Hoegh Autoliner Asa

Good morning and a warm welcome to Hyk Autoliner's second quarter presentation. My name is My Linh Vu, Head of Investor Relations, and we have with me our CEO, Andreas Enger, and our CFO, Espen Stubberud. We will walk you through the last quarter update. As usual, you can send questions to our investor relations mailbox at ia.hyk.com and we will address these questions during our Q&A session at the end. So with that, I will hand it over to you, Andreas.

Thank you, My Linh. And welcome to this presentation. This has been an exceptional quarter in many ways. Exceptional in the sense that we've had the strongest customer demand growth I think I've ever seen, where we could have filled the multiple vessels, more vessels if we had them. It's been exceptional also then in the tightness of the capacity market with increased charter rates and it has been exceptional in disruptions both in terms of fuel costs and in terms of cargo displacement bound for the Middle East due to the conflict in Iran and the Strait of Hormuz. That in some way warrants a slightly deeper dive than usually into the underlying factors, but we will run you through the presentation and then, as My Linh said, respond to Q&A session afterwards. Starting with the quarter highlights, the market for Roro Services is exceptionally strong. Car exports out of Asia growing 31% year-on-year in the first half. China increased by 68% year-on-year, again creating an exceptional demand for capacity that is also fairly substantially underserved. That has tightened the capacity market. Charter rates climbing further. New build order books fully absorbed by the Chinese growth. We're coming into that in some more detail. It's also been Very much colored by the conflict in the Middle East. It's been for us a huge disruption with 16,000 cars bound for the Middle East displaced, but also successfully managed during the quarter. And while, as we said, the quarter is upset by this shock together with the fuel price, we do expect normal cash conversion and full round rate BAF compensation within the third quarter. So it is, as a summary, a market situation that is strong and is remaining strong. There has been some exceptional disruptions that we will dive into that has largely been dealt with and will soon be behind us. Starting with the Middle East conflict, we Oskar Orstadius As we speak, we have no vessels inside and no cargo displaced as a result of that, but we're going back to what happened and how we got to where we are now. On the financial side, the elevated fuel prices and I think the fairly well-known lag in our BAF revenues impacts the quarter and the cost related to rerouting and disrupted cargo. is fully compensated by customers, but it does create additional costs and receivables that takes slightly longer to collect due to the extraordinary nature of the costs. And that in some creates a working capital buildup that also unfortunately covers this quarter. Let's start with the effects of the Strait of Hormuz. As I said, we had more than 16,000 cars en route to the Middle East when the straits were closed. They ended up being unloaded in the Caribbean, in Mozambique, in India and in Sri Lanka. and a few back in Europe that created a huge disruption and substantial costs in terms of both storage and then finding solutions to bring these cars somewhere. and we worked closely with customers. We found good solutions. All of these units have found a home. All the costs are covered. But again, there is a slightly longer invoicing cycle, although going back most of these costs are now actually also paid and collected, but it created a longer cycle than building working capital. That was obviously compounded with the fuel price. And I think there are two effects that are important in that. We have an average fuel inventory on board of two months. And when the fuel price increases at the extent it does now, it basically substantially increases our fuel price. And it's also a structural delay in the compensation. The cost of that additional fuel cost is fully passed on to customers, but it is with a delay that then also is creating delays in revenues and building working capital. We do expect a full run rate BAF compensation within Q3, and our five-year average fuel cost recovery is 95%, so we are considering this to be temporary effects. And in a declining fuel prices, there is also a recovery or a sort of positive effect on that, although I don't think we're going to guide on oil prices in the current geopolitical situation. Those effects combined created then a working capital growth of 54 million in the quarter. As we said, net increase in receivables of 25, now mostly collected, and the fuel inventory obviously staying high with the oil prices, but as a one-off effect. but in some substantial effect on the quarter that obviously given our dividend policy being strictly linked to end of quarter cash has an impact on the quarterly dividend. So that brings us to the highlights, $122 million of EBITDA, $86 million of profit after tax, a growth rate of $94, and one new vessel, a feeder vessel delivered, continued high Equity Ratio, a result that if you factor in the delayed fuel cost and the costs of some vessel disruptions and not being able to serve the Middle East market fully is in our view a strong quarter. Unfortunately, with the working capital effects taking down dividends for this quarter. To go a little bit deeper into the market side, I think it's important to recognize, I think an unexpected, but an extremely strong growth in far east exports, primarily Chinese exports, with with a 73% growth in light vehicle exports, year-on-year a 41% in construction equipment. It's a little bit under communicated, but there's a strong development in that one as well. It's tightening capacity. It's also creating a larger system imbalance that also contributes to consuming rural capacity with the eastbound trades being largely flat with the westbound trades growing strongly. Chinese car exports is continuing to grow with high quality, well-priced products building market share across the world. and you know the 2026 growth alone consumes something like 100 car carriers in order to transport so it is a very very strong and and we believe uh you know well justified based on the the products and price points and uh and also sort of a a a given the given the growth across the world also a a a sustainable or a structural market change that that we expect to be here to stay With the lack of rural capacity, that has led to a strong increase in cars shipped in containers or other means of transportation. We estimate that to be about a million, one and a half million cars in the first half of 2026. My experience from this also to some extent happened after the pandemic and our experience is that these volumes will largely return to Roro when capacity becomes available so it also contributes to further tightening the capacity market but also represents a buffer if and when markets normalize. The To have a strong backlog, we are totally sold out for 2026. I think given what I've said, we probably would have some opportunity if we weren't, but that's where we are. We also have a strong backlog into 2027, but I think the situation in the market is now also changing dramatically. The kind of somewhat limited, but still the contract renewals as an upside opportunity rather than a risk, given that we see the market remaining tight into and through 2027. So our contract situation is strong. The renewing contract renewals represents an upside and so that the market outlook in our view remains quite strong and strongly colored by the lack of available rural capacity automation. Going a little bit into the capacity side as well, we are through the peak in new build deliveries. We are also heading towards a scrapping period where between now and 2020, A fairly substantial part of the older fleet will pass 30 years of age, which is the normal scrapping age for car carriers. And that is also clearly reflected, very saw, the 23-4 very, very high charter rates. falling sharply on expected normalized capacity balances through 2025 and is now again on a sharply increasing trajectory, which I think can Fairly well explained if we look back by this slide where we basically look at net fleet growth against Chinese export growth back all the way back to 2020, where you basically saw when market tightened in 2022-23, the growth grossly exceeded the new build deliveries or the fleet growth. In 2024-25, it somewhat reversed, where with the peak of the new build delivery, new capacity into the market slightly exceeded the Chinese export growth. and it's now been turned around again in 2026 with the increase in Chinese exports creating a gap that we currently estimate roughly 70 plus 74 ships. So it is kind of a fairly It's a close link between the evolution of Asian Chinese export growth and vessel deliveries that has during 2026 towards the end of 2025 into 2026 changed the dynamic of a loosening capacity balance into actually a sharply tightening which is where we are right now. And In that picture, we are obviously very, very pleased to have our first eight Aurora vessels in full operation. They are performing very well. They are also allowing us to deliver record carbon intensity. and since we are still running LNG which is helpful but this is mostly efficiency so it also actually impacts obviously our operating costs and the operating economics and we are also obviously looking forward to getting the first four dual fuel VLSFO ammonia vessels delivered you know from from next year, mid next year onwards. And we also in that sense, I think we are strongly committed. We did, I think, innovate the PCTC capacity market by basically introducing a new class of vessels being larger and with more fuel flexibility and efficiency. We now see how that works out where first the cash cost of our new build vessels are almost a tiny fraction of the current charter market in cost. It's also substantially lower than it would have been to build the cheaper smaller So we are rapidly building the most competitive class of vessels in the industry and we have now also acquired substantial operating experience and we are quite comfortable with how this plays out in terms of also long-term cost performance. That concludes my part of this presentation. I will then leave the word to Espen to go through the financial in some more detail.

