Hoegh Autoliner Asa

Good morning and welcome to Hög Autoliner's first quarter presentation. My name is Malin Vu, Head of Investor Relations. And with me today, we have CEO Andreas Enge and our CFO Espen Stubbrud. As usual, we will walk through the business and financial performance of the last quarter and we will answer your question at the Q&A session in the end. So with that, I will hand over the stage to you, Andreas.

Thank you, Malin. Yes, welcome to our first quarter 2025 presentation. We are pleased to announce and present another good quarter in a somewhat turbulent world, starting off with this very nice picture of Hög Sunlight, our new build number four during its naming ceremony in Shanghai earlier this year. The quarter in figures, we have an EBITDA of 155 million in line with plans where we have previously reported that we took on significant additional contract volumes to create a more robust and stable backlog at slightly lower rates, now down at roughly $95 per cubic meter gross. We have a net profit also of 155 million, positively influenced by gain on sale of an older vessel. We are in line with our dividend policy, declaring 158 million US dollars of dividends for the quarter. We have declared an option on our last bare boat leasing vessel, Hög Copenhagen, which is a strategic long-term vessel in our fleet that has been on a bare boat lease and we've executed an attractive purchase option on that vessel. And we have retained a strong equity ratio of 59%. So in our view, a strong result, totally in line with strategy and reflecting the robustness of our business model and our customer backlog. Going into the main topic, starting with a bit on the market and commercial side. We have had strong volume developments out of Asia. slightly lower volumes in what we would call the return trades, ex-Atlantic. We have a somewhat lower share of brake bulk, high and heavy. Maybe not by desire, but the fact, a consequence of the fact that we've chosen to expand our contract portfolio and to serve our clients, it has implied, you know, a somewhat higher share of cars in our portfolio. And then net rates going down as previously announced as we have extended duration and robustness and scale of our contract portfolio and running this quarter with a very, very high contract share ratio. little drop into the the the contracts we have as i said a very robust contract portfolio both for 2025 and 2026 for the quarter the contract rate the share of our cargo rate is now up to 82 percent remaining average duration is still 3.3 years and we have very few contracts to be renewed in 2025 so we have a very stable picture on the contract side on the rate agreements they are typically shorter and can be adjusted. And there's a different set of clients, a lot of forwarders and used vehicle shippers. But it is also long standing relations and stable structures around our rate agreement portfolio. And 2024. If you look at the spot, we have had some discussions and some confusion around the spot versus contract mix. And I think the easiest way to explain it, which we've done several times before, is that most of the cargo we are carrying are under some kind of agreements and our distinctions into contract and spot when we do some sort of the simplified description is that contracts are agreements of longer duration with some commitments on rates and volumes. while we have grouped into spot you know all the kind of also contracts that does not include volume and price they increase might increase include price agreements but the prices can be changed and and the customers have no obligation of delivering cargo we've chosen for simplicity to call that spot although there is an agreement beyond it It's important then also to note that that cargo segment that we call spot is not kind of the typical spot shipping cargo that fluctuates widely with markets. It's a different type of category. It's freight forward. It's much more high and heavy. It's much more project cargo. And if you look at over the full cycle, it has a sustained premium to contracts. So I think it's important in sort of measuring the contracts, but how that actually works. It also means that our decision to take on larger contracts on new cars and running a higher contract ratio is slightly diluting to rates because we are giving up opportunity to take the more opportunistic and better priced through the cycle spot cargo including then the freight forwarder business and the used cars. The shipping structure and flows are quite stable. The growth of exports from China is continuing and growth of both EVs and actually larger growth now of hybrids in the export share from China, but still a growth across segments. out of China and sort of moderate growth in the market in total. Same with high and heavy. We basically see that after some reductions the last few years on a slowly increasing trend, we consider the high and heavy market to be robust, there are substantial cargo opportunities and we will obviously continue to serve and focus on taking back cargo shares in that segment as well. Again, it's also a business that is driven by growth out of China. Maybe the biggest event of this quarter is really not reflected neither in our results nor in our current business operations, the US tariffs and the US port fees that has been announced. It is quite substantial amounts. There are 25% tariffs now implemented on foreign made