Good morning. My name is Mary and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Ltd. Second Quarter 2014 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. As a reminder, this conference call is being recorded.
Todays speakers are Paul Wogan, Chief Executive Officer; Simon Crowe, Chief Financial Officer; and to commence the call, Jamie Buckland, Head of Investor Relations at GasLog.
Mr. Buckland, you may begin with the conference.
Thank you, Mary. Good afternoon, and thank you for joining us for our second quarter results call. As a reminder, this call webcast and presentation are available on the Investor Relations section of our website, gaslogltd.com, where a replay will also be available.
As shown on page 2 of the presentation, many of our remarks contain forward-looking statements. Let me refer you to our Q2 results press release and our reports filed with the SEC where youll find factors that could cause actual results to differ materially from these forward-looking statements.
In addition, some of our remarks this afternoon contain non-GAAP financial measures as defined by the SEC, and a reconciliation of these is attached as an annex to the presentation.
If we now turn to slide 3, the highlights for the presentation, Ill hand over to Paul Wogan, GasLog Ltd.s Chief Executive.
Thank you, Jamie. Good afternoon and good morning to all of you in the United States. Thank you to everyone for joining us on our Q2 results call. On todays call, I will give you an overview of GasLogs highlights and performance this quarter. Simon will follow this with a review of the financial results and give an update on the MLP, which we launched during the quarter. I will then discuss the trends in the LNG shipping market and give an overview of our expanding fleet and some charter information.
So, first of all, Im very pleased with our achievements in the three months to 30 June, 2014. As you can see from this slide, weve executed on a number of important initiatives. We successfully launched the MLP, which has performed well since the IPO and will provide capital to continue to grow the business.
We added seven new vessels to our on-the-water fleet, almost doubling the number of ships we have at sea to 15. In the capital markets, we completed a second equity offering and a tap of our NOK bond, and were delighted with the results of both of these financings.
We placed a total of four newbuilding orders at Samsung and Hyundai which will deliver into attractive markets in 2017. In addition, we also continued to build and strengthen the management team. In combination, all these initiatives have significantly strengthened the operational, financial and commercial platform of GasLog. I mean were well placed to continue to take advantage of the ongoing opportunities in the LNG market.
We now have a total consolidated fleet of 25 vessels and we look forward to continuing this fleet growth with attractive opportunities in the coming years.
Simon will discuss the financials in more detail, but in summary, we grew our revenue and EBITDA significantly in the period reflecting the growth in the fleet. Adjusted profit and adjusted EPS were both higher year-on-year. Were also very pleased to announce a dividend of $0.12 for the quarter.
So if you now turn to slide 4, Ill hand you over to Simon to take you through the financials.
Thank you, Paul. Good morning and good afternoon to everyone, and thank you for joining us. Its been another busy quarter for GasLog and I am very satisfied with what weve achieved. Alongside the significant growth in the business weve seen in the quarter, we have further broadened our access to the capital markets to give us additional financial flexibility.
Expanding our finance platform is extremely important for GasLog and will allow this strong growth to continue into the future. In the quarter, we were able to facilitate multiple ship deliveries funded by debt and equity, as well as successfully IPO-ing the GasLog Partners MLP.
For me, as the CFO, one of the most pleasing things is the positive response GasLog has had from the capital markets as a whole. Our second equity raise was done at a 4.6% discount to the previous nights close, and the second NOK bond issue achieved a fixed dollar coupon of 5.99%, which shows the growing strength of the GasLog credit.
The MLP gives us further access to the capital markets and the recent newbuilding orders at Samsung and Hyundai already evidence of how we will look to recycle capital from the MLP at the parent to grow the business in the future.
I will now take you through the financial highlights for the quarter, talk about the recent announcements and provide some guidance for 2014 as a whole.
We produced another solid quarter in line with our plans and remain on track for the full year. Revenue and EBITDA for the quarter increased significantly year-on-year due to the rollout of the fleet over the period.
Weve added seven ships to our on-the-water fleet this quarter with three of the BG vessels delivering in early April and three staggered through June in addition to the newbuilding at Solaris delivering on the last day of the quarter.
Net financials for the quarter of $27 million can be broken into $18 million of financial costs and $9 million of impact from our swap portfolio. As you know, weve hedged a large part of our interest rate exposure, and from an economic perspective, this gives us certainty around our interest costs and mitigates cash flow volatility. However, the accounting is complicated, and thus, cause fluctuations in the Pamp;L.
Notes 10 and 11 in todays published financial statements outline the accounting treatment in some detail. The financial costs for the quarter include some one-off non-cash loan arrangement fee write-offs which arose when we dropped the three vessels down into the MLP and paid down some of the debt associated with the GasLog Sydney. These write-offs are non-cash in nature and only occur if we refinance debt or pay it down early to de-lever the balance sheet as you saw us do with the vessels in the MLP.
