Wallenius Wilhelmsen ASA (WAWI) Earnings Call Transcript & Summary

[Audio Gap] today's Wallenius Wilhelmsen conference call. [Operator Instructions] This call is being recorded. I'll now turn the call over to your speakers. Please begin.

Thank you, speaker. Good afternoon. Thanks for dialing in on the Sunday afternoon. My name is Anders Karlsen, and I'm heading up the IR at Wallenius Wilhelmsen. With me today, I have our CFO, Torbjorn Wist. We host this conference call as we [indiscernible] Friday afternoon, informing about the change in the accounting treatment of the put and call option linked to a 20% minority shareholder in EUKOR. The background and details are provided in a stock exchange release, but we are happy to answer questions that you may have in connection with this in today's call. With that, I leave the word to Torbjorn Wist who will take you through to some key messages before we open up for questions. Torbjorn, the floor is yours.

Thank you, Anders. Good afternoon, everybody, and thank you again for dialing into this call. And as Anders mentioned, we did issue a stock exchange release on Friday afternoon related to a change in accounting method as well as a restatement of our 2023 financials and Q1 '24 financials related to the accounting treatment of the EUKOR put/call options. This was approved -- the change was approved in a Board meeting [indiscernible] afternoon on Friday. We outlined the effects and reasons for doing the change in our stock exchange release, and we'll be happy to take any questions that you have after a few statements from our side. And from the company's perspective, we would like to underline the following. We have decided to change the accounting treatment relating to the options over the 20% non-controlling interest in EUKOR following a review and recommendation by our new auditor, Ernst & Young. The current accounting treatment of the options was decided by the group in 2018 with the close involvement and subsequent audit by our previous auditor, PwC. Our former auditor also reconfirmed the accounting treatment following a request by the group in 2022, but they now recognize that a change in accounting treatment [indiscernible]. The underlying facts relating to the option agreement and the put/call options, for example, the calculation of strike price, et cetera, have not changed. Only the way the put/call options will be accounted for in our financial statements. It is important to note that the group is financially solid, and this accounting change does not affect the group's strong performance or ability to deliver on its planned dividend payments or its dividend policy. Further, the non-cash restatement will not impact our ability to meet our financial obligations nor have any adverse effects on covenants in outstanding debt facility. While the equity ratio will be reduced, the group continues to deliver on all financial targets, and we remain as stated in compliance with all debt covenants. Note also that the restated liability is non-cash and non-interest-bearing. So therefore, not be included in net interest-bearing debt in the group. In other words, the consequence of the change is unfortunate, but it is not changing any fundamentals for us beyond having to account for the put option linked to HMG's 20% share in EUKOR in a different way than earlier. So with that, operator, please open the floor for questions.

[Operator Instructions]

This is Axel Styrman from Kepler Cheuvreux. Can you please explain the details about the valuation of that put option?

It was a bit difficult to hear actually, but if I understood the question correctly, details about the calculation of the strike price for the put option?

That's correct.

Yes. The calculation of the strike price for the put option and the call options is based on a procedure which is described in the Korean Tax Act of 2002. There are a few methods that are described in the Korean Tax Act of 2002. But given that we are not a -- we do not have a publicly listed entity in -- that EUKOR is not a publicly listed entity, it follows the procedure whereby you estimate the value based on the tax results of EUKOR for the last 3 years. So when we came at the end of 2023, the calculation was updated based on 2023 results, 2022 results and '21 results. These will be weighted differently. And Anders, perhaps you could comment on the weighting of them. They are more [indiscernible] ascribed to the final year. The valuation is done in Korean won and then translated to U.S. dollars based on Norwegian [indiscernible] all EUKOR, the previous 3 years. But Anders, maybe you could add some color there.

Yes. The weighting is [ 3 6 ] is based on the last year, [ 2 6 ] on a second to last year and [ 1 6 ] to the oldest accounts.

