Dorian LPG Q4 2023 Earnings Call Transcript

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Provided by Quartr
May 24, 2023

There are 7 speakers on the call.

Operator

Greetings. Welcome to Dorian LPG Fourth Quarter 2023 Earnings. 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.

Operator

Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www. Dorianlpg.com. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young.

Operator

Please go ahead.

Speaker 1

Thank you, Sherry. Good morning, everyone, and thank you all for joining us for our Q4 2023 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited John Lycouris, Chief Executive Officer of Dorian LPG USA and Tim Hansen, Chief Commercial Officer. As a reminder, this conference call webcast and replay of this this call will be available through May 31, 2023. Many of our remarks today contain forward looking statements based on current expectations.

Speaker 1

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 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 express we will conduct a discussion of our results today.

Speaker 2

Additionally, let me refer

Speaker 1

you to our unaudited results for the period ended March 31, 2023 that were filed this morning on 8 ks. In addition, please refer to our previous filings on Forms 10 ks and 10 Q, where you'll find risk factors that could cause actual results to differ materially from those forward Please note that we expect to file our full 10 ks in the 1st week of June. Finally, you may wish to refer to the investor highlights slides posted this morning on our website for additional information that accompanies the speakers' comments today. With that, I'll turn over the call to John Hadjipateras.

Speaker 2

Thanks, Ted. Thank you all for joining John L. In Athens, Tim in Copenhagen, Ted and myself from Stamford. The Q4 marked the culmination of the best financial year in the company's history. Strong chartering results and a solid the balance sheet enabled us to return nearly $225,000,000 to our shareholders during fiscal 2023, And we remain conservatively capitalized with net debt to net total cap of 33%.

Speaker 2

The VLGC freight market experienced significant volatility in the quarter and but has continued strengthening throughout 2023. Our financial results reflect the better rates and our diligent chartering management of the volatility. North America's export volumes have been supported by ample production and inventory, currently surpassing the 5 year average by 30% And exceeding last year's levels by 43%. Estimates for U. S.

Speaker 2

Exports point to further growth in 2023 2024. In its May short term energy outlook, the EIA said it now estimates that U. S. LPG exports will grow 12.2% in 20 The order book seems so far to be absorbed by increasing ton mile demand. On the HR side, for our Ukrainian and Russian seafarers affected by the crisis, we introduced flexible arrangements We're joining and repatriation.

Speaker 2

We added free accessible data communication services on board, supplemented medical insurance and are providing a monthly allowance for displaced families. On the social front, we tasked 2 key executives to spearhead our diversion, equity and inclusion efforts on board and onshore in cooperation with the All Onboard Alliance, an initiative which we helped develop with the Global Maritime Forum. And on the environmental front, we joined the Maersk McKinney Moller Center for 0 Carbon Shipping as mission ambassadors and plan to lend our expertise to the center to elaborate on various decarbonization initiatives. The IMO's new EXI and CII regulations resulted in an increasing focus by customers on quantifying voyage emissions, we have been preparing for and are ready for. We are retrofitting our ships with energy saving devices and premium And progressively reducing emissions and fuel costs through voyage optimization and close collaboration with our crews.

Speaker 2

As an example, we applied the 1st silicone paint on one of our ships with a target of about 5% in fuel savings. Our commitment to sensible and environmentally sustainable investment is evidenced by the addition of 3 dual fuel VLGCs so far this year with a 4th coming later in the summer. These will trade in our LPG Helios LPG pool. 3 of them are capable of transiting the old and new Panama Canals, we will leverage by trading around the congestion when it occurs in the new canal. John Lycouris will give you some more information and then followed by Tim and Ted.

Speaker 2

John? Thank you, John.

