Q1 2023 Dorian LPG Ltd Earnings Call
Yeah.
Yeah.
Greetings and welcome to the Dorian LPG first quarter 'twenty 'twenty three earnings conference call. At this time all participants are in 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 dot com.
I would now like to turn the conference over to Ted Young Chief Financial Officer. Thank you. Mr. Young. Please go ahead.
Thank you Joe and good morning, everyone.
Thank you all for joining us for our first quarter 2023 results conference call with me today are John Hydro, but terrorists chairman President and CEO of Dorian LPG Limited, Jon Litt chorus, Chief Executive Officer of Dorian LPG, USA, and Tim Henson Chief Commercial officer.
As a reminder, this conference call webcast and a replay of this call will be available through August 10 2022.
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 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 or should underlying assumptions or estimates prove 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 June 32022, there were filed this morning on Form 10-Q.
In addition, please refer to our previous filings on forms 10-K, where you'll find risk factors that could.
Cause actual results to differ materially from those forward looking statements.
With that I'll turn the call over to John entrepreneurs.
Thanks, Ted and thanks.
For joining John Ted Tim and me to discuss our first quarter financial year.
Years 'twenty to 'twenty three results.
The war in Ukraine has added complexity to our crew operation and our crew Department has worked diligently and quickly to ensure the safety and well being of many of our Ukrainian seafarers.
The Covid pandemic on recent port closures in China continued to create challenges around J crew changes, but through close into departmental coordination. We have managed these challenges well and without creating major deviations or delays.
Global LPG exports increased 2.6 minute tons or about 5% in the first six months of this year compared to the same period last year with the middle East that was the main contributor to global export growth up 13% year on year.
Estimates for U S exports point to further growth in 'twenty to 'twenty, two 'twenty 'twenty three.
And July is short term energy outlook report the E. I a estimated the U S. L. L. P. G exports will grow in 'twenty, two and expect that trend to continue with exports increasing at 23, driven by continued production growth and flat domestic demand.
Tim will give you more details on their supply growth and our view of the market.
We are levering leveraging our in house expertise to optimize our fleets technical and commercial performance.
Our bunkering manager on the chartering operations departments are making considerable impact on sourcing the best quality and best price Banca is for our fleet and our pool sleep.
The price spread between heavy fuel oil and low sulfur fuel oil currently at about $300 per ton is providing a good return on our investment in scrubbers.
The 'twenty to 'twenty three I am all emission regulations are coming up quickly and our technical and our fleet performance teams have been actively assessing and ordering retrofit equipment, which will reduce our consumption and emission footprints.
The diligent assessment of hardware and software it retrofits on our ships, we will be able to meet I am all targets and continue to harness the superior earnings potential of our modern fleet.
John will give you much more information on this shortly.
Considering the age profile of our fleet, our dual fuel new building the time charters.
Three dual fuel new ships and the additional flexibility following the refinancing of our term facility, which we announced today, we are well positioned to pursue an optimal capital allocation strategy.
A declaration of a one dollar per share dividend supports this view and demonstrates our continued commitment to shareholders, which is possible because of our focus on serving our charter as well and ensuring the wellbeing of our seafarers and shoreside staff to whom we are grateful I will now pass the line over.
Ted.
More on this and our financial results.
Thanks, John .
My comments today will focus on the regional capital allocation events, our financial position and liquidity as well as our unaudited first quarter results you may wish to refer to the investor highlights our materials posted this morning on our website.
At June 30th 2022 reported a 155 and a half a million dollars of free cash during.
During the quarter ended June 30, we voluntarily prepaid $25 million of debt under our 22015, a our facility and refinanced the cougar, which generated about $30 million in net proceeds.
Of course also paid out roughly $100 million in dividends.
As John also just mentioned we will pay another one dollar per share isn't there a regular dividend of roughly $40 million in total.
And dividends on or about September 2nd to shareholders of record as of August 15th.
Since the quarter ended we concluded a new $260 million loan agreement that we'll refinance debt related to our 2015 <unk> facility the corvette and the Concorde the Concorde actually won't happen until September six in total debt across the 8% eight vessels in the facility today and the Concordia in the court.
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It was about $242 million and.
The new facility will begin with $240 million of term debt drawn so it is a leverage neutral transaction for us.
We're extremely pleased to be working with credit Agricole, I N G and Seb again and to welcome BNP Paribas D. S. F. That's Danish ship finance to our loan facility.
We have summarized key terms of the new facility and the Investor highlights materials posted this morning.
A few highlights though the facility is seven years in duration carries an interest rate of sofa, plus $2 20, and has a 20 year age adjusted profile, which translates into $5 million of quarterly amortization. We will also have an undrawn $20 million revolver at close.
