Good morning, ladies and gentlemen. Welcome to today's Nakilat 2Q20 20 conference call. My name is Adam, and I'll be the operator for today's call. If you'd like to ask a question during the Q&A portion of today's call, please press star followed by one on your telephone keypad. Or if you're joining us online, please click the flag icon. I will now hand you over to Ahmed Hazem Maher to begin. Ahmed, the floor is yours.
Thank you, Adam. Good morning, ladies and gentlemen, good afternoon, and hope you're all staying safe and well. This is Ahmed from EFG Hermes Research, and we are pleased to welcome you today to Nakilat's second quarter 2020 results conference call. We have with us on the line Mr. Hani Abuaker, CFO of Nakilat, and Mr. Fotios Zeritis, Head of Investor Relations. Today's conference call will include a brief on the results, updates on the market conditions, and a Q&A session towards the end. With that, I'd like to hand over the call to Fotios. Fotios, please go ahead.
Hello, everyone, good afternoon. Welcome to Nakilat's semi-annual conference call. I would like to ensure that everybody stay safe and take all the precautions because we have a strange timing with this COVID-19. 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 slide two of investor relation presentation.
In addition, some of our remarks contain non-IFRS financial measures. A reconciliation of this is included in the note of the presentation. Nakilat CFO, Hani Abuaker, will begin today's call with discussion of company's semi-annual highlights and results, followed by a brief discussion of groups' financial position and business activity. After which, I will give you an overview of LNG shipping market. Finally, Hani will take you through the company's business outlook. We will then be happy to address any of your requests and questions.
Now, I would like to hand it over to the CFO of Nakilat, Mr. Hani Abuaker. Hani, please.
Thank you, Fotios. Thank you everyone for attending, and welcome to Nakilat semi-annual earnings results for 2020. I hope that all of you and your families and friends and loved one are safe and follow the precautious measures against the COVID-19 epidemic. Before we get into our results, we will take a moment to say thank you to all our seafarers and shore-based staff for their extraordinary dedication to maintain business continuity and resilience during these extremely challenging times. Turning to slide five, you can see some of Nakilat COVID-19 preventative measures.
We are pleased to report that all our seafarers are well and healthy. The safety of our people remains our priority. Without healthy workforce, we cannot deliver to our customers. Without delivering to our customer, we will not be able to achieve good results to our shareholders and stakeholders. It is as much simple as that. It goes without saying that Nakilat has taken COVID-19 extensive mitigation measures to ensure safe and reliable operations. The COVID-19 outbreak posed unprecedented challenges to commercial and operating environment during the first six months of 2020.
Nakilat has navigated seamlessly due to its operating resilience and our long-term contract to cover has ensured that it had a minimal impact of Nakilat operation and cash flow, and eventually our results. Since the current situation continue to be fluid worldwide, it is our duty to closely monitor the development of coronavirus outbreak and its potential implication on global LNG shipping. Turning to slide number seven and eight of the presentation, you can see some of Nakilat's recent highlights, as well as a few key takeaways that summarizes how we believe Nakilat is uniquely positioned today.
Due to Nakilat's solid defensive business model and balanced growth strategy execution, they allowed us to generate an increase in revenue and EBITDA and earnings per share compared to the first half of 2019. I will begin with Nakilat's financial highlight for the first six months of 2020. As you can see, I'm pleased to report that Nakilat has a strong set of financial results for the first half of 2020, despite the challenges related to COVID-19. We have achieved QAR 550 million net profit compared to QAR 476 million profit during the same period in 2019, which is translated to an increase of close to 15.5%.
In addition, Nakilat EBITDA was also increased by 11.5% year-over-year to reach QAR 1.6 billion.
The company's strong financial performance is primarily attributed to operational excellence in the management of our entire fleet and the realization of additional revenue that we have generated through the acquisition of the remaining 49.9% of our Q-Flex vessels from previous joint venture in October 2019. In addition, we continue to focus on our overhead costs and ensure that we do achieve the expected savings and implement the right initiatives, which has resulted in decreasing our G&A by almost 11.7% in compared to 2019.
