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GasLog Ltd. (NYSE:GLOG)

Q4 2012 Earnings Call

February 27, 2013, 08:30 am ET

Executives

Paul Wogan - CEO

Henrik Bjerregaard - CFO

Simon Crowe - CFO, Elect

Thor Knappe - SVP, Business Development & Investor Relations

Analysts

Jon Chappell - Evercore Partners

Chris Wetherbee - Citi

Nish Mani - JPMorgan

Operator

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog’s Fourth Quarter 2012 Results Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. As a reminder, this conference call is being recorded.

Today’s speakers are, Paul Wogan, Chief Executive Officer; Henrik Bjerregaard, Chief Financial Officer; Simon Crowe, CFO Elect and to commence the call, Thor Knappe, Senior Vice President of GasLog.

Mr. Knappe, you may begin your conference.

Thor Knappe

Thank you, operator. Good afternoon and good morning to those of you in the Americas. Thank you for joining us for our fourth quarter 2012 results conference call. In addition to Paul Wogan, GasLog's Chief Executive Officer and Henrik Bjerregaard, GasLog’s Chief Financial Officer, also joining us this afternoon is Simon Crowe, GasLog’s Chief Financial Officer from the 1st of April.

As a reminder, this conference call webcast and the presentation we are using this afternoon are available on the Investor Relations section of our website gaslogltd.com. A replay of this call will be available until March 6th at 5:30 p.m. London Time, 12:30 p.m. U.S. Eastern Time.

As shown on page two of the presentation, many of our remarks this afternoon contain forward-looking statements. Let me refer you to our fourth quarter 2012 results press release and our reports filed with the SEC, where you will find factors that could cause actual results to differ materially from these forward-looking statements.

In addition, some of our remarks this afternoon contain non-GAAP financial measures as defined by the SEC. A reconciliation of the non-GAAP financial measures to the most comparable GAAP measures is attached as an annex to this presentation. Today’s call is set to end at 2:30 p.m. London Time, 9:30 a.m. Eastern Time.

If we now turn to slide three, the agenda for the presentation, and I will turn the call over to Paul Wogan, GasLog's Chief Executive Officer.

Paul Wogan

Good afternoon and good morning. Thank you for joining us. First of all, I would like to say just how pleased and honored I am to be asked to lead GasLog at this exciting time both in the company's development and within the LNG shipping industry as a whole. I believe that GasLog with its combination of modern vessels, strong committed cash flows and credit-worthy customers and a highly competent technical management group with many years of experience of safely operating LNG vessels is exceptionally well placed to take advantage of the opportunities offered to us as the LNG industry develops and grows.

Now on to today's presentation and in which I will provide you with an overview of our full-year and fourth quarter 2012 highlights and performance. Henrik will then review the full-year and fourth quarter 2012 financial results and we are pleased to have our incoming CFO, Simon Crowe join us to provide a summary of our committed revenue picture looking forward. I will then give a brief update on the LNG market in Q4 followed by an overview of our fleet and charter information including our recently announced new two ship deal with the BG Group and we will end the prepared comments with a strategic update and a summary.

Please turn to slide four of the presentation. Firstly, we are pleased to announce today the payment of our second quarterly dividend of $0.11 per share. The dividend will be payable on March 25th, to stockholders of record as of March 11th. It is gratifying that we are able to award our shareholders as we deliver on the business plan that we outlined at the time of our IPO.

In recent weeks, we took delivery of the GasLog Shanghai, the first of five new ships scheduled to deliver in 2013. All of which will commence multi-year charters to credit-worthy counterparts. The second of our new building delivers is scheduled to join the fleet and concurrently commence its charter towards the end of Q1.

The LNG shipping market for companies such GasLog remains attractive and we continue to seek to capitalize on the strong supply and demand fundamentals for LNG. We were pleased to be able to announce the order of two new ships from Samsung Heavy Industries in their 10-year charters to the BG Group. We believe they are very attractive growth, both the GasLog and for our shareholders.

