Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Transcript 2017-Q4

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

Good morning, everybody. And welcome to this fourth quarter presentation, last one for 2017. We run a very standard webcast presentation where we will have 2 presenters, well known: Thomas Wilhelmsen, the Group CEO, and Christian Berg, the Group CFO. After they've held their presentation, we are open for questions. And those following on the webcast, you might send in your questions on the webcast part. Okay, then we start? Thomas, welcome.

[Thomas Wilhelmsen]

Thank you, Age. Good morning and appreciate that you take the time to listen in on the webcast or being here in person. I know it's a hard competition, competing with airtime now that the Olympics is on. But hopefully, we can have something to add. As Age said, we'll focus both on the quarter but also on the year. I'll be more focusing on call it business operation. While Christian Berg will come back doing more of the numbers afterwards.So I'll jump straight to this slide, our business models and offerings are being challenged all the time and in some way or form, we need to meet those challenges, I mean meet those by what we believe is shaping the maritime industry. We do it through having an agile and innovative organization. We want to have sustainable and profitable operations and through active ownership. That's in a way part of the model that we have in terms of meeting the market and staying in the forefront and being the shaper of the industry.When we look at the financial numbers of both the quarter and the year, I think we are very pleased with the value creation that we have been able to generate during the year of 2017. But we are also very well aware that the operating results needs continuous improvement. And that's more or less all I'm going to, say, about results for now and leave the details to Christian.The major happening during the year of 2017 was no doubt the creation of probably the WWL with effect from April of last year. We believe this company has a unique position and platform within its industry, significant market share but also a different offering than most of its competitors.During the year, not just the, say, creation or the amalgamation of the businesses, but also growing the business further with expansion through the acquisition of Keen Transport is then, say, both leveraging and expanding its abilities to service important client base in North America towards the high and heavy industry.The market, when it comes to especially, say, the future market of the automotive industry, it's an exciting one and it's very difficult to predict exactly where it will go. Moving maybe towards different ways of production, different way of what now we call propulsion or moving from combustion engine to more electrical engines, and of course we are monitoring this all the time, but we do believe the company is very well positioned in terms of meeting this market because of being both on the ocean side but also with a very strong land-based network. So we believe the company has a strong position to meet, say, a new market in the future.Coming then a little bit into, say, the value creation and the results, Craig and Rebekka in WWL presented their results earlier on this week and I would urge you to watch their webcasts rather than listening to us when it comes to the details of the company. But since the announcement of the merger in 2016, the share has gone close to 200%, and during 2017 the increase in the value of the share has been around 90%. So it's been significant value creation for all shareholders, not just for Wilh. Wilhelmsen Holding, and we are very pleased with that.Then if we move over to the Maritime Services platform, there has actually been significant activity within this segment as well during last year. If I start off with maritime products, we had a smaller acquisition with a company called [ Kevitude ] last year increasing the manufacturing base of more industrial products on our factory in [ Natiray ] which we have strong belief in and is a good, say, addition to the business. And then we signed, as you know, a contract to acquire Drew last year. That acquisition has not gone through yet. We are still working with the regulatory authorities and we are hopeful that we will get clearance on that in not too distant future. But they are quite 2 significant happenings within this part of our business and the Drew acquisition being close to $400 million is significant from a group perspective.Moving then over more to on the agency side, no significant acquisitions through the year, but we have moved Ship Agency head office to Singapore, and I had the pleasure of being there last week. And the team that we have built up or set in place now for Ship Agency in Singapore is actually really, really encouraging to see, its built up with people who really know the business and who is highly motivated. And I am very, say, confident that we will see the results of this going into future years.And also then if we go into Ship Management this is -- has been a very stable part of our business, we have made the decision to relocate head office for Ship Management as well to Singapore. So that will happen now during 2018. And we have strong ambitions to grow this business predominantly organically and believe that we can do that in a better way in Singapore being closer to the markets than where we are today.If we look at these segments together, I think there are certain positive signs. We are selling a little bit more to each vessel. So we are relatively positive that we will see an improvement in the performance of these businesses going into future quarters. But of course, it's small incremental steps but in a way we feel that we might have turned somewhat or that it might have bottomed out to a certain extent.We have a new reporting segment, Supply Services, as a result of increasing our shareholding in the NorSea Group from 40% to now 74% plus. So we have now become the majority owner. We are taking certain steps within this company as well, both from a cost improvement perspective but also in form of reorganization. We believe there are very interesting aspects to this business. Underlyingly, there are certain glimmer of hopes of, say, improvement in terms of supply businesses towards the oil and gas industry, which is positive moving forward.And we do see and we are working on some interesting prospects in cooperation between NorSea Group and Ship Management, but also towards our Governmental Services business. So there are interesting aspects that we can play on within the portfolio that we have.Getting, say, more towards the end and continuing on NorSea, we have invested approximately $150 million. We believe there is very interesting potential, not just in the operating part of NorSea Group, but also in terms of the infrastructure that we possess where we believe the values in this segment are increasing and represent a very, say, interesting prospects for us.If we look at Treasure ASA and the stake in Hyundai Glovis, the value of that shareholding has been on the decline for quite some time. To a certain extent we are a little bit surprised, but there has been, say, a tough ride in Korea both in terms of political turmoil and the focus on the chaebols but the pricing of Hyundai Glovis we believe at this point in time is very attractive in terms of being on long multiple compared to payers. So we believe there is a strong foothold in this company and that there are interesting prospects for growth going into the future. And it's still a strategic holding for us and is in a way solidifying our position towards Korea.Survitec, as you know we have a 20% shareholding. It was part of a restructuring of our service segment. We are, say, joining the rides of our fellow shareholders and there's not much we can really do other than trying to be a constructive shareholder and try to facilitate growth on behalf of the company. And we'll see into the future how this goes, but we believe again that the platform that they have within their segment is very strong. So it's a good strategic positioning within the safety segment.Qube still here, fantastic company; probably fairly priced at the moment given where they are. But it's a company with a very strong position within its segments in Australia. So we'll see where that goes. So all in all, we believe that 2017 has been a very exciting year in terms of change and the reorganization and repositioning of many of our segments. It has resulted in significant value creation for our shareholders and there are certain glimmer of hopes for, call it, the more operating side of the business going into 2018. We have had our strategy sessions and board meetings with our board, and as you can see from the prospects, again here there are, say, certain more optimistic undertones than what we've had in previous quarters, but of course, on -- call it cautious optimism. So with that, I would like to introduce Christian who will go more into details on the financials. Thank you.