I hope all of the above emphasizes Nakilat's ability to deliver the required return and operating cash flow during a soft LNG shipping spot market. I'm going to turn to slide number 10 and 11. We also maintain a solid balance sheet with a total assets of close to QAR 3.4 billion, cash balance of almost close to QAR 2.2 billion, and our scheduled debt amortization continue as a repayment of our loans. It will free up our balance sheet capacity. This deleverage process benefits investors by building financial flexibility through higher equity base and through interest rate expense savings.
Since 2014, we have already paid close to QAR 4.9 billion in debt. Reducing debt balances will reduce our cash flow breakeven over time, improving our competitiveness of our fleet. Due to the acquisition of the four Q-Flex in October 2019 and the change of the accounting treatment from equity methods to full consolidation, our second half net borrowing has reached to QAR 21 billion. We are confident that our financial foundation is strong and it is very manageable in a sense that of our debt repayment, which is based on our long-term cash flow visibility, through our fixed long-term charter contracts.
Finally, Nakilat current ratio is standing at 1.12. Our return of equity is at 11.64 due to our optimization of our utilization of our fleet and continuous effort to cost savings, which will benefit our shareholders and different stakeholders. Now, let me hand it back to Fotios to take you through an overview of the LNG shipping market. Fotios, if you can please take it Fotios.
Thank you, Hani. During the last few months, LNG shipping and energy equity markets have experienced enormous volatility, but our defensive business model has largely been insulated from this volatility and unprecedented global economic conditions. Now, I will give you an overview of how COVID-19 pandemic affect global LNG shipping market in the second quarter of 2020. In addition, the developments of LNG shipping markets are shown on our presentation from slide 12- slide 14 that you can see it in our website.
Global LNG demand continues to be impacted by both COVID-19 pandemic and the global economic weakness. The lack of LNG demand and arbitrage, meaning that the sentiment in the freight market has been weak in the second quarter of 2020. With the current spot charter rates for modern two-stroke tonnage of around $34,000 per day and $29,000 per day for VFDs. Additionally, owners have been facing stiff competition from portfolio players and traders as they have been increasingly active in the markets with relets.
The global LNG shipping has been growth rapidly over the last few years, driven by the ramp-up of new liquefaction projects in Australia and the United States and the surging demand in Asia. As per Gas Exporting Countries Forum, the pace of LNG supply growth is forecasted to ease significantly to around 3.5%-5% in 2020, compared to a strong 12% growth in LNG supply recorded in 2019. Emerging Asian markets remains the driving force behind the expansion of LNG imports led by China and India.
As you can see on the slide 13 of our presentation, coronavirus outbreak had the adverse impact of LNG shipping segment during the second quarter of 2020. With already non-existing arbitrage, the LNG shipping rates have softened, and the market expects the charter rates to remain soft in the upcoming quarters. According to Poten & Partners assess the one-year LNG shipping charter rate at approximately $60,000 per day for mega DFDE, $48,000 per day for VFDs, and $28,000 per day for steams, which is a very helpful benchmark when discussing term charter opportunities.
Now, please turn to the slide 14 of our presentation. After showing strong newbuild ordering momentum in 2019, new LNG ship orders have dry up in the first half 2020 with only three conventional LNG shipping vessels compared to 24 conventional LNG vessel orders in the first six months of 2019. In the first half 2020, the LNG newbuild price cost for a vessel have been stabilized at average price of $186 million approximately. As of June 2020, 12 vessels only have been delivered within 2020, and with another 24 vessels are scheduled to be delivered the remaining of the year.
Furthermore, you can see the Global Energy fleet has a total 522 vessels in operation and another 110 vessels on our order book as per Clarksons. This implies an increase of 21% of the total LNG fleet in terms of number of vessels as of June 2020. The current LNG fleet age profile is approximately 11 years old, relative young. Note that only the 4% of the current operating standard size LNG fleet is above 30 years old. In the first six months of 2020, there have been reported three vessels that have been demolition, compared to only two vessels in 2019 and one vessel in 2018.
