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

Well, thank you very much. Good evening, everybody. Very pleased to be with you. I would like to introduce you the persons with me tonight. We have Thierry Hochoa, who is the Group CFO, we have [indiscernible] and [indiscernible] dues from the investor relationship team. We are gathered to talk about the acquisition of Danelec by GTT. Danelec is a recognized player in my time, digitalization. The -- for GTT, it's a transformative step in its digital journey. It's a key milestone in the development of our digital vision. We are securing a global leadership position in the high-potential segment of vessel performance management as we are achieving a top-tier position in the critical Voyage Data Recorder segment. We are going to unlock significant synergy potential, thanks to the complementary offerings of Danelec, [indiscernible] and DPS. This move is fully aligned with our strategic road map. We have now -- we're going to have an installed base of approximately 17,000 vessels, one of the largest in the world. It will enable technology uplift with trusted expertise in high-frequency data handling. It's an acquisition which is going to deliver dual strategic value for GTT. In terms of vessel performance management, we become the world leader in high potential market segment. We are reaching a critical mass, and we are covering the entire segment from known reports based on solutions enhanced with VPS acquisition in February 2024 to high-frequency data solutions with Danelec in 2025. In safety, we secured our top-tier position in a critical, highly regulated market, offering steady growth and recurring revenues. Strong profitability driven by VDR, a mandatory piece of equipment under IMO regulations, visibility and recurring high-margin revenues through annual maintenance services, very well-established player with more than 20 years of experience and 15% of the global fleet equipped, including a remarkable a 30% market share of annual retrofits. [indiscernible], floor is yours.

Thank you, Philippe. So Danelec, as mentioned by Philippe is a recognized player in the maritime industry, and it is a very good fit in our digital setup. Danelec operates in 2 segments, safety, mainly represented by the VDR, which represent today 64% of the revenue and that is associated with annual services or annual reviews that are part of the recurrent revenue generated by the company and also maintaining a close relationship with the different customers. The second segment is a vessel performance management, representing 31% of the revenue where we have solutions like the shaft power meters and other devices like the DRS. And on top of that, Danelec offers software, Maritime Software as a Service, maybe for the business performance management as mentioned. Some key numbers about the company. So Danelec generated EUR 44 million revenues in the last exercise. The installed base was mentioned by Philippe, 15,500, which is 1 of the largest fleet managed or installed by a digital company in our space. And in terms of employees, 168 employees work in Danelec. And on top of that, Danelec uses a highly qualified network of 700 technicians that are present all around the globe, close to the main hubs of operations of the customers to be as close as possible to them and serve them. The company is headquartered in Denmark, close to Copenhagen. One of the key aspects of this acquisition mentioned by Philippe is the significant synergy potential that this operation represents. So what you see on the left is some of the key items that will benefit from these synergies. First, I would like to mention that the companies within the group, Danelec [indiscernible], VPS are talking to the same customer base. So that increases our exposure in this market. So going back to the synergies in terms of business performance management, on [indiscernible] and VPS develops or designs and deliver digital solutions that are complementary to the Danelec set up. And the other -- on the other side, Danelec has a very large installed base equipped with high-frequency data devices that are compatible, of course, with this solution. Regarding the voyage optimization, usually called also weather routing in the industry, Danelec does not have today a solution -- an in-house solution for that. So that means that the customer base is a natural, I would say, target for the combined solution, combining by the way, also some solutions from the vessel performance management. So by bundling all this, we can easily think that we will have a competitive advantage to serve these customers. The other devices provided by Danelec, like the VRS or the shaft power meter generates very importance of key data that can be used to deliver vessel performance management tools. So the combined solution, again, between the different entities will be a very good solution bundled or sold the loan, by the way, for this customer base. And beyond the different segments mentioned, the customers using Danelec VDR, Voyage Data Recorder, are a sticky customer base that can be, of course, a very natural target for our sales operations to upsell our vessel performance solutions in general.

