Avance Gas Holding Ltd

Thank you very much and hello everyone, and welcome to Avance Gas Q3 presentation. I'm joined here today by our CFO, Randi Navdal and our Chief Commercial Officer, Ben Martin.

We can go to next slide please with the latest from our lawyers on slide three please. Okay, so let's have a look at the highlights for the quarter.

We achieved TCE earnings of $31.6 million equivalent to $27,548 per day, which includes the ballast cost accounting-wise has recognized to deliver report for three older vessels, which were peak some [ph] time charter for two years at healthy levels at $30,000 a day. Looking at the spot market, it was more or less floating along the same pattern as in the second quarter with solid exports from the U.S., despite relatively high U.S.

domestic LPG prices. These exports which were still trailing behind the pre-COVID export levels.

We report an EBITDA of $19.4 million, a net profit of $4.2 million and earnings per share of $0.06. We maintain our solid cash position which currently stands at $105 million and I'm very pleased to again declare a dividend $0.05 per share or 90% of our net profit for the quarter.

Moving on, key event for the quarter was obviously Hemen Holding's mandatory offer for all the shares in the company after they broke through 33% ownership in September. The results of the offer should be well-known to everyone that Hemen now controlling just shy of 77% of the shares.

So, over to you Randi and the financial highlights for the quarter.

Thank you, Kristian and good afternoon to you all. Moving to slide five, I will take you through the financial takeaways from the quarter.

As Kristian touched upon the VLGC freight market was impacted by low U.S. inventory levels, high U.S.

LPG prices, and thereby narrowed U.S.-Asia arbitrage being the main driver behind the results. Looking at our commercial performance, we recorded a time charter equivalents or TCE earnings of $31.6 million, up from $30.7 million in previous quarter.

The third quarter includes a ballast cost of $700 a day related to the three time charter contracts announced in October as Kristian already mentioned. Operating expenses were $10.3 million or $8,600 per calendar day, down $700 a day from previous quarter.

The Corona is still among us, and creates challenging -- challenges related to the crew change along with the high container and air freight costs, impacting our third quarter operating expense by $650 per day in total. For the fourth quarter, we expect the OpEx to come down to low $8,000 a day as most of our crew have been vaccinated.

Administrative and general expense were slightly higher than last quarter due to non-recurring expenses. This leaves us with EBITDA of $19.4 million, up from $18.1 million in previous quarter.

Depreciation expense were $11.4 million, in line with indications given in our previous earnings call and is the normalized depreciation going forward. Finance expense is down from previous quarter due to lower average debt and interest costs combined with capitalized borrowing costs.

And with that, we recorded a net profit of $4.2 million or $0.06 per share for the third quarter compared to $1.5 million or earnings per share of $0.02 previous quarter. As Kristian stated, we are happy to announce cash dividend payment for the fourth time this year accumulated to $23 million in 2021, including the $0.05 per share announced today.

Turning to slide six, I will take you through the cash movements during the year. We had a cash position of $102.3 million as of September 2021, up $24 million from year end, driven by cash flow from operations of $71.5 million; equity raise of $64 million, offset by capital expenditure of $42.1 million related to our newbuilding program and free cash dividend payments of $19.3 million and schedule repayments of debts and interest of $46.5 million in total.

Since 2019, we have paid $78 million in CapEx-related to our newbuilding program, corresponding to approx 41% of the pre-delivery capital expenditure. We have secured sustainability linked financing of the two first newbuildings, Avance Polaris and Avance Capella scheduled for delivery in January and February 2022.

Assuming the same financing for the remaining newbuilds, we have approximately $83 million in newbuilding CapEx to be sold by cash on hand and cash flow from operations until delivery of the final vessel in 2023. Moving to slide seven, we have an estimated cash breakeven of $22,900 a day for fiscal year 2021 implying that the cash breakeven for the fourth quarter will be below $22,500, subject to the OpEx coming down to low $8,000 a day, which is expected.

Furthermore, we are exploring financing on the remaining newbuilds to be financed and we are expecting to achieve attractive financing that will reduce the average cash breakeven for the fleet. Furthermore, today we actually received credit approval for the refinancing of the Iris Glory by way of the sale leaseback transaction previously announced in October.

A few comments on our employment before I roundup. We have an estimated TCE of $28,000 a day contracted for 94% of vessel days for the fourth quarter and this includes time charter or TC coverage of approximately -- that is 40% at an average $31,000 a day and the guidance of $28,000 a day also includes approx 50 days waiting time in Northbound in the Panama Canal, which is obviously hitting our results.

Looking into 2022, our current TC coverage is 23% at $30,000 a day, primarily representing the three two-year time charter contracts earlier stated. And based on the current market sentiments, with freight rates exceeding $40,000 a day, we expect improvements in Q1 2022 bookings.

And I will now hand the word over to you, Kristian to talk about the market.

