Q4 2021 Dorian LPG Ltd Earnings Call
Greetings and welcome to the Dorian LPG fourth quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
Additionally, a live audio webcast of today's conference call is available on Dorian Lpg's website, which is www dot Dorian LPG dotcom.
I would now like to turn the conference over to Ted Young Chief Financial Officer. Thank you. Mr. Young. Please go ahead.
Thank you Christine good morning, everyone and thank you all for joining us for our fourth quarter 2021 results conference call.
With me today are John <unk>, Chairman, President and CEO of Dorian LPG Ltd, John Linker, as Chief Executive Officer of Dorian LPG, USA and Tim Hansen, Chief Commercial Officer as a reminder, this conference call webcast. A replay of this call will be available through May 26 2021.
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.
The statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions should 1 or more of these risks or uncertainties 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 our unaudited results for the period ended March 31, 2020, 1 and there were filed this morning on form 8-K. And addition, please refer to our previous filings on forms 10-K, and 10-Q, where you'll find risk factors that could cause actual results to differ materially from those forward looking statements.
Finally, please note that we expect to file our form 10-K, and the first week of June but that I will turn over the call to John and <unk> terrorists.
Hum.
And then.
Thank you Ted good morning from Stanford, where John Ted and I are speaking from.
Tim parents, and who's calling from Copenhagen.
Thank you for joining us this morning to discuss our fourth quarter and fiscal year 2021 results.
Rates made a high and John rate, followed by a steep drop to Lowe's and March and have now recovered to healthy levels.
Confronted by the COVID-19 pandemic fiscal 2021 brought considerable challenges, which we navigated safely and successfully towards some major accomplishments.
Thanks to the dedication and extraordinary efforts of our seafarers and shoreside staff, our ships and the company continues to operate smoothly.
Highlighting our commitment to returning shareholder capital, we completed our self tender, which we upsize from 100 and made it to 113 million.
And we have now returned over 200 million and since our IPO and 2014.
Our Drydocking and scrubber upgrade program is nearly complete.
We expect the last 2 ships to leave the shipyards within this month and.
And total we will have installed 10 scrubber system since the summer was 2019.
12 of our 22 own chips will be capable of operating with hybrid scrubbers and enhancing their earning potential and commercial flexibility.
We contracted for delivery first quarter 'twenty twenty-three a dual fuel shallow drafted 84000 cubic meter of state of the art ship to be built by Cabos sake of industries.
As with all recent V O D C and you were building she will be capable of burning either fuel oil or L. P. G.
She will be financed and a Japanese lease bare boat structure.
Since we commissioned a feasibility study with the American Bureau of shipping and 28 T and we have been evaluating L. P. G is fuel.
The prospect of LPG as fuel is an exciting 1 decreasing and missions, while potentially lowering overall fuel and financing costs.
Vessel and Michigan's are coming to the forefront and the international Maritime organization is set to revise its greenhouse gas strategy and 2020 3.
And environmental awareness features and increasingly prominently in the minds of shipping investors and all stakeholders and maritime economy.
8 of our ships are candidates for conversion to dual fuel per policy.
Looking forward, we have reason to remain optimistic supply concerns and the U S.
Our exaggerated from our perspective.
Spare infrastructure capacity is in place to facilitate both production and export growth over the net near and medium term.
Many forecasters continue to revised production estimates higher reflecting the bullish sentiment and heard from U S producers over this earning cycle.
OPEC plus is expected to push more tons into the market increasing tons.
And then.
We will supply growing global demand, especially in Asia as the market continues to grow steadily and healthily, particularly and the petrochemical sector.
Yeah.
The fleet growth and 'twenty 'twenty, 2 will be the lowest since 2018.
There are currently 42 ships built prior to 2000, which in some form maybe less competitive and therefore candidates for removal and you of course.
We believe that expanding trade volume should absorb the current order book of 61 to 62 ships.
Nevertheless, it will be foolish to deny the risk, which continued ordering at the recent pace could pose.
We would like to believe that the bulk of it is now done.
LPG supply and demand growth along with a heavy maintenance of the global fleet. This calendar year should continue to support healthy market conditions.
