Q4 2021 GasLog Partners LP Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good morning, My name is Sherry and I will be your conference operator today at this time I would like to welcome everyone to the Gaslog Partners' fourth quarter 2021 results conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
As a reminder, this conference call is being recorded.
On today's call are Paolo and noisy.
<unk> Executive officer.
And Cathy long Chief Financial Officer, Joe.
Joseph Nelson head of Investor Relations will you begin your conference.
Good morning, or good afternoon, and thank you for joining the Gaslog partners fourth quarter 2021 earnings conference call for your convenience. This webcast and presentation are available on the Investor Relations section of our website Www Dot Gaslog MLP Dot com, where a replay will also be available.
Please now turn to slide two of the presentation.
Many of our remarks contain forward looking statements for factors that could cause actual results to differ materially from these forward looking statements. Please refer to our fourth quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these measures is included in the appendix to this presentation.
Paolo will begin today's call with a review of the partnership's fourth quarter and full year highlights following which <unk> will walk you through the partnerships' financials. Palo will then provide an update on the LNG shipping and LNG commodity markets. We will then take questions on the on the partnership's fourth quarter with that I will now turn it over to Paolo noisy CEO of Gaslog partners.
Thank you, Joe and welcome everyone to our fourth quarter conference call from their very Snowy Athens.
Please turn to slide four for Gaslog partners fourth quarter and full year 2021 highlights.
I am pleased to report another quarter of strong operational and financial performance for the partnership.
The FIFA for approximately a 100% availability in the fourth quarter and for all of 2021. Despite the ongoing challenges created by COVID-19.
Our focus on cost control along with the strengthening charter market last year, so stable cash generation and improved profitability.
We repurchased six millions of a preference units in the open market, bringing the total repurchases in 2000 $21 million to $18 million and finally, we retired another $17 million of debt during the quarter, bringing the total to $108 million for 2021.
Turning to slide five and a summary of our financial performance in 2021.
As you can see from the charts on this slide.
The chartering four of our vessels on that banking terms, along with our strategy of reducing our debt.
And <unk>, our cost base improve our profitability.
Despite a 2% decline in revenue last year relative to 2020, our profitability increased 8%.
As noted on our last call our capital allocation for 2022, we will continue to focus on debt repayment and reducing the breakeven rates of our fleet will improve its cash flow capacity.
Turning to slide six which summarizes our operational upside to the strong shipping market.
As you can see from the chart on the left the partnership as a balanced charter portfolio.
Our fixed charge coverage shown in dark blue.
More than covers our fixed expenses through at least 2022.
Meanwhile, our open days shown in light Gray.
Play a significant leverage to the tight shipping market.
You'll note. We also have one vessel in the spot market linked contract, which should also benefit from higher spot rates.
Our chartering team did a great job in fixing through the seasonal lows of quarter one.
The majority of our open days for 2022 are in the seasonally strong period of the year and if it's $10000 per day of revenue earned above our operating and overhead expenses will generate an incremental $30 million of EBITDA for the partnership.
With that I'll hand over to <unk> to take you through the partnership quarter four financials.
Thank you Paolo.
Turning to slide eight and the partnerships final guidance for the fourth quarter.
<unk> mentioned earlier, our financial performance in quarter, four improved significantly from both the third quarter, often can be as well as fourth quarter of 2020.
Revenues for the fourth quarter were $88 million at 4% improvement from the fourth quarter of 2020.
The revenue improved Seattle it yet.
Mainly due to the fall south of that agreement that we signed in the second half of 2021.
Davita was $64 million, an increase of 9% from the fourth quarter of 2020, while adjusted <unk> was $45 a unit.
The significant improvement in adjusted EBITDA and adjusted EPS were aided by the improved revenue by 12 months.
Cost control initiatives and in addition in terms of EPS, the lower interest expenses due to declining debt balances and if that tenant sales.
Does that reduce the type of furniture distributions.
Looking forward the partnership hit South of cabinets are 100% in the first quarter of 2020, and 76% South on top of that for all of 2022. In addition, we have no scheduled dry dockings, VEGF, which provide good cash flow visibility.
Turning to slide nine and look at our cost base.
Our overhead expenses for 2021 while approximately in line with our average for the full year and the guidance we gave on our last call.
As we look towards <unk>, we expect our unit operating expenses slide 13.
$100 per vessel per day, while we expect our I'll look at the expenses <unk> three.
Two highland.
Okay.
The significant decline in our operating expenses for 2022 is due to a reduction in the management fee will be paid out in gaslog. They can be effective in January 2022.
As well as no dry docking expenses for the year.
