Avance Gas Holding Ltd

OSE:AGAS

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Avance Gas Holdings Limited First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Oystein Kalleklev, Executive Chairman. Please go ahead, sir.

[Oystein Kalleklev, executive]

Thank you, everybody, and it's a pleasure to having you here. As you've heard I'm the Executive Chairman and the CEO of the company, but I'm sitting here together with our CFO, Navdal Bekkelund and we have some really good numbers to share with you today. It's quite sunny here in Oslo, probably close to 25 degrees. So we will do this rather shortly, and I think the numbers speak for themselves. So let's jump into our ordinary -- now you have to go to the disclaimer of the ordinary disclaimer. Yes, the ordinary disclaimer, of course, we are providing some expectations, forward-looking statements and some non-GAAP measures. So just be cautious about that, and I would recommend reading the presentation together with the earnings release. Next slide, this time, we also have a safety caution. The dividend in this presentation is so strong that we also have to have a medical warning because there is some risk of shortness of breath, increased blood pressure, impulse spendthrift, and I forgot to also add here that there might be some PTDs post traumatic dividends. So let's start with the highlights of the quarter being, of course, the dividend. Last year was a fantastic year for Avance Gas. We delivered our second best numbers ever. 163.6 million in total on the bottom line. And of course, given the healthy cash balance we had, we also paid out slightly in excess of that, 101% payout ratio, $165 million in dividend for those 4 orders. Last year, on top of that, we also announced that we were selling quite a few ships, 4 ships, we announced selling prior to year-end with delivery of those ships to new owners in Q1 and Q2. So we had 3 ships being delivered to new owners in Q1, where we booked substantial profits. And then we just had one last ship being sold last week, 9th of May, which is adding additional profits and cash release to the numbers for the second quarter. So with all these sales transactions and also very good numbers, which I will come into, we decided to really hit the button on the dividend for this quarter. So we talk to each other and why not pay out a dividend for Q1, similar to the whole dividend for last year given our cash position and numbers, we are easily able to do so, and we are just declaring a dividend of $2.15 equal to $165 million for Q1 in total. When we also sold the ships in the -- or we announced the sale of the 2 newbuilds for delivery this year, December last year, we also said that our aim was to distribute this money, most tax efficient to oil metals. So for those who paid attention, we also asked the Annual General Meeting, which we were held about 2.5 weeks ago to also authorize a reduction in our share capital. So this dividend of $2.5 we are dividing this into 2 different types of returns. $ 0.99 is a reduction in the par value of the share, which depending on your tax jurisdiction, could be counted as the return of capital rather than return on capital, which in some tax jurisdictions should then give you 0 tax. The remainder $1.16 is ordinary dividend return on capital. So hopefully, a lot of our shareholders, especially here in Norway will benefit from having our very tax-efficient distribution. But this might also apply to U.S. where typically the dividend is compared to the earnings per share, and we are paying a dividend in excess of our earnings given the asset sales we have been completed. So that should hopefully give you some better tax of your dividend. But of course, we are not tax advisers. We are shipping people, and we try to make this as good as possible for our shareholders. So let's jump into the other highlights. And actually, there's quite a few of them. But I guess the most focused this time would be on the dividend, but we delivered stellar numbers for first quarter. First quarter wasn't an easy quarter. We had this all-time high levels in Q4, our booming market and then the market fell off a cliff early in the year, and this was further magnified by the cold snap in U.S., which resulted in a lot of increase in demand for LPG in the U.S. resulting in much higher prices, inventory draws, which really took down the arbitrage, which was like close to $400 per tonne down to close to $100 per tonne, 150-ish, I believe, was around the low point, which dragged down the TC rates all the way from top of market 140,000 to less than $10,000. So this was a quite volatile quarter. But however, we had booked a lot of long voyages prior to this cold snap. So when we guided on Valentine's Day, 14th of February, we already guided that we were booked 70% at $70,000 on average on TCE numbers and kind of said that, okay, if we are booking the rest of the days, we should be around $60,000. And we ended up $61,000 on the discharge-to-discharge numbers, which we think are the most relevant numbers because it's our own economics. Some might recall that the analysts or media was a bit disappointed about our numbers Q3 last year when the market really took off because the auditors have decided that we follow the accounting standard IFRS 15, where we book in the official numbers, we book our numbers on a low to discharge basis, which gives a bit of a timing effect. And when the market is such volatile, these timing effects are being quite big. The timing effect for Q1 is $21 million in total, which actually drags up our reported numbers to 8,800, which is the highest reported number we have had since 2015 and '14. But it's a long time, 700, 800 is a very high number. That is the actual IFRS TCE number. So these strong numbers, together with this $85 million profit in the quarter from sale of ships resulted in our blockbusting quarterly profit of $146 million or $1.91 highest ever by far. Of course, but what I like about it is it's not really only driven by the asset sales. Of course, we're generating $85 million but actually, the underlying profits from freight is very sound despite we had this volatile market. The market, of course, come back again, rates today are in the $60,000 and fat forward rates for the second half of the year are yesterday being quoted at $56,000. So where is firm condition for the market, the cold snap wasn't very long inventory levels in the U.S., which I will come back to a back to very high levels. So we have a very good outlook for the market, and that's also one of the reasons for paying this good dividend. And then