Avance Gas Holding Ltd

OSE:AGAS

Earnings Call Transcript 2022-Q4

[Operator]

Thank you for standing by. And welcome to the Avance Gas Holding Limited Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]

As a reminder, today’s program is being recorded. And now I would like to introduce your host for today’s program, Mr. Øystein Kalleklev from Executive Chairman of the company. Please go ahead, sir.

[Øystein Kalleklev, Executive Chairman]

Thank you and welcome everybody to this fourth quarter webcast. I know it’s a busy day. We have a lot of shipping companies reporting on the last day of February with EW [ph], Frontline, Hafnia, Ricco, Emphasis [ph] and American Shipping Company. So I thank you everybody for taking the interest to also join Avance Gas call. Together -- I asked -- Randi Navdal Bekkelund, our CFO, is joining me for the call today, where we will present the latest updates on the company.

Before we begin, I just want to highlight our forward-looking statement disclaimer. We will be providing some forward-looking statements, some non-GAAP measures and there are limits to how much details we can cover in the presentation.

So let’s jump to the Q4 highlights. Q4 TCE came in at $46,500 a day, in line with our guidance of $45,000 per day to $50,000 per day. Please note the discrepancy here. We have two different numbers for the TCE. Usually, in a stable market, they are quite similar. However, when the market moves, which is it happens quite often in shipping then there can be a wide discrepancy in these numbers.

And the counters and the professors in the audit community, they have decided that we are to use IFRS numbers, the load-to-discharge, which is not the industry norm where we use discharge-to-discharge, which is truly round trip [ph] basis.

However, that said, over time, these numbers even out, but when the market moves, you can have some big mismatch here, because you only are accounting income when you are loaded under the IFRS number. So our discharge-to-discharge numbers came in at $55,800 per day, which was slightly ahead of our guidance of $50,000 per day to $55,000 per day. This resulted in a strong profit, $34.7 million, for the quarter or $0.45 per share, and in total, for the year, we generated net profits of $89 million or $1.16 per share.

Recent events, we just recently took delivery of the third dual fuel VLGC from DSME in Korea on February 9th and she left the yard on February 11th and we have now fixed her in the spot market for her maiden voyage loading cargo in U.S. Gulf Coast during March and heading then to Far East for discharge.

We have -- as we announced in November, we have sold and delivered Promise to the new owners. This transaction resulted in a book gain for us of close to $8 million and a cash release of $20 million.

During Q4, when we had our call on Thanksgiving in November, we announced that we had covered two-thirds of a ship on FFA. So FFA is also fixing a ship on time charter where we can use derivatives to hedge the freight and then if we also hedge the bunkers fuel, we can lock in our returns. So we managed to secure the remaining parts of that derivative freight, so we have fully covered one ship on derivatives for the full calendar year 2023 at $47,500 per day, which is a very good rate.

In terms of guidance, we are reporting a bit late, so we are already today almost fully covered for Q1. We are 98% covered with a TCE of $55,000 per day on a discharge-to-discharge basis, so basically we are replicating rather strong earnings from Q4.

[Technical Difficulty] Okay. He is -- want this also [ph] to jump in on Thanksgiving. But, yeah, on -- as I mentioned, on the load-to-discharge numbers, these are lagging a bit, so we expect slightly higher load-to-discharge numbers in Q1 of around $58,000 for the quarter.

We are now booking mostly Q2 days and we are already 61% covered. We have a fairly good TCE coverage from 2023 already. It’s a bit too premature to give out any TCE numbers, as we have three ships on index, so that the earnings for these ships are uncertain at the moment.

So given the strong earnings, we have a healthy balance sheet. We have decided to hike the dividend from $0.20 in the last three quarters to $0.50 for Q4. This means that, the last four quarters, so the fiscal year 2022, we have paid out $1.1, which translates to around 16% dividend yield or actually 29% dividend yield if you are only counting the fourth quarter.

