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Ladies and gentlemen, welcome to the HarperColloid Analysts and Investors H1 2024 Results Conference Call. HarperColloid is represented by Rolf Halpern-Janssen, CEO, and Mark Fraser, CFO. I am Maria, the cross-call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for provocation or broadcast. At this time, it's my pleasure and over to Rolf Haber Janssen. Please go ahead.

Thank you very much and good morning everyone or good afternoon maybe to some of you darling information. Thank you very much for taking the time to listen to us here. As always, we'll give you a short introduction with a couple of key messages and some more detail on the numbers before we roll for Q&A. In terms of what should be the key takeaways, I believe, from the first half, I would say first half, first we had the disruptions caused by the Red Sea, and then in the second quarter, I think we saw unexpected strong demand, especially in May and June. In order to meet those demands, we've taken various additional measures that we will elaborate on. We've had higher operating costs driven of course by bunker, but also by operating more ships and having to deploy more boxes. Nevertheless, we posted a good financial result for the first half with an EBIT of around 0.9 billion, of course driven by indeed higher volumes, but also increased freight rates compared to the last couple of quarters. We updated our outlook already on the 9th of July. I think we reiterate that outlook Here, even if we have to point out that, of course, in today's market, there's quite a lot of uncertainty around that. Maybe if we briefly look at market, I think the picture on the left-hand side gives you a good overview of what has been happening. I think when we look at global container volumes, they have been stronger than many expected, 7% up in the first half. I think that's quite a lot. May and June recording the highest numbers ever. In that context, we can be really happy that the industry has invested in additional ships because that has allowed us to transport all those additional boxes and to cope with that additional demand, even if we had to go around the Red Sea. When you look at the freight rates, here you see the SEFI index, which of course had a spike in January when we had the Red Sea situation. Then it looked like it was going to normalize towards the end of Q1, beginning of Q2. But then we've seen a spike in spot rates in May and June. And in recent weeks, we have seen things normalizing again a bit. Of course, we can speculate about why did we see that spike in demand. I think the most common causes mentioned are an element of restocking and potentially also a somewhat earlier peak season. But in fairness, none of us really knows that. What have we taken as measures to cope with that higher demand? We've been speeding up vessels, especially those that had to go around the Cape. We have adjusted our network and tried to move capacity to those trades where demand was the highest. We have moved, we've charted some additional ships to cope with the additional need for steel. We've also deployed a number of extra loaders to fill some holes that there were in the network. And we've ordered quite a large number of additional boxes as the turnaround times of the containers are currently, unfortunately, quite comparable to pandemic. to the pandemic levels, which means that we can use a box less than four times a year. Then, in line with our strategy, we've continued to build our terminal business, and we have also continued to invest in fleet and new service offerings. We took on board six new buildings, which means that our capacity has steadily grown over the last years to now 2.2 million TUs. We launched a couple of new web products with more still in the pipeline. We've adopted the Ansiatic Global Terminals name as a new brand for our growing terminal business based in Rotterdam. We've also been adding people to that team, amongst them a divisional CFO. We made good progress in the construction of Damietta Container Terminal and managed to successfully renew the lease contracts in Port Everglades for another 10 years. When talking about Gemini, I would say we're very much on track with the preparations for Gemini. We're probably on schedule or maybe even slightly ahead of schedule. I would say the main milestones that are ahead of us now are start of sales in September, start of booking in December, and then we will gradually move into the Gemini network as promised. beginning of next year. Of course, the official starting date is 1st of February, but in reality, that transition from the Alliance to Gemini will probably take about three months. It will start a bit earlier and end, hopefully, towards the end of the first quarter. And with that, I think I'll hand it over to Mark, who's going to talk a bit about Alamos.

