Earnings Call: Q2 2021

Jul 13, 2021

Good morning and good afternoon, everyone. The first half of twenty twenty one earnings results conference call is now underway. My name is Bethany, and I will be coordinating your call for you today. I now have the pleasure of handing the floor over to your host, Avnet Hazem from EFG Hermes Research. Ahmed, over to you. Thank you, Bethany. Good morning and good evening, ladies and gentlemen. Hope everyone is staying safe and healthy. This is Ahmed Hazem from EFG Hermes Research. We are pleased to welcome you all today to Noccollet's first half twenty twenty one results conference call. We have with us on the line Mr. Heny Abuechel, CFO of Noccollet and Mr. Fotios Derites, Head of Investor Relations. First off, I'd like to congratulate management for a very solid set of results and now hand over the call to Fotios. Please go ahead. Thank you, Asma. Good afternoon, everyone, and welcome to Mackie Labs' 1st half of twenty twenty one 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. 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 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. NACULA's CFO, Hanni Abwijder, will begin today's call with a discussion of company's highlights and followed by a brief discussion of group earnings results. After, I will give you overview of LNG Shipping market. And finally, Nicola's CFO, Hani Abouager, will walk you through the company's business outlook. We will then be happy to address any of your questions. Now I would like to hand it over to the CFO of NACPLAZ, Mr. Hani Abbate. Hani, please go ahead. Thank you, Fotis, and welcome all to our Nafilatsemi annual earnings results presentation for 2021. I hope all of you and your families are staying safe and you follow-up precautions measures against COVID-nineteen. Once again, before we get into our results, we will take this moment to say thank you for our seafarer shore based staff for their extraordinary dedication to maintain our business continuity and resilience during these challenging moments so we can bring cleaner energy to the world without any delay or disruption. Now I will turn to Slide 8 and 9 of the presentation. And despite of the COVID-nineteen pandemic challenges, I'm pleased to announce that we have reported a profit of CNY 6 36,000,000 for the first half of twenty twenty one, which will reflect a 15.6% increase compared to the same period in 2020, which was effectively supported by streamlining our expenses and creating additional savings to ensure our sustainable return to our shareholders. You guys can see specifically our Nokina G and A and operating expenses has decreased by 18.6% and 2.4%, respectively, compared to the same period in 2020 due to Macanac management emphasis on cost rationalization, structure and economy of scales. All of the above emphasizes Nacional's ability to deliver the required and sustainable return and cash flow during just any cycle of an LNG shipping market. Also, we can see that Nokirad's EBITDA has reached EUR 1,600,000,000 in H1. And also, we can see that our current ratio standing up at BRL 1.3 billion and our return on equity is close to 12.7%. And this is again due to our strategy to optimize utilization of our fleet and our continuous effort to cost savings, which will benefit our stakeholders. Now let me hand it back to Fotis to take you through an overview of the energy shipping market. So Fotias, if you can, please take it for me. Thank you, Shomaz, Ramon. Hello, everyone. I will give you a brief update on the LNG shipping market. The market participants retained a positive long term outlook on LNG asset shares has been derived on the in the energy mix for the most economies under the decarbonization goals. According to Drew, LNG imports for the top 5 Asian countries grew up by 12% in the first half twenty twenty one due to the harsh winter season, which decreased their gas storages second, lower nuclear output and third, an increase in the coal to gas switch. Specifically, China's and Japan's LNG imports in the first half twenty twenty one were up 26% and 9% from 2020, respectively. In the first half of twenty twenty one, the global LNG exports have been increased 15% year on year. LNG Shipping will also benefit from this positive LNG trade outlook as it translates to a rise in LNG shipping demand. Drury projects the LNG shipping stone of mine demand to increase at cargo of 8.1% by 20 26. Now if you turn to the Slide 7 to 8 in our presentation, according to Kotem, the current spot charter rates for modern 2 stroke tonnage is approximately $90,000 per day, dollars 75 $60,000 per day for steams. SSY assess the 1 year LNG shipping charter rates at approximately $100,000 per day for MEG ETFs, dollars 90,000 per day for DSPs and $55,000 for Stimulus, which is a very helpful benchmark when an owner discuss certain opportunities for their LNG vessels. Now please turn to the Slide 9 of our presentation. In 2021, you can see that the global LNG fleet is 5.56 vessels in operation and another 153 conventional LNG vessels on the order book until 2025 after collections. This implies an increase of 28% of the total LNG fleet in terms of number of conventional LNG vessels as of July 2021. Currently, the LNG shipping market is enjoying a counter seasonal strength for normalization, particularly due to the fundamental LNG demand. The long term fundamentals of global LNG shipping are healthy, which would be beneficial for NACULAD due to the fact that our core competency is around the transportation of LNG. Now I would like to hand it back to Mr. Hania Duarte, our CFO, to give you an insight and I feel that's business out here. Hania, please go ahead. Thank you, Fotis, for the brief. In 2021 or the second half, we expect to see another successful year for Nafilat due to the management effort to maximize and the utilization of the entire fleet and to optimize our operating expenses. So in the second half, we expect to see our 3rd new build jointly owned LNG carrier under Nafplatz Commercial and Technical Management. In