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

Good day, and thank you for standing by. Welcome to the GTT First Quarter 2022 Results Conference Call. [Operator Instructions] Please be advised today's conference is being recorded, Thursday, the 21st of April 2022. [Operator Instructions] I would now like to hand the conference over to your speaker today, Philippe Berterottière. Please go ahead.

Thank you very much. Good evening, everybody. I would like to tell you that I am with Virginie Aubagnac, the Group CFO; Jean-Baptiste Garnier, Investor Relations, and [ Janeir Menoux ] also working with Jean-Baptiste Garnier. Well, you have our presentation with the key highlights on Page 3. I will not go through this slide as most of the elements we are going to talk about them later on. Just the last line, highlighting the fact that the ENGIE stake has been reduced and is now amounting to 21%. We're including 10%, which is linked to an exchangeable bond. The order book, what is remarkable is that in this first quarter, we obtained 34 orders for LNG carriers, while 6 LNG carriers have been delivered. So it's a net increase of 28 LNG carriers. So in our order book now, we have 165 of them. Another very important point concerns the last line, the energy as a fuel. We received in the first quarter 20 orders, 20 tanks. In fact, energy as a fuel tanks and we delivered 2 ships with GTT membrane LNG tanks. So it's a net increase of 18 tanks in LNG as a fuel, quite simple. As far as the LNG supply is concerned, we don't have actually real FID. But what we can see is that 3 projects are already starting construction or getting prepared for starting the construction. Clearly saying that the FID is not so far away. So they are probably in some kind of formal process for deciding this FID or for announcing this FID, but they are starting the construction in order to be ready as soon as possible to produce LNG. We can say that we see many long-term contracts passed with developers of projects. And that is very much supporting the decision for launching new projects. So we can be quite positive about that. On the next page, we are analyzing the competitiveness of LNG as a fuel. It's a new graph. So I would like to ask your attention to look at it. We can see the oil price -- as you know, it's quite high for the time being -- and the LNG price. On the bottom of the page, you have the detail of the prices we are talking of. As the oil price is very high, LNG as a fuel is very competitive compared to oil. And in fact, you can pay back, you can -- the investment in an LNG tank and the associated equipment in a very short period of time, in less than 2 years. So well, it's a very compelling story for the time being, and it can explain, in fact, why we are receiving so many orders for LNG as a fuel tanks since the beginning of the year. A point on innovation. You know that we are keeping on investing in research, development and innovation, and a way of highlighting that is that in the last quarter, we announced that our designs for dual fuel, car carrier -- car and truck carriers has been approved by 2 major classification societies. So it's a very positive element for having our designs adopted by shipyards. It's a ship segment we would like to enter into. In LNG as a fuel, again, we obtained an AiP for jumboising an LNG carrier. It is retrofitting an LNG containership in adding a tranche with an LNG tank. So it's a solution that we are proposing. Still, again, on LNG as a fuel, we obtained an AiP, an authorization in principle, to increase the preshareholding capabilities of membrane tanks. Normally, they are atmospheric pressure and if you can have a bit of pressure inside the tank, you have more flexibility in handling the boil-off. So that is quite positive for these car and truck carriers we were speaking of or for cruise ships. Finally, we announced this quarter, a cooperation agreement with Shell in order to develop liquid hydrogen ship and to have that ready in a not-too-distant period. Elogen, talking about Elogen, we've decided recently where our gigafactory is going to be built, it's going to be in Vendôme, in the Centre-Val de Loire region, south of Paris. We've been selected by Storengy for providing an electrolyzer in a system for methanation unit to be installed. It's a significant contract for Elogen. We passed an agreement with Sarralle in order to see how we can provide green hydrogen to -- for the steel industry. So things are moving and adding there. Virginie?

