Hi, everybody, and welcome to Flex LNG's Fourth Quarter and Full Year 2023 presentation. I'm Øystein Kalleklev, CEO of Flex LNG Management, and I will be joined later today by our CFO, Knut Traaholt, who will run you through the numbers. As usual, we will conclude with a Q&A session where we have a gift as customary for the best question. This time we have some nice beanies from Amundsen in various colors and, you know, also a nice neck warmer to fit together with the beanie. You can ask a question either by using the chat function in the webcast, or you can also still send some emails to ir@flexlng.com, and we will cover those questions in the end when we're doing the Q&A session.
Just a reminder before we begin the presentation about our disclaimer, we will be provide some forward-looking statements. There are some non-GAAP measures. And of course, there are limited how many details we can cover in the presentation. Let's kick off. Revenues for the day—for the quarter came in at $97.2 million. This was in line with the guidance, provided in Q4, for Q4, of around $97,000,000-$99,000,000 . Net income and adjusted net income came in at $19.4 million and $37.8 million, respectively.
Just a reminder, we have a rather big portfolio of interest rate derivatives, where we hedged ourselves against the higher interest rate we are today experiencing, and in the adjusted numbers, we only include the realized gain and loss on derivatives while the unrealized change in value is included in the net income numbers. But as Knut will tell you shortly, you know, we have made rather big gains on derivatives during the last three years to a total of $116,000,000 positive. So this translates into our earnings per share and adjusted earnings per share of $0.36 and $0.70, respectively.
As we are now in February and heading out of the, you know, peak heating season, not surprisingly, rates are softening, following the seasonal pattern, where typically the freight rates find a bottom at around March before starting to fire up again for the summer season. And I will cover more of the freight market in detail later in the presentation. As we have recently announced, we have got or received a extension of one of our ships, Flex Resolute. She has now been on a time charter for about two years. This time charter is for three years, where the charter, a super major, has option to extend by two plus two years.
And they have now declared the first option, taking this vessel firm until at least first quarter of 2027. Then, as we announced on January 8, we have re-delivery of Flex Constellation either end of Q1 or in Q2. This ship has been on a three-year time charter with a trading house, and we will get her back, and we plan to carry out the dry docking of this ship before then market her for, yeah, spot, medium-term, or longer-term time charters, depending a bit on the market conditions. For next quarter, Q1, which we are already way into, we expect rates to soften a bit, depending a bit on where the spot market is trading, as we have one ship on a variable time charter, Flex Artemis.
So we expect time charter equivalent earnings of somewhere around $75,000-$80,000 per day. Guiding, also in terms of revenues and adjusted EBITDA, around $90,000,000 of revenues and $70,000,000 of adjusted EBITDA, quite similar to the results achieved in Q1 last year. We have two dockings scheduled for this year. Last year, as some of you might recall, we were carrying out dry docking, the first dry docking, five-year special survey of four ships altogether. This year we only have two ships. It's the Constellation, which we will dock end of Q1 or Q2, depending when we get her back, and then Courageous is scheduled for dry docking in the second quarter.
So, with strong results, a very healthy backlog, which I will cover shortly, we are pleased to once again pay out a dividend of $0.75 per share for the fourth quarter. So this gives, in total, a dividend for the full year 2023 of $3.125 per share, and that should give a yield of around 11%. The stock market here in Oslo is down today. Our stock has recovered a bit, down 5.5%, driven a bit by the sentiment around Equinor's Capital Markets Day, where they cut their dividend, and Equinor is down, yeah, 5-6% today and dragging down the energy sector.
So hopefully, we can provide you some info and give you comfort on the results of FLEX LNG, despite the kind of sell-off in the energy market here in Oslo today. So, let's review our guidance. Last year, we provided a fairly detailed guidance for the full year, given the fact we had 100% coverage for the year. So we guided on three key measures. A time charter equivalent, you know, which is the average rate we obtain on our ships. We guided at approximately $80,000 for the full year. Delivered slightly better in Q4 as that's the peak season, $81,100. And average for the year, we ended up at $79,500. So very much in line with the guidance provided.
Revenues, we guided approximately $370,000,000 , and I'm pleased to say we beat that by $1,000,000 , $371,000,000 . And then we guided the last measure was Adjusted EBITDA of $290,000,000 -$295,000,000 . We delivered $290,000,000 , and the reason why we didn't meet the midpoint is, we had some technical off-hire days last year. We have had extremely few technical off-hire days during more than 5 years we've been trading these ships. But we had some last year and affected slightly on the Adjusted EBITDA. Looking forward to Q1, as I said, it will be more or less similar to the numbers we delivered Q1 last year.
Depends a bit on the timing of the Constellation docking and also how the spot market is performing. But revenues are $490, adjusted EBITDA of $170, and then a range here on the TC achieved of $75,000-$80,000 per day. So, during the last couple of years, you know, we took delivery of the first ship, Flex Endeavour, 9th January 2018, and then the sister ship, 11th January 2018. And then we've been building up the numbers of ships on the water. Last ship we took delivery of was in, I believe it was May 13th or May 31st, 2021, the Flex Vigilant. So from Q3 2021, we had all our fleet on the water generating earnings. And then we started off with most of our ships in the spot market.