addition, we're closely working to make sure that we optimize all our costs with the shipyard team and to mitigate any sort of adverse exposure to this segment. In addition, we are continuously working and screening the global LNG shipping market to identify attractive business opportunities, which will add value to our company and shareholders. Before we open the floor for questions, as we have emphasized before, we will not be taking any question related to the QP LNG shipping tender announcements that hasn't happened over the last months. We cannot comment on the commercial and technical details related to the tender, which is the project that is owned and managed by QP and QG. For additional details, you can go to that QP announcement. And I refer to QV press release, which is on their own website. With that, I will ask the operator to open the floor for questions, and hopefully, we can really address them today. Thank you. We have a question from Lee Beswick of QMB. Lee, your line is open. Hi. Thanks for the presentation. Just a quick question on margins going forward for not necessarily related to Q3. It could be related to anything, to be honest with you, and new ships. The correct me if I'm wrong, but the day rates that you have on the current fleet are around $120,000 per day. Is that correct? We do not comment what is the charter rates of our fleet. Okay. Okay. It's a commercial, it is commercial sensitivity. We do not disclose the charter rates of my last 6. Okay. You're not going to give us any idea where they are at all in relation to current day rates? If you wanted just to understand what is the average charter rate for a new build vessel the last 10 years, I can tell you the reference numbers for the market is $75,000 average the last 10 years, but this is for the global shipping LNG. Okay. I just wondered what the if you sign something today, what the typical margins would be, especially considering the newbuild price of ships. I presume you're going to be going up if fuel prices are up 50% over the 5 year average. So it will cost more to build a new ship irrespective of anything else. So I'm just wondering how the margins would look given ship prices will inevitably have to go up and day rates are not going up right now. Let me now take this one, Poggios. Okay. Poggios, you can go ahead. No problem. No. I just want to mention some factors that the newbuild price is historically wise is always approximately $200,000,000 This is a it can be changed between good times and bad times. Example, it can be from 180 to high 220. The average, if you take all this historical wise, is 200. Right? Yes, right now, the middle price are approximately $200,000,000 So there is no huge volatile on that. On the in terms of the returns, on Wisma class, whatever deals you have done in the past, usually, we have said that we are looking for a double digit deleveraged Iara as that. But I will let the CFO, she wants to elaborate further on that. Yes, exactly, yes. Very good. So the so the price of newbuild ships, is not there's been no indication of the price of newbuild ships has come up given the steel prices is above what it was 5 years ago, 50% higher than what it was a couple of years ago? Perhaps there's no indication that the price of ships has gone up yet? No, no. There isn't currently, if somebody wants to go ahead and to place a new build in South Korea, for example, it's approximately of $195,000,000 It depends, but this is a range because it depends on what technical specifications you need to build a reversal to what to refit inside. It depends, it will go a fraction or something else that you need. But approximately right now, it's approximately 190 to €100,000,000 If you ask me the same question, let's say, 6 months ago, it was approximately €185,000,000 So this is the price indication. If somebody wants now to go ahead and to place a new order, let's say, you are shipowner and you want to place your order, this is approximately the rent currently. The next question comes from Ashanti Gupta from Jure. Ashanti, please go ahead. Hi, Piotr, and I, Ghani. I wanted to know about how your MPV ships are I mean, heading and how what is your outlook for MPV in general? And I have a follow-up question as well, not related to NTV, but to steam turbine license. Like recently, we are seeing a lot of weakly excite regulations. I think they are going to come. So do you how do you see adherence to the regulations? Yes, that's all from my side. Thank you. Okay. I can take this question. Regarding the LPG, as you know, Nike has only 4 LPG carriers, which means that we don't have to have, let's say, minor exposure LPG relative to LNG. As you know, for example, the approximate VATC rates in 2020 was $46,000 average wise. And currently, it has been dropped due to seasonality. But the average for the 1st year of 2021, the market for VLT is approximately 40,000, 38,000. The current fleet order book remains at reasonable levels and supports the realty market in the medium to long term. So looking to the future, the market participants, what's expected is actually optimistic. But as you know, the LPG is more volatile market than LNG, who has the majority of the contracts of LNG are more term or long term. This is my answer regarding the LPG. Regarding EXI, what I want to tell you is that NACLAB always comply with the new regulation of IMO. We have done it all this year and we'll continue to do this. What I expect it is, we expect to see the market how we'll react to the new regulation, but our steel prices are still on term contracts. But we expect to see, let's say, to see how the market will react, how they will comply in Chiponis. But for sure, for my client side, we'll comply in IMO. This is what we can say and what we can do always. The next question comes from Neet Bhatt of Exane. Neet, your line is open. Thanks for the opportunity. I just have only one question. So can you give us some sense of why was there a decline in the JV income in Q2 compared to Q1 'twenty one? So if you can give us a sense of that. Yes. I