GasLog Ltd. and its subsidiaries, an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, today reported its financial results for the quarter ended September 30, 2020.
• Delivery of the GasLog Westminster on July 15, a 180,000 cubic meter (“cbm”) LNG carrier with dual fuel medium speed propulsion (“X-DF”) and commencement of its seven-year time charter agreement with Centrica Plc. (“Centrica”).
• Refinanced all debt to mature in 2021 with four new credit facilities representing a total of approximately $1.1 billion, strengthening the balance sheet and delivering $30.2 million of incremental liquidity to the Group.
• Post-quarter end, completed the sale-and-leaseback of the GasLog Hong Kong, with CMB Financial Leasing Co. Ltd. (“CMBFL”), one of China’s largest lessors, releasing $26.4 million of incremental liquidity to GasLog and extending the repayment profile to 21 years.
• Repaid approximately $86.0 million of debt, bringing total debt repayment (excluding prepayments for refinanced facilities) to approximately $193.0 million through the first nine-months of 2020.
• Contracted time charter revenues of approximately $164.1 million for the fourth quarter of 2020, representing 95% charter coverage, based on signed contracts until November 10, 2020.
• Quarterly Revenues of $156.7 million, Profit of $10.1 million and Loss per share1 of ($0.03) for the three-month period ended September 30, 2020.
• Quarterly Adjusted EBITDA1 of $102.1 million, Adjusted Profit1 of $13.0 million and Adjusted Loss per share1 of $(0.01) for the three-month period ended September 30, 2020.
• Quarterly dividend of $0.05 per common share payable on November 30, 2020.
Chairman and CEO Statements
Peter G. Livanos, Chairman of GasLog, stated: “GasLog progressed on several strategic initiatives during the third quarter, a testament to the resiliency of our business model. Our fully contracted newbuilding program continues to deliver on time and on budget, operating and overhead expenses have been reduced considerably with an eye toward further improvement and the Group’s liquidity has been further bolstered following a sale-and-leaseback with a leading Chinese lessor.”
Paul Wogan, Chief Executive Officer, stated: “Our fleet continued to deliver high levels of service and reliability to our customers during the third quarter. We markedly increased the change over our crews but given the ongoing COVID-19 restrictions we continue to work with the authorities and through industry bodies to see how we can improve this situation for all seafarers.
During the third quarter, we refinanced all the Group’s debt maturing in 2021 and took delivery of the GasLog Westminster. This progress has continued in the fourth quarter and in October we completed the sale-and-leaseback of the GasLog Hong Kong. This transaction increased our available liquidity, improved the vessel’s average annual free cash flow over the term of the agreement and opened up a new source of capital as this was our first financial transaction with a mainland Chinese counterparty. In addition, we expect to take delivery of the GasLog Georgetown later this month, the first of four vessels to be delivered into multi-year charters with Cheniere Energy Inc. (“Cheniere”).”
On September 16, 2020, the board of directors declared a dividend on the Series A Preference Shares of $0.546875 per share, or $2.5 million in the aggregate, payable on October 1, 2020 to holders of record as of September 30, 2020. GasLog paid the declared dividend to the transfer agent on October 1, 2020.
On November 9, 2020, the board of directors declared a quarterly cash dividend of $0.05 per common share, or $4.0 million in the aggregate, payable on November 30, 2020 to shareholders of record as of November 20, 2020.
There were 2,528 revenue operating days for the quarter ended September 30, 2020, as compared to 2,296 revenue operating days for the quarter ended September 30, 2019. The increase in revenue operating days was mainly driven by the increased operating days from the deliveries of the GasLog Windsor on April 1, 2020, the GasLog Wales on May 11, 2020, the GasLog Westminster on July 15, 2020 and the full operation of the GasLog Warsaw delivered on July 31, 2019, partially offset by the increased off-hire days for scheduled dry-dockings.
Management allocates vessel revenues to two categories: (a) variable rate charters and (b) fixed rate charters. The variable rate charter category contains vessels operating in the LNG carrier spot and short-term market, defined as those with initial firm periods of twelve months or less, excluding option periods, or those which have a variable rate of hire across the charter period. The vessels in this category during the third quarter of 2020 were the GasLog Savannah, the GasLog Singapore, the GasLog Shanghai, the GasLog Sydney, the GasLog Skagen, the GasLog Saratoga, the GasLog Salem, the GasLog Chelsea, the Methane Rita Andrea and the Methane Alison Victoria.