In addition, we have a sustainability feature that can reduce our margin. If we are ahead of I M O trajectory values on our E. R average emissions ratio.
Which we were at year end December 31 2021.
The new facility is identical financial covenants to those of the current facility.
More importantly, it moves our nearest debt refinancing event from 2015 to 2027, which is our ball cap facility and of course it it moves out the maturity on the old 2015, a our facility from 2025, all the way out to 'twenty, our fiscal 'twenty 30 year July 2029.
Also and finally, we will be able to maintain our existing hedges, which are priced quite attractively, although we will convert them from LIBOR to so for sulfur we expect that the sofa equivalent rate on both swaps will be below 1%.
Yeah.
With a debt balance at quarter end of $663 $7 million, our debt to total book capitalization stood at 44% and our net debt to net total cap at 34%.
With our new debt facility, and Undrawn revolver, and one debt free vessel, coupled with our strong free cash balance we have a comfortable measure of financial flexibility.
We expect our cash cost per day for the coming year to be approximately $23000 per day.
I'll now turn to our first quarter results and again, we've summarized most of this information in the investor highlights materials.
They were posted this morning.
For the first quarter.
We achieved total utilization of 95, 9% with a daily TCE, that's time charter equivalent revenue over operating days as we define those terms in our filings.
39006 O eight yes.
Utilization adjusted TCE, that's TCE revenue per available day of about 37986.
Spot TCE per available day, which reflects our portion of the net profits of the Helios pool for the quarter was about 38416.
Also overall, the Helios pool reported as spot T C, including Coa is of approximately 40165 per day per available day for the quarter.
Yeah.
Daily Opex was 9378 for the three months ended June 32022 that was virtually flat sequentially with the prior quarter.
Crew cross trended downward, reflecting a somewhat more normal operating environment.
And they were offset a little bit by modest increases in repairs and maintenance and spares and stores.
Our time charter in expense for the two time charter in vessels remained stable at $5 4 million.
Total G&A for the quarter was $9 4 million in cash G&A, that's G&A, excluding noncash compensation expense.
It was about $8 8 million.
That number included $3 $2 million of cash bonuses paid during the quarter.
Our core G&A really what we consider we incurred quarter to quarter to run the business was $5 6 million, which is consistent with our expectations.
That basis, our reported adjusted EBITDA for the quarter was $46 $9 million.
As we've said we look at cash interest expense on our debt is the sum of.
The line items interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on interest rate swap derivatives on that basis total cash interest expense for the quarter was $6 $5 million, which only reflected the half a quarter with the cougar financing in place when we have a full quarter of the Cougar and the full.
Quarter of the New Bank facility, we estimate that our cash interest expense will be about $7 $7 million.
Although we currently hold at 97% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating, our cash and working capital.
We believe it is useful to provide some additional insight in order to give a more complete picture.
As of Tuesday August <unk> 2022, the pool had roughly $26 $8 million of cash on hand.
The dividend declared today of $1 per share brings to $5 $5 50 per share in dividends.
We have paid in the last year together with our open market stock repurchases and a $113 5 million self tender offer we will have returned over $444 million to our shareholders since our IPO.
The significant dividend payments in the last year underscore our board's commitment to a sensible capital allocation policy the balances market outlook operating capital needs of the business and an appropriate level of risk tolerance, given the volatility in shipping with a solid freight market backdrop, we remain cautiously optimistic about our cash flow generation over the coming months.
That I will pass it over to Tim Hansen.
Thank you Chad and good day everyone.
In the second quarter of 'twenty to 'twenty, two so increased LPG export and import demand.
Global seaborne LPG transport to the second quarter was almost 2 million tonnes above the levels.
We sold during the first quarter North American export continue to increase on the back of record.
Adding production levels.
At least they export volumes also shown grows particularly.
I hope Emirates, Qatar and Saudi Arabia.
The export volumes for the second quarter was the highest second quarter on breakfast, indicating that the OPEC plus production cadre of nurses, having these huh.
A positive impact on your transport.
For examples for Bose.
Do you want them.
Which of the indexes for the east and West.
Margaret respectively were higher than in Q1, and even with bunker prices fluctuating somewhat up earnings still increase versus previous quarter.
East of Suez Margaret sold do you want to.
Benchmark for a teacher cheaper carrying a great momentum from March into April .
Primarily due to affirm worst Margaret that absorb capacity.
Neither was the period up in activity due to the Golden week holidays, but by the end of May a sudden burst of activity from the middle East.
Joseph the vessel supply demand balance and the <unk>.
One jumped above a $100 per metric tons for the first time since January 'twenty one.
The rapid rise in the freight indexes, which keep followed by a downward corrections in June bringing the numbers more in line with the foreseen in April .
For the west of Suez market April Likewise carried on the momentum from the previous quarter.