[Christian Berg, Group Chief Financial Officer]

Thank you, Thomas. Good morning. As Thomas almost underbid, 2017 has been the year of lots of changes, some changes in operational and then -- the structural structure makes accounting also a bit sort of turmoil as we try to cope up with all the changes in the accounting. So just to make sure that you don't misunderstand, back to normal doesn't say that we are at par or at normal with the operations, but it's the first quarter this year that we are sort of not having too much of influence from different sort of structural changes or other changes in the group. So heading back to normal only accounts for what we are delivering when it comes to the accounting effects.If you go a bit through the different effects coming in here, starting up with Maritime Services, and as the board actually stated in their prospects, we see some positive signals from the market. We are having a quarter-on-quarter increase in the top line of approximately 5%, so positive impact here. A negative impact when it comes to the EBITDA or the EBIT numbers for the Maritime Services, specifically impacted by the transaction that we are involved in with Drew Marine with a total now of close to $15 million for the full year and $9 million for the quarter.Supply Services coming in as a new segment this quarter, coming in with its seasons. So it's a slow season typically for NorSea, but the segment then being NorSea and the WilNor Governmental Services. And Thomas gave the sort of introduction to Rebekka and Craig and the -- on the WWL side and the effect of WWL in the accounts comes from the share of profits from associates of USD 34 million for the quarter. And that's the only impact we will see from the shareholding of WWL.There are some changes also to the comprehensive income side, being more or less translations from the currency gains and losses. For the full year of '17, there will be, of course, effects since it's an accumulated year. We see a top line on the Maritime Services of $580 million coming down from $793 million, bearing then in mind that in this year we have sold Callenberg and we've sold the safety operation. So positive impacted in the last quarter, but of course down from the full year-- sorry, for the full year of '16.Supply Services being basically the same as the fourth quarter or actually exactly the same as fourth quarter since it's the first quarter we are introducing it. On the holding investment side, we do have of course an accumulated effect coming from 3 major accounting effects, non-cash generating or costing. The biggest one we had when we reclassified a gain, another reclassification again in Glovis of USD 195 million earlier this year. NorSea Group Wilhelmsen Holding coming from a 40% position going into a 74% plus position made us classify a loss by theoretically or accounting wise selling the shares and then buying them back again.Coming also back to that to the balance sheet. So net of this is a positive $155 million gain. And as Thomas pointed on earlier, that the transaction in April 2017 of merging -- of the merger and the establishment of WWL ASA made an accounting loss of $239 million in the second quarter. It's all accounting effects, non-cash effects, for the full year. So we will have disturbances, I would say, for the full year accounts but the fourth quarter, as stated, looks a bit more like the normal going forward when it comes to accounting effects on the forward looking.Again, trying to show a bit about the Maritime Services and the underlying businesses. And it's important to understand that we hope that we're not going to sort of have M&A costs as a regular cost coming into the business. It's very much related to the transaction with Drew Marine. And if you look on the third to fourth quarter, we see a slight increase in the top line. We see an EBIT increasing though on low levels, 4.2%. You see a underlying EBIT of 10%, then taking away the basically all of the M&A costs giving an indication of where we are today or not even an indication but actually where we are today. But still not satisfying when it comes to what we are delivering on the Maritime Services as such.It's the Ship Service segment, which are sort of delivering a slight increase, while the Ship Management business is on the stable