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Edited Transcript of GLYHO.IS earnings conference call or presentation 12-Mar-19 10:59am GMT

Q4 2018 Global Yatirim Holding AS Earnings Call

Istanbul Mar 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Global Yatirim Holding AS earnings conference call or presentation Tuesday, March 12, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mehmet Kutman

Global Yatirim Holding Anonim Sirketi - Chairman & CEO

* Mehmet Kerem Eser

Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to Global Investment Holdings Full year 2018 Conference Call. Today's speakers are Mr. Mehmet Kutman, Chairman and CEO; and Mr. Kerem Eser, CFO.

I'll now hand over to your host, Mr. Mehmet Kutman. Sir, please go ahead.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [2]

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Good morning or good afternoon, ladies and gentlemen, wherever you are. I believe there are some participants from New York, hi to them. Very quickly, I will make an introduction and pass it to Kerem bey.

As you know, 2018 has been a roller coaster year relatively, especially in Turkey. There were some currency movements, rather strong. We've been very lucky. We hoped that, that currency will stay at TRY 7, but unfortunately, it didn't, as most of our earnings are in hard currency.

Organically, our group companies experienced another strong year overall. And once again, our operations and financials stood resilient against external shocks. As with every enterprise based in Turkey, we encountered a negative operating environment in the second half of the year. However, with the support of our diversified portfolio structure, prudent risk measures and uninterrupted investments, we have continued to grow both our revenues and operating profit, concluding with solid free cash flow.

In 2019, Global Investment Holdings will continue to focus on its core business, which is the Ports side, grow sustainably and expand its investments into new markets. But the most important thing for me personally, as the Founder and the Executive Chairman of the group, I'm proud to declare that after 4 years of extensive capital commitment, all our subsidies are cash flow positive, hence, do not require any further capital injection for operational purpose, maybe with the exception of Tres, which might require a few million dollars.

I'm going to hand it over to the CFO now, Kerem Eser. After that, I would have some closing remarks and Q&A, hopefully. Kerem bey?

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [3]

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Thank you. Thank you, Mehmet bey. So good afternoon, everyone, or as Mehmet had said, good morning. We released our annual results yesterday late afternoon together with the financial presentation. You must probably have it. So I'm going to talk you through those in summary, very, very brief summary.

So starting with the numbers. We have announced consolidated net revenues of TRY 1.128.4 billion, that's in Turkish lira, and an operating EBITDA of TRY 465 million. All, of course, in TL terms. As Mehmet bey said, because of the devaluation in value of TL, we have -- in most of our business lines, we are benefiting, as a matter of fact, from it. And the growth in revenues is 40% compared to the previous year. And in EBITDA, the growth is 67%.

Also, I would make a personal remark on it and an emotional KPI, perhaps. We have passed the TRY 1 billion barrier in revenues for the first time on TL basis. We are more than pleased, of course, with the results, considering the economic and political turmoil, as Mehmet bey said, a roller coaster. The resilience in our portfolio has been put on test. So maybe it's better if we just analyze the numbers in U.S. dollar equivalent because most of them are hard currency earners.

Taking the EBITDA, take the average rate during the year for 2018, we still see a solid 27% growth in EBITDA figures. In 2017, the consolidated EBITDA at average rates was $76.3 million. And this year, it increased to $96.6 million. And this is mostly organic, excluding a few contribution from Havana, for example, in the Ports side. This is mostly organic.

All of our business lines contributed to the growth, some with strong double digits, some even triple digit. Well, main contributor remains to be the Ports. However, we see more and more increased contribution from Gas division and Power division also. The performance of the Ports segment was, again, in line with the management expectation. It was defined, as you remember, as a mid- to high digit -- high single-digit growth in revenue and EBITDA line. And revenues of TRY 601 million on the Ports side compared to TRY 424.5 million in 2017, representing a 42% increase. And then again, of course, it's more meaningful if we make the comparisons in terms of U.S. dollars. Again, the revenue line for 2018 is $124.8 million compared to $115.4 million, representing a 7.2% increase.

