Everyone, and welcome to Nakilat's first quarter 2024 results call. My name is Seb, and I will be your operator for the call today. If you would like to ask a question during the Q&A session, please do so by pressing * one on your telephone keypad. I'll now hand the floor over to Ahmed Hazem to begin the call. Please go ahead when you're ready.
Thank you, Seb. Hi, all. This is Ahmed Hazem from EFG Hermes Research. And we'd like to welcome you all today to the conference call, Nakilat's first quarter results conference call. We have with us on the line Mr. Hani Abuaker, CFO of Nakilat, Mr. Fotios Zeritis, Head of Investor Relations and ESG Reporting, and Mr. Kamaran Joma, Acting Financial Planning and Reporting Manager. I'd like to first off start by congratulating the Nakilat management team on a really stellar set of results in the first quarter, and without further delay, I'd like to hand over the call to Fotios. Fotios, please, the floor is yours.
Thank you, Ahmed. Good afternoon, everyone, and welcome to Nakilat's first quarter of 2024 results conference call. For your convenience, the transcript of this call and presentations are available on the company's investor relations sections of the website. As a reminder, this conference call is being recorded, and the media or press is not allowed to attend this investor relations conference. Many of our remarks contain forward-looking statements, and for factors that cause actual results to differ materially from the forward-looking statements, please refer to the slide 2 of the investor relations presentation. In addition, some of our remarks contain non-IFRS financial measures. A reconciliation of this is included in the note of this presentation. Kamaran Joma, Nakilat's Financial Planning and Reporting Manager, will begin today's call with a brief discussion of the group's earnings results.
After, I will give you overview of the LNG shipping market, and finally, Nakilat CFO, Hani Abuaker, will walk you through the company's business outlook. Then we'll be happy to address your questions. Now, I would like to hand it over to Mr. Kamaran, Nakilat's Financial Planning and Reporting Manager. Kamaran, please go ahead.
Thank you, Fotios. Good afternoon, everyone, and welcome to Nakilat's first quarter earnings call. I'm delighted to be here today alongside our CFO, Hani Abuaker, and our Head of Investor Relations and ESG Reporting, Fotios Zeritis. Let's dive straight into the highlights from our first quarter performance. On slide 10 of our presentation, I am pleased to announce that Nakilat's first quarter results of 2024 demonstrate a headline profit of QAR 420 million, equating to QAR 0.08 Riyals per share. This represents a robust increase of 6.1% year-on-year compared to the same period in 2023, showcasing Nakilat's sustained strong financial performance in all areas of its operation.
Total revenue was reported at QAR 1.13 billion for the first three months, marking an increase of QAR 10 million from QAR 1.12 billion Qatari Riyals. This uptake was partly driven by improved performance in Nakilat's LNG fleet and LNG joint ventures. Interest and dividend, alongside other income, totaled QAR 60 million, representing a notable increase of approximately 7.1% from QAR 56 million Qatari Riyals recorded in the comparative period. This increase was primarily due to Nakilat's strategic utilization of cash reserves due to generated interest income from deposits. Vessel operating expenses for the first quarter amounted to QAR 192 million, reflecting a decrease of approximately 1% from QAR 194 million Qatari Riyals incurred during the comparative period.
We expect OpEx to be optimized and streamlined over the upcoming quarters, bringing it in line with the average of the past three quarters. General and administrative costs slightly decreased by 2.1% for the three-month period, primarily driven by timing differences and our continuous improvement. Depreciation and amortization costs total QAR 205 million, reflecting an increase of approximately 2.5%. This was due to the successful completion of the 2023 drydock cycle for our wholly owned vessels, resulting in the amortization of the new drydock asset base. Finance expenses for the first quarter was QAR 296 million, which reflected an approximate reduction of 4% from the comparative period. This reduction was primarily due to scheduled loan repayments. Now turning to the balance sheet.