side. It's a good stability but it's still sort of on the same stability as it's been for the whole year. So slight pickup but still on the low side of where we should expect the Maritime Services to actually be.Thomas opened up one thing, a bit about WWL and the value increase for the year, then a bit coming from the value of WWL at market at USD 627 million, while end of the year is USD 1,155 million. So it's a huge increase in the value of the shares. While the value of Glovis and the investment portfolio have some changes, Treasure taking us a bit down from $307 to $281 and the investments in Qube and the investment portfolio basically stable through the year.More accounting effects, we do have a solid balance sheet, 67%. We have seen changes in the balance sheet through the year. Major impact, the WWL merger, where we actually took out from the accounts or from the balance sheet just about USD 2.2 billion. So our huge decrease in the total asset side.In the third quarter then doing the opposite with the going from 40% in NorSea increasing to 74%, then going from $92 million in the asset side increasing to $685 on the asset side.So you could, say, back to normal here as well, but this is sort of where we are at the end of the year with the changes typically then in the second and the third quarter on the total balance sheet, and of course, impacting then the equity ratio of the group.More effects, this is the first quarter then showing also debt coming in from NorSea. NorSea contributing with close to USD 370 million in the total debt side. It's a sound maturity profile, sort of it's out there for 4-year plus. We are, as Thomas opened up with, on the NorSea side, doing restructurings and looking at the balance sheet and the debt structures on the NorSea company as well. But we do have a sound balance sheet, we do have a sound maturity profile and we are, as you all know, we have a profile of having debt down in the different areas and not on the holding level.As we can see from the left graph, cash upstreaming in the group has since '11 and '15 been quite sort of -- quite sort of heavy coming from the WWL ASA now WWL side, while in the 2 last years '16 and '17 cash upstreaming in the group as in '16 mainly been from the Marine Services side, while in '17 a little bit less from the Marine Services side and give or take half and half then coming from the dividends of Treasure and from the investment portfolio in '17.Historical dividends has been in the area of close -- around NOK 5 if you go down back to '13. The board has proposed a first dividend for this year of NOK 3.50 which is the same proportion as last year and they have also been proposing to the general assembly that the board will be given a power to actually take a -- have a second dividend up to NOK 2.50 and then coming to a total for the year of potentially NOK 6. That's about it when it comes to the accounts. Thank you.

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

Yes, you can just open up for questions if anyone here or if anyone out there. So if you have a question and need a speaker.

[Axel Styrman]

I have a couple of questions. So if you please can elaborate a bit on the potential in the NorSea Group, the activity in the NorSea has the potential to pick up from the bottom of the cycle have been through now and your part of the EBITDA from the group now was $9 million from the Supply Service total, but primarily from NorSea Group. So that gives an annual list -- annual contribution of 36. What is the potential as you see it going into the cycle we're seeing with the increasing oil price, increased activity, et cetera? That's question 1. And question 2 would be more how do you see -- you're focusing on infrastructure or you used that word infrastructure investments which is something we liked because it tend to be interesting growth business with high margins. And is there any other kind of interesting business opportunities you see in that area in Norway or outside Norway which could represent a new leg for the group? We have previously discussed your potentially takeover of Western Bulk, which didn't materialize. Infrastructure investments or something else or maybe how we can see the group 5 years from now being more heavily on infrastructure and not necessarily directly linked to shipping?

