Gaztransport et Technigaz SA

PAR:GTT

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the GTT Third Quarter 2021 Activity Update. [Operator Instructions] I would now like to hand the conference over to your speaker today, Philippe Berterottière, GTT CEO. Please go ahead.

[Philippe Berterottière, Chairman & CEO]

Hello. Good evening, everybody. Very pleased to be with you for our third quarter 2021 activity update. I am with Virginie Aubagnac, our group CFO, for presenting you this update.Well, first of all, let's start with the third quarter key highlights. The -- on the first 9 months of 2021, we achieved revenues of EUR 240 million, which is 21% less compared to what we achieved at the same time in 2020 and 20% more that what we achieved at the same time in 2019.On our core business, we had strong order intake with 26 LNG carriers in the third quarter. Since the beginning of the year, we obtained 40 LNG carriers, 2 VLECs, 6 onshore storage with delivery dates spreading mainly over the 2023-2025 period.LNG as a fuel is picking up. In the third quarter, we obtained tanks for 8 container ships. And since the beginning of the year, it's 25 container ships.In innovation, we've been very active with 2 new authorization in principles, ballast water free for bunker ship in July and LNG-fueled Aframax vessel developed with Deltamarin in September.For -- in Smart Shipping, we introduced a new solution, the launch of LNG Optim to help LNG operators to optimize the environmental performance. That's -- we are -- that's our basic purpose to offer optimized system, which are generating the best environmental performances.We co-opted 2 directors, Florence Fouquet representing Engie, who is replacing Cécile Prévieu for the remainder of her term of office. And we co-opted also Catherine Ronge as an Independent Director replacing Michèle Azalbert.Well, as I was saying, we have a quite strong order book at end of September 2021. In LNG carriers, we obtained 40 orders since beginning of the year. We delivered 44 ships at the same time. And if we look at the LNG as a fuel, we obtained 25 orders and we delivered 7 ships. So I could go into more details, but what we can say, it's a very dynamic order book with deliveries, a lot of deliveries and a lot of new orders. It's quite lively.LNG supply-demand, well, quite obviously, new capacities are required. We can see that in the -- on this chart at -- with the horizon of 2040, it's the sense of the decision taken by Qatar. But we can see that also through the numerous contracts passed by off-takers for contracts or SPAs for American projects not yet decided. And the more it goes, the more it becomes likely that these projects are going to be decided, adding additional capacities and adding additional need for LNG carriers.Keeping on looking at the dynamics of the market. We can look at the Asia, Northeast Asia with China leading the LNG demand growth in 2021 with -- for this year, as it was the case for the past years, double-digit percentage growth. 19% is very impressive. China has overtaken Japan as the largest importer of LNG in the world. We have also quite impressive growth in Korea with 9% growth and in India with 4%. So a very active market in Asia.Talking about prices. We can see that current spot LNG prices are calling for more LNG production facilities. Prices are around $40 the Mmbtu. You can see the volatility of these prices. And that just underlines the tightness of the energy offer. And in our opinion, that could lead to new decisions, but also to a certain switch to long-term contracts.When we look at LNG carriers and that the spot market there, the spot charter rates, we are -- we see that they are also soaring, underlying the lack of LNG carriers. We can see that for a very short-term spot charter rates, which are very high with discrepancies according to the region. But we can see that also for the 1-year charter rates, which are quite high, and with also quite interestingly a very important spread between the most modern vessels, with XDF or DFDE engine or MEGI engine and the old steam turbine vessels, which is underlining the requirement for more environmentally friendly ships.And I think that is a very important learning because it shows that the market really prefers the most modern ships with very high environmental performances. And that's what we offer. Once more, we are really committed to that. Thanks to our latest technology, we can very significantly reduce the environmental footprint of LNG carriers.Well, looking at the long-term contracts for LNG, we can see that in spite of the current context for gas, they remain quite affordable. If you take a long-term perspective, you see that LNG is significantly more affordable than what it was 10 years ago, that it's largely due to the competition between liquefaction projects. You know that -- so you know that very often, they are indexed on the oil prices. So you can see the influence of the oil prices on these curves. But also the index, the percentage, according to which they are indexed, is decreasing due to the competition. So the more it goes, the more LNG is becoming affordable and attractive for off-takers.In 2021, LNG as a fuel containership business has picked up quite strongly. Business for containership has been very significant for the last 9 months. And very significantly, about 20% of them have been -- have selected LNG as a fuel. You saw the importance of the orders we obtained. And so we are on the verge of achieving a long-term goal, which is GTT membrane technology becoming a solution of preference for LNG as a fuel on ocean-going vessels.We announced a couple of days ago a new significant contract for Elogen, which has been selected by Storengy to equip a storage project storing hydrogen. There, Elogen will supply a 1-megawatt PEM electrolyzer, which will allow production of 400 kilo of green hydrogen per day. So it's another significant contract obtained by Elogen after the contract we obtained earlier this year with E.ON. We obtained also some other contracts, which are less important, and we did not communicate on them.But we are quite pleased by the flow of orders we are receiving since the beginning of this year and also by the quality of all our customers, which translates -- which produces, in fact, a high degree of confidence in the Elogen offering in terms of performance, in terms of industrial credibility and in terms of capacity to support the product and the customer.Now I will hand over the -- to Virginie for continuing on the 9-month results.

