Avance Gas Holding Ltd

Christian Andersen - President

Thank you very much. Good afternoon and good morning to you calling in.

Normally, Peder will be here together with me but as you can appreciate, he is back in the office counting money, so he couldn’t make it. It has been a fantastic quarter.

Time charter earnings is $97,000 per day which is about $10,000 per day better than previous quarter. There hasn’t really been a lot happening in the market or with the company except for a couple of newbuildings delivered and we have now all the ships from China delivered, the last one Pampero was delivered the fourth quarter.

Three ships were delivered third quarter. The board has declared a dividend of $2.11 per share which is according to earnings per share.

If we go over to the next slide, we can see that operating revenue has increased and this is of course due to more ships and firmer markets. Time charter earnings came in at $94 million and then financial expenses is slightly up, again this is because we have taken delivery of three ships and that have increased our debt accordingly.

A&G is slightly down 1 million and again this is because the second quarter has normally higher A&G with bonuses and bonus schemes for employees. Net profit is $73 million up from $41 million and as I said EPS is $2.11 per share.

Avance Gas has assets of 1.56 billion this is up from 887 million, three ships delivered. Debt receivables have increased during the quarter, this is a combination of certain factors, one is that we have longer voyages so in this market, freight is payable upon discharge, so with longer voyagers, it will take a bit more time before keeping base rate.

Secondly, high freight rates means higher demurrage rate, normally the demurrage rate will reflect the freight market and with high freight market there will be high demurrage rates and demurrage receivables will go up as well. In addition with higher fleets we have had more voyages also to India where there is lots of demurrage.

Net interest bearing debt it has increased by 140 million and again this is because of three ships being delivered in the quarter. We have a free cash of 63 million this is down from 99 million from the previous quarter.

This is reflecting purchase of ships and increasing receivable. We still have undrawn credit lines 50 million and we have a total equity ratio of about 50%.

Moving over to cash flow, net operating cash flow was 63 million up from 26 again of course higher freight rate. Net cash flow was negative with 98 million, negative by 56, this is as I said combination of receivables increasing and the three delivered ships.

In addition, we purchased an old LNG carrier up close to scrap values and this is also eating somewhat into net cash. Well 14 ships as well 8 Chinese newbuildings delivered and 14 ships total in the fleet, all ships have been trading except for the last two ones which are Chinook the 13th ship was gassed up last week and Pampero is being gassed up next week and both them will be load ready, Chinook is load ready now and Pampero is load ready in about ten days time.

We will move to Page #9, the order book is continuing to increase but something we rather not like to see but I guess with the freight rates we have this is bound to happen. We are seeing orders in 2017 increasing, we have six Panamaxes being contracted for them against long time charters to oil majors, this is the 78,700 cubic meter ship, the sign to use the existing Panama Canal or so after the expansion.

In addition there are a number of VLGCs being ordered recently. We have seen orders both in China and in Korea.

We also have seen a couple of orders in Japan, the Japanese shipyard were basically so low, so we are talking about 18 and 19 deliveries. With the current order book, we have order book of about 37% of the existing fleet.

We have been adjusting our fleet utilization model somewhat. We have increased the number of ships to meet the last orders.

We have also been adjusted the volume going from U.S. Gulf to Far East closer to what we actually see.

Year-to-date the export from U.S. Gulf to Asia 32% this is by end September and by end August this was 34%.

This is the direct export and there is in addition some indirect export where there are Panamax loadings, the charging in through VLGCs in the Pacific side of Panama and moving them to U.S. So the total export by VLGCs from U.S.

Gulf to Asia is close to 40%. So we have upgraded our model to reflect this and in 2017 we are at 40% and in 2016 we are at 38% of the export from U.S.

Gulf going Far East and with these numbers, we say that the expectations roughly depreciation next year is very much the same as we have seen this year, it’s close to 95% and according to shipping territory this will give us a very strong freight market for next year. It’s a bit more question mark as we get into mid second half 2017 as we don’t really know how many ships will be delivered and is yet to be seen what kind of export patterns we will have.

