Good evening, ladies and gentlemen. This is Ahmed Hazem from EFG Hermes Research, and I'd like to welcome you all today to Nakilat's Q4 2023 Results Conference Call. With us on the line today, as always, Mr. Hani Abuaker, CFO of Nakilat, Mr. Fotios Zeritis, Head of IR and ESG Reporting, and Mr. Waheed Siddiqi, Financial Planning and Reporting Manager. I'd like to start off by congratulating the management on an exceptional year in 2023, and looking forward, obviously, to a very fruitful year in 2024. Without further delay, I'd like to hand over the call to Fotios. Please, the line is yours.
Thank you, Ahmed. Good afternoon, everyone, and welcome to Nakilat's Q4 2023 Results Conference Call. For your convenience, the transcript of this call and presentation is available on the company's investor relations section of our website. As a reminder, this conference call is being recorded, and the media or press is not allowed to attend this investor relations conference call. Many of our remarks contain forward-looking statements, and for factors that cause actual results to differ materially from these forward-looking statements, please refer to the slides two and three of our investor relations presentation. In addition, some of our remarks contain non-IFRS financial measures. A reconciliation of this is included in the notes of this presentation. Waheed Siddiqi, 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. Waheed Siddiqi, Nakilat's Financial Planning and Reporting Manager. Waheed, please go ahead.
Thank you, Fotios. Good afternoon, everyone, and welcome to Nakilat's Q4 2023 results conference call. I'm delighted to be here today alongside our CFO, Hani Abuaker, and our Head of Investor Relations and ESG Reporting, Fotios Zeritis. First and foremost, we extend our heartfelt appreciation to our dedicated seafarers and shore-based staff for their unwavering commitment to delivering clean energy to the world, always punctually. Let's delve into the Nakilat strong finish for the year 2023. Focusing on slide 8 of our presentation, I'm pleased to announce that Nakilat has reported a profit of QAR 1.56 billion, equating to QAR 0.28 per share. This represents an increase of 8.3% year-over-year compared to the same period of 2022.
Despite an unprecedented high interest rate environment and geopolitical uncertainties and tensions, Nakilat has effectively managed through this turbulence with minimal impact on its financial performance. Our operational cash flows have remained robust and stable, as evidenced from the full year 2023 EBITDA, which is at QAR 3.7 billion, a 6.2% year-over-year growth and a current ratio of 1.89. Sustainable value addition to our shareholders is further reflected in the impressive 13.4% return on equity. The slight increase in costs from the prior year is a result of inflation and planned activities relating to manning and vessel maintenance, with no concerning outliers. We have been proactive in our strategic decision-making, enabling us to manage costs by continually exploring procurement opportunities.
The slight downturn in depreciation is attributed to the timing of the new dry dock cycle. Additionally, Nakilat has strategically utilized its cash reserves to generate interest income from deposits, partially offsetting the high finance charges. As part of our long-term planning, we continually deleverage our balance sheet annually. Approximately 70% of our loans are hedged at the group level, minimizing our exposure to further interest rate hikes. Moreover, we maintain a sizable cash deposit that allow us to take advantage of the current environment by readily realizing steady earnings to mitigate interest rate exposure. Furthermore, our LNG and shipyard joint ventures have demonstrated commendable performance. These prudent management decisions have significantly contributed to our strong financial performance. Now, I will pass this back to Fotios, who will provide you with an overview of the LNG shipping market. Go ahead, Fotios. Thank you.
Thank you, Waheed. Hello, everyone. I'm pleased to offer a concise update on the LNG shipping market. Persistent geopolitical tensions and uncertain economic outlook and increased environmental scrutiny are expected to sustain volatility in the LNG shipping industry. After a tumultuous 2022, where Europe shipped from Russian gas pipeline to global LNG sources, 2023 witnessed a more normalizing trend. Notably, around 70% of US LNG exports moved to Europe, maintaining vessel availability above the 5-year average throughout the year due to the shortened voyage compared to the US-Asian route. As a result, LNG charter rates, while low, lower than the all-time high in 2022, remain healthy, staying above the 5-year trend from 2017 to 2021, indicating the industry's resilience.
Europe increased its share in the global LNG trade from 26% in 2022 to around 32% in 2023. Meanwhile, the top five LNG buyers in Asia, China, Japan, South Korea, India, and Taiwan, imported 62 million tons in the Q4 of 2023, marking a 10% year-on-year increase and a notable 15% quarter-to-quarter increase. The growing role of LNG in Asia power generation is evident, with China reclaiming its position as the largest LNG importer in 2023, reaching 71.2 million tons, up by 12% year-on-year. Anticipations point towards Asia continuing to dominate the LNG consumption in the long term.
