Gaztransport et Technigaz SA

PAR:GTT

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon. This is the conference operator. Welcome and thank you for joining the GTT Third Quarter 2024 Activity Update Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Jean-Baptiste Choimet, CEO of GTT. Please go ahead, sir.

[Jean-Baptiste Choimet, executive]

Thank you. Good evening, everyone. Thank you for joining us this Friday afternoon for our Q3 activity update. I am pleased to have Thierry Hochoa, our CFO, here with me today. Without further delay, let's dive into the key highlights. So let's start with the key figures on the right part of the slide.

In the third quarter, we maintained strong order momentum, bringing the total to 68 new LNG carriers orders since the start of the year. We also secured 12 ethane carriers, including 8 ultra large ethane carriers or ULEC, which will be the largest ethane carriers in the world. I will provide more details on these later in the presentation. Finally, we received an order for 12 LNG-powered container vessels, which will feature our 1 barg [indiscernible] tank design. We also received an order for 1 bunker vessel.

For the first 9 months, revenues stand at EUR 465 million, marking a 55% increase compared to last year. Thierry will dive deeper into the numbers shortly. As for our guidance, I am pleased to report that in the absence of any significant delays at the shipyards and thanks to improved visibility for year-end, we are now expecting to reach the top of the ranges for revenue and EBITDA.

Now turning to the other key highlights. In Services, we have partnered with Nikkiso to equip 10 LNG-fueled container ships with GTT's Recycool reliquefaction system. In Smart Shipping, Ascenz Marorka solution has been selected to equip Gazocean's entire LNG carrier fleet. As you know, innovation is in our DNA. This quarter, we received several approvals in principle, including 1 for our 3-tank 200,000 cubic meters concept. I will provide more details on this later. Lastly, GTT Strategic Ventures has made an investment in Bluefins to support the development of more sustainable naval propulsion technologies. This marks the fourth investment from our side since the beginning of 2024.

Now moving to our order book. With a total of 82 orders in our core business and 43 deliveries to date, our order book stands at an all-time high. It's worth noting that ethane carriers represent a significant portion of the orders for the first 9 months. Now moving to the next slide, which you are all familiar with, our estimates on the LNG carriers required for the liquefaction facilities currently under construction. To transport the additional 175 million tonnes per annum that these projects currently under construction will add to the LNG market by 2029, approximately 285 LNG carriers will be needed.

Following Q3 orders, around 200 ships have already been secured, leaving up to 85 more ships required in the near future. Now let's touch on shipyard capacity. The LNG carriers market is demand driven and we've observed that shipyards have been increasing their available slots to meet ship owners' needs. Back in 2020, we estimated the capacity to be around 55 slots compared to approximately 70 slots today. We anticipate this rising to around 85 slots by early 2026, mainly due to the ramping up of Chinese shipyards.

We believe that the number of slots could keep rising. An additional benefit of this increased capacity is the potential expansion of the replacement market as any available slots could be used for this purpose. One factor that would limit shipyard capacity is if the supply chain fails to keep pace. We remain vigilant about ensuring the quality and capacity of our approved suppliers to deliver the essential components for membrane systems. On LNG as a fuel, we have observed that the market is gaining momentum. As mentioned earlier, we received 13 orders in Q3 and we are seeing early methanol adopters shifting back to LNG as their fuel of choice.

However, as we have shared in previous quarters, the limited availability of shipyard slots poses a challenge for membrane technology, while Type B and Type C tanks are being aggressively promoted. We continue to innovate, as demonstrated by the recent 1 barg [indiscernible] tank design pressure order. This innovation will allow LNG-powered ships equipped with GTT's membrane technology to comply with upcoming regulations requiring cold ironing in ports.

As I mentioned earlier, innovation is deeply embedded in GTT's DNA. Our 200,000 cubic meter 3-tank concept stems from the need to reduce CO2 emissions in line with upcoming regulations. By optimizing the ship's average speed, emissions can be reduced by approximately 20%. The increased capacity of 200,000 cubic meters compared to today's standard of 174,000 cubic meters, allows charterers to maintain the same shipping intensity, transporting equivalent volumes of LNG per year. This performance is made possible by larger capacity and an innovative 3-tank design versus the standard 4-tank design, which improves the boil-off rate due to a more favorable surface to volume ratio.

