Q4 2021 FLEX LNG Ltd Earnings Call
Walk you through the financial numbers as well as our recent refinancing of it later in the presentation as always we will conclude with a Q&A session. If you'd like to ask a question in the Q&A session that you can either ask questions for our teleconference. I'll use the chat function.
First.
Before we start.
We remind you of the disclaimer as we will provide some forward looking statements in relation to future revenue guidance. We're also use some terms like time charter equivalent earnings.
Adjusted earnings and EBITDA, which are non-GAAP measures and are all elements to the completeness of the events. We can play it in this webcast. So we recommend that the presentation is the head together with the earnings report, which we also released today, so let's kick off with a short summary of our highlights slide three.
First of all we are pleased to deliver knockout results with the best ever quarter on most financial message muscles and revenues came in at <unk> $15 million slightly ahead of our revenue guidance of approximately $110 million.
When I was putting the final touches on the slides last night I put in that time charter equivalent earnings were the best ever with our average TCE of $95900 per day in the fourth quarter.
I recall that when I presented our Q4 2018 results, we had a bullet point with TC for the quarter of about 95000 in the earnings presentation. However, following our listing in the U S. In 2019, we had to provide more stringent non-GAAP details about historical TCE earnings and our accountants actually.
Note that the TCE in Q4 2018 was slightly higher at 97 five onwards, so I apologize I apologize for the late our mistake, but that said this is probably the first time at least I have seen a shipping company revising up the historical TCE number it's usually the other way around.
During 2021, we acted on improved term market and secured eight or possibly nine fixed higher context with a minimum term duration of these contracts between three and five years I think our ability to attract long term attractive term employment with super majors and other top tier clients demo.
Not only that we have state of the art ships in our fleet, but also that those seafarers and onshore personnel are delivering a first class service both in terms of safety and reliability to our charters as several of them are repeating.
Repeating customers are false.
A special thanks to the crude on an onshore staff that are keeping the propel us turning despite the many challenges caused by the COVID-19 pandemic, while a lot of folks are these days heading back to the office I can tell you that seafarers are still facing many needless obstacles when it comes to crew rotation, particularly in.
Asia were about three out of four cargoes ends up so we do hope that restrictions and limitations will also be used for <unk>. During 2020, So we can get back to normal.
Hence.
In Q4, our spot exposure was related to four ships.
One ship Flex volunteer was trading in the spot market. While three ships were on variable higher context, where the earnings are linked to the spot market with altered and ships on the water.
Spot exposed.
Therefore about 30% in the quarter, which is significantly less than in the past as our cost base is more or less fixed at least in the short to medium term. This means that higher topline trickle down directly to the bottom line and we therefore delivered all time high net income and adjusted.
Net income of 69% and $63 million effectively.
Adjusted earnings are slightly lower because we are adjusting out our significant gains on our interest rate hedges.
While the fed has been behind the curve on interest rates. We have been ahead of the curve securing a substantial part of our interest rate exposure at low levels.
<unk> will explain.
Earnings per share came in at $131 per share with adjusted earnings of $1 $18 per share given the fact that we have locked in premium backlog, coupled with our superstore and strong financial position. The board last quarter decided to increase our dividend level to <unk> 75 per share.
Which we said was a level we are comfortable with in the longer run. Hence we are again, declaring a quarterly dividend of <unk> 75 per share, which gives our shareholders an attractive annualized running yield of about 15%.
In November we announced our balance sheet optimization program.
By Derisking, our commercial strategy through adding substantial long term premium backlog, we decided to explore financial alternatives with the aim of unlocking hundred million dollars of cash from our balance sheet.
Today, we are announcing $695 million of new financing this financing will.
Gather released another eight minimum $87 million on cash on top of the $38 million, which we released through the sale leaseback of flex voluntary which was announced in November and executed in December .
As Garrett will explain we have thus already over delivered on the program initiated in November with $125 million unlocked overall, which will contribute to further grow our cash balance which by the way stood at $201 million at year end.
And so we have a super strong liquidity position.
This enable us to quickly act on opportunities if they arise but also.
Our ability to maintain an attractive dividend level.
Lastly, I would like to point.
93% of available days in 2022 base already covered which gives us a pretty accurate assessment of revenues for the year will end up.
Turning to page four and our fleet status.
As you can see charter coverage for 2022 has all had a 93% with.
Our substantial charter coverage also for 2023 and 2024.
During Q1, we have had a couple of ships coming off shorter term charters and going on longer term charters and favorable flex pay down will be redelivered from 10 months' time charter and delivered on a minimum five year charter with a super major.
Flex constellation is currently serving a minimum.
Time charter with the large trading company Flex endeavor Ranger and vigilant was delivered during last summer to January on time charters with a minimum duration of three eight years, which are also taking one or two additional vessels from us during third quarter. This year.
In fact flexor who was also delivered from a short term time charter and we recently secured health our short term flexible time charter of 55% to seven months, which match exactly with the delivery window for ship number four and number five which anyway.
In January and February we are also delivering flex go hedges and flex resolute on our T plus two plus two year time charter with a supermajor. After these ships also being employed on short term time charters in 2021.