will take this one, Cote. We just had onetime charge in the shipyard entity for a legacy cost, and we took it in our Q2. So we should really expect Q3 to normalize in line with the Q1. And hopefully, it will be even better than Q1 due to the fact that actually operationally, the shipyard entities have performed very well, but just we took this onetime charge that makes it different. So we should really expect Q3 to be stronger and better than Q2, but not only that, but also better than even in Q1 for the joint venture. I hope I answered the question. Yes. So should we expect any reversal in the charge which you have taken? Or will it be there on the books? No. It will continue to be there on the books. We, as a company, have looked at this potential cost, and we made a prudent decision to take that charge. However, we believe in Q3, when that charge is not being present due to the fact that the shipyard facility actually from operation point of view, they're doing very well. So you will start to see a way better results in Q3 than what has been achieved compared to Q1 and Q2 alone by itself. Perfect. Thank you. Thank you. We have no further questions at this point. So I will hand the call back to yourselves to conclude. We just had a question come through from Nafez Al Abbas from Agis Capital. Nafez, please go ahead. Thank you, gentlemen, for the presentation. But just as a follow-up from the previous question, how much was the charge in Q2 on the shipyard? We haven't disclosed it exactly yet, how much the charge. But you should expect to be if you really move that charge, it should normalize it with the Q1 results. I see. Thank you. So I'll take this opportunity to ask a question myself, if I may. Just can we get a sense on when you will continue the ship management transition and getting the rest of the vessels to be managed in house? Ahmed, as you can see, we're clearly doing something transferring the ship management. Currently, we're for the new vessels that is taking the delivery, we're already as a company we are the one who's really managing them. So for the 2 global ships that is coming up in this fall and early 2022, We're doing that. We just took the offer for you. Now for ship management, I'm sure that we will disclose if we ever going to be planning to take more further ship management in due time. And you have to also you have to understand, we always try to have the capacity in house in case there's a new business opportunity that might arise anytime. So we should be able to take that and capture that business opportunity. So for now, as of today, we see that our focus was on taking the delivery of the next 2 LNG ships is to make sure that we get them in house and to be technically managed and commercially managed by our team. We took that facility back in December. We're trying to manage that vessels and build in house expertise, not only the know how in managing the FSRU. And as you know, this there's a lot of things that's going on with Knock and Out. We're exploring a lot of the global opportunities. If they come, then we will be the one who is managing it technically. And I think if there's anything comes as an opportunity, we will let you know guys in due course. We have another question on the phone line from Maja Bukiya from Schroders. Maja, please go ahead. Yes. Hi, Fotis and Hany. Thank you for the call. Maybe following up on what you just said, I'd like to understand what your operational capacity be to take on a big order of vessels. Can you handle, let's say, 10 new vessels at the same time coming from the cutlery supply operationally? Yes. I think we have a track record of being able to take over the operation of large size of number of vessels. We've done it twice already with Stasco in 2 phases. And this year, we have done also a number of vessels, which is almost half a year in December, a couple of vessels last year, a couple of vessels this year. So I think the company infrastructure that we have built over the years has the scalability factor built into it. So and we have a pool of seafarers that allows us any global opportunities that might arise to us that we can capture that. I think not as of today, and that's really also reflects what we repeatedly say. The cost saving that you guys are seeing in the G and A and the OpEx year over year, it's not a reduction. It's a saving. It's sustainable because there's an economy of scale and scalability factor built in within the organization. So going forward, for us to manage more vessels based on the opportunities that might arise globally or from anywhere, we think that we can manage more vessels. And also we have done it twice already. So I think we have no issue to do it another 3 times or 3rd time or 4th time. And just to be able to just understand in terms of number of vessels, When you say a large number of vessels a year, are you like are you thinking double digits or 7, 8 or 10 or less? I'm trying to understand. Let's say, the Qatar LNG supply that's going to come by 2025 will be €33,000,000 And that will require a certain number of vessels. I'm trying to just assess how much operational capacity inoculates would have to take advantage of shipping these volumes? Maja, again, we said in my comments, we don't comment on a QP and QG project. If today, any project anywhere else in the world, okay, if you have a lot of number of vessels, rest assured that Nocula is ready and get the scalability to do as much number of vessels anywhere in the world. It doesn't matter where it's being located. Again, I don't want to comment on QP or QG because that's something you said we're not commenting on commercially. But for us as a company, as a global leader, as the company who has the largest LNG shipping capacity, I can assure you that we are can do large number of vessels. So please, if you have anybody who has globally 10 or 20 vessels that need somebody to really run these vessels, we're happy to do that. Just let us know for sure. Great. One more question from my end. The first two vessels, the new build vessels under