Hoegh Autoliner Asa

Good morning and welcome to Hoag AutoLiner's Hoag 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. We will walk you through the last quarter performance. We have a Q&A session at the end of the presentation and you can ask questions by sending email to our investor relations mailbox at ir.hoag.com. So with that I will leave the stage to you Andreas.

Thank you. Opening this presentation with a photo of beautiful Høg Moonlight at the quay in Gothenburg where we had a naming ceremony while loading cargo together with valued customers in Gothenburg. This quarter we are Once again, presenting a strong result. We have good underlying earnings and profitability driven by our strong contract backlog and an operation as expected. Previously noted, we have some more imbalances than others, but fundamentally we're running full vessels out of Asia and are basically serving customers to the full and executing our backlog. I will open this presentation to basically respond to an issue of a slight change in the payment schedule for dividends that may require some explanation. And I want to do that by starting with reiterating how we operate as a company. We have focused a lot on creating value through the cycle by building backlog, focusing on a cargo strategy being overweight cargo. We have basically operated in the market now. There is persisting market imbalances with strong growth in Asia, not so much opportunities elsewhere in the world. Shorter market is starting to provide opportunities for short-term capacity, which we are using at the cost to develop and be able to maintain a strong backlog. And we are now faced with, I think, a totally new level of geopolitical uncertainty coming from things like US port fees and taxes and whatever. While we are fully committed to keep our dividend policy of distributing excess cash flow, we have found that the unusual geopolitical situation is requiring a slight modification. And it's really triggered by the fact that the implementation of the tripling of the USTR fees that came a couple of weeks ago has resulted in the biggest change in our short-term cash forecast as long as I've ever been to the company. And that period includes the shutdown during the pandemic where we lost a large part of our cargo share. And adapting to a world where governments choose to introduce or increase cash payable taxes with it in reality two-day notice is really putting an extra requirement for securing the cash balance that has made us conclude it is prudent to do a small change. And without going into too much details, but The US port fees, and we don't know exactly what's happening with them and the tripling and the retaliation from China, is creating a situation where we suddenly get an additional cost of $60 to $70 million per year effective immediately. And that is totally unprecedented. And we can have all kinds of ideas and theories of what will happen. But in our financial and liquidity management, I think we'll have to work on a worst case scenario and basically say that we have to be prepared for these kinds of shocks in a situation where our business is drawn into a geopolitical space where we don't think we belong, but we are still pulled in. But I think I also want to emphasize that this This is not reflecting a fundamental change in our business operations. I mean, coming to that when we have the guiding for the next quarter, but it is to make sure that we are resilient to type of shocks that we haven't seen before, not because we have any expectations that there will be further shocks, but we think it's prudent to be capable or make sure that we can handle it comfortably. And so what we're doing is that we are reiterating, reconfirming our dividend policy or paying out excess cash. We are adjusting the calculation method that basically results in a one-off non-recurrable impact to the Q3 distribution. And the way we do it is simply that instead of paying the dividends based on the running outlook of cash, we are changing it to actually do it on the cash balance we are reporting at the end of the quarter, in this case the end of Q3. And that creates in many ways a one-quarter gap in the dividend payments. Just to remind, we have a track record of paying out dividends. We paid out one and a half billion in cash dividends since our IPO. That is more than three times the equity value of the company at the IPO. So it's quite substantial. And again, we are committed and we have reviewed our financial resilience requirements. We have concluded that the current strategy, the current cash balance is sufficient and that we intend to continue to pay all excess cash in cash. But we have changed the liquidity policy from a forward-looking one to ensuring that we actually have that cash balance at any time in order to be robust against those types of shocks. And that then leads us to the headline figures, 155 million EBITDA. Slightly down, Espen will come into more detail, mostly, you know, a result of combination of, you know, the imbalances in the system and charter costs to keep up the volume. We have two further new builds at the end of the year, but we do, due to our vessel sales, have a capacity gap to fill that is creating some charter costs in the near term. 132 million profit after tax, $92.3 of ingress rate. And then what we talked about, the 30 million dividend, which is then not related to this quarter's free cash, but produced out of this one time change in the timing of payouts. We have taken delivery of one purchased previously bare boat chartered vessel, Herg Copenhagen. It's the last one, I think. Now we have exercised all the purchase options and we have a strong equity ratio of 54%. If you take into going into the market, I think one very important thing is that shipments from Asia continue to grow and expand despite US tariffs and despite the kind of environment, I said, increased geopolitical risks. So we have a very, very strong activity. It's mostly driven out of China. And as we see it, you know, Chinese growth and Chinese exports of vehicles and equipment is basically continuing to grow. And that is a trend that has, you know, been driving this industry for a while, continues to drive it. And, you know, Chinese share of exports from Asia or actually even the world is strengthening. High and heavy market is also, after some flat years, going into a good growth pattern. But again, we have a... stronger market out of Asia than we have out of the US and Europe. But the market is generally strong and supportive. We have, as we said, a strong contract backlog being fully booked in 2026. And we are continuing to add contracts, although I think both capacity and the market cycle, the big contract renewals for the next couple of years or next year is behind us. But we have signed a long-term significant contract during September with substantial value and a 15-year duration actually. We have a contract share that is now up at 81% and a duration of the backlog of approximately three years. We do have rate agreements, mostly one year, fixed pricing, but non-committed. That is a product that is mostly towards freight forwarders and secondhand vehicles. And we do have sort of longstanding relationships also in that area that basically creates stability. And also reiterating that when it comes to what we call spot, it's not the kind of same cargo in a spot contract. You know, new vehicles, OEM business is almost entirely on contract and 60% of the spot volume is sign heavy and brake bulk, which is cargo that, you know, has a different, has more variability in volumes and trades. Espen, should you take over on the capacity side?

