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spk01: Hi everybody and welcome to FlexLNG's fourth quarter and full year 2023 presentation. I'm Øystein Kalle Kleve, CEO of FlexLNG Management and I will be joined later today by our CFO Knut Roholt who will run you through the numbers. As usual we will conclude with a Q&A session where We have a gift as a customary for the best question. This time we have some nice beanies from Amundsen in various colors and also a nice neck warmer to fit together with the beanie. You can ask a question either by using the chat function in the webcast or you can also still send some emails to ir.flexlng.com and we will cover those questions in the end when we're doing the Q&A session. Just a reminder before we begin the presentation about our disclaimer, we will provide some forward-looking statements. There are some non-GAAP measures, and of course, there are limited how many details we can cover in the presentation. So let's kick off. Revenues for the quarter came in at $97.2 million. This was in line with the guidance provided in Q4 of around $97 to $99 million net income And adjusted net income came in at 19.4 million and 37.8 million respectively. Just a reminder, we have a rather big portfolio of interest rate derivatives where we've hedged ourselves against the higher interest rates we are today experiencing. And in the adjusted numbers, we only include the realized gain and loss on derivatives while we take the unrealized change in value are included in the net income numbers. But as Knut will tell you shortly, we have made rather big gains on derivatives during the last three years to a total of 116 million positive. So this translates into our earnings per share and adjusted earnings per share of 36 cents and 70 cents respectively. As we are now in February and heading out of the peak heating season, not surprisingly, rates are softening following the seasonal pattern where typically freight rates find a bottom at around March before starting to fire up again for the summer season. And I will cover more of the freight market in detail later in the presentation. As we have recently announced, we have received an extension of one of our ships, Flex Resolute. She has now been on our time charter for about two years. This time charter is for three years, where the charter, our supermajor, has option to extend by two plus two years. And they have now declared the first option, taking this vessel firm until at least the first quarter of 2027. Then, as we announced on January 8th, we have re-delivery of Flex Constellation either end of Q1 or in Q2. This ship has been on a three-year time charter with a trading house, and we will get her back, and we plan to carry out the dry docking of this ship before then market her for spot, medium-term, or longer-term time charters, depending a bit on the market conditions. For next quarter, Q1, which we are already way into, we expect rates to soften a bit depending a bit on where the spot market is trading as we have one ship on a variable time charter, Flex Artemis. So we expect time charter equivalent earnings of somewhere around $75,000 to $80,000 per day. Guiding also in terms of revenues and adjusted EBITDA, around 90 million of revenues and 70 million of adjusted EBITDA, quite similar to the results achieved in Q1 last year. We have two dockings scheduled for this year. Last year, as some of you might recall, we were carrying out dry docking, the first dry docking, five-year special survey of four ships altogether. This year, we only have two ships. It's the Constellation, which we will dock end of Q1 or Q2, depending when we get her back, and then Courageous is scheduled for dry docking in the second quarter. So with strong results, a very healthy backlog, which I will cover shortly, we are pleased to once again pay out a dividend of 75 cents per share for the fourth quarter. So this gives in total a dividend for the full year 2023 of $3.12 per share. And that should give a yield of around 11%. Stock market here in Oslo is down today. Stock has recovered a bit, down 5.5%. Driven a bit by the sentiment around Equinor's capital markets day where they cut their dividend. And Equinor is down 5-6% today and dragging down the energy sector. So hopefully we can provide you some info and give you comfort on the results of FlexLNG despite the kind of sell-off in the energy market here in Oslo today. So let's review our guidance. So last year we provided a fairly detailed guidance for the full year given the fact we had 100% coverage for the year. So we guided on three key measures. Time charter equivalent, which is the average rate we obtain on our ships, we guide it at approximately $80,000 for the full year. Delivered slightly better in Q4 as that's the peak season, $81,100. And average for the year, we ended up at $79,500. So very much in line with the guidance provided. Revenues, we guided approximately 370 million, and I'm pleased to say we beat that by 1 million, 371 million dollars. And then we guided the last measure was adjusted EBITDA of 290 to 295 million. We delivered 290, and the reason why we didn't meet the midpoint is we had some technical off-fire days last year. We have had extremely few technical off-fire days during the more than five years we've been trading these ships, but we had some last year and affected slightly on that just a bit there. Looking forward to Q1, as I said, it