Flex LNG Ltd.
Consolidated and Company Annual
Report and Financial Statements 2018
General Information, Flex LNG Ltd.
Directors
David McManus (Chairman)
Marius Hermansen
Ola Lorentzon
Nikolai Grigoriev
Company Secretary
James Ayers
PO Box HM 1593
Par-la-Ville Place
4th Floor
14 Par-la-Ville Road
Hamilton
Bermuda
Registered Office
PO Box HM 1593
Par-la-Ville Place
4th Floor
14 Par-la-Ville Road
Hamilton
Bermuda
Auditors
Ernst & Young AS
Thormøhlens gate 53 D, NO-5008 Bergen
P.O. Box 6163 Postterminalen
NO-5892 Bergen, Norway
Letter from the CEO
While 2018 was a very eventful year for Flex LNG, it was not eventful when it comes to our most critical success
factor, the safe and reliable operation of our vessels. We are very pleased that during 2018 we, together with our
technical manager Bernhard Schulte Ship Management (BSM), operated our vessels at the highest standard
without a single incident causing Loss Time Injury (LTI) or Total Recordable Case Frequency (TRCF). Achieving
LTI and TRCF results of zero in the start-up year is a remarkable achievement and our seafarers and shore-based
personal have every reason to be proud of their performance. In addition to delivering first class safety results, we
also operated the vessels without any technical off-hire through the year giving our customers uninterrupted
service. During 2019 we will aim to further strengthen our operations by tighter co-operation with BSM and we have
also recruited additional experienced on-shore personal to ensure we have the right people at the right place ahead
of our remaining vessel deliveries. Hence, our aim is not only to maintain our service level, but further improve it
together with our partner BSM. When recruiting, we do this on basis of merit, diversity and equality. Equality is
something we also find key when it comes to corporate governance as one share is one vote and all shareholders
are treated the same. 2018 was for all practical purposes the start-up year for Flex LNG as we finally took delivery
of our first newbuildings with the deliveries of Flex Endeavour and Flex Enterprise in January 2018, followed by the
deliveries of Flex Ranger and Flex Rainbow in June and July 2018, respectively. During 2018, two vessels were
employed on shorter term time-charters, while the remaining two vessels traded in the spot market. Having two
vessels in the spot market during the second half of 2018 was very valuable as the market for LNG shipping
became increasingly tight due to high demand particularly in North East Asia. I am pleased that we managed to
capitalize on the tight market and evidenced the earnings potential of the new state-of-the art fifth generation LNG
carriers. This was particularly so in the fourth quarter, which resulted in us being able to deliver black numbers for
the full year in our start-up year.
Ahead of delivery of the newbuildings we put in place what I consider attractive and flexible long-term financing for
all four vessels. The financings put in place during 2018 enabled Flex LNG to add another two newbuilding LNG
carriers to the fleet in May 2018 on the basis of the existing paid-in capital. We also executed the largest private
placement on the Oslo Stock Exchange (OSE) during 2018, when we in October successfully raised $300 million of
new shares in connection with the acquisition of five newbuilding LNG carriers. Hence, during 2018 we grew our
fleet by seven newbuilding LNG carriers. This means the Group has been transformed from being a rather small
Group with two newbuilding contracts at the start of 2017 to a leading LNGC Group by the end of 2018, with four
vessels on the water and a further nine newbuildings. Achieving this growth in such a short matter of time had not
been able to achieve without dedicated support from our customers, employees, financiers and shareholders.
The outlook for the LNG market is very compelling with high level of visible growth ahead as countries like the U.S.,
Russia, Mozambique, Qatar are adding further liquefaction capacity which will drive demand for seaborne
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transportation. LNG shipping is according to Bloomberg expected to overtake pipeline gas in global gas trade by
2025, marking a remarkable shift from 2000 when pipeline gas volumes were three times larger than LNG shipping
in global trade. The main reasons for the high growth factor for natural gas and LNG in particular are its
environmental credentials compared to other hydrocarbons as well as its relatively low price. LNG also adds the
additional benefit of flexible transporting options over larger distances. The climate challenge today consists
primarily of two issues, local climate and global warming. Switching from coal to cleaner natural gas can mitigate
both. The carbon emissions driving global warming can be reduced by about half by doing this switch. However, the
benefits to the local climate which is affecting people’s health and everyday life are significantly greater. By utilizing
natural gas instead of coal, sulphur emissions (SOx) and particulate matter (PMx) can be reduced to negligible
levels, nitrogen oxides (NOx) by 80-90%, carbon monoxide by about 90% and mercury emissions can be eliminated
entirely. This is good news, as nine out of ten people worldwide breathe air containing high levels of pollutants,
which is causing 7 million pre-mature deaths every year according to WHO. Due to the factors described, it is not
surprising that natural gas and LNG is set to grow and become the most important fuel by 2040 according to BP. As
far as we can see, natural gas as feedstock has one challenge and this is related to methane leak/slip. This is a
challenge that the whole industry is facing. Flex shares the high ambitions that some of the leading energy
companies have in reducing release of methane to a minimum, as this is a potent greenhouse gas. Our fleet of
vessels, which consists of nine MEGIs and four X-DFs, are very well suited to tackle the methane slip challenge.
These vessels are the most fuel efficient on the water, and they also provide a much better methane footprint than
the fourth generation DFDE/TFDE vessels, which struggle with less efficient combustion creating methane slip. The
clean high pressure combustion of our MEGI vessels almost eliminate methane slip entirely while the low pressure
X-DF vessels reduce methane slip significantly compared to the older fourth generation vessels.
To conclude, Flex LNG expects a further tightening of the LNG shipping market in the coming years, especially in
2019 and 2020, due to high growth in LNG production and higher demand for natural gas as utilities are switching
from coal to cleaner natural gas. This is combined with increased sailing distances due to the increased supply from
the U.S. and Russia in particular. Flex LNG is well positioned with four modern fuel efficient LNG carriers on the
water, and another nine newbuildings set for delivery with very favourable slots in 2019-2021. Flex LNG believes
our fleet of state-of-the-art LNG carriers will still command a premium in the market due to its more fuel efficient and
environmental friendly propulsion system as well as its larger parcel size than average.
Oystein M. Kalleklev
Chief Executive Officer, Flex LNG Management AS
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BOARD OF DIRECTOR’S REPORT 2018
Business update
During 2018, Flex LNG Ltd. (the “Company”; together with its subsidiaries, the “Group” or “Flex LNG”) further
expanded its fleet and now controls a fleet of 13, high-end 5th generation LNG carriers. This expansion was done
through two transactions during 2018. The first transaction was entered into in May, and confirmed in July following
the closing of the sale and leaseback of the Flex Rainbow. The funds received from the sale and leaseback
transaction were used to acquire the two newbuilding LNG carriers, Flex Aurora and Flex Amber. The vessels are
fitted with low pressure two stroke engines ("X-DF") and are under construction at Hyundai Samho Heavy Industries
Co., Ltd. ("HSHI"). The second transaction was concluded in connection with the $300 million private placement in
October. The funds from the private placement were used to enter into a transaction for the acquisition of five
newbuilding LNG carriers, comprising three M-type, Electronically Controlled, Gas Injection ("MEGI") LNG carriers
currently under construction at Daewoo Shipbuilding, and Marine Engineering Co. Ltd. ("DSME"), Flex Reliance,
Flex Resolute and Flex Freedom, with scheduled delivery in 2020 and two X-DF LNG carriers currently under
construction at HSHI, Flex Volunteer and Flex Vigilant, with scheduled delivery in 2021 This is in line with Flex
LNG's strategy to be and stay a leading company in the LNG carrier market.
The growth in shipping demand is expected to be driven by the substantial increase in global LNG production
together with the future growth of global energy demand.
In April 2018, the Group entered into a time-charter with Enel Trade S.p.A. ("Enel"). The firm period is 12 months,
with an option to extend the charter period with an additional 12 months. The charter party will commence from the
second half of 2019. Flex LNG intends to employ Flex Enterprise for this business, however the Group has the
option to nominate one of its sister vessels.
Financing update
In December 2017, we entered into a $315 million secured term loan facility (the “$315 Million Term Loan Facility”),
for the financing of the first three vessels in our fleet, the Flex Endeavour, the Flex Enterprise and the Flex Ranger.
In January 2018, we drew down the first two loan tranches of $105 million each in connection with the delivery of
the Flex Endeavour and the Flex Enterprise. The third $105 million tranche was utilized in connection with the
delivery of the Flex Ranger in June 2018.
In July 2018, we successfully completed the sale and leaseback of Flex Rainbow (the “Flex Rainbow Sale and
Leaseback”), whereby the Flex Rainbow was sold to a Hong Kong based lessor and leased back for a period of 10
years. The gross sales price under the lease was $210 million, of which $52.5 million represented advance hire for
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda
the ten-year lease period. This transaction made it possible for Flex LNG to acquire the two newbuilding LNG
carriers Flex Aurora and Flex Amber from related parties of Geveran Trading Co. Ltd. (“Geveran”), our largest
shareholder. The vessels are under construction at HSHI and will be delivered in the second and third quarters of
2020, respectively.
In October 2018, the Company successfully completed a private placement, raising gross proceeds of Norwegian
Kroner (“NOK”) 2,464 million, equivalent to approximately $300 million. The private placement was the largest in
size on the Oslo Stock Exchange during 2018. The proceeds from the private placement were used for the
acquisition of five newbuilding LNG carriers from related parties of Geveran, comprising three high-end MEGI LNG
carriers currently under construction at DSME with scheduled delivery in 2020 and two high-end X-DF LNG carriers
currently under construction at HSHI with scheduled delivery in 2021.
In the first quarter of 2019, we agreed financing for the two newbuildings Flex Constellation and Flex Courageous.
The $250 million secured term loan facility (the "$250 Million Term Loan Facility") will be divided into two tranches of
$125 million each. The tenor of the facility will be five years from the date of delivery of the last newbuilding
financed under the facility. The financing remains subject to the execution of the loan facility agreement and
customary closing conditions, and is expected to be drawn upon delivery of the vessels from the shipyard, currently
scheduled for June and August 2019, respectively. The financing will partly cover the remaining $144 million
payable upon delivery of each of the vessels. The remaining balance is expected to be funded from the Group’s
available liquidity.
The full amount under the $270 million revolving credit facility (the "$270 million Revolving Credit Facility") provided
by Sterna Finance Ltd., a related party, is free and available until 12 months after delivery of the newbuilding Flex
Courageous (scheduled August 2019) after which it will be reduced to $30 million. The remaining $30 million will
however be available until July 1, 2023, unless otherwise agreed.
LNG Market outlook and strategy
The global LNG market is evolving rapidly. More LNG is being produced than ever before and more LNG is being
sold on shorter-term contracts. The global appetite for LNG is rising as new demand hot spots for the clean-burning
fuel are developing. Strong demand ahead of the winter season 2018 resulted in a significant increase in the freight
rates. The arbitrage window between European and Asian LNG prices stayed open until October/November of
2018, which increased demand for spot vessels loading out of European ports - so called “re-loads”. Due to a warm
winter resulting in fewer heating days both in Pacific and Europe, lower LNG prices affecting willingness to pay for
transportation and a closed arbitrage window, the charter rates and utilization levels softened during first quarter of
2019. Given an expected increased LNG production in 2019 of about 30-35 million tonnes, on average longer
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda
sailing distances and fewer vessel deliveries, the market is expected to become gradually tighter throughout the
year. The increase in production during 2019 is mainly derived from Russia, Australia and the U.S.
Australia have now finalized its eight major LNG project and ramped-up the last project during 2018, which is
expected to increase production in 2019 by approximately 10 million tonnes compared to 2018, making Australia
the biggest LNG exporter in the world ahead of Qatar.
When it comes to Russia, new volumes are related to the ramp up of production at Yamal LNG. The project is
based on the Yamal peninsula, above the Arctic Circle, and is a joint-venture of NOVATEK (50.1%), TOTAL (20%),
CNPC (20%) and Silk Road Fund (9.9%). This is Russia’s second LNG export project, after Sakhalin LNG. Yamal
LNG will have a nameplate capacity of approximately 16.5 million tonnes per annum (“Mtpa”) and estimated natural
gas reserves of 926 million tonnes. The LNG from Yamal is primarily shipped to Asia-Pacific and European
markets.
In the U.S., there are several new liquefaction trains being mobilized and ramped up. The start-up of Cove Point in
April 2018 was just another piece to the U.S. LNG export boom that will continue apace. A handful of export
terminals are under construction and more than a dozen are being proposed.
When Cameron LNG Train No. 1 is operational in 2019, it will be able to liquefy domestically-produced natural gas
for export as well as import LNG. With the 3-Train project, the authorized annual export capacity is estimated to be
approximately 15 million tonnes. Cameron has initiated an expansion project which is capable of increasing LNG
production capacity by an additional 10 Mtpa. If constructed, Cameron LNG’s export capacity will be approximately
25 Mtpa.
Cheniere’s Corpus Christi LNG export terminal began production of Train No. 1 at end of 2018 and is expected to
start-up production of Train No. 2 in the middle of 2019 while Train No. 3 is scheduled for start-up 2021. Each of
these trains has a capacity of 4.5 Mtpa.
Freeport LNG is experiencing delays in construction of Trains No. 1 - 3 and is expected to start producing in
September 2019. The estimated export capacity is 2.5 million tonnes in 2019. Nameplate capacity is approximately
5 Mtpa for each of the three trains. Freeport LNG is developing a fourth LNG train in addition to the three trains
already under construction. This expansion will allow for the export of an additional 5 Mtpa of LNG, increasing the
project’s total export capability to approximately 20 Mtpa.
