, but since we're not.
The wrong tree barge <unk> children [noise].
Currently may not be investment.
Coal gets extended this jockeys in our east malls were pasted age.
All in balance goes up to eight days or delays and then Dave it's about old age and age at the moment.
That's two to 10 days.
<unk> shake out capacity, although regional middle East Liftings were down the Cogs. So that's all in the <unk>.
Alright Emirates to India mainstream good pitching more engine Indian demand continues.
It continues to girls Indian imports.
Imports screen.
Opus NGL, yet youre about Onebillion Tonge meantime, dozens of independent use Apocalypse injury and you have diminished.
It's really the third of July.
Chinese flags on contract losses in addition, true.
National Junior companies.
Our basic.
Business into the <unk> into India, I Didnt call them in terms of the military tensions between the two countries.
The gold mine gene negatively impacted LPG demand some part of Asia during this quarter.
And South Korea demand right. So the steep declines feature set your industrial demand and the Chinese imports also to continue to do.
For <unk>, 8.8% year on year.
Despite record in poultry in July and that children to.
2.3 million to launch an all time records.
Program, how the private banks or nothing to tell you. The most on the call before shrinking towards the end of September.
Late winter stocking and the prospect of a coalition of interest, resulting from the media <unk> chip demand, Bob the heading into the fourth quarter.
LPG supply U.S. NGL production coal cost continues to be revised upwards extra volumes have outperformed expectations cope.
Propane storage levels remains elevated compared to last year.
Given the continuing b or infrastructure additions competing yesterday he.
He was production and exports make continues to surprise to the upside due to the increased capacity.
Year to date onetime 6 million barrels a day of new Y grade pipeline thats been constructed to supply.
The 1.2 million barrels per day.
Actual capacity on.
On export capacity progress.
Terminal expansion completed in all of course, adding another three to four cargoes of capacity and build own star NGL expansion, Doug good to you.
Yeah. He is on schedule for completion this quote all adding another.
Hello Hello.
Oh Hogwash, there's just no charges offs, which backer passage it on the last call agreement, they're lifting numbers well demonstrably choke off stands Martin's old crop.
Well, no, but everybody we lost 10 Hansen slide.
Operator, we can go back we can go to.
John Lycouris will what 10 backlog when when he comes back.
Hello.
Rejoining Java course.
Yeah, you. Please did it with well go we've lost Campbell from us on the phone so well go to John look worse and then the World went 10 comes back well or at the IDE will put him on to finish his his remarks, he was always almost off anyway.
[noise], so John the chorus.
Yeah, John floor is yours.
Thank you John.
[laughter].
During this quarter, we completed dry docking, especially survey on the vessels Cougar and Cobra and expect to complete a further two faster during this quarter.
[noise] Dorian remains committed to improving environmental emissions with.
With the U.S subscribers, we achieve a 98% reduction in shopper oxide emissions and 80% of particulate matter emissions.
As well as black carbon emissions no money released one burning very low sulphur fuel oil.
We currently operate 10 scrubber equipped vessels, including to fit it and trading since 2000, there are 2015 delivery.
Well its properties are hybrid systems, except for one vessel. So they can operate in open or closed loop, depending on local VCA conditions in regulations and the port requirements.
We are programming to retrofit two more vessels with scrubbers in the coming months to coincide with a vast was five especially survey and dry docking cycle.
[noise] bunker fuel prices spreads have been volatiles since March 2020.
No shop, Youre has traded from as low as 12% to more than 30% over the high sulfur fuel oil price.
Which in dollar terms amounts to 30 from 30 to $85 per metric ton.
That's what I tell it he has largely been the restart of crude oil pricing in the world markets refinery utilization and product Starplex isn't the markets all impacted by COVID-19.
Once carbonite seeing conditions improve and market sectors recover we expect that fuel spreads will widen again to pre COVID-19 level.