Yes, thanks, Rolf, and welcome also from my side to all of you. First half of 2014, I think we were able to deliver good operational performance, which was certainly above our initial expectations at the beginning of the year. And in addition, we also maintained a very solid balance sheet. Transport volumes improved nicely on the back of a global recovery of demand, and despite the necessary rerouting of vessels around Cape of Good Hope. So with that, Group EBITDA came in at $2 billion and free cash flow at $0.5 billion. While this is below the figures of last year, I would like to remind us that last year's performance in the first half was still outstanding due to the exceptional market environment at the end of the pandemic. Looking at our financial figures in a little bit more detail, we can see that group profit fell 75% to $791 million in the first half of 24 due to lower operating profits and financial results. Nevertheless, with a return on invested capital of 9% in the first half, earnings were still on a good level. Even more important is that following the turnaround in Q1, The positive earnings trends accelerated in Q2-24. Group revenue and earnings improved quarter over quarter due to the better profitability levels, mainly in the liner shipping segment. With that, in Q2, EBITDA came in 9% higher at 1,028,000,000 U.S., and EBIT was up 23% at 485,000,000 U.S. dollars. This resulted in a healthy EBITDA margin of around 21% and an EBIT margin of close to 10%. Looking now at segment level, liner shipping recorded a decline in earnings year-over-year due to a lower average rate rate and higher transport costs associated with the rerouting, as mentioned, of our vessels around Cape of Good Hope. H124 EBITDA EBIT in the liner shipping segment amounted to 1,898,846 million U.S., respectively. At the same time, the T&I infrastructure segment revenue increased significantly in the first half of 24 to 270 million U.S., mainly due to the acquisition of the SAM terminal in August the year before in 23. For this reason, the figures for the first half of 24 are only comparable with the prior year numbers figures to a limited extent. Segment EBITDA increased to 71 million US, which resulted in a good margin of close to 33%. Segment EBIT amounted to 33 million US dollars And besides the regular depreciation on fixed assets, this figure also includes the amortization on the purchase price of some terminals, realized asset in August 23. Looking now at the main value drivers of the liner shipping segment, the average freight rate in the first half of 24 declined 21% to $1,391 per TU year-over-year. However, after bottoming out in Q4-23, the average trade rate increased further in Q2-24. At the same time, transport volumes in the first half were up 5% year-over-year to 6.1 million TU, which was mainly driven by the export from Asia to North America and Europe. On the Trans-Pacific trade, we recorded the strongest volume growth with more than 24% year-over-year as demand in the United States picked up and the destocking cycle more or less ended. On the other hand, the Middle East volumes were clearly affected by the difficult security situation around the Red Sea, resulting in 21% lower volumes in the first half. As a reminder, you know that we recognize transport volumes only in the end of the voyage, hence the surge we We have witnesses in May and June will drive the volumes development only in the third quarter because of the time lag. Our unit cost remained elevated despite successful cost measures as we continue to reroute, as already said, all trades from Asia to Europe. This leads in particular to higher bunker consumption, which was up more than 16% in the first half. And in addition, bunker costs increased following the first-time inclusion of the shipping sector in the EU emission trading system. Handling and haulage costs increased due to higher transshipment activities and storage costs. Vessel voyage costs declined mainly due to the lower Suez Canal costs. However, this was partially upset by the higher expenses for short-term charter ships and container slot charter costs on third-party vessels. In total, unit costs in Q2 amounted to US$1,281 per TU. The increase in comparison to the previous quarter is mainly related to the counting treatment of pending voyages. Adjusted for this effect, unit costs were almost unchanged quarter over quarter. The operating cash flow stood at $1,373,000,000 in the first half. The longer voyage times and higher revenue resulted in a negative networking capital development. Investments in our vessels and container fleet, as well as our terminal portfolio, led to a cash outflow of $1,120,000,000. In the first half of 24, we received in total six new-built vessels with a nominal capacity of around 110,000 tu. This includes one long-term charter. And in addition, as already mentioned by Rolf, we have ordered new container boxes with a total capacity of 260,000 tu to account for the increased turnaround times. Interest, income, and dividends from our equity participation resulted in a cash inflow of 248 million U.S. And while the free cash flow was again clearly positive, the cash position declined to 4.5 billion U.S., mainly due to the distribution of dividends in May to our shareholders of 1.8 billion U.S. The cash balance does not include our strategic liquidity position of 2.1 billion, which is recognized under financial assets. And as usual, I would like to conclude with a brief look at our key balance sheet figures. Our net liquidity position shrank following the distribution of dividends and higher charter liabilities. Nevertheless, with an equity position of 20 billion, U.S. and the liquidity reserve of 7 billion U.S. balance sheet ratios are still very solid. And with this, I hand it back to Rolf for the market update and the outlook.

