FLEX LNG Ltd. (FLNG) 2026 Q3 法說會逐字稿

Welcome back to Flex LNG third quarter result presentation. My name is Marius Foss. I am the CEO of Flex LNG, and today I am joined by our CFO, Knut Traaholt, who will take you through the financials later in the presentation. Today, we will cover Q3 results, give you an update on the LNG market, and as always, conclude the earnings presentation with a Q&A session.

If you would like to ask a question, please use the chat function in the webcast or send questions by email to ir@flexlng.com. Before we begin, a quick attention to our disclaimer. Today, we will be using some non-GAAP measures such as TCE, adjusted EBITDA, and adjusted net income.

These are supplements to the earnings report reported in accordance with US GAAP, and reconciliations of these are available in the report. As there are limitations to the completeness of today's presentation, we encourage you to read the quarterly report together with the presentation. With that, over to you, Marius.

Thank you, Knut. Let's begin with the highlights of the quarter. We are happy to present our strongest third quarter results ever. We sail in revenues of $97 million, or $95 million excluding the EUAs. The fleet average TCE during the quarter ended up to close to $79,000 per day. Net income for the third quarter came in at $42.8 million, implying an earnings per share at $0.79.

Adjusting for the unrealized gain of interest rate swaps and FX, we ended up with an adjusted net income of $35 million, or adjusted earnings per share of $0.65. Flex Artemis and Flex Volunteer continue to contribute our solid quarterly results with strong spot market earnings. Today, we are pleased to announce a new financing and amended terms under existing financing for two of our vessels.

The lease financing of the Flex Artemis and the Flex Amber have been amended by reducing the margins and extending the repayment profiles. For the Flex Enterprise, we announce today that we have signed a new sale-and-leaseback financing at very attractive terms. Our CFO will provide more details on this financing later in the presentation.

We maintain our full year guidance from the previous quarter end, and based on the strong third quarter results, solid financial position, and contract backlog, the board has declared another dividend of $0.75 per share. This is the 21st consecutive dividend of $0.75 per share, and we have now distributed over $900 million since 2021, including special dividends. Our last 12 months dividend is $3 per share, implying a dividend yield of around 11.5%.

Looking at our total contract coverage, we have 48 years of minimum firm backlog, which may grow to 75 years if all options are declared. In the near term, we have Flex Volunteer in the spot market into Q1 next year, while the Flex Artemis remains available. In addition, the two vessels trading the spot market, we expect to have the Flex Ranger back in Q1 next year.

We are marketing these vessels for both spot and new contract terms. The current charter of the Flex Freedom has the option to extend beyond the firm period. This option is due later in the quarter. Our full year guidance presented earlier this year was revenues between $345 million to $370 million, a TCE between $73,000 and $78,000 per day, and adjusted EBITDA between $255 million and $280 million.

With one and a half months left of the year and the current spot market, we expect the full year result to come in to the mid to the lower end of our guidance. Let's have a look at the dividend and decision factors. On the back of the strong quarter results, the board has declared a dividend of $0.75 per share for the third quarter.

The dividend will be paid out December 10 for shareholders on record of November 27. On the decision factors, we maintain the orange level for market outlook. This reflects a soft spot market and heavy schedule of new buildings deliveries during the next year to come. Confidence in the long-term structural demand story remains in full, supported by the third wave of US LNG export capacity currently under construction.

We have changed backlog and visibility to orange level due to having two vessels in the spot market and potentially more spot exposure from next year. We keep other considerations in orange given the continued elevated geopolitical risk. This is still uncertainty around the duration of the conflicts in the Middle East and the timing of normalization of the Qatari supply.

With this, over to you, Knut, for the financial results.

Thank you, Marius. Let's have a look at the key financial highlights for the quarter. Third quarter revenues are our strongest ever. The revenues for the quarter were $97.4 million, or $95.2 million excluding EUAs. The decrease compared to the second quarter was mainly related to the Flex Volunteer, which traded on a higher spot rate for the majority of the previous quarter.

