Hi, everybody, and welcome to FLEX LNG's Second Quarter Result Presentation. It's August 14. And I'm Oystein Kalleklev, CEO of FLEX LNG management. And I will be joined here as usual by our CFO, Knut Traaholt, who will run you through the numbers a bit later in the presentation. Before we begin, just want to highlight, we will do our presentation, and followed by our Q&A session, where the best question today can win a summer pack, consisting of the Just Flex It T-shirt. We are already preparing for Oslo Marathon in September. I might be on Gastech and not able to attend this year, but Knut will run this year, he promised me. FLEX on the beach sandals, and then of course the FLEX cap. So, before we then start the presentation, I just remind you that we will be providing some forward-looking statements. So, there are limited details, and we will be using some non-GAAP measures. So, please also read the earning support together with the presentation. Yes. Let's kick off with the highlights, revenues for the quarter $84.7 million, which was in line with what we said, close to $85 million was our guidance. This resulted in net income and adjusted net income of $21.8 million and $30.4 million respectively. Just a reminder, the difference here is in adjusted net income, we only include the realized gains and losses on derivatives, while in the net income figure we are also including unrealized numbers. So, earnings per share came in at a healthy $0.41 or $0.56 on adjusted basis. Of the major recent events, we also touched upon this in our earnings report back in May. We have fixed one ship on our 10 months charter. So, we had, as some of you might recall, we had Flex…

Thank you, Oystein. Revenues for the quarter came in at $84.7 million slightly down from the first quarter, but as explained by Oystein this is due to the seasonal lower period impacting the variable higher contract for Flex Artemis and also the spot operations for Flex Constellation. In addition, we had a fewer operating days as we had a number of ships in drydocking reduce resulting in an offhire. That returns into a time charter equivalent per day of 72,400 and if you look at the vessel OpEx as we commented on the Q1 presentation we were a bit low compared to budget, but that is timing effects of our expenses. So, we're slightly higher this quarter, but please note the full six months average of 14,600 and we are in that sense in line with our budget. When we look at net income, net income at $21.800 million that is $0.41 per share, in the report, you will see that we had realized gains from a derivative portfolio of $6.8 million and we had unrealized losses of $3.4 million. In the adjusted numbers, we adjust out the unrealized gains and losses. So, for this quarter, the $3.4 million and also the slight FX gain. And then, we also add back the cash gains that we realized on the amendment of an interest rate derivative swap in April. As announced in the first quarter presentation, we reduced the duration of two swaps, one for Q1 and one for the second quarter, and that's adjusted into the numbers. So, we get an adjusted net income of $30.4 million or $0.56 per share. Looking at our cash balance, we're at $38 million from operations and $9 million of change in networking capital; we reduced our debt by $27 million in scheduled installments,…

Okay, thank you, Knut. I'll show you the summer kit for your holiday with Madonna. So, okay, let's look at the market. So, this is the overall product market for LNG, quite muted growth in the quarter, up just about 1% year-over-year compared to last year with U.S. being the main growth engine, and also solidly ahead of Australia and Qatar, 43 million tons in first-half of the year versus 41 million tons and 40 million tons for Australia and Qatar. Interesting to see that despite the conflict in Ukraine and Russia is still going and expect them to go even more. So, now with -- we have seen two loadings on the Arctic LNG 2, the new liquefaction plant where they have been able to source oldest tonnage for this project to do the loadings as we alluded to in our May presentation where we said that we thought that shadow fleet of LNG ships would develop based on the discussion we had with different market actors and interest in the S&P market. So, not really surprising for us to see that, but it's a bit surprising that some people didn't expect this to happen. We had a lot of time to prepare for this. And we are basically following the recipe for petroleum market where they have been successful in keeping oil barrels flowing through friendly nations. Typically, India, China, Brazil, so it's really the BRICS. So, we do think that the Russians will find also willing buyers for these LNG volumes. On the import side, we have mature Asia, being Japan, Korea, Taiwan growing 4%, driven mostly by coal shutdowns and of course lower prices also helps. Europe had a mild winter with high inventories coming out of the season and somewhat muted energy demand. And then,…

Yes, thank you all for the questions you have provided. We have a number of them. But maybe start with the market and the sentiment for long-term contracts. Have you seen any change in sentiment or activity? And how do you then view the opportunities for types of Flex Constellation and Flex Ranger?

