Epic Gas announces interim results

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Epic-Gas-02Epic Gas today (Thursday) announced its unaudited financial and operating results for the interim period ended 30th September.

Third quarter 2015 highlights included 3,404 Calendar days, up 11% year over year; revenue of $32.2 million, stable; adjusted EBITDA of $8.6 million, up 30% year over year; time charter equivalent revenues of $8,798 per vessel calendar day, up 4% year over year; general & administrative expenses of $1,081 per vessel calendar day, down 26% year over year; forward cover as of 30th September 2015 of $61.9 million: 7,396 days at $8,369 per day; remaining newbuilding program of seven owned vessels totalling $121 million in capital expenditure, plus one chartered-in vessel; senior secured credit facility for up to $120 million to finance remaining seven owned vessels under construction fully finalised.

Rates in the pressurised LPG sector for the third quarter 2015 were on average below the previous quarter and similar period in 2014, but by the end of the quarter were showing some marginal signs of recovery. Overall average rates, year on year, are approximately 20% lower in the 3,500cbm and 5,000cbm segment, whilst the rates for the 7,500cbm have dropped only marginally.

As of 30th September 2015, the order book for pressurised vessels stood at 23 ships and 178,300 cbm of capacity, representing 12% of the existing global pressurised fleet. During the third quarter, nine vessels representing a high of 60,300 cbm of capacity delivered. While two pressure vessels totalling 7,200 cbm in capacity were scrapped during the period.

Of the 309 pressurised ships on the water today, 14 vessels are 25 years or older, and could be considered candidates for scrapping, complemented by a further 23 small semi-ref vessels of a similar age. There are also another 42 vessels in the combined sector aged 20-24 years that are likely to be covering only operating costs if they are in the spot market – further scrapping will occur in the months ahead.

Tonne mile demand growth has been steady in most regions through the quarter as compared to Q3 2014 where the company saw a sharp slow-down in PRC, the Black Sea, and significant commodity price volatility.

Epic Gas loaded 1.9 million tons during the first nine months of 2015, up 47% year on year, in 757 liftings, with the average parcel size increasing by 10% to 2,511 tons. This increase in parcel size is driven by the growing average vessel size in the Epic Gas fleet.

In Asia, whilst new PDH (propane dehydrogenation) plants in China continue to negatively impact on propylene imports compared to previous years, the demand on pressurised tonnage has now stabilised, albeit at low levels. This remains negatively off-set by the initial impact of new-build tonnage which primarily delivers in this region.

In S E Asia, the company has seen a step up in transhipment from larger VLGC tonnage to smaller pressurised vessels for last mile delivery, with Epic Gas performing 30 such transhipment operations in the first three quarters of this year, up over 200% year to date. The Indian Ocean has absorbed a number of new builds for transport of both LPG and petrochemicals as existing trades up-scale to larger vessels, and as new tenders and infrastructure projects deliver.

West of Suez, the Black Sea and Eastern Mediterranean spot market has remained quieter – outside of its usual slow, warmer, summer ‘off-season’. We have seen continued volume in the Western Mediterranean as we remain active in last mile deliveries into West and North Africa.

Activity in North West Europe remains weak. For smaller pressurised vessels, we saw periods of increased activity driven by lower water levels on the Rhine, however the Moerdijk refinery also completed repairs and ceased LPG exports creating spare capacity. For the larger vessels, Moroccan butane imports have maintained a steady demand.

In the Americas, export growth apparent in the first half of the year has continued, with pressurised vessels gaining incremental US LPG export volumes. Within that context, Epic Gas’s US exports have seen an almost 200% increase year on year. Most of these pressurised cargoes are headed to retail LPG distributors in Latin America, however short term commodity price advantages combined with freight differentials have enabled larger pressurised vessels to also gain some share in the trans-Atlantic markets.

The company’s revenue of $8,798 per vessel calendar day, up 4% year over year, and a premium to the weighted average market during the period of over 5%, reflects the stable fleet of 37 vessels on the water, its diversified exposure to the global markets, its increased exposure to the larger pressurised vessels over 7,000cbm and also our first full quarter with revenue from our first 11,000cbm vessel.

The larger vessel earnings have remained firmer, whilst the company also sees the average rates for all pressurised LPG vessels in the west maintaining a 5% premium year to date.

During the quarter Epic Gas finalised its first COA in the West, which has led to increased time charter and COA activity, reducing its spot market exposure to 9% of total voyage days, the lowest level of spot exposure for Epic Gas since prior 2013.