With regards to our financials, the full utilization of our vessels is reflected in our revenues, which were $18.3 million for the quarter and $68.5 million for the full-year. EBITDA was $8.5 million for the fourth quarter and $27.8 million for the full-year, with the full-year adjusted EBITDA of $34 million. Profit was $2.7 million for the quarter and $4.2 million for the full-year, with the full-year adjusted profit being $10.5 million.

I will now hand you over to Henrik, who will go into more detail on our fourth quarter and full-year results.

Henrik Bjerregaard

Thank you, Paul. Good afternoon and good morning. Once again, thanks for joining us today. I will now take you through the financial highlights, so could you kindly turn to slide five of the presentation.

Revenues for the quarter increased by $0.5 million or 2.8% to $18.3 million compared with the same period in 2011. For the full year, the revenues of $68.5 million marked an increase of $2.1 million or 3.1%. In both cases, it is mainly a result of an increase in revenues from external customers in the vessel management segment and for the full-year figure is all due to an increase in the revenues in the vessel ownership segment in which GasLog’s existing fleet performed at 100% utilization.

EBITDA was $8.5 million for the quarter compared to $5.6 million for the same period last year. For the full year EBITDA was $27.8 million and adjusted EBITDA was $34 million.

Profit for the quarter was $2.7 million and for the full-year $4.2 million. The Q4 figure was an increase of $3 million on the same period in Q4, 2011, reflecting mainly a gain on interest rate swaps in Q4, 2012, compared to a loss on swaps in Q4, ‘11. For the full-year, the decrease in profit of $9.5 million is due to a $1.7 million increase in vessel operating and supervision costs, mainly due to the planned new projects from our existing customers.

A $4.4 million increase in G&A expenses generally inline our planned growth compliance requirement of being a public company. A $2 million increase in financial costs related to an expansion in our interest rate swap position in relation to the GAS-one partly offset by $1.1 million increase in financial income. A $4.1 million increase in non-cash loss on interest rate swaps. A $0.2 million decrease in the share of profit from Methane Nile Eagle due to the scheduled dry-docking and $0.2 million increase in depreciation of fixed assets all of which was partially offset by the $2.1 million increase in revenues I mentioned earlier. The adjusted profit for 2012 was $10.5 million.

For the fourth quarter adjusted EPS was $0.03, compared to $0.05 in the same quarter last year. For the full-year adjusted EPS was $0.18, compared for $0.42 for 2011. EPS for the fourth quarter of ‘12 was $0.04 compared to a loss this year of $0.01 in Q4, 2011. For the full-year EPS was $0.07 for ‘12 compared to $0.36 for 2011. The full-year decreased in both adjusted EPS and EPS are due to a significant increase earlier this year in the weighted average number of shares following the completion of the IPO and the private placement, as well as a decrease in adjusted profit and profit due to the factors already mentioned. The last line of this slide shows the utilization of GasLog Savannah and GasLog Singapore. We are pleased to say that they have achieved 100% utilization since delivery in 2010.

Please turn to slide six of the presentation. The main items on the balance sheet under tangible fixed assets are the two existing ships with a book value of $427 million. In addition, our eight ships under construction had a book value of $217 million as of December 31, 2012 with the increase reflecting the progress in the construction and the installment paid.

If we look further down this table, you can see that GasLog had short-term investments of $105 million and cash and cash equivalents of $111 million. The short-term investments are time deposits with top tier banks.

Please turn to slide seven of the presentation. Looking at the equity and liabilities, we see that contributed surplus for the fourth quarter of 2012 was $622 million as compared to $301 million at the end of ’11. The increase of $321.2 million over the year end ’11 is mainly from the net IPO proceeds and the pre-IPO shareholder contributions of $18.7 million.

The major items under liabilities relates to the two debt facilities on the existing ships. These are of $25.8 million in truant portion of loans and $228.5 million in non-truant portion of the same facilities.

Please turn to slide eight of the presentation where we can see the credit facilities in place. This slide is probably familiar to most of you. It highlights the debt facilities we have in place for our fleet. You may recall we have spoken before about the refinancing of GasLog Singapore where the existing facility matures in 2014.

We are pleased to say that we expect to see commitments from banks within this quarter. We expect to loan amount to be in the region of $160 million partly by way of a traditional term loan and partly as a revolving credit facility. You may notice that the recently announced orders for two ships are not on this slide. We have received positive feedback from our banking group on the possibility of bank debt.