Thank you, Mark. When looking at market updates, not that much new. I would say that when we look at demand growth, maybe start with that. I think we would not be surprised if full year market growth turns out to be a little bit stronger than what we see right now. Actuals first half being 7.1%. That means that, you know, looking at 4% for the full year, I think there are also scenarios thinkable where that's going to be a little bit higher. The global order book is starting to come down on the back of the deliveries that we, of course, have seen in the last 12 months. I think 18% as such is actually not a very worrying number, also because the order book now stretches in many cases up to 27, 28. There is quite a lot of activity going on in the market. I do expect that number to notch up again. a bit, but as we now see that the delivery windows are very long, that in my view does not necessarily have to be a big problem. When we look at scheduled vessel deliveries, we saw, of course, a lot of ships being delivered in 23 and 24, which was really good to be able to deal with the Red Sea crisis. We see deliveries coming down as from 25, and as I said, the order book has a has a fairly long tail. Inactive fleets still very, very low, almost at an unhealthy level. In addition to that, I think that what can be mentioned is that scrapping today is still at historically low levels. A lot of that has been postponed over the last three or four years, so we will see a significant upturn in scrapping in the second half of this decade. Looking at our outlook, We commented on that in July. Not much more to be added to that right now. We expect transport volume to increase moderately, the freight rate to go down slightly. Same for bunker consumption price and the EBITDA. We now expect to be higher than what we anticipated earlier on in the year. But as mentioned in the beginning, good earnings momentum at the moment, yes. but definitely still an outlook that's subject to a high degree of uncertainty. What are our priorities for the remainder of the year? Continue to focus on network reliability. It is important to create those stable supply chains for our customers. Of course, schedule reliability will also be a key element in Gemini as we move into next year. And in that context, I think we're pretty happy that we see that on the rankings that come out, we're starting to creep already upwards, even if it's at an unsatisfactory level. We'll continue to implement our strategy 2030, focused at growing our business, making sure we become the undisputed number one for quality, and we bring our emissions down in line with the Paris Agreement. We'll continue to invest in the transformation of our fleet to propel that energy transition, but also to maintain competitiveness and to ensure that our unit cost is good. We're working on the transition from the Alliance to Gemini. And of course, as always, we'll do our utmost to take care of our people and make sure that we make the most out of the team that we have. And with that, I think we'll move into Q&A.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking the question. Anyone who has a question may press star and 1 at this time. Our first question comes from Satish Sivakumar from Citi. Please go ahead.

Thanks, Mark, and thanks. I've got three questions here. Maybe I'll start off with the demand trends. If I look at the Far East volumes in quarter two, it's probably down around 1%. Obviously, nothing significant, but just wanted to, because that's the only reason that I've seen volume decline. Is it mainly because the shipments are taking longer and that's what is actually causing this volume to be down? Or as we came into June, you started to see someone went there. And within the demand, if I could actually another follow-up there, is how does the trends look, say, transatlantic and not south versus far east in terms of your visibility right now? So that's like my first question on demand. And then second is back in Q1, you flagged the role of surcharges to offset some of the contracts that you signed broadly flattish year-on-year or maybe low single-digit up. Do you still have those surcharges in place given that the spot rate is actually starting to see looks like it has peaked in the near term? And So that's my second question. And then the third one is around the order book. Gemini, obviously, your partner, Musk has announced a new set of order book. And where does that leave you, both in terms of your own maintaining the market share versus your contribution to the alliance as well? Yeah, thank you.

Okay, well, maybe let me try and take them one by one. I mean, in all honesty, I didn't fully understand the question on Far East demand being down because when we look at CTS, it's basically up 7%. Our own volumes are up 6%, if I'm not mistaken, for the first half. So I think the trend of strong exports out of Asia.

So basically, I'm looking at the slide number 10 where you showed 573 TTU goes to 565 in quarter two. So basically in quarter two, it's slight decline. I'm not saying this is more. I just want to understand.

Sorry, now I get it. The question is the quarter on quarter. In fairness, that's mainly driven by longer shipment duration. If we look at it on a If we compare it to previous year, then we actually see that volumes have been up. If we look at shipment duration, because we do end-of-voyage accounting, then in the first quarter, we still had quite a lot of sailings that arrived when Suez was still open because they had passed through Suez. before the 15th of of december and because of that you see that clogging up a little bit if you look at it on the start of shipment basis we actually see you see a little bit of growth so i think our development there is actually in line with market if you i believe cts is plus seven percent then we are plus six percent or something like that or plus five and plus six but that's roughly in line when looking at the other trade I think we saw Transatlantic is also up this year, but when looking at rates, those are, of course, disappointing there, as we see that all the upward pressure on rates is very much concentrated on the export rates out of Asia. In terms of your second question, was the surcharges on contracts, in many cases, yes, in principle, those are still in place. Keep in mind that the contract rates in the standard contract rates in many cases are very far below where the spot market is today. Then on the order book, when I look at our own situation, I mean, we had ordered a fair number of ships in 2021 that are now gradually coming into our fleet. We also have a number of long-term charters that will still come to our fleet. And as a consequence, you will have seen that our standing capacity has grown significantly steadily to now about 2.2 million. That will grow a little bit further over the upcoming 12 months on the back of commitments that we have made. And that will allow us also to contribute our fair share to Gemini.