will be more or less similar to the numbers we delivered Q1 last year. Depends a bit on the timing of the constellation docking and also how the spot market is performing. But revenues of 490, adjusted EBITDA of 170, and then a range here on the TC achieved of 75 to $80,000 per day. So during the last couple of years, we took delivery of the first ship, Flex Endeavour, 9th January 2018, and then the sister ship, 11th January 2018. And then we've been building up the numbers of ships on the water. Last ship we took delivery of was in, I believe it was May 30th or May 31st, 2021, the Flex Vigilant. So from Q3 2021, we had all our fleet on the water generating earnings. And then we started off with most of our ships in the spot market. That really paid off in 21 when the market was roaring, a bit more challenging during COVID. And then from 21, 22 onwards, we mostly locked in rather long charters on all our ships and stabilized both the revenues and then the adjusted EBITDA since basically all our costs are fixed. And as you can see, variability in adjusted EBITDA is very small. We had a bit of a dip in Q2 last year, but that was mainly driven by the fact that we carried out dockings of three ships in Q2 last year. This year, as I mentioned, we only have docking of two ships. Looking at the fleet profile, so this backlog I mentioned is backed by high contract coverage. We have very limited open ships near term. This year we are already 94% coverage on contracts. We have one ship, as I mentioned, the Flex Constellation, coming back from a three-year time charter, opening up end of Q1, early Q2, and as I mentioned, we plan to dock her. That typically takes around 20 days, and then she will be available again. at a good period of time I think once we are out of the bottom of the market typically. So we also have one ship linked to the spot market by the fact she has a variable time charter it's the Flex Artemis which is on a five-year charter but where the charter has option to extend that contract by a third five years. As mentioned Flex Resolute recently extended to 2027 There is a similar option for the sister ship Flex Courageous. So let's see if we also add some more backlog here during the year. And then as you see, we have very limited open availability here near term. We will have a bit softer market in terms of volume hitting the market compared to ships for 24-25 and then there's a lot of new LNG coming to the market 26, 27, 28 and onwards and actually that's a period now where contracting of ships are tailing off because of the very high ship prices. So we think we are well positioned, minimum 50 years of charter backlog. We think we will add some more charter backlog this year by a declaration of further options which could bring the total up to a total of 71 years, and all these charters are blue-chip counterparties. Looking at dividends, so we have a stable business backed by a lot of first class backlog and we are generating substantial cash flow and as I've covered in the past we are a very shareholder oriented company where we do think that all these earnings belongs to shareholders and we are paying these out regularly on a quarterly basis. This quarter we are paying out 75 cents slightly higher than the adjusted earnings given the fact that we have a very sound financial position with 411 million of cash, no upcoming maturities, a lot of backlog and very limited capex liabilities since we have no ships under construction and capex liabilities are limited to dry dockings and this year we have the dry docking of two ships which should be in the range of 10 million altogether in capex for those two ships. So a very sound, stable business. And last slide here before giving it over to Knut is with this business, we have generated substantial returns. We listed this company almost five years ago now, June 2019 in New York at $11. We paid out almost the same amount, $9 in dividends. If you reinvested the dividends, you would do even better. And then on top of that, we have had a share price appreciation. Right now, the stock is down today. So the 280% is a bit less, but still a very good return. And for those who are a fan of Warren Buffett, he knows that... The market in the short run, it's a voting machine. In the long run, it's a waiting machine. And gravity tends to favor the good businesses. And as he says in this book, Snowball, time is the friend of the wonderful business, the enemy of the mediocre. So we certainly delivered on that philosophy. We are paying out the free cash flow. And in the Russell 2000, consisting of stocks in New York, we are in the top 2% of companies in terms of dividend payout with 11%. I haven't calculated, but probably 12% today with the stock price. So I think it's a good time to be invested in Flex. And I will come back and give a bit more update on the market. First now, we will head over to Knut. I hope you give him a warm welcome. Knut is 46 years today, so it's his birthday. So come here, Knut. I hope you can get yourself a beanie afterwards as well as a gift. Here in Norway, typically, if you're single, you go with a green beanie. If you're not, you have a red. If you're undecided, you have a white one. So I'm curious to see which kind of beanie you're going to elect to have. Last year, there was an LNG carrier which was scrapped at the age of 46 years, your same age, the Gandria. But Knut, he's still operating in the LNG business.
