Gaztransport et Technigaz SA

PAR:GTT

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's GTT First Quarter 2020 Activity Update Conference Call. [Operator Instructions]I would like now to hand the conference over to your speaker today, Mr. Marc Haestier, Chief Financial Officer. Please go ahead.

[Marc Haestier, Chief Financial Officer]

Thank you, Carol, and good evening to all of you. I hope you are all safe and in good health. We are pleased to host this call in our new configuration, which is everybody at home. But I hope, technically, everything will be okay and you can hear me properly.So I'll start off with the key highlights for this first quarter on Page 4 of the presentation. So first of all, the consolidated revenues are at EUR 102.5 million, which is an increase of 74% compared to the first quarter of last year, which is obviously a consequence of the buildup of our order book in the last couple of years. We've received in the first 3 months 4 orders for LNG carriers, and we have signed 2 new services contracts, one with CMA CGM in relation to the ultra-large containerships which are an order for LNG as a fuel. So we will be providing a full range of services to CMA CGM for these ships. We've also signed a 5-year service agreement with Excelerate Energy, a shipowner, for the maintenance and operation of 9 FSRUs equipped with our NO96 technology, and this will include on-site technical assistance, inspection, maintenance, repairs, et cetera. As a reminder, we announced that already for our full year announcement we acquired Marorka, a company in Iceland, which is an expert in smart shipping.Turning to Page 5, let's take a look at the order book at the end of March, which is clearly still quite strong. It is now composed of 130 units for the core business. There have been the new, 4 new orders, which have been added to the order book of 4 LNG carriers I just mentioned. And there have been 7 deliveries in the quarter: 5 LNG carriers; 1 FLNG; and 1 FSRU. So the order book now is composed principally, of course, of LNG carriers, 112; 6 ethane carriers; 8 FSRUs; 1 FLNG; 3 onshore storage tanks and 3 gravity-based systems, GBS. On the LNG as a fuel front, there has been no change in the order book, still 19 units with no new orders in the first quarter nor any deliveries.Now perhaps I give you an update on the situation in relation with the epidemic, the coronavirus epidemic, which, as you know, started first in Asia, where GTT generates most of its revenues with the shipyards in Korea, principally, but also in China. And then the epidemic propagated in Western countries. The state of pandemic was announced on the 12th of March 2020. And clearly, the risk, the main risk here is potential delays to the timetable or the milestones for the construction of vessels, which could lead to a shift of revenues from one period to the next, as we had already explained on the occasion of our full year result. I guess, as of today, we have seen absolutely no delays in construction milestones. And clearly, the strength of our revenues for the first quarter are also a reflection of that.Now if you take a slightly kind of a longer-term view, of course, it's still a bit early to have a full view on the extent of the risks of this epidemic on the global economy, but there are pluses and minuses, I guess. Of course, there could be an impact on the overall demand for LNG for liquefaction projects and also for shipowners. And this could potentially result in a delay, cancellation or suspension of orders. Although, again, as of today, we are not seeing any of that. I guess, mitigating factors here are the fact that the LNG market is mainly based on long-term prospects, long-term financing, long-term contracts. And the other, I guess, positive is that the situation is improving in the Asian countries, which represents more than 60% of the imports of LNG. In particular, China have resumed now LNG imports.As far as GTT is concerned, the company, we have 456 people, 60 of whom are based at the shipyards in South Korea and in China, and 39 employees are in our subsidiaries in Asia and then principally in our sales office in Singapore and China. Of course, priority goes to the health and safety of our people and their families. And we have obviously followed this very closely from the beginning. We have made recommendations to employees abroad and also at head office, of course, in close correlation with the guidelines given by the French and local authorities. Currently, a large proportion of our workforce is working from home. And as I indicated, this has been quite a success. Our plan, our emergency plan has operated very well. We have been able to move pretty much everybody within 24 to 48 hours. And everybody is working now from home and the business is operating normally.Now a look at the revenue numbers on Page 7. So as I mentioned in my opening comments, revenues stand now at EUR 102.5 million for the first quarter, up 74% from EUR 58.9 million. Now if we look at the new builds core business, you can see that a lot of the growth, of course, the growth comes from this part of the business, in particular LNG carriers and ethane carriers, with an increase of 88%; FSRUs 80%; FLNG, these are one single, I'd say, single projects, so they're coming towards the end. And you will recall, we had a delivery this quarter. The rest is relatively less significant, although we can see that we are already beginning to accrue some revenues from the GBS, gravity-based systems, which were ordered last year.Services, on the other side, I suppose, makes not as good a performance. Of course, services are more impacted by short-term issues and in particular, the epidemic. And what has been one part of the business in services which has suffered a bit is the inspection of tanks on ships in operation, and this is clearly linked to, of course, the difficulty for people to travel and to get to the ships. So that is the main reason for the decrease in services activities.Having said that and as a conclusion, on Page 8, we are confirming our 2020 outlook for revenues, so with a range between EUR 375 million and EUR 405 million; on EBITDA, with a range between EUR 235 million to EUR 255 million. And also, we are confirming our dividend policy. And we will be paying as expected, of course, subject to the approval by the AGM, the balance of our dividend in June.So that's it for the formal presentation. I'll be, of course, happy to answer your questions. And I hand over to Carol for the modus operandi.

