FLEX LNG Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 21, 2025

There are 2 speakers on the call.

Operator

Hi, everybody, and welcome to first quarter two thousand twenty five result presentation. My name is Magnus Foss. I am the interim CEO of Flex LNG. And as usual, I'm joined by our CFO, Knud Roholt, who will guide you through the financials in a bit. We will cover the financials, market update and conclude the earnings presentation with a Q and A session.

Operator

If you have any questions, you can use the chat function or send questions to our irflexlng dot com.

Speaker 1

And before we begin, as a quick reminder, today's presentations will include forward looking statements. We will also be using non GAAP measures and there is limit the completeness of detail.

Operator

Dollars Adjusting for non cash items, we booked $29,400,000 in adjusted net income, implying a $0.54 in adjusted earnings per share. Last quarter, we added up 37 years of new contracts backlog for Flex Constellation, Flex Coracious and Flex Resolute. This opened up for a very attractive refinancing. We had therefore initiated the balance sheet optimization program three point zero, and Knut will guide on this later in the presentation. On the fleet, Flex Constellation was redelivered from time charter in late February and has been traded in the spot market since.

Operator

Lastly, Flex Artemis, who is currently trading on a variable index, will be redeliver from a five year time charter, and we expect to get her back sometime in q three two thousand twenty five. We reconfirm the full year 2025 revenues and earnings guidance provided last quarter. We expect full year revenues to come in at the range of $340,000,000 to $360,000,000 and we expect the TCE to be between 72,000 and $77,000 per day. Similarly, we expect the EBITDA to approx $250,000,000 to $270,000,000 The Board has declared $0.75 per share dividend, implying the last twelve months dividends of $3 per share or a dividend yield of 12%. This distribution to shareholders is supported by our Fortress balance sheet with $410,000,000 in cash and a solid contract backlog.

Operator

Looking at our contract coverage, we are well covered over the next years with fifty nine years of minimum firm backlog, which may grow to eighty eight years if the charters declare all their options. Flex Artemis is currently on a variable market tire and the financial impacts for having her redeliver in 02/2025 is limited. The vessel has the full relic on board and making her very attractive to charters in particular for long haul transportation of LNG. Flex Constellation was relived from her three hundred and twelve day charter in the February and has since then been trading in the spot market. The vessel will commence her fifteen year time charter during February.

Operator

Overall, we have a solid backlog, and we're well positioned to benefit from the increasing LNG export volumes coming 2020 to 02/1930. Despite lower freight rates and two of our vessels opened by Q3 twenty twenty five, our strong backlog means that we expect 2025 revenues to be similar to the 2024 levels. TCE is expected to be in the mid seventies per day, translating to revenues between 340 and $360,000,000. We have four ships undergoing special five year survey in 02/2025 compared to just two last year, which we have factored into our guidance. Flex Aurora and Flex Resolute will enter dry dock now later in the quarter, whereas Flex Artemis and Flex Amber will enter into the third quarter.

Operator

We aim to provide a clear and transparent framework for dividends payouts guided by a defined set of decision factors. These factors include earnings and cash flow, contract backlog, balance sheet strength, CapEx and debt maturity profile. Over the last three to four quarters, we have maintained a cautious outlook for near term LNG market, and this view remains unchanged. Worth noticing the traffic lights and we are bullish on the long term story. However, as shown on the previous slides, Flex benefits from a strong charter backlog and as new to guide shortly, maintains a fortress balance sheet.

Operator

Considering these factors, the Board have declared an ordinary quarterly dividend of $0.75 per share. This brings our trailing twelve months dividend to $3 per share, representing a yield of 12%. With that, I will hand it over to Jugnud.

Speaker 1

Thank you, Andreas. So let's look at the financial highlights for the first quarter. Headline revenues came in at SEK88.4 million or when we exclude EUAs related to EU's emission trading systems, the revenues were million. That's equivalent to time charter per day of NOK73900. The reduction in revenues compared to the fourth quarter is primarily due to seasonal lower spot market impacting the variable higher contract for Flex Artemis.

Speaker 1

And also then Flex Constellations traded in the spot market in March after she was redelivered from her TC contract. Operating expenses came in at SEK 18,100,000.0 or around SEK 15,500 per day. And this is in line with our full year guidance and slightly higher than the fourth quarter. But vessel OpEx, they can be a bit bumpy depending on timing effects. So for the full quarter or for the full year we maintain our OpEx guidance of 15,500.

Speaker 1

Interest expense came in at million, a reduction of NOK3.3 million compared to the fourth quarter. This is explained by lower base rates, but also the effect of amending one of the term loans to an RCF and therefore reducing our drawn debt during the quarter. On the derivative portfolio, we have a net loss of SEK7.3 million and this includes net unrealized loss of SEK11 million and the realized gains of SEK3.7 million. And the SEK3.7 million is then the positive carry reducing our interest expense. Net income came in at SEK18.7 million.

