FLEX LNG Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Flex LNG fourth quarter 2020 earnings presentation. At this time, all participants are in listen-only mode. After the speaker presentation, there will be the question and answer session. To ask a question during the session, you will need to press star and one on your telephone keypad. I must advise you that this conference is being recorded today on the 17th of February, 2021. I would now like to hand the conference over to your speaker today, Oystein Kaleklev. Please go ahead.

Thank you and welcome to today's FlexLNG webcast where we are presenting the fourth quarter 2020 and full year 2020 results. My name is Øystein Karl-Eklev and I'm the CEO of FlexLNG Management. I will be joined today by our CFO, Harald Gurvin, who will go through the numbers as well as providing a financial update. Our presentation today is a bit longer than usual as we are reporting not only fourth quarter but also the 2020 numbers. We thought it would be appropriate to touch on some topics in greater detail. Today's presentation will be the last with Harald as he will step down from his position. Harald joined Flex LNG as CFO on January 1st, 2019, and have done a fantastic job for us, securing attractive long-term financing for all our ships and successfully listing the company on New York Stock Exchange. Harald joined from our related company, SFL, where he's been since 2006, serving as the CFO in the period from 2012 until he joined Flex. We have recently recruited senior banker Knut Håll to take over the CFO role during second quarter. Knut is a veteran shipping banker with experience from both Swedbank and ABN AMRO, and he will be in the fortunate position to inherit a super strong balance sheet and a fully financed company from Harald. In any case, Harald will stay on in advisory capacity to ensure a smooth transition. Please also note that a replay of the webcast will be available at flexlng.com. at a later point. So then we head to the disclaimer. Before we start, I will just make you aware of our disclaimer with regards to, among others, forward-looking statement, non-gap measures, and completeness of details. And the full disclaimer is available in the presentation. And we recommend that the presentation is read together with the earnings report. So let's kick off with slide number three, the highlights. 2020 has been a story about going from overhang to scarcity, about new lows and new highs. In the spring, JKM gas prices hit a new historical low of $1.8 per million BTU. At this time, TTF, the Dutch gas hub for Northern Europe, fell below $1 for the first time. However, in January this year, LNG cargoes in Asia were being sold close to $40 per million BTU, a staggering 20 times increase. We have also seen similar movements in freight rates with the Baltic LNG, which is a freight assessment, which take into account full round-trip economics, i.e. ballast condition, and this index fell below $20,000 per day during the summer, but then reached an all-time high of above $300,000 per day in January for the route between U.S. Gulf Coast to Europe. Hence, we have been through a classic gloom and boom story, which the annals of commodity and shipping industry is filled with. During the fourth quarter, we successfully took delivery of Flex Amber in October. Given the strong sentiment in the freight market during the final months of 2020, we also made preparations for early deliveries of flex freedom and flex volunteers so we could act quickly on market opportunities. With all the travel restrictions, this is something we had to plan well in advance as it takes a lot of time to mobilize a ship today given the visa procedures, travel limitations, as well as a two-week quarantine of the crew at arrival. As the freight market became increasingly tighter, we are pleased that we were able to secure attractive spot charters for both Flex Freedom and Flex Volunteer, and these ships were delivered on 1st of January and 20th of January, respectively. These ships were then delivered straight to our charters from the ARP. So, following these three deliveries, our fleet has now gone to 12 ships on the water. Our last new building, Flex Vigilant, is scheduled for delivery in second quarter, and once she is delivered, we have completed our new building program with all ships on time and budget. In terms of financial, I am pleased that we in fourth quarter deliver time charter equivalent earnings for the fleet of $74,000 per day in line with our guidance in the last quarterly presentation of an average TCE of $70,000 to $75,000 per day. This is below the $94,000 and $95,000 per day we made in Q4 the last two years, but reflects the fact that the market didn't really firm up before end of October. However, we have had a significantly stronger market into Q1 this year than the previous years, which our guidance illustrates. Despite a very difficult market during the spring and summer, our trading results for the year were fairly stable, with quarterly trading results of $67,000 in first quarter, $47,000 per day on average during both second and third quarter, which marked the nadir of the COVID-19 crisis, and then earnings finally bounced back to $74,000 per day in fourth quarter. So on average, our fleet delivered a TCE per year of $60,000 per day, which is well above our cash break-even levels, and a result we are reasonably satisfied with, given the challenging market. With improved trading results, our income also rebounded, with net income and adjusted net income of $25.8 and $24.2 million, respectively. As