Q1 2024 Dorian LPG Ltd Earnings Call
Greetings and welcome to the Dorian LPG first quarter 'twenty 'twenty four 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 W. W. W. Dot Dorian L. P T dot com.
I would now like to turn the conference over to Ted Young Chief Financial Officer.
Thank you I know what you yourself.
Thank you Ryan good morning, everyone and thank you all for joining us for our first fiscal quarter of 2024 results conference call.
With me today are John <unk>, Chairman, President and CEO of Dorian LPG Limited, John Lacourse, Chief Executive Officer of Dorian LPG USA entirely Rasmussen Vice president of chartering.
As a reminder, this conference call webcast and a replay of this call will be available through August nine 2023.
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 statement will prove to be correct.
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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 32023, there were filed this morning on Form 10-Q.
Also please refer to the investor highlights slides.
Posted this morning on our website to accompany today's discussion.
Finally, 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 over the call to John export tariffs.
Thank you Kevin good morning from pleasantly Sunny Stanford, Connecticut.
Thank you for joining John Ted Taro, who is.
Calling in on behalf of Tim.
Tim who is on vacation and me to discuss our first quarter financial 'twenty 'twenty four results.
The quarter's results reflect a strong freight environment with Dorian, earning a time charter equivalent exceeding 50000 per day.
We generated $46 5 million of free cash flow, which more than funded our 40 million dividend last quarter.
Excluding the dollar dividend declared on July 27, we will have returned nearly $610 million to our shareholders since our IPO.
The strike the right balance in our capital allocation approach our board considers current unexpected freight market conditions, the company's capital and operating needs.
Net debt to total capitalization, which is roughly 32% at present.
Well, there's potential strategic opportunities.
Regarding fleet renewal 25 ships with a useful life of approximately 25 years implies replacing one ship per year.
We capitalized on a good set of market dynamics to build one chip to charter in three more on initial seven year terms with the options.
These fleet renewal deals where economically attractive as a chartered in ships give us market exposure optionality on lengths and the potential upside of the pressure adoptions, while not requiring a large upfront investment.
We price Optionality in our investment decisions as we continue to evaluate our fleet renewal that other opportunities.
We see increasing demand for LPG, both for residential and for <unk>.
Commercial use in the petrochemical markets supported by the relative cheapness of L. P G versus naphtha and LPG is lighter environmental footprint.
With additional delays as expected due to the well publicized drought conditions in the Panama Canal, we hope that our choice to chart around three ships, who was beam enable them to translate both of Panama, and then Neil Panama locks will be rewarded.
It is appropriate to mentioned the importance to our business of our relationships with our charterers to whom we are committed to provide safe reliable and clean transportation and with our people that she under onshore to whom we commit to provide a safe.
Inclusive of an equitable.
Work space.
These priorities, we believe equips us to deliver the best returns for our investors and a productive collaboration between our charterers and she's going onshore stuff help us achieve efficiencies and reduced fuel consumption and emissions as we evaluate and deploy new energy saving devices.
Yeah.
I should also mention that in response to the crisis, which continues to affect a number of our Ukrainian and Russian sheet Ferro sounded out families. We introduced flexible arrangements for joining and repatriation added free internet onboard supplemented medical insurance.
We're not providing a monthly allowance for displaced families.
The current freight market level supports an optimistic financial outlook.
For the second quarter, ending September 30th our cautious approach to capital allocation will continue to guide our decisions as I hand over to Ted.
Thanks, John .
My comments today will focus on the recent capital allocation events, our financial position and liquidity and of course, our unaudited first quarter results.
At June 30 of 2023, we reported $155 5 million of free cash, which was net of the $45 million and dividends paid in the quarter.
As of yesterday, we had $174 4 million of free cash collecting the current favorable market environment and free cash flow generation.
Also as previously disclosed we will pay another $1 per share dividend is an irregular dividend roughly $40 million in total of dividends on or about September six to shareholders of record as of August 10th.
