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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings and welcome to the Dorian LPG Fourth Quarter and Full-Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. Additionally, a live webcast of today’s conference call is available on Dorian LPG’s website, which is www.dorianlpg.com.
Prior to turning the call over to John Hadjipateras, Chairman and Chief Executive Officer and President of Dorian LPG, I would like to read a forward-looking statement on behalf of the company.
Many of the company’s remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although the company believes that such forward-looking statements are reasonable, the company cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those the company expresses today. Additionally, let me refer you to the company’s fiscal fourth quarter 2018 results filed this morning with the SEC on Form 8-K, where you’ll find risk factors that could cause actual results to differ materially from those forward-looking statements.
I would now like to turn the conference over to John Hadjipateras. Please go ahead, Mr. Hadjipateras.
Thank you, Melissa, and thank you for joining us on our fourth quarter financial year earnings call. You would have seen our separate report on our earnings, which reflected a solid performance against a backdrop of a very challenging market.
Our balanced chartering policy, including opportunistically entering into time charters with creditworthy, counterparties has again proven its worth. We continue to maintain good control over our daily operating expenses. We do expect to complete new financing arrangements to repay all amounts due under our DNB bridge by the end of this quarter. Although I’m required to say that there can be no assurances that the closing and funding will take place in that timeframe or at all.
Having finished the quarter with $129 million of free cash and restricted cash, we feel good about our liquidity position. We are doing this call this time not in the usual format, where you’ll hear a review by me and then Ted on the finances and John on the market, but you all have the opportunity to ask Ted and John, who are sitting next to me of any questions you like, including I imagine there may be another topic that some of you may want to ask questions about, and here we are ready to go. Melissa?
Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Michael Webber with Wells Fargo. Please proceed with your question.
Hey, good morning, guys. How are you?
Good morning, Mike. Thank you.
Hi, Mike.
Hey, thanks for bumping up to Q&A. So, obviously, a lot of news out this morning. But I want to start with just at a high-level full risk question. It’s not often that we see companies reject an M&A offer at the same morning when they announced they’re delaying a 10-K filing which I presume would be because they would need to include risk around going concern, or going concerned language.
Can you help us make sense of that juxtaposition, particularly the fact that and did the fact that, you’re delaying the filing. And John, I think, you mentioned in your release or in your comments that there’s no guarantee that you get the completion. I know that’s legal language, but it’s a real risk. Did that impact the work factor into your decision-making process around rejecting the BW business?
No.
Why?
So – and Mike, I guess, first thing, as John said, there was no – there’s no juxtaposition or correlation between the two items. As we’ve said, we anticipate entering into these new financing arrangements by the end of this quarter. I think, that’s sort of says at all.
Well, no, Ted, I mean, like if you’re not putting annual filing out, right, because it would include language around the viability being going concerned and then rejecting an M&A offer in the same morning like without commenting on the viability of that offer, right, like the two would be related in a certain – to a certain degree.
So maybe can you help us just get comfortable with the risk profile here when investors see both of those announcements in the same morning, it seems like we would all be missing something, right, like the – can you just help us make sense of that that’s off the position, because there certainly is one?
No, there certainly isn’t Mike, it’s totally unrelated. The two things are totally unrelated. The postponement of the filing was a routine thing. We don’t believe, we’re in the process of making arrangements, which you and everybody should know, we have in the past being quite successful of concluding. And so it was just a question of timing.
The BW proposals was considered very thoroughly by our Board earlier this week and the outcome of that is what you saw this morning. And…
Okay.
….it is both. The two things are totally unrelated to one another. Our rejection of the proposal and the – what you asked now about the filing.
Okay, all right. I can follow-up on that offline. I guess, around the process and the bid from BW, can you talk a bit about what kind of dialogue you may have had with them? And maybe just stop there with this question, but can you kind of talk about, was there more dialogue than simply just the response that came out this morning? Is it – would this – is it an active conversation, or just two messages kind of crossing paths?
No, comments.
Okay. When I think about the rationale and the deck and it was helpful that you guys put that out. The valuation argument certainly makes sense at a certain level, but that’s fixable from a pricing perspective. The last aspect of the rationale around the – there’s basically the illusion of or the perceived dilution of enhanced liquidity, it seems like it’s more systemic. It seems like, if we think about the last couple iterations that we’ve seen a potential M&A would involve foreign listed entities. Is that the right way to interpret that, that the – outside that there’s the price issue and then there is the issue of liquidity and that’s not something you think that could really be solved with a dual listing at any price?
