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Edited Transcript of GPH.L earnings conference call or presentation 20-Aug-19 8:30am GMT

Half Year 2019 Global Ports Holding PLC Earnings Call

ISTANBUL Sep 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Global Ports Holding PLC earnings conference call or presentation Tuesday, August 20, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Emre Sayin

Global Ports Holding Plc - CEO

* Ferdag Ildir

Global Ports Holding Plc - CFO

* Martin Brown

Global Ports Holding Plc - IR Director

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Conference Call Participants

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* Eoghan Reid

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Greg Johnson

Shore Capital Group Ltd., Research Division - Research Analyst

* Rahul Ullal Bhat

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to Global Ports Holding Second Quarter 2019 Results Conference Call. I'll now hand over to your host, Mr. Martin Brown, Investor Relations Director. Sir, please go ahead.

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Martin Brown, Global Ports Holding Plc - IR Director [2]

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Good morning, everybody. Thank you very much for joining us this morning for Global Ports Holding interim results for the 6 months ended 30th of June 2019.

I'm joined this morning by Chief Executive, Emre Sayin; and CFO, Ferdag Ildir.

I will now hand over to Emre, who will take you through the presentation that you've hopefully downloaded from our company website this morning. Thank you.

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Emre Sayin, Global Ports Holding Plc - CEO [3]

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Good morning, everyone. Thank you for taking time to join us for Half 1 2019 results call. Like Martin said, this presentation is available on the Investor Relations section of our website.

Before I start, I would like to highlight the fact that as well as the difference between the reported and the constant currency numbers, we also have the impact of IFRS 16 in our interim results this period. We will highlight the impact of either when appropriate. Unless stated, we will focus on the reported numbers after the IFRS 16 impact. You can find a detailed breakdown of the IFRS 16 impact across the business, the section on the financials in the RNS.

So with that, I want to move to the second slide, and look at the key financials and operating highlights. I'm relatively pleased with the overall performance of our group in H1. Our cruise business has once again performed strongly with high passenger growth, which means sustainable growth for us.

This strong performance, unfortunately, was offset by the disappointing trading in our Commercial business, more precisely at Port Akdeniz, our largest commercial port in Antalya.

Total revenues fell 3.4% to $54.6 million. On a constant currency basis, they were broadly flat. Our performance in Cruise was once again very pleasing. Consolidated and managed portfolio passenger volumes grew 26.8%, while total passenger volumes grew 21.2%. That's 3.3 million passengers in the first half, which you might know, is for the Cruise side is slightly lower than the second half.

The strong performance at Ege Ports in Kusadasi in the period has been a particular highlight with passenger volume growth of 31% and even higher revenue growth, as far as I remember.

We have actually expected this growth rate to reach these numbers. And we also expect them -- expect this growth rate to accelerate in the coming years, and this is signaling a recovery in the Turkish ports, and we see similar results in our other Turkish ports as well.

This strong Cruise performance delivered in a record H1 EBITDA of $16.8 million, a growth rate of 14%, while Commercial EBITDA fell 13% to $22.3 million. This generated a segmental EBITDA of $39.1 million, down 3%, and it is actually flat in terms of constant currency terms.

Adjusted EBITDA, which includes central costs, was down 3.5% or broadly flat in constant currency terms, which also shows normalization of our central costs after the IPO.

A particular highlight for the first half has been the significant progress we have made on our new ports investment strategy. We have signed a 30-year port concession in Antigua and Barbuda and have been awarded preferred bidder status for Nassau Cruise Port in the Bahamas.

More recently, our JV with MSC was notified that its bid for the operator of La Goulette in Tunis, Tunisia has been accepted. And you will also notice from this morning's RNS that we are in the final stages of completing the purchase of Malaga cruise port's 20% stake in the Malaga cruise port.

So the successful conclusion of all these projects is expected to occur in the second half of 2019, although, one has to be cautious in making these estimations. These projects will be truly transformational for the group. And since we have been building towards this moment for years, we're happy to be patient as we move through the final stages.

We have also recently announced that we were conducting a group strategic review. And this was to explore ways to maximize value for all stakeholders. And it included a range of potential outcomes, including the sale of certain assets as well as strategic investments and partnerships. Though I can't say much about this at this point in time as we still evaluate options, I think I can just say that there has been a lot of interest and that makes us happy, but we will definitely update you on this as soon as it's appropriate to do so.