As mentioned in the third quarter presentation.
You can see that several of our ships are coming off shorter term time charters.
Commenting longer term charters with higher earnings so were others repricing our portfolio at better levels for longer periods.
Flex Rainbow was recently extended by one year with the large trading company. So we will now get them back in early 2023.
With few modern ships available in the market near term with us fine flex Rainbow well position.
Flex voluntary as the ship that we elected to keep in the spot market during 2021, which was a smart move given the strong spot market last year.
The spot market. So far in 2022 has however been very challenging so we don't have high expectation when it comes to earnings for this ship in Q1 this year.
And I will provide more information about the spot market a bit later in the presentation.
Our expectation is that flex volunteer.
Or flex or what will be the fifth chip going to China for a minimum period of three and half years starting in Q3.
Lastly, we have three ships on variable higher contrast is being fixed optimist on a minimum five year variable higher contact with gunvor as well as flex Amber and flex enterprise, both flex and flex enterprise were recently extended by another year and the charter has one additional extension ops.
<unk> for these two ships. So these ships will come open during 2023 or 2024.
It is still ahead of the large new building order book in 2025, So we I'll also ask Pete.
About the prospect of securing these ships good contracts when they are delivered to us unless we decide to trade them spot. This really depends on the market, both spot and term market and with and where we think we can find the best value.
Slide five our earnings visibility I have already covered our backlog extensively on previous slide on slide five we will also illustrate our charter covers develops over the next couple of years and percentage of Commvault days each quarter. Most of the backlog is now fixed.
But we're also maintained some variable higher backlog, which gives us exposure to the spot market. We also do have some ships coming open in this period and as mentioned, we will decide whether to employ them in the spot or short term market or whether we will be fixing them on longer term contracts.
So time will tell so stay tuned.
Slide six.
Yes, so let's jump.
The revenue guidance, which is probably the analyst's favorite slide.
<unk>.
Easy job of updating the financial models.
This slide show the revenue guidance for the year and made last year.
Following our recent fixture of several of our ships, we provided revenue guidance for the remaining quarters of the year given the derisking of our chartering strategy.
That guidance, we over delivered on with revenues for the year of $343 million given the fact that we have covered 93% of available days in 2022. We can also provide a good estimate of our expected revenues for the year.
We do however have flex volunteer trading spot at least during the first half of the year and we have two ships on variable higher so to achieve the revenues will depend on the spot market development as well as us being able to successfully achieve the high uptime, which we have done in the past.
As I will touch upon a bit later in the presentation. The spot market has been weak in the first quarter and this impacted our spot exposed ships adversely at the start of the year. So we do expect that revenues will be slightly below the levels. We achieved last year when the spot market was booming at the start of the year and when we had substantially.
Higher exposure to the spot market. Nevertheless, we do think that the revenues will not come in significantly below the level during Q1 last year.
As we do have higher charter coverage, we do however expect revenues to be quite a lot higher in Q2, this year and somewhat higher in Q3.
Whether we will see another freight market boom in Q4. This year is too early to tell but since we do expect that <unk> will utilize the option to take the fifth chip, we expect our spot exposure to be slightly lower in Q4. This year and thus we expect revenues to be somewhat below the level, we managed to achieve.
Q4, 2021 overall, however revenues are expected to be in line with the healthy revenue levels of 2021. So we expect that 2022 will be another good year for us, which is maybe not surprisingly with our coverage.
Turning to <unk>.
Next slide.
Turning from the analyst's favorite slide to the Investor favorite slides dividends, we have covered our dividend philosophy and length during the second and third quarter presentation. So I'm not going to repeat all the factors and considered.
Considerations, we evaluate when setting the appropriate dividend level. However, I still want to repeat that we use a balanced and measured approach to conclude a sustainable dividend level with the aim of distributing our free cash flow over the cycle.
I know consensus estimates predicted or even higher dividend for the quarter, given our stellar earnings and I can admit that 64% payout ratio probably would not impressed Shanghai or train much. However, when we highest our quarterly dividend level to <unk> 75 last quarter.
We also communicated that we wanted to set a dividend level, which we think is sustainable over the longer term. Despite our substantial backlog or earnings will bounce a bit up and down given our exposure to the spot market. So if you look at the year overall, we generated adjusted earnings per share of $2 71.
Dollars per share.
We declared dividends of $2 $3.
And we acted on the opportunity to buy back shares with a total of 15 cents per share utilized for this purpose.
Total shareholder distributions for the year was $2 40 to $45 per share, which translates to a 90% payout ratio. In addition, we took delivery of <unk>.
Our last new building during 2021 and the net capex in relation to this was about $17 million or <unk> <unk> per share. If we add these capital expenditures, we actually spent $2 seven to $8 on shareholder distributions and capex during the year, which is slightly higher than adjusted earnings.
Sure.
Despite the high payout ratio and some capex as mentioned, we still managed to grow our cash pile do during the year from $128 million at the start of the year to 208 $201 million at the end of the year. So with that I think it is a convenient time for new supply some more details about the financial numbers.
And balance sheet optimization program.
Before I wrap up with some market updates.
Thank you Allison.
We'll start with some key figures for 2021.
