Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Transcript 2018-Q4

[Christian Berg, Group Chief Financial Officer]

Good morning, and welcome to this fourth quarter and full year presentation of Wilhelmsen Holding group. I will conduct the presentation of the numbers and give you some update on the different business areas going forward.Summing up the year 2018, see some good signs and signals from the operational activities. But clearly, some of the asset values we do have, have seen substantial fall in values.As you have seen and as we have reported in both second, third and in this quarter, the Drew, the transaction did not go through, but we see that ships service is developing quite decent without the deal structure -- the Drew structure.In 2018, we did support the NATO exercise, Trident Juncture, with actually support from the whole group, but with Wilhelmsen Governmental Services point to the deal, but -- or to the structure, but we did have services from the whole group in the exercise.We have also in 2018 entered the wind supply market, so supplying the wind market, both from the ship management sector -- ship service and from the NorSea Group, we'll come back to that. We do see some very interesting opportunities coming into the supply market of the wind sector.We are continuing on our digital journey. We are still ramping up. And we do see some very positive effects and some very interesting prospects coming out of the solutions that we are developing.Earlier in 2018, there was a restructuring proposal in Hyundai Glovis. It was not on, it was off after a while. And we did see some activist funds turning down that proposal and we will see what is going on -- what will happen with this structure going into 2019.On Wallenius Wilhelmsen, which had their presentation on their annual results recent week, continued rate pressure and some challenges, of course, with the high bunker prices. Still while they are improving their performances, they are losing some of their operations in bunker and other long time-off the issues.If we go to fourth quarter, we do see some, as I said, positive top line development, which is very important for us, that we do see underlying business grow, specifically from the NorSea area and also from the WSS area.For the quarter, $29 million EBITDA. NorSea being challenged, of course, with the seasonal bit, but still, activity levels -- the level in the oil and gas sector more positive than previous quarters. And we do see effects from the increased activity on the NorSea.From the Wallenius Wilhelmsen side, we do have some nonoperational cost items typically then being put/call structure with EUKOR assets hitting the fourth quarter and also some, as I said, on the bunker side.As my first point on the previous page, we had some major losses in the financial assets. So I take impairment loss of $48 million for the quarter and also for the full year, quite substantial when it comes to the impairment on Survitec, but also on some, for the quarter, also on the underlying assets of pressure being Hyundai Glovis. So good operational performance, but challenging for the financial assets for the quarter.For the full year, 10% up from the previous year. We have a full consolidation of the NorSea Group. EBITDA or -- underlying EBITDA of USD 105 million with strong contribution from all operational activities, bearing in mind that the reported, and as on the page, reported EBITDA of $78 million included $27 million costs related to the Drew acquisition, which did not go through.$36 million in share of profit from associates. Still mixed results from Wallenius Wilhelmsen coming back to solve the issues there.For the full year, we have a $116 million impairment loss, specifically on Survitec, with $61 million for the full year and the value of Hyundai Glovis being down USD 53 million for the year. This is giving us an earning per share for the full year of $0.148.If we go a bit through the different services. Ship service, ship service being marine products and agency, ship management and Survitec, the Survitec being the 20% holding that we do hold after the sale of the safety services. As indicated earlier in the presentation, income is coming up. We do see contribution steadily increasing. We do also see that 2019 looks good. It's -- we do have the foundation for a good 2019 in maritime services. We also see that we do have more ships under management and that we have a good pipeline of new potential customers.EBITDA for -- quarter-on-quarter is up 6% and underlying full year EBITDA up 6% to $89 million -- $69 million, sorry, for the full year. So quite okay for the full year, hoping for even better coming into 2019.Supply services, being basically then the supply base services of NorSea Group, the infrastructure of NorSea Group and the Governmental Services.20 -- fourth quarter being a okay quarter, seasonally down, always down in NorSea for the fourth and first quarter or at least more challenging due to seasonal slowdowns. 