Avance Gas Holding Ltd

Peder Carl Gram Simonsen - Chief Financial Officer Christian Andersen - President

Thank you. Thank you for coming to our third quarter presentation and thank you for dialing in.

We will move to slide number four. Highlights for the quarter, we saw reduced cargo volumes and fleet growth impacting the freight rates.

Our TCE rate came in at 7524, down from the $12,500 per day in the second quarter. Our average OpEx came down also from 7,800 down to $7,000.

On a year-to-date figures on the OpEx is 7,600 and the average CTE year-to-date is just about $10,000 per day. Our cash position came down to 123 million which reflects a drawdown of $10 million during the quarter and cash position of 58 million.

If you look at the chart on the right hand side here, you can see that we outperformed the index this quarter which averages at 5800 and the TCE includes our waiting days which were 3% of total calendar days this quarter and this was reflected in the index which does not adjust for waiting. If we then move to our income statement, TCE earnings came in at 9.7 million, down from 16 million in the second quarter.

Our operating expenses were down which is a reflection of more adjustments or fluctuations throughout the year and the effect of our continued cost focus. The operating expense reduction mainly includes fluctuations in the crew costs and M&R compared to the second quarter.

Our G&A was maintained at $1.3 million more or less the same as last quarter. Our non-operating expenses which are mainly financial expenses were up from 5.6 to 6.5 million, which is a reflection of the interest rate swaps which had the first full quarter of effect.

Our net loss reported for the quarter was 17.8 compared to net loss of 11.1 in the second quarter. Moving to the balance sheet, we as mentioned have a cash position of 58.1 in addition to undrawn credit facilities of 65 during the quarter.

We drew down 10 million on the credit facilities compared to - from the 5 million in scheduled reductions in our debt, which then ended at 478 million during the quarter. We maintained a very strong balance sheet with equity ratio of 45% during the quarter.

Moving to the cash flow, we can see that the operating cash flow came down significantly from the previous quarter which is a combination of a movement in working capital where a lot of freight payments came in just beyond the quarter end this quarter, whereas in the previous quarter, they came in prior to quarter end. In addition, naturally a lower freight rates achieved for the quarter and in addition you can see that the interest which is included in the operating cash flow increased for the quarter due to the effectiveness of the interest rate swaps.

The cash position as we said showed 58 million for the quarter. If we move to cash break-even on the next page, you can see that our cash break even for the first nine months and then for the remaining quarter is 17,200 per day which reflects the bank agreements that we have in place and the normalized adjusted break-even rate within the - around $22,000 per day.

If you add dry docking, each dry docking will have impact the cash breakeven of around $300 to $350 per day. Let me give the word to Christian.

Thank you very much. Nothing happened, all well.

Thanks very much and good afternoon and good morning for anyone who is calling in. We start at page nine, which is order book and the positive news when it comes to the order book is that the majority of the ships are under construction and ready for delivery this year has been delivered.

We think there are three more ships to be delivered this year. The reason I say I think is that there are a couple of ships, three or four ships sitting at Jiangnan Shipyard in China.

They are completed, they are ready for delivery, but there are some final discussions with the owners and we think it's most likely that these four ships, three or four ships will slip into next year. We don't think they will be sold to anyone else because we don't think they will fit any longer.

We are pretty sure that these will be delivered latest by early next year. Top of the right hand side on page number nine, you can see that one on these three ships is expected this month and the two remaining ships next month.

Based on this, the order book is 11% of the existing fleet by end of quarter; the existing fleet is 260 ships. For the year 2019, so far the order book is 14.

There are say a couple of options available for delivery in '19, we then as you might remember have ordered four ships first two followed by two a bit later and they still have options for another two ships. So, we might take options up to four more ships for delivery in '19.

We are not where on any others sitting on options, but unfortunately I can assure that if you go to Korea or China and one of the ship positioned in the early '19, it's impossible. So, we do expect that the order book flow on '19 will slowly move towards conditions.

Page number 10; I am trying to give you a picture of about our fixtures this year for this quarter. And you saw we outperformed our index a bit, which is basically because we have direct use fixtures in the well market.

As you can see on the left hand side here, most of the normal fixtures are trading pretty close to the index. We have a couple of fixtures which are very much outperforming the index and this is - we've taken some more balance in a separate voyage.

So, closing the accounts in this is a response of course [ph], but in the income fixtures it looks bit better that it is. And as usual, we have a number of fixtures on the favorable line.

This is - index - voyages based 20% on floating fixed rate, except for one fixture ended September, where we did two ships to an Atlantic charterer on the same business, so it's kind of accounted in our ship but it is actually divided by two and it comes out of share as well. First is the sign on the right hand side on page number 10, is of the waiting time has come down during the quarter and it's continuing to be positive.