So I want to move to Slide #3, which is the segmental performance. I think it's important to note that despite suffering from the steep declines in volumes and EBITDA in Port Akdeniz, we still managed to achieve EBITDA margins of -- in excess of 72% on the Commercial side. And I think that's a testament to the flexibility that exists in our cost base that we can deal with such changes in volume so well. You will also see the central costs I mentioned earlier here -- in here as the group costs of $4.3 million. I think you would agree that the margin performance across the group has been good with both businesses delivering over 70% EBITDA, strong growth in the Cruise EBITDA margin and a robust performance from commercial ports in difficult circumstances.

Let's look at Slide 4, the group revenue development. This waterfall slide, I think, shows us clearly that the strong growth in Cruise has been offset by the weakness in Commercial. And you will also see that the weakening euro worked against our European ports in this period with the minus $1.8 million of FX impact. I think we can also see that the ratio or the portion of the Cruise business in our overall revenue has gone up to 44%, which is in line with our strategy.

If we -- when we look at the EBITDA development, which is the next slide, you see a very similar picture. Please bear in mind that while Commercial is more balanced between the 2 halves of the year, Cruise is more weighted towards the second half, broadly 40 to 60 for half 1 and half 2 in terms of EBITDA distribution.

Next slide is the financial highlights. So the operating profit and the operating cash flow movements need some clarification, which I will do in the next slide. As you can see on Slide 6, there is a significant difference in the year-on-year performance in operating profit and our underlying profit in the period compared to the EBITDA performance. And the operating cash flow performance is weak compared to last year. And like I said, I will explain all of that in the next slide. Slide 7, please.

So this slide provides a reconciliation of the movements from EBITDA down through the P&L. As you can see, the biggest movement from EBITDA to operating profit is inclusion of the right of use depreciation of $1.2 million, which is related to IFRS 16 impact, followed by the increased deduction for equity associated ports up to $3.3 million from the $2.7 million last year, which basically comes from the strong performance of Singapore and Venice. And finally, the one-off adjustments that have increased to $6.9 million. The largest contribution here comes from the one-off project expense, which rose to $4.7 million from $3.6 million. And I think this is to be expected in a year, such as this where we have simultaneously worked on very large projects like San Juan in Puerto Rico, like Nassau, like Antigua. Given how busy we have been on new projects, this should not be a surprise, as I said.

Moving from operating profit to loss before tax. You can see the impact of the large $7.1 million increase in total finance expenses. However, the majority of this is related to the $4.5 million increase in the impact from foreign exchange movements. And the first-time impact of the IFRS 16 on the interest expense on lease obligations, which brings an increase of $1.6 million. Actual interest on loans and borrowings only increased by $0.5 million. Hopefully, this helps you to better understand the movements down the P&L.

You will also see at the bottom, the calculation of our underlying trading profit, which is simply profit or loss for the period and we add back the amortization of port operating rights and the depreciation of right-of-use assets.

So turning to the cash flow now. Slide 8, please. So before I go into the detail, I would like to run through some particular areas of the cash flow. Most significantly, you will notice the weak operating cash flow versus last year, driven by the significant increase in working capital in the period. This increase in working capital was primarily driven by a number of one-offs that reversed in July. So if we looked at this table, today, we would not see these effects. Firstly, there was a short-term cash collateral for new projects of $12.4 million, which was related to the project in Tunisia. The money has since been returned and replaced by a bank guarantee letter. There was also a receivable related to the change in the port agent in Barcelona at the beginning of the year, an amount of $4.3 million, which was 0 in H1. And this was, like I said, in Barcelona.

Effectively, cruise lines -- the number of cruise lines changed their port agents, and there was a couple of weeks of delay in receiving payments because this agent was having difficulty with their papers, but this has now been paid and ongoing payments should continue as they did before.

And finally, there was a period and timing issue over the receipt of $1.5 million payment related to our -- to the services we provide to oil drilling off the coast of Antalya in Port Akdeniz. These one-offs accounted for over $18 million of increase in the working capital. Hopefully, this explains the largest movement in our operating cash flow for you.

Slide 9 on debt and facilities. So this provides a good snapshot of things as they currently stand. Net debt post-IFRS 16 has risen to $351 million. However, the true underlying movement has -- is an increase of $23 million to $290 million, with this increase being driven by the cash flow movements that we have just discussed.

