FLEX LNG Ltd.

Hi, everybody, and welcome to Flex LNG's fourth quarter 2024 result presentation, where we will also go through the numbers for the full year. My name is Øystein Karle Kleve. I'm the CEO of Flex LNG Management. And as usual, I'm joined by our CFO, Knut Roholt, who will walk you through the numbers a bit later in the presentation. As usual, we will go through the financials. We will cover the market. And after the presentation, we will do our Q&A session. As usual, we have a gift for the best question this time. It's for investors who don't want to get cold feet. We have the FlexLNG warm feet. So while... Our cargo is cold, minus 162 centigrade, or 260 minus Fahrenheit. Our investor can have warm feet because we have a lot of backlog, which can weather us through this difficult market in the LNG market the last couple of months. Before we begin, I'm just going to highlight... Disclaimer, we will be utilizing some non-GAAP measures like TC and adjusted debit and adjusted net income. Those numbers are reconciled in our earnings report also available today. And of course, there are limits to how much detail we can cover in the presentation. So let's begin with the highlights. Revenues came in at 89.5 million, in line with the guidance of close to 90 million. For those who have read the earnings report, you will actually see our revenues was 90.9 million. This is due to EU ETS, the emission trading system, coming into force in 2024, and we had an income on EU ETS increase. carbon emissions on 1.4 million in our charters. This is for the account of our charters. So we receive 1.4 million from our charters in compensation for EU ETS and then we also surrender those to the EU and we have a corresponding cost of 1.4 million in our voyage expenses. So net freight income 89.5 million as mentioned in line with the guidance. Net income was driven by a sharp increase in interest rate in the Q4 after the election of Donald Trump. So we had a derivative income of 20.1 million. 5.1 of the derivatives was realized during the quarter as a positive carry, resulting in adjusted net income of 30.8 million, where we only include the realized gains and losses, not the unrealized gain and losses. That means our earnings per share came in at a healthy 84 cents or 57 cents on the adjusted basis. Recent events we were reporting back in November, we informed you then about the extension of two of our ships, Flex Resolute, Flex Courageous. At the beginning of 2024, these ships were extended from 2025 to 2027, where the Charter has the option to extend those ships to 2029. And in November, we announced that the Charter has amended the charter where they have a new firm period for 2029 to 2032 with options all the way to 2039 so we are pretty sure the ships are at least gone for to 2032 possibly a bit longer Following our Q3 presentation in November, we also announced end of November a new 15-year time charter for Flex Constellation. So the startup of this charter is in Q1 or Q2 2026, given where the rates are today, it's more probable that startup will be Q1 as this is in our option. 15 years takes the ship to 2041, so we're adding a lot of backlog through these recent new charters at a very good time, I would say, given how the market has experienced the last couple of months. We've also done some refinancing, as we mentioned in our presentation in November. adding more attractive debt, 430 million, releasing 97 million in cash, while extending our debt maturities and lowering the interest costs. We also provide a guiding today for 2025, so despite the slump in freight rates, we are very well covered with our backlog, so we do expect that the revenues will come in line with the number for 2024. The time charter equivalent earnings, it's Expected to be somewhere in the mid 70s, giving revenues of 340 to 360 million. You should note that we have four ships where we are planning to do the special five-year survey in 2025, while we only took two ships out of operations last year. Ebitda, we also expect this number to be fairly in line with last year, 250 to 270 million. So it's pretty good and steady sailing from Flex LNG. So once again, we are declaring then our dividend of 75 cents per share, taking the dividend for 2024 to $3, implying a running yield of about 12%. And this we can do given the fact that we have a fortress balance sheet and backlog, 437 million of cash. And I will touch upon minimum 62 years of backlog, which is about five years each ship. Just a kind of