Even though rational scrubber retrofit were rushed to meet the IMO 2020 commencement on January 1st they installations are designed to perform for the remaining life of the vast source and cannot be judged on the very short term during which they have been operational under extremely volatile economic and market conditions.
We are keenly for lying there is lots of lpgs fuel on the vessel is currently being a retrofit it and on the Newbuilding vessels as the commenced commercial operations next year.
Dorian has been at the forefront of this technology since 2013 14, when many of our vessels were being constructed.
We built most of our vessels to accommodate a future retrofit.
In addition, we have carried out feasibility studies and jails retrofitting <unk>.
However, the associated cost cap ex for a dual fuel or retrofit amounts to more than three times that of a scrubber, making commitment difficult.
Once a number of these lpgs fuel projects are completed and pricing becomes competitive on the equipment and outfitting requirements. We hope to consider lpgs fuel and also when favorable economic conditions and LPG markets.
[laughter] enable us to.
According to Dnbi G., a energy transmission outlook the world Energy emissions peaked in Twentytwenty due to the COVID-19 endemic.
Avoiding 75 gigabit to launch of C O two emissions it 2050.
The maritime fuel mix is likely to see a reduction in the usual sales increasing the usage of low carbon fuels and natural gas as well as electricity through batteries.
Improving energy efficiency, increasing the renewables and electrification decarbonization carbon capture and storage are sound with the solutions that are being considered.
Less than 10% of the current fleet on order is committed to alternative fuels like LNG batteries LPG et cetera.
Most decisions would be formulated in the next few years as fusion engines transition and the availability of alternative green and Blue fuel was becomes available as pure for existing vessels with fuel costs. The main consideration against greenhouse gas reduction.
The cost of elaboration of the regulators owners charter ups and financial institutions in formulating future policy for all the stakeholders will be necessary to move industry dolwin carbon neutral fuels and zero emissions.
The current VLGC fleet. According to Clarksons comprises 301 vessels and the order book currently stands at 32 vessels or about 11% of the fleet rather manageable number we.
We think.
Two vessels are due to be delivered this year with 21 vessels expecting 2021 and nine passes in 2022.
Kind of 27 vessels in the fleet, which are 25 years or older and that number will increase to study that shows next year I.
Assuming that there's no scrapping.
The kind of fleet dynamic provides a highly encouraging backdrop, what they'd be able to see freight markets.
And with that my comments are also and I will pass it over to take young Chief Financial Officer.
Thank you John.
My comments today will focus on our financial position and liquidity as well as our unaudited second quarter results for.
For a discussion of our second quarter results. You may also find it useful to refer to the investor highlight slides posted this morning on our web site at.
At September 32020, we had $145 million of free cash since quarter end as we previously reported we completed the repurchase of the Captain John which is now 100% debt free.
Pro forma for that principal repayment of 18.3 million, our cash balance would have been 126.7 million and our debt.
628 million.
As of Friday October 30, if our cash balance stood at 135 million.
Following the repayment of the captain John lease arrangement, we have reduced our debt service cost by about $2.6 million per year.
As we've previously discussed we've made significant and favorable changes to our debt capital structure in the last six months.
We refinanced the commercial tranche of our main bank facility with a lower interest margin and more flexible financial covenants entered into a 12 year floating rate sale leaseback on the crest and now have repaid some of our higher cost debt. We currently amortize less than $52 million per year, which is a significant reduction from the 64 million that was required.
Until recently.
Following the new bank deal and the favorable interest rate environment, we took the opportunity after quarter end to blend and extend our largest swap position with the $200 million notional value I'll get into the economics of that a little later, but it did result in a reduction of our fixed rate by nearly 85 basis points.
Turning to our second quarter chartering results, we achieved the total utilization of 97.4% for the quarter with a daily T. C. That's T. C revenue over operating days is defined in our filings of $26015, yielding a utilization just a D.C.T.C. revenue per available day.
We have about 25000 threethirty.
In contrast to last quarter this quarter saw steady month over month improvement in rates and utilization.