Back to you Ted.
Thank you John.
My comments this morning will focus on our financial position and liquidity as well as our unaudited fourth quarter results.
At March 30, 2021 we had $79 3 million of free cash as of Monday may 17th 2021 our free cash balance stood at $84 4 million.
Last quarter, we had estimated up to $60 million and free cash flow before the cash outlays associated with our self tender offer, but we actually generated $65 7 million.
The slight variance however, and the closing cash that we had indicated last quarter.
Is mostly due to the upsizing of our self tender offer by 997000, and 739 shares or about 13, and a half million dollars.
With a debt balance of 60 602 million at quarter and our total debt to total book capitalization stood at a very comfortable 38, 9% with no refinancings until 2000, and twenty-five ample free cash and Undrawn revolver and 1 debt free vessel.
We have a significant measure of financial flexibility.
In addition, we expect our operating cash cost per day for the coming year to be approximately $21000 per day, excluding our remaining special surveys and and outlay associated with our new building.
Turning to our fourth quarter results you may also find it useful to refer to the Investor highlight slide posted this morning on our website.
For chartering, we achieved a total utilization of $95 3 per cent for the quarter with a daily time charter equivalent that is time charter equivalent revenue over operating days as we define those terms and our filings and 49000 and $474 per day, yielding a utilization adjusted TCE that's TCE.
Revenue over available day of about 47155.
Our spot TCE per available day, which reflects our portion of the net profit of the Helios pool for the quarter was about 48, 7 and 58.
Also overall, the Helios pools, and Entergy reported as spot T C, including C. O waves of approximately 54000 and 278 per available day for the quarter.
Daily Opex for the quarter just ended was $9819 excluding amounts expense for dry docking and it was 10198, including those costs.
Our opex increased somewhat sequentially as we experienced higher costs and several categories that said, we do expect running costs to decrease somewhat going forward.
Our time charter inexpensive remains stable at 4 and a half million dollars. As a reminder, we do not include time charter and costs and our vessel operating expenses.
The asked the most Earth has recently redelivered, so our T C and cost going forward should be about 2.4 million for the quarter starting July 1.
Our total G&A for the quarter was affected by a $4 million provision for charter dispute excluding that total G&A was $7 1 million and cash G&A, which is G&A, excluding the noncash comp expense. We book was about $6 6 million.
A large part of this.
Sequential increase versus last quarter was driven by statutory accruals that we make at the beginning of each fiscal year.
We continue to maintain a watchful eye and our G&A costs.
Our reported adjusted EBITDA for the quarter was $65 million.
With your cash interest expense on our debt is the sum of line items interest expense, excluding deferred financing fees and other loan expenses and realized gain loss and interest rate swap derivatives and that basis total cash interest expense for the quarter was $5 6 million, representing a 325000 dollar reduction from last quarter we.
And to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost fixed hedged and a small floating piece of 368%.
As a reporting matter a realized and unrealized gain loss and derivatives also include the effect of our F F a portfolio.
The calculation of EBITDA and our filings adds back only the interest on the realized gain loss not the FFA piece.
John of course will touch further on this topic, but we completed 9 special surveys during the fiscal year, just ended and have 2 more and progress both of which we expect to complete no later than June 32021.
As John hedge with terrorists noted you've entered into a Japanese financing arrangement similar to what we have done for other vessels and our fleet to take delivery of and 84000 cubic meter shallow draft dual fuel new new building, which we expect to be delivered and March 2020 3.
As with the other Japanese structures the debt financing is already committed and we will contribute approximately 25 million net of equity as part of the deal with.
We funded $8 million of that during April 2021 and.
And the remaining payments are due based on achievement of vessel construction milestones. We currently expect to make 2 additional payments of $8 million, each and the quarter ending March 31, 2022, and the quarter ending December 31 2022.
And a final amount of roughly $1 million of delivery, we expect to meet these obligations from cash on hand.
Although we currently hold a roughly 70% economic interest and Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of somewhat understating, our cash and working capital. Thus we believe it is used to provide some additional insight in order to give a more complete picture.
