Piraeus - Feb. 06, 2020
GasLog Ltd. and its subsidiaries (“GasLog”, “Group” or “Company”) (NYSE: GLOG), an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, today reported its financial results for the three-month period and the year ended December 31, 2019. Key Events and Financial Performance
• Quarterly Revenues, Loss, Adjusted Profit(2), Adjusted EBITDA(2), Loss per share(1) and Adjusted Earnings per share(1)(2) of $182.3 million, ($119.9) million, $38.5 million, $129.2 million, ($0.65) and $0.14, respectively.
• Record annual Revenues of $668.6 million. Loss, Adjusted Profit(2), record Adjusted EBITDA(2), Loss per share(1) and Adjusted Earnings per share(1)(2) of ($115.6) million, $113.0 million, $461.2 million, ($1.37) and $0.29, respectively.
• Special dividend of $0.38 per common share paid on December 31, 2019.
• In December 2019 signed an Export Credit Agency-backed debt financing of $1.1 billion with 13 international banks to provide the debt funding for its current newbuilding program (the “Newbuilding Facility”).
• In December 2019, amended the covenants on its existing bank facilities to align them with the improved terms of the Newbuilding Facility and the GasLog Warsaw facility concluded earlier in 2019.
• In November 2019, successfully issued NOK 900.0 million of senior unsecured bonds due November 2024 (“NOK 2024 Bonds”), in part through exchanging NOK 316.0 million of the existing NOK 750.0 million of senior unsecured bonds due May 2021 (“NOK 2021 Bonds”) and, in December 2019, announced a call of the remaining NOK 2021 Bonds, subsequently completed in January 2020.
• Implemented a plan to relocate GasLog’s senior management and more of its employees to the Piraeus, Greece office, to enhance execution and efficiency and to reduce overheads.
• As of December 31, 2019, recognized an impairment loss of $162.1 million on its six steam turbine propulsion (“Steam”) vessels built in 2006 and 2007, including five GasLog Partners LP (“GasLog Partners” or the “Partnership”) vessels and one GasLog directly owned vessel, due to negative market conditions.
• Quarterly dividend of $0.15 per common share payable on March 12, 2020.
Paul Wogan, Chief Executive Officer, stated: “2019 represented another year of excellent execution for GasLog. We took delivery of two newbuild LNG carriers and signed long-term charters with the principal LNG shipping entity of JERA Co., Inc (“JERA”) and a subsidiary of Endesa S.A. (“Endesa”), both new customers for GasLog. We also chartered two on-the-water vessels to Gunvor Group Ltd. (“Gunvor”) and secured up to 10 years employment for one of our vessels as a floating storage unit. Record revenues and continued cost control delivered record annual Adjusted EBITDA. We also successfully completed a new debt facility for our newbuildings delivering in 2020 and 2021, refinanced existing debt, tapped our USD bonds at a premium to par and secured significant improvements to our debt covenants. These successes and our positive business outlook allowed us to declare a $0.38 per common share special dividend in the fourth quarter of 2019.
However, while spot rates for LNG carriers improved in 2018 and 2019 compared to prior years, the term charter market for on-the-water vessels has not developed as anticipated, resulting in reduced expectations for future vessel utilization and earnings, for the five Steam vessels owned by GasLog Partners and our one GasLog directly owned Steam vessel after the expiry of their current term charters. This led us to recognize an impairment loss of $162.1 million with respect to the Group’s six Steam vessels, five of which are owned by the Partnership.
In light of the reduced expectations for Steam vessel utilization and earnings, GasLog Partners will focus its capital allocation on debt repayment, prioritizing balance sheet strength for 2020. As such, the Partnership expects to reduce its quarterly common distribution to $0.125 per unit for the first quarter of 2020 from $0.561 per unit for the fourth quarter of 2019. The reduced distribution will lower the Partnership’s cash flow break-even rates across its fleets and improve its competitive positioning. While our commitment to the Partnership remains strong, no further drop-downs are required to fund GasLog’s committed newbuilding program delivering in 2020 and 2021.
Our charter-backed newbuilding program is on time and budget. The seven vessels due to deliver by the third quarter of 2021 are expected to contribute an additional $145.0 million of annualized EBITDA(3) to GasLog on a fully delivered basis. As a result, we have high visibility on the growth in contracted revenues through 2022 from the vessels directly owned by GasLog. As we continue to execute on our efficiency improvements and cost reductions, we will continue to look for further opportunities to enhance shareholder returns, on top of the special dividends paid in 2018 and 2019.”
(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS are net of the profit/(loss) attributable to the non-controlling interests of ($69.7) million and the dividend on preferred stock of $2.5 million for the quarter ended December 31, 2019 ($16.6 million and $2.5 million, respectively, for the quarter ended December 31, 2018) and net of the profit/(loss) attributable to the non-controlling interests of ($15.0) million and the dividend on preferred stock of $10.1 million for the year ended December 31, 2019 ($78.7 million and $10.1 million, respectively, for the year ended December 31, 2018).
