Wilh Wilhelmsen Holding ASA

OSE:WWI

Earnings Call Analysis

Wilhelmsen Posts Record Profits and Growth

Wilhelmsen has concluded a record year with a $466 million net profit, with the fourth quarter contributing $74 million, slightly up year-on-year but down from the previous quarter. The Maritime Services segment grew its revenue by 15%, despite a slight margin decline due to investments in the organization's growth. The New Energy segment experienced a softer quarter due to seasonal impacts and contract terminations, yet maintained strong margins and promising prospects in the Norwegian basin. The company has also achieved a 12% reduction in greenhouse gas emissions in 2023, aligning with their environmental targets. Despite macro uncertainties, Wilhelmsen exhibits a strong market outlook, underlined by a robust platform, balance sheet, and organization. A dividend of up to NOK 18 per share has been announced, targeting a yield of 3% to 5%.

Fourth Quarter Performance Marked by Stability and Year-on-Year Growth

Wilhelmsen Holding ASA's fourth quarter results signified stable operations with an uptick in year-on-year performance albeit a slight decline from the previous quarter. The company reported net earnings of $74 million to equity holders and has proposed a two-part dividend payout totaling up to NOK 18 and an adjusted dividend policy aiming for a 3% to 5% yield. Key operational segments such as Maritime Services and New Energy showed robust contributions. In particular, Maritime Services is expanding via strategic acquisitions, aiming to bolster the segment's revenue by approximately $35 million and enhance its service offerings.

New Energy Segment Showing Promise Despite Seasonality Effects

The New Energy segment experienced a seasonal downturn, particularly in Norwegian operations, and the termination of a significant contract with NorSea Wind. Nevertheless, the segment maintains a strong margin and a promising outlook, with various initiatives within the energy transition space. The wind services companies Edda Wind and Reach both reported strong results, with Wilhelmsen holding significant investments in each, marking an overall positive trajectory for the segment.

Strategic Holdings & Investments Celebrate Long-term Partnership Success

Strategically, Wilhelmsen celebrated the 25th anniversary of the Wallenius Wilhelmsen partnership, a leader in the industry. The partnership's renewed shareholder agreement reflects a commitment to collaborative growth and strategic planning, evidenced by Wallenius Wilhelmsen's substantial $340 million contribution to the group's earnings in the past year. Despite a quarterly dip due to noncash adjustments, the Strategic Holding & Investments segment, which incorporates changes in accounting methods, demonstrated resilience and has contributed significantly to the group's financial health.

Company Reflects on a Record Year and Dedication to ESG

2023 has been a milestone year for Wilhelmsen, with a record net profit to equity holders of $466 million, representing a significant increase from the previous year. This success manifested in a 37% total shareholder return, excluding the impact of share buybacks. Wilhelmsen also places a strong emphasis on ESG efforts, developing its unique index comprising 17 KPIs to measure and improve its sustainability performance. Unfortunately, the year was marked by a fatal accident, a sobering reminder of the paramount importance of health and safety in all company operations.

Earnings Call Transcript 2023-Q4

[Thomas Wilhelmsen, executive]

Good morning. Welcome to the fourth quarter results for Wilhelmsen Holding ASA. Towards the end, I will share a few reflections for the year as a whole, but then to start off with the fourth quarter. I would say the fourth quarter is characterized by stable operating results for the group. We're somewhat up year-on-year, but somewhat down quarter-on-quarter. Performance within the operating segments of Maritime Services and New Energy has been pretty good. We've had good contribution from joint ventures and associates, but down from previous quarter due to certain one-offs, I'll come back to that a little bit later.

All in all, we have a net profit or earnings to equity holders of $74 million, and the Board has just recently announced a suggestion for dividends of NOK 10 for the first half and up to NOK 8 for the second half. And also somewhat updated dividend policy. I'm sure Christian will come back to that a little bit later, but we are targeting a yield of 3% to 5%. Just then moving into the segments and a picture here from Maritime Services. We've been giant on our wish to continue to grow our footprint within the Maritime Services segment. Over the last 2 years, we've done 5 acquisitions or we've done 4 in the 2 previous years, and we just announced one during the fourth quarter, which is to be closed during first quarter of this year.

