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

Good morning. This is the conference operator. Welcome and thank you for joining the GTT Third Quarter 2023 Activity Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Philippe Berterottière, CEO. Please go ahead, sir.

Thank you very much. Well, good morning, everybody. Thank you very much for being with us today. I have the pleasure to present to you the -- our activity for the first 9 months of 2023. So first of all, key figures in -- for the core business, we've obtained these 53 orders, 10 additional loans in the third quarter. LNG as a fuel, we obtained 15 new orders mainly only in the third quarter. Our review is on these first 6 months, amounting to EUR 300 million, which represents an increase of 35% compared to last year. And on Q3, we -- our revenue has amounted to EUR 122 million, which represents an increase of 57% compared to the third quarter of 2022. Well, we -- some other important factors, we can say that the turnover of Elogen, 5.4%, still small, but has increased by over 124% compared to the turnover of last year, which is marking a clear acceleration of our activity in that set. Well, as a result of all that, and as a result, of amendment, visibility for the year end, the ranges for 2023 consolidated revenue and EBITDA are narrowed to the upper half of the guidance we gave in July. So let's look at our order book now. We have 287 LNG carriers, the same number and the one we had in July. And altogether, the -- for large structures, it represents 302 contracts. So 302 units. So more than 300 and the largest figure we ever had. On LNG as a fuel, we have 84 tanks to build. And there as well, it's the largest figure we ever had. So all that is fueled by some factors on the LNG carrier demand, the increase of the LNG demand as there is a coal to gas switch in order to replace coal by far less polluting source of energy. And also, the fact that gas is quite -- is fitting quite well with the renewables -- when as renewables are intermittent, you may rely on gas for ensuring the provision of electricity to customers. While it's is also applied to LNG switch. LNG is far more flexible, and there is a scarcity of supply coming from reliance on ships other than pipes. And it allows suppliers and customers not to be prisoners of the other. We can see that also there is a strong demand for LNG carriers as such, as a result of loan growth, for example, from U.S. to Asia, but also from U.S. to Asia not going through the Panama Canal, which is very congested. And so ships aiming to take a longer route. We can see also a strong replacement market with a the switch from old to new vessels. So on this page, we can see that there are numerous U.S. projects, which have been decided. We can see the decided projects or the sanctioned projects. Those are which major investment decisions have been already put in place. So we are arrived to a figure of 56 million tonne per annum, which renders as today's date, year 2023 as one of the most important year in terms of decisions or sanctions taken on projects. So if we look at the requirements for under construction plants, we can see that there are still numerous LNG carriers still to be ordered. According to our analysis, market is still requiring at least 85 LNG carriers for contracted supply of energy liquefaction plants under construction. So between 85 and 115 orders. So it's something which is very significant. 3 drivers accelerate the replacement of the existing fleet, the aging. The age of the fleet, we can see on the graph on the left-hand part of the slide that many ships have been built in the past century and the early years of the century, and some of them need to be replaced basically because their propulsion, as we can see on the second chart, is generating a lot of CO2 and is more and more and more threated by regulations. And also because they have a very high boilers, and switching to a new technology allow to reduce consumption, allow to be in accordance with regulations and allow to save LNG cargo for being sold as it is a quite valuable commodity. So LNG as a fuel, we see that in the third quarter of this year, there were significant orders passed. And we still believe that it's the only solution already available to reduce emission. It's existing. It's available in large quantity. It's working well. It's proven, and we keep on working on that sector believing that it's their solution for significantly reducing the emissions from the shipping industry. You can see that there is a more favorable momentum, and that is -- it's also showed by the conviction that the prices are going to remain very attractive. And some ship, we know that [ they are ] Chinese shipowner for the very first time, has chosen [ GTT ] LNG as a fuel for fueling its containerships. We obtained some authorizations in principle on a -- and joint development program for adopting energy tank solutions to mainly tankers, and we did that with the American Classification Society and with DHT with a well-known shipowner. On our digital solutions, we obtained in the third quarter very significant commercial successes. Smart shipping, we obtained a contract with GasLog, which is going to equip the 35 of its LNG carriers with our Smart Shipping solutions, mainly aiming at managing the bylaws and providing also several other applications. On Weather Routing, we obtained a contract for the entire fleet of Clean Products Tankers Alliance. So there, we can see the size, its entire fleets, which are switching to Ascenz Marorka for adopting the solutions we developed over the past. On Fleet Performance, we obtained a contract from CMA CGM for equipping 49 LNG-powered container ships. So there is clearly an acceleration in the adoption of our solution. On Elogen, we're obtaining the third quarter 2 contracts in Korea for electrolysers for 2.5 megawatt PEM electrolysers. So that is concerning, the fact that we -- and Elogen is considered as a large electrolyser provider by more and more buyers. And that also is very encouraging. And we invested in a company, bound4blue, a company which is building wingsails, very innovative wingsails. And we -- they are very, very excited by the perspective of this business, which is very much in line with our strategy, developing technology for a sustainable world. There, I will pass from the floor of the mic to Thierry Hochoa the Group CFO, with us.

