Good afternoon, ladies and gentlemen. This is Ahmed Hazem from EFG Hermes Research. We'd like to thank you all today for joining the Nakilat Q3 2022 Results Conference Call. We have with us on the line today, Mr. Hani Abuaker, CFO of Nakilat, Mr. Fotios Zeritis, Head of Investor Relations, and Mr. Waheed Siddiqi, Financial Planning and Reporting Manager. I'd like to start off the call by congratulating Nakilat on a solid set of results. Without further ado, I'd like to hand over the call to Fotios to get us started. Fotios, please go ahead.
Thank you, Ahmed. Good afternoon, and welcome to all to Nakilat's Q3 2022 results conference call. For your convenience, the transcript of this call and presentation will be available on the company's investor relations section of our website. As a reminder, this conference call is being recorded, and 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 slide two of our 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. Waheed Siddiqi, Nakilat's Financial Planning and Reporting Manager, will begin today's call with a brief discussion of group earnings results.
After, I will give you an overview of LNG shipping market, and finally, Nakilat CFO, Hani Abuaker, will walk you through the company's business outlook. We'll be happy to address your questions. Now, I would like to hand it over to Mr. Waheed Siddiqi, who Nakilat's Financial Planning & Reporting Manager. Waheed, please go ahead.
Thank you, Fotios. Appreciate it. Good afternoon and good morning, everyone, and welcome to Nakilat Q3 2022 earnings results conference call. Our CFO, Hani Abuaker, our Head of Investor Relations, Fotios Zeritis, and I will be your guides for today's presentation. I hope you and your families are safe and looking forward to the soon to be coming and exciting World Cup that will happen in Qatar in about one month time. Also, we hope that the world returns to peace very soon.
Our sincere gratitude goes out to our seafarers and shore-based staff for their dedication and continued efforts to bring clean energy to the world without any delay. Moving to the Q3 2022 achievements, Nakilat is now successfully managing the fourth and final new build LNG carrier received during the month of January 2022.
It was on budget and on time. This is an indication of Nakilat's excellent tactical and operating management, as well as our seafarers' commitment to growth and progress. Turning to slide seven of the presentation, I'm pleased to announce Nakilat reported a profit of QAR 1.1 billion or QAR 0.20 per share.
This represents an increase of 13.2% year-over-year compared to the first nine months of 2021. Nakilat's continued efforts to optimize its structure and generate additional savings have led to a reduction in our G&A expenses of 5.5% versus the same period last year.
In addition, Nakilat has healthy and stable operational cash flows, as evidenced by the Q3 2022 EBITDA, which stands at QAR 2,641 million, an increase of 7.5% year-on-year, with a current ratio of 1.41. With a resilient business model and a focus on growth, Nakilat is well positioned to continue creating and add value for its shareholders. This is further evidenced by a 14% return on equity. I will now hand it over to Fotios, who will provide you an overview of the LNG shipping market. Fotios, please proceed.
Thank you so much, Waheed. Hello, everyone. I would like to give you a brief update of LNG shipping market. It is a year which is highlighted by geopolitical issues and the European energy crisis. The fast declining Russian gas supply to Europe forced the region towards LNG to counter the deficit.
According to Drewry, Europe's LNG imports are projected to increase by 78% year-on-year in 2022, with further rise expected in the Q4 of 2022. In addition, Europe is also accelerating FSRU-based LNG import projects to increase LNG imports. Drewry projects LNG trade to grow at a CAGR of 5.5% from 2022 to 2027 due to Europe's switch to LNG from Russian gas.
In addition, Asia's top five LNG buyers, China, Japan, South Korea, India, and Taiwan, imported 53.3 million tons in the Q3 2022, up 4% quarter-over-quarter as per Drewry. Now please turn to slide 12 of our presentation. According to Clarksons, the average for charter rates in the first nine months of 2022 for modern two-strokes is approximately $90,000 per day, $61,000 per day for DFDEs, and $34,000 per day for steams. Clarksons assess the average 2022 for the first nine months, one-year LNG shipping charter rates at $137,000 per day for ME-GIs and X-DFs.
$106,000 per day for DFDEs and $53,000 per day for steam turbine vessels, which is a very helpful benchmark when an owner discuss term opportunities with a charterer. After at page 13 of our presentation, you can see that the global LNG fleet has 601 vessels in operation in 2022, and another 218 conventional LNG vessels on the order book until 2025, as per Clarksons.
This implies an increase of 36% of the total LNG fleet in terms of total number of conventional LNG vessels as of the Q3 of 2022. Europe switch towards LNG to end its reliance on Russian gas has sent the LNG market on an override, with major changes in shipping trading patterns.
