Avance Gas Holding Ltd

OSE:AGAS

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Avance Gas Holding Limited Second 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.

[Oystein Kalleklev, executive]

Thank you, and thank you, everybody, for joining this second quarter results presentation for Avance Gas. I'm Oystein Kalleklev as mentioned, CEO of Avance Gas, and I will be joined here today, as usual, by our CFO, Randi Navdal Bekkelund, who will run you through the numbers. As mentioned in the introduction, we will close the presentation today with a Q&A session where you can either ask a question by the conference call or by the chat function.

So as you can see from our front page, we have found some inspiration in the Japanese icon, The Great Wave off Kanagawa by Hokusai. This picture was sold at Christie's last year for $2.7 million. So we made our own addition, which we call the Great Wave of Dividend by Avance Gas and we paid out close to then $270 million of dividends for the first half year of 2024, which means that our shareholders can buy close to hundreds of this picture.

So let's begin with the disclaimer. During the presentation, we will be giving some forward-looking statements [ via ] non-GAAP measures like TCE and those level. There's a limit to how much detail we can provide in this short presentation. So we recommend that you also read the presentation together with the earnings release, which we published today.

So let's kick off with the highlights. Numbers came in as expected. We delivered our Time Charter Equivalent earnings on a discharge-to-discharge basis, which is the basis for our guidance of $50,100 per day. The low-to-discharge number, we said would be $3,000 to $5,000 lower given where the market was trading and we were also in line with that guidance measure with $46,700 on the low-to-discharge number.

This resulted in strong numbers for the second quarter as well. During the quarter, we sold 1 ship, our last newbuilding, VLGC dual-fuel newbuilding #6. That ship was sold in May at $120 million, giving us a profit of $36 million. So all together for the second quarter, we delivered net profit of $61 million. That means for the first half of the year, as you might recall, we had fantastic numbers for Q1, driven also by the sale of 3 ships.

So first half of year net profit is $207 million. This is not only the highest ever half year result, it's actually higher than any full-year results we ever deliver. This resulted in our earnings per share of $2.7. And as we will touch upon, it's also a lot of cash release giving us ample room to pay a very attractive dividend.

Subsequent to quarter end and prior to us reporting, we announced the sale of the remaining 12 VLGC in our fleet to BW LPG for a sum of $1,050 million. This provided us with a gain of approximately $315 million. So we will be trading now the ships until end of the year. Some ships might be delivered to BW earlier. So we also have some room to make a trading profit on the ships, higher to delivery of the ship to BW, where we will also then become the second biggest shareholder of BW LPG.

Cash proceeds from the transaction is $585 million, and we will novate $132 million of debt. When we are concluding the transaction, we will also pay down all debt of Avance Gas. So this gives us a pro forma cash Q2, adjusting for the sale of $485 million, which we do think, of course, we will also be making some free cash flow in Q3 given our bookings and Q4 given where we see the FFA rates for that quarter.

During the summer, we had a bit soft market. Q1 [Technical Difficulty] Q2 yes, a decent quarter with $50,000 in TCE. Given the improvement in the traffic through Panama Canal with more slots coming available, there's been more ships in the market, dragging down the freight economics. So currently, we have booked 79% of third quarter at $41,000 also on a discharge-to-discharge number. We don't expect much deviation this quarter or the third quarter for low-to-discharge and discharge-to-discharge.

Q4 looks better, which is usually the case. You're getting into the winter season, more traffic, more weather, and usually more crude to Asia. So FFA rate or the freight forward rate are currently at around $55,000 per day for the fourth quarter.

So with strong numbers, a very big cash balance, and even bigger on a pro forma basis adjusted for the transaction we recently announced the dividend for Q2 will be $1.35 per share, bringing the dividend for the first half of the year to $3.50. That translates to $268 million of dividend being paid in the first half of the year or equal to about 30% of our market cap.

And there will be more dividends there as we are closing the transaction with BW during Q3 and Q4, delivering those ships to BW, we will be paid cash and share which will give us ample room to continue paying out dividends -- very high dividends for the rest of the year.

So let's see what we've done in the last couple of years turnover in Avance Gas on slide 4. We've sold all our VLGCs. We started off in 2002 by renewing the fleet. We sold 3 older 2008/2009 built ships for a profit of approximately $20 million. This was in connection that we took delivery of new buildings. So we took delivery of Polaris and Capella in 2022, Rigel and Avior the year after. So our plan then was to sell off the older ships and take renew the fleet with the dual-fuel vessel ships.