Spot Tc per available day, which reflects our portion of the net profits of the Helios pool for the quarter. It was about 25800.
Oh, so overall, the Helios pool reporters spot T C, including feel ways of approximately $24560 per available day for the quarter.
Daily Opex for the quarter was 9613, excluding amounts expensed for dry dockings.
It was 10591, including those costs.
Excluding drydocking the increase was largely a function of higher crewing costs, driven by crude change costs and certain incentive in repair retention payments to our seafarers.
Our time charter in expense remained stable at four and a half million dollars. As a reminder, we do not include time charter in costs in our vessel operating expenses.
Total GMV for the quarter was 5.9 million and Kashi in A.I.E.G. and excluding non cash comp expense was about five and a half million roughly flat with the preceding fourth quarter. We continue to look for efficiencies in our cost structure in this challenging environment.
Our reported adjusted EBITDA for the quarter was 22.3 million again in contrast to the quarter ended June 32020, where we made over 80% of the quarterly EBITDA in the first two months.
We earned over half of our EBITDA during September reflecting the fact that the financial impact of the stronger chartering market. How did first noticeable in back to the end of the quarter.
Well you cash interest expense on debt as the sum of the line items interest interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on interest rate swap derivatives on that basis. Our total cash interest expense for the quarter was flat versus last quarter and $6.9 million.
Representing a full quarter of interest savings from the 2015, a our facility refinancing on the cross sale leaseback offset by a larger realized losses on our swaps.
As I touched on we did expand and extend our $200 million notional swap.
Which resulted in extending its maturity by three years to 2025, and reducing the fixed interest rate from 1.933% to 1.091% or about 84 basis points. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost.
Fixed or hedged in a small floating piece a 3.78%.
Please remember that is reporting that are are realized and unrealized gain loss on derivatives. Also include the effect of our epay portfolio.
That said the calculation of EBITDA on our filings adds back only the interest on the realized gain lost not the epay piece.
John has already touched on our Fannie and our dry docking program.
But we believe that our current financial position will allow us to finance whatever future Drydocking schedule best supports our charters.
Although we currently hold the 60 plus percent economic interest in Healios, we do not consolidate its PML or balance sheet accounts, which has the effect of understanding our cash and working capital. That's we believe it is useful to provide some additional insight in order to give a more complete picture.
As of Friday October Thirtyth, the pull at roughly 12, and a half million of cash on hand, reflecting the fact that the pull just paid a distribution a weak prior.
We feel that our liquidity and capital structure have positioned us well for whatever rate environment, we face in the coming months and we believe that allows our company to make capital allocation decisions from a position of strength.
The significant rate volatility caused us to curb our buyback activity.
Remained committed to returning cash to shareholders and those that we still have approximately $50 million remaining under our share buyback authorization and we also remain interested in accretive growth opportunities that meet our risk reward criteria.
We will continue to be prudent in deploying cash, but our financial position allows us to act quickly on meaningful opportunities as they may arise.
With that I'll pass it back to John Hadjipateras.
Thank you, Ted and Oh, God or Tim back back on but in any case I think he was very close to the end of his is [noise].
The comments so he can.
He will have the opportunity to complete them with questions. So I'd like to open up for questions at this stage. Thank you.
Thank you, ladies and gentlemen at this time well be conducting a question and answer session.
I'd like to ask your question you May Press Star one on your telephone keypad, a confirmation Tom Let me take your line is another question in queue.
Thanks, Chris starts so you would like to remove your question from the Q4 participants using speaker equipment and maybe that's starting to pick up your handset before pressing the star kids.
Our first question comes from the line of Omar Okada with caution Plateau. Please proceed with your question.
Hi, Thank you Hey, guys.
Hey, I just wanted to.
I just wanted to check in with you on.
On the capital allocation as you guys just discuss that Ted you just brought it up and John in your opening comments you mentioned that you obviously slowed down the share buybacks over the past few months, which makes sense given the uncertainty with the pandemic and an overall energy picture how.