Just a bit of a reflection of these transactions. They are typically what we would call bolt-on access where we are widening our footprint within the Maritime Services segment. Within all the 4 acquisitions prior to the 1 that we will close this year is accounting for roughly $35 million in revenue, and we believe they are say, attributing to a better footprint and a better offering towards our customers. And as we know, we've been acquiring businesses throughout the overall platform. So it's strengthening the WSS portfolio. We have been strengthening the port services or the agency part of the business but also on the ship management side.

Just a few words on the last announced acquisition in Zeaborn. This is a partnership with MPSpital in Germany. Zeaborn is quite a large ship management company approximately 100 vessels under its umbrella of various types. So we believe this is a very significant and nice acquisition for the shipment part of revenue, but also in terms of, say, guiding on the acquisition price as well. So we are very pleased with this transaction and the other transactions that we've been carrying out for the last 2 years. And hopefully, this will also we can look back at the seller pattern in the years to come.

Just then looking at Maritime services and the performance, I must say, I'm very pleased with the top line growth. We've been in previous years, talking about the challenge to grow the top line. We've had strong plant growth during last year of '23 15%, which is quite significant for mature business like this. So hopefully, we can continue this trend as well.

The margin is somewhat down compared to previous periods. And the reason for that, we've also been explaining earlier is that we are investing in the organization. The Maritimes organization is significant. It's spread over 60 different countries around the world. and we have a wide spread of products and services. We need to make sure that we have the right competence to front this in the marketplace. And we've been willing to take the investment in terms of growing the organization. But of course, this comes at the cost of the margin. But hopefully, in the longer term, this will prove to be, say, a good investments in terms of profitability as well.

So then looking into New Energy. Somewhat down compared to previous quarter, some impacted by seasonality coming into the winter season, especially for Norwegian operation. Also, we look back at the previous, say, previous quarters and years, we've been terminating of the large contract we had within NorSea Wind for support of tenant stations, et cetera, has been terminated, so that's impacting us. But we do feel that margin overall is pretty strong, and we have a good forward book, if I can call that, at least, we believe the activity level within the Norwegian basin will be quite strong going forward. And there's a lot of interesting initiatives going on within the energy transition space.

I've not talked too much about Edda. Edda Wind is, of course, they have announced their results. So has Reach, Reach has had a bumper year, very, very good projections. We have just shy of 20% holding within Reach, and we also have warrants to lift us for another close to 14%, if we deem that to be say, a good investment. So all in all, new energy is moving along and activity level, as I said, within the Norwegian basin is looking strong. So it's exciting times ahead.

Then moving to Strategic Holding & Investments and a picture here, the focus on Wallenius Wilhelmsen. 2024 marks the 25th anniversary for the, I would call it, the Wallenius Wilhelmsen journey. So in 1919, Wilhelmsen and Wallenius and joined forces creating at that time, Wallenius Wilhelmsen, which became say the #1 player within the industry and a fantastic platform for future growth. A few years later, we acquired S. Wilhelmsen and Wallenius the stake in Nucor. And we've been developing these businesses all along. And in 2017, of course, all of this was merged together in a more efficient organization and listed on the stock exchange, which is now Wallenius Wilhelmsen ASA.

I think this journey, it warrants a bit of credit because it's really the #1 player within its field. And together with Wallenius. The Wallenius organization has been able to build this company. And we have just announced a renewal of our shareholder agreement, which is quite an important mark for the partnership. Probably 25 years ago, a lot of people would say that a partnership like this will not last 25 years, but this 1 has. And I do believe Wallenius and Wilhelmsen and the general market is all contributing with different aspects, which is generating value for the company overall.

The shareholder agreement, which was extended. There's nothing really new, but it has a few, say, main clauses. It's the right to have representation in the nomination committee, right for representation in the Board at certain thresholds and a first right of refusal at a certain threshold if any of Wallenius or Wilhelmsen is seeking to sell down. So I think this is a -- it's a pleasing development, and I'm very pleased that the partnership is continuing and is the most important partnership we have within the Wilhelmsen Group.