Continuing with innovation, as I mentioned at the start of the presentation, we've received 8 orders of what will be the world's largest ethane carriers. After pioneering the VLEC, the very large ethane carriers, we are once again leading the way with the ULEC, the ultra large ethane carriers. These carriers with a capacity of 150,000 cubic meters are made possible by GTT's Mark III membrane technology, which enables a lighter overall ship weight. These results in a design draft, allowing the ship access to most ports.

I will now hand over to Thierry, who will share more about GTT Strategic Ventures and provide further details on the financials. Thierry, the floor is yours.

[Thierry Hochoa, executive]

Thank you, Jean-Baptiste. Good evening, everyone. So let me go over GTT Strategic Ventures. As you know, GTT Strategic Ventures is our investment vehicle to take minority stakes in innovative start-ups that have the potential to contribute to the group's strategic road map of building a sustainable world. Our latest investments is in Bluefins, a French company founded in 2021. They have developed a technology inspired by the tail fins of whales, which converts vertical pitching motion into forward propulsion. This solution is designed to optimize energy efficiency, reducing both fuel consumption and harmful emissions.

Additionally, it improves vessel stability, contributing to safer navigation. With Bluefins, we are making our fourth investment this year by our fund and the seventh since its launch in 2022. Now Page 11, now regarding our financials for the first 9 months of 2024. Revenues at EUR 475 million (sic) [ EUR 465 million ] are up plus 55%, a very strong increase compared to EUR 300 million for the first 9 months of 2023. Four drivers to explain our strong revenue performance. The first driver is revenue from newbuilds standing at EUR 429 million, was up plus 57%, benefiting from a higher number of LNG carriers under construction. The second one is revenues of LNG as fuel are up plus 22% benefiting from the numerous orders received in '21 and 2022. The third one is Electrolysers revenue through our Elogen affiliate, are slightly down at minus 1% and stands at EUR 60.6 million (sic) [ EUR 6.6 million ] for the first 9 months of 2024.

Finally, we observed a very good momentum in Services at EUR 29 million, up plus 40% compared to the last year, thanks to services to vessels in operations, including the digital services and also thanks to good level of pre-engineering studies.

I will now hand back to Jean-Baptiste for the conclusion on our guidance.

[Jean-Baptiste Choimet, executive]

Thank you, Thierry. As mentioned at the beginning of the presentation, in the absence of any significant delays at the shipyards and with improved visibility for the year-end, we are now expecting to reach the top of the ranges for revenue and EBITDA. Regarding the dividend payments, we remain committed to our pledge of distributing at least 80% of consolidated net income to our shareholders.

That concludes our presentation. Thierry and I are now ready to take your questions.

[Operator]

[Operator Instructions] The first question is from Richard Dawson of Bernberg.

[Richard Dawson, analyst]

First question is on ethane. And does the recent momentum in ethane orders suggest your long-term order intake for ethane carriers may be somewhat conservative? I believe you're expecting between 25 to 40 over the next decade but we've already had quite a few this year. And then the second question is on Elogen. Clearly, a tougher environment for hydrogen. Does this weakness impact your current strategy in Electrolysers at all? And has the guidance of breakeven EBITDA by mid-decade been pushed to the right to -- and by a bit? And then finally, maybe just a quick clarification and great to see guidance now to the top end of the ranges. Have there been any delays in the shipyard schedules this year or any cancellations of orders?

[Jean-Baptiste Choimet, executive]

So your first question was on the ethane order intake, right?

[Richard Dawson, analyst]

Yes.

[Jean-Baptiste Choimet, executive]

Yes. Well, indeed, the new and very innovative development that we have made is, I think, enabling the industry a lot as ship owners can now move a larger quantity of ethane in a ship with no additional draft. So at this stage, we maintain our ambition for the next decade but we believe that, thanks to our innovative ULEC design, we will trigger interest from shipowners.