Additionally, Elba Island is expected to start-up in 2019 adding nameplate capacity of about 2.5 Mtpa.
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda
During 2019, it is also widely expected that Qatar will give the greenlight for an additional four liquefaction trains in
Qatar brining production volumes up from 77 Mtpa to 110 Mtpa. These trains are scheduled to be fully operational
by 2024.
Global demand for seaborne LNG continued to grow in 2018. For the full year 2018, approximately 330 million
tonnes of LNG were exported, an increase of approximately 13% year-on-year. The world's total LNG carrier fleet,
with a size above 125,000 cbm, now exceeds 470 vessels and approximately 38 vessels are expected to be
delivered in 2019.
Flex LNG sees itself well positioned with four MEGI LNG carriers on the water, and another nine newbuildings set
for delivery in 2019-2021. Three of the newbuildings are fitted with full re-liquefaction systems which make these
vessels ideal for long term charter parties. Flex LNG is therefore confident that the strengthening in the market
sentiment will continue and that our state-of-the-art vessels will command a premium in the market. We continue to
execute our chartering strategy to secure balanced fleet employment through actively marketing our LNG carriers in
both the term and spot markets.
The Board
Mr. Robin Bakken resigned from the board in September 2017, while Ms. Georgina E. Sousa resigned from the
board in December 2018.
Leadership update
To further strengthen the executive team in connection with the expansion of the fleet, Mr. Øystein M. Kalleklev took
the position as Chief Executive Officer of Flex LNG Management AS from August 1, 2018 while still serving as Chief
Financial Officer. To strengthen our operational department Mr. Marius Foss joined Flex LNG Management AS from
August 1, 2018 as Head of Commercial. On January 1, 2019, Mr. Harald Gurvin joined Flex LNG Management AS
as Chief Financial Officer.
Funding and Going Concern
The Board believes that the going concern assumption currently remains appropriate for the Group. The basis for
the Board's assumption is, among several things, the Flex Rainbow Sale and Leaseback, which financed the 20%
down payment on Flex Aurora and Flex Amber. In addition, the Company successfully completed a private
placement in October 2018 raising the equivalent of $300 million, which financed the 30% on the last five
newbuildings. In the first quarter 2019, the Group agreed the $250 Million Term Loan Facility to part finance the final
instalments on the two newbuildings Flex Constellation and Flex Courageous. To secure any finance gap, the $270
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Million Revolving Credit Facility will be available in full until 12 months after delivery of the Flex Courageous, which
is scheduled to be delivered in August 2019.
Risks
The Group is currently focused on becoming a leading owner and commercial operator of fuel efficient LNG
carriers. The Group is exposed to a variety of commercial, operational and financial risks, including market risks,
credit risks, interest rate, capital risk and liquidity risks.
The uncertainties and risks include those detailed in the 2018 accounts and as summarized below. Risks
associated with the ability to secure employment contracts on reasonable terms for the vessels under construction
and the vessels in operation, risks associated with newbuilding projects such as managing the design and
construction process properly and counterparty risks, risks associated with obtaining delivery finance on reasonable
terms, risks associated with the general LNG and LNG shipping market conditions and trends and risks of increased
competition from the Group’s competitors and oversupply of vessels.
Another key risk is the risk of attractive funding. Historically funds have been raised via equity issuance, lease
finance and loan finance. Market conditions can have a significant impact on the ability to raise equity, lease finance
and loan finance. While new equity financing may be dilutive to existing shareholders, lease and loan finance may
contain covenants and other restrictions. Although the Group has agreed the $250 Million Term Loan Facility for
part financing of the two newbuildings delivering in 2019 and has $270 million in available funds under the $270
Million Revolving Credit Facility, no assurance can be given that the Group will obtain such financing in the future
and further funding (which is necessary to complete its planned growth strategies and to cover the remaining
delivery instalments) is subject to market risks and other risks that may influence the availability, structure and terms
of such financing.
In all cases where the Group may require additional funding, there can be no assurance that such funds may be
raised on terms that are reasonable, if at all. Additional detail on working capital requirements and an analysis of the
risks to the Group are provided in Notes 10, 11, 18 to the financial statements.
Income Statement, Balance Sheet and Cash Flows
For the year ended December 31, 2018, the Group had vessel operating revenues of $77.2 million (2017: $27.3
million). Vessel operating costs, including voyage related costs, charter hire expense, claim expense, broker
commissions and technical operating expenses (such as crewing, insurance, lubes and repairs & maintenance) for
2018 amounted to $26.2 million (2017: $36.5 million).
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda
For the year ended December 31, 2018, the Group reported administrative expenses of $4.6 million (2017: $3.4
million) and finance costs of $17.8 million (2017: $0.2 million). Depreciation expenses increased to $17.4 million for
the year ended December 31, 2018 compared to $0.0 million for 2017.
The Group's net income/(loss) of the year ended December 31, 2018 was $11.8 million (2017: $(10.4) million),
equating to a basic and diluted earnings/(loss) per share of $0.29 (2017: $(0.34)).
At December 31, 2018, the Group reported total assets of $1,294.4 million (2017: $684.5 million) and total equity of
$827.3 million (2017: $520.1 million).
The Group’s cash, restricted cash and cash equivalents at December 31, 2018 was $55.1 million (2017: $10.0
million) with a $45.1 million net cash inflow for the year (2017: $8.5 million). For the year ended December 31,
2018, the cash flow provided by/(used in) operating activities was $35.7 million (2017: $(17.8) million), net cash flow
used in investing activities was $584.4 million (2017: $77.7 million) and net cash flow provided by financing
activities was $593.9 million (2017: $104.0 million).
For the year ended December 31, 2018, the Company has continued to hold the investments in its subsidiaries and
managed the strategic direction of the Group. The Company’s cash and cash equivalents at December 31, 2018
was $8.5 million (2017: $7.2 million). For the year ended December 31, 2018, the cash flow provided by/(used in)
operating activities was $6.5 million (2017: $(9.6) million), net cash flow used in investing activities was $300.5
million (2017: $205.5 million) and net cash flow provided by financing activities was $295.3 million (2017: $221.0
million) resulting from the share issuance in October 2018.
Environmental Reporting
The Group has an objective that all activities that are performed to be carried out so as to minimize negative
impacts to people and the environment.
Working Environment and Personnel
At the end of 2018, The Company and its subsidiaries had in total six employees. The personnel are employed by
our 100% owned subsidiaries Flex LNG Management AS and Flex LNG Management Limited. There have not been
any serious injuries or accidents in the current or prior year and total absence due to sickness has been minimal
during the accounting year. The Company’s Board of Directors currently consists of four men. The Group's policy
prohibits unlawful discrimination against employees, on account of ethnic or national origin, age, sex or religion.
Respect for the individual is the cornerstone of this policy and the Group also aims to treat its employees with
dignity and respect.
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda
Post Balance Sheet Events
In the first quarter of 2019, the Group agreed the $250 Million Term Loan Facility for the financing of the
newbuildings Flex Courageous and Flex Constellation. The tenor of the facility will be five years from the date of
delivery of the last newbuilding financed under the facility. The financial covenants are not directly linked to
earnings, but rather balance sheet values of booked equity level exceeding 25%, free cash being the higher of $25
million and 5% of net interest bearing debt and positive working capital on a consolidated level. The financing
remains subject to the execution of the loan facility agreement and customary closing conditions, and is expected to
be drawn upon delivery of the vessels from the shipyard, currently scheduled for June and August 2019,
respectively.
Corporate Governance
The Group is committed to good corporate governance; additional details may be found in the corporate
governance report.
Board of Directors of Flex LNG Ltd.
April 3, 2019
David McManus (Chairman)
Marius Hermansen
Nikolai Grigoriev
Ola Lorentzon
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda
Responsibility statement
We confirm that, to the best of our knowledge, the financial statements for the period January 1 to December 31,
2018 have been prepared in accordance with current applicable accounting standards, and give a true and fair view
of the assets, liabilities, financial position and profit or loss of the entity and the Group taken as a whole. We also
confirm that the Board of Directors’ Report includes a true and fair review of the development and performance of
the business and the position of the entity and the Group, together with a description of the principal risks and
uncertainties facing the entity and the Group.
Board of Directors of Flex LNG Ltd.
April 3, 2019
David McManus (Chairman)
Marius Hermansen
Nikolai Grigoriev
Ola Lorentzon
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda
Corporate Governance Report
1) Implementation and reporting on corporate governance
As a company incorporated in Bermuda, the Company is subject to Bermuda laws and regulations. Additionally, as
a consequence of being listed on the Oslo Stock Exchange, the Company must comply with section 3-3b) of the
Norwegian Accounting Act and certain aspects of Norwegian securities law and is also obligated to adhere to the
Norwegian Code of Practice for Corporate Governance (the “Code of Practice”) on a “comply or explain” basis.
Further, the Company has in place a Memorandum of Continuance and Bye-Laws, which set forth certain
governance provisions. The Norwegian Accounting Act is found on www.lovdata.no and the Code of Practice is
found on www.nues.no.
The Group is committed to ensuring that high standards of corporate governance are maintained and is committed
to high ethical standards in dealings with all stakeholders, including shareholders, debtors, customers, vendors and
employees. Strong corporate governance principles help to ensure that the Groups’ standards are applied to all its
operations, and the Board has furthermore implemented a Code of Conduct and Ethics and the Company will also
look to comply with the material aspects of the Code of Practice for Reporting IR Information. Additionally policies
have been put in place to cover health and safety, quality and environment commitment. The Company believes
that these policies broadly set out the Company’s corporate social responsibility. Further information in this respect
is available on www.flexlng.com.
The Board of Directors has based its corporate governance practices on the principles set out in the Code of
Practice. However, since the Company is governed by Bermuda laws and regulations, and given the current nature
of the Group’s activities, certain practices are applied which deviate from some of the recommendations of the Code
of Practice.
In the following sections, the Company’s corporate governance policies and procedures will be explained, with
reference to the principles of corporate governance as set out in the sections identified in the Code of Practice. This
summary does not purport to be complete and is qualified in its entirety by the Company’s Memorandum of
Continuance and Bye-Laws, Bermuda and Norwegian law.
2) Business
The Company’s objectives as set out in the Memorandum of Continuance are unrestricted. Flex LNG is currently
focused on becoming a leading owner and commercial operator of fuel efficient LNG carriers. The Company
operates principally through its subsidiaries, and are actively marketing our LNG carriers in both the term and spot
markets in order to secure balanced employment of the vessels.
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3) Equity, debt and dividends
Equity
The appropriate level of equity for the Group is evaluated by the Board of Directors on an ongoing basis, via
reviews at the Board meetings. Total share capital of the Company at December 31, 2018 was $5.41 million,
divided into shares of par value USD 0.10 each, following the ten-to-one reverse stock split which was effective
March 7, 2019. The Board of Directors believe this is currently satisfactory given the Group’s business and
objectives, but will be increased if the Company raises additional funds.
Debt
In December 2017, we entered into a $315 million secured term loan facility for the financing of the first three
vessels in our fleet, the Flex Endeavour, the Flex Enterprise and the Flex Ranger. In January 2018, we drew down
the first two loan tranches of $105 million each in connection with the delivery of the Flex Endeavour and the Flex
Enterprise. The third $105 million tranche was utilized in connection with the delivery of the Flex Ranger in June
2018. The total outstanding principal amount under the facility as of December 31, 2018 was $304.5 million.
In July 2018, we concluded the sale and leaseback of Flex Rainbow. The gross sales price under the lease was
$210 million, of which $52.5 million represented advance hire for the ten-year lease period. The sale and leaseback
has been considered a financing arrangement whereby the initial net amount received has been recognized as a
loan against the vessel due to Flex LNG's repurchase options during the ten year leasing period.
In the first quarter of 2019, we agreed a $250 million financing for Flex Constellation and Flex Courageous, which
are scheduled for delivery in June and August 2019, respectively. The financing is subject to the execution of the
loan facility agreement and customary closing conditions.
Dividend policy
As the Group has yet to produce stable cash flows and operating profits, dividends will not be considered in the
near term.
Equity mandates
Pursuant to Bermuda law and common practice for Bermuda incorporated companies, the Board of Directors has
wide powers to issue any authorised, but unissued shares, on such terms and conditions as it may decide, subject
to any resolution of the Company’s shareholders to the contrary.
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Pursuant to the Bye-Laws, the Board of Directors has wide powers to issue any authorised, but unissued shares on
such terms and conditions as it may decide, subject to any resolution of the shareholders to the contrary. Further,
pursuant to the Bye-Laws, the Board of Directors may exercise the power of the Company to purchase its own
shares for cancellation or acquire them as treasury shares in accordance with Bermuda law on such terms as the
Board of Directors thinks fit.
The issued share capital for the Company is detailed in the annual and quarterly reports which may be viewed at
www.flexlng.com.
4) Equal treatment of shareholders and transactions with close associates
The Company has only one share class, with identical voting rights. All shareholders are treated equally and the
Bye-Laws do not contain any restrictions on voting rights. Where the Company carries out a transaction in its own
shares the intention is for this to occur through the stock exchange or at prevailing stock exchange prices, to ensure
equal treatment of all shareholders. In situations where there is limited liquidity in the shares, the Company will seek
other procedures to ensure that the equal treatment of shareholders is maintained.
