FLEX LNG Ltd.

I'm CEO Øystein Kalleklev, and I will be joined later in the presentation as usual by our CFO, Knut Troholt, who will walk you through the financials. Before we begin, I just want to remind you that we will be providing some forward-looking statements, some non-GAAP measures, and of course there are limits to the completeness of detail. Before we kick off the presentation, just to remind you that you can send in questions for the Q&A session, either by using the chat function or send an email to ir at flexlng.com. And as usual, we have a gift for the best question. This time we do actually have two gifts. We have our FlexLNG perfume. We have two versions, his and her money. So it's a perfume with the scent of dividends, which I believe everybody likes. So let's try it out. Yeah, that's a good start. So send in a question to who will be the lucky winner of this perfume. So... Let's kick off with the highlights. No big surprises on the revenue numbers adjusted EBITDA. Revenues came in at 90.5 million in line with guidance of approximately 90 million. This resulted in net income and adjusted net income of 17.4 and 28.7 million respectively. Just to remind you, adjusted net income numbers, we only take in the realized gain and losses on derivatives. During this quarter, interest rate fell a lot until early September when Fed cut 50 basis points. And we utilized that opportunity to increase our hedging portfolio significantly. So the $10.7 million we had in unrealized losses in Q3, we gained more than that just in October month alone. This gave an adjusted earnings per share of 53 cents for the quarter. Recent events, we announced last Thursday that we are already starting the fixing season for 2029 with new contracts for both Flex Resolute and Flex Courageous, where the charter take these ships firm for 2029 to 2032, but where they have option to keep the ships all the way to 2039. And I will give some more details on this. We also have one ship being re-delivered. Not a big surprise given where the market is, which I will cover later in the presentation. So we will have her back, expecting her to have her back in March next year. We also done some more financings, banking on the big backlog we have, and Knut will present the two refinancings we have done since last time. Three ships altogether. $430 million, giving us net proceeds of $97 million and a very healthy cash position, pro forma cash of $450 million, which is about 35% of our market cap today. Next quarter, it's going to be a bit odd quarter. For the first time ever, we are not going to guide Q4 numbers higher than Q3. And this is due to the soft spot market, which is affecting the one ship we had on index. All the other ships are on fixed rate higher, but we have one on index where... She will be trading at the floor level for most of Q4 and thus we expect revenues to be close to 90 million in Q4 rather than the 90.5 million we booked in Q3. EBITDA also slightly less than during Q3. However, with a huge backlog, totaling now 50 years minimum, which may grow to 82 years with the option declaration, we have a very healthy backlog, very good earnings visibility, 450 million of cash. So we're declaring our 13th consecutive ordinary dividend per share of 75 cents per share. And even though we now are at $3 in trailing 12 months dividend down from 3.125 from last quarter, we still have a very attractive yield of 13%. So just a bit more color on the guiding. As you can see here, very much spot on the levels we guided. TC rate 75,400 compared to guiding of 75 to $77,000. As I mentioned, we have one ship on index. Expect slightly less income on that ship in Q4. Dragging our numbers down a bit, but not much. which would be the case if we were fully spot exposed. For the full year, we're also giving you a guidance here. TC down this year to $75,000 per day. Revenues $353,000 to $355,000. And then I just debit there of $271,000 to $274,000,000. Let's kick off with some more color on the two recent extensions. As I mentioned, we have fixed those ships. We announced these ships on our charter in November 2021, where the charter took them on a 3 plus 2 plus 2 structure from 2022 to 2029. They already declared the first option to 2027. And given this extension from 2029, we do also expect them to take the next option, declarable Q1 26, and then with a new firm period to 2032. As we said in the statement when we issued the press release, we have fixed here for longer period at higher rates than the prevailing rate for the 3 plus 2 period. The new structure is similar to the previous structure, 3 plus 2 plus 2, where the three-year firm period is front-loaded, which resulted in, for those of you who read our quarterly report, resulted in a negative revenue recognition effect when those options were declared. But we do expect a positive revenue recognition effect once we're getting a firm period to 2032 from these contracts. And we do think it's likely that these ships will stay with each other for a longer period, most likely to 2036, but it could be all the way to 2039. So another big addition to our backlog. If we're looking then at our fleet portfolio, We have updated them with two stars. It's the Flex Resolute and Courageous. You do see here the charter has an option to take them from 27 to 29, which we think will be the case. And then they will be firmed to 2032, possibly all the way to 2039. We also have some other long charters, Flex Rainbow 2033, Endeavour 2032, we utilized that long-term charter on that ship to recently do our Japanese