Now as regard the question for Elogen. So when GTT made the acquisition of Elogen 4 years ago, we were not part of those who expected the industry to -- the hydrogen industry to bloom very quickly. We were always expecting it to take some years. So this is why, since the beginning, we've been closely monitoring our costs and focusing on, like we usually say, making Elogen a beautiful company before making it big. So we remain committed to this discipline, while indeed, we see that the hydrogen market is taking a bit longer to take off as we would have -- as any of us could have expected some while ago.

Now regarding your last question, indeed, the activity in shipyards is extremely important at the moment, as you know, because our order book is at a record high. In particular, the Chinese shipyards are picking up with a historically high number of orders of LNG carriers. However, so far, all the shipyards have been performing well. So this is why, indeed, we are in a position now to confirm that we expect to reach the top of the ranges for our guidance.

[Richard Dawson, analyst]

And then could I just confirm then that EBITDA breakeven by mid-decade for Elogen is still valid?

[Jean-Baptiste Choimet, executive]

Yes. Yes, we still are targeting this, yes.

[Operator]

The next question is from Jean-Luc Romain of CIC Market Solutions.

[Jean-Luc Romain, analyst]

I have 2 actually. We have seen some orders around future floating LNG Coral Norte. Do you still believe it might be a 2024 FID? That's my first question. Second question, some large container carrier companies, Chinese like Seaspan have placed big orders this summer to Chinese shipyards. Would those shipyards typically use Type B and Type C tanks instead of prismatic? Or is there still a willingness of those large shipowners like Seaspan and CMA CGM to have maybe a better quality or better capacity box ships?

[Jean-Baptiste Choimet, executive]

Okay. Thank you for your questions. Regarding the first one, well, I guess, for project developers, taking a commitment as an FID can sometimes be a long process as it covers a very large investment. So we believe this FID could happen in the near term. Now whether it's 2024 or not, is not something on which we can comment. However, just to link this to our order book and upcoming orders, the projects that are still under construction, in our view, are still missing up to 85 ships. So there's still a bit -- quite a lot of activity that we expect to come from projects ongoing.

Now regarding your question on Seaspan, like I briefly explained during the presentation, it is true that we face a very strong competition, in particular in China, where Chinese shipyards are pushing Type B or Type C technologies, which they can outsource from their shipyards. And this can be a bit helpful for them in the context where they are extremely busy with a few slots available. However, we keep working with them to ease the erection process of the cargo containment system. And we keep working as well closely with the ship owners to explain to them the advantages of our technology, a lighter weight, a tank that takes less space in the hull and a smaller heat inertia, which makes the operation of the tank more flexible.

And also, this is why we keep innovating on our technologies, in particular, the 1 barg [indiscernible] design because, indeed, the regulation that will impose ship operators to do cold ironing at [ key side ] is a concern for them. And I believe that kind of innovation can be a relief for them when operating their membrane tanks.

[Operator]

The next question is from Kevin Roger of Kepler Cheuvreux.

[Kevin Roger, analyst]

Maybe 1 question. You just mentioned in the presentation that you consider that the capacity at the yards could increase a bit again. So can you give a bit of color around the timing? Do you think that it will be for '26 or after? And also on the magnitude, would you say that you can -- the yards can maybe add 5 or 10 slots or even more. So that would be the first question, some comments, granularity around the capacity of the yard.

And then the second question is regarding the Services business unit, so still quite a lot of growth in this division. Is it possible for you to split in a sense the growth that you see in the historical business linked to the LNG membrane stuff? And on the other side, the growth that you have seen on the new businesses, such as the smart shipping solution, et cetera, to try to understand the dynamics between the historical business and the new ones inside these business units, please?

[Jean-Baptiste Choimet, executive]

Yes. Okay. So regarding your next question, so we gave a number for 2026. So we don't expect the number of slots to further increase during that year. But we expect that, for instance, by 2028, the number of slots could be higher. I guess, an increase of 10 to 15 slots looks like a reasonable number. So I guess this answers your first question. Now regarding the second one, indeed, so far, our services include the, like you said, the historical services as well as our digital offering through Ascenz Marorka. And at this stage, indeed, we report them all together because some of those services are intertwined with each other as we provide services for ship owners, in particular, LNG carriers shipowners from a physical nature but also digital nature. And also, we share some resources between our Ascenz Marorka activities and our GTT historical activities. So hence, this overall reporting as one whole.