That really paid off in 2021 when the market was roaring. A bit more challenging during COVID. Then from 2021, 2022 onwards, we mostly locked in rather long charters on all our ships and stabilized both the revenues and then the Adjusted EBITDA, since basically all our costs are fixed. As you can see, variability in Adjusted EBITDA is very small. We had a bit of a dip in Q2 last year, but that was mainly driven by the fact that we carried out dry dockings of 3 ships in Q2 last year. This year, as I mentioned, we only have docking of 2 ships. Looking at the fleet profile. So this backlog I mentioned is backed by high contract coverage. We have very limited open ships near term.
This year, we are already 94% coverage on contracts. We have one ship, as I mentioned, the Flex Constellation, coming back from a three-year time charter, opening up end of Q1, early Q2. And as I mentioned, we plan to dock her. That typically takes around 20 days, and then she will be available at a good period of time, I think once we are out of the bottom of the market, typically. So, we also have one ship linked to the spot market by the fact she has a variable time charter. It's the Flex Artemis, which is on a five-year charter, but where the charter has option to extend that contract by a further five years.
As mentioned, Flex Resolute recently extended to 2027, where there is a similar option for the sister ship, Flex Courageous. So, let's see if we also add some more backlog here during the year. And then, as you see, we have very limited open availability here near term. We will have a bit softer market in terms of volume hitting the market compared to ships for 2024, 2025. And then there's a lot of new LNG coming to the market, 2026, 2027, 2028 and onwards. And actually, that's a period now where contracting of ships are tailing off because of the very high ship prices. So we think we are well positioned, minimum 50 years of charter backlog.
We think we will add some more charter backlog this year by a declaration of further options, which could bring the total up to a total of 71 years. And all these charters are, you know, blue-chip counterparties. Looking at dividends, so we have a stable business backed by a lot of first-class backlog, and we are generating substantial cash flow. And as I've covered in the past, we are a very shareholder-oriented company, where we do think that all these earnings belongs to shareholders, and we are paying this out regularly on a quarterly basis.
This quarter, we are paying out $0.75, slightly higher than the adjusted earnings, given the fact that we have a very sound financial position with $411,000,000 of cash, no upcoming maturities, a lot of backlog, and very limited CapEx liability, since we have no ships under construction, and CapEx liabilities are limited to dry dockings. And this year, we have the dry docking of 2 ships, which should be in the range of $10,000,000 altogether in CapEx for those 2 ships. So a very sound, stable business. And last slide here before giving it over to Knut, is you know, with this business, we have generated substantial returns. We listed this company almost 5 years ago now, June 2019, in New York at $11.
We paid out almost the same amount, $9 in dividends. If you reinvested the dividends, you would do even better. And then on top of that, we have had a share price appreciation. Right now, the stock is down today, so it's the 280% is a bit less, but still a very good return. And, you know, for those who are fan of Warren Buffett, he knows that the market in the short run, it's a voting machine. In the long run, it's a waiting machine. And, you know, gravity tends to favor the good businesses, and as he says in this book, Snowball, "Time is the friend of the wonderful business, the enemy of the mediocre." So we certainly delivered on that philosophy.
We are paying out the free cash flow, and in the Russell 2000, consisting of stocks in New York, we are in the top 2% of companies in terms of dividend payout with 11%. I haven't calculated, but probably 12% today with the stock price. So I think that it's a good time to be invested in Flex. And I will come back and give a bit more update on the market first. Now, we will head over to Knut. I hope you give him a warm welcome. Knut is 46 years today, so it's his birthday. So come here, come here, Knut, and you know, I hope you can get yourself a beanie afterwards as well as a gift. Here, you know, we typically, if you're single, you go with a green beanie.
If you're not, you have a red. If you're undecided, you have a white one. So I'm, I'm curious to see which kind of beanie you're gonna elect to have. Last year, there was an LNG carrier, which was scrapped at the age of 46 years, your same age, the Gandria. But Knut, he's still operating in the LNG business.
Thank you, Øystein. I think we can head over to the summary of the operational figures for the fourth quarter and for the full year. If you look at operating days, in the second quarter, we had 77 days of off-hire related to the dry docking. And then we had, in the first three quarters, 19 days of technical off-hire. In the fourth quarter, we had 100% technical uptime, and that results in a technical uptime and commercial availability for the year of 99.6%. That's a strong testament to our onshore technical and operations team, and also for our crew members on board, keeping the propeller running.
If we look at the time charter equivalent per day, in the fourth quarter, we had $81,100, and then for the full year, $79,500, which is at par with our guidance. OpEx for the fourth quarter is somewhat higher. That was guided on the Q3 presentation, and that was mainly related to scheduled maintenance of our auxiliary engines. But however, as we guided, on the total OpEx for the year, we end up at $14,400 versus the guidance of $14,500. For 2024, we guide an OpEx of $14,900, and that is mainly an increase in crew wages and some technical.
That results in revenues of $97,000,000 for the quarter and $371,000,000 for the full year, which is also, as guided, an EBITDA of $76,000,000 for the quarter and $290,000,000 for the full year. That results in adjusted net income of $38,000,000 for the quarter, or $137,000,000 for the year. And in the adjusted numbers, we adjust out unrealized gains and losses from our derivative portfolio. And then, as you may recall from closing of our balance sheet optimization program in the first quarter, we also strip out the non-cash write-off of debt issuance cost. So then looking into the more details, and we've been through the revenues and the OpEx, then the main differences are on the derivative portfolio.