That decrease was partly offset by no offhire days related to the dry dockings in the quarter. On the cost side, OPEX for the quarter was $19.5 million, equivalent to OPEX per day of about $16,300. The average OpEx per day for the first nine months is close to $16,200, and our previous full-year guidance was $16,000 per day. Today, we update the full-year OpEx guidance per day to $16,200.

The increase is driven by, among others, higher costs related to travel and crew changes following the conflict in the Middle East. On a quarterly basis, the interest rate expenses is fairly stable. However, compared with the first nine months of the year, we now see significant reductions, reflecting our refinancing initiatives and active management of our RCF facilities.

We booked $10.2 million in gains on our interest rate derivatives, of which $2.4 million was realized gains and $7.7 million was unrealized gains. Net income came in at $42.8 million, or $0.79 per share, and adjusting for non-cash items like unrealized gains from the interest rate derivative portfolio, the adjusted net income was $35 million and adjusted earnings per share of $0.65.

Overall, this was a very strong quarter, impacted by high revenues from the spot market activity, no offhire days, and continued cost control and improved financing efficiencies. During the quarter, we generated strong cash flow from operations of $56 million, down from $63 million in the second quarter. The decrease was mainly driven by lower revenues, as explained on the previous slide, and this includes $13 million in negative change in working capital.

The increase in receivables during the quarter was related to the timing of advanced charter hire payments. We repaid $28 million in scheduled debt installments and distributed $41 million to our shareholders. In sum, that left us with $371 million of cash at the end of the quarter. Looking at our balance sheet, we maintain a robust and clean balance sheet with mainly ships and approximately $370 million in cash.

Our debt financing comprises a combination of bank loans, which gives us flexibility, and attractive long-term leases. Our interest rate swap portfolio is unchanged and was valued at $30 million at the end of the third quarter. The notional value of the portfolio is $775 million, with an average fixed rate of 2.46%. We expect to maintain a net hedge ratio of around 70%-75% into mid-next year.

The book equity ratio is robust at 28%, and as noted before, our book values reflect historical cost adjusted by regular depreciations. Today, we are also pleased to announce the refinancing on Flex Enterprise with the new JOLCO lease and amendment of the lease financing for the Flex Artemis and the Flex Amber. With these transactions, we continue to optimize our funding and reduce the cost of debt.

We expect to free up approximately $34 million in liquidity from the new JOLCO, and the transaction is expected to be closed in the fourth quarter. The new lease comes with a very attractive blended cost of debt of SOFR plus 25 basis points and addresses one of the 2029 debt maturities.

On the Flex Artemis and the Flex Amber lease, we are cutting the margins significantly from 215 basis points to 140 basis points. Furthermore, we extend the repayment profile and reduce the quarterly repayments for the two ships from $4.3 million to $3.5 million per quarter. We are grateful for the trust and support from our financing partners, both the new incoming and the ones that have provided previous refinancing for the Flex Enterprise.

With that, I hand it back to you, Marius, for the market section.

Thank you very much, Knut, and congratulations for the new financing. Let's have a look at the market. Global LNG trade volumes are close to flat this year, down only 2% compared to the same period last year. On the supply side, the key development remains the significant reduction of the Qatari exports, down around 45 million tons, or close to 65%.

This shortfall has large extent been offset by strong growth and high utilization from the US, where exports are up 20% or close to 80 million tons. We continue to see growth from both Australia and Russia, and in addition, other exporters have contributed strongly and are up 30 million tons from last year. These includes LNG Canada, but also West Africa exporters such as Nigeria. On the demand side, Far East cut back on LNG imports as JKM spiked.

Europe are down compared to last year, and storage levels remain very, very low. At the same time, India and other importing markets such as Egypt has continued to grow. Egypt is now one of the largest importers of US LNG. The key takeaway is that despite of significant reduction from one of the world's largest LNG exporter, Qatar, global trade volumes have remained resilient.

