Prepared remarks
Good morning, good afternoon, good evening, everyone and thank you for joining us today. My name is Aline Anliker and I'm the Head of Corporate Communications at BW LPG. On behalf of the management team, I'd like to extend a warm welcome to all of our shareholders, investors, analysts and valued stakeholders joining us for our quarterly earnings presentation. We appreciate you taking the time to be with us and for your continued interest and confidence in our company. Joining me today are our CEO, Kristian Sørensen; and our CFO, Samantha Xu, who will walk you through the quarter's performance, key market developments and our strategic priorities moving forward. Following the presentation, we will open the floor for a Q&A session. You are welcome to submit questions throughout the presentation via the Q&A chat, or alternatively, raise your hand to ask your question directly during the Q&A part. Before we begin, I would like to draw your attention to the legal disclaimers shown on the current slide. Please also note that today's presentation is being recorded. And with that, it is my pleasure to hand over to our CEO, Kristian.
Thanks, Aline. Hi, everyone. Thanks for dialing in as we review our first quarter financial results and recent developments including our announced newbuildings and the Middle East situation, which is still overshadowing the markets. Let's turn to Slide 4, please. The first quarter was another one with significant geopolitical volatility, marked by increased inefficiencies from the Middle East conflict driving higher shipping demand from the U.S. and resulting in extraordinarily high freight rates, which we will cover in more detail in the market overview section. In addition, as disclosed over the weekend, we are pleased to announce that we have signed a contract for eight 90,000 cubic meter Panamax newbuildings with HHI with expected delivery from start 2029 until the second quarter of 2030. Further details will be covered on the next page. Moving on to the Q1 results. We reported a TCE income of $55,500 per available day above our guidance of $54,000 per day and $51,300 per calendar day. The Q1 profit after minority interest was $164 million, equivalent to an EPS of $1.08. Our trading branch, BW Product Services, reported a gross profit of $127 million and a profit after tax of $98 million for the quarter. The extraordinarily high results are mainly driven by large unrealized mark-to-market valuation gains of the portfolio. Provided no delays, we expect a large part of this to be realized by end of Q2. For the second quarter 2026, we're guiding on about $81,000 per day fixed for 85% of our available days. These are solid levels versus our all-in cash breakeven of $24,500 per day. The figure includes the fixed time charter coverage in the second quarter of 40% of our available days at $44,000 per day. Please see the appendix in this presentation for the full breakdown of time charter days and levels. The Board of Directors has declared a dividend of $0.67 per share with $0.56 representing 100% of our shipping NPAT in Q1 and $0.11 per share from Product Services as final dividend from 2025. Following the front-heavy drydocking activity in 2026 with 257 days related to drydocking in Q1 alone, the majority of the drydocking is now behind us. We expect off-hire days to reduce to approximately 105 days in the second quarter. In other subsequent events during the first quarter, we fixed BW Brage and BW Gemini for 5- and 3-year time charter-out agreements in the low $40,000 per day. We also fixed the BW Pampero, which is part of our India fleet, for a 1-year time charter out at high $60,000 per day with delivery in August. As the Middle East tensions have persisted and the Strait of Hormuz remains effectively closed, we still have one vessel from our India flag fleet inside the Persian Gulf on time charter. The two other vessels transited the Strait of Hormuz safely back in April. Turn to Slide 5, please. During the weekend, we announced that we have signed a contract for the construction of eight 90,000 cubic meter Panamax VLGCs, with an average newbuilding price of approximately $117.5 million per vessel. This is subject to final technical specifications on the respective vessels. The newbuildings are expected to be delivered from start 2029 until the second quarter of 2030. This newbuilding series underpins our ongoing fleet renewal program, reducing the average age of the current fleet by about three years after the last newbuilding delivery. Furthermore, the Panamax newbuildings represent the most flexible design, future-proofing our fleet composition. Newbuilding prices have eased from peak levels around $125 million some years ago, while shipyard capacity remains constrained for the foreseeable future in a high energy price environment. This is likely to increase inflationary pressure in the way we see it. Against this backdrop, the timing of the newbuilding order is supported by a strong balance sheet, enabling fleet renewal and capital structure optimization by balancing shareholder returns with long-term value creation. Furthermore, the newbuilding deliveries