We fixed the interest rates when the captain Markos dual fuel and crest Japanese financings during the quarter and fix the Cougar Japanese financing in late July with an effective start date in August following its next principal payment with.
But those fixings in place for a weighted average cost of debt is about 4.7%, which is actually below the current one and three months so for rates, which are around five 3%.
Our next refinancing advantage at the end of December 2026, which is the ball cap facility.
We amortize about $13 2 million in principal per quarter, or slightly less than $53 million and family, which we consider quite manageable and largely in line with our book depreciation.
With a debt balance at quarter end of $650 3 million our.
Our debt to total book capitalization stood at 42% and our net debt to total book capitalization at 32%.
Well structured and attractively priced debt capital and Undrawn revolver, and one debt free vessel, coupled with our strong cash balance we have a comfortable measure of financial flexibility.
We continue to expect our cash cost per day for the coming year to be approximately $23000 per day, excluding capital expenditures for dry docking and scrubbers.
For a discussion of the first quarter results. You may also find it useful to refer to the Investor highlight slide posted this morning on our website.
Turning to our first quarter chartering results, we achieved a total utilization of 98% for the quarter with a daily TCE. That's time charter equivalent rate operating days because those terms are defined in our filings of $51156, yielding a utilization adjusted TCE of about <unk>.
<unk> thousand 142.
Which is our TCE revenue per available day.
The sequentially lower than last quarter's results. The TCE still represents an attractive free cash flow to equity given our $23000 a day cash cost.
Spot TCE per available day, which reflects our portion of the net profits of the Helios pool for the quarter was about $51003 56.
Also overall, the Helios pool reported spot T C, including <unk> of approximately 58000 to 80 per available day for the quarter.
We know that the previous guidance that we've given about using the trailing two months Baltic did not hold true this quarter, which we attribute to more concentrated voyage bookings in may. This clumping reflects the regular ebb and flow of the V. L. G C trade.
Daily Opex for the quarter was $10094, excluding dry docking related expenses, which was sequentially down from last quarter's 10304.
Crew costs trended down.
In other cost categories contributed to the reduction as well.
Our time charter in expense for the five time charter in vessels totaled $10 $5 million consistent with our guidance last quarter.
Note that the Crystal ball, which delivered on July 10, 2023 will increase total TCM expense for the current quarter ending September 30 to approximately $12 $2 million.
Our total G&A for the quarter was $9 2 million in cash G&A, which is G&A, excluding noncash compensation expense was about $8 4 million.
That number included $2 2 million of cash bonuses paid during the quarter.
And it also included about $100000 and supported the families of our seafarers affected by Russia, Russia's invasion of Ukraine.
Taking account of those two items our core G&A came in at about $6 1 million, which is largely consistent with our expectations.
Our reported adjusted EBITDA for the quarter was $74 8 billion.
Turning to interest expense, which as you'll recall, we view as 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.
We reported cash interest expense for the quarter of $8 million.
The sequential decrease versus the March 31 quarter was largely the impact of a full quarter of interest on the captain Markos dual fuel facility and higher so for rates on our floating floating rate Japanese financings, which are now fixed.
But we currently hold an 85, 5% economic interest in 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's useful to provide some additional insight in order to give a more complete picture.
As of Tuesday August one 2023, the pool had roughly $15 million of cash on hand.
The dividend declared last week, a $1 per share brings to $9 50, the total dividends that we've paid in the last nine quarters well.
Well, many investors and analysts like to suggest that these dividends are no longer irregular we underscore that they are indeed irregular and subject to the discretion of our board and the various factors that John previously outlined in his comments.
VLCC rates are not regular and thus we don't think our dividend policy should be either.
Together with our open start open market stock repurchases and our $113 5 million self tender offer we will have returned in excess of $610 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 and capital needs of the business, including fleet renewal and an appropriate level of risk tolerance, given the volatility in shipping in general in VLCC rates in particular.
