Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Transcript 2018-Q2

[Age Sturtzel Holm, Vice President of Finance & Investor Relations]

Good morning, and welcome to this presentation of the Wilh. Wilhelmsen Holding group with a special focus on the second quarter result.We will have a standard agenda where the group CEO, Thomas Wilhelmsen will make a presentation and then we will have the Q&A session.Those following on the webcast, you may send your question through the webcast system and then we'll answer them after the presentation.Then welcome Thomas Wilhelmsen.

[Thomas Wilhelmsen]

Thank you, Åge. Good morning, and welcome to our quarterly presentation. Some of you might have seen it's a quarter which has been highly impacted by a change in valuation of financial assets and also some non-recurring costs.Just a little bit of the highlights. Improved underlying EBITDA for the quarter. Wallenius Wilhelmsen's net profit is -- contribution is slightly up. There's been significant fall in value of the Hyundai Glovis shares, I will come back to that many times during this presentation, so please bear with me on that one. We've had a significant cost related to the Drew transaction during the quarter and the transaction was abandoned. I will also come back to that a little bit later. And we have the payment of the dividend of NOK 3.5 during the quarter.So I will start talking a little bit about Drew. Unfortunately, the U.S. Court ruling went -- or did not go in our favor, and as a consequence, we decided to abandon the transaction. We believe this is important. We were actually in a strong belief that this transaction will be a good transaction both for the shareholders of Wilhelmsen Holding and for our customers. But we're in a position where we can't go forward and it's a lost opportunity. But it's not more than that.So we have within marine products a fantastic position with the company that we have. We have a unique portfolio of customers. We deliver services and products from this company to more than 50% of the global fleet. We have a unique global network with a range of products and services, which we believe that we can leverage going forward.So, as I said, it's a lost opportunity. We would have liked it to come to fruition. We believe it would have been to our benefit and our customers' benefit, but we do have a strong platform within this business segment as it is, and we have not lost any faith in that whatsoever. So we just have to do our best to make that business grow in a different way than through acquisitions of the Drew Company.Then moving on to Hyundai Glovis, as we have spoken about before, and which has been official in the marketplace, that Hyundai group announced a total restructuring plan in March of this year. Unfortunately, that restructuring plan was withdrawn in May. Initially, it had a significant positive effect on the share price. The withdrawal of the restructuring then resulted a significant decline in the share price and that's contributing to the volatility of our results. And we have to put a change in value of $250 million for the quarter.You may remember that we had a positive change in value during the first quarter. And since the end of the second quarter, the share price has increased, so part of the loss has been recouped. But we still on a full year basis somewhat below the starting points. So we'll see what will happen. We believe Hyundai group will put forward a new restructuring proposal in not too distant future. It's hard to say exactly when, and we are not in a position to predict the outcome of such a proposal. But we do believe it will be put forward in not too distant future.So then we can move over to -- a little bit more to the numbers as such. Total revenue for the group increased 5% compared to last quarter. The EBITDA, of course, is not very impressing as you can see it here. The underlying EBITDA, however, is significantly stronger than previous quarter, up 77%, landing at $27 million.Then we look at profit from associates. This is also up compared to last quarter. Contribution or increased contribution from Wallenius Wilhelmsen, but also from associated companies to NorSea Group.Then when we go to change in fair value, as I've said, this is highly impacted by the change in value of the Hyundai Glovis shares. But as you can see here, it's not $250 million it's $241 million, because of the fair value changes amongst others too, which has gone in the opposite direction and with a positive contribution. Leaving us with a net loss of $201 million, which of course, is a very significant number, but not necessarily a cash or realized effect.We can't say that we are very happy with this result. But we are happy that we see glimmers of hope in terms of the underlying performance of the operating businesses, which I will touch upon a little bit now. Starting with Maritime Services. The top line, as you see, is pretty stable or flat. However, the underlying EBITDA is up significantly from previous quarter, mainly driven by marine products.We have a stable development within Ship Agency and we have had, as we've communicated before, some of decline in the total number of ships under management within Wilhelmsen Ship Management. But we are now in a position where we can say that we're having some positive inroads and quite a few new vessels will come in during the third quarter. So we are compensating pretty well from that going forward.Also the business in Wilhelmsen Chemicals, the factory we have at Unitor has had a seasonal decline. So that's where we are at the moment. We did take the $27 million cost during the quarter related to the Drew transaction, the termination fee and also legal cost. So this is a non-recurring issue. So if we take that away, we have an increase in the underlying EBITDA of 36% compared to last quarter. So certainly glimmers of hope there as well.And the same with the Supply Services. NorSea Group has had a quite a significant improvements compared to last quarter. This is driven both by improvement in the operation, but also as a result of sales gains. But we believe going