Thank you, [indiscernible]. A few words on the metrics of this acquisition. We have signed an agreement with European Investment Fund Verdan to acquire 100% of Danelec valued at EUR 194 million. This represents about 15x the 2024, 2025 EBITDA before synergies. The integration of Danelec into GTT is expected to generate substantial synergies, as mentioned by [indiscernible] by combining the complementary technologies and offerings of Danelec [indiscernible], VPS in order to continue creating value for shareholders. In addition, an accretive impact on the group's earnings per share is expected from the first year. Regarding the next steps. The transaction is expected to close in the second half of 2025, subject to customary conditions precedent. We will finalize the new incentive scheme for the Danelec top management to ensure continuity while supporting the acceleration of growth of the combined digital division. I now hand Philippe -- the floor back to Philippe.

Thank you, Thierry. Well, to conclude, I would say that GTT is completing today its largest acquisition in its history. This is a transformational transaction, which positions GTT as the world leader in the fast-growing segment of digital solution for vessel performance. So Danelec has a leading position with 15% of be global equipment fleet in the highly strategic segment of my time black boxes. And finally, and more importantly, I would say that Danelec is an excellent company, aligned with GTT Group's technological culture and its values of excellence, innovation and safety. Now we are going to answer to your questions.

[Operator Instructions] The first question is from Kevin Roger, Kepler Cheuvreux.

I have 3, if I may. The first one is on the financing, would it be 100% cash? Or do you anticipate to use new source and funding such as bonds, convertible or whatever, just to understand how you will fund the acquisition. The second one is on the synergies. If you can maybe just quantify early the potential synergy that you see on cost on revenues with this acquisition. And the third one is just to be sure on the kind of market that we are talking about. At the full year earnings presentation, you divided the global maritime market in 3 segments, and you were arguing that [indiscernible] was targeting a kind of EUR 400 million addressable market. Do we stay in those EUR 400 million addressable market or we move to the 1.8 billion global smart shipping opportunities that you were arguing during the full year presentation, please.

Okay. Thank you, Kevin. Regarding the financing of this acquisition, we are very open on this topic. We have enough cash today to finance this acquisition by our own cash. But I think that to have a mix, it's perhaps an opportunity for us to have a leverage regarding the debt, but it's very open today regarding this question, Kevin. Regarding second one, Philippe.

Yes. On synergies, well, today, we announced the signing of this transaction. Now we are going to work on the closing that we expect by early July, and then we are going to work -- start to work on the integration. So let's wait a little bit before we give you figures on synergies. We do take a note offshore question. [indiscernible] ?

Yes. Regarding the third question about the market size. So during the annual results last February, there was this targeted market valued at EUR 400 million. So this actually includes the vessel performance management share, I would say [Audio Gap] today from Danelec revenue. When it comes to safety, it was on this EUR 1.8 billion. So this is actually something that goes beyond the -- what actually was valued in this EUR 400 million, meaning that we opened the door to other segments that we did not target so far.

The next question is from Guillaume Delaby from Bernstein.

Congratulations for the acquisition. Sorry, Philippe, but I'm coming -- to come back to synergies because, of course, if we want to value the acquisition, I do understand and globally, I do subscribe to the strategic rationale. On first sight, the amount seems extremely reasonable. However, we need to just make our work to have an idea of synergies. Given the fact that the 2 companies are extremely complementary. I know that you're not going to give me a number, but I think listening to you that it is reasonable to assume that the vast majority of synergies, let's say, maybe 75% are going to be revenue synergies. Just -- of course, I would like just you to tell me whether it's going to be the case. And second, the difficulty, this is how financial markets work. Financial markets tend not to give a lot of value to revenue synergies. So could you give us maybe something more because I'm happy to factor in 75% of revenue synergies, but give me an additional sweetener, please.

Okay. Well, as I was saying, we are today announcing the signing and we got to go through the closing, which is going to take us something like a couple of months. Then we are going to be in a better situation to tell you what the synergies are. I will not comment on our assessment about 75%. But let's take into consideration that Danelec is talking to shipowners who operates 15,500 ships. So that's a huge potential. That's an opportunity to talk to these owners with vessel performance solutions that Danelec has, that [indiscernible] has, that we can further develop. And we can bring to them further improved solutions there. That's some examples of what we can do together. And it's why this acquisition is very promising.

One follow-up, if I may, and maybe I missed it. What is the provision of Danelec revenue, which today is in strict competition with GTT. Is it -- what is it, 15%, 20%, meaning selling the same kind of product to the same precisely identify client?

It's the portion of the common revenues, our common solutions is very few or very non-significant compared to the VDR products and solutions developed by Danelec.

