Gaztransport&Tecnigaz Adr

Ladies and gentlemen, thank you for standing by and welcome to the GTT third quarter 2020 activity update. During the call, all participants will be on a listen-only mode. If you wish to ask a question, you will need to press star 1 on your telephone keypad. I do have to advise you that the call is being recorded today on Wednesday the 28th of October 2020. I shall now hand over to your host for today, Mark Hestiaire. Please go ahead.

Thank you and good evening, everybody. Without any further delay, I will start directly this presentation with the main highlights for the third quarter of 2020. First of all, in terms of core business, we've had a fairly good flow of orders. and also quite some diversification in the types of orders we have received. In the third quarter of such, we had 10 new orders, six for LNG carriers and four for the LEC ethane carriers, very large ethane carriers, which means that at the 30th of September, we've had a total of 28 new orders, 18 LNG carriers, one FSRU, two FSUs, four VLECs, and three on shore storage and diversified portfolio of orders I was just mentioning. Now, if we add to that the order for 10 additional LNGEC, we've just announced it year to date, it is now a total of 38 new orders. On LNG as a fuel, we've had no further orders. The order book has slightly evolved since we've had the delivery of the first CMATGM, a very huge, ultra large container ship. And we have 17 vessels in the order book. On the front of service contracts, we, in July, we've signed two additional global technical service agreements one with smithson in norway and another one with a company called fleet management in hong kong another contract we have signed in september relates to a contract with the u.s department of defense for the red hill bulk fuel storage facility in hawaii so this is a renovation of a few tanks for the supply of Pearl Harbor facility. On the acquisition front, in this quarter, we've made two further acquisitions following the acquisition of Maroc earlier this year. First one is a company called Oze Engineering, to the French company, which is specialized in smarter algorithms, artificial intelligence. And very recently, the acquisition of Areva H2Gen to the French company, specialized in electrolysis, using a specific technology called PEM, proton exchange membrane. A word about the KFPC, Korean Fair Trade Commission investigation. It's all probably our press release of last week. So in October, there was the issuance of a confidential examiner's report, but also the announcement of a hearing of the case, which took place on October 21. the decision following this hearing is pending. So that's for the highlights. Just coming back for a second on the order book. So this is at 30th of September. So it doesn't include the latest PEN orders just announced. So the order book stands at 135 units. Of course, the majority of LNG carriers, 108, 10 E10 carriers, 5 SFRUs, 2 FSUs, 1 FLNG, 6 central storage tanks, and 3 GBS, priority-based systems. So the movements in the order books were 28 new orders, as I just mentioned, and there were also 26 deliveries during the period for 23 LNG carriers, 2 FSUs, and 1 FLNG. LNG is a fuel business, 17 units. We have 13 ultra-large container ships, one cruise ship, the conversion of a container vessel for Hapag-Loid, and two bunker ships. So no new orders and two deliveries, one being the first very large container ship for CMAC-Gen and one bunker ship. Now maybe just a word on the market situation, the LNG market situation. First of all, our traditional slide on supply and demand, which hasn't evolved since our latest communication. So we're still seeing this growing gap between supply and demand, culminating to a need for 240 additional million pounds per annum by 2035. And also there's been a small slowdown in demand because of the impact of the COVID crisis. That has, if you like, moved backwards a little bit, the balance in the market to 2027. So although new production capacities will be required to bridge this gap, between supply and demand. In fact, in 2021, so far, we have not seen any new FIDs, investment decisions. We would also recall that 2019 was a record year in terms of FIDs with 27 million terms permission. But so far, no decision this year and a number of projects or decisions have been delayed probably to 2021, but will be required in any case. We have also listed a number of projects we think could be decided in the near future, one in Mexico, one in Russia, one in the U.S., Mozambique, and, of course, the famous Qatar project. If we take a slightly shorter-term view on the market, what we are seeing after the outbreak of the pandemic, we're seeing an energy market which is rebalancing. And, of course, we are looking