Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Transcript 2022-Q2

[Thomas Wilhelmsen, executive]

Good morning, Christian.

[Christian Berg, executive]

Good morning.

[Thomas Wilhelmsen, executive]

And welcome to all of you participating on the webcast. Welcome to the second quarter presentation for Wilh. Wilhelmsen Holding.

Overall, it's been a steady quarter for the group without any significant operational issues. The underlying performance for our operating entities has been stable. Overall -- sorry, I should have clicked here with the slides. Overall, the revenues have gone up year-on-year slightly and ending at an EBITDA of USD 39 million, which is more or less in line, a little bit down from the same quarter last year.

It's very pleasing to see strong contribution from, amongst others, Wallenius Wilhelmsen. They presented their results 2 days ago, and it's been a very pleasing development over the last couple of quarters.

The financial markets are pretty volatile these days. And of course, that's hurting part of our valuation within the company, resulting in a significant financial loss, especially Hyundai Glovis has revised value down for the quarter of $84 million. And also, we are, say, being hurt to a certain degree by volatility on currency. These are predominantly unrealized, say, losses. So hopefully, we'll get back on track.

Overall, with these developments, there was a $19 million net loss to equity holders of the company for the quarter, which equates to minus $0.42 per share.

We increased our shareholding in NorSea Group during the quarter, so we are now a 99% shareholder in NorSea Group. I'll come back to that a little bit later in my presentation. But also, during the quarter, there's been quite some activity on the refinancing side. Christian will come back later with the refinancing on -- or within Wilhelmsen Maritime Services.

But also, again, those who follow Wallenius Wilhelmsen would have seen that they've done a major flagship refinancing, which they announced at their presentation. And also, we're working on some other refinancings within the group. We believe this is a very opportune time to do it given the geopolitical backdrop that we see, and it gives us or the Wilhelmsen Group a very, say, sound foundation going into some uncertain geopolitical times.

Moving over to Maritime Services, we had a small name change during the quarter, where we changed the name for our agency business to Port Services. This is really just to reflect the, say, the increased scopes of what we are dealing with and the activities within that business area.

And overall, within Maritime Services, we do see quite some positive developments. Our customers are doing well. And we do see opportunities within new lines of businesses, some smaller, some bigger. And we will work, say, steadily and with a long-term view as to how we can develop this part of our portfolio.

Then looking at the financials, it's been a relatively good quarter for Maritime Services. Revenues were up 15% year-on-year, which is good to see. Very pleasing that all business areas are doing quite well, and it's a high activity.

As mentioned in previous quarters, there is, of course, a certain, say, challenge and skepticism towards increased costs and inflation creeping into our business. We're working hard on efficiencies, but also how we can actually compensate by increasing prices and being, in general, more efficient towards a difficult backdrop. EBITDA of USD 25 million, I think we are quite pleased with that, and an EBITDA margin of 16%.

A small acquisition, I can't say that it has been done, but it's in the making, with a company called Stromme. This will equate to approximately USD 6-million-plus increase in revenue if the agreement is finalized now in the third quarter. But I think, more importantly, it widens our service sector and improves the offering that we have towards our customers, and this is predominantly within cargo hold cleaning segment.

New Energy has been an interesting quarter. It's been high activity, especially on the offshore basis of NorSea Group. We are somewhat down on our revenue, but this is predominantly as a result of currency. NorSea Group is a NOK-denominated entity, and translating both balance sheet and revenue into U.S. dollars is, say, has a negative impact.

But underlyingly, in local currencies, the operation is strong. And we are pleased with the development, especially the turnaround, I would call it, that we've seen in Denmark, which has been a bit of a difficult area for us. It's now working a lot better than before. And there are some technicalities in terms of how we, say, run the numbers with consolidation of Vikan Næringspark, et cetera, but I will not go into those details.

New Energy had an EBITDA of USD 15 million, which is stable compared to previous quarters, and we had good contribution from joint ventures and associates. And again, I will then come back to NorSea Group a little bit later, which, of course, is then the majority part of New Energy segment.

Then moving over to Strategic Holding and Investments. As I mentioned, we've seen strong contribution from Wallenius Wilhelmsen during the quarter with $41 million. The market within the car and roro industry is extremely tight these days. Scrambling capacity is the name of the game and it's -- the charter rates are going up. But I think the -- at least from a Wilhelmsen point of view, we believe Wallenius Wilhelmsen is doing a great job maneuvering in a good but difficult market in terms of the lack of capacity that is out there, and there are good prospects within that business area.