With a solid freight market backdrop, we remain cautiously optimistic about our cash flow generation over the coming months with that I'll pass it over to Taro Rasmussen.
Thank you Pat Good day, everyone and thank you for dialing in.
The first quarter fiscal year 2024 saw increased global seaborne trade of LPG. The April June 2023 period with the strongest quarter on record in terms of seaborne LPG trade.
As seen on slide five of our accompanying slide deck.
Regarding seaborne LPG trade North American exports were buoyed by weak domestic consumption during the tail end of the mildest winter since 2010.
And a warmer than normal summer minimizing the need for early crop drying.
This was amidst continued record setting production levels.
The quarter ending June 2023 was a quarter with the highest export volumes on record from North America.
Middle East export volumes for the quarter also set a record for highest exports.
Although exports into India grew modestly.
Southeast Asia, and China absorbed much of the middle East exports.
The healthy import demand into China was partly driven by increased demand for propane as a feedstock for the pet Chem industry.
This was a factor as seen in the prior quarter, but also the quarter ending June 2023.
For far East steam crackers propane was at about an average 15% discount to NASA in January through March, but an average 30% discount April through June for making one ton of ethylene.
This testifies to the attractiveness of propane over the quarter.
Regarding the development of the freight market over the quarter.
Historically the April June period for the V. L. G Sea freight market is characterized by an upward correction and upfront and softening as summer approaches.
In 2023, however, the startup summer surprised positively with worries of a summer lull quickly eroding.
This was affirmed the eastern Suez market saw the B L. P. G. One benchmark Arabian Gulf Chiba rate correct significantly upwards from the beginning of the quarter with a momentum carrying through the period.
Somewhat unusually for the eastern market late cans, we're reaching more than one month ahead of the fixing window in April this is significant as the.
The fixing of tonnage just a month ahead lay cans tends to indicate stronger demand.
And a firming freight market, but also raises the likelihood of inefficiencies due to delays.
The west of Suez market mirrored the east of Suez market.
April saw an upward adjustment activity and the widening arbitrage facilitated an upward correction in the freight market.
As Mont Belvieu prices declined at a faster pace than far east delivered prices.
This is seen on slide four of our accompanying slide deck.
For most of the quarter lay cans were being fixed or about eight weeks toward the benchmark Houston Chiba rate B E. L. P. G. Three steadily rose from the start of the quarter from about a $102 per metric ton to about 184.
Four per metric ton by the end of the quarter.
Particularly towards the end of the quarter when the freight market improved we saw far east in corridors concentrated on vessels scheduled for September arrival.
To begin a pilot for the winter.
To wrap up.
About 20 E. L. G fees have been delivered in the first half of 2023, including our own new builds and about 21 more are forecasted to be delivered in the second half of the year.
Absorption of the 2023 order book was the primary concern previously but.
But increasing seaborne trade healthy demand for LPG and inefficiencies in the market allowed for a positive quarter.
The positive market fundamentals for deals with these remain in place as the focus soon shifts to the inventory building season, and the far east, which will provide further market support and.
It seems oversupply risks in 2023 has been mitigated to a large extent.
Thank you I will now pass over to Mr. John Lewis.
Thank you Tara.
We report on the daily Scrubber savings realized last quarter bio scrubber fitted vessels of about $2740 per calendar day net overall operating expenses.
During the second quarter of 2023 price differentials between the benchmark of light Sweet W. T I and the medium and heavy sour crudes narrowed as refining margins declined on supply and demand concerns.
The average fuel cost differential in the last quarter between high sulfur fuel oil and very long shot for fuel oil the high five spread I just called out was 169.3 dollars per metric ton less than the V. L. S. F O fuel.
In the next quarter, we expect a further narrowing of that spread.
The middle Distillates market supply has grown while the high sulfur residual fuel supply has tightened.
With most of them the VLCC spot for just we're originating from Houston.
L. P. G dual fuel engine vessels have benefited from the good of our liability and the attractive pricing differential of LPG as fuel versus the very low sulfur fuel oil.