mentioned, we have one more shift for delivery. We have secured attractive long-term financing for our entire fleet, including this last new building. Additionally, we have a rock-solid cash position of 129 million cash at hand at year-end, plus a new 20 million revolving credit facility, which we recently agreed. As we communicated during our third quarter results presentation in mid-November, Two-thirds of first quarter were then already booked due to a strong demand for shipping at year-end. We are therefore guiding Q1 revenues of $80 to $90 million, which is significantly higher than the $67 million of revenues in Q4. This reason for the expected revenue increase is the delivery of two ships during January, but we are also expecting higher average TCE for the first quarter. It is very rare that you see stronger trading results in Q1 than Q4, so we are off to a good start of the year, and the market outlook is much sounder than last year, given the drawdowns of gas inventories, which will spur restocking demand. Given our recent strong trading results, or very sound financial position, and healthy bookings for Q1, the board has decided to hike the dividend from 10 cents per share to 30 cents per share for the fourth quarter, which provides an effective yield of about 13% on an annualized basis. Given the improved outlook and positive share price development recently, the board has also decided to increase the cap under the share buyback program we initiated in November from $10 to $12. $12 is still only 80% of the book value of the stock. And our book consists entirely of new modern LNG carriers, fully financed. So we think it is in the interest of our shareholders that we utilize some of our financial resources to invest in buybacks, as our ships are still much cheaper than new buildings at Yard. which comes without financing and which cannot be delivered before 2023, while all ships on the water are generating cash flow today. So, slide four provides an overview of our fleet composition. To repeat, we are expecting revenues of 80 to 90 million for first quarter, which is strong numbers. We still have open positions, as currently about 13% of available days remain open, And we also have three vessels under variable hire where we do not know the realized earnings before the end of the quarter. Therefore, the range in our estimate. As of today, we have four ships on fixed hire TCs. This is FlexRanger, which have been trading for NL and its subsidiary, Endesa, for about 20 months. We have recently been notified that the charter has selected to utilize its three months early re-delivery option. Hence, She will be re-delivered to us by end of February. We have, however, fixed Flex Rainbow on a 12-month fixed hire charter with a large trading house, a charter that commenced end of January. In July and September last year, we took delivery of Flex Aurora and Flex Resolute, and both these two ships were fixed on fixed hire time charter with a major utility. Today, we also have in total three ships currently operating under variable hire TCs, Flex Enterprise, we recently extended by another year under its variable hire contract, where the charter is a super major. This will be the third year under this variable hire contract for Flex Enterprise, and she is just booked until March next year. Flex Artemis was delivered in August and immediately commenced the long-term variable time charter with Gunvor. Lastly, we took delivery of Flex Amber in October, and she commenced a variable hire time charter with a supermeasure once arriving in Lordport end of October. With our spot market on fire during the end of 2020 as well as early 2021, we have benefited from having substantial spot exposure with additions of the two new buildings, Flex Freedom and Flex Volunteer, which we have employed in the spot market. Our last new building will be Flex Vigilant and is scheduled for delivery in May. So if we look at slide five, just how we illustrate how we have allocated our earnings in 2020. We generated an adjusted earnings per share of 17 cents in the first quarter with an average trading result of $67,000 per day. In Q2 and Q3, we achieved a trading result of $47,000 in both quarters due to a challenging market following the COVID-19 pandemic. But still, we managed to generate one cent of adjusted earnings in these two difficult quarters. As market recovered in Q4, we generated 45 cents in adjusted earnings, which sums up to 63 cents per share for the year. So how did we spend these earnings? As we had four ships for delivery in the second half of 2020, we spent about 20 million related to remaining capex for these new buildings, which equates to 40 cents per share. We paid out a dividend of 10 cents in Q4 in March and another 10 cents for Q3, which was payable in December. In total, 20 cents per share. We also started to buy back our share at the end of the year and bought 203,000 shares back in 2020 at a cost of about $1.7 million, so 3 cents per share. Hence, this sums neatly up to 63 cents, which is also adjusted for 2020. Slide number six, COVID update. Operating our ships through 2020 have been made much more difficult due to COVID-19. A lot of countries have put up a lot of travel restrictions and impediments for crew changes and repatriation of seafarers have become more difficult. Shipping is a global business and it functions as the lifeline of the economy with its integrated supply chains and just-in-time management. They say that no man is an island and good things come to those who wait, but this has not been true for