Yes, we don’t see any – we – like we said, we don’t see any potential increase in liquidity. And the valuation issue, I think, speaks for itself. There’s an incompatibility of assets. And yes, I mean, as far as liquidity is concerned, I think, you would know better than anyone that TORM listed their shares here in February. And to our understanding here is that since Feb – between February and now, they have traded $1 million worth of stock on American Exchange. So…
I think a lot of it depends on what the game plan would be after the dual listing, which trying to get back to my earlier question about what kind of dialogue you would have had with BW around that process, because certainly if you’re going to evaluate the liquidity of a combined entity, a lot of that would depend on what the game plan would be in terms of potentially migrating of the listing over here, in terms of how they thought about markets are raising new capital and where their focus would be. It seems like that would be something we need to be kind of flushed out in a bigger conversation?
Yes, look, the bottom line is that this kind of – this proposal would entail our shareholders financing and upgrade and a renewal of BW’s fleet. That’s the bottom line and this is what our Board concluded and this is what we have communicated today.
Okay. All right. I’ll stop there and turn it over to questions. Thanks, guys.
Thanks, Mike.
Thank you. [Operator Instructions] Our next question comes from the line of Noah Parquette with JPMorgan. Please proceed with your question.
Thanks. I want to just ask around the engine adjustment that you guys are working on for the 10-year shifts. Can you give a little more detail there. Is that neither on timing and CapEx needs and whether you think this might be something that will be more common among the VLGC fleet? Thanks.
Absolutely, yes, yes. We think is at 2020 looming and, of course, ballast water already upon us. This is a very important factor for every fleet and there has been a factor and the evaluation of what we’ve been talking about. But as far as our fleet is concerned, John Lycouris, who has been working on this, will give you some color on where we’re at and what we’ve been talking about and doing.
Hi, Noah. The engine upgrade will be possible in 2020, because the engine manufacturer is not going to be ready in design until then. There’s a tight schedule in getting these engines done and we have been working and wanting to do this upgrade for a long time. And we expect now that 2020 will be a likely target for our fleet to be upgraded.
There has been numerous discussions with the various stakeholders, which means engine manufacturers, plant, equipment and shipyards and builders. And we will be – keep our discussions and be able to steer the industry in that way as we have done up to now. So I’m pleased you asked that. Thank you.
Okay. I guess, that’s all I have.
Thank you. Our next question comes from the line of Mats Bye with DNB. Please proceed with your question.
Hi, it’s Nikolai [ph] calling. Would you share some of the savings with regards to on fuel efficiency – on fuel efficiency or fleet on BW, which was one of the four arguments you put forward?
We have a slide, which shows the time charter equivalent of different classes of ships at the same freight rate. If you take the freight rate and the same bunker price and calculate for the time charter equivalent and you can see that the modern Korean post 2014 onwards build ships had roughly $30 AG-Chiba freight rate produce a result of $15,000 a day, it’s at one end of the spectra.
The other end 2007 12 build $78,000 put at the same freight rate, so the same cost of carriage for the charter will produce a return to the owner of only $11,500 or less than a $11,.500 a day. That is – and that is based on today’s bunker prices, which could – especially if we’re looking at burning complaint fuel post January 2020, it could widen this delta dramatically.
Yes, thank you. I see the slides now. It’s helpful. Thank you.
Thank you. Ladies and gentlemen, we have come to the end of our time allotted for questions. I’ll turn the floor back to Mr. Hadjipateras for any final comments.
Thank you, Melissa. So I’d just like to say that to recap the four reasons for which the BW proposal was declined. The first and obvious one that we talked upon was the echo VLGC advantage, which is not being reflected in the valuation that they proposed. The chartering performance, which has been superior over the past – during the recent past has been – has not reflected.
The – our conviction about the – our leverage ratio, which we have tried very persistently to keep reasonable. And we do not want to see our shareholders go into a situation, where they will be owning. They will be part owners of a bigger fleet, but with an older fleet with more leverage in fact. That to us is one of the key reasons for our position. And like we said, the fuel listing we find that the promise of liquidity there is illusory.
So I want to thank you all for making time on a Friday and hope to be talking again soon. Thank you, Melissa.
Thank you. This concludes today’s teleconference. Your may disconnect your lines at this time. Thank you for your participation.