Thank you, Randi and we can go straight to slide nine. As mentioned initially, the VLGC market in Q3 was very similar to what we went through in the second quarter where the U.S.

exports was the main driver despite the high domestic LPG prices, and for most of the time, there was a very slim price differential between the U.S. and the Far East.

The Middle East exports -- but the spot market was still dominated by Indian charters while Far East and Western charters were pretty much absent from this [indiscernible] list. Going forward, we expect the Middle East exports to gradually increase, especially from Saudi as reverse OPEC cuts and technical issues on gas plants release more cargoes for exports.

Next slide please. At the end of the third quarter into the fourth, we experienced more inefficiencies in the global VLGC.

This is particularly around the Panama Canal, but also increasingly in the Far Eastern and Indian discharge ports. Recently, we have seen waiting time for Panama Canal transits up to 21 days on the Trans-Pacific ballast leg, while we are currently seeing more than 14 days waiting over [indiscernible] from the U.S.

Gulf to the Far East. In the short-term, this is causing operational challenges, but in the medium term, this has started to translate into more capacity being absorbed from the fleet and increased freight levels in both the AG and in the Atlantic Basin.

Next slide please. As we all know, the U.S.

gas prices have been at record high levels since the cold freeze in February. U.S.

LPG inventories have still not reached the same levels as last year and we are still well below the five years' average. Nonetheless, the long [ph] side has proven to be less price-sensitive than expected, as LPG is not only an alternative fuel source, but also the main energy source for millions of people in the residential sector and a growing number of PDH plans in the petchem sector.

Over the last years, capital discipline, solid balance sheets, and dividend capacity have been the priority among most trailers [ph] in the U.S. However, on the back of high energy prices, in general, we are starting to receive some reports from the third quarter results about increasing CapEx for both shale players and large energy companies, which usually is a leading indicator for increased production; although it is still early to say.

Provided a normal winter in the states, we believe in a 6% increase in U.S. production and exports reaching approximately 53 million tons next year and further growth, but at a slower pace from 2023 onwards.

Slide 12 please. Looking at the demand side, Asia will continue to be the dominant off-taker of seaborne LPG as approximately 80% of all the VLGC cargoes and Eastern SUEZ.

Indian LPG imports seems to end close to 16 million tons this year, while China seems to be passing 22 million tons, thanks to its massive expansion or PDH plans in the petchem sector. Globally, Poten & Partners estimate a growth in seaborne LPG trade from approximately 118 million tons this year to 125 million to 126 million tons in 2023, and the majority will be on VLGCs.

The demand growth will be first and foremost in Asia with India, Japan, Korea, and China still being the dominant importers, while LPG continues to penetrate new markets in Southeast Asia and the Indian subcontinent. Next slide please.

There is actually a lot of attention on the order book, especially in 2023. But although we are sharing some of the analysts concern, we maintain a bullish view on 2022 and a cautiously optimistic view on 2023 by also taking a few measures to reduce the risks thus maintain proper market exposure.

We do see the upcoming regulatory measures to reduce vessels emissions as well as increase inefficiencies and uncertainty around programming our vessels, especially for U.S. Gulf loadings as considerable absorbers of free capacity, which we believe will moderate the added capacity from the order book.

Next slide please. This is showing the latest developments around the Panama Canal and the waiting time and to illustrate the inefficiencies, you can see from the graph on the left that the waiting time on both sides of the Panama Canal has soared from the third into the fourth quarter.

23% of the Panama transits in total [indiscernible] LPG carriers so far this year and from January 1st, there will be no more pre-booked slots more than 14 days in advance and we foresee increased scheduling uncertainty around the vital Panama Canal. So, to recap on our final and last slide.

Avance Gas reported time charter equivalent of $27,548 per day including the recognized ballast costs from -- for our three older vessels and two years time charters. We are very happy to declare a dividend of $0.05 per share, which means that we have paid a total of $23 million in dividends in 2021.

Market-wise, the USA spots were maintained in the third quarter at the high level with a support of a robust demand side in Asia. Looking at the financing side, we are in the process of closing the refinancing of the Irish Glory in a sales leaseback transaction where we expect -- or we will release about $16.6 million in cash.

We are further, as Randi said, exploring financing on the remaining four newbuildings and for Q4, our guidance on the TCE is $28,000 per day including approximately 50 waiting days for all this account in the Panama Canal. We are currently experiencing a firming market with spot rates in the $40,000 territory.

And we anticipate the firm market over the winter period with inefficiencies and increased export volumes supporting the market sentiment. And finally, we're looking forward to take delivery over two new dual fuel vessels in January and February next year.

We should benefit from strong tailwinds in the market. So, by that, I would like to open up for the Q&A session.

Thank you. There are no questions on the webcast either.

So, I believe this concludes our conference call.

Yes, so thank you everyone for listening in. Let's round it off if there are no more questions.

Okay, thank you.