Our financial assets again was hurt, as I mentioned earlier, both in terms of our shareholding in Hyundai Glovis, but also several other investments that we have, which are denominated in non-U.S. dollars, but Christian will shed some more, say, lights on this. So the foreign exchange has been a bit of a -- not necessarily a challenge, but it has definitely put a dent to our numbers. So -- but all in all, I think it's been a strong quarter for the Wilhelmsen Group.

Then a few words with regards to NorSea Group since we exercised our option to increase the shareholding in this company during the quarter. We first did our investment back in 2012. We wanted some more exposure towards the oil and gas industry at the time, but within a segment which had lesser volatility. And we started then investing in NorSea Group. We felt this was a very interesting company. We have shared same values, and the way they are carrying out their work is quite similar to other parts of our Wilhelmsen operation. So we felt that we should be a constructive owner or shareholder within this company.

So we started with 35%. We increased it further to 40% then to 75% and now to 99%, utilizing our option which was priced at NOK 500 million. So overall, we invested approximately NOK 1.6 billion to reach a shareholding that we have today.

NorSea Group is predominantly a provider towards the oil and gas industry. But at the same time, it's a company which is really on the path of assisting both the customers but also the Wilhelmsen Group in the transition to new energies and how we can actually provide services towards that sector. And we see this as the greatest catalyst for new opportunities as to how we can turn our portfolio, which we feel is very, very interesting, and how we can then be, from a group perspective, part of the energy transition going forward.

I will not go through all the, say, deliverables and services that NorSea Group has because it's a very wide set of services and fantastic operation. But then, say, in basic terms, it's offshore-based and logistics services with everything that has to do with handling cargo and on and off ships and also onboard or at the terminals. It's actually a significant property company, so we should not forget that also when looking at the return numbers. And the company is working steadily towards the renewable sector and has gotten quite some significant grounds in that area and especially towards the offshore wind industry, which is a typical user of these type of facilities.

Just a little bit of, say, a background. The group NorSea was founded in 1965, so it's been a significant player towards the oil and gas industry, especially in Norway. But as you can also see from this slide, we have operations both in Denmark and in Scotland. It's huge land areas, say, a high number of quays and also warehouses and workshops. So a very, very interesting company from an infrastructure point of view, but not the least, as I said initially, the way the people are working and how we are carrying out the operations within NorSea Group is just a stellar operation. So we are a very proud owner of this company.

And from a financial perspective, as you can see on the right-hand side, it's a relatively stable and profitable business. So it's an acquisition that we are proud of, and we hope that we'll be able to get a lot out of NorSea Group in the years to come.

Then moving over to outlook before Christian takes over. Overall, it's actually a relatively positive market sentiment for all our business areas. There are some geopolitical issues out there, which, of course, are to some concern, inflationary pressure, et cetera. But all in all, we believe we have a very solid platform. Business outlook is okay for our companies, and so we're looking at the next quarter in positive views.

So thank you. I'll hand you over to Christian, who will dig a little bit deeper down into the numbers.

[Christian Berg, executive]

Thank you, Thomas. I'll try to dig a bit further than Thomas did. And as Thomas has already mentioned, the quarter is stable and underlying good in all operations.

So the EBITDA of USD 39 million is basically on par with the previous quarter, but -- and consisting of USD 25 million from Maritime Service sector and $15 million from New Energy -- in the New Energy sector and basically coming from the purchase of 50% of Vikan Næringspark by NorSea Group. There is a reclassification between the financial lease and the operating cost, which is affecting negatively the EBITDA, but it's sort of coming back again at the EBIT level.

On the JV and the associates of USD 45 million, Wallenius Wilhelmsen, as Thomas said, contributed with 45 -- USD 41 million, and New Energy on their sort of associates contributed with USD 3 million.

On the change in fair value of financial assets, Hyundai Glovis was basically just above 90% of the total. And it's actually a split between the change in the listed value of the shares in Korean won and the Korean won towards the U.S. dollar. So it's a mix of change in stock price and change in the Korean won versus U.S. dollar, approximately a 50%-50% mix.

Just to the bottom, and since the number is a little bit sort of bigger than it used to be for the quarter before us -- before this on the comprehensive income, that's also a place where we have a minus and it comes from, what Thomas has also alluded to before, valuation of balance sheet assets in other values that are denominated in other currency than U.S. dollars.

And we do typically then get variations through the quarters, but they are a bit sort of larger than they used to be. And specifically the Korean won, of course, from -- coming from typically the Hyundai Glovis side, but it's also from Norwegian kroner and from Aussie dollars. So that's the sort of main contributors negatively to that $89 million in other comprehensive income.