Speaker 3

During the Q1 of 2023, The average daily fuel cost of low sulfur fuel oil versus the high sulfur fuel oil amounted to $5,226 per day, which benefited our scrubber vessels with improved voyage economics. The average realized savings over all available days of our scrubber vessels were about $2.12 per metric ton the hybrid feature of our scrubbers provided additional benefits for all emission control areas and the voyages in the North Sea. Scrubber retrofit program for the fleet has been very successful in terms of return of capital and invested, thereby validating our decision to make the retrofit investments in 2019 2020. On the basis of such good results, we have committed to retrofit a further scrubber units in the next quarters to our vessels that are coming up for dry docking, which will increase our fleet of scrubber vessels to 15. Note that the installed cost of these scrubbers is about 2 thirds of the previous scrubber installations.

Speaker 3

With most Spot voyages originating from Houston, our LPG dual fuel vessels have benefited from attractive pricing of LPG versus Los Alfa fuel oil, which on average has recently has amounted to $180 per metric ton. This does not take into consideration the additional energy efficiency of LPG, which stands at 11% over fuel oil. At the start of 2023, the EXI and CII regulations by MO entered into force addressing international vessel carbon emissions. To comply with the ESI requirements, we have adopted measures that improve the technical efficiency of our fleet. We have installed several energy saving devices such as Muisca and propeller BOSS CAP fins as well as implementing fleet wide engine power limitation.

Speaker 3

These initiatives reduce fuel consumption, ensuring significantly lower carbon emissions that render our vessels EXI compliant. In addition, we're implementing silicon antifouling out coatings for our vessels during their upcoming dry docks, which provide additional improvements in performance and emission reduction which lead also to better CII ratings. Our fleet performance department in Denmark closely monitors daily vessel performance using state of the art software, gathering live data to ensure optimal operational performance and a mission profile for our vessels. Our new tech department is following the latest developments in marine carbon capture and storage solutions as well as wind assisted propulsion, we believe could be significant in addressing the IMO's mid term decarbonization ambitions. We're also examining the retrofit Last month, the EU Parliament voted for the implementation of the EU Emissions Trading System or ETS for shipping, which is expected to be adopted in June 2023.

Speaker 3

Under this regulation, vessels over 5,000 gross tons, which includes all our vessels in our fleet calling at EU ports will be required to purchase surrender EU carbon allowances commensurate with the amount of CO2 tons emitted while entering, departing or staying in EU waters. In 2022, our vessels called at European ports 14% of the time. And thus we believe the financial impact on us will be limited based on the current trading patterns. The regulation when it comes into effect in 2024 will be phased in initially at 40%, then at 70% and in 2026, a 100% of all carbon emissions for those voyages and the voyages coming into in and out of the EU. The current European EU allowances are priced at €0.90 per tonne of CO2, and this is pricing as of May 19.

Speaker 3

Dorian LPG has been monitoring and verifying its carbon emissions since 2018, and we are well prepared to comply with these regulations when they become effective. And now I would like to pass it over to Tim Hansen, Chief Commercial Officer for their commercial update.

Speaker 4

Thank you, John, and good day, everyone. The 4th quarter fiscal year ending in March 2023 saw the increased seaborne trade of LPG. The January to March period was the strongest corresponding quarter on record in terms As per the previous quarter, North American export was buoyed by the relatively mild winter, we are confident in the company's market conditions and the continued record setting product levels. The quarter ending March 23 was a quarter with the highest export volumes on record for North America. Middle East export volumes for the quarter stood about we expect to be approximately 10,300,000 tons down from the 2 previous quarter, but nonetheless, it reflected a record for our 1st calendar quarter.

Speaker 4

The start of the year is historically characterized by volatility in the freight markets. The market must absorb the post holiday season lull, the LPG product market is historically in backwardation going into spring and the Lunar New Year celebrations in much of the Far East, Resulting in the narrowing up and reduced trading activity. 2023 was no different. The East of Suez market saw the BLPG-one, which is a bezenge mark for AT and T parade corresponding correct significantly downwards At the start of January, the impact through the 1st week of January was a fall of $41 per metric tonne on the PLPG1 benchmark. The steep drop, however, was an oral reaction after a quiet period and it corrected towards the end of January as market players we look to lock away positions prior to the Lunar New Year celebrations.