We continue doing so. Last year, we announced the sale of Iris and Venus Glory. Iris at $60 million, Venus at $66 million, which gave us a profit on those two sales of close to $50 million. However, at that time, those ships were traded by us until Q1 last year. So those ships were closed in Q1 and we booked the profit from the sales in Q1. At that time, we also got a very good offer on our newbuilding being Castor and Pollux, which was scheduled for delivery in 2024.

We contracted those ships at $78 million upgraded than with ammonia spec for about [ $23 ] million, and we sold them prior to delivery for $120 million. So, with those sales, we had a fantastic Q1. And of course, the Pollux sale was booked then in Q2 as that ship was delivered from shipyards to the new owners, [indiscernible] in May. So, we were left with 12 ships -- a rather new fleet then as we have done the fleet renewal, 8 2015 eco class ships, of which 6 fitted with our exhaust gas scrubber and then 4 dual-fuel 91,000 cubic larger VLGCs.

We then found it in the best interest of the shareholders given where the building prices are, where secondhand prices are to sell them and block to BW for this $1,050 million. And we concluded that sale on August 15, and I will provide more color on the sale.

So altogether here, we have sold ships for $1,559 million, with gains of $455 million, of which $436 million has been done this year and with a cash release of around $474 million, plus we will also receive a 12.8% stake in BW LPG once the transaction is closed, where we've put a value on that on the transaction of $333 million.

So, we calculated the NAV of the BW share in that transaction to $17.25. It's slightly higher than the stock price today, but we think they are well positioned with these ships with a fully integrated value chain with also product services. So, I think that will be a good deal for the Avance Gas shareholders. That leaves us with 4 newbuilds. These ships were contracted last summer, four of them. These are medium-sized gas carrier or medium-sized ammonia carriers. They can carry both. And these ships are set for delivery in Q4 '25 until Q4 '26, and I will come back a bit more on what we are planning to do with the ships later in the presentation.

So just a glance on the transaction with BW. We had cash at quarter end $268 million. We will receive a cash settlement from BW, where we will be repaying all the debt in Avance Gas, where we will have a remaining cash balance of $217 million. That gives us a pro forma cash, as I mentioned in the introduction here of $485 million. Then we will receive 19.3 million shares in BW where we paid the value at $333 million. Once we receive those shares, we will treat them as fair value assessments and basically take them to market to market in [indiscernible].

The MGC fleet has a value where we've taken the Clarksons number, Clarksons newbuilding price for similar ships is around $70 million per ship. However, those are for delivery '27. We have delivery of our ships earlier, '25 and '26. Today, input rates are quite high, so it has a value of getting the ships earlier. Also given the fact that actually, as I will refer to, Time Charter rates for MGCs are quite attractive these days.

So, we packed those at $288 million or about $72.5 million each -- or $72 million each. We then deduct the remaining CapEx on those ships, we paid in $43 million to the yard in fee delivery installments. So, we deduct the obligation to the yard of $203 million. And then we have to -- once we're closing down the financing, we will have to terminate our interest rate swaps. As some of you might recall, we hedged our [ Interest rate ] at a very attractive level, basically, more or less all our debt this year at about 3% and also coverage well into next year, market to market on these swaps at end of Q2 was $89 million. So that we will also release.

And then on top of that, trading ships in the freight market also entailed having working capital. We had $27 million of net working capital at end of Q2, which we will release. And then finally, depending a bit on where the freight market is, we do expect our free cash flow during Q3 and Q4, trading the ships in the market given our guidance and forward assessment of somewhere on $30 million to $60 million, where we then ending up at NAV -- a debt-free NAV of close to $1 billion, which should translate into a value per share of close to $13 or about NOK 135 per share. So that is the value we intend to deliver back to the shareholders in the coming quarters.

Just a bit more on the transaction on page 6. It's a bit repeating here, $585 million cash, BW shares. We will novate the two leases we have. That adds up to $1,050 million. We have a $350 million gain on the sale. And once we are paying down the debt, the net proceeds is $217 million of cash, $333 million of BW shares, and then we can add top off with some trading profits in Q3 and Q4.