follow the peak of the order book in 2027 and '28, coinciding with additional U.S. and Middle East LPG export capacity coming online. Various financing options are currently being considered with 30% of total newbuilding price to be paid within the next six months. Next slide, please. Now let's take a look at the market. Increasing inefficiencies are reshaping LPG shipping economics and driving a historically strong VLGC market. The LPG shipping market entered 2026 on a strong footing, supported by solid U.S. LPG production growth and accelerated ramp-up in export capacity. Following the geopolitical disruptions, the market has experienced simultaneous reactions that are reshaping trade dynamics, increasing inefficiencies, absorbing shipping capacity and ultimately supporting higher freight rates. Heading into 2026, U.S. propane inventory stood well above historical norms at around 100 million barrels versus 85 million barrels a year earlier. Strong production, combined with stable domestic demand, created a persistent export surplus. At the same time, infrastructure developments added further momentum with the Energy Transfer, Targa and enterprise terminal expansions ramping up VLGC loading capacity in the U.S. Gulf. The outbreak of the U.S.-Iran war at the end of February and the effective closure of the Strait of Hormuz introduced a structural disruption to Middle East LPG exports. This removed a significant portion of VLGC loading volumes almost immediately and triggered forced relocation of trade flows with longer sailing distances as vessels increasingly sought cargoes from the U.S. Gulf. Middle Eastern exports remain constrained; the U.S. Gulf has effectively become the supplier of LPG to Asia, operating close to maximum utilization as it compensates for the loss of Middle Eastern export volumes. At the same time, high spot fixture activity in the U.S. has tightened vessel availability and supported elevated freight rates. In addition, a larger number of VLGCs than expected has remained idle in the Arabian Sea waiting for the Strait of Hormuz to reopen rather than seeking U.S. cargoes, and this has further tightened shipping supply. As other shipping segments with high willingness to pay also experience changes in freight flows, traffic and congestion in the Panama Canal have increased. This has resulted in more VLGCs sailing via the Cape of Good Hope, significantly extending voyage distances between the U.S. and Asia and thereby absorbing additional shipping capacity from the global fleet. This long-haul trade pattern via the Cape of Good Hope has been bolstered even further as India and Southeast Asian countries are now importing basically all the LPG from the U.S. Next slide, please. Looking at North American exports, the expansion is taking place somewhat earlier than anticipated as U.S. exporters are racing to replace lost Middle East volumes. Consequently, the North American exports forecast is raised significantly for 2026 on the back of high oil and gas activity and demand for Middle East replacement volumes. Provided a reopening of the Middle East export markets, volumes from the region will contribute more to overall growth in global shipping volumes. In our forecast, we assume reopening of the Strait of Hormuz during second quarter 2026 and then a gradual normalization, but this is obviously hard to know for sure. More U.S. export capacity is set to come online in the coming years. While we conservatively anticipate most of Energy Transfer and enterprise flex export capacity being allocated for ethane exports, the very large ethane carriers are delivered over the next years. Next slide, please. Looking at the current fleet and order book, we can see that the fleet has grown in the last three months and now stands at 429 VLGCs on the water. The order book is made up of 130 VLGCs currently under construction with delivery stretching all the way to the beginning of 2030. We've seen a significant ramp-up in contracting vessels in recent months. And while we expect more newbuildings to be delivered going forward, we also keep in mind that 9% of the fleet is older than 25 years. So as a summary, there are several factors driving the VLGC freight market to unprecedented highs. Sharp increase in U.S. LPG exports coinciding with Middle East exports being choked has created a long-haul trade pattern where the sailing distances are compensating for the lost Middle Eastern volumes. As mentioned, it's impossible to have a clear view on when the Strait of Hormuz will reopen. But when it does open, we expect repairs to production and export infrastructure to take time before LPG exports reach prewar levels. As I said before, the Panama Canal remains a wildcard in our markets, and we believe the congestion will increase as several shipping segments are competing for the limited number of transit slots. While the order book is substantial, the fleet continues to age with more than 40 vessels, equivalent to 9% of the fleet, already exceeding 25 years of age. Also keep in mind that 53 vessels are considered part of the shadow fleet. And that concludes our market segment. Over to you, Samantha.