However, as the ships are delivering in 2016, we have the time to consider the most cost effective way to finance these vessels. Please note that these two recent orders have very tail heavy payment terms and hence we do not foresee the need to raise equity within the next few years.

In combination with the recent ordering of the two new bills, we also announced the restructure charter of Hull Number 2017 and Paul will comment on the charter details later. We have discussed the charter amendments with the respective banks on that facility and we can advise that the facility on this ship will remain unchanged.

Following the delivery in January of GasLog Shanghai and the loan drawdown connected with that ship, we have as of today undrawn loan facilities with an aggregated amount of $992 million. Borrowings under these facilities will be drawn upon delivery of the ships which is scheduled for various days between 2013 and 2015.

As of end December ’12, GasLog has entered into 15 interest rate swap agreements for total notional amount of $862.9 million. This is in relation to the outstanding indebtedness of $255.7 million and the undrawn loan agreements of $1.13 billion as of that date. In total, 62.3% of GasLog’s expected floating interest rate exposure has been hedged at a weighted average interest rate of approximately 4.3% including margin as of December ‘12.

During the fourth quarter, GasLog recognized a non-cash gain of $0.2 million on interest rate swaps, primarily due to the mark-to-market valuation of six swap agreements signed in 2012 which do not qualify for hedge accounting.

For the full year ’12, GasLog recognized a non-cash loss of $6.8 million on interest rate swaps primarily due to a $4.6 million loss from the mark-to-market valuation of six swap agreements signed in ’12 which do not qualify for hedge accounting as well as $2.1 million non-cash loss recognized at the interception of four swap agreements also signed in ’12 and designated as cash flow hedging instruments.

Please turn to slide nine of the presentation. I will hand you over to Simon Crowe, who will talk about the contracted revenue and also what to expect on costs going forward.

Simon Crowe

Thank you, Henrik. I would like to start by introducing myself to everybody. I am Simon Crowe. I am a qualified accountant with over 20 years experience in the energy industry. I spent approximately six years with Transocean in various roles, the most recently with the CFO of Subsea 7, the Norwegian and US offshore installation company. Our background is offshore energy and I can see many similarities with the LNG world.

I would like to take the opportunity to thank Henrik for the professional handover and the assistance that I received from him over the past few months. I wish him well in his new endeavors. Thank you, Henrik.

Turning now to slide number nine. The table showed the contracted revenues in contracted days for the next 10 years. The figures for 2013 or for the full-year from the first of January and for the forward-looking year, we’ve added on our two recently announced 10-year charters with the BG Group and the amendment of the charter Hull 2017.

It's interesting to note that with Hull 2017, we've moved from a six-year charter to an eight-year charter with a five-year period of seasonality but the number of firm contracted days is roughly the same. While we have not disclosed detail day rates, you may recall the EBITDA guidance we gave of $47 million to $48 million in the first year, the two new ships and $14 million to $16 million for the seven month seasonal periods in the year’s four to eight of Hull 2017 charter.

You can see from the table that we have a very healthy and solid platform going forward. We have a 100% contract cover for this year and 2014. It's over 70% for the following two years and you can see in the total column that we have more than 50% of our available base contracted for in the next 10 years.

Please note these revenue estimates do not include any earnings for two uncommitted ships and similarly there is no revenue include the likely earnings in the ships following completion of their additional charter.

Looking at the full-year G&A for 2013, we expect to be roughly in line with our 2012 figure. We've five new builds delivering in 2013. And now build the organization to accommodate the addition to the fleet. We are also subject to exchange rate fluctuations as the majority of our G&A cost were in Euros and that may impact the results for this year.

We expect all our operating cost and net interest cost to reflect the delivery of the five vessels scheduled to join our fleet in 2013 and drawing down of the associated debt. We are on track and on plan. As the incoming CFO, I am sure as you would expect making a detailed review of our capital structure.

We have excellent relationships with our core banking group and as we grow and mature as a company we no doubt seek to broaden our sources of capital as and when opportunities arrive to put that capital to work.