Now, I would like to mention as a final market note that market participants believe that the LNG shipping market will be volatile in the upcoming quarters due to a combination dynamics and factors, such as a compressed global shipping average of ton-mile and incremental availability of shipping tonnage in the market. In a long-term point of view, the LNG demand will be stimulated by the current price levels as we see it happening in the first six months of 2020 with India and Europe.
Due to the fact that LNG is a clean fueling, it will enhance LNG's attractiveness of energy consumers. In this way, it will accelerate the switch from coal to gas consumption, and this will be driven by the increased industrial output. Now, I would like to hand it back to Mr. Hani Abuaker to give you an insight into Nakilat's business outlook. Hani, please go ahead.
Thanks, Fotios, again, for this brief of the LNG shipping market outlook for the second half. Now we're moving to slide 16. I will shortly discuss about Nakilat business outlook for 2020. Of course, we don't know how this global economic crisis and pandemic will ultimately end, including how long it will last, how much economic damage it will continue to do and for how long. However, we always strive to navigate through this unprecedented storm and to maintain our sustainable return to our long-term shareholders.
We should mention that the vast majority of our vessels are on term charter, and they continue to receive their hires as per the term charter parties with no exposure to commodity price fluctuation. Regarding the Nakilat LNG shipping business segment, our new vessel delivery has so far been unaffected by the COVID-19. Last month, we took the delivery of Global Energy, which is commercially and technically managed in-house by Nakilat. Currently, the vessels has entered into a short-term charter until we can finalize a long-term potential opportunities in the future.
In addition, it is worth to mention that Nakilat has taken three LNG carriers under the management of our shipping arm, our operating shipping company, Nakilat Shipping Qatar Limited from STASCo in the past six months. This will bring the total number of vessels managed by us or by to 22 vessels which is consist of 18 LNG and four LPG carriers. This is a great achievement and a testament for Nakilat operational capabilities during unprecedented challenging period around the world.
In 2020, we expect to weather the current challenging economic environment as well as the soft LNG shipping market, we will have potentially another successful year for Nakilat. Again, this is due to our management effort to maximize the utilization of our fleet and optimize our operating expenses. In addition, we are persistently working with the shipyard team, our joint ventures, to minimize the negative impact of COVID-19. Also we should really expect the full impact because it's only one quarter left of the acquisition of the INSW or the four Q-Flex in the next quarter.
This should provide us with additional revenue going forward. In summary, we have a strong liquidity balance sheet, very manageable debt maturity, we have a strong financial foundation. Which shall translate into a good benefit to our shareholders and stakeholders. Nakilat Inc. has the best credit rating by International Credit Rating Agency among its peers and provides a sustainable total return to its stakeholders and shareholders. All of the above make Nakilat in a unique situation, which is favorable compared to other peer companies.
Before we open the call for the questions, I would like to close out by saying again to recognize Nakilat seafarers and their employees for their dedication and professionalism under these challenging times. As things open up, it will become more clear for us about what to expect. I'm sure you guys are facing the same kind of current reality. However, during the uncertain time, we take comfort in our robust business model, which is with a fully fixed LNG fleet, strong financial foundation, and dedicated seafarers who will keep everyone safe, hopefully as we come back to the normal situation.
With that, I will ask the Operator to open the chance for everyone to ask questions. Please go ahead.
Thank you. As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad, or if you're joining us online, please click the flag icon. When preparing to ask a question, please ensure your headset is fully plugged in and unmuted locally. Our first question comes from Santosh from Drewry Maritime Research. Santosh, your line is now open.
Yeah. Thanks. Hello, Hani and Fotios. Hope both of you are doing well. My question is regarding Global Energy LNG vessels, which you have received in the last few days. By when do you think we will start getting the full contribution of this vessel on Nakilat financials? Just a question, will we see the complete contribution in the third quarter? My second question is, how long is this short charter duration? Three months or maybe six months? I'm just giving you some numbers, but you can give your views. Thank you.
You should really start to see it in this quarter, to start to see the contribution for the new vessel. We don't usually disclose the duration for our charter hire, especially if it's short-term. This is also part of our fiduciary duty to our charterer. You should say something that it's less than seven months. Usually short-term, it could go between three to six months. It is, I would say, less than seven months.