The Company conducts appropriate review and oversight of all related party transactions for potential conflict of
interest situations on an ongoing basis by the Company’s Board of Directors. As permitted under Bermuda law and
our Bye-Laws, our directors are not prohibited from being a party to, or otherwise interested in, any transaction or
arrangement with us or in which we are otherwise interested, provided that the director makes proper disclosure of
same as required by our Bye-Laws and Bermuda law.
5) Freely negotiable shares
With limited exception, all shares in the Company are freely negotiable, and the Bye-Laws contain no form of
restriction on the negotiability of the shares, or on voting rights.
6) General meetings
The Annual General Meeting (“AGM”) is the forum for the Company’s shareholders to participate in major decisions,
and is held each year. The Company’s Bye-Laws require a five day notice for Annual and other Shareholder
Meetings, rather than 21 days, which is the recommendation of the Code of Practice. Currently, given the
Company's position, this shorter period is considered to be sufficient for shareholders to consider the matters being
voted on. The notice for Annual and Extraordinary General Meetings shall include relevant material to enable the
shareholders to make an informed decision and to vote separately on each matter being considered. The
documentation will be sent to shareholders either electronically or on paper. Registration can be made in writing or
by e-mail. All shareholders are entitled to speak and vote at the General Meetings. The Board of Directors shall take
15
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
steps to ensure that as many shareholders as possible can exercise their rights by participating in General
Meetings, for instance by setting deadlines for shareholders to give notice of their intention to attend the meeting (if
any) as close to the date of the meeting as possible and by giving shareholders who are not able to attend the
option to vote by proxy. The procedure to vote by proxy will be described in the notice of the AGM. The Board of
Directors of the Company shall make arrangements for shareholders voting by proxy to give voting instructions on
each matter to be considered at the meeting.
The AGM shall be organized in such a way as to facilitate dialogue between shareholders and the Board of
Directors of the Company. Thus, the Board of Directors will ensure that a member of the Board and the auditor will
be available to answer questions. The Board of Directors has not made arrangements for an independent Chairman
for each AGM to be present; it believes that the Chairman of the Board can act independently and in the interests of
shareholders. The notice of the General Meeting as well as supporting documents will be made available on the
website www.flexlng.com as well as www.newsweb.no where the decisions from the general meetings will also be
made available.
The Company strives to maintain an open and fair dialogue with its shareholders through the publishing of
information, presentations and responding to questions from shareholders. The Company has not, however, taken
specific measures for obtaining shareholders’ proposals for matters to be proposed to the shareholders’ meeting. In
the view of the Company, the current shareholder structure, the shareholder representation, the policy to
communicate with shareholders is sufficient to ensure that shareholders may communicate their points of view to
the executive management and the Board of Directors. In addition, given the Company’s current development and
given the good communications with shareholders, it does not believe that it is necessary for all Directors and the
auditor to be physically present at the General Meetings, or for there to be an independent Chairman, and that a
five day notice is sufficient for the AGM.
7) Audit Committee, Nomination Committee and Compensation Committee
In lieu of an audit committee comprised of three independent directors, our audit committee has one member, which
is consistent with Bermuda law. The Board has determined that Mr. Nikolai Grigoriev, who is an independent
Director, is our audit committee's financial expert.
In lieu of a nomination committee comprised of independent directors, the Board of Directors is responsible for
identifying and recommending potential candidates to become board members and recommending directors for
appointment to board committees. Shareholders are permitted to identify and recommend potential candidates to
become board members, but pursuant to the Bye-Laws, directors are elected by the shareholders in duly convened
annual or special general meetings.
16
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
In lieu of a compensation committee comprised of independent directors, the Board of Directors is responsible for
establishing the executive officers' compensation and benefits. Under Bermuda law, compensation of the executive
officers is not required to be determined by an independent committee.
8) Corporate assembly and Board of Directors: composition and independence
As a Bermuda registered company with no employees as at December 31, 2018, the Company does not have a
corporate assembly. Given the size of the Company this is not believed to be necessary.
The Company’s Board of Directors shall comprise not less than two directors pursuant to the Bye-Laws. The
Company’s Board of Directors currently comprises four directors. The composition of the Board of Directors,
including the controls to avoid conflicts of interest, is in accordance with Bermuda company law, the Memorandum
of Continuance, Bye-Laws and good corporate governance practice.
The Company endeavours to ensure that it is constituted by directors with a varied background and the necessary
expertise, diversity and capacity to ensure that it can function effectively. The directors are elected at the AGM, and
shall serve until re-elected or their successors are appointed at the next AGM. Directors may be re-elected and
there is no limit on the number of terms that any one director may serve. Re-election of the current directors is due
at the AGM in 2019. Currently, the Board of Directors has elected the Chairman, rather than the shareholders.
Given the Company’s current development status, the Company believes that this is satisfactory and that the
Chairman can ensure that the Board of Directors is effective in its tasks of setting and implementing the Company’s
direction and strategy.
The Directors are encouraged to hold shares in the Company, which the Board of Directors believes promotes a
common financial interest between the members of the Board of Directors and the shareholders of the Company. In
accordance with the General Meeting’s resolution, the Directors received between 0% and 100% of their
remuneration in shares for 2018 and 2017.
The members of the Board of Directors which were active in 2018 are listed below:
Mr. David McManus, Director and Chairman
Mr. McManus has served as a Director of the Company since August 2011. Mr. McManus is currently non-executive
director for a number of listed companies, including Hess Corporation, Rockhopper Exploration, and Costain Group
PLC. Mr. McManus has 40 years of technical, commercial, and general management experience across all aspects
of the international oil and gas business, having held various executive roles at Pioneer Natural Resources, BG
Group, ARCO, Ultramar, and Shell. As Chairman of Cape plc, Mr. McManus worked on several global LNG projects
such as Sakhalin, Qatargas, and North West Shelf.
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Mr. Marius Hermansen, Director
Mr. Hermansen has served as a Director since December 2015. He serves as Head of Sale &
Purchase/Newbuilding for Seatankers Management Norway AS, a related party of Geveran. Mr. Hermansen started
out his career as a trainee with AP Moller-Maersk and went on to work over 10 years at Fearnleys Shipbrokers. Mr.
Hermansen is also Director and Chairman of Avance Gas Holding Ltd. He was educated at the Norwegian School
of Economics (NHH) in Bergen.
Mr. Ola Lorentzon, Director
Mr. Lorentzon has served as a Director of the Company since June 2017. He served as Principal Executive Officer
of Golden Ocean Group Limited from 2010 to 2015 and held the role as Chief Executive Officer of Frontline
Management AS from 2000 to 2003. From 1986 to 2000, Mr. Lorentzon served as Chief Executive Officer of ICB
Shipping. Mr. Lorentzon is also a Director and Chairman of Golden Ocean Group Limited and a Director of Frontline
Ltd., both related parties of Geveran, and Erik Thun AB.
Mr. Nikolai Grigoriev, Director
Mr. Grigoriev has served as a Director of the Company since September 2017. From 2008 to 2016, Mr. Grigoriev
served as Managing Director, Shipping at Gazprom Marketing & Trading (GMT) in London and Singapore. Prior to
GMT, Mr. Grigoriev worked for BG Group and Merrill Lynch in Houston and London in senior LNG shipping,
commercial and corporate finance roles. Nikolai holds a B.Sc. in Navigation from Admiral Makarov State Maritime
Academy in St. Petersburg, Russia and an MBA from INSEAD in Fontainebleau, France.
Ms. Georgina E. Sousa, Director
Ms. Sousa joined the Board of Directors in June 2017. She has also served on the boards of Frontline Ltd., Seadrill
Limited, North Atlantic Drilling Limited, Golden Ocean Group Limited and Ship Finance International Limited. Ms.
Sousa resigned from the Board of Directors on December 12, 2018.
The Executive Management is listed below:
Øystein Kalleklev, Chief Executive Officer of Flex LNG Management AS
Mr. Kalleklev joined the Group in October 2017, after serving as Chief Financial Officer of Knutsen NYK Offshore
Tankers since 2013 and Chairman of the General Partner of the MLP KNOT Offshore Partners from 2015 to 2017.
Previous roles include Chief Financial Officer of industrial investment company Umoe Group, Managing Director of
Umoe Invest, Partner of investment bank Clarksons Platou and Business Consultant at Accenture. Mr. Kalleklev
18
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
holds a MSc in Business and Administration from the Norwegian School of Economics and a Bachelor in Business
and Finance from Heriot-Watt University. Mr. Kalleklev was appointed Chief Executive Officer of Flex LNG
Management AS in August 2018.
Mr. Harald Gurvin, Chief Financial Officer of Flex LNG Management AS
Mr. Gurvin joined Flex LNG Management AS as Chief Financial Officer in January 2019, after serving as Chief
Financial Officer of Ship Finance International Limited (“Ship Finance”) since March 2012. From 2008 until 2012,
Mr. Gurvin served as Senior Vice President at Ship Finance. Prior to joining Ship Finance in 2006, he spent seven
years with the global shipping group of Fortis Bank in Oslo, focusing on shipping and offshore finance. Mr. Gurvin
holds a Master of Science degree in Shipping, Trade and Finance from CASS Business School and a Master of
Science degree in Marine Engineering and Naval Architecture from the Norwegian University of Science and
Technology.
H. Marius Foss, Head of Commercial
Mr. Foss joined Flex LNG Management AS in August 2018. He has previously served as Senior Vice President
Head of Shipping at Golar Management Ltd (“Golar”) and Cool Pool Ltd. Prior to Golar, Mr. Foss was Chartering
Manager of Frontline Management AS. Mr. Foss brings over 25 years of shipping experience to Flex LNG, having
acted for various brokers and owners in the oil and gas business.
9) The work of the Board of Directors
The Board of Directors is ultimately responsible for the management of the Company and for supervising its day to
day management. The Board of Directors is scheduled to meet in person between one and two times a year, but
the schedule is flexible to react to operational or strategic changes in the market and Group circumstances. The
main responsibilities of the Board of Directors cover the following main areas; strategic planning and decision
making for the executive management to implement; ensure instructions from the Board of Directors are complied
with; remain well informed on the Company’s and Group's financial position; production of an annual work plan;
ensure the adequacy of executive management and their roles are clearly defined; annually to review the most
important areas of risk exposure, including risks and controls related to financial reporting; ensuring an appropriate
system of direction, risk management and internal control is established and maintained; to adopt guidelines for the
frequency and policy for external financial reporting; and to agree on the dividend policy. The Board of Directors is
briefed on the Company’s financial situation, the vessel construction and charter position, market conditions, the
liquidity situation and cash flow forecast.
The Chairman of the Board of Directors carries a particular responsibility for ensuring that the Board of Directors
performs its duties in a satisfactory manner and that the Board of Directors is well organized. The Board of Directors
19
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
has the overall responsibility for the management of the Group and has delegated the daily management and
operations to management companies wholly owned by the Company (“Flex LNG Management”), who are
appointed by and serve at the discretion of the Board of Directors, and also report to the Board of Directors. Further,
Flex LNG Management is responsible for ensuring that the Company’s accounts are in accordance with all
applicable legislation, and that the assets of the Company are properly managed. The powers and responsibilities
are defined in more detail by the Board of Directors and executed management agreements.
In the event that the Chairman of the Board of Directors cannot attend a meeting or is conflicted in leading the work
of the board, an alternate chairman will lead the meeting.
10) Risk management and internal control
The Board of Directors, in conjunction with the executive management, evaluates the risks inherent in the
operations of the Group. Principal among these risks currently are; the ability to secure employment contracts on
reasonable terms for the vessels under construction and the vessels which were delivered in 2018; risks associated
with construction projects in general (including risks associated with the design of the vessels, counterparty risks
and the financial strengths of the yards), risks associated with the capacity of the Group to obtain future finance on
reasonable terms; risks associated with the ability of the Company to retain key staff, the general LNG and LNG
shipping market conditions and trends, the charter market conditions for the LNG carriers, and financial risks. In
addition, the following risks inherent in the business of the Group are monitored: Risk associated with fluctuations in
commodity prices, changes in the charter market, exchange rates, increased competition, the political, regulatory
and tax environment of the Group, counterparty performance, risks associated with potential growth of the business
and the proposed application of new technology including the potential for vessel obsolesce. The Board of
Directors, working with the Audit Committee and through the annual audit process, ensures that the Group has
reliable internal controls and systems for risk management.
The Board of Directors is presented an annual budget at the end of the preceding financial year. Thereafter, the
Board of Directors is presented with regular updates and quarterly reporting. Explanations are obtained for material
variances. The Audit Committee has the responsibility to evaluate risk exposure and internal control on an annual
basis. The Board of Directors is also presented financial statements on a quarterly basis, which are reviewed with
the executive management.
11) Remuneration of the Board of Directors
The remuneration of the members of the Board of Directors is determined by the AGM, on the basis of the Board of
Director’s responsibility, expertise, time commitment and the complexity of the Group’s operations, and is disclosed
in Note 3 to the financial statements. Through the Company’s remuneration of Directors, part of which historically
20
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
has been a split between shares and cash, the Company has encouraged directors to own shares in the Company.
The remuneration is not linked to the Company’s performance.
As a general rule, no Directors (or companies with which they are associated) shall take on specific assignments for
the Company in addition to their appointment as director. If such assignments are made, it shall be disclosed to the
full Board of Directors and the remuneration shall be approved by the Board of Directors. Further, all remuneration
paid to each of the Directors shall be described in the Annual Report, details per Note 3. Such description shall
include details of all elements of the remuneration and benefits of each member of the Board of Directors, any
remuneration paid in addition to normal director’s fees included.