Nakilat's cash stands at QAR 5.9 billion, marking an increase of approximately 41% from December 2023, which was driven by a robust operating cash flow. This is further supported by Nakilat recording an EBITDA of QAR 921 million for the three-month period, demonstrating an increase of approximately 1.9% compared to the same period in the previous year. As of March 2024, Nakilat's borrowing increased by QAR 1.7 billion. This was primarily due to a drawdown of new loan facilities, which partly finances Nakilat's new build program, consisting of 31 vessels, which have previously been announced. This increase was offset by scheduled loan repayments. Now I'll pass the floor over to Fotios, who will provide you with an overview of the LNG shipping market. Over to you, Fotios.
Thank you, Kamaran. I'm pleased to provide a concise update on the LNG shipping market. Geopolitical tensions, robust LNG demand in emerging markets, increased liquefaction capacities, and unpredictable weather patterns are poised to drive the global LNG trade and maintain volatility in the LNG shipping sector. According to Drewry, Asia's leading importers, China, Japan, South Korea, Taiwan, and India, collectively imported 63 million tons in the first quarter of 2024, marking a 7% year-on-year increase and a two percent quarter-on-quarter rise. Additionally, countries such as Vietnam, Thailand, Philippines, and Pakistan are expected to ramp up LNG imports as natural gas emerges as a primary energy source for both power generation and industrial sectors. Moreover, as of the end of the first quarter of 2024, Europe concludes the winter season with approximately 58% storage capacity.
Shifting our attention to slide 16 on the presentation, Wood Mackenzie forecasts a robust growth in global LNG trade, with liquefaction capacity projected to surge from around 408 million tons in 2023, to approximately 730 million tons by 2030, representing an 80% increase. This anticipated surge in global LNG supply is expected to drive the demand for LNG shipping worldwide. Referring to slide 17, as reported by Clarksons, the average spot charter rate for modern two-stroke tonnage in the first quarter of 2024 stood at approximately $59,000 per day. Approximately for DFDEs, the rate was $46,000 per day, and $30,000 per day was about for steam vessels.
Furthermore, Clarksons assessed the average one-year LNG shipping charter rates for the same period at roughly $76,000 per day for Mega DFDE, $60,000 per day for DFDEs, and $39,000 per day for steam turbines. These figures serve as valuable benchmark for discussion on chartering opportunities. Moving to page 19, Clarksons reports that the global LNG fleet consists of approximately 681 vessels in operation in the first quarter of 2024, with an additional 329 conventional LNG vessels on order book until 2029. This represents a 48% increase in the total LNG fleet, particularly in the number of conventional LNG vessels as of the first quarter of 2024. In conclusion, industry experts firmly believe that LNG will play a pivotal role in shaping a future with reduced emissions.
The demand for LNG is expected to persist as the world shifts away from coal and oil towards cleaner energy sources. Considering these positive and fundamental developments, we maintain an optimistic outlook on the long-term prospects on the LNG shipping. Now, I would like to invite Mr. Hani Abuaker to provide insights into Nakilat's business outlook. Please proceed, Hani.
Thank you, Kamaran and Fotios, hi, everyone. First and foremost, I extend my heartfelt congratulations to Nakilat and the entire team. The successful execution of securing 25 LNG conventional vessel charter to QatarEnergy as part of their North Field Expansion is truly an impressive achievement for the company. These developments herald exciting times for Nakilat and underscore our robust position in the LNG market, particularly in such a competitive landscape. Coupled with the six vessels announced in January 2024, this brings our total to 31 new vessels scheduled for delivery between 2026 and 2029. Furthermore, as Kamaran noted, Nakilat has commenced the year on a highly positive note, achieving a record high quarterly profit of QAR 420 million, despite the geo-economic challenges and encounters in Europe and the Middle East.
Now, this builds into Nakilat's outlook for 2024. Despite facing the challenging macroeconomic environment and geopolitical uncertainty, Nakilat remains strong in its confidence to navigate through the year successfully. This confidence stems from our management's persistent effort to maximize fleet utilization and optimizing our costs. Our shipyard segment anticipates stable performance for the upcoming year. As we vigilantly monitor the global LNG shipping market, we maintain optimism regarding the long-term prospects that will ultimately benefit our shareholders. In line with our commitment to transparency and stability, it is worth noting that as of March 31, 2024, Nakilat currently has almost 669 years of high earnings visibility on firm contracts across the wholly owned Nakilat vessels.