spk00: Thank you, Øystein. I think we can head over to the summary of the operational figures for the fourth quarter and for the full year. If you look at operating days, in the second quarter we had 77 days of fire related to the dry docking. And then we had in the first three quarters 19 days of technical fire. In the fourth quarter we had 100% technical uptime and that results in a technical uptime and commercial availability for the year of 99.6%. That's a strong testament to our onshore technical and operations team and also for our crew members on board keeping their propeller running. If we look at the time charter equivalent per day in the fourth quarter, we had 81,100 and then for the full year 79,500, which is at par with our guiding. OPEX for the fourth quarter is somewhat higher. That was guided on the Q3 presentation, and that was mainly related to scheduled maintenance of our auxiliary engines. But however, as we guided on the total OPEX for the year, we end up at 14,400 versus the guidance of 14,500. For 2024, we guide an OPEX of 14,900, and that is mainly an increase in crew wages and some technical. That results in revenues of 97 million for the quarter and 371 for the full year, which is also as guided, an EBITDA of 76 million for the quarter and 290 million for the full year. That results in adjusted net income of 38 million for the quarter or 137 million for the year. And in the adjusted numbers, we adjust out unrealized gains and losses from our derivative portfolio. And then, as you may recall from closing of our balance sheet optimization program in the first quarter, we also strip out the non-cash write-off of debt issuance cost. So then looking into the more details, and we've been through the revenues and the OPEX, then the main differences are on the derivative portfolio. The paid interest is on par quarter by quarter, and then the difference is on this quarter, a loss on the derivative portfolio of an unrealized loss of 18.7 million, and then a realized gain of 7.1 million, which is offsetting our interest cost. That gives us a net income of 19.4 for the quarter, And if we then adjust out the non-cash items, we have adjusted net income of 37.8 million or adjusted earnings per share of 70 cents. The balance sheet remains pretty much the same. We have the schedule depreciation of our vessels and then $411 million of cash on the asset side. So we keep it very simple and that results in a book equity of $848 million or book equity ratio of 31%. And then as a reminder, these book values reflect that these vessels were ordered at a low point in the cycle and therefore does not reflect the market value today. On the funding side, our debt portfolio, we did a complete refinancing of our fleet with the balance sheet optimization program that was concluded in the first quarter this year or last year. And that gives us a flexible blending of both long-term leases up to 12 years for some of them. And then the the traditional bank portfolio where we have structured 400 million dollars of our debt as a non-amortizing up to six year revolving credit facility. And when we have 410 million, 411 million of cash available that gives us a flexible tool for cash management so we can repay the RCFs in between quarters And then we reduce the interest rate cost, and we pay 70 basis points in commitment fee. If we look at the debt maturity profile, our first maturity is in 2028 and that's related to our bank financing. So we have a lot of headroom ahead of us and this is a very supportive financing position to be in the support of the business and our business case. We have over the last three years been quite active in the interest rate market. We entered into the market with a lot of additions with long-term interest rates up in 2021. As the interest rates have increased, we have also added more, but also amended the duration profile to make use of the gains and reduce the tail end risk of this portfolio. So today we have hedging of our interest to traditional interest rate swaps, but also off balance sheet items like fixed rate leases. For this year we have an average net hedging ratio of about 65% and then it tails off more or less equal as you will see in the forward curve of the SOFA rates going forward. We are monitoring the interest rate market pretty closely and we are looking into when to add more exposure on the tail end to increase our hedge ratio from 25 and onwards. And that concludes the financing sector, and back to you, Einstein.
spk01: Okay, thank you, Knut. So, in terms of the interest rate hedging, Jay Powell, he was on 60 Minutes on Sunday and talked about the interest rate market. It seems like March will be a bit premature for a cut, but May seems very likely, and it doesn't rule out bigger cuts down the road. So I think we have a profile of the hedging, which is very much in line with a pivot from Fed within this year, which we have expected and positioned ourselves for as inflation is starting at least to subdue a bit. In terms of the LNG market, we had another eventful year. It seems to be the case every year. 22 was all about curtailment of Russian pipeline gas to Europe prior to the invasion and subsequent to the invasion when we had the blow up of the gas lines. So this year has been a bit more calm, I would say. We have seen LNG prices migrating down to more normal levels. We did have a peak in export LNG price last August of August 2022 of $100 per million BTU, equating to around $600 per barrel of oil. We are now down to more normal levels, $8, $9 now, which means that LNG is cheap again. And when things are cheap, people tend to consume more of it. So we are now at a big discount to oil. More importantly also, we are at a huge discount to especially diesel. So this means that it's firing up demand in new regions and actually in longer term it's better to have a more sound price of the product, otherwise you will have demand destruction. In terms of the exporters and importers, we have a swap of the thrones. We have China coming back, being the biggest LNG importer again after... They became the biggest in 2021. They implemented the zero COVID policies, which resulted in China reducing its LNG import in 2022 of 20%. They are bouncing back in 2023 and retaking the throne as the biggest importer for the second time. Japan has traditionally been the biggest, but Japan is firing up the nukes. And also the coal power plants, they built, I believe, 40 of those since Fukushima. So we do see that Japan demand has been on the soft side. But as I will come back to, there are emerging nation countries which is snapping up these cheaper cargoes. Last year was a year with limited new capacity being installed. although we did have a volume growth of around 3% driven by US particularly. Restart of Freeport contributed with a lot of new volumes. This year also a year with fairly muted export capacity being implemented and there's some uncertainty about Arctic LNG2. So 13 million tons, half of this is about Arctic LNG2, the first train. This is operational. They are planning to commission it during Q1. So we'll see how the