Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Flex allergy Keith.
Thanks, Christian teaching and Investor day.
At this time.
Listen only mode. After this.
There will be a question answer session.
What's changed.
Sachin you would need to France, sorry.
And with it makes it difficult.
Recorded today.
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Thank you everybody on the.
When it comes due to trying to try and <unk>. That's a national makes LNG. My name is I think on the Kevin I'm. The CEO Flex LNG management together with LTL. All go then I wouldn't guide you to today's presentation. A replay of the webcast will also be available that flexibility adult call.
Excellent. He is not shipping company focused on that going market for people in transportation off liquefied natural gas LNG and well listed both that also a new York stuff could change under the ticker LNG.
So first thought this came out with I think also among all the forward looking statements and completeness of details that sort of this call show it's available in the presentation and we recommend up the presentation that together with anthem financial report and annual reports, which are all available all web site.
So.
Let's summarize the highlights today first of all I am pleased to say that way. They live LT time charter equivalent LTC earnings full ships at approximately $68000 per day.
Which is in line with our guidance so close to $70000 per day.
Given the seasonal softening off the market, then sales growth, though and the outs bake off the novel Colin I'll, let us we are satisfied with the trading yourselves product water.
If the $68000 per day, it translates into avenues, and adjusted EBITDA of 38.2, and 27.8 million for the quarter.
During the first quarter interest paid levels around the world limited due to the other girls economic consequences of the cold with 19 Pandemics.
This resulted in us booking a noncash unrealized mark to market loss of approximately 22 million full portfolio of Infosight swaps.
Wholesale swaps at the end of the portfolio consisted of 495 million dollar hedged follow on five yes, that's about 1.5% fixed infosight.
We have so far hedged infosight risk from about 50% off all bank loss. So keep in mind that lower interest rates means that our financial expenses well below one going forward as to all the heart of the loans have floating infill sites, which yesterday closed to Seattle.
And our adjusted for noncash.
Allies items, all adjusted net income was 9.3 million for the quarter. This epicenter cleaner burning self about 17 cents per share compared to 41 cents and adjusted profit share in the fourth quarter of 29 theme when we made $94000 per day Mtc.
Market conditions have so far in trying to try and they've been challenging we have seen the warmest winter on that gold in the northern hemisphere, while most gas is going to ship and this coupled with the goal novartis outbreak how depressed the pious come from outside of gas worldwide.
But then make have also adversely affected our ability to CAD payout crude changes. This means a lot of cfls have stayed on ships away from the families for a prolonged period of time. So we would like to extend the special thanks to all true which have done a fantastic job, making sure that those ships have been.
But anticipate without any interruptions and serious incidents during this difficult added.
Given that fallout from the call with 19, we are expecting lower paving yourselves and the second quarter. We have so far boost about 97% I'll talk to the second quarter and expect our DC of close to $50000, which is in line with Alcoans cash breakeven levels.
Given the uncertainty with regards to cope with 19, and the low gas prices, which with resulting shut ins of cargos, we expect that the market in third quarter also will be challenging.
Given the high inventory levels in Europe, and the contango in gas prices, we think it's probable that the freight market will come up again once we are approaching walk them.
Consequently, the board has decided to suspend the dividends and instead focus on preserving cash.
Spending the dividends has not been I easy decisions to make but given our lack luster stockpiles, we think its advisable to keep box substantial cash position to ensure that investors and finance assets will confidence in our ability to perform also in tough market conditions like this.
And that's like Oswald EFO right based on announced that we have agreed on your bank loan of hundred and $25 million for Flex volunteer Estrella sale leaseback transaction of hundred 56.4 million for example.
In total 200, or then 81 million of new financings in place.
We have previously said that we would tasks like the financing of the last two newbuilding given the level of uncertainty and all we have delivered on this.
With this.
Financing, the 281 million of new laws, and the 629 million Esa financing assigned in February we have done secured about 910 million of financing, which represents on average handle the than 30 million of financing for each of these seven new buildings.
110 million or so much rather well with a 937 million of domain and Capex photos seven new billings to be delivered over the next 12 months. This leaves us with on net unfunded Capex up only 27 million compared to a cash balance of hospital, then 21 million at quarter end with this financing we out.
Very confident that we have a very robust capitalist like Joe we haven't attractive long term financing in place for told in chips and Naco single loan material at the piles of July Twentytwenty for long term financings also coupled with the newest most efficient.
Fleets of ships with which gives us substantial with which given the substantial equity invested in the company has on the industry low cash breakeven, which will be reduced on $45000 per day wants more ships deliver.
As mentioned in the highlights and provide 19 has also affected our business and operations.