Please now turn to slide 5 of the presentation. You can see by the increases across all metrics that we continue to grow significantly year-on-year. EBITDA has more than doubled year-on-year and the average number of ships we had in the quarter has increased as we added the six vessels acquired from BG as well as the Solaris.
Please now turn to slide 6 of the presentation. Fixed assets have increased materially with the seven new vessels I just talked about added in the period. At the end of the quarter, we had $242 million of cash in the bank, which is a significant increase from the end of the year. This largely reflects the proceeds from the MLP at GasLog Limited and GasLog Partners as well as the NOK bond tap issue.
If we turn over to slide 7 of the presentation, Id like to draw your attention to the non-controlling interest line of $188 million. This represents the net proceeds from the MLP IPO of $186 million plus the $2 million of profit for the period earned by the 10 million units that we sold to the public. The other key change is the increase in long-term borrowings to $1.8 billion and that reflects the addition of the BG vessels acquired in the quarter, the second bond issue, and the drawing down on the debt for the Solaris.
Please now turn to slide 8 of the presentation where we have shown our projected CapEx out until 2017. We often get asked for this detail and you can see on the slide the changes year-on-year. You can clearly see along with some stage payments for future deliveries, the delivery of GAS-nine at the end of 2014 and GAS-ten in 2015. 2016 and 2017 show the newbuild deliveries being added to the fleet.
Please now turn to slide 9 of the presentation. We have, as usual, laid out the contractual revenue going forward. You can see that for the remainder of 2014 were almost fully contracted. The unfixed days is related to the GasLog Chelsea, which is on a seven month charter that began in May this year and could come off of contract in December. As you can see in the bullet, we also expect one of the BG ships that we recently acquired, the Methane Lydon Volney, to go into drydock in the third quarter which will result in about 30 days of lost revenue and you should update your models to take account of this.
The scheduled drydock was brought forward at the request of the customer to fit into their commercial schedule for this year and next. We remain largely fixed in 2015, lsquo;16, lsquo;17 and lsquo;18 and you should remember that these percentages do not include any of the optional periods that the charterers can use to further increase the length of the contract.
Please turn now to slide 10, the full-year update. It was another very busy quarter so we wanted to spend a little bit of time just going over some of the assumptions and how you should think about the remainder of the year.
Revenue should be fairly straight forward to model. If you take the first half revenue number of $130 million and add to that the $192 million figure shown in the contracted revenue table and add in a couple of million dollars for the managed vessel revenue, youd get to around $320 million, which should be a reasonable assumption for the full year. This revenue number may be subject to some slight fluctuations depending on the timing of scheduled maintenance.
On the cost side, we had an EBITDA margin of approximately 65% in 2013 which again should be a good working assumption for the full-year 2014.
On Gamp;A, we reported $8 million for the quarter and a total of $14 million for the first six months of the year. Weve been building GasLog into a business that can be scaled up materially in the future for a much larger fleet from the one we have today. as a result, we have recently strengthened our financial, operational and commercial abilities and are preparing to open a London and New York office which will bring us closer to our customers, investors and finance providers. These initiatives will better position us to take advantage of the LNG shipping markets and we would expect economies of scale as we continue to add more vessels to the GasLog fleet over time.
Going forward, I would model in $9 million to $10 million per quarter for 2014 as we take account of some of the one-off new office setup costs in the second half.
As highlighted last quarter, depreciation for the year should total around $70 million and this takes into account the BG ship deliveries in April and June. As a reminder, newbuilds have a useful life of 35 years and the purchased BG ships have a remaining useful life of 27 and 28 years as they were built in 2006 and 2007.
For finance costs, you should continue to see an all-in interest rate of around 4.5% on our debt. For this quarter and for all quarters going forward, we will have a payments to minorities line, which reflects the non-GasLog owned units in the MLP. This is calculated by taking the number of units not held by GasLog and multiplying by the distribution for the quarter. So for this quarter, the pro rata payout of $0.206 is multiplied by 10 million units to get about $2 million in payments to minorities.
For the minimal quarterly distribution of $0.375, the payment would be $3.75 million. This would change as the result of the recent drop-down announcement. So your model should be adjusted once the proposed increase in distribution is confirmed.
And finally, at GasLog parent, we now have a fully issued share capital of 81 million shares outstanding.
If we now turn over to slide 11, I thought it would be useful just to spend a minute talking about how we account for the MLP and talk through some of the changes you will need to make to your models and numbers going forward.
GasLog Ltd. owns 10 million LP units, or 49.8% of the total units, plus 400,000 General Partner units, which equates to an additional 2%. The public and insiders own 48.2%. At present, GasLog Partners is fully consolidated into the GasLog Ltd. accounts so there are minimal changes to our financial statements. The one adjustment you do need to make though is in the Pamp;L for the payments to minorities as already discussed.
In Q2 2014 adjusted EPS has been calculated before payments to minorities to give a like-for-like comparative for the first quarter. Going forward, we expect to report adjusted EPS after payments to minorities, so you should adjust your numbers and your models to reflect this.