It currently stands at about $210 per metric ton less than the VA lesser foe.
After taking into consideration the energy density differential of the two fuels.
On the technical front during the recent dry docking of one of our vessels. We completed the retrofit of our scrubber units is actually increasing our fleet of scrubber vessels to 13.
Installations of energy saving devices from our vessels are continuing as we also continue in reviewing new devices like for example window assisted propulsion or air lubrication.
We are progressing within the implementation of engine powered limitation or our vessels and compliance with a 2023 exa regulations.
And with the installation of engine software upgrades that are expected to improve our ratings on all our vessels.
In July .
The I am most MEP see committee met and adopted a revised greenhouse gas strategy that aspires to reach net zero emissions by $20 50.
Also to ensure it peak in emissions is reached as soon as possible.
The committee also set intermediate checkpoints on the total amount of greenhouse gas emissions, indicating at least a 20% reduction needed by 2030.
And a 70% reduction by 2040.
It also agreed to achieve such a mission targets they will need to be an increase in the uptake or zero or near zero greenhouse gas emission technologies.
On the new fuels and energy sources, all of which should comprise.
About 5% to 10% of the energy used in shipping by 2030.
[laughter] lifecycle assessment guidelines were also adopted that address the well to wake greenhouse gas intensity of marine fuels.
Some further development is anticipated in the next committee meetings regarding methodologies.
Default emission factor sustainability aspects and certification processes for these fuels.
The global greenhouse gas objectives have become more urgent as we experience daily extreme climate changes around the world.
D U followed by the I am more and more recently have tightened their greenhouse gas tragedies to net to net zero emissions by 2050 or earlier.
At target that will necessitate significant reductions of greenhouse gas within this decade and the next.
After considering the numerous technical and operational improvements being implemented by the marine industry.
The E X I.
And see I I regulations of 2023.
And the increased use them alternative marine fuels, we still believe that additional measures will need to be implemented to achieve those tighter greenhouse gas objective for the 20th thirties in 24 days.
In the medium term, we expect that carbon capture and storage will become one of those necessary measures much like the chalks scrubbers. So the 2021.
Which will enable the marine industry to transition to more advanced fuels and engine technologies that can produce near zero emissions.
And now I would like to pass it over back to John How do you put the Harris for closing remarks.
Thank you.
Thank you well happy to take questions.
Yeah.
Yeah.
Ladies and gentlemen.
Remarks completed we will now open the line for questions.
If you'd like to ask a question. Please press star and one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east.
Ladies and gentlemen, and wait for a moment, while the question queue assembles.
Yeah.
Our first question is from the line of Omar <unk> with Jefferies. Please go ahead.
Thank you Hey, guys. Good afternoon, I'm sorry, good morning.
I wanted to sort of just follow up on a couple of items you mentioned in your opening remarks, and then perhaps maybe.
First on on sort of capital allocation you know you you've added to final or a floor dual fueled ships into your fleet here recently got no commitments from from here or no meaningful commitments and how are you thinking about the strategy of the company. The capital allocation. Obviously, you know Ted you were pretty clear with the irregular dividends being.
Irregular you reiterate you reiterated that how are you kind of thinking about just the use of capital or use of cash as it comes in are there more deals.
Available similar to the way you structure does three tcf on the seven year durations.
It cannot be repeated is that something that's interesting maybe just big picture. How do you think about the use of cash going forward.
I think that what you heard is more or less everything we have to say at the moment. It is you can't I can't repeat those deals you know because you know the history kind of repeats itself, but but the circumstances are not.
Right now.
Our right to do it the exact same thing with the exact same ships, but similar deals in other opportunities are always in front of us and we're evaluating them.
In the context of the discipline that we've talked about.
Okay no. Thanks.
Thanks Dawn.
That's fair and then maybe then just sort of thinking about the market clearly it's been much stronger than many anticipated, especially with the new building deliveries coming on it was interesting just hearing the comments about the market and I think one of the things that maybe.