Yes, I think it's easy to say something, but we are a bit data-driven as well. So, we do see that rates have picked up on the term rates. Spot rates, of course, it's not unusual that spot rates pick up. They usually pick up. They bottom out typically March, April, and then they go up. But we do see also term rates picking up. And we are once in a situation where shorter term rates or five year rates are higher than 10-year rates, which is how the market should be in a balanced way. If somebody can commit to taking a ship for five years at the same rate as a 10 year, most people will commit to taking five years rather than 10 years. Typically, people want the discount if they're taking a commitment of 10 years rather than five years. So, we are getting a bit better balance in the market. We do see increased inquiries for term rates. And it's not really surprising because there is this roll off of steam tonnage I've shown earlier today. Steam ships on legacy contracts being rolled off. People don't want to keep those ships. They want to renew them with much more efficient ships. We've shown in the past fuel efficiency per cargo ton lifted on our ships is about 58% better than a steam ship. So, that means that it's not only good economics, it's also good for the environment. So, when people are committing for a five, 10 year charter, they don't want steam technology. They want the new ships. So, we do see more inquiries for that for fleet renewal. And also some of these projects where are now signing up SPA contracts are also starting to look at locking in shipping. So, I think that bodes well for our strategy here trying to fix that window near term where we have seen muted growth of the market in terms of volumes, and then having our ships available ready for the next wave of LNG.

We touched upon in the presentation on the Russian shadow fleet. So, a number of questions here, how do you see that impacting the LNG shipping market, and their ability to grow to a large fleet and how that will impact the global trade?

Yes. This is not like a new phenomenon. This is a well-developed situation on the tanker side both the crude tankers and product tankers, but also on the LPG side here, around gases, well with a shadow placed on the VLGC is very big there, we're talking up to 15% of the fleet being in this captive shadow trade. So, for that particular trade, it's Iran-China. On the petroleum products, it's typically Russia, India, China, maybe Brazil. On the crude it could be Venezuela, Iran and then Russia. So, it's a lot of read-through from the other markets. It's basically the same thing happening. Older ships are being taken up by the affiliates with the Russian counterparties and they go into a captive trade. Once that ship goes into that trade, it will never come back to the regular trade. It will stay in that trade. If they have insurance at all, it's with a shady counterparty. And this is a way of the sanctioned party to avoid the sanction and being able to generate revenues on the products. So, it means that you could have some steam tonnage that we thought might be scrapped will go into that trade. But this basically also then to replace those ships that the Russians were trying to buy, a lot of icebreaking Arc 7 ships, which were sanctioned and they are not delivered, so they have to find a way to arrange that logistics without those ships that they contracted. So, it doesn't really affect the net fleet growth because some ships are not being delivered and some ships that we thought would be scrapped, they might go into this trade and we will never be in this kind of trade. Most serious actors will not be in that trade. But it just changed the dynamics because we haven't had the shadow fleet in LNG in the past, but it seems like this is something that will happen now and with a lot of similarities to the tankers and the VLGC side. But it's not good in the sense of you have a lot of ships trading around the world without proper insurance and maybe not proper maintenance, and these ships are old. So, it's a time bomb before one of these ships end up in a situation where you will have spills and ships sinking, breaking, whatever, which will be an environmental catastrophe. It's not that serious on the LNG side because LNG is cooled methane, so if something happens, that gas or the LNG on that ship will heat up, become gas vapor, or basically methane vapor, and it will evaporate. But that is not the case if you look at the crude tankers or the petroleum tankers, then you have a product that's not going to evaporate, but it's going to be landing on somebody's shores.

Then we are transitioning over to more to the trading pattern of the global fleet and a normalization in the Panama Canal operations. But still, most of the ships are trading through the Cape of Good Hope. Do you see any trend back to a normalization with transit to Panama Canal, or continue that the Cape of Good Hope will be the preferred route?

I think the booking schedule in Panama is not really always suitable to the LNG's trade. It's very rigid. A lot of things can happen in the market. You book a slot and you have a cargo, suddenly prices moves and you either want to send that cargo somewhere else, or in terms of you ballasting a ship and you -- if you're going in a Pacific Ocean when you're ballasting on that ship, there's really no place to pick up a cargo except for U.S. If you're ballasting from China to the Atlantic, you can pick up a cargo in Australia, you can pick up a cargo in the Middle East, West Africa, so it gives you a lot more optionality to fix that ship on a cargo, while if you go in the Pacific route, you only have just one option. So, the canal authorities have been in dialogue with LNG players to try to find a system that incentivize them to use the canal more, but we still see that people just don't -- they don't like the rigidity and also there are costs associated with using the Panama Canal. If you have a lot of slack in your program, for example, you have a commitment to deliver cargo. You have a natural boil-off, so some of the fuel has sunk cost. So, if you are using the Panama, you're paying them the toll, you go through, you come to China, and then you are waiting for 10-14 days in order to discharge. You will not stop the boil off, so you have to consume that. And then it's not really any cost of going the longer route. You save the Panama fees, and you're just burning the same, basically, amount of LNG. There are some differences there because some ships have equipped re-liq system, we have four ships with a partial re-liq, three ships with the full re-liq. So, if you have those kind of ships, very advanced ships, you can use the Panama, you can go to China, you can idle there, and you can re-liquify part of the boil off, and then get that back to cargo to reduce your fuel. So, really a bit also dependent on the specification of the ship in that trade.

