Flex LNG Ltd. Q4 FY2025 Earnings Call

Hi, everybody. Welcome to Flex LNG's Fourth Quarter 2025 Result Presentation. My name is Marius Foss. I'm the CEO of Flex LNG. And today, I'm joined by our CFO, Knut Traaholt, who will walk us through the financials later in our presentation. Today, we will cover the Q4 and full year 2025 results, provide an update on the LNG shipping market. As always, we will conclude this webcast with a Q&A session.

And before we start, we would like to highlight the following. We are using certain non-GAAP measures such as TCE, adjusted EBITDA and adjusted net income. These are supplements to the earnings report reported in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures is available in the Q4 earnings report. There are also limitations to the completeness of our presentation. Therefore, we encourage you to read the quarterly report together with this presentation. And with that, let's begin and back to you, Marius.

We sell in revenues of $87.5 million, or $85 million, excluding the EUAs related to the emission trading system. The fleet average TCE during the quarter ended up at $70,100 per day. Net income for the fourth quarter came in at $21.6 million, implying an earnings per share of $0.40. When adjusting for unrealized losses and interest rate swaps and FX, we end up with an adjusted net income of $23.3 million or adjusted earnings per share of $0.43. We completed the dry dock of Flex Volunteer in January. She is now trading in the spot market. We received a notice from one of our charters that they will not declare the one-year options on the good vessel Flex Aurora, and we expect to have her back in our fleet in March. Our spot exposure in 2026 is limited to three vessels: Flex Volunteer, Flex Aurora, and Flex Artemis, and all three vessels are marked for long-term contracts. The remaining ten vessels are on time charters. We are today presenting guidance for the full year and with three vessels in the spot market, we are presenting wide ranges, reflecting exposure to the volatile spot markets. We expect full year revenues to be between $310 million and $340 million, and the expected TCE per day around $65,000 to $75,000 per day. Adjusted EBITDA is expected to come in at around $225 million to $255 million for the full year. Flex LNG has a very robust financial position with a cash balance of $448 million at the year-end. No debt matures prior to 2029, and we have a solid contract backlog. The Board has declared another $0.75 per share dividend. This is the 18th consecutive dividend of $0.75 per share, and we have distributed around $770 million since 2021. Our last twelve months dividend is $3 per share, implying a dividend yield of approximately 11.5%. When looking at the 2025 figures, the short summary is that we delivered in line with our guidance. The full year TCE ended at $72,000 per day, with sell-in revenues of $340 million. Our adjusted EBITDA came in at $251 million. We traded two vessels in the spot market in 2025: the Flex Artemis and the Flex Constellation, and we completed four dry dockings in 2025: Flex Aurora and Flex Resolute in Q2, Flex Amber and Flex Artemis in Q3. With that, let's have a look at our contract backlog. In 2026, we have 78% of available days fixed on long-term charters. As you can see in the bottom of this slide, Flex Artemis and Flex Volunteer are now trading in the spot market, while Flex Aurora will be redelivered from her current charters in March. We are actively marketing all three vessels for both spot and long-term contracts. Further, in 2027, we have options for Flex Resolute, Flex Courageous, and Flex Freedom. These options are due to be declared during this year. The spot market was a roller coaster last year with soft rates at the start of the year, while we saw a rally in Q4 with spot fixtures for modern two-stroke vessels reaching up to $175,000 per day. We expect 2026 to be equally volatile with an active market and many fixtures. There is a lot of new LNG export volumes ramping up, continued geopolitical uncertainties, potential congestion, both at import and export terminals. Still, there's also a lot of new buildings being delivered. Therefore, we have modest expectations for the earnings from our spot-exposed vessels this year. Flex Constellation is due to complete her final voyage in March before she commences her 15-year time charter in direct continuation. Looking at our total contract coverage, we have today 50 years of minimum firm backlog, which may grow up to 75 years if the charters declare all the options attached. We are optimistic about our open exposure later in this decade. We have greater open exposure during this period, which aligns well with our expectations of an attractive shipping market. Significant new supply volumes are set to come on stream, creating strong market fundamentals. Let's have a look at the guidance for 2026. We expect full year revenues to be between $310 million and $340 million, and correspondingly, we expect the TCE for 2026 to be around $65,000 to $75,000 per day. The range in revenues and TCE reflects our open position and exposure to the volatile spot markets. Adjusted EBITDA is expected to come in around $225 million to $255 million for the full year. Additionally, we will complete three dry dockings in 2026. The docking of the Flex Volunteer was completed in January, while Flex Freedom will enter dry dock later in February. Flex Vigilant is expected to dry dock in Q2. We have budgeted around 20 days on average and the average cost of $5.9 million per docking. Before handing over to Knut, I want to touch base on the key factors behind the dividend decision. Most of our decision indicators are dark green with a few exceptions. Earnings and cash flow, we have adjusted this to a lighter green, reflecting more open exposure. Market outlook. We maintain a range level. The supply of new LNG volumes is firm, but there are simply too many ships being delivered ahead of the new volumes. The long-term outlook is, however, very optimistic. Backlog and visibility. Even though we have a comfortable 50 years of minimum firm backlog, it is prudent to maintain light green. Based on these factors, the Board has declared another quarterly dividend of $0.75 per share. The dividend will be paid out on about the 12th of March for shareholders on record as of the 27th of February. And with that, I hand it back to you, Knut, for a walkthrough of the financials.