In such a difficult time, we are pleased to say that we have a very capable organization that I've been able to run those ships with hundreds of percent uptime and no delays. Despite these challenges in order to mitigate the situation we have minimize ship visits.
Only critical external ship visits have been allowed and this relates to piloting vesting and service or pass if needed.
We have also been able to utilize video conference to fall demo chip visits. This includes the first ever remote change of management conducted by specification Society ABS for the flex courageous on March 27.
Five of our ships on all on the in our ship management company and we are planning for the time so off the last ship, but this has been slightly delayed due to the situation.
Onshore we have established a coal with task force, which meets every morning. This group consist of key personnel, who are in constant dialogue with our ships to assess the situation and assist if needed we have closely monitored our COO finest symptoms and we are glad to say, we have not had annual FFO to all onshore personnel testing.
Also difficult with 19.
However, minimizing visits to ships also means that to a patient have been practice gilly impossible for sometime now.
This has resulted in prolonged state fall away from the families and we have therefore been working in close cooperation with relevant bodies to find practical ways of allowing such two or patients.
We are pleased that we all know timely seeing gradual improvements in relation to cool changes and we have so far been able to do a limited to station on one of our ships and are planning now for the older ships.
Were also have new buildings for delivery in the second half of their with seat size and mobilization and officers for these ships have gone to call on team in South Korea arrival before conducting such trials.
There have also been reported delays of ships in viaduct due to recall novartis, but thats. All fleet consists of plan. Your ships. We do not have any died dockings plan biota Twentytwenty player and allows us not affected by these.
Issues.
Okay. Then how will you gave us offset on the recent financings as well Assa financial numbers before I will be back with some some informed on the market.
Thank you Sir.
As mentioned we are pleased to announce those we have agreed to new financings totaling 280 281 million post quarter end.
Im does arrange financing for also the new buildings under construction.
The first facilities on a 25 million term loan on revolving credit facility for the financing a flexible in there which is scheduled for delivery in the first quarter.
Quarter 2021.
The five year facility as a repayment profile 20 years in line with other bank facilities I will be split them to 100 medium term loan and the 25 million revolving facility.
We have already entered into interest rate swaps for the full amount on a facility, giving you an attractive all in pricing, including margin of 3.3% per annum.
The second financing is a 156 million 10 year sale leaseback transaction with an Asian based leasing house for the new billing flexible amber.
Which is scheduled for delivery in the third quarter two women.
The transaction will reprice at LIBOR, plus a margin of 3.2% per annum and as an 18 year repayment profile.
We will have annual repurchase options commencing on the first anniversary and there is a purchase obligation at the end of the 10 year lease period of six to 9.5.
Flex number is included on the 629 million easier facility entered into in February this year.
And then to utilize the swaption under this facility to replace flex Amber witnesses to vessel effective each along which has the final up our new billing is scheduled for delivery in the second quarter trending to anyone.
Both financing it remains subject to final recommendation and customary closing conditions are expected to be drawn upon delivery of the relevant vessels from the shipyard.
We have been active on the financing side last two years arranging a total of 1.7 billion of attractive financing for our fleet of 13 latest generation LNG carriers.
At the same time, we are diversified our funding base with the mix of bank financing lease financing.
Financing.
I have also expand our relationship with some of the leading international financing providers.
I mean access to several source of funding is important in the current market and demonstrates our ability to raise finance has attracted terms in an environment where minute struggled to raise fine as old.
Well actually pictures and often through this latest financings we were less than 30 million units remaining capex I guess gas producer of 121 million at quarter end.
The 629 million easy Hey facility for five or the new buildings also includes an accordion option or up to 10 million per vessel subject long term employment acceptable to the banks.
Following these transactions, we will have a very comfortable that maturity profile.
With the first maturities due in July 224.
The staggered debt maturity profile also mitigates any refinancing risk.
Moving on to the income statement revenues for the quarter came in at 3.2 million down from 52 million in previous quarter.
The reduction was due to a softer market in line with the seasonal pattern.
Adjusted EBITDA for the quarter was 27.8 million down from 41.6 million in the previous quarter.
The result for the first quarter includes the noncash unrealized loss on interest rate swaps of approximately 22 million.
At quarter end, we had interest rate swaps totaling four to 5 million other than average interest rate of approximately 1.5% and the noncash mark to market loss was the result of the shortfall in long term interest rates during the quarter.
All our interest rate swaps relate to financing agreements.
Not required to pose any cash collateral under agreements when a mark to market is negative.
We also recorded a noncash foreign exchange loss on cash deposits held in Norwegian kroner of 2.3 million in a quarter.
Due to assist substantial weakening of the Norwegian kroner against the U.S dollar in the quarter.