The paid interest is on par quarter by quarter, and then the difference is in this quarter, a loss on the derivative portfolio of an unrealized loss of $18.7 million, and then a realized gain of $7.1 million, which is offsetting our interest cost. That gives us a net income of $19.4 million for the quarter. And if we then adjust out the non-cash items, we have adjusted net income of $37.8 million, or adjusted earning per share of $0.70. The balance sheet remains pretty much the same. We have the scheduled depreciation of our vessels, and then $411,000,000 of cash on the asset side.
So we keep it very simple, and that results in a book equity of $848,000,000 , or book equity ratio of 31%. And then, as a reminder, these book values reflect that these vessels were ordered at a low point in the cycle and therefore does not reflect the market value today. On the funding side, our debt portfolio, we did a complete refinancing of our fleet with the balance sheet optimization program. That was concluded in the first quarter this year or last year.
That gives us a flexible blending of both long-term leases up to 12 years for some of them, and then the traditional bank portfolio, where we have structured $400,000,000 of our debt as a non-amortizing up to six-year our revolving credit facility. And when we have $410,000,000 , $411,000,000 of cash available, that gives us a flexible tool for cash management, so we can repay the RCFs in between quarters, and then we reduce the interest rate cost, and we pay 70 basis points in commitment fee. If we look at the debt maturity profile, our first maturity is in 2028, and that's related to our bank financing.
So we have a lot of headroom ahead of us, and this is a very supportive financing position to be in the support of the business and our business case. We have, over the last three years, been quite active in the interest rate market. We entered into the market with a lot of additions with long-term interest rate swaps in 2021. As the interest rates have increased, we have also added more, but also amended the duration profile to make use of the gains and reduce the tail and risk of this portfolio. So today we have hedging of our interest through traditional interest rate swaps, but also off-balance sheet items like fixed rate leases.
For this year, we have an average net hedging ratio of about 65%, and then it tails off more or less equal as you will see in the forward curve of the SOFR rates going forward. We are monitoring the interest rate market pretty closely, and we are looking into when to add more exposure on the tail and to increase our hedge ratio from 25 and onwards. That concludes the financing sector, and back to you, Øystein.
Okay. Thank you, Knut. So, in terms of the interest rate hedging, you know, where Jay Powell, he was on 60 Minutes on Sunday and talked about the interest rate market, and seems like March will be a bit premature for a cut, but May seems very likely, and he doesn't rule out bigger cuts down the road. So I think we have a profile of the hedging, which is very much in line with a pivot from Fed within this year, which we have expected and positioned ourself for as inflation is starting at least to subdue a bit. In terms of the LNG market, we had another eventful year. It seems to be the case every year.
2022 was all about curtailment of Russian pipeline gas to Europe prior to the invasion and subsequent to the invasion, when we had the blow-up of the gas lines. So, this year has been a bit more calm, I would say. We have seen LNG prices migrating down to more normal levels. We did have a peak in spot LNG price last August of August 2022, of $100 per million BTU, equating to around $600 per barrel of oil. We are now down to more normal levels, $8-$9 now, which means that the LNG is cheap again. And when things are cheap, people tend to consume more of it.
So we are now at a big discount to oil. More importantly, also, we are at a huge discount to especially diesel. So this means that it's firing up demand in new regions. And you know, actually in longer term, it's better to have a more sound price of the product, otherwise we will have demand destruction. In terms of the exporters and importers, we have a swap of the thrones. We have China coming back, being the biggest LNG importer again, after you know, they became the biggest in 2021. They implemented the zero-COVID policies, which resulted in China reducing its LNG import in 2022 of 20%. They are bouncing back in 2023 and retaking the throne as the biggest importer for the second time.
Japan has traditionally been the biggest, but Japan is firing up the nukes and also the power, coal power plants. They built, I believe, 40 of those since Fukushima. So we do see that Japan demand has been on the soft side, but as I will come back to, there are emerging Asian countries, which is snapping up these cheaper cargos. Last year was a year with limited new capacity being installed, although we did have a volume growth of around 3%, driven by U.S., particularly, restart of Freeport contributed with a lot of new volumes. This year, also a year with fairly muted export capacity being implemented, and there are some certainty about Arctic LNG 2.
So 13,000,000 tons, half of this is about Arctic LNG 2. The first train, this is operational. They are planning to commission it during Q1, so we'll see how, how, the Russians are managing to sell these cargoes. The experience from, the crude markets, both oil and, and products, seems to be the Russians are very fine and, good at finding loopholes and, and finding customers who are willing to buy this cargo. So this will, be one of the key questions for this year, but for certainly if they are moving the cargoes, they will be very ton-mileage intensive. Fragile maritime supply chains has been a big factor. That sounds like something negative. You know, for, for shipping, it doesn't, isn't necessarily a negative. We thrive on inefficiencies.
Inefficiencies means typically higher ton mileage and also maybe higher ton time. So it means you need more ships in order to ship cargo. So we had the drought in Panama. We still have the drought in Panama. The water levels in Gatun Lake, the main freshwater supply for the canal. This is a water escalator, which needs to be refilled with water all the time. The water levels are still at low level. There are still restrictions in the number of transits, and this will stay in place until at least the summer, when we will see whether there is a sufficient rain season in Panama to replenish those water resources. From end of the year, we had similar issues with the Suez Canal there.