High European LNG demand and consequent investments in LNG exports and import projects are expected to boost LNG shipping requirements now and in the future. Now I would like to hand it over to Mr. Hani Abuaker, our CFO, to give you an insight into Nakilat's business outlook. Please go ahead, Hani.
Thanks, Zeritis. In spite of the turbulent tide that we have faced this year related to elevated inflation, tightening monetary policy, geopolitical uncertainty and volatile capital markets, Nakilat business model is strong and can navigate through a turbulent environment. Despite global elevated inflation and rising interest rates, Nakilat majority of debts are hedged to minimize impactful exposure to our rate spikes, and it is amortized annually.
It is worth mentioning that we have already started to observe more activities in our shipyard segments, and we continue to monitor business opportunity worldwide with Nakilat solid foundation and free cash flow, allow the company to take advantage of attractive business globally and should they arise and continue to provide a sustainable return to our shareholders. Now I will shortly discuss about Nakilat's business outlook for 2022.
We expect to see another successful year for Nakilat due to management's continued effort to maximize the utilization of our entire fleet and optimize our expenses. The rebound in our shipyard segment is expected to continue with little volatility, and it is now more sustainable over the long term.
It goes without saying that Nakilat is again continuously screening global LNG shipping opportunities to make sure to identify any attractive business opportunities and to benefit our shareholders in the long term. With that, I will ask the operator to open the floor for questions and answers. Please go ahead.
Thank you. As a reminder for those dialing in, if you'd like to register an audio question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two, and please ensure you're unmuted when speaking. Again, for any audio questions, that's star followed by one. Our first question comes from Taha Madani of SICO. Taha, please go ahead.
Hi. Hello. I have two quick questions. The first one is that this one-time write-off of legacy financing in the Q2 that showed in the financial charge. Can you briefly explain what this basically was, the QAR 300 million total financial charge in the Q2? The second question is related to the JV income. The major nine-month JV income of this year, is the increase due to higher rates overall, or mainly the four new vessel addition?
Sure. I will take those two questions. First off, it was related to the finance charge, the one-time, finance write-offs that was there in the Q2. I would like to reiterate that this is a non-cash transaction that has happened. It was a legacy charge of previously, refinanced, loans that were sitting there. Since we're now moving to refinance existing loans, there was no benefit of having these old legacy charge sitting on our books, which is why it was written off. Going to your second question, it was about, JV income, correct?
Yes.
Yes. Our JV income on the LNG side, which is your question, it had strong performance. Of course, it was related to having a full suite of our new vessels, the last one which came in January. Also, the other factor is the higher favorable charter rates, which we have been seeing for most of this year. Two factors that are contributing to that.
If you had to give like a sort of percentage-wise, which one would you think would be the bigger reason, the new vessels or the higher rates?
It would be a combination of both because the JV is, it's not just the vessels that we are managing, but also our joint venture partners. Across the board, the charter rates are high, which are really contributing higher rates to the favorable results, I would say.
All right. Thank you.
Our next question comes from Santosh Gupta of Drewry Maritime Financial Research. Santosh, please go ahead.
Thank you. Hello, Nakilat team. I have a couple of questions. The first one is like regarding this four new, which I understand are on time charter. If you could give a rough idea of since when these vessels are on time charter. That was first. Second question is relating to the joint venture revenues. I see that the shipyard business is doing well.
The joint venture revenue increase, whatever we are seeing, is mostly coming from the shipping joint venture. The increase is coming from the shipping joint ventures, or is it because of the shipyard increasing the shipyard revenues? Thank you. I think if you could please answer this.
Okay. I'll take the second question. I'll leave the first one maybe for Waheed, but I'll take the second one. As just Waheed said, you know, Santosh, what happened is basically you have to understand like this year we have more vessels coming through the joint venture LNG one, which is with the new four vessels that we bought back in 2018, 2019.
Plus when the two new vessels that came in, they were at a higher charter rate because of what's happening in the market. Have really contributed to that performance. In addition, also other existing joint ventures has done better as they, you know, have done better compared to last year. As you know, that's our story as we deleverage, we should be able to do better and to optimize their costs.
Two, yes, the shipyard segment also contributed to the performance that we have seen. As we talked over the last maybe one or two or three, you know, conference calls, where we said the shipyard is turning into a more sustainable, profitable business since last year and actually becoming even stronger this year. I'm expecting it to stay as contributing segment to our overall group profitability going into the future. It has both elements. I hope I answer this question and I'll leave the first one for Waheed Siddiqi.
Sure. Thank you.
Thanks. Hani. Excuse me, can you repeat the first part of your question that you had, please?
Yeah, sure. Basically, I understand, the four newbuild LNG vessels, they are on term charter. If you could please indicate like, from which month they are on the term charter or any rough indication.
They start as soon as they're being delivered, Santosh. We never have any of our vessels not being on charter since this moment they're being delivered.
