Avance Gas Holding Ltd

OSE:AGAS

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Avance Gas Holding Ltd First Quarter 2019 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, 15th of May, 2019.I would now like to hand the conference over to your speaker today, Mr. Peder Simonsen. Please go ahead, sir.

[Peder Carl Gram Simonsen, CFO & Interim CEO]

Thank you. Thank you for dialing in to the first quarter 2019 earnings call. I'll start by going to Slide #4 with the key financial highlights. We achieved -- in line with a weak market, we achieved a weak TCE result of $11,000 for the quarter. And maintained low OpEx and G&A in line with our cost focus. The main event, I guess, is the subsequent event while we secured a $550 million refinancing of all our existing debts, which shows the strong support that we have from our bank in a challenging banking market. We are able to maintain our $22,500 cash breakeven rate, which would be the original cash breakeven rate in the original financing as we move out of the amendment agreement period. We have a further [ capacity ] for growth in the banking group, and it gives us the predictability for going to this market, which we anticipate will be stronger going forward. Our liquidity by end of quarter was $65 million, and we have increased that by a couple of million, up to $67 million at the date of this presentation. Further, we have invested into scrubber units for Mistral and Monsoon, who will go into dry-dock in late fourth quarter this year. And we are -- we have also acquired options for further scrubbers, which we will decide whether to -- or not to declare as we go along. We have also appointed a new CEO who will start in August this year, and we look forward to having him on board. In terms of the second quarter, we have fixed approximately 2/3 of our ship days at rates above $26,000 per day.Moving to Slide 5. Just a little bit on the financing. We have, as I said, received commitments for $515 million facility, which is fit into 3 tranches, where the 2 first tranches of $480 million have a 5-year tenor and the last tranche, a $35 million tranche, will have a 2-year tenor. We have maintained the original repayment in nominal terms, i.e., the $44 million that we have had originally and maintain the original financial covenants. There are certain limitations linked directly to and only to the $35 million tranche regarding investments and dividends customary to this type of top-up facility. This -- we expect that this will be closed during June 2019 and which is the time it will take to get the documentation in place.Moving to Slide 6. We have this quarter and in second quarter as well benefited from the amendment period waiver with -- we have with our banks, where we have had 50% amortization. And this has given us a cash breakeven at around $18,000 per day. This, for our first quarter, has been $18,300 due to slightly higher OpEx than what we expect for the full quarter. So we expect that the OpEx will come down for the full year, and we expect then that the full year cash breakeven will be approximately $20,500 with 50% amortization in the first half of the year and full amortizations the second half of the year.Moving to the market on Slide 7. We saw that the Middle East volumes have come down from what we have seen in this period previously, we saw the recording 2.6 million tons for the quarter, which compares to 3 million tons in 2018 and 2.8 million in 2017. The -- We do not expect growth from this sector. We see that OpEx cuts, which are the main reason for this flattening out of exports at around 3 million tons, is going to continue and -- but we do expect that they will follow seasonal trends by improving into the summer market as maintenance season ends in the Middle East.Looking at the listings on Slide 8. We've seen 59 cargoes being lifted in the Middle East in the first quarter, which compares to 62 cargoes last year but a little bit higher than 2017 where we saw 58 cargoes. We've seen Iran volumes surprising on the upside, and we have also seen some upturn in March at -- in Saudi Arabia, but in general it's been following lower volumes than what we've seen in previous years.Moving to Slide 9. We've seen the start of the year coming in both with healthy freight rates and also strong U.S. exports at around 2.5 million tons, where the polar vortex that we saw in February, which we also experienced last year, hit the U.S export tons by up to 1 million, reducing it down to 1.6 million in February. The volumes rebounded in March to 2.6 million tons and this despite operational difficulties out of U.S. Gulf. The average monthly volumes in Q1 is 2.3 million tons versus 2.1 million tons in 2018. So we see that the volumes, even though we saw weak export in February, that they have rebounded at prior level. We expect or EIA expects strong projection growth in the U.S. during this year and next and an average of about 5 million tons per year, and this is -- compares to moderate consumption growth at around 0.8 million tons per year for this period, which shows the strength of the U.S. production.And as you see on next page, Slide 10. We see that the additional infrastructure improvements have started to come -- show itself with Marcus Hook lifting 7 cargoes in March as the final ramp-up of that capacity. And this in addition to the announced expansion of the Enterprise terminal will facilitate or likely the -- of the further exports of these production volumes that are coming in from the U.S. We saw 50 cargoes being lifted on average in Q1. And this was up from 46 cargoes last year and 49 cargoes in 2017. The April nominations suggest 65 cargoes from the U.S., but we expect that these nominations, they normally come down a bit from -- when the actual listings are done, but it's positive to see that there's a lot of activity out of Marcus Hook. So these volumes are going to continue, which is very positive for shipping.Going into Slide 11. You see that the Asian demand have continued at a high pace, this is of U.S. exports. We see that we started at 52% in 2016, moving to 66% and 61% in '17 and '18, and now we are year-to-date at 63%. And this shows the significant strength in the Asian demand. And it's interesting also to see these days, with a lot of noise related to trade wars, that in 2016, China represented 20% of the U.S. LPG exports. While in 2018, they represented only 3%. And since the, I think, July last year, only one cargo has gone to China of the U.S. exports. This shows that VLGC market is not affected by this trade war directly through VLGC imports into China from the U.S.Moving to Slide 12. Summing up the product markets that we've shown. We saw that the freight rates started to hike in March, following weak U.S. exports in February. And adding to the higher volumes coming off of the U.S., it was also delayed in the U.S. Gulf due to fog and the oil spill in the Houston area, which created shortage of tonnage in Middle East and caused the Baltic to rally. This has, as you can see on the dollar per ton rates shown, come down somewhat, but there is support at -- around these levels. Although we think maybe the Middle East market will be softer than the U.S. market, we see that there are significant support on the U.S. freight right now at these levels, which is positive after going through the normal season -- high season for VLGC shipping.Going to Slide 13. Looking at the fleet, we have seen 3 ships being delivered into the fleet in March this year, and we've seen 3 ships being added to the order book, which now stands at 38% -- sorry, 38 ships or 14.2% of the existing fleet. We will have 15 more ships to come this year and 19 ships in 2020, followed by 4 ships in 2021.We -- looking at the fleet distribution over the year on Slide 14, we see that there will be one ship in April, which has already been delivered, followed by even distribution throughout the year. What we also see is that the -- as we have shown previously, that 27 ships out of the fleet or 10% of the fleet will be older than 25 years following the implementation of new IMO regulations in 2020. And this creates significant potential for the next fleet's cost to be lower than what is in the order book. And we say that, especially the Iran trade and other captive trades, are traded with older ships, mainly owned by Chinese owners. And as the sanctions are intensified, there's a potential that these ships will not be able to retrade into the normal environment market, and they will need to be scrapped or put into storage projects.So Slide 15, summing up what we've seen this quarter. We have recently refinanced our existing debt, which -- at very attractive terms in what has been a challenging banking environment. But it shows the support that we have from our banking group and at attractive terms, enabling us to maintain our cash breakeven that we have had for several years. We have seen a strong U.S. production growth and marginal consumption growth, and this is expected according to the American authorities going forward as well. We see the infrastructure improvements starting to show in increased exports, particularly the Marcus Hook terminal coming on stream and also further investments in the -- in Mont Belvieu area where investments in infrastructure have eased the throughput of LPG down to the terminals. And as I mentioned, the trade war is not expected to impact the VLGC market as very few cargoes have gone to China lately or within the last 12 months, and none so far or actually one cargo this quarter but hardly anything. Looking forward, the people nominations show high nominations out of U.S., with 8 cargoes out of the Marcus Hook. We see more capacity coming from West Coast Canada at the AltaGas terminal in Ridley Island. And we also look forward to the enterprise expansion announced for third quarter this year.The -- we do expect some ordering at these freight levels going forward, but so far, it has been limited, and the ordering has been mainly fleet renewal as we will see in all markets. And there's a potential for a substantial part of the fleet recycled as we move into 2020. We have increasingly integrating with the Seatankers group and have moved into their offices in Oslo together with the other group companies. And we have a positive market outlook and increased flexibility now with attractive financing in place or further growth and also utilizing our exposure to the spot market and the expected improvement in long-term rates.Then I will open up for questions. Hello?

