Earnings Call: Q4 2020

Feb 17, 2021

Thank you and welcome to today's Flex LNG webcast where we are presenting the Q4 2020 and full year 2020 results. My name is Christian Kallerkev, and I'm the CEO of Flex LNG Management. I will be joined today by our CFO, Harald Gerwin, who will go through the numbers as well as providing a financial update. Our presentation today is a bit longer than usual as we are reporting not only Q4, but also the 2020 number. So We thought it would be appropriate to touch on some topics in greater detail. Today's presentation will be last with Harald as he will step down from his position. RL joined Flex LNG as CFO on January 1, 2019 and have done a fantastic job for us securing attractive long term financing for all our ships and successfully listing the company on New York Stock Exchange. I'll join from our related company SFL, where it's been since 2,006 serving as the CFO in the period from 2012 until he joined Flex. We have Simply recruited senior banker Knut Haul to take over the CFO role during the Q2. Knut is a veteran shipping banker with experience from both Swedbank and ABN AMRO. And he will be in the fortunate position to inherit a super strong balance sheet and a fully financed company from Harald. In any case, our will stay on in our advisory capacity to ensure a smooth transition. Please also note that a replay of the webcast will be available at Flex LNG at a later point. So then we have to the disclaimer. Before we start, I will just make you aware of our disclaimer with regards to among others forward looking statement, non GAAP measures and completeness of details. And the full disclaimer is available in the presentation. And we recommend that the presentation is read together with the earnings report. So let's kick off with Slide number 3, the highlights. 2020 have been a story about going from overhang to scarcity, about new lows and new highs. In the spring, JKM gas prices hit a new historical low of $1,800,000 btu. At this time, TTFs, the Dutch Gas Hub for Northern Europe well below $1 for the first time. However, in January this year, LNG cargoes in Asia were being sold close to $40 per 1,000,000 BTU, a staggering 20 times increase. We have also seen similar movements in freight rates with the Baltic LNG, which is a freight assessment, which take into account full on rep economics, I. E. Ballast condition and this index fell below $20,000 per day during the summer, but then reached an all time high of above $300,000 per day in January for the route between U. S. Golf course to Europe. Hence, We have been through our classic gloom and boom story, which the annals of commodity and shipping industry is filled with. During the Q4, we successfully took delivery of FlexAmber in October. Given the strong sentiment in the freight market during the final months of 2020, We also made preparations for early deliveries of Flex Freedom and Flex Volunteer, so we could act quickly on market opportunities. With all the travel restrictions, this is something we had to plan well in advance as it takes a lot of time to mobilize a ship today given the visa procedures, several limitations as well as a 2 week quarantine of the crew at arrival. As the freight market became increasingly tighter, we are pleased that we We're able to secure attractive spot charters for both Flex Freedom and Flex Volunteer and these ships were delivered on 1 January 20th January, respectively. Heavily. These ships were then delivered straight to our charters from the ark. So following these free deliveries, Our fleet has now grown to 12 ships on the water. Our last newbuilding, Flex Vigilant, is scheduled for delivery in Q2. And once she is delivered, we have completed our newbuilding program with all ships on time and budget. In terms of financial, I am pleased that we in 4th quarter delivered time charter equivalent earnings for the fleet of $74,000 per day in line with our guidance in the last quarterly presentation of an average TCE of $70,000 to $75,000 per day. This is below the $94,000 $95,000 per day we made in Q4 the last 2 years, but reflect the fact that the market didn't really firm up before end of October. However, we have had a significantly stronger market into Q1 this year than the previous years, which our guidance illustrate. Despite a very difficult market during the spring summer, Our trading results for the year were fairly stable with quarterly trading results of $67,000 in first quarter, $47,000 per day on average during both second and third quarter, which marked the nadir of the COVID-nineteen crisis and then Earnings finally bounced back to $74,000 per day in 4th quarter. So on average, our fleet delivered at TCE for the year of $60,000 per day, which is well above our cash breakeven levels and as a result, we are reasonably satisfied with given the challenging market. With improved trading results, our income also rebounded with net income and adjusted net income of $25,800,000 $24,200,000 respectively. As mentioned, we have won more ships for delivery. We have secured attractive long term financing for our entire fleet, including this last new building. Additionally, we have our rock solid cash position of $129,000,000 cash at hand at year end plus our new 20,000,000 revolving credit facility, which we recently agreed. As we communicated during our 3rd quarter results presentation in mid November, 2 thirds of Q1 were then already booked due to our strong demand for shipping at year end. We are therefore guiding Q1 revenues of $80,000,000 to $90,000,000 which is significantly higher than the 67,000,000 of revenues in Q4. This reason for the expected revenue increase is delivery of 2 ships during January, but we are also expecting higher average TC for the Q1. It is very rare that you see stronger trading results in Q1 than Q4. So we are off to a good start of the year and the market outlook is much sounder than last year given the drawdowns of gas inventories, which will spur restocking demand. Given our recent strong trading results, our very sound financial position and healthy bookings for Q1, the Board has decided to hike the dividend from $0.10 per share to $0.30 per share for the Q4, which provide an attractive yield of about 13% on an annualized basis. Given the improved outlook and positive share price development recently, The Board has also decided to increase the cap under the share buyback program we initiated in November from $10 to $12 $12 is still only 80% of the book value of the stock. And our book consists entirely of new modern LNG carriers Fully financed, so we think it is in the interest of our shareholders that we utilize some of our financial resources to invest in buybacks as our ships are still much cheaper than newbuildings at yard, which comes without financing and which cannot be delivered before 2023, while all ships on the water are generating cash flow today. So Slide 4 provides an overview of our fleet composition. To repeat, we are expecting revenues of $80,000,000 to $90,000,000 for Q1, which is strong numbers. We still have open positions as currently about 13% of available days remain open And we also have 3 vessels under variable hire where we do not know the realized earnings before the end of the quarter. Therefore, the range in our estimate. As of today, we have 4 ships on fixed tire TCs. This is FlexRanger, which have been trading for Enel and its subsidiary Endesa for about 20 months. We have recently been notified that the charter has selected to utilize its 3 months earlier redelivery option. Hence, She will be delivered to us by end of February. We are however we have however fixed Flex Rainbow on a 12 month fixed hire charter with a large trading house, a charter that commenced end of January. In July September last year, we took delivery of Flex Aurora and Flex Resolute and both these two ships were fixed on fixed hire time charter with our major utility. Today, we also have in