On the cash flow side, we started the period with USD 231 million, ended up with $163 million. And the main reason is the operating cash flow in the period and the investments we've done in New Energy. In Maritime Services and in the operating side, as Thomas has said already, good operating revenues, but that's also eating working capital.

So our working capital has increased with USD 49 million in Maritime Service during the period. It's basically split in 2: split in, one, regarding the revenue increase; and it's -- the other part is basically reversed, taking back earlier sort of positive working capital development that we were able to do during the COVID -- early COVID period. And that's coming back into play now going forward where COVID is less of an impact for the working capital.

On the investing activities, we have sold 10 million shares of Qube in Australia. We have sold some bonds. And we have invested $47 million in New Energy, specifically the 2 main ones being Reach Subsea, just above 20%; and the remaining 50%, taking NorSea to 100% owners of Vikan Næringspark.

Coming to the cash from the financing activities, dividend was paid during the quarter, the first dividend. And the biggest chunk in the quarter is basically the purchase of the remaining 24% of NorSea shares, giving us a minus USD 53 million or equal to the NOK 500 million, as Thomas mentioned, for the remaining 24% of the shares.

So negative on cash flow for the period, but basically an, what I would say, an investing quarter when it comes to investing in growth for the, specifically, the Maritime Services and investing in shares for typically the NorSea -- the New Energy area.

As Thomas has mentioned, we have closed a refinance of USD 300 million with a group of very known and, for us, very good relationship banks. So we are very pleased to have finalized that. Happy to see the group, and we are also happy to say that it's been a very good and speedy process and that we are able to actually get better, get sort of at par or even better deal with the bank than we used to have in the Maritime Services sector.

We are also in the early beginning of refinancing NorSea. And we have, as far as we can say, a very good traction with some of the same banks, some other banks. And we hope to close that through third, fourth quarter this year.

And then coming back to Thomas' total of refinancing, within this year, we will, including then the Wallenius Wilhelmsen refinancing, we will be around just short of USD 2 billion in the group as at large refinance through 2022.

The balance sheet is also a bit impacted through the period. And again, going back to the point of currency, the total balance sheet is down by 8% and the equity is down by 5%, mainly by the currency volatility both coming from the comprehensive income, as alluded to before, but also coming from the valuation of the assets as such. And again, the same currencies, Korean won, U.S. dollar -- Norwegian kroner and Aussie dollars impacting us.

So still, I'm very sort of happy to come out with this refinancing. We are a solid company, a very solid company, and we do see that we are attractive to the market and to the bank market going forward.

In the quarter, in -- at the 11th of May, we paid NOK 4 in dividend, a total of USD 20 million. And we have a potential for paying up to NOK 3 per share given by the General Assembly earlier this year, so -- which we usually tend to report to the market and to the shareholders by -- through the fourth quarter this year.

Thomas, okay?

[Thomas Wilhelmsen, executive]

Thank you, Christian. Well, just rounding off, I think when we -- when you see what's going on in the group, we are -- there's a lot happening, and we are continuing towards shaping the maritime industry. A lot of initiatives within the group, and the market sentiment for our businesses are quite strong.

So thank you very much, all of you, and we will open up for questions.

[Age Holm, executive]

Fine. And we have 3 pretty precise good questions from one of our main shareholders. So I take them one by one because they are on different areas. It's starting with Maritime Services and then passing over to NorSea Group and starting with operation and being more financial.

So the first one, I presume to you, Thomas. Are the Maritime Services companies able to fully pass on cost inflation through price increases? Or will margins contract despite higher activity?

[Thomas Wilhelmsen, executive]

I think it will be pretty arrogant to say that we are able to pass all the increases. But at the same time, there are -- and of course, we have different businesses with different drivers. So it's a little bit different from company to company. But in, say, when you look at the large numbers, I would say that we should be able to pass on a great portion of the cost increases. And we've done that also through price increases, but we also have to do our share. We have to be more efficient. We need to change constantly the way we're working in order to be more efficient and to meet the market.

So unfortunately, we can't just pass all the costs on. I think that would be a little bit too easy. But from a result perspective, we are quite confident at least how we see the world today that we are able to, say, to cope with this in a very constructive manner.

[Christian Berg, executive]

I mean I might add that in a large part of the portfolio, there is a KPI index on the pricing. So with always the link, so you also will see some sort of automatic price increases due to that.

