Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Transcript 2019-Q4

[Thomas Wilhelmsen, Group CEO]

Good to go? Okay. Good morning. Thank you for coming to this presentation, quarterly results for Wilh. Wilhelmsen Holding for the fourth quarter. There. I thought what I would do is to just share some, say, a few slides, overall reflections, and then I'll hand it over to our CFO, Christian Berg, who will then deep a little bit -- more into the details on the quarter as such. And a bit of a backdrop on 2019. It's been an interesting year in many respects. We have -- so we are exposed to the global market. And of course, there's been some pretty hefty happenings during the year. You look at the geopolitical picture that we've been up against with trade wars, discussions between U.S. and China. Of course, that is -- if it's not impacting us, it's, at least, high on our radar because every measure that is taken will potentially have a significant impact on our business. But there's also been a few other things happening during the year. If you look at the general shipping market, the [ Class E ] index increased by -- somewhat by 24%. We don't have a lot of direct shipping exposure, but we have a lot of indirect exposure through our customers. And of course, it's pleasing for us when our customers' markets are moving in the right direction. And then climate-related measures have really been coming in with strong force. I'll come back to that a little bit later. But of course, the IMO 2020 implementation and the lead up to that at the end of 2019 was, say, a very important period in terms of how were we able to adjust ourselves or particularly Wallenius Wilhelmsen able to adjust themselves to be ready for the IMO 2020 rules.Looking at the financials. It's been, in many ways, okay. We've had a good net result where we've had a mixed bag throughout the year when we look at the various businesses that we have. As I said, Christian will come back to the quarter in more detail. Some strong financial gains, predominantly driven by changes in value of Hyundai Glovis and in Qube. But landing at a net profit of USD 150 million for the year. We've also had a share buyback during the year, which has been well received as far as we can -- as far as we can understand. Overall, the return on our shares in terms of total capital appreciation and dividends has been 6%. I don't think that is fantastic. It's not a disaster, but it could, and we would have hoped it to be more of the [indiscernible].If you can allow me to talk a little bit about, say, the group, a few of the businesses that we do have. I would like to single out 3 of them. As you can see from this chart, we have a lot of very interesting businesses that we are extremely proud of, and they are all, in various degrees, very well positioned in the markets in which they operate.I thought I would single out 3 of them. The 3, in a way, larger businesses that we have across the group, being ship service, starting with that company. We've had a pretty flat top line during the year. But at the same time, we've had considerable improvements in our EBITDA. So we have an EBITA improvement in WSS. So we're just shy, I believe, of 20% during the year, which is quite good. Where do we take that from? Well, marine products, which is the largest part of the WSS group, has performed well. But we've had a much more, call it, significant recovery within the agency sector. It's still far to go. So percentages are easier to, say, to manipulate when they come from a small number, but it's been quite a significant recovery within the agency sector, a sector which we will have continued focus on going forward and where we believe we have a strong [indiscernible].WSS in many ways represents, say, a little bit of the backbone of our international platform. They have operations in close to 70 different countries. We have people. It's a company that we own 100%. This is where we use or the company, we really use to develop the company culture and to pitch on, say, the overall goodwill marketing of the group around the world. So it's important in many aspects. 3,300 employees at the end of '19, 200 people less than at the end of 2018. Why? Because we're just working on the efficiency, 365 days a year, 24/7. This is a business you just can't do a project, leave it for 2 years back and come back and see how it fares. You really just have to be on it every single day, but a very, very interesting business exposed to the global merchant fleet. NorSea Group. Moving on to then another company, not 100% owned, but we have a 75% shareholding, a very interesting platform within offshore supply basis.Top line is a little bit down. Profitability is quite okay. But it's a profitability which is a little bit hard to measure from -- was not hard to measure the profitability in itself, but when you compare the profitability from year-to-year, it's a little bit more bumpy. One of the reasons is that this is a company who is much more, call it, project-based. We have a lot of property. We buy properties, we sell properties, we have specific marine-related or marine logistics-related projects. So that goes up and down. And if we look at 2018, that's when we had the majority of the military exercise, which, of course, inflated the top line and also part of the contribution.We are working very, say, focused on positioning NorSea Group to be, say, the greenest and the most emission-free solution towards this industry, which we believe is important going forward and where we believe we have every, say, possible tool there is to actually position this company to be, by far, the supplier of choice within its industry.Moving over to Wallenius Wilhelmsen. They had the presentation yesterday. As you know, we are a 38% shareholder. I have to be somewhat careful about what I say. It's the company that should present their details. They have a leading position within their industry. It's a fantastic company. It's some of challenging markets, has been a decline in volumes on the auto side. The top line or the volumes transported by Wallenius Wilhelmsen last year is even further down than the reduction in the overall, say, automotive segment. Why? Well, it's a combination of the decline in the market itself, but also commercial priorities, where the company is focusing more on lifting what they believe is the right cargo to lift rather than just lift cargo for the sake of lifting it.The contract with Hyundai Motor Group was renewed, so all of you probably have seen, at the tail end of the year, which is good, giving another period. And I think we just have to keep in mind, there's a lot of questions around Korea. We've been in Korea now for many years, some 10 years or whatever. And they have been -- the Hyundai Motor Group has been a fantastic customer, providing us with a loyalty and, a call it, runway or visibility, which is second to none.The company is working on its performance improvement program and doing that well, which