Gaztransport et Technigaz SA

PAR:GTT

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. This is the conference operator. Welcome, and thank you for joining the GTT Third Quarter 2022 Activity Update Conference Call and Webcast. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Philippe Berterottiere, CEO. Please go ahead, sir.

[Philippe Berterottière, executive]

Thank you very much. Good evening, ladies and gentlemen. I'm very pleased to present to you the Q3 2022 activity update of GTT. With me this evening, we have Virginie Aubagnac who is the Group CFO; Jean-Baptiste Garnier who is head of Investor Relation; and Julien Burdeau who is working also in Investor Relations. .

Well, I would like, first of all, to present to you the key highlights of this third quarter. We've obtained in our core business 134 LNG carriers in the past 9 months. It's a record. By far, it's the highest figure we ever achieved. LNG as a fuel, 42 orders in 9 months. We achieved a turnover of EUR 222 million, minus 7.5%, but perfectly in line with our expectations. In the third quarter, our revenues amounted to EUR 77.8 million, an increase of 4.1%.

Well, we signed 2 new license agreements in China. Now we have 5 active shipyards in China. We obtained not less than 5 AiPs in this quarter, perfectly highlighting the very important innovation activity have. And Elogen, as well, secured a subsidy of EUR 86 million from the French state.

Let's go into details about that. So order book, it's a new record. Last year, at exactly the same time, we had 134 orders in our core business. We are now at 269, which is exactly double of where we were 1 year ago. It's perfectly highlighting this strong momentum. In LNG as a fuel, we're at 70; last year, we were at 42, also highlighting the increase of activity in this segment.

If we look at the LNG demand, we can see that it's strongly rising in Europe, of course, the geopolitical situation perfectly explaining that phenomenon. We can see that many cargoes are rerouted from China to Europe. But still, we are strongly believing that, in medium term, China will increase its imports of LNG.

The contracting activity has been also very strong in the past quarter, mainly supported by the European demand. You can see that the traders are still representing about 50% of the activity, which has now become a very important player in terms of long-term contracts.

And on the new capacity, which are required, we can see that the average growth, as expected by Wood Mackenzie, is passing from 3.6% to 4.6% per year, meaning that by 2040, there is a need on top of what is currently decided, a need of 275 million tonnes per annum. It's very significant. And in order to support that, more FIDs are needed.

So if we look at that, we can see that there are many ongoing projects. And beyond those which have been decided earlier this year, we can see that 2 of them can be decided fairly shortly: Plaquemines Phase 2 with 70% of its capacity already contracted and Rio Grande from Next Decade where 75% of its capacity are already contracted. So they are in a pretty favorable situation. We can talk also about Corpus Christi Stage 3 from Cheniere, which is at 85%. We can see that they are fully contracted, and they can be decided very shortly.

For LNG as a fuel vessels, we can see on the graph that definitely, year 2022 has been the year of takeoff with very strong increase of orders in that segment. We can consider that for large containership, more than 60% of these vessels are LNG-fueled. Currently, we can see that with the spot prices, there are some questions about LNG as a fuel. But we continue to believe that in spite of these spot prices, the long-term prospectives are very promising as LNG is the solution of choice for reducing the emissions from shipping.

We had a strong innovation activity in this quarter. We introduced VLCC, very large crude carrier, LNG-fueled and compatible with ammonia. We obtained authorization in principle from Bureau Veritas for this design, which is ready to be installed. As far as our digital solutions are concerned, we obtained also an authorization principle from Lloyd's Register for our new POWER digital solution, which is facilitating the decision-making and which is also improving the safety for transfer operations, ship-to-ship operations. We have obtained also 2 AiPs from Bureau Veritas and from DNV for an LNG carrier with 3 tanks instead of 4. That helped to reduce the cost of the ship and to increase the boil-off.

We obtained also the confirmation that Elogen is going to receive EUR 86 million from the French government for building a gigafactory in Vendôme and for expanding its R&D efforts to have a better and more efficient electrolyzer.

And now I would like to hand over the floor to Virginie.

[Virginie Aubagnac, executive]

Thank you, Philippe. Hello, everyone. A few comments on GTT 9-month consolidated revenues. Consolidated revenues for the first 9 months of 2022 stand at EUR 222 million, showing an expected decrease of 7.5%. This is due to an unfavorable comparison base.