This, this further broken down to with the existing fleet, vessels ending around 2023, contributing to 294 years of actual earnings, confirmed. Also, the 25 wholly owned, charter to QatarEnergy will contribute a further 375 years once delivers, delivered. That is basically, we aggregate all the fleet and per vessel. In addition, we have almost 540 years of cumulative option years of our wholly owned vessels for our charterers to, select after the firm period. This outlook is poised to offer our shareholders a robust future, backed by decades of confirmed and reliable returns. With that said, I would like to turn it over to operator to open the floor for questions and answers. So please go ahead.
Thank you. If you would like to ask a question, please press * one on your telephone keypad now. If you wish to withdraw your question, please press * two. Our first question comes from Nafez Al-Abbas from Ajeej Capital. Please go ahead.
Thank you, gentlemen, for the call. My question is on the figures that you showed for the current, let's say, spot market. If you compare it with the current price for new vessels, what is the, let's say, the rough estimated equity IRR based on these numbers? I mean, if let's say we assume that you're going to pay market prices and get a long-term contract based on the current spot price, what would that mean in terms of an IRR? Thank you.
Okay, I'll take that question. Basically, what we are always ensure that any time we bid for any project, we look into two elements, which is very important elements, or three, I would say. First, the cost of the vessels. Two, the cost of the interest rate, the prevailing interest rate. And third, which is less to an extent, is the operating costs. We ensure in every bidding process that we do as Nakilat, we make sure that we are bidding in such a way that we are achieving what we have been promising back in the days to achieve an IRR between 11%-14% over the life of our contract.
Regardless of the price of the vessels, regardless of that prevailing interest rate, and also about the current level of operating costs, we make sure that in our economics, our rate of return is ranging between 11%-13% or 14%. I would say, always assume that we are thinking about something around 11%. With that, I hope I answered your question.
Yes. Thank you very much.
Our next question is from Santosh Gupta at Drewry Maritime Financial Research. Please go ahead.
Thank you. First, congratulations on this big order of 25 LNG vessels. So my first question is regarding that. So would it be possible for you to provide the distribution of these vessels, like, by when? I think you mentioned 2026-2029. But if you could provide a distribution, like in which years, how many vessels are expected to be delivered? This was my first question. Second was share of joint venture. I think there's a slight decline in share of joint venture revenues on year-over-year basis. So, could you please suggest reason thereof? Thank you.
Okay, maybe I'll take the first question about the distribution of the delivery of the vessels. Honestly, Santosh, we haven't really disclosed it yet. Also, I don't want to really commit, because there's quite a number of vessels coming over the next three years. But you should really think about sort of a normal distribution of number of vessels between on average or in the median, to start from last quarter of 2026 or beginning of 2027, and think about it that we'll we'll start to do this kind of ramping up over the next two to three years.
That's the best estimate I would assume, because also there's a lot of, you know, sort of not certainty, but there's, there's some margin of shipyard delivery that might delay weeks, months, et cetera. So it is fairly to assume there's going to kind of 25 vessels will start towards the end of 2026 or beginning of 2027... and starting to ramp up. I'm sure as we move forward over the next 2 to 3 quarters, we will start to really have a better picture about the specific date based on the progress of building these vessels. In regards to the second question, maybe Kamaran, can you update us, please?
Yes, of course. Okay, to answer your question on the joint venture performance, it was impacted by two faults, really. First of all, we had two of our LPG vessels drydocking during the quarter, which was the first, the impact. And additionally, we observed lower activities from our shipyards and shipyards facilities. And we're hoping, and we are expecting to have, an uptick for the remainder of this year.
Sure. Thank you.
Our next question is from Rob Skepper from Ashmore. Please go ahead.
