Wallenius Wilhelmsen Asa

Welcome to our Q1 presentation. Great to see many here today, and also welcome to those of you watching this online. So, Anders, what can we expect today?

I think we're going to expect we delivered on a solid quarter. There's been a lot of news flow and uncertainty lately, so hopefully we can give some guidance on how we maneuver tough times. Yeah.

Good. And very soon, our CEO, Lasse Kristoffersen, will take us through the market and business updates. He will be followed by our new CFO, Bjørnar Bokholm, who will take the financial highlights. And then Lasse will be back and take the outlook for 2025. And before we conclude, you will have a run the Q&A session.

Yeah, and for those of you watching online, please post questions in the chat, and we'll try to address all of them.

So with that, are you ready? It looks like that. Lasse, the stage is yours.

Thank you, Anette and Mohamed. Good morning. Welcome in the audience and welcome online. I'm very happy to be here to present another strong quarter for Valerius Willemsen. When I looked back on last quarter's presentation, I found gold. because we had one slide called disclaimer, and saying that we know nothing about the future, whatever we say, don't trust it, which was right a quarter ago, and the market environment for us, and I think for most companies of the world, has changed fundamentally in a quarter. And we'll come back to that, but despite that, Wellenius-Willemsen still delivers strong results, and we expect that to continue for the remainder of this year. So starting with the highlights, there is no doubt that US tariffs have caused increased market uncertainty, both in the US market, but certainly also in the general global economy. There are also port fees announced, and I'll come back to some more details on this. Despite this, we see strong continued demand. We are still, for practical purposes, sold out in our shipping activity, although we have seen somewhat weaker activity levels in the logistics area. And as I said, we are delivering a strong quarter. EBITDA over 462, and that's up 5% since same quarter last year. And this adds to a long-term stable trend of very strong cash flow, as you will see in the illustration. And we have a very high cash conversion over EBITDA. So the performance we have seen over the last couple of years has continued into Q1, and will continue at least for a period forward. We also just announced that we concluded the Merit transaction that was on May 1st. It was in Q2, but it has happened. That is now done. We are no longer the owner or operator of Merit in Australia, and the money is in our accounts. So, ending up with the highlights and the prospects, We still see a strong demand in the market, and we actually expect Q2 to be stronger than Q1. We expect the full year of 2025 EBITDA to be in line with 2024, but there is no doubt that there is bigger uncertainty in this forecast now. And with uncertainty, we see that there are both upsides, but certainly also downsides to that forecast. But based on the information and the market as we read it today, we expect 2025 to be in line with 2024. So I will take you through a couple of updates on market and then jump into the business and sustainability before I hand over to Bjorn. On the market update I'll focus on two things which are the key ones. One is the US policy and the other one is a structural trend that we've seen for a while that we will cover in some more detail. And this is escalated now by US policies. So starting with the US and starting with the obvious, there are two main things affecting us. One are, of course, the tariffs. And for those who hasn't noticed, the tariffs are live on cars. That means that today all imports to the US are exposed to 25% tariff on a car. The average car price sold in the US last year was $48,500. So assuming that the full tariff will not be moved over to the consumer, We estimate that this will increase car prices in the US with thousands of dollars. And of course, we don't know exactly what. Indication from our customers is that they will take some of these tariffs on their own account, but certainly they will also need to move this to the consumer. And this, of course, has two effects in the market. One is that prices go up in the U.S. and then they sell less cars. Last year, U.S., there were sold 16.2 million cars in the U.S. That will likely reduce this year. The other effect, of course, that there will probably be less imports because they are more expensive. The other element of regulation that is now going on is a much less politicized regulation. And let me be clear on that. The tariffs is a very deliberate political decision by the administration. The port use is a consequence of a long-term process that was started with the Biden administration, looking into how can we curb China's dominance in the maritime area. At the back of that, the Biden administration launched an investigation that was