As of Monday may 17th 'twenty, 'twenty, 1 and the pool and roughly $33 $5 million of cash on hand.
Our self tender offer resulted and the repurchase of 8.405 million 146 of our outstanding shares which means that we've now repurchased nearly 30% of the shares outstanding at the time of our IPO.
Cumulatively, we have returned approximately $207 million and cash to our shareholders and we remain committed to returning cash in the future.
We have $47 $9 million remaining under our current repurchase authorization.
We remain interested and accretive growth opportunities that meet our risk reward return criteria, but we will remain prudent in deploying cash.
Our financial position does allow us to act quickly and meaningful opportunities as they may arise, including further opportunities to return cash to shareholders.
With that I'll pass over the call to Tim Hansen.
Yeah. Thank you Chad.
For the first quarter of 'twenty to 'twenty, 1 the global seaborne LPG volumes totaled 6 and half a million tons, a year and you're a decrease of only 117 per cent.
U S exports remained strong and continued childhood home and full cost U S volume continued to grow counterbalance and the declines in the middle East volume.
During the second quarter and.
How would you and the quota American export volumes increased by 71 or 7 1% year on year to 11 8 million tons and the second highest total exports and.
1 of the previous quarter was higher.
Williams would like Nokia and higher had the U S Gulf and I've experienced extreme weather Chuck just about all of them relate to infrastructure and for about 2 weeks in February and south directly off the alumina and new.
Yeah, well I'll start.
And just generally the weakest months of the year for export volumes February 'twenty, 'twenty, 1 and volume only chosen to 1 9 million tonnes.
<unk> marketing.
23 months, low and a 19% decrease versus February 2020.
Both January and March exports were and regular levels hold 1 4 and 1 5 million tons, respectively, representing 21, and H and you and you shouldn't gross.
Baltic market index on the wrestling with Chiba Route average 54 metric tons.
John last quarter and was another robotic who's a corner the market continues to build 1 from 'twenty to 'twenty for the first day occasional January rising through 109 G. Metrix a dollar per metric tons on the benchmark route rustin and to achieve this was actually the highest level since the summer.
2015.
And the market came.
2 and a prompt homes after 2 weeks of regular draw and something he was inventories due to higher exports and the cold weather and the U S.
U S LPG prices rose.
And as a result.
Oh.
And as a nation with a normalizing a bit.
Friendship demand moderated and the average loss narrowed and buying interest reduced fragrance felt that's often a wait and see pads on.
Because of the dramatic pause and the U S exports and the backlog and beliefs.
And then.
And at the Panama Canal reduced from around 10 days.
And.
Mid January 2 2 days and mid February with the situation and the U S Gulf normalized and the lack of the lease and the Panama Canal and contribute at your rates online thing and that's a corner progressed.
The rates bottomed and all of a $29 and adventure tons and early March Rachel and advocating and.
And steadily back since and reaching 50.
And the dollar per metric tons by the end of March.
And so he was production came back online and the Chinese importers to return to the market.
Yeah.
Chinese and Indian demand smoothed, the bright spot lock and hold all growing between 6% and 17 point Bulks and prospectively.
And compared to the same period of last year, 3 Chinese PTH plant began operating in first quarter 'twenty, 1 representing a 1 9 million tons per year of demand.
2021, China is estimated to have and LPG deficit of around 2 million tonnes and a demand increase of 6% driven by new PTH and steam cracker.
And she can comment online.
Continued LPG penetration and India.
Has grown and demand.
February was the first to government and non clients for a $10 million additional LPG connections and the next fiscal year.
And on the supply side, and we continue to watch the U S NGL production and inventories.
The promise of higher production levels that'd be so and.
Early last quarter, what's lawsuit the ray and while the Texas, a temporary freeze which shut in production for nearly 2 weeks Hollywood and production Normandy normalized quickly.
As a result first quarter production was nearly flat year on year while E.
And I a forecast that the U S propane production should increase by only 1% this year and by 3% and next year, we believe that the U S production and measure price through the oxide, giving them that dramatic increase in fractionation and pipeline capacity that was low.
Last year.