total 3 ships currently operating under variable hire TCs. Flex Enterprise, we recently extended by another year under its variable hire contract where the charter is a supermajor. This will be the 3rd year under this variable hire contract for Flex Enterprise and she is thus booked until March next year. Flex Artemis was delivered in August and immediately commenced a long term variable time charter with Gunvor. Lastly, We took delivery of Flex Amber in October and she commenced a variable higher time charter with a super major once arriving in load port end of October. With our spot market on fire during the end of 2020 as well as early 2021, we have benefited from having substantial spot exposure with additions of the 2 new buildings, Flex Freedom and Flex Volunteer, which we have employed in the spot market. Our last new building will be Flex Vigilant and is scheduled for delivery in May. So if we look at Slide 5, just How we illustrate how we have allocated our earnings in 2020. We generated an adjusted earnings per share of $0.17 in the first quarter with an average trading result of $67,000 per day. In Q2 and Q3, we achieved the trading results of $47,000 in both quarters due to a challenging market following the COVID-nineteen pandemic. But still we managed to generate $0.01 of adjusted earnings in these two difficult quarters. As market recovered in Q4, we generated $0.45 in adjusted earnings, which summed up to $0.63 per share for the year. So how did we spend these earnings? As we had 4 ships for delivery in second half of twenty twenty, we spent about $20,000,000 related to remaining CapEx for these new buildings, which equates to $0.40 per share. Then we paid out a dividend of $0.10 in Q4 in March and another $0.10 for Q3, which was payable in December. In total, dollars 0.20 per share. We also started to buy back our share at the end of the year and bought 203,000 shares back in 2020 at a cost of about $1,700,000 or $0.03 per share. Hence, this sums neatly up to $0.63 which is also adjusted EPS for 2020. Slide number 6, COVID update. Operating our ships through 2020 have been made much more difficult due to that due to COVID-nineteen. A lot of countries have put up a lot of travel restriction and impediments for crew changes and repatriation of seafarers have become more difficult. Shipping is a global business and it function as the lifeline of the economy with its integrated supply chains and just in time management. They say that no man is an island and good things come to those who wait, but this has not been true for seafarers in 2020, who we think deserve the proper recognition for their valuable contribution making the world go round. We have recently seen some improvements and public awareness have been raised with initiatives like the Neptune declaration on seafarer, well-being and crew change, which we together with our Affiliated companies, Frontline, Golden Ocean, SFL and Advanced as well as about 300 maritime companies signed up for recently. However, crew rotation and tire inspections are still difficult to carry out and we once again urge the global community to get it back together on this issue. As explained in the Q3 presentation, we acted quick to put in new routines and safeguards to ensure the safety of crew and cargo while being able to keep our propellers running. We have closely collaborated with our charters to coordinate crew changes Even though this from time to time have resulted in a higher level of deviation as we have had to take some detours to get through often on our ship. Since May, we when most of the lockdowns took effect, we have still managed to carry out an impressive 67 crew changes. This means we have been able to keep the number of overdue seafarers to a minimum, but it's not possible to get the number to 0 right now. When we reported in November, 93% of our crew was on time, I. E. They were not overdue on the contracts. We have since then managed to increase this to 96%, which puts us in world class category based on the numbers we are seeing in the industry. At the same time, we have been able to reduce overdue time for those seafarers which are working overtime. We now have no crew being more than 30 days overdue. Furthermore, of the 4% of our crew, which is overdue, half is less than 14 days, while the remaining 2% is overdue by less than 30 days. Our newbuilding team have also faced logistical challenges when planning for the deliveries and mobilization of our newbuilding and there's been many of those recently with 6 ships being delivered during the 6 month period stretching from July to January. Despite the obstacles, our ships have been food, mobilized and delivered according to budget and plan. Half of our new buildings have been pushed forward compared to contractual schedule, while free ship has been slightly delayed. For Flex Aurora and Flex Amber, this was done to fit them into employment contracts, while we delayed Flex Freedom by a month to have our 2021 vintage. So once again, I would like to extend a special thank to our seafarers and newbuilding team for their fantastic efforts. So Slide number 7, which is a busy slide. And before handing over to Harald for our financial review, I just want to highlight the rapid transformation of the business landscape, which has occurred since we took delivery of our 1st new buildings, Flex and Ever and Flex Enterprise in January 2018. So I picked a selection of some of the cover page of economists during this period to illustrate this point. Let's start off with trade. After President Trump and Xi Initially, the initial flotation failed, trade talks fell apart and the brinkmanship started with escalating tariffs. This included our 25% import tariff on U. S. LNG into China and resulted in U. S. LNG being priced out of China. If you were going to start a trade war in LNG, you couldn't really pick any worse country to fight it. U. S. Is the upstart in LNG with boundless of projects in need of securing markets and financing, while China is by far the fastest growing market. On paper, this makes them a perfect fit. U. S. Have what China needs and increased trade would also balance the trade balance between the 2 superpowers. So this have at least so far really been a missed opportunity and we do hope to see improvements there beyond the Phase 1 trade agreement. Connected to the trade war is a general slowdown in globalization. This is evident from both trade and cross border investments. In the past, trade typically grew about twice as fast as GDP as the wall became increasingly more integrated during the Pax Americana period. This have now been not been the case lately. To some extent, this is due to affluent consumer are more inclined to buy services like healthcare, hospitality, travel and education instead of traded goods. But we have also seen a breakdown in global cooperation on trade as particularly the West have shown trade fatigue and fighting for increased globalization have become political suicide. Hence, the World Trade Organization, VTO, have not been able to conclude our global trade agreement since the Uruguay round was completed back in 1994. The Dua round have been stuck for more than 20 years with no end in sight. Trade agreements have thus lately become more regional in scope rather than multilateral. Today, we do see that developing countries are the ones pushing for trade liberalization, while rich countries have retreated. Luckily for shipping, developing countries now represent a higher share of global GDP and are generally more inclined to consume goods like energy. While we have seen deglobalization in trade, we have however seen globalization of the COVID-nineteen pandemic and this at a staggering pace. The virus, which most experts thought would be a minor flu outbreak in China, went viral on a global scale and the rest is history. However, the remedy to the virus have been achieved through global cooperation and the manufacturing and distribution of the seen would not be feasible without global supply chains. With the COVID-nineteen outbreak, a lot of folks were expecting that IRM environmental concerns would be overshadowed by COVID-nineteen and that the public purse would prioritize employment rather than the environment. But this has not been the case. The political will to reduce carbon emissions have been remarkably strong despite the biggest economic contraction since the Great Depression. And U. S. Is now also joining the global community under the Paris Agreement. Just from a pure Economic rationale, it makes sense to push ahead with the energy transition. With a lot of fiscal stimulus, it makes sense to spend these public funds on energy for the future, which is low carbon gas coupled with renewables to avoid locking in emissions by opting for coal. So coal will be the We'll be facing tougher times ahead as also illustrated by one of the covers. It's not only the public sector We have become more conscious about sustainability. This is also a big investor trend. People who are making their money available for corporations want to see their capital contributing to the good of the society. 