At the left of the graph, we see the total operating days.
With the 70% increase in total operating days.
Illustrates.
Fleet Newbuild program or fleet growth plan.
Where we have the.
All earnings capacity.
The second half of the year.
The TCE numbers for that ethanol already mentioned was just shy of $96000 per day for Q4.
For the total year.
In dollar per day increase year on year is mainly driven by the Super strong performance by the three vessels on variable higher contracts and the flexible and theyre trading in the spot market.
Going to the cash.
Breakeven, we're also delivering on strong cost control with a breakeven for the year at $43700 per day as compared to the guiding one year ago about 45300 per day.
During the year. The Opex has been affected on average about $600 per day by Covid related costs were $400 per day is direct COVID-19 related costs, while above $200 per day is indirect COVID-19 related costs.
We saw a typical.
Terminal restrictions, making accrue handovers more challenging and therefore, some more expensive.
Despite the western World opening up anything travel restriction.
As I mentioned with Phil.
Experience.
Restrictions book for crude changes and we'll also.
We also expect that covered.
Covid related costs going into 2022.
We then turn to slide nine.
With a larger fleet. We're also delivering all time high revenues for the quarter about one.
<unk> hundred $50 million.
Above the guiding of $110 million.
Given in Q3.
And also all time high revenues for the year with $343 million in total.
This translates into an adjusted net income of $63 million for the quarter and $145 million for the year.
The giant leap compared to 2020.
And reflects our fleet growth market exposure strategy combined with the heart and in D C market.
Similarly.
The apps of $1.
<unk> per <unk>.
Sure for the quarter translating into a solid.
$2 71, four per share for the full year.
The adjusted net income and adjusted depths are adjusted for fluctuations in the fair value of interest rate swap.
<unk> recorded a gain of $7 4 million for the quarter and $8 million for the for the total year.
As interest rates continue to increase during 2022, the fair value of our interest rate portfolio has further increased by.
So far this year.
If we turn to slide 10.
And we're moving to the cash flow.
So despite the <unk>.
Q3 dividend of 75.
For sure or total $40 million, which were paid out in the quarter, we increased our cash balance was $63 million.
To a total of $201 million.
At the end of the year.
And that is as mentioned due to strong cash flow from operation and the release of about 38 million under the balance sheet optimization program related to the flex voluntary refinancing.
And we can turn further to slide 11.
Our balance sheet.
Which is extremely straightforward.
Have a fleet of.
Modern state of the art LNG vessels.
Vessels with an average rate of two two years and with the book value of about $2 4 billion on average.
Book value of about 180 million per vessel.
In addition, we have a solid cash position as already mentioned.
$201 million.
The balance sheet is funded by a portfolio of attractive long term leases and bank facilities about one 6 billion or 65% of our balance sheet.
This results in $890 million.
City.
35% book equity ratio.
On the next slide we'll look more into the development of the balance sheet optimization program.
So we'll turn to slide number 12.
The flex voluntary transaction announced in.
November and executed in December was the first transaction under the $100 million.
Balance sheet optimization program.
And today, we announced two new financing under the same program.
Which will support the target of freeing up liquidity.
Reduced cost of debt and maintain our industry, leading cash breakeven rates.
We have received.
Two credit approved term sheets.
Aggregate amount of $695 million.
For the financing of five ships.
In addition, an uncommitted accordion option to upsize the bank facility with $125 million.
Adding an additional ship to the facility.
The new funding things are subject to final documentation and normal closing conditions and is expected to be closed during the second quarter.
On the bank facility that is split.
$250 million non amortizing.
Yes.
$175 million terminal facility, both with a tenor of approximately six years.
The total facility is repaid on average age adjusted repayment profile of 22 years.
And we have allocated all amortization to the term loan. So we will have a bullets rcs.
That will give us significant financial flexibility and we will be able to reduce interest cost by managing the utilization of the ICF. When we have a large amount of free cash.
The accordion option gives us the flexibility to consider the best funding alternative for the last vessel.
Has identified us flex enterprise.
The 210 year leases will release significant amounts of cash, which enable us to pattern, then repay higher levered vessels.
The flex endeavour and flex enterprise.
<unk>.
Which are funded with.
Two leases today.
In total the net proceeds of this.
About 87.
$7 million and as noted in the presentation.
We decided not to refinance flex of surprise with the accordion option we have.
May free up an even higher amount.
On the back of these financings we are upsizing the target of the 100 million to minimum $175 million and also guide that we will complete the program ahead of the targeted or announced the completion within 12 months.
We are very pleased with the terms we have offered been offered.
That reflects also our attractive position and track record in the credit market.
The two transactions meets our targets of longer durations increased financial leverage, reflecting the lower operational leverage.
Reduced cost of debt and longer repayment profiles.
So with that we also think our lease providers and banks for their commitment and continued support to flex LNG.
And we turn to the next slide.
After the completion of the transactions, we announced today, we will push our first maturity payments from <unk>.
2020 for 2028 and 2032, respectively.
Hence the only debt maturity on the horizon is the $250 million commercial tranche under the original $629 million ECA facility financing five vessels.
Given the quality of these vessels modest leverage and time to maturity.