Storage levels, while tracking below last year's levels are still within the trailing 5 year average.
And that is all of which is surprising after sox and I have a draw and last quarter and loss degree of low inventory levels can also be explained by the reason growth of the U S export capacity.
Although we witnessed and that'd be inventory draws last quarter, and especially higher domestic and export related demand. We are in the shoulder season, now and inventories have already started to increase.
And the OPEC plus increased green to increase production and the second quarter, and possibly beyond middle East volume should be golf and.
As the year progresses potentially moving.
Pershing reason declined.
Iranian supply however remains a big near term question, although we believe that in 2020, 1 impact is likely to be minor.
With this I'll pass along to John the Curse Chicago.
Okay.
Okay.
Thank you Tim.
The upgrade of the last 2 of our vessels with hybrid scrubbers is kind of in progress, including the completion of those vessels 5 year Special survey requirements.
And we anticipate completion of all the works and early June.
By that time, Dorian would be operating a total of 12 scrubber vessels and would have completed the announced scrubber retrofit program.
For the retrofit of Dan hybrid scrubbers to our own fleet, which started in the summer of 2019.
During a 2021 financial year, which ended in March 'twenty 'twenty. 1 we completed 9 of our vessels 5 year special surveys, which is the same number of vessels that we completed and the 2020 financial year.
The completion and special special surveys on a total of 18 vessels during the last 2 financial years, along with the 2 vessels currently in progress completes the 5 year cycle for 20 vessels and the Dorian LPG fleet.
The high sulfur low sulfur bunker spreads since the beginning of the year has stood at about $100 per ton of pure.
Producing and earnings advantage for scrubber fitted vessels.
Given the recent economic trends, we anticipate that and increasing the supply and demand for oil could maintain or perhaps widen the car and bunker spread not only further supporting our capital investment and hybrid scrubbers, but also improving our fleet's environmental footprint.
Hybrid scrubbers, and not only to reduce sulfur oxides and mission.
2 levels below 0.5, and 0.1 of the comply and marine fuel oil being used but they also reduce particulate matter and black carbon emissions by more than 80 per cent.
Neutralizing affluent water levels with caustic soda.
Depending on each country's water discharge restrictions the hybrid scrubbers can operate either in open or and closed loop mode keeping in line with environmental sustainability requirements.
Dorian has been evaluating LPG dual fuel technology since 2013, when our first new building vessels were ordered.
And we have followed it closely since then.
With a few dual fuel LPG retrofitted vessels now entering the service and the World Fleet and the first few new building dual fuel LPG vessels delivering from the shipyard, we will revisit this upgrade for some of our vessels.
In line with our interest towards dual fuel LPG powered engines, we have recently taken a step in that direction by contracting and 84000 cubic meter dual fuel LPG, new building vessel and Gaba Saggy heavy industries and Japan.
And as vessel deliveries anticipated in March 2 and 23.
We are continuing to invest and our vascular performance and efficiency to reduce emissions and lower operating costs.
And improved environmental footprint is very important to Dorian LPG and we continue to explore other incremental energy efficiency technologies, including vessels power management with hybrid battery storage systems and fewer sales.
From 2023, and it is mandatory for each vessel type to comply with its assigned energy efficiency existing ship index or E side value and.
And the vessels E X sight technical file, which will need to be approved by their classification Society.
This short measure.
Adopted by the I am all for the reduction of greenhouse gases is based on the published resolutions and guidelines for the Marine Environmental Protection Committee.
And <unk> 75.
The entire fleet of existing VLCC vessels are required to meet the F 30 per cent reduction factor in their maximum continuous power rating of their main engines.
Options available for the VLCC fleet, our engine power limitations.
And the G efficiency technologies.
Or dual fuel engine upgrades to LPG as fuel.
Most of these available options will have a significant impact on the VLCC fleet over the next 2 years, while encouraging the scrapping of older vessels, increasing the order book.
And encouraging further cabot.
Capital expenditure and upgrades of the fleet towards improved efficiencies to reduce the carbon intensity and opting for dual fuel upgrades.