2018 was a year with NATO exercise Trident Juncture. And there is a revenue which is passed through, but not reconciled in the presentation of close to USD 130 million for the year. And what is really satisfying to see is that we did supply services for the whole group in the exercise and that we have seen and have reported back to us, very positive feedback from the clients and the customers from the structure -- from the exercise.For the quarter-on-quarter, down 27% on EBITDA. But full year EBITDA of $51 million is quite okay, again, hoping for even some more positive signals going into 2019.Holding and investments being the 37.8% ownership in Wallenius Wilhelmsen, the 12%-ish ownership in Treasure, the financial assets being the Qube Holdings and the current financial investments being a mixed portfolio of highly liquid stocks and bonds in the European market.Wallenius Wilhelmsen, as stated earlier, reported their numbers last week. Improved EBITDA in the Wallenius Wilhelmsen Group was offset by increased finance costs and the previously discussed EUKOR put/call option structure, which is taking into the accounts. We do have USD 1 million share of the net result in the quarter.For IFRS 16 being implemented in 2019, Wallenius Wilhelmsen, and also referring to their own presentation, have a kind of a material impact. The balance sheet will increase with approximately USD 900 million and the EBITDA will increase with approximately USD 170 million, all else equal, going into the year.For the Treasure or the Hyundai Glovis underlying, we had for the quarter $6 million loss in the fair value. Also reminding you of that, in 2018, Treasure did buy 1.45 million own shares in the market and has also conducted a bit small appropriation, buying some own shares in the first quarter of this year.On the other investment side, we did have a USD 7 million loss in the fair value of the Qube shares and a USD 4 million loss on the financial portfolio. Both the Hyundai Glovis shares and the Qube shares have seen quite substantial increase in the share price in -- so far in the first quarter this year. We are the shapers of the maritime industry and we are doing all the different activities to show that we are shapers. One of the activities that we are spending resources and powers on is the digitalization. In the 4 companies mentioned, Raa Labs, Massterly, Ivaldi and Dolittle, we have different angles towards the digitalization of the shipping and maritime logistics industry.Ivaldi being a 3D printing company, we do have a solid financial position. We do own a big portion of the shares, but we also have an industrial angle aiming to get 3D printed products into our product portfolio.When it comes to the cooperation with KONGSBERG on the Massterly side, we are working towards a fully serviced autonomous marine world and we do see several prospects with the cooperation we do have with KONGSBERG.Raa Labs is a joint venture with Wallenius Wilhelmsen, working both internally and towards Wallenius Wilhelmsen and Wilhelmsen group, but also towards external customers in the maritime space, helping and challenging towards digital development.And not the least, the Dolittle is our 50% joint venture with the employees towards the same space, but towards another product category, also developing products and services both internally and externally.I would say that the Raa Labs and Massterly and Dolittle as of today employ something around 20, 25 people and we do still have the ambition to increase the numbers of people and products to be developed and the services to be developed from the areas.We do have a solid balance sheet despite some challenges with the value of financial assets in 2018 with a small -- it's 6% down in total assets and 8% down of total equity. So the solidity is in place. The cash flow or the liquidity and the debt is also solid when it comes to -- or I'd rather say healthy. Debt in gross terms, mostly being then towards or in the company, NorSea, and in the service -- maritime service space, which is important to have as a backdrop when we are discussing further outlook -- or the outlook for 2019.Dividend, the board is proposing a dividend to the general assembly of NOK 2.50 per share and also proposing a potential second dividend of NOK 2.70 -- or up to NOK 2.50 per share, which is, in total, potentially somewhat lower than what was proposed in 2018, but still according to the ambitions that we do have in the combination with the share price.Cash flow from upstreaming in the group and also then putting on top of that the potential dividend that Wallenius Wilhelmsen proposed last week to the general assembly, so obviously close to NOK 1 million -- just above NOK 1 million on -- from coming from the investment side and the maritime services contributing with around NOK 250 million. And the potential dividend from Wallenius Wilhelmsen would constitute, at least the first dividend, would be around NOK 70 million to NOK 75 million if decided on by the general assembly later this year.Some IFRS effects in the Wallenius -- the Wilhelmsen group as well, not as big as you could say they would be in Wallenius Wilhelmsen, but we do have some land and leases and that's where you see the biggest changes, coming from just short of USD 3.1 billion. It will increase with USD 230-some million and the total asset side will increase with the total of USD 231 million up to 3 billion -- USD 3.3 billion.When it comes to the liability side and equity side, we still -- we can see basically the opposite, the interest-bearing debt/leases will increase with USD 231 million.On the income statement, all else equal, USD 40-ish million increase in EBITDA, USD 12-ish million increase in EBIT and net profit decrease of approximately USD 5 million. Of course, we will return to the effects going into 2019 and the core [ cash ] to come, but this is our sort of view with what we know as of today.Coming into the outlook for 2019. As you can see, the board expects a stable development of all underlying operating performance, but with some seasonal variations. The second point, the global trade and our exposure towards the global trade could create some uncertainties. With the discussions we see globally as of today, but it's important for us to make sure that we all understand that we do have, as I said, a very solid balance sheet and that we are prepared to meet the challenges, which may arise from the global trade issues that we see around us today.Thank you very much. Questions, if any?