Its primary spot exposure remains within its larger vessels trading in the West. While the majority of business will remain time charter in nature, the company expects to continue developing certain markets where its expertise, assets and class leading network density allow it to outperform the time charter market through a combination of COA and spot business.

The net impact means that its TCE has increased to $8,798 per day, up 4% year on year. Time Charter Earnings have reached a new record of $30 million, up 15% year on year.

Epic Gas says its in-house commercial and technical capabilities are critical to its ability to perform, especially in the prevailing market. It continued to deliver on higher utilisation in 2015, with its third quarter realised fleet utilisation of 96.3%, well above the 93.8% achieved in the third quarter of 2014. This includes 67 scheduled off-hire days during the quarter primarily related to routine dry dockings, compared to 29 days in the previous quarter, and nine days in the similar period in 2014.

As of 30th September 2015, the Company was 79% covered for Q4 2015, equivalent to 2,704 voyage days at an average daily TCE rate of $8,637, with 700 calendar days open. 3,932 days have already been covered for FY2016, predominately on smaller vessels, at a rate of $8,338 per day. Following period end, the Company has booked further business for the balance of FY2015 and is focused on booking further business for FY2016 and FY2017.

Vessel operating expenses per day fell quarter on quarter by 4% to $3,916 per vessel calendar day, albeit being 2% above the $3,824 per vessel calendar day achieved during the same period in 2014.

Voyage costs were down 71% year over year as the Company’s voyage charter activity declined 76% from 1,259 voyage days in Q3 2014 to 308 voyage days during Q3 2015. The 308 voyage charter days include 153 days of executed COA activity.

Charter-in costs increased $0.8 million to $3.9 million from $3.1 million for the three months ended 30th September 2015 and 2014, respectively. The difference was driven by the increase in the Company’s bareboat chartered-in fleet to an average of nine vessels from eight vessels for the three months ended September 30, 2015 and 2014, respectively. These nine vessels represented 828 calendar days, 24% of fleet calendar days, during Q3 2015 and had an average charter in cost per day of $4,700. Two of these bareboat contracts will expire by the end of 1H2016 and, as a result, a reduction in total operating expenses is expected.

General and administrative expenses decreased by 18% year over year from $4.5 million to $3.7million during the period. Coupled with the growth in the Company’s fleet, general and administrative expenses per vessel calendar day fell 26% to $1,081 which, in our integrated model, includes the cost of commercial and technical management of our fleet as well as all ownership and corporate-level general and administrative expenses. This figure is expected to improve as Epic Gas continues to improve the efficiency of its platform and service offering.

Finance expenses during the period increased from $2.9 million to $3.3 million primarily as a result of an increase in the Company’s total finance leases and bank borrowings. During the period, the Company’s cost of funds on its $265.4 million in average outstanding borrowings was 4.9%.

In July 2015, the Company closed on the sale of 22,222,222 newly issued shares in a private placement at an offering price of $2.25 per share. Following the transaction the Company has 51,948,022 shares outstanding. The net proceeds from the offering of $49.4 million will be used to partially finance the remaining obligations under the Company’s newbuilding programme and forgeneral corporate purposes.

During the period, the Company prepaid the remaining outstanding principal of $9 million on one of our loan facilities which was scheduled to mature in December 2015.

As of 30th September 2015, the Company had $61 million in cash, cash equivalents and restricted cash.

Epic Gas says it is the only owner offering customers the full spectrum of pressurised vessels, from 3,300cbm to 11,000cbm. The Company’s contracted growth and investment program, focused on vessels larger than 7,000cbm, continues through Q1 2017 when the last of the remaining eight vessels delivers. Of the eight vessels still to deliver, one will be chartered to Epic Gas under a long term bareboat charter, and seven are owned by Epic Gas.

As of 30th September 2015, $34.1 million in deposits have been made toward the construction of these seven owned vessels, leaving $121 million in remaining payments. $101 million will come in the form of a Term Loan Facility which was executed with ABN Amro Bank N.V., Crédit Agricole Corporate and Investment Bank and NIBC Bank N.V. in September 2015.

In October 2015, the Company entered into forward foreign exchange contracts to hedge yard instalments payable in Japanese Yen (JPY) related to the seven new buildings. The Company is now fully hedged in respect of its foreign currency payment obligations to Japanese yards. Following the hedge, Epic Gas has adjusted the amount of its remaining capex from $126 million to $121 million.