<unk> said that this is a quite manageable maturity.
And rather consider them as a possible candidates for future balance sheet optimization initiatives.
On the right side of the slide we have had a number of incoming questions regarding our dry dock schedule and.
Some some of our vessels are approaching their five year anniversary.
As shown in the graph the Drydock capex commitments are marginal over the next five years.
In addition to the Capex on hand, we estimate about <unk>.
Smith of 20 days Hellfire in connection with each drydocking.
And with that I conclude the financial review and hand, it back to you guys there.
Thank you.
Joined us in May last year.
After walking <unk> banka for last 15, yes, and some of his fellow bankers asked them what the Hell is what's going on in <unk> CFO and flex given the fact that we had already financed the whole fleet.
Well I think we have proved that we can still put them to good use with a balance sheet optimization program.
That means we are not only happy with the utilization of our fleet during 2021, but also with the utilization of our CFO . So keep it up in 2000, 2200%.
<unk> spent minimum bath.
So let's start on the market section.
And our market section in November .
In connection with.
<unk> and numbers, we presented growth figures for the LNG market with 17 million tonnes growth of independent it between January to October .
LNG export growth slowed in the last two months of the year due to outages and slower export growth in the U S. As they recorded zero cargo cancellation during November and December .
2020, However, U S still managed to increase the export by an impressive 23 million tons during 2021, which was actually.
120% of the market growth.
In any case, we ended up at 19 million tons export growth of about 5% growth in 2021, which is pretty decent.
6 million tons lower than our expectation going into 2021 with the shortfall caused by lower exports, primarily from Nigeria, and Trinidad and Tobago.
I do too.
Peace issues.
And always a decline was however expected as LNG plant that milk is set for due to assume operations. During Q2 this year.
Egypt also staged a big comeback in 2021 with 5 million tons of export coal and there are more potential in Egypt.
For future growth on.
On the import side demand was driven primarily by China, which added 10 million tons of imports.
<unk> with 6 million tonnes, and outlier, Brazil, which surprisingly added 5 million tons due to the what caused by Alon, India, which affected hydro balances.
Mostly.
But this just goes to show the advantage of having LNG import terminals as LNG can swiftly add flexible capacity if needed. So there are some lessons SaaS for the biggest natural gas consumers in Europe , Germany, which still do not have a single LNG import terminal.
Germany have had a couple of LNG import terminals on the dwelling table for some time.
We have not been able to go forward due to political bickering and.
Adam energy policies.
And our Q3 presentation, where represented imports from January through October .
Getting outlier was Europe , which had the imported 9 million tons less than in 2020 or about 12%.
With more flows to Europe in November and December you have ops LNG imports was only down 2 million tonnes for the full year compared to transit transit.
Yes.
Slide 15.
Before talking more about European LNG imports, let's have a look at U S exports and the tremendous color print and 2021 U S exports bounced back nicely with continuous growth during the year with the exception of February when the big fees curtailed exports.
In December and January .
It was in fact, the world's largest LNG exporters.
Surpassing both Australia, and Qatar and this is before the tax I'll turn them on the two new liquefaction project Cod Casio pass and Sabine pass train six which will add another 15 million tons of U S export capacity this year.
So we are in LNG.
LNG nail biter this year.
We will be the biggest LNG exports in 2022, our estimate is that Australia and U S will be neck and neck at around 82 million tons slightly ahead of the 79 million tons of expected exports from cutoff.
With this LNG prices, we are seeing today, we can expect export those to try to squeeze every single methane molecule to the liquefaction plants in order to bring the cool stuff to the market. So it will for sure be pillar.
Slide 16, and I'll turn it to Europe .
While we in our third quarter presentation had a slide about the pool of cargoes to Asia. This time, we have to talk about the prudent to Europe , which already touched upon.
So while in January of this year.
<unk> was up almost 400% from the loss recorded in Julie July This last summer and also January 2021, when the impulse to your workforce, who hovering at around 4 million pounds. So this.
<unk> is a long way to explain why.
The spot market is starting soft this year.
Last January we had the big pools to Asia driving up.
Ton miles. This January we have seen Europe gobbling of flexible.
<unk> flexible LNG cargoes.
And.
Diverting those cargos.
Asia.
Paul a few head back to.
Slide 17 in U S.
So with.
Youre open.
Nevada energy crisis by November and December offload tail off U S. LNG exports save the day.
While we cannot Miss that Europe was also fortunate with the weather gods, given the somewhat warmer winter weather.
Unexpected so.
So keep in mind that most LNG are sold and bought.
Yes.
Not on a flexible manner.
Most LNG are sold under long term contracts typically with destination clauses prohibiting deviation of cargos. However, the vast majority of U S volumes volumes no such destination clause. So use we're able to shift volumes towards Europe with the European <unk>.
Market share of U S LNG going from only 15% during July August 275% by January this year. So this goes back to my point about having LNG import terminal.
A very good risk strategy and not only a very easy way and quick way of phasing out coal.
So.
Slide 18.
So on slide 18, it just shows the pool to Europe or more global aggregated basis with you to help with doubling its global market share.
15, 16% during the summer to about 33% in January this year.