[Operator]

[Operator Instructions] And the first question comes from the line of Jean-Luc Romain from CIC Market.

[Jean-Luc Romain]

Thank you for confirming your 2020 guidance. I read this morning that drilling has started on the North Dome to prepare the expansion of the LNG production capacity of Qatar. Do you have any news regarding a tendering process either of the LNG plant or more importantly for you, for the LNG carriers which will be associated to this very large capacity expansion?

[Marc Haestier, Chief Financial Officer]

Yes. Thank you, Jean-Luc. Well, Qatar has been an ongoing story, in fact, fairly independently from the current situation with big announcements and then not so much happening. Yes, we have seen that the drilling has started, which is a positive factor. It shows that this is a serious project. So it's rather good news. And clearly, if this FID takes place, it's going to be also a source of potential orders over and above the orders we are already expecting on those projects which have received their FID in the last year or so.

[Jean-Luc Romain]

If I may ask a follow-up. Back in 2005, '06, '07, I don't remember exactly, your competitor, Moss, received orders from Qatar for a part of its LNG fleet. Do you expect competition for them this time -- from them?

[Marc Haestier, Chief Financial Officer]

I mean, we can't exclude. You can't exclude it. But I mean, considering the dynamic of the market and the situation of our technologies, I would have thought it would be rather unlikely that Moss could make a strong comeback on this occasion.

[Operator]

And the next question comes from the line of Kevin Roger from Kepler Cheuvreux.

[Kevin Roger, Research Analyst]

Yes. I hope that everyone is safe and going well. Just one question, please, because you confirmed the 2020 guidance, so that's assuring in the short term. I was just wondering what has been the impact on the commercial activities, meaning what's your, let's say, visibility and discussion with your clients for future order intake in the coming months. What has been the impact of the current environment up to now, please? And what's your maybe expectation in terms of new contracts in the coming months, please?

[Marc Haestier, Chief Financial Officer]

Well, first of all, you know we do not comment on short-term orders. But I mean, obviously -- I mean, commercial activity is continuing even if people are not in a situation to travel as much as they would wish but still commercial activity is still ongoing. There are a number of projects which are currently in discussion. I mean, Jean-Luc earlier on was mentioning Qatar, but there are others. And yes, things are progressing. I mean, of course, in the current environment, it's very difficult to say at which point and up to what extent these discussions will come to fruition. But again, for us, it's, as we see it today, it's more a question of timing than anything else, of when rather than if.

[Kevin Roger, Research Analyst]

Okay. And maybe one follow-up which is, let's say, also in the short term. Clearly, we have the significant impact from the COVID-19 situation on the demand. We have seen some, let's say, cut from OPEC in terms of production. We have also heard that there could be some LNG plants that could be stopped in the short term. So if that's the case, what will be the impact for you in terms of -- especially on the, let's say, cargo market, what will be the impact if some LNG capacities are stopped?