EBITDA, again, first on TL terms, TRY 402.7 million from TRY 274.6 million. That's a significant increase. And that translates into a U.S. dollar equivalent EBITDA of $83.7 million this year compared to $75.3 million. And the increase is 11.2%. So that's more than mid- to high single digits, so surpassing the management expectations.

And excluding the headquarter OpEx, again, I'm talking about the Ports, the segmental EBITDA margin improved to 77.7% versus 69.2% in 2017. Both the commercial and the cruise arm have contributed to this improved performance. On the cruise side, it was a record full year, cruise revenue of $54.9 million and an EBITDA of $37.6 million. The revenue line, up by 9.2%, and the EBITDA line up by 16.8% compared to 2017.

On the cruise side, the growth is -- was a function of the better performance of our Spanish ports, Barcelona and Malaga, and then the contribution from the equity accounted ports, namely Lisbon, Singapore and Venice. Again, just for a reminder, these are not included. The numbers of those equity accounted ports are not included in the revenue, but in the EBITDA. And their contribution combined to the EBITDA was $5.6 million this year compared to $2.5 million in 2017.

The total passenger number was increased by 0.8%, reaching 4.4 million. And then the total passenger volumes, if we include the equity accounted associate ports as well, is 20%. That is 8.4 million passengers.

And on the commercial side, there was a -- the 2018 performance was also a very, very high segmental EBITDA. Despite cargo volumes falling in the year, volumes in traditional cargo categories were weak notably towards the end of the year, but this impact was largely offset by positive benefits of diversified services such as the new services introduced in the year or planned for 2019. That includes a new storage facility in Port of Antalya, the Ro-Ro services, dangerous liquid handling and further expansion of oil drilling support service capabilities.

And some final words on the ports. The cash generation, again, was strong and the GPH port has proposed and later paid -- company later paid in October an interim dividend of $17.5 million. And our -- the Global Investment Holding share being $11 million.

Next with our -- the second business line, the CNG business. Naturelgaz was also a very good performer in 2018. The total gas distributed was 138.2 million, that's excluding the spot gas sales, compared to 149.2 million. So you can see the volume is lower compared to previous year. That's mainly because of the management's strategy towards prioritizing the client base based on profitability. Pricing was much better and resulting in revenues to increase by 32% in 2018 to TRY 242.1 million despite the volume decrease.

Meanwhile, the operating EBITDA increased almost 4x over 2017, reaching TRY 40 million from TRY 11 million last year. And that corresponds to margin improvement by 11 percentage points. And apart from better pricing and efficiencies and cost management, this is also significantly a result of gas hedging contract that has expired in 2017 -- end of 2017.

Again, I need to underline, Naturelgaz is a market leader with around 20% market share in Turkey, non-pipe natural gas transportation and a massive 75% share, if you take the CNG market alone, excluding the LNG. And I'm sure, Mehmet bey is going to say a few more words on Naturelgaz after my part.

And quickly next to the Power division, our second core business segment within the Power/Gas segment And this business line includes cogeneration and the recently commenced biomass renewable power. Power division reported TRY 83 million in revenues, and that number is more than double what it was last year. Likewise, the EBITDA generated was TRY 7.1 million compared to 0 that was a barely breakeven position last year. A total of 17.2 megawatts was operational throughout the year, 2 plants, one 12 megawatts in Turkey and the other one, 5.2 in Urfa.

And the division, we have successfully commissioned the third one, namely the 12-megawatt capacity Mardin/Derik plant as of the end of the year, and it has been connected to the grid. And this third plant, as we speak, start to generate under the feed-in tariff of $0.133 per kilowatt hour produced, starting from January 1 this year. So together with the 2 existing ones, the total biomass power production capacity has increased to 29.2 megawatts as of today.

So jumping to the bottom line P&L. We incurred a net loss of TRY 89.9 million compared to TRY 329.2 million last year. And the bottom line, again, has been impacted by the net FX differences, a total of TRY 89.2 million, and most of it incurred in the third quarter alone. So it's maybe worth underlining that the FX losses are a result of the mark-to-market valuation of our long-term project finance debt, and the cash impact is only relevant for that service actually paid during the period, which is less than 21% of whatever has been incurred, and the rest is noncash. And as a matter of fact, the net FX losses as of the end of third quarter, you would just remember, was TRY 106 million. So obviously, we have recovered a fair portion of this in the last quarter, in Q4 this year.