Id like to finish up by spending a minute on the joint announcement that the GasLog Ltd. and GasLog Partners made last Thursday. GasLog Ltd. has agreed to sell two vessels to GasLog Partners for $328 million. This transaction is a milestone for both companies as it marks the first drop-down from the parent to the MLP.
For GasLog Ltd., the transaction is particularly attractive but it results in a significant increase in the quarterly distribution and should mean we are into the first incentive distribution threshold.
So in summary, for me, its been another very busy and successful quarter with significant growth through acquisition and newbuildings. We have again been active in the capital markets with successful equity and bond raises, as well as the launch of the GasLog Partners MLP.
And with that, Ill hand back to Paul to take you through the rest of the presentation.
Thank you, Simon. Please turn to slide 12, the market update. With so many things happening, I think its worth taking a step back to review GasLogs overall commercial strategy which has been based on being a long-term contracted owner with strong counterparties such as BG, Shell, and Exxon, and as we look to continue to grow the pipeline of business for the MLP, you will see this remain a significant part of our business for the foreseeable future.
However, as we continue to be confident about the long-term outlook for the LNG industry and LNG shipping, we also like our limited exposure to the shorter-term market. It gives us increased access to new customers and over time will give us exposure to a rising interest rate environment — rising rate environment.
There is no doubt that rates have been falling over the summer months as new ships have delivered into the fleet. However, weve seen a flurry of activity in recent months with over 50% more fixtures in the spot market year-to-date compared with the same period last year. In July alone, there were 16 spot fixtures versus five in July 2013. We believe this is demonstrating that the short-term market is growing and developing and will continue to do so and GasLog wants to play a part in that future market development.
We expect rates will rise over the next couple of years as new LNG production comes on stream and starts to create additional employment for the new ships being delivered.
And if you turn to slide 13, we highlight a number of interesting recent developments that underline our ongoing enthusiasm for the sector. In short, a number of existing new projects have either started production or are close to doing so whilst the number of planned projects have either received the necessary permit approvals and/or taken final investment decision, or FID.
For example, in the second quarter, the Exxon-led Papua New Guinea project commenced production ahead of schedule. The 6.9 million tons per annum project has a total requirement of about eight ships and is already operating at full capacity.
In the second half of the year, we expect the 4.5 million ton per annum Gassi Touil train in Algeria and the 4.3 million ton per annum BG Curtis train in Australia to commence production, both of which will require a number of additional ships. And this momentum carries over into next year as two of the big Australian projects, Gorgon and Gladstone, are scheduled to commence production, as well as a number of other smaller projects in Australia and Southeast Asia.
Whilst in the US, we feel that the streamlining of the regulatory approval process will be positive potentially accelerating the time-table for some of the near-term projects, in our supply and demand models, we presently assume five US projects will be built. Any further projects that are approved and take FID provide additional upside to our projections.
If I go into a bit more detail, in Q2, Cameron became the second US project after Sabine Pass to receive Federal Energy Regulatory Commission, or FERC, approval, and this was followed by the project taking an FID in early August whilst after the end of the quarter, the Freeport project became the third project to receive FERC approval and is expected to take FID by the end of the year.
I think the strapline on this page is important and it backs up, I believe, that LNG and LNG shipping are set for significant growth in the years to come. There are presently 17 plants with approximately 115 million tons of new LNG production that are under construction. This equates to a 40% increase in LNG production over the next few years, but we will undoubtedly see new projects taking FID and so out to 2020 we expect a requirement of between 200 to 350 additional ships.
Please turn to slide 14, the fleet page. This slide keeps expanding quarter-on-quarter as we continue to grow the fleet. For this quarter, you can see the addition of four newbuildings which are scheduled to deliver in late 2017. We ordered these vessels without charters as we believe that the second half of 2017 and 2018 will be a very good time to have tonnage available. We will look to find multi-year employment for these vessels at attractive rates prior to their delivery.
Please now turn to the summary on slide 15. Its been another very busy quarter for GasLog. We launched the MLP and have subsequently announced the first drop-down. We believe the MLP will be a significant value driver for GasLog shareholders going forward.
We added seven vessels to our on-the-water fleet and ordered four newbuildings, bringing the total fleet size to 25 vessels, 2.5 times the size of the fleet that we set out with at the time of the IPO in the spring of 2012.
We continue to enhance our ability to finance the growth of the business in the quarter accessing both the bond and equity markets and launching the MLP. At GasLog, we will continue to look for attractive opportunities to grow our fleet and to place long-term contracts against our vessels which make them eligible for drop-down to the MLP, thus maintaining the partnerships visible growth pipeline.
The forecast expansion of the LNG industry combined with GasLogs experienced technical platform, proven track record of execution and willingness to drive consolidation in the market mean that we are confident that we will continue to see attractive growth opportunities that will benefit the shareholders of both GasLog Ltd. and GasLog Partners.
And that brings us to the end of the presentation. Operator, could you please open the call for questions?
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