lease, which was executed on October 3, which Knut will tell you more about. Then, Flex Constellation was on a 10-month charter delivery in May. We wanted to stay out of the spot market this year, given the number of ships for delivery. We managed to fix her until March 25 with an option. The option was out of the money, so we will have her back and we will look at trading opportunities for these ships now that we know that we will have her back in March. Next ship fully open will be Flex Ranger, also March 2027, which I will come back to. But we think that is an ideal time to get ships back in the market because market balance looks much better once we are getting into 2027, 2028. So with that backlog, 50 years minimum, as mentioned, that is also supporting our dividend. Once again, 75 cents ordinary dividend, bringing the total now to 13 consecutive ordinary dividends of 75 cents per share. We also paid some special dividends during this period. So the total dividend is 569 million in 13 quarters, which is close to 45% of our market cap in just three quarters. quarters. And if we look at the decision factors for our dividends, which we have covered also in the past, we have one yellow sign. I think we were a bit too early last time when we upgraded it from yellow to to light green here during the summer. The summer market was surprisingly healthy. We saw rates at around $85,000 in middle of August, which is historically a good rate, but then the market fell of a cliff starting in September. And we are now in a market which is pretty poor if you are looking at the spot market. But longer term, as evidenced also by the new contracts we are announcing, the market for longer term demand is still very healthy. And we have a light green on this. The rest of the items here are pretty straightforward. We have a good cash flow. We have a lot of backlog visibility cash. and covenants, and we don't really have any near-term debt maturities. So with that, I think Knut can go through the financials before I'm reverting with the market section.

Thank you, Hussein. And as already mentioned, revenues for the quarter were 19.5 million. From an operational point, it was a strong quarter with 100% technical utilization of the fleet. And if we look at the nine months, the revenues of 265 million. That translates into a time charter equivalent for the quarter of 75,400, or for the nine months, close to 75,000. If we look at the OPEX, we are at budget at 14,900 per day, and slightly improvement from last quarter. For the nine months, we are below budget at 14,700, and today we guide that OPEX is around 15,000 for the full year. And that's where we expect scheduled maintenance of some of our engines during the period. And also, we have experienced higher crew change costs, basically, since we have less vessels going to Europe, so more of the crew changes are done in Asia, which is more expensive. Adjusted EBITDA of 70 million for the quarter and 204 for the nine months and as Øystein mentioned in the adjusted numbers we take out non-cash items and primarily these are unrealized gains and losses from a derivative portfolio. So in this quarter we have adjusted out 10.7 million and also about 600,000, which is right of the debt issuance cost in connection with our refinancing. Our cash position, as already mentioned, performed a balance of 450 million. That came from 48 million from operations, 27 million from scheduled amortizations. And then we have completed the two financings. First, the 270 million facility that was closed in September. that refinanced all three vessels out of the old 375 million facility. And that was then leaving the Flex Endeavour debt-free at the quarter end. That's why we then have 63 million as a repayment within the quarter. And as you can see, post quarter on the 3rd of October, we completed the lease financing to Japanese Jolko, where we then received 160 million. So then net of dividend payment of 40 million, quarter end was 290, but performer balance at 450 million. If we look at our hedge portfolio, in August and September, we saw that five-year interest rate swaps fell about 50 basis points, making it attractive to utilize some of our positive value in the existing portfolio. and amend and extend and thereby adding more durations. So we see here a significant change and also improved in our hedge ratio. We have now 635 million of swaps with a weighted interest rate of close to 2% with a duration of about four years. That gives us a good hedge in this environment where there's large fluctuations in the interest rates. And as we also mentioned here, there is a combination of our interest rate swaps and fixed rate leases. And if we look at it a slightly different way, here we have a percent difference our net interest-bearing debt, also split in what is hedged through our swap portfolio, the 635 million, and what we have of fixed-rate leases or fixed-rate components in our Japanese leases. That leaves us with a floating exposure of 552 million. This is a reminder of our financial position, what we call the Fortress Balance Sheet. We have a large contract backlog, which secures stable cash flow. We have refinanced and have 400 million in available cash. Our RCF capacity is now increased to 414 million, which is a cost-effective way of managing this cash balance. We have limited capex liabilities, that is for the five-year special surveys. And our first debt maturity is 2028. And that is a strong support for the commercial and financial flexibility of Flex. And with that, I hand it back to you, Øystein.