in terms of Q2, we elected to do some short voyages when the market was in the [Indiscernible] going AG Japan, and then eventually as the market recovery, we'll be doing more of the longer voyages and we booked already now, 83% of the second quarter at $48,000. Of course, it's lower than Q1, but still we have our cash breakeven in the low $20,000 still super profit also to expected in Q2. And given where the market is today, we do expect to book the remaining 17% of the days at higher levels, which will give also strong numbers for Q2. On top of that, we also have, as I mentioned, sold one ship with our substantial profit. Avance Product was sold on last week, $120 million, giving us a profit $36 million and a cash lease of $62 million. So let's look at the guidance. So as I mentioned, 60,000 earnings, and then we have some hedges, which increased the rate by $1,000 to $60,900, spot vessels actually outperforming the TC vessels even in Q1 with the volatile market. But this given the fact that we booked a lot of ships on long voyages. And if you are doing a U.S. Cape, Asia Cape, typically, we are booking a quarter in advance. So that's one of the reasons why we are delivering such strong numbers in Q1 despite the market volatility. And then as I mentioned, Q2 looked at very distant levels as well. Spot rates in line with TC rates, 47, 000 and 48,000, respectively, still 17% of they still open where we given the market today, expect to book at better levels so around 48,000 then on guidance, including the FFA hedge which I will come back to. So looking at our fleet today, it's been a lot of transactions in the last couple of years. Our aim was to renew the fleet. So we contracted 6 dual fuel large VLGCs in order to replace the older ships, the 2009, and we started selling the 2009 ships. And during the quarter, we sold the 2 last ships, Venus and Iris Glory for $60 million; Venus Glory for $66 million, altogether, $126 million sales price for these ships being slightly above 15 years. Avance Gas bought those ships in 2010 when they were 2-year old at 140 million. So during that period of ownership, stretching out more than 13 years, almost 14 years, we have a kind of economic loss on the ship of 40 million. That said, we did book those ships on some very good spot voyages prior to redelivery to new owners. So actually, the number adjusted for that is like $10 million of economic loss during that -- about 14 years ownership of the ship. So very good asset values, and that's why we decided also to sell some of the new buildings, which we didn't intend to sell. So we sold Castor products we announced this in December. Castor was delivered to new owners, Avance Castor in March and then Pollux last week at Avance Castor in May, $120 million. They were contracted for $78 million. We upgraded them by $2 million, $3 million. So basically, we have about 50% increase in the value of the ships prior to delivery because the new owners taking delivery of the ships at the delivery from the yard. So that means we have booked quite a few profits, 509 million in proceeds, gains close to 140 million, 257 million of cash release. So that leaves us with our equal fleet of 8 15 eco-class ships, 6 of them with scrubbers. The 2 ships without scrubber, we have on TC. And then for fuel large 91,000 cubic wheels. And then as some of you might recall, we contracted 4 MGCs last summer. These are medium-sized gas carriers being able to transport 40,000 cubic of LPG or ammonia because these are what we can also call MAC, medium-sized ammonia carrier that can carry a full ammonia cargo, 98% filling ratio, which we think are the ideal ships for the ammonia paid, and these are for delivery of 2526 being contracted at a very low price point, 61.5 million. If you go into Korea, these days, building similar ships, you are paying close to $80 million for delivery in 2027. So I think we've done a good acquisition, recycling some of the proceeds into these ships for delivery later on. Let's look at the employment overview. As I mentioned, we have some ships on TC. We have Chinook, which is a nonscrubber ship. We recently announced that we extended the variable higher time charter for the ship until middle of 2025 when she is due for her 10-year docking. So this fits very nicely together with the dry docking schedule where we will have the ship redelivered from the charter in Asia close to the suitable docking places. Similar for Pampero, the ship we fixed a while back she's on a time charter. We have announced that the rate here is around $45,000 per day until Q3 2025 when she is also due for docking and she is also being redelivered in Asia across the relevant yards. So we are minimizing downtime on the docking. Let last but not least is Polaris where we had a 2-year variable hire charter, and we have added a 1-year variable time charter on the ship until end of Q1 2025, and this is an index we find very favorable, where we get the benefit from these ships being more modern, more efficient than typical kind of ships. Castor and Pollux, we should have had delivered this year, though those ships have been sold, so the next ships for delivery are the MGCs coming in Q4 '25 and onwards. In terms of hedging, we only have one hedge in place now. It's 50% of 1 ship for the remainder of the year at about $70,000 per day for our scrubber ship. So that's the fleet profile. We have a lot of spot exposure, which we like today, given where the spot market is and where fast-forward rates are next year, even more exposure to the spot market. But that said, we have all the 2015 ships for drydocking next year. So we are starting to plan for that. And I will actually come back to that because there's a lot of ships going for the drydocking next year. And then last slide before handing over to Randi is the dividend slide, one more slide on this. We've been paying our dividend $0.02, $0.05 increase to $0.20 and then $0.50. Last quarter, we increased to$ 0.65. And then now we're really ramping it up $2.15. We had to find Algos size lift in order to be able to pinpoint where this number is on the scale. The rationale for the dividend, we have this kind of traffic lights. We have discussed in the past as well. We cautioned you about the market being a bit lumpy in Q1 and market outlook and backlog. We took down to yellow. We are now increasing those to green lights again, given where the market has stabilized and the fact that there are very few ships for delivery in the next 2 years. So going lights on all the dividend criteria and a very healthy cash balance, which Randi will talk more about shortly.