[Thomas Wilhelmsen]

You can fill in the interest. I think in terms of the potential of NorSea Group, it's a little bit hard to quantify call it the operating, the potential in the operating result. But we do feel that we've been through the rough patch with the decline in the market and now we see, as I said in a cautious way, as you can see in a lot of other areas within oil and gas, that activity is picking back and optimism is coming into place. And of course that's a very different position to be in than fighting, call it, a falling knife. And on top of that, we are then doing within the company, quite significant restructuring, taking out costs in order to improve margins for, call it, a new world and a new competitive environment. When it comes to the word, so using the word of infrastructure and I'll split it into 2, 1 in relation to NorSea Group and 2, in relation to, say, further growth within or outside. I think why we used that within NorSea group is because we -- that company is in a way split in 2 where the majority of the value is related to assets, property assets along predominantly the Norwegian coast, which we believe are uniquely positioned in many ways. And that could be, you talk about ocean industries and the potential for ocean to, say, take off into the future. These bases are very well positioned for that and it goes all the way, cover down south from Stavanger all the way up to Hammerfest. And there are transactions, say, going on in the market today with similar type of facilities which we believe will establish a very interesting benchmark as to the underlying value of NorSea. So that remains to be seen, but we believe there is a significant upside potential in the value of these properties and more in terms of an infrastructure perspective from our point of view. Our investment mandate, to call that, has been, as we have also been very transparent on, is that we would like to stay within the field where we believe we have competence as a group. So it's a global focus but it is targeted towards call it a maritime industry, infrastructure, be it terminals, land-based capacity as WWL has, further growth within the Maritime Services segment. So it is very much within the type of businesses that we have in the portfolio today or where we believe that we can utilize our platform or leverage our platform for growth. So that's, in a way, the space that we are looking at. Yes, we believe certain shipping segments can be interesting, but we're not after a single vessel or 2 single vessels in terms of a pure asset play, it's more the competence and again call it infrastructure or knowledge base to actually be value adding towards the customer base of those respective businesses. Is that roughly...

[Axel Styrman]

Yes, it's -- we heard that kind of comments from you earlier. So I understand that, but so we won't see Wilhelmsen Group acquiring a company like [ Freetoya ] for example?

[Thomas Wilhelmsen]

Sorry, like...

[Axel Styrman]

[ Freetoya ].

[Thomas Wilhelmsen]

[ Freetoya ], no, I doubt that.

[Axel Styrman]

It's infrastructure has good business, but...

[Thomas Wilhelmsen]

No, but I think although we, say, infrastructure to a great extent it's infrastructure, let's say, tilted towards the maritime industry, it could be further towards the oil and gas industry and of course when it comes towards the automotive and high and heavy industry, but the focus there will, of course, be through WWL.

[Axel Styrman]

Can you -- my last question would be on the dividends. Of course, we look forward to potentially increasing the dividend up to NOK 6. Could we see a potential for further increases next year, for example? This may be hard to just tell us what you think, but we will -- it would be interesting to know how you kind of plan to balance the potential growth in dividends which you have outlined before with your planned investments or potential acquisitions and developing the business.

[Thomas Wilhelmsen]

We have a strong balance sheet and we have strong underlying businesses that has in a way financial capacity to grow on their behalf. But as Christian showed in terms of one of the determining factors, we will, of course, be underlying result but even more what's the underlying cash flow that we get from the respective entities that we are involved in. So it's very hard to say where we will go. We need cash flow from underlying businesses in order to pay dividends. So that will be a main determining factor going forward.

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

We have a question from the webcast. It's from [indiscernible]. Where do you see the normalized EBITDA going forward for Maritime Services on a yearly basis?

[Christian Berg, Group Chief Financial Officer]

We haven't given out a target and we did not give out a target even in -- for the last year. What we are saying is that we are definitely disappointed with the fourth quarter EBITDA, of course, that being very much reflected by cost related to the Drew maritime -- marine transaction. But we have -- earlier, we had targets of 9% to 11% of EBIT margin and we should be able to deliver at least both levels probably also higher. So that's as far as we will go for the moment on trying to sort of give any outline for the targets for Maritime Services.

[Thomas Wilhelmsen]

That's it? Okay, thank you very much for coming and thank you very much for listening. Thank you.