And as mentioned, the strike price calculation relates to both the put option as well as the call option in the shareholders' agreement from 2022.

Did that answer your question?

I have a follow-up, please. If the call option -- is there an assumption related to whether you keep your client relationship to the Hyundai regarding the 40% share of the volume being transported?

We, as you know, have a very, very close relationship with Hyundai Motor Group. This option has been there since the shareholders' agreement of 2002. They became exercisable following EUKOR's share of the OCC, the Ocean Carrier Contract volumes going below 50%, which happened in 2018. So that's when they became exercisable. We're now 6 years, hence the options obviously have not been triggered by any of us. We have -- they have not indicated that they want to put on us, and we have [ not ] said that we're going to call on them. We have a very strong relationship, and the options are there. But one of the substantive matters related to the shareholder agreement has changed. We, of course, are very happy with the customer relationship and want to preserve it. But the fact of this taking into account is that the option agreement can be triggered. And if it is triggered, then payment would happen after 30 days, hence, it needs to be accounted for as a current liability. But as you may or may not know, in IFRS, there are no probability assessment of options being exercised or not. As long as there is a right in there, it should be carried as a current liability, hence the recording of the put option strike price acts as a current liability going forward.

The next question will be from the line of [indiscernible].

I am [indiscernible] from [indiscernible]. I have 2 questions, please. The first one is since this option is valued on a 3-year average [indiscernible], if the results of EUKOR were to fall, the option will be less valuable if the put option is not exercised. And my question is, when results fall down from these typical highs, the put option will decrease. Does that mean that you would [indiscernible] increase in equity [indiscernible] if the value of the put option falls? First question.

So we do them in turn, then, Hans. Happy to do so. Let's start with that then. If the [ FX ] strike price were to decrease, there would be a commensurate adjustment to the equity position. So, the equity would then increase by the same amount.

Yes. That's a bit weird, but my follow-up is then, since you own 80% of our EUKOR, if you were to value EUKOR as you do with the option, that means your 80% of EUKOR has risen quite formidably from the last 3 years. How much would you increase your equity if you were to value the rest 80% of EUKOR the same way as you do with the options?

Well, let's look at it this way. In the former accounting standard, the excess of fair value over and above the calculated strike price was the noncurrent asset that we previously recorded, and which would then -- which will now, in a way, restate when we update the financials as part of the Q2. So, the excess value or fair value over strike is disclosed in the press release. How that would reflect into -- we don't have a publicly listed EUKOR. So there's not a sort of a market measurable price. And I think as you know the results of EUKOR [indiscernible] market valuation mechanism of the rest of our business. So I don't think this will result in a restatement, call it, of any values within -- it is what it is consolidated into our books.

I partly agree with you. When it comes to optional relation, I agree to the way you do it right now. But since this is an IFRS accountment, you need to do a fair value assessment on all balance sheet issues at year-end. And since the value of EUKOR obviously has risen over the last 3 years, why don't you rewrite and revalue your balance sheet position in EUKOR the same way you do with the options?

I'm just trying -- just taking back your question here. We can always come back on with some further detailed thoughts around it. As we -- when we look at call option and the put option, the put option liability will be recorded in full. There is no, call it, market or -- no value to be included for the call option per se because no matter how you look at it, if they were to exercise the put or we were to exercise the call, the liability would be the same as a payment to HMG, the minority shareholder in EUKOR. So in that sense, it is -- there is no, call it, market valuation that will be taken into our accounts. If I understood your question correctly, so apologize.

As no one else is lined up for questions, I will hand it back to the speakers for any closing remarks.

Thank you. As there are no more questions at this time, we round up this call. But if you have any additional questions, please feel free to give us a call or give us -- you'll find our details in the stock exchange release. And with that, thanks for your time this evening or this afternoon, and we wish you a happy Sunday. Thank you.

This now concludes the conference call. You may now disconnect your lines.