Net loss for the quarter was 14.9 million.
Adjusted for the above noncash items adjusted net income was 9.3 million or 17 cents per share.
Then moving onto our balance sheet the upper at March 30 Onest.
We had a solid liquidity position over 21 million per quarter end.
Assets consist of six vessels on the water with an eye removed value of approximately 1.1 billion at quarter end.
In addition, we are booked vessel purchase prepayment of 349 billion relating to the seven new buildings under construction, which represents the advanced payments on these.
Total debt at quarter end was seven hours under 1 million of which approximately 36 million is you over the next 12 months, thus classified as current liabilities.
Total equity as per quarter end was 18 or 19 million, giving a strong accurate the ratio of 50%.
Looking at our cash flow for the quarter the operational cash flow was 14 million for the first quarter.
Operational cash flow for cash flow for the quarter was negatively impacted by working capital adjustments, mainly due to less prepaid higher following the softer market in the first quarter compared to the fourth quarter.
Scanning alone Assortments were 8.3 million and in addition, we had upfront financing costs or 6.5 million in connection with 629 million GCA, Brazil do sign in February.
The dividend for the quarter of 5.4 million Autosport Pershare was paid end of March.
Adjusted for the negative foreign exchange effect on cash deposits have been Norwegian kroner of $2.2 million the cash at the end of the quarter those come in other 120.8 million.
And with that I had underwear vector soon will give an update on the market.
Thanks.
So let's start.
On slide 11 by and doing a quick recap and review of the spot market challenges shipping in line with the seasonal path on US as mentioned the market have been softening in the first quarter asked we are coming out of the peak winter season.
As we mentioned in our Investor presentation back in February grab this Wednesday expands yet think again, however, mild weather with the highest ever winter temperature measured in the northern hemisphere, which have FX and gas them and other girls led this winter as most gas is consumed in the northern hemisphere.
In General we had positive news surrounding the signing of the phase one pad agreements between us and China and us LNG shipments to China has will soon.
However, the headlines quickly shifted to the call now virus outbreak and we won with associated pump shutdowns in China and Europe have Wally.
February shutdowns in China resulted in four sentiment in both the faith and public market with JPM hitting a low of 2.7 dollars in February.
However market turned more positive in March when China started to assume normal import levels again, and Jay can bounce back 30% to three an off dollars by mid March.
For the freight market. This means that we went from one way economics and five while they're deferral on tape economics and March meaning the ship owners get paid both the laden and the bar last leg, giving Tc inline with headline Tc rates.
As we all know from experience today the call on our wireless went viral and became our global pandemic, resulting in shutdowns of all major economies.
This has resulted in an unprecedented low gas prices again with European prices down to our backed by JPM have cash back to $2 loss, which is historically low spreads to Wassa Henry hub index in the U.S. and thus this sks adopt flux of cargo cancellation recently with sudden layer.
Hey, let's merging in the face market.
Dialect lack of demand than arbitrage means that this estimates in the freight market has been where a week in April and may with headline rates for more than two salt tonnage of around $40000 per day.
With a typical one way economics. This means that the Bachelor Lake is for the onus accounts and thus down also currently only able to capture 50% to 60% of the headline rates.
All the uncertainty in the market that are sold cement that charters have tend to prefer fixing single voyages rather than longer periods and so while we do see of a high level of fixtures. This is mostly due to more single voyages harder than multi voyage apparent fixtures.
It is maybe not too surprising that charters, which are also mostly working from home are focusing on the next cargo other them securing ship building for the longer term. These days. Additionally, homeowners have been facing stiff competition from portfolio players and paid us as they have been increasingly active in them.
Cuts with relapse.
We do however, now see that more charters are looking for multi month time charters for winter krulwich and most charters prefer fixed price instead of index given given the low charter rates. So there are some positive signs from this behavior.
Next slides, we look at the importance.
We will look at the trade flows they totally changed in 29 compared to 28 Dan.
In terms of data and enforce all about Asia, increasing its import by 30 million tons, Stephen by a rapid Chinese calls.
And 29 in the main demand in Asia was muted due to our mild winter.
But also by new class startups in the largest and third largest import contest, Japan and South Korea.
Due to economic slowdown following fed disputes with us Chinese demand was also on the soft side in 29th in going only about seven to 8 million thoughts. So in 2019 Europe came through that sq, increasing its imports by 33 million tons of close to 70% growth.
For what is essentially a fairly mature markets.
However, you have a pass a lot of LNG infrastructure, which have been underutilized haswell less.
Substantial storage capacity this coupled with record low gas prices and higher carbon prices have made cheap LNG very competitive and Europe with eight of the 10th largest import gains in 2019 being European.
The trend has continued this year with most of the import gain us.