Our outlook is that from a regulatory perspective, there is an urgent need to consider energy efficiency for all existing vessels and we conclude that a portion of the VLCC fleet trading capacity will be reduced and all.
Order to address the upcoming compliance considerations.
And with that I will pass it over to John Hedgpeth tariffs.
Nice John Thank you.
Operator can we open up for questions now.
With the prepared remarks completed we will now open the line for questions.
If you would like to ask a question. Please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is no question queue. You May press Star 2 if you would like to remove your question regarding the Q4.
All participants using speaker equipment, and it may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.
Thank you. Our first question comes from the line of Sean Morgan with Evercore. Please proceed with your question.
Hey, guys.
So we talked a lot about adding scrubbers and and the dual fuel and potential of the new order and and kind of the order book ticking up a little better and I and.
And the context of just how rapidly investors and and I guess regulatory authorities and starting to lift the carbon footprint.
How comfortable are you that the that you'll be able to retrofit. These vessels if if if the.
The regulations surrounding and carbon emissions and start to to kind of change cause and what we're talking about capex for for equipment, that's going to last you know.
Decades.
So just kind of how how do you think about new orders and the context of just kind of changing rules regarding carbon.
Uh huh.
A lot of questions there.
And and and and and a lot of uncertainty because mainly because the regulations haven't really been solidified yet.
So I think at this stage like other shipping companies and the best we can do is is comply with what's in site and and because of the feature of our ships being LPG carriers, we have a leg up in a way and this whole equation because we can look at LPG as fuel and it's not.
Not as complicated as it would be or you know container ships, who go to LNG or or crude carriers and bulk carriers to be to be powered by LNG or other fuels. So I think I think where in there we're thinking about it all the time we have.
And our solid plans as is evidenced by what we did on the scrubbers and.
And we and in terms of converting the existing ships that I mentioned that we.
We have 8 of our existing ships that could be candidates.
And we were where are actively talking with.
And.
Providers and and shipyards to see if we book.
But we haven't decided to take a final step and go ahead yet.
And we've watched VW and do this and they have.
And first mover advantage and we have a second mover advantage we feel.
Okay. Thanks, John and then.
And the G and H charge this quarter and it sounds like there was a contract dispute a charter and dispute is that has that been resolved is this is this a 1 time charge and should we think of this as kind of nonrecurring and do we expect that to reverse in the future quarter or is it sort of done and dusted now.
Well, we've made it we made a provision for a possible payment there that that that is our best estimate of what we would be.
Required to pay if we lose.
So that's it and Theres no no that's not ongoing it was a 1 off relating to a delivery of a share, but on a charter and and and.
And we don't expect that to have a and the impact more than what we've provided for at all.
But it could reverse at some point down the line.
Sure.
It could reduce what do you think it's we think it's a potential liability and that's why we made the provision for it so I wouldn't call it that $4 million.
As being okay.
Okay, but sort of nonrecurring also alright, thanks a lot.
Thank you.
Our next question comes from the line of Omar knocked out with clock Clarksons Plateau. Please proceed with your question.
Hey, guys. Good morning, Yeah, generally good overview I thought and the you know your opening remarks.
And then just maybe wanted to just take maybe a little bit further on the Newbuild and deals you see you know John and the past and you would.
And we talked about it on conference calls you haven't really been interested and new buildings and.
And just wondering you know what's what's changed in your eyes to make you more comfortable with this with this order and and also what what's the appetite look like for potentially more than just this 1.
I and I say I think that it speaks for itself and a way it's 1 ship.
We have where we're putting our toe and the water with dual fuel and.
We're doing something which is a bit centric to a customer and needs as well as we see them and developing in terms of the Japanese market.
And we're taking advantage of attractive financing opportunity and I think it didn't know way and payrolls or inhibits our ability to continue to focus on shareholder return.
Oh on capital.
And I location with a bias towards returns to shareholders.
What's that.
John Thanks.
Okay.
I'm, sorry, I missed yeah, I was just going to ask him and that clearly that makes sense and now.
Do you think there's do you have a desire to expand that from what you see now whether it's from your discussions with your with your customers or you know.
Tractor financing or you know slot capacity, you see and opportunity.