And as I said.
Most of the increase in European imports came from the U S.
As you can see the pull to Latin America, which I also mentioned and then in particularly Brazil.
It came during their winter season, which lost from May to September .
So at 19.
Wireless spot freight market solid in December saw wafer Yamana attentive you I think you already figured it out.
First.
Albeit harsh saw while in November 30, so during the October November .
Albeit harsh palm west to east widen we had been trading at 1% to $3 level. During the early phases of the all of them and this arbitrage shot up to a level of five to $7 during October and November which meant that a lot of cargos were pulled from that.
Atlantic Basin into Asia, So at November 30.
The Asian spot prices stood at around $37 per million Btu $6 higher than the European space. So this meant that.
Hugo in Asia was what $24 million more than the high cargo value in Europe and this intense device this flow of cargos.
To add to Asia, rather than Europe , but at one point.
The energy crisis in Europe became as wholesale.
This due to the fact that.
Russian pipeline flows will keep disappointing and the energy gas storage levels were hitting.
All time lows, so when the security situation in Hurricane became tense.
The European gas market more or less exploded with.
Gas prices in Europe going haywire.
So while we saw Asian gas prices hitting a high in October of $56, we saw European gas prices in December .
On December 21st.
Going all the way up to $60 and with that.
Yes.
West East arbitrage shutting so.
In three weeks' time, we went from a profitable $24 million West East arbitrage to a minus $60 million.
<unk> spread so this again as I mentioned resulted in U S cargoes heading for you walk and that also meant that.
Sailing distances plummeted. So if you are taking a cargo from U S. Heading into Asia, you are traveling around 10000 net nautical miles.
During October and November we also had severe congestion in Panama. So a lot of fog was had to go through the Cape of good hope, which adds another 5000 nautical miles to the voyage, bringing it to 15000 nautical miles. So if these cargoes are then instead going to Europe travel distance is shortened to five.
Nautical mile. So it means you need a lot less ships in order to transport the same.
Number of cargos and this is why we had this quick and rapid.
Softening of the spot market during December and into January .
If you look at that.
The public market as of today on slide 20 at <unk>, So I was hitting a plate.
Last night racing for the platform of Boston.
The kind of the.
Tensions in Ukraine at least on the surface.
East and this resulted in gas prices in Europe are plummeting and settling in at around $22 per million Btu.
And AI, even down a bit further today. So this actually resulted in the west East arbitrage opening again, because J km J Chem Mod Asian spot prices settled at $25 $4 yesterday.
So let's say, it's the gas market is very volatile.
Prices are going up and down quite a lot, but at least the gas market a snapshot of the gas market today looks a bit more conductive for the spot market.
If we are then jumping to the spot market.
A short review of of.
2021, we started 2021.
At all time high levels.
As I previously stated that pool to Asia was very strong in January of last year with Europe , not being able to source much of the U S cargoes.
Hi.
As a brief dip in the market during March April when actually Jacob hit the low end of $5 $7.
But then the market bounce back very quickly during April may.
Driven by a huge pool to Asia as I mentioned with the rapid growth of especially South Korean and Chinese demand. So we had our conduct of some of the market with.
LNG.
Spot market rates for modern partners move.
Moving like a snake pharma around 70 to $101000, which is pretty good for the summer months and then relates to golf when we are post.
The heating season, which they usually do and we hit another high of around $300000. In November early December before as I mentioned this at <unk>.
First is arbitrage closed.
Sailing distances blocked and cargoes were heading to Europe .
And thus the spot market.
10.
<unk> thousand dollars and continued to fall into 2022 at a level today of around $40000 per day.
If we head to the next slide.
We have had some questions for me.
Investors who have noticed.
<unk> taken this park being.
Slightly negative.
Also Bloomberg picks up this ballgame with.
Freight rates for LNG carriers.
Low single.
How can it be that.
Headline rates are $40000.
While the Baltic index on this baucus quoting negative number so I spent some time in the past trying to explain this.
At freight market in terms of LNG, where we.
Operating on time charter basis, whereas the freight rate consists of basically three elements. It's the headline rate quoted by focus it's the ballast bonus and ballast bonus condition can shift quickly.
Quickly form strong to very weak as they are today, and then theres a positioning fee element. So these three elements make up the earnings for.
Our owner and then you need to add this all together and divide by the number of days utilized for the voyage to calculate your time charter equivalent earnings.
<unk>.
And depending on the market sentiment.
These can go from one way economics through long term basis to sea Ray economics, and I will illustrate this a bit on the next slide.
So.
Let's start with the easy one which is like the normal market, which I would.
Copper price.
Last summer so last summer, we had a pretty conduct the market and the market what was that what I would consider our own pip market. So in such a market.
Typically if the rates are $75000 you get paid for both ways. So you get paid for the latent leg of course, but you also get paid for the ballast.
Leg.
Back to load ports, so in such a market the headline rate is.
Similar to the time charter equivalent rate.
Quoted by Baltic and spark.
Then we went from our rate.
Conductive market and in the summer to a hot market during <unk>.
October November partly in December and in such a market.
