Hoegh Autoliner Asa

Good morning and welcome to Hoek AutoLiner's third quarter presentation. My name is Mai Lin Vu, Head of Investor Relations, and we have with me today our CEO, Andreas Engge, and our CFO, Per Winrosmo, who will walk you through the last quarter business and financial updates. As usual, if you have any questions, we have a Q&A session at the end of the presentation, and questions can be sent to our Investor Relations mailbox at ia.hoek.com. So with that, I will leave the stage to you, Andreas.

Thank you, Mai Lin. Welcome to this quarterly presentation. We're starting with a front page of a beautiful picture of Hög Aurora, the largest and most environmentally friendly car carrier in the world that we took delivery of in early August. And in this picture, just finishing his maiden voyage, successful maiden voyage to Europe, and is in the process of loading cargo for Australia. A very important milestone for the company since our fleet renewal program has been one of the driving pieces of our strategy, actually also one of the triggers of the IPO back in 2021. And we're very pleased now to see the vessels coming with this one in Europe. And also Högborealis, the second one, has after the end of the quarter left the yard in China and is loading in Asia as we speak. The quarter, pleased to report another strong quarter. EBITDA of 178 million. We have previously announced some vessel sales, meaning that we have a net profit of 193. We have continuing the growth in gross rates and with our dividend policy of paying out free cash because we are fully financed for our new build program and have a very strong balance sheet, the dividend for the quarter will be $245 million. And as I said, we have taken delivery and put in operation the first of our Aurora-class vessels successfully in the third quarter. And as I said, we have another one that is now in operation and we have another two coming towards the end of the year. Equity ratio 64%, reflecting what I said about the very, very strong balance sheet. We're going through the traditional presentation, commenting a bit on the market, on capacity and sustainability before we go into the financials. Just before we start and that's I mean at this stage just for the sake of good order we've just released a notice of planned future organizational changes and uh that is you know we are continuously working developing the organization a building a strong succession plan and creating opportunities for our people and one important element in that is that we have an operating model in her catliners where we do all the critical tasks related to our business internally with our own staff. And the largest office in the system is in Manila. During the last several years, we have added substantial new activities to the Manila office, includes activity we have traditionally had We had technical management of our vessels. We had the new builds. We've also and we had our entire financial or most of our financial office operating out in Manila. Recently, over the last few years, we've added IT. Our entire global IT is run from there. We've also built customer service. So it's becoming, you know, the largest and most important office in our business. system and an operating model. And we've also decided that further development and optimization and getting the full effect out of that office is very important to us and requires some more executive attention also from from corporate management and we have therefore, I'm happy to say that we agreed with Peter Eivind that he has been one of the key architects in creating the office and will from the beginning of next year spend more time on providing overall leadership in an executive chairman role for that office. which means that he will step out to the CFO role and will be replaced with Espen Stubbrud in that role. This is not happening now. It's happening in a planned process at the end of the year, but it's a reportable issue, so we want to make sure that we have shared that information. Going into the market, we have fairly stable, but as you know, somewhat lower volumes driven by the Red Sea and also a fairly high activity on five-year dry dockings of vessels and also obviously for the fact that we have sold some vessels, although they are being, you know, more than fully compensated by the additions of new builds that are happening this year. High and heavy brake bulk volume is stable. The net rate is, you know, continuing upwards, reflecting that we still, we have a continued strong market and we have a very positive activity on renewing and actually also adding new contracts. to the contracts uh we have as we as we said we've successfully signed a number of contracts uh you know adding up to five million cubic meters uh still with an average rate and new contracts uh above the 100 million dollar mark and a duration of 4.2 years which is i think longer that we had We still have some volume to renew before the end of 2024. There are good processes around that. And we basically continue to have contracts that are strengthening our backlog and creating a more robust rate level in Q3. Contract coverage was up to 75%, which is historically high, but we are continuing to build and are aiming for the 80% mark during 2024. And this is obviously a very important part of our priorities and economic model that we We are now focusing on creating a robust platform with customers and happy to report that we're making great progress on that. Also on the volume side, deep sea shipment of cars is increasing. It's still very much driven by Chinese exports, but a robust development also in many other markets. With high and heavy, in many ways the same development. There's been, we've talked about before, a dip in 2024. We believe we're back on a growth track. And also in that segment, we see fairly stable volumes or slight declines, but it's a fairly stable level out of Japan and Korea, and a strong growth out of China. Capacity. We're now entered into the kind of delivery phase for new builds through 2024. There has been a series of vessels delivered, including then one of ours if we include only the third quarter, two if we include to date in the fourth quarter, and four if we count to the end of the year. That is easing the charter market slightly, but still at a high level. And obviously, the deviation around Africa with the closure of the Red Sea is also continuing to create the strain on capacity. On sustainability, I started off with the, you know, talking about delivery of Hög Aurora and You know, these vessels with LNG and due to its size and lots of improvements in fuel efficiency in the design is actually from yard today delivering 58% lower carbon emissions per car transported than... a typical or an average car carrier in the market today. And as we add those new builds and also as we continue technical upgrades to ensure optimized fuel efficiency during dry docking of older vessels, we are on the trajectory to improve our carbon intensity substantially in the years to come. That is the start, and I'll leave the details on the financials to Previn.