Being European.
UK is continuing its path to facing outs coal UK just went recently a month without utilizing coal which have not occurred since the industrial Iot evolution, both the golf, which set was also one of the key growth areas of LNG and Trenton I think also ran through April without burning any.
Hello.
So this shift can happen quickly has recently in 20 trail coal provided 40% of UK power Gen and 29, it was only 2% with the currently running and total ATP dark days with coal.
Soon cost market share in UK will be Seattle.
The outliers had our south Korea, which has favored burning gas instead of coal with a massive closure of close to half of that coal plants when bearing in mind that cover 19 is primarily our respiratory illness. It makes a lot of sense to switch of coal and clean up the.
These days, particularly when its feet to do so as I will illustrate Atlanta, despite the shutdowns in India and China.
These contracts are also actually going as LNG imports and Twentytwenty as LNG is gradually going its market share. Despite the recent tomorrow.
So let's consider.
Log largest market by Paul Asia.
Now, we find the largest import markets, Japan, China, South Korea, and Indiana lots of growth markets in Southeast Asia.
As mentioned despite covered 19 with associated Lockdowns, China, South Korea, and India have posted growth this year, China Chinese coal to us actually lagging 29 in Nevis Paya today call with 19, Lockdowns due to lower economic growth, but we have seen strong growth from March onwards, USA imports.
I have also assumes and we expect us exports to China off about.
Half a million ton in may which is close to 10% market share and the highest import level of us LNG since January 28 in prior to the trade contracts really escalating.
While we saw a slowdown in Indian imports in April they are expected to bounce back to 29th in levels in may.
Jeff honest the weak market as they have experienced prolong locked down and not follow the policies of South Korea, where coal have been a place to I guess extend by LNG imports to reduce find us pollution.
So, let's add back to their growth market Europe.
Despite high inventory levels coming out of the Wintel due to unseasonably warm winter European bias has continued to buy LNG hand over fist in transit trends there.
The main reason is slow LNG prices stimulate demand for gas injection forestall less and we do expect that European inventory levels will apply poach tank tops in July August. Furthermore, the 20% reduced capacity offense nukes will stimulate additional gas demand in France, and Thats you can see from that.
Fence imports have been where there has to it.
Keep in mind that onshore storage capacity for gas is very limited and way beyond that storage capacity.
Rave and below the storage capacity if oil. Furthermore, the vast majority of storage capacity is located in the us in Europe and north in the Big import Nations in Asia. This means Europe is the natural swing impostor and the glut of LNG has resulted in record low gas and electricity prices in Europe.
Once the inventory in Europe is food, we do expect a natural rate to store gas will be on ships and coupled with the contango in gas prices. We expect another round of massive floating storage. Once we are approaching a lot them. This year then all of you be supportive of the fair market, particularly for large modern ships.
With low oil effect, which our fleet consists entirely of.
So.
I've already touched upon the public market and the low prices for salting from the LNG glass.
As you can see if on this chart Asian, LNG prices and European gas prices have been plummeting from close to 10 and $8 a spec live late at the beginning of the two record low levels now with J. Gann method around $2, which is similar to Henry hub and the Dutch European gas have pies TTF, even trading below one day.
Hello.
This is totally unprecedented that global gas prices converge to such extends enters such low levels.
We've also seen on oil buys clash with West, Texas intermediate could even trading below sea level.
Most LNG Solon, both our sales had under long term oil index link usually links to Brent or the Japanese crudes cocktail.
70% of LNG volumes are tied to such oil linked complex.
Usually LNG is priced at the slight discount to oil NRG equivalent price is 17% of on barrel of oil 4 million beats you often LNG.
Hence, we typically see this index or slow at about 12% to 14% discount to the 17% for some contract there is a fixed price element.
In the costs have.
That expires SCR 0.8 dollar Tommy let me be do.
For most oil price.
And complex there is certain measurement period, usually the average price of three months than the sub sea month lag before that Fob price asset.
Fob price is the price at the loading location typically our liquefaction plant.
Cargo to Asia, typically can take up to our month to transport. So this is what we call up 81 slideshow eight months measurement period, three months' delay in pricing and then one one month for delivery and thus the desk price by the pilot destination.
Let's say one formula is Brad tightly correlated to the custom tailed LNG import price for oil linked LNG complex, hence we do expect that the oil price clash, we'll start to feed into complex LNG prices. Once we are approaching awesome.
Japan, and South Korea, which is the largest and third largest import nations have historically been very well covered with contacted LNG.
Typically also LNG, which have had destination limitations.
Hence these contests have typically not responded much too low oil and gas price.