at the short end of the market and specifically what's happening in the spot prices and charter races. What we are seeing is that charter rates are gradually improving. Of course, there is a seasonal effect, but still we are seeing less, well, a bit more tension in the stock market with charter rates picking up. You can also see on the chart that the stock prices for LNG in Asia and Europe have been increasing quite significantly, increasing quite strongly the spread between those prices and the U.S. gas price based on the Henry Hub Index. We mentioned at the half share that we were seeing some cancellations of cargoes in the U.S., This has now been decreasing, and we are expecting kind of full utilization of capacities by November of this year. So again, the market seems to be rebalancing. I focus on China, which you know is a large importer of energy. And we are seeing for the period January to August, more recent data are not yet available. But for that period, we're seeing energy imports from China increasing in 2020 compared to the same period in 2019. A lot, of course, of the energy imports in China are based on long-term contracts. So the impact of the pandemic has been less felt. And this is also translated in a 12% increase in Chinese import over the first eight months of this year. Just coming back to the acquisition of Areva H2Gen, which is very recently closed. their position Monday last week, which is, as I mentioned in the highlights, a leader in PEM electrolysis and specialized in the design and assembly of these machines for production of green hydrogen. Some details on the company was created in 2014. It's in fact the only company to actually manufacture electrolysis in France. There is another French company who manufactures these machines, but based on a different technology. But the manufacturing doesn't take place in France. It's in other countries, other European countries. The company provides, of course, engineering and services and is a technology company, so close to our DNA, with clearly a lot of research and development. The application is classically for industry, mobility, and storage of energy. The company, we believe, is well positioned to take advantage of the strong growth which is expected in the green hydrogen market. So this acquisition really confirms our commitment to the energy and environmental transition. It is clearly in line with our development strategy and our mission statement which we have published recently. And we can see a synergy through combined technological expertise, but also our knowledge of energy players and our commercial capacity, which, of course, benefits this company. And a further word on the Fair Trade Commission inquiry. So, as I said, the hearing took place, well, actually a week, last week on Wednesday. GTD has, of course, participated in this hearing with councils, and we have also, of course, prior to this hearing, responded to the preliminary conclusions of the existing who stumbled on this report. Of course, we will keep the market informed of the outcome and of the decision of the KFTC when it will be published. To end this with a few numbers, so revenues for the first quarter, So we have achieved 306 million revenues, which is an increase of 53% compared to the same period last year. Of course, this is essentially on the back of the very strong level of orders we've had in 2019 and 2018. royalties for new builds have increased by 56%. And we're also getting some other news from our new activities, energy as a fuel and GBS. The services, I guess, as was the case for the first half of this year, have suffered a bit more from the from the pandemic with a decrease of 5% of the revenues for services. And this is, of course, a contrasted picture depending on the type of services you are looking at, but clearly where services concern vessels in operations, for example, so assistance to maintenance and things like that, clearly the restrictions in travel have had an impact on that part of the activity. On the other hand, we've had higher revenues for studies. I usually explain that studies can be a bit lumpy. The small number of studies with a fairly high value So we've had a few more studies this year than we had in the first three quarters of last year. So that's it for the formal part of the presentation, except that I would still like to end by confirming our outlook for 2020. So in terms of revenue, we are looking at a range of 375 million to 405 million euros. As far as EBITDA is concerned, we are expecting a range between 235 and 255 million euros. And our dividend policy remains unchanged for 2020 and 2021 with a payout of at least 80% of consolidated net profit. So that is for this presentation, and now I will be happy, Scott, to take your questions.

