Gaztransport & Technigaz SA (GTT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I am Philippe Berterottière. I am very pleased to be with you today to present to you the 2020 financial results of GTT. I am today with Eric Dehouck, Deputy CEO of GTT; and Anouar Kiassi, VP, Digital, of the company. Unfortunately, Marc Haestier, our CFO, is feeling unwell and is not with us today. I would like to wish him a swift recovery. Therefore, I will present the financial parts of this presentation, and I hope to be up at -- to be up to the task in that respect. So in -- an exact sum in 2020, GTT has recorded an excellent performance delivering on its target. And not only we did that, but also, we set the ground for the future. First, we delivered a very strong financial performance, in line with what we promised, in line with our guidance. We had also many commercial successes in our core business, translating into a very high order book. We further strengthened the -- our innovation and R&D with recruitment of highly skilled talents. We completed 3 acquisitions in our R&D, in digital matters and in green hydrogen. And finally, we managed to maintain a sustained level of business with strictly complying with health and safety measures during this difficult period. Well, we are going to go through the fact that we are, in fact, a leading technology provider committed to energy transition. We are very well positioned to benefit from the growth of the energy value chain. And we do intend to conquer new frontiers of the energy transition. We will go through our key operational highlights before looking at our financials results for 2020, which are quite robust. And then I will conclude in giving you the outlook for the years to come. So first of all, we are a leading technology provider committed to energy transition. In fact, we -- who we are? I would like to spend a few minutes to explain who is GTT, what we do and more importantly, why we do it. GTT designs a comprehensive range of cutting-edge technologies and provide added value services. That's what we do. We do it for a reason: to improve energy efficiency. And we do that for decades. Consequently, we enable decarbonization, which is -- this is one of the biggest challenges for our world for the next 30 years and probably for the entire 21st century. But what we do for decades, it's exactly that. Our raison d'être mission statement defined in 2020 by the employees of GTT, which is now in our bylaws, drives everything we do. You can read it here. We can summarize it by the fact that GTT, we are determined to contribute to building a sustainable world, and we hope to demonstrate that in the coming slide. We just translate that in our baseline technology for a sustainable world. Cutting-edge technologies in order to help our customers meeting the challenges of energy transition. First of all, that's LNG carriers, the tank technologies for LNG carriers, for onshore tanks, for other vessels. We do that for FSRUs, FLNG. We do that for decades, as you know. And just one figure. In the past decade, we very significantly improve the efficiency of LNG carriers, reducing the emissions of these ships by 40%. We do that also for LNG as a fuel. When we propose our designs for LNG as a fuel, we propose a solution to clean up very significantly the shipping world. We do that also with smart shipping. I mean all the digital solutions we propose to owners and charters, which allow them to reduce their energy consumption. And last but not least, in entering into the green hydrogen sector, we are proposing a fully green solution for the future. So we build trust with all LNG stakeholders for over 15 years -- 50 years. We have 2 families of technologies, NO and Mark, with many different solutions there that we apply to many different applications, offshore, LNG as a fuel. And we have a full range of services to accompany these solutions and to make the life of owners and charters much easier. In fact, very simply, to maximize the number of days of charts of these ships. If we look at our key competitive advantage. Just look at this figure. In 10 years, we almost divided the boil-off rate, which is the main physical thermal characteristics of our systems in 2. That is translating into fuel savings amounting to about $4 million per year with the price of the MMBtu at $7, which is quite low; and saving in terms of CO2 of $1.5 million. It speaks for itself. In fact, we have a unique technology expertise relying on a very strong intellectual property and also a very strong human capital, they're the 2 pillars of the company. I could multiply figures about patents, hundreds of patents, thousands of patents. I just would like to say one thing. In the recent years, in 2019, we've been by far the first company, intermediate-size company, in France for a number of patents registered. It's about 1 patent for 6 employees. Well, we have more than 80% of engineers and technicians. We're working hard to propose the solutions of the future. And in fact, if we look a little bit at the past -- we are going to talk about the future. But if we look a little bit at the past, we see that over the past 10 years, we kept on introducing new technologies. I could -- you can read them here. But also, if you look at the figures, in fact, the R&D budget has been multiplied by almost 4, and the number of employees in R&D has been multiplied by about 2. Over the past 10 years, the budget for R&D have been about 10% of our revenues. It is easy to benchmark. It's among the largest budgets in the industry in terms of percentage. And what is more important, it's constant. So this is the steady effort, which can pay off. The environment, social and governance responsibility is really at the core of GTT's DNA. I talk about our quest for constantly reducing the emissions of LNG carriers and associated systems. But we go beyond. We go beyond in entering into hydrogen -- green hydrogen. And -- but we go also beyond for ourselves. We set for ourselves an ambition to be carbon neutral by not later than 2025. We are going to look at other things, how our designs can further reduce the emissions, for example, in the industry at large. We do that for LNG carriers. We want to go beyond. We want to go beyond in terms of our technology. But for ourselves, we begin by that. By 2025, we want to be carbon neutral. In terms of social responsibility. We are highly committed to gender diversity. We implement that in the company, and it's not easy. It's not easy at all in such a technological sector. I know that quite well. It's something we are very strongly committed, and it's very important to us. We provide also to our highly qualified workforce training to be even better. Governance. We have just one thing. For management, the long-term incentive for -- are taking into account ESG objectives up to the level of 30%. So it's genuine, it's what the GTT's employees want, that what the governance of GTT wants, and it's what we do. Thanks to that, we feel that we are well positioned to benefit from the growth of the LNG value chain. On this chart, you can see the expectations for the growth of the LNG demand over the next 20 years. And you can see that wherever you take, it goes and it goes significantly. And we are right in the middle of that. We are quite ideally placed to benefit from this growth, on which everybody agrees. This growth -- Asia will remain the key growth part for LNG. We know that it is the case today. Asia is representing already 70% of the demand of LNG. And analysts consider that by 2040, it should represent 75%. I told you about that in the recent years that LNG imports in China are growing very quickly. It continued in 2020. And in fact, it will continue over the next 20 years. China is very soon going to become the first importer of energy. And by 2040, it should overpower the second one, which should be India, by a factor of 2. So this increasing balance (sic) [ imbalance ] will require new capacities, new liquefaction capacities and also new capacities to transport this LNG. You can see on this chart what it means in terms of increase of LNG over the next 50 years. It's almost doubling the production of LNG. So we can expect additional FIDs. You know that in -- very recently, we -- Qatargas took the decision of expanding the North Field. It's going to add 33 million tonne per annum. A little bit before, Golden Pass decided to increase the production of the plant from 16 million to 18 million tonnes. And last year, a very particular year, everybody will agree on that, we had an investment decision from Costa Azul. So even though after all the decisions taken in 2019, the flow of FID is still very strong. So what does that mean for GTT in terms of orders for GTT? In fact, for LNG carriers, we increase a little bit our expectations of LNG carriers for the next 10 years. We passed to 290 to 320 units and that, in spite of the very strong year we had in 2020, with 41 LNG carrier orders. So well, it's, in fact, a stronger message than what the figure could translate. VLEC, FSRU FLNG, we did not change our expectations. For onshore and GBS tanks, we passed from 15 to 20 units up to 25 and 30 units. You know that in 2020, we signed for 3 onshore tanks, in 2019 for 3 GBS, and we're entering into the onshore tank business, talking with people about the interest of GBS. We are becoming more bullish on that sector. We totally revisited, as you know, the onshore tank technology, and it what is supporting this stronger expectation. So that is placing us into a very strong situation for conquering the new frontiers of energy transition. There, I would like to hand the floor to Eric Dehouck to continue.

