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Edited Transcript of GLYHO.IS earnings conference call or presentation 17-Aug-18 10:59am GMT

Q2 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 Friday, August 17, 2018 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Asli G. Su Ata

Global Yatirim Holding Anonim Sirketi - Head of IR

* 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 Holding Results First Half 2018 Conference Call. Today's speaker will be Mr. Mehmet Kutman, Chairman and CEO; Mr. Kerem Eser, CFO; Ms. Asli G. Ata, Head of IR.

I will now hand over to your host, Ms. Asli G. Ata. Madam, please go ahead.

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Asli G. Su Ata, Global Yatirim Holding Anonim Sirketi - Head of IR [2]

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Thank you, Ira. Good morning, everyone, and thank you for joining us for the first half 2018 earnings call. This is Asli G. Ata, Investor Relations Director. And today, Mehmet Kutman, the Chairman and the CEO; and Kerem Eser, CFO, are present to discuss the first half results.

As for the floor, Mr. Kutman will begin the call with opening commentary, after which Mr. Eser will follow to discuss results for the period. And then he will turn the call back to Mr. Kutman for some closing remarks.

We will open the call then to your questions. And as a reminder, the audio recording of this call will be available on our Investor Relations website after the call.

And before we discuss our results, there's a few items that I would like to discuss. We have released our results this morning, and the presentation and the press release are available on our Investor Relations website. And kindly note that the call includes forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements.

And our comments may also reference non-GAAP financial measures. Hence, these measures -- these statements should be considered in conjunction with the cautionary statements contained in our earnings release.

And having said that, I would like to leave the ground to the Chairman, Mr. Kutman.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [3]

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Good morning, ladies and gentlemen, or good afternoon, wherever you are. I'm pleased to report the second quarter earnings in a really tough time for Turkey. We are very pleased to announce a very strong set of results and happy to see that all our business lines sustained solid operational and financial performance in the first half of the year, which resulted in record EBITDA for the first half of the year.

We are taking every precautions during these turbulent times and have stopped all investments in Turkey and concentrating only on our port side, which we'll discuss further once Kerem Eser does his presentation.

Now I'd like to pass the phone to Mr. Eser, our CFO.

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [4]

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Thank you, Mehmet bey. I'm just skipping the -- mentioning some of the major developments during the quarter on the port side and the energy side. I'm sure you'll touch upon them later after I make my presentation on the financials.

Well, hi, everyone. Thank you again for joining us for the second quarter 2018 results call. Starting with the numbers. On a consolidated basis, we reported revenues of TRY 459.6 million compared to TRY 351.8 million in the first half of last year. That represents 31% increase, as our Chairman mentioned. We have seen solid growth in all of the business segments in which we operate.

And likewise, consolidated operational EBITDA are TRY 165. 6 million, increased by 46% from TRY 113.6 million in the same period last year. The main contributor is the ports, constituting 50% of consolidated revenues and almost 90% of consolidated EBITDA.

Hence, the cash generated within the group. So let's start with them again. Q2 performance of the port segment remain to be in line with the management expectations. The outlook for the full year was mid- to high single-digit EBITDA growth for the full year, and this has not changed. However, following the strong Q2 performance, management now believes that the full year results will be towards the upper end of their expected growth spectrum from mid to high. So obviously, we are expecting the growth in the EBITDA in the high single-digit region for the full year.

Port division revenues are TRY 231 million compared to TRY 189 million, and that represents 28% increase over the same period, but it's on TL terms. And approximately 13% of this increase is a result of a weaker TL and remaining growth is all organic. So actually, it doesn't make much sense to discuss the port results at [Akdeniz revenues] in terms of TL. So if we analyze the numbers on dollar terms, revenues for the first half are $56.6 million versus $49.7 million, so that represent a solid 13.7% increase.