Then looking at the contribution. Overall, the completion, I must say within holding and investment and especially then from Wallenius Wilhelmsen has been fantastic during the year, but it's down for the quarter. And for Wallenius Wilhelmsen, it's impacted predominantly from tax and a put and call option related to the UCO shareholding for the remaining 20%, which is owned by Hyundai and Kia. So I would say that these are more noncash adjustment. So underlying business is performing very well. We've had something like $340 plus million contribution from Wallenius Wilhelmsen during the year.

There's a new accounting method for Hyundai Glovis and Treasurer. Christian will come back to that, but that's now on equity method. We've had good contribution from our financial portfolio. So I would say, in this segment as well, it's been pretty strong during the quarter. And if we look at the left-hand side of the bar charts, just a reflection of course, not a development or we would like to see a different development in terms of the value of all our listed holdings are more or less the same at end of Q4 '23 as they were at end of Q4 '22. But I'll come back to our share price and the development we've had on our share price during this period.

Are we lacking -- I think we're lacking a slide. Okay. Highlights for the year. I'll take that first, and then I'll come back to ESG as there was a mix up in the numbering here. But overall, year of 2023 has been very strong for the Wilhelmsen Group. We've had net profit to equity holders of $466 million, a record year, up from $400 million last year. We delivered a total shareholder return of 37%, not taking into account the share buybacks that were -- that we did during the year. So I think just a reflection to the previous slide, when we look at the overall value of our listed holdings, which were more or less a game during the year, but we've had an increase of 37% in shareholder return, which I think is -- must be very pleasing for all shareholders. We have expanded our Maritime services network through the bolt-on acquisitions that I mentioned. And of course, the all-time high contribution from Wallenius Wilhelmsen, it's a very strong market at this point in time.

Just a few words on ESG. We're spending a lot of time within the Wilhelmsen organization on various ESG matters as all companies do. We've developed our own index. It's comprised of 17 different KPIs. But I would like to mention 2 areas. I can't go through the whole thing. But the most important thing is health and safety. And unfortunately, we've had a fatal accident in 2023, and we've also had a fatal accident in -- at the start of this year. This is just so tragic. It's just -- I can't really put words to it all. But it just shows that we just have to continue working on health and safety and our culture in that regard continuously.

We have pretty good statistics, but fatal accidents are just absolutely unacceptable. So that's definitely a continued key focus going forward. The other one I would like to raise is on the emission side, we had a 12% reduction in greenhouse gases during 2023, which we believe is, say, taking us on the right path towards our overall targets.

On the outlook side, the market is looking pretty strong. Of course, there are quite a few, say, difficult areas in terms of the macro picture, both geopolitically and from a security perspective, and there's a large order book out there for the current RoRo fleet, et cetera, but at least in the medium term, it's looking pretty strong for the businesses that we have a strong platform. We have a strong balance sheet. We have a very good organization, so I think we are very well weathered for the year to come.

I said at the outset that I would share a few lights or thoughts on 2023 or how we saw that at the beginning of the year. And I must say at the start of 2023, we were pretty worried when we saw the backdrop of what was happening in the world. We were quite uncertain as to what would this actually lead to in terms of our own performance. I don't think we could have foreseen the results that we are now seeing in the aftermath. So we are very pleased with the year. And hopefully, we can look back at 2024 in the same way. there's a lot of clouds out there. There's a lot of tragic things happening in the world in terms of a security perspective and macroeconomic uncertainty, but we have a strong platform, and we will continue to shape the Maritime industry, and we will continue to invest in this business. So I will leave the word to leave the word to Christian.

[Christian Berg, executive]

Thank you, Thomas. I will try to fill in some of the blanks that you left for me and just sort of summing up the quarter. And as Thomas said, top line stable, also summing up with the points of Maritime Services being very positive in the quarter with a 15% increase in the revenue side or the income side from -- year-over-year, while new energy somewhat lower year-over-year. Basically flattish if you take out some of the sales transactions.

EBITDA for the quarter year-over-year, basically at par. And as Thomas has already said, share of profit from associates, $42 million from Wallenius and $21 million from Glovis pretty much down from the -- both the quarter and the year-over-year quarter and pretty much also explained by both Wallenius Wilhelmsen and also by Thomas on the major negative contributors to the share of profits this quarter. Giving earnings per share at $1.68 for the quarter.