More importantly for shipping, this growing share of US supply means more LNG coming from the Atlantic Basin. This will likely have a positive ton-mile effect if these volumes move into Asia. Let's look closer to the supply side. The reduction of Middle East volumes has been significant. Combined export from Qatar and the UAE are currently down around 65% compared to normal levels.

As you can see on the left, exports dropped very sharply early in the year, and while volumes have started to recover, they remain far below historical levels. Today's volumes, we see export intra-basin and exiting via Strait of Hormuz to go outside to Oman for a ship-to-ship transfer. At the same time, the US have continued to ramp up the LNG production.

US liquefaction capacity is up around 18 million tons so far this year, or 20%, supported by the ramp-up of new capacity, particularly from Plaquemines. In addition, we see that Golden Pass volumes are slowly but steadily entering the market. This strong US growth continue to mitigate the loss of volumes from the Middle East.

Let us have a look at the demand side and the competition between Europe and the Asia for US export. Europe's gas inventories have remained low through the year and are today at 73% full, the lowest level in almost 15 years and below the EU thresholds. This increase Europe's reliance of LNG supplies to meet peak seasonal demand and could leave the region particularly exposed for cold snaps and supply disruptions.

US LNG is highly flexible and can move between Europe and Asia depending on the relative pricing. Looking at the chart to the left, there has been historical seasonal competition of US export between the two regions.

So far this year, Asia have attracted additional US volumes while Europe has stayed close to flat compared to 2025. This is reflected in the low European storage levels. We are now facing the tug-of-war between Asia and Europe for US volumes during the upcoming winter. With tight supply, this is evident in the current high natural gas prices.

Let us move on to the spot market for the modern two-stroke tonnage. In the third quarter, we saw increasing vessels availability both in west and east of Suez, and that is now putting pressure on the spot market. As we move into the winter season, we have started to see indications of seasonal tightening with fewer vessels available and a gentle increase in the spot rates. However, the historical seasonal winter market has not yet materialized.

We have one vessel trading the spot market, which are exposed to the positive and negatives from the near-term shipping markets. The soft spot market comes at a time when the LNG fleet is growing. As we can see in the chart on the left side, the order book remains material with around 290 vessels to be delivered going forward, equivalent to roughly 35% of the existing fleet.

This year, we had substantial additions to the fleet, and we expect next year to be impacted by new building deliveries. However, most of the vessels are already tied up by QatarEnergy and other long-term projects. During the summer, we passed the milestone where more than half of the existing fleet today are now modern two-stroke vessels. Despite Korean new building prices at around $245 million per ship, term rates at moderate levels, ordering of new buildings remains strong.

We have seen 77 new buildings being contracted so far this year. A number of these vessels are now contracted speculatively. The speculative orders tell us that there is significant confidence in the long-term LNG shipping market going forward. This year, orders are well above the last year figure of 35 vessels in total. At the same time, high new building prices continue to provide support for the value of modern existing tonnage, including our fleets.

On the next slide, we will highlight some of the most significant LNG export volumes expected to come into the market next year. From next year, we will finally see some first material US export capacity ramping up. Golden Pass has already started exporting volumes from Train 1, and Train 2 and 3 are coming on stream next year.

Note that 70% of these volumes are contracted by QatarEnergy and is likely to be transported on their own ships. In the second half of the year, we expect to see significant ramp-up of the three major projects. Port Arthur, Rio Grande, and Venture Global CP2 are expected to be nameplate capacity for close to 40 million tons per year in production.

We expect these volumes to gradually ramp up, and that will add additional requirements for tonnage. In addition to these volumes, we have new LNG coming from Australia, Nigeria, and Canada, also expected to enter the market next year. Although dependent on the reopening of the Strait of Hormuz, it is also worth mentioning that the first train in Qatar's North Field East project is expected first half next year. All these 2027 and 2028 volumes entering the market support future LNG shipping.

With that, let's turn over to the Q&A session.