Thank you very much, Philippe. Ladies and gentlemen, good morning. At GTT, we have decided to conquer 3 new frontiers. The first one is the liquid natural gas as fuel, LNG as fuel; second one, the smart shipping; and the third one, the green hydrogen. Let's start by the LNG as fuel. We are very proud to show you here on this picture one of the flagship of the CMA CGM fleet, 23,000 containers on this ship. And actually, if you look -- if you have a closer look at this picture, you will see in front of the ship another ship, which is the bunkering ship, the refueling ship. Those 2 ships are equipped with the GTT technology. As a player in the maritime industry, we want to play a role in the energy and environmental transition. The International Maritime Organization, the IMO, has defined a framework of regulation in order to encourage and to create this transition. Maybe among several decisions, 2 should be highlighted here. The first one, in 2016, the IMO has decided to ban for 2020 the sulfur oxide. This has been the kick-started of the LNG as fuel market. And the second one is that by 2050, any new ship will have to reduce its greenhouse gas emission by 70%. This will create momentum to replace the aging and most polluting ship and also for the ship owner to create new ships with new and cleaner technologies. So what are the -- on top of the existing conventional fuel, what are the various options to a ship owner? Actually, our studies shows that the probably only existing solution today to go into the direction of a more sustainable world is the liquid natural gas as fuel, the LNG as fuel. We are absolutely convinced that this is the only solution existing today and the infrastructure, the technology exists, we know the economics behind it, and all the regulation is in place. We are really -- we do believe in the emergence of low carbon fuel and eventually no carbon fuel in the future. But as of today, even if we put a lot of effort on that, there is no infrastructure still existing, and the technology has yet to be developed. So we believe that LNG as fuel is a no regret investment that will contribute to the energy transition and to the environmental transition. So what are the dynamics of this market? We know that this market is mainly driven by new builds. This market has been decreasing over the past 10 years, going from 4,000 ships per year to nearly 700 ships in 2020, which has been an exceptional low year, especially due to the COVID-19 pandemic crisis. On this market, we are really targeting the large ships. And we see on this market, on this segment, that the LNG as fuel is step by step taking market share. And we do target, on this market, a market of 260 ships per year as a segment. We want, as GTT, to be a Tier 1 company on this segment. Let's now look at the second frontier that we would like to conquer, and I give the floor to Anouar Kiassi, Vice President of Digital.