15 years ago, Economist, which is another progressive magazine, ran our cover with the title The Good Company, a skeptical look at corporate social responsibility. Today, CSR the CSR acronym has been replaced by ESG, environmental, social and governance. And this is rapidly becoming a license to operate. This was made very clear by the recent letter authored by Larry Fink, the Head of BlackRock, which is the world largest asset manager with a staggering $8,700,000,000 under management. In the letter, for Mr. Fink, Epom is a big shakeout in how they manage the assets and companies which are not taking ESG issued seriously is being excluded. And this will also apply to passive index funds and exchange traded funds, which have now become the most popular investment choice. So we inflexed in coal activities very well aligned with the public, our ships transport our cargo, which primarily replaced coal with 50% reduced CO2 emission. At the same time, this fuel cleans up the local air quality. A recent study from Harvard with the worldwide premature deaths from poor air quality due to particular matter from fossil fuels to $10,200,000 where deaths in China and India represent our staggering toll of $3,900,000 $2,500,000 per annum. While you might say that LNG is still a fossil fuel, which is true. But LNG or natural gas is the cleanest burning hydrocarbon reducing the harmful particulate matter pollution compared to coal by nearly 100%. At the same time, our new ships have our CO2 footprint of less than half of the older steam turbines. We have also adopted sustainability accounting standards, And we will report our 3rd annual ESG report in April, where we'll publish a lot of non financial figures related to emission as well as social and governance issues. And lastly, as mentioned, the medicine against COVID-nineteen is not only newly developed messenger RNA vaccines, but all came since fiscal and monetary stimulus on an unprecedented scale. We are living in the age of the greatest ever fiscal and monetary experiment. Will easy money in huge budget deficit at a time when baby boomers are retiring, leading to will lead to a higher inflation? Are we seeing the last melt up in the debt super cycle, which has now endured since Paul Walker and fellow Central Bank managed to reign in inflation about 4 years ago? Will this debt super cycle be replaced by a new commodity super cycle? These are questions on the top of the mind for most investors these days. In any case, we are not afraid of inflation and certainly not a commodity super cycle. Our balance sheet consists of real physical assets being 13 ultra modern LNG carriers, which transport LNG, which is rapidly becoming a commodity dealing from oil. In times of inflation, commodity stocks tend to outperform the general market And shipping is part of the commodity value change. If our customers are selling their cargoes at higher price, there is generally more money on the table to pay freight. So with that economic and political backdrop, I think we are ready for the financial half. Thank you, Erik Stein. Looking at the income statement on Slide 8. Revenues for the quarter came in at 67,400,000 up from $33,100,000 in the previous quarter. The increase is due to improved market with time charter equivalent rate for the quarter of approximately 74,000 per day, up from 47,000 in the previous quarter and also the increase in the fleet following deliver of 3 vessels in the Q3 and Flex Ambre in October, which also impacted vessel operating expenses. Adjusted EBITDA for the quarter was $50,200,000 up from $21,900,000 in the previous quarter. Interest expenses were up due to a full quarter of interest on the debt related to the 3 vessels delivered during the 3rd quarter and execution of the $156,400,000 Flex Amber sale and leaseback upon delivery of the vessel in October. Net income for the quarter was $25,800,000 or $0.48 per share, up from $3,800,000 or $0.07 per share in the previous quarter, with adjusted net income of $24,200,000 or $0.45 per share, up from $1,200,000 or $0.02 per share in the previous quarter. Looking at the full year 2020, we reported net income of $8,100,000 or $0.15 per share. As Asir mentioned, we took delivery of our first vessel 3 years ago in January 2018, and this is our 3rd year in a row delivering black numbers. Adjusted net income for the year was $34,000,000 or $0.63 per share. Then moving on to our balance sheet as per December 31 on Slide 9. We had a solid liquidity position of $129,000,000 at year end, an increase of $53,100,000 during the quarter, which we will get back to on the next slide. During the year, we took delivery of a total of 4 vessels, of which one was in the Q4, increasing the operating fleet to 10 vessels at year end with an aggregate book value of 1,860,000 In addition, we have booked vessel purchase prepayments of $290,000,000 relating to the 3 newbuildings still to be delivered at year end. The first of the newbuildings, Fex Freedom, was delivered on 1st January and the increase in vessel purchase repayments is due to pre positioning of funds in end December in connection with delivery, offset by the delivery of Lex Hambre in October. Total interest bearing debt stood at $1,400,000,000 at year end. During the Q4, we executed the 1 $156,400,000 sale and leaseback transaction for Flexember. In addition, dollars 125,800,000 was drawn under the 6 €129,000,000 ECA facility in end December in connection with the delivery of FLEX Freedom on 1st January. Total equity as per quarter end year end was $835,000,000 giving a strong equity ratio of 36%. Looking at our cash flow for the Q4 on Slide 10, we had a positive net cash flow of 53,100,000 Cash flow from operations was $51,600,000 which includes positive working capital adjustment of $14,400,000 mainly due to an increase in prepaid hire due to the strong market. Scheduled loan installments were $9,400,000 and in addition, we had financing costs of $5,000,000 relating to upfront fees, guarantee premiums and commitment fees on our long term debt, which we will get back to on the next slide. Net newbuilding CapEx made a positive contribution of $23,200,000 in the quarter relating to the newbuilding Flex Amber. As mentioned, we executed a $156,400,000 sale and leaseback transaction upon delivery compared to total CapEx including change order and pre delivery expenses of $133,200,000 In November, we announced a share buyback program of up to 4,100,000 shares. During the quarter, we repurchased a total of 203,000 shares for $1,700,000 or $8.20 per share on average. In addition, the $0.10 dividend for the Q3 of $5,400,000 was paid in December. Looking at our cash flow for the full year on Slide 11, we started and ended the year at $129,000,000 in cash. Cash flow