In terms of our Eurobond and its covenants, gross debt-to-EBITDA has increased very slightly to 4.3x from 4.2x at the end of 2018. Please note that the covenants leverage ratio is calculated on a pre-IFRS 16 basis. So this number is not audited. Clearly, we are edging towards the maturity of the Eurobond in October 2021. We remain confident that the refinancing can be achieved on acceptable terms and remain in touch with the relevant parties. We continue to monitor credit market developments for an ideal window for the execution while taking into account the impact of potential new port investments or disposals to the group's geographic and leverage profile.

Moving on to the next slide. I would like to talk a little bit more about our operational performance. So the first slide is on our commercial port business. Overall container volumes declined 15% year-on-year, while general bulk and cargo (sic) General & Bulk cargo volumes continued to underperform. Port Adria actually, saw a general bulk and cargo (sic) General & Bulk cargo volumes increased 23% driven by strong growth in steel coils, while the throughput of containers was up 1%. However, at Port Akdeniz in Antalya, General & Bulk cargo volumes declined 15%, a continuation of the full performance in Q1, which was actually around 30% in Q2 versus the 62% being experienced in Q1. But nevertheless, like I said, it's a continuation of full performance. Declines in bagged cement volumes, previously our largest cargo type in General & Bulk cargo at the port, was the primary driver of the decline. At the time of the Q1 results, we reported weak General & Bulk cargo volumes, but container volumes were broadly flat if you'll remember. However, the fall in the volumes of containers by 31% in Q2 driven by the weakness of black marble trade is what led us to recently update our guidance for the full year. We believe that this decline has been driven by macroeconomic factors, namely the trade wars, and the weakness in economies, and it is not a coincidence that the GDP of China reported its worst growth since 1992 this year. As a result, we note that some Chinese marble importers have seen their access to financing from the state banks restricted. And this obviously has a big impact on marble volumes.

If we look at the next slide, we will see that the container volumes before have shown slowdowns and over time, they have always recovered. Slide 12 shows the prehistoric levels of container volumes and overall EBITDA, that have been generated by Port Akdeniz. You will also realize that though there are fluctuations in container volumes, EBITDA performance has been more steady in Port Akdeniz.

But let's look -- take a closer look. Let's go to Slide 13, which is the historic container volumes between 2015 and '17. You will probably recall the Chinese marble investigation in 2016 when volumes certainly suddenly dropped in Q2, and the impact of that was not clear. We discussed with you whether the volumes would recover and they have in fact recovered in Q3 of 2016, which allowed us to hit our targets in -- throughout the year -- or at the end of the year in 2016. Though we have not seen any recovery up till now, I am confident that trade will find a way of recovering and the importers -- the Chinese importers will continue with their trade, their business in the upcoming months.

When we look at the other side of the business, the Cruise business, the picture is very different. We have reached 2.1 million Cruise passengers in this half, a pleasing growth rate of 27%. And on an organic basis, if we exclude Havana and Zadar from these numbers, our passenger volume growth was still a very healthy 9%. If we include the equity accounted ports of Singapore, Lisbon and Venice, the passenger volumes still grew 21%.

Moving on to the next slide, the cruise development, which shows us details of our reporting segment. We have seen a very good performance from Valletta, Malta and Ege ports this year. Valletta grew passenger volumes by 40%, with revenue increasing by 10% or actually 18% in constant currency. If you recall, last year, we talked about how Valletta would have a challenging year in terms of growth given the calls that were scheduled for that year, which was then made actually worse by the weather-related cancellations, especially in the first half of the year. Indeed, we said, Valletta would return to growth in 2019 and half one of 2019 has been a very strong month for Valletta. Our equity accounted associate ports, which impact the other cruise sports section, have once again performed well and the total tax passenger growth was 13%, and other cruise EBITDA has risen by 22% in the period.

I will talk a little bit more in detail about Ege Port and the Turkish ports in the next slide.

So as you'll recall, 2016 has been a challenging year and 2017 equally so. We said the growth would start in 2019, but really 2020 and 2021 would be the years when numbers come back. I'm very happy to report that Ege Port has grown 31% in terms of passengers in H1, and Ege and Bodrum and Antalya reservations are picking up strongly for 2020, and this growth will actually accelerate in the years to come. I think the opening of Istanbul port, Galataport, in 2020, as estimated, will also have a positive impact in our cruise ports in Turkey.

