Cementos Pacasmayo S.A.A. Q4 2023 Earnings Call Transcript

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March 28, 2024

There are 3 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to Dynacast LNG Partners Conference Call on the Q4 2023 Financial Results. We have with us today Mr. Tony Luitsen, Chief Executive Officer and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in a listen only mode.

Operator

There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I'd like to remind everyone that in today's presentation and conference call, Dynagas LNG Partners will be making forward looking statements. These statements are within the meaning of the federal securities laws.

Operator

This conference call and slide presentation of the webcast contains certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The statements in today's conference call are not historical facts that are not historical facts, including among other things, the expected financial performance of Dynagas LNG Partners business, Dynagas Partners LNG ability to pursue growth opportunities, Dynagas Partners LNG expectations or objectives regarding future and market charter rate expectations and in particular the effects of COVID-nineteen on the financial condition and operations of Dynagad Partners LNG and the LNG industry in general may be forward looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. Matters discussed may be forward looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to Slide 2 of the webcast presentation, which has the full forward looking statement and the same statement was also included in the press release.

Speaker 1

Please take a moment to go through the

Operator

whole statement and read it. And now I pass the floor to Mr. Lauritzen. Please go ahead, sir.

Speaker 1

Good morning, everyone, and thank you for joining us in our full year and 3 months ended 31st December 2023 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the 3rd period. Certain non GAAP measures will be discussed on this call, and we have provided a description of both measures as well as a discussion of why we believe this information to be useful in our press release. Let's get started and move to Slide 3 of the presentation.

Speaker 1

We today present results for the full year of 3 months period ending on December 31, 2023. We are pleased to announce that all 6 LNG carriers in our fleet were operating under long term charters with the steel international gas companies. For the Q4 of 2023, we recorded net income of $10,500,000 and earnings per common unit of $0.21 Our adjusted net income stood at $10,300,000 translating to adjusted earnings per common unit of €0.20 Furthermore, our adjusted EBITDA for the same period reached €27,400,000 For the full year 'twenty three, we reported net income of €35,900,000 and earnings per common unit of €0.66 Our adjusted net income stood at €25,800,000 translating to adjusted earnings per common unit of 0.39 dollars Furthermore, our adjusted EBITDA for the full period reached $94,400,000 dollars We are pleased to share that subsequent to the quarter, the partnership has signed a term sheet with a major leasing company in Asia for the lease financing of 4 of our 6 LNG carriers in an amount of up to EUR 345,000,000. The financing has received credit approval and is subject to signing of documentation and customary closing conditions. The transaction is expected to close in the Q2 of 2024.

Speaker 1

The partnership intends to combine proceeds from this new financing with other sources of liquidity to fully repay the partnership's debt maturing in September 24. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results. Go ahead, Michael. Thank you, Tony. Turning to Slide 4.

Speaker 1

Net income for the full year amounted to 35 $900,000 or $0.66 per common unit. Adjusted net income amounted to $25,800,000 or $0.39 per common unit and adjusted EBITDA for the year was $94,400,000 In the 4th quarter, net income saw a slight decrease of 9.5 percent to $10,500,000 compared to the same quarter last year. This reduction is primarily linked to a decrease in unearned life gain on our interest rate swap of $3,200,000 dollars and the absence of a $2,100,000 gain on debt extinguishment that we recognized in the previous year. However, this was partially mitigated by an uptick in voyage revenues of $3,900,000 as a result of a higher charter rate on the Arctic Aurora, which entered the charter with Equinor in September 2023, as well as by the $2,900,000 of other income recognized in the Q4 of 2023, which represents income from insurance claims. Adjusted net income for the quarter is reported at 10,300,000 dollars a noteworthy increase from $7,000,000 last year, driven mainly by the voyage revenue growth previously mentioned.

Speaker 1

This was counterbalanced by increased operating expenses by $600,000 and finance costs by 400,000 dollars due to higher interest expenses under the floating leg of our credit facility. For consistency, excluded cash receipts and unrealized gains on our interest rate swap from adjusted net income, which if included, brings our adjusted net income and earnings per common unit to $16,700,000 $0.37 respectively. The time charter equivalent rate per day for the 4th quarter stood at $65,700 with operating expenses of $15,172 per day, leading to a cash breakeven per vessel of $36,300 per day. Turning to Slide 5, our net debt to last 12 months ED value ratio has improved to 3.7x, indicative of a solid balance sheet and prudent capital management, culminating in a book equity value of $448,000,000 and a net debt to total book capitalization ratio of 40%. Our consistent emphasis on using organic cash flow for debt reduction without diluting shareholder value has proven to be a prudent strategy as can be seen by the consistent increase in book equity value per common unit.