Okay, thanks. In case I can ask one more question. We are hearing a lot on IMO 2030 and 2050 regulations. Though the regulations themselves are, I think, not very clear. Related to that, are you planning for some engine retrofit in coming years? Do you have significant time ahead of you so you can plan? As of now, any decision on engine retrofit?
As a global shipping company, particularly one of the largest by capacity, our fleet team and technical teams continue to look into to ensure that we are in compliance with IMO 2030 and 2050. I'm sure they're exploring all potential options. They are really aware of what is expected and needed. I'm sure that they are monitoring what everyone is doing in the market. However, nothing yet is being announced or disclosed, or being concluded. If anything is going to be concluded or decided, definitely we're going to go back to the market and announce it right away, and we will share it with you.
Yes, you have to be assured that we are always, as we have weathered the 2020 IMO regulation, we were fine. I'm sure we will continue to be fine over the 2030 and also 2050 in the long term. Thank you.
Okay, thanks. I think that's all I have. Thanks a lot.
As a reminder, it is star followed by one on your telephone keypad, or if you're joining us online, please click the flag icon. We have a question from Nafez Al Abbas from Ajeej Capital. Nafez, your line is now open.
Thank you, gentlemen, for hosting the call. I just have one question regarding I know it's difficult to give details on the new fleet order, but can you shed some light on the item that QP published about preserving the capacity of shipbuilders. Is there a possibility that QP may be, let's say, forming a separate company to file these vessels under, and maybe the new vessels will not be managed by Nakilat? Is that a possibility?
Thank you very much.
Thank you, sir.
Yeah, go ahead, Fotios. You can answer.
Okay. Hi, everyone. Thank you for the question. As you have said many times in our calls, this project is handled and owned by QP and Qatargas. These companies are involved, and they are owners of this project. Always, we let these companies comment on this. We don't usually comment for other people on their behalf. As you can see, yes, they have made their own announcement about reserving some slots of shipyards. We don't comment on other people's projects. Of course, at Nakilat, we have had a long-term relationship with QP and Qatargas all these years.
The majority of our fleet is chartered to Qatargas. We are happy for that. We maintain great relations and communication. Generally, we don't like to comment on other people's projects. I don't know if Hani wants to add something.
Not really. Exactly. This is something related to Qatar Petroleum and Qatargas. They are the ones who have been announcing the ambitious Qatari project. They will, for sure, advise the market about their strategy as time goes on. We leave it up to them to really decide when and what and how they can carry on. That's the best we can say. I hope we answered your question.
All right. Thank you.
Thank you very much.
Our next question comes from Jonathan Milan from Waha Capital. Jonathan, your line is now open. Jonathan Milan from Waha Capital, your line is open. It appears we have no further questions at present. We do have a question from Nikhil Arora from Franklin Templeton. Nikhil, your line is now open.
Yeah. Hi, gentlemen. Thank you so much for hosting the call. If I may ask a couple of questions. My first question is, I think there is something of the order of QAR 500 million on your cash flow statement, which is like a loan to JVs. Can you explain what kind of loan this is and to which JV it was extended? My second question is, the new vessel that you're talking about with a contract of less than seven months, is there an expectation of that being converted into a long-term charter, or is this how it's going to be going in the future?
Yeah. I think I will answer both questions just to give you a highlight, and maybe I'll leave the second question also for Fotios to elaborate. About the loan, you have to understand, this is the loan that we are providing to the joint venture for the payment of the shipbuilding of these four vessels. As you know, we have four vessels. One has just got delivered, one towards the end of the year, two next year. This is exactly the payment towards the shipbuilding of these vessels, so we have to provide it as a loan to our joint venture.
Hopefully, in the future, once the vessel is being delivered and deployed, we get financed, for sure, maybe we would get that money towards us. Yeah, definitely, our aim is always to go for a long term. This is Nakilat’s ambition all the time. Not ambition, also this is our philosophy and strategy, is just to lock in into the long term. This is how we can really generate and provide a better added value return to our shareholders. Yeah, hopefully in the future, we will try to secure these ones in the long term. That's our aim. Fotios, if you want to add anything, please go on.