Let's talk about the ancillary services a little bit. So this separated slide basically shows how we define the categories here in terms of vessel and port services, area and terminals management services and destination and shore side services. So next slide shows that on the port services side, so vessel and port services side, we have introduced an evaluation process, and we're looking at each port and identifying gaps and offering a one-stop shop for cruise lines that we call integrated services package. And this has started slowly in 2019. In fact, we have started with stevedoring and peer security type of services in Barcelona, and this will continue to roll into other ports that we operate.

Coming to the travel retail side. We have refurbished 2 new terminal buildings and their travel retail site in Barcelona and -- according to our new retail model. And I'm very pleased to say that the results have been impressive, not only in terms of volumes and revenue per passenger but also in terms of the passenger experience. I will have a couple of slides on that later down the line.

I'm just -- I'll just be content to say that the first couple of months, we have recently received the results, and it shows 60% rise in our revenues from those terminals. And now we are issuing an RFP for the retail and duty-free areas of 4 other ports that we own namely Malaga, Zadar, Cagliari and Catania, and we are very happy with the interest that has been shown by both global travel retail players and more regionally focused travel retail players for those ports.

So if we move on, the next slide shows the travel retail area of our terminal B in Barcelona. And the next slide, now up to 20, shows what it looks like today. I think you will see a big difference. And I think the passengers, our guests, are seeing that big difference as well.

And the next slide, again, an internal look to the retail as it was before and as it was now. The person standing there is Martin, our Investor Relations Director. But this was when there were no passengers in the terminal. What I'm actually hearing from our operator who basically invested everything here, we didn't really invest too much in this renovation, he's very happy with the results. And because of the model that we have in these terminals, he is increasing revenues, it's actually higher than ours. Obviously, that has to be the case because he's going to have to justify all this investment. But both parties are very happy with the results. And now we have a model that we tried and that we can implement in other ports.

Next slide. Coming to the development in new ports, in business development. I think we shared with you most of these numbers before. Antigua, Barbuda 30-year concession agreement with around 800,000 passengers in 2018, expected to grow, thanks to our new investments. Nassau, 3.7 million passengers, 30-year concession. A JV with local partners and we are going to build a new iconic terminal building in Nassau, an event and entertainment area, and I think it's going to be a game changer in the Caribbean. And La Goulette, Tunisia, which has seen 900 passengers -- 900,000 passengers in the past and 0.5 million passengers on the average in the past, this port is not receiving any passengers lately because of geopolitical developments and incidents in the past. But I think it's a very important port, and this is clearly not a short-term move on our side, it's a more long-term strategic move. But we believe in the future of La Goulette, Tunisia. One more thing that I mentioned that doesn't -- that isn't on this slide is, of course, our increasing share in Malaga cruise ports, which gives us 100% ownership as curers, the entity managing Barcelona as well, and our share goes up to 62% at GPH, with our partner, Royal Caribbean Cruise Lines in Malaga.

And one more slide on new business opportunities, new business development. Basically, a couple of quotes from cruise line executives showing how important new port developments are, and a couple of examples, where, well, we are mostly involved in San Juan, Puerto Rico, a new tender. Again, Port of Seattle, a new tender, the important homeport for the Alaska market. Panama, another tender for the Panama -- new Panama cruise terminal. Buenos Aires, and an announcement of a new cruise port in Istanbul, in fact, in Yenikapi.

So I want to move on to the outlook and conclude my presentation, and then we can move on to the Q&A.

Resilient performance in Port Adria continues. Unfortunately, no good signs coming from Port Akdeniz up till now. But we are working on finding opportunities to grow both ports. On the Cruise side, the outlook for the industry remains highly attractive, initiatives in the order book, current trading at cruise ports remains in line with our expectations. Recovery at Turkish ports well underway and that's making us very happy. Ancillary services proposition continues to grow. And I just talked about the new cruise port investment opportunities. You know that in line with all of this, we have taken down our guidance, our outlook for the full year to low single-digit organic growth in EBITDA, but we'll obviously go after any opportunities that may arise in the future.

So this concludes my presentation for the first half of 2019.

With that, I want to open up the floor to questions.

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Questions and Answers

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Operator [1]

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We have a questions from Eoghan Reid from Berenberg.