And interest on your parts and to add more than just the 1.
I can't give you, 1 and politics and not a non politician's answer to that.
No.
[laughter], Okay, that's clear.
That's clear.
And then I guess, Oh, and obviously as you said dipping your feet into the door you all a bit more and how how does this.
And how does this kind of change or how should we think about the perspective of you, adding secondhand vessels I know you haven't been acquisitive, but generally speaking.
Do you think outright acquisitions of existing vessels would also happen with capital or do you prefer more like the T C and approach that you've done here and the recent past.
And in order to add it to increase your existing footprint.
And you know.
It's we've taken a portfolio approach.
And you know the T C N approaches and we find very interesting and we will continue to and execute on that.
And and and.
Hum.
And hopefully not by adding you know we'd like to see the order book kind of establish here as I said I think it's it's.
And the prospects of it getting absorbed.
Absorbed R R.
Good and and we're confident.
Confident and the expanding and expanding trade et cetera, but we at this stage and I and I.
And I want to exclude anything but at this stage we're not.
And we do not have any appetite for more new building and as regard. The second hand, you could see us being a seller is as much as you can she has to be a buyer and it depends totally on our.
Opportunistically on the on the where we see.
Our value and what whether it would be accretive and whatnot.
Okay, Yeah that that speaks to your portfolio approach.
Oh, well 1 final 1 just back to the new building.
Do you think that this is a vessel at least from your conversations with your customers is this.
And that you can and tend to deploy on a on a long term charter is that kind of what the I don't know if you hinted at that or is that just the general conversation that there is interest for these types of ships and the future.
Yeah, not necessarily Walmart I think it's because of her draft suitable for the trade, but we're not counting on a long term charter with it if it comes and it's at the right price we'd be happy to do it but we're not counting on it.
Got it.
Okay, well. Thank you all I'll leave it at that.
Thanks Omar.
As a reminder, if you would like to ask a question press star 1 on your telephone keypad.
Our next question comes from the line of Iraq Hobbled Zone with Burritos Securities. Please proceed with your question.
Yeah, Hi, just 1 on your 3 older ships them, because there's obviously lots of talk on the deal flow and mothers, but what do you what do you see as a market for.
And the kind of pre eco.
Ships like the 3 captains and so you have a post 'twenty to 'twenty 3 and.
And is the ambition I mean, the S&P market for those type of ships.
Perhaps surprisingly liquid then and on strong really is that.
Something you are looking at thoroughly done when you say, you're you could be a seller.
As much as we're looking at everything as thoroughly yes, but not we're not focusing on and on on being on selling those 3 ships, but I think the values are solid and that's very encouraging so the option of sending and and then.
And I was at.
Renewal.
And ultimately et cetera, as it is is there and and.
We are examining it but we don't have anything right now.
And that we can report on that in terms of a transaction a couple of them are engaged and in time charters.
And.
I think that are you know to go beyond the regulatory and all of that at the moment is too speculative to know what how these ships will be performing relative to the other to the others.
Okay, but when you talked about retrofitting those 3 wouldn't be.
All in and and that our field.
Field and think about.
But no okay and that's fine.
Uh huh.
And well talk.
Yeah.
Exactly and when you talk about share share holder returns you.
Do you still have a preference towards buybacks rather than dividends.
The fair assumption you've got it.
We think our our and a self tender was a successful 1.
And positive way too and make that return and we do have the option of buybacks and we do not want to exclude the possibility of doing dividends.
Sorry about that that's not very.
Committal, 1 way or the other except to say that we will be.
And with this market continuing and the way it is we expect to be making returns.
Okay, and then finally on the cost of the Newbuild I missed it was at 84 million and he said.
And if.
And 4000 cubic meter and we can't tell you and the price, but it's not 84 million.
Okay. Thank you.
Okay.
We have we ended the question and answer session. Mr hardship and terrorists I would now like to turn the floor back over to you for closing comments.
Hello, and thanks, everybody for attending and thank you.
For your questions and I don't know, we look forward to.
I'm seeing you again and 3 months.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time, Thank you and your participation and have a wonderful day.