Speaker 1

However, adjusting for non cash items like the unrealized losses on the derivative portfolio, the adjusted net income came in at 29,400,000.0 or SEK $0.05 4 per share in adjusted earnings. As a reminder, we adjust our numbers for non cash items to have comparable numbers quarter over quarter. If we look at the differences in net income of SEK26.5 million compared with the fourth quarter, all of this is related to unrealized gains and losses on our interest rate derivative portfolio. In the fourth quarter, we had SEK15 million of unrealized gains, while we in this quarter have SEK11 million of unrealized losses in total SEK26 million. Looking at the cash flow for the quarter, we generated NOK49 million in cash flow from operations, which was offset by negative working capital movements of NOK5.7 million.

Speaker 1

We have also paid NOK 2,600,000.0 in prepayment of dry dock expenditures for the four upcoming dockings this year. In addition, we have NOK 27,000,000 in scheduled debt installments and we distributed SEK41 million to our shareholders for the dividend. Ending the quarter with a solid cash balance of SEK410 million. Looking at the balance sheet, we have an overall clean and transparent balance sheet with mainly cash and ships on the asset side. And as a reminder these 13 modern vessels with an average age of five point five years were ordered and delivered in low point in the cycle.

Speaker 1

Therefore these are recorded on the balance sheet at million per vessel. Looking at our capitalization, we have a decent book equity ratio and with a net debt position of billion. This equates to a net debt per vessel of approximately million per ship. Once again, interest rate markets has experienced significant volatility and this is also in the first quarter. In response, we have remained active in adding exposure when we deem it attractive.

Speaker 1

In the first quarter million of our existing interest rate swaps matured and on the final day of the quarter we entered into SEK 100,000,000 in new interest rate swaps bringing our total notional swap exposure to SEK 700,000,000 at the end of the quarter. This swap of the volume have a weighted average duration of three point five years and a weighted average fixed rate of 2.1%. Following the Liberation Day there were further volatility and we added additional SEK150 million for two year swaps and increased our swap portfolio to SEK850 million. These additional swaps were entered into at a weighted average rate of approximately 3.5% and a duration of two years. And these swaps provides us with the 75 to 80 basis point positive carry until the Fed begins to cut rates.

Speaker 1

If we look at our exposure, we have an hedge ratio of about 70% over the next twenty four months. And we will continue to monitor the market to add even more exposure if both short term and long term rates drops. As announced earlier, we have initiated the balance sheet optimization program three point zero with the aim to free up additional million in free cash. Today we also announced that we have secured an attractive Jollco financing. It's a lease for the Flex Corages on the back of the new contract announced last quarter.

Speaker 1

This financing is expected to be closed in the second quarter and will release about SEK40 million in cash proceeds. It will reduce our cost of debt by 1.5% per annum and then further extend our debt maturities. The two other ships we are targeting are the Flex Resolute and the Flex Constellation. If we look here then we are addressing the debt maturity in 2028 for Flex Resolute. And the aim here is to secure a similar Jollco financing as the Flex Courageous.

Speaker 1

The Flex Constellation has a very attractive fifteen year contract to a solid counterparty. So we are targeting here a back to back financing for that ship. We are in discussions for both Flex Resolute and Flex Constellation and we target to secure commitments and signing and drawdown of these in the second half of twenty twenty five. Both today's balance sheet, but also after this balance sheet optimization three point zero, we maintain our fortress balance sheet. We have stable cash flows from our contract portfolio and we have a very solid cash position at the quarter end of SEK410 million, which is then set to grow following the planned refinancings.

Speaker 1

And as a reminder, we maintain a RCF capacity of SEK414 million, which is used for cash management and reduce interest rate cost. We have limited CapEx liabilities. Our first debt maturity is for Flex Resolute in 2028. But as just mentioned, this is being addressed and then our next maturity would be in 2029. So the Fortis balance sheets supports the flex journey and giving commercial and financial flexibility.

Speaker 1

Today, we have also released our seventh ESG report. It's the ESG report for 2024. And we recommend that you have a reading of it. It explains how we deal with ESG matters and in particular also then emissions and safety and governance in our operations. We are proud to show that we have a very efficient and safe operations with zero lost time injury frequency for 2024.

Speaker 1

And that's a true testament to the health and security of our seafarers and in Flex everyone deserves to be safe at their workplace and get home and safely to their loved ones after work. As reported earlier, we have also this CDP rating where we achieved a B scoring for 2024. So thank you to the Flex LNG team for great achievements and also for helping out producing this report. Today, we have also submitted the application for the delisting The proposal to delist was approved by our AGM on the May 8 and we have now commenced the full process for a formal delisting on the Stock Exchange.

