U.S. markets closed

Edited Transcript of GLYHO.IS earnings conference call or presentation 20-Aug-19 10:59am GMT

Q2 2019 Global Yatirim Holding AS Earnings Call

Istanbul Mar 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Global Yatirim Holding AS earnings conference call or presentation Tuesday, August 20, 2019 at 10:59:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Mehmet Kerem Eser

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to Global Investment Holdings Second Quarter 2019 Conference Call. Today's speakers are Mr. Kerem Eser, CFO; Ms. Asli Su Ata, Head of IR.

I'll now hand over to your host, Kerem Eser. Sir, please go ahead.

--------------------------------------------------------------------------------

Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [2]

--------------------------------------------------------------------------------

Thank you. Thank you, Ira. Good afternoon or good morning, whichever the case, everyone, and thank you for joining us for our first half of the year 2019 results call.

Today, I'll give you a short heads up on GIH's first 6 months results, and then we'll have a Q&A session as customary.

We released our results yesterday. We have announced consolidated net revenues of TRY 636.1 million and an operating EBITDA of TRY 228 million. These numbers indicate a revenue and EBITDA growth over the same period in 2018 by 38%. And we believe continuous growth on our core business lines, now almost every quarter now for many years. If you look at the historical track record, underlines the fact that GIH has a solid foundation for a sustainable growth as well as cash flow positive growth.

Having said that, there were some internal factors, such as the renewed local elections this year and volatilities in local financial markets associated with them. And external factors as well, such as the trade tariffs and tariffs associated impact on global trade, in general, affecting the operational performance of our various business lines.

Starting with the M&A activities in the first half. These were mainly on the port and asset management business lines. Just to remind, I'll just give the names, actually, some of them have been covered in the conference call earlier in the morning. If any of you have already joined our port arm's Trade Conference Call, a concession agreement was signed for Antigua and Barbuda, our port JV was named the preferred bidder for Nassau. And again, another JV successfully bid for the port operator of La Goulette in Tunisia.

All of these prospects, of course, remain conditional until such times as all conditions are fulfilled. And again, on the port side, we announced the strategic review by Goldman Sachs. We mandated Goldman Sachs. That is, in a nutshell, we are exploring ways to maximize value for all stakeholders that sell it for our port arm as well as GIH as a group.

I'm not in a position, unfortunately, to share further details. But basically, we are contemplating a lot of proposals from various parties. These proposals, ranging and including from, buying a certain percentage of CPH PRC to buying container ports outright to becoming partner on the cruise side only. And as I said, at this stage, we have a mandate with Goldman Sachs, and there are quite a few interested parties bidding for different parts of the business. And I hope I'll be able in a position -- I'll be in a position to disclose more details in the coming weeks or months.

And also on the finance arm, in the first half of the year, Actus Asset Management and Istanbul Asset Management have reached an agreement to merge, creating the largest domestic and independent asset management company in Turkey. And why -- the potential opportunity by doing this is to create the largest domestic and independent asset management company in Turkey. The potential for growth, in particular, would be in alternative investment funds, pension funds, fintech initiatives, to name a few.

So back to the numbers, starting with the Ports. The port division revenue were TRY 306.3 million and operating consolidated EBITDA were TRY 195.2 million and both numbers indicate a growth by 33% year-on-year compared to the same period in 2018.

These are on TL terms, of course. On hot currency terms and on a combined basis, I mean, the cruise and the commercial parts in total. Performance in the first half of the year was marginally weaker compared to the same period last year. The group revenue was down by 3.4% to USD 54.6 million and adjusted EBITDA, again, down by 3.5% to $34.8 million compared to $36.1 million in the first half of 2018. Well, but still, let me underline the fact that revenue and EBITDA would have been almost the same as last year to make these calculations on constant currency terms.

I'm referring to the U.S. dollar-euro exchange rates. Again, but there is one adjusting figure that 2019 numbers this year also includes a small but a positive impact of around $1.5 million, coming from the first-time adoption of IFRS 16. That's the revised standard for a company for leases. The first year -- the first half of the year is typically lower in terms of cruise passenger volumes due to the seasonally low quarter 1. And hence, the trend during the first half as well as the Q1 are not still -- still not fully informative for full year trends. Well, a fair summary of the operating performance for our port business would be strong cruise EBITDA growth, which is offset by a weaker commercial EBITDA.