[Marc Haestier, Chief Financial Officer]

Well, the impact on our core business should be negligible, I would have thought. There can be some impact perhaps on LNG, on the uptake of LNG as a fuel because, as you rightly point out, the price of oil has gone down dramatically and the products which are derived from oil, like low sulfur, heavy fuel, et cetera, are obviously cheaper, and the spread between that and the price of LNG is much reduced. Again, this is, again, more for us, as we see it, a question of timing. We believe strongly that despite this situation the environmental considerations will remain and perhaps will be even stronger, and that will certainly be of support to this business. But of course, we have to remain cautious in the current situation. I mean, it's something which is very new and affects everybody, so let's remain cautious.

[Operator]

And the next question comes from the line of Renaud Saleur from Anaconda.

[Renaud Saleur;Anaconda Partners;CEO]

Just one quick one. On the French employees, have you been putting anybody on furlough or are you still employing all of the team?

[Marc Haestier, Chief Financial Officer]

We are employing the whole team. We have nobody in partial unemployment. We are not making use of any state aid of any kind, which is also one of the reasons why we are able to maintain our dividend.

[Renaud Saleur;Anaconda Partners;CEO]

Okay. Great. And there are no plan to change this in the near future?

[Marc Haestier, Chief Financial Officer]

No, because -- I mean, we have quite a big order book to attend to so no specific plans at this stage.

[Renaud Saleur;Anaconda Partners;CEO]

Okay. And looking forward to be a bit constructive, as things evolve today, the bigger casualty will probably be shale oil and maybe the overproduction of shale gas, which might have a good impact on the increase of gas price next year.

[Marc Haestier, Chief Financial Officer]

Would be.

[Renaud Saleur;Anaconda Partners;CEO]

Do you see this as changing the environment for LNG with LNG price going up, having a more favorable opportunity next year in terms of orders?

[Marc Haestier, Chief Financial Officer]

Well, we've always discussed that. I mean, usually, we discuss this the other way around when LNG prices are very low, is there an impact? I mean, when we look at it from the point of view of GTT and ships, et cetera, I think the price of LNG is perhaps of a second -- versus on top, as a second order. Obviously, anything which helps sustain demand for LNG is good news, but there are arguments for that when the price is low because, for example, it increases, it improves the spread between coal and LNG. So this is very good for conversion or switch from coal to gas, in particular in Asia. Of course, when prices are a bit more sustained then, of course, it's more favorable for production and producers and help sustain supply. So there are arguments in both ways, really.

[Operator]

And the next question comes from the line of Jean-Francois Granjon from ODDO.

[Jean-Francois Granjon]

Yes. Jean-Francois Granjon speaking from ODDO BHF. One question regarding the future FIDs. I recently read that some company, Exxon, Shell, postponed some LNG projects. So do you expect lower FIDs, investments this year, so probably lower new orders in the coming months? The second question, could you come back on the LNG as a fuel? Do you see any risk to see some postponement to the ramp-up of the development of this new market due to the strong drop of the price for the barrel and for the gas prices? And my last question, could you come back on the new nomination of Eric Dehouck, the new manager in the company? Can you explain why there is a new manager and give us more color about that?

[Marc Haestier, Chief Financial Officer]

Okay. Jean-Francois, as far as your 2 first questions are concerned, I mean, I'm back to my issue of timing. I mean, it is clear that it's obviously much more difficult for sponsors of a new project to make an investment decision and to reach an FID, so there probably will be some delay in getting new FID through. But new FIDs are not the orders of tomorrow or next week, they are the orders in 1 or 2 years' time at the minimum because it takes, say, 5 years to construct one of these facilities. And if you work it backwards, 3 years from ship order to ship delivery, so you're talking 2 years from now. So basically, I mean, if you consider the strength of the order book today, the fact that for those projects which are already in construction there's still a requirement for a number of ships to be ordered, then you can see that over the medium term, the situation should not be too bad. Again, question of timing, yes, we could have a dip in orders. But overall, we will see how things pan out.As far as Eric, the nomination of Eric Dehouck is concerned, well, I mean, basically, we did have a Deputy CEO, call it that way, in the past. Clearly, the decision was made to reappoint somebody in this position to reinforce globally the management team. So there's nothing much more to say than that. We will see. I mean, obviously, I don't know if your question has a particular spin to it, but it's something which is quite normal, I guess, for GTT.