Russians are managing to sell these cargoes, the experience from the crude markets, both oil and products. Seems to be the Russians are very good at finding loopholes and finding customers who are willing to buy this cargo. So this will be one of the key questions for this year. But certainly if they are moving the cargoes, they will be very ton mileage intensive. Fragile maritime supply chains has been a big factor. That sounds like something negative. For shipping it isn't necessarily a negative. We thrive on inefficiencies. Inefficiencies means typically higher ton mileage and also maybe higher ton time. So it means you need more ships in order to shift cargo. We had the drought in Panama, we still have the drought in Panama, the water levels in Gatun Lake, the main fresh water supply for the canal. This is our water escalator which needs to be refilled with water all the time. The water levels are still at low level, there are still restrictions in the number of transits and this will stay in place until at least the summer when we will see whether there is a sufficient rain season in Panama to replenish those water resources. From end of the year we had similar issues with the Suez Canal there. It's not about water, it's about war and the Houthi rebels attacking the maritime traffic and today there are no LNG carriers going through the Red Sea to utilize the Suez Canal and of course This has some effect on ton mileage, especially for the Qatari volumes going all the way through Cape of Good Hope to enter European customers rather than going the shortcut through Suez. So let's look at a bit on the export and import side. As mentioned, strong growth from US actually grew 27% in Q4 and 13% for the year. Flat for Australia and Qatar, the two of the major exporters. Russia is the fourth biggest exporter. Fairly flat volume export from Russia. There's no sanction on LNG. There are some sanctioning by the US and UK, which are not allowing Russian cargoes, but for the remaining countries, they are happy to take this cargo, and especially EU, who have been boosting their imports of Russian LNG. Malaysia fairly flat. Algeria was one of the outliers last year, growing healthy through 2023. On the import side, as I mentioned, China bouncing back 16%, still a bit below the levels we've seen in 2021 prior to the COVID restriction. And now with the price of LNG being competitive, we expect China to grow quite healthy also in 2024. Japan is on a bit of a decline. And South Korea, Taiwan, fairly flat. The big order driver, you know, if you follow macroeconomics, India has been enjoying a very long boom now. And with prices coming down to these levels, we see strong growth in India. If you look at the Q4 growth factor here, 43%. adding 15 for the year so we expect this to continue and rest of world you see very strong growth in q4 driven as i said by these low prices europe fairly flat and i will cover that in more detail shortly so just to summarize the big movers and shakers u.s growing steady algeria as i mentioned Qatar flat and Egypt where there has been issues with feed gas from Israel given the conflict in the area. We have had shutdowns of feed gas from Israel to Egypt liquefaction plants. There's also been domestic demand for this gas, so they've been exporting less than in the past. However, this is not that important for the shipping market. Egypt is very close to the main import nations in Europe, so it's very low ton mileage on these voyages. Yeah, heading back to Europe. Europe has been the lucky man the last two seasons. European LNG imports used to be at around 80-85 million tons. Once the Russians started to reduce the flow of gas to Europe, Europe had to turn around very quickly to get access to these LNG cargoes and this is mostly US where you have flexible LNG cargoes and they've been bidding up the price and as I mentioned they bid the price all the way up to $100 per million BTU making LNG unaffordable for emerging Asia and but with two winters in a row with fairly mild weather Europe has been able to fill up its inventories. This is also driven by what I will cover on the next slide, demand subversion or demand destruction. These kind of high prices is of course affecting behavior and use of LNG. So gas consumption in Europe has fallen off a cliff. and it's now shortly bouncing back. But as you can see on the right hand side, inventory levels in Europe are quite healthy. We have some time still to go. Usually the kind of the season where heating season lasts until 1st of April. So we will be drawing down this inventory and then once we're getting into spring, Europe will need to fill up its inventory levels again in order to be prepared for the next winter. So as I mentioned on last slide, Europe has a huge demand destruction on the gas side, driven by these high prices. Demand in 2022 was down 12%. It's been weak in 2023, but we do see some green shoots here. On the graph on the right-hand side, we have seen European gas demand bouncing back, driven by the residential and commercial sector. also driven by industry. We haven't really seen it on the power side yet. So this is something we will monitor and we do expect low prices will affect consumer behavior. Looking at emerging Asia, as I mentioned, there is a region where we see demand really bouncing back. Japan imports on the weak side, China is up, but we do see some of these other countries, as mentioned, India, but not only India, Thailand, very strong growth last year, Bangladesh and Pakistan, which has been forced out of the market by these high prices, are now returning and buying up more cargoes. And then the big item which has been recently is the US moratorium on more export licenses. So US has grown to become the biggest LNG exporter in a very short time. And actually, while exports now are at around 85 million tonnes, with the projects in the pipeline in the US, the US is set to almost double its exports from existing projects regardless of this decision. However, it's unfortunate that we have this situation. Europe is still in desperate need of getting access to more LNG to kind of fill the gap from the Russian curtailment. And of course, the rest of the world is also reliant on LNG in order to force out coal. The coal consumption is huge. If we are to do something with this, of course, renewable is a solution, but LNG is certainly a solution to reducing the coal consumption. So there are a couple of projects in the U.S. which has been more or less ready for FID this year, and we mentioned some of the big projects there, Calcius Pass 2, the Sabine Pass expansion, Port Arthur expansion, Lake Charles, who had a license to export but which were not allowed to renew it or extend it, so they have to apply for a new one, Commonwealth, Delfin, and Freeport Train 4. So all of these projects now are in a bit of limbo. As former US politician said, all politics is local. This was Tip O'Neill. So this is driven by, of course, Biden have to reach out to the voters on the green side or the left side of his party in order to secure the election coming up in November. But for this