Consolidated EBITDA, on the other hand, while again on TL terms, it's TRY 147.3 million to -- from TRY 117.51 million. That's significant increase on TL terms. And this translates into a U.S. dollar equivalent of $36.1 million versus $29.9 million, and that implies 20.4% increase. That's also been discussed in the phone call, during the port's call in the morning. That's higher than the management's expectation, at least for the first half of the year.

Excluding headquarter OpEx of the ports, which is the segmental EBITDA, the EBITDA margin is -- increased to 71.3% compared to 64.7%, so -- which is, again, quite an improvement.

Revenue and EBITDA growth on the port side is both attributable to the strong commercial and cruise businesses coming from both arms. On the cruise side, the passenger volumes rose by 6.2%, and that's coming mainly from Spanish ports primarily -- well, the growth in passenger numbers and also more favorable turnaround passenger mix, including the -- [cruise line] -- resulting in the higher EBITDA margins. And the strong EBITDA growth in cruise line was also primarily the result of the strong performance from the equity accounted associated ports in this quarter. These are mainly Lisbon, Singapore and Venice, with the product and net income contribution at the group at the EBITDA level.

There is no contribution on the revenue side. The contribution from the -- these ports, Singapore, in particular, the total of $2.7 million in the first half of 2018 compared to $1.1 million in the same 6-month period last year.

On the commercial side, revenues from the commercial port operations increased by 9.3% to $34.2 million from $31.3 million in 2017. The Port of Adria, the Port of Bar, the growth in revenue was 88.9%, and that was the driver of the revenue growth, mainly at our commercial ports, while Port Akdeniz revenues were flat. And the commercial segmental EBITDA increased by 15.8% to $25.6 million. And again, the increase in the EBITDA is driven by the strong performance from Port of Adria, and that's attributable to the project cargo deferred from 2017. So this was the main reason.

But also, we need to mention Port Akdeniz, the EBITDA growth was 8.3%, and that's mainly due to the weaker Turkish lira against U.S. dollar. Just to remind, the revenues in Port of Antalya are all in U.S. dollar, and where the cost base is predominantly in Turkish lira.

The segmental EBITDA margin of the commercial port operations as a result rose by 4.3% to 74.9%. And finally, the port GPH board has proposed an interim dividend of $17.5 million. That's consistent with the first half of last year. And this is going to be paid no later than October 2018 this year.

Next, with the gas division. On the gas side, CNG, the distributed gas is 59.1 million cubic meters. That's excluding the spot gas trading in this year as opposed to 61.7 million, again excluding the spot gas sale. So there is a slight decrease in the gas distributed. However, if you look at the reported revenues, again -- I mean, excluding the spot gas sales, increased by 15.4%, that's reaching TRY 88.4 million, and this is mainly attributable to better pricing -- much better pricing this half.

Meanwhile, operating EBITDA more than doubled, reaching TRY 10.3 million, and that also translates into an improvement in the EBITDA margin by 700 bps. And this is the result of expiry of the 2-year contract for gas hedging with Shell, so we are familiar with this, and also improved efficiency and cost management and as well as better pricing I just mentioned.

Full year EBITDA for the gas operations, expectation -- our expectation, management guidance, so to say, remains unchanged at around TRY 32.5 million.

Moving on to the power division, that includes co-generation and recently commenced biomass renewable power production. This division reported TRY 37.7 million in revenues in the first half of this year. And this year, with contribution from the first time consolidation effect of biomass operations, 17.2 megawatts, 2 plants operating at a feed-in tariff at $0.133 per kilowatt.

EBITDA is in positive territory. However, we can say, still below our expectations for the first half. Plants are tested successfully up to their potential maximum capacity, so they are working. But ups and downs in production during the ramp-up period, which is customary. We've obviously considered those. We are learning during the process. These are small-sized thermal power plants and -- thermal power plants. This is the so-called ramp-up period is a requirement.

So this has caused our earnings to get deferred to the coming months. So we expect more contribution from the biomass plants to EBITDA through the second half of the year. As a matter of fact, starting from July, production in particular in our Aydin plant start to align to a more stable regime, where production hours are converging to the budget targets as well as better fuel consumption metrics.