Starting with the cruise side. The management, in particular, is happy with the cruise side performance. It performed strongly in the first half and continues to deliver in line with management expectations. That business has a strong visibility inherent in the business model.

Management is pleased with the growth numbers in terms of revenues, EBITDA and the cruise passengers. That's, for example, in the cruise passenger, the volume has increased by approximately 27% inorganic, and that cost contributes -- that corresponds to an organic increase by roughly 9%. The passenger growth in Ege port, in particular, it's worth mentioning, it's around 31%. And a total of 2.1 million cruise passengers visited our ports. And that number increases to 3.3 million, if we include the equity accounted-ports as well. These are Venice, Lisbon and Singapore. Cruise side EBITDA grew by 14%, 14.3% to $16.8 million, and that's, again, in line with the management expectations. Apart from Ege, also the growth in Valetta. It was noteworthy and pleasing.

Commercial port operations, on the other hand, were weak, as I said, in the first half of the year and underperformed compared to management's original expectations. Commercial revenues fell by around 10% to $30.8 million compared to $34.2 million in the first half of 2018.

So the first half of this year has proven -- has already proven to be a challenging period for our commercial ports business, for both of the ports, for both Antalya and Bar. Akdeniz, in particular, the port suffered from weaker general in bulk cargo volumes throughout the period, and a weak container volume, especially in Q2.

While the primary driver of the slowdown is assessed by the port management as the general uncertainty around global trade, mainly resulting from trade tariffs and their associated impact on global trade in general. That's actually what we have discussed during the Q1 call. That's more imminent on Q2, though. And despite the slowdown, I believe it's still worth noting that the EBITDA margin for port of Antalya is around 79%. So that's substantial. As with the port of Adria, if you look at the headline numbers, the headline numbers show a decrease, with EBITDA down from $2.5 million in the first half of 2018 to $1.6 million this year. While there are other decreases solely due to the one-off impact of project cargo in the first half of '18. If you exclude this, the growth in EBITDA, there is a growth in EBITDA compared to previous year, it's a positive growth where cargo volume has increased by around 23% and the container throughput by 1.2% over the same period last year.

And finally, the outlook, the management's outlook for the rest of the year. Well, just to summarize what I just explained, trading since the period-end, the cruise port has continued to be in line with management expectations. And commercial ports, the weak trading trends continued into the second half of the year. And the management expects that port business will deliver low single-digit organic growth in EBITDA for the full year.

Next, with the Gas division. Naturelgaz, well, that Naturelgaz, probably, be in the best-performing business lines among the group's portfolio. A total of 72 million cubic meters of CNG, the compressed natural gas was distributed in the first half of this year as compared to 59.1 million. And in 2018, 59.1 million, I'm excluding the 6.8 million cubic meters of pipeline gas sales, apples-to-apples.

And on the back of CityGas sales, the volume increase this year was a result of the strategy to increase meter sales. That is important because constant sales throughout the year eliminate capacity constraints by eliminating summer peaks. And the volume increase, together with better pricing, made the revenues almost doubled compared to the same period last year, reaching TRY 171 million. EBITDA growth was even more significant, with half year EBITDA reaching TRY 34.5 million from a mere TRY 12.3 million in previous period.

So New York also closely following Naturelgaz as the market leader with around 20% market share in Turkey's nonpipe natural gas transportation sector and around 75%, if the CNG market is taken along.

So the management expects the same trends to continue for the rest of the year, with increased CityGas, auto sales and services provided to downstream gas producers in Thrace Basin. And that makes Naturelgaz as a good candidate in the portfolio for a potential IPO, hopefully later this year.

Next, the Power division. This is our second core business segment. Well, the performance of the biomass generation units were rather weak in the first half of the year, that were at least below our initial expectations. The division overall reported TRY 61.5 million in revenues on a consolidated basis, including the cogeneration as well for 63% increase over the same period last year. And this increase is purely attributable to the commencement of the 12-megawatt Mardin biomass plants, plus the increased power output of the existing circuit plant.

Our biomass plants generated a total combined revenue of TRY 41.2 million compared to TRY 12.6 million last year. Yes, this is a significant growth. However, EBITDA generation didn't quite follow the revenues remaining at negative territory and that performance is partly attributable to the customer ramp-up period of the new e-commerce Mardin plant that's inherent in such plans.