Okay. Okay. So it's not going to be 75% revenue synergies, it's going to be 95% revenue synergies.

That's your interpretation, but why not?

[Operator Instructions] The next question is from Jean-Francois Granjon, ODDO BHF.

Yes. 3 questions from my side. Could you come back more specifically on the business for the safety for the first part and for the vessel performance management to understand what is exactly the business? The second question is, which is the percentage of the recurring revenue and mainly for both safety and vessel performance management? What is the proportion for the recurring revenue? And the last question, due to the figures mentioned for the acquisition, is that probably the sales, the revenue could be higher than EUR 50 million this year, up by more than 15% is some exact expectations?

Okay. So regarding the first question, so what is the VDR business, if I understand the question very well. So make it actually very simple to explain, is really similar to Philippe mentioned the black box in the aviation industry, this is something similar, of course, that's for the ships. So this device mandatory by the way, for ships having a gross tonnage above 3,000 since 2002. So this is a solar, we call it solar regulation from the IMO. So this device records critical information, allowing to explain, for example, the reason behind an incidence or something like that. So this is what I mentioned by saying that this is a mandatory device, giving a strong presence in this market. And this is why also we said that it offers a sticky customer base because it comes with an annual maintenance. So this is actually what this VDR business is about. So it relies on high-quality devices and services because we are talking about a critical service. Regarding the second question was, I think the split between the recurrent revenue between performance and safety, we [ didn't ] go back.

Yes. Regarding safety, representing 64% of the total revenue. So you have 59% from hardware, 3% from software, 27% for services and 10% for other. But you need to understand that we have a large portion of recurring revenue, about 30% of the global revenue of Danelec. Third question? On the last question, I didn't...

Yes. Could you -- regarding the revenue, -- at this stage, it's difficult for us to answer your question regarding the EUR 50 million of revenue this year because they have not yet closed their figures, their books Danelec. It will be at the end of June, and we need to have a pro forma for the end of December because it's not the same timing for the closing. So I think that we can revert to you perhaps at the end of this year. But regarding the guidance, we do not have any elements to revise this guidance today.

The next question is a follow-up from -- I'm sorry. So the next question is a follow-up from Guillaume Delaby, Bernstein.

Yes. Just a quick question. Is there any debt at Danelec? And second, what is the typical free cash flow -- EBITDA to free cash flow conversion? Because I would believe that associated CapEx is limited. Can you give some color on that?

Regarding the CapEx is very light or not intensive CapEx because it's more in -- they assemble some elements, and they do not have any significant CapEx on it and mainly innovation and R&D. Regarding the debt at the Danelec, it's around EUR 30 million at the end of 2024 -- June 2024. That's the debt that they have today due to their different acquisitions and -- for Danelec.

Just -- so I didn't get the number, the net debt number is how much?

EUR 30 million. 3-0. 30.

The next question is a follow-up from Kevin Roger, Kepler Cheuvreux.

Yes. Sorry, me again. But just wanted to be sure on one element. You use part of your cash just to understand if there will be any impact on the dividend policy, please?

Well, no, we cannot say how we are going to finance the operation. We are not specific about that. We are working on that. But we don't change our guidance, neither on our profitability nor on our distribution policy.

I think we are done with the question from the phone, and we have some written questions. So the first one is coming from Nicolas Royot from BNP. Could you give us the historical rate of growth CAGR 3 or 5 years, for example.

Funding is not clear. We don't intend to issue nonconvertible debt or to pay partially the acquisition in shares. On the recurring part of the business recurring, it amounts to 30% of the business.

We don't have any follow-up questions.

We can answer regarding the CAGR if you want, yes. For the Voyage Data Recorder, the VDR is around 5%, the CAGR. And there's shaft power, SPM is around 5% or 6%. And for the software, maritime performance is around 11% or 10%. That's the CAGR.

Which sends back to the fact that the growth potential is there. And also, you see the importance of the recurring revenues, you see what has been the growth. So that's why we are quite happy to have made this strategic move for the GTT Group. Any other questions? No?

No other question.

Okay. Well, I would like to thank you very much, and we are going to be very pleased to keep you aware of the evolution of this move in the next weeks and next months. Thank you very much. Have a good evening.