Thank you, Kristian, and hello, everyone. Let's zoom in on our financial performance for the quarter. Starting with our shipping performance. We delivered a quarter with a TCE at USD 51,300 per calendar day or USD 55,500 per available day. Free utilization was 92% after deducting technical off-hire and waiting time. The healthy performance was underpinned by a strong spot market full of uncertainties and a continuous disciplined execution of our commercial strategy focused on time charter portfolios and FFAs at a healthy level. In Q1, we have fixed the time charter portfolio at 53%, of which 41% was fixed-rate time charters. Looking ahead for Q2, we have fixed 85% of the available fleet days at an average rate of about USD 81,000 per day. This also included index-linked time charter contracts, which could fluctuate with spot market changes. Looking at full year 2026, we have secured 42% of our portfolio with fixed-rate time charter and FFA hedges at USD 44,800 and USD 48,100 per day, respectively. Altogether, our time charter-out portfolio is expected to generate around USD 245 million. Next slide, please. Product Services posted a realized loss of USD 10 million in Q1. Separately, Product Services also reported the USD 145 million increase in mark-to-market on our cargo position, offset by a USD 8 million decrease in paper position. After accounting for general and administrative costs and other expenses, Product Services reported a net profit after tax of USD 98 million for the quarter with net asset value of USD 150 million at quarter end. As we highlighted previously, this mark-to-market movement will fluctuate regularly and is largely driven by the gradual phasing in of our multi-year term contracts as reflected in a volatile market. While the periodic value adjustments are significant, they reflect the delta between the balance sheet date and settlement dates, and we'll continue to see fluctuations before the positions are realized. We will continue to report our future trading performance, including the mark-to-market changes, via our quarterly trading updates. It's also important to note that trading gains and losses are realized across different financial periods. They cannot be extrapolated from past performance as unrealized positions will vary depending on end-period valuations. Our trading model is designed to create value by combining cargo, paper and shipping positions. With that in mind, we would like to remind you that the reported net asset value does not include unrealized physical shipping positions of USD 69 million, which is based on our internal valuation. In Q1, our average VaR, value at risk, was USD 6 million, reflecting a well-balanced trading book, including cargo, shipping and derivatives. The VaR is expected to increase as we continue to account for the increased term contract volumes that will start from the end of 2026 and continue to accumulate into mid-2027 and beyond, which also reflects a volatile market in the meantime. Next slide, please. Going on to our financial highlights. We reported a net profit after tax of USD 187 million, including a profit of USD 9 million from BW LPG India and USD 98 million profit from Product Services. Profit attributable to equity holders of the company was USD 164 million, which translates into earnings per share of USD 1.08 for the quarter and an annualized earnings yield of 25% when compared against our share price at the end of March. We reported a net leverage ratio of 26.3% in Q1, down from 28.4% at the end of 2025. The reduction reflects principal repayments made during the quarter. The Board declared a dividend of USD 0.67 per share representing 100% payout of our quarterly shipping profits and USD 0.11 per share as the 2025 final dividend from BW Product Services. The 100% shipping profit payout is beyond the 75% payout ratio as guided by our dividend policy, and the newly announced fleet renewal program to invest up to USD 940 million for eight Panamax vessels. The dividend decision is a reflection of a continuing principle to give back to our shareholders in a good market. We are also pleased to see such principle is supported by our healthy liquidity and positive market outlook. For the period end, our balance sheet reported shareholders' equity of USD 2 billion. The annualized return on equity and on capital employed for Q1 were 38% and 30%, respectively. Our Q1 2026 OpEx was concluded at USD 7,300 per day, a reduction from previously reported levels. For 2026, we expect our own fleet operating cash breakeven to be about USD 19,000 and USD 21,300 for the whole fleet, including time charter vessels. The all-in cash breakeven is estimated to be USD 24,500, slightly up from last reported due to pre-delivery funding cost for the newbuildings. Next slide, please. Finally, as of end Q1, we maintained a healthy liquidity position of USD 680 million, which consists of USD 176 million in cash and USD 442 million undrawn credit facilities, providing a strong base to support our newbuilding project. Looking ahead, our liquidity stays strong. Repayment profile remains sustainable with major repayment starting from 2030. We're confident of maintaining healthy liquidity and a repayment profile to support our newbuilding project. On Product Services, trade finance utilization stood at USD 161 million or 22% of our available credit line, leaving ample headroom for future trading needs. And with that, I would like to conclude my update. Thank you for listening, and back to you, Aline.