However, the better conditions on both plant sites have been more instrumental perhaps on the poor performance. Heavy rainfall, first of all, increase both with consumption levels and cost of the fuel stocks at the same time, negatively affecting boiler efficiencies and the heavy rainfall also made the fuel handing at the site and between the sites, very difficult, causing also various failures in fuel field equipment.

So as a remedy future periods, additional investment is being made as we speak at the plant site, constructing -- we are constructing additional close storage areas for dry buffer stock. And also, we rented the management's stuff there, rented additional crushers to support the operations.

And as a new development, while we are just making investment for storage closed areas for raw material storage, the rooftops of the new storage areas now has the potential now to be covered with solar panels that will support internal consumption and hence, hopefully, contributing to profitability.

So management overall expects improved performance, and we expect, together with them, in particular, in the last quarter of this year once these additional CapEx is finalized and operational.

On renewable energy, let's continue with the solid power, the construction for the 9-megawatt Mardin Solar Farm has commenced in Q3. And we expect the construction to be completed, and the firm to become operational in Q4 of this year. Once completed, the solar power production is a much simpler and straightforward operation compared to biomass. So we are not expecting any surprises there.

Next with the Mining division, that arm was another good performance in the first half of 2019. It was one of the good performance, best performance in Q1 as well. Revenues increased to TRY 51 million, that's an increase by 64%. And the operating EBITDA more than doubled, it reached TRY 11.6 million. And while the increase is partly from the increase in sales volume, it's around 11%, plus better pricing plus a weaker currency.

And last but not least, the Real Estate arm. It generated a positive EBITDA of TRY 10.3 million compared to TRY 13.4 million It seems like a decrease. Yes, but the decrease is almost fully attributable to the scarcity office sales that was back in the first half of 2018. And this year, the EBITDA is 100% from revenue from the 2 shopping malls in operation.

Looking at the bottom line P&L on a consolidated basis. We, as a group, we reported a net loss of TRY 99.8 million. The loss in the first half of 2018 was TRY 51 million. And the bottom line has been impacted by 3 major line items. You're familiar with those. First, one of them is the net FX difference is noncash FX differences incurred from the group's long-term borrowings that there was TRY 62.5 million, this is up from TRY 25.8 million in 2018. And the second line item is the depreciation and amortization charges. In this half, that was TRY 179 million, up from TRY 126 million in 2018. And finally, the net interest expenses of TRY 101 million again, up from TRY 80.4 million in the first half of 2018.

So the increase in all of these 3 items are all of them, without exception, are the result of currency differences. And in a way, in line with the yearly budget. Amortization charges, for example, they are mostly from -- they come mostly from the port operating rates, port operation rates. All of them are in hard currencies. And the group's borrowings are also predominantly in hard currencies. So it's better to analyze those figures in hard currencies to make it -- to be able to make a better comparison. For example, the depreciation charges. If you look at in U.S. dollar terms, this year, in the first 6 months, depreciation charges were $31.9 million compared to $30.8 million. So the increase is only by $1.1 million. But again, that increase is not an increase because we need to adjust for IFRS 16, in fact, the accounting for leases is the new standard adopted for the first time in the first -- starting from January 1, 2019, this year. The impact is around $1.9 million, so on dollar terms. As a matter of fact, the depreciation charges have slightly decreased. And the -- likewise, the net interest expenses on dollar terms this year, 6 months, it was $19.1 million. That's almost the same the figure in 2018. So the differences are, as I said, coming from the fluctuations in the value of real against the hard currencies.

On the indebtedness on gross debt, some words on balance sheet. At the end of -- as of the end of June 30, the group had cash and cash equivalents on a consolidated basis, amounting to $100.2 million. And that figure was $121.5 million at the end of the previous quarter, at the end of Q1. So the decrease -- there is a decrease around $21.5 million and that's fully attributable to the temporary working capital increase at the port business line, which already reversed in July.

So that's not a real decrease. And the consolidated gross debt has increased by around $21 million, and that's at the holding stand-alone level, mostly. And the reason for that is additional borrowing for financing the additional plc share purchased from EBRD in the second quarter.

So that's -- overall, that concludes my part. My speech on first half of 2019 consolidated financial results, and we can move on with the questions. Thank you. Operator? Ira?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes (inaudible) from Strategic Portfolio.