the Maran JV that you've received over the last 12 months had short term contracts. Have you managed to renew the charges for the first two? They are still on charters. So once we finish, we might have can provide further information. But currently, we cannot provide any further information as we are still on charter. And as you know, this is part of our commercial sensitivity for sharing information. But they're currently on charter. Any idea when they will be occurring here? Can you share with us? I cannot do that right now, unfortunately, because again, you said the commercial is sensitive information, and we would like to always keep it as part of our best interest to our to the company and to the shareholders of Nacolad because it allows us to negotiate and to secure always a better rate when we know exactly when these vessels might be renewed. But again, you don't have to worry about not being the trucker. Most probably, we will do that. However, we don't communicate or announce it before they are being closed or before the deal is being closed. Great. Understood. And for the third one that's coming this year, do we have a confirmed date that you can share with us? Sorry, if we have a date. I think Fotis can give approximate date. Yes. The date specifically can't give, but you can expect it approximately October, November of 2021 will be the 3rd. And the last one is expected at the beginning of 2022, January, February. But this is just we give you a rough idea. Okay. Great. Thank you so much. We have a question registered from Nikhil Arora Arouva of Franklin Templeton. Nikhil, please go ahead. Yes. Hi, Hani. Hi, Fotis. Thank you so much for the call. Maybe a couple of questions from my side. So first of all, just continuing with the last question that was asked. On a capacity point of view, let's say, if you were to expand, would you rather go via the JV route like you have done in the recent past? Or let's say, would you have the capacity to take on more debt on the stand alone balance sheet and own that asset 100%? To be honest with you, we are indifferent. I think our balance sheet is very strong. People appreciate the Nokulat story. People appreciate the contract that backs the Nacolac story, and that's why we have bonds that is best rated in the world in the shipping segment. So if we have decided to expand through the joint venture or standalone, our balance sheet, our contracts should always, always give us the right support to secure the cost of funding that we need for any project. Okay. Thank you for that. And one more question on the so this is not relative to the Northfield, but to the Texas project where copper gas is also involved. Has a tender for ships been floated from that project as well? And do you intend to participate in that? As we said, anything related to QP or QG, I think you need to go and seek that information directly from them through their website or listening to their press release. As we said, we don't comment on the commercial matters that haven't been not publicly and that's something is related towards the PNG. So they will provide you more detail. For us, as I suggested for Sumayya is that we are an LNG shipping company. We have been established for the last 16 years. We are operating close to 28 vessels. We have a track record of potentially able to manage in 1 year number of vessels. So as a global shipping company, we're happy to it is the right time to do so. But anything specific to a specific project related to Q3 for the LNG production, And that's something is I'm sure we are the ones who can provide further details if it's needed. Okay. And maybe lastly on your G and A expenses. Although I think year on year, they continue to go down, but we have seen some pickup in the last two quarters. If you could comment on like what's a more sustainable level or if Q2 is something that we can expect to be the quarterly run rate going ahead? I think you have to understand last year, we had 30% or 20%, 8% drop. This year, we had 18%. But these levels are supposed to be more or less sustainable. As I just said, these are not about cost reduction. These are about scalability factor. It's about us doing cost savings. It's about us leveraging that kind of skills of the company with the number of vessels that we are managing. So a lot of the resources and the infrastructures that was built over the years for that number of vessels to be managed now it's being utilized and charged as part of the OpEx part rather than just as in the G and A side of the business. So I'm very comfortable that this level is sustainable. Maybe going forward, we'll be in the same level or with a minor increase due to inflation factor. But as we can see, these current levels, I think we're almost tracking like 30%, 40% we have compared to last 3, which were in place. So but I see these things are sustainable levels that we can see be at at least for the next 1 or 2 years. And if we have more vessels to be managed in the future and we have further number of vessels increased, maybe that number will be even further optimized. We don't appear to be having any more questions coming through, so I'll hand it back for you to conclude. Okay. I would like to thank all of you for taking the time again to participate in our conference call today. All your questions is well received. And hopefully, we can share it also with the management of the company. And we look forward to seeing you always. And if you have any questions, please contact Pukhla. He's always happy and maybe can provide further details if you guys require it or need it. Fotis, I'll just leave it from here with you. Thank you so much, guys, for your attention to participate in our call. We are always happy to hear your feedback. Have a great day, and take care of yourself, and stay safe. Thank you very much. Bye bye. Thank you, Henley. Thank you, Mr. Henley. Thank you, Fotios. Thank you, everyone, for attending. Have a good day. This concludes today's conference call. Thank you very much for joining. You may now disconnect your lines.