[Kevin Roger, analyst]

But is it possible to, in a way, split a bit the 2 dynamics or not at all inside the revenue growth?

[Jean-Baptiste Choimet, executive]

You know that this -- we have a volatility regarding this revenues because sometimes, or 1 year, you can have some pre-engineering studies for some shipowners and the year after, it will be not the same business. So it's very, very -- it's very difficult to give or to provide a guidance on this topic due to the fact that we receive different studies for year and another year, it will be totally different.

[Operator]

[Operator Instructions] The next question is from Daniel Thomson of BNP Paribas.

[Daniel Thomson, analyst]

Two questions, if I may. The first one is on some of the recent announcements, some of the recent approvals in principle you announced at the Gastech conference. So on the LNG fuel side, I understand you now received approval for the Mark III system to be used both for ammonia and methanol in the future. So I would assume that, that kind of bridges a key concern for the industry around the future fuel mix.

So I was wondering, from what you've seen so far, I mean, how much is this approval a differentiator versus those Type B fuel tanks that you see in the Chinese market? And secondly, competition within the Ascenz Marorka business. I mean I was wondering sort of how aggressive you're finding the competition to offer smart shipping services given the degree of fragmentation in that market and sort of how it's progressing versus your original expectations.

[Jean-Baptiste Choimet, executive]

All right. Thank you for your question. Indeed, we pushed quite a lot of energy in obtaining the approval in principle for ammonia and also methanol readiness of our Mark III technology for LNG as a fuel vessels. And indeed, this triggers a strong interest from shipowners because thanks to this progress in our technological development, it means that in the future, if they want to switch their LNG fuel vessels to ammonia fuel vessels or methanol fuel vessels, they will be able to do so without significant structural changes.

And I believe this is a strong differentiator for our technology. As far as Ascenz Marorka is concerned, we are working indeed with a growing number of shipowners, in particular, offering them a range of products for performance monitoring but also weather routing. And we -- I see, I hear positive feedback from them -- from those who have already decided to use those tools. And that's why we are confident that we will manage to attract more shipowners, more users.

[Daniel Thomson, analyst]

If I could just clarify on the first part of that question -- first part of on my question. To your knowledge, can these -- the Chinese LNG fuel tank solutions, do they not have this designation to be sort of multi-fuel ready in the future to your knowledge? Just wondering on that one.

[Thierry Hochoa, executive]

It is possible with the high-manganese Type B vessel to have this readiness. However, the shipowner is still left with the drawbacks of Type B technology, heavier weight in particular but also the use of high-manganese steel leads to particular difficulties, in particular, during the construction of the tank as it releases toxic vapors during the welding process.

[Operator]

Mr. Choimet, this was the last question from the phone. Back to you for any other questions from the web.

[Jean-Baptiste Garnier, executive]

Yes. There are 2 questions on the web regarding Elogen. The first is, what do you expect for full year '24 and '25 regarding the hydrogen market? And second is more or less the same, talking about our confidence in the future of this activity.

[Thierry Hochoa, executive]

Okay. Thank you, Jean-Baptiste. So like I said earlier, GTT was never part of those who believed, who listened to the promises, the other promises that were made in 2020, 2021 that the hydrogen market will boom immediately. It takes some time. It takes some work to put together a new industry. However, we remain convinced that there is a potential for hydrogen applications, in particular, in the industry, in particular, in the industry where today, hydrogen is already used but it's gray hydrogen responsible for 3% of the world's CO2 emissions. I'm talking about refining, ammonia synthesis, methanol synthesis. However, we all can see it. We all can read it in the news, the market is taking a bit longer to take off. And this is the reason for our very low level of order intake so far this year. So we remain committed to working on developing our products, our electrolysers to make them as efficient as possible while closely monitoring our costs until market take off happens.

[Jean-Baptiste Choimet, executive]

So I guess if there is no more questions, I would like to wish you all a very good weekend and thank you for being with us tonight. Bye-bye.

[Thierry Hochoa, executive]

Thank you.

[Operator]

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