summary of the 2024 results. TCE 74.9. So this is the time charter equivalent earnings. So it's like the average rate you have obtained on your ship, 74.9. We were guiding about $75,000. Revenue, $355 million. We were guiding $353 to $355, a very narrow range. And then adjusted EBITDA smack in the middle of the range, 271 to 274, we're delivering 273. And I think for the first time here, we do see Q4 numbers below Q3, given the slumping rates from end of September into Q4 and into 2025 for that matter. Just to touch upon our contract coverage, we have Flexed Constellation, which was pictured on the front slide. She's on a 312 days time charter. We expect to get her re-delivered end of February, early March. She will then have a 12-month gap. where we will have to trade her in the spot market, which will be a bit challenging and reflected in the guidance. But once she come into Q1 2026, she will commence a 15-year charter to 2041, where the charter also have the option to extend that ship to 2043. We also have some ships with other ships with long duration charters, Flex Rainbow all the way to 2033. As I mentioned, Resolute and Courageous, we extended in November all the way to 2032, where the charter can extend those ships to 2039. And then we have two ships with Chenier, which we extended all the way back in November 2022, where those ships have been extended to 2030. and 2031. We have two ships coming up in 2029, so leaving us with Flex Freedom fixed until Q1 2027, which we think is a good window where the market will be much tighter than it is today. And then Flex Voluntär and Aurora also with Chenier fixed until Q1 2026, where they have the option to take those ships to 2028. Flex Ranger, again, I think it's a good window of re-delivery. This ship is for 10 years to 2027. And then we have one ship on index. She's getting close to her firm period. She was fixed from delivery of yard on a variable time charter for five years with Gunvor. That is maturing in Q3 when we are planning to do the five-year special survey for this ship. And then we will see whether the charter utilize their options. They can extend the ship by five single one years. Those options are also an index, which makes it probably a bit more possible that they utilize the extension options since they are not fixed rate higher. So altogether, 62 years of minimum firm backlog, which then might grow to 96 years if the charters utilize all their extension options. Guiding for 2025, I already touched upon it. It's going to be deja vu all over again. We expect numbers to be very much in line with the numbers we delivered in 2024. And with stable business, stable outlook, we are also having stable dividends. Paying now 75 cents again, $41 million in total dividend. So the last 14 quarters, we paid this ordinary dividend of 75 cents per share. We also topped up from time to time with some special dividends. And altogether, this number is now 610 million of dividends the last three and a half years, which I think gives our investors a stable and good income being invested in Flex. Giving over to Knut, just a reminder of our kind of decision factors for putting the appropriate dividend level. We had 57 cents of adjusted earnings per share. We are paying slightly higher dividend given the fact we have, as Knut will tell you more about, we are flushed with cash. So we think that we can pay out slightly higher than the earnings per share. The decision factors mostly have green lights, except for the market outlook, where short-term outlook is poor. Medium-term is slightly below average, I would say. And then when we are looking at the market from 2027 onwards, where we get most of our ships open, it's still compelling with growth. with long-term charter rates in the mid-80s, which is above the level we are delivering today. So it means that we should be able then to recharter those ships at better rates in the future. So with that, I think I hand it over to Knut before just reminding you about one number you will not find in this report. And it's actually the most impressive number. It's our lost time injury frequency. So this is our main safety KPI, where zero is the theoretical minimum, given the fact that you have had no incidents and the number we delivered in 2024 was zero. So no lost time injuries frequency for 2024, which I think is impressive and shows that we are delivering superb service to our customers. So with that, Knut, I hand it over to you and I come back with the market update.