It was also the case in the east maybe what's the most active months at the beginning of the month, but somewhat negatively impacted by a lot of investors balancing in from the far east.
But one matrix older releases.
Laurie up inquiries.
My freight rates increased significantly.
That's the case in the June was a months a downward correction.
The activities will remain firm.
Burst of X coach.
Oh sure Eastern West markets during May.
Supply to pool, what's cargo delivery market and there was a few more opportunistic cargo strip things both from the U S and Asia.
Sure Julien.
That's job narrowed.
It was expected that second quarters, when the tool would see very much demand increased north American production and increased middle East exports and Nissan transpire.
That's one lesson Margaret adapting to the realities of the war in Europe .
For example.
She has been slowing down slowing down to enact a controlled cost of bunker consumption.
Dramatically high.
Bunker prices.
The quarter also saw renewed impact of the COVID-19 related Lockdowns in China.
Why words burglaries still.
It's about recessions.
Huge.
First off a reduced demand specifically for China and globally and globally also we are a factor of market players.
<unk>, which we sold being mortgage could burse, reducing opportunistic trades.
Part of these micro economic factors over the next quarter remains to be seen.
LPG fundamentals are heading.
Heading into the winter.
Heading into winter remains positive.
The ministries in the U S continued to rise.
Propane is still a preferred feedstock cracking in the far east.
We are going into their stockpiling season.
Theres more PTH pants in the far east coming online and he's ready to increase your could you demands all these fundamentals are favorable.
Paul what is seasonally a period of very much of its U S. D C market.
With that I'll pass over to John to curse.
Yeah.
Okay.
Thank you Tim.
And the last quarter.
In the last quarter, the concerns of a global economic recession.
Wade the supply chain concerns over the previous quarter and caused oil markets to retreat from their highs.
It is interesting to note that the global very low sulfur fuel oil prices did not follow the oil market has moved to lower levels.
Refiners have been struggling to replace Russian exports of middle distillate products, causing them to outpace Brent crude prices as has the very low sulfur fuel oil, which requires blending of debts and that should produce.
According to ship and bunker Dot com.
Very low sulfur fuel oil has significantly outstripped global crude oil markets hitting a record high on July 5th of $314 per metric ton or 141% of the Brent crude price.
Taking the average of the major bunkering hubs very low sulfur fuel oil currently stands at 110% of Brent crude price.
The most significant development for Dorian LPG has been the average bunker fuel spread all of the heavy fuel oil to the very low sulfur fuel oil, which we reached almost $400 per metric ton during July .
For the second quarter 2022, our average savings were about $270 per metric ton for heavy fuel oil supply to our vast flows against the very low sulfur fuel oil prices.
Our original expectations continue to be validated not only with our selection of hybrid multi loop scrubbers as opposed to open signal loops, but also with our investment payback estimates, having paid back more than 73% of the equipment capital expenditure and all the installation costs.
As we move closer to 2023, we continue to plan to retrofit values energy saving devices to on our fleet, which in conjunction with engine power limitations when applied will improve the fuel efficiency reduce emissions and when does the fleet capable to exceed the.
Upcoming E X I N C III regulations.
The close monitoring and optimization of energy consumption onboard our vessels to support our initiatives on vascular performance and emissions reduction.
In general younger vessels will have to implement less extensive retrofits.
And EPS to comply meaning they will enjoy a greater trading flexibility compared to older less efficient launch.
Our new Tech Department is falling latest developments are novel technologies that will improve the environmental score of our fleet.
Several promising solutions exist.
Including partial carbon capture and storage, which we believe leads to improving decarbonization of our fleet.
For the time being our objective is to implement marine technologies that have a good track record results, while researching into a REIT.
Searching into innovative solutions until they become available and commercially mature.
Our decision to invest in scrubbers was possible because of our financial strength and has helped us generate very solid results week, which gives us confidence as we look forward and evaluate the next wave in marine technology advancements.
There have been some significant regulatory updates regarding shipping enrollment into the EU emissions trading system.
All three eus did your institutions they call Michele the council and the Parliament I agree on the inclusion of shipping.
But disagree on the timing progression and intensity of the rules.
The negotiation process and the ultimate Finalization, we're set to begin but quite possibly well ever since beginning about now, but quite possibly will extend into 2023 pushing implementation date to 2024.
The you faced with the ongoing energy crisis is under increased pressure to why this has spanned the emission straightening system or increase the number of available allowances, bringing the cost of carbon compliance down ultimately reducing inflation in the EU.
The eye amongst MEP see 78 session was conducted in early June and finalized all the technical guidelines for E X I see eye to eye and Cemp part three implementation.
See I I correction factors and voyage exclusions for certain operational condition. We're also decided.
