FLEX LNG Ltd.
Q1 2021 Earnings Call Transcript

Published: 21 May 2021

[Operator:]

Thank you for standing by welcome to Flex LNG First Quarter 2021 Earnings Presentation Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation, that would be a question-and-answer session. . I would now like to turn the conference over to your speaker today, Øystein Kalleklev. Please go ahead.

[Øystein Kalleklev:]

Thank you and welcome to today's Flex LNG’s webcast, I am glad you could make it. I am Øystein Kalleklev, the CEO of Flex LNG Management. I will be joined today by our new CFO, Knut Traaholt, who will walk you through the numbers as well as providing our financial updates, update later on. We will be presenting the first quarter of the Sales for 2021. And this is a presentation we have been looking forward to share with you. Please also note that the replay of this webcast will be [e-mail] and also on the Flex LNG YouTube channel.

[Knut Traaholt:]

Thank you. Øystein,let's turn to slide eight. And the income statement. Revenues for the quarter came in at $81.3 million in line with our guidance for the quarter of 80 to $90 million. This is up from $67.4 million in the previous quarter, the increase is due to the delivery of the new buildings, Flex Freedom and Flex Volunteer in January and a slightly improved market with the fleet, delivering a TCs, right for the quarter of 75, 1,400 per day, up from 73,700 per day in the previous quarter. Operating expenses were $14.3 million in the first quarter, compared to $14.5 million in the fourth quarter, despite that we had a larger fleet this quarter, this resulted in an OPEX per day or a 12.9 -- 12,900 per day versus 15,300 per day in the last quarter. The difference is explained by higher COVID related expenses in Q4. And despite the positive reduction in the opera operating expenses, we continue to face higher COVID related expenses caused by challenging crew changes in current time, increased loop or prices and additional cost of transporting space and services to our vessels. These costs can be a bit bumpy as illustrated in Q4, but we are now back to a normalized level in Q1, and we expect smoother OPEX. Once the restrictions are gradually lifted, adjusted EBITDA for the quarter was $64 million up from 50 -- $50.2 million in the previous post-op interest expenses were up in Q1 due to a full quarter of interest on the depths related to the vessels delivered during the fourth quarter and the third quarter of interest related to Flex Freedom and voluntary delivered in January, nothing come for the quarter was $47.2 million or $0.88 per share up from about $28 million or $0.48 per share in the previous quarter. Adjusted net income was $34 million or $0.64 per share up from $24 million or $0.45 per share in the previous quarter. The difference between earnings per share and adjusted earnings per share is as I then explained related to our interest rates patching while we record that I gain of $13 million in Q1 due to long-term interest rates bouncing back, but we used the adjusted numbers to smooth out this mark to mark change of the interest rate instrument. Then moving to slide nine and our balance sheet at 31st of March, we had full vessels in operation and booked as vessels and equipment. During the quarter, we took delivery of two new buildings and added $372.5 million from the vessel prepayments to vessels and equipment increases increasing in aggregate book value of, of the vessels. To $2.2 billion. We have 54 million as remaining vested prepayment relating to our last new building, Flex Vigilant. She shot dual to be delivered on the 31st of May to our fleet. As mentioned previously, once all ships are delivered, our balance sheet will be about $2.5 billion comprising of 13 ships, as well as our substantial cash holdings. Total interspace in depth stood at $1.4 billion at the quarter and perfecting $20 million increase of the RCS under the original a hundred million dollar range of facility. And adding draw down of $125 million in connection with the digital delivery of Flex Volunteer and upset by $20 million in scheduled repayments. At the quarter round, we had a strong cash position at $139 million total book equity was $861 million giving a solid equity ratio of 35% compared to our 25% requirement under of our loans. Turning to slide 10 and looking at the cash flow for the first quarter. And the first quarter, we had a positive net cash flow of $10 million. This comes from cash flow from operations of $48.4 million. And we had negative working capital adjustment of $4.5 million compared to a positive working capital adjustment of $14.4 million in the fourth quarter. The adjustment is mainly related to hire people. I chart a higher due to a stronger market at the end of the fourth quarter, compared with the first quarter on average, these working capital balances tend to even out, but as we are operating on a only time shot, the basis we receive taught to hire in advance, which is advantageous from a working capital perspective, shut your loan installments were $20 million. And in total $20.7 million, including this schedule reduction of the amateur set, amortizing ranger, RCF, not new billing CapEx was $11.9 million. And as mentioned previously, we increased the RCF under the original $100 million range of facility with a $20 million non-amortizing traunch, adding additional liquidity and flexibility. In November, we announced a share by a buyback program of about -- of up to $4.1 million shares. And during the first quarter, we purchased an additional 597,000 shares for $5.3 million or $8.87 per share on average this together with the 37% per share dividend for the fourth quarter or $16.1 million was paid during the first quarter. In conclusion, we had a positive net cash flow of $10 million, which leaves us with the robust total cash balance of $139 million at the end of the quarter. Turning to slide #11, this is a familiar slide to our frequent followers. We have over the last year secured a total of $1.7 billion of attractive financing for the fleet of 13 vessels. At the same time, we have a diversified funding base with the mix of bank financing, lease financing and ECA financing as communicated at the fourth quarter presentation, we had secured commitment for the $20 million increase under the a hundred million ratio facility, and the amendment was signed in March and then the amount thus fully available thereafter. We have hatched the interest rate risk with interest rate swaps for a nominal amount of $674 million at quarter end. During the quarter we terminated two swaps and you used the positive value to enter a new swap at a lower fixed rate. The average fixed rate it takes the interest rates for swaps is a 1%, one point 15% together with the leases on fixed rates. We have a head trade show of about 66% all in all. We have a very comfortable depth majority prior majority profile with the first majority due in July, 2024. And this is provided by a pool of 15 different financial institutions. And over the years, we have demonstrated our ability to raise attractive funding. Also during challenging times, both in the physical and the financial markets, as we have a very strong support from our wide banking group. And with that, I hand the call back to Øystein, who will give an update on the market.