Thank you, Eric. Good morning, everyone. Before I describe to you our activities in smart shipping, let me first tell you what smart shipping is. Smart shipping is the use of state-of-the-art technologies, digital technologies, to improve energy efficiency, safety and operational costs. Smart shipping has different levels. It goes from remote monitoring to fully autonomous operations. A smart ship is equipped with a variety of sensors that collects operational data. They are connected to the shore to transmit and receive information in a secure manner. And they use state-of-the-art artificial intelligence to make the best decision. So it is a fascinating and a -- market that fits very well GTT DNA as it combines a unique knowledge of the maritime industry and an appetite for technology. There are different levels or different domain in smart shipping. The main ones are performance management, e-navigation, weather and routing, performance asset management and fleet operations management. This market -- the overall market will grow annually by 9%. It's a steady growth to reach USD 730 million in 2025. The main drivers for that growth are the environmental requirements; the need for transparency between stakeholders; improvement of cost, of course; and the regulation in terms of safety and environment. At GTT, we ambition to be a reference player in that fragmented market, not only in LNG and LNG as fuel, but for all types of commercial ships. For that, we keep improving our products and services through a combination of organic development and add-ons, but we also intend to expand vertically by improving our footprint with additional products and horizontally by expanding beyond performance optimization where we operate today. We have strong levers to implement successfully our smart shipping strategy. First, we have an in-depth knowledge of the maritime industry and a privileged access to the industry stakeholders. Next, we have a unique expertise in multiphysics modeling and artificial intelligence that will give us -- and gives us a competitive advantage in the long run. Also, our capability or capacity to acquire targeted companies will help us increase our footprint in terms of product and market share. And finally, the demand for smart shipping solutions is increasing because of the growing pressure on -- for the reduction of emissions and the energy efficiency. So in conclusion, GTT offers unique proprietary solutions to ship owners, charters and operators, and we deeply believe that we will make the difference in that fragmented market by introducing cutting-edge innovation that goes beyond simple digitalization. Back to you, Eric.

So the third new frontier that we have decided to conquer is the one of the green hydrogen revolution. Our studies have demonstrated that the common denominator for the future decarbonized energy is either coming from green ammonia, from synthetic LNG, from hydrogen itself, is actually the green hydrogen produced from water electrolysis. This is why, actually, in 2020, GTT did the acquisition of Areva H2Gen, which is today renamed Elogen. This company is -- Elogen, is designing and manufacturing water electrolysis with the Proton Exchange Membrane technology, which we do believe is the best technology to fit best with renewable energy. We have a common DNA between GTT and Elogen. It's a DNA of technology a DNA of innovation, a DNA of performance and a DNA of reliability and long-term relationship and support of our customer. And we have learned this long-term relationship and the importance of this long-term relationship is the LNG business that we know well. So what are the market dynamics here? We can clearly see that there is nowadays an unprecedent supporting for this market. Unprecedent because of the public funding, which are now available for developing this market. European -- Europe has announced that they will put in place, between now and 2050, over EUR 400 billion in order to support the development of the technological bricks and of the infrastructure to develop this market. And also, we believe that on this market, the only way to produce this green hydrogen is the water electrolysis, on which we are positioned now. What are the development for Elogen in the next coming decade? Actually, we are going to focus on 3 area of developments. The first one is the internationalization, going from Europe-based to a broader international organization. The second one is to address more end markets, going from light mobility and light industry to heavy mobility, heavy industry and the energy sector. And last but not least is also technological development, going from what is called today small electrolyzer to higher capacity electrolyzer in the future. So it's been 4 months now that we have done the acquisition of Elogen, and we confirm our commitment to green hydrogen. And we today believe that in 2021, the company will do roughly EUR 6 million of revenue. We are targeting an EBITDA positive by 2025. And we have the ambition on this market to be able to produce more than 400 megawatts per year of electrolyzer by the end of the decade. Let's look now at the key operation highlights for 2020.