project, it's unfortunate. We do think that they will come back again, regardless of whether it's Mr. Trump or Mr. Biden who wins the election, because these are huge projects which are very important for their allies. It's very important for the economy, creating jobs. And these projects are ready to go once they get this permit from the Department of Energy to export to the countries buying these cargoes. So let's look at the maritime inefficiencies again. Yesterday I found out a new word, canalibalism. So this is related to the fact we have had these issues with the first Panama Canal, the drought, really driven down the number of transit of LNG ships going via Panama. Rather, ships are going for the safe route, Cape of Good Hope, as also the fees in order to skip the queue in Panama have reached new highs. We were up all the way to about $4 million to skip the queue last autumn, or actually more winter than autumn. So this has driven ships to rather go via Cape of Good Hope, where you also have certainty on your schedule. And then lastly now, the Suez Canal, where all traffic has gone, given the unsure security situation there. So this has driven up Cape Routing, which of course is good for the ton mileage and absorption of shipping capacity. A bit more details on the Suez Canal, of course, flows in the LNG market is more or less that what is being produced in Asia is being consumed in Asia, so the Australian Projects are going typically to Southeast Asia and so the swing factor tend to be the American volumes which are flexible in nature. But there are still the Qatari. Qatari is a big player. Qatari is exporting about 80 million tons. They will grow a lot. with the new expansion projects they have. So they sell quite a few cargoes to Europe and if you are going via Suez, it's a big shortcut rather than going through Cape of Good Hope, which is the case today. Let's dig into the shipping market. So here we have a graph of the headline rates assessment for a modern tonnage two-stroke. And we can see on this line the gray one being the rates achieved last year and the dark blue the average the last couple of years. and then the light blue being this year so far so we have the seasonal softness we have seen all the other years and then the dotted line being the future freight rates so we do expect to market to find a bottom and then as usual you will have a seasonal peak once we are getting into i would say august september typically then you see a ramp up in the rate so we do think that we are Well positioned with Constellation doing docking in Q2 and being ready in the market once it's ready for takeoff later in the year. And we could also have some summer rallies here depending on the price structure of LNG. If there is a contango, which is often the case, we will have more buildup of floating storage and Constellation is a partial relic ship, very well fitted for such a trade. Average distances, I mentioned a lot of the U.S. cargo has been going to Europe, given Europe's desperate need to get access to LNG, which has reduced the distance being sailed. But with prices now low and more demand from Asia, also the inefficiencies in Suez, we could see a better picture on the ton mileage going forward. New building prices has gone up a lot. As Knut mentioned, we contracted ships when they were cheap. So we have been contracting ships back in 17-18 paying about 185 million dollars per ship. Ship price today fallen a bit from 265 to 262. But you know, if you take that number, it's an increase in the price of a ship of 80 million dollars. We have 13 ships. So that's a billion dollars in appreciation of the ships since we contracted them. So, you know, we have a book equity of 860 million or so. If you add that appreciation, you are at value adjusted equity of 1.65 billion. And our market cap today is around 1.5 billion. So we do still think we have a very good economy. kind of net asset value protecting our assets and also backed by the charter backlog I mentioned. So these kind of high prices on the new building side also means that you need to have a higher rate in order to defend such an investment. Keep in mind interest rates gone from zero to also stabilized now today at around 4% on long-term interest rate, which means that in order to build a new ship, contract a new ship and and give a rate for a long-term charter, we see that rates are at around $100,000 per day, which is substantially higher than the approximate $80,000 we achieved last year. So we do think we will find good opportunities to re-contract our tonnage once it comes open at better rates. We have seen softness in the shorter term rates and we actually now have a contango structure in the term rates where longer term charters are more expensive than shorter term reflecting the fact that we have a lot of ships for delivery this year with a bit muted volume growth on the export side but you know which should give us a lot of opportunities to to re-contract ships because as I show on this next slide Contracting of ships is of course tailing off. The high prices and of course the rather big order book already means that very few people are contracting on speculation. Out of this order book of around 300 ships, 93% is contracted towards a long-term contract. And we see little of any speculative new building contracting at all. And we do see the number of ships for delivering tailing off, which fits very well with also the export story, where a lot of volumes are coming to the market from 25, 26, 27 and onwards. And once we have this moratorium in the US, we have a lot of projects ready to be FID'd which I think will happen where startup of these volumes will come from 27, 28, 29 when we also do have quite a lot of ships open. So another thing I've been talking about now for more than six years is the technology change. When we contracted ships back in 1718, we contracted the new type of ships. It's a two-stroke engine. It's a super efficient ship. It's about 60% more fuel efficient than the old steam turbine generation of ships. Those ships were contracted typically in the 1990s into 2000 against a 20-year time charter. 