Speaker 4

The share activity of the market created an upwards momentum again in the freight rates. It has to be kept in mind that the drop was from a high level of $119 per metric tons on the benchmark rate as the last In 2022, which equals a time charter equivalent of in excess of $100,000 per day on a non scrubber ecosystem. It fell to the lowest point in January at the end of January where the benchmark rate bottomed out at $57 per ton equal to a time charter equivalent of $33,000 per day before climbing to $102 per metric tons in Second half of February or $85,000 per day, then sliding back to $65 Per metric tons of $45,000 per day at the end of the quarter. Thus, all in all, a strong quarter this quarter despite the volatility and backwardation and net bottom of the market considerably stronger than it has that had what has been seen in the previous 1st quarters. Furthermore, with the West freight rate market in February being at a premium to the East, many vessels were positioned out of the East market and into the West.

Speaker 4

The month of February was mostly a story of steady improvement in the Eastern market, and March was largely a story of steady decline and little activity. For the West of Suez market, it followed a similar trend to the East of Suez market. January was the most volatile month of the quarter with the first half of January seeing VLGC operators Competing for the East only discharge voyages, choosing employment over freight discipline, it was only at the last week of January that the market we gained a bullish sentiment. Although the Lunar New Year celebrations usually result in a quiet period for the disease market, This year, it was active. Product market fundamentals were positive and activity was strong.

Speaker 4

The dampness with the freight market truly taken off was the West having to absorb the tonnage ballasting in from the East and only also when the relay tonnage were So did the market see bigger jumps in the freight market? Likewise, we saw a rising market during October November with a downward correction in December. March was a quiet month in the spot market, somewhat explained by the market needing to digest the strong finish of February months and many players leaving their trading desk for business trips to the Far East. Some early activity is likely also explained by the macroeconomic worries after the banking sector's levels, the disappearance of risk appetite while central banks around the world considered rectifying action softened the activity and freight rates gradually softened as well. By the time activity had again, picked up at the very end of March, the BLPG3, which is the West to East Index, was posted in the USD $0.90 per metric tons on the Houston Seebel bag, somewhat not seen since August 2022.

Speaker 4

Still earnings being equal to $33,000 per day at the bottom with the top in February reaching $162 Per metric tons or $86,000 per day. Over the quarter, there has also been more activity on the time charter market. Despite 12 VLCCs newbuildings being reportedly delivered during January March and scheduled newbuilding deliveries for the rest of the year, there is seemingly a drive to ensure vessel supply from several market players. This is indicative of the positive fundamentals of the VLGC market with seaborne trade increasing And vessel supply being absorbed by the inherent inefficiencies in the market. The positive market fundamentals for VLGCs, therefore, remains as does the macroeconomic concerns.

Speaker 4

But as was seen during the banking turmoil of March, however, The VLGC market is resilient as propane inventories continue to build in North America and demand for LPG remains robust. Thank you very much and over to you Ted.

Speaker 1

Thanks Tim. My comments today will focus on the recent capital allocation events, our financial position and liquidity and our unaudited 4th quarter results. Again, you may wish to refer to the investor highlights slides posted this morning on our website. At March 31, We reported $148,000,000 of free cash. As of yesterday, May 23, our free cash balance stood at a virtually identical level of 100 $48,600,000 which is net of the $40,400,000 dividend that was paid on Monday.

Speaker 1

In addition, I'd note that on top of our free cash, we also have $11,400,000 in available for sale securities. The highlight of the quarter was of course the delivery of the Captain Marcos, our dual fuel 84,000 CBM VLGC delivered to us on March 31 At the Saikode shipyard in Japan. She was financed under Japanese financing arrangement that we agreed in 2021. The tenure of that agreement is 13 years and we amortize $210,000 per month until year 5 and thereafter $250,000 for a month until maturity. The interest rate is 2.59 percent including the credit adjustment spread plus 1 month term SOFR.