Turning our focus to the slide 13 of our presentation, according to Clarksons, the average spot charter rates for the modern two-stroke tonnage in 2023 were approximately $124,000 per day, approximately $96,000 per day for DFDs, and about $59,000 per day for steams. Clarksons also assessed the average one-year LNG shipping charter rate for 2023 at approximately $153,000 per day for mega X-DFs, $117,000 per day for DFDs, and $67,000 per day for steams. These figures serve a valuable benchmark for discussing with chartering opportunities.
Moving to page 14, the global LNG fleet is about 679 vessels in operation in 2023, and additional 329 conventional LNG vessels are on order book until 2029, as reported by Clarksons. This represents a notable increase, 48%, in the total LNG fleet, specifically in the number of conventional LNG vessels as of Q4 of 2023. The expected surge in global LNG supply in the coming years is foreseen to drive the demand for LNG shipping requirements worldwide. In conclusion, industry experts firmly believe that LNG will play a crucial role in building a future with reduced emissions. The demand for LNG is projected to persist as the world transitions away from coal and oil in favor of cleaner energy sources.
Consider these positive and fundamental developments. We maintain an optimistic outlook on the long-term prospects of LNG shipping. Now, I would like to hand it over to Mr. Hani Abuaker, to give you an insight into Nakilat's business outlook. Please go ahead, Hani.
Thank you, Waheed and Fotios. Hello, everyone. I'm pleased to announce that 2023 was a banner year for Nakilat, resulting in high profitability for our shareholders and the successful execution of the recent expansion of our fleet. Nakilat has placed an order for 2 LNG vessels and 4 LPG ammonia vessels. These vessels would be part of our global shipping portfolio to cater to the needs of the international charters. It is also crucial to emphasize that we are continuing to aggressively pursue our regional sizable business opportunity once they are available. On January 28, the Board of Directors recommended a cash dividend of QAR 14 per share, marking the highest absolute dividend in the company's history. This accomplishment aligns seamlessly with the dividend distribution payout percentages for the previous year.
This decision reaffirms the company's strong commitment to consistently rewarding our shareholders in tandem with Nakilat's profitability. It is also in alignment with the company's strategy to seek sizable business opportunities that will contribute to expanding the company fleet in the very near future. Furthermore, our shipyard segment has benefited from our ongoing dry dock activities. We have also invested in our human capital and processes to enhance services for all stakeholders and to ensure that Nakilat can take advantage of scalability with their future growth in the pipeline. This refined balance has positioned Nakilat to stay at the forefront of the LNG shipping, segments for industry worldwide. Now, I will give a brief discussion about the Nakilat shortest business outlook for 2024.
Despite the challenging macroeconomic environment, we anticipate another successful year for Nakilat, due to the management effort to focus on maximizing the utilization of our entire fleet and optimize expenses. The shipyard segment is performing well, and we continuously monitor, again, the global energy shipping market and was evident with our order that we have placed recently. And we are very, very excited about the prospects that will benefit our future, our benefit, our shareholders in the future and in the long term. With that, I will ask the operator to open the floor for questions and answers, so please go ahead.
Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad now. When preparing to speak, please ensure your device is unmuted locally... Our first question today comes from Rob Skepper of Ashmore. Your line is open. Please go ahead.
Hi, everyone, and thanks very much for your, your time today, and, congratulations on the results. I just wanted to ask on the announcement for the, the six new vessels, if it was possible to give any more disclosure, on that, particularly around CapEx costs, timelines, returns, in terms of, like, the cargo owner, whether there's discussions on, on that? Yeah, I mean, any color you could give would be, would be great. Thank you.
Hello. I think I can take this question. The price of these vessels is at the current prevailing market. We cannot disclose the specific figures of the deal due to commercial sensitivity and confidentiality agreements. However, as indication, the current price of a new build LNG carrier is approximately at $265 million, and the price of VLGC is approximately $110 to 120 million. However, the price depends on the specification of the vessels, the size of the vessels, so you have to take this kind of consideration and adjustments. However, this is the range that currently on the market. Regarding the expected lever IRR, as we previously have communicated, you should expect something 11% to 14% leverage IRR for this kind of project. I hope I answered your question.
Yeah, great. Thank you. And then, yeah, I guess by a bit of a follow-up is, in terms of domestic and North Field expansion questions, is there anything you can say around the progress or not with any news on shipment related to that project?