from operations was €89,300,000 during the year, while scheduled loan installments were 36,300,000 During the year, we arranged more than $900,000,000 in new attractive financing, securing funding for all 7 new buildings still under construction at the beginning of 2020. The associated financing costs totaled $17,500,000 or which $9,900,000 were upfront fees to the financial years. In addition, we paid a guaranteed premium to Kexim totaling $3,200,000 under the $629,000,000 ECA facility, where part of the loan is guaranteed by Kexin. This is in effect repayment of interest expense as the guarantee tranche under the facility has a significant lower margin due to the guarantee. Commitment fees prior to drawdown totaled $3,800,000 while we incurred legal expenses of $600,000 Net newbuilding CapEx for the 4 newbuildings delivered during the year was 21,800,000. And as mentioned, we purchased here totaling 1,700,000 in the 4th quarter, Our total dividends paid during the year was $10,800,000 or $0.20 per share, representing $0.10 for each of the Q4 2019 and third quarter 2020. We have over the last year secured a total of $1,700,000,000 of attractive financing for the 13 vessels in Ampridd. At the same time, we have diversified our funding base with a mix of bank financing, lease financing and ECA financing. Post quarter end, we also agreed a $20,000,000 increase on the $100,000,000 facility for the financing of FlexRanger. The $20,000,000 increase will be non advertising and available on a revolving basis. We have a very comfortable debt maturity profile with the first maturity due in July 2024. Our diversified sources of funding also give a staggered debt maturity profile mitigating any refinancing We have not only diversified our financing sources, but also our pool of lenders, which now include 15 different financial institution, demonstrating our ability to raise attractive funding in a challenging capital market. Flex LNG is a clean setup with a fleet consisting entirely of latest generation LNG carriers with attractive financing attached. This also gives a very comfortable cash breakeven level for the fleet, which is estimated at around $45,000 per day on average per vessel once fully delivered in the Q2. If we look at the breakdown, both G and A and marine operating expenses are competitive at around $1500 $13,000 per day respectively. The remaining 2 thirds is financing costs, where interest expense is estimated at $13,300 per day. Around 62% of our debt is either fixed rate or hedged with interest rate swaps, giving predictability on interest expense. The remaining $17,500 per day is repayment of debt. All our loans are amortizing with an average repayment profile of less than 20 years to 0 compared to the depreciation profile of our vessels of 35 years, which means we are paying down our debt more rapidly than the assets depreciate. The competitive cash breakeven level and all vessels on the water generating income from the Q2 means we are very well positioned to generate substantial cash flows going forward as illustrated on the graph on the right. And with that, I hand the word back to Oosthen, who will give an update on the market. Thank you, Arag, for the good financial review. And again, I have to say you did done a great job and you're leaving the company with our envious financial position. As mentioned in the introduction, The COVID-nineteen pandemic plagued havoc with the energy market when shutdown and lockdowns took effect. Oil price collapsed on with West Texas Intermediate Oil Polling as Low as -thirty $7 per day, which is still hard to fathom. Natural gas prices and LNG was also affected with record low gas prices during the summer. We did, however, avoid negative prices, but European gas for some time traded below $1 per 1,000,000 BTU, which equates to oil at around $6 per barrel, well below the low of around $23 for Brent oil, which is not landlocked like the West Texas Intermediate crude. Asian spot LNG price also hit a all time low of $1.8 while 100 EBIT a 21 year low in June at $1.40 As previously mentioned, this resulted in a flurry of constellation of flexible U. S. LNG cargoes. But notwithstanding this, LNG exports managed to grow by about 1% in 2020, which makes it an outlier in the energy space. This is well below the 7% growth we expected, but still much better than other energy sources. The closest substitution to LNG, Pipeline gas fell by about 3% as LNG is rapidly grabbing market share from pipeline gas. By 2025, we do expect that more gas will cross borders as LNG on ships than through pipeline as LNG on ships are more flexible is a more flexible mode of transportation given the shippers More options were to monetize the gas. Oil output fell by about 8%, driven by OPEC plus Russia cut of 9,700,000 barrels as well as less shale output in the U. S. Coal, which is facing existential threat, WAFs down close by 7% in 2020, while nuclear power was down by 4.5%. Only other energy source that grew was renewables. There are different ways to measure renewables, whether it's installed capacity or electricity or power outputs. According to IEA, electricity output grew by 6.6% in 2020. Hence, as we have talked about before, Our 2 sources of energy that will keep on growing and this is renewables and natural gas. Renewables are intermittent, while gas is flexible and can be turned on and off quickly, so they fit well together as we have pointed out in the past. Okay. Slide 15, let's do a quick recap and review of the spot freight market. The graph to the left hand side represents the headline rates for large modern LNG carriers with 2 stock propulsion. Keep in mind what I've said before that headline rates do not fully take into account ballast bonus condition. So actual spot rates can significantly differ from headline rates both on the upside and downside depending on the firmness of the market. Despite COVID, 2020 has for the most part followed the usual seasonal pattern, but with much weaker rates during the spring and summer compared to previous years due to lost freight demand caused by the wave of cancellations. However, as we said in our Q2 presentation in August, We were starting to see improvements with cargo cancellation tailing off with July August marking the peak cancellation months. The comeback of U. S. LNG was, however, somewhat delayed by the most active hurricane season on record, which disrupted LNG export out of U. S. Gulf Coast plans during August, September October, but these supply outages did however spark a rally in the product market, which I will cover shortly. During the August presentation, we were we also assessed the probability of our 3rd consecutive warm winter to be low as La Nina alerts were then already being sent out. As we pointed out, last time we saw a cold winter in 2017 2018, The spot market held up well in Q1. We therefore key kept substantial spot exposure during the winter either by trading in the spot market or fixing our ships on variable higher time charter, which are linked to the general freight market. As we have now seen, The thesis of a cold winter played out well for us. 1st, Northeast Asia was hit by extremely cold weather in December January with Beijing experiencing the coldest weather in 5 decades, while Japan experienced record snowfall in several regions, which together with nuclear shutdowns resulted in the power market going haywire at the start of the year. Northern Europe have, however, been unusual cold in January February, driving up gas demand and inventories down. Recently, we have seen the Arctic weather also hitting Middle America with Texas averaging similar temperatures as Alaska, resulting in all time high power demand and causing rolling blackouts in one of the most energy rich places on the planet. While the market was on fire at the end of the year and into January with record high freight rates, Rates have now normalized as the cold spell in Asia have subdued. The