Thank you. So let's start off since it's Q4 with a bit of a review of the full year and in particular the operational days. As you may recall, in 2023 we had four dry dockings and this year we have had two. 33 days of dry docking, which is actually seven days below our budget. and net of the off-fire days for dry docking. We are delivering 99.7% technical uptime, which is a very strong performance. On the TC, as you see here, stable TC, 75,300 for the fourth quarter and close to 75 for the full year. This shows also the stable revenue streams that we have. On OPEX, we are for the year and also for Q4 delivering slightly below our budgets and guiding, which is a strong testament to our cross-discipline. For 2025, we are seeing that a number of our ships are coming close to their schedule and maintenance on running hours, in particular for the auxiliary engine and main engines. So in combination with higher crew cost, and that is crew cost for crew changes, in particular crew changes in Asia, we are now guiding an OPEX per day of 15,500 for the year. If we look at the revenues, as I mentioned, we have revenues of 90.9 million, of which 1.4 is related to EU ETS. And as a reminder, we are subject to EU ETS when our ships are in Europe and having port calls to Europe. This is a cost for the ship owner but under our time charter agreements we can reimburse and get that reclaimed from our charters. Revenues received there from the charters will be booked as operating revenues while we correspondingly will book the same amount as voyage expenses. EBTA, we are delivering smack on guidance. And one of our important numbers is the adjusted net income, where we adjust for non-cash items. And for the fourth quarter, we are adjusting 15 million for unrealized gains on the interest derivative portfolio and half a million loss on FX portion we have. And as we presented also on the Q4 presentation, we concluded some refinancing in Q3 that refinanced three ship, leaving the Flex Endeavour unencumbered. So therefore, you will also see a lower debt balance and also cash balance on the Q3 numbers. The long-term lease for Flex Endeavour was concluded on the 3rd of October and then releasing the full amount of 160 million. So during the quarter, we had 52 million on cash flow from operations, then the scheduled debt amortizations, and then close to 41 million we paid out in dividends. That leaves us with a very strong cash balance of $437 million. This is a reminder of how we keep our balance sheet. It's fairly clean. It's chips and cash. And then we have debt on the other side and the book equity. And as we show here, our book values are more or less reflecting all-time low values, but we still maintain a fairly decent book equity ratio of 30% given our backlog. And most importantly, our debt funding portfolio, a very attractive mix of both the bank debt and leases, where we also include RCFs to manage our cash position. During the quarter, we converted a term loan, a bullet term loan with one of our banks to an RCF, and thereby increasing our RCF capacity to about 414 million. That we use in between quarters for cash management and reduce interest rate cost. And the net of the RCF, we see here our net debt balance. And what... On our interest rate exposure, the 530 million in the dark blue is basically our net debt exposed to the floating rate market. Remaining here is fixed rate debt and hedge debt, which I will cover in the next slide. Also, on the debt maturity profile, our first debt maturity is in December 2028. That's related to Flex Resolute. And given that we announced a contract extension for her on the Q3 presentation, that is a very manageable residual to refinance. We see here a gun fishing sticker. You see three hooks. We did announce contracts for three ships in the last quarter, even though we have a very attractive debt funding portfolio. We will consider refinancing of these three ships, in particular given the long duration of those contracts. We have been managing our interest rate risk very actively. Last quarter, we did some amendments and added more duration to secure coverage during these high interest rate environments. So we have extended duration, which has also yielded very well, which is shown in both realized and unrealized gains during the fourth quarter. This is a mix of traditional interest rate swaps and also fixed rate leases and fixed rate portions of our leases, which is primarily in our Japanese operating leases. So in conclusion, and also we get a lot of questions about dividend sustainability. This slide can be read in conjunction with the decision factors for our dividend. We have stable cash flow. We have a very healthy balance sheet with 437 million in cash. We have barely known CapEx liabilities and first debt maturity in 2028. So that is what is there to support both our commercial and financial flexibility and dividend story. So with that, I hand it back to you, Einstein.

