Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Transcript 2022-Q4

[Thomas Wilhelmsen, executive]

Good morning. Welcome to the fourth quarter results for Wilh. Wilhelmsen Holdings. Christian Berg and myself will cover this presentation. I will start off with a more general introduction and backdrop for the quarter, and then Christian will come back later with more details of the financials.

Overall, I would say the fourth quarter has been a strong quarter. We've had stable operating results for our operating entities with some growth in top line and ending at an EBITDA of USD 34 million. We've had a very strong contribution from Wallenius Wilhelmsen during the quarter. I'll come back to that a little bit later. We had a solid financial gain related to our shareholding in Hyundai Glovis, mainly this time related to foreign exchange and currency.

And all in all, then landing at a profit to equity holders of the company of USD 182 million. It was announced in our report that the Board proposes a dividend of NOK 6, plus potential additional NOK 4. Looking back at last year, we had 4 plus 3, so NOK 7. So all in all, if dividend distribution is coming to its full, it's approximately an increase of 40% compared to last year.

And we are trying, of course, our best to balance distribution to shareholders with continued growth of the various businesses and our, say, strive towards shaping the maritime industry.

Then moving on to Maritime Services. We had a relatively ambitious new strategy at the start of the year 2022. And I'm very pleased that we've been able to deliver and execute on this strategy. We've invested in the businesses, and we've done a few acquisitions. And these are acquisitions, solidifying our position within the value chains in which we operate.

We made a smaller acquisition in a tanker management company, allowing us to enter the third-party tanker management side again. We've done 2 acquisitions within cargo hold cleaning, which is strengthening our position within this vertical, a vertical where we've been relatively weak in the past.

And we've done a -- I would call it, a more significant acquisition, which has just been finalized buying a company called Vopak, an agency company, adding approximately 15,000 new port calls to our overall agency business or port services business, as we call it.

I was lucky to go down and Vopak 1.5 weeks ago. And I will say it was a -- it's a very impressive organization, and I'm looking forward to see this company as part of our group, which is also really strengthening our position within the hub side of agency.

So looking really forward to see all these new people being part of -- and employees being part of our group. All in all, the investments are approximately USD 30 million to USD 35 million. We do not expect to see significant, say, result in the numbers for 2023, and this is related to integration costs, which is more or less being 1:1 within the additional contribution that we plan to see going forward.

Then for Maritime Services in the quarter. It's been a steady quarter for us with some growth in top line. I must also say, I think when we look at this business, we are moving ahead in the right direction, but there are certain areas that are of specific key focus for us. One is currency. We are relatively dependent on U.S. dollars, so we have a high exposure to U.S. dollars.

Then we are exposed, of course, to cost and inflation in a business like this, which we are working on 24/7, 365 days a year. And then lastly, there's been a significant focus during last year, and we'll also enter this year with the new price structure, trying our best to make sure that we are not absorbing all the increased costs, but we have a fair share or fair sharing of this towards our customers.

So it's a business which is performing relatively well. There's been certain one-offs, but Christian will come back to that in his presentation.

Then moving on to New Energy. Also here, we've had a strategy of investing in this value chain. We've invested approximately NOK 1 billion. I'll refer more to kroner to the -- when it comes to New Energy because we have more kroner exposed than U.S. dollars, even though we report officially in U.S. dollars.

But we invested then, as I said, approximately NOK 1 billion during the year, predominantly within what I would call the NorSea Group infrastructure. We exercised the option to acquire the remaining 24% in NorSea Group. And also, we made an agreement to acquire or to buy out our partner in Vikan Næringspark, which is a large property up in Kristiansund.

So all this, we believe, is important for our position within this field. We invested and bought approximately 20% of Reach Subsea, which is also performing very well. And it will be very interesting to see the phasing in of the unmanned vessels going forward into the next couple of years.

And there's been significant focus within the offshore wind segment, not necessarily in terms of significant investments, but in terms of, say, groundwork being done and aligning ourselves with partners to potentially play a role in a large industry to come.