That concludes the financial highlights of the presentation. And so please turn to slide 10 of the presentation and I hand you back over to Paul.

Paul Wogan

Thank you, Simon. As we look at the LNG industry. We are confident that the supply and demand dynamics of the industry remains positive for LNG shipping. Spot rates for LNG ships remain high on a historical basis and we expect this performance to be reflected in the long-term charter market.

Recent announcements from the LNG industry regarding new production projects are expected to create increased demands for LNG carriers. A particular importance with the release of the US Department of Energy Commission Study which concluded that LNG exports will be net beneficial to the US economy.

We see this is very supportive for potential large scale exports of LNG from the US. We currently see over a dozen export projects been planned and though we don't expect that all will be build, we do think that the number of these projects will be realized. On the subject to the US export, Cheniere Energy announced an LNG sale agreement for 2 million tonnes per annum to truant out in connection with the possible fifth train of at Sabine Pass facility.

And elsewhere during Q4, 2012; we saw various announcements that highlight the growing importance of Chinese and Indian LNG importers and also the diversity of LNG buyers. CNOOC China announced their intention to buy into BGs Curtis LNG project in Australia and also to buy 5 million tonnes per annum of LNG from BGs global portfolio.

GAIL of India signed up for 2.5 tonnes per annum for 20 years from Gazprom, while Qatargas announced agreement to sell 2 million tonnes per annum of LNG to PTT of Thailand also for 20 year period, only speaks to the growth of the global trade for LNG and the future demand for LNG ships.

Now please turn to slide 11, where we will look at our recently announced orders. In early February, we announced the order of two more LNG carriers to be built by Samsung Heavy Industries in Korea. These ships are scheduled to commence 10-year charters to BG upon delivery.

We are pleased that BG continues to entrust us with that business as we feel it is a sign of that confidence in high quality LNG shipping services that GasLog provides. The orders are expected to represent the total project investment of 410 million to 420 million. The charter is expected to in a combined EBITDA of 47 million to 48 million in the first year of operation.

In connection with our ordering of these two ships, we now also hold priced options for LNG carrying new buildings of what we believe are attractive prices and payment terms. Also as part of this agreement with BG, we modified the existing charter on hull number 2017 which is due to delivering commenced charter later this year.

The existing six year charter on this ship was changed to eight years whereby the first three years remained as per the original agreement and the subsequent five years the seasonal charter pursuant to which BG employees the ships for a seven month period each year and the remaining five months available to GasLog to trade in the market the time where we expect to see significant new LNG volumes and thereby new demand for LNG ships.

We announced that we expect to earn EBITDA of between 14 million to 16 million for each seven month period. I must reiterate how excited we are to be able to secure what we believe is very attractive new business for GasLog and for our shareholders. Please turn to slide 12. Now the format of this slide maybe familiar to many of you; it illustrates our portfolio of ships and charters. Now with the addition of the two recently announced orders for Hull 2072 and 2073, you can see the continued build out of our modern fleet with multi-year charters, the counter parties that are financially strong and well established in the LNG industry.

The new charters with a 10-year duration add further strength to our portfolio. The strength of GasLog’s existing fleet commitments and the addition of the new long term charter allow GasLog to look at a range of charter periods for our two open vessels. In particular, we feel they allow us to be opportunistic in placing these vessels into shorter term charters. This along with a seasonal component for one of our new buildings provides us with the optionality and flexibility to capture incremental value from our portfolio.

Now please turn to slide 13 for the summary. We are pleased to announce the payment in a few weeks time of our second $0.11 dividend. Our full year 2012 performance has given us a solid platform on which to base the growth of GasLog in 2013 and beyond. The delivery of GasLog Shanghai in January marks the start of our growth as highlighted at the time of our IPO with four more ships and the accompanying revenue streams expected in 2013.

We expect the LNG industry to experience solid growth in the years ahead. We also believe that GasLog’s portfolio of modern vessels, the strong committed cash flows from credit worthy customers combined with our experience and highly competent technical management group means that we are exceptionally well placed to take advantage of the opportunities offered to us as the LNG industry develops and grows.

