Svitzer Group A/S

to Switzerland's first earning call as a separately listed company. We're moving very much forward to presenting our performance for the first half of 2024. Just pay attention to the forward-looking statements on this slide. And then we have two presenters today. So it's myself, Kasper Nylaus. I'm the Chief Executive Officer of Switzer. I've been in Switzer since 2007, worked on different roles until 2020, where I took on the CEO position. So I've been in this position for a little more than four years. And I'm joined today by Knud Winkler, our CFO in Switzer. He has been CFO in Switzer since 2013. If we look At the agenda, then we'll start with a company overview. I will present that, then I'll go into the overall business performance before handing over to Knut, who will go into details on the financial review. Finally, we'll have a Q&A session and looking forward to answering questions on our business. All right, so if we start with the company overview, we thought since this is our first earnings presentation as a listed company, it would be good to just spend a little bit of time presenting Switzer. For some of you who have been following our Capital Market Day and our material, it may be a little bit of repetition, but we thought it was a good place to start as a relatively new company, or very new company, on stock exchange. So, Switzer is... is the global player in the toad market. We have exposure to both harbor and terminal toads that I will go into on the next page. In these numbers you can see here, our 2023 numbers, we have revenue of a short of six billion Danish kroner. We operate in 37 countries, the highlighted countries on the map, in 141 ports and 40 terminals. And we have 456 vessels and around 4,000 employees. So really the leading towage company. We operate in two business areas. They overlap. It's a harbor towage. So harbor towage is just short of 70% of our revenue. It's a business, we operate 141 ports. We have strong position in those ports. We service the volume are coming in, in half the ports we're the only operator and the other half we have competition. Our customers are typically shipping lines or cargo owners. Our customer contracts are reasonably short, between one and three to four years, and in many cases we have a license arrangement with ports that we can operate in the port. 69, 68% of revenue and around 60% of EBITDA. On the other hand, we have terminal storage, which is very different in the sense it's the same assets, it's the same skills, but the contractual setup is different. We have, for example, when we operate in the Angola NG terminal, west coast of Africa, we have one contract for 20 years with Angola NG. You win it through a tender process, and then you then have a contract, as I said, for 20 years, where you are paid a fixed day rate every day for doing the services required in the terminal. Prices are escalated typically every year with the inflation. So more or less the same assets, the same backbone that we use to run the operations, but the contractual setup is different. And it's a little bit, also the margins are different in the terminal church, also because it's newer assets, we have higher margins, which also means it's around 30, 31% of revenue, but up to around 40% of the . If we just go briefly through the key investment highlights for Switzerland, then the first one is that we provide mission critical port infrastructure services. The ocean-going ships that transport goods across the open seas, in most cases, they would not be able to go in or out of ports without trucks present. So completely critical service to keeping ports open and running and global trade flow. We are the global and leading tourist platform. We are a growing, resilient tourist market. We are the biggest. We are the one that is truly global. And the total market is fundamentally growing around 45% every year, and it's a resilient market that can also be seen when we look back in our numbers. It shows great resilience. We have a diversified exposure, which is something that is very fundamental to our business, that we are diversified across geographies. So we have many different geographies. We're diversified across customers, which also means our biggest customer, which is the Merz Group, is only 11% of revenue, and end markets being in both harbor tours and terminal tours. And these three different ways being diversified has the effect that it reinforces apicality. So you can have the port can go up and down every year in performance, but when you're present in 181 operations globally, different markets, different customers, different geographies, then you have a portfolio effect where it often balances out and we get this growing trend that we have seen. over the last three years. Then we're leading, so we have flexible business models, we have stable margins, solid cash flow, well-invested fleet. And then we're leading the ESG in storage, primarily within decarbonization. So we're focusing on decarbonization, and we're doing it because we want to do it, but we're also doing it because we see business opportunities in many cases. And some of the thermal storage contracts we have won recently, We have had an element of decarbonization in it that has been part of the winning criteria. We have a clear strategy in place. We target growth, stable margins. We also want to pay dividends. We know what we want to do to constantly optimize the business win, and we also know what we want to do to constantly grow our business. And then we have a highly experienced management team. executive leadership team of 11 people. All of us have been in the business for some time, many of us have been in the business for a long time, and worked in different geographies, in different positions. So we know we're in this world. And just recapping what we have gone through this year, we have gone from being fully owned by AP Modern Maersk, the listed company, to being a separated, standalone, and listed on the Danish Stock Exchange in our own right. So Merck announced on 8th of February the intention to de-merge and list Switzer. We came out with an annual report end of February. We had our Capital Markets Day on the 5th of March. And I would just say that all this material is still available on our investor webpage, switzer.com, and there is a lot of fundamentals around the market and Switzer, our history, how we make money, what our strategy is. But I would encourage people to read it if they're interested. Then we had the 26th of April. There was the extraordinary general meeting in Merck where it was decided and effectuated that Switzer actually demerged from Merck and became its own entity. And we had the first day of trading on the Copenhagen Stock Exchange on the 30th of April. And now, 14 supporters, we've come out with our first half-year report. If we then dive into our half year report, and we start talking about the business performance, then