Okay, thank you, Knut. Let's dig into the market a bit. Yeah, 2024 was a year with record low growth in export volumes. We put in a recent history. On our Kepler platform, we couldn't find any year with less growth than 2024. But I can't rule out that this could have happened sometimes in the 70s or 80s. So I just put in recent history. Actually, growth in the market was lower than 2020 when you had this wave of US cargo cancellation. In 2020, the export market actually grew 1%. It's only 0.2% this year. It's a combination of factors. It's been some delays. on liquefaction plants. And then, of course, there's been the sanction on the expansion of Russian capacity, particularly the Arctic LNG-2, which I will come back to later. But despite the sanction on Russian LNG plants, Russia managed to grow their exports 4%. Last year, Europe was one of the big takers of Russian LNG. U.S. only 1% growth in 2024. Nigeria have resolved some of their issues with feed gas problems and managed to show healthy growth both in Q4 2024 and for the full year. On the import side, it's been a year where Europe has stepped back. Europe has had the benefit of two very mild winters in a row prior to this winter, resulting in Europe coming out of the winter season last year with very high inventory levels. And they stepped back from the market, giving more room for Asian countries, particularly than China. which grew healthy last year, getting close to the record levels they had prior to the invasion of Ukraine. So I believe they ended up at 78.5 or 79 million. The record high is 80 million tons. And then India up actually 14 percent. This has changed a bit in the past with the cold winter and the big inventory draws in Europe. Europe has been making a comeback in the market. as we've shown on this graph here. Before the invasion of Ukraine by Russia, Europe imported around 80 million tons, and then during this energy crisis of 2022, they really were the buyer of first and last resort, increasing their imports all the way to 127 million tons, primarily sourcing a lot of spot U.S. LNG at that time. Imports stayed stable in 2023, but then given the two-mile winter, they came out of last winter season with high inventory. So imports in 2024 slumped to 103 million tons. But this is changing now with a colder winter, less renewable output, especially in Germany. We see that. The inventories in Europe are well below the last couple of years and we do expect Europe to come out of the winter with low inventories with a big need for restocking during the summer months. And this is also reflected in the price of LNG. So we have this graph here showing the three main indices for natural gas prices. It's the Henry Hub in the US, which is the main benchmark price for natural gas, hovering around $3 to $4, one of the cheapest gas sources you can have. Then JKM, meaning Japan-Korea market. So this is more like the spot LNG price in Asia, although most of the Asian players, the big nations like Japan, China, Korea, they have a lot of LNG they buy on long-term contracts linked to oil price. So this is the spot price. And then you have the more like deregulated European market, where the main benchmark for Northwest Europe is TTF, Title Transfer Facility, which is a virtual pricing hub in the Netherlands. So generally what we have seen now is that prices have been picking up and picking up to a level where... LNG becomes expensive for 15 million dollars per million BTU, meaning oil price at above 80 dollars, resulting in more of the Asian nations turning to more affordable energy like coal. So we see here that the pull from Europe is pushing up prices where the a kind of killing of the arbitrage, meaning it's more profitable to send the US cargoes to Europe rather than Asia, despite actually shipping being now more or less for free. So this change in trading pattern in the latter part of 24 and into 25 have resulted in a big slump in the freight market, which I will also cover later. Looking at... Looking at Asia, had a good start of the year, pulling a lot of cargoes, up at record high levels. And then we see a bit lower growth from Asia at the end of the year as Europe came for full force into the market. Stable market in the kind of mature markets being JKT, meaning Japan, Korea, Taiwan. Taiwan did grow their imports quite a lot, but Japan and Korea are fairly stable. China, as I mentioned, growing fairly steady, and the same goes with South Central Asia. Then turning back to Russia and the sanctions, there are a couple of big LNG export plans in Russia. Two of them are not sanctioned. This is Sakhalin primarily exporting to Japan, Korea, China, and then Yamal, which generally can export cargoes to Russia. to Asia via the Northern Sea Route with specialized LNG tankers. But when the ice is thick, they like to export those cargoes into Europe and Europe has been a willing buyer. As you can see on the graph on the left hand side here, Europe record high import of Russian LNG last year. Some of the newer projects, as I mentioned, been sanctioned, particularly then Arctic LNG 2. It's a big plant. The first train is up and running, but they have not been successful in placing those cargoes in the market. And the second train is also ready for commissioning. So we'll see how this develops, whether there will be a grand bargain with EU, Trump, Russia, Ukraine, and whether this part of the deal will be a lifting of the sanction on Russian gas and LNG, then some of these cargoes might come back into the market. At least seems to be some signals from part of the EU that they are willing to make certain