Looking at the timing of the sales, we kind of crystalized the returns for our shareholders. Here, we have the curve of Clarksons newbuilding prices. As you can see, we -- we hit the bottom quite well on contracting ships in 2019 and 2021. We ordered altogether six dual-fuel VLGCs at the price of $78 million each. We did some upgrades on #3 and #4, where those could be fitted for burning ammonia at our later stage once that combustion engine or the combustion of fuel gas system is ready. And we also added a specification on #5 and #6, where they could carry ammonia, which cost about $2 million.

So altogether, around -- slightly less than $80 million average on the ships. We sold the #5 and $6 for #120 million. We announced that last year and they were delivered to new buyers in March and May, and now we sold the remaining 4 dual-fuel newbuilds.

If we then look down on the curve, these are quoted five-year resale prices. And then we have adjusted the curve for depreciation to also arrive at a 10-and 15-years curve. We see that we sold Thetis and Providence above the 15 years curve. And then Venus Glory, we got a really good price on her for $66 million, but basically, we're getting close to a 10-year price for a 15-year old ship. And then the 8 2015 ships are now sold at an average of about $73 million, which is spot on kind of the 10-year resale price.

So we've been able to sell in ships at very attractive prices, both historically and in relation to the resale curve, which has resulted in pretty good shareholders [indiscernible]. We have [ stocks ] 1st of August, prior to COVID, stock was doing pretty well in '19 and then COVID happened. And basically, all stocks in the world had a hard time before the world recovered. So if you had invested in the stock cost of August and you have it today, you would have an 800% return in U.S. dollars. If you were Norwegian, bought them in Norwegian kroner, your return would be 1,000%. So you would be doing our 10 bagger the last 5 years by being invested in Avance Gas and now we basically crystallize that return for you because we're selling the fleet, and we are receiving cash and shares in BW as proceeds on that sales, and we have a remaining investment in full MGC.

So let's talk a bit about the numbers for the quarter. As mentioned, our numbers are in line with guidance. We guided 83% at $48,000. We delivered all-in $50,100, where our numbers were pushed up slightly by our FFA hedges. We have some hedging by using forward freight agreements ending up at the $50,100 when we include this.

We also expect to make some profit on our FFA hedges in Q3 given the soft market. As mentioned, we are 79% covered, expect to arrive at around $41,000 per day for Q3, including the FFA hedges which are contributing $1,300 on average for that quarter. And as I mentioned, we don't expect much mismatch between the discharge to discharge and the low to discharge number, plus/minus $1,000.

So then before giving the word to Randi just a bit on the dividend. So we had this huge hike in dividends in Q1 where we paid out $2.15 per share in just 1 quarter, the same amount we paid out in the whole of '23. This translate to $165 million. For Q1, that was $0.99 was return of capital because we returned the capital for newbuilding #5 and #6, where we raised $65 million in April 2021 to finance that transaction and then the return on the profits.

In Q2 now, we are paying $1.35, $103 million for this quarter. And then as we are releasing money from the transaction in the coming quarters, we will continue to pay out the net proceeds as cash dividends to our shareholders. The dividend decision criteria are quite easy this time. We have good profits. We have fairly good bookings. Visibility is very clear because all the ships will be delivered to BW before year-end. We have ample liquidity, $268 million plus if the pro forma cash is higher. We will repay all the debt, but we are applying [indiscernible] of course, on the debt covenant. And then we will maintain some cash for the CapEx liabilities for the MGCs.

We paid in $43 million. As I mentioned in the earnings release in the CEO statement, we will preserve somewhere around $50 million to $70 million for the remaining equity for those ships, but we are also assessing strategic alternative for those ships. So it could be that also those ships will be sold. And then if that is the case, the proceeds from such a sale will also be distributed as dividends to our shareholders.

So with that, I hand it over to Randi.

[Randi Bekkelund, executive]

Thank you, Oystein. I think you have already addressed and summarized all of my slides. But I will go over then.

Let's go to slide 10 and have a look at our income statement and key financial figures for the second quarter. Our TCE per day for the quarter was $50,000 on discharge-to-discharge basis, which is in line with the guidance of $48,000 a day for 83% of vessel [ sale ].

As the market was stronger by the end of the quarter compared to the previous quarter, we had [indiscernible] effect and adjustment in accordance with the accounting standard IFRS 15, resulting in a reported TCE per day of $46,700 which was also in line with the guidance.