Okay.
Correct.
Okay. Thank you.
Thank you.
Our next question comes from Vijay Singh of Sierra Capital. Vijay, please go ahead.
Hi. Good morning. Thank you for the opportunity. The first question I had was with regards to QatarEnergy LNG's, you know, 100-ship expansion. I mean, it's a significant opportunity. Also, the market itself, you know, has changed dramatically over the course of last nine months.
I'm wondering, when you look at your own organization, people, infrastructure and processes, are you, I mean, are you scalable enough to capture some of the extent of demand uplift that we are seeing? How are you thinking in terms of your own planning for potentially, you know, some portion of the order coming your way? In terms of capacity and everything else, are you geared up for it?
Okay. I think I will take this question. Thank you so much, first of all, for the question. As you know, in the previous call, we do not comment on specific projects that other companies are the owner of these projects. As Nakilat, as the world's largest LNG shipping company, we have proved our competencies and the reliability track records that we have worldwide.
Always Nakilat is ready to capture any global business opportunity that comes. Definitely Nakilat is screening globally any business opportunity, assess internally, and we are aware of what exactly we are looking for. The most important for us is the business opportunity to meet our investment criteria to continue to provide a sustainable return to our shareholders.
As you know, the global LNG market is booming around the world, and we are assessing the market for any business opportunity. Definitely, as a company, we are always willing and to have open communication with our largest charterer, and wherever it is needed, we will be here available for them. I hope I answered your question.
Okay. Thank you. The second question is, and excuse my ignorance of your operations, but in terms of your operational cost structure, is there an exposure to LNG costs, you know, consumption during transit or otherwise? Is it a material exposure, if at all?
Sorry, are you speaking about our operational costs for the vessels?
Yes.
Okay. If there's an exposure to that due to rising costs?
Yeah.
Is that what it is?
Yeah. Is there an exposure?
Okay.
To energy costs within the operational structure, and is that material?
Well, we're in a time of, you know, inflation, where inflation is rising a little bit. You know, we continue to monitor areas for savings by working closely with our suppliers and surveying the market for procurement opportunities. We plan both purchases in advance and plan out maintenance to ensure that, you know, we remain at a moderate level when it comes to our costs.
You know, that has paid us back this year especially. Furthermore, most of our long-term charter contracts allow us to incorporate this inflation factor into our OPEX portion of the cost, and this further shields ourselves in such times where we're seeing an impact of rising costs. We work at it two ways.
One is the incorporation into the charter, into the long-term charter contract, and second, working with our procurement team and suppliers. We try to combat that as best as possible.
Sure. Excellent. That's very helpful. The third question I had was, I mean, you know, when we look at the last, you know, I would say charter rates being fixed, from, you know, your largest charter and coming to an average of somewhere around $90,000 per day, I'm just wondering, A, you know, how was that estimate arrived? How was that number arrived at in terms of that being a fair number?
Is it a function of the market? Is it a function of a certain level of threshold return targeted? T he second question is, considering the current environment and, you know, the potential large order from your largest charter, are those costs likely to inch higher or lower? How does that competitive dynamic in the industry work?
Okay. Just to let you know, and we've been always saying that, we don't comment on any specific projects. We look at what's our rate of return for our shareholders. Basically, we would like to always to deploy our capital to generate something around between 11% to 14% levered IRR.
That's where we are, and that's what we've been doing over the years, and we believe it is very successful for us as a company. Now, if let's assume things changes in the market where prices of the vessels goes up, goes down, we usually have that rate or to generate that rate of return is being reflected into our kind of, you know, into our economics.
Regardless where is the project around the world, that's how we try to target as ourselves as Nakilat, and we've been communicating this one publicly so many times. If we cannot generate this kind of rate of return, then we have to really think about our options. Usually we target that range in our economics. I hope we answered the question.
Yeah. Thank you. One last question from me. In terms of your spot pricing exposures, I'm just wondering, is that increasing? Is that decreasing? Now that you're looking at refinancing options on the existing debt, what sort of what is the market for credit look like for you?
Because I think historically the rates have been higher than what would assume, considering your profile. Is there expected to be a major realignment between market versus probably what your credit rating deserves now?
On spots, we don't trade on spot. All our vessels are fixed either in a short-term, medium-term, or even the previous one, which is the one that we got, Qatargas, in a long-term contract. We don't trade on spots. We don't trade cargos. We just usually look for a term which is short-term between one and three years, or medium-term, five to seven, or even a longer term.
In regard to financing, we don't foresee any sort of impact on our ability to refinance. That is coming through, so we are fine. We don't see on a spread or to be a little bit more expensive. We think it is fairly what we have seen over the last three, four years.
