Earnings Call: Q3 2021

Oct 18, 2021

Good morning and good afternoon, everyone. This is Omar Meher from EFG Hermes. On behalf of my colleague, Ahmed Hazen Meher, it's my pleasure to welcome everyone to Nokilets' 3Q 'twenty one results conference call. I'm pleased to be joined by Mr. Henya Wagner, Chief Financial Officer and Mr. Fotio Zarites, Head of Investor Relations. As usual, the call will begin with a discussion of key highlights for the period, and this will be followed by a Q and A session. So I will now hand the call over to the management team for the to begin the presentation. Thank you very much. Thank you so much, Omar. Good afternoon, everyone, and welcome to NACULAT's Q3 2021 results conference call. For your convenience, the transcript of this call and presentation will be available on the company's Investor Relations section on our website. As a reminder, this conference call is being recorded. 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 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. Naculab's CFO, Hania Agwaje, will begin today's call with a discussion of company's highlights and followed by a brief discussion of group's earnings results. After, I will give you an overview of LNG Shipping Market. And finally, Natulab's CFO, Hanian Boakye, who will walk you through the company's business outlook. We will then be very happy to address all your questions. Now I would like to hand it over to the CFO of Maclab, Mr. Hani Abouackel. Hani, please go ahead. Thank you, Fotis, and hello, everyone, and welcome to Nafplalar's Q3 2021 earnings results Conference Call. I hope all of you and your family are safe and staying healthy. And before we get into our financial results, I will take this moment to thank all our seafarers and shore based staff for their continued dedication to maintain business continuity and bringing clean and reliable energy to the world. Now please turn to Slides 7 and 8 of the presentation. We are pleased to announce that Naculat has reported a profit of close to BRL 1,000,000,000 or the BRL 18 per share for the 1st 9 months of 2021, an 11.5% increase compared to the same period in 2022, which effectively supported by streamlining our expenses and creating additional savings to ensure sustainable return to our shareholders. We can see that MAPILAD G and A and operating expenses decreased by 4.8% and 0.9%, respectively, compared to the same period in 2022 due to an overlap management emphasis on cost rationalization, structure and economies of scales. In addition, we remain fully focused on delivering reliable high quality service to our customers. This focus will allow us to maintain a high degree of uptime of our fleet utilization. All of the above emphasize Nokilat's ability to deliver the required earnings and operating cash flow to our shareholders. NAPELAD EBITDA has reached $2,400,000,000 in 9 months due to operational excellence that we just talked about. Our Nakela goal is always to maximize sustainable bottom line growth and create value to our shareholders. Finally, you can see that our current ratio is at 1.47, and our return of equity has reached 13.3% due again to our strategy to optimize the utilization of our fleet and continuous efforts for cost savings, which will benefit our all our key stakeholders. Now let me hand it back to Fotis to take you through an overview of the energy shipping market. So Fotis, if you can please take it from there. Thank you so much, Hani. Hello, everyone. I would like to give you a brief update of the LNG shipping market. The unseasonal high in the market has pushed LNG Shipowners' confidence. Charter rates have spiked during recent winter as the LNG spot market struggles to find sufficient capacity for prompt deliveries. According to Wood Mackenzie, operational fleet capacity has doubled since 2010, but more capacity is required to prevent seasonal charter rate spikes. Demand for short term vessel charter surge in 2021 as charterers jump to secure tonnage in anticipation of shares of spot rates during the winter. Drury projects that LNG trade growth, it will be at a carg of 5.6 from 2021 to 2026 due to rising demand for power generation as well as industrial and marine bunkering consumption. According to Refinitiv vessel tracking, the global exports of LNG reached 280,000,000 tons approximately in the first 9 months of 2021. This is an implied increase of 4.2% year on year. In addition, China imported approximately 57.6 1,000,000 tons of LNG in the 1st 9 months of 2021, which implies an increase of 22.2% year on year. Now please turn to the Slide 11 and to help in our presentation. According to SSEY, the current spot charter rates for motor 2 stroke tonnage is approximately $190,000 per day. For TFD, it's $150,000 per day and $110,000 approximately for the steams. SSY assets at 1 year LNG shipping