Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Analysis

Strong Quarter with Revenue Growth and Strategic Acquisitions

This quarter, Wilh. Wilhelmsen Holding reported a profit of $168 million, equating to $3.8 per share, and declared a dividend of NOK 10. The company saw a 19% revenue growth in Maritime Services, achieving $32 million in EBITDA and a 15% margin. In New Energy, top line revenue grew by 9%, reaching $80 million, with $17 million in EBITDA. Strategic acquisitions included increasing the stake in Edda Wind to 31%. Looking ahead, the market remains strong, and the company is confident about its financial health and future performance.

Strong Financial Performance

Wilh. Wilhelmsen Holding reported solid financial results for the second quarter, achieving a profit of $168 million, equivalent to approximately $3.8 per share. The company generated $32 million in EBITDA from its Maritime Services segment, reflecting robust operational performance and effective cost management.

Key Segment Growth

Maritime Services showed a remarkable 19% revenue growth, bolstered by contributions from newly acquired businesses, although the organic growth was a more modest 5%. The segment's EBITDA margin stood at 15%, underscoring its profitability. In the New Energy division, revenue reached $80 million with a 9% increase and an EBITDA of $17 million, demonstrating the effectiveness of ongoing investments in infrastructure.

Strategic Acquisitions and Partnerships

The company has been active in expanding its portfolio, completing five acquisitions in the Maritime Services segment over the past two years, enhancing its capabilities in cargo cleaning and ship management. Notably, Wilhelmsen has increased its stake in Edda Wind to 31%, signaling confidence in the New Energy market while pursuing strategic partnerships such as Ventyr with Parkwind for offshore projects.

Successful Dividend Policy

In May, Wilhelmsen paid a dividend of NOK 10, with the potential for an additional NOK 8 later in the year, highlighting the company's commitment to returning value to shareholders. The robust cash generation from core operations supports this dividend strategy, with $109 million received from Wallenius Wilhelmsen's dividends, reinforcing confidence in ongoing payouts.

Strong Balance Sheet and Debt Management

The company maintains a solid balance sheet, evidenced by a capital structure of 70% equity and healthy cash flow management. Wilhelmsen has successfully navigated debt repayment and operational cash uses, positioning itself favorably for potential future investments and shareholder returns without facing immediate debt maturities.

Market Outlook and Future Growth

Looking ahead, Wilhelmsen executives expressed optimism about market conditions, particularly in the shipping industry, which has seen elevated activity levels. The backlog remains significant, with 41% of future capacity booked, creating a solid foundation for continued growth. However, geopolitical uncertainties pose potential challenges that need to be monitored.

Sustainability and ESG Commitment

Wilh. Wilhelmsen is also focused on sustainability metrics, reporting progress in reducing CO2 emissions and enhancing gender balance within the organization. Their ongoing focus on Environmental, Social, and Governance (ESG) criteria aligns with broader industry trends, which may bolster investor confidence.

Earnings Call Transcript 2024-Q2

[Thomas Wilhelmsen, executive]

Welcome to the second quarter results for Wilh. Wilhelmsen Holding. Christian Berg, I'm Thomas Wilhelmsen. Every morning, we have thousands of employees waking up, going to work, doing their best for the performance of the Wilhelmsen Group. Therefore it's very pleasing to present a good quarter for this year.

We have improved operating results. We have $32 million in Wilhelmsen's Maritime Services. We have $17 million in EBITDA for New Energy, and we have a very high contribution from associates, especially Wallenius Wilhelmsen at record high, but also from Hyundai Glovis. This is all leading to a profit of $168 million for the quarter, which we are very pleased with, which equates to roughly $3.8 per share. We paid a first dividend of NOK 10 during the quarter, and there is a potential to additional NOK 8 at the latter part of the year. The group also acquired 440,000 shares during the last period, and we increased our shareholding in Edda Wind, up to 31%. And on top of this, we are tracking pretty well on our overall ESG index, and I will come back to this a little bit later.

