Edited Transcript of GLYHO.IS earnings conference call or presentation 22-Aug-17 10:59am GMT

Starting with the highlights. We reported consolidated revenues of TRY 351.8 million compared to TRY 280.5 million last year, and that represents 25% increase. Power and Gas segment contributes the most by 40%; followed by Real Estate, 24%; Ports, by 18%; and the rest from — coming from our brokerage arm.

And again, let me touch upon briefly on these major developments. First, the successful IPO through the listing, and I have to give some numbers. The GP — the Global Port Holdings plc, that’s the entity listed on the London Stock Exchange, it received gross proceeds of GBP 58 million that contributes — corresponds roughly $75 million, which as Mr. Kutman said, will be used to develop and expand the cruise business further into the Caribbean and Asia, where we don’t have a foothold as we speak.

The total market cap of the Port Division is crystallized at GBP 464.9 million. That corresponds to USD 604 million. Free float is 34.3%, while we continue to hold the majority of 60.6% and rest by EBRD. And we, Global Investment Holding, is the selling shareholder. We received gross proceeds of GBP 81 million from the deal, so that’s approximately USD 105 million. And these proceeds, we are going to use predominantly to pay off debt at the Holding level.

And the second development partnership with F.A.B Partners, as Mr. Kutman mentioned again, there is the TRY 245 million cash injection equated directly from F.A.B Partners, plus another TRY 58.8 million from the simultaneous capital equities. And both deals have further strengthened the equity as well as reduced consolidated net debt. These numbers — let me continue to the consolidated EBITDA, which was TRY 113.8 million (sic) [TRY 113.6 million] in the first half versus TRY 97.5 million last year. And I should underline that the EBITDA and the bottom line of P&L do not include the profits generated from the successful IPO of our Port arm, and of course, the equity injections from F.A.B Partners. The total consolidated equity has increased from TRY 908.3 million at the end of 2016 to TRY 1.703 billion at the end of June, almost double. And the consolidated net debt has decreased from TRY 2,104.9 million in the — at the end of the first quarter of 2017 to TRY 1,216.9 million at the end of June. So that’s a reduction by 73%.

And likewise, we used to get questions on the holding stand-alone investments or net debt. The net debt position at a stand-alone level was TRY 574.1 million at the end of March. That’s 4 months ago. That turned into a net cash position of TRY 5.7 million. So as Mr. Kutman also rightly mentioned, a stronger balance sheet will significantly reduce net interest expenses in the second half of the year.

On a consolidated basis, we reported a net loss of TRY 136.9 million (sic) [TRY 137.8 million] at the bottom line. So there are several factors leading to the loss. Let me start, first of all, a provision of TRY 51 million has been provided for Dagören hydropower projects. While this is a greenfield project, basically, there are no costs or liabilities associated with the project. The project they inspected in 2008, so we got first thing is, at least legally, over the last 10 years. There have been several legal proceedings against State Water Works and these proceedings still continue. However, based on recent ruling of the State Council, we, the management, to be prudent, has decided to fully write off the balance that’s carried on the balance sheet this quarter. And the impact is TRY 51 million before tax and TRY 28.6 million after tax.

Secondly, there is the impact of project expenses related with M&A activity, intense activity, I would say. Again, on the Ports Division, that’s amounting to TRY 18.5 million transaction.

And thirdly, the noncash depreciation and amortization charges totaling TRY 97.5 million versus TRY 77.7 million, and that increase is almost totally attributable to the FX rates because the rights — depreciation of the rights almost totally coming from our Port entity.

And finally, net interest expenses incurred in the first half were TRY 88.3 million versus TRY 70.8 million, which is now under control.

Moving on to summary highlights on operating segments. I’ll try to keep those short as well. The Port Division revenues were TRY 108.9 million. That represents 18% increase over the same period last year. And that increase is attributable to the contributions from our commercial Port operations. So meaning, that growth was driven by strong volume growth in both container and cargo businesses. Container volumes were up by 16.7% from 105,000 TEUs in 2016 to 122,600 TEUs this year. And again, the driver — this increase was coming from the marble and cement exports at Port Akdeniz.