Second component is the depreciation charges amounting to TRY 209.5 million compared to TRY 206.8 million last year. And these are, again, noncash expenses, mainly originating from hard currency assets in the Ports and Energy assets, again, analyzing in U.S. dollar equivalents because their source is in U.S. dollar equivalent.

In 2018, this year, the total depreciation charges was $60.3 million versus $56.7 million. So you can see in our currency terms, depreciation charges were flat so the impact is solely due to the fluctuation of the value of TL against the hard currencies.

And the third component is the net interest expenses, TRY 185.1 million this year compared to TRY 165.2 million. And if we again take the average FX rates, interest expenses this year was $38.5 million compared to $45.6 million. So we see an improvement there in hard currencies as well in real terms by 15%.

And some -- let me see, just some final words on the balance sheet. Our cash and cash equivalents on a consolidated basis as of the end of 2018 was $121.7 million and the gross debt of $547.7 million. That's a decrease from the end of third quarter this year from $570 million. So that gives us a net debt position of $426 million, pretty much the same as the end of third quarter.

So if you look at the gross debt over EBITDA multiples as of the end of year, it's 5.7, and the net debt-to-EBITDA just decreased below 5 and stands around 4.4.

So that concludes my part. So I'm turning the call back over to our Chairman. Thank you.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [4]

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Kerem bey, thank you very much. Just as a closing remark, I'd like to mention that I'm pleased to say Global Investment Holdings -- for Global Investment Holdings, 2018 was a relatively solid year with significant improvement in all of our profitability metric despite the roller coaster environment, especially in Turkey. We continue to benefit from our investments, growth in both domestic and international markets as well as our proactive approach and disciplined risk management, which is very key in a roller coaster environment. The -- we will continue our policy of growth by means of new acquisition and investments mainly into our core business, which are Ports, and there might be some further news vis-à-vis the asset management side.

Now continuing our focus into the Caribbean, which is the world's largest cruise market. You also, I'm sure, have followed from the news in 2019 that we are nearing final conclusion in Antigua and we've been awarded Preferred Bidder Status for Nassau. We expect -- I expect a few more to come in the next few weeks, and I expect those to be concluded within this year. And assuming they do, they will mark a truly transformational moment for the company. As a matter of fact, I would define an inflection point for Global Ports Holding. But more important than that, this will translate that approximately 1 out of 2 cruise passengers will visit at our ports at least once. This is a very, very important criteria. These agreements, of course, mark an important step in our strategy to further gain exposure to the exotic Caribbean as well as North Africa.

On the clean energy front, capacity extension of Aydin plant 12-megawatt is work in progress. It's planned for the expansion project to start power generation within this year or latest early next year, which is already subject to YEKDEM.

Also as a final note, we have a solar plant, which will be operational by the end of this year. It's under construction. All in all total, we'll have approximately 50 megawatts of renewable book capacity, and the feed-in tariff is around $0.135.

Basically, I guess, that's it. But obviously, from my voice and talk the Ports side is our -- especially vis-à-vis the developments in the Americas, let's say, from north to south, that's where the bulk of the news and inflections will come vis-à-vis our group. So operator, that sums up our rather brief but seamless presentation. We can go to Q&A.

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Operator [5]

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(Operator Instructions) We have no questions. And the speakers, back to you for the conclusion.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [6]

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Well, everybody, thank you very much. There's not too many participants, I understand, on the line. But again, as I said, the most important thing, we're done with our CapEx program for the last 4 years. All op companies or subsidiaries are operationally positive being able to pay their debt and hopefully, upstream some dividends. Naturelgaz basically is the surprising element. They tripled, if I'm not wrong, their EBITDA or 2.5x. We're expecting probably for them to at least double their EBITDA this year. And there's a general decision to -- for Naturelgaz to have an IPO here or London. But of course, this is subject to relevant markets and having a window on the market. That's one structure, which basically strategic approach of the group. And the other one is on the Ports side, continue with our acquisitions in the North America as well as the Far East. Thank you very much, everybody.

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Operator [7]

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This concludes today's conference call. Thank you all for your participation. You may now disconnect.