Let’s jump to our fleet overview. During last year, we sold three of our older ships, 2008 ships and -- no, one 2008 ship and two 2009 ships. It was the Thetis Glory and Providence in Q1 and then Promise in Q4. All of these with -- has been a big book gains, as Randi will tell you more about shortly.

These two older ships we have left are fully covered for most of 2023, with Iris Glory covered until Q3 and then in Venus Glory until Q4. We are doing the special service of these ships this year. Iris Glory is currently going through docking, where we are also installing ballast water treatment system and Venus Glory is scheduled for docking in May.

Then we have eight 2015 eco ships in our portfolio. The two ships without scrubbers, Chinook and Pampero, we have TCE coverage on. Chinook is a variable time charter where the rate fluctuates with the spot market, while Pampero is a fixed TCE, which we entered into last year when we sold Promise which had a TCE with a similar duration. So that means we have six ships clean spot exposure for 2023, with Iris Glory coming open end of the year.

We also have two dual fuel ships delivered last year on variable hire time charters, and then as I mentioned, we had Rigel delivery in February, which is also in the spot market and we expect her sister ship Avior to be delivered in May and she is also open and scheduled to trade in the spot market.

The last remaining newbuildings were originally scheduled for 2023, but there are certain postponements at the yards, so we expect those two ships to be delivered early 2024. Note that the new ships, the four last ships in our fleet are also ammonia ready.

So ship number three and four, Rigel and Avior, they can burn LPG, subject modification of the main engine, while Castor and Pollux can also be ammonia carriers, which give them a lot of trading flexibility and also have kind of put them in line to be net zero ships in the future if ammonia is the fuel for the future.

Also note the FFA coverage. We had a legacy FFA for Q1 about one-third of a ship at around $30,000 per day and then we have secured one ship for the full year at $47,500, as I mentioned. And then coming to 2024, we are fully open and have a very high level of market exposure.

Dividends, just we have touched upon this slide last quarter. I just want to give you update on this in terms of the parameters, earnings per share $0.45. We are paying out $0.50, slightly more than our earnings for the quarter. For the year, it’s in line with the earnings $1.16 and then $1.1 of dividends as I mentioned. And the decision factor here is earnings and cash flow, which is very good with the TCE improvements in Q4 and also the bookings for Q1 where we are basically replicating the earnings from Q4.

Backlog and visibility, we have three ships on fixed rate hire, three on variable hire and one ship on FFA and we have pretty good visibility this -- there. The market is pretty firm, where you are booking ships forward with quite a lot of time.

Liquidity position is strong, as Randi will tell you more about, $224 million of cash and we have no unfunded CapEx with actually $6 million positive cash effect from delivery given the newbuilding financing we put in place.

We don’t have any debt maturities before early 2027, no issues with covenants. So, with that due, we think it’s fair to pay out the full earnings or actually slightly ahead of the earnings for the quarter.

So that’s it for me for now. I will leave it to Randi to go through the numbers in a bit more detail.

[Randi Bekkelund, Chief Financial Officer]

Thank you, Øystein. Let’s go to slide six and have a look at our highlights from the income statement. As already Øystein presented, the fourth quarter was a solid quarter, with an achieved average time charter equivalent or TCE rate of $46,500 a day, up from $33,000 a day in the previous quarter. This is also in line with our guidance of $45,000 a day to $50,000 a day.

The fourth quarter results have a significant load-to-discharge adjustment of negative $10.8 million or a reduction of $9,300 in TCE per day as the market moved significantly upward and exceeded $100,000 a day at the end of the quarter compared to mid-30s at the end of the third quarter.

Our commercial TCE per day, also known as discharge-to-discharge, was therefore $55,800, slightly ahead of our guidance level of $50,000 per day to $55,000 per day. In these figures, we had a time charter coverage of 49% at an average TCE rate of $41,000 a day and a spot voyage of 51% of our vessel days, earning approximately $70,000 a day.

TCE for the full year 2022 was $38,200, compared to $31,300 a day in 2021. And the TCE on a discharge-to-discharge basis was $40,000 a day for the full year 2022 for comparison.