How are you guys doing things right now, especially post the John you mentioned the ATM last week are you signaling that maybe we're at like.
Maybe a pivot point that you're looking to recharge that remaining $50 million buyback is that sort of on the horizon.
I think that's a reasonable interpretation of much of our comments yes.
Okay. Good well, that's that's fairly clear [laughter] [laughter].
Maybe following up then on that.
You mentioned the buybacks evaluating dividend you're focused on de leveraging and other opportunities, which I take our acquisition.
Yeah that that being a focus for both you and the board are you able to maybe rank those in order of preference maybe it sounds like buybacks on top of the list but.
Maybe you can give us a sense of ranking and all the different element.
It's very difficult to do that right because it changes day by day at the moment I think you're right to buy but what's at the top of the list, but but you know I.
I think that we have we we have it under short term review call. It constantly so so yeah if.
There's a lot of value.
Today I think.
Our our Soc going on here that and I know the whole industry is very undervalued. So.
You would expect that we'd be focusing on that I think.
First but not exclusively.
Yeah, you got it Okay, Oh, we'll see at the no the weeks and months Tom just one.
One follow up or one separate topic and I'll hand, it over you know just.
On the.
On the chartering a you guys have always been partial to fixing ships on time charter how has chartered demand been here over the past couple of months, especially given the stronger market ablate are you seeing opportunities to put some ships on charter here for the medium to long term.
Little bit is to Tim are you back on.
Yes, hi, good Tim you can take that [laughter] that question.
And also if you want to take the opportunity to complete your comments you can do that too.
Well I'm not exactly sure where [laughter] Wow.
Okay, what about so well on the on the time job site.
Yes, we have seen more activity on more opportunities and we have also seen.
She rates or the Cabo from where they were.
Like six months back so yes, we are looking at some opportunities at the moment, so you're thinking now.
Charles you ship sales rose levels you.
Firing.
Yeah.
Okay. Good all right, thanks, Tim and thanks, John to react to that.
Thank you Omar.
Our next question comes from the line of John Morgan with Evercore. Please proceed with your question.
Hi, guys. This may be something that Tim was going to address before I got cut off but.
In the in the press release, you talked a little bit about the benefits of the ton mile expansion from U.S. exports and sort of the the negative impact on on volume demands for the LG sees from the curtailment of OPEC.
But you also talked about the spread cannot that being being positive and being on you know being.
Being a positive benefit for the for the fleet and the global fleet. So if you kind of look at that as a bit of a double edged sword, if opex start pumping again, and Libya comes back online and that starts to pressures nap.
How do you sort of weigh the benefits to increase production out of the middle East with potentially you know a lighter spread and then also maybe some substitution from southern U.S. cargoes.
Tim you want to take a shot at that.
Yeah, Yeah I.
I think.
Again you'd be.
We have an increase in the middle East.
Huh.
It is more positive than negative it might affect as you say the doctor spread.
Right, but on the other hand Ben.
And did you see.
Stoops applying pick and choose from when the pricing you also go <unk>, which it will eventually win and a more use.
Well I think overall more problems in the market.
You still have a positive effect on there on the G. Whether it is often shops each week.
Not the correct.
Okay.
And then Uh huh.
Was there any disruption sort of related with what the hurricanes and petrochemical disruption that impacted you at all during the quarter can you just rates were you know like I know, we talked about how the Baltic doesn't reflect the sort of actual actualized returns that we can expect but the clarksons tc rates or maybe a little bit higher.
Even on a lag basis I'm, just wondering was there any weather related.
Utilization impact or what sort of drove that.
[noise], yeah weather and get out and you know.
Oh.
<unk> <unk>.
Demand okay.
All right that's it for me thanks, guys.
Okay. Thanks, John Thank you.
There are no further questions I'd like to hand, the call back dramatically for closing remarks, okay.
Okay, well, thank you very much once again and everybody stay safe and.
See you next time bye bye.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
[noise].