vehicles and a range of car parts. It is 10 to 145% import tariffs announced. The 145 is maybe less relevant for our business in the sense that our business in the US is not very much driven by Chinese exports. But tariffs as such is obviously longer term bad for business, even though it hasn't really yet affected the trade flows very much. Port fees is also a different one. It's now announced a scheme that is $150 per CU capacity for each entry to US waters, meaning not per port call as previously. it will be a significant cost addition. It will not come into effect before October and I don't think we will speculate on what may or may not happen in negotiations and discussions between now and then. But it is an uncertainty both on the effect of the tariffs on our customers and the trade flows and obviously the risk of additional costs coming out of the port fees. Just in that spirit, we've chosen to add an additional slide this quarter, just describing our diversified range of load and discharge destinations. And if you look at the US, it is a significant, but clearly not the dominant part of our business portfolio. It is an attractive and good market for us. We have fairly balanced flows in the sense that our exports from the US corresponds fairly well with the import volumes. We have very strong customers that we really like to serve. As I said, we are awaiting results. We are remaining in very close contact with our US-based customers. Several of those would include some of the companies that are expected to invest billions of dollars in building manufacturing capacity in the US. in our dialogue to them, our clear impression is that our service both into and out of the US is critical to their strategy of developing their US business. And we'll just have to wait and see how that, to what extent that may impact the structures. But there is substantial uncertainty, obviously, from these tariffs that is hitting, you know, a an important market segment for us, both in terms of import to the US and exports from the US. In that range of uncertainty, and I have said in a couple of other settings, that in the five years I've been with this company, we've had a financial crisis from a very weak and oversupplied market. We've had a pandemic. We've had some fire incidents. We've had a bridge falling down. We have had... both the Panama and Suez Canal being heavily disrupted and for Suez even closed for a long period of time. And I think we have demonstrated that we have both the flexibility in our network and an organizational capability to deal with those types of disruptions. And we are building on a flexible network diverse cargo access, which actually we have substantially strengthened during last year, as we said, with the customer backlog. We are customer centric in the sense that we are dealing directly with the large OEMs and we have close contacts with all of them. So we are not operating in a broker and trader market, but are integrated parts of the value chain, distribution chain, logistic chain of some of the largest automotive equipment companies in the world. And we have a pure play strategy that allows us to put all our intention into optimizing that system and that has served us well. Just for information, I mean this is not a prediction or an estimate of any kind, but the full impact of the proposed port fees on our operating patterns is in the range of 60 to 70 million dollars. We will obviously do a range of measures to try to reduce the exposure by, you know, consolidating loads by having customers taking share in the payments and so on and so forth. But just to sort of, given that it is a big issue, it's a large number, but it's a number we can work for six months to find good solutions together with our customers to reduce. And it's a number that we are actually fully financially capable of carrying if the worst scenario should happen, just to get that in perspective. Then a little touch into sustainability. It's obviously come a bit out of focus with so many other events, but I'm also pleased to say that I have visited lots of customers across segments in Asia, in Europe and in the US during the last six weeks. And despite a need obviously to address other disruptions, we have strong and good ongoing discussions with our customers on how to deal with the decarbonisation needs and the decarbonisation pressure that we still expect will remain. And in that spirit, we're pleased that this quarter does include a significant drop in our carbon intensity. It comes from a very extensive dry docking schedule, glass renewal on vessels last year and towards the end of last year. adding somewhat to the capex but obviously then having a lower schedule for the following years and all of them including substantial programs to improve the energy efficiency on the vessels through different types of modifications. And we've also bunkered 2,200 tons of sustainable biofuel, 100% biofuel in the first quarter. So we are continuing taking delivery of the most energy efficient and carbon efficient vessels in the world. We are continuing to offer biofuel solutions and we're continuing to upgrade and execute sort of energy efficiency improvements on our existing fleet that in some is delivering on our strategy of reducing our carbon intensity and the carbon footprint. And with that, I think I'll leave to Esben that will take you a little further through capacity and the financials.