Have a scramble for available ship because the market is more or less sold off so in such a market you can actually go from two way economics Superior economics. While you also in addition to getting paid for the bottle often late leg is also getting paid for the positioning leg, which is actually then NK.
TCE levels, well above headline rates. So for example, if you have a ship in Atlantic Basin, you are competing for the time.
On a per patient of a U S cargo and your only competitor is a guy with a ship in Singapore.
The guy in Singapore, he needs to have a long ballast leg from Singapore to U S. And then maybe these cargos going to Japan and then they get.
Ballast bonus back to two loan book.
In U S. So if you then have our ship in Atlantic you can therefore add on our positioning fee because you are closer to the local which I'll then boosting your earnings.
In a soft market, which we have seen at the start of the App.
You are then you can then end up in a one way economics, where you only get paid for the laden leg.
So este laden leg has paid $40000.
And you are not getting paid for the ballast leg youll kind of economics is $20000 per day, but in this environment, where you have high fuel prices, both fuel oil or compliant fuel and that LNG can bring the time charter equivalent earnings down to zero or even slightly below so.
So why would you do that.
Well it could be that you have taken heal onboard and suncor.
Sand cost because.
You will have some boil off from the ship.
And then you basically have to flare.
The boil off gas in the F&B, so rather than just wasting it you might as well positioned to ship due our cargo.
And and and and get some earnings other than norm. So of course, usually these markets don't last long but.
It can happen in a soft market, which we have seen in January .
If we then had back too.
A bit more SPF market, which is that.
So market.
As a wireless spot market has soften during January and February the term market has been has been holding up pretty well.
The one year time charter rate quoted by furnace, which is the best proxy for.
Next 12 months earnings.
Falling from 125 to $100000 per day.
$100000 per day is still pretty decent earnings.
Their affinity three year time charter rate has moved at all so that's the way it is still $90000.
Today.
And it basically reflects the fact that that.
The frac market looks pretty solid on paper for 2022.
As I will potential play, we do expect volumes for export volumes to be even higher.
In $2022 2021, we expect volumes to grow 25 million tons compared to 19 million tons.
Last year, while the order book of new ships.
Almost half so we do think that.
The spot market will rebalance and improved during the year and availability of modern tonnage.
For the next couple of years is tight because most of the ships in the order book are committed and.
Right now, it's hard to get yard slots for even for delivery in <unk>.
It is getting really hard to get 425, and even 2016 looking pretty tight so that it means that.
Rates are holding up and that's also another reason for term rates holding up which I will cover on slide 25.
If you can jump.
Okay. So thats new building prices on new building prices has been picking up.
For quite some time now we have seen.
A flurry of.
Orders this.
Firstly, driven by a lot of projects, which I will also cover there's a lot of new projects coming to the market and this project needs new ships.
Additionally, which I will also cover that as a lot of old ships that natively placed and.
Higher steel prices higher.
Cereal prices cost inflation and the fact that the yards are preoccupied with a lot of container orders have pushed new building prices upwards.
With our recent orders quoted that somewhere around $220 million to $225 million. So if you are buying a ship at $225 million.
Of course, you need to have a higher turn rate to reflect the capsule.
Outlay for that ship, so we were buying ships.
Body elsewhere buying ships in 2017 at least on a speculative basis in 2017 and early parts of 2018, new building prices bandwidth hitting a bottom for the new <unk> $480 million. So we're not rushing through the ordering new ships today, we are focused on our employees are safe.
And the best way and we have done that successfully in.
In 2021 and will continue to build on that in 2022.
So as I mentioned non trends.
Jumped to <unk> success.
As I mentioned.
New billing orders are driven by two things, it's the growth of the market.
And there's a lot of new projects coming to the market and it's also related to the fact that.
We have a lot of old inefficient ships in our fleet.
As illustrated by by these costs, so mass it's not a typo in the headline.
We have some regulation coming into force next year, which is called the ESI and we do think and we have argued for a couple of years now that this will create.
A lot of more demolition of older inefficient ships and I think even if you didn't have these regulations coming into force you will still have.
Big increase in scrapping of older ships due to the simple fact of economics with these kind of high LNG prices. We are seeing today, all ships have about 60% more efficient than the old steamships. So when you are burning.
<unk> compliant fuel with oil prices above $90 of LNG with high LNG prices, having a modern efficient ship has a great value for the charters, who actually pay for the fuel.
So we have seen more orders.
As I mentioned earlier theres not that many ships coming to the market in 2022, So new building orders will dropped substantially from 2021 to 'twenty to 'twenty two and this combined with the.
Pretty high growth level is it's why we think the market will rebalance this year and also in 2023. The order book is fairly small a lot of the ships coming in 2023, a specialized tonnage for the Russian Arctic trade, which usually don't compete in the more regular conventional LNG carrier.
The market. In addition to <unk>, we also have the European Union.
Planting carbon taxation for shipping. So this will also come into force now and that will also penalize the older less efficient ships.
So let's.
Let's head too.
LNG prices as I mentioned in LNG prices are high last quarterly presentation in November we said that.
LNG market will be tightened.
We will gradually normalize by some of 'twenty to 'twenty three but the future curves have just gone up and we are in for high LNG prices for quite some time.