20 year maybe even 25 year time charter and these ships are now rolling off those legacy contracts and you know given the inefficiency of these ships given the poor environmental profile of the ships we see a few charters extending these ships so we have about 24 steam turbine ships expected to be re-delivered from a long-term contract this year, 25 next year, 12 there. So this replacement of old inefficient ships will result in more opportunities for modern tonnage in terms of fleet renewal by the charters. So as I mentioned, 46-year-old ships being scrapped last year, six ships in total. The year before it was one. In 21, when the market was super hot, it was seven ships. We will be coming into our age now where we will have double digits of scrapping of older tonnage because it's overdue. The only reason it hasn't happened is that these ships have been on long-term charters and not being in the spot market. And then let's look at the export market I mentioned. A bit muted on the growth this year given the uncertainty about Arctic LNG2. And then from 2025, 2026, 2027, we will have a big growth of this export market. There are 70 million tons of ready projects also for FID. The Northfield Qatar project will of course go ahead regardless of what Biden is doing in the US. And they might even add further volumes. And then we do have this project in US, in Limbo, where we need to have a resolution on this moratorium before these projects can be green-lighted and adding further growth to the market. So before concluding, we will come with our annual ESG report later, probably around April. So we have an annual ESG report with a lot of measures, but we have also been part of the CDP carbon disclosure project where we are filing for a lot of data and getting a score. We got our 23 results yesterday, February 6th, and we've been ticked up from B- to B, so I think that's a pretty good result for us, given the lean organization we have in terms of reporting on all these measures so before we head for the Q&A session I just gonna repeat the main highlights revenues 97.2 million in line with guidance we are delivering 37.8 million adjusted net income which is the most applicable number which gives a Earnings per share adjusted of 70 cents. We are a bit in a softer market now, which is no surprise. We will be ready for the spot market with flex consolation in the second quarter after we have been carried out the dry docking offer. We're happy to have a a two-year extension of Resolute to 27, adding further backlog to our fleet. And then we are guiding similar numbers for Q1 this year as last year, a bit softer because of the spot market affecting the variable hire time charter. And then we might do some docking in Q1, or most of it we do expect to take place in Q2. So with good numbers, healthy financial position, we are declaring a quarterly dividend 75 cents bring it up to 3 125 for the year and that should give a yield of 11 it's probably 12 percent now okay great so Knut let's see if we have some questions
spk00: Yes, thank you for the questions that you have sent in. And I think we start off again with Omar Nocta from Jefferies. And there's a number of questions regarding the Red Sea and also Panama Canal. So from Omar, these restrictions, are they enough to offset the new building deliveries and lead to a tighter market?
spk01: I think for the Red Sea, it mostly affect Qatar. Qatar, they might get a bit short on shipping and need to re-let in some ships in order to have sufficient capacity to move the Qatari volumes to Europe. So I think it depends a bit more on the trading pattern. Who is going to be the major puller of cargo this year? Is Europe going to be desperate to be the buyer of first and last resort? Or are Europe going to stay a bit more back now and leave some more room for the Asian countries? That will affect the market more. Panama, it's never been that important for LNG. A lot of the LNG ships, they route via Cape of Good Hope anyway. So we've been frank about the fact that this year we do see a bit more ships than molecules. But on the other hand, we also do expect that finally we will have scrapping. Usually people don't scrap their ships in a good market. We have had very good markets, 21, 22, 23. It doesn't give a lot of incentives to scrap a ship, but keep in mind when these ships are getting older, and they're already a bit outdated on the technology. Are you then willing to commit a lot of money to dry dock those ships and typically you have to replace a lot of these older systems. So I think that will be a bit more important. I think also that the price curve of gas will be important because if you have a contango structure in the price curve of gas or LNG you will have floating storage which typically any year can take out 40-50 ships of the fleet in kind of this contango trade so that I think is probably a more important driver.
spk00: And following up on the Red Sea, the insurance rates have increased if you're trading in that area. And also there may be other costs associated with being there. How is that affecting Flex?
spk01: Right now, it's not a single LNG ship in the Red Sea. But before everything blew up, we also had ships going through that area. as the situation at that time was considered to be moderate risk for ships without a link to Israel. But that drove up the price of the insurance. So typically you need a war risk insurance in order to go through that area. The biggest provider of war risk is the Norwegian War Risk Fund. And the price we saw on the pricing of getting insurance to go through that area went up 10 times. Today it's probably a lot more, but we haven't asked for a quote because we haven't had any instruction to go through that area. However, in our time charter, it's basically, we are a private driver. So we show up with our ship and a crew, and under a time charter, it's the charter who is responsible for the routing and the instruction to the ships where to trade. That also means that a charter is responsible for taking the cost associated with that trade. So if the charter elects to go through Suez, there will be a Suez tariff to pay, which they will have to pocket. And they will also have to cover the war risk associated with that. So that is something they will put into account. account when instructing the ship. The same goes with Panama. If they go to Panama and they pay $3 million in order to skip the queue, we are not paying that. It's their instruction how to trade the ship. They have to carry all the costs associated with that. And from this year, this also includes the EU ETS. So it's the emission trading system of European Union started to be implemented for the maritime sector this year, which means that if we take a ship into Europe, we will need to buy carbon quotas for the emission associated with that trade. So typically if you take a US cargo to Europe you will pay carbon emission for 50% of the route because it's one ballast leg and one laden leg. But again, this is a cost of the trade. We pass this cost to our charters as they are the one deciding where the ship goes. And of course, this has created some issues in relation to the Red Sea because journalists, they typically ask you, are you sending your ship to the Red Sea? But, you know, under a time charter and every single voyage in LNG shipping is a time charter, regardless if that's a spot voyage, a short voyage, a term charter, it's a time charter. And under a time charter, charter is the one instructing the ship. We will have to follow them, those instructions. We have a contractual obligation to do so. However, in our standard time charter, there is certain provision in relation to safety. So the master has to assess the situation together with us. whether it's safe to comply with those instructions. If it's not, then of course we can reject. But you know, that also opens you up to litigation. What is safe and what is not safe? It's a bit of ambiguity and we rely on advice from outside advisors as well as the people writing the war risk insurance in order to make that assessment.