Revenues were $156.7 million for the quarter ended September 30, 2020 ($165.6 million for the quarter ended September 30, 2019). The decrease was attributable to a decrease of $23.7 million from the vessels owned by GasLog’s subsidiary, GasLog Partners LP (“GasLog Partners” or the “Partnership”) mainly due to the expiration of the initial multi-year time charters of the Methane Jane Elizabeth, the Methane Alison Victoria, the Methane Rita Andrea, the Methane Shirley Elisabeth and the 18-month time charter of the GasLog Sydney. Revenues from the GasLog 100% owned fleet increased by $21.8 million due to the deliveries of the GasLog Windsor, the GasLog Wales and the GasLog Westminster on April 1, 2020, May 11, 2020 and July 15, 2020, respectively, and the operation for the full three-month period of the GasLog Warsaw, delivered on July 31, 2019, partially offset by a decrease of $3.4 million from vessels operating in the spot market in both periods .
Profit for the period was $10.1 million for the quarter ended September 30, 2020 (profit of $8.9 million for the quarter ended September 30, 2019). The favorable movement in non-cash marked-to-market valuations of our derivative financial instruments in the third quarter of 2020 and the decrease in finance costs, was partially offset by a decrease in profit from operations, that was affected by the restructuring costs and the foreign exchange losses.
Adjusted EBITDA1 was $102.1 million for the quarter ended September 30, 2020 ($115.0 million for the quarter ended September 30, 2019). The decrease in Adjusted EBITDA is mainly attributable to the decrease in revenues of $8.9 million, as discussed above and the increase in vessel operating and supervision costs of $5.4 million mainly due to the increased fleet from the newbuilding deliveries and the unfavorable movement of the Euro (“EUR”)/U.S. Dollar (“USD”) exchange rate in the third quarter of 2020 as compared to the prior quarter.
Adjusted Profit1 was $13.0 million for the quarter ended September 30, 2020 ($25.5 million for the quarter ended September 30, 2019), adjusted for the effects of the non-cash gain on derivatives, the write-off of unamortized loan fees due to the debt refinancing, the restructuring costs, the foreign exchange losses, net and the net unrealized foreign exchange gains on cash and bonds.
Loss attributable to the owners of GasLog was $0.4 million for the quarter ended September 30, 2020 ($13.5 million loss for the quarter ended September 30, 2019). The decrease in loss attributable to the owners of GasLog resulted from the decrease in profit attributable to the non-controlling interests (non-controlling unitholders of GasLog Partners) following the decrease in the Partnership’s profit and the increase in profit for the period.
As of September 30, 2020, GasLog had $173.5 million of cash and cash equivalents. In addition, an amount of $48.3 million was held as cash collateral with respect to our derivative instruments and is included in Other non-current assets and Prepayments and other current assets, which has been reduced to $33.5 million as of November 6, 2020. As of September 30, 2020, GasLog had an aggregate of $3.5 billion of indebtedness outstanding under its credit facilities and bond agreements, of which $221.7 million was repayable within one year, and $198.1 million of lease liabilities, of which $9.7 million was payable within one year. Post-quarter end, GasLog completed the sale-and-leaseback of the GasLog Hong Kong, with CMBFL, releasing $26.4 million of incremental liquidity to GasLog.
As of September 30, 2020, the total remaining balance of the contract prices of the four LNG carriers on order was $641.0 million, which GasLog expects to fund under the facility signed on December 12, 2019 with 13 international banks to provide debt funding for its current newbuilding program (the “Newbuilding Facility”), cash balances and cash from operations. As of September 30, 2020, there was undrawn available capacity of $601.6 million under the Newbuilding Facility.
As of September 30, 2020, GasLog’s current assets totaled $241.8 million, while current liabilities totaled $425.6 million, resulting in a negative working capital position of $183.8 million. Current liabilities include $52.3 million of unearned revenue in relation to hires received in advance of September 30, 2020 (which represents a non-cash liability that will be recognized as revenue in October as the services are rendered). Taking into account current and expected volatile commercial and financial market conditions, we anticipate that our primary sources of funds over the next twelve months will be available cash, cash from operations and existing borrowings, including the credit agreements entered into on July 16, 2020 and July 30, 2020, which refinanced in full the debt maturities due in 2021, as well as the sale-and-leaseback transaction we concluded in October 2020 that released incremental liquidity of $26.4 million. We believe that these anticipated sources of funds will be sufficient to meet our liquidity needs and to comply with our banking covenants for at least twelve months from the end of the reporting period.
Finally, the Partnership announced today that its cost of capital remains elevated and there continues to be a high degree of COVID-19-related uncertainty in the near-term LNG and LNG shipping markets. By the end of 2020, all five of the Partnership’s Steam vessels will have ended their initial multi-year time charters with subsidiaries of Royal Dutch Shell plc (“Shell”), while three additional tri-fuel diesel electric vessel (“TFDE”) vessels will conclude their multi-year charters next year. Although the Partnership has been successful in finding continued employment for certain of its available vessels, term employment to date has been concluded at current market rates which are below those achieved during the initial charters. Given these factors, combined with the Partnership’s capital allocation strategy, which is focused on deleveraging, the Partnership decided to decrease the common unit distribution to $0.01 per common unit beginning with the third quarter of 2020. This action will further strengthen the Partnership’s balance sheet, lower the fleet’s breakeven, reduce its cost of capital and further enhance its competitive positioning.