Thank you, Andreas. Turning to the capacity side, the one year time charge rates have come down from very, very high levels. As Andreas have been said for quite some time, we've been very cautious in using the capacity market over the last period because of very high levels. But we had a plan to come into 2025 being long on cargo, also anticipating that the capacity market will normalize. And as a consequence, we have charged two large vessels so far this year. One was operational in January and the other one is operational during April. We've also charged one trip charter in the quarter and done a few smaller space charges as this market is opening up and normalizing. Turning to the financials, our volumes were moving flat quarter on quarter. The first quarter is normally the weakest quarter in our industry. Typically January is a bit slow after production has been reduced or been limited during the holidays. So to see some idling of vessels into loading position in January is normal. Having said that, we've been absolutely sold out with more cargo than we can carry out to Asia in the quarter, but we saw somewhat lower volumes out of the Atlantic than what we expected, particularly, as I said, in January and early in the quarter. As already Andreas talked to, we've taken on more car contracts, which is changing our cargo mix with more cars carried, which is negatively impact the net rate by 7% quarter on quarter. Somewhat limiting, as Andreas said, our ability to load better paying cargoes in the shorter period. The first quarter EBITDA came in at 155 million, and the reduction is related to the reduced revenue of 9%, but also 9 million in extra cost from the increased activity on the charter side. Because of the somewhat lower volumes in the return trade early in the year, volumes came in a bit lower than expected because we have more capacity on the water. So we have a somewhat lower network efficiency in the first quarter, causing more ballasting of ships from the Atlantic back to Asia. which is reflected in EBITDA. But it also means that with four Aurora new builds now on the water and two new charter vessels operational, we have a potential to load more cargo going forward. Net profit up 11% quarter on quarter on the back of the book gain of the sale of Hög New York. Looking at the EBITDA bridge quarter on quarter, we can see the reduction in revenue, mainly as mentioned from the reduction in net rate, somewhat offset by lower voyage expenses in the quarter, but we had 9 million extra in charter expenses as mentioned. We have a strong balance sheet. Net debt to EBITDA is still below 1. Equity ratio around 60%. And we have cash and liquidity reserves of 448 million at the end of the quarter. Cash generation during the quarter also strong on the back of particularly the net sales proceeds from Høgh New York. We had 121 million in cash flow from operating activities, somewhat negatively impacted by changes in working capital in the quarter. And then we had Dry Dock and other capex of 14 million. And we paid 20 million in yard installments for new build number five and six. Those vessels will be delivered to us in May and June. We had the 61 mentioned from net proceeds from selling Högge New York. And we had normal depth and lease payments and paid dividend of $90 during the quarter, meaning we ended with cash of 233 million at the end of the quarter. We are pleased to pay out 158 million in dividend for the first quarter. The dividend is the free cash flow in the first quarter plus adjustments to working capital related to withholding tax and yard installments. It marks the 12th consecutive quarter of paying out dividend. We paid out almost 1.4 billion or 77 NOK per share.

Yes. That leaves us with the outlook. And I must say, before we go into that, that this is obviously an exceptionally difficult quarter to provide a meaningful outlook on everything that has to do with geopolitics. But I would want to say that in our business, we do have a robust run rate and we have sort of good traction into the quarter. I also want to emphasize that the reason that we are also fully comfortable continuing our dividend policy of paying out cash is that we did fundamentally delivered the company before we started paying out dividends. We have an exceptionally strong balance sheet. We have a fully financed fleet renewal program that is satisfying our fleet renewal need for this cycle without any additional future capital expenditures. So we are comfortable of having a very strong balance sheet, a fully financed renewal program, and a very robust underlying structure going into whatever might come of disturbances. And when you look at the disturbances, clearly the tariffs and port fees are on the top of this. It is, as I said, not really affecting business yet, but it is clear that without negotiating solutions, which we will believe there will be some of, but we can't really predict, it will impact trade flows into the United States. And obviously, as we talked about specifically, the port fees might end up as an economic burden, you know, if fully implemented and depending on the level of how we manage to, together with our customers, develop mitigating solutions. So that is something we're clearly following and it's definitely the biggest uncertainty on our horizon. Coming to the traditional ones with Red Sea, I think there is no real change. We don't foresee a near-term opening, but obviously we are following that one as well. And in general, we expect the Q2 EBITDA to be in line with Q1. So that ends our presentation. And I think we're ready to move on to any questions that may be from the audience. Mylene?

