An international owner, operator and manager of Liquefied Natural Gas (LNG) carriers, GasLog Ltd. and its subsidiaries last week reported their financial results for the three-month period which ended on June 30.
Highlights: Delivery of the GasLog Warsaw on July 31, 2019, a 180,000 cubic meter Mark III Flex Plus carrier with low pressure dual fuel two-stroke propulsion. The vessel was immediately delivered into a new charter with a wholly-owned subsidiary of Cheniere Energy Inc. for the period prior to the commencement of her long-term charter with a subsidiary of Endesa S.A. in May 2021.
*Closed a follow-on issue of $75.0 million aggregate principal value of the 8.875% senior unsecured notes due 2022 (the “8.875% Senior Notes”) priced at 102.5% of par with a yield to maturity of 7.89%.
*Exited the Cool Pool (the “Cool Pool”) to assume commercial control of the vessels operating in the LNG carrier spot market and subsequently signed two time charter agreements with a subsidiary of Gunvor Group Ltd. (“Gunvor”) for the GasLog Shanghai and the GasLog Salem for three and a half years and up to nine months, respectively.
*Amended the Partnership Agreement to eliminate GasLog’s incentive distribution rights, effective June 30, 2019, in order to reduce the cost of capital of GasLog Partners LP (“GasLog Partners” or the “Partnership”) and to simplify the Group’s financial structure and reporting.
*Completed the sale of the GasLog Glasgow to GasLog Partners for $214.0 million, with attached multi-year charter to a subsidiary of Royal Dutch Shell plc (“Shell”).
*Revenues of $154.3 million, Loss of ($10.5) million and Loss per share of ($0.35)(1) for the three-month period ended June 30, 2019 ($132.8 million, $14.2 million and ($0.08), respectively, for the three-month period ended June 30, 2018).
*EBITDA(2) of $106.8 million, Adjusted EBITDA(2) of $107.0 million, Adjusted Profit(2) of $20.5 million and Adjusted Earnings per share(2) of $0.03(1) for the three-month period ended June 30, 2019 ($92.6 million, $92.9 million, $14.8 million and ($0.07), respectively, for the three-month period ended June 30, 2018).
*Quarterly dividend of $0.15 per common share payable on August 22, 2019.
(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS is net of the profit attributable to non-controlling interests of $15.5 million and the dividend on preferred stock of $2.5 million for the quarter ended June 30, 2019 ($17.8 million and $2.5 million, respectively, for the quarter ended June 30, 2018).
(2) EBITDA, 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.
Company CEO, Paul Wogan, said: ‘’GasLog’s revenues from our year-on-year fleet expansion and our time charter earnings supported our financial performance against a back drop of relatively weak LNG shipping rates in the second quarter, further validating our strategy of maximising our fleet’s multi-year charter coverage.
‘’We continued to execute on this strategy during the quarter by withdrawing our vessels from the Cool Pool, subsequently chartering the GasLog Shanghai and the GasLog Salem to Gunvor for three and a half years and up to nine months, respectively, securing full utilisation for these vessels.
‘’During the second quarter, we continued to source attractive financing to fund our committed newbuild programme. We closed the financing of the GasLog Warsaw, which delivered earlier this week into a multi-month charter with Cheniere that covers the whole of the available period before the vessel commences her eight-year charter with Endesa, in May 2021.
‘’We also raised gross proceeds of $76.9 million through tapping our existing US dollar bonds at a premium to par. Finally, we improved GasLog Partners’ cost of capital by eliminating the incentive distribution rights. This increased our stake in the Partnership and simplified both our corporate structure and the investment case for our investors.
‘’We are seeing increasing customer interest in multi-month and multi-year charters, underpinning the long-term growth prospects for LNG and supporting our view that the second quarter weakness in LNG shipping markets is temporary. We expect shipping availability to tighten during the second half of 2019 and beyond based on new LNG supply additions, predominantly from the US and almost all of which is secured by long-term off-take contracts, and continued global growth in LNG demand. This underpins our confidence in the outlook for our business and our ambition to deliver enhanced returns to shareholders.’’