Thank you, Philippe. Good morning, everybody. Now I suggest you look at the third quarter performance in terms of revenue. The revenue for the third quarter amounted to EUR 122 million and represents for the first 9 months of 2023, cumulative revenue of EUR 300 million. As you can see, this means a strong increase of plus 35% compared to the same period last year, mainly driven by new builds plus 36% at EUR 273 million due to the increase in the number of LNG carriers under construction. [ Drive ] driven by Elogen as well, we more than doubled our revenue compared to last year at EUR 6.7 million. This reflects the execution of the orders that were booked in 2021 and in 2022 and is in line with our anticipation. Regarding services worldwide, we also recorded an increase in the revenue of around 11% compared to last year with many new contracts signed, as mentioned by Philippe earlier. I remind you, there are 2 types of services. The first one is assistance services to vessels in operations with a very distinctive and high [ added ] value activity provided by GTT teams. And the second one is digital solutions fast-growing and competitive market. In summary, a very solid revenue in the third quarter and over the first 9 months of 2023. Philippe?

Our guidance for revenue, we are -- we expect a consolidated revenue in the range of EUR 385 million to EUR 430 million. For EBITDA, we expect an EBITDA for year 2023 between EUR 190 million and EUR 235 million. And for dividend, we expect to have a payout ratio of at least 80% of our consolidated net income. Taking into account the absence of significant delays in ship construction schedules during the first 9 months of 2023, we are now targeting the upper half of the outlook range in terms of both revenues and EBITDA. So now Thierry and I are going to be very pleased to answer to your questions.

[Operator Instructions] The first question is from Jean-Luc Romain of CIC Market Solutions.

Congratulations on the -- and upgrading your guidance. My questions are about the orders. We have seen carrier gas assumptioning, like, I think, 17 orders for Hyundai Heavy Industries. How are contracts to be announced as awarded by Hyundai or are these redistributed to diverse shipowners? That's the first question. Second question relates to services and to your contract you announced yesterday night. Does this kind of contract put you in a position to kind of influence or have an impact to -- for the shipowner to go from classic propulsion to maybe LNG propulsion as GSL, if I'm correct, doesn't have any LNG [ propulsion ] for the vessels?

Okay. Well, on [ endeavours, ] well, on the announcement that we could read on the price, it concerns Hyundai, and we probably would suggest that it's better to refer to Hyundai on the intention whether they should -- what they would like to do with that. But as far as we are concerned, we cannot comment on news, which, for the time being, is concerning only [indiscernible]. On the contract for digital activity, we keep up our digital activities as something which is a split from our LNG activities. Of course, we do that with the same DNA as the one for GTT, it's a quest for excellence, look for high technology, and -- but we did developed these solutions for themselves. It's a competitive landscape. And we are not trying to produce this marketing with the marketing in favor of LNG, except that we want to give the impression that the technology is very important. The service to customers is also very important. Another question?

The next question is from Richard Dawson of Berenberg.

The first one is on the more stringent environmental regulations. Just given that a number of these regulations are starting to come into force now and particularly the number of them on the horizon, when do you think we'll start to see LNG carrier orders for that replacement cycle? What -- when will that replacement cycle really start to kick off? And then secondly, on LNG as a fuel. So it's good to see some orders coming through this quarter, and do you think what's the momentum like going into Q4 and into 2024 is? Is a lot of this being driven by just lower LNG spot prices, so customers are making the decision to order new vessels? Or is it sort of changing demand for customers that they're starting to see LNG as sort of the only viable solution? I know it's something you touched on a lot, but we still continue to see some methanol orders. So I just wanted to get your thoughts on that would be great.

Well, on your first question about the more stringent regulations and the replacement cycle, I would say that you have replacement orders when you don't have orders for newbuild so -- for new facilities. So for the time being, you have a lot of orders for new facilities, so you don't have a lot of space, available slots for replacement market. The number of slots are increasing, and [indiscernible] keeping on looking at how they could increase this number of slots that said, with all the others to satisfy all the ships to build for these new projects there is not a lot of space for replacement. So it could come when the market is a bit cooler than what it is now, a bit less effective than what it is now. On LFS, yes, we do think that LNG is a great solution because it can -- it allows to very significantly reduce the emissions. It's ready for the future. It means once you have bio LNG or e-LNG, you can drop in the fuels into the membrane tanks without any modifications, and it's available. LNG is available, bunkering ships for LNG are existing. So if you want to reduce sharply your emissions, you better choose LNG proven existing available, affordable.

That's very helpful. Sorry, can I just have a follow-up just on that first point about the shipyard capacity? Just any color on how that slot is progressing. Are we starting to see more slots actually being coming through now? Or is it more sort of a couple of years' time?

They are working on adding some slots now. It's not sure they're going to find a solution because it's not only a slot in the order book that they have to freight, but it's also a supply chain, which can provide the required equipment for building an LNG carrier and the supply chain capacity has been a bit stretched with the very strong demand we are experiencing for a couple of years. So there are also these issues to be sorted out, and all that is not obvious.

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

Just 2 questions on Elogen, please. So firstly, look, we've seen order intake backlog increasing in the division, and we've now seen quite a marked increase in revenues in the third quarter in Elogen. So I was wondering what is your expectation on the level of absolute losses, which we should expect as revenues ramp up towards 2025. Should we still be -- are your margins expected to stay the same? Or should we be looking at the absolute level of losses that we had in 2022 of sort of EUR 15 million? Or as revenues scale up, are we expecting a sort of widening of those losses in the absolute sense? And then secondly, I was wondering if you could communicate on your longer-term margin ambitions that you think could be achievable in the electrolyser business, let's say, 2030 and beyond, what sort of margin level you think you could achieve there?