12) Remuneration of the executive personnel
The executive management’s remuneration shall be determined by a convened meeting of the Board of Directors.
The process aims to link the performance related element of the remuneration (options and bonuses) to value
creation for shareholders. The current option program has been approved by the Board of Directors with the
allocation to staff determined by the Board of Directors. The scheme is designed to align employees with
shareholder value creation and to retain persons within the Group. In 2018 the Board of Directors granted executive
personnel 141,000 options (adjusted for the ten-to-one reverse stock split), which will vest during a three year
period, and can be exercised within a five year period.
Further information on the remuneration of the executive management is contained in Note 3 to the financial
statements.
13) Information and communications
Flex LNG will ensure that the shareholders receive accurate, clear, relevant and timely information in accordance
with legal requirements and good corporate governance practices. Publication methods will be selected to ensure
simultaneous and equal access for all equity shareholders; the information is provided in English. The Company
also provides information to the market through financial reports. Events of importance are made available to the
stock market through notification to the Oslo Stock Exchange in accordance with the Stock Exchange regulations.
Before the start of the year the Company publishes a summary of the key reporting and meeting dates for the
following year.
The Board of Directors has adopted guidelines for the Company’s reporting of financial and other information based
on openness, equal treatment of all shareholders and participants in the securities market, and restrictions imposed
by law. The guidelines also include information requirements to the internal treatment of important information and
insider trading instructions and for the Company’s contact with shareholders other than through General Meetings.
21
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Stock Exchange announcements and press releases, including the financial calendar, are also made available on
the Company’s website.
14) Take-overs
The Board of Directors has established guiding principles for how it will act in the event of a take-over bid. During
the course of a take-over process, the Board has an independent responsibility to help ensure that shareholders are
treated equally, and that the Company’s business activities are not disrupted unnecessarily. The board of the target
company has a particular responsibility to ensure that shareholders are given sufficient information and time to form
a view of the offer. The Board of Directors and the executive management will not seek to hinder or obstruct take-
over bids for the Company’s shares or activities. In the event of any possible take-over or restructuring situation the
Board of Directors will take particular care to protect shareholder value and the common interests of the
shareholders. If an offer is made for the Company’s shares, the Board of Directors shall issue a statement
evaluating the offer and making a recommendation as to whether shareholders should or should not accept the
offer. The Board of Directors will consider the appropriateness of arranging for a valuation by an independent
expert. If the Board of Directors finds itself unable to give a recommendation to shareholders on whether or not to
accept the offer, it will explain the background for not making such a recommendation. The Board of Directors will
not exercise mandates or pass any resolutions to obstruct the take-over bid unless approved by the General
Meeting following announcement of the bid. Any transaction that is a disposal of the Company’s activities should be
decided by the General Meeting. Any agreement with a bidder that acts to limit the Company’s ability to arrange
other bids for the Company’s shares shall only be entered into where it is self-evident that such an agreement is in
the common interest of the Company and its shareholders. Additionally any financial compensation should be
limited to the costs the bidder has incurred in making the bid. Where agreements are entered into between the
Company and the bidder that are material to the market's evaluation of the bid they will be publicly disclosed no
later than at the same time as the announcement that the bid will be made is published. According to the Norwegian
Securities Trading Act, a mandatory offer for the remaining shares will be triggered if a shareholder becomes the
owner of more than 1/3 of the shares in the Company.
15) Auditors
The auditor is appointed by the General Meeting, which also approves the auditor’s fee. The auditor submits the
main features of the plan for the audit of the Group to the Audit Committee on an annual basis and is responsible
for the audit of the consolidated financial statements. The auditor does not participate in meetings of the Board of
Directors that deals with the annual accounts. Via the Audit Committee the auditor reviews any material changes in
the Group’s accounting principles, comments on any material accounting estimates and reports all material matters
on which there has been disagreement between the auditor and the executive management of the Company. The
22
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Company believes the auditor does not need to be physically present at the Company’s AGM given the commercial
nature of the Group. Annually the auditor presents to the Audit Committee a review of the Company’s internal
control procedures, including identified weaknesses and proposals for improvement. The Audit Committee holds a
meeting with the auditor at least once a year at which no member of the executive management is present. At
present, the Company believes this is sufficient given its size and enables the auditor to communicate with
members of the Board. The Group’s Management regularly holds discussions with the auditor, in which accounting
principles and internal control routines are reviewed and discussed.
The Board of Directors have established guidelines in respect of the use of the auditor by the Group’s executive
management for services other than the audit. The Board of Directors shall report the remuneration paid to the
auditor at the AGM, including details of the fee paid for audit work and any fees paid for other specific assignments.
23
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Income Statement - Flex LNG Group & Company
Year ended December 31
(in thousands of $, except per share data)
Vessel operating revenues
Vessel operating costs
Administrative expenses
Depreciation
Operating income/(loss)
Finance income
Finance cost
Other financial items
Net Income/(loss) before tax
Income tax expense/(credit)
Net income/(loss)
Earnings/(loss) per share:
Basic and Diluted
Note
Group
2018
Group
2017
Company
2018
Company
2017
77,209
(26,161)
(4,639)
(17,412)
28,997
607
(17,781)
(54)
11,769
(10)
11,779
Group
2018
0.29
27,329
(36,532)
(3,409)
(2)
(12,614)
123
(234)
2,334
(10,391)
17
(10,408)
Group
2017
(0.34)
—
—
(4,529)
—
(4,529)
174
(413)
(20)
(4,788)
—
(4,788)
—
—
(3,353)
—
(3,353)
115
(240)
2,348
(1,130)
—
(1,130)
Company
2018
(0.12)
Company
2017
(0.04)
3, 6, 13
9
4
4
4
7
5
Statement of Comprehensive Income - Flex LNG Group & Company
Year ended December 31
(in thousands of $)
Net income/(loss)
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to Flex LNG
Group
2018
11,779
—
11,779
Group
2017
Company
2018
Company
2017
(10,408)
—
(10,408)
(4,788)
—
(4,788)
(1,130)
—
(1,130)
The accompanying notes are an integral part of these consolidated financial statements.
24
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Consolidated Balance Sheet - Flex LNG Group & Company
As at December 31
(in thousands of $, except per share data)
Note
Group
2018
Group
2017
Company
2018
Company
2017
ASSETS
Current assets
Cash, restricted cash and cash
equivalents
Inventory
Other current assets
Receivables due from wholly owned
subsidiaries
Receivables due from related parties
Total current assets
Non-current assets
Newbuildings
Vessel purchase prepayments
Vessels and equipment, net
Other fixed assets
Total non-current assets
Total Assets
EQUITY AND LIABILITIES
Current liabilities
Current portion of long-term debt
Payables due to wholly owned
subsidiaries
Payables due to related parties
Accounts payable
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Total non-current liabilities
Total liabilities
Equity
Share capital (2018: 54,099,929 (2017:
36,797,238) shares issued and
outstanding, par value $0.10 per share)
Additional paid in capital
Accumulated deficit
Total equity
Total Equity and Liabilities
11
10
2
16
8
8
9
9
55,097
915
2,693
—
1,720
60,425
—
421,472
812,478
11
1,233,961
1,294,386
14, 15
23,365
—
206
592
11,297
35,460
431,602
431,602
467,062
2
16
10
14, 15
12, 18
12
9,961
1,041
6,568
—
—
17,570
594,937
72,000
—
3
666,940
684,510
—
—
810
76
3,523
4,409
160,000
160,000
164,409
8,497
—
20
823,418
340
832,275
—
—
—
—
—
832,275
—
11,158
—
192
123
11,473
—
—
11,473
7,175
—
3,156
522,964
—
533,295
—
—
—
—
—
533,295
—
—
810
16
2,323
3,149
—
—
3,149
5,410
1,189,665
(367,751)
827,324
1,294,386
3,680
895,951
(379,530)
520,101
684,510
5,410
1,189,665
(374,273)
820,802
832,275
3,680
895,952
(369,486)
530,146
533,295
The accompanying notes are an integral part of these consolidated financial statements.
25
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Board of Directors of Flex LNG Ltd.
April 3, 2019
David McManus (Chairman)
Marius Hermansen
Nikolai Grigoriev
Ola Lorentzon
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Consolidated Statement of Changes in Equity -
Flex LNG Group
(in thousands of $, except share amounts)
Number of shares outstanding
Balance at beginning of year
Shares issued
Balance at end of year
Share capital
Balance at beginning of year
Shares issued
Balance at end of year
Additional paid in capital
Balance at beginning of year
Shares issued
Stock option expense
Balance at end of year
Retained deficit
Balance at beginning of year
Net income/(loss)
Balance at end of year
Total equity
2018
2017
36,797,238
17,302,691
12,794,565
24,002,673
54,099,929
36,797,238
3,680
1,730
5,410
1,280
2,400
3,680
895,951
293,645
69
573,785
322,166
-
1,189,665
895,951
(379,530)
11,779
(369,122)
(10,408)
(367,751)
(379,530)
827,324
520,101
The accompanying notes are an integral part of these consolidated financial statements.
27
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Statement of Changes in Equity - Company
(in thousands of $)
At January 1, 2018
Net loss for the period
Other comprehensive income
Total comprehensive income
Shares issued
Share issuance costs
Share-based payments
At December 31, 2018
At January 1, 2017
Net loss for the period
Other comprehensive income
Total comprehensive income
Shares issued
Share issuance costs
Share-based payments
At December 31, 2017
Share
capital
Additional
paid in
capital
Accumulated
deficit
3,680
—
—
—
1,729
—
1
5,410
895,952
—
—
—
298,271
(4,690)
132
1,189,665
(369,486)
(4,788)
—
(4,788)
—
—
—
(374,273)
Share
capital
Additional
paid in
capital
Accumulated
deficit
1,279
—
—
—
2,401
—
—
3,680
573,785
—
—
—
326,675
(4,624)
116
895,952
(368,356)
(1,130)
—
(1,130)
—
—
—
(369,486)
Total to the
equity
owners of
the parent
530,146
(4,788)
—
(4,788)
300,000
(4,690)
133
820,802
Total to the
equity
owners of
the parent
206,708
(1,130)
—
(1,130)
329,076
(4,624)
116
530,146
The accompanying notes are an integral part of these consolidated financial statements.
28
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Consolidated Statement of Cash Flows - Flex LNG Group
Year ended December 31
(in thousands of $)
Operating activities
Note
Group
2018
Group
2017
9
3,13
4
9
8
8
8
12
14,15
14,15
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation
Share-based payments
Unrealised foreign exchange loss (gains)
Other
Changes in operating assets and liabilities, net:
Inventory
Other current assets
Receivables due from related parties
Payables due to related parties
Accounts payable
Other current liabilities
Net cash provided (used in) by operating activities
Investing activities
Purchase of other fixed assets
Vessel purchase prepayments
Additions and installments on newbuildings
Capitalized Interest
Net cash flow (used in) investing activities
Financing activities
Net proceeds from issuance of share capital
Repayment of long term debt
Proceeds from long term debt
Net cash flow provided by financing activities
Net increase in cash and cash equivalents
Cash, cash equivalents and restricted cash at the beginning
of the period
Cash, cash equivalents and restricted cash at the end of
the period
Supplemental Information
Interest paid, net of amounts capitalized
Income tax paid
11,779
(10,408)
17,412
202
22
(518)
126
725
(1,720)
(604)
516
7,774
35,714
(14)
(349,000)
(232 455)
(2,964)
(584,433)
295,311
(286,069)
584,613
593,855
45,136
9,961
55,097
(12,958)
-
2
115
(2,334)
(157)
(1,041)
(6,547)
-
-
272
2,346
(17,752)
(4)
(72,000)
(3,788)
(1,922)
(77,714)
220,988
(117,000)
-
103,988
8,522
1,439
9,961
(61)
(5)
The accompanying notes are an integral part of these consolidated financial statements.
29
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Statement of Cash Flows - Company
Year ended December 31
(in thousands of $)
Operating activities
Net (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities
Share-based payments
Other
Changes in operating assets and liabilities, net:
Other current assets
Receivables due from related parties
Payables due to wholly owned subsidiaries
Payables due to related parties
Accounts payable
Other current liabilities
Net cash provided (used in) by operating activities
Investing activities
Loans to and investments in subsidiaries
Net cash flow (used in) investing activities
Financing activities
Net proceeds from issuance of share capital
Net cash flow provided by financing activities
Net increase in cash and cash equivalents
Cash, cash equivalents and restricted cash at the beginning of the period
Cash, cash equivalents and restricted cash at the end of the period
Supplemental Information
Interest paid, net of amounts capitalized
Income tax paid
2018
2017
(4,788)
(1,130)
202
(69)
115
18
3,136
(340)
(2,980)
-
11,158 -
(810)
-
176 16
(5,655)
(2,200)
6,465
(9,616)
(300,454)
(205,480)
(300,454)
(205,480)
295,311 220,988
295,311 220,988
1,322
5,892
7,175 1,283
8,497
7,175
(323)
-
(735)
-
The accompanying notes are an integral part of these consolidated financial statements.