Yes. What I want actually to add on this question is that you have to understand that Nakilat, as the world's largest LNG shipping company, maintains strong relations with charterers worldwide, and we continue to have communication with the market participants on this matter. You need to understand that when there is unfavorable market conditions and economic uncertainty around the world, the long-term charter party agreement needs additional interim time to be concluded between the delivery of the vessel from the shipyards and the delivery of the vessels on term charter.
As the CFO said previously, we aim to charter the vessels on term contracts and longer contracts. At the moment, because of these conditions, we need little bit more time on that. We hope that we answered your question.
Yeah. Okay. Thank you for that. On the first one, regarding the loan to the JV, so is this done now, or do you think you'll be extending more loans to them? Because two more vessels are expected next year, right?
Yeah. You have to understand, as we build these vessels, we're extending the loan for them so they can do their own installments. Once these vessels get delivered, then they will do their own financing, and usually, they return the money back to the shareholders. In between, if you deliver two and then you have the other two within the initial one that were delivered, you collect the money back. You might more or less, if you ask me the question in a year's time or in a year and a half or in a year's time, six months, you're going to see some money coming in and some money actually going out to pay for the newer one.
Eventually, we should expect that joint venture loan will be repaid and only just we're going to be left with just the equity portion. Okay?
Okay, sure. That's clear. One more question is on the, I think taking some of your additional vessels into your own management from the STASCo. Can you give us an update on how many vessels are now under your management, and what's the plan for that over the next two, three years?
Yeah. Okay. I can take this one.
Yeah, go ahead.
Right now, we took actually last week, we assumed the full management operation of Q-Max flexible LNG Bu Samra from STASCo. Bu Samra is the third vessel that will come under of our management in NSQL in 2020 and bringing our, right now, the total number of vessels managed by NSQL of 22 vessels. These 22 vessels comprised of 18 LNG carriers and four LPG carriers. During 2020, we expect to take additional four vessels, one FSRU for technical manager as well, including also the new delivery of vessels that will take at the end of the year of the new major vessel.
Okay. Thank you so much.
Yes, just one last question from my end is on the G&A expenses. I think there is some really good progress that we saw in this quarter. Is this the expected run rate going forward about QAR 25 million, or do you think there was one of this quarter that may not repeat from 3Q?
We should expect this as part of the company's G&A and the CEO's mandate and guidance and effort as a management. Continuous improvement and being competitive in the way we deliver our services and being cost-conscious and try to make sure having cost savings, we never call it cost reduction, cost savings in the way we do things to ensure our long-term competitiveness. That's something we'll continue. That's something we will never stop doing. We should really expect a lot of elements will contribute to that continuous improvement.
Again, part of it could be in an absolute initiative that we take in the way we do things without definitely compromising any sort of availability and the performance of our vessels. We take measures in the way we do things. We make it more efficient, more nimble, more agile. As we take more vessels, you have to take into consideration it give us synergies and provide us ability to utilize our infrastructures that we have built over the years so we can reap that benefit. Also will help us with the economy of scale.
That continuous improvement and synergies will continue with us for the at least coming quarters. Okay?
Okay. All right. Thank you.
Our next question comes from Omar Jabali. Omar, your line is now open. Omar Jabali, your line is open for your question.
Hi, this is Omar from Decimal Point. I have one question. We have seen some decline in share of joint ventures. Could you please throw on some light on where this decline is coming from? Particularly, if it is coming from the LNG side or LPG side or the shipbuilding JV.
Yeah. It has two factors. One of them is Actually, there are three. First of all, I hope you guys took into consideration that the vessels that we took over in October 2019, when we used to own close to 50%, they used to be reported into that line. Now we took it out of that line and we report it line by line. Second of all, is that our LPG segment is not doing as great as the first quarter. The first quarter was really, truly exceptional. It's still doing good in the second quarter, but not as good as the first one. Third is our shipyard ventures.