seafarers in 2020, who we think deserve the proper recognition for their valuable contribution making the world go round. We have recently seen some improvements and public awareness have been increased, raised with initiatives like the Neptune Declaration on seafarer well-being and crew change, which we together with our affiliated companies Frontline, Golden Ocean, SFL and Advance, as well as about 300 maritime companies signed up for recently. However, crew rotation and fire inspections are still difficult to carry out, and we once again urge the global community to get its act together on this issue. As explained in the Q3 presentation, we acted quick to put in new routines and safeguards to ensure the safety of crew and cargo while being able to keep our propellers running. We have closely collaborated with our charters to coordinate crew changes, even though this from time to time have resulted in a higher level of deviation as we have had to take some detours to get crew off and on our ship. Since May, when most of the lockdowns took effect, we have still managed to carry out an impressive 67 crew changes. This means we have been able to keep the number of overdue seafarers to a minimum, but it's not possible to get the number to zero right now. When we reported in November, 93% of our crew was on time, i.e. they were not overdue on their contracts. We have since then managed to increase this to 96%, which puts us in world-class category based on the numbers we are seeing in the industry. At the same time, we have been able to reduce overdue time for those seafarers which are working overtime. We now have no crew being more than 30 days overdue. Furthermore, of the 4% of our crew which is overdue, half is less than 14 days, while the remaining 2% is overdue by less than 30 days. Our new building team have also faced logistical challenges when planning for the deliveries and mobilization of our new building, and there's been many of those recently, with six ships being delivered during the six-month period stretching from July to January. Despite the obstacles, our ships have been fluid, mobilized, and delivered according to budget and plan. Half of our new buildings have been pushed forward compared to contractual schedule, while three ships have been slightly delayed. For Flex Aurora and Flex Amber, this was done to fit them into employment contracts, while we delayed Flex Freedom by a month to have her 2021 vintage. So once again, I would like to extend a special thank to our seafarers and new building team for their fantastic efforts. So slide number seven, which is a business slider. And before handing over to Harald for a financial review, I just want to highlight the rapid transformation of the business landscape, which has occurred since we took delivery of our first new buildings, Flex & Never and Flex Enterprise, in January 2018. So I picked a selection of some of the cover pages of economists during this period to illustrate this point. Let's start off with trade. After President Trump and Xi, their initial flirtation failed, trade talks fell apart and the brinkmanship started with escalating tariffs. This included a 25% import tariff on US LNG into China and resulted in US LNG being priced out of China. If you were going to start a trade war in LNG, you couldn't really pick any worse country to fight it. US is the upstart in LNG with boundless of projects in need of securing markets and financing, while China is by far the fastest growing market. On paper, this makes them a perfect fit. US have what China needs, An increased trade would also balance the trade balance between the two superpowers. So this has, at least so far, really been a missed opportunity, and we do hope to see improvements here beyond the phase one trade agreement. Connected to the trade war is a general slowdown in globalization. This is evident from both trade and cross-border investments. In the past, trade typically grew about twice as fast as GDP, as the world became increasingly more integrated during the Pax Americana period. This has not been the case lately. To some extent, this is due to affluent consumers are more inclined to buy services like healthcare, hospitality, travel and education instead of traded goods. But we have also seen a breakdown in global cooperation on trade, as particularly the West have shown trade fatigue and fighting for increased globalization have become political suicide. Hence, the World Trade Organization, VTO, have not been able to conclude a global trade agreement since the Uruguay round was completed back in 1994. The Doha round has been stuck for more than 20 years with no end in sight. Trade agreements have just lately become more regional in scope rather than multilateral. Today, we do see that developing countries are the ones pushing for trade liberalization, while rich countries have retreated. Luckily for shipping, developing countries now represent a higher share of global GDP and are generally more inclined to consume goods like energy. While we have seen deglobalization in trade, we have, however, seen globalization of the COVID-19 pandemic, and this at a staggering pace. The virus, which most experts thought would be a minor flu outbreak in China, went viral on a global scale, and the rest is history. However, the remedies to the virus have been achieved through global cooperation, and the manufacturing and distribution of the vaccine would not be feasible without global supply chains. With the COVID-19 outbreak, a lot of folks were expecting that environmental concerns would be