Gaztransport et Technigaz SA

PAR:GTT

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the GTT Third Quarter 2019 Activity Update. [Operator Instructions] I must advise you this conference is being recorded today, 17th of October, 2019. And now I would like to hand the conference over to your speaker today, Mr. Marc Haestier. Please go ahead, sir.

[Marc Haestier, Chief Financial Officer]

Thank you very much, and good evening or good afternoon, everybody. Thank you for attending this call. And I will go through the key highlights of our 9 months trading statement.So to start with, let's look at the key events, key highlights for the third quarter. First of all, in terms of core business, the momentum on orders is still very strong. We had 14 orders for LNG carriers in the third quarter, 6 orders for ethane carriers, 3 for Gravity Based Structures. So in terms of total orders for the 9 months, that's a total of 49 new orders, which can be compared to 51 for the whole of last year of 2018.So as mentioned, orders for very large ethane carriers, an order we received in September, these ships will be built by Hyundai, HHI, and Samsung on behalf of a Chinese company. These ships are new generation, and the largest ever built so far at 98,000 cubic meters. Gravity Based Systems or Structures, which is a first for GTT, you may recall that in the course of last year, beginning first half of last year, we had been working on preengineering studies on this structure. Now that has translated into these orders, which will be dedicated to the Arctic LNG 2 project. These are big tanks. Each GBS will have 2 tanks of 114,500 cubic meter each. 2 of the 3 will have an additional tank for ethane of 980 cubic meters.On the technology front, several points to mention. The American Bureau of Shipping classification society issued LNG Cargo Ready rating for the ethane carriers, which I just mentioned. We also had an approval in principle from Bureau Veritas for the use of Mark III Flex and NO96 LO3+, quite a mouthful, I am sorry, for icebreaker vessels. We also signed a joint agreement for the design of very large crude carriers, VLCCs, using LNG as a fuel, agreement with Lloyd's Register and several other partners. And last -- lastly, we announced at the occasion of the Gastech fair trade, a new name for our latest technology, GTT NEXT1, formerly it was NO96 Flex.So in terms of order book, where do we stand at the end of the third quarter? So the movement in the order book, 49 new orders, I just mentioned, 40 LNG carriers, 6 ethane carriers, 3 Gravity Based Structures. There were also 26 deliveries during the period, which ends up with an order book of 120 units: 100 LNG carriers; 6 ethane carriers; 6 FSRUs; 2 FLNGs; and 6 onshore storage and Gravity Based Systems, 3 of each.In terms of the new business, LNG as a fuel, again, at the same date, the order book is growing. It now consists of 18 units: 14 container ships; 1 container vessel, actually a retrofit ship which will be converted to LNG as a fuel; 1 cruise ship; and 2 LNG bunker ships. In the first 9 months, the movements were 7 new orders: 5 very large container ships -- ultra large container ships, I should say; 1 container vessel, which is the retrofit; and 1 LNG bunker ship.If we look at the broader market, just to pick up on the flow of FIDs on new production capacities, we had the 2 new FIDs in the third quarter. And we expect that further projects are reaching the point where FIDs could be declared in the short term. We have mentioned this on the chart you have in front of you, you're probably familiar with that chart. Three, we expect our Qatar LNG expansion, Mozambique LNG-4, PNG expansion, plus another list of selected projects, I would say, which are working their way towards FID.In 2019, 63 million tons per annum of new capacity was sanctioned, which is an all-time record. In terms of supply and demand, again, you are familiar with this, but clearly the forecast remained in the same trend with growing gap between supply and demand estimated at 235 million tons per annum at 2013 -- 2035 horizon, so 15 years from now. So again, this is a good case for further FIDs, and in turn, for future ship orders.Maybe just a little focus on Arctic LNG 2, which reached its FID quite recently. This project, clearly a great opportunity for us, and helps us position ourselves all along the value chain, the LNG value chain, especially with the first GBS structures which have been ordered. So in fact, these GBSs really are at the beginning of the value chain, the liquefaction plant. We also, as you know, have designed and will design probably, hopefully ice-class LNG carriers, which would be used, of course, in the Nordic areas. The conventional LNG carrier, which is, I would say, our bread and butter. But also if you go further down to the Regas terminal, we have the FSRUs or onshore tanks, or even possibly, in this case, GBS structures also.Just a few words about the GBS, Gravity Based Structures, which, in fact, in this case, in the case of the Arctic LNG project have been used in -- for the liquefaction projects. But in fact, there are many different usage for these types of structures all along the LNG supply chain, for example, in the power markets, I mean these tanks can be used to supply power plants, gas-fueled power plants for bunkering, they can be used as, say, service stations for LNG as a fuel. And also, can be used in various locations, in particular, remote areas where there's not necessarily the appropriate infrastructure network.So quick focus also on ethane following the order of the 6 ethane carriers we had in September. In fact, ethane is a byproduct of the production of methane, which becomes LNG. And clearly, with the expansion of shale gas, obviously the production of ethane is increasing, and there are a number of sort of regulations, which basically tend to promote the trade of ethane rather than just flaring it. So this is also, as you can see on the graph, I recognize it's a bit small on the slide, but you see that clearly the production of ethane is growing as well as the production of LNG is also growing.In terms of size, as the market is growing, there's a need for probably bigger ships. And clearly, as you know, the bigger the ship, the better it is for membrane technology.So few numbers, a few numbers. So revenues for the first 3 quarters stand at, rounded up, EUR 200 million, which is an increase of 8.7% compared to last year. And you will probably recall that at the half year, we had explained that the orders received in 2018 and beginning maybe of 2019 would start being reflected in our revenues from the second semester, and this is clearly the case.So the strong flow of LNG, of course, is one element. You have a growth of 5.1% on LNGCs, including the VLECs at the EUR 158 million. But also you have the increase on LNG as a fuel, which is now close to EUR 6 million, which is obviously resulting to the accrued revenues on the existing projects and orders we have.Services, a small increase of 1.2%. As always, services are quite contracted depending -- and I've mentioned that quite frequently also. The case in point here is, for example, we've had a strong growth in the maintenance services, more than 26%. But on the other hand, studies -- preengineering studies were very low. I mentioned that last year, we had the pre-FID studies for the GBS structures, which of course did not repeat this year. So all in all, we have a compensating effect there, which means a modest growth in services for the first 9 months.As a word of conclusion before we take your questions, we, of course, confirm our outlook for 2019 with consolidated revenues estimated in the range of EUR 260 million to EUR 280 million, consolidated EBITDA in a range of EUR 160 million to EUR 170 million, and payout ratio for 2019 and 2020 of at least 80%. So now this concludes the formal part of the call, and I'd be happy to take any questions you have.