Speaker 1

Additionally, during the quarter, we voluntarily prepaid $15,000,000 of debt under the CRESP Japanese financing arrangement. With a debt balance at quarter end of $663,600,000 our total debt to total book capitalization stood at 43.2% And net debt to net total capitalization at 33.5%. Our leverage ratios were up marginally from last quarter due to the delivery of the Captain Marcos, which added $56,000,000 in debt on March 31. We have no refinancings until 2026, we expect ample free cash and undrawn revolver and one debt free vessel. Thus, we have a significant measure of financial flexibility.

Speaker 1

We currently expect our cash cost per day that's OpEx, G and A, time charter end cost, interest and principal for the coming year to be approximately $24,000 to $25,000 per day. Now I'd like to turn to our chartering results and again would remind you to look at the slides posted this morning on our website. For the quarter, we achieved total utilization of 95.7 For the quarter, with a daily TCE, that's time charter equivalent revenue over operating days as we define those terms in our filings $68,135 yielding utilization adjusted TCE or TCE revenue per available day of about $65,187 Spot TEC per available day, which reflects our portion of the Helios net profit to the Helios pool for the quarter was about 68,019. Also overall the Helios pool reported a spot TCE including COAs of approximately $78,005.30 per available day for the quarter. We note that we had previously indicated that the 2 month lagged average is a good proxy for our chartering results.

Speaker 1

That guidance did not hold this quarter because of the volatility that Tim referenced, including the significant drop in rates from the end of sorry, the end of December to the beginning of January. Daily OpEx for the quarter was $10,304 excluding drydocking related OpEx. It was $10,528 per day including those amounts. Our OpEx increased somewhat sequentially We experienced moderately higher cost per day for spares and stores, repairs and maintenance and other miscellaneous expenses. Our time charter in expense for the 4 time charter in vessels increased to $7,200,000 reflecting the partial quarter of the HLS Citrine and the HLS For the quarter that ends on June 30, we expect total TCN expense of approximately $10,500,000 which reflect full quarter contributions from the Citrine and Diamond.

Speaker 1

We expect the Cristobal, the 4th dual fuel VLGC to join our fleet to deliver during the quarter ending September 2023 and thus for our TCN cost to increase to $12,900,000 for that quarter. On a fully delivered basis, we estimate total quarterly TC and expense to be $13,200,000 to $13,300,000 all these numbers are provided for your reference in the investor highlights slide posted this morning. Our total G and A for the quarter was $7,500,000 in cash G and A, which is G and A excluding non cash compensation expense was about 6,700,000 since we incurred about $500,000 in pre delivery G and A expense, if we exclude that amount, our cash G and A was about 6,200,000 Since our G and A normally skews higher in the 4th fiscal quarter, the 1st calendar quarter because of certain statutory accruals that we must make, we were pleased with our G and A control this quarter. Our reported adjusted EBITDA for the quarter was $102,100,000 which is the highest quarterly EBITDA in our corporate history. To put that amount in context, our total EBITDA for fiscal 2022 was 161,100,000 Interestingly, the March 2023 quarter also represented the highest ever level of U.

Speaker 1

S. Gulf loadings, 267 liftings to be precise, Underscoring the significance of U. S. Exports to the global LPG trade. Turning to interest expense, Our cash interest expense, which we define as the sum of the line items, interest expense excluding deferred financing fees and other loan plus realized gainloss on interest rate swap derivatives resulted in cash interest expense for the quarter of $7,100,000 With the addition of the Captain Marcos and the reduced debt on the CRESQ, we estimate that our total quarterly interest expense for the current quarter, That is the one ending June 30, will be about $8,100,000 reflecting a full quarter of the Marcos and the higher SOFR rates on our floating rate debt.

Speaker 1

Nonetheless, we continue to benefit from our hedging policy and the favorable pricing of our Japanese financing, leaving us with a current interest cost on a weighted average basis of 4.1%. Although we currently Holding roughly 8.6 percent sorry, 86% economic interest in Helios, we do not consolidate its P and L or balance sheet accounts, which which has the effect of 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, May 23, the pool had roughly $8,700,000 of cash on hand. Turning to capital allocation, with the payment of another $1 regular dividend, we've now paid dividends in 7 of the last 8 quarters, totaling $8.50 per share or $343,300,000 When coupled with our $113,000,000 self tender offer and $115,500,000 of open market repurchases, we have now returned over $570,000,000 to our shareholders since our IPO.