We successfully completed the sale of Avance Pollux during the second quarter for a cash consideration of $120 million. The sale resulted in a gain of $36 million and a net cash proceeds of $62 million. And this was the fourth vessel sales completed this year. Actually, first, yes -- for the first half, bringing the total gain from vessel sales to $121 million and net cash proceeds of $189 million for the first half.

Net finance expense was $1.5 million for the quarter and consists of net interest expense of $5 million, relatively low compared to the floating interest rates as we have hedged most of our outstanding debt at 3% [ floater ] compared to the floating floater of 5.3%.

Additionally, we recognized the finance income of $3.5 million coming from interest income on cash to profit. Net profit of $61 million for the first quarter, $0.79 per share and with the first quarter results of $146 million. Net profit for the first half $24 million came in at $207 million, $2.70 per share, which is the highest half year results and as I mentioned, exceeds any full year results recorded ever.

Let's go to slide 11 and have a look at the key financial effects of the completion of the transaction with BW LPG. The sale of the VLGC fleet at $1,058 million will result in a derecognition of VLGC fleet, bps at $750 million at quarter end and $745 million at the announcement date, August 15. The delivery window is between September 15 until December 31, and we estimate a total gain on sale of $350 million, of which $305 million will be recorded as gain on sale and $10 million in lower depreciation expense.

Just a few comments on the IFRS standard. A reminder, the VLGC fleet will be reclassified from long-term assets to current assets presented as 'Assets held for Sale' with effect from the announcement made August 15. And with the total gain recorded for the first half, $121 million for the 4 vessel sales. In the first half, we estimate a total gain on sale of $426 million and in addition, $10 million in lower depreciation expense for the full year '24.

We also estimate a positive effect of $4 million on net finance expense as we aim to terminate the interest rate for hedges with a market to market value of $8 million as of June. This is probably going to be offset by approximately $4 million in expense debt issuance costs following the recognition of the outstanding debt.

For the balance sheet, the settlement in BW LPG shares of $333 million will be booked at cost initially and subsequently measured at fair value with changes recognized in profit or loss. And this will be classified as current assets in the balance sheet.

Further, we have -- or we will derecognize $500 million following repayment of debt and novation of sale leaseback agreements at delivery, leaving us with a net cash effect of $270 million, which gives a pro forma cash of $485 million, which I will come back to.

We will now move to slide 12 to the expense of the quarter. We started the quarter with a cash balance of $360 million, which was added by cash flow from operations of $25 million, sale of Avance Pollux in May of $62 million, and we also settled some interest rate swaps of $1 million. This was offset by some CapEx related to the first MGC of $6 million, where we now have paid 25% of the shipbuilding contract. We also paid out on debt, scheduled debt repayment of $10 million.

And lastly, as you might recall, we had a very high distribution to shareholders in May of $165 million, which was split into a return of capital, representing $79 million or $0.99 per share and dividend of $86 million or $1.16 per share. And by adding these movements, we have a reduction of $92 million in cash over the quarter and gives us a cash position of $268 million at quarter end.

On slide 13, you will see that the cash flow increased substantially after conclusion of the transaction and sale of the 12 VLGCs. We expect a cash release of $270 million as commented already, after delivery of all the vessels within the delivery window in December 31.

Additionally, we aim to terminate interest swaps of $8 million and some FFA position of $1 million as well as trading profits generated during the third and the fourth quarter in the range between $30 million and $60 million depending on the spot freight market. We have already booked 79% at $41,000 a day and by applying the FFA curve for the fourth quarter, which is currently at $55,000 a day. This suggest the cash flow from operations of about midpoint $45 million. So basis the cash quarter end and the cash flow following the transaction gives us a pro forma cash of $539 million.

Moving to slide 14. There is an overview, some more details on the outstanding debt as of June. We have, in total, $500 million in interest-bearing debt, of which $368 million is bank term loan facilities split in 2. Line vessels are financed by a bank syndicate, focusing of [ seven ] banks and 1 vessel is Pampero is financed by a bank bilateral. So the remaining 2 vessels are financed in a sale leaseback arrangement with BoComm, which currently is $132 million and outstanding debt will be novated to BW LPG.

And with that, I leave the word over to you, Oystein, for the market comments and the game plan ahead.