30
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Note 1: General information and significant accounting policies
1.1 General information
Flex LNG Ltd. (the “Company”; together with its subsidiaries, the “Group” or “Flex LNG”) is a limited liability
company, originally incorporated in the British Virgin Islands and registered in Bermuda as of June 2017. Flex LNG
is currently listed on the Oslo Stock Exchange under the ticker "FLNG". The Group’s activities are focused on
seaborne liquefied natural gas (“LNG”) transportation through the ownership and operation of fuel efficient, fifth
generation LNG carriers. As of December 31, 2018, the Company had four LNG carriers in operation, of which two
were delivered by Daewoo Shipbuilding and Marine Engineering Co. Ltd. (“DSME”) in January 2018, and two by
Samsung Heavy Industries (“SHI”) in June and July 2018, respectively. In addition, Flex LNG has nine LNG carriers
under construction, four at Hyundai Samho Heavy Industries Co. Ltd. (“HSHI”) and five at DSME. The nine
newbuildings are expected to be delivered between 2019 and 2021.
The Group consists of eight 100% directly owned subsidiaries and fourteen 100% indirectly owned subsidiaries.
Details on subsidiaries are provided in Note 2. The Group produces consolidated accounts incorporating these
companies and their activities, which are focused on transportation of LNG. The consolidated financial statements,
and accompanying notes, include accounts for the Company and its wholly owned subsidiaries. The Company’s
financial statements are produced to comply with the Oslo listing requirements. Reported values are rounded to the
nearest thousand (USD, 000) except when otherwise indicated.
1.2 Basis for preparation
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”). The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. The Company transitioned from International Financial Reporting
Standards (IFRS) as adopted by the EU to U.S. GAAP on 1 January 2018. The balance sheet and comparative
profit and loss for 2017 are presented according to U.S. GAAP.
1.3 Reporting currency and presentation currency
The Group’s presentation and reporting currency is USD. The Group’s primary economic environment is the
international shipping market, in which revenues are primarily settled in USD. The Group’s most significant assets
and liabilities are also paid for and settled in USD. The Group companies thereby have USD as its functional
currency. Our expenses, however, are in the currency invoiced by each supplier.
31
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Foreign currency transactions are translated into the functional currency at the exchange rate in effect at the date of
the transaction. Monetary items are translated at the period end exchange rate, non-monetary items that are
measured at historical cost are translated at the rate in effect on the original transaction date, and non-monetary
items that are measured at fair value are translated at the exchange rate in effect at the time when the fair value
was determined. Foreign exchange gains and losses resulting from the settlement of such cash transactions and
from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognized in the income statement.
1.4 Basis of consolidation
The Group’s consolidated financial statements comprise Flex LNG Ltd. and its directly and indirectly wholly owned
subsidiaries. The Group includes eight 100% directly owned subsidiaries and fourteen 100% indirectly owned
subsidiaries as at December 31, 2018. Details on subsidiaries are provided in Note 2. The financial statements of
the subsidiaries are prepared for the same reporting period as the parent Company, Flex LNG Ltd., using consistent
accounting principles.
Intragroup transactions and balances, including internal profits and unrealized gains and losses, have been
eliminated upon consolidation.
1.5 Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates
and assumptions impact, the following: vessels, the amount to be paid for certain liabilities, the amount of costs to
be capitalized in connection with the construction of our newbuildings, initial dry-dock cost component and the
expected useful lives of our vessels. Actual results could differ from those estimates.
1.6 Fair value measurements
The inputs to the fair value calculations are based on observable market data when available, but where this is not
achievable; a degree of judgement is required in establishing fair values. Changes in these assumptions could
impact the reported fair value, as detailed in Note 15 below.
1.7 Segment reporting
Our chief operating decision maker (“CODM”) measures performance based on our overall return to shareholders
based on consolidated net income. Although separate vessel financial information is available, the CODM internally
evaluates the performance of the Group as a whole and not on the basis of separate business units or different
32
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
types of charters. As a result, the Company has determined that it operates as one reportable segment. Since the
Company’s vessels regularly move between countries in international waters over many trade routes, it is neither
practical nor meaningful to assign revenues or earnings from the transportation of international LNG by geographic
area.
1.8 Accounting for revenue and related expenses
Effective from January 1, 2017, we adopted the new accounting standard ASC 606 Revenue from Contracts with
Customers. Under ASC 606, all contracts with customers fall under this standard unless the contract contains a
lease. The Group employs all of it’s vessels on time charter contracts, which the Group has established to contain a
lease since the vessel is a specified asset, the charterer has the right to direct the use of the vessel and there are
no substantive substitution rights. All revenue from time charter contracts are therefore not recognized under ASC
606 "Revenue from contracts with customers" and instead are recognized as operating leases under ASC 842
Leases, for which it has early adopted from January 1, 2017. There were no 2017 transition adjustments required
as a result of this change. The Group receives a fixed charter hire per day of on-hire, whereby revenue is
recognized and recorded on an accrual basis over the term of the charter as service is provided including option
period if reasonable certain to be exercised.
If the Group receives a lump sum re-positioning fee or fixed ballast bonus, which is probable at the commencement
of the lease, this is recognized as part of the lease payments over the course of the time charter on a straight-line
basis at the commencement of the lease.
If the Group receives a lump sum ballast bonus, which is not probable at the commencement of the lease then this
is recognized as a variable lease payment from the date that the change in facts and circumstances occur. The
variable lease payment is therefore recognized on a straight-line basis from the date that the re-delivery port is
declared and probability of occurrence is determined, to the date of arrival at the re-delivery port.
If there is an option under a charter party for the lessee to extend the charter, the Group will assess the likelihood of
the charterer exercising the extension option at the inception of the lease in order to determine the lease term. If the
option period is not included in the initial lease term and the charterer declares such option, the Group will consider
the declaration of an option as a lease modification. The Group will then re-measure the total minimum lease
payments from the date of declaration of the option, adjusted for any prepaid or accrued rent from the original
contract, and recognise this on a straight-line basis to the date of arrival at the re-delivery port.
Under a time charter agreement, the Company is responsible for both the operation and maintenance of the vessel
which would be considered to be a non-lease performance obligation. The Company has chosen to elect the
practical expedient of ASC 842 to not separate lease and non-lease components and instead combine these as a
33
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
single performance obligation as the Group considers the lease component to be the predominant component of the
contract, for which ASC 842 will be applied.
A maturity analysis of lease payments to be received on time charter contracts as at December 31, 2018 has not
been prepared since all contracts mature in less than one year from the balance sheet date.
Costs incurred during the leasing period for the maintenance and operation of the vessels are expensed as incurred
as the timing and pattern of transfer of the components are identical to the operating lease revenue earned from the
charter hire.
1.9 Finance costs
Finance costs are expensed as incurred except for interest expenses that are capitalized for qualifying assets that
require a period of time to get them ready for their intended use. Interest expenses are capitalized until the
qualifying asset is ready for use. The Group does not capitalize amounts beyond the actual interest expense
incurred in the period.
If the Group’s financing plans associate a specific borrowing with a qualifying asset, the Group uses the rate on that
borrowing as the capitalization rate to be applied to that portion of the average accumulated expenditures for the
asset that does not exceed the amount of that borrowing. If average accumulated expenditures for the asset exceed
the amounts of specific new borrowings associated with the asset, the capitalization rate to be applied to such
excess shall be a weighted average of the rates applicable to other borrowings of the Group.
1.10 Income taxes
Income taxes are provided for based upon the tax laws and rates in effect in the countries in which the Group’s
ocean going LNG carriers’ operations were conducted and income was earned. Deferred tax assets and liabilities
are recognized for the anticipated future tax effects of temporary differences between the financial statement basis
and the tax basis of the Group’s assets and liabilities using the applicable jurisdictional tax in effect at the year end.
A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the
benefit from the deferred tax asset will not be realized (Note 7).
Recognition of uncertain tax positions is dependent upon whether it is more-likely-than-not that a tax position taken
or expected to be taken in a tax return will be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. If a tax position meets the more-likely-
than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial
statements based on U.S. GAAP guidance. The Group recognizes interest and penalties related to uncertain tax
positions in income tax expense.
34
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
1.11 Vessels
Vessels are carried at historical cost less accumulated depreciation and impairment adjustments, if any.
The depreciation on vessels is reviewed annually to ensure that the method and period used reflect the pattern in
which the asset’s future economic benefits are expected to be consumed.
The gross carrying amount of the vessel is the purchase price, including duties/taxes, borrowing costs and any
other direct costs attributable to bringing it to the location and condition necessary for the vessels intended use.
Capitalization of costs will cease once the vessel is in the location and condition necessary for it to be able to
operate in the manner consistent with its intended design.
On delivery, the total acquisition costs of the vessel will be segregated to groups of components that have different
expected useful lives. The different groups of components will be depreciated over their expected useful lives.
Subsequent costs, such as repair and maintenance costs, are recognized in the income statement as incurred.
Each vessel is required to be dry-docked every 5 years. The Group capitalizes costs associated with the dry-
docking in accordance with ASC Topic 360 Property, Plant and Equipment and amortizes these costs on a straight-
line basis over the period to the next expected dry-docking. Amortization of dry-docking costs is included in
depreciation in the Income Statement. The Group has adopted the "built in overhaul" method for when a vessel is
newly acquired, or constructed, whereby a proportion of the cost of the vessel is allocated to the components
expected to be replaced at the next dry-docking based on the expected costs relating to the next dry-docking. Dry-
docking costs are included within operating activities in the statement of cash flows.
The cost of the vessel, less their estimated residual value, is depreciated on a straight-line basis over the asset’s
estimated useful economic life. The residual value for owned vessels is calculated by multiplying the lightweight
tonnage of the vessel by the estimated scrap value per tonne. The cost of dry-dock is depreciated on a straight-line
basis over the assets estimated useful life. The following useful lives have been used:
Vessels: 35 years
Dry-dock: 5 years
1.12 Impairment of long-lived assets
The carrying values of long-lived assets held and used by the Group and newbuildings are reviewed whenever
events or circumstances indicate that the carrying amount of an asset may no longer be recoverable. The Group
assesses recoverability of the carrying value of each asset or newbuilding on an individual basis by estimating the
future net undiscounted cash flows expected to result from the asset, including eventual disposal. In developing
estimates of future undiscounted cash flows, the Group must make assumptions about future performance, with
35
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
significant assumptions being related to charter rates, ship operating expenses, utilization, dry-docking
requirements, residual values, the estimated remaining useful lives of the vessels. These assumptions are based on
historical trends as well as future expectations. If the future net undiscounted cash flows are less than the carrying
value of the asset, or the current carrying value plus future newbuilding commitments, an impairment loss is
recorded equal to the difference between the asset's or newbuilding’s carrying value and fair value. In addition,
long-lived assets to be disposed of are reported at the lower of carrying amount and fair value less estimated costs
to sell.
1.13 Newbuildings/Vessel Purchase Prepayments
The carrying value of vessels under construction ("newbuildings") represents the accumulated costs to the balance
sheet date which the Group has paid by way of purchase instalments and other capital expenditures together with
capitalized interest and associated finance costs. No charge for depreciation is made until a newbuilding is put into
operation.
Vessel purchase prepayments relate to amounts advanced under vessel purchase agreements, where title of the
vessel does not transfer to the Group until the date of delivery from the yard.
1.14 Inventories
Inventories comprise principally of fuel and lubricating oils and are stated at the lower of cost and net realizable
value. Cost is determined on a first-in, first-out basis.
1.15 Cash and cash equivalents
Cash includes cash in hand and at bank. Cash equivalents are short-term liquid investments with original maturities
of three months or less.
1.16 Restricted cash
Restricted cash consists of cash, which may only be used for certain purposes and is held under a contractual
arrangement. The cash is restricted by law for the Norwegian tax authorities in relation to social security tax and
personal income tax of employees in Flex LNG Management AS, and is settled every second month. Details on the
restricted cash are provided in Note 11.
1.17 Debt issuance costs
Direct costs relating to obtaining a loan are deferred and amortized over the team of the loan using the effective
interest rate method. Amortization of debt issuance costs is included under finance costs. The Group has recorded
36
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
debt issuance costs as a direct reduction from the carrying amount of the related debt in balance sheet and from the
proceeds from long-term debt in the statement of cash flows.
1.18 Share-based compensation
The Company accounts for share-based payments in accordance with ASC Topic 718 Compensation - Stock
Compensation, under which the fair value of issued stock options is expensed over the period in which the options
vest under the simplified method. Stock based compensation represents the cost of vested and non-vested shares
and share options granted to employees and to directors, for their services, and are included in administrative
expenses in the consolidated statements of operations. The fair value of share options grants is determined with
reference to option pricing models, and depends on the terms of the granted options. The fair value is recognized
(generally as compensation expense) over the requisite service period.
1.19 Earnings per share
Basic earnings per share (“EPS”) are computed based on the income available to ordinary shareholders divided by
the weighted average number of shares outstanding. Diluted EPS is computed by dividing the net income available
to common stockholders by the weighted average number of common shares and dilutive common share
equivalents then outstanding.
1.20 Accounting Standards Updates, recently adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842),
and has since modified the standard with several ASUs (collectively, the new lease standard). The new lease
standard requires most lessees to report a right-of-use asset and a lease liability. The income statement recognition
is similar to existing lease accounting and is based on lease classification. The new lease standard requires lessees
and lessors to classify most leases using principles similar to existing lease accounting. For lessors, the new lease
standard modifies the classification criteria and the accounting for sales-type and direct financing leases. The new
lease standard provides entities two options for applying the modified retrospective approach, either (1)
retrospectively to each prior reporting period presented in the financial statements with the cumulative-effect
adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the
beginning of the period of adoption (January 1, 2019) through a cumulative-effect adjustment.
Short-term leases are in the scope of ASC 842. The standard provides practical expedients for an entity’s ongoing
accounting. The Group has elected the short-term lease recognition exemption for leases that qualify, meaning that
the Group will not recognize Right Of Use assets or lease liabilities for these leases where the Company is the
leasee.