Again, you have to understand, we are not the project owner of North Field. This project owner is QatarEnergy, and as generally, as we have done previously, we do not comment on specific projects and deadlines. But for any project around the world, if somebody expect kind of to lift cargo, you need the process to build a vessel is kind of three years, but you need to order before to reserve slots. So you have to... You should do kind of back calculation to estimate the timing, but specifically for, we cannot comment for specific projects.
Great. Thank you.
As a reminder, if you'd like to ask a question, it's star followed by one on your telephone keypad. We have a question from Nafeez Al-Abba from Ajeej Capital. Please go ahead. Your line is open.
Thank you, gentlemen, for the call. Is it possible to comment on the upcoming maturities of the debt and any progress in refinancing? Thank you.
Yeah, I can take this question. As far as the maturities of any of the upcoming loans are concerned, we start well in advance in trying to refinance those loans, as we have done previous year and also in 2023. So that is continually in progress, and we, you know, continue to pay down the annual principal year on year, so that creates a big dent in the amount we owe. So for any of the upcoming loans, they're already refinanced.
If you look at our balance sheet, you will see that there's a nominal amount in the current portion of the borrowing, which tells you that, you know, we have successfully refinanced any of the loans that were upcoming for full loan payments in the coming year, which is 2024, and we will continue to proceed along these lines. So no concerns along that line. Hope that answers your question.
Yes. Thank you. If you allow me, just one follow-up. Is there any planned dry docking or maintenance work on any of the current owned fleet during this year? Like, should we expect some of the vessels to be off for a period for maintenance or no?
For the dry docking, we started the dry docking process of the vessels last year, meaning 2023. So we had, I think about 10 vessels that dry docked in 2023, and the remaining 8 vessels, if I'm not wrong, will be dry docking in 2024. So this will be the planned 15-year dry docking for all these vessels.
and just to add-
Great. Thank you very much.
As far as, as part of our TCP, usually we get paid during even the dry dock days. There's a time, days of allowance for dry dock, so we should expect a stable, earning, during that time as well.
Great. Thank you very much.
Our next question comes from Mark Crompton of PFI. Your line is open.
Hello. Can you hear me? Can you hear me?
Yes. Yes, yes.
Okay, yeah. Thanks for the call, gentlemen. I saw in the press that QatarEnergy sealed a contract with Chinese shipbuilders for 8 Q-Max ultra large LNG carriers. I wondered if you have a competitive advantage in operating those vehicles that might, say, put you ahead of other people in the tender process, or if you had any technical advantage over others with that particular ship, the Q-Max ultra large LNG carriers?
Hello, Mark. First of all, I would like thank you for the question. Just I want to emphasize that Nakilat, during all these years, he's managing the Q-Maxes, which these vessels built at the beginning for the project only for Qatar, and Nakilat is the company who manage all of these years, these vessels. So we are aware how these vessels operating, and we have the technical expertise. Goes without saying, because we are the owner and operator of these things. However, again, I don't want to comment about if we have competitive advantage. It's about definitely, it is about we are the only company who manage this vessel as of today, and we are aware about these ships, and we run these ships actually very successful over all these years.
Okay. Thank you for that. And then I have another question, and that's just about the shipyard. What sort of earnings visibility do you have for the shipyard for this year and next year? I mean, is this a predictable pipeline? And are you anticipating sort of the same levels of profits that of the previous 2023 and 2024, and so forth?
Yeah, maybe I'll take this question. First of all, just to answer your first question, yes, we are the only operator of the Q-Max in the world. So I hope that always gonna be considered as I would call it a plus, to have somebody who is the only expert in running these things or these massive vessels, which is the largest in the world for the past 15 years. About the shipyard, as we said in the previous years, we reached to the level of sustainable performance by the yard. So for sure, there's gonna be some sort of variability depending on the volume that Nakilat fleet comes in over the years. But as you understand, the fleet is big enough with our joint ventures, okay? That would allow this variation not to really be significant.
I would recommend, if you want to model the performance, it should be, somewhere between, I would say, taking the average of the last two years, and it will range between 75% to 100% performance between what we have seen over the last two years. So this is where exactly we see that performance. However, if you take the five-year cycle, we should expect that performance to be sustainable or on average, over the life, five-year cycle of that, drydock, for any of the Nakilat.
Okay, very helpful. Thank you.
Thank you.
Next, we have a question from Saud Bin Patel of SNB Capital. Your line is open.
Hi, can you hear me?
Yes. Yes, we can hear you.
Yeah. I would like to thank you for the call and congratulate you for the performance of the year. I have a quick question about the shipyard and marine services. I would like to understand how does it contribute to your profit, and what is your outlook on these segments? Thank you.