cold weather has however continued in Northern Europe with firm gas demand and a big drop in gas inventory. Consequently, the spread in gas prices between Asian and European markets have narrowed, which is also evident from the next slides when we are talking about product prices. Less arbitrage And gas prices returning to more fundamental values have thus pushed more Atlantic cargoes to Europe instead of the longer route to Asia. During December January, a lot of ships had to take the long route via Suez or Cape of Good Hope and this can add up to 50% to the sailing distance. Shorter sailing businesses have thus freed up more ships and this coupled with less arbitrage have cooled down the freight market. As you can see from the graph on the right hand side, vessel availability was very low at the end of the year going into 2021. This was particularly the case in the Atlantic or the dark blue color here. So the ships coming open now are mostly based in Asia where demand was strong at beginning of the year, while we are now seeing more of the Atlantic cargo staying in this basin, which means some ships will need to reposition. Trade rates have thus returned to seasonal normal levels, but we were able to monetize a strong market by fixing both our new buildings on in charters as mentioned, while also getting a boost on our variable hire contracts during January. Next slide Illustrate the development of the spot market with spot LNG volumes going to 37% of volumes in 2020. There is also more demand for spot freight. And with high availability of ships and low rates in the summer, it was easy for charters to opt for spot fixtures, particularly given the high level of uncertainty that a lot of folks were working from home probably also affected decision making. However, we do expect the spot market to mature. So it's positive to see spot or short term fixtures growing by about 50%, which makes this market more liquid. So gas prices. So gas prices started to recover over the summer into a cold winter. The average AKM Pointmont contract for February was about $18 but it hit the high of $32.5 before rolling over on January 15 to March contract. And this was due to buyers in Asia being short on volumes given the coal spell. This is our remarkable turnaround. However, such prices are not sustainable in the long term given the oil price. As at one time, LNG prices were trading at about $200 per barrel of oil equivalent. So LNG prices have now normalized. As oil prices have been on a bull run, LNG linked to oil price at the slope of 13%, which equates to about 25% discount oil have therefore strengthened and is now back above spot LNG prices. The takeaway from this slide is, however, that future prices for gas in Europe and Asia are now well above U. S. Prices, which reduced the risk of cancellation significantly and where cargo economics are at a level where charters can pay substantially higher freight over the summer than what was the case last year. This notwithstanding the recent cold spell in U. S. With associated high gas prices, which is expected to subside. Slide 18, inventories. So during the summer, a lot Folks were monitoring the European inventories levels closely as European customers were buying a lot of cheap gas for storage given the vast storage and import capacity in Europe. With 100,000,000,000 cubic meters storage capacity, this equates to about 70,000,000 tons of LNG. Europe can effectively buy all of the U. S. LNG capacity and put it on storage. In reality, LNG will be competing with pipeline gas for such reinjection. By the summer, European buyers became exhausted as we were approaching tank tops. However, with the pull from Asia during the winter and the cold winter in particularly Northern Europe, The flow of cargoes to Europe have slowed down considerably and this have resulted in a high level of inventory drawdowns with European gas inventories going from tank tops to Noah level well below the previous 2 seasons and also below the 5 year average. Hence, this will be supportive of the market as European buyers will be required to restock in order to make sure they have sufficient gas on storage once we are approaching winter again. We therefore think we will see our contango curve in the market again during the early autumn, which might very well incentivize floating storage, which our ships are ideally equipped for. So the weather, Slide number 19. I'm not going to spend too much time on this as most of you will probably read newspapers, but we have highlighted repeatedly during our presentations that Weather plays a huge role in the LNG market. And while the winter has been mild, the 2 previous seasons, it's back with our engine this season, first in Asia, then Europe and now in the U. S. This only illustrates the fact that it's not possible to just electrify everything. We need flexible gas as part of the future energy system as the gas system can transport ample energy on short notice to consumer, particularly under peak conditions. In Germany, where renewables have a high share, there has been a lot of talk about Dunkelflautangst. Dunkelflauter is a word where we combine Dunkelheit, meaning darkness, which is not good for solar energy with the word of windflauter, which means a little wind. I think recent experience have demonstrated that Dunkelfroute combined with coal spells evidence the need for flexible gas And it's therefore not surprising that energy majors like Shell, BP and Total are building the future business strategy around low carbon and clean gas together with renewables. So U. S. Export, Slide 20, while OPEC and Russia balanced the oil market through Fiat, the LNG industry sorted out the needed rebalancing through the market as there was no sign that the big producer like Qatar and Australia were willing to cut capacity. And this was neither to be expected since both countries have offtake agreements underpinning their production and both countries have very low cash cost of producing the LNG. Hence, it was up to U. S. To rebalance the market and this was done by off takers utilizing the contractual right to cancel cargoes usually 2 months in advance. With these cancellations, which counted about 190 in total, About 13,000,000 to 14,000,000 tons were removed from the market. Some supply disruption in places like Australia, Norway, Malaysia and Trinidad and Tobago took care of the rest after rebalancing and this actually led to shortage of LNG at the end of the year as mentioned demand picked up. However, with thermal demand, U. S. Production is up again at full capacity and EIA expects the production this year to be around 8,500,000,000 cubic feet per day, which equates to around 66,000,000 tons or around 88% utilization. So the number conscious think that there will be much less cargo cancellation this year. U. S. Is, however, rapidly ramping up capacity and is destined to take over the drone as the largest exporter at least for a short while prior to the Qatari expansion. So let's review the development in imports and exports with an overview of the 10th largest exporters and importers in 2020 compared to the levels in 2019. So the 10 biggest exporter here, I think, represent around 87% of all the Exports and the import, so the 10 biggest imports, I think is around 81% of the world's imports. So while Europe absorbed nearly all the 35,000,000 tons of LNG coming on stream in 2019 and also soaked up a lot of volumes in the first half of twenty twenty, Asia started to pull cargoes in the second half of the year. This was particularly driven by increased import by China, which grew its import by more than 6,000,000 tons and thereby coming close to Japan. We do expect China to surpass Japan in import volumes by end of 2021, possibly 2022, depending on economic growth and the scheduled restart of nuclear plants in Japan. India and Taiwan also grew steadily in 2020, while Turkey was the main growth market in Europe. On the