Commercial segment EBITDA increased by 4.9% on a dollar basis to $22.1 million. On the cruise side, passenger volumes in the first half are typically lower, as it includes the seasonality impact of a quiet first quarter period. But despite this, the first half of 2017, there was a strong growth in total cruise passenger numbers by 14%. And that’s coming from a combination of organic growth, basically from Valetta and inorganic growth from the first time consolidation at our small Italian ports.

Our Port arm’s European cruise ports experienced above-average passenger growth, almost fully compensating decline in Turkish ports. However, overall cruise revenues and passenger yield declined and that’s mainly due to loss of passenger volume in Turkish ports, where we have considerably higher profit margins. And the reason for the decline is the ongoing weakness. As also — Mr. Kutman also mentioned in consumer sentiment towards cruise ports in Turkey in general because of the geopolitical challenges in Turkey and Eastern Mediterranean. And there’s another factor impacting cruise revenues is the euro-dollar exchange rate fluctuations. The cruise port tariffs are all in euros, and euro weakened by an approximate 3.1% in 2017 against U.S. dollars. And that also negatively impacted the group’s revenues because the reporting currency of the core entity is in U.S. dollar.

Some final highlights on the Port entities. Cash generation remains strong with $25.2 million of operating cash generated in the first half. And the Ports are going to pay interim dividend of $0.0216 per share, that’s already declared and payable in September.

On the Power/Gas/Mining, shortly, the combined reported revenues were TRY 138 million versus — let me see, versus TRY 98.3 million in the same period last year. That represents 40% increase. And this year’s — this 6-month increase is attributable mainly to gas sales and mining operations. CNG sales revenues were TRY 76.5 million versus TRY 70 million. You see an increase there. TRY 76.5 million, excluding the pipeline gas stream. Also, the reported sales volume increased by 10% from 61.6 million cubic meters to 55.8 million cubic meters (sic) [from 55.8 million cubic meters to 61.6 million cubic meters.]

The EBITDA margins in the first half were lower compared to the same period last year, and this is because of gas cost last year with the expectation of an increase in gas prices along as a function of crude oil prices. Company entered into a 2-year hedging contracts, fixing the price. Anyway, this resulted in relatively higher gas cost, but that was incorporated in the company’s 2017 budget. This doesn’t came as a surprise. And the gas contract, the hedging contract expires at the end of this year.

On the Mining side, sales volume increased by 38%, reaching 286,000 (sic) [298,569] tons, and that translates into a revenue increase by 32%, and that’s — the sales are mostly in euros and some in U.S. dollars. 77% of sales were export sales, mainly to Spain, Italy, Egypt and the Middle East.

Mr. Kutman already mentioned our investments on renewable energy, so I’m not going to repeat. Maybe just a few words. The planned operations to start from — for the projects and biomass, 2 projects, with installed capacity of 17.2 will be in the last quarter this year. And both projects will benefit from the so-called renewable energy resources support mechanism, [Foreign Language] in Turkish, and that mechanism guarantees the sales price of $0.133 per kilowatt hour for the first 10 years of operation. So that gives us an approximate EBITDA margin of 50%, which is very high for power projects.

So I’ll leave it here. So we can move to the Q&A session.

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Operator [4]

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

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

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Thank you very much, operator. As mentioned, after basically the group was formed, as you — some of you might know in 2005, so we became a holding company, more or less like a private equity company. In 9 years, we have accomplished to create quite a lot of progress. Our return on most of business has been anywhere from 29% to 140%. Moving forward, I think it’s time for the group to focus on it’s — what it does best, which is cruise port development worldwide as well as the energy side, biomass and solar. And we’ll liquidate the rest of our portfolio in a timely and orderly manner, which is mostly real estate and mining and focus only on infrastructure in Asia, as I said. We operate around 100-plus from the liquidation of these assets, which again will probably be distributed in the form of a dividend by next year. Thank you very much, everybody, for joining. I don’t know, Kerem-bey, if you want to add anything.

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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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No, no, Mehmet-bey. Thank you. You covered all.

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Mehmet Kutman, Global Yatirim Holding Anonim Sirketi – Chairman & CEO [7]

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Thank you very much, everybody.

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Operator [8]

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