[Oystein Kalleklev, executive]

Thank you, Randi. Also worth mentioning, I think when we announced the deal with BW, we had some subjects here to credit approval of the novation of the sale and leaseback and that has been approved. So we are progressing with all the paper work so that we can close that transaction prior year-end.

But let's look at the overall market for the Seaborne LPG exports. We have had continued growth in U.S., which is by far the biggest exporter and by far, the biggest lift of VLGC. OPEC has kind of stagnated the growth in the Middle East, where we have seen flat markets. And then on the import side, its continued growth in China, which is ramping up a lot of PDH for our capacity.

India is a growing market, which we continue to grow. And LPG price has been quite elevated. So we've seen more switch back to LNG in Europe where LNG has been trading at a discount to LPG, so 5% down on the European imports. Worth mentioning here, and I will come back to that, we see very strong growth on MGCs compared to VLGCs these days, which bodes well for our newbuilds.

Digging a bit more into U.S. LPG production its really the same story. Consumption in the U.S. is relatively flat while we keep on growing volumes. There is a lot of [ MGLs ] when you are drilling for oil. A lot of the MGL is being recovered. A lot of the MGLs are now located in Texas, where it's easier to build all the infrastructure required to get these volumes on ships, and this is driving the growth of the market.

U.S. inventories were -- was down by the cold winter season in U.S. at the start of the year where we actually hit down to 5 years average on inventories, which really killed off the arbitrage in the beginning of the year, which resulted in rate going from $140,000 per day, higher new year and all the way down to $10,000 at the beginning of the year.

However, with this good production profile in U.S. inventories have bounced back and are now at the high end of the higher average, which means that also prices in U.S. are very low. And when they are low in U.S., the arbitrage improves, which I will come back to. So we see a very conductive market for arbitrage now, but actually, freight rates are artificially low compared to where arbitrage levels are.

So looking in U.S., a bit going forward, we have had situation now where we've been close to the sealing of exports, but it's good to see then that our more capacity being added, that's a stream of announcements from the big players that they're adding capacity. And as I mentioned, a lot of the production now located at Texas or the New Mexico border where you have easy access to getting the permits required to build the infrastructure to get the LPG on ships. So we do see a ramp-up in LPG exports, which bodes well for market balance '25, '26. So we think having also some of the settlements in BW LPG shares could be beneficial to us.

Spot market, as I mentioned, it's been up and down. As usual, we have this big drop in the market. If you look at the graph on the left-hand side there from $120,000 we were at higher levels than that also prior new year, down to $10,000. So cash breakeven is about $20,000.

We had a bounce back once the cold weather in the U.S. dissipated and had a pretty good market until summer where kind of the glut of ships coming open, dragged down freight rates again down to about $20,000 end of July, early August before they now bounce back trading now at around $40,000, $50,000 per day, and the dotted line shows the freight forward rate for the remainder of the year where we said this is at about $55,000 for Q4.

So that's on the low side compared to historical average. You see this gray shaded area is the historical average. Usually, Q4 tends to be by far the best quarter, and we are below the average on the FFA today. So there are some upside on freight, we think. And as we have alluded to here this time last year, we are hitting all-time high freight rates.

Freight rates are very much impacted by arbitrage economics. So arbitrage economics kind of puts a ceiling on what you can pay for freight. If arbitrage is $300, you shouldn't be paying more than $300 per ton of freight. Right now, arbitrage is close to $250 per ton. In this graph, freight is at around $100 per ton. It's been picking up recently. We are now at close to $120 per ton, but still kind of the arbitrage is quite as much as the freight. So there are -- as we put in our mind, the gap, the flurry of available ship. There was also ships coming available in the market because of Hurricane Beryl, which disrupted exports. So when there are too many ships in the market, they are dragging down the freight rate. If shipping market becomes tighter, there is a lot of upside on freight given the arbitrage that's kind of our message here.

If we look at the order book, we have also said in the past, we had a period now where we have had high fleet growth through '23. A lot of the investors were so worried about the fleet growth for '23 that we even made our mid-business VLGC addition for this in '22, where we told people shouldn't be too worried because also export growth is very high in U.S.

So export growth has been high. We were also last year in the fact that we had the drought season in Panama, which really cut down on slots. So a lot of ships have to say longer routes. So actually, we ended up with the best market in '23 since 2014. This year, congestion in Panama has loosened up, and this has resulted in more ships in the market, which has put some dents on the rate. But still, if we look at our average TCE for the first half of the year, it's pretty good. So we're quite satisfied with the trading earnings.