Yes, thank you, Andreas. And we have received a few questions from our audience during the presentations. Yes, and the first question is asked by a few investors. So given the increasing uncertainties, how is the risk with the long-term contracts? Can we comment anything about that?

No, I don't think we can say much more than what we have done previously. And that is that, I think we said that in the last quarter as well, that we have good experiences with customers sort of fulfilling contracts. And we do have increased sort of commitments in these contracts. We have improved the structure of this. We did emphasize last quarter, and I think that maybe comes more to the surface. The biggest risk is clearly when volumes stop flowing. Because when volume is not flowing in the right way, you have to come to some kind of agreement with the customer and figure it out. And you are definitely entering into a negotiation situation. and the US situation might create that risk for certain volumes. But we believe that our decision to go long cargo, our decision to expand our contract portfolio with substantial large new contracts is making us fundamentally stronger into this uncertainty that comes. And I think that is the important part for us. Huge disruptions in trade flows will obviously trigger negotiations, but we'll have to wait and see. I think our objective and our expectation is to work with customers to try to reduce the impact of this to the greatest extent possible. And we generally believe that the trades we have in and out of the US is important to rebuilding also the manufacturing base in the US. And let's see how that plays out.

Thank you, Andreas. And I think the next question is for Esben. This is a question coming from our analyst, Oliver and John from SEB. So how should we think about the charter expense going forward? Because I see that there has been an increase in charter expense from last year compared to this year. So could you...

I think as mentioned, we planned to be long on cargo. We had more cargo than we could carry coming into the year. We anticipated that the capacity would normalize for the past few years. If you wanted to charter a ship, you had to charter a ship for five years. That has changed. Now we have two vessels for nine and 12 months respectively. You can also get shorter chargers moving forward. So I think we want to be more active in that market. Pricing is normalizing. Also, as I mentioned on trip chargers and space chargers. So I think it's a benefit for us to be able to optimize earnings and our network by using that market to somewhat higher degree. But for now, I think it's more about using smaller space chargers, maybe chip chargers to optimize rather than taking in more chips.

The next question is coming from our analyst Petter Haugen from ABG. We have a slide where we show the premium between the spot market and the contract rates. Could we comment anything about the premium between the spot market and contract rates in the previous boom between 2005 and 2008? Probably something you want to comment about as well.

I don't think I have that from the top of my head. I think we've shown a 15 year period. And the point is that even in much weaker market, there's a premium, a consistent premium over the full period, both in weaker markets and in stronger markets and around $20 for the past 15 years.

And maybe the difference, if you should say something, but it wasn't a dominant factor. But during the extreme tightness, you can see a spot market for cars that normally doesn't exist when you know market is there, which is basically stranded cars getting to markets. But those were, I think, exceptions during the period of a substantial capacity shortage. And I think it's a while ago that most OEM, the big OEMs had actually balanced that out and was not operating in that market.

Thank you. uh and the next questions uh we mentioned the gross estimated around 60 million impact from the port fees uh potential parties or current proposed port fees in the us and the questions is the next question is coming from the analyst christopher skier from arctic uh is there any room for us to seek compensations for these port fees

Yes, and I mean, I think I start by we do not estimate a cost of port fees of 6 to 70 million. We are disclosing that the full impact with no mitigating actions would be that. So it's basically a worst case scenario. That's the gross effect. And yes, there will be discussions of compensations. Yes, there will be adjustments on schedules and operating patterns to minimize the effects. But we do not want to speculate in the outcome of that at this point.

Thank you. Yes. um yes and i think the next questions we can go for esben about the deviant capacity um Should we expect the short-term change in the working capital to reverse in Q2? And how should we expect the dividend capacity for the quarter?

I think in terms of short-term effects on the working capital, yes. I think that we expect those are short-term changes to withholding taxes and receivables, somewhat higher bunker inventory. So I think the short answer is yes. Those are short-term effects.

Thank you. I think that brings us to the last question of the Q&A sessions. And of course, if you have any more questions, feel free to send an email to our investor relation mailbox at ia.hoek.com and we can get back to you. Thank you so much for watching and we look forward to seeing you next time.