Thank you, Marius. Thank you all for submitting questions to the webcast and our IR email. Let's kick off with the topic on the market. We have a couple of questions regarding Q4 and also 2027. We are highlighting here the projects that come on stream, in particular for the second half of the year. There are more questions on other factors that you see can impact the more shipping demand in Q4 and next year.

Thank you. That's a very good question. I wish I had a crystal ball so I can tell everybody what's going to happen in the next 12 to 18 months. It's for sure going to be a choppy year going forward, and the expectations are fairly low for the shipping of LNG. However, I mean, if you saw five years ago, we saw a similar situation where the market was very bearish in expectations of new newbuildings coming into the market.

At the same time, we saw one of the best shipping year for two-strokes ever, where we saw the arbitrage open during the coming year. I think there's also a few other X factors we should mention that could change the spot market on near term.

We have our friend Super El Niño, who's been knocking on the door and expected to be in full force in 2027, which mean that we will have very mild and very hot weather, normally followed by a cold snap when that happen, which will increase both the cooling season and also the heating season. We also seen that Panama have reduced the number of daily transits going forward because of the heat in El Niño. That's one part.

Also, I think that we should mention that the Russian gas will be sanctioned by Europe after January 1. So, that gas cannot come into Europe from January 1. That means that we need to find supply elsewhere. Given that the European storage levels are still on the low and Russian can't supply gas from January, that could have an impact over stronger shipping markets with supply from US.

Also, as you mentioned in presentation, we will have more volumes coming in next year from US. I expect there will be more shipping term requirement entering next year. Also that when Strait of Hormuz will reopen, we expect that the Qatari fleet trading in the worldwide market today will probably go back to the market where they belong.

There are a few X factors that could change the next 12 months or so. But we also have a lot of new buildings coming at the same time, so we need to balance this out. If we see that the Strait of Hormuz reopen next year, we also expect that the scrapping activity on the old tonnage will automatically kick in, which we need to balance the markets.

There are some questions here on Qatar and the Strait of Hormuz. First of all, it's our fleet and trading in that area. The question relates to, do we have ships on the inside or are we trading there? The second part is related to the opening and normalization of Qatari supply. Do you have any insight on opening there?

Yeah. Thank you for that. We had similar question on last presentation. The charter who have FLEX tonnage on charter, they have other markets that they are instructing and ordering our vessels to trade. So, neither of the 13 ships that we have has been transiting the Strait of Hormuz or been inside since the invasion end of February. We are very happy that we have been able to trade safe and not been exposed for that.

As I said, if and when the Qatar supply will be back on the normal exiting through Strait of Hormuz, we expect at least the Qatari tonnage will disappear from the spot market. Also, as I said, scrapping will pick up again for steamers and maybe first generation tri-fuels that are now doing ship-to-ship shuttle traffic in this area. We are hoping that the Strait of Hormuz will open soon.

Then we have a couple of questions related to our financings that we have announced today, and also about our next step maturity in 2029, when that will be addressed. As always, if we find attractive opportunities to refinance the debt, we will act earlier than scheduled. The 2029 maturity is still a bit early to address, but if there are attractive opportunities, we will act on it.

We have also some questions about the dividend and guidance on future dividends. We have had that questions in the past as well. We do not guide on dividends. It is a decision that are made by the board at each quarter. We are fairly transparent on the decision factors, and today we have downgraded one element to it.

But at the same time, this is balanced to the revenue visibility we have, the backlog, but also our financial position and debt maturities and CapEx liabilities. For the next 12 to 18 months, we do not have any CapEx, dry dockings after the 10-year dry docking in 2028, and our debt maturity is in the 2029. So, on the total, we will have to make a new decision and evaluate these decision factors when we are done with the fourth quarter and ready for the fourth quarter presentation in February. That concludes most of the questions.

Perfect. Thank you, Knut, and thank you everybody for attending our Q3 presentations. We are looking forward to welcome you back to Q4 presentation in February. Thank you.