And then a follow-up to that, as we see in more and more cargo going to Asia and also taking the long route through the Panama Canal, and also with the Cape of Good Hope. The ton mile effect of that versus the fleet supply coming over the next --

Yes, so, in general, of course, we always like when you have a pull to Asia, especially if you have a pull to Asia with congestion in Panama because, as I mentioned, these numbers in nautical mile, it really drives up the requirement for ships. So, we have seen that now, and lately often if you have ships from U.S. going to Asia not utilizing the Panama, they will typically use the Suez Canal with better weather and shorter route. Today, nobody is using that except for those taking cargo into Egypt with a switch from being a exporter to importer recently, and then to Jordan. Except for that, nobody is using the Suez Canal for transit, except for these two ships linked to Russian buyers for Arctic 2. So, it's positive. We want as much LNG to flow to Asia, in general, because it drives off them. And that's one of the reasons why I would say spot market's been surprisingly good this summer because we didn't really expect that much pull through Asia. And then, on top of that, you have the Suez crisis, which also adds on some extra ton mileage.

Then to Europe, and EU, it -- yes, how do you see that play out for the modern two-strokes versus the steamers and the tri fuels?

Yes, I can start with the question. You are more in charge of the implementation on all side for it, but I can just give you some broad ideas. So, of course, for this year, ships trading into Europe will have to buy CO2 carbon permits or basically the ETS for the emissions they are creating. And, of course, this is being implemented over a couple years with a higher threshold, you have to buy -- every year, eventually, this will be 100% of the kind of documented emissions you have on 50% of the trade. So, if you're going from U.S. to Europe, there's two legs in that trade. It's the laden leg, and then it's the ballast back. So, that's why you're getting to 50% because you are 50% in Europe and 50% in U.S., which don't have this EU ETS. So, the price of this EU ETS, of course, is volatile. It can be EUR100 or EUR60. So, you have to measure that kind of emission you are creating, and then it's not offsetting it because it's not a carbon offset, but you have to pay for that permit of the documented CO2. So, that will create a cost of emissions, which I think is the best way of dealing with global warming. If people pay for it, they have a real monetary incentive to do it, much better than having bureaucrats making a lot of rules, and giving out a lot of subsidies. Better put the price on it, and behavior will change. So, we are generally in favor of this. We like our CO2, and we think it should be implemented more world-wide. It will be a competitive advantage for us. As I said, we have our fuel consumption per ton cargo transported, about 58%…

No, I think it's -- we are doing the reporting. We are -- and we are passing this on to our charters as long as we are on a time charter basis. Slight geopolitical question, U.S. elections, do you see how that will impact the LNG market? And I assume here, in particular, the permitting process in the U.S.?

Yes. Now, I think, of course, if Trump wins it will have the positive effect for LNG, that we think this moratorium will be lifted very quickly. Of course, there's a judge already in Texas who have decided that this is not allowed. So, of course, that decision in a court in Texas don't really will affect this. But I think if Trump wins it will be repelled quite quickly. If Harris wins, it will take some more time. But I think it's -- in any event, it will happen. They kind of put this in, in January, in order to attract more votes from -- kind of green votes. This is a good case for them especially after permitting oil drilling in Alaska, they had to do something. And this looks good on a tweet or whatever. And then, eventually, there is so much gas in the U.S., thus this can create so many jobs, that we do think that reason will prevail, and eventually they will slowly say that, "Okay, you can start issuing permits again." And, of course, there is a lot of pressures from other nations as well to -- on U.S. politicians to allow this, both -- [allieds] (ph) in Europe and Japan are pressing on U.S. politicians to repeal this moratorium, and I think that will happen regardless. And once that happen, a lot of these projects have been filling up with new LNG off-take agreements. So, once it lifted, they are more or less ready to go, and will kick off the next wave of U.S. LNG.

Okay. Then we'll round up a couple of questions on Flex and strategy. And how do you view the outlook for growing the fleet and the company being M&A second-hand tonnage in new billings?