Thank you, Samantha and thank you, Kristian. We would now like to open the call for your questions. Please follow the operator instructions to ask a question. Yes, we have Jostein Aschjem.
Questions and answers
Yes, perfect. So this is Jostein Aschjem from DNB Carnegie. I just had a question regarding Product Services. So as Samantha also mentioned during the presentation, you had very strong Q1 figures, which were also driven by the mark-to-market effect on the contract portfolio. Currently, it looks like the FOB premium has come down somewhat. Have you taken any actions in order to secure some of the profit? Or how should we think about the Product Services results going forward?
Jostein, thanks for the question. I can start. So as you say, the arbitrage is somewhat narrower than it was at the peak. But as you may know, the business model at Product Services is based very much on hedging positions and ensuring that you can actually capture the profit through the paper market by locking in the margins. So as mentioned in the presentation, we do hope and expect that a large part of the mark-to-market gain will come to realization in the second and probably also into the third quarter. We will come back with the trading update as per normal in between the earnings presentations and can shed some more light on it then. Samantha, anything you'd like to add?
No, that's correct, Kristian. I think it's also about where portfolio positions are in the curve. Although the position has changed as we speak, we do expect some realization or the reclassification from open position to be realized by Q2.
Yes. So the realized positions should continue going forward as well. But how about the mark-to-market — should that be more normal or potentially negative as the terminal fees have come somewhat down?
Well, since you're coming from a very high level, it's a little bit like the freight market as well. I don't think it's completely surprising if you see a correction in the market reflected in the mark-to-market and the valuation in the portfolio because you're coming in from a very high level. So relatively, there could be a correction on the back of that. Did that answer your question?
Yes. And if I just have one last question. I saw the charter hire expenses come up some USD 7 million from the last quarter. Is it any sort of profit sharing mechanism on the charter hire contracts? Or anything else explaining the difference? It doesn't look like you have added any time charter vessels into your portfolio?
It sounds like you are referring to whether the ship has been on charter long enough and whether profit sharing applies. Let me clarify shortly.
It's down to a profit split on some of the time charters. So I prefer not to go into detail on the specific deals that we have done.
Thank you. Next up, we have Tim Mullen. Tim, please proceed.
I wanted to start by asking a follow-up on the vessel that is stuck inside the Strait. The vessel is on time charter. But when does the contract end? And secondly, should the vessel still be trapped when the contract end date arrives, how would you proceed? Would you still receive a daily charter hire? Or how would that work?
The ship is on time charter. It's with a cargo on board. So of course, the charterers would like to sell and discharge a cargo before redelivering the ship. That's something we'll have to get back on in more detail, but the situation is that the ship is still on time charter. And when the Strait of Hormuz opens, we hope that we can ensure a safe transit for the ship so she can find a discharge for the cargo.
Okay, makes sense. Thanks for the color. I also wanted to ask about your assumptions for Middle Eastern volumes on Slide 9. Kristian, you show 2027 volumes down a bit relative to 2025 and I was wondering what are the key assumptions behind that? Is it damage to infrastructure facilities in the region?