Yes, on the capacity side there is still a significant order book in the industry. Net fleet growth is up 12% in 2025 and another 8% is expected in 2026. As we've talked to a few times, we have expected the charter market to normalize in terms of pricing, and we are using that market to a larger extent than we have in the past with five actually short-term charges in the third quarter. We see pricing is stabilizing around 40 to $45,000 for a large ship at the moment.

if i did take in a short word on on sustainability you know uh i showed we showed you hug moonlight we have six six of our new builds now in operation we've had an intense docking schedule which is sort of somewhat variable but we had a large amount of dockings of all the vessels in the five-year cycle in in uh in 2025. We do have a committed program to use every dry docking to upgrade existing vessels for better fuel economy and efficiency. We have then taken development of delivery of now in total of six vessels in operation of I think the most both carbon and fuel and cargo efficient vessels on the water. And that is now also materializing in a clear downward trend on our carbon intensity. We're also continuing to use 100% biofuel and have 100% biofuel available as a product to our customers. And we have 3,000 tons bunkered in the quarter. So we have a continued effort on decarbonization, both in improvement of our existing fleet, in taking delivery on modern efficient fleets, and obviously also in our path to zero, looking at future fuel options. And that drives us into a clear carbon intensity roadmap. Just reiterating, from 2008 to 2024, we have improved our carbon intensity more than 40%. And we do have a clear path to zero, where half of that carbon The remaining voyage is on improvements to, you know, non sort of zero carbon fuel related improvements. The last half of this in our plans will basically have to be covered by clean ammonia and e-fuels. And we believe we are with that on track to be able to deliver zero carbon transportation by 2020. With the uncertainties created by the delay of the IMO framework and others, I think it's also prudent to reiterate that in all our decarbonization efforts, we are ensuring dual fuel, multi-fuel capabilities. And we are 100% committed to be able to offer our customers zero carbon transportation by 2040. We are also committed to offering the option to billing customers on zero carbon transportation before 2030. But we are not underwriting the decarbonization cost of our customers. So it has to be aligned with regulations and the customer demand. And we have the ability to deliver, but we will obviously run our vessels in a matter that is economic and profitable in whatever regulatory market that exists. Then back to financials.

Yeah, turning to the financials. The fourth quarter volume came in at 4 million CBM. That's up 4% from the second quarter, but up 17% year over year. And we are particularly pleased with our volume development out of Asia. The first three quarters this year is up 48% on last year. So very strong volumes. The volume we loaded out of Asia in the third quarter is the highest volume we loaded since we IPO'd back in 2021. We talked to it a couple of times that we took on a couple of large contracts at the end of last year at somewhat lower rates to add to our contract backlog. That lowered the rates that came into 2025. We've seen very stable rates in 2025 with a net rate drop of 2% from the second quarter to the third quarter, mainly related to changes to cargo and trade mix. Revenues are moving flat on higher volume, quarter on quarter. EBITDA is down about 6% from 166 to 155 million as our operating margin is being reduced. And as Andreas already mentioned, we talked to the increased imbalance this year, basically reduced network efficiency. We also see somewhat lower utilization of our fleet in the third quarter. That's not so unusual, particularly in August when production is closing down. So which is reducing the efficiency somewhat in the third quarter and also using some more charter cost as we talked to. Net profit before tax came in at 132 million in the third quarter. That includes the 20 million gain of selling Høg Beijing. Turning to the EBITDA outreach, from the first to the second quarter, we added revenues of 38 million, and with that revenue followed the increased the wage costs and charter costs, but we increased the EBITDA to 166 in the second quarter. We also added volume from the second to the third quarter of the 15 million in revenue. However, that was fully offset by increased wage costs and charter costs. And with the rate net rate dropping about 2%, we come in at 155 million for the third quarter. Our balance sheet is robust with healthy ratios. We have seen net interest bearing debt being increased over the last few quarters as our new bills have been delivered. No new bills delivered in the third quarter, so moving flat quarter on quarter. And as Andrea said, we're looking forward to number seven, a new bill number seven being delivered now in a few weeks in December. and the new build number 8 to be delivered in January which will reduce our capacity costs going forward. Cash balance and undrawn liquidity from our revolver is moving basically flat over the last few quarters. So it's another strong quarter with strong cash generation. With somewhat improved working capital, we have 173 million in cash from operating activities. We have 27 million in dry docks and capex, which includes 10 million new build installment on vessel number seven. We have 42 million in proceeds from selling Hög-Beijing in the quarter, and we've drawn 46 million in debt. That's the 10 million for the new build installment, and it's 36 million for the purchase of Hög-Kopenhagen. The purchase option was exercised in the first quarter, but the delivery took place in August. Then we had normal mortgage repayment and interest of 31 million, and we paid leases of 43 million, which includes the purchase of Hög-Kopenhagen. And we paid dividend of 137 million, ending then the third quarter with cash of 230 million.