Thank you, Andreas. As usual, starting with a short recap of volumes and rates being the main driver for both the top line, but also the EBITDA and the cash flow. We had a small reduction in volumes, 2.8% down from 3.5 million CBM to 3.4 million CBM. Mainly coming from, as Andreas mentioned, periodical maintenance of more vessels, but also some repositioning. Mainly due to the issue in the Red Sea, it still creates a need for us to reposition vessels between continents. And that absorbs, of course, capacity. The net rate continued to increase, 83.2% to 86.7%, plus 4.2%. And the main driver now for the rate increase, as it has been the last quarter, is actually renewal of contracts, leaving behind us old legacy contracts with low rates and replacing them with contracts with higher rates. That's the driver more than the spot rate, time being. And converting this to numbers, it has been very stable the last quarters. We had revenues of 349 million. The lower volumes was offset by the higher rates, taking us from 341 to 349 if we compare with the last quarter. But as you see over the last five quarters, this has been pretty stable. And the same goes for EBTA. The EBTA margin is between 50% and 52%, 51% the two last quarters. And we had a small increase in EBTA from 174 to 178. So out of the 8 million that we increased the top line with, 4 million was converted into EBTA. Net profit before tax is record high this quarter. It's 196 million. The main reason for that is that we, in addition to the result coming from the operation, have included the sales gain from the sale of Høge Kobe and Høge Shiba, and that is together 52 million USD on top of the normal operating profits. The bridge between first quarter and third quarter is basically driven by cargo revenues from first quarter to second quarter. It was volume that increased and now from second quarter to third quarter, As I said, it was the rate increase that was the main driver for the uptick in EBITDA. Other expenses like bunker and other operating expenses, voyage expenses, is pretty flat actually between the quarters. The balance sheet, Andreas said it, we have a very strong balance sheet. We had net debt by the end of the third quarter of 255 million USD only. Net interest bearing debt EBITDA ratio 0.4. The book value of the equity is 1.3 billion USD, 64% of the total balance sheet. And we built a substantial amount of cash during the quarter that is also reflected in the proposed dividend. In addition to a solid cash flow from operation, we also had net proceeds from the sale of the vessels, of the two vessels that I mentioned, of 119 million USD. And both vessels were debt-free, so that cash is... is going directly into the cash balance here. There is no repayment of debt. In addition, we have unused drawing facilities of 208 million. So the liquidity reserve by the end of third quarter was 551 million USD together. A closer look at the cash development, we started with 195 million USD. We generated 190 million from the operation. EBITDA was 177, so we had a positive development in working capital, reducing the working capital through the quarter. We spent 10 million on investing activity other than vessels, mainly dry docking and maintenance expenses. We sold the two vessels that I mentioned, Koba and Shiba, 119 million net proceeds. And then we have taken delivery of Høge Aurora, that was 70 million out of the 100. And we also have purchased Høge Jedda during the quarter. We have used 19 million on debt service, amortization, repayment and interest expenses. And we have taken 110 million in new debt, 70 million on Høge Aurora and 40 million on Hageda. And then we have all the lease payments of 17 million USD. And then we paid 127 million USD in dividend and then a minor currency gain. So that is taking us from 195 to 244. Balance sheet, as we have said already, very strong. Our balance sheet is easy to understand. Most of the balance sheet is vessel and new building, close to 1.5 billion USD. We still have some right of use assets, vessels, but it has been considerably reduced over the years as we have purchased most of the vessels that we previously had on leases. That is 72 million. And we have bunker and receivables of 141 and cash of 344 million. That takes us to somewhat in about 2 billion in total assets. And the equity is 1.3. The interest-bearing bank debt is now 513 million. We have some lease liabilities of 119 and we have all the current liabilities of 86 million. The book equity per share is calculated to 6.8 USD, equivalent to 74 NOK. If we replace book value with market value for the vessels, we end up with total assets of 2.5 billion, and that represents a value per share of 13.3 or net asset value of 145 million, NOC 145 per share. Yeah, we have disclosed it and Andreas mentioned it initially here. We are proposing a dividend of 245 million USD. We expect to pay that in middle of December and it adds to the considerably dividend payments that we already have done so far this year. Okay, outlook for you Andreas.