If we move more on to the year, we just crossed the $1 billion revenue line. And again, for the full year, Maritime Services being the rising star through the year, increasing with almost 17% and the new energy segment a bit lower. But again, taking out on the sort of one-offs during the year, give or take at par. For the EBITDA for the year being $147 million compared to $153 million the last year. Give or take at par and again, taking out profits from sales underlying basically for the group at stable levels. But it's sort of again Maritime Services contributing with a 12% increase while new energy, a bit down. But again, basically a correcting for the one-offs.

If we bid down to the share profit from associates, as Thomas said, a very strong year, USD 431 million, of which, $324 million coming from Wallenius Wilhelmsen and $89 million coming from Hyundai Glovis. And again, we changed to the equity method through the year. If -- and this is just if the sort of the share movement for the year in Hyundai Glovis in local currency has been up around 10%. So that would have been the sort of annual number in previous years, if we have not done the change from fair value accounting to equity accounting.

Earnings per share for the year pretty strong on just about $10 per share -- $10.52 for the year. Going to the cash starting off the year with $163 million, having a strong delivery from all segments through the year, delivering $364 million. Maritime services with an all-time cash contribution -- all-time high cash contribution. And Wallenius Wilhelmsen delivering USD 136 million out of the USD 170 million of the JV while Glovis are delivering somewhat less, but a strong cash year from all units. As Thomas said, we have been investing both in sort of assets but also in the organization. On the asset side, which is where you see here, we have invested just above USD 40 million in hard assets in North Sea. We have invested USD 29 million in Edda Wind, and we have invested in the M&A activities in the Maritime Service sentiment segment, just about USD 20 million. So we have invested somewhat also not only in the organization, but also on the asset side.

Money being paid through the year, a dividend of USD 42 million, buyback of USD 10 million, paid back somewhat of the debt and paid also, of course, interested and also taking down the leasing obligation. So kicking off the year with $163 million, ending the year with USD 234 million at the end of the year.

Coming to the balance sheet. And again, just somewhat increasing the balance sheet from high 60s to just above 70% equity ratio. Most of that movement comes from the dollar NOK changes in the accounting so that we actually have increased the balance sheet with a positive dollar NOK development. On the debt side, and I've said that a couple of times that sort of it basically looks the same as the previous quarter and the previous quarter. And it is a bit sort of out there that we are sort of seeing big stack of potential refinancing, but having the opportunity to meet virtually with whoever is listening in. We are, of course, always eager to discuss and have relevant discussions on the financing and how to do refinancing even though it's a couple of years down the road to where we really have to do it, we would like also to have that discussion on a rolling basis. So we engage everyone to sort of challenge us on what we can do, how we can do it and have some inspiring talks with credit finance years of the world.

Thomas opened up with the revised dividend policy targeting an annual yield of 3% to 5% over time. Over time, historically, 10 years back, the yield has been around 3%. We had a dramatic yield year but not only yield here, but also a dramatic year in 2020, where COVID came in, and we took down the dividend and obviously below 33%, as you can see from the chart, paying back that sort of withheld dividend in the next year, but having a 10-year average of 3%.

The first dividend being suggested to the general assembly being NOK 10 per share will be around 2.8%, and the remaining will take the suggestion up to potentially 5%. We also have a ambition and target to have a liquidity reserve of at least USD 200 million. It's important for us to be able to both not only support but also to give -- deliver on the potential in the different sets. So having that cash reserve is very important, and we will continue to develop that reserve going forward.

As Thomas said, the board has proposed a first dividend of NOK 10 per share and ask for an authority also to distribute additional dividend of up to NOK 8, taking the potential dividend up to USD 76 million. First dividend basically -- or not even basically, but being exactly the same as dividend last year for the full year. So I'm pretty happy to be able to at least give the first dividend the same as the last year. And the Board is asking them for the powers to give up to NOK 8 in the third quarter. Dividend or the general assembly is being called towards the 2nd of May and the potential -- or the dividend is to be paid the 30th of May.