Going forward, we will see less growth in the market for ships for '25 before we have this new wave of ships hitting the market from end of '26 and these are larger ships, typically either $88,000 or $93,000 ships, which we call the VLAC, Very Large Ammonia Carrier. So these are LPG ships, which can carry full ammonia cargo, 98% filling ratio. And those ships are coming from '26, '27, '28 and that basically everybody who's contracting a ship today are contracting these ships because they are not that much more expensive than our VLGC.

At the same time, as we have pointed out in the past, there's ageing fleet. However, there isn't much scrapping because a lot of the older ships are being turned into the shadow fleet of VLGCs, which is basically ships trading from Iran to China. So that has been holding back scrapping activity, but we do see quite a lot of ships now turning more than 25 years, where we would expect at one time, typically, when market is a bit soft, that some of these ships will leave the market, but rarely ships are being kept in a very good market.

Game plan then. Okay, what are we going to do here, except for accounting money, paying out dividends. We are left with 4 MGCs or we could also call them MACs because these, as I mentioned, like the VLACs, they can carry full ammonia cargo. So we kind of -- some people were surprised when we contracted this last June. So we did that contract with CMAC [indiscernible] Chinese yard for 2 plus 2 ships at a very good price. We exercised the 2 first ships in June and then the 2 options in end of August last year, and we are now having 4 ships for delivery '25, '26.

So there are 3 alternatives. The easy alternative would just be selling these ships and shipbuilding prices have gone up. So we will be doing all of these 3 alternatives in parallel. We can shoot gun and walk at the same time. So while we are exploring S&P opportunities for the ships, we will also be -- we are also in discussion about longer-term charters and charter rates are good at the moment, as I will touch upon.

And then we do have some discussion with other owners of similar assets where we are open to the idea that people are putting in ships of some similar quality and receiving shares in Avance Gas, so you can build sufficient scale because having a public listed company with 4 MGCs is not really a viable strategy in our view.

So we will be working on these items in the coming months and hopefully conclude with a favorable outcome for our shareholders. We are quite confident about that given where the market is for MGCs and where secondhand prices are as well, which I will cover.

Next slide. So the 2 dots when we contracted the ships at what we said was the very favorable point of time. Since then, newbuild price has gone up around 13%, so we are at around $70 million loss for a similar ship now. But as I mentioned, for delivery, 27, we do think there is value in having ships earlier.

We paid down $43 million in pre-delivery installment. All the ships have installment profile of 15% payment at signing, then 10%, 10%, 10% and 55% at delivery. So the big cash outline here is not before Q4 '25 when we take the first delivery, then Q1 '26 second, Q2 '26 the third ship, and the final ship expected Q4 '26. So far, we have good progress on the yard, very happy with the quality, and actually all the ships are slightly ahead of schedule.

Then looking at the market for MGCs. This is really a growing segment. So we've seen this high growth on the LPG seaborne transportation, but where we see the highest level of growth is on the MGCs. So the MGC is grabbing market share. And if we look at this CAGR, a growth factor from 25% -- 2015 to now, it's about 30% U.S. growth. And it's a lot of growth in also the different import nations, being Europe, Mexico, Morocco, Chile and the rest of the world. So we think it's an attractive market, and that's also why we contracted the ship last year.

So if you look at rates, so we have good fundamentals. You also typically then have good fundamentals for rates, has been doubling in the last 5 years from low of $15,000 per day to now close to $35,000 per day. OpEx on these ships are quite similar, slightly lower. They are all fitted with shaft generators. So $35,000 should equate to an annual EBITDA of about $10 million per ship. So if you put the value of the ship of $70 million, that gives you an EV EBITDA of 7 million, which is the low number. I think with the contract, the ships would be worth more, so that's why we are looking at that in parallel.

And the order book profile looks well. It's not that many for delivery and also the fact, which I pointed out in the last [indiscernible] is the fact that typically, this market has consisted of 3 asset types. It's the MGC, the medium-sized, large gas carrier, which is typically 60,000 cubic, and then the VLGCs from 80,000 plus. And what we have seen today is that people are cutting up the cargoes and utilizing MGCs and VLGCs and LGCs are losing ground, which we think is favorable because this segment is going to continue to eat market share.