Strong order inflow from H2 2021 is starting to materialize in H2 2022, and we'll continue to do so more significantly from 2023 onwards. As a matter of fact, the third quarter revenues are up 4.1% compared to Q3 2021.

Our newbuild revenues amounted to EUR 200.5 million (sic) [ EUR 200.4 million ], minus 10.7% versus the same period last year. Over the past 9 months, GTT booked EUR 174.7 million revenues for LNG and ethane carrier. Most other membrane applications saw strong revenue increase with floating storage units, up 40.6%; onshore storage, up 218% at EUR 4.7 million; and GBS, up 31%. The FLNG has been delivered in June, explaining the decrease versus last year. LNG as fuel revenues amounted to EUR 2.9 million over the first 9 months, taking into account the high order intake in 2021 and 2022 from Q3 2022.

Elogen booked a revenue of EUR 3 million with an increasing commercial dynamic. Services revenues rose sharply, up 50.2% to EUR 18.7 million, driven by growth in digital solutions and engineering studies.

Let me now give you an update on GTT's exposure to projects in Russia or dedicated to Russian projects. Work is currently continuing on projects in which GTT is involved in Russia, in strict compliance with the applicable sanction regime. .

First, regarding the project being built in Russia, 15 ice-breaking LNG carriers with Zvezda shipyard at October 1. These represent EUR 74 million of revenue to be recognized by GTT by 2025, including EUR 4 million in Q4 2022; 3 gravity-based structures with Saren B.V. as part of the Arctic LNG 2 projects, representing at October 1 EUR 12 million of revenue to be recognized by 2026, including EUR 1 million in Q4 2022. As previously announced, Saren B.V. informed GTT in July of its intention to terminate their contract. The termination date has not yet been finally set, and GTT continues to review solutions to ensure the proper implementation and integrity of its technology, in strict compliance with international sanctions.

Regarding the Russian Arctic project built in Asian shipyards, 6 ice-breaking LNG carriers and 2 floating storage units, at October 1, this project represents EUR 31 million of revenues to be recognized by GTT by 2023 (sic) [ 2024 ], including EUR 7 million in Q4 2022. And finally, 8 LNGC under construction in Asian shipyards are intended for Arctic LNG 2 projects that can operate in all types of conditions.

Let's now move on to our full year 2022 guidance. On February 17, 2022, we published the following revenues and EBITDA objectives for 2022: consolidated revenue in the range of EUR 290 million to EUR 320 million, consolidated EBITDA in the range of EUR 140 million to EUR 170 million. Given delays in the construction schedules of certain vessels during the first 9 months of 2022, we confirm our 2022 targets with revenues and EBITDA expected to reach the lower half of ranges indicated last February.

Our dividend target remains unchanged, with 2022 dividend amount at least equivalent to the 2021 dividend.

I'll now let Philippe Berterottiere conclude this presentation.

[Philippe Berterottière, executive]

Well, thank you very much, Virginie, for that. We are ready now to answer your questions about this presentation, the situation of the market and our results. Thank you.

[Operator]

[Operator Instructions] The first question is from Jean-Luc Romain with CIC Market Solutions. Please go ahead.

[Jean-Luc Romain, analyst]

Two questions actually. The first one is on LNG as a fuel; the other, about Elogen. LNG as a fuel, I think [indiscernible] within the next 2 years of about the kind of trajectory [indiscernible] would be preferred. [indiscernible] I think you're saying that LNG as a fuel might [ be flattened ]. I would like to have your color on what [indiscernible] decide?

And the second question is about Elogen. Do you think there was kind of [indiscernible] kind of a waiting game of companies waiting to order new electrolyzers before the European [indiscernible] as well when decided? Or it looks like -- the order intake for hydrogen companies this year, is it slower than last year?

[Philippe Berterottière, executive]

Thank you, Jean-Luc. On LSS, I would say that we are expecting this market takeoff for 4 years. I mean we've started to work on these solutions many years ago. And we saw in the last couple of years a start of this market and definitely, in 2022, a strong increase. I would say that in the recent months between the certain slowdown compared to the beginning of the year and in other container ship and also quite high LNG spot prices. The figures are not as strong as at the beginning of the year. It's not changing anything about our confidence and the fact that LNG is the solution for reducing the CO2 emissions, and it's ready, it's available, it's proven, it's really making sense in terms of investments with reasonable prices.