It's not about water, it's about war, and the Houthi rebels attacking the maritime traffic. Today there are no LNG carriers going through the Red Sea to utilize the Suez Canal. Of course, this has some effect on ton mileage, especially for the Qatari volumes going all the way through Cape of Good Hope to enter European customers, rather than going the shortcut through Suez. Let's look at a bit on the export and import side. As mentioned, strong growth from US actually grew 27% in Q4 and 13% for the year. Flat for Australia and Qatar, the two other major exporters. Russia is the fourth biggest exporter. Fairly flat volume export from Russia. There's no sanction on LNG.
There are some sanctioning by the US and UK, which are not allowing Russian cargoes, but for the remaining countries, they are happy to take this cargo, and especially EU, who have been boosting their imports of Russian LNG. Malaysia, fairly flat. Algeria was one of the outliers last year, growing healthy through 2023. On the import side, as I mentioned, China bouncing back 16%, still, a bit below the levels we've seen in 2021, prior to the COVID restriction, and now with the price of LNG being competitive, we expect China to grow quite healthy also in 2024. Japan is on a bit of a decline, and South Korea, Taiwan, fairly flat.
The big other driver, you know, if you follow macroeconomics, India has been enjoying a very long boom now, and with prices coming down to these levels, we see strong growth in India. If you look at the Q4 growth factor here, 43%, adding 15% for the year. So we expect this to continue, and the rest of world, you see very strong growth in Q4, driven, as I said, by these low prices. Europe, fairly flat, and I will cover that in more detail shortly. So, just to summarize, the big movers and shakers, US growing steady, Algeria, as I mentioned, Qatar flat, and Egypt, where there has been issues with feed gas from Israel.
Given the conflict in the area, they have not been, we have had shutdowns of feed gas from Israel to Egypt, liquefaction plants. There's also been domestic demand for this gas, so they've been exporting less than in the past. However, this is not that important for the shipping market. Egypt is very close to the main, import nations in Europe, so it's a very low ton mileage on these, voyages. Yeah, heading back to Europe. In Europe has been the lucky man the last two seasons. European LNG imports used to be at around 80,000,000-85,000,000 tons.
Once the Russians started to reduce the flow of cargoes of gas to Europe, Europe had to turn around very quickly to get access to these LNG cargoes, and this is mostly U.S., where you have flexible LNG cargoes. And they've been bidding up the price, and as I mentioned, they bid the price all the way up to $100 per million BTU, making LNG unaffordable for emerging Asia. But with two winters in a row with fairly mild weather, Europe has been able to fill up its inventories. This is also driven by what I will cover on the next slide, demand subversion or demand destruction. These kind of high prices is, of course, affecting behavior and use of LNG.
So, gas consumption in Europe has fallen off a cliff, and it's now shortly bouncing back. But as you can see on the right-hand side, inventory levels in Europe are quite healthy. We have some time still to go. Usually, the kind of the season where heating season lasts until first of April, so we will be drawing down this inventory, and then once we're getting into the spring, Europe will need to fill up its inventory levels again in order to be prepared for the next winter. So, as I mentioned on last slide, Europe had also a huge demand destruction on the gas side, driven by these high prices. Demand low in 2022 was down 12%. It's been weak in 2023, but we do see some green shoots there.
On the graph on the right-hand side, we have seen European gas demand bouncing back, driven by the residential and commercial sector, also driven by industry. We haven't really seen it on the power side yet. So this is something we will monitor, and we do expect low prices will affect the consumer behavior. Looking at emerging Asia, as I mentioned, there is a region where we see demand really bouncing back. Japan import on the weak side. China is up. But we do see some of these other countries, as mentioned, India, but not only India, Thailand, very strong growth last year, and Bangladesh and Pakistan, which has been forced out of the market by these high prices, are now returning and buying up more cargoes.
And then the big item which has been recently, it's the US moratorium on more export licenses. So US has gone to become the biggest LNG exporter in a very short time. And actually, while exports now are at around 85,000,000 tons, with the projects in the pipeline in US, US is set to almost double as it exports from existing projects regardless of this decision. However, it's unfortunate that we have this situation. Europe is still in desperate need of getting access to more LNG to kind of fill the gap from the Russian curtailment. And of course, the rest of the world is also reliant on LNG in order to force out coal. The coal consumption is huge.
If we are to do something with this, of course, renewable is a solution, but LNG is certainly a solution to reducing the coal consumption. So there are a couple of projects in US which has been more or less ready for FID this year, and we mentioned some of the big projects there: Calcasieu Pass 2, the Sabine Pass expansion, Port Arthur expansion, Lake Charles, who had a license to export, but which were not allowed to renew it or extend it, so they have to apply for a new one, Commonwealth, Delfin, and Freeport Train 4. So all of these projects now are in a bit of limbo. As former U.S. politician said, "All politics is local." This was Tip O'Neill.
So this is driven by, of course, Biden have to reach out to the voters on the green side or the left side of his party in order to secure the election coming up in November. But for this project, it's unfortunate. We do think that they will come back again, regardless of whether it's Mr. Trump or Mr. Biden who wins the election, because these are huge projects which are very important for the allies. It's very important for the economy, creating jobs, and these projects are ready to go to once they get this permit from the Department of Energy to export to the countries buying these cargoes. So let's look at the maritime inefficiencies again. So yesterday, I found up a new word, Canalibalism.