export side, Qatar and Australia were neck on neck In 2020, with slightly higher export numbers in Qatar than Australia according to Kepler. We expect Australia to surpass We expected Australia to surpass Qatar, but they fell short due to outages of Gorgon and Pollut. U. S. Recorded the highest growth with about 11,000,000 tons, but this also fell short of expectation due to the cancels mentioned. So Slide 22 illustrates some of the points I've already made. After a wave of cancellation during the spring summer months, the market picked up with what can visually be illustrated as a recovery in the import share of Asian buyers with export cargoes destined for Asia going from a lower 58% in May to 77% in January 2021. So higher imports to Asia mean that Atlantic cargoes will have to be transported further and this underpinned really in both product prices as well as freight rates as I will illustrate on next slide. So with the pull from Asia, Panama became congested due to its limited capacity. Be. Going through Panama is the shortest route to Asian markets for U. S. Cargoes. Interest output from U. S. Combined with pull from Asia means a lot of ships had to take the longer route through Suez and Cape of Good Hope. This can add 50% travel distance to our already a long journey of typically around 10,000 nautical mile versus the average sailing distance for other cargoes of around 4,000 nautical miles. There were also a lot of ships waiting in queue, both with waiting time of up to 14 days. This adds ton time similar to the longer sailing distances. So this also drove shipping demand. And Panama congestion is not a fluke. This will happen again as U. S. Will continue increasing its output. Asia will continue to grow its LNG demand, while the capacity in Panama is finite. So FID is on Slide 24. So it's been a while since we have included a slide on new LNG export projects. Last time we included our slide with this was in connection with our Q1 presentation in May where We put up a list of all the projects covered by a box where we just wrote delayed for all the projects except for Qatar, which we said would most likely go ahead regardless of the developments in the energy and financial markets given the cheap feed gas and the deep pockets of the Qataris. Despite this, one project was sanctioned at the end of the year and this was maybe not too surprisingly Costa Azul, which is located northwest in Mexico, close to the U. S. Border. This project had already secured offtake for most of its volumes, is able to source gas from the shale place, while also offering our location not dependent on the Panama Canal, which certainly would be an advantage this season. The highly anticipated expansion by Qatar Petroleum from 77,000,000 tons to 110,000,000 tons have also recently been given the formal green line. There is a couple of things worth mentioning about this project. The project has a breakeven cost of around $4 per 1,000,000 btu and this is equivalent to oil at around $25 per barrel and highly competitive. It also includes the world's largest carbon capture Plant and up to 4,000 megawatt of solar power in order to electrify the plant and thus reduce emission in the liquefaction process, as our system to reducing carbon emissions in the well to tank process have now become crucial in order to entice buyers. NOx emissions are also reduced by 40% through application of enhanced high low NOx technology. The project will conserve 10,700,000 cubic meters of water per year by recovering a whopping 75% of the plant's water. And lastly, Qatar Petroleum already have the options to expand the plant by 2 more hence bringing the capacity from 110,000,000 tons to 126,000,000 tons and they are signaling that this will happen. With the big expansion in Qatar, will there then be room for more projects? We do expect the small wood fiber plant on the West Coast of Canada To be sanctioned this year, Total recently signed an agreement with the government of Papua New Guinea for the Papua LNG project and signal their intention to build this 5,000,000 ton project, while the Exxon led PNG LNG project in the same country is facing more a more uncertain outcome. Exxon is also leading a big project in Mozambique called Rubumai LNG. It's now been reported that Exxon is in talk with Total, which sanctioned the Mozambique LNG project in 2019 about teaming up on the gas extraction as they share some of the same resource base. We therefore expect a decision about going ahead with this project will be delayed to 2022 as they have also recently as there have also been recently some security concerns in Mozambique. Woodside, which operates the Pluto field has recently secured offtake for 2,000,000 tons. So it wouldn't be too surprising if this project is also given the green light. And then finally, it's U. S. We would expect to see some more projects going ahead given the vast shale resources available across the Gulf of Mexico and we have pushed up some of the hot contenders here in the box to the right hand side of the slide. ESG, I already touched a bit on this, but as mentioned in the past, ESG is not something we just report because it's expected of us. ESG is an integrated part of our strategy. Our strategy is to move LNG to market so it can replace coal and this is the quickest and cheapest way of not only reducing global warming, but also imperative in order to solve the air pollution problems, which are running rampant, particularly in Asia. Furthermore, we have ships which are much more efficient than older generation of ships. So first, we have a cargo reducing emissions substantially And then we have ships which are doing this much more environmentally friendly. Our ships are also being fueled by the cargo with transport, LNG, which is also the most environmentally friendly fuel available. So we implemented these reporting in line with sustainable accounting standard board guidelines for maritime transportation with our first report published in 2018. Our 3rd annual report will be published in April And we will have continued to broaden the scope under what we are providing of non financial measures so that investor can assess how we are running our business, not only in terms of the environment issues, but also in relation to social and governance issues. So GHG emissions or decarbonization of shipping, which is becoming a big thing. As I've mentioned earlier, decarbonization is taking center stage in the industry. IMOS Marine Environmental Protection Committee, MEPC, held its 75th session in November 2020, where they discussed and approved the first draft amendment to Mark Hall Annex 6. The aim is to implement a short term measures for greenhouse gas emission production based on mandatory goal based technical and operational measures to reduce carbon intensity of international shipping with our view to adopt at MEPC 76 scheduled for mid June 2021. So this is probably the biggest regulatory change in shipping since the introduction of double hull tankers and it's much bigger than IMO 2020. If adopted then, as we believe will happen, these amendments would enter into force on 1st January, 2023. Amendments representing short term measures for GHG emissions reduction utilize a 2 part approach to address both technical and operational aspects of limiting greenhouse emissions. The 2 most important changes are implementation of energy and see requirement for all existing ships and not only new ships. This is what we call EEXI and this will take effect from 2023. It's a bit similar to fuel efficiency standards for cars, only that it will also include all existing ships as well as the new ships. The measuring stick here will be carbon emissions per ton mile. The second part is implementation of annual carbon intensity indicator. In practice, this means each ship will get a report card each year, which is like energy marking you find on everything from dishwashers, refrigerator or even houses. The