GIH Q1 2021 Financials Results: Fundamentals Remain Strong, Despite Headwinds 08 June 2021

GIH Q1 2021 Financials Results: Fundamentals Remain Strong, Despite Headwinds 08 June 2021

Global Investment Holdings ("GIH"), a diversified conglomerate operating in 12 different countries across four continents, announced its consolidated results for the three months ended 31 March 2021.

Global Investment Holdings reported Consolidated Net Revenues of 307.0mn TL in the first quarter of 2021, excluding IFRIC 12 impact of 73.6mn TL; while announced a Consolidated Operating EBITDA of 46.0mn TL.

The Group is taking effective steps to stabilise its liquidity position and manage its long & short-term debt obligations through i) the completion of the sale of the Group's largest commercial port, Port Akdeniz, ii) exceptionally successful IPO of its natural gas subsidiary, Naturelgaz, on Borsa Istanbul, iii) equity injection through a rights issue in GIH (once the permitting is completed) and vi) refinancing of Eurobond. These all aim to provide the Group with a more stable, deleveraged capital structure.

Global Investment Holdings' Chairman & CEO, Mehmet Kutman, stated that "The Group's overall performance in the first quarter of 2021 was lower compared to same period last year, mainly due to the Covid-19 pandemic. However, Q1 2021 was a strong quarter considering that the comparative period in the prior year did not suffer from any Covid-19 impact. The sequential trend in Q1 2021 compared to Q4 2020 shows a continuing improvement in performance across the Group, as the underlying businesses, particularly mining, gas, power and finance businesses strengthen. The performance indicators of the Group for Q1 2021 reflect the management's efforts aimed at ensuring financial stability and enhancing the Company's performance."

Mr. Kutman added that "We are encouraged by the accelerating rollout of vaccines and the progress towards herd immunity. While evidence of recovery is encouraging, we have continued to take a cautious view of the impact of the pandemic on the businesses. We remain disciplined on costs. Looking ahead, we continue to pursue strategic initiatives we believe will drive further success. While further volatility is likely as our markets emerge from the pandemic in different ways, our strategy and purpose means we are very well placed to provide a strong and stable platform for long-term growth."

Commenting on the results, The Chief Financial Officer of the Group, Ferdağ Ildır, stated that "The first quarter performance continued to be impacted by the Covid-19 pandemic. Thanks to our agile business model, we have taken quick measures to limit the effects of the crisis as much as possible without affecting our long-term potential. Our priority is to keep our balance sheet strong, persist our disciplined approach to capital allocation, and generate cash flow in all of our companies for the rest of 2021. Moreover, cautious and effective management approach will be carried out in all of our operations. We have weathered many crises in the past. In particular, this one is the foremost longest and most unknown so far. Our solid fundamentals which have served us well in the past decades, will enable us to navigate today and in the future."

Global Investment Holdings reported 307.0mn TL revenues (excluding the impact of IFRIC 12 of 73.6mnTL) for the first three months of 2021, down by 5% yoy. Negative impact of Covid-19 on particularly ports and real estate divisions overshadowed the pleasing revenue growth in all other divisions. Q1 2020 revenues included Port Akdeniz contribution amounting 52.7mn TL. Excluding the contribution from Port Akdeniz for Q1 2020, total consolidated net revenues could have registered a 13% increase yoy. Nevertheless, this indicates a strong quarter, considering Q1 2020 did not suffer from any Covid-19 impact.

In the first three months of 2021, consolidated Operational Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) amounted 46.0mn TL, compared to an EBITDA of 85.1mn TL in the same period last year. The notable solid contribution from the gas, power, mining and brokerage & asset management divisions was offset by the weak performance of the ports and real estate divisions in the quarter. Port Akdeniz had a major contribution to Q1 2020' financials with 37.3mn TL in EBITDA. Excluding the contribution from Port Akdeniz for Q1 2020, consolidated operating EBITDA could have remained broadly flat in Q1 2021.