By the end of the quarter, the fleet utilization of our 14 ships is more than 90%. It's surprising to see so low freight rates in such a good utilization market up.

Again, we have seen this over here so. Page number 11, I am very sure it's showing you exports.

On the left hand side, we have LPG exports from the Middle East. It has come down a bit in September, October.

We think this is normal seasonal fluctuation, but as we have the guided for quite some time, we do expect that the Middle East will export less tons in '17 compared to '16 and you can see that by end of October we are slightly below'16 - this year, so this again as per expectation. Looking at the left hand side, it's interesting to see that the U.S.

exports is continuing, it's increasing when you compare the numbers from this year to last year, you can see there are than some billion tons increase. However, I think that the most interesting part of this graph is the volatility and to see the growth this year and last year, we saw activities during the seven months coming down.

This has of course to do with product rise and I think that when the credit market is in a condition [ph] it's that the shorted on less active in booking cargoes and they are trying to cancel or propose listings wide while the truck market is in control, they will be authorized to release as many cargoes as possible. And this is illustrated by let's say second half last year and this year, the number of cargoes are drawing.

When you look at these numbers and maybe it's better shown on this page, page number 12, you can see the green line illustrates US Gulf and East Coast and in August this come down to around 30 cargos. This is the course of hurricane Harvey and from the 20 of August there were now really serious things in US Gulf.

We had [indiscernible] and we also have these things in market side and markets too fluctuated slightly more than they normally do. This picked up considerably again in September and in September we saw almost 50 cargos which is quite a lot and again it's a bit ramp up after the delay from Harvey, so some of the cargoes being stored in the end value to pipelines were taken out.

The nice thing is that the estimates, we have not seen the final numbers for October yet, but the estimates for nominations we have got restoring 50 or even slightly more than 50 cargoes, the 50 cargoes listed in October. And again, on page 13, we look at where these cargoes are going and the gross is in Far East.

And we are slightly up from last quarter. Last quarter we had year-to-date of 64%, this quarter we had year-to-date at 65% going from U.S.

to Far East. This is quite interesting and it then reflects the big takers are in China, Japan and Korea and we see an increasing number going South East Asia, but we also see the Panama Canal is a challenge.

And I will turn to page 10, sorry 12. As you can see on the remarks below the graph here, 34 voyages, this is only laden so 24 voyages were through Panama and 10 voyages via Cape.

It is easier to go south bound, the laden looks like easier a bit because the sailing instructed out port obviously to Panama is much shorter though you have a - as a case plenty of time. When you go north bound, when you go into the Pacific into loading area in order to able to pick slots you have to take a chance and start sailing.

But you have to start sailing on the Pacific, without knowing if you have a slot available. So, the exposure of a waiting time when you are line the canal is quite big.

And what we have seen this year, starting with covering in February is that is very, very difficult to get slots in one [indiscernible] and this is difficult and it seems to be the lowest going forward. So, when you look at page number 13, with 65% of the cargoes going normally from U.S.

to the Far East and a lot people - a lot of our customers, lots of people I talk to they expect the Panama will be difficult also in'18 and they do expect the width between Panama and Cape will increase and also that the cost between freight of Panama and Cape will be smaller. So today you make much more money if you go via Panama and via Cape and our customers expect that this gap will narrow and the owners will be able to price freight in such a way that they have paid for Cape rather that what we not get so much today.

So, trying to summarize a bit, needless to say, third quarter was a disaster and a disappointment as it was expected. We did see that the freight market stand a bit in August and it gained some momentum, unfortunately turned again last week.

So as in the last week the market started to drop again. It has come down - on the board figure has come down from low 30s to mid-20s a ton.

Right now, it looks like turning back again and we are trying to get the momentum again. Order book is not too bad for the next couple of years, there is of course not possible to get ships and get delivered prior to '19.

So, we know pretty much what we will get next year. So, when we do our fleet utilization under license, we are pretty confident of a balance next year.

I'm just back from travelling to meet customers in Asia and in Europe. My feeling is that most of our customers expect freight to tighten next year and most of our customers are kind of supporting our view.

Freight will be better next year compared to this year. It's almost as difficult to get the number from the short term as it is to get the number from the preview, so I would not say anything about levels, but it is looking promising.

But again, I have to say the business is all about yield [ph] and we need to see a sustainable export over U.S. cargoes between 50 to 55 cargoes in order to support freight market going forward.

We do expect to see the U.S. shale production grows next year.

We do expect to see more pipelines coming on stream in U.S., enabling the producers to send more tons to markets and also to U.S. [indiscernible].