So with that, I think we conclude numbers, as mentioned, in line with guidance, $50,000 on TCE for the quarter, Q2 numbers are also inflated by our sale of VLGC newbuild #6, giving us $61 million of profit. In total, $207 million of profit for the first half of the year. And then we've hopefully explained the rationale for selling the remaining VLGCs to BW, where we received substantial cash and shares in BW becoming the second biggest shareholder. And we are committed to paying that dividend this cash back to you as dividend, and that's why we're also paying a dividend of $1.35 per share for Q2 where this adds up to $3.50 for the first half of the year.

We have fair bookings for Q3. So we do expect to generate some cash flow in Q3. And hopefully, with the FFA curve, we will be making a bit more in Q4. And once we close the transaction with BW, you can expect us to return the surplus cash to you in a timely manner.

So with that, I think we just head over for the Q&A with the chat, but maybe we can start with the phone.

[Operator]

[Operator Instructions]

[Randi Bekkelund, executive]

We have a few questions from the webcast. The questions are quite similar. So we try to combine all of them. But starting off with what is the intention with the stock position in BW and will Avance shareholder value be affected?

[Oystein Kalleklev, executive]

Yes. So how we have organized this transaction is 12 ships. So 10 ships will be sold on the standard memorandum agreement. This is just a sales contract, which is a standard form of contract NSS 2012 [indiscernible]. So once we sell the ship, BW will close collateral or [indiscernible] for that amount in connection with the transaction with BW will take over the ship. The money will go to the bank, repaying the mortgage on the ship and the mortgage will then be released and the remaining residual amount will be paid to us. In connection with each delivery, we will receive a set number of shares. And when all the 12 ships have been delivered to BW, that will add up to 19.282 million shares.

There is a lockup as we said in the press release of 40 days. So we do expect most of the ships to be delivered to BW around November. So once we get that ship -- those shares, there will be a lockup, which 40 days is convenient. We will come back with our Q4 presentation in February, where we will present our numbers for Q4. And then hopefully, we have been able to deliver our free cash flow in according with the waterfall we have shown today. And all the shares in BW, the lockup will have expired. So then, of course, we are not planning to become like there's a share in Oslo called [indiscernible] where you can buy a share to become an indirect owner in another company.

So what we are planning to do is either if we find a willing buyer, we might sell the shares and distribute the cash to the Avance Gas shareholders. If not, we will simply just dividend out the shares to our shareholders in Avance Gas. And if you add up the number, that means that for every share you have in Avance, you will get a 1/4 of our share in BW. And we find that stock very reasonably high, and with the fairly muted fiscal '25 into [Technical Difficulty] services, we think that, that could be also a good investment for you guys to have. So we are not planning to sit on those shares and we kind of a derivative of BW LPG. Our intention is to return that kind of asset, either by cash or share to you. And this we will know by when we are reporting Q4 in February, but we will do whatever is best for the shareholders.

[Randi Bekkelund, executive]

Very good. And then we have quite a few questions in relation to the company's plans regarding the ammonia market. Do we intend to keep the MGC?.

[Oystein Kalleklev, executive]

No. As I said, we have three plant in our head. We are pursuing all of them in parallel, selling them, charging them or finding somebody else who has similar assets and combine with those. We do not intend to normally sitting with a huge pile of cash. So, we're not intending to run around and contract a lot of new MGCs. We are committed to paying out the proceeds we have received from the VLGCs to our shareholders. If we are to do something consolidation, either then we raise money for that venture, for those who are interested or we find other people who have ships who can take shares in Avance Gas.

So, we find it a good market. As you've seen, the fundamentals for that market, is good. We didn't really dig too much into ammonia [indiscernible]. We have done that in the past. Ammonia market is expected to also grow quite heavily in the next couple of years, both by ammonia blending into coal plants, typically in Korea and Japan and also the general ammonia market. There are more people who want to have fuel. So and then there are also the blue and green ammonia, which could also pay out depending a bit on the subsidies and the price of carbon. This is a more expensive fuel than hydrocarbons.

So, we are open to that idea. We are doing everything simultaneously. And what our aim is, is just to maximize the value of those assets. And we have received quite a bit of interest on the ships, given the announcement on the sale of the VLGC fleet. People do see that it's possible to do a transaction with us. We have demonstrated that we have sold 16 ships this year, 19 VLGCs in total the last two years or so. So, let's see.