Thank you very much, sir. Ladies and gentlemen, as a reminder, if you have a question, please press star 1 on your telephone keypad. Our first question is from the line of Jean-Luc Romain from CIC Market Solutions. Please go ahead. Good afternoon.

Good afternoon. Congratulations on the figures. I have two questions, actually.

Recently, DiWu communicated that they received orders for 12 LNG carriers. I was wondering if you were already notified of these new orders or if it's still to come later in the year maybe. And my same question relates to a total announcement this morning about four AfraMax tankers. This kind of LNG-fueled tankers, does it require membrane technology? or is it more technology? Okay, so for the first question, well, since we have not announced any further orders, clearly it means that we have not yet been notified. But clearly, considering our market position, you will see when these will materialize in new orders. Although I haven't seen this announcement, so I'm not in a position to say whether they will be good candidates for membrane or for type C, but I can certainly look into that if you like.

Thank you very much.

Our next question is from the line of Peter Tester from One Invesment. Please go ahead.

Hi, thank you. I was wondering if you could just give us some understanding, please, of the order book delivery schedule for 21 and 22, whether there's been any particular change. Yes, you will have seen that at the half year we have republished – the order book and how it translates into revenues in the following year. I guess that's what you are referring to. We do not usually publish that at quarters, either first quarter or third quarter, but of course the changes will relate to the new orders received since then. But there is no other, if you like, particular reason for any change. If what you are pointing at is any potential delays or cancellations, there have been no cancellation of orders, and the shipyards are operating quite normally, so there's nothing really to mention here. Okay. And then when you look at new orders that you're discussing in your pipeline now, to what extent could there still be anything that gets delivered for late 22 in some of the special vessels, for example, or would most of you be talking about 23 or, in the case of the Russian order, a bit later? In terms of delivery, well, really the question – All that we receive now, let's say, will start generating revenues when the actual construction of the ships begin. So that can be, you know, several months from now. And then the construction period will be something like 18 to 24 months. And, of course, I would say construction schedules in each of the shipyards will also have an impact on when the construction starts and therefore ends. So I would not expect what some of the orders we received today will impact, of course, revenues in, say, 21, but mainly 2022, and also 2023 for those ships which are due to be delivered later in 2023. But, yeah. Yes, I really, you know. I didn't know whether any of the other special vessels had different profiles on delivery, given the tanks, for example, in China and this sort of thing. Oh, yes, well, that can be a bit different. The SSRUs, for example, are quite similar to LNG carriers. The tanks, onshore tanks, of course, have a small proportion of the order book. I guess it's fairly similar. Okay. And then the last question is just on the KFTC hearing. You said there were certain questions that you responded to. I was wondering if these were basically clarifications on the same topics or whether any new topics were introduced at this stage, if you can say. Well, obviously, this report is confidential, but But what I can say is that it's clearly in relation with the inquiry which was initiated four years ago. So there's nothing new in that sense.

Right. Okay. Perfect. Thank you very much. Pleasure.

And the next question is from Kevin Walter from Kepler Shepard. Please go ahead.

Yes, good evening. Thanks for picking my questions. I hope you are doing well. I have one question related to the order that you announced today. So the 10 units that will be delivered between H2 2024 and 2025. Can you please explain me how you will recognize the revenue on those vessels that will be, let's say, built in five years? Usually it was two years. So we have, let's say, usually we build revenue forecast on the two-year metrics. So how should we think about the revenue recognition on those units? Should we say that we should expect earnings, let's say, in 2023, 2024, or before? Let me take that one. I mean, it's exactly the same as for any other LNG carrier. So basically the revenues will accrue during the construction period. So if delivery is, say, 2024, we will probably start accruing revenues from 2022, somewhere in 2022, you know. So there's nothing very different. Okay. So we should, let's say, still consider a two-year construction time, something like that. So let's say the year is up. Okay. Yeah. Okay. Well, it will take a few months. But, yeah, nothing particularly different. Yeah. Okay, I understood very clearly. And the second question is maybe related to Arrivage de Gênes. So if you can, let's say, give us a bit more information on this acquisition in terms of today, what is the, let's say, financial around this company in terms of maybe top line or maybe orders, key opportunities. If you can basically provide us a bit more information on this company today. Okay. Well, as for the former acquisitions we've made, we don't necessarily disclose this information. But to try to give you some view, I mean, this is a fairly small acquisition in terms of value. We've indicated in our press release that it would not disturb the financial balance of the company. This is, I would say, a fairly new market when it comes to green hydrogen, specifically. It's a company which, like I guess other companies in the same field, is moving from a stage of building prototypes, designing, et cetera, to more of a commercial position. moving from, as I would say, prototypes to more and more industrial type of operation, basically. So, you know, you can look at it, although the company's been around for some years, you can still look at it as a bit of a startup. Okay, thanks. And the last question is from you. I was just going to say that You know, there is one French competitor who has raised quite a lot of money on the market, but when you look at their actual numbers, you will understand what I have just said about . Okay, okay. I see this company. And the last question is related, so basically to your top line, your guidance. So when I look at your quarterly performance over, at the beginning of the year, you are close to 100, 102 million each quarter. And when you confirm the guidance, basically it seems that maybe you expect a kind of decline in Q4. Is there any particular reason that maybe I'm missing for explaining maybe a small decline in Q4 or something like that? Is there anything to underline on that side? No, no, not necessarily. I mean, our guidance, as you know, was published already some time ago. The range of that guidance tries to take into account any potential or could take into account the risk of certain delays. I mean, so far we haven't really seen anything of that nature, but it's more precautionary than anything else. So we're not expecting any significant change, I would say, in the fourth quarter compared to the first three quarters. But it's all linked to really the pattern of construction of each of these ships, which can stack up, if you like, differently at different periods in time, but there's nothing specific under that.