[Randi Bekkelund, executive]

Thank you, Oystein. Let's go to Slide 10 and have a look at our income statement and key financial figures. Just to recap our TCE numbers, we sailed in at 78,800 in TCE for the quarter compared to 71,900 from previous quarter. And as we have a significant low to discharge adjustment, I just want to notify you that the reported figures are low to discharge in accordance with IFRS accounting standards. While our commercial performance is based on a round trip voyage discharge, which came in at around $61,000 a day for the first quarter compared to $76,000 a day for the Q4 quarter. The positive IFRS adjustment of $21 million, adding $18,000 a day to TC rate is basically explained by our reversal from previous quarter, combined with spot voyages over the quarter which were mainly U.S. voyages with longer sailing distances, fixed at elevated freight levels, while the spot ways over the first quarter were primarily Arabian goal for AG voyages with further sailing distances at lower freight levels compared to the previous quarter. Further, we continue to hold a relatively low operating expenditure, which came in at 8,200 a day and administrative expense at 1,300 for the quarter. And yes, thus we reported operating profit before depreciation or EBITDA of 81 million and is ahead of previous quarter despite less operating days following the vessel sales. So as Oystein already covered, we also successfully completed the 3 vessel sales during the quarter. In January this year, we completed the sale of Iris Glory in 2008 for a cash consideration of 60 million less broker commission, which resulted in a gain on sale of 21 million. And in March, we completed the sale of Venus Glory for a cash consideration of 66 million less broker commissions and the company recorded a gain on sale of 27 million. Also, a few weeks later in March, we completed the sale of Avance Castor for a cash consideration of 120 million. And thereby, we recorded a gain on sale of 36 million. So in total, we recognized 85 million in gain on sale in the P&L. And actually, last Thursday on the main line, we completed the sale of our last [Indiscernible] Avance Pollux where we expect to record another gain on sale of 36 million and net cash proceeds of 62 million for the second quarter. Moving further down in our P&L. Net finance expense of 9 million was 5 million higher than previous quarter, which is explained by nonrecurring items representing write-off of debit costs of $2.3 million. It's a noncash item and accounting exercise basically, which relates to repayment of debt, prior sales and refinancing and additional 2.3 million in termination fee of sale-leaseback agreements for Iris Glory and Pampero. And thereby, we recorded a net income at 146 million or earnings per share of $1.91. Net profit adjusted for gain on sale for the first quarter was 62 million or 0.80 per share, slightly ahead of previous quarter. So moving to Slide 11. As you can see, we recorded $1.2 billion in total assets at quarter end. It's 6% up from year-end, which is primarily driven by increased cash balance, which I will come back to, combined with solid results, which is offset by the recognition of vessels sold. And now we have 67% of our balance sheet and March consists of 12 VLGCs on due fuel with VLGC, which was sold last week and 4 midsized gas carriers under construction for delivery in '25 and '26. Looking at the credit side, we have a book net equity ratio of 58%, which will move closer to 50% of the payment of dividend and the final sale in May. And further, we have a relatively balanced loan-to-value of 49%, while net debt over net assets adjusted to cash is 17%. And we will now move to Slide 12 to explain the cash movements during the quarter. We started the year with a cash balance of 132 million. And as we receive freight payments for spot voyages commencing in the fourth quarter at very high freight levels exceeding $100,000 a day were recorded in total $116 million in cash flow from operations, including changes in net working capital.And the high incoming freight payments was partly shared with our shareholders through dividends for the fourth quarter of $50 million, and we were paid scheduled debt installment of $ 10 million. Further and probably the most important driver for the cash increase is the 3 vessel sales boosting our cash by $127 million after repayment of debt and transaction costs. And also, we finalized the refinancing of 3 vessels, resulting in a net cash release of $45 million, bringing the total cash balance to $360 million. And as we have already commented by adding the cash proceeds from sale of one Pollux of 62 million and the announced dividend of 165 million, we will have a pro forma cash of 257 million. As commented, we have completed the refinancing of 3 vessels. The first one, VLGC Pampero 2015 build. Also Levante and Capella, both 2022 build. For Pampero, we refinanced the sale-leaseback arrangement to a bilateral term facility of 43 million, which improved the margin from 325 basis points to 290 million. And for Polaris and Avance Capella, we refinanced from a bank financing to a sale-leaseback arrangement with book order in 135 million deal, which was intended to finance the new building. Sold Castor and the refinancing expense maturity from 27 million to 2034 and improve the age adjustment profile for the ships from 20 years to 24 years. And as commented on previous slides, these transactions have resulted in a net cash release of $45 million in the first quarter. So following these refinancing and sale of vessels, we have a relatively simplified financing structure, where 74% of our financing is provided by a bank syndicate in 555 million sustainability-linked term loan facility and 26% is provided by a sale-leaseback arrangement with [Indiscernible]. And when it comes to interest rate hedges, we have covered all the average outstanding debt for the year 2024 by excluding the revolving capacity, which is mainly undrawn during the year at an average SOFR rate at 3%. And the interest rate hedges currently holds market-to-market of $11 million of which most will be collected the following year. So let's go to Slide 14. In April, we published our 6 ESG reports. And as shown in the graph on the left, we are well ahead of IMO and Poseidon emission targets. We reported an annual efficiency ratio or AR of $6.64 for the year 2023, marking a 20% reduction since 2020. This achievement is largely due to the fleet renewal where we have divested 5 older vessels and invested in dual-fuel technology and new design with lower emissions. So currently, we are 8% ahead of IMO trajectory and 14% of Poseidon trajectory which is expected to be updated in line with the revised targets of reducing well to greenhouse gas emissions by 20% in 2030. So with that, I'll leave it to you, Oystein, for a few comments on the market.

[Oystein Kalleklev, executive]