I thought you were going to say how to spend it, that's usually a question we get. Okay, now, as we said repeatedly, we are [returning] (ph) ships. The last ship we got delivered was matured it, 2021, Flex Vigilant. So, of course, we are happy to grow, but we have to grow profitable. We're not going to grow just to have a bigger fleet and a bigger revenues, it has to be accretive. It has been hard to find good growth prospects the last couple of years because of the skyrocketing new building prices, going from the low when we purchased the ship at 180-ish to 260, so it's a very big ramp up in prices. Not only have the prices gone up, but also lead time gone out from 2.5 years to certainly four years. And that cost a lot of money when interest rates is about 5%. So, that I just have to repeat what we've said in the past. I think we demonstrated for some time now that we are not going to pay to grow. We're going to do it disciplined. If we find -- right now, I think the order book is already so sizable that we don't really need more orders. And I don't find it that very attractive, 260 million having to wait till 2028, I don't find that attractive compared to paying dividend in this period of time. So, I think we need to -- if we are to grow, it's more natural to do that through consolidation. We are the world's biggest listed LNG shipping company by far. We have a modern fleet; we have a good track record. More or less all the ships -- all the LNG ships in the world, it's about 650 on the water, 350 under construction, that's 1,000 LNG ships. Almost all of them are owned privately. We have 13 ships, JOLCO have 30 ships, Awilco has 12 ships. The rest of the ships are in private hands. If you're a private owner, you have a good fleet, you want to go public, cash in, have a better position having a stock rather than a private ownership, you should reach out to us, don't call Morgan Stanley or JPMorgan, they will charge you a hefty fee to take your company public. Rather, call us, and we can maybe consider giving you some share in Flex for the ships you have in your private account.

Then there's a question on balance sheet optimization, and what you can expect going forward? Are there more in the pipeline? I guess I can take it on -- the two financing we are announcing today is basically triggered by the 500-day extension on the contract with Cheniere, and also availability of an attractive financing package in Japan. And concluding that, that means that also then have to address the two other vessels or have the opportunity to address them as they are fairly low-levered, this was the first transaction we did in the balance sheet optimization program for the bank financing. So, they have amortized, and values has also improved with the banking market. So, that concludes those three ships. As you also saw, we had an -- also in discussions with some of the banks to convert a term loan tranche to an RCF, so we maintain our $400 million of bullet or non-amortizing RCF capacity. For a next refinancing, that will most likely be subject to contracts, and the long-term contracts and the availability of attractive financing. We are very pleased with the package we have today. And also, I want to mention that with the JOLCO, we are introducing a new bank to us, which we are very pleased with working with in this process and look forward to expand business with as well. So, for now, we are able trigger for more re-financing is probably a new contract.

Yes, I think it has to be interest rate derivatives optimization, which is next. Now, we have run through -- we were way ahead of Fed. We started doing a lot of swaps early-'21-'22, when rates were low, well ahead of a year before fed started to hike rates. That trade have generated $127 million of profits since 2021, we have monetized and crystallized most of it. I believe balance sheet now is around $35 million of unrealized gains, so $127 million. So, most of the gains have been realized and crystallized. Rates are now picking down again. We have plenty of trading limit. So, we will be opportunistic to here to see if there are levels which are attractive to lock in our hedge ratio. We have been anticipating a pivot from fed, peaking our hedge ratio in Q2. Long-term interest rate have fallen a lot since the employment figure in U.S., one-and-a-half, two weeks ago. So, we will monitor that development and see if there are opportunities to hedge rates at attractive levels, as they have been going down quite a lot recently. And typically, we try to use windows where there are distress in the market, like when Silicon Valley Bank collapsed, to secure good terms for our shareholders.

That concludes the Q&A, and announcement of who wins the Flex kit.

Yes. You can have a look at the names.

We have one very active shareholder, investor asking questions, and it's a number of questions reaching all of the topics, and it's [indiscernible].

Okay, [indiscernible], then you will have the Flex LNG kit. Before concluding then just want, again, thanks to the technical team and our crews who have done fantastic -- once again a fantastic drydocking of Constellation and Courageous. It's the sixth drydocking we have done now the last two years -- or actually one-half year, all according to time and budget. So, we are very happy with that, very high technical quality on our team. And then, we will be back in November with our Q3 numbers, which we have guided today. So, we don't expect any surprise in November. And in the meantime, you can enjoy the $0.75 per share of dividends, which I think will be available at the end of the month. Okay. Thank you everybody for listening in.

Thank you.