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Eoghan Reid, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [2]

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Just 3 for me, if that's all right. Firstly, on Ege. So you talked about sort of the returning passengers and sort of quite attractive growth outlook over the next couple of years. In terms of profitability of those customers, are you seeing the same dynamics or has there been any structural change? I know you're pretty confident that if you do get past your numbers back up to that previous level, you'll get the same sort of EBITDA. That's my first one. If you want me to go into 2 and 3 as well after that? Just the benefits of acquiring Malaga, and if that's something you're going to continue to do with all your minorities? And then maybe just clarification around cash conversion, how you calculate that given the working capital outflow, 93% seems quite high?

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Emre Sayin, Global Ports Holding Plc - CEO [3]

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So thank you very much for the 3 questions. I've taken my notes. So if I miss anything, please remind me. As for Ege Port, Kusadasi, a very good question. So are those customers coming back as profitable as they were before? And the answer is, yes, because of basically 2 factors: One, that the customers coming back, the numbers that are increasing are predominantly coming with American cruise lines. All the major American cruise lines announced they're coming back to Kusadasi, and that's an important driver of profitability per passenger in the ports. So that's one thing. The other thing is, we have actually made improvements to the ports as we were waiting for the passengers and the ships to come back. We have renovated the Scala Nova Shopping Mall within our ports. We have introduced stands. We have introduced our Guest Information Center. So the port is ready. And I think the profitability will be similar, if not higher per passenger as the passengers keep coming back to Ege Port.

The second question refers to minorities. And we will continue doing what we did in Malaga, in other ports. The answer is, so long as there is an opportunity, yes, we definitely will. Because basically, we are a port operator. This is our core business. And if and when our partners decide that they want to exit, we'll be very keen to look at increasing our share in our existing ports. As you can see from the numbers, this is a good business, we are growing organically as well, so why not increase our presence in that way as well.

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Eoghan Reid, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [4]

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Sorry, just quickly on that one. Was the Malaga port authority coming to you to sell it to you or did you approach them to acquire it?

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Emre Sayin, Global Ports Holding Plc - CEO [5]

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This was actually discussed at the very beginning of our partnership. We always knew that at one point in time, they would be willing to exit. Because I think the port authority wants to basically act as the regulator and being a partner and sitting in the board of that company was not ideal for them. And we thought it was the right time to do this, both because Malaga is improving its numbers, but also this will open up some other opportunities in the region for us becoming a totally independent port operator in Malaga. So it was I think -- I believe it was a win-win for both parties. And I wouldn't say one party approached the other first. It was always on the table. And we felt the timing was right. As for the cash conversion, I'm going to have our finance team answer the specifics of how we calculated that.

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Ferdag Ildir, Global Ports Holding Plc - CFO [6]

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You can see the -- our presentation 34 of the page, a detailed calculation of the cash conversion ratio. By the way, I can definite that cash conversion ratio via deducting CapEx of the period from the annual EBITDA. So annualized EBITDA plus IFRS 16 application of the EBITDA. It means the annual adjusted EBITDA was USD 80.9 million at $1.5 million IFRS 16 EBITDA, total will be $86.4 million. And you should deduct the half year CapEx number, it means $5.6 million deduction. You reach the cash converted after CapEx number, which reflects $76.7 million. And...

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Eoghan Reid, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [7]

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And that is 93%.

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Ferdag Ildir, Global Ports Holding Plc - CFO [8]

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Yes, this is at 93% of the cash conversion.

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Emre Sayin, Global Ports Holding Plc - CEO [9]

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And a very general answer to your question is, because our maintenance CapEx is so low as a business and because our commercial ports are well invested for, we don't really do anything other than convert it into cash. It's obviously been quite high, in 80s, 90s, 85%, 93%, I think is a normal level for us.

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Eoghan Reid, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10]

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Okay. So it's just the timing because you've had the one-off working capital outflow, but the calculation CapEx adds up, but it doesn't really -- you don't think it will impact you going forward anyway?

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Emre Sayin, Global Ports Holding Plc - CEO [11]

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No, so long as we don't have a big CapEx need in the business, no, it will be around these values.

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Operator [12]

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Our next question comes from Greg Johnson from Shore Capital.

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Greg Johnson, Shore Capital Group Ltd., Research Division - Research Analyst [13]

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I've just a couple of follow-up questions as far as. Firstly, on sort of Turkey where it's very encouraging to see the positive commentary around passenger volumes coming back. When do you think we'll be at a point of catching up back at sort of 2015 levels? So my second question, I think on the commercial side is around Akdeniz. And obviously, we saw a dip down in volumes in Q4 last year, where do you think we're sort of trading relative to Q4? Is it sort of stabilized at around the Q4 levels? Or is it deteriorated from then? And then finally, with regards to the strategic review, when do we think we'll be -- get to a conclusion of that, please?