Yeah, hi there. Thanks for the call this morning. Congratulations on the results. Just in terms of the, so you started to draw down some debt for the new build program. I guess we see that in the gross borrowings and also the gross cash on the balance sheet. In terms of when we should expect to see CapEx ramping up, is there any guidance on that at this point? Either like how it looks sequentially over the next few years, or is there a guidance number for the 2024? Yeah, anything would be, would be helpful. Thanks.
Usually in any shipbuilding contract, the profile of payments usually go between 40%-50% over the couple of two years to three years building up of these vessels. So you would assume evenly addressed 10%, 10%, 10%. And then towards the end of the on delivery, we expect something between 40 or 50 to 60% to be on delivery. So you should really consider that into how our CapEx will happen over the next three years, I would say, or four years. And that's how the ramping up of us paying towards building these vessels with the yards.
As we highlighted before, we've already built in into our economics, all these kind of structure of payments and all costs associated with it, and we are comfortable of our economics to generate our IRR of 11%. I hope I answered the question.
Yeah, yeah. Brilliant. Thanks very much.
Our next question comes from Waruna Kumarage, from SICO. Please go ahead.
Hello, hi. Could you hear me? Hello, can you hear me?
Yes, we can hear you.
Yeah, yeah. So, yeah, I have a couple of questions. Sorry, I joined the call a bit late, so I'm not sure whether this is answered already. It's regarding the decline in the spot rates. I was wondering what was the reason for the, you know, significant decline in the first quarter, and probably this might, you know, normalize over a period, but I just want to know what exactly happened in this quarter, on in terms of spot rates. And my second question, in terms of financing of the additional fleet, what is the debt-to-equity mix of that? Is it fair to assume like 80% of that will be financed through debt? And that's my second question.
I will take the first question. Regarding the spot rates, first of all, always the first quarter, you can see a kind of seasonality. So for this reason, you see a decrease, quarter-to-quarter, performance of the charter rates on the spot market. So it is not something strange, it's something seasonal. You can see every year this kind of pattern. But, if you compare... I can tell you it's little bit more normalized, because still, if you take the average over the last five years, still the first quarter charter rates are above the average over the five years. So still it's above, substantially.
So with this thing, I can say it's more normalized, rate that you can see the last two years, due to high rates that we saw through different patterns about the weather, because of geopolitical tensions, et cetera. But still, the current rates is above the average five years, so I think it's, just a pattern, seasonal pattern. I hope I answered your question. So the second one, I let, Kamaran or Hani to elaborate.
Sorry, if you can repeat the second question, what it was, please?
The second question is about the capital structure. I mean, the debt-to-equity mix in terms of financing the new fleet of the 25 vessels. So I was wondering how much of that will be financed through debt?
... Yeah, usually in any project financing for such an long-term charter contracts, or for the LNG specific, usually you can do a project finance between 75%-90%. So we should feel comfortably if we are around 85%-90%, we can do that very easy with Nakilat. So, I usually that is the case. So project finance, that's around 85%-90%, depends on the vessels and the long-term charterer. This is how we can comfortably finance our debt. The remaining will come from our own, you know, I would call it corporate cash, that we can secure over the coming years.
Yes, if I may follow up, I have one more follow-up question. Do you think, I mean, beyond this point, would you have the capacity to take additional vessels if needed? If additional vessel awards are there, the North Field expansion, will you be able to add more vessels? I'm thinking of-
Well-
- financing capacity only.
You have to understand, from a financing capacity, yes, we, we think if it is required to take more vessels, we can do that. Banks and lenders understand the LNG business very well. They are very eager and having a great appetite for sort of an LNG long-term charter contract. So from a project-wise, yes, it's very comfortably, we are capable of doing that. And we as a company, you have to understand, if there's any additional needs that comes in the near future or next year or et cetera, and they were very good for our shareholders and meet the economics, that we, we believe it's good. We're, we're happy to take more.
Particularly, you have to understand that we as a company already we're having an existing operation in place that generating cash for us, free cash, and thus we can use it to deploy it against these kind of additional potential opportunities. We feel the capacity is there in case something that is good for us and for the company and for our shareholders, and we have the capacity to do that if it is needed. We're comfortable with this.