As they have already committed to large purchases of LNG on those such contracts with a low cost by fastest now we do however, expects to see coal to gas switching in this nation and possibly more spot cargo procurements.
As you can also see from the off market participants do not expect the rock bottom classes for gas to endure and forward prices are there for higher something which we call contango and this is generally supportive of freight market due to floating storage.
However, the long term pipes are now very low compared to historical prices and this we also think will stimulate.
Demand.
As mentioned on previous slide LNG is clean fuel that chip bias.
No actually cheaper than coal when measured against higher quality in Newcastle coal bolt on AWS angular energy quantity measure, but even more so on efficiency measurement.
Most gas plant are much more efficient than coal plants in transforming the energy content of the feedstock to usable energy I guess plant typically a hassle terminal efficiency of 50% to 55% by coal plants have efficiency of only 35% to 40% and in the Gulf. We show this as offset coal and coal adjusted efficiency.
Which case economically switching range. However, natural gas is much cleaner than flow coal on our CEO to basis, it's about half, but even more so for helping to mental admissions like particular math, thus of find us Sox and Nox and Europe, rather as our well organized.
Okay for carbon emissions, the switching band assess wider as carbon permits in Europe have now rebounded following in the plummeting prices for such a mission permits following the call with 19 outbreak, hence its maybe not a big surprise that Europe have been gobbling up so much gas Leslie.
Yes.
Let's now review, maybe their leases into sitting at slide in the back today.
Efiling saw sanctioning of new projects with the covenant in pandemic, the cash in energy prices and energy companies cutting their budgets, we are seeing delays in sanctioning of new projects across the board.
Last year, we experienced record amounts of project being sanction and these projects are expected to come on stream from end of Twentytwenty to to try to 25.
For Twentytwenty, the only project, we expect to be sanction as the expansion Myday catalyst.
Then paid capacity as currently seven to 7 million, Tom second only to as failure and with cheap feed gas and deep pockets. They have announced that they take a longer view and are targeting sanctioning no when cost of expansion is lower than what it would be in our buoyant market for oil services that.
Intended expansion is between 30 to 49 million tones, bringing our nameplate capacity to between 110 and hundred 26 million tones, and thus putting them back on the top once production starts from 20 to 25 onwards.
When looking forward, we do expect new volumes to taper off on a massive increase in production capacity last couple of years.
Given the fact, we haven't the spare the experience our us China outside wealth to record the while moving thus and lower global pandemic it might not be too surprising that the market is to owning and cheap gas all of the absolute highest level have surprised everyone, including the forward market.
From next year to transcend transitory.
New volumes will be fairly low before we would assume with large new volumes coming to the market in 20 trends before on wells. This means that product prices should probably stabilize on higher and more sustainable levels, which we would expect resulting in more demand fell from Asia instead of Europe, which has been act.
Being asked the same.
Higher LNG appliances and ton miles should that be supportive of the shipping demand in our perez, whether we'll be more ships than gas molecules coming through the markets.
As we have expand before that's been a loss technological and efficiency leap in LNG shipping technology. The lost 10 or 15, yes. So we would expect that in this period, a big chunk of the older steam vessels will be leaving the market the investments today still represent more than 40% off the fleet.
And our modern ships are typically close to 50% more fuel efficient than the ships and have a 30% larger Pos and science with associated reduction in carbon footprint, which is high on the agenda for most energy companies.
As I've touched upon already and the presentation LNG is our fast track for reduction of pollutants not only Seo too, which is the major costs of global warming, but also to a greater extent find us a particular matter, which can cause serious respiratory problems as well as Knox.
And Socs the virus fine call with 19 as formerly known.
Named source code with 19, this means severe acute respiratory syndrome or inshore sauce.
Covert lines in is a novel call on our virus and share a lot of similarities with the saw some items from 2000 feet. However saw score with 19 is much more potent in terms of transmission as infected people can go for an extended period of time before experience and his symptoms and foremost without any symptoms at all while still being.
Hey, Bill to transmit dividers through all those.
While it is argued that covers 19 is summarized this system virus. It is foremost at.
Our most attacked the upper respiratory system and people with respiratory problems are dose escalate the risk with the shutdowns of economists we have seen a remarkable improvements in local air quality particular layer nitrogen dioxide. Several studies point out strong correlation between air quality and debt tolls from the virus that some.
Argue that.
Most mall advance populated areas, where there are more pollutants, our so at higher risk in any case, reducing local air pollutants being serious health benefits, particularly at this point of time with gas prices not being below coal switching to guess.
Sophie Health policy, and we do hope that more convinced can take guidance from South Korea, and UK, which is substituting coal from natural gas on basket.
So.
This concludes today's presentation and to summarize we delivered fairly good trading results despite challenging markets with Tc off.