concluded just before they went out of office, picked up by this administration, but not really fully politicized yet, meaning that this is a process managed by the USTR, the US Trade Representative, And it follows normal procedures in the US, which is not always the case with the other things, meaning that there are hearings. In the hearings, the industry come and speak. And they adjust it if it doesn't make sense, which happened in this case for everybody else but us. So in the USTR, there's been quite a reduction in the impact on shipping and the port use, but for some reason we don't know. Vehicle carriers were singled out. So for vehicle carriers, we are still exposed to port use, but not only for Chinese-built vessels, for every foreign-built vessel, meaning the global fleet of car carriers or vehicle carriers as defined in the regulation. We don't think that was intentional. So we are, of course, in process with the U.S. government to see how can this be adjusted and more in line, at least, with what hits other segments. But right now, as it reads, there's very big uncertainty on how this will hit us in terms of cost per vehicle. But we're quite confident that there will be significantly lower impact than from the tariffs. But adding this to tariffs, of course, it will reduce imports and demand for cars in the U.S. And if you look at the right side of this graph, this is an estimate done by S&P after the announcement of the car tolls. And there is certainly a reduction in imports expected. But it's not falling off a cliff. So as you will see, it's a reduction of some 300,000 cars or 7% this year and another 15% next year or based on the previous forecast. So they're taking down their forecast, but it's important to remember This does not mean that we will not move cars to the US. As I said, in the US, 16.2 million cars were sold last year. 8.8 was built in the US, meaning that there is no way US can replace imported volumes with domestic volumes. And then you might ask, so what are the potential for growth of production domestically? It's not that big, actually. And based on the data we have and the assessment we have done, they are now in high 70s of utilization on the factories in the US. And if they're able to push that up to, say, 85%, which is very high utilization, I'll come back to why, we're talking about a million cars or so in increased production. Then, of course, you can add new manufacturing sites, but that takes years to come to production. And why can't you reach more than 85% utilization? For one, some of the car makers, in particular the non-US, are still at a very high, already at a high utilization. And second is that there is no car producer that has a perfect match between the models they can produce and the models the market need. So to get to 100% utilization is theoretically possible, practically not possible. So there will still be imports to the US. But yes, probably less than what we would have had without tariffs. The other big trend, which is in a way escalated by the US tariffs, is a long-term trend of growing imbalances in the market. There used to be much more of a balance between taking product for us from Asia to Europe and the US and bringing product back. This has fundamentally changed over the last five years or six years. And if we, I mean, disregard the years around COVID because those disturbs, but if we take 2019, which was the last normal year, you will see that there's been a very strong growth out of Asia in terms of volumes, primarily coming from China, but also a little bit of growth from Korea. while you see the structural exact opposite, ex-Europe and ex-US, meaning that the European and US OEMs are losing market share, while the Chinese are winning market share and the Koreans are winning some market share. So that means that we are now having full vessels going out of Asia. We don't have enough vessels to cover the needs out of Asia, but we have less cargo going back. And you can see that on the right-hand side, that that has grown, that imbalance has grown with 140%, close to 140%, just since 2019. So this means that the vessels are fully engaged, but on their own voyage basis, they carry less volume. Meaning that when we report lower volumes this quarter, that's partly the effect that we have less volume going back, but we are full going out of Asia and we don't have enough capacity to cover Asia. And if you do this on a ton mile basis, you can see it even clearer how this imbalance has increased. And of course, we have been around for quite a few years. I would state that we're a leading player out of Europe, out of the US. And we have a better book of business going back than most others, if not all others. But also, we see that we have much less cargo going east than going west. So... Our market see now a structural and political and regulatory change that we've never seen before. And that is exactly why we have redefined our strategy and why we have said