As you know, the COVID-19 had sort of a negative impact on our activities there, which is understandable, and that's what happened everywhere around the world and even for every single shipyard anywhere in the world. It really has contributed to that low activities, not enough absorption of overhead costs. We hope, as we said, as things open up, and that's what we see, at least as of today, things will look better or at least to catch up some of that or recover some of our losses that had happened in these joint venture or the shipyard ventures, starting from, let's say, in the next couple of months, because we see some of the demand is coming back.
This really, truly explain the reason for that difference for that share of profit from joint ventures.
Yeah. Thanks. One more question. Regarding to the second new vessel, which is expected to come by this year-end, is it fair that we can assume utilization for that vessels from start of 2021?
Sorry. Can you please repeat that question again? I wasn't able to hear very well.
The second of the new vessel is expected to come or expected to deliver by this year-end. Is it fair to assume utilization for that vessel starting from the 2021?
That goes without saying. That's our aim, that these vessels, as they delivered, they will be serving and generating income for us similar as to the one that we just delivered, which will start to really contribute somewhere in June this year. Yeah, we should really, in a normal case scenario, you should really assume that, yes, it will generate some sort of return for us. Yes. Starting from 2021.
Yeah. That's very clear. Thank you.
Our next question comes from Ramzi Sidani from HSBC. Ramzi, your line is now open.
Yes. Hi, gentlemen. If I can ask about the dividends from JV, we saw in H1 a big increase versus last year. Is this timing difference or are the JVs paying a higher dividend? If yes, which ones? If you can comment on the outlook of the LPG vessels for the remainder of the year.
Okay. I will take the first question and maybe Fotios can take the second one. Again, each JVs will distribute their dividends periodically. We should really, as money is being available, they do distribute dividends. Is it going to be more going forward? Not necessarily, but we should really expect different JVs to continue to contribute similar to the historical dividend rate. Maybe one of the JV, We expect from our day five ventures, we expect them to really distribute a little bit higher dividend going forward.
However, as we said, you should really look at our historical dividend distribution. You have to take into consideration with some of them, if let's say they are hedged at 90% and they have 10% or somebody or one of the JV is hedged at, let's say, 75% and 25% unhedged, they will really enjoy some of these lower interests, and that will translate into higher dividends. In addition to the normal or debt payment of debt as we pay the debt with less or the interest rate expense is less. Yeah, further you can say we expect the dividend to be same. If it's not, and potentially it will increase. For sure. I hope I answered you.
Yes. Thank you.
I will take the LPG question. As we said, the first quarter of 2020, the LPG rates was at healthy level. At the second quarter, the COVID-19 pandemic has obviously affected the VLGC rates, and has decreased them specifically mid-June. We reached a very low level. After June, July now, for example, Fearnleys assess the VLGC spot rates at approximately $20,000 per day. We have seen a huge improvement from mid-June. Due to COVID-19, which actually, it's expected to cause some kind of volatility short-term in the next few months, but in very long-term picture, I believe it's favorable.
Because there is limited new vessel capacity that's coming to the market, and the LPG trade growth will continue to grow. To summarize, short-term, we see kind of volatility, but the big picture, it's the LPG growth will continue, and we'll see healthy levels again.
Okay. Thank you.
As a reminder, ladies and gentlemen, that's star one to ask a question, or if you're joining us online, please click the flag icon. As we have no further question, I will now hand you back to the management team.
Thank you for that, Fotios and Mr. Hani. Would you like to give some concluding remarks for the call for today?
I just would like to thank all of you for taking, again, the time to participate in today's conference call. I would like to express my deep gratitude and appreciation to Nakilat employees. Time like this, we reinforce that our employees is the most important asset. All your questions, we will try to really take it into consideration and be ready to answer it, even if you have to call us one on one, anytime. Fotios is available, and myself as well. We just would like to wish you to stay safe and healthy, and hopefully that this will be over and we're going to see you very soon. Thank you.
Thank you so much for your participation during this challenging time. You should be sure that all your questions will be received from us, and we'll continue to communicate the capital markets feedback to the Nakilat management. Stay safe, thank you so much.
Ladies and gentlemen, this concludes today's call. You may now disconnect your lines.