Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Analysis

Wilhelmsen Group's Strong Q2 Performance

The Wilhelmsen Group delivered a robust performance in the second quarter, with a stable top line and solid operational outputs leading to an EBITDA of $39 million, consistent with the previous quarter. A highlight of the quarter was the significant contribution from Wallenius Wilhelmsen, with a strong market sentiment for the company, resulting in a $114 million income for Wilhelmsen Group. The revenue for Wilhelmsen Maritime Services (WMS) notably increased by 19% year-over-year, even as the group faced inflationary pressures, notably within its New Energy segment. These inflationary challenges, along with currency issues, impacted profitability to some extent, though operations in Denmark are excelling. Environmental and social governance also progressed positively, with a 7% reduction in greenhouse gas emissions and an improved gender balance. Despite global uncertainties and geopolitical tensions, the group's strong balance sheet and a robust portfolio of well-positioned businesses provide a confident outlook.

Wilhelmsen Group's Strong Performance in Q2

The Wilhelmsen Group delivered a robust performance in the second quarter, with key contributions from Wallenius Wilhelmsen, a strong EBITDA of $39 million, and solid contributions across joint ventures. A modest share buyback was completed, reflecting the company's commitment to shareholder value.

Commitment to Sustainability and Diversity

The company reinforced its commitment to sustainability by establishing an internal ESG index and reporting a 7% reduction in greenhouse gas emissions. The group is advancing on diversity, achieving 33% female representation in top management.

Revenue Growth and Operational Highlights

With a 19% year-over-year revenue increase, Wilhelmsen Maritime Services (WMS) reported a strong quarter. The group saw high activity in both Ship Service and Port Services, albeit with a post-COVID trend of lower income per portal. Ship Management continued to expand its portfolio steadily as well.

Record Contributions and Financial Resilience

Wallenius Wilhelmsen made a record contribution to Wilhelmsen Group with an increased quarterly contribution of $114 million. There was also a strong performance from Hyundai Glovis, although subsequent share price fluctuations indicated potential volatility in future earnings. The group maintains a strong balance sheet and a diversified portfolio, which positions it well amid global uncertainties.

Moderating Growth Expectations

While WMS and NorSea experienced positive revenue growth, executives urged caution about expecting a continuation of the 19% revenue growth rate. The group sees EBITDA positivity but acknowledges the challenges posed by inflationary pressures and associated cost increases.

Earnings and Shareholder Value

The company reported healthy earnings per share at $5 and announced a solid overall cash flow increase. Investments reflect strategic commitments to new energy and maritime services. Interest rates have risen, doubling from the previous year, which the company is monitoring closely.

Increased Stake in Treasure ASA and Enhancing Balance Sheet Health

Wilhelmsen increased its shareholding in Treasure ASA to 78.5%, following a voluntary offer to buy shares. The equity rate improved by a percentage point, strengthening the balance sheet. All long-term funding for the group is now ESG-linked, evidencing the group's commitment to sustainability and a strong relationship with its banking partners.

Dividend Distribution and Share Buyback

The group paid an initial dividend of NOK 6 per share in the first half of the year, with the possibility of an additional NOK 4 per share. The total payout, including share buybacks and dividends, could reach USD 53 million for the year, signaling the group's intent to deliver value to shareholders.

Earnings Call Transcript 2023-Q2

[Thomas Wilhelmsen, executive]

Good morning. Welcome to the Second Quarter Presentation for the Wilhelmsen Group. It's been a solid second quarter for the company, I must say, driven by strong operational performance, changes in fair value and also contribution from joint ventures. So all in all, I would say that we are currently firing on all cylinders, which is very pleasing.

Just looking at a few of the highlights for the quarter. We had a stable top line, but we had, as I mentioned, a strong operating performance, and we ended at an EBITDA of $39 million, which is in line with previous quarter. We had a very strong contribution from Wallenius Wilhelmsen, which I will come back to a little bit later. Strong financial gains as a result of changes in fair value for the underlying value of our Hyundai and Glovis shares. And at the -- say, at the end of it, we ended with a profit of $225 million for the quarter, which is a very solid performance for us.

We also carried out a minor share buyback during the quarter, resulting in 400,000 shares being bought.

So the Wilhelmsen Group has always been very dedicated to being a good corporate citizen. And we want to look after all stakeholders, not just employees but also everyone around us. As part of this and also preparing for future reporting requirements, we have established an internal ESG index. And as you have seen from the first quarter and second quarter, we have a separate page in the quarterly report covering ESG reporting. This ESG index is quite complex in many ways. It's built up of 17 underlying KPIs, and we need to extract data from all operations. Just looking at, say, 4 main dimensions. It's focused on decarbonization and green growth, health and safety paramount, equality, diversity and inclusion and also compliance and value chain management.