Yes, that only leaves us with the outlook. And I think we need to put in the cautionary note that tariffs may over time lower volumes transported. I think it's fair to say that that has so far not really happened in the sense that the Asian market has continued to grow and remains strong. But you know clearly it is a friction and we'll have to look carefully at that over time. The changes to the US port fees that was announced on the 10th of October with implementation from the 14th of October was, as I mentioned in the beginning, quite a substantial shock, adding costs of 60 to 70 million. And we are working diligently to mitigate the impact. We have close dialogues with all affected customers. We are I basically have strong beliefs that we will both be able to get unlikely full but substantial compensation of the US port fees from customers. We will also change our trade pattern in the US to optimize versus the port fees. So we are continuously working on mitigating. But given the kind of erratic kind of decision making in this field, it's basically hard for us to provide much guiding beyond the fact that we are clearly working to optimize around it. We are working with customers to recover the cost. And we have, as we said, chosen to have a slightly more conservative cash retention approach. policy by changing not the amounts over time, but the timing of paying dividends to make sure that we are resilient against these types of shocks. When it comes to the Q4 performance, we expect the operational performance to be slightly below the q3 ebitda level and that the ustr fees uh you know are expected to be around 20 million dollars for the quarter and i from the last one i would also say that we don't we are intending to to our mitigate the actions to do everything we can to avoid that number being multiplied by four for next year but given that it was introduced at the surprise on the fourth day notice, we obviously had cargo on the water and vessels on the way into the US that strongly significantly reduces our mitigation options during the fourth quarter. But we are working on adjusting and seeking recovery to reduce the impact going into 2026. So that concludes our presentation. We have open for questions. And Mylynn, is there anything to answer?

questions for the Q&A sessions. And the first question coming from analyst Jorgen Lian, DNB Econogy. The first one on the dividend policy. With the quarter end cash balance, we simulate around 200 million based on the declared dividend in this quarter via constant or function of certain assumptions.

Basically, we have said again that we will distribute excess cash. And we have said we're going to be on the reporting quarter. So I think using that number as an anchor point is useful. And we have reconfirmed in the board both that we consider that cash level to give us sufficient resilience and we have reconfirmed our commitment to pay out excess cash in dividends. But I think we should also remind that we do have Obviously, and the board has the responsibility to make a complete assessment of the total situation at any quarter. And that will obviously be the basis. But in the current environment, and we have reconfirmed our dividend policy, but we are using the last reported quarter as reference for what is surplus.

Thank you, Andreas, for the clarifications. And the next question is about port fees. I think we already briefly touched on that during the outlook sessions, but we mentioned the guide impact for US port fees around 60 to 70 million for yearly and yearly impact for Houttu. And how does this relate to the last quarter guide of around USD 30 million for a four-year impact, even that now the modified port fee is now 3.3 times higher? Sven, you want to?

Now, we guided on 30 million earlier, and then the increase in fees now is 3.3 times. So when we're saying 60 to 70, this is based on us optimizing our voyages into the US. And that's basically about minimizing number of voyages into the US. and looking at how we can do that from various angles. We have deep sea vessels going into the US and we try to consolidate as much cargo to the US as possible on those vessels. We also have activity in the Caribbean with smaller feeder vessels that are calling on the US that we will look differently upon and reroute. And of course, we also need to avoid any marginal calls to the U.S. that we have done in the past. So the 60 to 70 is an estimate on the cost for the company after we have optimized the voyages into the U.S.

And since we also got 20 million impact for Q4 out of the 60, 70 million for gross impact for the full year. So I guess for Q4, I guess it's also take into consideration the shorter lead time and between the modification.