Yes. Thank you, Philippe. Hello, everyone. A few comments on GTT's first quarter consolidated revenues. Q1 2022 revenue stands at EUR 68.2 million, showing as expected, a 22% decrease due to a base effect. This came as no surprise as Q1 '21 revenue recognition was still in the wake of 2020 high level with 24 deliveries, while Q1 '22 revenue is not yet taking into account 2021 strong order inflow. Over the first quarter, GTT booked EUR 53.8 million revenue for LNG and ethane carriers, EUR 18.4 million less than the same period last year. Most other membrane applications saw strong revenue increase with FSU up 84% at EUR 3.6 million, onshore storage up 76% at EUR 0.7 million and GBS up 111% at EUR 2.1 million. LNG as a fuel revenues amount to EUR 0.8 million in Q1, not yet taking into account 2021 orders. Elogen booked a revenue of EUR 0.9 million in line with the same period last year. Services revenues rose to EUR 5.5 million, thanks to an increase in maintenance and assistance services and Smart Shipping solutions. Let me now give you an update on GTT's exposure to projects dedicated to Russia. There are 3 kinds of projects. First, the project being built in Russia. 3 GBS as part of the Arctic LNG 2 project and 15 ice-breaking LNG carriers. As of March 31, 2022, this project represents a total of EUR 97 million to be recognized by 2026, including EUR 21 million in 2022. Second, the project dedicated specifically to Arctic conditions built in Asian shipyards, 6 ice-breaking LNG carriers and 2 FSUs. As of March 21, these projects represent a revenue of EUR 48 million to be recognized by 2024, including EUR 30 million in 2022. And third, finally, the projects which are being built by Asian shipyard for Russia, but that can operate in all types of conditions. There are 8 LNGCs. So as of April 21, today, the execution of our contracts for this project continues to perform normally in compliance with the applicable sanction regimes. Philippe Berterottière will now present the outlook and conclude this presentation.

So, the -- we published in February at the occasion of our 2021 results, our guidance for 2022. We maintain our guidance. So for revenue, we plan to have a revenue estimated in the range of EUR 290 million to EUR 320 million. For our EBITDA, we plan to have an EBITDA between EUR 140 million to EUR 170 million. The dividend for 2022 should amount at least to the one proposed for fiscal year 2021. We consider that our revenues from 2023 and our results should be significantly higher than in 2022, driven by the robust order momentum we are experiencing. Having said that, the group may need to revise its 2022 targets, if risks regarding the Russian projects were to materialize. The -- nevertheless, we -- as I was saying, the crisis highlights the importance of gas globally and the need for European countries to achieve energy independence, in respect of Russia and more specifically, the strategic importance of maritime transport of LNG, which is, as you know, our core business. The group, therefore, expects the current robust order momentum to continue. So now we are going to answer to your questions.

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

I have 2 on Russia. The first one is, in the first quarter, how much of your sales were related to the Russian projects for [indiscernible] for the Japanese customers? That's the first question. And the second question is about, it seems that Novatek has said at least it was mentioned in the Russian press and Reuters talked about that. But Novatek has halted work after the first phase of the free train Arctic 2 project. Did you receive any notice about that from your customer, which is safe and is that correct?

On the -- so on the first question, we booked a bit more than EUR 10 million revenues in Q1 '22 on Russian project so project being built in Russia and projects dedicated to Arctic conditions. And it's just -- it's normally as expected. We booked all we had to book.

On the second question, Novatek, you said that in the newspaper, I did not get you perfectly, Jean-Luc. Could you repeat, please?

According to the newspaper, Novatek doesn't -- has halted work on expansion projects on top of the first stage of Arctic LNG 2 as it is 3 trains. My understanding is that the trains 2 and 3 work has halted on that, but I'm not sure. So I was wondering if you received any notice from your customers.

No. Well, I'm not sure to follow you perfectly. But I can tell you that we did not receive any notice.

Your next question comes from the line of Guillaume Delaby, from Societe Generale.

Quick question regarding basically a new LNG project. So you mentioned a few of them for a total capacity of EUR 41 million. My question is, what is your view in terms of timing for other projects, i.e., in the Middle East? A lot of discussion between European officials and Qatar. What is your take regarding Oman, regarding Rovuma, any view on that in terms of timing, do you rather see them in H2 2022 or 2023?

Well, it's -- you know that we are a pure LNG carrier technology providers. We are not in the Board meeting rooms. So we can give you our feelings. What can be decided in 2022 and 2023 is what is pretty much ready. You know that for taking a final investment decision, we've got to have performed quite complete engineering study work in order to see quite precisely, quite accurately whether the project is feasible and how much it's going to cost. We've got to have customers, which probably currently is not that difficult in order to have long-term commitments, which are going to allow the financing. And then you've got to set up the financing. So all that coming more or less at a bit at the same time is very much favoring those who are ready for taking the decisions. And these ones are mainly, in our opinion, the American projects. And so those you are referring to, probably are not those who are going to be decided in the first phase. They will come -- they could come later on.

Your next question comes from the line of Edward Bottomley from Berenberg.

In February, you guided for 330 to 360 LNG carrier wins over the coming decade. This now looks like it might be a bit stale given the 34 order wins in Q1 and improved outlook beyond that. Would you be willing to give us an idea of how much higher order wins over the coming decade could go? And then my second question would be about shipyard capacity in South Korea and China. Given the strong order book that you have and the strong rate of order wins, it seems like we might be at quite a high capacity utilization rate. How are you seeing new capacity coming online? And how much do you think that could increase by?