Yes. Well, as you know, there is much less LPG flowing out of the Middle East at the moment. So of course, you will then have a reduction simply because there are no exports from the Middle East taking place as we speak. If you go back to some of our previous presentations, we had forecasted about 44 million tons, up from around 39 to 40 million last year to be exported from the Middle East. Obviously, this is reduced now that there is basically no exports taking place. Regarding 2027 specifically, that's the ramp-up which we expect to be gradual; we believe it will probably take a year or even longer to finalize repairs on production and export infrastructure.
Thank you. Any more questions verbally before we move on to the written Q&A? If not, then let's turn to the written Q&A. The first one would be from Arne. Can you provide some color on time charter fixing going forward? For example, is the plus/minus 30% coverage in 2027 meant to remain stable? Or will the company aim to maintain about 40% coverage as in Q1 2026?
Thanks for the question, Arne. We have more or less an outspoken aim to have approximately 40% at least on time charter. So you should expect us to increase that cover ratio as we get closer to 2027. But it also depends on what time charter levels we can see in the market because, obviously, we also want to fix vessels for period business at the level we find attractive. Provided the time charter level is attractive, we will work to increase that cover ratio up towards the 40% we are talking about.
There is a follow-up question from Arne.
Could you provide some additional information regarding the decrease in cargo and delivery expenses as well as voyage expenses? Additionally, could you elaborate on the factors driving the increase in chartering expenses during the period?
Arne, can you point a little bit closer to which part you're referring to? Just before you come up with a more specific reference of numbers, I can say that some of the voyage-related costs could also be because Product Services, as part of a risk management process, have reduced CFR cargoes and increased some of the FOB deals, which then naturally reduced voyage expenses. In the meantime, if you can follow up with which specific numbers you're looking at, that would be very helpful.
Meanwhile, let's move on to a question from Andersch. With respect to the currently very elevated VLGC rates and U.S. LPG inventories seemingly plateauing, could you offer some views on the future situation?
Well, I think I also replied along the same lines earlier. Of course, the arbitrage was very wide a few weeks and months ago, and it's not unusual for the arbitrage to narrow after people have filled up storage—at least for a short period of time. Typically, you then see it widen again. So this is typically what we see when you have normal market functioning: wide arbitrage periods followed by narrower arbitrage because consuming markets have stocked up and are not as willing to pay up for additional cargoes. So that is the dynamic.
Thanks, Kristian. We have another question from Gregory regarding the VLGCs waiting off Hormuz. Do you expect them to migrate to the U.S. market after receiving U.S. Coast Guard regulatory approval and if so, to what extent?
Yes, we do see more of the ships ballasting to the U.S. for cargoes — more of the Indian-controlled tonnage, for instance. So the answer to this is yes. It's a number that is hard to specify precisely on the spot, but it's clear that there are more ships which have U.S. Coast Guard approval for loading in the U.S. and have also taken the decision to ballast into the Atlantic basin for cargoes out of the U.S.
Thank you. We have a couple more questions. Someone is referring to Page 9: are the new enterprise and AltaGas terminals already at full run rate and when did this start or how much more do they have to ramp up? And why do you show minimal growth in U.S. exports in your 2027–28 forecast despite the new terminal start-ups?
Yes. So the flattish growth that we are showing is due to our rather conservative assumption that most of the flex capacity, which is currently going at full steam or allocated to LPG exports, will be allocated to ethane exports from Energy Transfer and enterprise as more of the VLECs — ethane carriers — are delivered in the coming years. Then you will see that on the same slide there is another expansion taking place with a pure LPG export terminal facility from enterprise and AltaGas, which is going to take place somewhat later this year. And then you have Targa and ONEOK also expanding towards the end of the decade. So I would say we are a little bit conservative in this assumption, but we like to take that approach since we also see that this is linked to the deliveries of all the ethane carriers in the coming years.
And a follow-up from Arne on his earlier question regarding voyage expenses. He was referring to the decrease from USD 92.9 million in Q1 '25 to USD 59 million in Q1 '26. The difference in charter expenses has already been addressed. Samantha, is there anything you would like to add here?