Okay, thanks a lot for that.

Our next question is from the line of Charles Glass from Waverton. Please go ahead.

Oh, hello. Thank you very much. Just a follow-up on the... ARAVA H2Gen acquisition. I watched on their website. It suggests that the company buys in its electrolyzers from a supplier. Could you just talk a little bit about what the IP ARAVA H2Gen actually has, or is it simply an engineering company? Does it have a patent of IP?

Yes, yes, it does. Yes, it actually touches its components. I mean, for example, the membrane itself, which, by the way, doesn't stand any resemblance to our energy carrier membrane. But these membranes are manufactured and purchased by IEVA. But they actually designed what we call the stacks and the the actual electrolyzer, and they have indeed filed a number of patents for this technology. So they're not buying, if you like, a whole piece of equipment. They're sourcing the various components.

Yeah, and I understood from players in the market that this electrolyzing business is going to essentially be a market to do with scale, that the bigger the players, are going to be driving costs down by amortizing over very large developments. Could you, I mean, are you envisaging this is going to be a very significant area of capital consumption in years to come to ensure being ahead of the curve, so to speak, in this rapidly developing market?

Yes, it is true that the question of moving, as I was mentioning, actually moving from designing prototypes to a more industrial activity is really the key topic today. Of course, the market for green hydrogen today is very small, and when you look at forecasts, Well, maybe people are optimistic, but they're showing very strong growth, and the key will be indeed to be able to ride that wave. But having said that, it is not necessarily the case that it will need extremely high capital investment. You're not looking at... very large and complex manufacturing facilities necessary. You're looking at scaling up in size, but this may not require that much capital investment. And clearly, this is a recent acquisition, and this is part, of course, of we are obviously looking at how we can contribute to making this company grow with the market.

Thank you very much indeed.

As a reminder, ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad. Our next question is from Goulom Delavi from Societe Generale. Please go ahead.

Yes, good afternoon, Mark. I have a question on Areva H2Gen. There is a French competitor, but there is also a UK competitor, which is manufacturing electrolyzer with the PEN technology with a very high market valuation. So my question is simply, what are the differences between IPM Power and GTT. I understand the two are doing PDN, but do they have different processes? So this is my first question. And my second question is that you are mentioning synergies with this acquisition.

Should I understand essentially, I would say, intellectual synergies, i.e., Maybe you have some patents in your portfolio of patents which could be used or something like that.

Those are my two questions. Okay. Well, on your last question, I wouldn't suggest that we have any specific patents which relate to what Areva H2Gen is doing. But what I was rather saying is that being, you know, both technology companies and having, you know, we do a lot of R&D around hydrogen also. So, you know, putting, I would say, all these things together should normally allow us to develop this company and its products. So that's for your second question. As far as ITM, well, you know, If you look at irrespective of technology, I mean, if you look at, as I was mentioning earlier, following Kevin's question, if you look at the value, for example, of Maxi, which is the French competitor, and you look at, again, at some line numbers, you see that clearly there is kind of a market value which is anticipating very significant growth in this market. And I guess it is probably, I mean, I don't know the details about ITM to be honest, but I believe it can be a similar situation. So, you know, Arevaz Dozen has been, I guess, less visible so far, but we expect that will change very quickly. Just to follow up, if I may, my understanding is that ITM and the same technology, I would suggest it's more or less the same level of revenue, i.e. a few million euros or pounds, and clearly not the same market value and even not the same kind of market value than the French competitor. That's it for me.