That brings us to the end of the presentation. So I will now turn it over to the operator to please open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will now take our first question from Jon Chappell of Evercore Partners. Please go ahead.

Jon Chappell - Evercore Partners

Paul, I want to ask you about the rate environment for what I would consider somewhat of your sweet spot of the five to seven year charters, and I want to ask in a couple of ways. You mentioned that you may look at more of a portfolio approach now because of the longer-term charters that you just signed. So for the two unchartered chips you may go a little bit shorter term.

So what kind of timing should we think about as far as chartering those ships? Before these 10-year contracts were signed, there was a thought process that you try to get five to seven year contracts on the unchartered ships by early 2013. So you wait a little bit longer now as you kind of explore different time horizons for that different durations of contracts for those vessels and then also as the recent and I will use this in a relative terms, but weakness in the spot environment had any impact on medium term type contract rates at five to seven years?

Paul Wogan

Thanks very much for the question, John. I think in terms of the fixing of the ships, I think the great thing having fixed two ships in the first quarter with the 10-year charters against them. I think it gives us the optionality and the flexibility to look at where we see value in the portfolio. So I think we're relaxed at the moment in saying we look along the whole range of charter periods from lesser year contracts through to medium term, long-term to see where we can see the value.

We feel we have time on those ships still, if we want to look at shorter term business and with the new vessels that we feel we have got that optionality. So I think that helps us in lots of ways. Going back to your question on the spot, I think there has been some weakness in the spot market. I think it’s been quite interesting to see thought that the demand for LNG has been very strong, people having been able to get hold of the cargos because of outages, at ports majority in places like Yemen, Nigeria, etcetera.

So I think the demand for the LNG, demand for shipping would have been very effective just to found the way to supply the cargos in there. But we haven’t seen anything happening in the spot market change our views on how we see the rate for the sort of medium term charters going forward as yet.

Jon Chappell - Evercore Partners

Yeah. And then Simon I can ask you regarding the capital structure and then you mentioned just joining the organization and Henrik setting it up quite well. With the two new ships now that have been ordered I know that they are very back end loaded as far as the payment terms, but how are you kind of viewing your different options for the financing for those vessels, the timing surrounding garnering the financing for those ships and then also just keeping flexibility now that you have four additional optional vessels, how you are thinking about positioning the capital structure ahead of the potential exercising of those options?

Simon Crowe

Very good question. Thank you. Just in terms of the specific two vessels, we have clearly got some time on our hands. We have had a very positive feedback from the bank market on our GAS-two refinancing, so that’s sets us up well we believe for some bank financing on those two vessels.

As I said the refinancing is going very well so we have got some funds from that which is very helpful. As you say the Samsung terms are pretty good, they are pretty backhanded, so that’s also extremely helpful. I am just starting to explore now over other different options. We see the bond markets being very strong at the moment; that’s potentially an incremental source of capital for us going forward potentially on those vessels. We got time to think now one through.

Of course we mentioned MLPs in the past that I am taking a good hard look at that, that is something our competitors used and has been used widely in the market and is very healthy at the moment, and we are just weighing up the pros and cons of those options and starting to carry on that works.

So I think from my perspective we are very relaxed about the two new ships in securing funding over the mix of bank and other source of the capital, and on the wider question, we are just evaluating all the different options. And what we really want to do position ourselves to be ready to grow, is to position our selves to have those options available.

Some of this capital raising activity take a lot longer than others. So we want to be ready, we want to have the optionality ready and clearly be prepared to look at the attractive options that's come along. I guess the last thing to mention on the two new build is the 10 year deal which of course is very, very finance-able in this market. I think we are seeing a sort of buying market is almost splitting into two and many ways, this is very attractive first year, which we very much think we are in and that seems to be very doable and people are coming to us and have capital ready for us on the bank side and then on the other side of it which is less obvious in terms of the other players that potentially can't get that something they haven't got contracts, they haven't got the track record. So I think I'm doing the work. I've been in the job for six, seven weeks now and working with the team here to really comprehensively look at all the different options.

Paul Wogan

Henrik, I am just adding to the feedback reply from Simon saying well, it looks specifically on the short-term the (inaudible) of the gas two is around $106 million at the estimated time of the refinancing and we bring in $160 million so that's basically adding $54 million in cash to the balance sheet.