It's worth repeating, though, so we have mentioned this in the press release, and I'm sure our Chairman is going to say a few words after my part. It's worth repeating our biomass plants are hard currency earners. And as a matter of fact, we are benefiting from a weak TL. However, having said that, management remains cautious about the second half of the year.

Biomass investments will continue. However, for the time being, will only be limited to the capacity expansion of Aydin plant, that's for another 12 megawatts and to the construction of the initial 12 megawatts of the Mardin plant. Financing for both of the plants are ready. And so far, we invested a fair share of our equity requirements. I mean not much cash is needed from our site to finalize them, and including together with the 9-megawatt solar plant in Mardin under construction and expected to be operational in the third quarter, in this quarter this year. Again, this is under the act in feed-in tariff.

All in all, a total of 50.2 megawatts renewable capacity is expected to generate an EBITDA of around $14 million in '19 next year and $20 million in the year after '19, which is obviously 2020.

The bottom line P&L is a net loss of TRY 51 million, significantly lower compared to TRY 130.6 million in the same period last year. And last year, that's even after adjusting for one-off impairment provision for dollar and project.

One major component of loss, as usual, is the depreciation charges, TRY 125.6 million compared to TRY 97.5 million last year. Depreciation and amortization charge mainly originate from the hard currency assets in the port and energy sites. And hence, of course, we expect them to increase a little bit TL's further weakness in the second half.

Second component is the FX losses. Last year, it was TRY 8.2 million, the net amount. Net amount was a loss of TRY 8.2 million versus TRY 25.7 million this year. This is mainly related with the group's TL earning assets, which are again very limited in size compared to the whole portfolio. And nevertheless, these do not have any immediate cash impact because these valuations on borrowings, the borrowings have terms longer than a year, in general.

Also, as I have briefly mentioned, I discussed, with the port numbers, impact of a weaker Turkish lira more than compensates for the foreign exchange losses by means of higher revenue and EBITDA. And on top of that, perhaps more visible under the equities of the consolidated financials, net impact of a weak Turkish lira during the first 6 months of the year is a hefty TRY 141.1 million. It's a positive increase in the shareholders equity attributable to the group.

And thirdly, the bottom -- or one of the reason, the third reason for the bottom line loss is from net interest expenses of TRY 73.8 million compared to TRY 81.6 million. This again is an improvement, considering that most of the borrowings are in hard currencies, and the decrease is, in particular, the result of decreased leverage at the holding stand-alone level after the IPO and the share contribution from Centricus last year. Interest expenses at holding level stand-alone have decreased from TRY 37 million in 2017 to TRY 17.3 million in the first 6 months this year.

And some final comments on the liquidity side. As of the end of June this year, as you can see from the presentation, group had cash and cash equivalents on a consolidated basis amounting to 100 -- sorry, excuse me, TRY 640.8 million. That's approximately $140 million. And adding the group's available untapped credit facilities on top of the cash amount, total liquidity becomes approximately TRY 872.6 million.

And looking at the scheduled debt services for the remaining 6 months of 2018 and full year 2019 next year are TRY 365 million and TRY 316 million, respectively. So we are feeling quite comfortable about our cash position as far as our short to mid-term financial liabilities are concerned.

So I'm turning the call back over to our Chairman for any remarks, I'm sure there are, before the questions. Thank you.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [5]

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Thank you, Kerem bey. Very small remarks about the developments, as you all know, and Kerem bey passed that line gracefully to me.

We have signed the Havana Cruise Port management agreement for 15 years. It's operating very well. We took over the port on 1st of August, fully, the management. And the capacity, unfortunately, is less than the demand. Hopefully, when the construction is finished, then the Cubano-Turkish in 2 to 3 years, we hope to reach a number around 1 million passenger there.