report card goes from A to E. And if you get a D 3 years in a row or AE, then you need to take proactive action immediately. There's a lot of uncertainty about how this will play out. We can read in the newspaper that somewhere around 50% to 80% of the ships today will not be able to are not complying with these rules. And this depends whether you are reading shipping watch or trade wins. But what is clear, however, is that LNG is a bit more complicated than most shipping segments. Keep in mind LNG ships have historically been extremely inefficient as the terminals keeping the LNG cold have until recently not been very efficient. This means boil off gas and until about 10 years ago most ships used steam turbines to burn this boil off to create propulsion. But as I pointed out earlier, steam propulsion is not very efficient. Additionally, these ships have much less cargo capacity than the newer ships, affecting the ratio of carbon emission to ton mile. These ships therefore score poorly on carbon emissions as illustrated earlier. While the solution in most of the shipping segment will be to tune down the engines or what we will call engine power limitation resulting in slow steaming, this option is not straightforward in LNG shipping. You can stop the boil off from the tanks if you tune down the engines. So you either have to retrofit reliquefaction or improve insulation. But this is costly and probably not worthwhile for all the inefficient ships. Additionally, these ships are already fairly slow on boil off speed. So doing this will further decrease the speed, making them commercially unattractive. And some owners with tonnage under contracts will maybe not be able to meet operational requirements under these charters if they are pursuing this strategy. Another hot topic is CH4 emissions, which is an LNG specific issue and which has therefore not received much attention. CH4 is a potent greenhouse gas with about 28 times higher effect than CO2. We think it's fair to include this as well. If so, the carbon footprint of the 4 stock diesel electric ships will go up a lot as the carbon emission taking this into account is similar to steam ships. Hence, we think attrition of older ships due to this new legislation will go up a lot. And this will be more the case in the event of even our carbon taxation, as this will all further aggregate the problems for the less efficient ships. We are, however, well positioned to meet the required 40% reduction in carbon intensity by 2,030 as our fleet consists entirely of new ships with efficient dual fuel 2 stroke engines and a relatively low boil off rate. So we view these rules as an opportunity rather than a threat. So to put the new regulation into context, we have added a fleet list on Slide 27, which show the composition of the fleet with different classes of ships with around 200 team ships in operation. These ships are at most risk of new regulation. Another 223 ships are fueled by 4 stroke diesel electric engines and are more efficient due to size and engines, but emit a significant level of unburnt methane or CH4 as mentioned. We also have find the largest ships in the industry, the Qmax and the Q Flex, which are about 265,000 cubic and 216,000 cubic meters respectively, there are 45 of these ultra large ships. These ships are a bit of an oddity as they do not run on LNG. These ships reliquify all the boil off, which is energy consuming And they rather burn very low sulfur oil or marine diesel as they can't burn LNG. Hence, they will also be on a disadvantage in terms of emissions. However, one of the QMAG ships have been converted to our MEGI a couple of years back. But this is our complex procedure and costly. And it will in retrofitting all the ships will take them out of service for some time. We in this category In this category, we also have 27 hybrid steam ships, which are not particularly efficient given the inherently low thermal efficiency of steam propulsion. The LNG 3.0 segment consists of Magne XDF ships as well as ice breaking ARC-seven ships. So this is the place to be in our view. The Akerks 7 ships are not particularly efficient as they are also forced out diesel electric engines as they need to generate sufficient electricity to run their thrusters in order to break through ICE. But we expect them to get on ICE allowance for this particular trade. So Slide 28. So there's been a recent uptick in term contracts. So the order book today mostly consists of ships which are committed under term contracts. We have seen some of the speculative owners opting for term contracts And this makes sense as putting up our in house management takes a lot of time as we have spent considerable time and resource going through that process. And you also need a certain scale of your business for this to be worthwhile. Trading ShipSpot is also much more challenging then basically outsourcing the commercial activities to the charters under our term charter. Here you also need to upscale in order to get the relevant in for flow in order to not be put on a disadvantage and having more ships also give you better trading opportunities as you can have ships in different basins chasing several opportunities at the same time. Lastly, LNG Shipping is extremely capital intensive. Getting the capital structure that we have in place is not easy. We have managed to do so based on our tax record reputation and the fact that SEK 840,000,000 of our capital structure consists of common equity, which is not easy to raise these days. Hence, some owners of speculative tonnage have also seen It will be hard to raise financing unless they secure term contracts and have therefore opted for this. This contracting activity. However, put a lid on term rates and we have therefore elected to remain relatively high exposed to the spot market as we have assessed expected future spot rates to be more attractive than term rates, and we can also afford to do so. Nevertheless, we do aim to put a larger portion of our fleet under term contracts when the time is right. And we do think there will be ample opportunities in the future due to a lot of older ships coming off charters, and And we expect charters to prefer the new type of ships due to the reasons described earlier. So finally, last slide before summary. Slide 29 is just an update of the graph we presented in our Q3 report and the numbers are fairly similar. EIA expects U. S. To export 8.5 Bcf per day, as mentioned, 66,000,000 tons. This is 16,000,000 tons higher than last year due to less cancellation as well as some new capacity coming on stream. At this level, export will be at 88% of capacity. Prelude is back in operation after being closed 11 months last year. Compared to last half, we have not included growth for Gorgon as two trains will be inspected and repaired in 2020 affecting capacity. We put up Egypt as a dark horse in November And this materialized with ITGU back in operation and Damietta expected to return already in Q1 after being closed down for 9 years. However, Egyptian exports are price sensitive, so we expect utilization of only 68% in line with the projections from Energy Aspect. Then finally, we have new production coming on stream in Malaysia with a new FLNG unit as well as in Russia with Yamalpine IV and Potovia. Melkoye and Norway, we expect to be closed until Q4, tagging down exports to around 27,000,000 tons for 2021. There is, however, some uncertainty here, but also some upside if product prices are firm, then U. S. Can produce another about 6,000,000 tons. So that's it. We are then at The summary, I'm not going to spend too much time summarizing it. As mentioned, we delivered TCE numbers in line with the guidance. We expect to make higher revenues in Q1 compared to Q4 based on our fair market. The Board has decided to increase the dividend from $0.10 to $0.30 for Q4, which gives a attractive yield of 13%. We have 12 ships on the water and last ship for delivery in