Our key commercial achievements, first of all, in 2020. Well, many things to say. I just would like to spend a couple of minutes on our commercial achievements. We obtained 41 LNG carriers, which is a very large number of ships. I would say that also we obtained very diverse orders, orders of LNG carriers with some midsized LNG carriers that we did not obtain before. So new designs, opening new possibilities for LNG carriers corresponding to new trades. We obtained FSRU, FSU, very, very large FSUs. We obtained also onshore tanks. We obtained also a contract with the department -- U.S. Department of Defense. It shows that there is a potential in our technologies, which was not really tackled before. Well, I could continue that for quite long. Let's make a long story short that the points I wanted to highlight. Well, corporate key events in 2020. There is the KFTC matter, with a decision in November from the KFTC. We appealed against -- we appealed immediately against this decision as we are convinced that what we do is really fulfilling the Korean competition regulations. We appealed the High Court. The Seoul High Court accepted this -- the suspension, the -- our request to suspend the effect of the decision. KFTC appealed against that. So we are going to know in several months what are -- what is the outcome on this matter. We are quite confident. And later, we are going to know on the full ground of the matter, what is the decision of the High Court. In 2020, we performed 3 acquisitions. It's more than all what we did in the previous life of GTT. And thanks to that, we are reinforcing our offering in smart shipping that Anouar talked about, and we entered into green hydrogen. So now financials. Robust financial performance. Well, on this graph, we can see the flow of business we are expecting in the years to come. You can see that on the white part of the slide, with something that we never had before, something very regular in terms of business perspectives over the next years. The years before, we had something very strong for the year, the following year, a bit less strong, but something far less regular. So we have something which is new. It's a long-term visibility, which is giving us a quite strong confidence in what we are doing, what we have to do. And in the perspectives, we -- and in the business we are tackling. So strong financial performances. Our revenues have increased by more than 70% -- 37% in 2020. And the EBITDA has increased by more than 39% in 2020. If we look at our cost base, the external costs have increased by 27%. And for our cost base, they've increased by 26%, which is due to the increase of our staff, our employees, and we do need that to address all our ambitions; and also to the fact that our profit-sharing schemes, as we are strongly associating our employees to the fate of the company, is -- has significantly increased with the 2020 results. As a result, our dividend policy is as such. We -- after the -- what we paid on 2020, in last November, we proposed to pay the balance of the dividend in -- at beginning of June of EUR 1.79, corresponding to 80% of the distributable result. So I would like to conclude with the outlook. In fact, as far as the revenue is concerned, we are seeing in 2021 revenue between EUR 285 million and EUR 315 million. Well, compared to the recent years, you've seen on the previous graph that we -- all the orders we received are going to have -- are going to -- a bit later than what they used to be. And so we are not benefiting fully from the benefits of them directly in 2020, but still we have a quite high turnover for this year. The EBITDA. We plan to have an EBITDA between EUR 150 million and EUR 170 million in 2021. Well, we increased our staff, the number of employees, highly qualified people in order to address the challenges we would like to take in the years to come. And we -- in fact, what we did, we set the ground for our future business, for our future ambition. That's what we do, and it's quite fundamental for addressing all these ambitions. For dividend, we stick to our policy to have a dividend of at least 80% in -- on the exercise 2021. So as a conclusion, what we can say is that GTT, it's more than 550 women and men, highly qualified in their respective fields, committed to building a sustainable world. At GTT, for more than 50 years, we have always been innovating, designing technologies, improving them, accompanying them, exploring new things, inventing, always with a pioneering mindset. In a fast-changing world, we are strongly convinced that we've got to continue to do that, and that we can play a key role alongside our customers to enable the -- and accelerate the energy transition. For us, LNG is a key part of the energy transition. Wherever we look at, however we address the issues, we see LNG. Beyond LNG, it is our responsibility to continue exploring ways to improve energy efficiency. That's what we do with LNG as a fuel. That's what we do with smart shipping. And obviously, that's what we do with green hydrogen. In fact, at GTT, we know, we believe, we know that we can make a difference, and we will. Thank you very much, ladies and gentlemen. Now we are going to answer to your questions.