This lowered operating costs offset by higher overhead expenses, primarily related to an increasingly administers the exciting suite gaslog entity effective from January 2022, as well at Diavik Public company expenses, which was previously set between Gaslog LTV and Jeff.
Public company expenditures I'll now borne by the partnership alone following patents take private transaction last year.
Our overall cost base has been declining significantly over the last seven yes.
Tony Our unit Opex declined by 9% in 2019, and our unit G&A declined by 10% as compared with our plan to turn to guidance.
Fully absorbing all the one off costs associated with Covid related disruption and the changes in the Gaslog.
Mentioned above.
I didn't get previously stated we continue to look for ways to reduce our cost base further.
Slide 10 shows the partnerships debt balances and balance sheet metrics as well as the progress we have made towards our leverage target in 2021.
The partnership's balance sheet remains robust.
Occupancy ended the fourth quarter with $146 million of cash and cash equivalents.
Our capital allocation priorities seems to anytime we have focused on reducing <unk> limited and cost base.
Last quarter, we presented our target leverage metrics, which you can find on the left side of the slide.
Pleased to say that we have made progress towards these goals and Glenn you can do on despite the noncash impairment charge of 100 and falling in beyond in the fourth quarter related to our five steam towards buying LNG carriers and providers.
Secondly, we retired approximately one $8 million of debt during 2021, which reduced our debt to total capitalization to 54% from 56 in the fourth quarter of 2020, when combined with our $146 million of cash on the balance sheet.
Net debt to capitalization, which has been used to 47% by the end of the fourth quarter from 51% at the end of 2020.
Sean.
Net debt to trailing 12 month EBITDA has declined to four three times.
We expect to continue strengthening our balance sheet, beginning with the scheduled retirement of approximately $114 million of debt and lease liabilities in 2022, which is covered by our contracted cash flow over this period.
And that balances was it use the partnership's cash flow breakeven levels over time, even further the competitiveness of our fleet.
We believe that prioritizing debt reduction supports the partnership's.
Good sales growth in equity value and enhances the overall shareholder value.
Slide 11.
Discusses our partnerships <unk> unit repurchase program with support south authentic effort to reduce our cost base.
During the fourth quarter with.
A total of approximately $6 million of our CSB and CVC <unk> units in the open market, bringing our total for Glenn and <unk> to approximately $80 million.
Our repurchases to date with an average price of $25 per unit, which is at par value.
Vis vis <unk> reduced vessel unit distributions by approximately $1 5 million on an annual basis.
We expect to continue Opportunistically, that's especially in it in the open market conditions dictate.
With that I will turn.
Turning to <unk> to discuss the LNG commodity and LNG shipping market.
Thank you Kevin.
Turning now to slide 13.
Poten registered 44 term charters greater than six months in quarter four 2021.
Helping to set the new on unit growth of 165 term charters for 2021 .
The high level of term chartering served last year. It was in response to strong LNG demand ton mile growth and logistical bottlenecks around the world.
This dynamic among a wide arbitrage for delivering energy to Asia from the United States during much of 2021, <unk> customers and others to see term coverage and security of shipping capacity.
On the right chart, you'll know that headline spot rates of decline and a decent weeks.
Although headline spot rates have impacted lower now at 28500 per day it isn't unusual for spot rate to decline as we approach the end of the northern Hemisphere winter.
Despite the decline in spot rates driven by severity of deferred is the one year time charter rate is currently assessed at $87000 per day according to Clarksons.
This is indicative of charter as expectations for a tight market in the months ahead.
In addition, the forward curve for LNG spot rates indicates rising rates through the rest of 2022.
And result of these fundamental drivers and frictional challenges, we expect the LNG call the spot market to continue to perform strongly through next winter.
As discussed over the next several slides.
Slide 14.
LNG demand and supply during the quarter for 2021.
LNG demand increased 8% in the fourth quarter of 2021 relative to the fourth quarter of 2020, According to Poten as shown by the lepton figure.
Demand from Europe was strong in the fourth quarter.
The combination of overreliance on renewables low storage inventory and lower than anticipated imports from Russia, Norway push demand for LNG, resulting in record high prices in the region underscoring the need for natural gas and LNG as a transition fuel in the evolving energy landscape.
On the supply side U S production rose by over 28 year on year to 19 million tons due to less unplanned downtime and the ramp up in production from the third train with <unk>, Canada, and Copus Christi LNG facilities.
This continues the theme we witnessed throughout 2021 U S production increases met global demand growth for natural gas.
The shipping tentative nature of via supply relative to end user in Asia and Europe .