So, this is related to the fact we have had these issues with, first Panama Canal. The drought really driven down, the number of transit of LNG ships going via Panama. Rather, ships are going for the safe route, Cape of Good Hope, as also the fees in order to skip the queue in Panama have reached new highs. We were up all the way to about $4,000,000 to skip the queue last, autumn, or actually more winter than autumn. So, this has driven the ships to rather go via Cape of Good Hope, where you also have certainty on your schedule. And then lastly, now, the Suez Canal, where all traffic has gone, given the unsure security situation there.
So this has driven up Cape routing, which of course is good for the ton mileage and absorption of shipping capacity. A bit more details on the Suez Canal, of course. Flows in the LNG market is more or less that what is being produced in Asia is being consumed in Asia. So the Australian projects are going typically to Southeast Asia, and so the swing factor tend to be the American volumes, which are flexible in nature. But there are still the Qatari. Qatari is a big player. Qatari is exporting about 80,000,000 tons. They will grow a lot with the new expansion projects they have.
So they sell quite a few cargoes to Europe, and if you are going via Suez, it's a big shortcut rather than going through Cape of Good Hope, which is the case today. Let's dig into the shipping market. So here we have a graph of the headline rates assessment for a modern tonnage two-stroke. And we can see on this line, the gray one being the rates achieved last year, and the dark blue, the average the last couple of years, and then the light blue being this year so far. So we have the seasonal softness we have seen all the other years, and then the dotted line being the future freight rates.
So we do expect the market to find a bottom, and then, as usual, we will have a seasonal peak once we are getting into, I would say, August, September, typically, then you see a ramp up in the rate. So we do think that we are well-positioned with Flex Constellation doing dry docking in Q2 and being ready in the market once it's ready for takeoff later in the year. And we could also have some summer rallies here, depending on the price structure of LNG. If there is a contango, which is often the case, we will have more buildup of floating storage, and Flex Constellation is a particular ship very well fitted for such a trade.
Average distances, I mentioned a lot of the U.S. cargo has been going to Europe, given Europe's desperate need to get access to LNG, which has reduced the distance being sailed. But with prices now low and more demand from Asia, also the inefficiencies in Suez, we could see a better picture on the ton-mileage going forward. Newbuilding prices has gone up a lot. As Knut mentioned, we contracted ships when they were cheap, so we have been contracting ships back in 2017, 2018, paying about $185,000,000 per ship. Ship price today has fallen a bit from $265,000,000 to $262,000,000 , but, you know, if you, if you take that number, it's an increase in the price of a ship of $80,000,000 .
We have 13 ships, so that's $1,000,000,000 in appreciation of the ships since we contracted them. So, you know, we have a book equity of $860,000,000 or so. If you add that appreciation, you are at a value-adjusted equity of $1.65 billion, and our market cap today is around $1.5 billion. So we do still think we have a very good kind of net asset value protecting our assets and also backed by the charter backlog I mentioned. So these kind of high prices on the new building side also means that you need to have a higher rate in order to defend such an investment.
Keep in mind, interest rates gone from 0% to also stabilized now today at around 4% on long-term interest rate, which means that in order to, build a new ship, contract a new ship, and, and give a rate for a, a long-term charter, we see that, rates are at around $100,000 per day, which is, you know, substantially higher than the approximate $80,000 we achieved, last year. So we do think we will find good opportunities to recontract our tonnage once it come open, at better rates.
We have seen softness in the shorter-term rates, and we actually now have a contango structure in the term rates, where longer-term charters are more expensive than shorter term, reflecting the fact that we have a lot of ships for delivery this year with a bit muted volume growth on the export side. But, you know, which should give us a lot of opportunities to recontract ships, because as I show on this next slide, contracting of ships is, of course, tailing off. The high prices, and of course, there are rather big order book already, means that very few people are contracting on speculation. Out of this order book of around 300 ships, 93% is contracted towards a long-term contract, and we see little of any speculative new building contracting at all.
We do see the number of ships for delivering tailing off, which fits very well with also the export story, where a lot of volumes are coming to the market from 2025, 2026, 2027, and onwards. And once we have this moratorium in US, we have a lot of projects ready to be FID'd, which I think will happen, where startup of these volumes will come from 2027, 2028, 2029, when we also do have quite a lot of ships open. So another thing I've been talking about now for close more than six years is the technology change. So when we contract the ships back in 2017, 2018, we contracted the newest type of ships. It's a two-stroke engine. It's a super efficient ships.
It's about 60% more fuel efficient than the old steam turbine generation of ships. Those ships were contracted typically, you know, in the 1990s into 2000, against a 20-year time charter. 20-year, maybe even 25-year time charter. And these ships are now rolling off those legacy contracts. And, you know, given the inefficiency of these ships, given the poor environmental profile of the ships, we see a few charters extending these ships. So we have about 24 steam turbine ships expected to be redelivered from a long-term contract this year, 25 next year, 12 there. So this replacement of old, inefficient ships will result in more opportunities for modern tonnage in terms of fleet renewal by the charters. So, as I mentioned, was a 46-year-old ship being scrapped last year, six ships in total. The year before, it was one.