Speaker 1

Moving to Slide 6. We concluded the quarter with a strong cash position of $73,800,000 operating cash flow of $20,200,000 and after accounting for the capital expenditures, like the installation of ballast water treatment systems on our steam LNG carriers, free cash flow of $17,400,000 For the 3rd year, our operating cash flow amounted to $64,400,000 and our free cash flow was 60,200,000 We all believe to announce that we have signed a term sheet with a prominent Asian leasing company for the lease financing of 4 out of our 6 LNG carriers to address our September debt maturity. This financing will provide us with up to $345,000,000 in funding. We're happy to report that this financing plan has already been granted credit approval and is contingent upon the completion of definitive documentation and the satisfaction of customary closing conditions. We plan to utilize the proceeds from this financing in conjunction with other sources of liquidity to completely repay the Partnership's debt that's coming due in September 2024.

Speaker 1

We expect to close this transaction within the Q2 of 2024. Over the past few years, we've been strategically reducing our leverage in an organic manner. And by addressing the upcoming maturity of our debt, we're setting a solid foundation for financial stability. And that wraps it up from my side. I will pass over the presentation to Thierry.

Speaker 1

Thank you, Michael. Let's move on to Slide 7 of our presentation. At present, our fleet consists of 6 LNG carriers with an average age of approximately 13.6 years. Our current charters include gas companies such as Equinor of Norway, Sefa and Yamal trade of Singapore, as well as Rio Grande LNC, a subsidiary of NextDecade for the 4, which have vessels clean energy and Arctic Aurora. As of 20 March 24, the fleet's contracted backlog amounts to approximately $1,111,000,000 equating to an average backlog of about 180 $5,000,000 per vessel.

Speaker 1

Furthermore, the fleet enjoys an average remaining charter period of approximately 6.9 years. We are confident that our charter profile is strong and positions our partnership for stable income in years to come. Let's move on to Slide 8 of the presentation. Our commercial strategy is securing long term charters with the gas companies. We have built up a solid contracted backlog and by no unforeseen events.

Speaker 1

We have no contractual vessel availability until 2028 when the Clean Energy of an Amur River will be available. The next availability after this is the Arctic Aurora, which will come off our Rio Grande LNG contract in 2,030 3, followed by Yenisei and Lena River in 2,034, provided that Chavrin's extension options are not extended. The global fleet of LNG carriers currently comprises approximately 6 70 large vessels, exhibiting a diverse range of sciences and propulsion systems. The new building motor book accounts for roughly 53% of the existing fleet, mainly scheduled for delivery between now and 2028. The majority of these orders are already committed to specific charters, leaving only 28 carriers without dedicated employment.

Speaker 1

The main objectives of the global order book are twofold: to replace aging vessels and to accommodate the growing LNG production capacity. Notably, around 18% of the existing fleet comprises steam powered vessels below approximately 140,000 cubic meters in capacity with an average age well above 20 years, rendering them undersized and inefficient in today's operational environment. Current liquefaction capacities stands at approximately 471,000,000 metric tons with an additional 46 percent of new liquefaction capacity already FID ed and at various stages of construction for start up before 2,030. The expansion is primarily driven by projects in the U. S, Channel and Mexico region, representing about 46%, followed by Qatar at 30% with additional contributions from various other regions, including Russia, Africa, Australia and Malaysia.

Speaker 1

In the medium to long term, we anticipate the order book being absorbed through the replacement of older vessels and the transportation of additional energy production. However, in the shorter term, the charter market may face short term challenges as vessel deliveries are front loaded compared to the multiyear growth in energy production. Given these factors, we believe our portfolio is well structured with contractual availability only in 2028. Nevertheless, global demand for LNG remains robust. Questions have been raised regarding the impact of Chinese economic growth and LNG demand.