Thank you. That's very helpful. Thank you.
The next question is a follow-up from Nafez Al-Abbas from Ajeej Capital. Please go ahead.
Well, my question is basically just like a follow-up on the previous question, because there was a news item today or the past couple of days that I know you don't like to comment on QatarEnergy activities, but the news item said that they are placing an order for 18 ultra large ships for LNG at a Chinese shipbuilding company. Do you think these will be also available for award to companies like you, or do you think these will be earmarked to somebody? Just to get any feedback. Are they like potential awards or they are already like the operation will be set?
I think, the best way is just to wait for, QatarEnergy to confirm and decide how they are allocating these vessels to the, new ship owners to operate them. I think that is something that, we wait for QatarEnergy to decide and to announce. We're their, our largest customers, we're always happy to help them if there's a need, to take capacity, if, if they've decided so. But that usually is their decision, and they will announce that. I hope I answered your question.
Yes, thank you very much. Thank you.
Any further questions, please press * one on your telephone keypad now. Okay, we just have one further question here from Abdullah Amin, from QNB. Please go ahead.
Hi, congratulations on the results. Thank you for the call. I just want to know if you can explain a bit in slightly more detail how is this expansion, because there's more than 100 ships that are coming. Who are the other competitors that QGTS has? Currently, what's the breakup for the current existing fleet? How much do you manage? 50%, 80% of the total fleet of LNG shipments, and what do you think is gonna be the same ratio going forward? There's the Q-Flex vessels that usually you only manage right now. That contract is also, of course, like up for grabs, I think, if I put it that way. Are you guys in discussion with QatarEnergy on these things?
First of all, I think, to answer your question, we've got awarded 25 vessels, and that was announced publicly, out of the 100 vessels that so far announced. So if that is the case, we're getting 25 over a hundred. I'm not sure if this is including the new vessels or not, as part of. We don't do the calculation for QatarEnergy. In regards to the Q-Max size vessel, that's something I just answered it previously, is that, QatarEnergy are the ones who really decide and announce who are the owners who's gonna be awarded these vessels.
As we said before, they are the, our largest customers, and we're always happy to, to help them and to provide our services, if that is needed. But that's something for them to, really, advise and to announce, who, to whom they are gonna really award these, vessels. The other competitors, there are different, international shipowners. It's a massive order. Remember, it's 100 vessels. It's really, quite big of, of an order. We are, as Nakilat, we're comfortable, with what we're doing. We're the largest, one of the largest in the world, by capacity. So we're... We have the scalability and the infrastructure, so we have, I would say, a great advantage of really operating these vessels compared to somebody else that has a limited number of vessels.
We have a quite number of joint ventures with different shipping companies, exist currently. So we believe that we got a world-class operating model, and it's scalable and will always gives us the benefit of economy of scale that will always allow us to operate efficiently, and also to make sure our balance sheet is very strong, to secure a very competitive funding that will make us able to compete on the IRR and on the return. So I hope I answered your question. Thank you.
Yes, thanks. Thanks for the clarification. I just wanted to understand, right now, the Q-Max fleet that you have, is... You are the only ship company that has the Q-Max fleet for Qatar Energy. Is that correct?
Yes. We are the only one for having the Q-Max for QatarEnergy. Yes.
And, um-
Yeah.
Out of the 100... Sorry. Out of the 100, they have only awarded 25 so far. They have not awarded any other ships contracts to any other company other than QGTS?
No, no, they did. They did. If you go back to their press releases, they did, they did award to other companies. We, we, we can share that information. I'll ask Fotios to share it separately with you some of their press releases, so you can a little bit more acquainted, basically, or aware of at least about their awards that they've done before. We can, we can share some of that information, which is publicly available information.
Thank you very much. The last question is a follow-up. Out of the 125 been awarded to you, and how many have been awarded to other people? Other, sorry, other companies.