<unk> growth up to 16% and could even be one more than twice that of the demands of the commodities.
Sure.
Slide 15 shows significant cost increases for natural gas in Asia, and Europe since quarter four 2020.
The past few months have highlighted the dangers of lack of infrastructure investment in gas, which we can observe by noting that echoed by energy prices in Asia and Europe shown on this figure.
In recognition of these energy credits as the European Commission is now considering adding gas and nuclear power to the green taxonomy.
This would accomplish the goal of reducing emissions from the generation of electricity, while also securing steady and competitive supplier of imaging.
LNG is the most versatile source of gas given its destination flexibility and will be an EBIT in the long term as it provides a stable platform for the transition to renewables.
Hi, absolute gas prices around the world to ensure a high level of liquid vacation utilization, while the potential further widening arbitrage between producers and U S and consumers in Asia would have the additional benefit of lender in ton mile demand.
In addition, Europe is anticipated to exit this winter with historically low inventory of natural gas.
This again at the potential to drive additional demand for LNG for inventory restocking.
Slide 16 displays the LNG carrier order book and delivery schedule According to Poten.
There are 151 LNG carriers in the order book at present.
25% of on the water fleet.
Over 80% of your order book of secured multiyear employment in.
In addition, the number of scheduled deliveries in 2022 are less than half to deliver into 'twenty, one and there are no unfixed vessels scheduled for delivery in year.
Due to increased demand for containership, another merchant vessels delivery time for the new building order today at approximately three years, making the Airbus delivery time in the first half of 2025.
Competition for bird slots, so the yard as well as cost inflation have also pushed prices well above $210 million up at least 10% over the last year.
Slide 17 illustrates our view of shipping supply and demand through the end of 2023.
The managed partly based on the number of vessels needed to export 1 million tonnes of LNG per annum expense as the shipping multiplier.
This analysis does not assume any vessel scrapping although there are currently 20 vessels.
3% of the global fleet over the age of 30.
We sold nine vessels scrapped in 2021.
Although it is a relatively strong addition to global shipping capacity, we anticipate that the growth of inter basin trading and likely escalated to the cycling of older tonnage will more than offset the scheduled deliveries over the next couple of years projecting a relatively tight LNG shipping market through 2022 and 2023.
Turning to slide 18 and in somebody.
I'm very pleased with you overall operation safety results as well as the partnership financial achievement for quarter, four 2021 and for the full year as well.
This latest energy crisis is once more shown the pivotal importance of LNG is cleaner fuel to supply the current energy needs and enable a sustainable transition to a carbon free future.
Our fleet is well positioned to the upside of this increasing demand for LNG and a tight shipping market expected in 2022 in the years to come.
And we've made good progress on our capital allocation strategy with continuous deleveraging and opportunistic repurchase of preference units in the open market, creating equity value to the unitholders.
Finally, the partnership increasing competitiveness and strengthening balance sheet allows us to evaluate opportunities for growth and fleet modernization.
With that I'd like to open call for questions.
Operator.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question question.
Please standby, while we compile the Q&A roster.
Our first question will come from Randy given with Jefferies. Please go ahead.
Mr. Kevin Your line is open. Please go ahead.
Howdy gentlemen, how's it going.
Hi.
Randy it's good.
So I guess my first question is just looking at your fleet you have a half.
Handful of vessels coming open few TCE if your steam how soon do you play around securing charter for those and then what the likely duration of the one year and then specifically for steamships what are your thoughts on unemployment there for 2022 and 2023.
Thank you and Andy for the question.
Yes, Indeed, we have.
Vessels that are being opened in quarter two.
We're actually quite comfortable in the 22 charter coverage I mean, we are covered 76% and our portfolio is quite balanced.
We see opportunities in and the opening of the vessels in quarter, two and imports of fee ahead of the winter and we expect.
The level of LNG movements, both in terms of capacity and in terms of shipping demand.
We see.
<unk> mentioned before we actually see that the term market is remaining quite strong even in the doldrums of the coldest quarter. One. So I think there is no indication that we will not be able to play a portfolio approach and actually fix the vessels throughout two importantly, much like we've done last year.
Got it and then in terms of steam employment.
'twenty three and beyond.
I think the full of the themes, we actually see similar dynamics as we've seen for <unk> <unk>.
It seems to be the most interesting Paul there are many.
Sorry, some operator that seems to favor steam vessels over others.
<unk> terminals that are actually only accepting.
The size and type of vessels.
And I think we have really no indication that there's going to be otherwise for the steam vessels than it is for the ftes, whether we will be able to find the longer terms than one year is yet to be seen but I think the indications for other.