Speaker 1

Beijing has maintained its growth target of 5% for 2024, mirroring the figure set for 2023 and recent data from Poland suggests a notable increase in China's energy imports during Q1, 20 24 compared to 2023. European energy import volumes reached import volumes reached historical highs in 2023 and are expected to continue increasing in the medium term up to 26, projected to rise from approximately 120,000,000 tonnes in 23,000,000 to 140,000,000 tonnes in 26. In general, we anticipate that the long term demand for LNG will remain robust due to several factors. These include its favorable emission profile compared to traditional fossil fuels, the growing global demand for electrification, the efficiency of the combined cycle power plant fueled by LNG, the existing global infrastructure of LNG production and distribution and the absence of a superior alternative on a comparable scale. At the vessel level, our current charters are performing and fulfilling their obligations with the vessel's active new trading.

Speaker 1

While President Biden's temporary report on pending permits for new LNG projects has been announced, it is not targeted to impact already permitted brownfielder expansion projects. Our agreements with U. S. LNG export for next decade for the cleanology and the active Aurora are proceeding as planned. In effect for Phase 1, Chariant 1 to 3, which are fully permitted.

Speaker 1

According to next decade, construction of the Rio Grande Energy Facility is progressing in line with schedule with overall completion for Train Zone 2 is approximately 14% and 4.4% for Train 3. Let's move to Slide 9. The Partnership has demonstrated its commitment to its debt reduction strategy. Since December 2019 until 28 March 24, it successfully repaid $254,400,000 in debt, significantly lowering its net leverage from 6.6 times to 3.7 times. Additionally, the partnership has increased its book equity value by 44%, standing at €448,000,000 as of 31 December 23.

Speaker 1

Looking ahead, we are confident that the partnership's ongoing efforts to reduce debt would further augment equity value through stable long term cash flow visibility. We firmly believe that LNG plays a pivotal role in building a future with reduced emissions. The demand for energy is projected to continue as the world progressively shifts away from coal and other political fossil fuels in favor of cleaner energy sources. Natural gas has a relatively low emission profile when combustion. Another key drivers of natural gas is its ability to generate power swiftly and effectively as and when needed and the existence of a well developed global infrastructure facilitating its production, transportation, storage and consumption.

Speaker 1

Thank you all for your attention. We now have concluded the presentation and invite you to ask any questions you may have. Operator, you can now open the floor for questions. Thank you.

Operator

Our first question comes from Ben Nolan with Stifel. Please proceed with your question.

Speaker 2

Yes. Hi, good morning and congrats on getting some term sheet for the refinancing. I was curious, Michael, if you can give a little color on what you what the cash outflows would look like on a quarterly basis or the interest in amortization, any thoughts as to sort of what that would look like?

Speaker 1

Yes, sure. I mean, let's say, on average, this will have, let's say, a profile of about 8 years. So on a NAV adjusted basis, it's about 23 years. The margin on this financing is quite below where we are today. But let's not forget that in September, our swap expires.

Speaker 1

So we will be, let's say, our debt will be under a floating interest. So that's what we can provide at this stage. But I am pleased to say that the margin is quite below where we are today.

Speaker 2

Right. So I guess what I'm trying to get to is what's the relative to your cash flows coming in, how much of the how much is going out or would you anticipate going out onto the debt service?

Speaker 1

What's the market? Well, let's say on aggregate, I mean, you have to depending on where interest rate, let's say the amort element would be about close to €45,000,000 and the interest element would be, let's say, somewhere slightly south of the $20,000,000 So there is post debt on that, there is a cash buildup.

Speaker 2

Okay. And are there any restrictions on what you can do with the excess cash after Amorton interest?

Speaker 1

No, no. There's no restrictions. There's no dividend restriction either, yes, on the comment.

Speaker 2

Okay, perfect. And just since you mentioned it, any thoughts as to what the what you might would do with excess cash flow after that sort?

Speaker 1

I think it's a bit too early to say. Our next step is just to close the financing. And I think it's a bit too early to say what the next step will be on how to utilize this excess cash. Okay. Yes, I

Speaker 2

mean and I appreciate that. I just brought it up.

Speaker 1

All

Speaker 2

right. Well, again, it's important news. So I appreciate the feedback there.

Speaker 1

Okay. Thank you, Ben.

Operator

There are no further questions at this time. At this point, I'd like to turn the call back over to Tony Louitzen for closing comments.

Speaker 1

Okay. Well, thank you, Charles. We appreciate your time and attentiveness. Thank you for your We look forward to connecting with you again on our next call. Take care.

Speaker 1

Goodbye.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

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Earnings Conference Call
Cementos Pacasmayo S.A.A. Q4 2023
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