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Emre Sayin, Global Ports Holding Plc - CEO [14]

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Greg, just to clarify your second question, you are referring to our Commercial volumes for Q4 versus this half, is that correct?

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Greg Johnson, Shore Capital Group Ltd., Research Division - Research Analyst [15]

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Correct, yes.

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Emre Sayin, Global Ports Holding Plc - CEO [16]

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Yes, all right. So for Turkey, a very short answer to your question is, we believe we will see 2015 numbers by 2022. But I have to remind you that 2015 was a peak, a real peak, 2016 where we didn't see most of the impact yet was lower than 2015. Those numbers we might be able to catch in 2021. So we will see continuous progress next year and the year after that. And 2022 will be a peak for the Turkish ports. So as for Q4 versus now, I think we are seeing the softness in the Bulk Cargo volumes in Q4 last year. But in terms of container volumes, we have not seen this type of trend yet. So I would say, we have to answer your question in 2 parts. In terms of bulk and cargo, this -- what we see here is a continuation of what started in Q4. But in terms of container volumes, Q2 of this year is a negative surprise for us.

And in terms of the strategic review, I wish I knew when I could answer your question. But I think we're just going to have to say that we're going to report back to you whenever we see a result, when we see something that can be reported. Right now, I couldn't really tell. I just don't know. Sorry about that.

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Greg Johnson, Shore Capital Group Ltd., Research Division - Research Analyst [17]

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Okay. I understand -- that's okay, fully understand.

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Operator [18]

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Our next question comes from Rahul Bhat from JP Morgan.

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [19]

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Can I also ask on the strategic review? Could you give any kind of color on, if the focus is on the Cruise segment or the Commercial segment and how does that -- this strategic review tie in with the refinancing of the bonds which is due in 2021?

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Emre Sayin, Global Ports Holding Plc - CEO [20]

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Is that the only question you have?

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [21]

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No, I have another as well. So on the Antalya port, on the Akdeniz Port, there's a court case that is going on. I was just wondering if you could provide any update on that as far as any update. And also on the Akdeniz Port, on the bulk operations that weakness, what is your expectation on when do you think that can recover like in the second half of the year? Or is it linked more to when the key CDP growth recovers?

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Emre Sayin, Global Ports Holding Plc - CEO [22]

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Right. Thank you. And the court case, you mean the antitrust...

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [23]

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Yes.

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Emre Sayin, Global Ports Holding Plc - CEO [24]

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Yes. Okay. All right. So, thank you very much, Rahul, for the questions. The strategic review actually takes a look at the whole business. And we're doing that with Goldman Sachs. Of course, when we looked at the 2 parts of the business, I'm going to answer your question based on our strategy. So what's our strategy? The Commercial business provides cash and fuel for growth and our real focus for growth where we want to grow at is the Cruise part of the business. So obviously, the strategic review looks at that. And I think so far, what we heard from Goldman Sachs is very much in line with our existing strategy. So how can we support that given that we're about to get sizable ports on the cruise side, and we have mentioned before that if we were to get rid of the Commercial side of the business, we would only do that after we actually reach a certain size on the cruise side of the business? I think that -- those are the type of balances this whole study is looking at and trying to determine what that interplay is. So basically, answering your question is, we are looking at both parts of the business, but for different type of strategic options. On one side, we may be thinking about selling, on the other side, we're definitely thinking about buying and also strategic partnerships are not out of question either. So we're looking at everything, basically.

So in terms of the court case in Antayla, so the -- what's happening right now is, actually, the investigation is happening. So there's -- we don't even know whether the investigation will prove anything. We think there's no case. So we have been notified that there are 6 months for the investigation, which can easily be extended to a full year. And only after that, we will be in the position to actually share our defense according to the findings of the investigation. So it's kind of early to say. But our position is very clear. We think it's actually laughable that we are overpricing and doing this. As I've been discussing, the economy is not great...

(technical difficulty)

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Operator [25]

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The conference will continue shortly.

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Emre Sayin, Global Ports Holding Plc - CEO [26]

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Hi, everyone. I'm sorry, I think we got cut off. Can you hear us?

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [27]

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I can hear you.