Okay, thank you, Knut. Let's look at the market. So as you can see on this slide, it's not really growing quickly. 1% growth. Historically, LNG export volumes have been growing 6% to 8% every year. Last time we actually saw 1%. growth in the market was COVID 2020 because the demand was low because of the shutdowns. Now actually it's a bit different, we have 1% growth but it's not really demand. Demand is strong as evidence from the LNG prices but it's really the supply which is the bottleneck with projects coming on stream some of them later this year and then into 2025 and 2026. So we see a wave of LNG coming next year with much higher growth factor for the export next year. We estimate around 6% growth next year. So this is also one of the explanations why the spot market is trading poorly. US, Australia, Qatar are the big exporters, pretty flat. We still see Russia, despite the conflict in Ukraine, they are still managing to grow their exports. On the import side, Europe came out of the winter season with high storage levels, have been able to source less LNG this year, which has opened up the market for other players like China, growing healthy 10%, and then India at 18% growth. Volumes have been shifting from out of the Atlantic, from U.S. to Europe, from to rather U.S. to Asia, which is generally good for ton mileage, especially when the volumes are not utilizing the Panama Canal and not the Suez Canal. But still, the number of shifts being delivered is outpacing ton mileage demand. Looking at Europe in a bit more detail, as you can see here, import levels are below last year because storage levels have come up with almost full storage levels going into the heating season. Today, around 93 percent full storage levels in Europe, which puts Europe in a more comfortable situation than in the past. Although that said, the agreement between Russia and Ukraine for transport of pipeline gas to Europe is maturing rapidly. on New Year, so we will expect to see less Russian pipeline gas to Europe from 1st of January. As you can see here, actually Russian pipeline gas have contributed positively to imports to Europe so far this year. Norway had a big maintenance season last year and is contributing positively. And then LNG is the swing factor. So depending a bit on how cold the winter will be in Europe, we expect storage levels to be lower when we come out of the winter season this season. And that's also why LNG prices are staying at a pretty high level down the curve. Looking at Asia, it's a bit different picture. They have been picking up on imports when European buyers have been less eager to buy, especially than the flexible US LNG. And you see here the mature market, Japan, Korea, Taiwan, pretty stable. China up, as I mentioned, 10%, and then pretty healthy growth from the South Central Asian nations, being India, Pakistan, Bangladesh, where we see higher growth. Canal inefficiency has been a big driver the last year or so. We had a drought in Panama, which reduced Panama transit. Water level in Panama is back to normal and operations is back to normal, but we see LNG shippers avoiding the canal to most extent. These are various factors for this. It's a bit about the flexibility of the Panama. It's also about the price, especially now with shipping costs being so low, it makes sense to actually bypass the canal rather than paying the tariffs. And then the other canal being Suez Canal. It seems here like Suez Canal is coming back. However, this is basically cargoes going Suez Canal on the north side into Egypt, which have turned from being an exporter to importer, and then Jordan. So these are not really regular transit via Suez Canal. It's rather that they're using Suez Canal to supply Jordan and Egypt with LNGs. So in general, this is positive. Our LNG ship from US going to China via the Cape of Good Hope is about 15,500 nautical mile, rather than around 10,000 nautical miles utilizing Panama Canal. But as I mentioned, it's not sufficient to add ton mileage compared to the numbers of ships for delivery this year. Then a theme we have been touching upon the last two quarterly presentations is the emerging dark fleet of Russian LNG. We mentioned it earlier this year. And since then, the Russians have been busy buying up second-hand tonnage and actually loading also eight cargoes from the Arctic LNG-2 project, which is up and running with the first of three trains. As far as we can tell, they have been loading six cargoes. and taking these cargoes to their two huge FSUs. They have one in Murmansk and one in Kamshakta, which can carry a rather big size in terms of volumes. So we have seen these ships loading cargoes, but not been able to sell the cargoes. So compared to crude oil and petroleum, where The dark fleet and the dark trade is massive. We see that the sanctions from U.S. is being much tougher here. U.S. and Europe, for that matter, has been reluctant to really enforce sanctions hard in the