that the real value we can create for customers going forward is to be their integrated supply chain partner. When we speak to the executives of Volvo or Mercedes or others, they don't know where they will produce cars. They don't know where they will send them, and they don't know how many they will send. They need help to have a flexible, fully integrated supply chain that is adaptable to their needs. And they struggle to make that happen themselves. We have all the building blocks. We have the vessels. We have terminals. We can process. We can move inland. And we can orchestrate it all through digital products. So that's why we are confident that maybe even more than ever before, our customers need us to help them to adapt to an ever-changing market. Coming into the segments and the business, We are delivering a strong Q1 in shipping. It's more than 5% better than same quarter last year. And then, of course, for those with a very good memory would say, yeah, but that was a particular low quarter. Yes, it was, because that was when Red Sea hit us. And that came in late in 2023, and we had some inefficiencies in Q1 last year. But still, we are performing better than last year. In logistics, we have seen volumes coming down, and I'll come back to that. Government is the segment where we are transporting goods for U.S. government. We are supporting different cargo segments, but the two segments growing the most right now are personally owned vehicles. So we are transporting vehicles owned by U.S. officials around the world, but also actually household goods. So we are the moving agency for people moving around the world on behalf of the U.S. government. You can see that in this picture. Those are actually... the moving, what do you call it, the moves or the belongings to U.S. officials moving around the world. So we have multiple cargoes that we serve with our government segment and that had a very strong quarter and that seems also to continue going forward. So jumping in a little bit more details on shipping and logistics. As I said, the big uncertainty right now is U.S. And then you can ask, so what is your exposure? Well, yeah, we have significant exposure to the U.S. If you take shipping isolated, 70% of our revenues stems out of U.S. Imports and exports, where imports into the U.S. is by far the dominating factor. 11 percentage points of that comes from Asia, five from Europe, and two from the rest of the world, some of them actually from Mexico. We have a shuttle from Mexico to the US. And the way we see it and the way we see behavior now with our customers is that the Asian exporters from Korea and Japan, they are not slowing down, they're keeping up pace, and they've said they will keep up pace. So we don't expect big impacts on that, call it 11 percentage points. The European volumes have slowed down. It did slow down for a period, but they are also now coming back on stream. And one noticeable company is JLR, Jaguar Land Rover, that paused all exports for a while, but they are now coming back exporting. So even though we have a big exposure to the US, and that revenue and that volume has reduced a little bit so far this year, we have been able to fully replace that with ex-Asia volumes. And then we have an even bigger exposure to the U.S. when it comes to non-auto transport. So more than 50% of our revenues to the U.S. comes from high and heavy and brake bulk, a segment where we are unique, and that's also exports from the U.S. You have likes of John Deere and Caterpillars and others, which are not, of course, hit by these auto tariffs. In logistics, we are very heavy on the U.S. In some ways, that could be seen as a big strength. It is. On the plant business, where we are working at the back of the factory line of our customers, of course, we expect that activity to increase, as the industry does. However, on the terminal side, we see already that there's a little bit of a slowdown on the East Coast in Brunswick and Baltimore, less product coming in from Europe. So there's a mixed picture on the prospect in the U.S. for our logistics business. And I say that we are able to fully recover the volumes lost out of Europe. This is a print of typically the voyages we did in 2023. We are probably the only truly global player in this market, covering all segments, all markets at any time. And we have a fantastic organization that when we see an opportunity in Asia and something disappearing in Europe, we act immediately and we're able to adjust. So the reason why we're still able to have full vessels and good results and good prospects is that we have a business model where we can adapt to market changes in shipping, and we will continue to do so. And we've seen that come to full strength so far this year. A few words about the numbers. Volume, as I said, is down. That does not mean that we have empty vessels. This is an effect of less returned cargoes and the structural change in the trading patterns. There is a