Maybe it's somewhat interesting is the fact that despite the OPEC cuts.
You noted that the Saudi volumes or the middle East volumes were higher.
Still the case and is that is there.
Not a surprise you know normally we would have assumed that the crude production declines have an associated decline in LPG.
Well, what's happened there that caused that decline not to harp on this one.
Yeah.
There's there's two elements of that one is the when you see crude production cuts that doesn't include our gas production. So a lot of the L. P. G that we carry is associated with natural gas.
And the other is timing and then you never know with it with a production cuts, especially with Saudi Arabia, whether there'll be.
Fully implemented partly implemented or not implemented at all it's kind of a bit all over the place. So you can't really can't say that what we've seen is we can use to predict.
What will happen another another aspect going back to your question that before about our investment.
How we're looking at.
Cash et cetera, Ted Ted pointed out to me of course. It's also we're also mindful of the cyclicality of our market.
But you know, it's a question of whether weather.
Now is the right time or or are in the cycle, which we can never play, but that's why I said you know given.
We had 25 ship fleet, which is approximately where we are and a 25 year life, which is approximately what it is you really kind of as a as a guide to stand still you should be doing.
One ship a year not all not faithfully every year, but over time.
Sort of a trailing period.
Average you should be doing that to be to be keeping the same kind of a fleet age profile then and.
Exposure and basically to be able to offer a quality product to our charterers.
Yeah definitely thanks for that John and maybe just one more just kind of thinking about that I think I noticed in your fleet table.
A couple of vessels that were in the pools have been put on on time charter here.
You know any color you can give on what those charters look like and then maybe just bigger picture on that given the strength of the market has there been a jump in overall opportunities to fix ships out.
On the medium term contract and is that something that's interesting to you guys.
I think if you compare to six months ago.
Has been a bit more interest in period.
It's the kind of interest that you observed when the market spikes really Andrew and the charterers are incentivized to take.
To commit for longer periods to save the money upfront.
So at the moment.
There's nothing from our point of view that is actionable, but where we're at.
He's in the market and we do have a percentage of our Helios.
Exposure committed on short and medium term.
Time charter out we think we have a good product mix, but I'm not sure that we wanted to.
Disclose exactly what it is.
It's better for them.
That's it for our investors.
Yeah, No I got it. Thank you thanks, Ted and thanks, John that's it for me. Thanks.
Thanks Omar.
<unk>.
Thank you.
Next question comes from the line of Brian Reynolds with UBS. Please go ahead.
Hi, Good morning, everyone. In your prepared remarks, you talked about affirmative demands in the LPG market. So just curious if you could discuss what.
Whether you're seeing a bottoming in China P. D. H demand just given some of the deferrals that we've seen in some of those projects and perhaps you know how could that impact the arb given that were trading at historical lows for propane and butane as a percentage of crude thanks.
Yeah.
Ted will pick that one up we all have very firm opinions that we're all aligned on it. So you you'll hear the party line from Pet [laughter] looked at look Brian as you know there was a lot of PTH capacity that's come on in China.
The economic recovery there as.
It's.
Not been as steep as everyone hope, but its still coming along.
So I guess the short answer is.
We expect to see continued growth.
Given the attractive pricing on LPG its a good time to build the build inventories.
The other thing that's important to recognize and petrochemical demand broadly in Asia, but particularly in China is that a lot of the steam cracker capacity that's come on over the last couple of years and as it is on the books to come on is actually more flexible than in the past with respect to taking L. P. G. So we don't think that.
Segment should be overlooked are either so.
I think you look at LPG continues to be a very attractively priced in NAFTA NAFTA is taro talked about.
And you look at I think what we all believe will be a.
More sustained if not as steep economic recovery in China, and I think that sets up pretty well for PVH.
Demand over the coming quarters.
Great. Thanks, I appreciate all that color and then my second question is just around you know I M O with the meeting behind US just curious if management is looking at any subtle or maybe more than subtle strategic adjustments. After the meeting or was that kind of in line with our current expectations and future strategic decision.
