Q3 2021 Analysis – Ensuring the Best Long-term Returns For Our Shareholders

Ensuring the Best Long-term Returns For Our Shareholders

Q2 2021 Highlights

• Generated Q3 net profit after tax of USD 29.3 million
• Achieved Q3 VLGC freight rates of USD 27,800 per calendar day, or USD 30,100 per available day
• Retrofitted two VLGCs with LPG dual-fuel propulsion engines and installed SMARTship technology on three VLGCs in Q3
• Concluded the sale and delivery of one vessel in July and two vessels in August, and exercised the purchase option on one time charter-in VLGC in August
• Declared Q3 cash dividend of USD 0.10 per share amounting to USD 13.8 million

Overview

The third quarter allowed us to again deliver decent returns and we remain optimistic that 2021 will be another year with good returns from BW LPG. The shipping industry is at a crossroads, and shipowners must plan the next steps carefully. At BW LPG, our focus is to ensure the best long term returns for our shareholders. Our strategy includes optimising the returns on our assets, through LPG propulsion retrofits, buying and selling vessels opportunistically, having a strong balance sheet, and utilising technology to optimise voyage returns.

Solid Finances

We reported a Q3 2021 net profit after tax of USD 29.3 million,  yielding an annualised return on equity of 8.8% with USD 105.6 million of free cash flow. EBITDA was USD 65.5 million for Q3 2021, representing an EBITDA margin of 62.5% for the quarter. Earnings per share was USD 0.20. Q3 2021 VLGC freight rates were USD 27,800 per calendar day, or USD 30,100 per available day with 98% commercial utilization. Time Charter Equivalent (“TCE”) income increased to USD 104.8 million for Q3 2021, mainly due to increase in LPG spot rates and partially offset by lower fleet utilisation, the latter due to our ongoing LPG retrofitting program.

The Board declared a Q3 2021 cash dividend of USD 0.10 per share amounting to USD 13.8 million.

Focusing on Technology

We have to cater to short-term market and investor demands, and also accommodate long-term developments in technology and regulations. We strive to maximise the return on our assets and one important way we are doing so, is through focusing on technology. Pioneering LPG propulsion technology now powers 10 of our VLGCs. This is the world’s largest fleet of lower-emission VLGCs.

LPG has the lowest GHG emissions profile of any carbon-based fuel. With LPG, we benefit from a 17% decline in CO2 emissions versus MGO. And by retrofitting, we save over one million tons in CO2 emissions versus ordering newbuilds. With ten vessels on water, two at yard and over 10,000 hours in operation, we have proved that the LPG propulsion technology works. Our program to retrofit 15 of our VLGCs with this technology will be completed in the first half of 2022.

We also continue to invest in digitalization. SMARTship technology onboard our ships enables real-time data transfers between ship and shore. Together with other initiatives such as smart weather routing, we reduce fuel consumption which not only means lesser emissions, but also greater savings.

Strategy At Play

At BW LPG, our focus is to ensure the best long term returns for our shareholders. This strategy includes optimising the returns on our assets, through LPG propulsion retrofits, buying and selling vessels opportunistically, having a strong balance sheet, and utilising technology to optimise voyage returns.

And we do walk the talk. We have been strengthening our financial position and de-leveraging our balance sheet since 2020. We have USD 256 million of undrawn revolving credit facility and USD 127 million cash. Our available liquidity is at USD 383 million with the lowest net leverage ratio in seven years at 36%. This strong balance sheet prepares us for all kinds of market conditions and allows us to participate in sizable and attractive investments in the LPG value chain.

In Q3, we divested our less economic and efficient vessels at very attractive levels and well above new-build equivalent prices and generated USD 81 million in liquidity and a net gain of USD 9 million. These asset transactions are an integral part of our strategy. In order to provide healthy returns over the cycle, we need to deliver steady operations and sound commercial decisions. Thus we find it highly rational to sell our least favourable assets at prices at or above NAV while the stock market is valuing these assets at more than 40% discount.

Market Outlook

Currently the market is robust, and we expect rates to continue to firm up. This is driven by strong fundamentals, such as winter heating demand in Asia and increasing shipping inefficiencies especially at the Panama Canal. We continue to be optimistic for next year. The current high oil and gas prices will support stronger production growth out of both US and Middle East. The shipping inefficiencies will continue to support the ton-mile demand, offset vessel supplies and add market volatilities.