Hoegh Autoliner Asa

Good morning from sunny Oslo and welcome to Herc Autoliner first quarter presentation. My name is Mai Lin Vu, Head of Investor Relations. And with me today, we have our CEO, Andreas Engel, and our CFO, Espen Stubbrug, who will walk you through the first quarter business and financial performance. As usual, we have the Q&A session at the end of the presentation. So for the audience, if you have any questions, please send in the question to our Investor Relations mailbox at ia.herc.com. So with that, I leave it to you, Andreas.

Thank you, Mylin. And we are starting this presentation with the beautiful picture of Hög Rainbow, which we took delivery of in the beginning of January. So it had its first quarter in operation. It's the eighth in the series of our 12-ship new build program of vessels that are doing a great job in a tight market. Let's start with some of the very recent highlights. We've had an exciting week at Höök Outliners with the successful exit out of the Persian Gulf of Alliance Fairfax, which I think we commented earlier has been trapped inside the Persian Gulf. That happened with fantastic help and support from the US Navy that mobilized substantial resources to ensure a safe transit for that vessel. We now have no vessels operating in the Persian Gulf and no remaining vessels that are bound for that area. There is sort of a continuous disruption, but contained operationally with repositioning and adaptation, which is, I think, one of the things we are quite good at in terms of fast response. The Persian Gulf service is suspended due to the conflict. We don't at this point see any near-term transit of vessels into the area, but we maintain regional coverage via a Suez Red Sea service that then returns back to Suez as we're not going through either the Southern Red Sea due to the Houthis. And capacity market is tightened following these delays and rerouting. And there is also substantial onshore logistics constraints. So there is clearly a turbulent market in many ways. So also in terms of fuel and bunkering. I think one of the biggest effects of the Hermosa crisis is, you know, imbalances in the global energy market, sharp increase in fuel prices and also tighter availability. It has led to reduced network speed to save fuels, but also a very sort of proactive bunkering operation to make sure that we have sufficient fuel on our vessels at all time, which we're also successful in doing. The fuel price increases comes with the delay I'm coming into. We are expecting recovery through fuel surcharges, but those comes with a significant time lag that is impacting short-term guidance, as we will see. Given... The impact on fuel, actually, there has not been much impact of fuel pricing and fuel price increases on this quarter because most of our fuel used in the quarter is basically bunkered and expensed at an earlier price. But given the kind of large fluctuations we see right now, we've chosen to show these pictures with the upper part here showing the bunker cost and buff balance over the last five years. And that shows that there are periods, and we saw the last period following the Russian invasion in Ukraine with substantial hike in energy costs and substantial effects also on our costs and on BAF. But we see that through this period and through all other periods, you know, the buff mechanisms has worked. And we have over that period had a full cost recovery of approximately 95%. But the bottom part of the chart here basically shows how, you know, the Hermos conflict have created a new very, very substantial spike that will have... big effects on our fuel costs into the second quarter. And we'll also have then big corrective effects later in the year on the buffer revisions that will come for the third and the fourth quarter. But then again, the highlight for the quarter, EBITDA 145 million, flat quarter on quarter, reflecting obviously some added operational cost due to the turbulence in the straight over most, but underlying and driven by continued strong cargo availability and continued attractive pricing and market conditions. $103 million US dollars profit after tax, gross rates of 92.6%, which is up 1%. Back to normal dividend payments, paying out $94 million of dividends for the quarter. We have taken delivery, as I just said initially, of one vessel, adding or making the count of new builds now in commercial operations to eight. And we have an equity ratio of 53%, slightly down due to the debt increase on the new delivery. Moving on to market and commercial. We are facing quite exceptional growth in Chinese light vehicle exports. And far east exports in total rose 28% year on year. China at 57%. And if you look at EV and hybrid exports into Q1, you're seeing numbers close to 90% year on year. And what we see is that the energy uncertainty and the higher oil and gas prices seems to be driving also the sales and the conversion to EVs and hybrids, clearly benefiting you know, Chinese producers having, I think, in many ways, very strong products and price points in that market. The global light vehicle sales fell 5% year on year. Full year outlook is somewhat downgraded. But again, the Chinese success in the market is substantially elevating demand for shipping services. reflect a little bit also in all the turbulence and with the growth of China, what our trade structure looks like. And I think we are pleased to see, and it's important to notice also in these times of disruption, that we have a well-diversified operation. We've had fantastic growth in China, almost double the share, but it's still from 10% to 19%. So it's a It's still sort of a balanced card on this. You can see on the other one is that we have very strong presence in the Middle East as a discharge region, 17% of our cargo discharge, which obviously causes some disruption that we are addressing by first reallocation of cargo. but also from a dedicated service now from the U.S. into the Red Sea where we can still, we do not go through the Southern Red Sea because of the utility. But we can go into Suez and serve the Red Sea coast of Saudi Arabia, which we are doing to compensate for not being able to enter through the Strait of Hormuz. High and heavy is in many ways the same story, not exactly with the same magnitude, but the shipments of construction equipment from Asia did grow 31% year on year in Q1. And it's driven by continued growth out of China, but still with other markets being fairly stable. There is an expectation of continued high and heavy sales growth in 2026 into 2027. But there are some uncertainties of the U.S. equipment demand in 2026 due to various tariffs and sort of some noise in that area. But the same story that you have a market growth primarily out of Asia and primarily driven by the success of Chinese exporters. We have a strong contract backlog. We are in many ways relative to our 80% contract coverage over booked for 2026. So we have and we have You know, a large part still of 2027 covered. We have added contracts adding for about 160 million dollars during the quarter. We have, you know, when it comes to the remaining renewals into towards 2027, 80% of that is to long time relationship customers where we have 10 plus years of relationships. Rate agreements are typically non-committed contracts with a fixed pricing towards freight forwarders and used vehicle shippers. And the spot volume, it's only now 6% of the volume. In that volume, there is an 80% high in heavy share. So the spot market is in reality in the current market almost entirely for type project cargo, high and heavy equipment. There is very little automotive components in that part of the cargo mix. That leaves us to first capacity, sustainability and later into finance and I'll leave it to Espen. Yeah, thank you Andreas.