Great. Thanks. Yes, let's look at the market. Usually, we start with the export and import, which is the easiest rates of our market discussion. Despite the cold snap in U.S., quite surprisingly for most people not familiar with the industry. You have very strong growth from U.S. Even though the cold snap and people were drawing the inventories, it really didn't shut down the exports. So instead, you have continued healthy exports while growing the inventories and which I will come back to shortly, the inventories has been filled up because U.S. owning in Shale gas or NGLs and most of it in terms of the LPGs is being exported. Also Middle East, despite the OPEC cuts being sustained, we do see healthy growth in the Middle East, not by Saudi, which is the major oil producer, but from other like United Arab Emirates and also Iran is continue to grow the export levels. Import, it's kind of a good quote all over the scene. Every big major region is quite conductive. China, a bit on the low side, maybe being a result of the huge ramp-up in new PTA plants which have resulted in lower margins and lower utilization rates. So only 4.4% growth in China, but also positive to see a very healthy growth in India, which is the second biggest market. Let's go back to U.S. exports. So what you see is that production is keep on going. We have touched upon this in the past, I believe, in our Q3 presentation, we spent a bit more time describing the dynamics of the U.S. export growth being the fact that gas fields in the U.S. Shale fields are getting more gaseous. So the gas ratio is going up. More of the NGLs is being collected given the fact that more production is turning into being Permian. Permian is also an area in Texas, where we are also getting more licenses in order to build the necessary infrastructure to get those molecules on [Indiscernible], which is resulting in very high export growth from the U.S. And as I mentioned, we had a big drawdown in inventories in U.S. It didn't disrupt any exports from the U.S. And actually, our inventories are back at very high levels, given the production levels in the U.S. So let's add into the freight market. So as I touched upon already, it's quite volatile. We touched upon this also in the past, where if you look at the kind of freight rate, you do see some big swings. However, our cash breakeven is in the low 20s. Even though they are very volatile freight rates, it's very rarely that rates are below cash back given levels, and if they are so usually for a very short period of time, which was also the fact in early this year when rates slumped from $140,000 down to $10,000, bounce back now at a very conductive level in the $60,000, which is supporting freight. The major freight roots being Baltic 1, [Indiscernible] Japan, $80 per ton equates to around $60,000 per day. We do have a piping arrow here because Baltic 2 is used to -- no, you corrected it, Randi. Baltic 2 is then used to Netherlands flushing. This is our outlook, which is associated with more weighting risk because if you go from U.S. to Netherlands flushing, $84,000, it seems like why the hell are you're not just trading this route. But of course, after discharging, you might be EBITDA ahead of the load window in U.S., and you have to factor in some waiting time, which will drive down your time charter equivalent earnings. And then Baltic 3, use into Chiba, these days, it's more using to China, but still $14 per metric ton equates to 67,700. So then you might think why are you not doing Baltic 3 instead of Baltic 1? The Baltic 3 then assumes that you are going Panama both ways, as I will touch upon shortly. Panama clogging is starting again, and auction fees. So most ships going this route will go via Cape of Good Hope on the ballast leg until recently, I would say 75% going that route on the ballast leg. And then close to 75% going Panama on the laden leg Southbound to Asia. However, that ratio will go down as the fees of getting to Panama has skyrocketed. So that will also drag down your TCE levels more in line with the Baltic 1 being around $60,000. But as mentioned, cash breakeven low 20s, we are making a killing even with $60,000 per day. And then it's positive to see that there are some upside in the rate. The arbitrage is $226 per metric ton. The charters are only paying $140, $142 per metric ton. So there is still room for rates to move up and getting closer converged to the arbitrage. Looking at Panama on the next slide, as mentioned, auction fees has really gone up a lot the last week or so. We broke $1 million, then we went to $1.2 million, 1.7 million. And then earlier this week, $1.8 million. And of course, these high fee levels for going to Panama. And as I mentioned, mostly