Operating expenses in per-day figures were $8,700 during the fourth quarter, which is slightly higher than previous quarter of $8,200. The increase was driven by higher travel expenses for crew due to imbalance in the air freight market, combined with somewhat higher spares and services than normal.

Operating expenses for the full year 2022 has come down from -- to $8,400 a day from the $9,000 a day levels we saw in 2021 and 2020. The decrease is mainly due to rollout of the vaccine having a positive effect, combined with the lower OpEx on our newbuilding.

In November, we successfully completed the sale of Promise, the 2009 built VLGC, with the TCE attached. The sale resulted in a gain of $7.9 million for the fourth quarter, bringing the total gain on sales to $18.7 million for the full year, which includes the sale of Thetis Glory in March and Providence in May.

The net profit was tripled from previous quarters, recording a net profit of $35 million for the fourth quarter, compared to $12 million for the third quarter. Net profit year-to-date is $89 million, is the best result Avance Gas has delivered in seven years since 2015 and this is even adjusting for the gain on sale of $18.7 million for the three older vessels.

Below the net profit, we have other comprehensive income, where we recognize our hedging position to mitigate the risk of rising interest rates. We have benefited quite well on our interest rate swaps, with a total gain of $26.5 million for the full year 2022. The total gain will be reclassified and recognized through our P&L until the maturity of our fleet facility in January 2028.

And we are happy again to share our good results with our shareholders and have declared a dividend of $0.50 per share or $38.3 million for the fourth quarter, bringing the total distributed dividend to $1.10 or $84.3 million for the fiscal year 2022, and as Øystein pointed, this is an attractive yield of 16%.

Moving to slide seven, we can see that 73% of our balance sheet consists of 12 VLGCs at year-end, which is becoming 14 very soon, as we took delivery of our third dual fuel VLGC, Avance Rigel just a few weeks ago and Avance Avior is scheduled for delivery in May this year.

While our two last newbuildings are expected to be delivered in 2024 and if that’s currently recognized as vessel under construction on newbuilds with pre-delivery costs being capitalized in charter [ph].

The newbuildings were contracted in 2019 and 2021 at an average price of 80 million per vessel. It’s today quoted at about $100 million each if you were to order a similar vessel today and the values on our newbuilding vessels amounts to, in total, $120 million in potential gains if we were value today.

Our cash position is and has been significantly improved during the year. It’s up from $102.9 million from the last year to $224 million at the end of 2022.

And that leads us to the next slide, the cash position showing the quarterly cash movement. We started the quarter with a cash balance of $188 million, and as the market moved upwards significantly, exceeding our normalized cash breakeven of about $22,000 per day, we generated $36 million in net cash flow from operations. This includes the scheduled debt repayments of $10 million.

We delivered Promise to the new owner in November, as committed, releasing a $20 million in net cash proceeds and we saw a peak in the interest rate market during the quarter. Therefore, we released an interest rate hedge position and cashed out a total gain of $8.4 million consisting of $6.1 million in cash and $2.3 million being amortized over the next 30 months.

Lastly, we paid out $15.3 million for the third quarter, as we did for the two first quarters and this adds up to a net positive movement of $36 million for the quarter. So in addition to the movements during the fourth quarter, we had a net increase of $87 million, bringing our total positive cash movements to $123 million for the year 2022.

And the increase comes from the divestment of Thetis Glory and Providence generating in total net cash proceeds of $47 million, we had a refinancing of $83 million and positive cash flow from operations of $88 million, offsetting -- offset by scheduled debt repayments of $30 million, dividends of $34.3 million and newbuilding CapEx of $65.5 million. This includes the pre-delivery costs and the net cash proceeds from delivery of our two first newbuildings.

And thereby, we have recorded a cash of $224 million as of December 31, 2022, which is the highest cash position recorded in Avance Gas’ history. And the cash -- the vessels on our balance sheet adds up or the share price really supports the book value here more than last quarter, I will say. Today, it’s about 85% price ratio despite the three recent sales as well above book values.

