Dorian LPG Ltd., a leading owner and operator of modern very large gas carriers (“VLGCs”), today reported its financial results for the three months ended December 31, 2021.
Highlights for the Third Quarter Fiscal Year 2022
• Completed the refinancing of Constellation and Commander resulting in $34.9 million of net cash proceeds.
• Competed the repurchase of Captain John NP by repaying the outstanding debt of $15.8 million, leaving the vessel debt free.
• Revenues of $68.6 million and Time Charter Equivalent (“TCE”)(1) rate for our fleet of $33,508 for the three months ended December 31, 2021, compared to revenues of $88.5 million and TCE rate for our fleet of $42,298 for the three months ended December 31, 2020.
• Net income of $16.6 million, or $0.41 earnings per diluted share (“EPS”), and adjusted net income(1) of $13.5 million, or $0.34 adjusted earnings per diluted share (“adjusted EPS”),(1) for the three months ended December 31, 2021.
• Adjusted EBITDA(1) of $39.4 million for the three months ended December 31, 2021.
TCE, adjusted net income, adjusted EPS and adjusted EBITDA are non-U.S. GAAP measures. Refer to the reconciliation of revenues to TCE, net income to adjusted net income, EPS to adjusted EPS and net income to adjusted EBITDA included in this press release under the heading “Financial Information.”
Key Recent Developments
During January 2022, declared and paid a cash dividend of $1.00 per share of our common stock to all shareholders of record as of the close of business on January 14, 2022.
Competed the repurchase of Captain Nicholas ML by repaying the outstanding debt of $17.8 million, leaving the vessel debt free.
On February 2, 2022, our Board of Directors authorized the repurchase of up to $100.0 million of our common shares.
John C. Hadjipateras, Chairman, President and Chief Executive Officer of the Company, commented, “Our solid results in the quarter have allowed us to return capital to shareholders with the payment of a dividend in January and we have approved a new authority to repurchase our shares. Our liquidity continues to be strong and our view of the market for 2022 is sanguine.”
Third Quarter Fiscal Year 2022 Results Summary
Net income amounted to $16.6 million, or $0.41 per diluted share, for the three months ended December 31, 2021, compared to $35.8 million, or $0.71 per diluted share, for the three months ended December 31, 2020.
Adjusted net income amounted to $13.5 million, or $0.34 per diluted share, for the three months ended December 31, 2021, compared to adjusted net income of $35.3 million, or $0.70 per diluted share, for the three months ended December 31, 2020. Net income for the three months ended December 31, 2021 is adjusted to exclude an unrealized gain on derivative instruments of $3.1 million. Please refer to the reconciliation of net income to adjusted net income, which appears later in this press release.
The $21.8 million decrease in adjusted net income for the three months ended December 31, 2021, compared to the three months ended December 31, 2020, is primarily attributable to a decrease of $19.9 million in revenues; increases of $1.3 million in interest and finance costs, $0.5 million in charter hire expenses, $0.4 million in general and administrative costs, a $1.1 million unfavorable change in other gain/(loss), and a $0.1 million unfavorable change in realized loss on derivatives; partially offset by decreases of $1.0 million in vessel operating expenses and $0.4 million in depreciation and amortization.
The TCE rate for our fleet was $33,508 for the three months ended December 31, 2021, a 20.8% decrease from a TCE rate of $42,298 for the same period in the prior year, which was primarily due to higher bunker prices along with reduced spot rates. Please see footnote 7 to the table in “Financial Information” below for information related to how we calculate TCE. Total fleet utilization (including the utilization of our vessels deployed in the Helios Pool) increased from 96.2% during the three months ended December 31, 2020 to 98.5% during the three months ended December 31, 2021.
Vessel operating expenses per day decreased to $9,423 for the three months ended December 31, 2021 compared to $9,487 in the same period in the prior year. Please see “Vessel Operating Expenses” below for more information.