spk00: And while we are at cost, there's a question here on demand for crew with the big new order book and deliveries of new building in the coming years. How do you see demand for crew and the situation for Flex?
spk01: Yes, it's a very relevant question because Top of my head, there is about 1.6 million seafarers in the world. A lot of this used to be Russian crew, which these days, there are certain restrictions on those, and a lot of that crew base were LNG officers. So that means you need to replace, in some instances, that crew, because you might not be able to pay them. So that has also created some issues. You have Ukrainians, which is also a maritime nation where a lot of Ukrainians have elected to rather stay at home and fight the war rather than being at sea. So yes, it's not that easy. However, you know, LNG business is maybe the most technical, sophisticated part of the shipping industry, maybe together with container ships. So that means you will typically always be able to attract talent for this business, which means basically you need to poach people, the best people from the tanker space or the LPG space. So basically you're passing on the problems and at the bottom of the sector you typically have small dry bulk so so they you're cascading the problem down and yes it's getting harder to get people lng will always be able to to find people but but you know these are sophisticated ships you cannot let everybody just run these ships because there's a lot of technology in these ships so it's getting harder We are able to do it. We try to retain our crew. We try to be a good employer so that people want to sail with FlexLNG.
spk00: And we have questions from BTIG and it's related to Flex Constellation and rechartering options and alternatives and what's your preference?
spk01: This is Greg. It's Greg, yes. Good to see you, Greg. Rechartering opportunities, let's see. We need to get a kind of firm re-delivery date and But our plan is that once we get back to Docker and marketer, we've already been around talking to people. If we had a contract, we would, of course, announce that. So given the nature of this business and the name of the company, we are flexible. We are open to do shorter, longer, medium term. We really need to see what is the economics. And then if it makes sense, we are open to fix long. But if we don't get the numbers we want, we are. Happy to trade a ship back again in the spot market. We've been out of it for some time now, and I have to say we missed the action. But we're super comfortable with that. We're 94% coverage for this year, so we can afford to have our ship in the spot market if we deem that to be more attractive than finding a term deal.
spk00: Then there's a number of questions on EU ETS. How are we prepared? Is there any cost for us?
spk01: I think I already covered it. It's part of the time charter logic. So the charter instructing the ship, if they're instructing the ship to go into EU, that is associated with cost of trade, which is the EU ETS. So we have amended our time charter to where kind of we will typically, either they will buy the carbon quotas and surrender them to us and we will surrender them to EU or we buy them for the Charter and send them a bill for those carbon emissions and then surrender it to EU. For us, it's not a cost. It's a pass on to the charters. And of course, in the end, they need to pass that cost to somebody. And that is Mr. Consumer. So there's no tax without any cost. So in the end of the day, it's the consumer paying this tax, not us.
spk00: Then we're segueing over to business development and capital allocation. So maybe we'll start with the growth questions. How do you plan to grow FlexLNG beyond the 13 vessels?
spk01: We have had this question for some time. We're looking at the market, but we are stewards of the shareholders' capital. If we contract a ship today, if we're super lucky, maybe we get a ship in 27, but the slots availability are now getting into 28. So that means that we are spending, let's say, 262 million today to get a ship in 28. So we are not seeing that money for four years. The price is not 262 because we need to have supervision. We might need to draw a loan, a building loan with a bank which needs an interest rate. Interest rate is 4%. They might want a margin 2%, so that's 6%. So once you're taking that into account, The cost of that ship is not 262, it's maybe 285 or so. That means that, hmm, is that a better use of our cash than paying dividends? So far, we haven't been convinced that it's better to spend that much money on new ships, so we rather focus on the ships we have. We have one ship now open in Q2. We have Flex Ranger fully open in 27. We might have some ships open in 28, 29. So why not focus on the ships we have open 27, 28 rather than splashing out all this money on new ships. So we are not there to pursue growth because Knut and I can be you know, happy with having a bigger fleet. Our number one, number two, and number three focus is return on equity, return of that money to shareholders through dividends, and we're not going to pursue growth just to be big. We'd rather be big on dividends.
spk00: And there's a question related to that on paying dividends versus buying back our own share. Yeah. How do you look at share buybacks?