LNG Market Update and Outlook
Global LNG demand was was said to be 86 million mt in the second quarter, compared with 74 mt in the second quarter of 2018, an increase of 16%. Higher European imports (up 110% year-on-year) accounted for most of the growth, while demand from Northeast Asia (Japan, China, South Korea and Taiwan) was flat year-on-year.
Natural gas prices were at multi-year lows in the second quarter of 2019 as the leveling off in demand growth from key LNG consumers in Northeast Asia coupled with elevated inventories and new LNG supply depressed LNG prices in Asia and Europe.
Last June 6, GasLog however, entered into a termination agreement with the Cool Pool and Golar LNG Ltd. whereby GasLog assumed commercial control of its six vessels operating in the LNG carrier spot market through the Cool Pool. As of June 30, four of the GasLog vessels had exited the Cool Pool while the remaining two vessels were withdrawn in July.
The company also entered into a loan agreement with ABN AMRO BANK N.V. and Oversea-Chinese Banking Corporation Limited for the financing of the GasLog Warsaw, a 180,000 cbm Mark III Flex Plus carrier with X-DF propulsion constructed by Samsung Heavy Industries Co., Ltd. last June 25.
The agreement provides for a single tranche of $129.5 million that was drawn on July 25, 2019 and is repayable in 28 equal quarterly installments of $1.6 million each and a final balloon payment of $84.2 million payable concurrently with the last quarterly installment in June 2026. The loan bears interest at the London Interbank Offered Rate (LIBOR) plus a margin.
On July 31, 2019, GasLog took delivery of the GasLog Warsaw. Upon delivery, the vessel immediately commenced a time charter with Cheniere until May 2021, when the vessel is contracted to commence an eight-year time charter with Endesa.
On May 16, GasLog closed a follow-on issue of $75.0 million aggregate principal amount of the 8.875% Senior Notes priced at 102.5% of par with a yield to maturity of 7.89%. The gross proceeds from this offering were $76.9 million, including a $1.9 million premium, while the net proceeds, after deducting the underwriting discount and offering expenses, were $75.4 million. GasLog plans to use these proceeds to partially fund its committed newbuild program and for general corporate purposes, including working capital.
On June 24, the Partnership Agreement was amended to eliminate the IDRs in exchange for the issuance by the Partnership to GasLog of 2,532,911 common units and 2,490,000 Class B units (of which 415,000 are Class B-1 units, 415,000 are Class B-2 units, 415,000 are Class B-3 units, 415,000 are Class B-4 units, 415,000 are Class B-5 units and 415,000 are Class B-6 units), issued on June 30, 2019. Class B units have all of the rights and obligations attached to the common units, except for voting rights and participation in distributions until such time as GasLog exercises its right to convert the Class B units to common units.
The Class B units will become eligible for conversion on a one-for-one basis into common units at GasLog’s option on July 1, 2020, July 1, 2021, July 1, 2022, July 1, 2023, July 1, 2024 and July 1, 2025 for the Class B-1 units, Class B-2 units, Class B-3 units, Class B-4 units, Class B-5 units and the Class B-6 units, respectively. Following the IDR elimination, the allocation of GasLog’s profit to non-controlling interests is based on the revised distribution policy for available cash stated in the Partnership Agreement as amended, effective June 30, 2019, and under which 98.0% of the available cash is distributed to the common unitholders and 2.0% is distributed to the general partner.
As announced on June 14, GasLog Partners entered into a three-and-a-half-year time charter agreement with Gunvor for the GasLog Shanghai. The charter commenced on June 24, 2019 and has a variable rate of hire within an agreed range during the charter period. In addition, GasLog has entered into a time charter agreement for a period of up to nine months with Gunvor for the GasLog Salem. The charter commenced on June 27, 2019 and also has a variable rate of hire within an agreed range during the charter period.
On April 1, GasLog completed the sale of 100% of the ownership interest in GAS-twelve Ltd., the entity that owns the GasLog Glasgow, to GasLog Partners for an aggregate purchase price of $214.0 million, which includes $1.0 million for positive net working capital.
Dividend Declaration
On May 10, 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 July 1, 2019 to holders of record as of June 28, 2019. GasLog paid the declared dividend to the transfer agent on June 28, 2019.