(2) 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.
(3) EBITDA, which represents earnings before depreciation, amortization, financial income and costs, gain/loss on derivatives and taxes, is a non-GAAP financial measure. Please refer to Exhibit II for guidance on the underlying assumptions used to derive EBITDA.
LNG Market Update and Outlook
LNG demand, as estimated by Wood Mackenzie, is expected to have increased by 11% to 351 million tonnes (“mt”), in 2019, from 316 mt in 2018. European demand accounted for most of the growth, increasing over 31 mt (61%) year-over-year. European demand was driven by a combination of declining domestic production, continued coal-to-gas switching for power generation, and inventory restocking. In North Asia, demand from Japan, South Korea and Taiwan declined by approximately 8 mt or 6%, while demand from China increased by 7 mt or 13%. Wood Mackenzie forecasts global LNG demand growth of over 90 mt between 2019 and 2025, a compound annual growth of approximately 4%. This growth is expected to be broad-based, with South East Asia (excluding India) accounting for approximately 46% and China, Latin America and India expected to account for 27%, 11% and 10%, respectively.
Wood Mackenzie estimates 2019 LNG supply of 364 mt, a 38 mt increase (12%) over 2018. During the year, new production started in the United States (Cameron Train 1, Corpus Christi LNG Train 2 and Freeport LNG Train 1) and Australia (Prelude). Supply from existing liquefaction facilities in Australia, Russia, Nigeria and Abu Dhabi also increased while downtime and/or underperformance at existing facilities in Equatorial Guinea, Indonesia and Malaysia partially offset these gains. Based on Wood Mackenzie’s current forecasts, 2020 is anticipated to be another strong year for LNG production growth, with supply expected to increase by 26 mt to 390 mt, a 7% increase on 2019. This includes new production from Elba Island, Cameron and Freeport LNG in the United States, Yamal in Russia and the continued ramp-up of projects which were brought onstream in 2019.
During 2019, six new LNG liquefaction projects with a combined capacity of approximately 79 million tonnes per annum (“mtpa”) reached Final Investment Decision (“FID”), a record year for the sanctioning of new LNG projects and underpinning further LNG supply growth during the next decade. Projects which reached FID include Golden Pass (16 mtpa), Calcasieu Pass (10 mtpa) and Sabine Pass Train 6 (4.5 mtpa) in the United States, Mozambique LNG (12.9 mtpa) in Mozambique, Arctic LNG-2 in Russia (19.8 mtpa) and Nigeria LNG Train 7 (8 mtpa including debottlenecking of existing trains) in Nigeria. Wood Mackenzie anticipates at least another 50 mtpa of new LNG capacity will reach FID during 2020.
In the LNG shipping spot market, tri-fuel diesel electric vessel (“TFDE”) headline rates, as reported by Clarksons, averaged $70,000 per day in 2019, a 23% decrease on 2018 levels. Low gas prices during much of 2019 limited the arbitrage opportunities for transporting LNG between the Atlantic and Pacific basins. However, the market balance remains tight, as evidenced by the quick run up in TFDE rates in the fourth quarter of 2019 when they reached a peak of $140,000 per day in November, following a marked decrease in spot ship availability. While headline spot rates in the first quarter of 2020 to date have fallen from their peaks in the fourth quarter of 2019, current headline rates are in line with or above the comparable dates of recent years. According to Poten, 57 term charters between 6 months and 7 years were reported in 2019, a decrease of 22% over 2018, of which 25 were for TFDE vessels and 12 were for Steam vessels. The term charter market for Steam vessels continues to be significantly less liquid than that for TFDEs.
Clarksons currently assesses headline spot rates for TFDE and Steam LNG carriers at $65,000 per day and $43,500 per day, respectively. While the short-term outlook for TFDE vessel demand through the second half of 2020 and into early 2021 is supportive, given continued growth in LNG supply, the very weak current prices and forward curves for natural gas in the key markets of North Asia and Europe are likely to result in shorter average voyage distances and lower shipping requirements, as there is limited scope for inter-basin arbitrage trading. The recent coronavirus outbreak has also introduced uncertainty regarding demand for LNG over the near-term, particularly in China. In addition, spot rates are likely to be prone to further periods of seasonality and volatility similar to those seen during 2019.
As of February 4, 2020, the orderbook totals 118 dedicated LNG carriers (>100,000 cbm), following 48 newbuilding orders in 2019, according to estimates from Poten. This represents 22% of the on the water fleet, approximately in line with the beginning of 2019. Of these, 74 vessels (or 63%) have multi-year charters.