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

Congratulations on the 2020 results. I actually have 2 questions. One is that the -- on the scheduling of a turnover for 2021 and '22, given the orders you received in H2 2020. In H2 2019, you had very strong orders and about EUR 30 million translated into 2020 turnover. And I would like to understand why nothing translated in 2021 turnover from the 2020 second half orders. And my second question is regards to Elogen. Very useful, the 400 megawatts you indicated. In terms of turnover, what kind of ballpark would it represent, given that when we look at small orders, for instance, we see that orders for 1- to 2-megawatt electrolyzer -- PEM electrolyzers represents EUR 1 million to EUR 1.5 million now?

Okay. Thank you very much. Could I ask you a favor? Could you introduce yourself?

I'm sorry. I'm Jean-Luc Romain at CIC Market Solutions.

Okay. Sorry, sorry, sorry, I did not recognize you. Sorry for that. Thank you. Well, as far as the orders are concerned, in fact, this year, we had orders for deliveries later than before. So just that, and it's easy to see on our press release. When we announce an order, we announce also generally the delivery date. And you can see on our various press releases that the delivery dates are rather later than what they used to be. It's the only explanation. It's quite simple. In 2019, maybe there were early slots in yards, some reasons. And in 2020, the owners and the yards preferred to deliver -- have delivery dates later than before. On Elogen, as far as the turnover is concerned. I think that everybody will agree on the fact that this industry is still a small one. To talk about now, it's a nice company, but still it's a small turnover. So I would say that we don't give yet figures on Elogen turnover. We work in this company for 3 months now, so we are going to be more specific in the future about our ambitions there. Already, we gave you some interesting things with 400 megawatts in 2030. We are ambitious. And we told you that by 2025, we are going to be a bit breakeven. And in fact, I'm quite eager to which the period where we can make money in -- with Elogen in order to make use of the tax credits of this company.

Can I have one more question? How much is the tax credit so far?

Tax credits, it's not at all insignificant.

And your next question comes from the line of Kevin Roger.

That's Kevin from Kepler Cheuvreux. Two questions on my side, please. The first one is related to, let's say, your pipeline for future order intake currently. Can you give us a bit of, let's say, color in terms of timing of delivery? Would you expect the 2021 orders to be delivered in 2023 with a typical 2-year delivery time? Or would you say it would be again over the long term? And in that question, do you have any idea in terms of timing for the announcement of the NFE LNG cargo-related vessel? And the second question is related to your P&L and the impact of your, let's say, current hiring. You have announced that you will have 100 new person. What would be the impact on your external charges, please? Because the 2 main drivers for P&L are external charges plus employee cost. I was wondering the impact of the increase in employee cost, if it would decline, decrease the external charges or if there is, let's say, a limited impact?

Okay. Thank you very much. You can see on this chart the way the orders we have in our order book are going to generate revenues. And it's quite easy to compare the dark blue column with the lighter blue column. And to see that, finally, the perspective we have now is much longer than the one we used to have. So your point was about the 2021 orders. Are they going to generate revenues in 2023? Well, they will generate revenues in 2023. There are, of course, possibilities to deliver ships in 2023. Now is it really going to be significant or number of ships to be delivered in 2023 or later? Well, we have still to see that. What I see, frankly, is that the LNG carrier business is very active. We saw on the spot market in January absolutely incredible charter rates, which means that, in fact, this market is eager to have appropriate tonnage and also more and more to have tonnage with carbon footprint as low as possible. And I think for -- we should not undermine these 2 phenomena. When you look at the situation of the LNG carrier business, there are point of time in the year where this market is very stressed, very short. And there are -- there is a very strong will from the upper industry, from the charters, the big LNG companies to reduce their carbon footprint everywhere, not only in LNG carriers, but also in LNG carriers. And so solutions which can improve their carbon footprint are very much welcome. So I think it's going to be a strong support of the demand in the years to come. And let's see what are going to be the delivery dates for the orders we are going to sign for in 2021. But I'm not particularly concerned. On the impact on P&L of what we do. We do -- we did a lot, we did a lot. In the recent years -- in the recent couple of years, we addressed many things in our R&D. Of course, it's an effort of long term. We -- I would say that we do not plan to significantly increase our expenses beyond what we do for the time being, except in one point, which is the hydrogen, green hydrogen. And that's something new. And we do intend to do what we know to do. It means managing a technological program. And we do, do want to have an excellent technology to bring something which is superior to the others. Of course, the -- we are very much encouraged by the very ambitious programs that various bodies -- French government, but others as well, are putting in place in that perspective. And we do intend to accompany these efforts with our efforts.