So, we talked about Panama and not much to say anything about that and I'll just repeat what Peder was over saying that we are focusing on cost control and to maintain our strong balance sheet and we are confident that in 2018, we will able to start making money again.

Thanks, do you see any [indiscernible].

The question was is it greater than activity on the scraping front? And the answer is no, not really, but we do expect some more scraping.

It's pretty clear that the some of the old machines which are due to go into dry dock now; they need a lot of CapEx. You need that treatment systems, you probably need to discover or of course you don't need discover, but there is a lot of money within that in the next dry dock, also for the older ship.

And lots of ship brokers do expect scraping to come. I'm flawlessly questioned [ph] about scraping and I think ships have the tendency to go into storage and other projects rather being scraped although these ships are taken out n from the daily markets, so in index rate.

yes, we do expect some of the older ships to disappear from trading.

Hi, [indiscernible].

What you said is right, there is five to ten ton shortage out there and the price, yes. There's lots of interest for two to - two plus one plus one time shorter on six freights.

Again, is it going to get some prices, I think some of the people I've talked to are very keen to take $17,000 a day for two plus one plus one, 17, which is not available. So, I think the spread between charter and owner [ph] is very big.

So, I don't think we expect to see any fixed pricing storm. There is one slopping price storm this year, it's a three years deal to traffic [ph], so yes, there might be from stopping these from, but very few fixed price, of course spreads between charter and owner to a degree, yeah.

I have a follow question; the question is right now next 12 to 8 months is focused on [indiscernible].

I understand what your question is. We're looking at changing our chartering policy from 100% safe prices more to business and right now there is no focus or on changing the chartering strategy.

We will be 100% priced. We are quite healthy on contracts, so we have fixed quite a lot of employments and we are going to continue to do that and we will do this on the slot pricing, so we are not going into fixed price.

I think with the good rate at the balance sheet we see that we are - extremely strong balance sheet and we are going to take much of the fixed price deals in order to try to extend and say the company is five years down the road. Right now, we think we are very well placed for continuing to grade the pricing and we are pretty sure that this will pay us also in the short term market.

Given today's market condition, how long would you like - it relates to those of your current [indiscernible] I mean the question is whether, I mean whether you want to stay with the company or of you just gambling to hope that the markets will come up.

We, we have a cash position of [Indiscernible]. Hello, sorry for the delay.

The question was how long we will last with our current liquidity position on today's market. We have a minimum cash covenant of 35 million in a company and we have 123 million in available liquidity at the moment, so at least about 90 million in free cash and for every 5 million or $5,000 per day deficit, which is still approximately where we are at now.

We will burn around 26 million per year. So, we have ample runway at the market right now.

[indiscernible]

Well, the main challenge in our market is that there is hardly any issuance profile. So, we are yet to grow the company.

We think of in order to serve our clients that's possible, we will like at least about 2o, 25 ships, which is what I said, when I joined this company in three four years ago. So, we still think that in order to have that a good service in the Middle East and a good service in the Atlantic, we should have 20 to 25 ships.

If we are able to do that without ordering ships because we don't want to order ships that is quite likely that we will enter the capital markets to raise money to achieve that. It is of course is the question of the share price as well.

Right now, we are trading a bit too much compared to these to do that. But again, we think that the trade market been will improve and the stock price will improve as well.

So, we are confident that we will have a good currency to respond and this is something we already won and all the time.

And the spread, I mean I think it's been hugely oriented on your market because there has been [indiscernible].

Yes, you are talking about the spreads on the second hand prices and of course you are absolutely right. The people who have recently been premium buyers have been - have limited amount of cash available and that's why they had to go for the older ships.

Now that the older ships are limited, so the competition has been fought and the old ones have not been able to check up the price considerably. So, if more availability of ships and then I think as pricing these old laden's at much interesting prices.

[indiscernible]

You want to ask us we already have some older ships and of course everything is for sale at a right price, including the 2003 build. So far, we haven't seen any who are interested in paying what we think we should have in order to sell that.

But if anyone quotes tomorrow, of course we will sell that at the right price. So, we are not selling ships at the end of its life cycle, at the beginning of the good cycle, so in order to buy that ship, a potential buyer has to pay the profits we are going to make on her the next four years.

[indiscernible]

Now it's all the numbers, we have the numbers but we traditionally - over three or six months, so that's why I had included for 2017 - two to three weeks to get the confirmed –the October number.

But you all got the impact the in September that is where Panama and one third was Cape, they were not changing in a big way, what do you feel?

I don't think so, probably. I will not and for sure.

Any more questions from the audience. Okay we will refer questions from the dialers in.

I think we can confirm that everything is here for everyone, so thank you for participating today.