Speaker 1

We expect that Oslo Stock Exchange will conclude on the application to delist within the second quarter and that the last day of trading will be sometime in the second half of twenty twenty five. The last day of trading is decided by Oslo Stock Exchange and they will separately announce this by a Stock Exchange disclosure. If you have shares trading on Oslo Stock Exchange and you would like to continue on the Flex journey, we encourage you to reach out to your bank or your broker to initiate the process of transferring from Euronext Oslo Securities to our New York Stock Exchange traded shares. We have prepared a Q and A section on our website under Investors and also delisting where you may find more information about the next steps and the process. And that concludes the financial sections.

Speaker 1

And over to you, Marius, for an update on the LNG market.

Operator

Thank you, Knut. I'm sure you will have more questions about Oslo delisting. The energy trade from January 2025 grew approximately 1% to 143,000,000 tons compared to the same period last year. The top three main exporters, USA, Qatar and Australia, represent more than 60% of the total LNG trade. US LNG exports increased with more than 20% year over year, and this is explained by new volumes arrived from venture global platinum mines and expansion at the Cheniere's Corpus Christi.

Operator

Australia exports declined with circa 7% in the period and is largely explained by Woodside shutting down a train at North West Shelf LNG Terminal due to declining feedstock and slow upstream developments. Europe has really increased its LNG appetite over the last few months, and it comes as Russia halted its pipeline gas export through Ukraine Last December. And the European gas inventory levels are at low levels currently at only 45% full. It should also be noted that we are seeing recovery in overall European gas consumption as the last four months have seen decline in renewables consumption, while Europe LNG imports have soared as the continent tries to maintain a fragment gas balance, this has been driven up the LNG prices globally, and overall Asian LNG imports have retreated. This is especially evident by a drop in LNG imports to China, which is down with 24%.

Operator

China has completely halted the imports from US LNG since February and is rather reselling its contracted volume in the markets. India has also set the flattish growth year over year, and this compares by double digit LNG imports growth last year. Relatively high LNG prices and other sources of more affordable energy help to explain this trend as many of the developing Asian countries are price sensitive with the when it comes to LNG import. The more mature JKT economics, Japan, South Korea, and Taiwan have seen their LNG imports drop by only 3%. The new building prices for modern LNG carriers built in South Korea has stabilized, and ship workers continue to call prices of 250 to 255,000,000 per vessel.

Operator

It should be noted that shipyards are quite busy and slots offered on these levels are deliveries in 02/1928 and onwards. This means that the cost of carrying from financing in the period and building supervision would probably push up the all in all delivery price for new buildings substantially. We expect new building prices to stay at these levels going forward. Term rates for five year and ten year TCPs are currently quoted between 75,000 and 80 5 thousand per day. However, there are very few recent deals concluded.

Operator

Approximately 300 LNG vessels are scheduled for delivery over the next five to six years, with over 90% of these secured on a long term charters. A significant proportion of this order book relates to Qatar fleet renewal program. In a complying chart, the dark blue bars represent vessels either ordered by Qatar Qatar Energy or tied up to Qatar related TCPs, while the light blue bars reflects non Qatar related newbuildings. Notably, while more than 70 vessels were originally planned for delivery now in 02/2024, only around 60 were actually delivered from the shipyards. Approximately 10 vessels have been pushed into 25 delivery window, and we will not rule out that the possibility to similar slippage occurring now in 02/2025 into 02/1926.

Operator

Now when we talk about the new building delivery profile, it's crucial to look at the full picture, not just what's coming in, but also what quite is slipping out of the active fleets. Take a look at this chart. On the left, you will see number of idle vessels split between steamers in gray and tri fuel blue ships in blue. What we are witnessing is a growing group of older vessels, those will those with efficient cargo economics and outdated propulsion system essentially being parked. By the March 2025, close to 60 vessel were idling.

Operator

That's not a small number, and it matters because fewer available vessels means less supply, which helps bring balance to the overall markets. But it doesn't stop there. More and more of these vessels are being put in layup, either warm or cold. And it's not just steamers anymore. We see trifurals also starting to join that list.

Operator

Bringing a cold layup vessel back into service is not cheap. It's very costly, and it's very time consuming. So what happens next? Well, the natural conclusion is scrapping. So far in 02/2025, only three steamers have already gone for recycling, but the number might be even higher.

Operator

Several others are quietly being offered for sale, and frankly, the chance for them finding a new buyer is slim. Scrapping is therefore becoming a more realistic option. Bottom line, while the order book is substantial, the market is shedding the last efficient vessels and the place of big role shaping a big future for balance between supply and demand. Let's wrap up the market section with a slide that might look familiar, but one that's very important to revisiting. The outlook for new LNG supply remains strong, and the wave is building.