[Operator]

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

[Jean-Luc Romain]

I have 3 small questions, if this is possible. One is regarding orders. Do you expect Qatar LNG to place the orders for the carriers by the end of the year? It's talked very frequently about. And there is another question about that. During the Gastech this year, a company called American LNG communicated an order of 17 ethane carriers using the Mark III technology. Can you comment about that, please? Second is about the competing technologies. It's still striking that nobody is able to compete with you. Can you comment on any progress or lack of progress you have observed at your potential competitors?

[Marc Haestier, Chief Financial Officer]

Thank you, Jean-Luc. Well, I really need to start answering your 2 questions by my useful comment -- my usual comment, which is perhaps not helpful, but we do not comment on future orders. Having said that, Qatar, I mean, clearly, yes, there's a lot of talk, there is also a lot of communication around that. But it seems that there will be some orders from Qatar. Now whether they will come before the end of this year or later, it is very difficult to assess at this stage. The question on American LNG, no comment really. Again, I mentioned that there was a lot of marketing around, so perhaps this is part of that. And as far as the competition is concerned, well, basically, you are right. Today, there is no real competing technology following the unsuccessful attempt on the KC-1 technology. And we also know that DSME is working on its Solidus technology. But I mean really, we have no reason to believe that there is any immediate threat in that respect.

[Jean-Luc Romain]

Is Moss Maritime bidding against you in some -- for some orders or not at all?

[Marc Haestier, Chief Financial Officer]

Not that I know of. I mean -- but clearly, I think ship owners really want membrane. There may be some local markets like Japan where there might be some bids for maybe smaller ships. But to be honest, I don't think Moss is a threat at all for GTT.

[Operator]

The next question comes from the line of Martin Boeris from Exane.

[Martin Boeris, Analyst of French Mid Caps]

I have two questions. First, you said that you received the 40 orders for LNG carriers in the first 9 months. I assume it includes the 2 orders you announced on the start of October. Is it right? And my second question is also on competing membrane technologies. After DSME, Hyundai Heavy Industries has also received a general approval for its independently developed LNG containment system. So do you think it could be a more credible competing technology than Solidus?

[Marc Haestier, Chief Financial Officer]

Regarding your first question. Yes, you are right, the order announced the very early October is included in the 40. And we, in fact, mentioned in the press release that it was a September order. So yes, you are right. Again, as far as new technologies are concerned, there are announcements of all kinds from various shipyards, which I think need to be taken with sensible pinch of salt. General approval, yes, people do get general approval, but really the question is what are the caveats and the questions. And getting a general approval doesn't mean you have a technology which is ready to be marketed by any means. So again, I mean, I haven't got much more to say than what I mentioned to Jean-Luc just in the previous question. I mean so far, we don't see any immediate threat.

[Operator]

[Operator Instructions] We have another question coming from the line of Jean-Luc.

[Jean-Luc Romain]

Actually around about 2 questions. If I remember correctly, when Qatar LNG placed their orders in the mid-2000s, the size of the vessels was very large, like 244,000 cubic meters. And it's quite different from today's standard of 174,000. Is the sizing of the membranes any issue? That's my first question. And second question, you were mentioning market -- different markets for GBSs. In the transbordement operations, do we -- does the LNG pass through an intermediary storage? Or is it transported from ship to ship?

[Marc Haestier, Chief Financial Officer]

Yes. Okay. For your first question, Jean-Luc, well, size membrane is not an issue for us. The bigger the better, in a sense since our royalty are based on the size of the system. On the other hand, I mean, yes, it's true that at that time ships ordered for Qatar were very large. The standard, as you rightly say, is a bit smaller now. There are issues of where these very large LNG carriers can sail and including the Panama Canal and stuff like that. So again, I don't know exactly what kind of size will be ordered when orders do come, but we are prepared to take any size really. As far your second question is concerned, in fact, you can have both systems, either you have ship-to-ship, where basically there is nothing in between or you can have a transshipment, which is organized at a Regas terminal, for example, or could happen, perhaps, on the Gravity Based Systems, where basically you have an intermediate storage. You have also floating storage units which can be used for that purpose. So you have both systems.

[Operator]

[Operator Instructions] We have not received any further questions. I would like to hand the conference back to Mr. Haestier for closing remarks.

[Marc Haestier, Chief Financial Officer]

Thank you. Well, closing remarks will be thank you for attending the call, and sure -- no doubt, we'll be speaking to you at following occasions. Thank you again, and have a good evening.

[Operator]

Ladies and gentlemen, this does conclude your conference for today. Thank you very much for participating. You may now all disconnect.