If we look at our fixtures during the quarters, this is fixtures from Page #10 which are based on fixed price in addition we have done a couple of pictures on floating price reflecting the board this way. As you can see, we are still fixing up the Baltic and our VLGC index were slightly better.

We have two fixtures in September which will keep the ships employed basically until second half end November. We have so far covered between 60 and 70% of fourth quarter and as I said some of these are on floating rates most of them are fixed rates.

The waiting time is still very low and as we can see basically stay low in July and September, we have one ship sitting in August giving us an average slightly above what we have seen so far this year. By end of the quarter Avance Gas average waiting is one day per ship per month.

If we look at October and November, there is basically no waiting time. The freight rates are driven by high exports looking at Page 11 on the left side is the Middle East export.

Middle East export is slightly above expectation basically because Saudi Arabia is producing more crude oil and are exporting more LPG than we have expected. The other countries are very much in line as I mentioned couple of time before, Iran is holding out very well on LPG export even if the product is not changing.

On the right side, we see export from U.S. Gulf July and August is about 1.4 million, in September we had all time high of U.S.

export with all three terminal basically listing through capacity and in October, sorry in September there was lifting of total 34 BHC [ph] cargos. Page #12 is showing the, on the left side is showing number of cargos and volume and what you can see on this graph is that in March there was slightly less than 100% capacity listing from the U.S.

and you can also see that during the summer there were a couple of ships not loading full cargo, so the number of cargos is still high but the volume growth is down in August. But I think the interesting thing here is to see that we have 34 cargos being listed in September.

As I said earlier 32% year-to-date is going from U.S. Gulf to Asia directing export South America is including Mexico is 52% and Europe is 16%.

It is interesting to see in September that there is more going to Mexico and not just Europe than year-to-date and this is basically because there has been larger demand from petrochemical cracking, feedstock for petrochemical cracking than it’s been early in the year. If we look at the last page, Page 13, we had by end of September an average time charter return of $85,200 per day.

And I am going to say a couple of words about fourth quarter, if we look at fourth quarter 2014 we had $70,300 per day, this was a four month quarter because we changed the accounting from what we had calendar, so if we look at calendar fourth quarter last year, we had $65,600 this is compared to the index less 30 days of 75,100, so in the fourth quarter last year we were about $9,000 below our index. If we look at September, October index last year it was $78,000 per day, if you compare this to the index, this September, October it is $68,000 per day, so what I am trying to say is that the outlet as we see today is that fourth quarter this year is going to be the low fourth quarter last year.

However, our fleet fourth quarter this year is much larger than it was fourth quarter last year, so looking at EPS it’s fair to assume that we will have at least a similar EPS fourth quarter this year as we have fourth quarter last year. I would like to remind you that average cash break-even on our ships is about $23,000 per day this is an important number for us and we are focusing very hard on cash break-even which we think is benefiting the shareholders allowing us to make more money.

As I said, the U.S. exports are in line with expectations we have written in our presentation that we have Phillips 66 terminals scheduled for second quarter next year.

We have learnt this week that they are guiding but this will slip into second half next year so the Phillips terminal is slightly delayed but it’s still on track for mid of next year. The larger volumes from U.S.

Gulf to Asia is going to keep fleet utilization high, and is supporting our view that we will have a very strong freight market when we go from volatile winter market into the firm summer month is sometime early next week. We will continue to work on with the fleet in the spot market and we are continuing to build up COA portfolio what we have today is very, very small one based on 100% floating and this is our main objective to increase going forward.

I can assume that if and when we get a certain level of COAs we will very open and communicate this to the market. So with the words of extremely good outlook for next year, I invite for questions.

The LNG carrier, how do you collaborate them with [indiscernible].

Well not really because we have a balance sheet of 1 billion and the investment in this ship is 20 million so it’s not significant in any respect, the idea is to develop LPG storage project, this is going to take a lot of time. We have the opportunity of buying old ship basically at scrape values, so it’s an opportunity and we are going to work on it but I am not going to talk a lot about it because it’s just a minor, minor event.