Oxman 68000 per day in line with the guidance, which is well above our cash breakeven levels of around 50000.
For Q3, we expect Tc to be closer to 50.
Which is still in line with cash breakeven levels. Once we take delivery of the seven the remaining new buildings, which are generally finance with lower levels and lower end process. We do expect cash breakeven levels to fall to closer to $45000 per day, which gives us industry low cash breakeven levels. Despite having the newest most modern fleet.
With earnings premiums as well as we have evidence today and in the past.
We're also pleased to announce to new financing.
This secure source attractive long term financing of two on $81 million, which brings that available financing for the seven remaining newbuildings to to $910 million, which matched rather well with the remaining capex of 937 million.
Secularly, given our substantial cash position of $221 million and this is cash that has is freely available and not suspected cash in anyways.
We have a 10 year fleet of the most modern large ships with efficient to stock propulsion, which is typically the ships that charters would prefer for longer term complex when they're entering the market for longer term tonnage.
First class in House management company, we are well positioned to benefit from ahead delivery of older ships on the complex once term activity pick up again after charters recently being more pay occupied with next four edge as illustrated earlier in the presentation.
And lastly, while we are now experience market turmoil with the call with plans to make the long term fundamental outlook for the industry remain very attractive and we are confident that we can deliver attractive shareholder value for the patient investors given the current implied devaluation together with our super strong capitalization and liquidity position.
[music].
In times like this these attributes enable us to seven to navigate safely in harsh weather.
So thats it for me I would like to thank everybody for participating and I will.
The aligned back to Murray for any questions.
Thank you, ladies and gentlemen, you don't switch to answer your question.
So far warning.
Thanks.
And now.
Once again.
One.
To answer your question.
Your first question comes from the line is gradually in the release from the.
Please ask your question.
Yes, Thank you and good afternoon.
Hi, good afternoon Dragon.
Thats, a heavier coming up with the first question as we have Madonna and the past.
[laughter].
Utica.
Also I wanted to touch a little bit on some comments you made about the potential for for LNG storage in the back half of this year.
We've seen and we've been hearing about the.
I guess some declines in some of that some of spot cargos water that are.
Coming on in the U.S.
And really just kind of want to understand if you can provide a little bit of color. What we think is going to drive that storage justin's edge.
On vessels, clearly theres not a lot of onshore storage if any in Asia.
But that being said it seems like some of the end users are.
Turning away cargoes are refusing the line refusing to take form. So just kind of wondering is there an economic arbitrage that there could be driving that in the back half of the year or is it really that that we can't really seen much shut ins at this point and therefore justins going ask that goes on.
And just any kind of color around that I think would be helpful.
Yes. Thanks.
I think.
And our most people been focused on the shutdowns of cargos in us on of course, that's because.
And really basically the only pay spread.
And our that buyers have the optionality of shutting in not taking delivery of cargoes for the vast majority of LNG Sps, it's our take or pay in all of the.
Regardless of the pious, who asked that takes the volume the only option you might have vis to reduce their volume slightly follow up ariad, but then you have to take higher volumes later.
But to actually we've seen shut in soft volumes in Egypt.
But to also assuming exports have been all been shut down we have seen.
Algeria doing the same because of the low pies pit shell Sun and and you know this super expensive.
LNG unit falls on a shell pillars spin been down since February today, because of coal we had 19 issues.
So if you're thinking about the US cargoes of course, we have massive cancellations in June.
2030 cargo ascent and maybe 30 40 cargos in July they typically two months' notice to do this and if they can lay the acevedo tolling fee regardless.
So it's more about their now what's kind of pious to have so fast now with Jack and close to Henry hub of course, it doesn't really make sense to take the cargo.
And that's why you're seeing that.
Massive cancellations.
Even if you need the cargo you, it's better constant the cargo and via our call when the market. So.
What we think will die of of course.
Floating storage and more volumes. This of course, the pious the pious needs to get out the pie assessed at unprecedented low levels, but if you look at the forward market at pipe, Saudi bonding and nobody expected biases to stay have followed by a long period of time, and we already see into the oil pious bouncing back as well so.
If you look at the forward prices once you're starting to get.
The September in our Theres, the dose softness and not making economic sense to to kind of cancel that cargos is better protect cargoes and and and with kind of truly inventory levels in Europe. We do expect more cargoes to go to Asia, which traditionally they also tend to source more aghast and when you're getting close.
During the winter season.
So our cost that will drive more demand for shipping and and probably more demand for floating storage SAS people can be buying lets say cheap September cargo center.
I will take some monitors to travel and then maybe afloat per month and then they can sell that September cargo into November. So we think that will be a lot of that this has happened last year on the year before economics for the public prices have been different that those point of time, but in our we have.