Thank you, Marius. In 2025, we had strong operational performance with close to 100% technical uptime, net of the days for dry dockings of our four vessels. The dry dockings in 2025 were completed in 64 days in total, significantly below the budgeted 80 days, hence providing more available days for revenue generation. The TCE for the fourth quarter ended up slightly above $70,000 per day, resulting in a TCE of $71,700 per day for the full year, which was on par with our guidance. OpEx for the fourth quarter was $16,600 per day, and as you can see, this is higher than the previous quarters. This is due to planned and scheduled engine maintenance performed based on running hours. Hence, we performed more of this in the fourth quarter compared to earlier quarters. For the full year, OpEx per day was $15,800 and slightly above our guided level of $15,500 per day. For 2026, we budget OpEx per day to be $16,000. The increase is primarily driven by technical expenses for scheduled maintenance and cost inflation, particularly related to crew changes. In summary, the fourth quarter revenues, net of EUAs for the EU emissions trading system, were $85 million, and $340 million for the full year. The $15 million reduction year-on-year is primarily explained by higher market exposure with Flex Constellation and Flex Artemis trading in a softer spot market. Adjusted EBITDA and adjusted net income for the full year ended up at $251 million and $101 million, respectively. This is fully in line with our guidance provided earlier last year. As a reminder, in our adjusted numbers, we adjust for unrealized gains and losses from the interest rate swap portfolio, FX, and write-offs of debt issuance costs and access fees related to the three refinancings completed last year. We generated cash flow of $44 million from operations, and net of working capital movements and dry docking expenditures, we generated approximately $36 million in net operating cash flow. We repaid $27 million in scheduled debt installments and distributed $41 million to our shareholders. In sum, our cash position was reduced by $31 million. This left us with a robust cash balance of $448 million at the end of the year. In addition to our cash position of $448 million, we maintain a book equity ratio of 27%. As noted before, our book values reflect the historically low acquisition cost and are then adjusted with regular depreciations. We also have an interest rate swap portfolio for interest rate hedging, which is valued at $17.5 million on the balance sheet. The average fixed rate of this interest rate swap portfolio is fixed at 2.5%, and we expect to maintain a hedge ratio of around 70% into mid-2027. Since January 2021, this swap portfolio has generated unrealized and realized gains of around $132 million. And with that, I hand it back to you, Marius, for the market section.

Thank you, Knut. Well done. This robust financial position provides us highly commercial and financial flexibility going forward. Summarizing the export volumes for 2025, it was a year of growth for LNG with Europe clearly leading the demand. Global LNG exports rose 4% year-on-year to around 429 million tonnes, driven by strong U.S. growth up to 25% versus '24. The rapid ramp-up from Plaquemine LNG, combined with new supply from Corpus Christi accounted for the majority net growth in the U.S. Outside North America, new volumes were limited, while Russia LNG exports declined by 2 million tonnes, largely due to sanctions. Australia saw a large decline due to heavy maintenance. On the demand side, Europe absorbed the majority of the increased volumes with imports up by 24% year-on-year, reinforcing its role as a key balancing market. Asia, on the other hand, was more mixed. Fast-growing markets such as China and India saw reduced imports year-on-year. In 2025, China reduced its imports by 15% from 2024 and relied more on domestic production, increased pipeline imports, especially from the Power of Siberia pipeline. This was also impacted by geopolitical events and the trade war with the U.S. India is typically a price-sensitive LNG importer, and while JKM traded above the $10 mark, India tended to import more LPG. In the more mature LNG markets, Japan, South Korea, and Taiwan, LNG imports were largely unchanged from 2024. The U.S. supplied most of the new volumes to Europe in 2025, and Europe has effectively switched its reliance from Russian pipeline flows to U.S. LNG. The explanation for the significant increase in LNG imports in 2025 is clear on the right-hand side of this slide. European gas storage levels entered 2026 well below normal and are now said to be around 40%, at the risk of falling to levels not seen since 2022. If Europe ends the winter with low storage levels, a substantial amount of gas will be needed to inject to return stocks to minimum levels ahead of next winter. Most are used to meet daily demand, so Europe's total buying requirements in the coming months could be enormous. Hence, we expect strong demand pull from Europe. As long as Europe maintains a high demand in 2026, there will be fewer intra-basin voyages, putting a lid on the spot market. This is also reflected in the expectations for 2026 spot rates. However, the third wave of LNG supply is underway, and we saw in Q2 last year that the ramp-up of new export capacity can suddenly absorb a lot of tonnage in a short time. This is visibly illustrated in the ramp-up of LNG Canada, which moved a lot of tonnage into the Pacific Basin. Total new building orders in 2025 were 35, down from 79 in 2024. Ordering momentum has carried into 2026 with around 20 new building orders recorded as early as February. Vessels ordered in 2025 and 2026 are scheduled for delivery between late 2025 and 2029. A meaningful share of these orders remain without attached contracts. This signals growing confidence in a firm shipping market later in this decade, a period that aligns well with our open exposure. The new building prices remained fairly stable at around $250 million for a standard two-stroke vessel built in Korea. This stability supports asset values for existing tonnage, including our fleet. We do not expect new building prices to fall materially anytime soon. Twenty-three new buildings were delivered in the fourth quarter of 2025, bringing total deliveries up to 79, up from 60 in 2024. With six vessels already delivered this year, the remaining order book is estimated at around 290 vessels, equivalent to about 40% of the existing fleet. Ninety to ninety-five vessels are expected to be delivered in 2026, including roughly 20 units that slipped from 2025. Of the total order book, approximately 45 vessels are currently uncommitted. This profile indicates that while a lot of new tonnage is entering the market in 2026 and '27, with many new modern tonnage, the steam vessels rolling off long-term contracts have seen a record high of 15 steam vessels scrapped in 2025. This is a strong signal, and we expect recycling activity to continue. Current spot rates for steam vessels are quoted under $5,000 per day, effectively pushing these vessels out of the market. The ship broker, SSY, believes close to 100 steam vessels will roll off their long contracts over the coming years. These vessels are expected to exit active trade either through scrapping or entering into regional trades. This slide shows the three waves of global LNG capacity and why the period we are now entering really matters. We are entering the third wave of LNG, which is larger than anything seen before. Over 200 million tonnes of new export capacity is expected to come online, representing around 50% growth in global liquefaction capacity. Most of this growth is concentrated in two places: North America and Qatar. The Qatar North Field East is expected to begin deliveries late this year, with new trains coming online thereafter. Additionally, LNG Canada will continue to ramp up toward full capacity in 2026, alongside increased output from Corpus Christi in the U.S. The widely anticipated startup of Golden Pass LNG is expected later in 2026, providing a further boost to U.S. liquefaction capacity. With that, let's move on to the Q&A session.