Okay. On our long-term guidance on the orders, we should receive over the next 10 years, that is something we are publishing once a year. So I do recognize that we published that 1 week before the beginning of the war here between Russia and Ukraine. And that is a kind of game changer in the situation. We are not really in a situation where we can review the -- our 10-year guidance. We are going to see that whether we can do it later on in the year, but usually, we do that on a yearly basis. And I do recognize that the war in Ukraine has changed the fundamental element in this forecast. On the shipyard capacity, the -- we said already that current yards are working on increasing their capacity. They could add something -- basically, they were at 55, and they could add, in our opinion, probably 10 additional ships. The -- in China, other yards are going to enter into the LNG carrier production, in our opinion. And there are other yards in the world, which are contemplating, whether it's making sense to enter into the LNG carrier construction. So having said that, we may consider that we may reach a level of 70 ships a year. Let's see whether all these plans are going to materialize in 2022 with the current very strong demand. We are going to help people, who would like to build the LNG -- new LNG carriers, wherever they are, in Korea, in China or elsewhere, in order to cope with the very strong demand.

[Operator Instructions] We have a question on the web, and the questions are, when you say that 2023 earnings would significantly increase, would you say that they are likely to increase the precedent record of 2020 in terms of top line? The second question is, the EUR 400 million order intake being at record level in Q1, which level should we assume in the next quarters? And question three, any update on the potential capacity at yards?

So potential capacity at yard, I think I just answered to this question. So we are going to look at question number one, I will ask Virginie to answer to it.

On 2023, would it be at we did reach 2020 level. I mean, I think if you compute number of orders and make the classic delays between construction period, I think you can compute and make your estimates and opinion on it. But what we say is that, it's going to be significantly higher than 2022.

Yes. Well, definitely, the demand currently is strong. As you -- as all of you have felt the issue of the shipyard capacity is central, so let's see how we can address this very strong demand with our partners in shipyards. We can accommodate that, but it may be a kind of limiting factor to go beyond what we did in the first quarter.

Another question. Clarification on my initial question. March 25, from Reuters. Russia's largest liquefied natural gas producer in Novatek has helped work on all expansion projects other than the first stage at Arctic LNG 2. The Conversant daily newspaper reported on Friday citing unnamed sources, the company plans to launch the first stage of Arctic LNG 2 next year, followed by the second and third stage in 2024 and 2025, respectively. Only 1 out of the 3 phases completed, that would mean only 2 out of the 6 GBS LNG tanks would be needed. And my question was, whether GTT received any notice from Saipem. My understanding is the answer is no.

I thank you for that. First of all, we have a contract for 3 GBS, not for 6. And I can tell you, having visited [indiscernible] last year, that 3 GBS are currently in construction, in 3 docks and not 6. And I can tell -- I further confirm that we did not receive any kind of notification from our customer. A joint venture between the Saipem company and the Renaissance company.

[Operator Instructions] Apologies for the delay. You have a further question from the line of Jean-Luc Romain from CIC Market Solutions.

Yes, a new question, but about Elogen. Do you see an increase in customer consultation or in potential orders? Do you see increased competition? Who are your -- who are the main competitors for Elogen for the size of electrolyzers you are producing so far?

So currently, we -- I mean most of the electrolyzer company, whether it's Nel, Clean Power, Siemens, Thyssenkrupp, ITM or McPhy are competing for the same orders. I think that all of us agree on the fact that hydrogen is going to experience a very strong development, a very strong growth. While for the time being, the demand is not as large as we would like to see it. So we are going to see what are the orders we are signing for. You saw that we had already an order this year. And yes, we are working on different tenders in order to confirm the market penetration of Elogen in the electrolyzer business.

So should I understand that the acceleration is not there yet?

The acceleration is not there yet, neither for us nor for anybody.

So we have a new question coming from the web from Tom O'Donnell from AllianceBernstein. Considering current sanctions against Russia, how are GTT able to continue recognizing revenues from Russia or revenues being earned from partners that are not in Russia?

In terms of revenue recognition, yes. And just for you to know, we actually invoiced more than what we recognized, because it's -- we are in -- not at the beginning of construction, but on the average, rather at the beginning of construction than very near to delivery. So that is why we recognize revenue as milestones are passed, we invoice, and we are paid. Today, we are paid from our customers. So as long as projects are not sanctioned and that construction is -- continues, yes, we will recognize revenue.

Thank you very much. Thank you. Have a good evening.

Thank you. That does conclude our conference for today. Thank for participating. You may all disconnect.