Our contango in the market then.
And prices will go up and Thats why we think.
That will be a floating storage and we do some and see some inquiries in the market about that's where especially the fed us our all time defined ships fall winter call, which because.
Scan in our prices for product and prices for faced can suddenly.
At moved quite quickly.
Okay. Okay, Great and then just another one for me on the financing is clearly you guys had a successful quarter.
Last few months in lining up some financings.
I guess, it's kind of the two part question, but but as I look at and realizing that these are all still have customary closing conditions to go forward, but with all of the financing now wind up with the new builds just running some quick math the remaining equity contribution for these for the Newbuild fleet Mini mills.
Maybe 20 $30 million does that provide an opportunity may four for flex in just given the outlook is challenging for the next couple of years I mean, you kind of laid out oncoming capacity.
Just provide maybe another opportunity for flexible the timelines step on the throughout a little bit and grow the fleet I mean, we're hearing loss.
Potentially some new build vessels.
That are potentially going to be for sale here in the coming quarters is there an opportunity for for the company to trying to take advantage of maybe this pause in the cycle that decline that build out its fleet just given the success you've had in Thailand.
Finding encino hopefully.
As NK cells for everybody knows the kind of the gate, the John Fredrickson system, and they would know that.
We tend to be opportunistic.
We're very pleased to have kind of the financings in place we announced.
They say financing.
Third quarter presentation end of November and then.
Also though had you know the subject.
Our final documentation of the final documentation will so that they buy fab quality and we announced the.
That kind of the signing of the loan agreement.
Fab, while there, but in our just as we sign that and we have the Q4 numbers in fab, while that people were asking me immediately Walter you're going to do with that Twentytwenty one ships.
And our and we're just fine as five ships for Twentytwenty and people have been so worried about.
The remaining capex, even though it's been well below $252 million. So for those trends at 21 ship. So we've just been fast tracking that financing and our.
Fast tracking financing in a period of time, whereas the financing market is more or less checks for almost everybody in our you'll see even there that big ill.
The investment grade that company is going to bond market people are going and credit lines. So I think you know we we have demonstrated our good fact tech auto racing effective financing, we have banks that believe announced banks likes to finance.
Kind of the new and and good good assets, and especially with the management, which I think you know demonstrate that our ability to to to charter these ships out that payment rates.
And then you know we get into question how much money should you have.
Of course, I'm very comfortable now we have humbled and 21 million of cash non of the cash is restricted cash because we have havent and we havent planning bonds.
They have have call song on FX, we we don't have any swaps, calling on let's take the castle that's free cash and then with 910 million secured for the 937 million of remaining Capex again saw solid.
Where a good liquidity situation III understand some of that list I was wondering why Alan you keep paying the dividend when you have such a good liquidity situation, but I think.
No. We if you look at our share prices period.
Hello, and there and now we want to make people while investing in the company and all that just make them comfortable that you now we will be around and we will tie and we will have the financial resources to to stay the course, even if the market is a bit choppy.
So it's just kind of small value are forced to have that cash and who knows channel I think that will be people, who will be in pulp trouble, who have uncommitted ships because.
Financing a ship today uncommitted will be close to impossible.
So.
And I'll and then of course, a lot of them pistol bets on the fact that going to have our long term contracts, but as such owned and Nick off you notice not really are lot of demand for long term contracts now I think that will change once that goal with.
Pandemic is a scanner fag getting less attention, but but this means that I will also be opportunities we are opportunistic before.
We wouldn't rule out anything but right now I think we're more focused on ourselves in our delivering the new buildings over that throughout the next 12 months following on the debt.
Securing mall backlog and visibility and and once we have that and fast. We also have a very robust capital structure to two as tough as assuming a dividends.
Okay perfect. Okay. Thank you very much for the time today.
Our tax rate.
Ali.
Your next question comes from Goldman James Schneider from Investec. Please ask your question.
Hi, good afternoon shine congratulations on a fantastic quarter.
Okay, good they're familiar again house Vegas.
Well, we're recovering during what we can but yes, considering the tough markets. It's good to see that you're able to get the 68000 TCV.
I'm looking at your presentation, comparing it to last quarter I noticed you don't have the fleet kind of delivery charge I know last quarter, you said the fleet might actually be delivering early ahead of schedule is that no longer the case or we are we back kind of to the normal trajectory or maybe even some delays on that side.
I think most of the shapes.
Kind of we have more like option to take our chip scale as.
Now as the market. This week, we lost the really want to use last options with except south early so over the next steps to be the level will be flexible.
More or less on on schedule and then of course like flex optimists.