On a divisional basis,
The gas division has improved its solid financial position despite Covid-19 impacts thanks to its operational capability, efficient cost management structure and new business development efforts. The gas division distributed 48.2mn Sm3 sales volume in Q1 2021, representing a notable increase of 49% compared to the same period last year. The higher volume was mainly due to the increase in City Gas sales, while inorganic growth achieved by the acquisition of LNG and CNG operations of SOCAR Turkey at the end 2020 has also made a significant contribution to the increase in sales volume. On the financial front, revenues increased by 47% yoy, reaching 124.7mn TL, mainly reflecting the addition of LNG revenues as a result of SOCAR LNG merger. Operating EBITDA came out at 22.1mn TL in the quarter, surging by 56% yoy and translating into a 17.8% EBITDA margin (16.7% in Q1 2020). The division improved its profitability in the period thanks to the solid revenue growth, increase in gas margin and effective cost management.

The business line which is affected the most from Covid-19 is the ports business. The ports division reported 28.9mn TL revenues (excluding IFRIC 12 impact of 73.6mn TL), down by 78% yoy, while consolidated adjusted EBITDA was a loss of 20.1mn TL (62.9mn TL positive EBITDA in Q1 2020). The limited return to cruise activity drove the declines in passenger volumes, revenue and EBITDA. Q1 2020 figures were heavily boosted by the first time contribution of our new ports in Nassau and Antigua, while Port Akdeniz, although the sale process has been completed in January 2021, has a major contribution to the Q1 2020's financials with 52.7mn TL in revenues and 37.3mn TL in EBITDA. As we look to the future, many of our cruise ports have already started to welcome passengers in 2021, however, volumes remain small, yet this number has and will continue to grow, and the majority of our ports have calls scheduled to start in the next few weeks. And we have good news from the Caribbean: the opening of the Caribbean cruise market is going to happen with homeport operations in Nassau and Antigua (first time for Nassau and Antigua). While we expect to see an increase in cruise activity in Q2 and Q3 2021, it is, as yet, unclear how the ramp up of cruise operations globally and on a regional level will shape up.

The power division, which includes co/tri-generation- along with biomass- and solar-based renewable power production, posted 76.5mn TL revenues in the quarter, increasing remarkably by 40% yoy. With all plants fully under operation, the division's EBITDA has also improved substantially to 25.8mn TL in Q1 2021, registering more than 2-fold increase yoy (10.9mn TL in Q1 2020). The eye-catching financial performance during the quarter was mainly attributable to pleasing operational performance in power plants.

The mining division realized 99,430 tons of product sales in Q1 2021, down 16% yoy, mainly due to the Covid-19 lockdown in export markets. The mining division reported revenues of 29mn TL, up by 21% over the first quarter of 2020. The operating EBITDA was 11.2mn TL, more than doubling yoy and delivering a 38.7% operating EBITDA margin for the quarter (18.8% in Q1 2020). Despite the effects of Covid-19 pandemic, increase in ratio of high value-add products in the sales mix, effective cost controls as well as sales in hard currency in export markets results in noteworthy improvement in operating profitability.

The other business line which was seriously negatively impacted by Covid-19 was the real estate business. The real estate division disclosed revenues of 5.3mn TL and an operating EBITDA of 0.4mn TL in the first quarter of the year, compared to 9.8mn TL and 3.9mn TL, respectively in Q1 2020. The weakness was driven mainly by the lower real estate sales and rental revenues due to the safety precautions against Covid-19.

In Q1 2020, the financial services subsidiaries shone. The division has remarkably increased the number of transactions during Covid-19 crisis which was reflected positively on its financials. The brokerage & asset management division reported revenues of 42.1mn TL in Q1 2021, indicating a robust 116% yoy increase, while operating EBITDA increased almost 5-fold, reaching 21.3mn TL as opposed to last year's 4.7mn TL. The outstanding performance was attributable to the increase in trading volumes, as well as effective cost management.

GIH reported a consolidated net loss of 184.7mn TL in the first quarter of 2021, compared to a net loss of 131.0mn TL in the same period last year. The net loss stemmed mainly from non-cash depreciation and foreign currency translation differences incurred on Group's long term borrowings. The bottom line incorporated 204.2mn TL non-cash charges, of which 89.3mn TL are depreciation and amortization and 114.8mn TL net foreign exchange losses. When adjusted for the non-cash charges, the bottom line turns to positive. Depreciation and amortization charges, despite the depreciation of Turkish Lira against hard currencies, have decreased from 111.3mn TL in Q1 2020 to 89.3mn TL in Q1 2021, purely as a result of Port Akdeniz's sale depreciation effect (33.2mn TL in Q1 2020). Also, the Group has incurred 114.8mn TL net non-cash foreign exchange losses, compared to 71.0mn TL in the first quarter of the last year. The Group's net interest expenses in the quarter was 78.4mn TL, as opposed to 71.2mn TL in Q1 2020.