Chopping that has been done for similar vessels have also seen terms exceeding the one year. So we're quite confident on that as well.
Got it.
Alright, and then in terms of balance sheet and capital allocation could we see some additional sale leasebacks in the near term and what would that incremental cash.
Proceeds be used for right you purchased I think it was $6 million of preference or preferred units during the quarter about $18 million during the year. So as you look at 'twenty two could additional repurchases there via use of cash.
Yes, as Ursula said Andy.
Thank you Kevin.
Yeah.
With the improved top.
That market, we have any liquidity position. So we will look for I guess on a lot of things on an opportunistic basis.
We have been buying back 18 million of perhaps a pod.
Which is it could be less ink that is.
<unk> initial thoughts.
It is callable in early 2000, <unk>. So that we don't even have any reason to.
Eight months, a ballpark to buybacks.
So we'll keep an eye on that.
To reiterate our capital allocation strategy that we published on the <unk>.
<unk> breakeven reductions with factually.
It improves the equity value.
And.
In terms of the settlement leasebacks.
We will see I mean that we don't really need any incremental liquidity.
It is.
We did that.
<unk> is back.
A while ago, because we wanted to have access in the Chinese market.
Probably be opportunistic.
Perfect for that.
Is it for me thanks, so much.
Thank you. Thank you.
Thank you. Our next question will come from Ben Nolan with Stifel. Please go ahead.
Yes, Hi, this is actually Frank galanti on for Ben Thanks for taking our question.
I wanted to start on.
The steam ships.
Specifically around SSR, you FSU conversion.
It seems like that market could be.
Opening up I guess.
Is that something that you guys are considering for those vessels.
I think it's Paolo.
Yes indeed.
I think it's.
As we discussed before on Linda's question I think there.
The good thing about having a portfolio approach that really allows us to look opportunistically to.
Short term spot and also infrastructure development.
This kind of project as you know they take quite a long time to develop there are different stages from visibility too.
And even positive I E. There is typically a certain amount of time before you actually be able to deploy the asset with a light or.
<unk> heavier conversion, if it's only because of you.
I can confirm that we are looking at that I think there has been also a public announcement of <unk> energy <unk> energy project in Australia.
Gaslog partners as one vessel that is being held as the.
Let's say so.
Our proposal to the effort.
Your development there so I think thats a public display of how our interest is materializing again nothing that we are of course more than this.
Casino time is.
It needed to come to a final development, but we'll provide further updates as this and maybe other opportunities come along.
Okay. That's helpful.
And then.
Switching gears a little bit.
I wanted to ask more longer term question.
Sort of understand the current capital allocation strategy.
Our focus on deleveraging.
Okay.
What's the end game for that when can the partnership start thinking about growth.
Another way of thinking about it is like.
When you get below that four times leverage and 40% net debt to cap is that when you start to think about acquiring vessels or is that.
Just what are the thoughts on that longer term growth strategy.
Yes. Thank you.
Well I do understand that the typical approach to this is asking win I think for US is really what we're trying to achieve and what is our current strategies you are going to do for the business and the shareholder value and if you look at it we are the target of <unk> to sustain the Gaslog partners through the <unk>.
The bold shipping cycles to be more competitive because we are actually.
Reducing our cost level, and we're becoming more profitable.
We're building a stronger balance sheets and I think these are really.
The priorities, we have given ourselves and we believe even ended call. It transitional phase. This is a very tangible way to deliver shareholder value.
On the <unk>.
How this is going to pan out when we get there I think it's <unk>.
It is going to be seen on where the market will be on new buildings on existing tonnage on other consolidation opportunities, but I think the path there.
There is very clear and Thats, what were really focusing on now.
That's not the point here I think.
Something that we need to we wanted to highlight today.
Our share price will be.
Quite a lot.
If we add advisors, we have $250 million of market cap and we paid down debt on an annual basis so far.
So this is Mike.
We have a cash balance of $46 million.
Again significant amounts of that sub market and.
Our annualized adjusted EBITDA was.
Market.
So outside of.
That leaves us significant equity value.
And we want to get all the balance sheet to the point.
The board will be able to add to this.
You all alternative options on deleveraging.
Apex.
<unk>.
Dividend policy and to grow and take that decision at that time.
Okay. That's helpful. Thank you.
Thank you. Our next question will come from Chris Wetherbee with Citigroup. Please go ahead.
Hey, thanks for taking the call.
So I guess a few questions here first just on the fleet I want to make sure I understand the strategy in terms of the chartering activity that youre expecting.