So all in all, we are pleased with the efforts that we've been able to execute on within New Energy during the year. And I just would like to leave it in terms of the key backbone for this segment is the infrastructure we have within the NorSea Group and how we can leverage that infrastructure for future value creation and to take a position within -- several areas within the renewable space.

Then moving over to the financials. It's been high activity during the quarter. I'm very pleased to see that within NorSea Group, Denmark is, say, now up and running and not being a drag on the overall results. We have strong profitability in Norwegian kroner.

We are being hampered by the U.S. dollar translation going back to our official reporting, but all in all, I think the results from the New Energy segment and in particular, NorSea Group is pretty pleasing.

The EBITDA margin for the quarter is probably a little bit on the low side. There are certain one-offs, restructuring costs, currency translation issues, et cetera, but Christian will also come back to that a little bit later. So -- but all in all, New Energy has also performed well during the quarter and during the year.

For holding and investments, it is extremely pleasing, of course, the journey that we've had over the last couple of years with Wallenius Wilhelmsen, strong profitability, high utilization. I think what we see here, there's very few who thought we would see this, if we go a few years back in time.

We've been, say, a little bit cash-strapped on liquidity within the Wilhelmsen Group, as we have hardly had any dividend distribution from Wallenius Wilhelmsen over the last many, many years. Now we're coming into a position, as most of us know, with the proposed dividend that Wallenius Wilhelmsen has, which will give the Wilhelmsen Group a much more solid liquidity position than what we've had in the past, meaning that we can invest further in the overall business and also distribute to shareholders.

Wallenius Wilhelmsen also had a new CEO during the year with Lasse Kristoffersen. We are very pleased with that, and there are some very good developments within this company.

I mentioned Hyundai Glovis, very good in terms of the gain for the quarter, but this is mainly related to currency and foreign exchange. So we will see valuation fluctuations also going forward. And we've had strong financial performance within our financial management side, which is also contributing positively towards our result for the quarter.

Just a quick backdrop on 2022 before I leave it over to Christian. When we -- at the outset of 2022, there were significant uncertainties in the world, and we've all been witnessing the tragedy that's happening in Ukraine, geopolitical tension, high inflation. There's been a lot of, I would call, uncertainty and unfortunate events. And I do not think any of us thought that the Wilhelmsen Group would have delivered the results that we have during the year -- at the start of the year.

But here we are with the year, which ended up actually being very strong. We delivered 35% shareholder return during the year. We've continued to invest and expand within the various segments of especially Maritime Services and New Energy.

We are constantly working towards our vision of shaping the maritime industry. And also we've done actually quite significant efforts in terms of refinancing most of our debt, which, again, Christian will come back to later. But I would say, all in all, we are pleased with the year of 2022 and delivered way above expectations that we had at the start of the year.

So then looking forward, unfortunately, there are still significant uncertainties out there and geopolitical tensions and inflation, et cetera. But we believe that we have a strong platform, and we also believe that we will continue to invest and try to grow this business in also 2023.

So with that, Christian, I will hand this to you, and thank you so much.

[Christian Berg, executive]

Thank you very much, Thomas. Going a bit into some of the details that Thomas mentioned and top line, as he said, coming up during the quarter, somewhat also including the sale of NorSea Fighter, the PSV vessel, from NorSea Group. And income was up both for the maritime service sector and the Service segment and the New Energy segment.

Of the $34 million in EBITDA, $25 million is positive coming from Maritime Service side and $15 million coming from the New Energy side and minus $6 million coming from the strategic holdings and investments, mainly being admin and some minor financial losses.

As Thomas said, we do have a goodwill impairment in the quarter coming from the acquisition in 2017 of [indiscernible] in WSS at that time. So there's a write-down of USD 13 million in that goodwill impairment. We do have a very strong contribution from our JVs and associates. And again, basically, all of the 100s coming from Wallenius Wilhelmsen contributing with USD 98 million, a very strong number for the quarter.