Well, I think part of it is some savings on bunkering because we have very much increased the use of LPG fuel on a like-for-like basis, which in some cases is a cheaper alternative than conventional fuel. Separately, we also made some savings on port charges as well as other vessel-related costs captured in the voyage cost line. So that largely reflects the major changes in the voyage cost number.
Andersch asks: could you share some further views on Panama congestion as of now, but also considering the fairly high chances of El Niño this year?
Sure. Panama Canal congestion is basically varying from day to day, so it's hard to give an exact picture today. But just to illustrate, over the last couple of weeks we've had auctions for available transit slots reaching as high as USD 4 million just to have access to the Panama Canal, and this is before the canal fees. Then two days later you could see the next auction drop to maybe USD 300,000–400,000, and then two days later it could be up to USD 3 million again. So this is simply a supply-demand situation on the day of the auctions. But the trend is pretty clear: if you are stuck on the wrong side of the canal, you may need to pay up to secure a transit slot to avoid missing cargo windows in Houston. Competition from other shipping segments is increasing as more ships are being delivered in the container segment, VLECs from the ethane side, VLGCs, and so on. So it's something we believe is going to continue and even strengthen in the years to come. Regarding El Niño, there's a high probability being discussed in the market of lower water levels in the Panama Canal. If that plays out, it would be similar to what we saw in 2023, and that would push more VLGCs and other ships around the Cape of Good Hope between the U.S. and Asia.
There's a follow-up from Andersch: could you elaborate a little on which type of ships tend to bid their way through the canal when it congests — dry bulk, LPG, tankers, etc. — at least to provide some further color on the topic?
LPG vessels definitely have had a high willingness to pay because freight levels have been elevated. Tankers have also, from time to time, paid up when they need to meet critical delivery schedules. We know for instance that at one point there were stories about Australia running low on diesel, and then tankers heading in that direction were willing to pay to secure transit slots. Ethane carriers and container ships are always competing as well. So it's a good mix — LPG vessels, tankers, ethane carriers and container ships all participate depending on urgency and freight economics.
Andersch also asked whether El Niño will drive lower water levels in the canal immediately or whether there is a lag between higher temperatures and water levels that drives congestion and the long-haul effects for transporters.
I'm not sure I can answer that level of meteorological detail here and now. What we can do is look into that with our research team and get back to you with more specifics on timing and expected lag effects if that would be helpful.
Thanks, Kristian. Next question: when you say that 85% of available fleet days are fixed at USD 81,000, is that number of available days including or excluding the time charter days fixed at USD 44,000?
Yes. As mentioned, it's including the time charter portfolio.
The next question: does the 85% fixed at USD 81,000 per day correspond to spot bookings only, or does that also include the time charter bookings of 39% at USD 41,800? And does it also factor in the FFAs or not?
Yes. The 85% includes both the fixed-rate time charter coverage as well as the FFA positions.
And then another one on a different topic from Kevin: given the strength in earnings, is there any consideration for stock repurchases in the open market?
Kevin, as you know, we have a share repurchase program which we activate from time to time. It's typically when we see our share trading well below NAV — so it's not something we find attractive or value-creating at the moment because our share price is trading above NAV currently.
Thank you, Kristian. And then Andersch specified on El Niño: his question was related to whether El Niño will drive lower water levels in the canal immediately, or whether it takes some time from the higher temperatures until it starts affecting water levels that drive congestion and long-haul effects for transporters.
As I said earlier, that's a level of detail best checked with meteorological and canal research. We'll look into it and follow up after the call.
Let me check if we have any more verbal questions. I don't see any more hands raised right now. All right. If no more questions, I would like to say thank you to everyone for joining us today and for your continued interest and support of BW LPG. We really greatly value the time you've spent with us. This concludes BW LPG's Q1 2026 earnings presentation. A replay of the webcast together with the call transcript will be made available on our website shortly. On behalf of the entire BW LPG team, thank you once again for participating. We wish you a great rest of your day. Thanks, and goodbye.