[Øystein Kalleklev:]

[,:]

So slide #12. We topped off the market section with a snapshot of LNG exports and imports in the first quarter. And the first quarter of 2021 exports were close to humbler than £2 million, £101 million pounds, according to capital data. This was slightly as it was in line with last year, despite the loss cargoes due to the big feasts in Texas, during February, as well as some other suppliers disruptions during the quarter, keep in mind volume goes in first quarter of 2020. They was very high at this was prior to the COVID-19 pandemic going viral on a global scale. What is different from last year is that we saw considerably more people from Asia and particularly China as the winter weather in Asia at the start of the year was really cold with snow records in Japan and the coldest winter in Beijing since 1966. So strong demand from Asia also resulted in, in sailing distances and this coupled with Panama congestion spot on unprecedented in both spread and product prices at the start of there. As we expand both in our fiscal report in November and our Q4 report in February, we have been very bullish on volume growth in 2021 with estimated export growth of about 25 million tons in 2021 as product prices started to last autumn and this having all started to become the consensus view. So as you can see from the glass to the right-hand side, we expect seven to 8% export growth in 2021, which will be supportive of the freight market, which we will cover on the next two slides. So turning to slide #13, the spot market for freight as mentioned in highlights the boom at the end of 2020, continued into 2021 before softening by the middle of February when we were at a posting of fourth quarter, however, the downturn or short with the market bouncing back by end of April as usual., we saw the first, this first with the balance bonders conditions going from 200 basis in January to one way economics by end of February, before we started the gain shoots in March with my last bonus conditions, turning back to the full long tip again by the middle of April and thus pushing up the time charter equivalent earnings and the spot market. By end of April, going into May, the fed market was unseasonably strong with spot rates for model on HII lost mega externships approaching hundred thousand dollars per day in the Atlantic with somewhat lower rates in the Pacific as new building deliveries kept vessels available, reliability higher in this patient. As you can see from the graph on the right-hand side of the slide, availability of ships in Atlantic have been very low, except for during the big feast in February in the U.S., when export of U.S. was for short periods propelled and more vessel became available in the Atlantic. The high failure rates, however, affect to the relapse into the market. And we have seen the market softening during the last two weeks due to slightly more vessel availability and rates for modern tarnish the turning into the $80,000 per day in both the Atlantic and Pacific basin. But, you know, these are way solid numbers for me, as you can see on the graph to the left, however, the real us in the market are typically only available for shorter durations as the titters and portfolio players typically want the ships back before winter season approaching. And this is just not affecting the term market significantly as I really looked at on the next slide. So slide 14, let's have a look at the total market for faith in this cough. We showed the termites well, one, three and five years over the last year, following the COVID-19 pandemic, as you can see the five-year PCA assessment flat line during most of the last year, as there was also limited interest for such parents by charters, which could fix vessels cheap in the spot market or for shorter term business. The one year, if the last year were around 55 to 57,500 before, before turning sharply up from the beginning of April and all holding close to a hundred thousand dollars per day, the TC rate, which is less liquid than the treadmill TC followed the trail months closed months. T-Cell read closely before also picking up from April now being at around $80,000 per day. So given the proactiveness of term business during the last approximately 12 months, until we started to see the green shoots at the end of March, we elected to have the water playing in the spot market at the start of the year, eight of all 13 ships were either trading spot or one valuable higher context. Plus we also had all lost new building open despite pursuing this strategy. We managed to salient $60,000 in time chocolate equivalent earnings for 2020. Why keeping options open, which was much more attractive than fixing ships on gates for longer durations. Of course we are in the fortunate position that we had financed all ships in advance and that's with a big chunk of cash. So we could afford to take the way it's for better times approach, which was not the case for all owners with termites picking up recently, we have utilized the momentum to fix a loss part of our feet on term contracts as much more attractive than what was achievable last year and the 2019 for that matter. So there is definitely some two to patients being Albert, you or guests. I assist on slide 15 as previously highlighted gas by assist all the, to the COVID over the summer. Last year, as we highlighted in our Q3 report last August, there was already at that time for the winter 2020, 2021, which normally means that when winter weather will be cold and longer in the major gas importing nations with therefore elected to keep substantial spots, exposure over this period and made healthy, heading yourselves for both Q4 and Q1, as we, as they explained, the winter came a bit late, but when it arrived, it was facing cold and it also lost it for a very long time, especially here in Europe Last autumn, we also experienced the most