37
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
The Group has chosen to early adopt ASC 842 Leases with effect from January 1, 2017. There were no 2017
transition adjustments required as a result of this change.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"), which
supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company
should recognize revenue when promised goods or services are transferred to customers in an amount that reflects
the consideration to which an entity expects to be entitled for those goods or services. Under ASC 606, an entity is
required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance
obligations of the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance
obligations in the contract; and (5) recognize revenue when (or as) the entity satisfied a performance obligation.
Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of
revenue that is recognized.
Effective from January 1, 2017, we adopted the new accounting standard ASC 606 Revenue from Contracts with
Customers. Under ASC 606, all contracts with customers fall under this standard unless the contract contains a
lease. The Group employs all of it’s vessels on time charter contracts, which the Group has established to contain a
lease since the vessel is a specified asset, the charterer has the right to direct the use of the vessel and there are
no substantive substitution rights. All revenue from time charter contracts are therefore recognized as operating
leases under ASC 842 Leases. Under a time charter agreement, the Group is responsible for both the operation
and maintenance of the vessel which would be considered to be a non-lease performance obligation. The Group
has chosen to elect the practical expedient of ASC 842 to not separate lease and non-lease components and
instead combine these as a single performance obligation as the Group considers the lease component to be the
predominant component of the contract, for which ASC 842 will be applied. Consequently the implementation of
ASC 606 did not have a significant impact on these consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of cash flows (Topic 230): Restricted Cash. The
new standard requires that the statement of cash flows explains the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result of
the adoption of the standard, we have classified restricted cash as a component of cash, cash equivalents and
restricted cash in the consolidated statements of cash flows for all periods presented. The adoption of this Update
did not have a significant impact on these consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of
Modification Accounting. The update provides guidance about which changes to the terms or conditions of a share-
based payment award require an entity to apply modification accounting in Topic 718. The amendments in this
38
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Update did not have a material impact on our consolidated financial statements and related disclosures upon
adoption.
The Company has reviewed all other recent issued accounting pronouncements and has not identified other
standard that would make an impact on the Company's current accounting principles.
Note 2: Subsidiaries
The following subsidiaries are included in the consolidated financial statements:
Company
Flex LNGC 1 Limited
Flex LNGC 2 Limited
Flex LNG Shipping Limited
Flex LNG Chartering Limited
Flex LNG Management AS
Flex LNG Fleet Limited
Flex LNG Management Limited
Flex LNG Bermuda Limited
Flex LNG Endeavour Limited
Flex LNG Enterprise Limited
Flex LNG Ranger Limited
Flex LNG Rainbow Limited
Flex LNG Constellation Limited
Flex LNG Courageous Limited
Flex LNG Aurora Limited
Flex LNG Amber Limited
Flex LNG Resolute Limited
Flex LNG Reliance Limited
Flex LNG Freedom Limited
Flex LNG Vigilant Limited
Flex LNG Volunteer Limited
Flex LNG Shipping (Bermuda)
Limited
Country of
registration
Isle of Man
Isle of Man
Isle of Man
United Kingdom
Norway
Bermuda
Isle of Man
Bermuda
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Main operations
Shipping
Shipping
Shipping
Chartering services
Management
services
Holding company
Management
services
Management
services
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Bermuda
Shipping
Ownership
share
Voting share
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
39
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Below is a list of all intercompany balances held with subsidiaries for Flex LNG Ltd.
Subsidiary
(in thousands of $)
Flex LNGC 1 Limited
Flex LNGC 2 Limited
Flex LNG Shipping (Bermuda) Limited
Flex LNG Fleet Limited
Flex LNG Management Limited
Flex LNG Management AS
Flex LNG Shipping Limited
Company
2018
—
—
(10,783)
804,589
(375)
476
18,353
812,260
Company
2017
108,940
108,643
20,517
284,864
—
—
—
522,964
Note 3: Administrative expenses
3.1 Auditors
Expensed fee to the auditors is divided into the following services (exclusive of VAT):
(in thousands of $)
Audit
Tax and other assistance
Total Auditor’s fees
3.2 Remuneration
Group
2018
121
8
129
Group
2017
69
11
80
Company
2018
121
—
121
Company
2017
69
—
69
As at December 31, 2018, the Company had four Directors (2017: five), and the Group had six employees (2017:
nil). All employees are employed by Flex LNG Management Limited and Flex LNG Management AS (the
"Management Companies").
(in thousands of $)
Wages and salaries
Social security costs
Pension costs
Total employee benefit expenses
Group
2018
1,826
180
76
2,083
Group
2017
1,040
150
58
1,248
Company
2018
—
—
—
—
Company
2017
—
5
—
5
40
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Employees are offered a fixed base salary. The Management Companies contribute to a defined contribution
pension scheme and provide health insurance for members of staff. The Company has incurred social security
costs of $nil (2017: $5k) in relation to the payment of Directors fees.
Directors fees Flex LNG Ltd.
(in thousands of $)
Current Directors
David McManus
Marius Hermansen
Ola Lorentzon
Nikolai Grigoriev
Ex. Directors
Georgina E. Sousa (retired from the Board in December 2018)
Robin Bakken (retired from the Board in September 2017)
Total Directors’ fees
Company
2018
Company
2017
100
40
40
40
9
—
229
100
40
20
11
5
14
190
In 2018, Mr. McManus, Mr Hermansen, Mr Lorentzon, Mr Grigoriev and Ms. Sousa received their remuneration split
as 50%, 50%, 50%, 100% and 0% in shares respectively.
Note 4: Finance costs and finance income
Finance cost
(in thousands of $)
Loan interest
Amortization of deferred financing costs
Other interest
Total finance cost
Finance income
(in thousands of $)
Interest income from bank deposits
Total finance income
Group
2018
(17,619)
(141)
(21)
(17,781)
Group
2018
607
607
Group
2017
(234)
—
—
(234)
Company
2018
(368)
—
(45)
(413)
Company
2017
(240)
—
—
(240)
Group
2017
123
123
Company
2018
Company
2017
174
174
115
115
Other financial items
(in thousands of $)
Foreign exchange (loss)/gain
Other financial items
Total other financial items
Group
2018
(22)
(32)
(54)
Group
2017
2 334
-
2,334
Company
2018
(20)
-
(20)
Company
2017
2 348
-
2,348
41
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Note 5: Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit/loss for the year by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit/loss by the weighted average number of
shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on
conversion of all the potential dilutive ordinary shares into ordinary shares.
The following reflects the net income/(loss) and share data used in the earnings per share calculation.
(in thousands of $, except share data)
Net income/(loss) attributable to shareholders - Group
Net income/(loss) attributable to shareholders - Company
2018
2017
11,779
(4,788)
(10,408)
(1,130)
30,763,912
Weighted average number of ordinary shares*
—
Share options*
30,763,912
Weighted average number of shares, adjusted for dilution*
*Share options and number of ordinary shares outstanding have been retroactively adjusted for the ten-to-one
40,451,462
141,000
40,592,462
reverse stock split which was effective from March 7, 2019, see Note 19 for more details.
Note 6: Management fees, Company
There are no employees in Flex LNG Ltd. Flex LNG Ltd. has contracts for management services with Flex LNG
Management Limited and Flex LNG Management AS for services to the Group relating to general administration,
finance and contract management. Both Flex LNG Management Limited and Flex LNG Management AS are entitled
to compensation covering certain expenses plus a mark-up. The total management fees for both subsidiaries are
included in administrative expenses in the income statement.
Management fees
(in thousands of $)
Flex LNG Management Limited
Flex LNG Management AS
Total
Note 7: Income tax
Company
2018
2,223
1,436
3,659
Company
2017
2,482
—
2,482
The Group consists of one legal entity incorporated in the United Kingdom, one entity in Norway, three entities in
Bermuda, four entities in the Isle of Man and 13 in the Marshall Islands. The profits attributable to the management
companies are taxable in the United Kingdom and Norway.
42
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
7.1 Bermuda
Under current Bermuda law, the Company is not required to pay taxes in Bermuda on either income or capital
gains. The Company has received written assurance from the Minister of Finance in Bermuda that, in the event of
any such taxes being imposed, the Company will be exempted from taxation until March 31, 2035.
7.2 United States
For the year ended December 31, 2018, the Group accrued U.S. income taxes because, even though the Group is
not engaged in a U.S. trade or business, the Group was not able to satisfy the requirements of the exemption from
gross basis tax under Section 883 of the U.S. Internal Revenue Code. Under Section 863(c)(2)(A) of the Internal
Revenue Code, 50% of all transportation revenue attributable to transportation which begins or ends in the United
States shall be treated as from sources within the United States where no Section 883 exemption is available. Such
revenue is subject to 4% tax. During the year ended December 31, 2018, revenue tax of $0.2 million (2017: $0.0
million) has been recorded in vessel operating costs.
7.3 Other Jurisdictions
Certain of the Company's subsidiaries in Norway and the United Kingdom are subject to income tax in their
respective jurisdictions. The taxes paid by subsidiaries of the Company that are subject to income tax have been
disclosed in the tables below.
The Group does not have any unrecognized tax benefits, material accrued interest or penalties relating to income
taxes. The Norwegian income tax returns could be subject to examination by Norwegian tax authorities going back
ten years or more. In the United Kingdom, the tax authorities can investigate as far back as 20 years if they suspect
tax evasion. More commonly, investigations into careless tax returns in the United Kingdom go back six years and
investigations into innocent errors go back up to four years. The Internal Revenue Service (“IRS”) can do tax audits
which includes tax returns filed within the last three years in an audit. If the IRS identifies a substantial error, the IRS
may add additional years, which in most cases does not extend beyond the last six years.
To the Group’s knowledge, the Group is not undergoing any tax audits in any tax jurisdictions.
(in thousands of $)
Current income tax expense/(credit)
Adjustments in respect of current income tax of previous years
Income tax expense/(credit) reported in the income statement
Group
2018
(5)
(5)
(10)
Group
2017
17
—
17
43
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
(in thousands of $)
Current income tax expense/(credit)
Adjustments in respect of current income tax of previous years
Income tax expense/(credit) reported in the income statement
Company
2018
Company
2017
—
—
—
—
—
—
A reconciliation between the tax expense and the product of the accounting profit multiplied by the Bermuda
domestic tax rate for the year ended December 31, 2018 and 2017 is as follows:
(in thousands of $)
Net income/(loss) before tax
Income tax at 0% (2017: 0%)
Effect of higher overseas tax rates
Effective income tax rate of (0.1)% (2017: (0.2)%)
(in thousands of $)
Net income/(loss) before tax
Income tax at 0% (2017: 0%)
Effective income tax rate of 0% (2017: 0%)
Note 8: Newbuildings and Vessel purchase prepayments
Newbuildings
(in thousands of $)
At January 1
Additions and instalments on newbuildings
Capitalized interest
Pre-delivery expenditures
Transfer to vessels and equipment
At December 31
Group
2018
11,769
—
(10)
(10)
Group
2017
(10,391)
—
17
17
Company
2018
(4,788)
—
—
Company
2017
(1,130)
—
—
Group
2018
594,937
231,019
2,492
1,436
(829,884)
—
Group
2017
212,472
376,000
1,922
4,543
—
594,937
In January 2018, the Group took delivery of its two first newbuilding LNG carriers, the Flex Endeavour and the Flex
Enterprise. In June 2018 the Group took delivery of its third newbuilding LNG carrier the Flex Ranger. In July 2018,
the Group took delivery of its fourth newbuilding LNG carrier the Flex Rainbow.
44
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Vessel purchase prepayments
(in thousands of $)
At January 1
Additions
Capitalized interest
Transfer to vessels and equipment
At December 31
Group
2018
72,000
349,000
472
—
421,472
Group
2017
—
72,000
—
—
72,000
In May 2017, Flex LNG entered into agreements with entities related to Geveran Trading Co. Limited (“Geveran”),
the Company’s largest shareholder, for the acquisition of the two newbuilding MEGI LNG carriers Flex Constellation
and Flex Courageous for a purchase price of $180.0 million per vessel. The vessels are currently under
construction at DSME pursuant to shipbuilding contracts between DSME and the sellers, who will continue to be
responsible for the supervision of the vessels' construction. We made advance payments of $36.0 million per vessel
to the sellers in 2017, representing 20% of the purchase price, which are recorded as vessel purchase
prepayments. The remaining balance of $144.0 million per vessel is due upon delivery to us, which is scheduled in
June and August 2019, respectively.
In May 2018, Flex LNG entered into agreements with entities related to Geveran for the acquisition of the two
newbuilding X-DF LNG carriers Flex Aurora and Flex Amber for a purchase price of $184 million per vessel. The
vessels are currently under construction at HSHI pursuant to shipbuilding contracts between HSHI and the sellers,
who will continue to be responsible for the supervision of the vessels' construction. We made advance payments of
$36.8 million per vessel in 2018, representing 20% of the purchase price, which are recorded as vessel purchase
prepayments. The remaining balance of $147.2 million per vessel is due upon delivery to us, which is scheduled in
the second and third quarter of 2020, respectively.