[Unknown Executive]

We have questions online. Survitec, I understand that you are struggling -- they are struggling. What kind of measures have you taken to rectify the situation? And what do you expect going forward?

[Christian Berg, Group Chief Financial Officer]

I think we have to go back to the transaction in why we do own 20% of Survitec. We are a minority shareholder. The company is owned by another player with 80%. We do have a board seats, though, so we do try to sort of help with all the competence and knowledge that we do have and we do see some major changes in both management and the sort of strategy for the group, Survitec Group, going forward. And we are positive towards them being able to rectify and turn the negative development. And as far as we understand, we do see -- or they have at least taken lots of measures, which we do support from the board side in Survitec.

[Unknown Executive]

We have another question. Saturday, there was a news article about Treasure stating that you are looking for investments. What kind of investments would you typically be looking for?

[Christian Berg, Group Chief Financial Officer]

I'm not sure if it's correct for me to give Treasure statements directly from this stage. But Treasure is, again, coming back to where -- what Treasure -- why is Treasure? And Treasure was a spinout from WWASA earlier with one single asset being the Hyundai Glovis shares, the 12.04%. And as stated in the memorandum when being listed and in the annual reports, Treasure is an investment company looking to see if there are other investments in the space. We haven't -- or the company haven't come to us with any specific decisions on that. So we'll see what the company sort of suggests going forward. But it is a listed company and it is looking for typically opportunities in the area where the group is looking in the logistics and the maritime space.

[Unknown Executive]

Another question. You have made some investments related to digital solutions like you presented, like your Raa Labs, Dolittle, et cetera. How do you expect these companies to create value going forward?

[Christian Berg, Group Chief Financial Officer]

We expect there is a financial -- a straight financial value to the companies. So we want the different companies to actually have -- make money, we want them to make profits and we want them to be competitors in the world of digital when it comes to the financials. But the sort of best value they can also -- or not the best, but the other value that the companies can create is, of course, by inspiring, challenging and making and help making public services as a continuous improvement position in the group, but also really challenging the group when it comes to the more sort of are we doing the right thing the right way. So more tough digitalization issues is if -- as if we are making the right products, making the right services, are we doing it the right way. And basically, it's a combination of, let's say, the financial numbers and the products and services we are to deliver and if we are really challenging ourselves in the right way with how we are doing our business and what we're actually doing, but still in the same space as we are today.

[Unknown Executive]

Another viewer wants to know, interesting that you are exploring the wind markets. What is the size of this market? And are you positioning yourself to be one of the leading players in wind market?

[Christian Berg, Group Chief Financial Officer]

Again, back to the wind market itself. We are then coming into the service supply market. We are not in the market to build or to own and to expose ourselves to the, let's say, ownership of the wind industry, but to actually service the industry like we are doing in ships -- Wilhelmsen Ship Service where we are delivering services to the shipowners. And that's the same business model that we are building up, delivering services to the wind industry coming both from the sort of base structure, the NorSea typical base structure, but also from the manning and the crewing of the services to the market. It's a rapidly growing market. The wind industry is really ramping up, but it's a twofold market. We have new the windmills coming up, but we have also lots of old or older mills going off guarantee contracts. And there's a market for service into that industry as well -- or that sort of part of the market as well. So it's a rapidly growing market. It's a market, which is underpopulated by players like ourselves, so we are seeing quite an opportunity to actually enter with the philosophy coming from the ship manager side and from the industrial side of running ships and running, let's say, logistics operations from the base industry.

[Unknown Executive]

We have a question from [ Kim Hokkansen ]. He wants to know, how does your relationship with Hyundai Glovis look like in 3 years?

[Christian Berg, Group Chief Financial Officer]

Hopefully, as good as it's been since the last 20 years. We do have a good relationship with Hyundai -- Hyundai Glovis and the Hyundai as well. We are doing lots of business with them, and we hope to see the business grow and be prosperous for the years to come as well.

[Unknown Executive]

Final question, a change of topic. Where do you see highest potential for growth in ships service and ship management?

[Christian Berg, Group Chief Financial Officer]

Ships service is developing products on the one hand and agency services on the other hand. On the product side, of course, there are a lot more other products, so you could grow in the product space or grow sideways in more products. And we can grow in other products. When it comes to the agency side, of course, it's about how do you actually help your customer. And you can grow on getting more customers, delivering other services or even more services to the customer base that we do have. Of course, both of those mentioned digitalization and the sort of being in the forefront and living the values of Wilhelmsen and the vision of Wilhelmsen is important to actually get that space in the market. When it comes to ship management, it's about, again, developing our services to the shipowners, trying to, let's say, deliver services, which are probably not the same exactly the same as they have been, but again, taking old and new technology into account and delivering even more value and services towards the shipowners than -- so that we actually can contribute to the value-making of the owners. But also to see, typically, ship management expanding into the wind industry as -- and utilizing their capacity in the manning sector, in the product sector on how to actually organize the ownership of owning the asset as a ship or a windmill.

[Unknown Executive]

That's it for online questions.

[Christian Berg, Group Chief Financial Officer]

Anyone from the few ones sitting here? No? Everything is good. Thank you very much.

[Unknown Executive]

Thank you.