overshadowed by COVID-19 and that the public purse would prioritize employment rather than the environment. But this has not been the case. The political will to reduce carbon emissions have been remarkably strong, despite the biggest economic contraction since the Great Depression. And the U.S. is now also joining the global community under the Paris Agreement. Just from a pure economic rationale, it makes sense to push ahead with the energy transition. With a lot of fiscal stimulus, it makes sense to spend these public funds on energy for the future, which is low-carbon gas coupled with renewables, to avoid locking in emissions by opting for coal. So coal will be facing tougher times ahead, as also illustrated by one of the covers. It's not only the public sector who have become more conscious about sustainability. This is also a big investor trend. People who are making their money available for corporations want to see their capital contributing to the good of the society. Fifteen years ago, Economist, which is a rather progressive magazine, ran a cover with the title, The Good Company, A Skeptical Look at Corporate Social Responsibility. Today, she is our... The CSR acronym has been replaced by ESG, Environmental, Social and Governance. And this is rapidly becoming a license to operate. This was made very clear by the recent letter authored by Larry Fink, the head of BlackRock, which is the world's largest asset manager with a staggering $8.7 trillion under management. In the letter from Mr. Fink, he promised a big shakeout in how they manage their assets and companies Companies which are not taking ESG issues seriously risk being excluded. And this will also apply to passive index funds and exchange-traded funds, which have now become the most popular investment choice. So we in Flex think our activity is very well aligned with the public. Our ships transport our cargo, which primarily replace coal, with 50% reduced CO2 emissions. At the same time, this fuel cleans up the local air quality. A recent study from Harvard put the worldwide premature deaths from poor air quality due to particulate matter from fossil fuels to 10.2 million, where deaths in China and India represent a staggering toll of 3.9 and 2.5 million per annum. Well, you might say that LNG is still a fossil fuel, which is true. But LNG, or natural gas, is the cleanest burning hydrocarbon, reducing the harmful particulate matter pollution compared to coal by nearly 100%. At the same time, our new ships have a CO2 footprint, of less than half of the older steam turbines. We have also adopted sustainability accounting standards, and we will report our third annual ESG report in April, where we will publish a lot of non-financial figures related to emission, as well as social and governance issues. And lastly, as mentioned, the medicine against COVID-19 is not only newly developed messenger RNA vaccines, but all Keynesian fiscal and monetary stimulus on an unprecedented scale. We are living in the age of the greatest ever fiscal and monetary experiment. Will easy money and huge budget deficit at a time when baby boomers are retiring, will that lead to higher inflation? Are we seeing the last melt-up in the debt super cycle, which has now endured since Paul Walker and fellow central bankers managed to rein in inflation about 40 years ago? Will this debt supercycle be replaced by a new commodity supercycle? These are questions on the top of the mind for most investors these days. In any case, we are not afraid of inflation and certainly not a commodity supercycle. Our balance sheet consists of real physical assets being 13 ultra-modern LNG carriers which transport LNG, which is rapidly becoming a commodity dealing from oil. In times of inflation, commodity stocks tend to outperform the general market, and shipping is part of the commodity value change. If our customers are selling their cargoes at higher prices, there is generally more money on the table to pay freight. So, with that economic and political backdrop, I think we are ready for the financial hour.

Thank you very much. Looking at the income statement on slide 8, revenues for the quarter came in at 67.4 million, up from 33.1 million in the previous quarter. The increase is due to improved markets, with time charge accrued and rate for the quarter of approximately 74,000 per day, up from 47,000 in the previous quarter, and also the increase in the fleet following delivery of three vessels in the third quarter and Flex Amber in October, which also impacted vessel operating. Adjusted EBITDA for the quarter was 50.2 million, up from 21.9 million in the previous quarter. Interest expenses were up due to a full quarter of interest on the debt related to the three vessels delivered during the third quarter, and execution of the 156.4 million flex amber sale and leaseback upon delivery of the vessel in October. Net income for the quarter was 25.8 million, or 48 cents per share, up from 3.8 million, or 7 cents per share in the previous quarter, with adjusted net income of 24.2 or 45 cents per share up from 1.2 million or 2 cents per share in the previous quarter. Looking at the full year 2020, we reported net income of 8.1 million or 15 cents per share. As I mentioned, we took delivery of our first vessel three years ago in January 2018, and this is our third year in a row delivering black numbers. Adjusted net income for the year was 34 million, or 63 cents per share. Then moving on to our balance sheet as per December 31st on slide nine. We had a solid liquidity position of 129 million at year end, an