BW LPG Ltd. Q3 FY2024 earnings call

• Shipping: Volatile market with rates fluctuating, downside protection from Time Charter portfolio and FFAs. 5 out of 12 acquired Avance Gas ships delivered, 4 more expected. Board declared $0.42 per share dividend, 100% payout of NPAT from shipping activities.
• Product Services: Trading activities benefited from uptick in 12-month forward mark-to-market valuation, net accounting profit $58 million. Refinanced $400 million revolving credit facility to $460 million seven-year facility. Sold BW Cedar for ~$65 million and announced purchase of BW Kizoku for ~$70 million.
• Market Outlook: Positive for Q4 and next year, US Gulf exports stabilized, VLGC market sensitive to cargoes, Panama Canal slots available. LPG demand growing in Asian regions, 13 new building deliveries expected in 2025, 80 ships due for dry dock in 2025.

Shipping: In Q3, achieved 98% fleet utilization with TCE of $46,500 per calendar day or $46,800 per available day. Time Charter and FFA portfolio represents about 45% of shipping exposure. For Q4, 90% of available days fixed at ~$36,000 per day. In 2024, Time Charter out fleet generated ~$31 million profit over Time Charter in fleet, remaining fixed Time Charter out portfolio estimated to generate $69 million. Product Services: Reported net profit of $58 million in Q3, with gross profit of $71 million (including $86 million unrealized mark-to-market gain and $14 million realized trading loss). Book equity position at $128 million, excluding $17 million unrealized physical shipping position.

• Q4 fixed 90% of available days at ~$36,000 per day.
• 2024 Time Charter out fleet profit ~$31 million over Time Charter in fleet, remaining fixed Time Charter out portfolio estimated to generate $69 million.
• Product Services unrealized gains expected to be realized in future, but volatility expected.
• Net leverage ratio expected to increase to 30%-35% after Avance Gas fleet delivery.

• Volatility in trading market can drive portfolio valuation up/down before positions are realized.
• Panama Canal congestion a wildcard affecting VLGC slot availability.
• Product Services trade finance drawdown and margin requirements impact net leverage ratio temporarily.

Q: Quick question on the process of taking those vessels from Avance. To what extent should one expect cost to come in earlier than revenues? Is it more or less back-to-back or should we, for instance, use a month of sort of overlap here?

A: Thanks, Petter. I can just start off with saying that, of course, we pay for the ships now and you know, when you fix the ships for the next voyage, we will not get, we are not able to invoice before the vessel is about to discharge as per normal shipping practice. So there will be like normal a delay, you can say, because we are not able to invoice our charters before the voyage that the ships have performed is finished.

Q: You are now taking on a bit more debt as part of the VLGC acquisition from Avance and you have a pretty rigid net leverage ratio dividend policy. So just any question or any more information about what we potentially need to account for to adjust the net leverage for the short-term effects that you mentioned, Samantha, or is that sort of set in stone and how to think about dividend payouts going forward?

A: Well, I can start off by saying that the dividend policy is what it is, but it's always up to the Board to finally declare the dividend. So it's not, I mean, there's no change in that respect. So I wouldn't -- it's hard for the management to comment any further on the future dividend payouts. But the dividend policy is what it is.

Q: Considering the guidance you provided alongside Q2 earnings, it seems the low-to-discharge accounting has a positive impact on earnings. Could you talk a bit about that? And secondly, do you expect low-to-discharge accounting to once again have an impact on Q4 earnings relative to the guidance you provided?

A: Are you now referring to the IFRS adjustment? Yeah. So I can say on the general basis and then Samantha can also fill in here that when the market is going up, there is -- the mechanism is that there is a negative IFRS adjustment. When the market is going down, you have a positive IFRS adjustment. So that is the way IFRS is smoothening out the fluctuations during the year. So that's just to kind of explain the mechanism on a general basis. Then, Samantha, if you could just comment on the IFRS adjustment for this quarter specifically?

Q: Should we expect net proceeds to be distributed from the India JV to the parent or is there any appetite to buy another vessel in the JV level? And secondly, could you provide an update on the infrastructure investments in India?

A: Yeah. So on the sale of the Cedar, it's something which will take place, the delivery will take place in Q1. So then we will decide on how to distribute the net proceeds as and when we get to that point in time. So I am -- we will get back to you in the next earnings release on how we have dealt with that. When it comes to the infrastructure investments, there haven't been any major change since last time. But we are proceeding according to plan and hope to and expect to start the first phase of the construction of the terminal on this side of the new year, all going well.

Q: Can you give some color on sort of I mean Q3 was a fantastic result in the P&L with a very large ARB and kind of more normalized rate, should we call it? Rates have been sort of flattish into Q4, while the ARB has come down. Can you talk a little bit about sort of in general, the environment this leaves for the Product Services division? Is it more difficult to extract value at this point? And secondly, seeing as it's unrealized, a large portion of the gain in Q3, which you will then realize kind of in the following quarters, there is -- is there an argument to be made for paying out more than 100% of shipping NPAT because you will have a cash flow contribution from Product Services as well?

A: Thanks, Auguste. I can start with the last one. I mean, if you look at how we distributed the profits from Product Services and the capital return to us as shareholders, I think you will get kind of the answer to your last questions there. And I think with regards to, I actually have, if you can repeat your first question, Auguste, because that was -- I lost my mind here now.

Q: A question kind of following up on Jorgen's question about Product Services. Can you give some color on sort of I mean Q3 was a fantastic result in the P&L with a very large ARB and kind of more normalized rate, should we call it? Rates have been sort of flattish into Q4, while the ARB has come down. Can you talk a little bit about sort of in general, the environment this leaves for the Product Services division? Is it more difficult to extract value at this point?

A: Yeah, I would say it's hard to guide exactly on how Product Services is performing from week-to-week and month-to-month because they have many handles to pull. They have physical cargoes, FOB cargoes. They have outlet positions in Europe and Asia, where they have deliveries and commitments fixed on certain price mechanisms. They have derivative positions and shipping positions. So they have, I would say, a wide range of ways to create profit and value even though the market is like you say in a state where the ARB is coming down and the shipping is also kind of flattish. So I would say, on a general basis, it's hard for us to comment specifically how they may perform in a market like this, except for that they have many ways of positioning themselves depending on the prevailing market conditions. So I'm sorry, it's hard to be more specific, Auguste.

Q: G&A was down quite a lot this quarter. Any guidance there for Q4 and maybe also for depreciation as you take over the Avance vessels?

A: I can just start off with the G&A because我 think what we are doing is that we are accruing for bonus tax, et cetera, which is based on realized profits. And that will go a little bit up and down during the year because we do this on a quarterly basis, adjusting it. So I think you have to see the G&A over the year to get the full picture of how the G&A is playing out because there are certain elements of bonus tax, et cetera, which is being adjusted from quarter-to-quarter. And Samantha, would you like to add anything there?