petroleum and the crude market because People don't want higher oil prices, especially not prior to an election. So on the LNG side, the same rules don't really apply. If these cargoes are not entering the international market, it will not really affect the Henry Hub in the US. And also, this is a smaller market. which means that it's easier to get the visibility and to stop these ships from selling their cargoes. So this is something we are monitoring and as we put in here, it's the dark evader which is kind of a moniker for this kind of trade. It will be interesting to see now. We've seen that the Russians have been able to get a power station for the Arctic LNG-2 plant so they can start firing up the train too. But as far as we can see today, feed gas to the The plant is shut down and they are not really producing cargoes now because they are not able to sell them in the international market. Let's turn to the spot market. And as mentioned, rates are softening and they are down to very low levels, levels we have never really seen in the fourth quarter before. And why is that? It's really about the numbers of ships for delivery. And we see this in the upper left hand side with this red dotted bubble where we see the number of ships available. So typically when you come to August, September, The market gets tighter. You might have floating storage if gas prices are in contango, meaning that they are higher later in the year than spot, which can typically drive up to 30, 40 ships in floating storage. This year, we have high gas prices, but they are not in contango. So it means you are disincentivized to do floating of the cargoes. So number of available ships have been building up, also with the scheduled deliveries of ships. So this means that the market is amply supplied with LNG ships. Rates then, rather than picking up in September, they have been going down. Right now at around $25,000 for modern tonnage, which means tri-fuel tonnage is at $10,000 and all the steam ships are basically being priced out of the market. With ample liquidity in the spot market in terms of number of ships, it's not surprising also to see the charters leaning back, fixing ships on spot basis rather than term. with the numbers of spot voyages this year compared to previous year, picking up a lot from 157 fixtures from Q1 to Q3 last year to 278 this year. So at least the spot market is liquid, but rates are poor, and we expect the market to stay poor for the remainder of the year. So that will have some implication for the steamships. So we have said this in the past that there's been a huge technology change in terms of the ships. We started off this industry with steamships. Most people understand that steam power is not really efficient. That's why you don't see them often. 15 years ago, we started to see diesel electric ships, or the tri-fuel or dual-fuel diesel electric ships. And then about 10 years ago, 8 years ago, the first modern dual-fuel two-stroke ships came to the market. So we still have a lot of steam ships in the market. In total, the fleet is around 200 ships. So we've put the different ships here in the pie chart with the dinosaur. There actually are 21 quite modern steam ships. These are a bit more modern steam in terms of efficiency, but they are all having this disadvantage of having a very inefficient propulsion system. Why are they still in the market? Because a lot of these steamships were fixed on 2025 year charters and they are rolling off these charters in the coming years. with about 75 of these ships being returned from long-term charters the next 24 months. And we put up all the numbers of ships with re-delivery dates here in the chart, with a big asteroid hitting them. And what we expect will happen here is a mass EEXI extinction. So EEXI means energy efficiency for existing ships index. which is part of the IMO rules to reduce greenhouse gas emissions for the shipping sector. And these ships are now technically and commercially obsolete and we do think scrapping activity will take up and which we do think will rebalance the market in the 2027. I will come back to that. In terms of new building prices, they are staying at stable levels, supported also by the flurry of container orders, which are still hitting the yards. So the yards are more or less packed to 2028. Prices are down a bit from peak, but still we see people still ordering at close to $260 million for ship's delivery, typically in 2028. which is also then together with the higher interest rate environment, keeping the long-term rates steady at $85,000 per day, which is what you need to have in a long-term rate in order to make these kind of investments. So looking at the order book today, it's around 300 ships for delivery. What we see is there's very limited of uncommitted ships. Most of the ships at these prices are built towards a long term contract. So of the 300 ships for delivery, it's only about 20 ships which are open. And as