Avance Gas Holding Ltd

Thank you very much. Good afternoon from Oslo and welcome to the presentation of Avance Gas Q3 results.

As just heard my name is Ulrik Andersen, I'm the CEO. By my side I have Peder Simonsen, our CFO and together we will talk you through the highlights from last quarter.

In a few short moments, I shall give the word to Peder who would present the financial highlights as well as talking you through our decision to pay down debt and the positive indications that have for our company. I would go over the VLGC market, how it developed in Q3 and also have a look at what we see going forward from here.

We will focus on the forward-looking period rather than looking to end, but go through some of the main points from Q3. As the last point on today's agenda, I will spend a few minutes talking about our freshly published ESG report and that's the main schedule for today.

After the presentation, we look forward to answering any questions you may have. Thanks for joining us today and hope you enjoy the session.

And with that, I'll hand the word over to Peder. Please go ahead.

Thank you. Thanks Ulrik.

Then I will ask you to turn to page three in the presentation, start with the financial highlights for the quarter. We have achieved the TCE rate of 44,300 in the quarter adjusted for the IFRS 16 accounting standard, our TCE rates came in at 42,700.

We have achieved an OpEx of just above $8,000 per ship per day. And A&G of overhead cost of just above $1000 per ship per day both of these are down from the previous quarter.

The main events of this quarter as Ulrik mentioned is the repayment of the 35 million top-up tranche in our financing in which we will remove all limitations -- extraordinary limitations on dividend payments, investments and so on as we have previously disclosed. In addition, we will reduce the cash breakeven per ship per day for the total fleet of $350 per ship per day.

We acquired one scrubber in addition to the one more scrubber in addition to the five previously disclosed bringing the total up to six scrubbers all of which will be delivered during the first quarter of and installed first quarter next year in connection with the scheduled dry dock -- five year dry dock. We have extended the time charter with [indiscernible] for Mistral until December 21 at 1.2 million per month up from the previous duration of our expiry date of July 2020 and 88% of the ship days are fixed above $50,000 per day.

If we move to Slide 4, as mentioned we have repaid the top-up tranche of 35 million, which represents 7% of our total debt and this has reduced our cash breakeven by $350 per ship per day. At previous quarter we reported a cash breakeven of 21,900 with reduction in the top-up tranche and the slight increase in underlying LIBOR rates, we now expect a full-year 2020 cash breakeven of 21,700.

And as you see on the graph on the right-hand side, we now have no extraordinary maturities until 2024 when our main debt facility matures. Moving to Slide five.

We are now getting close to 50% debt-to-total assets ratio. And firmly have strengthened our balance sheet to a level where we're very comfortable.

Further, we have invested in increased earnings capacity and flexibility for our fleet by adding another scrubber into our scrubber installment program. We will have the six ships installing scrubbers at the same yard in succession in Q1 this year.

And after that we will have no material CapEx until 2023. So with 85% of our fleet docked by Q1 this year, in addition to the scrubber benefits that will benefit the earnings which at 150 per ton spread equals around $5000 per day.

We expect very, very strong cash flows going into 2020 and beyond. As Ulrik will mention in the middle-market presentation and I'll thereby give the word to Ulrik.

Yes. Thank you very much.

So if we turn to page number seven we'll have a look at what happened in Q3. If we paint with a very broad brush, Q3 was almost V-shaped, we had a very good continuation of Q2 and then a little dip in the rates in August, and then ship back up in September.

It's perhaps a little bit difficult to see on the slide, but that's how it played out again with the broader brush. And the dip in August was mainly attributed to dip in the U.S.

export. And what can you say despite this modest export in August, we still saw rates stay at a very respectable level throughout the quarter.

In fact it was such that July and September was so strong months that on year-on-year basis, the export out of the U.S. were up 15%.

Towards the end of the month, we had a regrettable attack on the Saudi oil installations. This made the product markets uneasy and immediately saw an increase in freight rates, so volume had to be rerouted.

So what happened was that this outage blocked in, Saudi could not export and these chance were then sourced from the U.S. Of course, the whole uncertainty as well aided the market.

And you can see that at the end where the market starts to creep up back up again. Luckily the situation were relatively quickly resolved and today's Saudi of course back exporting.

We sincerely hope this event itself as a one-off and that there will be no further unstabilizing events in the region. But, what we have seen is, permanent effect on ton-mile i.e., demand for vessels as Japanese and South Korean buyers are changing strategy and looking to source much from the U.S.

in the breakup of this incident. [Indiscernible] say to secure the supply.

In other words to avoid a similar situation in the future, they will take more tons from the U.S. So, we see a permanent effect on ton-mile on that which is all other things equal of course positive for the market.

Of course, a lot of factors at play but these with all the three main ones we want to point to which have to find the Q3 developments. Turning to page number eight and looking a little bit forward where we stand today on the supply side, we have what we would define us a pretty modest to see order book stands at around 13% which is not insignificant, but certainly not alarming either particularly seeing what the kind of the volumes that are going into the market which I'll talk to you about in a second.

We see around 21 vessels entering the market next year, but they are spread out fairly even starting from around March, and then with the [indiscernible] to three each month for the remainder of the year. The point being that it's not front-loaded delivery schedule.

So we think this gets even out relatively over the year. We expect some scrapping not all that much to be to be fair because we think the market is going to stay so high that scrubbing going to be kept at a minimum, but there is potential for that as well.