Thanks.
Yes.
[laughter] shuttle.
John of course are you capable of being shuttled win.
Considering that with.
We are pursuing a lot of initiatives, but.
John on the specific I am Mol results and your comments for me for US. Please yeah, Yeah, Yes of course John .
So Brian .
It was all expected the I'm always obliged to do too.
And the strategy.
And revise it to 2015, just like everybody else has done and it was expected.
It is what are we have been working for us that we will be looking at that tighter strategy for greenhouse gas emissions and hence our comments about doing all that we can and he's available to us.
At this time.
Hum.
Looking at New technology says they come around.
But you know I'm highlighting again.
The last few lines of my comment, which say that you know.
We're going to be looking at alternative fuels at our advanced fuels, we will be looking at the various measures that we could do better also carbon capture and storage is one of those measures that we will have to undertake just like we did scrubbers and 2000 twenty's.
Great. Thanks, and maybe its just a quick follow up on that I know you guys are are investigating potential you know Ccs technologies for your vessels just kind of curious if there's any initial comments from from some of your early early findings of you know how that would work on a lot of your on a lot of your fleet and potential capex implications there. Thanks.
John you can continue Brian yes. Thank you.
Brian E is the key to carbon capture is a.
Married Nizing the AR technology.
And reducing the footprint. So it can be installed on board or board ships.
This is what's been going on right now are we seeing it will happen.
And we expect that.
But.
Eventually we will be able to 222 to install a marine capture.
Technology on board ships.
<unk> initially to be able to capture part of the C. O. Two eventually more it's just a matter of them the technology.
Proving in the next.
A few years and it is there it has been used by industry for decades, the oil and gas industry and it will be married nicely and it will be on board ships Capex will come down of course as more.
Search with technology are being installed on board ships, but I think it is viable and possible and likely.
Great I appreciate all the color I'll leave it there and enjoy the rest of your morning. Thanks guys.
Thank you, Brian Thanks, Brian right.
Thank you.
Our next question comes from the line of.
So with value Investor's edge. Please go ahead.
Good morning, Thank you for taking my questions.
It's been a few months since you took delivery of the first do you have a few of them.
Could you provide some commentary on the savings you are generating relative to burning BLS CFO .
And secondly is there any appetite to explore potential deal to you retrofits on the existing fleet.
The answer to your question is no.
Through the first question John of course, we'll provide you.
Hi, we would just mentioned or discussed this and I'm happy to repeat part of my comments that the benefit of burning LPG as fuel their shoes.
Very low sulfur fuel oil.
Currently stands at about $210 per metric ton.
Energy density adjusted.
Basis.
Because as you probably know LPG has higher energy density than a low sulfur fuel oil by about 10 or 11%.
So yes, it is beneficial and it is it is attractive.
That's helpful and I also wanted to ask a bit about the captains young I mean, you'll have a modern eco fleet and that would be the sole exception.
How do you think about it is it kind of noncore or are you happy to hold on to it going forward.
Wherever we're happy with the shape she's a good performer.
You know she's she's I'm not as new as the other ships, but we still consider her it'll be a very viable asset to us.
So she is there for.
We never say no yeah about selling anything but at the moment she's not held for sale put it that way.
Also clemens, it's worth noting that.
First nothing's Evercore is shipping nothing strategic so like John said.
Well, we'll consider anything but also that chip.
Because when she was constructed actually as ammonia capable.
To a great degree of so that does provide some optionality.
As ammonia becomes an increasing part of the de carbonization discussion.
Makes sense that's everything for me. Thank you for taking my question and congratulations for the quarter.
Thank you Glenn and thank you so much.
And Ryan we're done here I think by wishing everybody a happy August and are looking forward to.
See you again in October .
Thank you.
Yeah.
The conference of Dorian LPG has now concluded. Thank you for your participation you may now disconnect your lines.
Yeah.
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Hum.
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