$78 million coming from the change in fair value of which $70 million is Hyundai Glovis change, mainly Korean won versus U.S. dollars impacting the valuation. And then a strong earnings per share through the quarter, ending at $4.08 per share, not to be translated into cash per share.

Some comments on the full year. Strong EBITDA, again, coming up at USD 153 million, of which USD 94 million coming from Maritime Services and USD 75 (sic) [ USD 75 million ] from New Energy, both basically in historically high numbers showing from both segments.

And the total JV share profit from our JVs coming from Wallenius Wilhelmsen ending up at 281 during this year. So a strong -- very strong contribution to our net -- to our results through the year.

The full year fair loss -- fair value of Hyundai Glovis is a loss through the year of USD 46 million. Basically, again, as Thomas said a couple of times, and I've said before, currency translation of the Korean won and U.S. dollars.

Again, for the full year, strong earnings per share of $6.63, but again, not to be mistaken as cash per share. On the cash flow through the year, we started the year at the level of 230, ended the year at 163.

And again, coming back to Thomas' point of investing in our businesses, as you can see from the Maritime Service and New Energy, coming back to the EBITDA, not converting directly into the numbers you see here. We have invested quite substantially in working capital, specifically and mostly in the Maritime Service side.

So some USD 60 million invested in working capital, both due to the fact that we are increasing top line but also the fact that we are increasing our warehouse capacity and our warehouse and our goods in warehouses to be able to take advantage of a better market than we used to see.

So it's also a buildup of working capital as we are building up back from the previous period of COVID. Have invested further into -- as alluded to, Vikan Næringspark, our 24% share in NorSea, and as Thomas also said, in Reach Subsea, basically then being overall financed by selling some shares in [indiscernible] selling off some other financial assets and ending up there at the lower point of 163 through the year.

The last refinancing we did in 2022 was the refinancing of NorSea. It's -- it was actually quite impressive both from the banks and the team conducting this refinancing through a sort of not-too-good period to do refinancing, but we were able to close this refinancing before the year giving a better capacity, a better suited facility to challenges that we will see in the NorSea Group going forward and also giving us the capacity to actually do further investments in the NorSea Group.

So all in all, very happy with the bank group and the teams who have conducted that. And as we have said earlier this year, we also, through the year finalized the refinancing of Maritime Services Group. And as you all probably know, Wallenius Wilhelmsen have done several refinancings of their debt.

So giving us a pretty healthy debt maturity profile, and we are happy to see that we still have always had a very good relationship with a very strong bank group and that we are able to, on a general basis, improve and conduct continuous refinancings.

On the balance sheet side, you see some increase in the equity, and you see some increase in the total balance sheet capacity numbers due to the fact that you have increase in -- coming back to the dollar -- U.S. dollar exposure, increase in the balance sheet somewhat and also, of course, from the operational side.

And as Thomas has already said, the Board in Wilh. Wilhelmsen Holding proposes a first dividend of NOK 6 per share with a potential second dividend of up to NOK 4 per share. The NOK 6 is comparable to the first payout last year with NOK 4 and giving us a potential total of NOK 10 per share.

And as Thomas said, quite some percentage increase from last year. So it's being decided to pay out. So I'm pretty happy to be able to deliver also to shareholders an increase in the dividend. So I think, Thomas, on that note, we are still shaping the maritime industry.

[Thomas Wilhelmsen, executive]

I certainly hope so. And I think we're extremely proud of the infrastructure that we have, and we have a very strong belief in both our ability and at least our people to actually to take this forward. So might be a little bit biased, but still, we are very positive towards that. So I think we will open up for questions, and thank you very much for presenting.

[Age Holm, executive]

Good. Åge Sturtzel here, Investor Relation. We have had some questions. I'll group them. One is on the operational side, and there are 4 linked questions related to capital side. So I take the operational one first, that is from Jørgen Lian, DNB markets.