So maybe a couple of follow-up. In terms of like visibility, like what you get to see, obviously we are already like halfway through this quarter as well. How does Transatlantic as a north-south compare versus quarter two in terms of demand?

I mean, we see good utilization on transatlantic also in the third quarter. So I think demand is not necessarily the issue on the transatlantic. I think the challenge we face on the transatlantic is that the rates are just too low.

Okay, so that's... And what does it mean on the north-south?

Sorry, I didn't understand that.

North-south trade lane? Like say, yeah, we got a good color on transatlantic. It is still holding up. But what about north-south trade lane?

I mean, north-south trade lanes are generally fairly stable. But also there we do not see the uptick in rates that we have seen in the export trades out of Asia.

Okay, got it. And maybe, sorry, one more follow-up on the order book. Obviously, most flag that the next slot you probably get is 2029. And, like, what's your, like, thinking towards, say, looking at your fleet modernization into later part of this decade? Would you still, like, look at placing some orders? Or, basically, are you engaged in any discussion of shipyards right now? not for near term, just basically into 2030s.

I mean, we are always talking to the arts to see, you know, what are the options that are out there. I would say that it is not unlikely that we will also order some more ships somewhere in the next 12 months, but that will clearly be for deliveries towards the end of this decade.

Okay, got it. Thank you. That's quite helpful.

The next question comes from Omar Nocta from Jefferies. Please go ahead.

Thank you. Hi, Rolf and Mark. Thanks for the update. Just a couple questions from my side, and maybe just sticking with the orderable discussion. Obviously, there's been a big jump in new building ordering here the past maybe two months or so, and it seems to have started around, I guess, May, June, just around the spike in spot rates. And this comes after a fairly quiet 2023 and maybe back half of 22. I just wanted to get a sense from you. Obviously, you're not aggressive in the ordering, but what do you think has been driving the renewed interest in ordering this capacity in a meaningful way? Is it really just coming down to unexpected profitability this year, or is it something else? And then second question, just wanted to ask, given the explosion last week at the port of Ningbo, just wanted to get a sense from you, given your operations there, what's the status of the port and terminals that you operate on, and what kind of effect do you think this is going to have on the market? Thank you.

Last point first. I mean, that's, of course, a very unfortunate incident. We do not expect that to have a major impact on your patients in the port of Ningbo, nor on our services. Of course, the ship from Yangming that was affected, that will be out of service for a while, so that particular voyage will probably not be completed the way it was planned. Apart from that, we do not expect to see a major impact. In terms of the order book, I mean, These things tend to come in waves. And now we have, again, a wave of orders. I think that's not unexpected. Also keeping in mind that many of the slots that are being sold today are really for 27, 28, 29. And looking at the aging global fleet and the environmental regulations that are coming towards us, which will also require us to, for example, say a little bit slower in the future, I'm not surprised that we see some further orders now, and that's also why I said in response to the previous question that also we are looking at whether we have to order at some point in time for delivery towards the end of the decade.

Okay, thank you. And maybe just one follow-up, Mark. I noticed that you're discussing the lease liabilities, that that number has gone up towards 2.8 billion or so as of 2Q. It's a bit higher than what we've seen recently, and it's getting close to where it was at the highs in 22. Is that a function of just taking delivery of the new buildings, or is it just a function of having to have added on more capacity at a higher cost here recently to maintain capacity?

Basically, it's both, so to say. So, due to the situation that we have all seen that we had to, and Rolf mentioned that, had to bring in more capacity, we also used charters. Prices were also up, as we have seen, and that is a result of that.

As a reminder, If you wish to register for a question, please press star N1 on your telephone. The next question, Councillor Andy Chu, Deutsche Bank. Please go ahead.

Morning, Ralph. Just one question for me, please. On the order book of, I think you're looking at sort of 18%, how much of that do you think is growth and how much of that do you think is replacement? And then just looking into next year, the 1.9 million TEUs that you're flagging on slide 14. Again, how much of that do you think is growth versus replacement? Thank you.