Revenues
Revenues, which represent net pool revenues—related party, time charters and other revenues, net, were $68.6 million for the three months ended December 31, 2021, a decrease of $19.9 million, or 22.5%, from $88.5 million for the three months ended December 31, 2020 primarily due to a decrease in average TCE rates despite an increase in fleet utilization. Average TCE rates decreased by $8,790 from $42,298 for the three months ended December 31, 2020 to $33,508 for the three months ended December 31, 2021, primarily due to higher bunker prices along with reduced spot rates. The average price of very low sulfur fuel oil (expressed as U.S. dollars per metric ton), from Singapore and Fujairah increased from $361 during the three months ended December 31, 2020 to $609 during the three months ended December 31, 2021. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot market rate for the benchmark Ras Tanura-Chiba route (expressed as U.S. dollars per metric ton), averaged $59.252 during the three months ended December 31, 2021 compared to an average of $75.797 for the three months ended December 31, 2020. Our fleet utilization increased from 96.2% during the three months ended December 31, 2020 to 98.5% during the three months ended December 31, 2021.
Charter Hire Expenses
Charter hire expenses for the vessels chartered in from third parties were $4.9 million and $4.4 million for the three months ended December 31, 2021 and 2020, respectively. The increase of $0.5 million, or 12.0%, was mainly caused by a higher charter-in rate on the vessel we took delivery of in October 2021 compared to the vessel that was chartered-in during the three months ended December 31, 2020 and subsequently redelivered.
Vessel Operating Expenses
Vessel operating expenses were $18.2 million during the three months ended December 31, 2021, or $9,423 per vessel per calendar day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time-period for the technically-managed vessels that were in our fleet. Vessel operating expenses for the three months ended December 31, 2020 were $19.2 million. The decrease of $1.0 million was due to a reduction of calendar days for our fleet from 2,024 during the three months ended December 31, 2020 to 1,932 during the three months ended December 31, 2021, driven by the sale of Captain Markos NL. Vessel operating expenses per vessel per calendar day remained relatively constant, decreasing by $64 from $9,487 for the three months ended December 31, 2020.
General and Administrative Expenses
General and administrative expenses were $5.9 million for the three months ended December 31, 2021, an increase of $0.4 million, or 5.7%, from $5.5 million for the three months ended December 31, 2020. This increase was driven by increases of $0.4 million in legal and professional fees and $0.1 million in stock-based compensation related to the accelerated vesting of restricted stock grants for certain employees in connection with the transfer of operations from our London office to our Copenhagen office.
Interest and Finance Costs
Interest and finance costs amounted to $7.4 million for the three months ended December 31, 2021, an increase of $1.3 million, or 21.8%, from $6.1 million for the three months ended December 31, 2020. The increase of $1.3 million during this period was mainly due to increases of $1.1 million in amortization of deferred financing fees and $0.2 million in interest incurred on our long-term debt. The increase in amortization mainly resulted from accelerated amortization of $1.0 million related to the refinancing of Commander and Constellation during the three months ended December 31, 2021. The increase in interest on our long-term debt was driven by the settlement of certain fixed interest rate obligations related to the prepayment of Captain John NP, partially offset by a reduction of average indebtedness and reduced floating interest rates. Average indebtedness, excluding deferred financing fees, decreased from $626.0 million for the three months ended December 31, 2020 to $576.0 million for the three months ended December 31, 2021. As of December 31, 2021, the outstanding balance of our long-term debt, net of deferred financing fees of $8.7 million, was $576.3 million.
Unrealized Gain on Derivatives
Unrealized gain on derivatives amounted to $3.1 million for the three months ended December 31, 2021, compared to $0.5 million for the three months ended December 31, 2020. The favorable $2.6 million difference is primarily attributable to a $2.7 million increase in favorable fair value changes to our interest rate swaps resulting from changes in forward LIBOR yield curves and certain of our swaps nearing maturity, partially offset by a decrease of $0.1 million in favorable changes to our forward freight agreement positions during the three months ended December 31, 2020 that did not recur in the current period.
Fleet
Market Outlook & Update
Crude oil prices rose substantially at the start of the fourth calendar quarter of 2021 with Brent prices increasing from an average of $74 per barrel in September to an average of $84 per barrel in October. The West Texas Intermediate (WTI) prices followed a similar trend. This rise in crude prices increased flat prices of propane and butane and naphtha globally. Towards the end of the quarter however, the prices of crude oil, propane and butane all decreased. Naphtha prices remained firmer compared to propane resulting in the propane-naphtha spread in North-Western Europe turning negative in December, reaching an average of ($46) per ton, down from an average of $57 per ton in November and an average of $68 per ton in October. A similar trend to that seen in North-Western Europe was observed in the Far East region, though the propane-naphtha spread remained positive on average for December 2021 in the Far East region.