In 2021, when the market was super hot, it was 7 ships. We will be coming into our age now, where we will have double digits of scrapping of older tonnage because it's overdue. The only reason this hasn't happened is that these ships have been on long-term charters and not being in the spot market. And then, let's look at the export market I mentioned. A bit muted on the growth, this year, given the uncertainty about Arctic LNG 2, and then from 2025, 2026, 2027, we will have a big growth of this export market. There are 70,000,000 tons of ready projects also for FID. The North Field Qatar project will, of course, go ahead, regardless of what Biden is doing in the U.S., and they might even add further volumes.
And then we do have this project in U.S. in limbo, where we need to have a resolution on this moratorium before these projects can be green-lighted and adding further growth to the market. So we will come with our annual ESG report later, probably around April. So we have an annual ESG report with a lot of measures, but we have also been part of the CDP, Carbon Disclosure Project, where we are filing for a lot of data and getting a score. We got our 2023 results yesterday, February 6th, and we've been ticked up from B minus to B. So I think that's a pretty good result for us, given the lean organization we have in terms of reporting on all these measures.
So before we head for the Q&A session, I'm just gonna repeat the main highlights. Revenues, $97.2 million, in line with guidance. We are delivering $37.8 million adjusted net income, which is the most applicable number, which gives our earnings per share adjusted of $0.70. We are a bit in a softer market now, which is no surprise. We will be ready for the spot market with Flex Constellation in the second quarter, after we have carried out the dry docking in Q4. We're happy to have a two-year extension of Flex Resolute to 2027, adding further backlog to our fleet. And then we are guiding similar numbers for Q1 this year as last year, a bit softer because of the spot market affecting the variable rate time charter.
Then we might do some docking in Q1 or most of it we do expect to take place in Q2. So with good numbers, healthy financial position, we are declaring a quarterly dividend of $0.75, bringing it up to $3.125 for the year. And that should give a yield of, yeah, 11%, it's probably 12% now. Okay, great. So, Knut, let's see if we have some questions.
Yes, thank you for the questions that you have sent in, and I think we start off again with Omar Nokta from Jefferies. And there's a number of questions regarding the Red Sea and also Panama Canal. So from Omar, these restrictions, are they enough to offset the new building deliveries and lead to a tighter market?
I think for the Red Sea, it's, it mostly affect Qatar. Qatar, they might get a bit short on shipping and need to relet in some ships in order to, to have sufficient capacity to move the Qatari volumes to Europe. So I, I think it depends a bit more on the trading pattern. Who is gonna be the major puller of cargos this year? Is Europe gonna be desperate to be the buyer of first and last resort, or are Europe gonna stay a bit more back now and, and leave some more room for the Asian countries? That will affect the market more. Panama, it's never been that important for LNG. A lot of the LNG ships, they route via Cape of Good Hope anyway.
So, you know, we've been frank about the fact that this year we do see a bit more ships than molecules. But on the other hand, we also do expect that finally we will have scrapping. You know, usually people don't scrap the ships in a good market. We have had very good markets, 2021, 2022, 2023. It doesn't give a lot of incentives to scrap a ship. But keep in mind, when these ships are getting older, and you know, they are already a bit outdated on the technology, are you then willing to commit a lot of money to dry dock those ships? And typically, you have to replace a lot of these older systems. So I think that will be a bit more important.
I think also the price curve of gas will be important, because if you have a contango structure in the price curve of gas or LNG, you will have floating storage, which typically any year can take out 40- 50 ships off the fleet, in kind of this contango trade. So that, I think is probably a more important driver.
Mm-hmm. Following up on the Red Sea, the insurance rates have increased if you're trading in that area, and also there may be other costs associated with being there. How is that affecting Flex?
Yeah. Yeah, right now it's not a single LNG ship in the Red Sea. But, you know, before everything blew up, we also had ships going through that area, as the situation at that time was considered to be moderate risk for ships without a link to Israel. So but that drove up the price of the insurance. So typically, you need a war risk insurance in order to go through that area. The biggest provider of war risk is the Norwegian War Risk Fund. And the price we saw on the pricing of getting insurance to go through that area went up ten times.
Today, it's probably a lot more, but we haven't asked for a quote because we haven't had any instruction to go through that area. However, in our time charter, it's basically we are a private driver, so we show up with a ship and a crew and under a time charter, it's the charter who is responsible for the routing and the instruction to the ships where to trade. That also means that a charter is responsible for taking the cost associated with that trade. So if the charter elects to go through Suez, there will be a Suez tariff to pay, which they will have to pocket, and they will also have to cover the war risk associated with that. So that is something they will put into account when instructing the ship. The same goes with Panama.
If they go to Panama, and they pay $3,000,000 in order to skip the queue, we are not paying that. It's their instruction how to trade the ship. They have to carry all the costs associated with that, and from this year, this also includes the EU ETS. So it's the Emissions Trading System of European Union, started to be implemented for the maritime sector this year, which means that if we take a ship into Europe, we will need to buy carbon quotas for the emission associated with that trade. So typically, if you take a U.S. cargo to Europe, you will pay a carbon emission for 50% of the route because it's one ballast leg and one laden leg. But again, this is a cost of the trade.