Now it's a bit difficult, but we should make the difference between short-term situation that we are experiencing and the long-term trend we work on for many, many years with our company, which is going to continue over the next years.

For Elogen, yes, we saw that there was a certain kind of market in waiting for us and for some others. I don't know really why. It's something which is very much linked to decisions from buyers. What we can say is that it's over. We can see many tenders now. We can see quite a strong interest from the market for our solutions. And we may expect much stronger commercial results in the next months.

[Operator]

The next question is from Kevin Roger with Kepler Cheuvreux.

[Kevin Roger, analyst]

The first one, sorry, if I missed the update, I joined the call later on. But did you mention the capacity on the yard side and the fact that if you already know the current capacity, it does increase to 80 unit per year, if you have any updates for us on that side?

And the second one is kind of a follow-up, assuming and just talking about the LNGC, excluding the revenue that you can generate outside it, what would be the revenue potential of GTT when the yards are running at full capacity, please?

[Philippe Berterottière, executive]

On the second question, I will let Virginie answer the question On the first one, I would say that now we are effectively at a potential of 80 units per year. So it's quite a significant change compared to where we were at the beginning of the year, much closer to 55 units per year. But you saw that, in fact, we were removed from the situation where in China, we had 1, 1.5 shipyards active to the situation, where we have now 5 active shipyards in China. So it's making a big difference. And also the other shipyards, the usual, the shipyards with whom we are working for many years, have tried to increase significantly their production.

[Virginie Aubagnac, executive]

Yes, in terms of revenue potential, so again, as you can see today, there are orders for deliveries in a quite long time, so mainly by H2 2026 and 2027 now in Q3, that is what we saw. And then you know the accounting rules where we take the linear revenue from steel cutting and delivery for a period of time between 1.5 years to 2 years, so that gives you a revenue potential behind.

[Kevin Roger, analyst]

If I can follow up, Virginie, on that. So would you be stupid to think that if you have, let's say, the industry running at full capacity in '25, '26, '27, to basically just take the 80 units and to multiply by EUR 6.5 million, the average pricing of the vessel, that will be the potential revenue of GTT?

[Virginie Aubagnac, executive]

Yes, I mean, it's very theoretical, which we are talking about, right? But if you have 80% for a couple of years because the revenue accounting is through 2 years, booking is for 2 years, so therefore, you have to have really a continuous momentum like this.

[Operator]

[Operator Instructions] The last question is from Edward Bottomley with Berenberg.

[Edward Bottomley, analyst]

I just have 2 kind similar questions. So firstly, the total Russian backlog exposure appears to be roughly [ EUR 1170 million ] from the release. How does that compare to the total updated backlog as of Q3? And then also, could you give us an idea on how your order backlog, the core revenues, looks for 2023 and 2024 on the back of all the strong order wins you added in Q3?

[Virginie Aubagnac, executive]

On Russia, as you already saw, from December 31, 2021 to June 30, 2022, we saw that actually the total order growth from Russia was becoming negligible. So that's what it is. Now it's something that we have absorbed for a long time. And in terms of core revenue in 2023 and 2024, 2023, so it's deliveries until 2025. So shipyards are at full capacity at that stage. So hard to say that it can increase more. And 2024, it's already almost done. We gave you the numbers in July or by the end of June. And now you add the 46 orders to that, that are -- again, for quite not vast majority but for some of them, you add delivery, you compute the fact that they are delivered H2 '26 and '27. So the impact of revenues in 2024, there is an impact, but it's not a full impact in 2024.

[Operator]

The next question is from Jean-Francois Granjon with ODDO BHF.

[Jean-Francois Granjon, analyst]

Just a question regarding the order intake on Qatar. You mentioned 58 units from Qatar projects. On the backlog since the beginning of this year, what do you expect for the coming weeks? Do you expect another strong order intake coming from Qatar for the coming month or not? Can you just remind us of the size of the project for the Qatar expected?

[Philippe Berterottière, executive]

Well, you said 54 (sic) [ 58 ], we consider that between Qatar and Golden Pass, Qatar needs fairly urgently something like 60 ships. On top of that, they have to replace, let's say, 7 old ships. And they may even look for additional capacities, both for new projects and for having more flexibility with smaller ships than those they are currently operating, which are Q-Max and Q-Flex, very large ships. So we expect some additional orders. Now for us, it's difficult to say whether they are going to come in the next weeks or in the next months or sometime in 2023 or a bit later. That's the situation.