As you can see on the 2023 chart and has also shown on the cash flow chart, we do also ask for a power from the General Assembly to potentially also do buybacks on a regular basis going forward. So that's basically the capital situation, Thomas. And we will continue shaping the maritime industry as we always do.

[Thomas Wilhelmsen, executive]

We definitely will be, and I think that's also 1 of the reasons for the liquidity reserve. We have a very wide national platform. And as I mentioned with operations in more than 60 different countries, thousands and thousands of employees and different products and services. And of course, in order to make sure that we say abreast of all of this and all the business engagements that we do have, we need to have the capacity, not just to develop what, say, the day-to-day part of the business, but we need to grow and prosper for the future. So thank you, Christian. This is looking good, and we welcome any questions that there may be.

[Age Holm, executive]

Yes, we have 1 question so far. It's from an investor, [indiscernible] relates to acquisitions versus buyback. I read the question. You have done add-on acquisitions to VMS. Can you elaborate on the valuation of such acquisitions versus your own stock and to what extent these acquisitions are accretive versus buying back stock?

[Christian Berg, executive]

I think sort of we have not disclosed the multiples or what we have bought the different sort of add-ons for. But on a general basis, we are -- as I sort of ended up with, we are supporting the stock with the dividend yield and the dividend sort of policy. And we are buying back shares -- or we have been buying back shares, and we have the potential to buy back shares. And as Thomas sort of also said during his presentation, we have seen what sort of discussed as the discount to the underlying value have seen that sort of gap narrow in, and we are happy to see that. And we do whatever we can to deliver on the underlying values in the company and deliver on the good capital structures being a balance between developing the company, shaping the maritime industry shaping the future of the company and giving a turn to all shareholders.

[Thomas Wilhelmsen, executive]

I think a short answer is, of course, we do acquisitions because we believe they are value accretive in the long term.

[Christian Berg, executive]

Otherwise, we didn't have done them, exactly.

[Age Holm, executive]

That's the only question so far, taking the time lag should be 10, 15 seconds, wait 15 seconds and then we turn it over .

[Thomas Wilhelmsen, executive]

We can wait a few seconds on it. We get just as a reflection in the meantime while we're waiting for potential -- for potential questions. I think backdrop, which is interesting to note for the businesses that we have and especially the Maritime Services business is the general sentiment in the overall shipping industry, that is quite strong, I would say, pretty strong at this point in time, which is positive for the Maritime Services segment. And as we mentioned when it comes to new energy, there is a lot of activity within the North Sea Basin and also in terms of energy transition. And then finally for holding an investment and especially Wilhelmsen Wallenius. There's a lot of disruptions happening at this point in time. Deviations around Africa, where you cannot go through the Suez Canal there are disruptions in the Panama canal, taking also capacity out of the market. So in the short time span or short-term future, there is definitely a pretty tight supply demand in that segment as well. And China is increasing their production, which is also adding to extra ton miles of transport. So we believe we will have a good start to the year of 2024.

[Christian Berg, executive]

Any last or any more questions, Age.

[Age Holm, executive]

Yes, there is 1 from Jorgen Lian, analyst at listed DNB on capital allocation. I read the question. Cash flow looks to be increasing considerably going forward. Will cash dividends be according to the updated policy while potential overshooting cash from the liquidity buffer be directed to buybacks?

[Christian Berg, executive]

Yes, we will, of course, try to deliver on our policy. It would be strange not to. So we will try to deliver on the policy. And on the buyback side, yes, we are asking for a mandate from the Board. We have done some buybacks, and there is a natural way of bouncing the capital structure using buybacks together with the dividend. So I don't know if it's a no answer, but there is -- that's the sort of levers that we do have dividend and buybacks to adjust sort of the situation. But again, as I think we have said a couple of times or even more, is important for us to also remember to invest in the organization and in the asset base that we do have. So that's the basically cash, that's where the cash might be going in total.

[Thomas Wilhelmsen, executive]

I think it's fair to say that over the last, say, 5-plus years or so, there's been very, very limited cash coming up from holding and investments. And we've been able to counteract that with a good performance in the other parts of our portfolio, especially Maritime Services, which has been generating good cash. But at the cost of not investing at the rate we would like to. So we're trying to balance this in totality, how can we make sure that we have the solidity, the flexibility that we need as a group, how can we grow this business and invest in it and develop it at the rate we would like it to be. And at the same time, of course, giving back to shareholders in terms of hopefully, a combination of rising share price and dividends.