Looking then at how did we fair during the second quarter. We had overall quite good performance. Certain areas should be improved. But when we look at greenhouse gas emissions, we had an improvement of 7% during the quarter and 49% of electricity usage within the group [ cases ] too many. So this is an area where we always have a focused, but we need to have continued focus and improve going forward.

Looking at gender balance. I think we do have -- or we are on a very positive trajectory. We do have 33% females in the top 3 management positions meaning that we are on the path of reaching the goals that we do have. And also, we have a significant plan of rolling out a supplier code of conduct, and we are there according to plan.

So moving a little bit into the operating entities and the performance and starting with Wilhelmsen Maritime Services. A very strong quarter for WMS. We had 19% increase in revenue year-over-year. Quarter-on-quarter, it's been relatively flat, but it's a strong market sentiment. The ClarkSea Index as a proxy is still faring at a high level, meaning that most of our customers are in a relatively good position. And of course, that's a good starting point for us, selling products to more than 50% of the merchant fleet every year.

Looking into the various categories, Wilhelmsen Ships Service is a star performance at current, selling all products at a good pace. Port Services or the agency business also has high activity but we do see reduced income per portal. And this is what we would call a little bit of a post-COVID effect. There was very high income per portal during and just after the COVID period and we knew that the complexity of the portals would reduce somewhat, and that would also have an effect on the income per portal.

Looking at Ship Management, we are steadily but surely increasing ships under management. So we are performing pretty well there as well. And all in all, within the WMS portfolio, we do see quite significant contract renewals, both in terms of new contracts but also renewals of existing contracts. So it's moving in the right direction.

I think it's also important to mention we have announced earlier a few acquisitions, especially Vopak, Navadan and Stromme, and I would like to mention that the integration process for all these companies are now, say, moving along, and we are at or in front of the initial plans. So very pleasing from an overall perspective.

Looking at New Energy. The picture is a little bit different. We do have high activity but we're hampered somewhat by the currency issue and also to a greater extent on the cost side. Within Wilhelmsen Maritime Services, we are also, of course, challenged by inflationary pressure but we do see it to a greater extent within New Energy. Very pleasing for the New Energy segment is that our activity in Denmark is performing very well. For those of you who have been following us closely over the years would have noticed that it's not that long ago since we struggled with the Danish operation, but that is now a strong performance -- a strong performer for the group.

When it comes to the other activities within the New Energy segment such as Edda Wind and also Reach Subsea, these companies are performing according to expectations and the market sentiments are, say, from stable to pretty strong, especially for Reach.

So looking then into strategic holding and investments. As I mentioned at the outset, it's been a record performance by Wallenius Wilhelmsen, really the very, very strong market sentiment for that company. They announced their results 2 days ago. So I'm sure that most of you have seen those results, but for the Wilhelmsen Group, it means a contribution of $114 million for the quarter, which is significantly up from first quarter of $56 million.

There's been announced a newbuild program, an LOI for 4 new vessels with an option structure for an additional 8. We see this as a positive development, and it's also part of the decarbonization journey for Wallenius Wilhelmsen. So these vessels will then be ready to fuel with methanol as they get delivered, but also with the flexibility to potentially take ammonia at a later stage if that is a viable energy source going forward. Lots of contract renewals has been announced there as well, and it's very pleasing to see that these contracts, one reflects the market sentiment, but also has greater scope than just the A to B shipping perspective.

When we're looking at Hyundai Glovis, as I mentioned, we had strong contribution as a result of change in fair value. That was $117 million for the quarter. Post quarter, the Hyundai Glovis share price has declined quite a bit, meaning that a fair portion of this would have been reversed if we had to do a revaluation as of today. So we just have to get used to the volatility in our P&L as a result of the change in fair value.

So lastly, when it comes to Treasure ASA, we did launch, from a Wilhelmsen perspective, an offered to buy the outstanding shares during the second quarter. We did not get significant response to that. Christian will come back to it later in his slides. But all in all, I must say, from a quarter perspective, it's been a strong quarter for the Wilhelmsen Group, and we are happy with the overall performance.

Looking forward, there is significant uncertainty in the world, geopolitical tensions, and of course, that is worrying for us as a group with global exposure. But on the other side, the Wilhelmsen Group has a very strong balance sheet. We have a very strong portfolio of businesses which are placed very well in their market -- in their respective markets. And also, I would say that we have a very strong organization who is capable of taking on significant challenges if and when they do occur. So we do think that we are well placed also going into the future.

So Christian, I will leave it to you to take a little bit more of the financials.

