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Edited Transcript of GLYHO.IS earnings conference call or presentation 12-Nov-18 10:59am GMT

Q3 2018 Global Yatirim Holding AS Earnings Call

Istanbul Mar 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Global Yatirim Holding AS earnings conference call or presentation Monday, November 12, 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 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 9 months 2018 results conference call.

I'll now hand over to your host, Mr. Kerem Eser, CFO; and Ms. Asli Su Ata, Head of IR. Madam, sir, please go ahead.

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

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Thank you. Thank you, Ann. Good afternoon, everyone, and thanks for joining us. Last Friday, we released our third quarter results together with a set of slides as financial presentation and I guess, the slides are on our website, right?

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Asli G. Su Ata, Global Yatirim Holding Anonim Sirketi - Head of IR [3]

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Yes.

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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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Yes. It's on our website. And today, I'll pretty much give you a summary of those, and then we will have a Q&A session after that.

We have announced consolidated net revenues of TRY 812.8 million and an operating EBITDA of TRY 349.4 million, and these numbers indicate a very strong growth compared to the same period in 2017. And I believe it's safe to say that we are pretty -- we are very pleased with yet another quarter of strong financial performance in a period of uncertainties still going on and -- as well as our currency environment which is hopefully, hopefully, in a trend over the last few days, at least, towards stabilizing.

All of our business lines contributed to this higher revenue and EBITDA recognition with strong double digit and as a matter of fact, with some triple-digit growth on some business lines.

Last Friday, we have also announced that following bilateral discussions over the past few months, our port subsidiary signed an MOU with the government of Antigua and Barbuda to negotiate a long-term concession for cruise port operations for Antigua that's been covered in the Port [Ege call], I guess, that took place on the last Friday in the morning hours, and that includes St. John's cruise port where most of the passenger traffic is concentrated. The concession will also include certain retail outlets in the project area.

It's obviously exciting news, as you are also well aware that the Americas and Caribbean, in particular, is the largest cruise market where we are keen to have a strong foothold, which we already gained with the management agreement for Havana port earlier this year.

Coming back to the numbers. As I said, we have seen some very strong top line revenue and EBITDA growth so far this year. Main contributor remains to be the Ports where, however, contribution from Power and Gas, in particular, becoming more and more visible and significant. I got a complaint from our colleagues because in the press release we didn't quite mention the performance of the Gas division, and I'm not just mentioning and underlining it, in case they are listening, too.

Q3 performance of the Ports segment remains to be in line with the management expectations. Outlook for the rest of the year remaining unchanged. Port division revenues are TRY 431.6 million compared to TRY 316.2 million, representing 37% increase over the same period last year. These numbers are, by the way, on TL terms. And all the growth is coming from -- is organic growth coming from the operation of the existing ports.

On dollar terms, revenues for 9 months in 2018 are $94.5 million versus $87.2 million representing an 8% increase in hard currency terms. Consolidated EBITDA, let me give the numbers first in TL as reported in our consolidated financials, TRY 300.7 million compared to TRY 206.6 million, but it makes more sense in getting the numbers in hard currency. The U.S. dollar equivalent of this EBITDA is $65.9 million versus $57.4 million, and that implies a 15% increase in real terms.

Excluding headquarter OpEx, that gives us the non-GAAP measures, the segmental EBITDA, that margin improved to 75.2% this year from 68.4% in the same period last year. This revenue and EBITDA growth are attributable to both commercial and cruise side of the business.

On the cruise side, passenger volumes were rather flat at around 3.1 million passengers, and with some 6.8% decrease in the third quarter, mainly driven by weather-related cancellations at Valetta. However, if you look at the cruise revenue and EBITDA for the 9 months, they were up by 8.3% and 17.8%, respectively, revenue being $41.4 million and EBITDA of $29.4 million.

On the commercial side, container throughput was more or less flat at around 182,000 TEUs. General and bulk cargo volumes were slightly down by 3.1%. However, higher-yielding project cargo handling on both of the ports, together with favorable currency environment for Port Akdeniz, resulted in an increase in revenue and EBITDA generation by revenue reaching $53 million, EBITDA $41.6 million that is an increase in the revenues by 6.7% and EBITDA 18.4%.

And this strong performance was also reflected in cash generation, with operating cash flow of $50 million in the 9 months this year compared to $33.1 million in 2017. And finally, on the Ports side, the GPH Board has proposed an interim dividend of $17.5 million, which is already paid in October, and our share being roughly $11 million.

Next with the Power division, our second core business segment together with the gas segment, we have to say. This business line includes cogeneration and recently commenced biomass renewable power production, as you are all well aware. And we have a very good news on this front as well. We commissioned our third plant, namely the 12.2 megawatt Mardin/Derik facility. This plant got ministry approval and will be subject to the feed-in tariff of $0.133 per kilowatt hour starting from January 1, 2019, and for 10 years.

Mardin, who is not familiar with Turkey, is located in Southeast region, and will transform corn and cotton stocks into energy. The plant is one of the largest industrial -- sorry, investments in the region. We are getting some tea, by the way, and is expected to bring remarkable economic activity and employment supporting both energy and agriculture sectors.

The facility is expected to generate about 80 million kilowatt hours of electricity per annum, meeting the electricity requirement for more than 30,000 households, together with improving the Turkish dependency on imported energy sources.