Speaker 1

The significant dividend payments in the last this year underscore our Board's commitment to a sensible capital allocation policy that balances market outlook, operating and capital needs of the business an appropriate level of risk tolerance given the volatility in shipping. We remain cautiously optimistic about our cash flow generation over the coming months, we will be vigilant for changes in the global macroeconomic and energy market outlook. With that, I'll pass the call over to John

Speaker 2

Huttigateras. Thank you. Sherry, we're ready to take some questions.

Operator

Thank you. With the prepared remarks completed. We will now open the line for questions. A confirmation tone will indicate your line is in the question our first question is from Omar Mukherjee with Jefferies. Please proceed.

Speaker 5

Thank you. Hey, guys. Good morning, good afternoon. I wanted to ask about The state of the DLGC market. Obviously, in your opening remarks, you talked about just the strength that we're seeing.

Speaker 5

But just wanted to Maybe dive a little bit further into it. You mentioned the new buildings, they've been absorbed so far. But given year to date rates have averaged basically 2 times what they did last At this time, perhaps new buildings just aren't enough. So just want to get a sense from you kind of what's really been driving this market upturn that we've been seeing and sort of relentlessly continuing to strengthen as we proceed through the year?

Speaker 2

Thanks for a great question Omar. I'll let Tim have a go at answering it because he is right there in the front lines. I think I can introduce it by saying that last year the expectation was fear of the order book, but Already by the end of the last year, we were seeing, anticipating a stronger 23 than had been generally Projected. And of course, we're pleased that it's continuing. But I'll let Tim give you a little more color as How confident we are about its strength and going forward With the usual caveats, of course.

Speaker 2

Tim?

Speaker 4

Yes. I mean, I think what has kept the market strong is High production in the U. S, which was also spurred by the high crude prices and LNG prices due to the war in Ukraine and the sanctions against Russia. So that we have seen more product coming into the market than we initially had expected. We've also seen the global economy Recovering better than was expected after the COVID, especially China has recovered better.

Speaker 4

And with the high oil prices also, we have seen the demand for both during some of the winter as a substitution LNG, which I think we discussed on previous calls, but also now in the Pricing of the LPG due to the or competitive pricing of the LPG due to the high production of both crude oil and natural gas. With China recovering quicker, the import demands in China is also is what giving the long haul voyages that, of course, also absorbed a lot of ton miles compared to what if you look at what the average has been voyage lengths and the additional tons have some, so to speak, gone longer haul, if you see So that has tightened and I think we have still not seen really the impact of the CII and EXR yet and So the Panama delays has not been worse than normal or if there is a normal for Panama delays. So there still are some factors that we see can give some liquid CECG even if there's some downturn in the market. And as I mentioned, going forward, we see this production continue. And also, as I said, we have seen more time charter inquiries also for longer periods where it's been initially shorter periods because people was nervous about the market further out, but now we do see 2 3 years time charters Being concluded as well as at decent levels.

Speaker 4

So there seems to be a general also perception that this Markets should hold up.

Speaker 5

Thank you. That's very helpful. And that actually does touch then. Your last comment About the time charter market having definitely a bit more liquidity, I was going to ask about that. You've generally in the past had secured some vessels on medium term charters, but recently over the past few years have become more maybe spot focused.

Speaker 5

I know you extended the Concorde and the Corsair. Maybe just on those 2, were those options that were exercised by the charter or were those new 1 year contracts? And then so that's the first question. And then second is, as you mentioned, about the 2 3 year charters being done at decent levels in the market, are those interesting enough for Dorian to put on contract as well?

Speaker 2

Tim? I mean, I can answer the last question is yes, partly in a conservative way We're doing we are picking up some. And Tim, I think both the Equinor and the Chevron, The Chevron was a new one or and the Equinor was an option, I think. But Tim correct me on that one.