[Christian Berg, executive]

Thank you very much, Thomas. Jumping into the profit and loss account and starting on the top -- on the total income, and Thomas alluded to the numbers from WMS and specifically NorSea from the New Energy segment. And just for the mathematicians, make sure that we don't sort of keep on the 19% growth quarter-by-quarter, but we had a good quarter in WMS on the revenue side, a bit soft side on the -- specifically the NorSea side. We could not -- we cannot expect the growth to continue. We are strong in the market, and we are basically on close to all-time high on margin. We've seen a solid margin pickup also in the WMS side. It's difficult to see that, that can continue on the growth side, but we will do anything to -- everything to keep up with the inflationary pressures, specifically in WMS, but we are on a growth path so we will have costs coming on to that -- in that perspective.

So going forward, it's just to be cautious on not just putting on the 19% for the future on that one. EBITDA on a very good side, coming back to the cash flow of that. Thomas alluded to the change in fair value of specifically and basically everything in Hyundai Glovis. And if we were to do the number today, basically 80%, 85% would have been reversed since the 30th of June. For the quarter, a very healthy earnings per share at $5 per share.

A bit into the cash flow. So overall, for the period, a solid cash flow increase in -- just about 10%. Maritime Services and New Energy contributing well. Maritime Service on a very good side. For the period also, we do have some working capital increases, basically coming from the increases in the revenues. On the investing activities, basically, the inflow coming in around USD 100 million from the dividend of Wallenius Wilhelmsen being $80 and Hyundai Glovis of $20. Investing side, invested $29 in Edda Wind, couple of dollars in Reach Subsea, and as Thomas said, specifically in Navadan, we did an investment of USD 16 million.

Spending more on -- they are doing a dividend of $25 million for the moment and buying back shares of $10 million, also paying back debt through the period. On the interest side, it's sort of at least, we mentioned that basically a year -- from a year ago, we have basically now double interest rates payable as we did have a year ago. So we do, of course, then feel the rates coming up as central bank rates are coming up. We do see that being pushed forward to ourselves as well.

Thomas mentioned a very voluntary offer to buy shares in Treasure. And it's sort of that's what it was. It was a liquidity event from Wilhelmsen towards all the shareholders. It was sort of in the beginning of June for 3 years -- 3 weeks period. The bid price was NOK 20 per share, giving a premium to the last close of close to 9%. Response from market was the fact that we got 1% sort of -- we didn't have any ambitions to either get much or less, but the ambition was actually to create that event that everyone had a possibility to sell shares. And that's also why I think probably Thomas, that some of us -- some read us as if we were sort of out there to try to get all the shares very easily. But for us it was to be prepared to either buy little or by much. And by that, we had to be prepared to also do all the squeeze out and the delisting logics, if that were to happen.

So for us, it's sort of a -- and more than it was an offer, and it was received as it was received, and we got shares for about USD 2 million, increasing our shareholding to 78.5%. And through the period from 2016 when Treasure was listed, as a demerger from today's Wallenius Wilhelmsen at that point, WW ASA, very much applauded actually from basically all the investors and the investment community. We have seen that increase in bit approximately then 6% holding from the ownership of Wilhelmsen Holding.

As numbers are good, as values are increasing, the balance sheet is increasing, the equity rate is picking up a bit at the backside there, coming up a percentage point. So a very solid balance sheet and a very solid balance sheet, of course, then to take forward into a future, which is not that easy to predict. So I think we are well positioned balance sheet-wise. On the debt structure, it's good to sort of report that basically all long-term funding in Wilhelmsen today is ESG-linked. So 100% of the debt is ESG-linked with different KPIs towards different banks and different structures. So we are pleased to report that. And we're also pleased, of course, then to repeat that we are having a very solid group of banks being very supportive, and we have a very good dialogue in also then new projects coming up going forward.

First dividend was paid in the first half year of NOK 6. There is a possibility to pay even further NOK 4 per share. And there has been a buyback of close to NOK 100 million or the USD 10 million. That could -- if NOK 4 per share is paid out, take the total payout to shareholders to the number of USD 53 million for the year. And that's about it, Thomas.

[Thomas Wilhelmsen, executive]

Yes. Thank you. So we will continue to shape our company, and we will continue to shape the Maritime Industry. Thank you very much, Christian.

[Christian Berg, executive]

Thank you.

[Thomas Wilhelmsen, executive]

And thanks for listening.

[Age Holm, executive]

There are no questions on the list coming in. Should we give them another half a minute or less?

[Thomas Wilhelmsen, executive]

Let's at least give it a little bit of time.

[Christian Berg, executive]

I guess they're all listening into [indiscernible] and spending time on questions there.

[Thomas Wilhelmsen, executive]

Okay. If there's not, then again, thank you so much, and we'll see you next time. Thank you.