Yes. And I think this is becoming a slide that is not changing so much between the quarters. And there are really three points in this. And one is that the market remains strong. We are in a good track. We have started to add capacity with top-notch modern vessels. And we are having good progress, as I said, on contracts and contract renewals. The geopolitical situation I don't think is changing much either. It's complicated. And it's obviously some effects of Suez being effectively closed for our type of operation. But it's not much change in those dynamics. And we have adapted and responded to that, I think, operationally in a good way. Anyway, it comes to expected Q4. I think there is a high level of stability in this, meaning that we expect a Q4 EBITDA to basically be in line with our recent trend rate. And we are in the process of increasing our contract share, securing more cargo under longer contracts at strong rates. So that ends our presentation and thank you for listening in and we're opening for a Q&A.

Yes, we have to receive quite a few questions from our audience this morning. And the first question is about the general capacity planning. What is our plan with the older vessels where we have more and more delivery of the new Aurora-class vessels?

I mean, I think we have first, we have obviously used the opportunity to sell some vessels and we still have one vessel where Høge New York, we made an agreement and we'll deliver, which we will deliver early next year. So we have chosen to sell some older vessels at good prices to match the delivery schedule. Meaning that we are adding capacity, but we're not adding massive capacity. But I think the future capacity strategy, we will sort of work on as it goes along. Right now, we are We are quite tight. I mean, we could easily have employed the vessels that we have divested. It's a bit of sort of balance sheet and fleet balancing. There are some vessels that are going to also be retired in the years to come with age. But we're managing that carefully. But I think the main thing about our capacity strategy now is that we have world-class new builds. We have a large sort of legacy fleet that is well performing and unencumbered with no debt. So we have flexibility to basically continue and we could add extra charter vessels as that market gradually opens up. So in a way we are in a very comfortable situation where we have all the tools in our bag to number one, go green with our customers, but also to balance our total capacity to our total requirements. And I think we will report on that as we make decisions going forward.

Yes, thank you, Andreas. And the second question, this has been echoed by a few different analysts and audience, is about the sentiment of the recent contract renewal. What we are seeing, what can we say anything about the negotiation and the rate we are seeing for the recent contract renewal compared to earlier this year or last year?