That's a good question, Andy. I mean, I probably have to pass that on to Maersk and MSC and CMA, yeah? Because they have, yeah? Especially MSC and CMA have the biggest order books, so... I don't know. I think that's difficult to predict. I mean, under normal circumstances, I think we've said before that in a normal market, an order book would cover about three years. If you take three years of growth, if you assume two and a half percent, then you need probably seven and a half percent for that. In a normal year, you would see four percent scrapping. So three years, three times four is 12. So a normal order book, between 15 and 20 percent of the global fleet is really not unusual if you have a normal average age of the fleet, and that's what you have today. So I think today the size of the order book as such is not so crazy, also because in reality the order book probably today stretches out to 29 or so rather than to 26. And keep in mind that the scrapping was exceptionally low over the last three or four years, so there will be a catch-up effect on that. So how much of that is going to be replacement and how much of that is going to be growth? I think that remains to be seen. Depends also on the market. I mean, everyone probably planned to phase out more ships in the last three or four years than they actually did. Because today we need everything that can sail to carry the cargo that is being offered to us. And so... It's a very difficult question to answer. I would say, though, that a significant chunk of the order book for sure is replacement. I mean, in the second half of this decade, at some point, scrapping has to go towards 4% or so a year. And if you keep that in mind, then you have a significant double-digit percentage of the fleet that will need to be scrapped between now and the end of the decade. and that would also indicate that a significant chunk of the order book should be to replace those ships.

Okay. Thank you. And then maybe just one sort of follow-up on Q3. Is there any sort of guidance at this stage you can help us in terms of how sort of peaky Q3 might be in terms of either EBITDA and or EBIT just to sort of help us in terms of magnitude of the step-up. Clearly, it's kind of the way you're booking in revenue, so you've probably got quite a lot of visibility as to what Q3 looks like. Thank you.

I think for now, I mean, we have some visibility on Q3. If you look at the adjusted outlook that we have given in July, it's pretty clear that we expect a strong Third quarter, yeah, that should definitely be stronger than the second quarter, yeah. And then we have to see what happens in the remainder of the year.

Thank you very much.

For any further questions, please press star and one on your telephone. The next question comes from Paraj Jain, HSBC. Please go ahead.

Thank you, Ralph and Mark. I have two questions. First, with respect to demand, as you mentioned that May and June were exceptionally strong months. From talking to your clients, can you get a sense that was it purely driven by a strong consumption or there was an element of front-loading, restocking? And does it mean that come fourth quarter, we may see a sort of mean reversion with respect to demand growth? And my second question is, is it too early to worry about the US East Coast port disruption in the near future? Is your customers preparing already to move cargo to the West Coast? Thank you.

I think when you look at demand and when talking to customers, I think it is indeed a little bit of a mixture. I definitely think there's an element of restocking. We all saw that inventory, particularly in the US, was a bit on the low side. I also believe there has been a little bit of front loading. Consumption has also not been bad. So I think it's probably a bit of a combination of the three. But I certainly think front loading and restocking has played a role. In terms of the East Coast, if you would have asked me in January, I would have said that I'm not so worried about that. Right now, when you look at the rhetoric that is out there, I think that unfortunately, the chances that there will be some disruption have definitely gone up. And I believe that that's also one of the reasons why you see that customers may have front-loaded volume a little bit. Because in fairness, if they start worrying about it today, they are too late. Now there's nothing you can do anymore. I mean, if you anticipated that, then you should have acted in first quarter and have been chipping in the second quarter. And maybe that is also... you know, partly why we have seen very strong demand, particularly also into the east coast of the U.S. since May.

And where do you stand? Is there any way we can, is the probability of potential strike has gone up from what you can sense?

I mean, I think that the potential potential I think the risk that there will be a strike, if you compare that to three or six months ago, has definitely not gone down. I think it has really gone up, but that's just because of what I read in the public domain and what you hear when talking to people. I think there's significantly more concern about that today than there was probably in January or March.

Fair enough. Thank you so much, and have a wonderful day. Thank you.

Gentlemen, that was the last question. Back to you for the closing remarks.

Yeah, not much to add from our side. Thank you very much for taking the time. We really appreciate you joining us for these calls. Hopefully, we were able to shed some light on the first half numbers and hope to see or speak to you again soon.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.