We pass this cost to our charters, as they are the one deciding where the ship goes. And of course, this has created some issues in relation to the Red Sea, because a journalist, they typically ask you, "Are you sending your ship to the Red Sea?" But, you know, under a time charter, and every single voyage in LNG shipping is a time charter, regardless if that's a spot voyage, a short voyage, a term charter, it's a time charter. And under a time charter, charter is the one instructing the ship. We will have to follow them, those instruction. We have a contractual obligation to do so. However, in our standard time charter, there is certain provision in relation to safety, so the master has to assess the situation together with us, whether it's safe to comply with those instructions.
If it's not, then of course, we can reject. But, you know, that also opens you up to litigation. What is safe and what is not safe? It's a bit of ambiguity, and we rely on advice from outside advisors, as well as the people writing the war risk insurance, in order to make that assessment.
While we are at cost, there's a question here on demand for crew. With the big new order book-
Mm
... and deliveries of new buildings in the coming years, how do you see demand for crew and the situation for Flex?
Yeah, it's a very relevant question because, you know, top of my head, there is about 1.6 million seafarers in the world. A lot of this used to be Russian crew, which these days, there are certain restriction on those, and a lot of that crew base were LNG officers. So that means it's you need to replace, you know, in some instances, that crew because, you know, you might not be able to pay them. So that has also created some issues. You have Ukrainians, which is also a maritime nation, where a lot of Ukrainians have elected to rather stay at home and fight the war rather than being at sea. So yes, it's not that easy.
However, you know, LNG business is maybe the most technical, sophisticated part of the shipping industry, maybe together with container ships. So that means you will typically always be able to attract talent for this business, which means basically we need to poach people, the best people from the tanker space or the LPG space. So basically, you're passing on the problems, and at the bottom of the sector, you typically have small dry bulk. So, you're cascading the problem down, and yes, it's getting harder to get people. LNG will always be able to find people, but, but, you know, these are sophisticated ships. You cannot let everybody just run these ships, because there's a lot of technology in these ships. So it's getting harder. We are able to do it. We try to retain our crew.
We try to be a good employer so that people want to sail with FLEX LNG.
We have questions from BTIG, and it's related to Flex Constellation-
Yeah
... and the rechartering options and alternatives and what's your preference?
This is Greg or?
It's Greg, yes.
Good to see you, Greg. Rechartering opportunities, let's see. We need to get a kind of firm redelivery date and... But our plan is to once we get her back to dry dock and market her, we already been around talking to people. We if we had a contract, we would of course announce that. So given, you know, the nature of this business and the name of the company, we are flexible. We are open to do shorter, longer, medium-term. We really need to see what is the economics, and then if it makes sense, we are open to fix long. But if we don't get the numbers we want, we are happy to trade our ship back again in the spot market.
We've been out of it for some time now, and I have to say, we missed the action. But you know, we are super comfortable with that. We're 94% coverage for this year, so we can afford to have our ship in the spot market if we deem that to be more attractive than finding a term deal.
Then there's a number of questions on EU ETS.
Yeah.
How are we prepared? How is that? Is there any cost for us?
Yeah, I think I already covered it. It's part of the time charter logic. So, the charter instructing the ship, if they're instructing the ship to go into EU, that is associated with cost of trade, which is the EU ETS. So we have amended our time charter, to where, kind of, we will typically, they either they will, buy the carbon quotas and surrender them to us, and we will surrender them to EU, or we, we buy them for the charter and send them a bill for those carbon emissions, and then surrender it to EU. For us, it's not a cost, it's a pass on, to the charters. And of course, in the end, they need to pass that cost to somebody, and, that is Mr. Consumer. So there's no tax without any cost.
So in the end of the day, it's the consumer paying this tax, not us.
Then we are segueing over to business development and capital allocation. So maybe we, we'll start with the, with the growth questions. How, how do you plan to grow FLEX LNG beyond the 13 vessels?
Yeah, it's we had this question now for some time. We, we, you know, we're looking at the market, but, you know, we are stewards of the shareholders' capital. You know, if we, if we contract a ship today, if we're super lucky, maybe we get the ship in 2027. But, you know, the, the, the slots availability are now getting into 2028. So that means that we are spending, let's say, $262,000,000 today to get the ship in 2028. So it's four-- we are, we are not seeing that money for four years. It's not the price, it's not $262,000,000 because, you know, we need to have supervision. We might need to, to draw a loan, a building loan with a bank, which needs an interest rate. Interest rate is 4%.
They might want a margin, 2%, so that's 6%. So once you're taking that into account, you know, the cost of that ship is not $262,000,000 , it's maybe $285,000,000 or so. That means that, hmm, is that a better use of our cash than paying dividends? You know, so far we haven't been convinced that it's better to spend that much money on new ships, so we rather focus on the ships we have. We have one ship now open in Q2. We have Flex Ranger fully open in 2027. We might have some ships open in 2028, 2029. You know, so why not focus on the ships we have open in 2027, 2028, rather than splurging out all this money on new ships?
So we are, we are not there to pursue growth because Knut and I can be, you know, happy with having a bigger fleet. Our number one, number two, and number three focus is return on equity, return of that money to shareholders through dividends, and we're not gonna pursue growth just to be big. We'd rather be big on dividends.
There's a question related to that, on paying dividends versus buying back our own share.