Q2. The market is looking better. We will had restocking demand. And then as we mentioned also in the past, we are fully financed. We have a HOKA solid cash position. And that's it for me folks. So then I think we can open up for questions. And I would like to thank you all for listening in. The first question comes from the line of Greg Miller from BTIG. Please ask your question. Yes. Hi. Thank you and good afternoon. And Harold, congratulations. We're going to miss you. Guys, I have a little bit of questions around dividend. Obviously, we like to move higher in the dividend. We talk about it being related to Q4. But as we Guidance, clearly that's exceptional guidance. I guess I'm just curious How we should think about dividends going forward now that we're going to have the final The vessel will be delivered in May. And really what I'm getting at is if Q1 is going to be a nice strong quarter, But as we move in towards the April May period and we see seasonal weakness, any way we should be thinking about How we should be thinking about kind of bracketing dividends just given that there is still some Cyclicality seasonality around LNG ship pricing? Thanks, K. I don't know, have you Got married because usually before and at least in 2020, you were named Greg Lewis. So It's a new year. We try new things, I guess. Okay. But okay, Greg Miller. I add the dividend. So dividend is always I think some companies, they tend to have More like, call it, a structured approach to this, where they either have like a minimum dividend and then they pay out 70 percent above that level or something like that or they say we're going to pay out 70% of earnings. For us, It's we are thinking a bit more common sense about it. We don't want to manage the dividend too much. We wanted to reflect how much money we are earning and how much money we have in surplus. So right now with the legacy of Horace Financing, we have a very good Financial position, we have more money than we need in the company. And at least the short term outlook is good. So it's Natural for us to increase the dividend. So it's more a question at what level should you put it. I think I held this presentation in September on the Pareto conference because we get a lot of questions about the dividends. And people are have been waiting for dividend because we have been in our investment mode now for about 3 years. And now with kind of the investment done, we spend more than $20,000,000 on CapEx last here despite having the ships financed. So how to think about the dividend? So we have $840,000,000 of equity. And this is all common equity. So there's no fancy equity here with some preference on dividends. So in order to give people a fair return, you could say that you should have maybe, let's say, 12% return on your equity. That's the typical number analysts are putting in at least. So that means we should be generating $100,000,000 every year. And then is that feasible with $45,000 of cash breakeven level? We certainly think that we have to generate in the mid-60s in order to be generating $100,000,000 of cash. And then how is our financial situation? It's very good. We have 130,000,000 Cash on Eurovolver now putting that up to $150,000,000 plus, of course, the cash flow we generate in Q1. And we don't really have any maturities of debt we have to worry about the no bonds. And so we are able to and aim to pay out all our earnings over the cycle. But of course, shipping is cyclical. So it's not like the numbers are very stable. That this, of course, depends on the business risk. We have elected to take spot exposure. So our earnings will be more volatile as a consequence of that. So anyway, I'm thinking, but if we're going to pay out $100,000,000 which I think is a fair, then the dividend need to go up to also to more like $0.45 But of course, we are dependent on the market. So we're starting here with 3rd year and which reflects around 67% of the adjusted EPS because we also have a buyback program. And we think the stock It's cheap. We're paying our dividend. We hope people are reinvesting the dividends. But we can't force people to spend their dividends on buybacks. So we are buying some back, but we also are mindful that we have as our dominant shareholders, so with a big stake in the company. So it's not like we can buy all the stocks back. So we're doing a bit of both. I hope that, of course, the EPSO, the cash flow for generation in Q1 will be substantially higher. So but then when we are taking that decision we are in May, we will have a bit more view on how the summer market will be developing, How we're going into more a contango structure? Are we seeing pull from Asia? Is the fiscal stimulus and the vaccines being rolled out and where we see higher economic growth. The economic growth for this year is expected to be like 4%. So all these things will at least become more evident then. And then if we become more bullish on short term outlook, I think the long term outlook we are very bullish on. So if that become more evident, then we always have the room to increase the dividend. But I think this is our dividend, which is very sustainably at least in the shorter run. So we're trying to do a bit of both. We don't want to manage it too much, But we like the dividend not to be just a factor of what you're making in 1 quarter, because While we're making our dividend decision, we're not only looking into 1 quarter, but a bit further ahead, if that makes sense. No, that's great. That's great to hear actually. And then just obviously, you mentioned the balance sheet, you're wrapping up The initial new build, well, maybe that was the 2nd phase of the new build program, where you're taking delivery of your last new build next quarter. Obviously, new builds are always an opportunity. But on that one of those on the slide in the back where you talk about Obviously, the committed vessels and the uncommitted vessels, I think there was around 30 uncommitted vessels that maybe they were ordered on spec, Maybe not. Is there going to be do we think there'll be a potential for some of those uncommitted vessels to kind of End up being resales over the next 12 months? That might very well be. But if you look at our we have to compare our stock. Our stock is basically ownership stake in our ship, our brand new ship and some cash. So 3rd in ship, dollars 130,000,000 of cash. So if you buy a stock, you're buying a slice of those shares and then you get $10,000,000 of cash attached to that ship. We also get financing attached to it and that financing is It's not very easy to replicate the process we have done raising that financing. It's banks are I'm a bit more hesitant lately about committing financing unless you have long term charters. So we think that our slice of warships should be more worth than our ship on a yard where you don't have that financing attached and where you don't have that cash attached And where you don't have our setup for managing the ship because billing in our ship management time, ship management system do take time, both the technical and also the commercial. So for us to kind of go Buying some of those on retail, they have to be more effective than buying the stock. And right now, and lately, that has certainly not been the case. Okay. Hey, thank you very much for the time. Great presentation. Thanks, Craig. Thank I think if we have some questions from the web, we can always take a Couple of those. Okay. Are you checking? Yes, I think we were talking for like an hour here. So I guess everything is very clear and and evident hopefully. If not, we are back with presentation in May. We will have more clarity, as I mentioned to Greg about economic development, how this recovery will play out. And Hopefully, we're then or not hopefully, we're very confident we will then will deliver fantastic results for Q1 and provide more guidance on the future. So thanks a lot again for joining and I wish you a good day.