And we also see some vessels going into floating stores particularly in Southeast Asia due to infrastructure constraints. However, I would say these minor things compared to what has really influencing the supply side at the moment which on the upcoming IMO 2020 regulations.

We see quite a few vessels in the beginning of next quarter going into dry dock to retrofit, we have some of them but also all the owners have and we think will have a positive effect on the supply demand in Q1. Also we see a lot of scrambling around in essence for bunkers -- receipt delays in bunkers, due to having to wait for the right spec.

And this is something that is impacting supply side as well. So, overall a modest VLGC order book with some disruptions, inefficiencies in the short run.

Turning the page and looking at the production and export side, the U.S. [Technical Difficulty] growth just seems to continue.

We are almost getting accustomed to it in the business, but we must not forget just how impressive this growth is. And it's continuing.

We do not have the final figures of course for 2019, but what we can see is that we will end at an increase in the production around 11%, since last year very impressive. Next year we expect around 7% growth, and of course these very significant volumes over just two years.

So at the moment, the U.S. is still driving very fast and looking to continue doing so.

As we have a very steady U.S. domestic consumption as it appears on the graph on the left-hand side there are really only two places, this additional production could go.

If you go for storage or it can go for export and we believe that this excess capacity will put downward pressure on the price and hopefully eventually also be exported. The million dollar question is, of course, if there's an export capacity to also export this excess production and then from what we can see the amount of additional terminal capacity coming on-stream from primary enterprise and Targa looks like that the capacity would not be a constraint for the coming years.

We are specifically hearing rumors of additional capacity expansions also from Netherlands and we've also heard perhaps even above a new terminal coming together as well. Anyhow what we see is increasing production, steady consumption and increasing export capacity.

So we're confident in the near-term that this U.S. growth will slow down.

Turning the page to page number ten. What we also note is that more or less all of the U.S.

export is long-haul. Today year-to-date almost 62% of the export is growing through the [Technical Difficulty], 12 months ago, or 2018 this percentage was 52.

So it's growing in line with the additional export, it's not so surprising because most of the new demand if not all of it is coming from Asia and most of the production if not all is coming in the U.S. which means that there's only one way to source this product and that is from the U.S.

So we expect this percentage to increase going forward, which is obviously very good for shipping, as every ton-mile had a chance to come out of the U.S. Turning to Page 21, and the other important region in the sector of VLGC shipping is, of course, the Middle East.

We don't see too much happening here in terms of growth. It's a very stable development.

And yes, there is really no need to talk too much about that. If we turn to page number 12.

Of course, all these production we just talked about in the U.S. needs to find a home and then we're happy to see the continuous strong growth development in the Asian LPG, it is primarily driven by China and India.

To some extent South Korea, Philippines, but the two main ones definitely China and India. From last year to this year we expect an increase in the import of around 20% and closely followed by India was around 16% increase year-on-year.

As you can see from the slide, it is useful for various things. For China, it's mainly PDH plant although that's also domestic consumption in those numbers.

But a lot of the growth is driven by PDH plants. For India while two-thirds of the population live in rural areas, so they are using LPG as a source for cooking.

LPG is of course easy to store. It is easy to transport.

It's safe and any infrastructure investments which can be very, very expensive to think about natural gas. For instance, here you can transport in the cylinders.

So for India, LPG is the ideal product and we expect to see that growth rate on the import side to continue. Finally for South Korea, the growth from last year to this year has been super impressive, but we expect to see more from that country in the future primarily driven by oil, gas and petrochemicals.

So an important takeaway from this is that the demand story is not dependent on one factor that different uses for the product and most of them being relatively price insensitive. So we are confident about the demand to keep growing and will absorb these volumes primarily from the U.S.

Obviously, at the moment China will not, but as and when the trade war gets resolved. Turning to the Page 14, I like to spend a few minutes on ESG.

So, decision to combat climate changes has increased almost exponentially over the past years and it's a trend that impacts all of us across sectors and industries and of course shipping is no exempt. And if you look at the slide or the picture on the left-hand side, you can see as most of you are probably aware that then shipping is the most efficient form of transporting goods over long-haul.

And actually, LPG tankers are among the best-in-class when it comes to CO2 emissions. Of course that is not an excuse for acting and we have to act and the shipping industry and the LPG industry has to lift the responsibility as well.

Here at Avance, we believe that sustainability will be the main driver of returns in the years to come. And we're also convinced that improving energy efficiency and reducing emissions, we will be provided with both an environmental and economic and competitive uncertainties, i.e., with other words, we do not believe that reducing emissions and have lower carbon footprint is in opposition to making money, on the contrary, we think that these two go hand-in-hand.

And this is also the motivation of why we have published an ESG report. It will provide our investors, banks and other stakeholders with an easy access to this very important non-financial information.

So, our report is based on international recognized standards and mythologies as you can see on the right-hand side. And it means that everyone can follow our efforts in reducing our carbon footprint.

This will be published each year. So, hopefully we can see an improvement in the years to come.

It's important to remember that ESG is not just about battling climate change, so as a part of addressing sustainability in a broader perspective, we have also intensified [Technical Difficulty] sustainable development goals, the so-called SDGs where we believe Avance Gas can contribute. You can also find them on the right hand side.

The report is to be found on the website and it can be downloaded from today. On that remark, it concludes today's presentation.

Thank you very much for listening and moderator, we will now go to the Q&A session. Thank you very much.

Thank you very much. With that we will wrap up today's session and say thank you from Peder and myself.

Have lovely day.