But I wanted to just have a little bit of a reflection on the, call it, the acquisition traction that we have had over the last couple of years. There's been for the last 2 years, 5 acquisitions within the Maritime Services segment. I presented them before, but I think it's just important to keep them up on the radar. We have strengthened the cargo hold cleaning segment within Wilhelmsen Ship Service through acquisition of Navadan and Stromme. We have strengthened our position within ship management, both with Ahrenkiel and Zeaborn. We'll come back to Zeaborn a little bit later. And also the agency part of our portfolio with the acquisition of Vopak.

There's also a few -- or quite a few actually internally of new starts, 2 which I'm mentioning here. One is Pelagus, which is a 3D printing venture, very exciting on track but early phase and also a Port Cost Financing Solution, which we believe is very valuable for our customers, assisting them in handling their liquidity and cash position in a better way.

Maritime Services had good trajectory for the quarter when it comes to top line revenue, growing 19%. This is to -- or partly through the numbers of Zeaborn because of the seaborne acquisition. Christian will come back to this a little bit later. And if we adjust for that, we have a 5% increase. All in all, landing at an EBITDA, as I mentioned, of $32 million for the quarter and a margin of 15%.

A little bit of the same when it comes to New Energy, firing really on most cylinders. We have been investing in the infrastructure and our platform over the last couple of years with the inroads of reach. We're investing in the infrastructure platform of NorSea Group continuously, which is quite a fascinating platform. The Wilhelmsen Group took the initiative of establishing a partnership called Ventyr back in a couple of years ago with a company called Parkwind in Belgium. And I think it's actually pretty impressive.

This consortium ended up winning the SNII tender exactly. And as we can see from this quarter, we actually have a success fee or a fee as a result of this. I'll come back to that on the next slide. But the Wilhelmsen Group decided not to invest further into this, but rather be a strategic partner on the logistics side. And we increased our shareholding in Edda Wind and have strong belief in the platform that Edda Wind has towards their customer and markets. So overall, New Energy, $80 million in top line, 9% increase, $17 million in EBITDA and 3 million from other associates.

Then coming into holding and investments, and Wallenius Wilhelmsen and Hyundai Glovis. Just a few words in terms of, say, dividend and for some of the initiatives that the companies have taken. As most of you know, Wallenius Wilhelmsen has now moved over to a pay-as-you-go type of dividend, and they announced their results 2 days ago, very strong results from Wallenius Wilhelmsen and Hyundai Glovis has had a Capital Markets Day, announcing some of their, call it, key goals going forward, one of them being a much stronger focus on dividend with minimum 25% distribution and with an ambition to increase this -- sorry, 5% annually.

And all of this leads to $142 million share of profit for the quarter. As I said, this is significant, fantastic for us when it comes to future cash flow for the holding group as well. There has been some accounting issues within Wallenius Wilhelmsen also then impacting us here in Wilhelmsen Holding, but Christian will cover this later. And we've had 4 million gain on change in fair value of financial assets and also another positive 3 million in income from other financials.

We are reporting every quarter, as we should, on ESG and our own ESG index. I must say we are tracking pretty well according to this. It's actually quite a big task when you have a large international platform like we do. So a lot of people have been involved and of course, data integrity is still key, but it's also still a challenge. But we are progressing well in the important KPIs. We are reducing our CO2 emissions. We are on good track when it comes to overall, say, health and safety measures and also when it comes to the gender balance of the group. So very pleased with this. And then looking forward, I think we have a strong platform within the group. The market is looking good. So we have a pretty solid view on the remainder of 2024.

So with that, I will leave it to Christian who will cover the financials in more details.