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Emre Sayin, Global Ports Holding Plc - CEO [28]

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Sounds great. Sorry about that. I think I was just saying we find it laughable in these circumstances that we are jacking up prices or whatever, that -- to hurt our business. In fact, we have not changed our prices at all in the last 3 years. And I think that's our stand. But like I said, there's a long time in front of us for the investigation and then we'll find out later whether there is a case or not.

In terms of bulk operations, your question was if Turkey -- if the Turkish economy gets better, will that have a positive impact and will we see bulk numbers increase, right?

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [29]

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Yes.

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Emre Sayin, Global Ports Holding Plc - CEO [30]

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Yes. So I think to a certain extent, you're right. This, of course, has to do with the economy, not just the Turkish economy, about the economy of the countries around Turkey because we're mostly doing exports in cement. But economy is a factor. And I think the interplay or the competition between cement factories within Turkey is another factor that -- we have 3 factories very close to our ports, but there are other factories around Turkey close to Istanbul, close to -- backs into the east in Izmir. They're also obviously competing among each other. And that's another factor. So it's hard to tell when this will turn around. But I believe these factories need to survive as well. And they will eventually find ways of recovering their volumes. So we're following up on that closely. And the number of other products, such as coal, are also related to cement because coal imports in Antalya are predominantly used for cement production so that cement can be exported as well. So there is a kind of like a network of interdependencies here.

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [31]

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Understood. And if I can ask 2 follow-up questions on -- if I go back to the strategic review, one of the things I asked was how does the strategic review fit in with your plans to refinance the bond because, I guess, one, they should also depend on each other? And on the Akdeniz and Ege port, has the -- those licenses are expiring sometime soon if I'm not mistaken. Could you give any guidance on what are your expectations are for the renewal of these licenses, the concessions?

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Emre Sayin, Global Ports Holding Plc - CEO [32]

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Sure. Sure. So as for the bond, we have options. One of the options is refinancing the bond, which is -- we believe -- that I addressed that. And that is a different option. Another option is, of course, as part of the strategic review, if we sold a part of our business, we could use that money to close the loans. That's another option, of course. But any combination of that is also possible. So that is what we are reviewing. There's no decided outcome yet. Yes.

As for the licenses, the license in Antalya is running out in 9 years. But Kusadasi has some ways to go. So that is the real concern for us because we have been successful in extending one of the concessions in Turkey already in Bodrum. And we are obviously hoping to extend the others if we can.

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [33]

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Understood. But is that expected to happen in the next, like a year or 2? Or is that something that has happened just before the license is expiring?

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Emre Sayin, Global Ports Holding Plc - CEO [34]

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I can't really say, there is no fixed process for that.

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Operator [35]

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(Operator Instructions) We have a question from [Nick Gol] from [PL].

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Unidentified Analyst, [36]

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(inaudible) filling in. What was the primary...

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Emre Sayin, Global Ports Holding Plc - CEO [37]

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Nick, I'm sorry -- Nick, can I -- I'm really sorry but we can't really understand anything. Either the connection is bad or you're too close to the microphone.

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Unidentified Analyst, [38]

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Do you hear better now.

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Emre Sayin, Global Ports Holding Plc - CEO [39]

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This is better now.

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Unidentified Analyst, [40]

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What was the primary reason for receivable growth in the first half? And do you expect this outflow to reverse back in second half?

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Emre Sayin, Global Ports Holding Plc - CEO [41]

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Sorry, just to make sure I understand your question clearly. What was the reason for the receivables, right, for the growth of the receivables in the first half, is that your question?

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Unidentified Analyst, [42]

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Yes. And do you expect this to reverse back in the second half?

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Emre Sayin, Global Ports Holding Plc - CEO [43]

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Sure. Yes. Okay. Well, short answer, no impact. The receivables have been recovered right now. But it was basically due to 3 factors. One was a collateral, cash collateral for Tunisia, and that was replaced with a bank guarantee letter. So that money is back into cash, out of the receivables. Then there was a short-term delay in payments by a port agent in Barcelona about $4.3 million and that has been solved because there was a change in port agents, not because of us, the cruise lines sometimes change their port agents. And this guy, it took time for him to get the papers done with the banks, et cetera. And it was a short-term thing, but it coincided with our reporting. So that's also out of the receivables through to cash right now. And the last one was $1.5 million of late payments for I should really say long-term in the contract for the payments of the oil drilling services contract in Antalya, and that has also been handled. So none of these impacts that total up to $18.2 million are in the receivables anymore. Does that answer your question, Nick?