[Age Holm, executive]

Then there is 1 more question from Johan Henrik L'Orange. It's a little mixed Norwegian based on estimated strong cash flow, Wallenius WWI, the share. Will you prefer, Yes. it's some selling. Will you prefer share buybacks versus more dividend with more than USD 200 million be used for that? Congratulations with a good year.

[Thomas Wilhelmsen, executive]

Well, first, thank you for the congratulations. I think we are pretty firm on -- we've just announced the dividend policy of 3% to 5%, the suggestion by the Board to the AGM of NOK 10 plus NOK 8. and at the same time, potentially, say, doing potential buybacks. And we understand that we need to balance these. But at the same time, as we've said several times now, we are very interested in growing this business, and we need the capacity to do so. And we've been say, short on that capacity for the -- nearly the last decade. So we'll see how we can balance this in a good way.

[Christian Berg, executive]

And also to comment on what you said, Thomas, and I've said that in a lot of meetings with investors we are not in a position and we do not think that we can dividend out what might come. So for us, all about sort of we need to see business or associates deliver physically. So what might come will be handled, but might come ends up in have been delivered. So we are not sort of front-running what might come in the future. We need to see that being delivered before sort of deciding on any changes or any deviations from the policies or the way we behave in the capital market.

[Age Holm, executive]

And then there is a follow-up question from Jorgen Lian at DNB. So what is normalized investment rate per year?

[Thomas Wilhelmsen, executive]

That's a very good question. I don't think we have a normalized investment rate. So this is an industry where you don't have a -- it's not a constant flow of opportunities. There are opportunities coming and going. So it's very, very difficult to give a, say, given normalized rate of investment. This is not a replacement of new buildings or anything like that. So if we were to look at Wallenius Wilhelmsen, one could make a more calculated version of forward investments. And no doubt when we look at Wallenius Wilhelmsen, we believe there is a significant investment program coming in the following years in terms of fleet renewal, how the company will cater for that is that's optimal Wallenius Wilhelmsen. But again, we need to make sure that we are there to be able to back an investment program that we might embark on.

[Christian Berg, executive]

And not to destroy Thomas' perfect discussion right now, but for you again sort of knowing the dirty details in even the lower levels within the segment. I think sort of for North Sea, which is basically the most stable business and having a sort of a reinvestment CapEx program on a rolling basis in a way forever. The best estimate is basically you're seeing the depreciation number every year over some years, and that will be basically the normalized reinvestment CapEx level in new energy for that segment.

[Age Holm, executive]

And then there is a more concrete different question. Henrik Abramson, can you elaborate on the partnership with MC Capital you see further opportunities with them?

[Thomas Wilhelmsen, executive]

Yes. MPC Capital in Germany is a partnership which we started can't remember exactly at that time, but it was prior to COVID, and it's been predominantly on the ship management side where we acquired say part of their management operation and to do that in a joint venture. That joint venture has been very successful. And I think we not necessarily saying that we are absolutely like-minded, but we do see very much of, say, the same opportunities, and it has proven to be a good partnership where we come along say pretty well. And that might develop going forward, and especially now with Zeaborn. Zeaborn is a significant, say, sized transaction in the ship management industry. And as with all partners, we would like to develop the partnerships going forward, and this shouldn't be any exception to the other partnerships that we do have.

[Christian Berg, executive]

And I might also add that they have various if not the same and the like, the same vision as we do have, but they have sort of front load but they want to do and they want to be a part of shaping the industry. So we do find some very good not to sort of cooperate on going forward with MPC also as and the total structure.

[Thomas Wilhelmsen, executive]

And we are quite complementary in terms of skills and focus.

[Age Holm, executive]

And that ends the Q&A.

[Thomas Wilhelmsen, executive]

Okay. Thank you so much. Thanks for participating, and we're looking forward to presenting our second half result, hopefully, with good numbers and good development. Thank you.