Jon Chappell - Evercore Partners

Last question, I'll try to keep this one brief, the G&A run rate thanks for giving the guidance for 2013, its quite volatile on a quarter-to-quarter basis in 2012 so number one should we expect that to kind of smooth out through the quarterly 2013 and then also I guess more importantly, this new run rate that you are talking about now which is a little bit higher than what we have been forecasting. Is that the type of run rate we should see for the entire 12 vessel fleet? So you do not need to kind of ramp up any new people, facilities outside of the obvious you know, crude or what not to take the full delivery of your order book and not expecting a significant increase in the G&A beyond the 2013 run rate?

Simon Crowe

Very good question and we've guided for this year for 2013. We always, we had some one-offs last year. We've been building our capability, we've been building the company throughout 2012 and clearly we had some volatility that we spent a lot of time training our crews, getting ready for all of these deliveries in 2013.

We think we've kind of positioned the G&A exactly as we had planned for that execution. It’s key that we get the execution right and key that we get those deliveries right but what we've also factored in there is a bit of growth. We see opportunities out that we want to be ready for those growth opportunities.

So I'm not going to guide on the sort of quarter-by-quarter basis. What I was hoping to do here is help you model out 2013 a little bit. Clearly, you know, the exchange rate may impact us, the timing of certain things that we got budgeted for this year may impact us and clearly we got a very good focus on our costs.

We are looking at those costs on a very, very regular basis. We are monitoring them. We don't want to get ahead of ourselves but we also want to be absolutely sure that we can execute on the business plan and we can accommodate growth.

Operator

We will now take our next question from Chris Wetherbee of Citi. Please go ahead.

Chris Wetherbee - Citi

Maybe wondering just on the seasonal employment of Hull 2017, how should we think about your strategy in handling the fixing of that seasonal portion? Is it the kind of thing that you are going to be kind of willing to leave open until you are fairly close to it. You have the ability to kind of pre-book that. I guess I just want to understand that a little bit given it’s a fairly unique strategy that you guys really employing there?

Paul Wogan

Yeah, I think we have the ability to do a couple of things. I think what's interesting for us is that seasonality starts in 2016 when we feel that we are seeing a lot of new liquefaction plants being proposed. We expect to see large volumes of LNG perhaps coming out of the United States. So we like that exposure that we are going to get with those ships at that time.

In terms of we fix them, I think, we're fairly open on that. I think there is the possibility of looking at other business that you can fix at the same time as those. So you mesh into it with contracts that you fixed period before or depending on how we see the market playing out, you know, given the fact that we got a strong underlying portfolio and a good cash flow. We can way to say, okay, we can play those ship spot if we feel that’s going to be accretive to the portfolio overall.

You know, the good thing about those ships is that that ship, it is Tri-Fuel Diesel Electric, its 155 which is a great vessel for trading. You know, we have experience of trading our vessels in just about every port in the world and I think those factors, when you are looking against a big portion of the fleet, you know, there are steam vessels that are much less efficient, not the right size etcetera. It means we're fairly comfortable and confident that we can find trading opportunities for our ship.

Chris Wetherbee - Citi

Okay, so it's fair to say that clearly you way to get closer to 2015 but it's still a little bit undecided. I guess you wait to see what the market is given that before you determine whether or not you want to provide kind of forward fixture for it?

Paul Wogan

Yeah, I think the great thing is as I said; we've got the kind of optionality and flexibility to do that. We don’t have to fix forward. If we see something that looks attractive at the time, we will take it but we also have the ability to take the ship closer than run the ship’s body if we feel that’s going to be best for us, for us to capture the upside in the market.

Chris Wetherbee - Citi

Sure, that makes sense and then on the two open vessels, 2043 and 44, any kind of thought process on how we should be thinking about the fixing there. I mean, I guess the combination and you kind of talked a little bit about the strategy, may be the timing of the potential announcement. I mean how closer you are, how much time you think you may need to get something done there?