In October 2018, Flex LNG entered agreements with entities related to Geveran for the acquisition of five
newbuilding LNG carriers, the Flex Freedom, Flex Reliance, Flex Resolute, Flex Vigilant, and Flex Volunteer, for a
purchase price of $180 million per vessel, with an additional cost of $6.0 million per vessel for full re-liquefaction
systems on three of the vessels. The Flex Freedom, Flex Reliance and Flex Resolute are MEGI LNG carriers under
construction at DSME, with two vessels scheduled for delivery in the third quarter of 2020 and the remaining vessel
in the fourth quarter of 2020. The Flex Vigilant and Flex Volunteer are X-DF LNG carriers with expected delivery in
first and second quarters of 2021, respectively. The sellers will continue to be responsible for the supervision of the
vessels' construction. We made advance payments of $55.8 million for each of the three MEGI newbuildings and
$54 million for each of the two X-DF newbuildings in 2018, representing 30% of the purchase price, which are
recorded as vessel purchase prepayments. The remaining balance of $130.2 million for each of the three MEGI
45
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
newbuildings and $126 million for each of the two X-DF newbuildings is due upon the delivery of the respective
vessels to us.
Note 9: Vessels and equipment, net and Other fixed assets
The table below summarizes the vessels and equipment and other fixed assets applicable to the Group:
(in thousands of $)
Cost
At January 1, 2018
Additions
Transfer from Newbuildings
Disposals
At December 31, 2018
Accumulated depreciation
At January 1, 2018
Charge
Disposals
At December 31, 2018
Net book value
At January 1, 2018
At December 31, 2018
Vessels and
equipment
Dry-docks
Other fixed
assets
—
—
819,884
—
819,884
—
15,931
—
15,931
—
803,953
—
—
10,000
—
10,000
—
1,475
—
1,475
—
8,525
8
14
—
(2)
20
5
6
(2)
9
3
11
Total
8
14
829,884
(2)
829,904
5
17,412
(2)
17,415
3
812,489
In January 2018, the Group took delivery of two MEGI LNG carriers from DSME at a cost of $197.3 million and
$197.4 million, respectively. In June and July 2018, the Group took delivery of two MEGI LNG carriers from SHI at a
cost of $217.8 million and $217.5 million, respectively.
The net book value of vessels that serve as collateral for the Group's long-term debt (Note 14) as per December 31,
2018 was $812.5 million.
Note 10: Other current assets and other current liabilities
(in thousands of $)
Other receivables
Prepayments and accrued income
Total other current assets
Group
2018
168
2,525
2,693
Group
2017
486
6,082
6,568
Company
2018
6
14
20
Company
2017
—
3,156
3,156
46
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
(in thousands of $)
Accrued expenses.
Deferred charter revenue.
Other current liabilities.
Provisions.
Total other current liabilities
Group
2018
6,441
2,559
Group Company
2018
2017
123
862
-
2,603
-
15 58
-
-
2,282
3,523 123
11,297
Company
2017
2,323
-
-
-
2,323
Note 11: Cash and cash equivalents, including restricted cash
(in thousands of $)
Cash and cash equivalents
Restricted cash
Cash and cash equivalents
Group
2018
54,932
165
55,097
Group
2017
9,961
—
9,961
Company
2018
8,497
—
8,497
Company
2017
7,175
—
7,175
The Group has $0.2 million of restricted cash as at December 31, 2018 (2017: $0.0 million). This is restricted by law
for the Norwegian tax authorities in relation to social security of employees for which there were none in the twelve
months to December 31, 2017.
Note 12: Share capital, shareholder information and dividend
Group & Company
Ordinary shares (nominal amount USD: 0.10)*
Total number of shares issued and outstanding
2018
54,099,929
54,099,929
2017
36,797,238
36,797,238
Group & Company
(in thousands of $, except share data)
Ordinary shares - issued and fully paid:
At December 31, 2016
Shares issued
At December 31, 2017
Shares issued
At December 31, 2018
Shares* Share Capital
Additional
paid in capital
12,794,565
24,002,673
36,797,238
17,302,691
54,099,929
1,280
2,400
3,680
1,730
5,410
573,785
322,166
895,951
293,714
1,189,665
*Shares issued and fully paid have been retroactively adjusted for the ten-to-one reverse stock split which was
effective from March 7, 2019, see Note 19 for more details.
Nominal value per share is USD 0.10 following the ten-to-one reverse stock split which was effective March 7, 2019.
All issued shares have equal voting rights and are equally entitled to dividends. During the year shares were allotted
to Directors of the Company to cover between 0% and 100% of their remuneration for the year. The Directors’
47
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
shares for the remuneration, covering the period July 1, 2018 to December 31, 2018, had not been issued at
December 31, 2018 and are recorded as accrued expenses.
Largest shareholders as of December 31, 2018:
Shareholder
Geveran Trading Co Ltd
Verdepapirfondet DNB Norge (IV)
Goldman Sachs & Co. LLC
Skagen Vekst
DNB NOR Markets, Aksjehand/Analyse
State Street Bank and Trust Comp
Citibank, N.A.
Verdipapirfondet Pareto Investment
Verdipapirfondet Delphi Norden
BNP Paribas Securities Services
Fidelity Puritan Trust: Fidelity
Barclays Capital Sec. Ltd Firm
TR European Growth Trust Plc
Credit Suisse AG, Dublin Branch
Vatne Equity AS
Catella Hedgefond
Invesco Perp Euran Smler Comps FD
Goldman Sachs International
J.P. Morgan Bank Luxembourg S.A.
Citibank, N.A.
Others
Total
Number of
shares*
Ownership
interest
24,133,812
1,632,819
1,386,046
1,350,000
843,514
619,379
578,781
575,000
550,000
550,000
539,980
517,765
516,989
474,464
405,000
401,250
385,646
357,798
356,222
337,669
17,587,795
54,099,929
44.6 %
3.0 %
2.6 %
2.5 %
1.6 %
1.1 %
1.1 %
1.1 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
0.9 %
0.7 %
0.7 %
0.7 %
0.7 %
0.7 %
0.6 %
32.5 %
100.0 %
*Number of shares has been retroactively adjusted for the ten-to-one reverse stock split which was effective from
March 7, 2019, see Note 19 for more details.
Note 13: Share based payments
On September 7, 2018, the Company's Board of Directors approved a Share Option Scheme. The Share Option
Scheme permits the Board of Directors, at its discretion, to grant options to acquire shares in the Company to
employees and directors of the Company or its subsidiaries. The subscription price for all options granted under the
scheme is reduced by the amount of all dividends declared by the Company in the period from the date of grant
until the date the option is exercised, provided the subscription price is never reduced below the par value of the
share. The vesting periods of options granted under the scheme will be specific to each grant. There is no
48
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
maximum number of shares authorized for awards of equity share options and authorized, un-issued or treasury
shares of the Company may be used to satisfy exercised options.
On September 7, 2018, the Company granted 110,000 share options*, with an exercise price of $14.30 per share*,
to officers in accordance with the terms of the Share Option Scheme. The grant date was determined as the date of
resolution of the grant by the Board of Directors. The options vest equally based on three years of continuous
service and have a five year contractual term.
On November 1, 2018, the Company granted a further 30,000 share options*, with an exercise price of $17.60 per
share*, to an officer in accordance with the terms of the Share Option Scheme. The grant date was determined as
the date of resolution of the grant by the Board of Directors. The options vest equally based on three years of
continuous service and have a five year contractual term.
The fair value of the newly granted option awards is estimated on the date of grant using a Black-Scholes option
valuation model with the following assumptions:
Risk free interest rate
Expected life (years)
Expected volatility
Expected dividend yield
September 2018 November 2018
1.44%
5
28.3%
—%
1.59%
5
36.8%
—%
The risk-free interest rate was estimated using the interest rate on five-year Norwegian Krone (“NOK”) treasury zero
coupon issues. The volatility was estimated using historical volatility share price data. The dividend yield has been
estimated at 0% as the exercise price is reduced by all dividends declared by the Company from the date of grant
to the exercise date. It was assumed that all of the options granted in September and November 2018 will vest and
therefore no forfeitures were assumed. The effect of forfeitures is recognized as incurred.
The following table summarizes the unvested option activity for the year ended December 31, 2018 (there was no
share option activity during 2017):
49
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Number of
non-vested
options
—
141,000
—
—
—
141,000
Weighted
average
exercise
price per
share ($)
Weighted
average
remaining
contractual
term (years)
Weighted
average
grant date
fair value ($)
—
15.00
—
—
—
15.00
—
4.59
—
—
—
4.59
—
15.00
—
—
—
15.00
Aggregate
intrinsic
value
—
2,115,300
—
—
—
2,115,300
At December 31, 2017
Granted during the year*
Converted during the year
Forfeited during the year
Expired during the year
At December 31, 2018
As at December 31, 2018, there was $0.7 million in unrecognized stock compensation expense related to non-
vested options. As at December 31, 2017, there were no share options and therefore no unrecognized stock
compensation related to non-vested options. Stock compensation expense of $0.1 million was recognized in 2018,
recognized in administrative expenses (2017: $0.0 million). When a share option is exercised, the Board of
Directors will use their right, according to the Bye-Laws, to issue new shares.
*Share options and exercise prices have been retroactively adjusted for the ten-to-one reverse stock split which
was effective from March 7, 2019, see Note 19 for more details.
Note 14: Long-term debt
The table below represents the annual principal payments to be made against our long-term debt, including the Flex
Rainbow Sale and Leaseback, after December 31, 2018:
Due within:
1 year
2 years
3 years
4 years
5 years
More than five years
Long-term debt
Less: debt issuance costs
Total-long term debt
Group
2018
23,625
25,478
26,404
26,404
241,963
116,156
460,030
(5,063)
454,967
50
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
$315 million Secured Term Loan Facility
In December 2017, we, through three of our vessel owning subsidiaries, entered into a $315 million secured term
loan facility (the “$315 Million Term Loan Facility”) with a syndicate of banks to part finance the first three of our
newbuildings - Flex Endeavour, Flex Enterprise and Flex Ranger, which serve as collateral under the facility. In
January 2018, we drew down two $105 million loan tranches under the facility in connection with the delivery of the
Flex Endeavour and the Flex Enterprise. The third $105 million tranche was utilized in connection with the delivery
of the Flex Ranger in June 2018. FLEX LNG Ltd. and Flex LNG Fleet Limited, our wholly owned subsidiary, serve
as guarantors under the facility. The facility bears interest at LIBOR plus a margin of 2.85% per annum and matures
on June 22, 2023, which is five years from the delivery date of the third and final vessel financed under the facility,
which was June 22, 2018.
Pursuant to the facility agreement, we have an option, subject to consent from the lenders under the facility, to
substitute one or more of the vessels which serve as collateral under the facility with other vessels in our fleet. We
may also request the lenders to make available a fourth tranche to finance a fourth collateral vessel and to increase
the amount of borrowings available under a tranche in the event that we secure employment for a collateral vessel
with a duration of minimum five years and with a charterer acceptable to the lenders.
The facility has the following financial covenants, tested quarterly, which requires the Group (on a consolidated
basis) to maintain at all times, among other things: (i) a book equity ratio of a minimum of 0.25 to 1.0, (ii) a positive
working capital, and (iii) minimum liquidity of the higher of $15 million or an amount equal to 5% of the Group's total
interest bearing debt on a consolidated basis and net of any cash and cash equivalents. The facility also requires
each vessel owning subsidiary acting as borrower under the facility to maintain at all times, among other things: (i)
positive working capital and (ii) minimum liquidity of $1.2 million. The facility includes a dividend restriction, limiting
distributions to circumstances where (i) no default is existing on the time when the distribution is to be made or
would result from the making, payment or declaration of the distribution; and (ii) such distributions are in aggregate
limited to 50% of the Company’s accumulated and consolidated annual net profits as from January 1, 2018
calculated on the basis of the ultimate parent’s audited consolidated financial statements; or (iii) as otherwise
consented to in writing by the facility agent. The facility also contains a covenant that requires us to provide
additional security or prepay an amount of the loan facility as necessary to maintain the fair market value of the
vessels securing the loan facility at not less than specified percentages of the principal amount outstanding under
the loan facility. The net outstanding amount under the facility as of December 31, 2018 was $301.0 million (2017:
$0.0 million). At December 31, 2018, we were in compliance with all covenants under the facility.
51
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Flex Rainbow Sale and Leaseback
In July 2018, we, through our wholly-owned subsidiary, Flex LNG Rainbow Ltd., which owned the Flex Rainbow,
entered into a sale leaseback transaction (the “Flex Rainbow Sale and Leaseback”), for the vessel with a Hong
Kong-based lessor for a lease period of ten years. The gross sales price under the lease was $210 million, of which
$52.5 million represented advance hire for the ten-year lease period. The agreement includes fixed price purchase
options, whereby we have the option to re-purchase the vessel at or after the second anniversary of the agreement,
and on each anniversary thereafter, until the end of the lease period. The bareboat rate payable under the lease
has a fixed element, treated as principal repayment, and a variable element based on LIBOR plus a margin of
3.50% per annum calculated on the outstanding under the lease. The facility includes a covenant that requires us to
provide additional security, by way of a deposit, as necessary to maintain the fair market value of the vessel at not
less than a specified percentage of the principal amount outstanding under the lease. The net outstanding under
the lease as at December 31, 2018 was $154.0 million (2017: $0.0 million). At December 31, 2018, we were in
compliance with all covenants under the Flex Rainbow Sale and Leaseback.
$270 million Revolving Credit Facility
In March 2017, in connection with our acquisition of the shipbuilding contracts for the Flex Endeavour and the Flex
Enterprise, we, through our wholly-owned subsidiary, Flex LNG Fleet Limited, entered into a $270 million revolving
credit facility (the “270 Million Revolving Credit Facility”) with Sterna Finance Ltd., a company related to Geveran.