Also, GPH has signed an exclusive partnership agreement with Dreamlines GMBH, who is the largest over-the-counter cruise booking site in the world after World Travel. That's a long-term investment for us. We did it with -- through a convertible loan to them of approximately EUR 10 million, where the company intends to -- we have the right to -- obviously, to convert into shares, which will be probably mid-single digit. And the company intends to go public in probably 2020 at the earliest.

On the -- otherwise, development on the natural gas side, we signed a partnership agreement with Gaz du Cameroun, which is the onshore gas company in Cameroon. And we are very hopeful that transaction might lead to some other, let's say, more strategic alliances with them rather than just an -- compressed natural gas exclusive agreement distribution. We're going to basically export our know-how to Cameroon, which is the first step, and then maybe a strategic alliance will be formed in the future, probably next 6 months onwards.

On the port side, there is a lot of development, but as the company is listed, I'm highly restricted to talk. But there might be some relatively very strong and good news on new acquisition front.

Having set all those things, given the recent changes in the macro sentiment, we prefer to be very cautious about the remainder of the year. Given the recent macro dynamics, we have decided to focus only on our cruise port assets internationally, and we are curbing further investments. This means our biomass developments will be stopped once the 2 extra plants are finished at 41.5 megawatts.

And we're not going to grow Tres Energy as well. And we expect to finalize our ongoing investments in the biomass probably by the end of this year, hence, at least one of them. And the second one by mid next year. Both of them will be under the feed-in tariffs by 2019.

And as Kerem bey said, they all have costs in Turkish revenues at $0.133 per kilowatt.

This basically is all I had to say. We are very cautious on our investments in Turkey. We're curbing them. And we're going to grow only on the port side.

[Al Sunam], thank you very much. This is all I had to say. I guess we should open the floor to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from [Mehmet Kulak] from Strategic Portfolio Management.

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Unidentified Analyst, [2]

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I have a couple of short answer questions. And the first one is, what is the target of the transfer of your repurchased shares? Is there any liquidity problem at holding level? And the second question is, is there any area for improvement regarding the operating expenditure on holding level, especially on salary site? The third one is, in percentage terms as of today, how much the company has bought back its shares? The fourth one is, at what pound level per share have you bought back global ports from EBRD? And the last one is, is there any one-off gains regarding Singapore ports' performance?

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [3]

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Kerem bey, do you want to go ahead with the questions? I'll answer the EBRD question.

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [4]

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Well, I will. I'm just -- I was trying to make note of all the questions. So I'll kindly ask Mehmet bey to just repeat the questions, some of them, because I'm -- the first one is about the treasury shares. The second one is on the OpEx line. And the last one on the EBRD. I'm lost -- I was just lost in between, so apologies. Maybe we can just answer the -- one-by-one, if you can start repeating the first one?

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Unidentified Analyst, [5]

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Yes, I can repeat it.

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [6]

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Yes, please.

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Unidentified Analyst, [7]

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What is the target of the transfer of repurchased shares? Is there any liquidity problem on holding level?

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [8]

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Well, in terms of liquidity problem, in terms of buying those shares, if that's the question?

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Unidentified Analyst, [9]

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A transfer between holding and [Tru Com] company.

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [10]

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A holding and Tru Com company? No, no, no.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [11]

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Yes. That's my part. There's actually no liquidity problem. It completely has to do with some repurchase agreements. So that's not an issue. The outstanding number of shares for the -- of the treasury is 12.5%. And if there was any liquidity problem, we have sent request to back us up. So I -- don't worry about that.

Next question was...