And that is, I'll read it, a loss on NorSea Group wind tender revenue impact as $10 million per quarter? But how will costs change on this? So it's about the net, call it, EBITDA impact from the loss of, I think, the NorSea wind contract.

[Christian Berg, executive]

It's the loss of the contract will be sort of -- all the losses will be -- has been taken in this quarter. So we don't expect any further losses going forward on that contract. So the loss -- the contract has been lost, and it's been sort of taken out as a cost -- potential cost going forward in this quarter.

[Age Holm, executive]

But the EBITDA impact going forward?

[Christian Berg, executive]

Yes, and the EBITDA effect going forward will be very marginal on -- basically...

[Thomas Wilhelmsen, executive]

It's minor. Very minor.

[Christian Berg, executive]

Very minor.

[Thomas Wilhelmsen, executive]

But I think it's minor, but I think it's fair to say that we had an ambition to grow that part of our business. The contract was up for renewal. It ended at terms, which we could not really stand by and we thought the margins were not defendable. So unfortunately, that's just the way it is.

And I think when closing this down, we're closing a legal entity down. It doesn't mean that we are exiting focus on other parts of the offshore wind industry.

[Age Holm, executive]

Good. Then we have 4 questions from [indiscernible] They are partly linked, but there is a lot of wording. So I'll take them -- maybe split up, start with the net asset value. Really congratulations with results, that's the first. Thank you.

What is value adjusted net asset value per share by end of the year when taking into value adjusted market value all underlying investments in the portfolio? And then linked to net, you are an investment company, why isn't value adjusted net asset value per share reported? And if you don't track the figure, how do you allocate capital correctly?

And then the last -- or the third one I link it. What changes do you need to do in order for the underlying value to better reflect the share price? There are 2 more.

[Thomas Wilhelmsen, executive]

Okay, why don't you stop there.

[Age Holm, executive]

Yes.

[Thomas Wilhelmsen, executive]

And then I suggest Christian if you take a punt that as answering the first and then we'll take the remaining 2 or 3 your questions later, just so that we're able to answer them as best as we can.

[Christian Berg, executive]

I'll try to. We do not report on net asset value. And then you can sort of extract some of the net asset value directly from sort of the listed entities we do on, but we do not report on any net asset value of the nonlisted entities.

And yes, we are a holding company, but we are an industrial holding company holding both industrial assets and listed or unlisted assets. So we have not -- we are not reporting on net asset value, and we have no natural plan on how to do that reporting on the nonlisted entities that we do hold.

So they are industrial parts of our group, and then we develop them and our work and our sort of contribution to the share -- all the shareholders of the company is to make sure that we are delivering, of course, underlying good operations and good results and visibility into those numbers and results so that all shareholders, existing and potential ones, can sort of look through and see what they put as a valuation on those assets.

[Age Holm, executive]

Yes. Thanks. Then I continue with the fourth question. I'll take the last one separate. When you allocate capital, you are able to create more than 100% return to shareholders by buying your own shares. At the same time, being concerned about external shareholder value means more options to financed and leased subsidiaries and hence, lower cost of capital, what they are doing to address these untapped potentials? So it was basically share buyback, and if I read leased subsidiaries.

[Thomas Wilhelmsen, executive]

I think these are valuations that are being carried out, say, on an ongoing basis, both by management and especially the Board. And share buybacks has been carried out on several occasions. It may be carried out on occasions also going into the future and trying to balance dividends, buybacks and investments within the overall group to enhance total shareholder value creation.

That is what we are trying to do. I'm sure there can be a lot of different views on what business should have been listed when or not or what have you, but I think this is a dynamic process, which we are working on a continuous basis, both in management and also in discussions with the Board.

[Christian Berg, executive]

And adding to Thomas' answer, I think it's also important for us and for everyone listening into that it's important for us to have a financial capacity and capability to support our companies, both the listed and unlisted companies in the journey to create value. So being able to and having the capability to do that is also an important part on how we do evaluate our sort of total capital.