[Jean-Francois Granjon]

Okay. Another question is, why at this time? If this is the successor of Philippe Berterottière in the future, why not? This is our question.

[Marc Haestier, Chief Financial Officer]

You can never exclude that sort of thing.

[Jean-Francois Granjon]

Yes.

[Marc Haestier, Chief Financial Officer]

It's always a possibility.

[Jean-Francois Granjon]

Okay. And for LNG as a fuel?

[Marc Haestier, Chief Financial Officer]

But for LNG as a fuel, yes, I mean, again, a question of timing. I mean, the elements here, I think, is that the environmental considerations, as I was saying just earlier on, are going to stay. And if anything, might be even reinforced after this situation. I mean, clearly, today, for the shipping market, the situation is not good. There are not very many orders for new ships. Shipowners have to sit tight for a while. So clearly, when I was saying perhaps that we expect this market to take off within 6, 12, 18 months, well, perhaps we have to move that by a few months.

[Operator]

And the next question comes from Jean-Luc Romain from CIC Market.

[Jean-Luc Romain]

It's also a question on the LNG as a fuel. I was wondering what your progress has been with the LNG Brick technology and if you are getting closer to trying to commercialize it as we still see a few orders of tankers, for instance, which are using LNG, but maybe not GTT's technology.

[Marc Haestier, Chief Financial Officer]

Yes. I mean, the LNG or the Brick is still under development. And our main focus, I mean, today, is clearly on the larger ships and it's going to remain that way. But I mean, again, the second phase of testing is underway, but it will be still quite a few months before this is on the market.

[Operator]

And the next question comes from Jan Richard from Berenberg.

[Jan Richard, Analyst]

Yes. I had just one follow-up question on your supply chain and how strong your suppliers are. I mean COVID is disrupting supply chains globally. There have been no delays to your construction schedule so I mean, this is obviously positive for your suppliers, but I don't know if -- I wouldn't say they probably only work with you. So how strong are they? Have you any discussions with them? And should activity ramp up again, how quickly do you think they could ramp up their output on their side as well?

[Marc Haestier, Chief Financial Officer]

Well, first of all, I have to perhaps just remind that these people are not our suppliers, they are the suppliers of the shipyard. And these suppliers are usually based close to the shipyard, so a lot, for example, in Korea. And you know the Korean shipyards have full order books, again, for the foreseeable future or the short-term future and their suppliers must be doing quite well at the moment. So in my view, not an issue.

[Operator]

[Operator Instructions] And the next question comes from Jean-Pierre Dmirdjian.

[Jean-Pierre Dmirdjian]

Just a quick one regarding your revenue. So you've confirmed full year guidance, already delivered 1/4 of your full year expectation. I wonder whether you could give us some color on revenues for the remainder of the year. I suspect you have a pretty good visibility at this stage on your future revenue stream, assuming there's no further delay, of course. Should we expect a plateau from here or do you see revenue growing further and hitting a peak maybe Q2 or Q3? Would be great to have some color on that, if possible.

[Marc Haestier, Chief Financial Officer]

Well, Jean-Pierre, all I can say is, we have given a guidance for 2020. Of course, if you take just an arithmetic view, the first quarter, if it repeats itself, would mean that we would rather be at the top of the range for the full year, but this is just an arithmetic calculation. And of course, things can vary from one quarter to another depending on the pattern of the order book. But the guidance we have given, the range is also a way to take into account, if necessary, some potential delays so. And again, we have to watch the situation on a day-by-day or week-by-week basis to see how things will evolve. But yes, we are confirming our guidance is the key message here.

[Operator]

[Operator Instructions] We have no further questions. I will now hand over to Marc Haestier.

[Marc Haestier, Chief Financial Officer]

Thank you. Well, if there are no further questions, we can bring this call to its end. Thank you very much for attending and stay safe. And no doubt, we'll be talking to some of you in the coming weeks. And we're always happy, of course, to answer any additional questions you may have going forward. Thank you very much and have a good weekend.

[Operator]

Thank you. And that does conclude our conference for today. Thank you for participating. You may all disconnect.