So moving to the next slide nine, we can see that our newbuilding program have been paid by about 50% of the total capital expenditure at year end and the remaining CapEx of $242 million is fully financed with bank facilities for Avance Rigel and Avance Avior, while Avance Castor and Avance Pollux is financed with a sale leaseback arrangement which was signed in August last year.

This means that we have no unfunded newbuilding CapEx, actually it’s also funded with $8 million at year end and the financing of our newbuilding program is now completed. Besides concluding the financing of our newbuilding program, we refinanced our fleet bank facility consisting of nine vessels in May last year.

This significantly improved the terms compared to what we have, where we have achieved longer repayment profile from 2018 to 2022 years. We have increased our revolver capacity to utilize the flexibility to manage and optimize cash. We have lowered the margin and longer our tenure, pushing our first debt maturity from June 2024 to February 2027.

And with staggered debt, no unfunded newbuilding CapEx, a solid cash position and strong earnings, we are well positioned to continue returning value to our shareholders as we have done in the past year.

And with that, I hand the word over to you, Øystein, for the market stuff.

[Øystein Kalleklev, Executive Chairman]

Okay. Thank you, Randi. Let’s go to some market slides here and let’s start with our overview of the market 2022. So the VLGC market, which is the big gas carriers, that market or the cargoes grew with 10% during 2022. There are two main export markets, it’s Middle East and North America.

We saw very strong growth in the Middle East despite OPEC holding back oil volumes at a certain time, but some of the companies increased their export by 29% to 46%. U.S. was more muted in 2022, but still this is the biggest export market. So, altogether, this translates to about 90 million tons, which is the vast majority of the seaborne LPG exports.

On the import side, we saw widespread growth China, despite COVID -- zero COVID policies, grew their imports by close to 10% for the year, despite LNG imports being down 20% for the year.

Europe, with the energy crisis also had to substitute feedstock and increase their imports by 55%, although Europe is a rather small for seaborne LPG.

If we look at the key import nations, as I mentioned, China, very strong growth despite still COVID policies. It’s a price sensitive market where you have a lot of substitution and LPG prices have been at a very low level.

At the same time, China is ramping up a lot of new plastics factories, so we do expect growth to China to continue to be strong in the years going forward and then you do see some European countries also here on the list being big import nations.

Let’s jump to U.S., which is the most interesting market. U.S. have had a very high inventories. Production of LPG is very high. At the same time, we have had less domestic demand due to our warmer winter than normal, so U.S. inventories are staying at very high levels, 25% above 10-year average and this has put a dent on domestic prices in U.S. and widened the arbitrage to international markets. And we do expect U.S. to come out of the season here with very, very high LPG inventory levels.

While U.S. growth in the LPG sector was a bit muted in 2022, we don’t expect that to be the case in 2023, with the energy information agency forecasting 16% export growth in 2023 and then somewhat lower in 2024 with 4%. So we do expect U.S., which is also our export nation with long sailing distances to the end consumer market to grow very steadily during 2023.

Let’s -- and then, of course, if we have about 45% of the cargoes flowing out of U.S. to markets mainly in Asia. These cargoes often mostly have to go through the Panama Canal. Panama Canal has been plugged at several locations and it happened really quite a lot here during November, when LPG rates went to all-time high levels.

So we do see that the Panama congestion is affecting vessel availability and we have -- and we also have where lack of ships are also driving the arbitrage, not only the arbitrage driving the freight levels, but they both work in our feedback loop. So if you are looking at the arbitrage from U.S. to Japan or China for that matter, the arbitrage levels have been keeping at very competitive levels for freight during the last couple of months.

Turning back to Panama Canal on slide 14 just to illustrate how this works in real life. In ideal situation, you would like to take a U.S. Gulf Coast cargo through the Panama Canal and ending up in China, 10,500 nautical miles or 58 days round trip at 15 knots. This is without any waiting time. So in real life typically the round trip would be slightly higher and also depending on whether you are discharging in one or very often two ports or maybe even three ports.