Flex LNG Ltd. serves as guarantor under the facility. The facility can be repaid partially or in full at any time at our
discretion and we may continue to draw upon the facility at our discretion to the extent the total outstanding amount
thereunder does not exceed $270 million at any time. The facility matures 12 months following the delivery of the
newbuilding Flex Courageous, which is expected to be delivered in August 2019, after which, $30 million will be
available to us as borrowings for working capital until July 1, 2023, unless otherwise mutually agreed. The facility
bears interest at LIBOR plus a margin of 3.0% per annum. There are no financial covenants under the $270 Million
Revolving Credit Facility. The net outstanding under the facility as at December 31, 2018 was $0.0 million (2017:
$160.0 million).
Note 15: Fair value of financial assets and liabilities
The principal financial assets of the Company at December 31, 2018, and 2017 consist of cash and cash
equivalents, and restricted cash. The principal financial liabilities of the Company consist of secured long-term debt.
The guidance for fair value measurements applies to all assets and liabilities that are being measured and reported
on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to
develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information
52
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
used to determine fair values. The same guidance requires that assets and liabilities carried at fair value should be
classified and disclosed in one of the following three categories based on the inputs used to determine its fair value:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.
The fair value of the Company’s cash and cash equivalents and restricted cash approximates their carrying
amounts reported in the accompanying consolidated balance sheets.
The fair value of secured term loan facilities and revolving credit facility is estimated based on the average of the
current rates offered to the Company for all debt facilities. The carrying value approximates the fair market value for
the floating rate loans and revolving credit facilities due to their variable interest rate, being LIBOR plus a fixed
margin. This has been categorized at level 2 on the fair value measurement hierarchy.
The following table includes the estimated fair value and carrying value of those assets and liabilities.
Group
2018
Group
2018
Fair
value
hierarchy
level
Carrying
amount of
asset
(liability)
Fair value
asset
(liability)
Note
Group
2017
Carrying
amount of
asset
(liability)
Group
2017
Fair value
asset
(liability)
Cash and cash
equivalents
Restricted cash
Receivables due from
related parties
Payables due to related
parties
Accounts payable
Long-term debt
11
11
16
16
14
Level 1
Level 1
54,932
165
54,932
165
Level 1
1,720
1,720
9,961
—
340
9,961
—
340
Level 1
Level 1
Level 2
(206)
(206)
(810)
(810)
(592)
(460,030)*
(76)
(160,000)
(76)
(160,000)
(592)
(454,967)
*
* Carrying value of Long-term debt is shown net deduction of debt issuing cost, while fair value of Long-
term debt is shown gross.
53
Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Company
2018
Company
2018
Company
2017
Company
2017
Fair
value
hierarch
y level
Carrying
amount of
asset
(liability)
Fair value
asset
(liability)
Carrying
amount of
asset
(liability)
Fair value
asset
(liability)
Note
11
Level 1
8,497
8,497
7,175
7,175
2
2
Level 1
823,418
823,418
522,964
522,295
Level 1
(11,158)
(11,158)
-
-
Cash and cash
equivalents
Receivables due from
wholly owned
subsidiaries
Payables due to wholly
owned subsidiaries
Accounts payable
Level 1
(192)
(192)
(16)
(16)
There have been no transfers between different levels in the fair value hierarchy during the year.
Note 16: Related parties
In March 2017, in connection with our acquisition of the shipbuilding contracts for the Flex Endeavour and the Flex
Enterprise, we, through our wholly-owned subsidiary, Flex LNG Fleet Limited, entered into the $270 Million
Revolving Credit Facility with Sterna Finance Ltd., a company related to Geveran. Under the current terms of the
facility, $270 million will be available until 12 months following delivery of the newbuilding Flex Courageous, which is
scheduled to be delivered in August 2019. Thereafter $30 million will be available for working capital until July 1,
2023, unless otherwise mutually agreed with the lender. The facility bears interest at LIBOR plus a margin of 3.0%
per annum. As of December 31, 2018, the outstanding indebtedness under the facility was $0.0 million (2017:
$160.0 million), and the full amount of $270 million is currently available for drawdown.
In May 2017, we entered into agreements with entities related to Geveran, for the acquisition of the two newbuilding
MEGI LNG carriers Flex Constellation and Flex Courageous for a purchase price of $180.0 million per vessel. The
vessels are currently under construction at DSME pursuant to shipbuilding contracts between DSME and the
sellers, who will continue to be responsible for the supervision of the vessels' construction. We made advance
payments of $36.0 million per vessel to the sellers in 2017, representing 20% of the purchase price. The remaining
balance of $144.0 million per vessel is due upon delivery to us, which is scheduled in June and August 2019,
respectively.
In May 2018, we entered into agreements with entities related to Geveran for the acquisition of the two newbuilding
X-DF LNG carriers Flex Aurora and Flex Amber for a purchase price of $184.0 million per vessel. The vessels are
currently under construction at HSHI pursuant to shipbuilding contracts between HSHI and the sellers, who will
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
continue to be responsible for the supervision of the vessels' construction. We made advance payments of $36.8
million per vessels to the sellers in 2018, representing 20% of the purchase price, with the remaining balance of
$147.2 million per vessel due upon the delivery of the respective vessels to us. The vessels are scheduled for
delivery in the second and the third quarter 2020, respectively.
In October 2018, we entered into agreements with entities related to Geveran, for the acquisition of five newbuilding
LNG carriers, the Flex Freedom, Flex Reliance, Flex Resolute, Flex Vigilant, and Flex Volunteer, for an aggregate
purchase price of $918.0 million, or $180.0 million per vessel with an additional cost of $6.0 million per vessel for full
re-liquefaction systems on three of the vessels. The Flex Freedom, Flex Reliance and Flex Resolute are MEGI LNG
carriers under construction at DSME with two vessels scheduled delivery in the third quarter 2020 and the
remaining vessel in the fourth quarter of 2020. The Flex Vigilant and Flex Volunteer are X-DF LNG carriers with
expected delivery in first and second quarters of 2021, respectively. The sellers will continue to be responsible for
the supervision of the vessels' construction. We made advance payments of $55.8 million for each of the three
MEGI newbuildings and $54 million for each of the two X-DF newbuildings in 2018, representing 30% of the
purchase price. The remaining balance of $130.2 million for each of the three MEGI newbuildings and $126 million
for the two X-DF newbuilding is due upon the delivery of the respective vessels to us.
For the four newbuildings delivered in 2018, newbuilding supervision was provided by Frontline Management
(Bermuda) Limited (“Frontline Management”), a related party. In the twelve month period to December 31, 2018,
costs of $1.5 million (2017: $4.4 million) have been capitalized.
At December 31, 2018, the Group had related party receivables of $1.1 million and $0.7 million from Frontline Ltd.
and Seatankers Management Co. Ltd. (“Seatankers”), respectively. At December 31, 2018, the Group had related
party payables of $0.1 million (2017: $0.2 million) and $0.1 million (2017: 0.0 million) due to Frontline Management
and Frontline Management AS respectively.
The Group has a service agreement with Frontline Management, under which they provide us with certain
administrative support services, for which we pay our allocation of the actual costs they incur on our behalf, plus a
margin. In the year ended December 31, 2018, we paid Frontline Management $0.2 million (excluding newbuilding
supervision) for these services (2017: $1.0 million). The Group also have a services agreement with Seatankers,
under which they provide us with certain advisory and support services, for which we pay our allocation of the actual
costs they incur on our behalf, plus a margin. In the year ended December 31, 2018, we paid Seatankers $0.6
million for such services (2017: $0.3 million).
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Note 17: Commitments and contingencies
Capital commitments for the Group as at December 31, 2018 are detailed in the table below. Flex LNG Ltd. did not
have any capital commitments as at December 31, 2018.
Loan repayments
Newbuildings
Total
2019
2020
2021
2022
2023
Thereafter
Total
23,625
288,000
25,478
685,000
26,404
252,000
311,625
710,478
278,404
26,404
—
26,404
241,963
—
116,156
460,030
— 1,225,000
241,963
116,156 1,685,030
As at December 31, 2018, Flex LNG had nine vessels to be delivered on a Norwegian Sales Form basis, whereby
we have paid a deposit to the relevant seller at the time of entering into the agreements, with the remaining
purchase price being payable upon delivery and transfer of title of the relevant vessel to us. The remaining capital
expenditures on these newbuildings will include building supervision, but excludes future change requests, sundry
buyers’ supplies, fit out, studies and lube oils.
Note 18: Financial risk management objectives and policies
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate
risk), credit risk and liquidity risk. The Group’s overall risk management programme considers the unpredictability of
financial markets and seeks to minimise potential adverse effects on the Group’s financial performance, in a cost
effective manner.
Currency risk
The majority of our transactions, assets and liabilities are denominated in U.S. dollars, our functional currency.
However, we incur expenditure in currencies other than the functional currency, mainly overhead costs in Great
British Pounds (“GBP”) and NOK. Historically these exposures have not been hedged. Hence there is a risk that
currency fluctuations in transactions incurred in currencies other than the functional currency will have a negative
effect of the value of our cash flows.
Our shares are currently traded in NOK. The NOK trading price is impacted by the underlying activities of the
Group, which are primarily denominated in USD. Currency fluctuations of an investor's currency of reference
relative to the NOK may also adversely affect the value of an investor's investments.
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Interest rate risk
We are exposed to interest rate fluctuations primarily due to our floating rate interest bearing long-term debt. The
international LNG transportation industry is a capital-intensive industry, which requires significant amounts of
financing, typically provided in the form of secured long-term debt or lease financing. Our current bank and lease
financing agreements bear floating interest rates, based on LIBOR. Significant adverse fluctuations in floating
interest rates could adversely affect our operating and financial performance and our ability to service our debt.
Liquidity risk
The Group monitors its risk to a shortage of funds using a cash modelling forecast. This model considers the
maturity of payment profiles and projected cash flows required to fund the operations. Historically funds have been
raised via equity issuance, lease finance and loan finance. Market conditions can have a significant impact on the
ability to raise equity, lease finance and loan finance. While equity issuance may be dilutive to existing
shareholders, loan and lease finance will contain covenant and other restrictions.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the raising of
funds from investors. Upon delivery of the respective vessels from the yards, we expect to finance remaining
delivery payments that are due through available liquidity, debt financing and lease financing.
Credit risk
The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full
when due. Currently the main exposure to credit risk relates to the advance payments made to the sellers in
connection with the agreements to acquire the Newbuilding Vessels. Seatankers Management Co. Ltd., an entity
related to Geveran, has provided corporate refund guarantees for the advance payments made to the sellers of $72
million in aggregate for the Newbuilding Vessels Flex Courageous and Flex Constellation. Blue Sea Navigation
Holding Inc., an entity related to Geveran, has provided corporate refund guarantees for the advance payments
made to the sellers of $349 million in aggregate for the Newbuilding Vessels Flex Aurora, Flex Amber, Flex
Reliance, Flex Resolute, Flex Freedom, Flex Volunteer and Flex Vigilant. Cash funds are currently held with DnB,
RBS and Barclays.
Price risk
The Group is also subject, indirectly, to price risk related to the spot/short term charter market for chartering LNG
carriers. Charter rates may be uncertain and volatile and depend upon, among other things, the natural gas prices,
the supply and demand for vessels, arbitrage opportunities, vessel obsolesce and the energy market, which the
Group cannot predict with certainty. Currently, no financial instruments have been entered into to reduce this risk.
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda
Operational risk
The operation of a LNG carrier has certain unique operational risks. Our vessels and their cargoes are at risk of
being damaged or lost because of events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding and fire, explosions and collisions, human error, war, terrorism, piracy, labor strikes,
boycotts and other circumstances or events. These hazards may result in death or injury to persons, loss of
revenues or property, higher insurance rates, damage to our customer relationships and market disruptions, delay
or rerouting.
If our LNG carriers suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock
repairs are unpredictable and may be substantial. The Group may have to pay dry-docking costs that our insurance
does not cover at all or in full. The loss of revenues while these vessels are being repaired and repositioned, as well
as the actual cost of these repairs, may adversely affect our business and financial condition.
At a commercial level it also includes the ability to secure employment contracts on reasonable terms for the
vessels under construction; and obtaining financing and working capital on reasonable terms.
Note 19: Subsequent events
In the first quarter of 2019, the Company agreed a $250 million secured term loan facility from a syndicate of banks
for the financing of the two newbuildings Flex Constellation and Flex Courageous. The financing remains subject to
the execution of the loan facility agreement and customary closing conditions, and is expected to be drawn upon
delivery of the vessels from the shipyard, currently scheduled for June and August 2019, respectively. The facility
will have a term of five years from delivery of the last vessel and will bear interest at LIBOR plus a margin of 2.35%
per annum. The facility will contain a minimum value clause, and financial covenants that require the Company, on
a consolidates basis, to maintain a book equity level of minimum 25%; a minimum liquidity being the higher of $25
million and 5% of net interest bearing debt; and a positive working capital.
On March 4, 2019, the Company declared a ten-for-one reverse stock split with an effective date of March 7, 2019.
The common share par value was adjusted as a result of the reverse stock split to the value of $0.10 per share. In
line with the guidance in ASC 260 "Earnings Per Share", we have retroactively adjusted for this change in the
balance sheet and applicable footnote disclosures.
Subsequent events have been evaluated through to the April 3, 2019 which is also the date the financial statements
were issued.
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Registered address: PO Box HM 1593, Par-la-Ville Place, 4th Floor,14 Par-la-Ville Road, Hamilton, Bermuda