--------------------------------------------------------------------------------

Unidentified Analyst, [2]

--------------------------------------------------------------------------------

I have 2 questions, if I may. The first one is, as you mentioned, we could see from your presentation that you increased your debt amount in Global Ports Holding B.V. by close to $35 million in Q2. This amount is probably used mostly for buying EBRD stake in Global Ports Holding. Considering your investment program in your subsidiaries and option obligation almost over, what is, if you have any, your plan to deleverage the overall company in future years?

And the second question is, your buyback program is close to coming to an end, if I'm correct with my calculation. What will be your strategy going forward with the significant treasury sales that you bought back?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you (inaudible) for questions. Let's start with the first one. Well, as you rightly mentioned, yes, we are currently investing in -- we were investing in biomass. And we are just waiting for the new feed-in tariffs to clarify. And apart from that, actually, we are having in -- involving heavy M&A activity on the port side, but it's a different story. But overall, if you are referring to deleveraging, I mean, you are referring to holding stand-alone level, right?

--------------------------------------------------------------------------------

Unidentified Analyst, [4]

--------------------------------------------------------------------------------

Excluding port's operation.

--------------------------------------------------------------------------------

Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [5]

--------------------------------------------------------------------------------

Excluding Ports. Well, if you look at the net debt table, and if you just put the numbers on a chronological order, I have it in front of me. Let me guide you through. For example, I'm just looking at the Gas side, the Gas side is just decreasing the leveraging as we speak. It started from $40 million, end of '16. They are around $21.8 million. So they have decreased their gross debt by half in 2.5, 3 years' time. Staying with the Mining, Mining is a revolving line, the Exim line. So it goes up and down depending on the working capital needs. So it was $19 million back to the end of '19, '16. It's around $14 million end of June. So these are deleveraging because these are -- I mean, kind of project finance debt. It's being paid. They are not getting additional new loans. So they are decreasing their gross indebtedness anyway as we speak. And same with the Real Estate, it was $46 million 3 years ago, it's $26 million because it's paying one shopping mall, for example. It has its own debt service straight -- schedule long term. And what else? Power. With Power, yes, you're right. It was around 6 to 6.5 as we speak. But that's the long-term project finance borrowings for 3 power plants mainly, 3 power plants, plus the cogeneration. You don't see it separately. And these -- all of these loans have its own scheduled payment plan. So they are paying -- they are not planning early payment. Well, hopefully, they can do. So once the biomass are, again, I'm at full capacity, full profitability as we initially foreseen, then maybe they can make some early repayments. Or maybe we can prefer some dividends, and we make the redemption at the holding stand-alone level.

So it just boils down to the borrowing at the holding stand-alone level, including the EBRD purchases and everything. It's around $93.6 million. You're right, we have additional lines to utilize. But the whole idea is, I mentioned at the beginning of my speech, is the strategic review on the Port side. It has -- it would have many benefits. First of all, to grow the business, the Port business alone, but it will have an impact on the group overall as well at the holding stand-alone that, that's the idea. And plus, we have the -- at least the plan for floating Naturelgaz markets prevailing. So the cash generated would be, of course, channel to grow Naturelgaz business on its own. But of course, we have the intention to make some share sales as well. So these are all the options. We are working on options to deleverage. That's what we have done 2 years ago, when we floated the port arm in London, plus the share capital increase from Centricus. Sorry, I don't know whether I answered your first question. And I talked a lot such that I forgot what the second question was?

--------------------------------------------------------------------------------

Unidentified Analyst, [6]

--------------------------------------------------------------------------------

Buyback.

--------------------------------------------------------------------------------

Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [7]

--------------------------------------------------------------------------------

Good. Okay. Yes. It's -- well, on the buyback side, so let's -- I might have my own opinions about it. I'm not going to share it with you. But it's on the -- well, at the GIH, at the GIH Board's discretion, at our Chairman's discretion. No decision has been taken with regard to the buyback program. So that's all I can say at the moment.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [9]

--------------------------------------------------------------------------------

Thank you. Thank you, Ira. Well, thanks again, everyone, for your time this afternoon. And we'll remain, as always, to be available for your questions via e-mail directed to me, to our Investor Relations department. Thank you.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

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