Thank you, Andreas, and good morning. Our net rate is moving flat quarter on quarter and has been very stable over the last period. Topline is up 4% in the second quarter, quarter on quarter, driven by higher volumes, up 2.6% to 4 million CBM. And we think that is a strong result considering the meaningful disruption to our network in the quarter. RBTA in the second quarter came in at 122 million. That's slightly ahead of what we guided in the first quarter presentation. It's down 23 million quarter on quarter, and we had a net fuel impact of 22 million, which is explaining the drop in performance. Our fuel cost was up 21 million quarter on quarter, and we had a negative impact from BAF revenues of 1 million quarter on quarter, following changes to our cargo mix. We had a net profit before tax reduction of 16% or 16 million, mitigated by a gain from debt modification following a refinancing in June. Looking at our EBITDA bridge, as mentioned, we had 21 million extra in fuel costs. We also had, as Andreas already mentioned, additional operational expenses related to the Middle East routing, extra storage costs, extra discharge costs and canal costs, as well as some costs related to us putting our cargo on third-party vessels, which is increasing charter hire expenses. These costs have been invoiced to clients and is offset by additional revenues. We are continuing to using the short term capacity market and some of the increase in charter expenses is also reflecting the tightness of that market. Our balance sheet remains strong. Our net debt debited up to 1.3 times following a lower cash balance at the end of the quarter and an increase in right of use assets as we have taken delivery of one feeder vessel on a long lease and we also extended one feeder vessel for one year. The equity ratio remains stable. We end the quarter with 216 million in cash and we have liquidity reserves through our revolver of 197 million. As Andreas already talked to, our cash generation in the second quarter has been meaningfully impacted by increase in working capital with increased fuel inventory and also higher receivables. We expect working capital to be reversed in coming months. And we had an operating cash flow of 67 million in the second quarter. We had normal capex related to dry docks, vessel upgrades and also one new building installment for Aurora vessel number 9 of 16 million. And we had normal depth and lease payments of 35 million and as well as a 94 million dividend paid to shareholders. We have refinanced both our bank facilities over the last six months. We already announced that we extended our liquidity reserve, the 200 revolver we have. In the first quarter, we extended it by two years up to 2030. And in the second quarter, we also extended our main 640 bank facility. and we're quite pleased to have achieved an eight-year tenor, increasing then maturity by four years up to 2034 and also meaningful reduction in margin and more favorable covenants. As Andreas said, we have a cash-based quarterly dividend and that gives some volatility. In a very special quarter like the second quarter, we will be paying out 16 million, which is the excess cash above our targeted cash balance in August. And with that, Andreas, I'll hand it back to you for the outlook.