Yeah, basically we had no time to optimize. So the impact will be lower going into next year is what we're saying. Yeah.

Yes, and the next question is asked by a few analysts as well. Another clarification on the Q4 guidance. Is it correct to assume that the underlying operational result is slightly below Q3 and that the additional 20 million US port fee will be added on top of that?

Yes, what we're saying is that the performance is continuing strong. The third quarter is strong and we're seeing also good volumes into the fourth quarter. We can repeat what we said earlier. We basically have more cargo than we can carry, very strong growth in Asia. So the underlying performance is strong also into the fourth quarter, but slightly below the third. And then on top of that, all of a sudden, we've had this extra 20 million that is reducing the performance in the fourth quarter.

Thank you, Espen. The next question is about capacity management. Hook AutoLiner is shuttering in more capacity. So what is the future consideration requirement we have for additional vessels at this point?

I think first we just said we have two vessels coming in in the next couple of months, which are welcome additions to the fleet. And these are, you know, large vessels, 9100 cu. They're much more effective and with our attractive both cost and financing on those vessels, they will come in at a capacity cost for us that is substantially lower than the charter market. So we welcome that. But beyond that, I think it's fair to say that looking at the charter rates that Espen showed without speculating too much, we were selling vessels to leverage and utilize a tight charter market and high asset valuation. that asset valuation is coming down. And I think that is probably reducing the likelihood of future vessel sales. But we have a fleet renewal strategy and we have a decarbonization strategy. So this is something we will always look at, but they will be done based on specific opportunities rather than any kind of pre-decided thing. But when it comes to investments in new capacity, Yeah, our program is fixed. We are getting those two vessels now. And then there is a gap until mid-2027, where we will then from mid-2027 into 2028 get the last four of the Rorach class vessels then coming at as dual fuel ammonia vessels that will have the option of running zero carbon fuels. It will also have the possibility to run entirely on traditional fuels if the sort of worst things should happen with the IMO process. I think I also want to reiterate it's our belief that Even with delays in the IMO process, we believe a system will come in place. And in the absence of an IMO system, I think it's also likely that the EU scheme will continue. It's likely that other regions will will copy that and have similar. So carbon taxes in our scenario will come in the years to come. We would have preferred to get them in a level playing field in a uniformed IMO structure. We still hope that that will get in place. But even if it is further delayed, it doesn't mean that there will not be taxes and fees and costs of emitting carbon in our trade system. So we believe that that trajectory is still in place. But for CapEx, we don't have any additional vessel CapEx plans that are not already announced and financed and handled.

Thank you so much, Andreas. And I guess part of your answer already answers a question from one of our audience regarding the plan, if we have any plan to sell further vessels next year. So the next question is back into the topic of US port fees. And this is asked by several analysts and other investors that follow Webcast as well. So how do we plan to handle the U.S. airport fee or possible similar future tax with our customer and how much do we expect to recover or pass on these costs to customers?

I don't think we can answer that specifically, but clearly we are introducing those fees in full for our liner business and we are in dialogues and we will get substantial compensation from our existing customers. But I think it's also quite clear that this is now a cost that we expect to be embedded in all future contracting in and out of the US. And our expectation is that these fees will gravitate to basically become an additional cost for American consumers and American exporters. But there will be a transition period where we will get

some compensation but not full compensation for for those fees thank you andreas yes and i see this question coming in just just now just refresh Yes, the next question is about the Suez Canal and the opening of Red Sea. When do we expect the reopening of Red Sea and how will that affect our operations and earnings?

I mean, I think it is. I don't think it makes sense for us to speculate about, you know, opening. It's again a geopolitical issue. It's a disturbance that, you know, we believe will have to have to come to an end. But and and clearly, you know, a reopening will allow us a more efficient trade system. It will also add capacity into our system. But I think we are with, you know, our sales of vessels with the new builds, with the current short-term charters, we are fairly well placed in terms of, you know, also optimizing that situation and it gives us more carrying capacity. So in that sense, I think that is an optimization that we are fully prepared for. We have, I think, created some things in a solid structure in order to deal with it. And we will deal with it when it comes. But I don't think we will try to speculate or provide any guiding on the timing. It doesn't seem to be imminent. But, you know, when you look a half year out, you know, lots of things can happen. And if you look a couple of years out, we are assuming that, you know, the Red Sea will eventually open. But more than that, I think we will refrain from providing, I mean, there will be not any valid insight into our speculations in that timing because that's driven by totally external factors.

Thank you for the detailed answers, Andreas. I think that's the last question we have for now, and we can give you around 15 to 30 seconds more to see if we have more questions coming in. I guess that's the last question we have for now. And of course, if you have further questions, feel free to reach out to us at the investorrelationmailbox.com. Thank you for watching and we look forward to seeing you next week.