Southbound being laden is resulting in charters, other rerouting the ships to Cape of Good Hope also on the laden leg, which will drive ton-mile up, rates up, arbitrage up, as we have seen during the last week or so because while we are out of the El Nino season in Panama, where water levels went down to this record low level on the left-hand side of the slide, we are at very low levels in Panama. It's probably be a more La Nina condition this year. So the projection is for on Panama Canal that what levels will fill up, but still, they will be at low levels. So we will have probably a situation with Panama being clogged for some time, especially once we're getting into the winter season and there's a lot of containership possibly LNG ships competing for the scarce slots. So just one more slide on the fleet structure before summarizing. We have had a period here now last year. Going back to 2022, a lot of people was bullish about '23 because we had so many ships for delivery. I think we were a bit lucky in the sense that the Panama congestion situation happened at the perfect time for VLGC owners because that's routing via Cape of Good Hope and also the Suez canal for that period resulted in ton-mile growth, which exceeded the supply growth, especially also given that U.S. was exporting more. So we had very good conditions last year despite the numerous ships for delivery. This year, it's much less already more than half the ships have been delivered. So our fleet growth will be very muted for the remainder of the year, while we do see ton mileage going up now with less ships going through Panama next year, even less ships, very few ships for delivery '25, picking up a bit in '26, but still fairly low fleet growth in '25, '26. And then from '27, we get more ships on the market. But as we also show ahead, we have had a period with very few scrubbings. A lot of the ships are getting older. Usually, people are not scrubbing ships in a good market, but there is pent-up scrubbing demand, which typically will happen if you have a downturn, which is like having an insurance on the market. And then as I also mentioned or alluded to in the beginning of the presentation, there is a lot of dockings now because this contracting of ships tends to go in cycles. Once you have a new design, this happened in '14, '15, '16 when you had the new repo design, a lot of people ordered the ships for that kind of design, also the fact that the market was better. Then we have had a new wave of ships with the dual fuel design, but it means that we will have a lot of ships now being taken out of the market doing dry docking, especially next year when we also have 8 out of our 4 wells for dry docking. So that would also limit fleet growth. Right now, the scrubber economics are also good in the sense that the payback period on a scrubber is fairly short. So it means that a lot of the ships who have not installed a scrubber, they might opt for scrubber, which means more time in the dots. You might also have younger ships, which might opt for a dual-fuel retrofit, which takes even more time. So that means less ships in the market, and we are looking at a period now for at least 2 years, maybe even more where we have very good supply/demand outlook for the VLGC market. So to conclude we delivered stellar results for Q1. TCE number, $61,000 or $79,000 depending on whether you are a commercial guy or whether you are auditors resulting in net profit, a record high, $146 million, $1.91 per share. We are paying out more than that $2.15, adjusted for the gains on sale of ships. Profits are still very good. We have another sale of a ship in Q2, which will add more profits to our freight numbers. As I mentioned, we have been guiding now 83% booked at 48,000, which should result in good numbers for Q2 with then our profit from a sale on top of it. And the market is well balanced. There are some good signs there in terms of Panama congestion, good arbitrages, healthy export levels from the U.S. So with rather substantial cash balance and fairly low LTV no. It's the lowest LTV probably in your career in this company on there. That means we can reward the shareholders like we usually do, paying out the dividend. There is more details about the dividend in our separate press release, I believe 23rd May payout date expected to be on or about 23rd of May. And as mentioned, 0.99 to be a reduction in par value of the share, giving better tax treatment, hopefully, for most shareholders and then the remainder to be a turn of capital ordinary dividend. So with that, I think we conclude. I said we're going to have a short presentation. I didn't manage to do that. But let's shoot to some of the questions. I do think we have one called in.