slightly lower cargo mix, meaning we have more cars relative to others, and I'll come back to that in a little bit. When you look at the earnings, the net rate, that lies a little bit because there was a one-off effect in the last quarter, so I'll come back to that. But the net earnings, or the TCE, the time charter equivalent that we have in the fleet, is rather stable, a little bit up quarter on quarter, and at very, very healthy levels. If you look at the net rate, meaning how much do we get paid for each CBM or volumetric number of cargo that we do, As I said, it looks flat, but the reality is that, for those who remember extremely well, in Q4 last year, we had a true-up of a non-cash effect stemming far back. If you take that out, we are actually increasing by 3%, driven by repricing, meaning better paying contracts, and also trade mix, meaning that we are trading more in better paying areas. And an ex-Asia round voyage versus an Atlantic round voyage pays better. That's what we mean by trade mix. And then customer mix will change from quarter to quarter, meaning that we have had more customers with below average rates this quarter than what we probably have next quarter. So this typically is a periodization effect. But the underlying rates are improving quite a lot. And it's up 11% year over year. I mentioned high and heavy, and you could read this in two ways. One, this was bad, lowest loaded volumes more or less in our history. We read it the opposite way because we're already full anyway, and this is upside for us. High and heavy is a cyclical market. We will not stop buying excavator. We will not stop buying harvesting machines. It's a cyclical demand, and the lower it is now, we know that this has to come back. And we are prepared for that. We are the leader in high and heavy and break bulk globally. And we believe that probably the return of these volumes have been a little bit delayed by tariffs. But our customers are still optimistic that we will see improved demand towards the end of this year and certainly into next year. And we, of course, hope they're right. In the logistics area, I'm not going to jump into each and every segment, because the story is very simple. We saw a slowdown of activity in the US in the first quarter. And you might think that there should be a boom in car production in the US in the first quarter. It was not. It was a somewhat slowdown in car production, also slowed down a little bit on the terminals. There was a big, well, high sales of cars in the US, but there was a drawdown of inventory. So generally speaking, in the first quarter, we had a reduction of $13 million of revenue, leading straight down to $12 million reduction in EBITDA. And we're not able to take out cost immediately when these things happen, but we are looking at that now. And we hope that we'll be able to improve the margins on logistics going forward. But there's no doubt that there's been a slowdown. mostly driven by Europe, but also partly in Asia and, sorry, mostly driven by US, but also in Europe and Asia. As I said, we have concluded MIRAT. We believe that demonstrates the underlying value of the logistics assets we sit on. We have a sale price of 332 million Aussie dollars. And we reported initial likely gain to be somewhat higher than 144. But then when we do all the math and all the calcs and take out the... Goodwill. The net result effect is $144 million. Of course, Goodwill has no cash effect, so the sale has a full cash effect coming to us. And the money is in the bank. I will conclude with a sustainability update. We are very focused on safety in our company. And when we see that our safety statistics are going in the wrong direction, we have all the red lights on. But I can assure you that there is nothing underlying in our safety performance that we think is deteriorating. But we did see worse safety statistics in the first quarter. No major accidents. These are only minor incidents happening in our operation. And for instance, in logistics, there were five incidents happening. If it had been four, we would be beating the target. So there is an uncertainty on a quarterly basis. We are confident that on an annual basis that we are moving in the right direction also on safety. On emissions, we are struggling on carbon intensity, starting with the absolute emissions first. If you see on the uppermost, we are increasing our emissions, but that is due to an increased fleet size. So that is more a logical development. The problem we have is that we have less volume for the same fleet due to less return cargo, meaning that the emissions per cargo moved goes up. Our target for this year is 59.9, say 60, and we are at 65 in the first quarter. We are working hard every day to fight this, but there are structural issues that work against us in terms of cargo flow and volumes coming back to Asia. So with that, we go over to the financial update. And is this the biggest comeback since you have, Birna?

