Relevant Document:H1 Release
Quotes for the 8.125% unsecured Global Port Holding, or GPH, $250 million 2021 bond have remained stable at about 70 after the Turkish operator of cruise and commercial ports
reported falling revenue and a 61% lower adjusted EBITDA in the first half of the year. The freely traded shares in the company fell 2% on the London Stock Exchange in early trading to 92 pence but have since bounced to 97 pence and a market capitalization of £61 million.
GPH’s primary EBITDA generator, Port Akdeniz near Antalya, experienced a 42% contraction in first-half commercial EBITDA to $11.9 million on the back of commercial revenue from Akdeniz falling 36% year over year to $16.7 million driven by 20% lower container throughput. However, general and bulk cargo volume rose 65% year over year due to a new low price strategy, which saw overall cargo yields fall 27%.
Port Akdeniz is GPH’s largest commercial port with the other, Port Adria, generating $3.6 million revenue and $1.1 million EBITDA in the first six months of 2020. Overall commercial port revenue, which consists of cargo and container handling, fell 33% year over year to $20.3 million and EBITDA dropped 41% year over year to $12.9 million. The year-over-year performance was also impacted by a 2019 oil services contract boosting the company’s performance last year.
Against a backdrop of global trading volatility, management described the commercial port performance as “pleasing given the prevalent conditions” and pointed out that Port Akdeniz had fared better than the company’s severe downside scenario disclosed in April - a forecast in which marble volume would fall by 75% between May and September. Management said second-quarter marble volume had even risen sequentially.
The company has been trying to sell Akdeniz since March, but exclusive negotiations with a potential buyer have not yet materialized. The proceeds from the Akdeniz sale will be used to repay the $250 million bond.
Due to the Covid-19 driven collapse of GPH’s cruise business, Akdeniz has generated 30% of Global Ports Holdings’ 2020 revenue and 70% of its 2020 EBITDA.
Cruise Performance
While the commercial ports were relatively insulated from the Covid-19 pandemic, GPH’s cruise business faced severe headwinds in the first half of the year as governments effectively shut down the global cruise industry. Second-quarter cruise EBITDA weakened to negative $1.8 million from $13.3 million in the second quarter of 2019.
Reported cruise revenue increased 23% year over year in the second quarter to $22.9 million, largely driven by a $22 million IFRIC-12 impact on construction revenue at Nassau Cruise Port being recognized. Cruise revenue dwindled to $900,000 when excluding the booked Nassau construction income. Management said it forecasts “no material” revenue from the cruise business for the remainder of 2020.
GPH recorded 1.3 million passengers in the first six months, 1.253 million of those were in the first quarter, suggesting about 47,000 passengers in the second quarter. The ports in Valletta and Ege performed best in the period because they generated non-passenger retail revenue such as waterfront restaurants. The company said a number of its cruise ports are starting to prepare for the first cruise calls after the pandemic and stressed that it is seeing “strong booking trends across all regions.”
Looking at the six months to June, cruise revenue fell 41.9% year over year to $33.9 million and EBITDA came in at $3.9 million, resulting in an EBITDA margin of 11.5%, down from 71.6% a year earlier.
The company, which is already the largest cruise port operator globally, hinted at potential expansion plans by saying it expects “significant new cruise port opportunities will present themselves” when the industry exits the Covid-19 crisis. Management said the company is well positioned to play an “active role” due to its global best practices and ability to raise financing even in challenging times.
Faced with almost no cruise income, GPH has cut or deferred costs across all parts of the company from salaries, marketing, consultancy, port capex, concession fees and board member remuneration.
Net cash from operations were $16.3 million in the first half and the company’s cash balance was boosted further by a $130 million debt increase in the period, taking cash and cash equivalents to $122 million.
Gross debt grew to $559.2 million and net debt was $436.9 million with net debt/adjusted EBITDA of 7.8x. Leverage as calculated under the $250 million bond was 6.7x, exceeding the 5x incurrence covenant. This means the company will not be able to take on more debt or pay a dividend.
The company generates income in hard currency while the majority of the costs at the Turkish cruise ports are in Turkish lira. In Akdeniz’ cruise port, approximately 70% of the costs are denominated in lire while all income is in U.S. dollars.
--Magnus Scherman