On July 31, 2019, the board of directors declared a quarterly cash dividend of $0.15 per common share, or $12.1 million in the aggregate, payable on August 22, 2019 to shareholders of record as of August 12, 2019.
1) EBITDA, 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 IFRS. For definitions and reconciliations of these measurements 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.
There were 2,409 operating days for the quarter ended June 30, 2019, as compared to 2,249 operating days for the quarter ended June 30, 2018. The increase in operating days resulted mainly from the delivery of the GasLog Gladstone on March 15, 2019, the operation for the full quarter of the GasLog Houston and the decreased drydocking days as compared to the respective period in 2018.
Revenues were $154.3 million for the quarter ended June 30, 2019 ($132.8 million for the quarter ended June 30, 2018). The increase was mainly driven by the operation for the full quarter of the GasLog Houston in the quarter ended June 30, 2019 and the delivery of the GasLog Gladstone on March 15, 2019. Revenues from vessels operating in the spot market also increased due to their increased number and utilization and to the higher day rates achieved, combined with decreased off-hire days due to scheduled dry-dockings. The impact of these factors was partially offset by the expiration of the initial time charters of the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney.
GasLog recognized gross revenues and gross voyage expenses and commissions of $12.8 million and $3.4 million, respectively, from the operation of its vessels in the Cool Pool during the quarter ended June 30, 2019 ($5.0 million and $2.2 million for the quarter ended June 30, 2018, respectively). Net pool allocation was a positive $2.7 million for the quarter ended June 30, 2019 (positive $7.0 million for the quarter ended June 30, 2018). The variances were attributable to the movement in the adjustment of the net pool results generated by the GasLog vessels in accordance with the pool distribution formula for the total fleet of the pool. The increase in GasLog’s total net pool performance during the quarter ended June 30, 2019 compared to the quarter ended June 30, 2018 was driven mainly by the increase in the number of GasLog vessels operating in the Cool Pool. GasLog’s total net pool performance is presented below:
Voyage expenses and commissions were $5.9 million for the quarter ended June 30, 2019 ($4.6 million for the quarter ended June 30, 2018). The increase resulted mainly from the increased bunkers consumption of the vessels operating in the spot market.
Vessel operating and supervision costs were $33.4 million for the quarter ended June 30, 2019 ($32.7 million for the quarter ended June 30, 2018). The increase in vessel operating and supervision costs is mainly attributable to an increase in the average number of vessels in the three months ended June 30, 2019, partially offset by the favorable movement of the EUR/USD exchange rate. Daily operating costs per vessel decreased from $14,375 per day for the three-month period ended June 30, 2018 to $14,099 per day for the three-month period ended June 30, 2019.
General and administrative expenses increased by 7.7%, or $0.8 million, from $10.4 million during the three-month period ended June 30, 2018 to $11.2 million during the three-month period ended June 30, 2019. The increase is mainly attributable to an increase of $0.4 million in employee costs and an increase of $0.4 million in legal and professional expenses.
Following the implementation of IFRS 16 Leases on January 1, 2019, the Group’s leases on vessel equipment, office equipment and properties are recognized as a right-of-use asset and a corresponding liability on the date when the leased assets are available for use by the Group. Each lease payment is allocated between the liability and the finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Historically, the respective expenses were included in Vessel operating and supervision costs ($0.3 million for the three months ended June 30, 2018) and General and administrative expenses ($0.3 million for the three months ended June 30, 2018).
Depreciation was $41.4 million for the quarter ended June 30, 2019 ($38.8 million for the quarter ended June 30, 2018). The increase resulted mainly from an increase of $1.6 million from the delivery of the GasLog Gladstone on March 15, 2019 and an increase of $0.6 million from the depreciation of the right-of-use assets deriving from the implementation of IFRS 16 mentioned above.
Financial costs were $46.9 million for the quarter ended June 30, 2019 ($42.0 million for the quarter ended June 30, 2018). The increase was mainly attributable to the increased weighted average interest rate deriving from the upward movement of the LIBOR and to the increased weighted average outstanding indebtedness. An analysis of the financial costs is presented below:
Loss was $10.5 million for the quarter ended June 30, 2019 (profit of $14.2 million for the quarter ended June 30, 2018). This decrease in profit is mainly attributable to the unfavorable movement in mark-to-market valuations of our derivative financial instruments in the second quarter of 2019 and the increase in finance costs, partially offset by the increased profit from operations, due to the factors mentioned above.