was presented, again, yesterday. This is an industry where the margins are different than what they used to be. And hence, the company needs to adjust accordingly.They have done -- coming back to what I said on the first slide on IMO 2020, there's a lot of preparations that needs to be done in order to make a system like Wallenius Wilhelmsen ready with a fleet of 125 to 130 ships ready for that transition. We have done that well in a lot of areas, both from a technical point of view, but also in terms of how they have interacted with their customers. There was a cost at the tail end of last year related to this, but the most important thing in my mind, of course, is that they are able to deliver a smooth service going into this. There's been a lot of ships in the industry in total, who has been stuck, haven't been able to get the right fuel, et cetera. The company here has not really had that as an issue at all. So they've done a great job in that respect. And when we look at the overall market for the car and ro-ro segment, there is definitely overcapacity at this point in time, but there is a low order book. And at least, in my mind, we can question ourselves or the industry can question themselves, "Why should we order new ships now, given the low profitability, but not the least, the technology risk that it poses going into the future with new regulations in terms of sustainability and emissions?''And on that note, I will segue a little bit into sustainability because that's high on our radar. I'll just focus on a few, say, overriding areas where we are focusing as a group. Decarbonization of shipping is going to be and will be also for us a major, major focus area. I would not necessarily call it a challenge. I'm sure it will be a challenge as well. But it's -- this is where a lot of us needs to keep our eye on the ball. And it's an area where we, who have a vision to be a shaper of the maritime industry, want to be in the forefront. I'm sure there will be significant technological opportunities, et cetera, representing themselves out there, where the overall industry is slowly, but surely, being able to move and comply to future regulations. And we at Wilhelmsen, we are definitely going to be on that ball and hopefully, well ahead of the pack.And we have a lot of projects. You know about the Massterly project with autonomous ships. We're working on different hydrogen solutions. We're using, say, digital platforms or digital competence to see how we can use that in the future but also how we can actually use it today. So slowly, but surely, just doing those initially incremental changes, which will hopefully lead to more substantial changes into the future. A responsible employer. There's no doubt that we want to be. We believe we are, and it's a fundamental of what we've been doing for more than 150 years. We are a competence-based organization. So of course, we are focusing on the responsibility -- what's happened? Responsibility for our employers. And -- but when it goes beyond, say, the internal, we need to look at: Who do we work with? How do they work? How do we interact? How can we make sure that the partners are actually also delivering up to the values that we would like to see?There will be, and there are, significant opportunities within, call it, the space of renewable energy. We have a lot of interesting things, say, going on. Whether they will mature or not remains to be seen, but we see that space as a very interesting space to be in from a Wilhelmsen and group perspective.And then last, as you can see on the right-hand side there, marine litter and pollution of ocean. We just -- this -- we live in this environment. We need to do something in that space as well. The question is, "What can we do with our own organization and operation? And what can we do with the force that we have with all the customers that we have to actually improve that space?" And we believe there is a fair amount that we can do.Okay. So I'm -- Okay. There. Another part, I'll soon hand you over to Christian. But with this, say, space of a range of businesses that we have, we also need to then look at constantly how can we develop, say, the products or services that we are offering to the industry. There's many of them here. Just a few, I'll be quite quick. We've had 3 different things up here several times. We're now in a situation where we have started to deliver certain products to the industry. We have 6 customers who have signed up to be, call it, not testament but the early adopters who are really keen to see this work in their operation. So that's pleasing to see. We've really taken a step from, call it, idea to actually implementing this in the marketplace. There's a picture of this rope. This is what we call the Snap Back Arrestor, a fairly fancy name. Mooring lines has been and is an issue for safety when you moor a vessel and the lines snap, then it's a tremendous force which are being released, which have caused a lot of deaths but also a lot of injuries. This solution takes away a lot of that tension. So that's in the marketplace now and is very well received. And I would call it a pretty cool development. And we have a pretty nice film that you can see on that one. We're working in the digital space to utilize most chips have a lot of sensors. There's been an issue with connectivity. Connectivity is slowly, but surely, improving, and we are making solutions so that we can actually utilize that information to benchmark better so that we can actually get all our customers or the vessel owners can actually utilize that information in order to decrease the overall fuel consumption, which, again, is leading into sustainability, et cetera. I'll probably leave it there. If Christian is going to have some time.I can't be here without talking a little bit about the coronavirus, why? Because every person I meet, more or less, they ask me, "How is that impacting you?" This is another example. This is a, call it, a site that we have made on our website. You can click in on every single port, see the status, what's happening, utilizing, say, proper information from local authorities. But what's happening? It's extremely hard to say what financial impact this will have. And I can't say much about the virus in itself, but the measures that are being taken have impact on our operation. So ports are being closed, people are asked to stay at home. If people have been in a Uber taxi with a Uber driver who has been identified as a carrier of the coronavirus, that individual is asked to stay at home in the form of a house a rest, et cetera. So this has ramifications. You can read about power plants being shutdown, spare parts not being able to be produced in China, et cetera. So it will have an impact. We have 200 roughly employees in China. Of course, it's their welfare. That is the priority #1. And then we need to just make sure that we can deliver our business in a proper way.So with that, I'm trying to get into the next slide.