1 Earnings/(loss) per share (“EPS”) and Adjusted EPS are net of the profit attributable to non-controlling interests of $10.5 million and the dividend on preferred stock of $2.5 million for the quarter ended September 30, 2020 ($22.4 million and $2.5 million, respectively, for the quarter ended September 30, 2019). Adjusted EBITDA, Adjusted Profit and Adjusted EPS are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog’s financial results presented in accordance with International Financial Reporting Standards (“IFRS”). For the definitions and reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, please refer to Exhibit II at the end of this press release.
Contracted Charter Revenues
As of September 30, 2020, the total future firm contracted revenue stood at $3.6 billion2, including $0.8 billion2 from the 15 vessels currently owned by GasLog Partners.
2 Contracted revenue calculations assume: (a) 365 revenue days per annum, with 30 off-hire days when the ship undergoes scheduled dry-docking; (b) all LNG carriers on order are delivered on schedule; (c) no exercise of any option to extend the terms of charters; and (d) where charters are based on a variable rate of hire within an agreed range during the charter period, the lower end of the range.
Alexandroupolis Project Update
On November 4, 2020, Gastrade S.A. (“Gastrade) announced the signing of the agreement of the acquisition of 20% of its share capital by DESFA S.A. (“DESFA), the operator of the National Natural Gas Transmission System in Greece. Through this participation Gastrade expects to gain additional expertise in managing and operating gas infrastructure and to maximize the synergies between the existing DESFA assets and the Alexandroupolis LNG Terminal, which together will strengthen the gas supply and offer energy independence in Greece and the Southeast European region.
LNG Market Update and Outlook
LNG demand was 84 million tonnes (“mt”) in the third quarter of 2020, according to Poten, compared to 88 mt in the third quarter of 2019, or a decrease of approximately 4%. Although demand declined globally in the third quarter of 2020, compared to the third quarter of 2019, it also varied regionally. For example, Chinese LNG demand was 17 mt in the third quarter of 2020, an increase of 13% or approximately 2 mt. In addition, Indian demand was 7 mt, an increase of 13% or approximately 1 mt. These increases were balanced by declines in Europe, the Middle East, Japan, South Korea, North America and South America, which in aggregate saw their demand decline by over 6 mt in the third quarter.
Global LNG supply was approximately 86 mt in the third quarter of 2020, a decrease of over 3 mt, or 4%, over the third quarter of 2019, according to Poten. Supply from the United States (“U.S.”) decreased by approximately 2 mt or 18%, the result of an estimated 112 cargoes cancelled by customers of U.S. export facilities as well as unplanned outages at Cameron LNG following damage to its power supply caused by Hurricane Laura in late August. In addition, supply from Australia declined by nearly 2 mt or 7%, due in part to unplanned maintenance at Gorgon LNG. Looking ahead, approximately 104 mt of new LNG capacity is currently under construction and scheduled to come online from 2021-2026.
In the LNG shipping spot market, TFDE headline rates, as reported by Clarksons, averaged $41,000 per day in the third quarter of 2020, a decrease from the average of $66,000 in the third quarter of 2019. Headline spot rates for Steam vessels averaged $28,000 per day in the third quarter of 2020, a decrease from the average of $43,000 per day in the third quarter of 2019. Headline spot rates in the third quarter were negatively impacted by declines in LNG demand as well as unplanned outages at facilities in the U.S. and Australia as noted above.
Clarksons currently assesses headline spot rates for TFDE and Steam LNG carriers at $105,000 per day and $78,000 per day, respectively. Early indications are for LNG demand to grow in the fourth quarter of 2020, relative to the third quarter of 2020, as demand in October was 2% higher than September, according to Poten. This demand growth has been reflected in the increasing headline spot rates for LNG carriers observed in recent weeks. However, taking into account the impact of the COVID-19 pandemic on the global economy, the forecast growth of the global LNG carrier fleet and expected seasonal trading patterns, there is continued potential for volatility in the spot and short-term markets over the near and medium-term.
As of November 4, 2020, Poten estimates that the orderbook totals 118 dedicated LNG carriers (>100,000 cbm), representing 22% of the on-the-water fleet. Of these, 83 vessels (or 70%) have multi-year charters. 28 LNG carriers have been ordered year-to-date, all for long-term business with no vessels ordered on a speculative basis.