active hurricane season on the echo then us, which caused supply disruption in the short term, this slim, this option while negative effect due to loss congos, but the supply and disruption also fuel the product prices with Asian LNG benchmark JPM, going from a low of $1.80 during the early part of the summer last year to a high of $32.50 early 2021, that was by itself. The fabulosity JKM compact was $800, 10 times the price during last summer, as you can see from the glob, the big fish in the U S also led to a spike in the U S gas prices had that presented by the handle. There have been decks given the Berlin in oil prices have become increasingly profitable. So natural gas prices have a turn to submit all those level with forward prices. Also in this level, Jake and prices today close to $10 while European guys gas prices is slightly below $9. They went up by in case the man significantly higher carbon prices in casing the switching band from coal to gas, as well as due through significant restocking demand due to very low gas inventories after this cold winter, which I really was on to our next slide. So last point to make is forward prices for gas at pilot different level this year than last year. And this gives no incentive to cancel cargoes in us or for that matter Egypt, which has become the new swing producer. And that's why we are also confident on big volume increases this year. So slide 16 gas inventories, gas inventories, as we started to die. And I didn't know, December, 2020 presentation, the strong demand from Asia at the end of 2020 was pooling cargoes away from the Atlantic basin and away from European bias with the depletion of gas inventories. And you hope as a consequence, the Asian demand, continuing to try to translate one. As I illustrated earlier, that sort of thing in severe congestion in the Panama canal and booming faces at the stop up there, we therefore continued to highlight, you know, generally in type of audit presentation, that European buyers were being starved off from gas deliveries and therefore had to continue to run down the inventories quickly. This was further aggregated by a cold, a long winter new hope with lack of snowfall in Madrid and the high carbon price in Europe with two biases hitting about 50 was which meant that gas becoming increasingly competitive towards coal, despite higher gas prices. As we have been arguing for strong restocking in demand over the summer, minimizing the chance of a repeat of the summer toggle cancellations, we are dust became increasingly comfortable with the market situation for 2021 and elected to keep a very high proportion of a fleet exposed to the spot market at the stock of the air. As mentioned until we acted on term opportunities, European inventories today stand at only 33 and a half percent per year, which is less than half the levels last year, European inventories, all about six 70 million ton equivalent of LNG. So the shortfall in European inventories are almost twice the volumes of us cargo cancellation last year. And it is almost unconceivable that European buyers will be able to fill up inventories I had of next winter, and this can spill gas prices and volatility, particularly if economic recovery is stolen and or if the winter is not, not even cold, but just normal. So slide 17 that fleet composition last quarter presentation. I had a very long section about the new de-carbonization groups for all ships or EXI, as it's called. We expect the new rules to be agreed by IMO in June. And these rules will create eadaches for particularly for the owners of all those team tanish, but opportunities, fullness of state of townships. I'm not going to repeat the lecture from last presentation, but it's available on our webpage for those who missed it. What I would like to point out is that the order book, which some analysts thought was too big this year to make for a conducted phase market is tailing off and a number of available and committed to the vessels have calmed down a lot with the recent increase in term, invest the mix of a few available mega accept ships EXI rules generally high on your billing prices. And the fact that the lot of all the ponies is coming off long-term contract with less salt and more opportunities for us to fix ships on attractive thumb chapters, all focusing on 2022 positions, given a high coverage for 2021. And the reason for what fixed your flexibility say at this point an opportunity. So that's my last slide before some high thing as I mentioned, avenues in line with guidance, we have substantial backlog for 2021, all had a book dividend. We are increasing this now to $0.40. In addition to the buybacks or sips will be on water by end of the month, as I've covered in cases that we have a positive market outlook with some of these stocking. And we are in a very good financial position with all ships, finance, SuperPhone balance sheet, and lots of liquidity. So that's it for me. I'm happy to take some questions if there are any

[Operator:]

There are no questions at this time. .

[Unidentified Analyst:]

[Unidentified Participant:]

[Øystein Kalleklev:]

Yeah. Okay. Once again, everything is very clear. It seems like telephone is going out of Vogue. So maybe we should try to focus more on the chat function for questions next time. But until then I wish you a good weekend, a good spring. We will be back in August with the second quarter, the sales probably somewhere in the middle of August. I think market will be very healthy at that time. Don't do loud facets going into six digits. By that time, we will probably see contango fracture developing in the gas prices because of a failure of Panama congestion. So, so I think, you know, and I'm really looking forward to the second quarter as well. So with that, I wish you a good day.

[Operator:]

This concludes today's conference call is thank you for participating. You may now disconnect.