[Operator]

[Operator Instructions]. And the first question comes from the line of Climent Molins from Value Investor's Edge.

[Climent Molins, analyst]

I wanted to start by asking about ammonia careers. Last quarter, you mentioned you were able to retrofit your new builds to be able to carry ammonia for around 2 million. How much would it cost to retrofit a vessel that is already on the water? And I mean both in terms of CapEx and in off-higher days.

[Oystein Kalleklev, executive]

I will give you an answer here on the both way. So given the spec we had on the ships, it wasn't very costly to add ammonia features. So we had ammonia notation on the 2 ships we sold, meaning that they can carry ammonia. Of course, there are different notation on the ammonia area. So those ships could carry not a pull ammonia cargo because specific cavity on ammonia is different from LPG. So they could carry about 85%, 86% filling ratio. On the new MGCs, as I mentioned, we have done that upgrade. So we can have a 98% filling ratio also on ammonia. The rest of all fitting a ship to be ammonia carrier, I don't think it makes economic sense. There is plenty of VLGCs that in carry ammonia as we reviewed in the order book. There is a lot of these so-called VLAC, very large ammonia carrier. So there's plenty of these ships are too many of them in relation to what we expect to be the demand for ammonia carriers. And we do think that ammonia will probably travel on smaller ships having a more ideal cargo parcel. That said, there's also a lot of older ships that can carry ammonia as well. So the 2 ships we sold in January and February, Iris Glory and Venus Glory, those ships can also carry ammonia. So there's no lack of VLGC ships that can carry ammonia. So if you have an ammonia project, you will typically tap into the VLAC, but you can also tap into the older will you see like Iris and Venus, which is capable of carrying that. So that means it doesn't really make any economic sense to look at converting our existing ship we should not have those capability because there's just so many ships that can do it. So we haven't even done the calculation. If I'm wrong and ammonia demand takes off through the roof, maybe we will do those calculations, but I guess it's much better to use the box and then older wheel instead of converting.

[Climent Molins, analyst]

I also wanted to ask did on the demand side, China's imports of LPG have increased significantly over the past few years as PDH capacity in the region came online. How have PDH margins in the region moved over the past few months? And secondly, do you expect PDH capacity growth to slow down significantly going forward?