Speaker 4

That's correct. Yes. No, that's correct. One was options and the other one was extension of the contract that expired. And then we have done, let's say, the periods when we saw like in December, We saw only like the shorter haul, 1 year with the prompt deliveries where the charters could take advantage Of the $100,000 per day market and then kind of hedged the risk further out, where now we're seeing 2 3 years.

Speaker 4

So We have done a few of that through the pool to check a little bit of coverage there Lately, but we didn't do much over the winter, which is normally the usual time to We didn't really see the values as there was too much nervousness still about The forward market of the LPG and A influx of the new building where we had a bit more bullish view, I think, than most at that time.

Speaker 5

Okay, got it. So and sorry to just final question or sort of final follow-up. It sounds like just from your comments that if you were to enter into a time charter that would be via the pool, the pool would put that vessel on contract, you wouldn't necessarily pluck it out of the pool And put it away.

Speaker 4

Yes. The pool is structured so that longer term And then where we consider 1, 2 and sometimes 3 years time charters more a spot trading Strategy that these are deals that complement your spot trading strategy. So that is done via the pool.

Speaker 5

Right. All right. Got it. Well, thanks guys. I'll turn it over.

Speaker 5

Congrats on the quarter.

Speaker 1

Thanks, Omar.

Operator

Question is from Sean Morgan with Evercore ISI. Please proceed.

Speaker 6

Hey, guys. Sean in his prepared remarks kind of went through Some of the efforts that you guys are undergoing to try and reduce carbon consumption, I guess also to Improve operating performance, save on fuel and whatnot.

Speaker 3

Do you think what's sort

Speaker 6

of your expectation for, I guess, like the The iteration after IMO 2020 and being sort of top down promulgated So basically have to maybe change propulsion or do more in the way of carbon savings versus where the industry is kind of currently.

Speaker 2

Did you say change propulsion you said?

Speaker 6

Yes, just kind of like the next Generation of IMO 2020, what do you sort of thinking in terms of where the industry is headed?

Speaker 2

Boy, if we knew the answer.

Speaker 4

If we

Speaker 2

knew the answer. No, at the moment, we're just we're looking at everything and we think that there has there's no silver bullet yet. Nobody can say Down the line, we're going to be all wind powered or anything. I think it's a mix. I feel that we're managing our fleet As well as it can be and with a good mix of dual fuel, scrubber, Energy devices, lots of we keep finding with new technology and all that, we keep Finding low hanging fruit to improve and even 1%, 2%, 3%, you add up, it comes significant.

Speaker 2

So, down the line, of course, people have talked about ammonia and people have talked about methanol, LNG of course so far has been the most popular dual fuel, which To us, it didn't make sense of course because of the trade that we're in. So it's kind of easy To go to default to LPG as our dual fuel of choice, but I think in a way the industry in general hasn't found one answer and it's In a funny sort of way, it's helping the balance because it's made investment less, how should I say, people are more reluctant to build ships. So That's good. From a fleet balance point of view.

Speaker 6

Okay. That's sort of interesting. So you think after we kind of absorb Current wave of VLGC newbuilds that are sort of on for delivery that we might see kind of a pause as The industry tries to take account of how to best position for potential new rules coming down the pipe.

Speaker 2

Yes, we already we'll naturally see a pause after 'twenty three because the shipyards are Quite full. And the orders that have been coming in, there's still orders coming in for VLGCs, but they're trickling in. So, I think that the bulge is in 2023 early 2024 and then that's it. That is a normal sort of

Speaker 3

replacement. All

Speaker 2

right. Thanks

Speaker 6

a lot, John. That's it for me.

Speaker 1

Thanks, Sean.

Operator

And that concludes our question and answer session. I would like to turn call back over to John Hadjipateras for closing comments.

Speaker 2

Thank you, Sherry. And My closing comment is to thank everybody for listening in and for your questions and have a good summer until we meet again.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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Dorian LPG Q4 2023
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