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Unidentified Analyst, [44]

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Yes.

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Operator [45]

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(Operator Instructions) We have a follow-up question from Rahul Bhat from JP Morgan.

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [46]

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I'm just sorry to come on this again. But I just wanted to clarify on the concession renewal. From what I remember, the Antalya port's concession was due to be extended to 2047, and there was some litigation regarding this in the court and you are not sure about whether it would either be a competitive bidding process or whether it would just be renewed until 2047, as per normal course. Is the -- is there any update on that process at all of the court case?

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Emre Sayin, Global Ports Holding Plc - CEO [47]

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So there are 2 ways with which the concession on Antalya can be extended. One is almost a special case. There was a law in Turkey that asked for or that allowed for all the build-operate-transfer type of concessions to be extended to 49 years, all of them. And this is the law that we used to prove and extend our concession in Bodrum to 49 years. And I think that is what you're referring to when you're giving me specific date for Antalya. This would work out only if we can prove that Antalya is under the same category as Bodrum. And this is a legal -- I would say, legal case, proving that it falls under the same category. That's the first possibility of extending the concession. Another possibility is basically agreeing with the government towards the end of the concession to extend the concession, which, as you might know, in Europe, this is a well-defined process in return for extension -- for further investments and expansion of the capacity of ports and other assets, the concessions can be extended. It's too early for that for Antalya. I mean, we still have 9 more years to go. But the first one is what we are working on, and there's no certainty on that yet, either for Antalya or for Ege Port. Bodrum has been accepted, and it has been extended to -- basically by 48 years.

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Rahul Ullal Bhat, JP Morgan Chase & Co, Research Division - Analyst [48]

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Understood. Understood. Okay. So on the -- for the one -- the build-operate-transfer one, that is in court and is there like a court case hearing anytime soon or there's nothing that you could guide us on?

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Emre Sayin, Global Ports Holding Plc - CEO [49]

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No, there is no -- let's say, there's no defined process for that. It's basically -- it's a long legal process, which has no precedence, basically, it's basically being followed by our lawyers, trying to make a case that those are basically all concessions under very, very similar conditions. But then again, the law clearly says, it's valid for build-operate-transfer type of concession. So that's -- I think that's the main deciding factor here.

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Operator [50]

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

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Martin Brown, Global Ports Holding Plc - IR Director [51]

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Hi, so it's Martin here. Just, Greg, I know you're still on the line. I just wanted to clarify, I think, some of the volume questions you had before we finish the call. So I think, again, where you're coming from in terms of Q4 and Q3 volumes last year. So as a reminder of Q3 '18, and cargo volumes in Antalya, the sales were down 3%, containers were down 3.5%. Then Q4, cargo was down 17%, containers going just under 22%. We then saw in Q1 cargo down 66% and containers were up just 0.2%. And then, obviously, we've seen this decline in Q2, which is moderated but still a decline of about 29% in Q2 for cargo and then containers falling 31%. And that's, obviously, the run rate that we have as we head into lapping those Q3 numbers. But probably more importantly, if there's any negative in Q4 numbers. I'll now hand over to Emre for concluding remarks.

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Emre Sayin, Global Ports Holding Plc - CEO [52]

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Right. Am I to understand that there are no further questions?

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Operator [53]

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Yes, no further questions, sir.

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Emre Sayin, Global Ports Holding Plc - CEO [54]

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All right. Well then, let me close by saying thank you for joining the call, and thank you for the questions. Obviously, it's a polarizing half for me. The good thing is, the right part of the business, the one that we've been concentrating on, has been doing great, phenomenally well. And we're happy -- very happy with that. And on the Commercial side, we have seen similar hits or drops before. And I'm hoping that we will see recovery soon. Unfortunately, we can't tell you, we haven't seen that hike up yet, although, we had seen a very similar situation last year. And July, the numbers came back very strongly. So in the absence of anything, we couldn't really give you any guidance of when that recovery might be. Other than that, very exciting future ahead of us with big ports, important ports about to join our ranks and diversification in terms of geography is happening, and we're also looking at our strategic options. And these are all positive news, I think.

Thank you very much for listening to me, and thank you very much on behalf of my team, and we hope to connect back at the end of -- well, for Q3 results. Thank you.

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Operator [55]

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