Yeah.
How do you look at, share buybacks?
Yeah, we've done it in the past. So, we did this, was end of 2020 into 2021. So we bought back about 1,000,000 shares at that time because we deemed it very attractive. Well, have to check the stock price after the webcast and see. So, you know, we are open to do that. If we feel the stock is getting too much suffering because of sentiment, we might elect to buy back some shares, for sure. So we're open to that. Could be an alternative. Not ruling it out, but for this quarter we are focusing on paying a dividend, and let's see what happens.
It really depends on where we see the best use of the company's cash.
You mentioned growth through new buildings. Richard Diamond from Castlewood Capital asks: "Is there any room for industry consolidation, and would you consider a NAV-to-NAV acquisition?
Hey, yes, Richard, hi to you. I hope you have a good time in Dallas. Yeah, of course, we have said for many, many years, we are certainly open for consolidation. We think there is a lot of consolidation opportunities because it's quite fragmented on the owner side. A lot of, or actually, the vast majority of LNG shipping companies are private, very few in the public domain. So we think it could make sense to have a bigger public vehicle, make it more relevant and interesting for especially bigger institutional shareholders. But, you know, we don't want to go to bed with strangers. We want to go to bed with people we share the same values, philosophy, ethics, and also the fleet, in terms of having a modern, efficient fleet.
We don't see any value in merging with somebody who has a lot of steam tonnage. So we need to find all those parameters, so that we can have a marriage rather than a one-night stand.
A question on reinvestment in the existing fleet, particularly on air lubrication system. Is it technically possible? Is it economically sensible to do that?
Yeah, air lubrication has been something that have been coming up the last couple of years. So just give you a highlight of what that is. It's basically you are putting a compressor on a ship, and you're making small holes, holes under the hull. And that compressor is taking it and compressing it, and it's creating bubbles under the hull. So the theory behind this is, these bubbles under the hull is gonna reduce the draft when you are going through water. Of course, ships are going through water, it creates a lot of resistance, and if you can reduce that drag, you could potentially then either save fuel or reduce or increase speed. I think for our ships, they are very modern and efficient. So we looked at it when we contracted.
We weren't totally convinced, and as far as we understand, we did the right choice because the first generation of Air Lubrication System has not lived up to the promises. The makers of these systems are saying that the second generation is a lot better. Let's see when we get the data. And, you know, a lot of ships today are being built with this system. On our ships, because the efficiency of the engine is like 50, 52% thermal efficiency, that means that on our natural boil-off speed, we still have a very high speed of 17.5-18 knots. So we don't really need more speed. If you add this, you might go And then but you also need to utilize natural boil-off speed.
So, you know, putting this on and, getting like a turbo from going from 18 to 19 knots doesn't really make a lot of sense. On older ships, it could make sense as part of your strategy to improve your carbon emission indicator, because your ship then, if you have a Tri-fuel or so, you have a speed of 15 knots, and you need to force boil off in order to go quicker. If you're adding this, you get higher speed. So then it makes more sense to put it on an older ship. However, on older ships, you might not want to invest that much money because it's less technical efficient. But that said, we've seen this happening also on the retrofit side. It's quite easy to retrofit the air lubrication system.
We've seen it on a 10-year Tri-Fuel, recently, where they put this on while she was doing a 10-year special survey. So it's open, but we are not considering at the moment. But down the road, if price of carbon is continuing to increase, if the carbon emission system is worldwide, where you have to pay for it, and you get a more monetary incentive to reduce emissions, then we might consider it, but certainly not before these ships are doing a 10-year Special Survey.
I think we'll round off with the last question, and that's more of a tips to retail investors that want to follow the daily development in the LNG spot rates.
Yeah.
The question is if the BLNG2 on Baltic quoted on CME-
Mm.
-if that is a good proxy for our open positions or other, other-
Yeah, it's a bit of a problem, this, that, there's very limited data on freight rates for LNG. It's a bit of a niche market. It's a lot--hell of a lot easier to follow the dry bulk and the tanker market because there's a limited, there's very few many sources for that kind of spot data. I would say that, you know, you can go to the CME. There, either you get the freight derivatives. You can see the, the, the kind of the forward freight market for a couple of different routes. So, the Baltic LNG is a good source. You also have Spark, which is a provider.
You know, I follow them on Twitter or X so that's also a good source to get the data on the spot market. Fearnpulse.com by Fearnleys is also a good source for rates on several of the segments: dry bulk, tankers, VLGC, LNG. Although they only quote on that page, as far as I know, spot rates for Tri-fuel ships, which are a bit more inefficient than our ships. So I would use all of those, and if I come up with some better sources, I will come back to that and maybe we could even make a link on our page. But you know, a good source is to follow Spark on X.
They are regularly giving an update on the rates.
That is for the two-stroke, or is that for?
They have for both, for the older Tri-fuel ships and the two-strokes, yes.
Yeah. That concludes the Q&A. So, Yeah.
Thank you, Knut. I hope you have a good birthday celebration today, and thank you, everybody, for listening in. We will be back in May with the Q1 numbers and give you an update on the company and our results in relation to the guidance provided. And if you are fond of dividends, don't miss out on the Avance Gas Valentine's Q4 presentation next Wednesday, 14th of February. Okay, thank you, everybody.
Thank you.