Adjusted Profit(1) was $20.5 million for the quarter ended June 30, 2019 ($14.8 million for the quarter ended June 30, 2018) adjusted for the effects of the non-cash loss/gain on derivatives and the net foreign exchange losses.
Loss attributable to the owners of GasLog was $26.0 million for the quarter ended June 30, 2019 ($3.6 million loss for the quarter ended June 30, 2018). The increase in loss attributable to the owners of GasLog resulted mainly from the respective movements in profit mentioned above, partially offset by the decreased amount allocated to third parties following the decreased Partnership’s profit.
EBITDA(1) was $106.8 million for the quarter ended June 30, 2019 ($92.6 million for the quarter ended June 30, 2018). The increase in EBITDA was mainly driven by the increase in revenues, partially offset by the decrease in the net pool allocation and the increase in voyage expenses and commissions as discussed above.
Adjusted EBITDA(1) was $107.0 million for the quarter ended June 30, 2019 ($92.9 million for the quarter ended June 30, 2018).
EPS was a loss of $0.35 for the quarter ended June 30, 2019 ($0.08 loss for the quarter ended June 30, 2018). The decrease in earnings per share is mainly attributable to the respective movements in profit attributable to the owners of GasLog discussed above.
Adjusted EPS(1) was $0.03 for the quarter ended June 30, 2019 (loss of $0.07 for the quarter ended June 30, 2018), adjusted for the effects of the non-cash loss on derivatives and the net foreign exchange losses.
(1) Adjusted Profit, EBITDA, Adjusted EBITDA 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 IFRS. For definitions and reconciliations of these measurements 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.
As of June 30, the total future firm minimum contracted revenue stood at $3.9 billion(1), including the 15 vessels currently owned by GasLog Partners, but excluding the vessels operating in the spot market.
(1) 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.
As of June 30, GasLog had $295.8 million of cash and cash equivalents, of which $186.8 million was held in time deposits and the remaining balance in current accounts. In addition, as of June 30, 2019, GasLog had $44.0 million held in time deposits with an initial duration of more than three months but less than a year that have been classified as short-term investments.
On March 6, the respective subsidiaries of GasLog Partners drew down $360.0 million under a new five-year amortising revolving credit facility entered into on February 20, 2019 (the 2019 Partnership Facility) and prepaid in full their aggregate outstanding debt of $354.5 million, which would have been due in November 2019.
On April 1, the Partnership drew down an additional $75.0 million under the 2019 Partnership Facility. In addition, in March 2019, GasLog drew down $165.8 million to partially finance the delivery of the GasLog Gladstone and repaid $91.2 million in accordance with the repayment terms under its loan facilities. On May 16, 2019, GasLog closed a follow-on issue of the 8.875% Senior Notes with net proceeds of $75.4 million. GasLog plans to use these proceeds to partially fund its committed newbuild program and for general corporate purposes, including working capital.
As of June 30, 2019, GasLog had an aggregate of $3.1 billion of indebtedness outstanding under its credit facilities and bond agreements, of which $196.6 million was repayable within one year, and $209.6 million of lease liabilities, of which $9.1 million was payable within one year, and on June 30, there was undrawn available capacity of $100.0 million under the revolving credit facility of the credit agreement of up to $1.1 billion entered into on July 19, 2016 (the Legacy Facility Refinancing). In addition, there was unused availability of $7.6 million under the 2019 Partnership Facility.
While as of June 30, the total remaining balance of the contract prices of the eight LNG carriers on order was $1,315.9 million, which GasLog expects to be funded with cash balances, cash from operations and borrowings under new debt agreements, the company’s current assets totaled $384.8 million, with current liabilities totaling $306.8 million, which results in a positive working capital position of $78.0 million.
GasLog has hedged 45.3% of its expected floating interest rate exposure on its outstanding debt (excluding the lease liability) as of June 30.