concession in order to leave this war behind us. Then looking at the export market, there is a lot of volume coming to the market, a lot of volume which were already sanctioned or given the green light prior to Biden putting in the moratorium on new export licenses January 2024. And of course, as we expected and mentioned when we had our Q3 presentation in November, we did expect that President Trump would remove these limitations very quickly, which he did. So there is a lot of new projects in the U.S. ready to be FID. We see on the right-hand side here, We have picked out some of the key contenders to get FID either this year or next year, being Lake Charles, Delphine LNG, Sabine Pass Expansion, Woodside Louisiana, CP2, and possibly as well Alaska LNG. There's a lot of trade disputes going on. We saw overnight here China coming in, putting a tariff on US LNG, similar to what they did back in 2018-19. when we had a period of time with 13 months without China sourcing any LNG from US. So the Chinese have made contracts with a lot of these US expansion projects. And in case this tariff stays in place, we would expect them to resell those cargoes, possibly to European buyers, and rather source more LNG from Qatar, Australia, Russia, West Africa. So this is still up in the air a bit. These trade wars are volatile. Suddenly there is tariffs and then there are 30 days grace. So we just have to monitor the development. But in any case, there is a lot of LNGs coming to the market. And unless there is a really big trade war here, we do expect a lot of new US projects to come in to the pipe here. Also given the fact that Europe also is expected to have some trade conflict with the U.S., where President Trump is really forcing Europe to be buying more LNG from the U.S. Touching upon the freight market, which is the market which we are active in, as I mentioned, the market was behaving quite normal during 2024, actually a bit firmer during the summer months than we expected. But once we came into the winter season, rather than the market or the freight rates shooting up, which is usually the case, They slumped, and they have continued to slump throughout 2025, where they are now at the rock bottom level at around $10,000 per day, which makes it very uneconomically, especially for the older tonnage. What are the drivers? It's, of course, the change in trading pattern where more cargoes are going to Europe, cutting down the sailing distance, and this is freeing up a lot of ships. As you can see here on the left-hand side of the graph, a lot of ships, around 35 ships available in the market. This is softening then the freight rates. We also saw during last year a big grow in spot fixtures. As kind of the cargo prices have come down, the panic has been alleviated. More of the charters are tapping into the spot market given the vessel availability, fixing their ships on spot voyages rather than fixing them on longer term contracts. So in that regard, I think we have done well. We have been utilized at window during 2021, 22, 23 and also into 24, fixing a lot of ships on longer term contracts rather than just playing spot. Looking at the most inefficient ships, the steam tonnage, generally we could say there are three types of ships here. It's the older steam ships. There are still around 200 of these ships in the market. And then there are the tri-fuel or dual-fuel diesel electric ships. And then we have the modern ships, the two-stroke, which has, of course, better economics, given that they are larger and has a much more efficient propulsion system. Rates for steam tonnage, we pegged it here on the Affinity and Clarkson numbers at $2,500 per day. If we look at the Fernley number today, the rate for steam tonnage, it's actually zero. So we have been talking about this for a long time. It's an overdue scrapping cycle for steam tonnage. These ships have been surviving because you have had generally quite good markets, especially in 22 and 23 and into 2021. at least the first quarter of 2024. So given the slump in the market and making these ships unattractive, we do expect to see a big uptick in scrapping this year, next year and the coming years. Driven not only by economics, but also by environmental rules which put a disadvantage on these ships, except for the fuel EU maritime, which I'm going to cover also lately. In terms of new building prices, they have stabilized at around 255 million dollars per ship. Delivery window now generally being 2028. Elevated new building prices and also fairly high interest rate in recent history is also then driving up long-term charter rates in order to invest in new ships. You need a rate at least in the mid-80,000 to get a reasonable return on such an investment. So longer-term rates are holding up. for those contracting ships for delivery 2028 and onwards. Looking at the order book, it's a big wall of new buildings hitting the market, and it's one of the reasons why we try to fix our ships until 2027, 2028, where we think the market looks better balanced. For 2024, we were expecting 68 ships for delivery. Given the soft market, there's been some slippage, which usually happens in a soft market. So only 60 ships for delivery last year, meaning there will be more ships for delivery in 2025, 1993, we expect, and then 83 ships for delivery in 2026 and 2027. As you should note here, most of the ships, or almost all of them, are built towards long-term charters. Given the elevated new building prices and given the size of the order book, there's hardly any speculative ordering here. There are a few ships which are uncommitted for delivery