The changes observed in propane-naphtha spreads were reflected in petrochemical plant margins with propane providing the higher margin to produce ethylene over naphtha in December in North-Western Europe (according to consultant Next-Generation Logistic Ship’s proprietary model). After negative margins for propane utilization in steam cracking and propane dehydrogenation (PDH) plants (for the production of propylene) in North-Eastern Asia throughout October, margins were seen to improve throughout the fourth calendar quarter of 2021 with positive margins seen in December 2021 (although remaining marginal for most of the month).
In terms of global seaborne supply/demand, US exports in October 2021 remained at a similar level to September 2021 at 4.0 million tons. Throughout the quarter, U.S. exports again increased, reaching 4.5 million tons in November and 4.4 million tons in December. At the same time, imports into China, historically the largest importer, decreased throughout the fourth calendar quarter of 2021 declining from 2.15 million tons in August and September to approximately 2.05 million tons in October and November before falling further in December to 1.9 million tons.
Despite the fall in overall Chinese imports relative to the third calendar quarter of 2021, PDH demand continued to rise during the quarter. Propane demand for PDH plants in China rose from approximately 2.2 million tons in the third calendar quarter to 2.6 million tons in the fourth calendar quarter. Jinneng Science & Technology successfully started their new PDH plant at the end of the third calendar quarter and Ningxia Runfeng New Material Technology started their PDH plant during the fourth calendar quarter, bringing the total of new Chinese PDH plants in operation in 2021 to four. More PDH capacity is expected to be added as we move into 2022.
The Baltic VLGC index averaged approximately $59 per metric ton during the fourth calendar quarter of 2021, $17 per metric ton above the performance of the Baltic Index during the third calendar quarter of 2021.
Currently the VLGC orderbook stands at approximately 22% of the current global fleet. An additional 70 VLGCs equivalent to roughly 6.2 million cbm of carrying capacity are expected to be added to the global fleet by calendar year 2024. The average age of the global fleet is now approximately 10 years old.
The above market outlook update is based on information, data and estimates derived from industry sources, and there can be no assurances that such trends will continue or that anticipated developments in freight rates, export volumes, the VLGC orderbook or other market indicators will materialize. This information, data and estimates involve a number of assumptions and limitations, are subject to risks and uncertainties, and are subject to change based on various factors. You are cautioned not to give undue weight to such information, data and estimates. While we believe the market and industry information included in this release to be generally reliable, we have not independently verified any third-party information or verified that more recent information is not available.
Seasonality
Liquefied gases are primarily used for industrial and domestic heating, as a chemical and refinery feedstock, as a transportation fuel and in agriculture. The LPG shipping market historically has been stronger in the spring and summer months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and the supply of certain commodities. Demand for our vessels therefore may be stronger in the quarters ending June 30 and September 30 and relatively weaker during the quarters ending December 31 and March 31, although 12-month time charter rates tend to smooth these short-term fluctuations and recent LPG shipping market activity has not yielded the expected seasonal results. To the extent any of our time charters expire during the typically weaker fiscal quarters ending December 31 and March 31, it may not be possible to re-charter our vessels at similar rates. As a result, we may have to accept lower rates or experience off-hire time for our vessels, which may adversely impact our business, financial condition, and operating results.
Financial Information
In addition to the results of operations presented in accordance with U.S. GAAP, we provide adjusted net income and adjusted EPS. We believe that adjusted net income and adjusted EPS are useful to investors in understanding our underlying performance and business trends. Adjusted net income and adjusted EPS are not a measurement of financial performance or liquidity under U.S. GAAP; therefore, these non-U.S. GAAP measures should not be considered as an alternative or substitute for U.S. GAAP. The following table reconciles net income and EPS to adjusted net income and adjusted EPS, respectively, for the periods presented:
Source: Hellenic Shipping News