<unk> and <unk>.
What do you expect that the duration that you think you can get on these open ships.
Can you cover and how much do you want to cover so I guess what is the depth in the period market and would you be willing to go a little longer if the opportunity presents itself or is this going to be.
Our strategy of keeping some exposure to the market.
Hi, Chris.
Thanks for the question.
I think the answer is that we are a video open too towards the all the possibilities and I think we want to play to the strength of the market and where the market is going to offer also with the assets that will come open.
If you if we wind back to 'twenty to 'twenty, one I think the choice of.
Accepting term coverage.
For us to be able to redeliver in quarter, two and quarter three two.
2022 has so far paid out.
We believe that this is something that will basically use the same approach to see whether they are <unk>.
One year charter availability or the spot market is going to show the strength as we look for then we will definitely go forward these opportunities.
There is no let's say.
There is no barring a barrier to look at other business, but if we go longer than that rates will have to make sure that they do.
The compare well to the one year or although the.
Spot charter rates.
I think.
We have the size and the amount of vessels that are there.
It opened sequentially through the year that will allow us to take.
An opportunistic approach and a portfolio approach as well so we might want to see coverage if the opportunity arises and then be more tactical if the opportunity comes towards the end of the year.
Okay. Okay. That's helpful. I appreciate that and then I guess I was curious in terms of your outlook you talk about it on slide 17, the $2 one times multiplier for U S. Cargoes over the course of the last couple of years I think that's the assumption that youre using for 'twenty, two and 'twenty three what has been the experience over the course of the last quarter or two.
Wanted to get a sense of where that number stands now and where it may sort of dislocated for.
In the immediate future given the concerns going on around the world relative to supply.
Yes.
Yes look the.
The shipping multiplier is really an indication what is what is actually happening I think we all recognize the dynamics of the large increase in U S. Production, then the and the large inputs in the far east.
I agree with you that in.
In the past quarter, we have seen a different balance coming up with <unk> and TTM, sometimes swapping positions on the leading cost part.
We.
And actually we see that from two different angles from ones, yes. Indeed.
The shipping multiplier will decrease.
The.
U S to Europe will remain the leading side on the other hand, we have also seen in some of our vessels have done it we have seen re let and.
From Asia back into Europe .
In the last quarter, which is another interesting boost of the whole ship multiplier.
<unk>.
We typically have that part of our adaptive exited shows these guys on balance we decided not to limited because it is actually flipped in the past week I think a couple of times the longer outlook any way is for the far east.
<unk> to be the name of the game and then to absorb the majority part of the U S production as we have also seen from the latest long term contract signed put it since by Cheniere with with <unk> companies.
Okay. That's very helpful. I appreciate that clarity.
I guess two more really just sort of wrap up in terms of model of dynamics you highlight unit opex.
Being down in 2022, and the outlook, obviously unit G&A stepping up I guess on the Opex side. It sounds like there is no dry docking expected I guess, what's sort of a normalized rate you think you can achieve with typical drydocking.
<unk> accounted for probably thinking out to 2023, but that 13 seven is that closer to 14, five or so of your assumed dry docking I just want to get a sense of what's a more sustainable run rate might be for the fleet.
Okay.
I mean, we don't have a dry docking next year as you say.
We have.
Anti dumpings, though in 2030 so.
That is that it is on that and do that.
The dry dockings are not reflected in the Opex. So I'd say took appetite them as we said and.
We do that doesn't 75, yes.
<unk>.
<unk>.
And not in my lifetime.
I don't know it could be 1000, but let's take it offline and kept.
The amount of disease.
Okay.
Maybe in G&A as a step up there.
The in DNA.
We give it.
Great.
Yes.
200 and.
This actually reflects an increase on the administrative fee.
On the other side the counter balance from the decrease on the.
Management fee.
He will present, an alpha in the F&B and the device management fees, but you have the.
But because of that.
Okay, Okay, well, thanks very much for the time I appreciate it.
Thank you. Thank you.
Thank you as a reminder, if you have a question. Please press Star then one.
Thank you for participating in today's question and answer session I would now like to turn the call back over to management for any closing remarks.
Thank you.
Thank you Sherry.
Well. Thank you everyone today for listening in and thank you for your continued interest in Gaslog limited and Gaslog partners.
We certainly appreciate your questions today, your time and we look forward to speaking to you in the next quarter.
<unk>.
Hopefully traveling become safer and maybe hopefully maybe we'll be able to meet many of you in person soon.
Stay safe and again, if you have any questions. Please contact us and contact the investor relationship team.
And enjoy the rest of your day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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