On November 14, 2019, 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 January 2, 2020 to holders of record as of December 31, 2019. GasLog paid the declared dividend to the transfer agent on December 30, 2019.
On December 14, 2019, the board of directors declared a special dividend of $0.38 per common share, or $30.7 million in the aggregate, which was paid on December 31, 2019.
On February 5, 2020, the board of directors declared a quarterly cash dividend of $0.15 per common share, or $12.1 million in the aggregate, payable on March 12, 2020 to shareholders of record as of March 2, 2020.
Impairment Loss on Vessels
As of December 31, 2019, a number of increasingly strong negative indicators caused the Group to recognize a non-cash impairment loss on its six Steam vessels, five of which are owned by GasLog Partners. Such indicators include the difference between ship broker estimates of the fair market values and the carrying values of the Steam vessels, the lack of liquidity in the market for term employment for Steam vessels and reduced expectations for the estimated rates at which such term employment could be secured over the remaining economic life of these vessels, which may be at materially lower levels than the rates earned prior to the expiry of their multi-year charters with Shell. The redelivery of the Methane Alison Victoria in January 2020, which is currently trading in the spot market, and the scheduled redeliveries of the other five Steam vessels prior to the end of 2020, which may also operate in the spot market rather than under term charters, together with the continued addition of larger and more fuel efficient LNG carriers to the global fleet, are the principal factors which caused the Group to recognize a non-cash impairment loss of $162.1 million in aggregate in the three and twelve months ended December 31, 2019 for the five Steam vessels owned by the Partnership, the Methane Rita Andrea, the Methane Jane Elizabeth, the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally, and the one Steam vessel owned by GasLog, the Methane Lydon Volney.
On December 12, 2019, GasLog entered into a loan agreement for an amount of $1,052.8 million with 13 international banks, with Citibank N.A. London Branch and DNB Bank ASA, London Branch acting as agents on behalf of the other finance parties, to finance the delivery of the seven newbuildings scheduled to be delivered in 2020 and 2021. The financing is backed by the Export Import Bank of Korea (“KEXIM”) and the Korea Trade Insurance Corporation (“K-Sure”), who are either directly lending or providing cover for over 60% of the facility.
In December 2019, GasLog achieved improvements to the financial and non-financial covenants across the entirety of its bank debt, most notably decreasing minimum liquidity requirements from 3.0% of total indebtedness, or 4% if dividends are paid, to a flat amount of $75.0 million which will be applicable upon repayment of our U.S. dollar bonds maturing in March 2022, which have a minimum liquidity requirement of 2.5% of total indebtedness. The covenants are now aligned with the terms of the Newbuilding Facility and the GasLog Warsaw facility concluded earlier in 2019.
On November 21, 2019, GasLog completed the issuance of NOK 900.0 million (equivalent to $98.6 million) of NOK 2024 Bonds in the Norwegian bond market. The NOK 2024 Bonds mature in November 2024 and have a coupon of 6.25% over the three-month Norwegian Interbank Offered Rate (“NIBOR”). The proceeds from the issuance were used in part to repurchase and cancel NOK 316.0 million (or $34.6 million) of the outstanding NOK 2021 Bonds at a price of 104.75% of par value. The outstanding balance of the NOK 2021 Bonds, after the partial repurchase, amounted to NOK 434.0 million (equivalent to $49.2 million). On January 31, 2020, GasLog completed the repurchase of the outstanding balance of the NOK 2021 Bonds at a price of 104.0% of par value plus accrued interest, for a total consideration of NOK 451.4 million ($54.4 million).
In November 2019, GasLog announced plans to relocate more of its employees including several members of senior management to the Piraeus, Greece office, home of our operational platform, in order to enhance execution, efficiency and operational excellence and to reduce overheads. As a result, the Monaco office will reduce the already limited number of employees, whilst the London office will focus primarily on chartering activities and company secretarial duties. The offices in Singapore, Korea and the U.S. will be unaffected by the changes. For the quarter and the year ended December 31, 2019, the Group has recognized total restructuring costs of $4.7 million, the majority of which will be paid in 2020.
GasLog is an international owner, operator and manager of LNG carriers providing support to international energy companies as part of their LNG logistics chain. GasLog’s consolidated fleet consists of 35 LNG carriers. Of these vessels, 19 (12 on the water and seven on order) are owned by GasLog, one has been sold to a subsidiary of Mitsui & Co., Ltd. and leased back to GasLog under a long-term bareboat charter and the remaining 15 LNG carriers are owned by the Company’s subsidiary, GasLog Partners. GasLog’s principal executive offices are at 69 Akti Miaouli, 18537 Piraeus, Greece. Visit GasLog’s website at http://www.gaslogltd.com.
GasLog Ltd. press release