Maybe I'll go with this one. For the shipyard, Hani, our CFO, he just answered specifically on the shipyard and how they've performed and the outlook of those. I'll skip over to the other portion of your question, which is the marine and marine services. Those contribute a fair bit to our operating profit. If you have a chance to look at the released financial statements, there will be a separation on those segments and their specific contribution. But overall, those two business lines or segments, the shipyard and the marine, are sort of linked.
And when we have the volume going through the shipyard, as we've had for the past couple of years, and hoping to continue in the future, as Hani mentioned, then there will be a mutual benefit to all those business lines. There is no delay that we've experienced in deploying these services. We've been able to control the costs, but really well, even after COVID. So we anticipate, you know, as the shipyards grow, that our marine and agency services will continue to grow and be profitable as well. Hope that answers your question.
Yeah, thank you.
As a final reminder, if you'd like to ask a question, it's star followed by one on your telephone keypad. We have a question from Varuna Kumarage of Seaco. Please go ahead. Your line is open.
... hi, good afternoon. Could you... Am I audible?
Yes.
Yes.
We can hear you.
Hello? Yeah, yeah. So thank you for the call, and congrats on the results. I have three questions. The first one is on the JVs. Just want to understand, in addition to this ship business, this year's performance, what I see from the finances, mostly driven by your JV with Maran. So this growth that we see in 2023, how could we, you know, look into 2024? Do you think this profitability is sustainable going into 2024 from this JV? That's my first question. And secondly, as you indicated, that there will be more dry docking happening in 2024, I think about 8 vessels, as you suggested. What could be the impact on the cost side?
I think in the quarters of the dry docking, the depreciation, your depreciation cost used to go up in the past. So I want to understand what kind of an impact can we expect in 2024. And lastly, on the new contracts, the new vessels that you are going to add, you gave like a guidance on the LNG vessel side, but for LPG, what kind of cost can we pencil in? Thank you.
Okay. Maybe I will take some of the questions, and I'll ask the team also to help. For our joint venture performance in the LNG, and I know that we have reported our joint venture with Maran, because it's a significant and sizable joint venture. We believe that the performance should be in 2024 as reasonably strong as 2023, as a lot of these vessels has been already secured. So we believe in overall that the performance of our LNG shipping should be stable in 2024, similar to 2023. We don't see a reason for a big variation in the results. In regards to depreciation, I think what we have explained before is we don't see there's gonna be...
because of the new vessels coming in, we're gonna have a higher depreciation. This year, as we explained in the previous conference call, we had this part of our assessment about our component accounting, just to make sure that we are adhered to the IFRS standards. So we took a higher charge for depreciation, in relation to our component accounting measures. So we should really expect our depreciation to be stable over the years and to be lower than... and to go back to the Q4 of 2024, or at least the average three quarters in 2022. So if you go to 2022 and you took the average, you should really comes to more or less around that numbers, with Q1 of 2023.
And the LPG, Fotios has elaborated, the vessels range is between 110 and 120. That's the market range. We cannot disclose specifically the price, because from commercial perspective. But what we can say is that, our management has secured a very competitive, price for, a very, tight market condition to receive, vessels in 2026 and 2027. So we are very happy, and we are, we celebrated such an achievement of getting a very good price with a good specification at a very tight time for vessel delivery between 2026 and 2027. I hope with that I answered your questions.
Yeah, thanks a lot. Regarding the depreciation question, did I hear you correctly saying that the average will be around the first 3/4 of 2022, which is around QAR 220 million? Is that what you indicated?
Yes. If you take the first three quarters of 2022, sorry, if you take the last three quarters of 2022 and the Q1 of 2023, you should really get some sort of approximate number. I don't have the number off my head. If you want, you can call s eparately for yourself, we, they give you numbers for you.
Yeah, just to give a color on that, in the previous calls, we've noted that once we go back to that range, it's usually around the $800 for the full year. So we should expect to go back to that range once going back. So which comes to around $200 per quarter, but you can take the annual number that we've stated before, which is around $800.
Yeah, this is despite the dry docking, no? So in 2024, we can expect this amount, around QAR 800.
Yes, because we... Well, once, as we had explained before, that even with the dry docking, we've streamlined our depreciation. So with that, we don't anticipate the spike that you've seen. It was just a one-time event, this component bit that
Right.
Our CEO mentioned.
Right. Thanks for-
It was a one-time event.
… Just one last-
Just to be conservative, between QAR 800 to 840. Okay?