increase of 53.1 million during the quarter, which we will get back to on the next slide. During the year, we took delivery of a total of four vessels, of which one was delivered in the fourth quarter. increasing the operating fleet to 10 vessels at year-end, with an aggregate book value of 1.86 million. In addition, we have booked vessel purchase repayments of 290 million, relating to the three new buildings still to be delivered at year-end. The first of the new buildings, Flex Freedom, was delivered on 1 January, and the increase in vessel purchase repayments is due to pre-positioning of funds in end-December, in connection with the deliveries, offset by the delivery of FlexAmber in October. Total interest-bearing debt stood at 1.4 billion at the year-end. During the fourth quarter, we executed the 156.4 million sale and leaseback transaction for FlexAmber. In addition, 125.8 million was drawn under the 629 million ECA facility in December, in connection with the delivery of FlexFreedom on 1st January. Total equity as per quarter end and year end was 835 million, giving a strong equity ratio of 36%. Looking at our cash flow for the fourth quarter on slide 10, we had a positive net cash flow of 63.1 million. Cash flow from operations was 51.6 million, which includes positive working capital adjustment of 14.4 million, mainly due to an increase in prepaid hire due to the strong markets. Scheduled loan installments were $9.4 million, and in addition we had a financing cost of $5 million, relating to upfront fees, guaranteed premiums, and commitment fees on our long-term debt, which we will get back to on the next slide. Net new building CapEx made a positive contribution of $23.2 million in the quarter, relating to the new building Flex Amber. As mentioned, we executed a $156.4 million sale and leaseback transaction upon delivery, compared to total capex, including change order and pre-liver expenses, of $133.2 million. In November, we announced a share buyback program of up to 4.1 million shares. During the quarter, we repurchased a total of 203,000 shares for $1.7 million, or $8.20 per share on average. In addition, the Tencent dividend for the third quarter of $5.4 million was paid in December. Looking at our cash flow for the full year on slide 11, we started and ended the year at 129 million in cash. Cash flow from operations was 89.3 million during the year, while scheduled loan installments were 36.3 million. During the year, we arranged more than 900 million in new attractive financing, securing funding for all seven new buildings still under construction at the beginning of 2020. The associated financing cost totalled 17.5 million, of which 9.9 million were upfront fees to the financiers. In addition, we paid a guaranteed premium to Kexim, totalling 3.2 million, under the 629 million ECA facility, where part of the loan is guaranteed by Kexim. This is in effect prepayment of interest expense, as the guaranteed tranche under the facility has a significant lower margin due to the guarantee. Commitment fees prior to drawdown totaled 3.8 million, while we incurred legal expenses of 600,000. Net new building updates for the four new buildings delivered during the year was 21.8 million. And as mentioned, we purchased here totaling 1.7 million in the fourth quarter, while total dividends paid during the year was 10.8 million. or $0.20 per share, representing $0.10 for each of the fourth quarter 2019 and third quarter 2020. We have over the last year secured a total of $1.7 billion of attractive financing for the 13 vessels in Enfried. At the same time, we have diversified our funding base with a mix of bank financing, lease financing, and ECA financing. Post-quarter end, we also agreed a 20 million increase on the 100 million facility for the financing of FlexRanger. The 20 million increase will be non-advertising and available on a revolving basis. We have a very comfortable debt maturity profile with the first maturity due in July 2024. Our diversified sources of funding also give a staggered debt maturity profile mitigating any refinancing risk. We have not only diversified our financing sources but also our pool of lenders, which now include 15 different financial institutions, demonstrating our ability to raise attractive funding in a challenging capital market. Flex LNG is a clean setup, with a fleet consisting entirely of later generation LNG carriers, with attractive financing attached. This also gives a very comfortable cash per key level for the fleet, which is estimated at around $45,000 per day on average per vessel, once fully delivered in the second quarter. If we look at the breakdown, both G&A and marine operating expenses are competitive at around $1,500 and $13,000 per day, respectively. The remaining two-thirds is financing costs, where interest expense is estimated at $13,300 per day. Around 62% of our debt is either fixed rate or hedge with interest rate swaps, giving predictability on interest expense. The remaining 17,500 per day is repayment of debt. All our loans are amortizing with an average repayment profile of less than 20 years to zero, compared to the depreciation profile of our vessels of 35 years, which means we are paying down our debt more rapidly than the assets depreciate. The competitive cash break-even level and all vessels on the water generating income from the second quarter means we are very well positioned to generate substantial cash flows going forward, as illustrated on the graph on the right. And with that, I hand the word back to Øystein, who will give an update on the market.