[Christian Berg, executive]

Thank you, Thomas. Just jumping on to the top line and the Zeaborn transaction, giving some inflationary logic on the top side or on the total income. So just to give some flavor on the reasoning, $25 million coming in out of the change. But out of that, you could argue that more or less 80% is not consider the same accounting principles as we do in the WMS Group ordinary course of business. So it's -- and the main reason for this is that the contract structures in that company is a bit different. So technically, they have to sort of count on the gross level rather than on the net level as we do in the rest of the group. So if it will maintain that in the future or not, we will come back it. But for the moment, we will have some grossing. That taken aside, still, we have a very healthy top line growth. So it's important not to sort of take all of that on the, let's say, the technical side, but still have a very healthy top line growth.

[Thomas Wilhelmsen, executive]

But also important that the contracts in themselves are, say, having a profitability and…

[Christian Berg, executive]

Yes. Definitely.

[Thomas Wilhelmsen, executive]

…all that is the same. But it's just a different ratio.

[Christian Berg, executive]

Different way of accounting the same, more or less the same operational thing. On the EBITDA side, very strong EBITDA, very strong contribution from the operational units. So WMS and the New Energy side, really delivering on their targets this quarter, and we see a very healthy growth also in the EBITDA side.

Thomas alluded to the share of profits from associates, $118 million of the $148 million coming from Wallenius Wilhelmsen, not to be mixed up with sort of the cash coming in from. So the associates is basically then the operational, but as we see and as Thomas said, still -- or an increasingly well delivered operational results, both from Hyundai Glovis and from Wallenius Wilhelmsen, then being on the record side. And if we go further down, we see some positive changes in the financial assets, the value of the financial assets. We see sort of basically strong on all lines and then giving a healthy $3.8 per share as an EPS.

Cash, and then bear in mind that this is year-to-date, kicking off the year with $224 million. Those of you who sort of now looked at the numbers from the EBITDA side, will miss some cash from the operating side of Maritime Services specifically. And the point is that from -- on the operating side in the Maritime Service Sector, this half year, we have been deploying cash for working capital purposes, so giving us the strength to grow. It's not investments in the direct investments in assets or so, but it's basically is using liquidity as a mean to grow further. We do not expect that to sort of grow further on, but it's been this out here, one of the assets that can help us to grow the business.

On the dividend side, we have received dividend in the first half year from specifically on -- coming from Wallenius Wilhelmsen with $109 million, them being the big contributor. As we all know, we do see more dividend coming in later this year as declared from Wallenius Wilhelmsen earlier this week. But basically, they are the big carryover with -- the carrier of dividend coming in from the JV, but also the Glovis position gives us a substantial amount of dividends.

On the investing side, just above half of the $70 million is investing into 2 tranches of Edda Wind, buying out, being a part of the consortium buying out one of the other major shareholders and then contributing to the issue of new shares. So by that, increasing the holding and up until close to 31%. And the other one -- the other part is consisting of mainly the transaction within the ship management side and some other smaller investments.

On the cash from financing activities through the sort of first half year, dividend has been paid, as Thomas said, shares has been bought back. We'll come back to both of them, but we do have sort of just above our $58 million being paid the first half year. And we have done some net debt repayment during the year. And the other financing is basically divided into 2; interest rates and paying down on leasing debt, giving us $177 million by the half year, give or take, within the, let's say, the policy that we have sort of updated. So we are on a good side when it comes to cash as we speak.

[Thomas Wilhelmsen, executive]

But it's fair to say that we are -- we would like it to be a little bit higher.

[Christian Berg, executive]

Yes.

[Thomas Wilhelmsen, executive]

We prefer it to be a little bit higher.

[Christian Berg, executive]

We have just about -- just around the target, but not above the target.

Thomas opened up for the changes in the accounting treatment in Wallenius Wilhelmsen. And in June, they reported that they will change the way they account for the put/call option of the remainder of the 20% ownership in EUKOR. So that's -- when Wallenius Wilhelmsen is doing that, we need to do similar in the Wilhelmsen account.