So that's not -- that's also taken into consideration when we do allocate or decide on how to deploy capital both internally, but also then externally, either towards share buybacks or dividends to the shareholders.

[Thomas Wilhelmsen, executive]

And I think we have to take into account that we are a long-term industrial player, meaning that we typically have a very long cycle and view on the investments and the engagements that we have.

[Age Holm, executive]

Then I have the last of the 5 questions from [indiscernible] and that is linked to pay in a way or share ownership. Why are there not any form of investment program that link the long-term share price development to total remuneration of the Board and top management, excluding the CEO, he says?

[Thomas Wilhelmsen, executive]

Yes, a good question. And also another question, which has been addressed on a continuous basis. So I think there's an AGM coming up in not too long, in April. That's the -- in a way, the area where we declare what type of remuneration that we do have for top management. And we'll see where we end up there.

[Christian Berg, executive]

And again, to add on to Thomas' comment, management, at least, -- or the whole group is actually incentivized and have a program sort of giving positive results, adding on to the value creation in the company. So at least value creation at some point should at least come out in some way or form into the share price as well.

[Age Holm, executive]

Then we have to hurry up here because of the timing on what the slot we have. But there is one from [indiscernible]. Congratulations on good performance in 2022 [indiscernible] is receiving NOK 31.4 per share in 2023 from Wallenius Wilhelmsen in addition, you received from 6.9 from Maritime Services, Treasury is paying 2.15, total upstream NOK 40.2, 25% of cash upstream, what we should -- is 25% of [indiscernible] in what we should expect current yield on book value is 2.4%. It, yes, was technical, but...

[Thomas Wilhelmsen, executive]

Are we referring to -- I assume he's referring to expected dividends.

[Age Holm, executive]

Yes.

[Thomas Wilhelmsen, executive]

I think when Christian showed a chart on, say, the development of our cash position and I had certain comments that we are trying our best to say, find the balance between predictable dividend distribution to our shareholders in combination, of course, with what is the underlying liquidity upstream that we have in combination also with the strategic ambitions and our wish to grow this business and to deliver on those.

So it's probably a little bit of a politician answer, but still, I think today, we are announcing a potential dividend, which is 40% up on last year's, which we believe is a nice trajectory. And we have to take into account that we now had many years where I would say that we've been somewhat cash-strapped without any liquidity coming from Wallenius Wilhelmsen, and we need to build up the right balance again within the group.

[Age Holm, executive]

Thank you. Then we have the last question we have time for. It's -- and it is the last question from Jørgen Lian, again, DNB market. Can you provide any outlook for the amount of cash flow expected to be directed to capital expenditures, investments, acquisitions in the coming quarters?

[Thomas Wilhelmsen, executive]

Christian, I will leave that to you.

[Christian Berg, executive]

Thank you very much. And sort of, of course, M&A is sort of coming when it's coming or not coming when it's not coming. But overall, the most sort of CapEx-intensive business we are running, excluding the Wallenius Wilhelmsen is the NorSea infrastructure side and that will also vary.

So if you are building up a key, you are sort of spending a lot at that year or those 2 years, but you're not sort of investing in the next years. But they are on a steady pace in the area of USD 15 to USD 25 in somewhat of a bulky recurring CapEx program.

You will see some I don't know if you will refer it as to big CapEx. But there are some smaller CapEx also in WMS, mainly referring to the physical assets that we do own, typically, gas tanks and a couple of other sort of storage areas as well, but I will call them minor in the bigger scheme of numbers.

[Thomas Wilhelmsen, executive]

But I think probably the best proxy is our predictability on dividend distribution. We have -- if you go through history, we have of, call it, a high level of predictability and we will, of course, strive to continue with that predictability.

[Age Holm, executive]

And that was the last question.

[Thomas Wilhelmsen, executive]

Very good. Thank you very much for listening in and looking forward to a probably exciting, but challenging 2023.

[Christian Berg, executive]

Thank you.