charter rates are at approximately $130,000 for MEGI XDFs, 100 for DFTs and 62,000 per day for steam, which is a very helpful benchmark when an owner discusses term charter opportunities with the charterers. Now please turn to the Slide 12 of our presentation. There you can see that in 2021, the global energy fleet has reached approximately 604 vessels in operation and another 141 conventional LNG vessels on the order book until 2025 as per the Clarksons data. This implies an increase of 26% of total LNG fleet in terms of number of conventional LNG vessels as of October 2021. The long term outlook for LNG Shipping is positive, driven by the upcoming global LNG supply growth. Supply growth by LNG producers will require longer voyages to meet the growing demand in Asia, tying up shipping capacity and increasing shipping demand. Now I'd like to hand it back to Mr. Hamia Bwacker to give you an insight into Natalia's business outlook. Please, Hani, go ahead. Thanks, Matthias. Okay. I will go now to Slide 14, and I'll discuss about Nokulad business outlook for 2021. As we can see against the backdrop of global uncertainty about the economic environment, Nakalad has results for the 9 months have shown and highlighted the benefit of having a great asset portfolio in the long term contract, which is backed by high quality customers and the resulting earning of the power of our company. All of these makes Nakhilat a compelling story for our investors and shareholders. In 2021, we expect another successful year, although actually, we expect also the next quarter to be more promising for us as we continue to optimize our expenses. And not only that, but we also expect to receive the 3rd newbuild jointly owned LNG carrier, which is going to be commercially and technically managed by Nautilat. In regard to the shipyards, we expect it to strengthen we expect it to have a better financial performance and to strengthen their abilities in the way they carry on their work. And we're also continuously screening global opportunities to identify an attractive business opportunity, which will add value to our company and shareholders. Before we open the floor for questions, as we have emphasized before, we're not going to take any question during this call related to Qatar Energy announcements. We Nachalad does not comment on commercial and technical details related to the Northfield project that is owned by Qatar Energy and Qatar Gas. For additional details on Qatar Energy announcements, I refer you to their website and press releases where you can find the information that you need. With that, I will ask the operator to open the floor for questions, and we're happy to answer We will now take our first question from Shabir Gagawala from Alrion Investment. Please go ahead. Hi, good afternoon. Thank you for the call. Fotis, another good set of results for you and the company. So just wondering in terms of the JV income, which has grown Obviously, you highlighted that there was a one off in Q2. Now that that's gone, is this the level at which we should expect the JV income to continue, provided that you will have additional losses coming in? That's my question. Thank you. Actually, yes. You should expect that sort of level of income coming from our JVs. If not, better even performance. We have seen a good turnaround and sustainable results that's coming from the shipyard ventures. So hopefully, over the next quarters and in the foreseeable future, we should really have very sustainable results from the joint venture overall. Right. Just in addition to that, when exactly are you getting the 3rd LNG vessel? Is it end of the quarter, end of the coming quarter or just some time around on that, please? Hello? Yes. It should be coming very, very soon over the next within the next 10 days, I would say. Great to hear. And is it going to be on a short term charter? Or have you contracted it out on a long term basis? We have already something contracted for, if you want to call it, a short term contract. We don't comment a specific duration, but should be between 1 to 3 years. All right. Perfect. Thank you so much. Yes. We will now take our next question from Samir Darwaj from Amwal Capital Partners. Please go ahead. Hello, Hani. Hello, Fotis. This is Samir. Congratulations on Q3 results. I just have one question regarding your debt repayment strategy. How much should we expect in terms of debt repayment per year going forward? Okay. We have the scheduled debt repayment, which is usually around BRL 900,000,000 to BRL 100 billion a year. However, if there's any new opportunities and if we don't have enough internally generated fund, usually, we go for sort of a corporate loan to bridge that, and we might incur some of that in the corporate level. So I hope I did answer the questions that you just asked. Yes. So on a