When the Panama Canal is clogging, because usually of high demand also for container ships and LNG ships, then, of course, the alternatives are either going through Suez Canal, which is adding about 4,000 nautical miles and resulting in a round trip of 81 days or saving the canal fees in Suez, going through Cape of Good Hope and you can get to 15,800 nautical miles, turning into 88 days on efficient round trip or 30 days more, so this is really driving ton mileage.

And at the same time, we do see the Panama Canal being clogged. It creates a lot of uncertainty when you are fixing a ship and you have a laden or let’s call it the loading day when you have to be at a terminal, and usually, when you fix the ship, you have maybe a window of two days to meet that laden for loading the cargoes, but you have -- if you have a ship in Asia, it’s very hard to predict how long the waiting time in Panama will be, will it be six days or will it be up to 25 days as it was in November.

At the same time, we do see the fees for going through Panama Canal basically doubling from 2022 to 2025, which also puts further incentive to go around the Panama Canal, taking other routes, thereby also making sure you have a fixed rate and that you can guarantee, because if you are not missing the laden for loading the cargo and if the market drops here are typically also dropped from that voyage, which means that you need to fix your ship again. So this is creating a bit different trading pattern which in general is positive for freight.

Yeah, turning to 15. Again it’s a bit same story, the arbitrage. If we look at the levels arbitrage, on right-hand side, staying at around $150 per ton. We do see the dark blue line, which is the Mont Belvieu, the U.S. domestic propane price and then the lighter blue color being the Far East Asia price. There is a substantial spread there. And then depending on the supply and demand of ships in the market, that will affect how much of this arbitrage is ending up with the cargo owners or with the ship owners.

But the TCE potential for 2023 and 2024 is $67,000 and $56,000 for a non-scrubber vessel, and then of course, the ships fitted with a scrubber, they have access to cheaper fuel, so the economics for those ships are substantially better at $74,000 a day and $62,000 a day, but again these arbitrages are changing quite a lot. They are quite volatile as the freight market is, so this is just a snapshot of how it looks today.

If we look at slide 16, we have had a speed reduction in the industry, with speed going down 4% in 2022 compared to 2021 and this -- with implementation of the carbon intensity indicator from 2023, we do think that some of the older ships will continue going slower with engine power limitation, which will result in less ships available in the spot market, and of course, whole base going up.

If we go to slide 17 and I think one of the teams people have been talking about for a long time it’s the order book for 2023. People have had in the past, especially last summer had a negative view on the market for 2023, because of all the scheduled deliveries for 2023 totaling about 46 ships, but we do see some slippage in for Avance freight, we have had four ships with contractual delivery date in 2023 and we do expect to take half of this in 2023 and then the last ones early 2024, so we do expect some slippage.

At the same time, we do see a lot of dry docking schedule for the year. Energy Aspects has a number of 76 scheduled -- VLGCs scheduled for dry docking this year. Other people are operating with somewhat lower numbers, but it’s a big jump in dry docking this year as the numbers depending on source being somewhere around 65 to 70 ships and they are skewed to the beginning of the year.

Additionally, scrubber economics are very compelling, so we do see people looking at installing scrubbers, which will entail the ships being longer in dry dock and we also see people installing ballast water treatment, as we are doing on two of our ships, which can also lead to a somewhat longer dry docking period for the ships.

So in, all in all, I think, when you are getting to 2024 order book to fleet is 7% rather than the, yeah, 24% or 25% it is today. So we do think that getting through 2023 is important. That’s one of the reasons why we have taken some time charter coverage this year to protect ourselves for the possibility of some oversupply of ships and then we are fully open from 2024 onwards to take, there is the benefit of a much tighter shipping market.