Together with the existing plants, which are operational, at the moment the total biomass power production capacity of the group has been increased to 29 megawatts. That's as of today. The construction of 12-megawatt capacity expansion for our existing Aydin Plant is in progress. We plan to commission the expanded capacity in the first half of 2019. Well, as a matter of fact, as soon as technically practical. Because since this is an expansion capacity, it will be subject to the feed-in tariff as soon as it is connected to the grid. And so increasing our biomass-based capacity to 41.2 megawatts in 2019.

Power division reported TRY 59.4 million in revenues for the first 9 months in 2018 compared to TRY 32.3 million and EBITDA is TRY 4.8 million. It's still a humble amount, but compared to a mere TRY 0.4 million in 2017, we believe the contribution is at least starting to become significant. This increase is purely from the contribution of biomass plants and which are only approaching their optimum performance over the last few months during the third quarter, following a rather lengthy ramp-up period in the first half of the year.

Moving on to the gas division. The gas division distributed 110.5 million cubic meters of gas and that they are excluding the spot gas sales in the first 9 months. As opposed to 112.3% in the same period last year, you can see there is a slight reduction in the volume. However, this is rather due to capital allocations, and hence, the management strategy towards prioritizing the client base based on profitability. And this -- and with the help of better pricing, revenues have increased from TRY 137.8 million in 2017 to TRY 178.9 million, which gives us an increase by 30%, despite volume distribution being flattish.

And meanwhile, operating EBITDA more than tripled year-on-year, reaching TRY 30.5 million. Improvement in EBITDA margin, that comes from pretty much 12 percentage points improvement in EBITDA margin. Apart from better pricing and operational efficiencies I've just mentioned, this is also the result of the expiry of a 2-year contract for gas hedging, increasing the gas costs.

Now we have the 13 CNG plants with the completion and addition of other Adapazari plant at the end of September. And also Naturelgaz, our gas subsidiary, has started to supply CNG to various districts, such as Bergama and Kinik in Izmir for the Western region; Palu and Kovancilar in Elazig to the East and Gördes in Manisa, Middle West, as part of the CityGas project. And of particular importance, this part is important. These were the first winter CityGas sales in Naturelgaz history.

And then jumping to the bottom line P&L. Here, we incurred a net loss of 82 -- sorry, TRY 86.2 million compared to TRY 159.1 million loss in the same period last year. And bottom line has been impacted by the net FX differences, a total of TRY 106 million, and most of it incurred in third quarter alone. Change in dollar-TL rate just in this quarter, meaning the third quarter, was around 32%.

Now as you also know, we have a natural hedge in our portfolio, where most of our revenues and cash generations are in hard currencies. But nevertheless, we choose to have a short position in cogeneration and gas businesses, where most of the FX differences in the third quarter are stemming from.

It's worth underlining, though, that these are resulting from the straight mark-to-market valuation of long-term project finance debt, and cash impact is only relevant for debt service actually paid during the period. And this is around approximately 15% of whatever has been incurred, rest is noncash. And with the current trend in FX rates, part of these losses, probably, will get reversed for the rest of the year. The TL-dollar rate, my recollection as of the end of September was TRY 5.99. I didn't check today's rate, but standing something around TRY 5.47 or TRY 5.46.

The second component of the loss is the depreciation charges as usual, amounting to TRY 207.9 million that has increased compared to TRY 148.1 million last year, in the 9-month period last year comparable. These are, again, noncash expenses and mainly originating from hard currency assets in the port and energy assets. And that's why this has increased in particular during the third quarter as the function of the fluctuations in foreign currencies.

And last but not least, the third component of the bottom line loss is the net interest expenses of TRY 124.7 million compared to a similar amount of TRY 117 million in the same period last year. But these numbers, in fact, show a reduction of interest expenses, a decrease in interest expenses in real terms. Because the Turkish lira has depreciated against the U.S. dollar, to take the 9-month averages, around 27% and approximately 91% of all our borrowings are in hard currencies. And yet, the interest expenses remained flat somewhat for the periods in consideration.

Looking at the balance sheet, we don't see much changes there as well. As of the end of September this year, we had cash and cash equivalents on a consolidated basis, amounting to $144.1 million. This is slightly better compared to the end of the second quarter. And also, the debt profile has not changed much since the last quarter, given it will take the same net debt numbers. And -- well, because of the fluctuations in the hard currencies, I think it's best to compare, to calculate the net debt-to-EBITDA ratios taking the U.S. dollar equivalent of our EBITDA and debt.

Well, following the guidance on the Ports side in particular and our continuing investments in the biomass plus the generation revenue and EBITDA from the biomass will be around 5x net debt-to-EBITDA as of the end of the year, which we aim with more contribution from the biomass. And we're cautiously being cautious in the further investments being made to go eventually below that level starting from 2019.

So that's pretty much what I have to tell about the Q3 numbers. And we will now open the call up for Q&A now, operator. Ann?

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Operator [5]

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

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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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Okay. Thank you, Ann. Well, I just want to thank everybody for joining us today. And I guess, yes, since this is the third quarter conference call, we'll talk to you next year, hopefully, with our annual results. And in the meantime, we'll remain to be available for your questions via e-mail should you have those. Okay? Thank you, again, for joining.

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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.