So restating our accounts back, but then just to do the easy one here. By the end of first quarter, the restatement gave us a minus $352, a considerable amount on the investment in the associate side and taking that same amount of our equity. So taking the equity down and the investment down with $352. We do not see this as sort of any underlying changes in the relationship with the Hyundai structure, but it's more of an accounting treatment and a definition of how this put/call structure should be accounted for, but not an operational or real changes in the situation for Wallenius Wilhelmsen or then indirectly for Wilhelmsen through our accounting of our position in Wallenius Wilhelmsen, so…

[Thomas Wilhelmsen, executive]

I mean very fortunate because we have a strong balance sheet.

[Christian Berg, executive]

Yes. And as Thomas is now stealing my next page. We are still, by the end of second quarter, at 70%, taking the recent picture into account at 70% of equity. So a strong solid balance sheet, which we deem to be necessary to have as a holding company, but it's important for us to maintain a long -- a solid balance sheet. And going to the right side of the pages, we see also that we have, let's say, a strong financing side. We do not have any debt maturing in the near term, and we do not have a very -- or we do have a healthy debt situation than in the NorSea Group and in the WMS Group as such.

On the dividend side, we have paid the first dividend of NOK 10 in May. We have the powers from the general assembly to pay additional NOK 8, and we have bought back around 1% of the outstanding shares in the group. And we have then the remaining potential to buy back on that power of attorney from the General Assembly, buy back additional up to 9%. So there is some liquidity flexibility in the -- towards the shareholders in the future potential of dividend and in the future potential of buybacks. So -- and we are aiming for our updated policy being distributed the last quarter.

On that note, still shaping, being pretty happy with and confident with our forward-looking into the rest of the year. Still shaping the group and the industry.

[Thomas Wilhelmsen, executive]

I think we are. And hopefully, we can also show that we have taken measures to do that and that was one of the purpose of showing the 2 slides for New Energy and WMS as well. We are constantly looking for new opportunities. Of course, not all -- everything we're doing is not just a big great success, but we are integrating the various companies and bolt-ons that you saw on those slides. And so far, it seems to be looking quite okay. So we are pleased with the moves that we have made. And we will, as I say, continue to shape the Maritime industry and hopefully, continue to deliver good results for our shareholders. So thank you, Christian.

And we're open for questions.

[Age Holm, executive]

Yes. Age Sturtzel here. There are no questions so far. So it means that things hopefully are pretty clear. There are some time lag. So while we wait just a little, I think Thomas, Christian, if we will have some closing remarks and when you're finished, if there are no more questions, we turned off. But we always welcome and we will answer if you contact us directly with any questions.

[Thomas Wilhelmsen, executive]

As a closing remark, we do get a lot of questions in terms of, say, the general market. And if we were to take it on the macro level, of course, there's been significant movements in -- within the overall shipping industry over the last couple of years in positive terms. And activity level is high, which is good for both our Services segment and also within New Energy. The backdrop market for -- especially within the PCTC and current RoRo trade is extremely strong at the moment.

We all know there is a significant order book out there with roughly 41% of the total order booking capacity for the coming years. So that needs to be managed by the industry. But overall, I think the market backdrop is strong in the short-term future. There are significant challenges on the geopolitical and security arena, and it's very, very hard to forecast how this will impact not just the Wilhelmsen Group but also the rest of the world.

So far, I believe the industry at large have been able to, say, counteract or adapt to these challenges in quite a remarkable way and which often seem to be the case with the Maritime industry when there are disruptions in the world. There are, of course, repositioning and certain changes. But luckily, there are floating assets and they can be utilized in a lot of different areas. So unless there is a specific major happening, I think the industry is well placed.

So sorry, we are looking to the left here, that's because IR and Age is sitting here.

[Christian Berg, executive]

Still no question, so.

[Age Holm, executive]

Still no question, so.

[Christian Berg, executive]

Crystal clear.

[Thomas Wilhelmsen, executive]

If there's no questions, then I think we'll just say thank you very much. Hopefully, we can see you next time and present the numbers of the same quality. We can't promise that, but we can promise you that we will do our best to perform to the best of our capacity. Thank you.