[Virginie Aubagnac, Chief Financial Officer]

Thank you, Philippe. Good evening, everyone. First, I'd like to remind you that 2021 figures compare with 2020, which was a peak year benefiting from a very strong order intake in 2018 and 2019.Consolidated revenue for the first 9 months are in line with our expectations, amounting to EUR 240 million, a decrease of 21% compared to 2020, but an increase of 20% compared to the same period in 2019.EUR 224 million came from newbuild royalties, mainly LNGCs, but also from other membrane applications on VLECs, FSU, FSRU, onshore storage, GBS and all those products. Revenue of LNG as a fuel are down 14% over the first 9 months, but we expect an increase in revenue in the future, thanks to those 25 orders we get since the beginning of the year.Elogen's revenue amount to EUR 3.3 million with an order intake of EUR 6.2 million over the period. And we confirm the guidance of EUR 6 million sales by the end of the year. On the service side, all revenue are growing, maintenance and assistance, suppliers' certification, pre-engineering studies and training activities, showing the attractiveness of our offers on the service side.I now leave the floor to Philippe to conclude this presentation.

[Philippe Berterottière, Chairman & CEO]

Thank you very much, Virginie. So as far as our guidances are concerned, we are confirming that our revenues should be in a range of EUR 285 million to EUR 315 million. We are confirming that our EBITDA should be in a range of EUR 150 million to EUR 170 million. And we are confirming that we will pay a dividend of at least 80% for the 2021 exercise.So now we are going to be very pleased, Virginie and I, to answer to your questions.

[Operator]

[Operator Instructions] We will now take our first question from the line of Kevin Roger of Kepler Cheuvreux.

[Kevin Roger, Research Analyst]

I would have 2, actually. The first one would be on the, let's say, long-term trend for the LNG market because we have some, let's say, positive comments recently from some stakeholders like Baker Hughes [indiscernible] in a way pushed up their forecast. And in your slide show that basically, the Wood Mackenzie forecast at Q3 are basically the same one that they had previously. You still have a gap of something like 300 million ton.So I was wondering if you can share with us your view -- do you consider, let's say, the recent stakeholders that have given bullish comment too optimistic? Or would you consider Wood Mackenzie maybe too prudent for the moment and that we should expect them to revise their forecast?And the second question, I would try it because I know that you will not give any formal guidance for 2022, et cetera. But over the short term, would you consider, let's say, using your balance sheet and your strong cash position to, in a way, maintain the dividend for the shareholders as with, let's say, the official policy at least 80% mathematically with the decline in earnings, it will imply a decline in the dividend? So would you consider using the cash to keep it stable exceptionally, for example, this year?

[Philippe Berterottière, Chairman & CEO]

Well, the -- thank you very much, Kevin. Well, we -- on LNG, we saw the comments from Baker Huges. We -- the -- first of all, that we are -- we are trying to be consistent in the sources of information we are using. And we are using Wood Mackenzie. They're sticking to their approach. Well, I will not betray a great secret in saying that the atmosphere is quite positive in the energy business. But still, we had a very important decision, which has been taken this year.Let's see -- we said in this presentation today that very significant contracts have been passed to energy plant developers. So the context is very positive. But let's be cautious. Still, since Qatar has decided the North Field extension, no decision has been taken. We -- probably decisions are going to be taken in 2022. What we are relying on, it's the same source of information than the one we provided to you in the past. So that's for the first question.For the second one, on the dividend and our balance sheet structure, what I could say is that, that is a decision from the Board of Directors. I do understand that it's quite interesting to know, but we cannot say anything about that before the Board of Directors decide something. And it is not the case for the time being.

[Kevin Roger, Research Analyst]

Okay. And as a very quick follow-up, there is, in a way, one slide missing in your presentation. At the end of H1, you were saying that basically 92 vessels were needed for the project that, that's been sanctioned. Do you have this updated number at the end of Q3, please?

[Philippe Berterottière, Chairman & CEO]

No, we don't have it. We don't have it. I just would like to underline several things. I would say that there are major figures on this chart for the Qatar project, for the Golden Pass project and for the Mozambique project. And the others for these 3 projects have not yet been passed.So the flow of orders we received are beside that, which in a certain way is confirming something that we were touching a little bit in our presentation that the market is very much needing, appreciating, looking at very modern ships in order to reduce the CO2 emissions. And this replacement market, the more it goes, the more it becomes something real.

[Operator]

We will now take our next question from Jean-Luc Romain at CIC Market Solutions.

[Jean-Luc Romain]

I have 2 questions, actually, one about your guidance. At EUR 285 million to EUR 315, it's still quite large as we had at the end of October. And I was wondering what could tip it towards the lower end or towards the higher end of the guidance? That's the first question.The second question is about hydrogen. There was a very interesting show, Hyvolution, going on yesterday and today in Paris. And Elogen presented their views. And they have -- when you look at their brochure, there's kind of minimum 400 megawatt objective for sales of electrolysis capacity by 2030. What would it represent in terms of turnover [ versus ] 400 megawatt of annual sales?