[Age Holm, executive]

Okay, then it's -- the second question is also related to Maritime Services, regarding the increased financial flexibility of Maritime Services to explore further growth opportunities through investments and/or acquisitions. What type of assets are most relevant, what size, value, type of assets, regions, et cetera?

[Thomas Wilhelmsen, executive]

Sorry, could you please repeat?

[Age Holm, executive]

Yes, it's about the increased financial flexibility of Maritime Services to explore further growth. The question is then, what type of assets are most relevant, size or value or type of assets or regions in Maritime Services?

[Thomas Wilhelmsen, executive]

Okay, it's a big question for a large portfolio. But I will probably start by saying that as we know from the past, there are certain, say, areas of our overall portfolio where it's difficult to do larger acquisitions because of competition constraints that we have, and that's in particular towards the Ships Service and the products area. But there are, of course, like we've seen or presented today, smaller opportunities in pockets where we can actually broaden also through acquisitions within the Ship Service side, like we're now trying to do with the Stromme and the cargo hold cleaning.

But then if you look at the agency side of the portfolio of Port Services, as we now call it, or also within Ship Management, there are opportunities for consolidation and increases both organically and through M&A and find opportunities within that space. So it's a pretty wide area as to where we can invest. So -- but a lot of the -- a lot of this is tilted towards the service side, so typically, not very asset-heavy companies.

[Christian Berg, executive]

And you could also add that at least the majority of what we are thinking, assuming and so on are based on kind of a bolt-on logic and increasing the capacity and being able to utilize the existing system and then, by that, also then taking out synergies in increasing potentially margins in different structural changes.

[Age Holm, executive]

And then the last question so far, and then we're moving over to post-NorSea acquisition. The question is, what is your estimate of value adjusted equity on NorSea post the transaction, including tax benefits, if any? And a follow-up question, to what extent is there still potential for disposals of nonoperating real estate?

[Thomas Wilhelmsen, executive]

Okay. Maybe I will start, Christian, and then you can take over. I haven't answered correctly. We believe, of course, that there is value in exercising the option, otherwise, we wouldn't have done it because we've had operational control with our 74%. So it doesn't really change, say, the controlling aspect of it. But we do believe there are, say, positive value in the option price. There are tax benefits from this. At least now at the outset, you can come back to the details.

NorSea Group, as I mentioned in my presentation, has a large portfolio of real estate. And of course, that is not a static portfolio. Some of it is, say, very core to the business, and you have certain, call it, more fringe properties, which are ripe for, say, either sale or other structures. And over the years that we've been an owner in NorSea Group since 2012, there's been actually quite high activity of, say, turning parts of the property portfolio.

So there is no, say, immediate plans to sell off a large part of the property portfolio. But I think we need to look at this in a dynamic way, depending also on how the market and our customers' demands are. Now we're seeing a ramp-up of capacity, so it would typically be that we would, in the short term, require more use of our own real estate in the short term than probably what we thought 2 years ago.

[Christian Berg, executive]

And just a follow-up and picking on that note, you might also see that with the prospects for the sort of 3 to 4 to 5 years that we actually will invest for future growth in NorSea as well. So coming back to the balance sheet as such, you might even see that it's going to grow, and it's going to be optimized by investing as well. So it's probably not answering the question directly, but that's us trying to understand where the company is going.

[Thomas Wilhelmsen, executive]

I think no doubt. And again, as we mentioned, NorSea Group is a fantastic catalyst for new opportunities within the energy transition space. And we would like to participate in that play, and we would like to be a facilitator with our customers in order to help them in their transition as well. And that will require investments, whether it's in NorSea Group or within the Wilhelmsen Group or a combination, will probably be the latter. But I think we have to expect that. And at the same time, there might be areas where we, for some reason, decide to divest.

[Christian Berg, executive]

And on the question on the tax loss carried forward, the group has -- or the Wilhelmsen Group has a tax loss carried forward of approximately NOK 1.5 billion. And by being an owner of more than 90% of NorSea, we have the ability and the possibility to actually then include NorSea in the tax group and, by that, utilizing that tax loss carried forward for as long as it maintains. So what the value is of that, that I sort of -- the one answering the question can sort of do his own or her own calculation, but that's basically the technicalities behind it.

[Age Holm, executive]

Then there are no further questions.

[Thomas Wilhelmsen, executive]

Okay. Thank you, Christian.

[Christian Berg, executive]

Thank you.

[Thomas Wilhelmsen, executive]

And thank you, all of you, who have participated. I hope it's given you an insight to the group, the results and also a little bit as to how we see, say, the period ahead. And we're looking forward to see you at the next webcast. Thank you.