Thank you, Mark. Okay.

Our next question is from the line of Jean-Francis Grandjean from . Please go ahead.

Yes, . Could you give us more details regarding the signing or when do you expect a decision and when you expect to communicate about the decision of the KFTC in the next few months, again this year or next year, and can qualify what you think about the exchange with the KFTC. Do you are more comfortable or not taking into account the first decision from the KFTC? My second question concerns the AREVA. One, do you want to present us your strategy in the hydrogen business? And the last question, I'll come back on the guidance. You are more comfortable with the high-end range of the guidance in terms of your sales than the deal.

Thank you. I just wonder why we give ranges in our guidance. So I will not comment further on the guidance, but you will draw your own conclusion from at least from the three quarters which have been achieved. On, sorry, what was your question on HPGEN? So, yeah, well, I mean, clearly, We, from day one of this acquisition, so I'll tell you now it's week one, we have clearly initiated a very comprehensive process to basically understand truly the company, its prospects, see where things can be improved, et cetera. we will certainly be, you know, in the coming months, I suppose, be in a position to be more specific about our strategy on hydrogen and including IVAH2GEN. So it's still a bit early, you know, give us just a bit of time. I can certainly not comment on the discussions with the KSTC because all this is strictly confidential until such time as the KSTC will decide to itself to communicate. And the timing of which of course is fully under their control. So the only thing I can say at this stage is that as soon as the the FTC publish something, of course, we will communicate immediately.

That's it. Thank you very much.

Thank you very much. We have no further questions on the telephone, but we have had one from the web, from the line of Nicholas Royer from Port Sand Park. Could you tell us why you bought Arriva H2Gen and if there are similarities with your traditional businesses? and if possible, some financial elements, 5 to 10 million euros annual sales?

Well, Nicola, I guess I have more or less answered these questions which were already asked by some, I'm not being flippant, of course, but which have already been asked by other participants in the call. I mean, clearly, you know that GTT is... you know, developing its strategy in terms of, you know, solutions for energy efficiency. And you've seen a new baseline, which is technology for a sustainable world. You've seen our raison d'être. And clearly, this acquisition, you know, falls clearly within this strategy. just to add to the other questions which I think I have covered already.

We have had another question come through on the telephone line, sir. It comes from the line of John Buckland from Waderton. Please go ahead, John.

John, hi. Thank you. I'm a little bit nervous that you might have answered this question because I was in the middle of listening to you on the webcast and I had to get on the telephone. But anyway, when you talked about GTT as doing a lot of R&D in the area of hydrogen in response to a question, it just prompted my thought that you've not really said a lot about the transportation storage of hydrogen going forward. Is that something that you're going to address soon from a technology standpoint? And actually, then there will be a greater link between GTT, what you're doing now, Ariba, and the future. Yes. I mean, clearly, hydrogen is the topic, I guess, of the day. Well, I did actually mention we do some R&D around hydrogen and, of course, some of that and a lot of that is dedicated to potential solutions for transportation and or storage of hydrogen. Clearly, these solutions are not going to emerge in the very near future. There are a lot of technical and I would say constraints linked simply to the laws of physics when you think about hydrogen, but clearly we are working on those subjects. So, yeah, I mean, it's part of the same subject, but this is much longer term than what we could see in the development of the production of green hydrogen, which is the topic for hydrogen. It's a kind of diversification for us also. Sure. Hydrogen doesn't have to be stored as a liquid hydrogen that can be stored in other chemicals.

Yes.