Turning to capacity and the capacity market continues to be tight and tighter than we had anticipated a year or two ago. During 2024 and 2025 and so far this year, 141 car carriers have been delivered. These have been absorbed and the market remains tight. In fact, pricing have been increasing so far this year. We continue to use the short-term capacity market. We had four ships on charter in the first quarter. That was down one vessel quarter on quarter. And if you would want to charter a ship over the next few months, it's pricey, but it's also very few ships available, only two, three ships available up to the summer. Turning to sustainability, we are very pleased to have been able to drive down carbon intensity over the past few years. Obviously, on the back of now having eight Aurora-class vessels in operations since January, but also having invested heavily in the existing fleet and also divested five vessels which were weak fuel performers. Quarter on quarter, we're up marginally. That's related to heavy weather delays and idling early in the year and also some idling related to the Middle East conflict. Turning to the financial update, the year started very, very strongly. Our commercial team complained about lack of capacity already early in January. That's not normal. I think it's the first time we heard about. Normally, the first few weeks in January is a slow period, following a downscaling and closure of plans around New Year's. But this year has been very strong from the very beginning. We have about the same number of operating days in the first quarter as we had in the fourth quarter. We still had anticipated somewhat higher volume in the first quarter on the back of very strong demand and extremely high utilization. However, volume came down a little following the Middle East conflict where we cancelled three voyages to the region in March. Net rate moving flat quarter on quarter. So top line moving very flat, costs also moving flat. So we come in with an EBITDA, as Andreas said, of 145 million moving flat quarter on quarter. And also, as mentioned by Andreas, we didn't have any fuel impact from the increasing pricing in the first quarter. In fact, fuel costs came down $2 quarter on quarter, following 5% lower fuel prices. We had some extra costs related to discharge of unplanned cargo. That was cargo already en route to the Middle East that was discharged. And we had charter costs increased to 2 million quarter on quarter on the back of the increased pricing that we just talked about. Net profit before tax. Seemingly, we are dropping 35% year-over-year. So just as a reminder, we sold one vessel in the first quarter of 2025. So adjusting for this net profit before tax year-over-year is down 11%. Our balance sheet remains strong. Some modest changes to net debt to EBITDA and equity ratio following the delivery of the eighth Aurora vessel. And we are ending the first quarter with close to 500 million in cash and liquidity reserves. Cash somewhat higher than we've seen in the previous quarters, but flat quarter on quarter following the change in dividend calculation method that we announced in the second half last year. So it's another strong quarter with cash generation. We had 144 million from operating activities. We had net capex of 16 million. That's mostly dry docks and investments in the existing fleet. We had normal payments to bank and lease and we paid out 99 million in dividends in the quarter. So again, we are paying out cash in excess of 200 million, paying out 94 million in May, which marks the 16th consecutive quarterly dividends. And we paid 1.7 billion now over the last four years. Then we're coming to Outlook.