you see, when we're getting to 2028 onwards, there's really no speculative ordering because these prices are discouraging such contracting. A lot of the chips are for Qatar. Qatar has a huge project expanding their capacity. Today they have a nameplate of 77 million tons. They're going to go to 126 and they are also alluding going all the way to 140 million tons. So they need a lot of ships. So these are really ships for their new volumes and also for replacing some of the older steamships they have in their fleet. We also have a lot of non-Qatar. These are related mostly to fleet renewal of the steamships, as mentioned, but also for the new export projects coming out of US and other countries. And as you can see here, uncommitted 7% of the fleet. Looking at the supply side of the market, the export growth, we are in a period now with, as I mentioned, low export growth, but that will pick up from next year where we expect the export growth to be 6% and then going forward in 2027-2028. And as I will touch upon, we do expect a new wave of US LNG once the LNG export moratorium in US has been lifted, which we think will happen very early next year with Trump in the White House. Looking at the supply side of the market and the demand side, the demand side here being export growth and then the fleet. So these are numbers we have had from the Q3 LNG report from SSY, the broker. It's, of course, some assumptions here when making this balance. It's about how much scrapping demand. Historically, there have been very limited scrapping demand. But as mentioned with all these steamships coming off charters, in this kind of market balance, we assume 53 of the 75 ships to be removed from the market. This could be more if the market stays soft. It's very expensive to take a steamship through a 25-year special survey. But in general, we see that the market is balancing out 27, 28, depending a bit on scrapping and depending a bit on these new export projects when they are coming to the market, whether there will be any delays as such. So last slide before concluding is something that a lot of people are asking us these days. It's the effect of our Trump win in the election. There was a landslide with 312 electoral college mandates for Trump, all the swing states turning red. He's been very vocal that regulation for the oil and gas industry will be eased. And also very vocal that Biden moratorium, which came in January this year, on not handing out any more export licenses to these LNG projects, that moratorium will be lifted very early once he takes office. It's about 90 million tons of U.S. project that has been put in legal limbo because of the moratorium. A lot of these are close to FID. They signed up a lot of offtake agreements for the volumes they intend to produce. So we do expect a wave of FIDs for U.S. LNG projects next year, which will support demand for shipping from 28, 29 once these projects are starting to produce. There is, however, one risk here, which I think most people are aware of. Trump is not really a free trading person. He has a bit different view to trade, where it's more a zero-sum game. And the last time he was in office, there was a trade war with China, where they eventually agreed in a trade war phase to be buying more goods from U.S., primarily than oil products. LNG, soy beans and such, where this kind of increase in trade has not happened. EU is also running a trade deficit with nitrate surplus with US and where we've seen EU already now signalling that they are open to be buying more LNG from US in order to substitute a lot of this Russian gas that has disappeared from the European markets. This is still uncertain how aggressive this change in trade policy will be. We as people in the maritime and shipping industry, we like trade. So we rather like to have a level playing field, international rules for trade. So we could see some substitution effects there, Europe buying more LNG from U.S., and then the jury is still out how this will evolve with China, which has become one of the big importers of U.S. LNG. So then before concluding and heading into the Q&A session, I'm just going to remind you the highlights, numbers in line with what we have guided, no big surprises. Earnings per share adjusted for the unrealized losses and gains, 53 cents. Interest rates have been picking up in Q4, so we expect a big reversal in the mark-to-market losses in Q3. We have done some new charters and are now fixing all the way until 2039. We have a very robust financial position, as Knut mentioned, $450 million, 35% of our market cap in cash. We expect Q4 to be a bit softer, driven by the softer spot market impacting the one-ship we have on index. But still, $3 trailing dividend last 12 months gives a very attractive yield of 13%. And as mentioned with the backlog and the financial position we have, we can pay this dividend for a very long time to come. So with that, I think we head over for the questions.