[Operator]

There are no more questions registered at this time.

[Jean-Baptiste Garnier, executive]

And we have a couple of questions coming from the web also. So the first one is from [ Nicola Saleld ] from Anaconda. Could you tell us more about the 3-tank LNG carrier, market size, royalties potentials? Also, could you update on Elogen business plan?

[Philippe Berterottière, executive]

Okay. So the 3-tank, it's simpler to build a ship with 3 tanks. So the ships may have slightly shorter production process. The cost of the ship is costing a little bit less. Royalties are slightly less. The major improvement is in terms of boil-off. For boil-off, you reduce the boil-offs. You can go down from 0.085 down to 0.08. It seems to be marginal, but we are keeping on producing those kind of marginal improvement, which finally, when you add them up, are making a significant difference. So let's see whether the owners are going to be sensitive to that, especially as the quantities, which are meant to be delivered per chunk, are not going to be the same as on all ships. We think that it's not so important. So this solution, which is really contributing to the improvement of the economics of LNG carriers, may make sense. Let's see whether it's going to take off.

On the Elogen business plan, well, what we can say is that we expect an increase in order book in the months to come. We have currently the facility, which can accommodate that. We are going to invest in this gigafactory in Vendôme, which is going to be ready by 2025. Still 2025, it's 3 years down the road. And with our current facility, we should be able to accommodate a significant increase in the market. And as we said, we expect to be cash positive by 2026.

[Jean-Baptiste Garnier, executive]

We have a new question coming from the web from Nicolas Royot from Portzamparc. Could you please give numbers concerning order intake of Elogen?

[Philippe Berterottière, executive]

So order intake for Elogen, we are not particularly specific on that. We highlighted that some significant contracts at the beginning of the year. We did not communicate on less important contracts. So we are going to report about that, about our order intake at the occasion of our annual results in February. What I can say is while the market is pretty dynamic, we were talking about the momentum in this market, and we are going to take our share of this situation.

[Jean-Baptiste Garnier, executive]

Thank you. And we have a final question also coming from the web from Prashant Premkumar from Buffalo Thorn Capital Management. The question is, does the sabotage of the Nord Stream pipeline structurally impact the industry? So that's the first question. Second question is, have you noticed any change in buyers or pricing for services after this event? If there is a peace deal with Russia in the next 6 months, do you expect CapEx trends to continue or to decline?

[Philippe Berterottière, executive]

Impact, I would say that we did not see any impact. We have to keep in mind that LNG or energy is a long-term concern, that huge investment -- and we are making these investments based on the long-term analysis of what the situation is. So this situation about the submarine gas pipes has not changed the situation, which is that Europe, Western Europe has not enough diversified energy mix and should rely much more on LNG in order to cope with the uncertainty of imports of gas from Russia and also to cope with the intermittency of the renewables, which are prone to be developed in Western Europe. And so for that, you need gas. And the gas you need now, for the particular reasons of Russia, is LNG.

Change on prices, we did not see a change on prices, on services and some. We saw change on LNG carrier prices earlier this year. But since -- after this [ calm ] on gas pipes, we did not see any change. I think, for the reason I was mentioning, this long-term analysis, it will not change anything. Europe has rediscovered the necessity of having a very diversified energy mix and it's not going to forget their lesson for a while. So I don't think that any deal will change something. Probably, Europe will be able to get some gas but will enter long-term efforts to increase its LNG imports and its LNG import facilities.

[Jean-Baptiste Garnier, executive]

Okay. Thank you. We have no further questions, so Mr. Berterottiere, you may conclude.

[Philippe Berterottière, executive]

Well, I would like to thank you all. As you can see, it's a very exceptional year in terms of achievements, in terms of number of orders in LNG carriers, in LNG as a fuel. In terms of innovation also, the number of innovations we've introduced in the recent months is quite amazing. In terms of sort of a strategic move, the strategic move we made in hydrogen is justified by the current situation in energy, and it's going to be very much helped by the subsidy we've obtained from the French government. So I will say that all that is pretty encouraging. Thank you very much.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.