Moreover, it produced to render the Mediterranean Sea as a especially admissions Joan.
Effective July one 2025, which means that ships navigating these waters either have to bryan's, 0.1% sulfur fuel oil, which is the low sulfur medium gas oil or be feed to the fitted with an exhaust gas cleaning system.
The proposal will be presented for adoption and M. A P. C 78 and December 2022.
Meantime, the committee continues to work on developing that life cycle greenhouse gas and carbon intensity guidelines for marine fuels, which I expect it to be approved at MEP C. A D which is in July 'twenty 'twenty, three is past and well to wait admissions approach.
We'll be adopted which would significantly alter the environmental profile of existing and alternative marine fuels.
At Dorian our goal is to continue improving our greenhouse gas footprint eventually, reaching a zero zero emissions target and we're optimistic that our fleet will be among the best positioned to meet the demands of charterers regulators and shareholders.
And now I will pass it over back to John how did you put tariffs.
Yes.
Thank you John .
John .
We are ready to open up for questions anyone has something to us well here.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
Here at tune acknowledging your request.
Using a speakerphone please pick up your handset.
Keith.
To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Okay.
The first question comes from Omar <unk> with Jefferies. Please go ahead.
Thank you Hey, guys good morning.
I wanted to ask about capital allocation you guys definitely over the past two years have really ramped up the shareholder rewards with the buybacks a tender offer the special dividend in the irregular dividend I did want to ask you know we're starting to see these irregular dividend, becoming more frequent and just wanted to ask.
But what are your thoughts on dropping the no that monitor irregular and going with the regular in the future.
Thanks for the question Omar.
It's.
Something I'll, let Ted answer it.
And give you because we've been discussing that but.
We're coming from the from our point of view that I think at the moment.
We're happy with where we start with how we describe it and I think our shareholders are happy to receive what they have been receiving but.
So before I, let you go to the onto Ted I want to congratulate you on your new position.
Good luck and we're looking forward to working with you.
Thank you very much sir.
So Omar.
Yes, it's a fair question I think you know the the alternatives would be some sort of a formula error.
We kind of struggled.
Not a great match between.
Income statement accounting and shipping and cash flow necessarily so for example.
A common metric has been EPS for people to pay out. So if you look at if you look at this quarter right.
We recorded.
62 cents of net income.
We paid out 133% or something.
That's not a customary ratio and while I know people like to be able to expect something.
We think given the volatility that we've seen in shipping.
We think kind of our approach of carefully.
It's the most sense.
Because you know while we're obviously focused on you know doing right by shareholders. One of the ways. We think we can best do it is by focusing on total shareholder return.
Trying to manage for stock price or yield is going to be awfully tough in this sector, whereas you know as we pay dividend that does improve our total shareholder return, which we think shareholders care about.
Thanks, Dan I appreciate that and just good to hear that your perspective.
Currently feels maybe more and more with each passing quarter.
I'm not sure if it's conviction I guess, that's the right word but it definitely feels you guys are more confident.
And then how youre positioned, especially with the recently with the as you refinance your debt.
And then maybe you want to ask more of a bigger picture kind of looking at the at the company and the business you know it looks like cargo flow here has been pretty plentiful.
In recent months as you guys outlined and it looks like that's going to continue from OPEC and from the U S.
We do also have a sizable order book as we look into next year, how do you think about Dorian <unk> positioning in the market as we move ahead here over the next 18 months.
Tim do you want to give our perspective on that.
Yeah. So.
That's what I can say, there's a lot of new buildings coming into the market I think we have.
Oh by soda.
A few of the oldest shipyard source as Jon mentioned, one new building at three long term time charters coming.
I think we kind of T bar opposition in the market size for us even though the market is growing.
And we also see that.
Supply that that'd be expect some from the U S, which have been much more positive than previously forecast.
And and the ramp up of the Middle East are surprises is gonna be enough to support democracy.
And keep your market going even with it with a number of new things coming in.
That is being held those sort of things you mentioned a vast pool also biased.
By the new regulations and 23, you would expect.
Some somewhat slowdown of the world.
And so we are still seeing a lot of Philly.
And.
And so on so we think all in all these.
You can see inefficiencies in the market.
And these are the huge production and an increase of products won't be enough to drop salt renewable and feed them.
Take us through the next couple of years and then it stopped looking.
Looking a little bit longer.
Very good well, thank you for that and John Thanks, again, and thanks for your comments I'll turn it over.
As a reminder, if you have a question. Please press Star then one on your touch phone phone.
Okay.
This concludes the question and answer session I'd like to turn the conference back over to the chairman and CEO for any closing remarks.
Thanks, a lot and wishing you all a good.
Well. This then look forward to seeing you and hearing you at the next quarter well. Thank you very much.
But that's it.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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