Thank you, Fotios. Just one last clarification on with regards deployment of these new vessels. Have you looked at any potentially where, I mean, in geographically, where can these be deployed? Is it, are you targeting like North America or any other region outside Qatar?
As we just said, these vessels are coming during a very tight market, so I believe they will have the marketability anywhere in the world. But we believe, We think there's a really good potential for these vessels when they come into market in 2026, 2027. So we're not limiting them to a specific region. Because there's gonna be, we believe there's gonna be a strong demand for these vessels during that time, with the potential capacity at the end of it. So yeah, definitely, maybe would have been naturally, maybe United States, but we think also anywhere else in the world will be really looking at these vessels as there's gonna be a tight market with the capacity at the end.
Okay. Thank you, Hani, and the team. Thank you.
Our next question comes from Abdullela Alhakami of Hassana Investment Company. Please go ahead.
Asalam alaikum. Hello, everyone. Can you hear me?
Yes.
Excellent. Well, first of all, I'd like to congratulate you on the very strong numbers. I just have one question. Looking at your numbers over the past three years, your OpEx has been growing faster than your revenue from the wholly owned vessels. Just wondering if you're facing any cost pressure that will persist going forward, or is that a one-off thing, given the increased shipyard activities?
I can start off with this one, related to the operating costs. The operating costs, I mean, in the current market, the inflationary pressures that we're facing, the increase was expected, over the past couple of years, at least post-COVID, and that's what we've been seeing. So it's not that it was unplanned. It was something that we foresaw, and we expected that to increase. However, with the bulk purchasing that we've been doing, and deploying over the years, we've been able to control those costs as much as possible. Also, you will have heard earlier that there were dry dock in the last year and upcoming as well.
So we have tried to combine as much as possible when it comes to OpEx, to try and take advantage of the bulk savings, which we've been able to do. So our revenues, on the other hand, also are tied to inflation, so we see the increase on that as well. So by and large, the increase of the OpEx is covered by the increase in the revenues inflation that we experience. So we don't foresee any major outlying or any significant expenses on the OpEx side to overtake the revenues. If anything, they should be flat. However, once we take advantage of the bulk purchasing, that tends to help us over the long term. Hani, if you would like to add something else?
No, I think the current OpEx operating costs should be in line going forward with this prevailing rates. And hopefully, as you rightly said, Waheed, with that scalability and size, we should really start to see something to be taken to that level going forward.
Great. Thank you very much.
Our next question comes from Santosh Gupta of Drewry Maritime Financial Research. Your line is open.
Thank you. Hello all. This is regarding. I have two questions. The first one regarding the recent LPG orders. So, with the, with the recent order for VLGC vessels, Nakilat fleet, LPG fleet increases, is just double. So should we see this as a increased focus on the LPG segment, going forward? Because I think for, multiple years, it was at 4, and I think those 4 vessels are also through joint venture. I'm talking about this thing. This is my first question. The second question is, in the cash flow, we see, acquisition of property and equipment of QAR 606 million. So wanted to know, what does it relate to? Is it related to the recent orders or something else? Thank you. Hello?
Yeah, sure.
Hello, Santosh.
I'll take the question. Sorry, go ahead, Fotios.
Regarding LPG, you know, we are in this business for so many years as Nakilat, as we know, we have the foreign expertise, and we operate in terms of so we have the know-how, we have the expertise, we have the required market intelligence. So all these things give a kind of sustainable advantage for us wherever we see the fundamentals of the market, either LNG or LPG, to see the long-term fundamentals and what we see strong fundamentals on LPG, VLGC slash ammonia for the long term.
So as a result, for this reason, you can see Nakilat to leverage this expertise and to go ahead to buy these high-spec vessels at a competitive market in order to leverage this expertise that we have and then in-house knowledge. So this is how we see the things, because we expect the market to be strong. We expect to receive the required leveraged IRR. For this reason, you see us do this kind of orders. This is part of the LPG question. For the other, I will leave it to Waheed.
Yeah, the other question you had was related to the cash flow of the acquisition of property and equipment. This is just related to the dry docks primarily, which are capitalized and depreciated over the next five years. So that's primarily what this is.
Okay. Thank you.
You're welcome.
As a final reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now. We have no further questions, so I'll turn the call back over to Mr. Hani Abuaker for any closing remarks.
Thank you all for attending today's call, and we assure you our commitment to provide exceptional investor relations coverage. If you need any questions, please reach out to our team, Fotios and the team. We would like to affirm to you our commitment of generating shareholders' return over the long term. Thank you very much for attending.