Are those like... Ammonia, for example. Is there a place for GTT to get into if it's not already in ammonia transportation, for example? Yes, indeed. Of course, I didn't mention ammonia. We were more on the subject of hydrogen. But yes, we are also working on ammonia transportation, storage. The situation for ammonia is a bit different than it is for hydrogen when we're talking of technical constraints or physical constraints. The contraction point for ammonia is quite high. In a sense, it's a negative. It's quite high. It's minus 33 degrees, so much higher than, say, LNG, which is minus 160, let alone hydrogen, which is minus 250. So clearly, the technical aspects when we're talking of ammonia are maybe less complex to address. On the other hand, ammonia has some disadvantages, clearly in terms of its toxicity and corrosive nature, so that needs to be worked on. But we are clearly, we are not limiting our our efforts to just one kind of gas. We're looking at hydrogen, we're looking at ammonia, and potentially other solutions, if anything else emerges.

Okay, thank you.

And we've had another question from Loretta, from Jens Hiller from H&P Capital Advisors. who would like to know if you can elaborate on the business pipeline in LNG as a fuel?

Yes, I certainly can. We actually discussed that in some more detail in our half-year presentations, and of course you may wish to refer to that. But I think the subject for LNG as a fuel is that It has all the advantages from an environmental perspective in terms of emissions, whether it's sulfur, NOx, particulates, but even as far as CO2 is concerned, although as a fossil energy it does produce some CO2, but 25% less than heavy fuels. So as of today, as we speak, we've mentioned ammonia, we've mentioned hydrogen, etc., it seems to be the only alternative which will be in a position to kick most of the boxes in terms of environmental regulations. So the question for us is not so much a question of if energy as a fuel will emerge as a solution, it's more a question of when. And the situation, of course, we had with the pandemic, has not helped a lot. The shipping industry itself has been in a fairly, I would say, depressed state. For example, in 2020, we're expecting a number of orders for new merchant ships, whichever category, something just under 600 ships. Whereas 10 years ago, it was 4,000. So clearly the emergence of energy as a fuel will also depend on the volume of new ships being constructed. You should also bear in mind that it's a more competitive market than our core business. There are different segments in this market and different types of technologies. Somebody earlier on, it was I think Jean-Luc mentioned Type C, for example, which is an alternative to the membrane technology, but which addresses a slightly different segment, a segment of the smaller ships with smaller tanks where membrane technologies are more suitable for larger tanks. But still, you have an overlap, of course, between when you're around the 5,000 cubic meter tanks. So it's difficult, of course, at this stage to make precise forecasts of you know, how all this could develop in this market, you know, for obvious reasons. But we remain quite convinced that this market will take off, you know, in the near future. Actually, perhaps there's one element I can point out, also I mentioned earlier on that There was the delivery of the first CMA-CGM container vessel a few weeks ago, I guess. So that was delivered. So it would also be kind of a showcase for LNG fuel operated large ships. So that could also help some ship owners to make the decision to, you know,

to adopt energy as a fuel.

Thank you, sir. We have another question from the phone lines from John Richard from Berenberg. Please go ahead.

Yes, good evening, everyone.

Thank you for taking my question. I have one question on hydrogen. I've seen that Hyundai has announced very recently they received an equivalent principle for a quite large liquefied hydrogen carrier, which is about, I think, 20,000 cubic meters. So I'll just let you know from your point of view, how do you see this, you know, this, like from Zimbabwe, do you see this as, you know, potentially commercial and viable over the very near term?

And how do you position yourself? Yes, well, yes, of course. I would say it seems to be, again, I think we're talking more of something like a prototype, I would say. I mean, the question of liquefying hydrogen, of course, is quite complex, and of keeping it cold also. So I guess this is, I mean, this is part of the subject, of course, we are looking at. I would tend to think that this is more kind of a showcase rather than something which will develop quite strongly in the near future.

Okay, thank you.

There are no further questions at this time. I'll hand back to yourself, Mark, for closing comments.

Thank you. First, thank you for your interest and your questions on our quarterly statements. I guess there's a lot going on. So we will certainly keep you informed of how business progresses over time and on the various subjects we'll discuss. Anyway, for now, thank you very much and take care, everybody, in this

not so easy context thank you very much sir ladies and gentlemen that does conclude the call for today thank you all for joining you may now disconnect