So then the highlight of today, I hope is amidst of those special VLGC edition we have from time-to-time some investors having some concern about the VLGC market, so we have kind of made the top five worries that people are concerned about when they are investing in the sector and tried to address those concern and give some data to them.

So let’s start with number one, the most typical concern, which is the order book is too big. As I mentioned, 24%, 25% order book compared to fleet depends a bit on whether you are counting in the deliveries already for the year.

In historical perspectives, yeah, it’s about average. We have had situation where order book has been a lot higher. These are typically also driven by technology changes. We had the eco class in 2014, 2015, which resulted in this big spike in order book and coincided also with U.S. becoming exporter and then we had this sort of spike 2006 to 2009, where we also had a lot of deliveries.

At the same time, the fleet is also aging. There’s hardly been any scrapping in this sector over the last couple of years and we do have today 58 older ships, which are expecting to be scrapped. One of the reasons they have not been scrapped is the shadow fleet of ships being in captive trade between Iran and typically China and these numbers of ship being in this trade is just increasing month by month.

And as I mentioned on the last call in November, the number was then 44 ships, so this number is increasing and is leading to scrapping being delayed, but the order book today 69 ships compares favorable to the older ships.

And then point number two. It’s also maybe important to take into consideration. This is not really a zero sum game. One thing is order book compared to kind of the scrapping candidates, but that is more the sense in a flat market where you don’t really have any growth.

But seaborne trade in LPG is growing quite steadily, so the growth will take care of the newbuilding demand, with a CAGR since 2012 of 7% average annual growth. And even in COVID, you do see that there was very limited decline in growth for LPG, 2019, 106 million tons, going down to 105 tons million in 2020 and then bouncing to 112 million tons in 2021. So it’s a fairly resilient fuel, because it has a lot of users and it’s generally also cheap.

And of course, as I mentioned, seaborne trade share of LPG consumption is increasing. One of the main reasons for this is U.S. becoming a huge exporter, the biggest and they are very far away from the end consumers and they then tend to trade the LPG export on very large gas carriers.

So that was number one and two. Another concern that typically pops up is people think the rates are volatile and I don’t disagree. We have seen this year rates going too far above $100,000 at the end of last year, falling down to -- in the 30s, before bouncing back now to, let’s say, call it, around $80,000 per day.

So for sure, the rates are volatile, but one -- that’s fine, but what you also have to measure is what are the rate levels compared to your cash breakeven. So we have kind of showing the VLGC rates last 10 years compared to cash breakeven of assumed $22,500 per day in line with cash breakeven levels and how often are you then underwater on the earnings compared to your cash breakeven and actually it’s just one-third of the months.

And then if we are looking at kind of the distribution of earnings and then comparing these to other commodity shipping segments, we will see the very large good carriers and big bulk driver ships, Capesizes. We look at the distribution of these and you will see that the VLGC is more even.

You see that on the VLCC you have periods where you can make a lot of money, but also periods where you are underwater more often, where you basically have cash -- positive cash flow 46% of the months the last 10 years and even less so for Capesizes, which have had positive cash flow 30% of the months last 10 years.

Of course, the market is not stupid. So this is also one of the reasons why VLCC and Capesize order books today are very low and why I don’t think the cash flow projection for the last 10 years can be projected into the future.

The outlook for VLCC and Capesize, I do think, look a lot more compelling today, because they have been through a cycle of capping. While the VLGC, as I mentioned, the order book is on par with what it has been in the past and we have a growing sector.

Then we always have number four, which is a bit more technical. It’s more that if, of course, naphtha is a substitute for propane. So if economics are too good, you could always have naphtha coming in, replacing propane and killing your economics.

But if you look at the numbers the last, yeah, since January 2022, actually in this Q4 when we have had very favorable freight rates, the spread from naphtha and propane has not been really good. Despite that, earnings for VLGCs have been fantastic. So we haven’t really seen that the naphtha has been replacing propane and killing kind of the VLGC market at least for the last cycle.