I will be the level that schedule in August and she will enter a five year or minimum five year contract with.
With that goodwill saw we don't really expect major changes on the on the schedule and Thats why we are not really including either.
Understandable, so back to kind of the regular schedule on the flex artemus with the variable time chartered again or can you talk to read that a little bit is there some sort of floor structure and then like a profit sharing or how does that work.
Yes.
It's a good question.
And our when we have all the press release for.
Time charter in our we agreed on the kind of the awarding because if you all of our pay those are you typically you are bidding for cargo so fob cargoes and.
The listing lasting you want is for your competitors be to be able to kind of calculate your freight cost because.
No fed cost this out various substantial portion of that of the cargo economics.
And Thats why we are.
Not sharing too much details about it because it has adverse competitive.
Implication for customer, which is our utmost priority.
What I can say in our we have at two ships on on index to the last year also and as you can see Pall mall.
TC numbers, they are kind of supporting all our payment.
Right. So of course, you get 100% utilization.
Get to capture the headline rates.
Of course.
Nobody really will pay.
That I had 100% because then they can tap into the spot market of course to all sometimes well as spot market doesn't have any ships available which happened October last year. During October last year. It was impossible to get any ships because the market was sold out but.
I would say in always correlates very well with the headline rates.
And typically you.
That's not one fit all kind of select Joe. So some contracts you could typically have without any ceiling, but without any floor. Some have with floor with profits bit some have with flaws and ceiling. So they tend to validate but I think they gave us a good exposure to the headline rates.
While also protecting us on the downside bought with utilization and for some of them also with the floor.
That makes sense and it sounds like we can model that as a normal sort of megi market rate with full utilization then okay. Looking forward to your cash demands I'm very impressed with your refinancing for 2021 I know, we talked about that last time about getting those new builds financed I don't see any.
Really needs for cash until really until 2024, right. I mean, you have a very clear debt maturity profile.
Large cash balance and your shares traded enormous discount to any right. I mean, you can debate the navy right, whether or not use lower current market values or more of a replacement value.
It may be somewhere between $12 in 15 or 16 per share right in your shares are like $4.
So how do you how do you look it is there any method you can take to correct that gap I know you want to keep a strong cash balance is there any sort of appetite to share repurchase or a tender offer or anything that could help close some of that gap.
And now I think has a call with you early March after our Investor day in and with this.
Conference call on them and you are asking me our look through what about the 21, new buildings and I told you pay we are passed setting those financing and.
But to say, we were able to affect Olson and time fall.
The fourth today.
So that gives us our hardware comfortable.
Cash position as we see in our way, even after taking delivery of those ship them generating Seattle.
Cash flow form operations, you would have almost $1 million of cash which is of course, a lot more than than we need.
When it comes to what to do with the cash and of course, we don't have any material TSS at the forefront before I think it's more so in our when we have such as depressing stockpiling are we just want to give people a comfort if you invest in Austin, it's not like we are going through the market duress anymore, because we already have them on there.
And they fuels and ill in 28 in kind of the investor in our company Walmart I would say goal to investors and Trenton 19, they Wes.
As you invest us and today, it's probably more deep value investor system. If you are the value in vessels. The last thing you want to do is that the company have to raise money because and you are kind of position. This is kind of diluted so so we just keep that in mind that that people investing in the company, including all majority share.
Although John Fredrickson, with 45% stake and and management as well you know we want to make sure that we can thrive in this market then if opportunities arise that could be there could be something to look at that also resales opportunities and I think that will be more resale opportunities.
Headwinds is floating a software today with some high assess I think.
As was said that $170 million for resale of course, that's that per ship without any compact without any software without any financing INO four phase we have 13, new ships with financing at Thats and I and our software in terms of of management, both technical and commercial.
So.
All ships are much more woolston those CSL, but still you know the stock market is fitting our discounted thats our boss of course the them.
The best investment we can do is buying back the stock but on the older hand, we also want to make sure that in vessels are comfortable with our financial situation and the best way to do that is to have financing secured and a lot of cash.
Yes definitely understand its.
Challenging balance and you beat me to my follow up because I was going to ask about the the resale I heard there is a 2022 vessel for something like 170 million so very interesting.
An investor we would hope that you would look at share repurchases ahead of vessels right. If you're trading at huge discount, but we trust me three choices. Thanks again for the questions and excellent quarter.
Thank you Jay good to have from area.
Thank you very no further questions at this time please.
Okay. That's good and I think we are just love the thing as well in class.
Okay.
We should continue a good day.
And.
We are backed with all of our second quarter, sometimes and August so withdraw lessen Dan good week intermodal. Thank you.
Thank goodness conference for today, thanks for participating.
Okay.
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