Yeah, that's, that's what we'll say. We want to make sure that we send you the correct information, to show you exactly what has been awarded and what has been... I think there's something was even on QatarEnergy website about the vessels, how much they were awarded and to which companies they were awarded already. And we can share that for you, so you can see exactly the specific and exact statistics.
Thank you very much. Much appreciated. Thank you for the answer.
Yeah, yeah, we'll share with you. I'll let Fotios to share you that link. Thank you.
Thank you very much. Thank you.
Our next question comes from William Sewell from Verdant Capital. Please go ahead.
Hi there. Can you hear me?
Yes, we can hear you.
Hi. I have a follow-up question on financing capacity for incremental vessels above what's already announced. When you look at your balance sheet and you think about... Or maybe, maybe the better question is, when the banks look at your balance sheet and decide if you've reached the upper limit of your leverage, what metric do you look at? Is it net debt over EBITDA? Is it just the debt over equity of the consolidated group, or is it, you know, the SPVs of the project finance? Like, what's the best metric to kind of gauge if you are actually reaching that upper limit where you wouldn't be able to add any further leverage to acquire more vessels?
Usually, the banks looks at your, the SPV, the project finance. So the banks, because these are, SPVs that set up separately, the banks is always willing to give you, 80% or 85%-90%, based on the time charter contracts that you have against these, vessels. Only what you have to do is to really finance you, as a company, 15 or 10%, depending on the size of the vessels and the price, and the charter party, and the number of years. So the banks, you know, and banks always looks for the potential downsides. This is why they're almost very comfortable for financing that highly leveraged, assets, because what they see is the certainty of the cash flow coming to these SPV through the charter party contract...
That's similarly what Nakilat has done back in the days, where Nakilat, when it was established, we were at 90% leveraged, okay? And that was received an overwhelming financing back in the days. We also had bonds issued back in the days, that was also as well as part of that financing of 90% debt and 10% equity. And that bonds, until now, it's one of, it is the best rated bonds issued for a shipping company. So the banks, they view it from a downside risk perspective. The banks is very comfortable to fund our SPVs, where we're gonna drop all these assets in. They're willing to come up with 85%-90%, let's say, average, debt, theirs, from their side.
We have just only to contribute the 10% or 15% of that equity portion from our corporate level. So I hope I explained, you know, your question very well.
Thanks. That's very clear. I have a second question.
Sure.
So I understand your intention is to hedge the interest rate risk on the leverage for the newly acquired vessels. Can you just help us understand if, I think the 25... I was looking up on Bloomberg, the 25-year price of a swap at the moment is about 350 basis points. I see if you can explain this a bit further, but if you intend in around three years to fix that rate, can you just give us understanding of the spread that you will pay over the cost of the swap, or the face value of the swap, in, like, credit costs or any other spreads that you're paying to the counterparties? That would be really helpful. Thanks.
I think to give you an indication, we are rated, our current bonds are rated. So maybe the most approximate spread, maybe that could be to look at what's the spread that our bonds are trading at. I, I think that is the best way of at least being approximate about potential cost of debt that we might have to incur over the next, let's say, 15-20 years, or even 25 years. It depends. So I think that is the most accurate, I would say, or the most available information.
If something that is not really, we haven't committed to yet with the funding, and we have an actual funding, I mean, confirmed or took, I would rather to avoid, because I just wanna make sure that what I say is very accurate and very confirmed in the market. But if you want to really understand how much is the debt that we are raising right now and what's the spread, look at the spread of our bonds. That should really tell you exactly how much you should expect for us for something like, let's say, between 10-15 years, and you can extrapolate further if you wanna do it for 25 years.
Okay, understood. Thank you very much.
Yeah.
The final call for any questions, please press * one on your telephone keypad. We have no further questions on the call, so I'll hand the floor back to management.
Okay, thank you very much. I would like to take this time to emphasize that our commitment to enhancing our IR practices, and please feel free to reach to the team, Fotios, so he can really answer any further questions or inquiries. We'll make sure if there's any kind of information that needs to be communicated with our management, we do that always after each conference call. Once again, thank you very much, and we will get back to you and hopefully to see you this next quarter as well. Thank you very much.