Last item, it’s more a, am I too late to buy the stock and then it’s about calculating what is the net asset value? So, yes, our stock has gone up quite a lot the last year or so, but so has also the newbuilding prices. So newbuilding prices, as Randi mentioned, we have ordered six ships at more or less the bottom of the cycle, $80 million.

If you have re-trade vintage just had a story about will you see newbuilding prices now being quoted at around $100 million, that is for ships delivery 2025, 2026. So you are tying off a lot of capital then until you can take delivery. And now having a ship in the market is very positive because the rates are pretty good.

So and then if you look at resale numbers, resale numbers have gone up quite a lot. It’s been a good and liquid secondhand market. We -- as I mentioned, we have been selling three ships in the last year and we also have RBW [ph] coming out today announcing quite a few ship sales, where we are looking at $50 million, $60 million for 15-year-old VLGCs.

So if you then kind of $50 million, $60 million for our two -- the last remaining VLGCs, the kind of the secondhand values for a five-year-old VLGC is at around $80 million according to Clarksons. So if you are putting in $70 million for each of the 2015 VLGCs and then $100 million for the dual fuel VLGCs we have, maybe it’s a bit on the low side, if newbuilding prices for delivery 2025, 2026 is $100 million, then maybe this number should be higher.

But for simplicity, let’s assume $100 million. Then you have a fleet value of $1.26 billion. We have some working capital. We are putting, as Randi mentioned, about half of our fleet on time charter and then half of the feet on voyage charter, and on voyage charters, you typically have some working capital, where you are getting paid in -- after you discharge your cargo rather than in advance like you have on a time charter and we have some derivative -- we have a derivative book which is pretty good in the money, so that is $31 million.

We have remaining CapEx of $242 million. As Randi mentioned, this is fully covered by debt of $250 million, but regardless it’s still remaining CapEx. And then our net debt was $228 million, so then the net value here is $821 million, it would be costing you to replicate Avance Gas either through newbuildings or resales.

We have 77 million shares in the company and that gives kind of cost of making a new Avance Gas at around $11 per share and our share price today is, I believe, yeah, $6.6. So that means that there should be plenty of upside despite the stock going up, because newbuilding prices and secondhand prices has gone -- also moved up quite a lot the last year or so.

So that’s it for me and just to repeat the highlights. Strong quarter, we had a big mismatch on the load-to-discharge and discharge-to-discharge numbers, but $46,500, in line with guidance, on the load-to-discharge, $55,800 on the discharge-to-discharge, slightly ahead of guidance, turning into a profit of close to $35 million for the quarter or close to $90 million for the year.

We have taken delivery of our third VLGC, Avance Rigel, sister ship coming in May. Both ships dedicated to the spot market. We recently sold a ship at a healthy book gain. We have covered -- taken out some more coverage for the year.

We are 98% covered for Q1 and we expect Q1 to be on par with Q4 on a discharge-to-discharge basis and a much better numbers on a load-to-discharge basis. And we are already booking Q2 numbers at good levels and we have decided to hike the dividend to $0.50, which gives our investors, hopefully, a compelling yield.

So that’s it for me. Let’s check whether we have some questions.

[Operator]

Certainly. [Operator Instructions] And I am not showing any questions at this time. I’d like to turn the program back to management for any further remarks.

[Øystein Kalleklev, Executive Chairman]

Yeah. Thank you. Nobody wants to talk on the phone anymore. Everybody wants to chat. So we have two chat questions here. I think I will start with Ethan [ph] from Fearnley, which is asking us, given your cash position and no unfunded CapEx, et cetera, et cetera, is it fair to assume 100% of earnings being paid out going forward?

I think, as we said it in the Q3 report in November. I think I said something like this, some shipping companies are bragging that they are paying out 50% of earnings in dividends. We are not planning to do that. We are planning to pay out everything.

So as long as we have a fairly good outlook and a good financial position, we don’t see any reason to be holding back all that cash. Cash today has a much higher value than it had -- before had started to raise interest rates.