[Philippe Berterottière, Chairman & CEO]

Okay. Thank you very much, Jean-Luc, for this question. Yes, for the guidance, we are confirming this range. And we are going to be there. For hydrogen, we indicated that, and we did not give figures on the turnover. You know that it's a very dynamic market. So -- and you know us, I mean, we are cautious, reasonable, prudent people. And we cannot change ourselves. So we will stick to that. Sorry for that, Jean-Luc.

[Operator]

[Operator Instructions] We will now take our next question from the line of Jean-Francois Granjon.

[Jean-Francois Granjon]

Just a question regarding the LNG as a fuel. So we see a strong [ rebuild ] of new orders at 25 this year. Do you consider that there is a structural and long-term trends? So do you expect more orders in the coming months, more dynamic orders for this business? It was not the case previously. This is a great change for this year. So do you expect a more dynamic orders business for LNG as a fuel in the coming months?

[Philippe Berterottière, Chairman & CEO]

Well, the fact of the matter is that LNG as a fuel now is a reality. It has taken off finally. And we are taking our share of the market. For us, you know us, and we are seeing that since 2013, we consider that LNG is the way and the only way in the next couple of decades or the next 3 decades to clean up the emissions of the shipping world. And 2021 has been the year of takeoff of this activity. Still, we are so convinced of that as we are working hard on that, we still feel that the 20% dual-fuel ship on the container business is fairly small. So I would say that we are quite confident that it will continue the adoption of LNG as a fuel and -- in the months to come.So yes, we are quite positive on this business. And it's a business where there is competition. There are other technical solutions, which are experienced. And we are quite pleased by the fact that some owners who are operating our systems are coming back. It's what I call the proof of the pudding. The cake should be good if you take a second slice. And that's what some owners are doing. And finally, the shipowner world, it's a big world, but also it's a world where people are sharing experiences. So we hope they will share the lessons they've learned from the early experience with us and with LNG.

[Operator]

We will now take our next question from the line of Jean-Luc Romain at CIC Market Solutions.

[Jean-Luc Romain]

Yes. Another question and it's on the services that were announced on top of your recent wins in LNG as a fuel. You have some services to optimize the working of those vessels you will supply the technology. What does -- could it represent something important in terms of your turnover and growth in the -- in your services turnover in the next few years?

[Philippe Berterottière, Chairman & CEO]

Well, services, you know that it's a fairly small business compared to the rest of our businesses. And it's a business which is slightly growing. So the more it goes and the more we deal with new owners who are discovering LNG, who would like to rely on an existing expertise, the more this business will go.For us, I've -- in fact, I've always said that services, even though they are small, they are strategic because they are helping people to begin with LNG and to rely on LNG, to rely on our technologies. The motto there is make LNG easy. So that's what we do with our set of services. So beyond the figures, which are maybe not yet impressive, I do admit, they are very much facilitating the adoption of our technologies by newcomers.

[Operator]

We will now take our next question from the line of Jan Richard at Berenberg.

[Jan Richard, Analyst]

I have 2, please. The first one on your core business LNG carriers. Did the shipyards report any sort of disruptions to their production schedule over the last few weeks, either because of workforce-related issues or because of disruptions to their own supply chains?And the second question would be on LNG as a fuel. So we are seeing this nice uptick in order intake, especially from the larger, the big ocean vessels. So the smaller vessels, let's say, 6,000 or 5,000 cubic meters and lower, are you trying to -- because you do have some competitors here. But I was just wondering if you do consider your technology here to be ready or if you're trying to bring -- to do some adjustments either to the cost of the solution, bring it down just to improve its competitiveness?

[Philippe Berterottière, Chairman & CEO]

Well, on the disruption of operations from shipyards, we did not see anything. I know that they are suffering from steel price highs, but it's a matter of price, it's not a matter of availability of steel plates. The -- on LNG as a fuel, the -- we are -- we were targeting large tanks. And you saw that we provided tanks for -- of a smaller dimension, especially on the cruise ship, which is now in operation with [ Puno ].And we expect there as well that the experience is going to demonstrate to other owners that it can work and it can bring a lot of benefits. So I would say that among all our efforts in marketing, we are going to try to go down, if I may say, in sizes of tanks and to try to be convincing even for a smaller tank, not integrating anything. It's not so much our style, but ensuring that the benefits in terms of total cost of ownership are great even though the tank is smaller.

[Operator]

There are currently no further questions. I would now like to hand the call back to the CEO, Philippe Berterottière. Please go ahead.

[Philippe Berterottière, Chairman & CEO]

Well, I would like to thank you all for attending this conference. It's always a pleasure to discuss with you. So thank you very much. And I hope we are going to have the opportunities to continue to exchange very soon with all of you. Thank you. Good evening.

[Operator]

This concludes today's conference call. Thank you for participating. You may all disconnect.