normalized, basically, we can assume up to around $1,000,000,000 per barrel, correct, if I understood you correct? Yes, yes. But this is like a mortgage. So over time, year over year, the payments towards these becomes more of the principal than the interest Yes. Exactly. That's what I mean. And what I mean is only the principal part back, how much debt repayment from the principal part you expect to be? So it's around €1,000,000,000 right? Yes, yes. Around $900,000,000 Okay, perfect. Thanks. We will now take our next question from Santosh Gautam from Drury Maritime Financial Research. Please go ahead. Thanks. Hi, Hani and hi, Fotios. So I think going by the presentation, I think the 4th New Wheel LNG vessel has also been fixed on that short term charter, short term contract. So is it is the 4th LNG vessel going to be delivered in January next year? Does this time line still holds true? And by short term, like for the previous vessel, we mean 1 to 3 years contract or slightly different? Thank you. Santos, can you repeat? I could not hear you very well. My Thank you. So yes, I am asking the 4th new build LNG vessel, when is it expected to be delivered? I think previously, if I remember correctly, it was expected to be delivered around January 2022. And second thing is on the duration of the contract, is it also similar as in 1 to 3 years contract or is it different? Okay. Let me tell you. Yes, okay. First of all, you remember correctly, the 3rd delivery, as Ani said previously, is the following weeks. But the last one, the 4th new build, it is January on 2022. Now when we have something to announce about the last delivery, we'll announce. We do have not announced something about the last delivery. But for the current one that we expected, as the CFO said, it's on the short term for 1 to 3 years contract. So we cannot comment anything regarding the 4th one because as you know, it's a commercial sensitivity, and we don't want to give a competitive advantage to our competitors. We will now take a follow-up question from Samir from Annual Capital Partners. Please go ahead. Hello, Jens. Yes, just a follow-up from my part. Regarding what's the plan for the excess cash that you'll be able to generate? Are you basically setting aside this cash to pay more debt, especially the 2025 senior debt facility that's coming in 2025. Just wondering what's your strategy regarding that? Actually, we look at capital allocation rather than paying the debt. And that's including also if we have to really pay some of our corporate debts or looking being exploring potential opportunities. So I think the extra cash that we're currently generating, we are deploying it, as you can see, in a very good and successful ventures. We allocate some back to our shareholders in the form of dividends and this year we have increased our dividend. In the coming up debt repayment in 2025, we can also look into refinance that amount if needed, because we still have a contract that ends in 2030 or 30 1 or 32. So it's all depends on the actual opportunities that is going to come up on our way and what we can do with that cash for the best interest of our shareholders. Hope I did answer it. We will now take our next question from Ashish Kumar from United Securities. Please go ahead. Hi, Fotivas and congratulations for the good numbers. I had a small query in terms of hedging reserves. Just wanted to understand the working of it, if you can. Thank you. Sorry, what you're looking for, the reserves or what was Hedging reserves. I just want to understand a little more. Yes, like hedging reserve is just basically yes, it's you understand, when we took these vessels, we have hedged almost up to 70%, 80% of our interest rate based on a set specific rate. If interest rate goes against us, which is when it goes down, that hedging reserve becomes negative. If the interest rate starts to go up, okay, it rebalanced and starts to become more positive. For me, the hedging reserve, to be honest with you, it's an accounting treatment rather than reflection of the actual economic performance of the company. As there are no further questions at this time, I'd like to turn the call back to your speakers for any additional or closing remarks. Okay. So if there's no further questions, I would like to thank you all for attending and participating in our conference call. Thank you for your questions, and we are happy to see you hopefully in the New Year once we are announcing our 4th quarter results. And as we said, we're expecting to see it as good and as strong as what we have reported this quarter. So hopefully, we'll see you then. Thank you very much. Please stay safe and healthy, and we'll see you in the next year. Thanks. Thank you. That will conclude Thank you very much for everyone. Have a great day. Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.