Thank you, Marius. That hands us over to the Q&A sessions and the questions that have been submitted. And thank you for all those who have sent us questions for this quarterly presentation. There's a number of questions regarding the upcoming options that you walked through in the fleet overview. Can you give any more color around these options and the likelihood of being declared?

Thank you. That's a good question. We are also waiting for that. I can't really comment on when these options are due, but the charters will do so during 2026 regardless of whether they are declared. These options will not have an effect on our fleet portfolio of 75% in 2026. So we have all seen in our presentation that 2027 and 2028 is an interesting period with the increased volumes. Yes, we're also interested to see if the charters are aligned with what we have shared in this presentation today or not. So we will report back when these options are due and inform the market accordingly.

And now, with Flex being redelivered and our increased market exposure, there are also a number of questions on the decision factors and how this should be viewed regarding future dividend payments. I think we can start off by saying that each dividend payment is a decision made by the Board at each Board meeting ahead of the quarterly presentation. It's difficult to say something about the future of dividends. However, we can say that the majority of the decision factors are dark green or light green. In the decision, it’s important to view that we have a very solid financial position with a high cash balance to support the dividend. We also have a large contract backlog, which is not subject to options being declared or not. One aspect that we are monitoring and will assist in evaluating future decision factors will be the visibility, particularly the trading of the spot vessels and whether any of these open ships will get another long-term contract. There are also a number of questions here on new buildings and the recent surge in new building orders, particularly at the start of the year, and on Flex and fleet growth. Do you consider new buildings similar to these orders?

Thank you. With what you have explained now about the position we are in, we are in a position to order ships if needed, but we are trying to be disciplined and not to order if we don't have a contract attached. As explained in our presentation, new buildings in modern two-stroke vessels today are about $250 million, and the benchmark for a 10-year contract is around $85,000, give or take. In our calculations, that’s not really a good investment for a shipowner. So we are trying to be patient, disciplined, and also working with our charters that if new buildings should be needed, we are ready to go to the yard and discuss new contracts with our charters if somebody wants to collaborate with us. But speculatively, we see others are ordering, and that’s a good sign of where we are heading. I think the exposure we have with the current open ships coming available later will mean that we are in a very good position to get these ships extended or secured for new contracts.

Yes, there is a follow-up comment to that to support that. Will we order ships or new buildings while we have nearly half of the fleet exposed in the market for '28 and '29?

No, I think we should take advantage of what we have on the water, which is still considered as new building. The entire fleet has now been through a five-year service, and I believe all our ships leaving dry docks now are in excellent condition. We have good quality tonnage, and the size is in line with the new orders, so we will focus on that first and stay disciplined.

And that covers the main topics of the questions we received today. So that concludes the Q&A session.

Thank you, Knut. Thank you all for joining our webcast today. We would like to welcome you all back to our Q1 2026 presentation, which will be back in May. Thank you.