[Christian Berg, Group Chief Financial Officer]

Present?

[Thomas Wilhelmsen, Group CEO]

Now I can present. There. Thank you. Which is the outlook. I will not read it. You can read it by yourself. But in general terms, it's a little bit as the last time. We believe a stable development. There are certain uncertainties out there, but we believe we have a robust company, and so we can weather many storms and also potentially take use of opportunities that might arise. And the coronavirus is a new uncertainty that we don't really know exactly what will it lead to. So thank you very much. Sorry, Christian, if I took too much of your time.

[Christian Berg, Group Chief Financial Officer]

No problem.

[Thomas Wilhelmsen, Group CEO]

You don't have a problem.

[Christian Berg, Group Chief Financial Officer]

Okay. I'm finally here. Thank you very much, Thomas. Good morning. We'll see. Oh, I made it. I will try to walk you through the quarter. Some of the things happening in the fourth quarter, some of the things for the full year and give a brief comment on some of the issues. And of course, you can see the full quarterly report and the annual statements in the report released yesterday. Going through some of the points for the first quarter. The top line, basically flat, down 2%. EBITDA for the quarter, okay, but still down from the previous quarter, but on an annual basis, okay. Come back to the different issues. The performance underlying is good. We do have some adjustments for the quarter in the different areas, which I'll come back to.For the associates. Thomas has been through and walked you through the Wallenius Wilhelmsen side. There, it was an increase in the fourth quarter from the previous quarters and even from the previous quarter last year, and we did have a reversal of a gain in first quarter, again, in NorSea of USD 5 million. It's an accounting issue. It's not a sort of cash issue. And for this quarter, we do have a decrease in the value of Hyundai Glovis shares and Qube shares of $25 million, giving us a net financial loss of $22 million, when taking into account unrealized value -- positive value of the FX and hedges that we do have a positive contribution from due to the appreciation of the U.S. dollar. For the quarter itself, USD 0.05 per share.Okay. For the full year, total income is flattish, down 2% for the year. A margin improvement and underlying good operation from all businesses, giving us an EBITDA of USD 149 million and a contribution from associates, basically being Wallenius Wilhelmsen, of USD 49 million. From the full year, the Glovis and Qube value has increased by USD 61 million throughout the year. We do have a minus. That's the full write-down we did on the shares in the holding in Survitec that we did, give or take, half a year ago, and value of Survitec after that is booked at 0.The full year EPS being USD 2.46.Stepping into marine services, and Thomas commented on several of the drivers. Income over year is up 7%; over quarter, 1%. There has been a good quarterly sale of products, partly the IMO issue or products related to IMO. Both the third and fourth quarter had those impacts. Agency, as Thomas described, increasing their margins, running their business better than earlier. And ship management. Second half having quite an increase in the vessels on the on-field technical management and increasing their wind and offshore activities. So activities under the maritime services, basically, having an okay path going forward.EBITDA for the quarter, quarter-on-quarter, down 28%. That's mainly due to several non-material and provisions being done in the fourth quarter. Bearing in mind that the fourth quarter margin is 15%, and comparing with the previous quarters, similar, in or around the same level. So kind of happy with the numbers being delivered on the underlying basis.Supply services. Income is up quarter-on-quarter, some down year-over-year. Thomas gave the -- basically the big explanation being the military exercise last year. If you do quarter-on-quarter, it's basically a bit up. We do have some asset value adjustments