I think maybe Jens Stoltenberg. Maybe Stoltenberg.

Okay, second biggest. Okay, second biggest. Bjørnar, we'll take it through the numbers.

Thanks a lot, Lasse, and good morning, everyone. And as you said, Lasse, it feels really good to be back after six years in the alarm industry and six days into my new position. So be nice to me at least during May, and then in June you can start to be more challenging. Okay, starting with the numbers, and of course a great pleasure presenting a continuation of the strong trend with very strong financials in the quarter. Starting with revenues, close to 1.3 billion, up 3% year over year, and largely in line with the second quarter when we are just for the true up effect already mentioned by Lasse of 30 million linked to Q4. strong revenues for the shipping segment and government while logistics was somewhat down moving over to adjusted ebta 462 million up five percent year on year and largely in line with the last quarter also here when we are just for the true up effect a net effect of 13 million in the previous quarter. And then just as a reminder, the reason we had this true up effect was due to closing down of a legacy system. And then we had to do some bookings on the revenue side and on the cash side with a net effect of 13 million. Moving over to net profit, 246 million in the quarter. It's slightly down compared to the fourth quarter, despite EBITDA being in line. And the reason for that is that in this quarter, we had a loss on some of our interest rate, unrealized loss on some of our interest rate derivatives while we had a gain in the previous quarter. So underlying, it's very, very similar. Operating cash flow, 450 million, remains very strong with a cash conversion close to 100% north of 95%. Moving over to cash, at the end of the quarter, we had a cash reserve north of 1.6 billion. That was, of course, before distributing the dividends in April. And we had under on credit facilities of 494 million at the end of the quarter, stable compared to the end of the last quarter. Net debt stood at 1.65 billion, that is down 100 million during the quarter due to the positive cash flow. But then we also took on four charter vessels during the quarter, which increased the leasing liabilities somewhat. Moving over to the financial targets, presenting a return on capital employed of north of 20%, so 2.5 times the over the cycle target of 8%. Equity ratio, 34.4%, down around 5% in the quarter and also below our financial targets. The reason for the material drop in the equity ratio is related to the dividend. When the dividend was approved by the board, that was moved from equity to a liability. For sake of good order, there is no financial covenants or anything similar related to the equity ratio. This has purely been a financial target that was set in the past. And we expect the equity ratio to increase above 35% when we present the second quarter figures. Leverage ratio on the balance sheet remains rock solid with a leverage ratio less than one times. Moving over to the segment performance, starting with shipping, revenues largely in line with the previous quarter, volumes somewhat down due to weak volumes out of Europe, volumes out of Asia remain strong as already mentioned by Lasse, and then we had a positive effect on the rate side as the rates continues to increase. Adjusted EBITDA then slightly up when we adjust for the true up effect in the quarter and 5.5% stronger than last year and the driver for this has been the increased rates. Underlying operating costs and SG&A largely stable. SG&A is somewhat down in the quarter with the reason being in the fourth quarter we are doing bonus accruals. Moving over to logistics, revenues down around 5% both quarter-on-quarter and year-on-year. This is due to the lower activity level explained by Lasse, predominantly linked to the US. And then adjusted EBITDA is meaningfully down due to revenues as we weren't able to take out costs quick enough, but that's clearly a focus area now going into the second quarter. Government segment at a very strong level in the first quarter. The first quarter is typically a seasonally weak quarter. We are very satisfied to see this performance level. Margin is slightly down. That has to do mainly with the cargo mix and the type of cargo that we are carrying for the US government. Breaking down results in slightly more detail, starting on the revenue side, so adjusted for the true-up of the 30 million, we see that the revenue is very flat quarter-on-quarter, it's a decline of 13 million, and please note that QN is typically a weaker quarter with lower volumes than the fourth quarter. The main driver is volume, pulling the number down by 20 million, but then the revenue per cubic meter brings the number materially up. Then as already mentioned, logistics down by 50 million and also a slight reduction on the government side. Moving over to EBITDA, adjusting for the true up, we see it as a flat development quarter on quarter. Shipping, largely stable, up 3 million quarter on quarter, slightly higher revenues, stable costs, and in reality it's really the bonus accrual which is the difference here quarter on quarter. Logistics, as mentioned, that saw the majority of the drop with 7 million from an EBTA perspective, and then government down 5 million on lower revenues and cargo mix. The other segment, we see a positive effect here of 4 million. That is linked to SG&A and then the bonus accruals that we had in the fourth quarter. So underlying, it's the same cost base. Moving over to cash flow and liquidity. Liquidity, as we talked about, remains strong north of 1.6 billion. Cash flow in the quarter, operating cash flow 450 million with a very strong cash conversion. Net capex rates to dry dock and some other vessel-rated assets mainly. There was no down payment on the new building program in the quarter. That will commence in the second quarter in line with the schedule already presented. Net proceed and repayments, that consists of regular down payment on our loans, and we also did a 20 million repayment of a terminal B facility in Newcourt due to the strong cash position. Other financial items of 70 million that mainly relates to the cash collateral linked over bond debt. The outstanding cash collateral now only stands at 10 million dollars. Earned-run credit facilities, as already mentioned, stands at close to 500 million at the end of the quarter. Please be informed that in April, we terminated a USD 150 million credit facility for WW Ocean that was ending or maturing in June 2025. And then, as you all know, post quarter, we paid the dividends, but that is not reflected in these figures, just in the equity ratio. Moving over to the balance sheets. Balance sheet remains rock solid. Equity ratio of 35%. Talked about that. The reduction is explained by the accounting effect of the declared dividend. Net debt 1.65 billion. Down 100 million. Cash flow positive. Taking on some additional leasing liabilities due to Vessels coming in, still have 14 vessels on order, the shaper classes, seven with UCOR and seven with WW Ocean. Post-delivering financing remains in place for six of the UCOR vessels, and then we will make sure to have financing in place for the other eight vessels well in advance of delivery. At the end of the quarter, we had 28 unencumbered vessels. That's up from 25 in the previous quarter. And the total value of these are in the area of $500 billion. So that concludes the financial update, and I hand it over to Lasse for prospects.