[Operator]

[Operator Instructions] Your first question's coming from the line of Lukas Daul from ABG.

[Lukas Daul, Analyst]

Just wondering on the new tranche, is there a dividend restriction, or are you not allowed to pay a dividend at all as long as you have that tranche drawdown?

[Peder Carl Gram Simonsen, CFO & Interim CEO]

There is a dividend restriction on that -- linked only to that tranche, but the -- it is -- yes, well, that -- yes, so it's a dividend restriction.

[Lukas Daul, Analyst]

So as long as you have it drawn, you can't pay dividend? Or can you pay a certain amount of dividend?

[Peder Carl Gram Simonsen, CFO & Interim CEO]

No. There's no dividend to be paid as long as it's outstanding.

[Lukas Daul, Analyst]

Okay. Okay. And then on the comment that you have made in the report about scrapping, are you sort of able to put a little bit more color on that and quantify what number was that you think could lift fleet this year or next year?

[Peder Carl Gram Simonsen, CFO & Interim CEO]

It all depends on the market, right? And it all depends on what you see, especially the Iran trade to be -- naturally, the trade war has given Iran the opportunity to export to China, and they will take whatever they can. But this is done on ships not able to trade in the normal market. So we do expect that the Iran volumes will come down and will free up some of these ships that are trading in this market, and they will maybe move into storage project, scrapping other ships that are old and inefficient in this -- in that trade.

[Lukas Daul, Analyst]

Okay. And I didn't catch quite your comments on the OpEx and the G&A in the Q1, but it came down a notch from last quarter. Is that something you expect to sort of deliver going forward as well?

[Peder Carl Gram Simonsen, CFO & Interim CEO]

I think, in general, what we've said is that we have had an OpEx of mid to high $7,000 level. It will vary throughout the year. The first quarter here was impacted by storing up of the ships and some onetime throughout the year effect. So on average, I think we will see the level mentioned. And in terms of the G&A, we expect to maintain this also in the same level, around $900, $950, around that area.

[Operator]

[Operator Instructions] We seem to have no further questions at this time. Please continue.

[Peder Carl Gram Simonsen, CFO & Interim CEO]

Okay. Then I'll just thank you for calling in and listening to the report call. Thank you.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.