No, we don't really comment on rates on individual contracts, and that differs. But I think I will comment on the processes in the sense that, I mean, to some extent, we are also getting some questions, but when do we announce contracts? And the dialogues with our customers are positive, going well. we are working hard to make sure that we get you know balanced terms and we are have sort of taken some time to make sure that we we you know do improve the contract language and terms and these are large organizations so it it naturally takes some time So while we would like to announce sooner, we have to have the entire process completed before we sign. But we're quite pleased with the processes, and I don't think we've experienced any any setbacks or things regarding neither rates nor terms nor contracts. So it's quite a positive environment. I think we've seen our industry moving in a more industrial direction. I mean, we are not sort of chartering out vessels on spot trades and stuff. We are creating trade systems that has multiple customers and that creates some some stability and we've reported you know the fact that we now have a contract coverage up to 75 percent is a substantial improvement to previous and with what we're doing you know that contract coverage is also moving upwards.

Thank you. And the next questions, also from a few different analysts is about the outlook. So you wrote in our look that we expect you for it to be in live with the last nine months. Andre, can we say anything more about that?

I mean, I think we are expressing a level of stability in the outlook and that we have a robust platform for performing at the current level. I don't know, Preben, if you would add any details to that.

That's what we tried to say. It's quite stable. We don't expect a lot of changes in fourth quarter. And so I think that's what we can say about it.

And that's something I mean, it's it's it, you know, it's a it's a we're operating a complicated system versus lots of lots of moving parts. And we have the impression that many analysts thinks, you know, a couple of percent up or down is a big deal. And in that background, that background, I think it's fair that we hedge our language a bit on the outlook.

The next question is about our new vessels, Hawk Aurora. How does the ship perform versus expectations? When could we expect some cost impact when the vessel is fully integrated in our system?

I mean, the vessel has performed fantastically. It's been what the people that have been in this much longer than me says that it was probably the best build number one of a series we've had. So we had a very, very good cooperation with the yard and all our partners on that. So the performance is very good. It has completed the first maiden voyage. Cargo operations are fine. Its operation is good. It has the LNG capability that is important. So we are very, very pleased with having it. And I also want to emphasize the fact that this, I guess, according to our original plan, is almost half a year early. So it's also ahead of schedule. And that will gradually go into both our performance and our carbon emissions. But now it's one voyage on one vessel in the fleet. So that's coming gradually, I think, into the fleet over the next 12 to 18 months.

Thank you. Yes, and since to build up on the new building program or a new building, it's not a secret that we see a large order book in this segment. And we also write in our look at that with the deliveries of the new build to the other operator as well. It will take away gradually some of the pressure seen in our industry. How could we comment about What can we comment about the outlook with increasing delivery of the new vessels?

I think that, I mean, that is a big question. But I think we should start with the fact that we have, you know, had an aging fleet over, you know, more than a decade. So we believe that there is a quite substantial, you know, renewal overhang. And I think also it's like we also... you know, see the quality of the new vessels. And, you know, we have all these discussions of decarbonisation and new fuels and willingness to pay. But we are quite confident that when we're taking on vessels that are really able to reduce carbon emissions per unit transported by more than 50%, actually with no additional cost, even with more efficiency, That is a good platform. And the fact that with the 12 Aurora-class vessels being substantially larger than the average, we are making a very substantial renewal. We have captured the opportunity to divest some older vessels at very attractive prices, covering a large part of the equity installments in the new builds. So we are confident that we're building a more robust fleet, a better performing fleet. We're building a stronger contract portfolio. And it's our clear ambition or impression that our customers want that stability in their supply chain. So we are optimistic, but I don't think we're going to speculate on that. what's happening but still at currently what what the renewable deliveries are there yes they're easing somewhat extreme pressure but uh but it's also you know uh filling in the gaps from from you know a decade of of under investment thank you uh yes um the next questions uh is about the

fluctuation in rate from month to month? And this question I can answer. So I think we always all previously guide before, I mean, or inform the market before the fluctuation is the market is simply because as a result of different vessel positions and in different months, and I would want, we will not try to treat it as an indication about the general macro market in general. And Yesterday, we received a few questions about the macroeconomics and the impact of tariff and the impact of the potentials of the upcoming US elections. And what we can say is that any kind of tariff in general is not good for the business, but it is something we are closely monitoring and we will take actions accordingly. Yes. So with that, I would like to conclude today's Q&A questions. Thank you very much for your attention, and we look forward to seeing you next time. Thank you.