Flex LNG Ltd. — FY 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; the filing does not provide a clear Q4-only income statement. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Business context
Flex LNG owns and operates LNG carriers. At year-end 2019, it had six operating vessels and seven newbuildings under construction, scheduled for delivery in 2020–2021. The company markets vessels in term and spot employment; its revenue is concentrated in the LNG shipping market and a limited number of customers.
Financial and operating metrics
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Vessel operating revenue | $120.0 million | $77.2 million |
| Operating income | $55.0 million | $29.0 million |
| Operating margin | 45.9% | 37.6% |
| Net income | $17.0 million | $11.8 million |
| Net margin | 14.1% | 15.3% |
| Basic and diluted EPS | $0.31 | $0.29 |
| Operating cash flow | $51.5 million | $35.7 million |
| Investing cash flow | $(291.5) million | $(584.4) million |
| Financing cash flow | $314.0 million | $593.9 million |
| Cash, cash equivalents and restricted cash | $129.1 million | $55.1 million |
| Total assets | $1.641 billion | $1.294 billion |
| Total equity | $839.3 million | $827.3 million |
At December 31, 2019, gross debt obligations were $785.9 million, before $7.1 million of unamortized debt issuance costs; reported carrying value was $778.8 million. Positive working capital was $86.2 million, versus $25.0 million a year earlier. The company reported compliance with its financing covenants at year-end. It declared dividends of $0.10 per share for 2019; the fourth-quarter dividend was declared in February 2020 and paid in March.
Material changes versus FY 2018
- Revenue rose $42.8 million, or approximately 55%, reflecting a full year of operations for the four vessels delivered in 2018 and delivery of two additional vessels in 2019.
- Operating income increased by $26.0 million; operating margin improved. Net income increased by $5.2 million, while net margin declined modestly.
- Interest expense rose to $33.9 million from $17.8 million, principally due to additional borrowing and the July 2019 sale-and-charterback transactions. The company also recorded a $3.4 million debt-cost write-off and a $1.6 million derivative loss.
- Cash from operations increased, while investing outflows declined as two vessels were delivered in 2019 compared with four in 2018. Financing inflows funded fleet investment and refinancing, alongside scheduled repayments and dividends.
Outlook, risks and unusual items
- Newbuild funding and liquidity: Remaining newbuilding commitments were $937 million at year-end, including $685 million due within one year. The $629 million facility intended to finance five vessels was signed in February 2020, but remained subject to customary conditions and delivery-based drawdowns. The financial statement note says obligations of $811 million over the following 12 months exceeded committed financing and expected operating cash flow; management expected to fund the gap with the facility, further financing and available liquidity, and prepared the statements on a going-concern basis.
- Customer and market concentration: Eleven customers generated FY 2019 revenue; the top three represented 69.3% in total. LNG charter rates are volatile, and spot or market-linked employment exposes earnings to rate changes and vessel availability.
- Debt and interest-rate exposure: Financing includes floating-rate debt tied to LIBOR, vessel-value covenants and restrictions, including on dividends. Five swaps hedged $175 million of notional debt at year-end; seven additional swaps were entered into in early 2020. The filing flags LIBOR discontinuation and refinancing risks.
- COVID-19 and other external risks: The report, signed April 17, 2020, describes the pandemic’s uncertain potential effects on energy demand, shipping operations, crews, newbuilding schedules and financing. Management said it could not reasonably predict the duration or severity; it reported no significant operational disruption to date. Geopolitical, regulatory, environmental, casualty and counterparty risks are also discussed.
- Other notable items: The company sold and chartered back Flex Endeavour and Flex Enterprise for ten years, and refinanced debt associated with several vessels. A $270 million related-party revolving facility was cancelled undrawn. The auditor issued an unqualified opinion; management concluded disclosure controls were effective, but the filing did not include management’s internal-control effectiveness assessment or an auditor attestation.
Investor verification checklist
- Confirm the timing and funding of all seven newbuilding deliveries, including the amount actually drawable under the $629 million facility and financing still to be arranged.
- Review the going-concern liquidity disclosure against the delivery schedule, debt service, cash balances and subsequent financing availability.
- Assess charter coverage, spot and market-linked exposure, customer concentration, and the credit quality of major charterers.
- Check debt covenants, vessel valuations, refinancing terms, floating-rate exposure and the effect of the 2020 interest-rate swaps.
- Verify subsequent events and the impact of COVID-19 on operations, demand, vessel delivery schedules and funding; FY 2019 results do not quantify those later effects.
- Review related-party transactions and governance, including Geveran’s approximately 45.6% ownership as of April 16, 2020, and related-party vessel purchases and management services.