forward that the market is improving, so activity level will be higher than what it has been in the past. But we have to remember that this business is not on the top of the food chain within the oil and gas industry. We are a service provider, so you will not necessarily see the same increases as you would do for the exploration companies or others.When it comes to WilNor Governmental Services, not much happened during the quarter as such from a financial perspective, but there is a significant ramp up and preparation phase for the Trident Juncture exercise which will come now during the second or the third quarter and fourth quarter, which is going to of the largest exercises in Norway for a long, long time.And there is a huge project in terms of coordinating the logistics, accommodation, meals. We will, for example, serve more than 1 million meals -- or be responsible for serving -- servicing 1 million meals during that exercise. We will deliver 250,000-300,000 water bottles. We will deliver tens of thousands of accommodation beds. It's a major, major project, but of course in the short period of time. So we have close to 60 project managers working fulltime with the defense side in order to make this a success going forward.For holding and investments, this is predominantly where we have seen the negative contributions. However, starting with Wallenius Wilhelmsen. They have -- they reported their numbers yesterday. EBITDA slightly up from last quarter, landing at $159 million. They have good volumes at the moment. There's been a volume growth. However, rates are still at the low level. They are being hampered by high bunker costs and unfavorable currency positions. But the supply/demand side within this segment is improving compared to several quarters back. So there are again here also a position where the fundamentals aren't that bad, but they need to come into a position, the industry need to come into a position where the supply/demand is tight enough to get rates coming up. And that's one of the, say, the challenges that they are grappling with.Hyundai Glovis, as I've mentioned now many times, $250 million change in value. Looking briefly at Qube. Qube performed well. We had a change -- positive change in fair value of $15 million during the quarter. We sold 15 million shares at the tail end of the quarter with the net proceeds of $27 million, meaning that we have 50 million shares left. And brief calculation to -- and I haven't checked the share price today, but if we say at AUD 2.5, than they are at total value of AUD 125 million for the remaining post that we have in the Qube.The $201 million, Of course, that has an effect on our equity ratio, which has dipped slightly from last quarter. I will not spend much time on that. But now at 65%, still, of course, a very strong position from that perspective. But we would like it to be moving either in the opposite direction or if we are to reduce the equity position, we would like to do it in a different way than through loss from the accounts.Liquidity and debt, here maturity profile we have -- we are very confident and we believe we have a good position. There's been some activity on the debt side during the quarter. NorSea Group have refinanced their total debt for the 5 years and we're very happy with the support that we have gotten from our banks in that regard. In holding and investments, we're in an ongoing negotiation as we speak to refinance what we have there. Meaning, also that we will push some of what you see on the left-hand side there further out. On the liquidity side, it's satisfactory, but I would have like to see a little bit more of a liquidity buffer in holding, but it's satisfactory as we have it today.And then looking at the cash upstream. On the left-hand side of the graph majority of the upstream that we've had to the holding company in an historical perspective has been from the Car and the Wallroll side of the business. For the last couple of years, we have not been in that position. And as we know, Wallenius Wilhelmsen is not in a dividend position as we speak and have not paid any dividend since the merger. Meaning, that the upstream that we have is predominantly coming from the Maritime Services side and also from investments either sale down or dividends that we receive.We paid the NOK 3.5 during the quarter and the board has the mandate from the general assembly for another NOK 2.5, second half this year, but there's been no decision made on that as of yet.So just before we get into prospects, rounding off, since the Drew acquisition did not occur, I think, it's a little bit important just to say that there is a lot of activity going on within this group. A lot of initiatives, many of them of course, a lot smaller, since they are not larger acquisitions, but important for the vitality and the forward progression of the group. And we believe this will be important, through all those small, as I said at the time being, in actually developing the group and towards the fruition of our vision. So we are, in that regards, very happy with all the smaller things that we are doing and we will look into the future developing these initiatives, others, but also on possible acquisition opportunities that may arise.So lastly, before moving into the questions, let me look at the outlook. The board's outlook is, after a weak start of the year. The underlying trend has been more optimistic for all the 3 business segments. The positive development is expected to continue into the third quarter. However, a more negative sentiment towards global trade and potential introduction of further tariffs and restrictions create uncertainties on the medium-term basis.So that should in many ways sums up -- sum up what I've been talking about and we will open up for questions.

[Thomas Wilhelmsen]

Any here or by e-mail?

[Age Sturtzel Holm, Vice President of Finance & Investor Relations]

No, not yet.

[Thomas Wilhelmsen]

Okay. If there is nothing, then we will say thank you very much for listening in and being here. And I'm sure there will be a few questions as we walk out. So thank you very much.