Thank you, and give him an applause. So I gave him this challenge when he came in and said that you need to learn everything in a week, and you'll not have speaker notes, and he didn't. So he knows the business, and he knows the numbers, and it's quite impressive, and we're happy to have you on board. So I'll just quickly conclude with prospects. We mentioned it in the highlights. No doubt that we are in an environment with significantly higher risks and uncertainties than what we saw just a quarter ago, principally driven by US policies. Despite that, we have a very good speed through Q1. We expect Q2 to be stronger than Q1, and we are already well advanced into Q2, as you know. We do still expect that 2025 will be in line with 2024, but there's no doubt that there is more uncertainty to that outlook than what we saw just a quarter ago. So all in all, Van Eliasson is performing strongly in a very, very volatile market, thanks to a fantastic organization and a true global organization that can take opportunities when they arise and where they arise. So with that, we're done with the presentation and we're ready for the Q&A.

Okay, and for those of you watching online, please post questions in the webcast. And first of all, Lasse, you maintain a strong outlook for 2025. Yep. How confident are you that... Yeah, good question.

We wouldn't have said it if we didn't think that was the best estimate now. But as we also said and be very clear, there is huge uncertainty in the market. And just we all read this morning that maybe, maybe not. Later today, we will see an announcement of a deal somewhere. So this volatility and uncertainty in the market is unprecedented. The reason why we are still quite, call it, optimistic on a strong performance this year is one, we have a very solid book of business. We have, we think, a book of business with only class A counterparts, and many of them still being successful. Second is that we have a global model, so we know that demand is growing in areas, although they are diminishing in others, and I said this earlier, we are able to adapt to that, both on the shipping side in terms of moving to Asia, but also if we see more increased regional production, we are actually on the ground in the US working with the car producers. So I think this is the strength of the organization and the resilience of our business model that makes us adapt. And that, at the back of a very strong book of business, makes us quite confident that it will be another strong year for Valerius Willems.

Okay. Then a quick one for you, Bjorn. I mean, you found house alarms less interesting than logistics and shipping. But, you know, we delivered an increase in rates quarter over quarter. Have you seen, you know, the full effect of rate increases in Q1?

I think the first part there, Anders, I will not comment on, just to be on the safe side. In terms of the rate development, we have, as you know, also during this quarter, announced some contract renewals. And all of the effect of these contract renewals are not finding their way into our results for Q1. So everything else equal, meaning the customer mix and the trade mix, there should be higher rates in the second quarter because not all contract renewals has been reflected in Q1.

Okay. Again, if you have questions, please post them in the chat. We do have a two-fold question for you, Lasse, from Erik Ovalsen at Pareto. The first part is how confident are we on volumes for the second part of the year?

We're not confident on volume for the second part of the year because we can't be confident in this market. But we are quite confident that demand will continue to be strong. And we still believe that we will see a good demand in the second half. But of course, as I said, the confidence level is lower than it was a quarter ago. But as far as we can see now with the information we sit on now, we will have very high utilization on our shipping activity also in the second half. Logistics, we're a bit more uncertain and depending on how the US activity and volumes will change.

Okay. A second part of the question is, have any of our customers asked us for lower rates and nominated less volumes than what they're supposed to on the contracts?

Let's start with the easy one. Of course, there are customers with less volumes. And as we've said before, we are always working closely with our customers. If they have less volumes they transport, we normally find solutions with them. What we never accept is that they find a better rate with somebody else. That has not happened. When it comes to coming back and renegotiating contracts, this is not a big issue. But for sure, we have some coming back where we discussed with them, could we extend the scope, extend the volumes, and look at the different rate profile. But those are very few and far between, but there are a few of those discussions going on. But always, in our view, with an increased value coming back to us out of those discussions.

Okay. Again, I'm not sure if we have been very clear today or not. You know, please post questions. But meanwhile, we have a congratulations to the team for doing a very good job in a challenging environment from Zurich.

Very good.

Thank you. I'm not sure you know, we'll we'll pause few seconds to see if there are further questions.

You can check if there's anyone in the audience.

So yeah, do we have any questions from the audience? It seems not. So I think we'll end it at a congrats note.

Thank you, and thank you for coming. Thank you.