in the quarter. And we do have this USD 5 million reversal that we had in the first quarter of this year. So for the year, okay. As Thomas also described, we will see and we will expect volatility in numbers, both top line and contribution from NorSea in particular since we do have a project-based business running in NorSea. This is what sort of -- what you see in the accounts directly. What you see in the accounts directly compared to Wallenius Wilhelmsen is the contribution that you see every quarter. So same is in this quarter and so on quarters going back. We just try to make a picture showing the stock market values and the development of the stock market values of the shares in Wallenius Wilhelmsen. Quarter-wise, a 26% increase. That's basically the number of shares that we do hold times the share price. And also, we have made this graph showing. This is what you see in the accounts on the holding and investments. Showing the total value of the Hyundai Glovis shares. On the hand of Wilhelmsen, it's USD 412 million. On the hand of the minorities of Treasure, it's $148 million. USD 115 million is contributed to the Australian engagement, basically the Qube shares. A liquidity portfolio of USD 102 million. And you might even see the last number there. The black -- the blue being our cash at hand, USD 31 million. So this is the total market -- mark-to-market of the financial assets and the value of the shares in Wallenius Wilhelmsen by year-end.Taking you through the year itself, the cash flow through the year, starting at $140 million, operating well in all areas, giving us positive contribution, of course, mainly from the maritime services being the by far largest cash contributing unit. Also, we do have cash flow from investing activities. That being dividend from Hyundai Glovis, sell-off some shares in Qube and also the sale of some assets in NorSea. So positive contribution on basically -- or actually all areas in the quarter. We did do a share buyback, and we did pay dividend. So dividend at USD 26 million and share buyback at USD 30 million. So that's the first. Then reducing debt of USD 68 million and currency and reducing debt -- sorry, interest rates on USD 41 million, ending up at USD 13 million more at the end of the year than the beginning.Balance sheet being in total USD 3.2 billion, pretty flat development in equity, will go sort of flat and very solid [ every point ]. The debt maturity, also including now the leasing IFRS 16, showing a pretty healthy, coming from the CFO status, not too much to fight towards in the beginning of the next 3 years. And long-term debt portfolio mainly coming from the NorSea funding as we do have all the debt being funded in the different areas and the different docking companies.As you will have seen in the report released last night, the Board is proposing a dividend for the year, a first dividend of NOK 3 per share and a potential second dividend of up to NOK 3. On level, that's basically in the higher end of where we have been in the last 4 years. So in the -- we have NOK 3, NOK 2.5, NOK 3.5, NOK 3, so it's on average. In total for the 4 years that we have seen, and bear in mind that this is a conversion of NOK to U.S. dollars. So it's a total amount. The payout in total dollars has been just shy of $30 (sic) [ $30 million ], just above $30 (sic) [ $30 million ] and then the $50-plus (sic) [ $50-plus million ], if we include the buyback of shares. And the suggestion to the general assembly being at NOK 2 -- or at least on NOK 3 per share in the first dividend and a potential -- as you can see, the potential box there, being a potential of NOK 3 more and converted into dollars in this graph.So that's the financial status for the fourth quarter and also the financial status for the year. Larger report is in -- you can have it either outside in paper. I think we still have a couple of paper stapled for you, but probably the best thing would be to download on the -- on our website.So with those words, I'm happy to conclude and say thank you very much to the audience following us on the webcast. Thank you very much.