spk01: Yeah, we've done it in the past. So we did this, it was end of 2020 into 21. So we bought back about a million shares at that time because we deemed it very attractive. have to check the stock price after the webcast and see. So, you know, we're open to do that. If we feel the stock is getting too much suffering because of sentiment, we might elect to buy back some shares for sure. So we're open to that. Could be an alternative option. Not ruling it out, but for this quarter we are focusing on paying our dividend and let's see what happens. It really depends on where we see the best use of the company's cash.
spk00: And you mentioned growth through new buildings. Richard Diamond from Castlewood Capital asks, is there any room for industry consolidation and would you consider a nav-to-nav acquisition?
spk01: Yes, Richard, hi to you. I hope you have a good time in Dallas. Of course, we have said for many, many years, we are certainly open for consolation. We think there is a lot of consolation opportunities because it's quite fragmented on the owner side. A lot of or actually the vast majority of LNG shipping companies are private, very few in the public domain. So we think it could make sense to have a bigger public vehicle, make it more relevant and interesting for especially bigger institutional shareholders. But we don't want to go to bed with strangers. We want to go to bed with people. We share the same values, philosophy. ethics and also the fleet in terms of having a modern efficient fleet. We don't see any value in merging with somebody who has a lot of steam tonnage. So we need to find all those parameters so that we can have a marriage rather than a one night stand.
spk00: And then a question on reinvestment in the existing fleet and then particularly on air lubrication system. Is it technical possible? Is it economically sensible to do that?
spk01: Air lubrication has been something that have been coming up the last couple of years. So just give you a highlight of what that is. It's basically you are putting a compressor on a ship and you're making small holes under the hull. And that compressor is taking it and compressing it and it's creating bubbles under the hull. So the theory behind this is these bubbles under the hull is going to reduce the draft when you're going through water. Of course, ships are going through water. It creates a lot of resistance. And if you can reduce that drag, you could potentially then either save fuel or increase speed. I think for our ships, they are very modern and efficient. So we looked at it when we contracted. We weren't totally convinced. And as far as we understand, we did the right choice because the first generation of air lubrication system has not lived up to the promises. The makers of these systems are saying that the second generation is a lot better. Let's see when we get the data. And a lot of ships today are being built with this system. On our ships, because the efficiency of the engine is like 50-52% terminal efficiency, that means that on a natural boil-off speed, we still have a very high speed of 17.5 to 18 knots. So we don't really need more speed. if you add this you might go and then but you also need to utilize natural boil off speed so you know putting this on and getting like a turbo from going from 18 to 19 knots doesn't really make a lot of sense on older ships it could make sense as part of your strategy to improve your carbon emission indicator Because your ship then, if you have a tri-fuel or so, you have a speed of 15 knots and you need to force boil off in order to go quicker. If you're adding this, you get higher speed. So then it makes more sense to put it on an older ship. However, On older ships, you might not want to invest that much money because it's less technical efficient. But that said, we've seen this happening also on the retrofit side. It's quite easy to retrofit the air lubrication system. We've seen it on our 10-year tri-fuel recently where they put this on while she was doing a 10-year special survey. So it's open, but we are not considering at the moment. But down the road, if price of carbon is continuing to increase, if the carbon emission system is worldwide where you have to pay for it and you get a more monetary incentive to reduce emissions, then we might consider it. But certainly not before these ships are doing a 10-year special survey.
spk00: I think we'll round off with the last question and that's more of a tips to retail investors that want to follow the daily development in the LNG spot rates. And the question is if the BLNG2 on Baltics quoted on CME, if that is a good proxy for our open positions or other
spk01: Yeah, it's a bit of a problem this, that there's very limited data on freight rates for LNG. It's a bit of a niche market. It's a hell of a lot easier to follow the dry bulk and the tank market because there's very many sources for that kind of spot data. I would say that you can go to the CME, there you get the freight derivatives, you can see kind of the forward freight market for a couple of different routes. So the Baltic LNG is a good source. You also have Spark, which is a provider. I follow them on Twitter or X. That's also a good source to get data on the spot market. Fernpulse.com by Fernlis is also a good source for rates on several of the segments, dry bulk tankers, VGC, LNG, although they only quote on that page as far as I know. spot rates for tri-fuel ships which are a bit more inefficient than those ships. So I would use all of those and if I come up with some better sources I will come back to that and maybe we could even make a link on our page. But you know a good source is to follow Sparks on X. They are regularly giving an update on the rates. And that is for the two-stroke or is that for... They have for both, both for the older Trifull chips and the two-strokes, yes.
spk00: That concludes the Q&A, so... Yeah, thank you.
spk01: Knut, I hope you have a good birthday celebration today. And thank you, everybody, for listening in. We will be back in May with the Q1 numbers and give you an update on the company and our results in relation to the guidance provided. And if you are fond of dividends, don't miss out on the Advanced Gas Valentine's Q4 presentation next Wednesday, 14th of Feb. Okay, thank you, everybody. Thank you.
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