Major operational developments
On the operational front, developments are on track, in line with the growth strategy by means of new acquisitions and investments mainly into core businesses, which are ports infrastructure, clean energy and asset management. During the quarter, the strategic focus remained on the core businesses and how to best insulate the Group from the impact of Covid-19.

A major development on the ports side during the quarter, to position Global Ports Holding Plc (GPH) as a pure-play global cruise port operator, was the divestment of our concession in Port Akdeniz. Agreed in October 2020, this was finalised in January 2021, with the sale being materialized to QTerminals of Qatar. The sale's successful closing was an essential element of the Group's refinancing strategy for the 250mn USD 8.125% Senior Unsecured Notes due 2021 (Eurobond). On 7 April 2021, an offer was launched for up to 75mn USD of Eurobond, which was expired on 16 April 2021. Following the unmodified Dutch Auction procedure conducted in connection with the Offer, the total amount of cash used in connection with the Offer is 44.7mn USD excluding accrued interest on the Notes validly tendered and accepted. Following the completion of the tender offer, 200.3mn USD of Eurobond remain outstanding. Recently, GPH has entered into a five-year, senior secured loan agreement for up to 261mn USD with the leading global investment firm Sixth Street, managing assets in excess of 50bn USD. This new investment from Sixth Street will strengthen GPH's balance sheet and provide flexible growth capital for GPH to pursue expansion opportunities at a dynamic juncture in the global cruise industry. The net proceeds from the loan will be used, inter alia, to refinance the outstanding Eurobond. Last but not least, as part of its global expansion strategy, GPH continuously monitors potential public and private acquisitions around world. For example, on 30 April 2021, GPH has signed a 20-year concession agreement to manage the cruise passenger terminal of the Port of Taranto, Italy. This has enhanced and further strengthened the GPH's presence in the cruise sector's core markets.

During the year, Global Investment Holdings took major steps forward with its natural gas efforts. In the second core business area, Naturelgaz, the non-pipeline natural gas subsidiary, took a significant step towards its growth strategy and started to float on Borsa Istanbul as of 1st April 2021 following the completion of exceptionally successful IPO. The IPO has received overwhelming investor demand, with 75.3 times domestic individual investor oversubscription, 28.8 times domestic institutional investor oversubscription, and 3.5 times international institutional investor oversubscription with a total demand exceeding 15.5bn TL. Norges Bank Investment Management, out of Norway, acquired 8.3% of the total shares offered in the IPO. Naturelgaz received gross proceeds of 127mn TL which will be used to develop and expand the its business. The Company, while improving its leadership position in Turkey, also envisages expanding its operations to Sub-Saharan countries where lack of pipeline infrastructure is an opportunity to transport natural gas to power and industrial plants. Moreover, on 10 February 2021, Naturelgaz signed an agreement with Petrol Ofisi to create synergies in the Auto CNG business. Such development will further strengthen the position of Naturelgaz in LNG, bulk CNG, and auto CNG businesses; increasing volume and geographical coverage while diversifying the product portfolio.

In the third core business line, GIH initiated the process to exercise its option to buy additional 40% of Istanbul Asset Management.

At the holding level, The Board of Directors of Global Investment Holdings resolved on 22 April 2021 to increase the issued share capital of the Company by 324mn TL, from 325mn TL to 650mn TL which is the upper limit of its registered capital. Such capital increase will be paid in cash. Completion of the capital increase is conditional upon receipt of customary regulatory clearances and approvals from various Turkish governmental authorities, including the Capital Markets Board of Turkey (CMB Application Date for Capital Increase: 27 April 2021), Borsa Istanbul, Central Registry Agency and Istanbul Settlement and Custody Bank. With the assumption that our shareholders will fully exercise their right to purchase new issued shares, a gross revenue of 486mn TL will be raised from the share capital increase. Through the capital increase, GIH is taking effective steps to stabilise its liquidity position and manage its long-term debt obligations. This aims to provide the company with a more stable, deleveraged capital structure