Adding to the futures market and the actually the people with oil priced indexed LNG contract, which has suffered in the past.
Was that.
Contact bias has been much less than the spot LNG prices. They can all finally smile for quite some time, even though oil prices are high the contact Pi soft pen $12 looks very effective today and as I mentioned these high gas prices will favor modern tonnage.
Heading to.
Frankly <unk>.
I already mentioned this a bit we do think.
Export growth will be strong this year, it's driven by U S.
Highlights at earlier U S have to the new project coming on stream. This year and then they have some organic both we and the energy information agency and U S Tink both with the.
U S will add around <unk> million dollars. This year, Norway will start of the LNG plant. Some time in Q2 at probably around $2 5 million tons.
Both Nigeria Unplanted out tomorrow, we will have projects to solve the feed gas issues, which they think will be.
Correct.
Somewhere in the middle of this year. So we do think that both <unk> and <unk> will add about 2 million tons of additional export this year, Russia has a new project.
So we do expect growth.
Around $2 million for Russia, we think about some.
Possibility of both Australia, and Qatar, producing somewhat higher in <unk> and 'twenty, two especially given the high LNG prices. So all in all we had this off to around 25 million pounds saw 6% growth for 2022 slightly higher than what we saw last year.
I mentioned 29, yet.
2009, and as I mentioned, there are several new project and this is one of the big drivers for the new building orders.
Several projects in the U S and of course, this big consolidated project with Qatar.
Today also announcing another round of new buildings of course.
<unk> as I mentioned in the past, we do think that this will result, with the kapow, probably ordering 100 ships and policy. So that will certainly lockup yard slots and we will keep LNG new building prices.
Fairly elevated levels.
Now let's conclude.
Sure.
Again, we delivered stellar revenues $150 million for the quarter TCE of $96000 per day all apps.
Fantastic at 131, and $1 18, and adjusted for the derivative gains we have covered 93% of the app.
We are continuing to pay the <unk> 75 dividend, which gives us our investors our effective yield in this low interest rate environment.
We are we are upbeat about the market, even though the market is softer than expected in Q1 due to this.
West East arbitrage being closed.
For most of DSO fall and then.
Have a solid cash balance $201 million.
Yes.
And.
With this new financing that <unk> has talked about we are adding another $87 million on top of that so with that I think it's time to do some questions. So now maybe.
Maybe you could see if the awesome.
Questions on the teleconference first.
Yes.
Again, if you wish to ask a question over the phone please.
And when you call from Keybanc.
There are no questions at this moment.
Okay.
I do think we have some.
Question. So maybe you can just shoot them over to me is we have some questions from the web.
<unk> congratulations on the Q4 results can you please comment a bit on the E.
EU emission plan for shipping.
Yes, I think I already touched upon it so.
Have decided to broaden the scope of.
That emission trading system, which will also include.
Shipping, which will be faced in now from 2023 on Whatsapp.
This means that.
Ships sailing into Europe will have to buy carbon permits for the cotwo emissions and maybe <unk> emissions methane slip emissions.
This seems not to be concluded yet, but in case of <unk> emissions. This really makes so mega ships incredibly attractive and the market itself.
Ed.
Cargo owners will have to then buy carbon permits and if you have been paying attention to carbon market in Europe . It has been on up here. So the carbon prices in Europe are incredibly expensive at around 90 <unk>. Tom. So then you have to.
This will then of course significantly improve the competitiveness of our ships, which are consuming as I mentioned about 60% less fuel and a steam ship both because we have a more efficient engine, but also because we can have a parcel size, which is about 30%.
So.
Where are we.
We are looking positively to towards our implementation of this but there are still some rules are not clear and especially in relation to CHF organizations. Because if you are adding CAH program missions is a big thing.
And that first question I have to ask yourself, if youre, adding CHP automation, what kind of multiplier will you at <unk>.
Methane emissions don't last long in the atmosphere, but but they are very important so on a 20 year cycle. Our CAH program isn't is about 85 times was 10 <unk>.
Since methane.
This.
Is broken down in the out months much quicker than <unk> on 100 gig cycle. They are about 28 times, who Austin <unk> sedan.
What will the factual EU appliance be will it be 85 of 25 or 28 or some other random factors, so but still it means that if you all have to pay for the th formulation that will be where they are expensive.
And it will certainly favorable trading efficient ships into.
European and carbon trading.
Emission zone so so.
So, let's see when we get all the details but in general we think it's a competitive advantage for us.
And we have.
Three questions.
On the ballot.
Use of proceeds and our cash balance.
Tariff opportunities.
But our priorities new building orders fleet expansion or consolidation.
I think I already touched upon new billing orders.
We are.
Our main shareholder John Publix, and he has been in the skipping game now for $60 or so of course, we have seen more cycles than most.
So of course shipping loosen cycle.
Some wall Street bankers might tell you differently. This time is different but they do and this also reflects new building prices and therefore, the elevated now and given the backlog they have and the price pressure on inflation and such we think they will stay elevated so where we are not going to rush to the odds ordering new ships were going on.
Focus on the ships we have.
We have some ships coming open the next couple of years I mentioned Rainbow.