[Oystein Kalleklev, executive]

I think in terms of China, and this has been well reported even in like publications like financial times. They've had a period now where they had just a huge ramp-up of PDH plant capacity. I think the best way of thinking about this is if we look at the crude oil, which I think is the most understood shipping segment and on, so if you have crude oil, you have tankers. You get them from last bus at a high price. You can rent those ships and transport that crude oil. And then typically, you transport that crude oil to a refinery and the refinery make the various products out of the crude oil being kerosene, diesel, gasoline, et cetera. So it's a bit similar with these PDH plants. You take like or LPG and you take them to a refinery. So these are refinery and they make polypropylene and those are kind of feedback for the plastic industry. Issue with the industry in China, it's just been way too many plants being started at the same time when typically, for those who knows economics, if there's a lot of supply, prices will go down. And that's what happened. Plastic price has gone down and gone down to such a low level that it doesn't even make economic sense to recycle any more plastic. But I think it's more like a limited effect. We have effect now, and it's affecting the demand from China in terms of maybe lower demand in Q1 than what we have seen in the past because the utilization rate of the PDH plant is lower than in the past as well. I do think, however, this will even out over time. We just have had too many PDH plants opening at the same time. But we don't have the same number of PDH plants being opening later on. So once all the plants are up and running and demands are increasing, I think that market will balance out better. That will probably give some better margins on the PDH plants, which is increasing the utilization rate and hopefully, eventually, that will also support better apps from U.S. to China.

[Climent Molins, analyst]

Congratulations for the quarter.

[Oystein Kalleklev, executive]

We have 2 questions on the chat, which we can have a look at as well. Are you interested in accruing all the small companies from [Indiscernible]. For small companies, I don't know. What is our market cap now I think it's like $1.3 billion. So maybe we're almost a small cap company anymore. But of course, we are a business folks. We are selling ships. We are buying ships. We are always interested to do deals that can add value to our shareholders. If we find some ships or companies that can add and the value to this company being accretive, sure. We are looking at deals all the time. We have been selling 7 ships in the last 3 years or so. We are contracted for MGCs. So we have a very dynamic strategy, I would I would say. So if there are opportunities, we jump at them, for sure. And then by Peter, he has a last question for today. Do you expect Panama transit rate to remain high? Can you comment on the competitiveness of vessels over 20 years old. So I think that's 2 separate questions. Yes, I think we have said already Panama is clogged. There are still limitation on the number of daily transit in Panama. Panama is really dependent on a good rain season in order to fill up those water levels. But the Panama Canal story, I will be talking about that probably next quarter, next year, following year because it's not really any solution to this. The Panama Canal was expanded a long time ago and it opened in 2016 in order to facilitate the growth of containership traffic. At that time, U.S. was not an exporter of LNG and LPG and now they've become by far the biggest LPG exporter in the world and the biggest LNG exporter in the world. So there's not really any more space in Panama. Even if the water levels are filled, there's still or lack of space, especially given the fact that the container order book is pretty big, containerships have a more valuable cargo. They can pay a higher rate to get through the Panama Canal. And they are also, therefore, prioritized. So regardless of the water levels in Panama, there will be congestion issues. It just gets even worse when you have periods of drought, which is happening more and more often.Competitiveness of vessels over 20 years, this is a bit similar to the tanker game. So we do have 2 different markets in seas. We have the ordinary international compliance market, where we are operating, and then we have the dark fleet, typically transporting LPG from Iran to China. And there's a lot of ships in active in trade about 50 ships doing that trade, and that's why we haven't had any scrubbing for a very, very long time. It's very limited scrubbing because a lot of these older ships end up somehow in the hands of this trade and we continuing to trade well beyond the economic life. So that's why you see still a lot of older ships in this market. And I do think this will end as long as it's allowed and as long as there are no kind of serious incidents resulting in pollution. I do think there is a high risk that you will have some oil tankers, especially breaking due to the stress being traded well above the life. And suddenly, if you have one of these accidents where I will thank you with a cargo is braking and going down. I do think that will be more focused on this dark fleet trade, which is gobbling up a lot of older ships, which should have been retired. So we are not really competing against those ships because those ships are competing in a different market. So with that, I wish you a good day, a good dividend. I was hoping to do is a shortfall, but I hope you enjoyed it. And I'm glad a lot of you have stayed on board for the 54 minutes. And we will be back after somewhere in August with our Q2 numbers, which we already said are also going to be pretty good. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.