I hope I have some more answers to you when we are reporting Q3 in November. But we are in no rush. Those ships are not going to be delivered before Q4 '25 onwards, and that's very limited cash outlay before delivery of the ship.

[Randi Bekkelund, executive]

And then we have a question on the market. Could you please explain why the arbitrage is not going through the ship-owners in the form of higher rates? Is it remaining with the exporters?

[Oystein Kalleklev, executive]

Yes, this is supply and demand. So Alfred Marshall, he explained this, I believe it was in Principles of Economics. So, if there is a lot of ships in the market, giving supply and demand is kind of the same, what will happen if everybody wants to have the freight, having a ship idle and cost a lot of money in terms of OpEx and fuel? So, you will take the price the market sets and the market price is decided by the supply and demand.

And during this summer, when you have seen a large increase in slots being available in Panama, that means if a ship is sailing from U.S. Gulf Coast to China to Panama, both ways, going there [ laden in Ballast ] its 10,000 nautical miles. It goes through Cape of Good Hope because it is not really a viable option. It's like 15,000, 15,500 nautical miles. So even a lot of ships are switching trading pattern from going Cape and then we have had seen Cape and then Panama all laden and certainly also ships doing the Ballast leg on the Panama. It really sees up a lot of ships in the market. And when there are more ships, rates will be low. That's just the law of economics.

And that explains why the arbitrage and freight has disconnected, which is not that good for us as ship-owners. It's more -- it's much better for the terminal owners or the people who have a term contract for their term. Typically, you enter into, let's say, a 5 years agreement with the terminal that you will be taking offtake of LPG and you're paying a terminal fee then for that five-year period, which could be $0.05 or $0.06 or $0.07 per gallon. But certainly now, you have been in the position where you as a buyer of that cargo can turn around and sell it FOB, free on board for $0.27 per gallon.

And then you're making a $0.20 profit on having the contract to lift that cargo. So, this goes in ups and down. It really depends on the balance. So once the freight market is tighter, then ship-owners will be able to take out more of the arbitrage. And as we saw last year and seen in period where this freight market is super tight. Most of the economics will end up with the ship-owners. But when the freight market is loose, more of the economics will end up with the Pollux owner.

[Randi Bekkelund, executive]

We also have a question relating to the stock price. It has dropped 30% after announcing the sales?

[Oystein Kalleklev, executive]

Yes, that as well a bit. Yes, we had a stock price, we kind of had a rally during the summer despite freights at pretty low levels. And when we did the announcement, depending on what analysts you will talk to our highest NAV was somewhere around 1.2, 1.3x. Of course, it hurts them to kind of agree a price where kind of the proceeds on that [indiscernible] is lower than what is implied in the stock market. But we do know that the stock market is quite volatile. So as Warren Buffett says the stock market is by fall a person who comes to your door every day and give you a price. Some days, that price is too low, sometimes it's too high.

We have seen that the price we can achieve on selling the assets and as I demonstrated on the curve its really very high asset prices, and that's also affected in the net profit of $315 million, where we also have some upside on the trading. So, in that sense, kind of its hard to do something which is lower than the stock prices, but we can't have the stock price deciding the strategy of a company because then the strategy of the company will be totally bipolar and volatile.

We need to be kind of long-term thinking in terms of our approach. And what we see now is that, okay, if you invested in Avance Gas the last five years, we're basically crystallizing our 800% gain for our investors in dollars, in NOK its 1,000% and that's a pretty good result. So that's why we did the transaction. It also helps that it makes 100% industrial strategically sense in addition to financial sense. So, it's -- of course, we like the stock only to go up. Unfortunately, that's not feasible.

[Randi Bekkelund, executive]

Yes. I think we have concluded the questions from the webcast as well.

[Oystein Kalleklev, executive]

Yes. Okay. Thank you Randi for reading the questions and presenting the financials. Thank you, everybody, for joining in on the call. We will be back in November with Q3. I think then we know more details about the closing process with BW. I would imagine quite a few of the ships has already then been delivered to BW and we have visibility on the remaining deliveries to BW.

So -- and then we'd probably also have some idea about the remaining bookings for the year and the cash flow we will have made on the trading of the ships, and we will then come back with the numbers and give you update on all that. Hopefully, we also have some idea on the strategy for the MGCs. So, thank you, everybody, and talk to you guys back then in November.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.