in 25, 26, 27. And then from 28 onwards, all those ships are either for long-term projects and also the Qatari, which has expanded their fleet by more than 120 ships in order to renew their fleet and also to have more ships for the big expansion going on in Qatar. So if we look at the market here, we have been in a phase with limited growth now the last two years, and then the growth will pick up in 25, continue to grow in 26, 27 onwards, which will rebalance the market together with scrapping of older ships. So when it comes to older ships, we put out the different types of ships here. As I mentioned, less efficient ships being the steam turbine ships, And that's why they have a big penalty on the EU emission trading system. Cost per day for a steamship, 7,200 euros per day. This tax is paid in euro. Euro and dollar is more or less the same today, so you don't really need to have an FX conversion to calculate the dollar amount. Other generation, the tri-fuel or the dual-fuel diesel electric, 5,600 euros a day. And then the more modern ships, the Megi and the XTF, which our fleet consists entirely of. We have nine mega ships and four XTF ships. They have a smaller kind of EU ETS drag, 4,600 euros per day. However... EU, they don't like to make things simple. So while I think most ship owners support this system, we generally like a predictable carbon tax, which is penalizing the less efficient ships. EU has also implemented this year what they call the Fuel EU Maritime, which is a system for decarbonizing maritime fuel. Since LNG is a cleaner burning fuel, you will get kind of reward for burning LNG compared to very low sulfur oil or heavy fuel oil with a scrubber. There is a huge penalty if you are not complying with the fuel EU maritime regulation. The penalty being 2,400 euro per metric ton of VLSFO equivalent. It's a complicated word. So we've taken the numbers from the shipbroker affinity and calculated what will that benefit be. So you can see on our ships, we will get the benefit from pretty big benefit from the fuel EU maritime, more so on the Maggie, which we have nine of, because they have hardly any methane slip. Slightly less benefit on the XTF because of They have a higher methane slip than the mega ships and then a further penalizing of the dual fuel diesel electric or tri fuel diesel electric due to the high methane slip. However, the steamship which doesn't have any methane slip, they do however have a huge fuel consumption. That's why they are being penalized by the EU ETS, but they also get a huge benefit from the fuel EU maritime. I don't really think that they can. It's inconceivable that they will be able to sell these kind of rewards to others, but they can enter into certain pooling arrangements where they can reduce the penalty or kind of swapping costs. for all the parts of the fleet. For example, if you have all the container ships, bulkers or tankers. So in general, we think this system is unnecessary. And given how it's structured today, it's actually favoring the steamships because they are burning a lot of LNG, which is a clean fuel. So we just put up a good old quote from Ronald Reagan and modified it to 2025. The nine most terrifying words in English language in 2025 is not the government, but I'm from the EU and I'm here to help. So more about the EU. They like to make a lot of rules. Some of these rules are also driving business costs. Most of us know the CSDR. We have also gone through the Corporate Sustainability Reporting Directive. We are listed two places in Oslo and in New York. And then we have to comply with both sets of rules, both the US rules and the European Union rules. This is driving up cost for us. It's not like we want to avoid reporting on sustainability. We actually have provided our ESG report every year since 2018, where we give full disclosures on a lot of numbers according to the Sustainability Accounting Standard Board. On top of that, we have added the Global Reporting Initiative. And based on feedback from investors, we also added the carbon disclosure projects. And our ranking will come out on Thursday. Last year, we had a B ranking on the carbon disclosure project reporting. And our ESG report for 2024 will also be available probably around April. However, having to deal with two sorts of regulation, which is quite costly in terms of consultants, auditors and such, And given the fact that 95% of our trading today is on New York Stock Exchange, and the fact that New York Stock Exchange is planning to widen the opening hours or trading hours to 22 hours a day, we have decided to propose to the board for the approval of the annual general meeting in May to delist in Oslo and rather save that money so we can rather spend that focusing on one set of reporting requirements instead of having to deal with two conflicting sets of reporting requirements. So with that, I just think we're going to run through the summary before going for our Q&A session. As mentioned, revenues in line with guiding, we are delivering very strong results, 45 million or 31 million, depending on whether it's the net income or adjusted net income, giving a EPS of 84 or 57 cents. We have added a lot of new backlog during Q4, putting us in a very good position to deal with the slump in the freight market during 2025, as we are guiding very similar results for 2025 as we achieved in 2024. And with a big backlog, a big cash position, once again, we are paying out 75 cents, giving you guys $3 in dividend per share or a yield of 12%. So with that, I think we head over to the Q&A session. Knut, you probably have some questions ready.