You can now put your money to 5% with the U.S. Government or you can put it to us at 16% or 29% yield. So we are rather paying out full earnings. We are actually paying in excess of earnings for this quarter despite some of earnings coming from our asset sale.

So, yeah, I think it’s fair to assume 100% dividend in terms of earnings, at least as long as we have a positive outlook and I think the financial position is super for us. Nothing is going to change there any day soon.

So, yeah, I got -- yeah. And then we have one more question, Yun Nicolai, Skolan [ph]. Could you give some more color on the 63% book on good levels in Q2 2023?

I was maybe expecting that question and I think I touched upon it in the introduction here, that it’s too early for us to give our assessment of the TCE. We have three ships on variable hire rate, so we have no idea what that number is going to be. The spot market rates will decide the earnings on those three ships.

What we know for sure is we are going to have 100% utilization on the ships. I would say, two of the ships we have, we have a fairly good floor level on in line with cash breakeven. So those ships tend to perform better in a worse market, where we -- despite more rates going very low, we will still be able to get our cash breakeven level on them. The other remaining ship has more upside than downsides protection, which I think is a good combination.

So, but what we are doing now is, of course, we are fixing ships where the voyage is going well into Q2. And of course, as I mentioned, rates today are at around $80,000 per day, which means that you can book pretty good coverage for Q2.

Additionally, we have three ships on fixed hire TCE and we have these three ships on variable hire [Technical Difficulty] I think I have quick bring in my eyes on to this call because there is some volume all the time. And then we have three ships on variable hire rate and one FFA coverage. That’s why we have such a high coverage for Q2. It’s three ships fixed TCE, three ships variable hire, one FFA. It’s -- but it’s too early to give our TCE rates, but once I am back here in May, we will give you more details on the expected TCE.

Yeah, last question, which is not really an investor question, of a guy who wants to join our group, asking us if there are career opportunities and he would like to get employed. Yes and whether it’s possible to get directly hired by the Avance Group rather than through ship manager?

So just to tell you a bit about that. In order to kind of be cost efficient, we have a pretty good OpEx, as Randi informed you about and even more so on the general and administration costs. In order to be able to deliver such good OpEx numbers, we are reliant on having good ship managers.

So in the office area in Oslo, where we are running the shipping companies day-to-day, we have around 250 ships we are operating on our platform. It’s tankers in Frontline. It’s more than 100 dry bulks in Golden Ocean. It’s a lot of ships in SFL. Altogether, they have around 75 ships and then 13 LNG ships in Flex LNG and then there are 16 VLGCs in Avance.

So in order -- so we have a kind of scale of economics to run shipping companies and we -- but we use outside managers to run our ships in order to have access to pools, purchasing, maritime, IT. So we have today two manager of our ships, Northern Marine and Bernhard Schulte. They are operating our ships and that gives us a way to kind of level the kind of the platform despite Avance Gas being a fairly small shipping company. So I hope that gave you some input.

And then we got one more question while I was talking here. With your effective valuation relative to the calculated value of Avance Gas, do you consider share buybacks?

Well, I don’t really agree. I do think I calculated our costs of replicating this company by buying or ordering new ships at $11 per share. Our share price today is about $6.6, $6.7. So I don’t really see that the value being attractive, but I think maybe what you are meaning will -- the stock is attractive to buyback.

In that sense, I think, it’s a bit hard for us to buy back shares, I have said this in the past. We have one dominant shareholder, Hemen, who owns 77% of shares. So we have an exemption from Oslo Stock Exchange, which typically require a free float of 25%. We have less than 25%.

We have an exemption from the Oslo Stock Exchange to still be listed and that makes it hard for us to buy back the stock. Instead, we are maximizing dividend to you guys who are all investors and then if you think the valuation is attractive, you can reinvest that dividend in buying more shares.

So I think that’s it for us. Yeah. Okay. Thank you everybody for joining the call. We will be back in May with our Q1 numbers and then I will give more details on what we mean with attractive bookings for Q2. Thank you.

[Operator]

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.