Paul Wogan

Yeah. as I said on those, we were saying that we will fix a couple of ships in Q1, which we did we fixed the two ships for their 10 year charters to BG which we are very happy about, and I think that also gave as we said as I keep stressing the optionality on those two ships. So again it’s a little bit like the 2016 ships. I think we are flexible, but what we will do is, we will see where the opportunities are to sort of capture the upside. If we feel that makes sense to fix the ships on longer term charter ahead of time, we’ll look at that. If we feel there is more benefit to us to take those ships closer and do shorter term period, we can do that.

So as again with those two ships as with the seasonal one being modern ships efficient, able to try to [out-boss] in the world, we are fairly relaxed about the ships at this point and we will see how we comply with best play the optionality to add value to the portfolio.

Chris Wetherbee - Citi

Sure, sure that’s really make sense. Then the last question will just be on kind of fleet development and may be your thoughts both near term and then may be a little bit longer terms. So you have the four options I think with mid-year 2013 exploration. I just wanted to get a sense roughly of may be how do you think about growing the fleet may be conceptual a little bit bigger picture over the course of the next year and then may be three or five years down the road. How do you see that opportunity kind of pacing itself?

Paul Wogan

I think we see a lot of opportunities out there, and it’s just making sure that we actually identify and take the opportunity, which are going to be accretive to the shareholder. So when we look at it, I am quite bullish on the growth options and opportunities for GasLog. However, we will be discipline about it and we will do accretive deals for the shareholders, and so I haven't got a view that we should be doing four ships in the next year or five ships. We will do the deals that come along that we can finance correctly and we can do it in an accretive way for the shareholders.

The one thing I would say though is with the technical platform we’ve got, with the relationships we’ve got with the customers, I think those growth opportunities will come along to us and it’s just up to us to make sure that we execute on the right deals at the right time.

Operator

(Operator Instructions) We will now take our next question from Chris Combe from JPMorgan. Please go ahead.

Nish Mani - JPMorgan

This is Nish Mani for Chris. Just a quick question on finance cost that work, I know that given the large number of vessels coming on land this year and significant debt wrapping up beginning of the balance sheet. Just kind of want to get a sense for where you think finance cost will hit by the end of the year and if it still be targeting less than 5% swap rate going into IPOs by 2015-‘16?

Simon Crowe

Yes, thanks for the question. I mean we obviously are hedging our portfolio and we take a view on that, we have stated what we’ve hedged in the presentation; we are talking about interest rate cost on our bank debt. Clearly rates are improving on the bond yield out there, but I don't to specifically comment on what we are thinking about there. What we are trying to do is balance our portfolio and be as cost effective as we can, I will ask Henrik, if he wants to comment on the historical approach.

Henrik Bjerregaard

Yeah, actually now recent level of 62.3% being hedged, I think we feel comfortable around that level, and we talked about the two new buildings coming in ’16. It will be natural with a 10-year charter on those vessels at that time once the financing is in place looking at potential swapping that into a fixed rate. But I think for the existing fleet i.e. the 10 vessels, I think that 62 is a comfortable level and with moderate developments it’s on.

Simon Crowe

I’d agree with that.

Nish Mani - JPMorgan

And then just kind of big picture on supply and demand outlook; you had mentioned a variety of new projects coming either online in 2015 and ’16 as well as indications for buying more cargos, but just want to see your [guidance] internal model, from a base case what do you guys look at when it comes to project delays and kind of how vessel the timing of hitting the water and open vessels would be affected by that rate of development.

Paul Wogan

I think we are fairly conservative when we look at our projects, not only in terms of sort of we would normally say build a little bit of delay in that so if our models’ incorrect it’s going to make us smile rather than frown. But I think on the other side what we tend to do or not when we are modeling as well is, we ramp up the production from those facilities very slowly over time, so let's say we think its going to take six ships, we will start off with one or two in the first quarter, first half and then ramp up over time. So as we are modeling out on this we tend to try to take a fairly conservative view of it.

Operator

There are no further questions in the queue at this time.

Paul Wogan

Okay, well if there are no further questions, I would just like to thank everybody for being on the call today. Thank you for the time and look forward to speaking to you all again soon. Thank you.

Operator

That will conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.

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