Amber and the bias and we think we are well positioned to lock them in an attractive rate.
And as I mentioned term rates are holding up very well so our focus is on.
Existing fleet. So why are we then adding so much liquidity to our balance sheet.
It's pretty simple.
Cabot terms for good top tier customers like us are very good these days I havent seen as good.
Financing markets in 2014, just before the oil price slump.
And before I saw it back in 2007, when before the financing title III banks were handing out money everywhere. So we have a very good client can access cheap capital.
At good terms, we are now pushing out maturities, we adding flexibility with the revolver, which means that we can have access to a lot of liquidity without having to draw the desk and pay the full interest expenses of the of the cabinet commitments. So this enabled us some financial flexibility and financial.
C zone and it also enable us to two.
To continue to pay rent.
Good dividends, even though our earnings is disappointing in Q1, so it's more about having.
Okay.
Our ability also to tap.
Tap the market when when the credit markets are good we do see that the head is tightening that policy both in terms of inputs and quantitative easing so so.
If you look at the most.
His story in terms of recessions and contractions in stock markets is driven by fed policy. So we think it's smart to take some money when it's available.
And as I mentioned, we we don't need to pay for it unless we use it.
The commitment fee on the vulnerable where he attractive.
So we keep it in Spanish.
And we think it's a good insurance premium and gives us some strategic.
Our ability to also pursue some opportunities if they are worthwhile, but that said we were not planning to use this as a credit card to do go to the yards.
Is the question.
What kind of mix of Hughes.
Currently using mix of fuel of course, it's compliant fuel.
I would say of course okay.
Let's just do the basic.
We are taking LNG cargo.
That cargo is like minus 162, a decrease of 265 minus 60 partners.
Of course that all shapes up to almost with the propeller thermals are not perfect. Our cloud close to perfect now at least economically perfect because a boiler fate is must.
Much less than it used to be in the past. So we have used this boil off from the cargo tanks to fuel our ships with LNG and then you use some pilot fuel.
Typically marine this loyal on marine gasoline.
<unk>.
Yes.
And then recently with the elevated <unk>.
LNG prices, which have been trading at big premiums to oil, even though oil prices have been high we have seen some more he'll out and being down by charter elsewhere.
Actually you are not retaining part of the cargoes to use to cool down the tanks them and used for fuel you are healing them out entirely and then they'll building at <unk>.
<unk> Marine diesel oil and marine gas oil, so I would say.
Mostly as LNG.
When you have periods, where LNG prices are elevated it could also be some some.
Some compliant fuel.
Alright, great.
That with the.
Two last questions.
One is guiding for the cash breakeven level for 2022.
Second part of it is possible to switch into more fixed rate comp.
<unk> regimen.
Let's do the fixed rate contract.
Is there a online fixed rate time charters last year.
We think it will benign because we do expect.
Our journey is to take the fifth vessels when you look at what the term rates are being quoted today.
I think we're already shifted a lot of.
Uh huh.
All revenue base to fixed rate contracts and this has mostly been driven by the fact, we have been.
Optimistic on the spot market.
2019 in 2021, the spot market was not that good.
To do valuable time charters and short term time charter and spot.
In order to.
Have exposure to the market because we thought it was going to improve and then when we saw that improvement materializing during last year, we have elected to fix a big chunk of fall.
Revenues to fixed rate contracts.
Whether we will do it.
Again for the remaining ships really depends.
On on what we think we can achieve.
Ill.
We like to keep some exposure to the spot market.
But we.
We will see.
We do expect most of our asset as we always are shown in the golf and most of revenues are fixed.
Might improve them I think is more but really it depends on the terms on the table.
And then I'll.
The question was about our cash breakeven now okay. We guided I believe when we presented a year ago, we guided 45300 for 2021, and we delivered below that at 44000.
Even though COVID-19 related Opex expenses were $600 per day, which.
It was a bit higher than expected, so but across both stayed at more or less seasonal.
During 2021, our interest expenses well.
Well very favorable I think if you look at 2022 I think if you are assuming around $45000.
It should be on target.
<unk> mentioned, even though we.
<unk> hundred $25 million to our balance sheet optimization program, we are not increasing our debt service cost and this is driven by a couple of factors. One is that of course, we have got very good attractive terms.
Number two we have been able to stretch some of our payment profiles and number three we have structured a lot of their financing with our revolving credit facilities, where we don't really have to draw all the debt.
All the time, so there's no reason for us to sit with $200 million of cash all the time, we can repay that on the revolvers and save some interest expenses.
It seems like alchemy, you can get hamzah and transfer fee of $5 million without increasing your financing costs, but it's really a reflection of the fact that banks are also seeing that we have really derisked. The company and then they are also willing to provide us with more favorable films.
Yeah, do you want to add something to that.
I think you've covered it well.
If your questions were announced.
We will look into it.
Through all of those fall off.
You have any further questions.
Some of the neighbors to IR.
Flex LNG.
And thank you everybody for listening in.
We will be back with Q1.
In May so I hope you can join the conference them as well.
Have a good day thanks.
That does conclude our conference for today. Thank you for participating you may all disconnect have a nice day.
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