We don't see any kind of issue with the refinancing coming up in 2025. As you know, we still have a charter contract until 2030 to 2033. That should not be any issue. We believe we should be able to secure a fairly competitive financing.
That's all from me. Thank you very much.
As a reminder, for any audio questions, please press star followed by one on your telephone keypad. Our next question comes from Varun Kumar of SICO. Varuna, please go ahead.
Hi. Good afternoon, gentlemen. Thank you very much for the call. I have two questions, if I may. The first question regarding the breakup that you mentioned, time charters you have for shorter term, one to three years, and then medium-term and long-term.
Is it possible for you to, you know, tell what portion of your fleet is in the shorter term, like the first bucket, which I assume is mostly on the JV side. Following up on that is, I mean, given the rise that I can see in the 1-year time charter rate, is it fair to assume that some of these contracts are still to be repriced at this higher price, higher rate? That's my first question.
I'll ask a second question after this, if you allow me.
Yes. Effectively, maybe around between, you know, five to 10 vessels, like the weighted average, maybe five. You can say seven vessels that could be on between short to medium time charter period. Have they enjoyed some of the high rate time charter rates, not spot? I just wanna differentiate.
Thanks.
Yes. As you can see, this is what's evident in our results in the joint venture line, where the addition of the two vessels, on some of them, they were earning, you know, a very, we call it elevated rate. Yes. That's a good assumption. Yes, absolutely. Second question?
five to 10 vessels in that range, one to three year range, right?
Yeah. Remember, it depends on the size of the vessel. If you look at it from a weighted average, I would say around five, but maybe that. If you look at per number, maybe five to 10. In a weighted average, you would say five vessels to five, okay? Because they're smaller vessels.
Okay. Good. Thank you. Can I ask, I mean, if you break up your fleet based on, like, clients, I mean, what percentage of your fleet will be deployed within the scope of QatarEnergy, like, related to Qatargas? What is deployed outside? Is that a number that you can disclose? I mean, roughly, ballpark figure.
As a percentage, I believe Fotios can elaborate more.
Yes. Approximately 75% total or number of ships of Nakilat is chartered to Qatargas. The remaining is international charterers, approximately.
Okay. Of this, the Qatargas vessels are mostly your old, I mean, or is entirely your only old vessels will be chartered to Qatargas, right?
All our wholly owned vessels are chartered to Qatargas.
Okay. Thank you very much.
We have no further questions on the phone line, so I'll hand back.
Maybe if I get this chance to ask one question. I think we mentioned all of the JV operations except the LPG operations. How were they performing during the Q3? Can I get an answer to that, please?
Thanks, Ahmed. Good question. Actually, they haven't performed as good as last year. That's the answer. Because the rates were lower. However, they did not have any sort of meaningful impact on us, to be honest with you. I think the new two LNG vessels being chartered at an elevated charter hire, plus the shipyard performance has almost outperformed any of this kind of, you know, negative impact from lower LPG rate by almost five, six, seven times. Yes, the LPG was not doing as good as last year. I hope I answered your question.
Yes. Thank you very much for that. Jordan, do we have any more questions in the Q&A queue?
We have a question from Rajin Ranjit of Aranca. Rajan, please go ahead.
Hello? Am I audible?
Yes. Go ahead.
Okay. Thanks to the management for this opportunity. I just want to understand about the new contracts that the company has won and the role the company has on the expansions that is happening in the QatarEnergy LNG space. Thank you.
I think we did answer it earlier. The new contract, as we said, usually we don't disclose the term, but usually it's a short term, and sometimes it could be a medium term. It could be between one to three or even three to seven years. Depends how we really secure it, at which time. U sually we don't do spots. We do a term contract.
Some of them is being chartered at the prevailing market time charter equivalent rate. And that's what it is. In the second question, I'm not sure. You talk about expansion. We have talked about it earlier. We don't comment on behalf of QatarEnergy or Qatargas. They are the owner of the project. Nakilat is a global company.
We're always in the world with a globe for business opportunities. If anything comes anywhere, internationally, locally, regionally, we're happy to do that, as long as we can really also generate a rate of return as is required for our shareholders. Thank you.
Thank you.
We have no further questions on the phone lines.
Okay. If there are no further questions, I'd like to hand over the call back to Mr. Hani Abuaker and Fotios Zeritis, if you have any closing remarks.
Okay. I would like to thank everyone for today for participating in this conference call. We're always committed for our investor relation program here at Nakilat. Please, if you have any questions, reach to us. Fotios should be able to help you. We will make sure that any kind of questions or comments usually is communicated to our senior management here, including our CEO, to make sure that we are aligned about our capital market expectations. Thank you. Fotios.
Thank you so much for everyone for taking the time out to join us today. We communicate your feedback to the senior management, and if you have any kind of question or clarification, please feel free to contact me. Thank you so much. Have a great day.