As a followup what should I assume about 2016, are you going to move away from volume [indiscernible]

We are absolutely not going to move away from Avance Gas being a pure VLGC company, the likeliness of this growing in the near future is very small. What we think is that if we can provide our customers with ships for COA and charter all of the storage unit tender as well, it might give some additional benefit for the customer but it’s going to be a minor, minor activity in the company.

You have been pricing very bullish on this market for several years now and I think you are [indiscernible] to consume more volumes going to West Asia [indiscernible], thank you.

Yes the reason for kind of upgrading 2016 is that we have learned that actual export from U.S. Gulf to Asia is much higher than we have expected.

The risk, it’s a difficult to answer that in one or two sentences but we struggle to see that there will be a lurch in South America or in Europe able to take away lot of this products going long haul and also I was in Singapore last week. I met with the number of customers and vast majority of our customers are very positive and they are supporting our view of large volumes going from U.S.

Gulf to Asia.

And then if you look at production has been, okay the demand by address is low, or these are too high, are you surprised that how quickly the market is adapting to this arbitrage cargo is going as to this fall, how very quick that this arbitrage [indiscernible]

Not really. We have seen this happen many times but once the prices start moving, it’s going fast, there are not really a lot of alternatives, I have been saying for a long time that it is the full cargo, it has to take the beating and lower the price to get the cargos to move, this is not happening that the so called arbitrage is open, our customers are making money on short term volumes rather on long term volumes which have been the case earlier this year, so this is supporting our view but it hasn’t really changed anything in our view.

No concerns of supply at this point?

No, what we see in China and not only in China is that the integrated producers of olefins and polyolefins have a fantastic economic, we see that some of the non integrated companies might struggle a bit but the vast majority of the Chinese PDH plants are integrated and they will continue to do, to buy LPG and produce propylene and polypropylene.

The thing that Chinese built these, are going to be favored on a [indiscernible] discharged cargo into them?

Eric, I struggle to understand what you mean about quality issues, they are Chinese built entities are first class. Unfortunately, the builder and the classification society wasn’t able to check on some minor, minor details which has been stern to bear has been replaced and the ships are performing absolutely fantastic, no issues with any of them.

Secondly, we have not yet discharged into Japan, we have a ship on subjects which are subject to technical approval. She is planned to discharge in Japan.

She is on her way to Houston to load and the charter is paying the value, so we are pretty sure that she will be confident as the first Chinese ship to discharge into Japan, hopefully already next week.

And from particular, do you have any value from [indiscernible]

This year we are at 16, 17,000 million tonnes, we expect this next year to come to somewhere between 25 and 28 million tonnes, a bit depending on when Phillips 66 is starting exports.

Do you consider price deals?

Depending on level.

Going out, sorry it should be going in [indiscernible].

Yes we are offering our customers a small, small portion fixed price, we are talking about 10%, 12% so the majority of the pricing will be floating.

On dividend, for how long do you intend the former to pay out, would be an option for the credit line depending cash only if necessary or…

We are far, far away from minimum cash, so.

What is the net cash?

It’s 45 million and what we see is thus of course with the increased demurrage and the lower voyagers, the working capital we need is slightly higher than with a large fleet than it used to be, it’s a bit difficult for me on behalf of the board to promise about dividend. My view is that the market is going to stay extremely certain for 2016, my recommendation to the board will be to continue to pay dividends.

[indiscernible]

Well I have a lot of ship brokers calling me and trying to sell ships at and of course it’s quite expensive, so I am telling all of them, I would rather use my money to buy my own shares because I think that’s extremely cheap.

Where would you like to resale today?

I think it is a bit theoretical. I think for anyone to be tempted to sell from presale today would need to see something like 95 million plus minus, it’s a bit theoretical, I don’t think that’s possible to buy any resales.

What we see on older second hand ships is that the new building parity is somewhere between 90 and 100. I think we are finishing with questions from the floor, is there anyone from the dialers in.

Okay then thank you very much for listening in and thank you very much for coming here and listening to us.