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [12]

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Well, next question was the, I guess, the OpEx level at the holding solo level. Well, I'm just looking at the 2 years competitive numbers, the holding OpEx didn't increase despite the -- almost the depreciation of TL against U.S. dollar plus the inflation, plus the interest rate. So that's not a high increase. Of course, we are closely monitoring all the expenses. But thank you for -- you specifically mentioned salaries, maybe our Chairman is getting some notes on it to reflect on our salaries. Well, speak to it.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [13]

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So what's the question? I didn't understand. We are very careful with the OpEx. To the extent that anything, which is over 1,000, has to get my personal approval. And as you know, for this year, there was -- the bulk of the -- for last year, which we recorded this year, was bonus payments due to 2017 IPO as well as the Centricus. So that's one-off, and it's obviously -- it's not going to repeat itself. I think about TRY 30 million. If I'm not wrong, Kerem bey will know the exact number.

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [14]

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Yes, yes, but that's last year, not this year. Sorry for interrupting. So this year, actually, we are not -- negative variation on the OpEx side. So that's what I'm trying to explain.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [15]

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Okay. That was recorded last year, Kerem bey, or this year?

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [16]

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Yes, I think that number was TRY 39.4 million.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [17]

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Yes, that's what you call it, last -- was it recorded last year or this year, Kerem bey? I don't know that.

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Mehmet Kerem Eser, Global Yatirim Holding Anonim Sirketi - CFO, Head of Financial Affairs & Finance Group and Finance Director [18]

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A major chunk recorded last year. But the increase again is related with the port IPO in the sense that the plc, the plc company was formed in June last year.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [19]

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Plc, that's correct. There's about $2 million increase from 2 -- I was in the plc presentation, $2 million -- $2.3 million to $4.3 million. And there's nothing we can do. That's going to be -- it's not going to go further up, it's going to stabilize at that level. We have auditor expense, we have board expense and zillions of expense, the cost of being a plc. If that's what you are referring.

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Unidentified Analyst, [20]

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Yes, related to the treasury shares, in percentage terms, as of today, how much the company has bought?

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [21]

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12.5%, if I'm not wrong. 12.5%.

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Unidentified Analyst, [22]

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Okay. And the last one is EBRD?

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [23]

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What about EBRD?

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Unidentified Analyst, [24]

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At what pound level per share have you bought back called Global Ports from EBRD?

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [25]

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We have a put option, which is, I think, happening next week or something like that or the following week at the IPO price, basically. But we are contemplating also to sell down at the GPH level in the next 1 to 4 weeks, just to make sure our liquidity are strong enough.

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Operator [26]

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(Operator Instructions) We have no other questions at this time.

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

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi - Chairman & CEO [27]

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Thank you, operator. Just as a closing remark, as you all know, liquidity is key during this period for the situation that, unfortunately, our country is where it doesn't deserve to be. I'm sure there's a lot of Turkish people on the line listening as well or it's mostly Turkish. I think these are -- these macro dynamics that we are facing is over exaggerated. Yes, there needed to be an overall correction structurally in the economy. I think our government is going to take necessary steps soon and fast to incremental structural changes. But again, everything has, as you know, because it's emotional -- there's a tendency to overshoot, especially on the currency front. I'm pretty comfortable to say that regardless of what happens on the strategic alliances, the currency is probably overdepreciated by anywhere from 20% to 30% at best.

Hence, we foresee us -- provided structural changes are happening in the country from the monthly and fiscal policy side. I do believe we're going to see a normalization on the rates, especially around probably 550 in the next 3 to 6 months. I don't foresee personally, and I'm quite well connected to, as you know, any kind of capital control whatsoever or any kind of moratorium like people are talking.

I think it's -- these things, which are happening, granted there are some attacks against the currency. But if you keep your household in a weak position, these attacks are to be expected, which has been exuberated by, obviously, the strategic and geopolitical issues. So putting all those things together, I don't foresee this thing to last more than, let's say, beginning of last quarter or mid last quarter this year.

And in view of all those things, just in case things get much, much worse, and because of geopolitics uncertainty, we as global taking all the precautions. We might even -- we are even considering a sell-down on GPH, small amounts, 10%, 15%, as early as next week or the following week to strengthen our cash position.

So thank you very much, everybody. And as I said, let's be all cool, people who have exposure to Turkey. Thank you.

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Operator [28]

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