Operator

Over the next few years, we will see a steady stream of new volumes entering into the markets, driven in particular by Qatar and United States. And in just few past weeks, we have seen two major developments from The US that underscore this momentum. Woodside had taken FID on the Luciana LNG project. This is a significant greenfield development, three trains each of 5,500,000 tonnes per annum for a total of six and a half yearly tonnes. The project has been expansion capacity and permits for two additional trains, which would bring the total capacity up to 27.6 yearly tonnes.

Operator

First LNG is expected in 02/1929. Energy Transfer made their headlines during its first quarter call announcing its ambition to take FID on the Lake Charles LNG project. Also, 16,500,000 tonnes per year by the end of the year, another major step forward. So what does that mean for Flex LNG? It means momentum, it means confidence in the long term demand for LNG, and most importantly, it means more ships will be needed.

Operator

With these projects in the horizon, we see a bright future for LNG shipping and we are well positioned to ride the next wave. We delivered strong quarterly results with solid profit and robust cash generation. Our balance sheet optimization program is underway, and our guidance for 2025 remain firmly intact. With continued earnings strength and healthy charter outlook as well as supported dividend yield of 12%, we are well positioned to deliver long term value to our shareholders. With that, let's open the floor for questions.

Speaker 1

Then we are ready for the Q and A session. And we have received a number of questions, so thank you for everyone who have submitted. A number of these questions relates to the market and with the soft spot market rates and Artemis being delivered and Constellation trading in the spot market until she commence her long term contract. How do you view the summer market and the winter market and the prospects for these two ships?

Operator

Thank you, Inuit. Artemis has not been delivered yet. She will be redeliver later in the year. But if you look at 02/2025 so far, we have amazingly seen the highest amount of fixtures been concluded in the spot market for two strokes. And at the same time, we have seen the rates are hovering on the very low side from single digits up to double digits, maxing at, say, 35,000 to $40,000 per day.

Operator

So Flex Constellation is currently trading in the spot market, and she will or we plan to do so until delivery in first quarter twenty twenty six. While as you mentioned, Flex Artemis is coming back to us in August, and she will do a dry dock, So we are marketing the vessel open thereafter. She has since delivery been trading on the market index with our customer. And I'm sure when we put her back to market, we will at least be able to play in the market. She has been one of our best contributors since delivery.

Operator

And of course, we are seeking term employment on her this autumn. You

Speaker 1

mentioned that there's been very high activity in the spot market. Some of the questions are related to activity in more of the longer term contracts. What can you say about the number of fixtures or activity tenders in so for long term contracts?

Operator

The charters are in a rush to secure long term contracts while the spot market is as it is right now. So while we have high activity on the spot, the levels are hovering low. So we are currently in the doldrums waiting for things to pick up, and then I'm sure there are a lot of people who will enter and secure tonnage. But it's a bit early as of now, but we are seeing signs of contracts and interest for particularly the Artemis this autumn and also into the Q1 twenty six. So we are hopeful that she will be employed.

Operator

Then

Speaker 1

we have a number of questions for our delisting on the Oslo Stock Exchange. Some of them are detailed, so we do recommend to go to our website. We have a special or separate Q and A session for our delisting. And if there are further questions, please reach out to us on our investor email irflexlng dot com. And as a reminder, first Oslo Stock Exchange will need to conclude on the application and they will have a separate announcement of that also then announcing the last day of trading.

Operator

With that, I would like to thank everybody for listening into our broadcast and we wish you or want to welcome you back to our Q2 presentation in August. Thank you.

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Key Takeaways

  • Strong Q1 results with adjusted net income of $29.4 M ($0.54/share) and reaffirmation of full-year 2025 guidance for $340–360 M revenues, $72–77 k/day TCE, and ~$250–270 M EBITDA.
  • Initiated Balance Sheet Optimization 3.0, securing a JOLCO lease for Flex Courageous to unlock ~$40 M and cut debt costs by 1.5%, with similar financings for Flex Resolute and Flex Constellation targeted for H2 2025.
  • Maintains a fortress balance sheet with $410 M cash, a SEK 414 M RCF, and a charter backlog covering 59 years (88 years with options), underpinning stable cash flows.
  • Declared a quarterly dividend of $0.75/share (12 % yield, LTM $3/share), supported by strong earnings, cash flow, and contract backlog.
  • Market update showed 1 % Y/Y growth in global LNG trade, robust long-term charter interest driven by new US and Qatar export projects, and supply pressures eased by idled and scrapped older vessels.
A.I. generated. May contain errors.
Earnings Conference Call
FLEX LNG Q1 2025
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