we had a good, or we're very happy with our first half report. We had a very good progress, so 11% revenue increase compared to same period last year in constant exchange rate, and 15% EBITDA increase for the half year. which we are very happy about. We are still doing the efforts, as I mentioned, the SD decarbonization, so we're converting trucks to biofuel in the Netherlands and Oman. On the other hand, we've also taken some trucks out of biofuel in the UK, and we're constantly seeking the opportunities for decarbonizing at the right price and with the customers. We started off in Australia, a new operation on the Australian West Coast in Port Hilton, the world's biggest iron ore export port. We have four out of five trucks already on contract for BHP. And then we have extended a critical contract in Australia with Smit Lamnalko for Harbour Toast in four ports. And we have also been awarded a five-year contract in the Panama Canal with two trucks that will start up in 2025. So good progress also on our commercial efforts. If we look at our contracts, I mentioned the Panama Canal opportunity, a five-year contract, the four-year contract with Smith & Malco. In addition to that, we have renewed all the thermal source contracts that were up for renewal in the first half of this year, which is, of course, critical and something we focus immensely on renewing our existing contracts. And we have also won, and of course there is constant inharbitors, a constant churn of renewals and new contracts and so on. But notable is that we have grown also in Brazil, and we've also won a few, hard towards contracts, but for FSIU terminals, natural gas regasification terminals in Brazil. So also still good progress in Brazil. And maybe just spending, just two words on how we do this, why we are successful in the commercial space. Well, as was also explained on the Capital Market Day, we have very much a focus on what we call passion for customers, so putting customers in the center. What does that mean? It means that we work closely with customer and port authorities to identify their needs, and the right solution for us to meet those needs at the right price. And we have seen really good traction on that, and it's something that is, I would say, fundamental to how we do business in Switzerland, that we keep the customer in the center. If we then move on to the key regional highlights, then we have seen progress in all regions. In Australia, our revenue increased by 11%. Mainly due to tariff increases, also some of these terminal total contracts I mentioned. We have increased cabex by 42 percent for these four out of these five trucks that we have so far delivered to our operations, the new one in BHP. And maybe just reiterating on Australia, we call it a region, it's also a country, but it is truly still, even if it's one country, it's still very diverse by exposure. We have significant presence in Harvard tours, but we also have significant presence in terminal tours. We operate with different customers in many of the ports under different regimes, so in a few ports we have, very few ports we have exclusive licenses, otherwise we operate on non-exclusive licenses. We also have a different crewing setup depending on if you are in terminal torch or harbor torch or even some of the harbor torch port. So still, even though it is only one country, it's still quite diverse. If we look at Europe, Europe is still characterized by being the most competitive area we are in. It's primarily harbor torch we do in Europe, although we did start up in the last year a new terminal torch operation in Greece. Europe has also grown revenue due to primarily tariff increases. EBITDA has grown less primarily due to still a competitive situation in the UK with the overcapacity still in the UK of TOX. So that is something we are constantly working on improving our UK operation. If we move to... America's region is really growing well. We've seen revenue increase by 20%, to a large extent driven by improvements in harbors, primarily Brazil, but also Argentina we have seen going better or actually well. We also had a few lucrative contracts here in the first half of the year that are, you can say, a little bit abnormal or not, something that will continue at least, so have given a little bit more of a boost in America than we would have seen if they hadn't materialized. But we, of course, always, except in addition to our fundamental business, we're always looking for, are there trusts we can deploy on higher paying opportunities in the shorter term, and we've been fortunate in America to identify one of these opportunities. If we look, which also explains the significant dividend increase we see. If we look at our Asian, Middle East, African region, the only terminal totes we do there, which is also explaining why we see a modest revenue increase, that and then the fact that Last year, we had our Russia operation in on revenue for most of the first half year. We are completely out of Russia now. So that's why the revenue increase is modest. So yeah, I don't think there is a lot more to say about EMEA. But yeah, so let's go to the next slide. And I will hand it over to Pilt on the financial review.

Thank you, Kasper, and thank you also. Welcome from my side to this presentation. I'll take a couple of minutes here to provide a little bit more color on what you've already read in the interim report that was published earlier this morning. If we start out looking at the revenue, the overall revenue growth was 11%. It was composed by a couple of different items. You can see there's the underlying activity, which is the growth in household volumes. underlying growth in each of the ports and the effect of the entry in the new port in Brazil. That, together with the growth in terminal tolls contracts, including the exit from Russia, that has provided 5.8% of the overall growth. And as you can see, most of that comes from the new terminal tolls contracts that we've entered into. The other component is on the pricing side. There is the annual escalation on our terminal torch contracts. There's the tariff increases in our torch, and then also there's the elements that Kasper mentioned, the higher paying top jobs in harbor torch related to view these opportunities primarily in Brazil. So that has pushed the pricing element up. And it's not all tariff increase. There are these special jobs that pull up a little bit more than just the tariff increases. How does this back up against what we originally were thinking? As some of you would recall in our capital market today presentation, we were alluding to the growth components, the growth in underlying number of vessels on the oceans. the growth in the size of the vessels, those two will contribute to the activity, and then the price increases. And we said the first two components would be around 3%. We have seen a 3% growth in our harvester volumes in the second quarter of this year, so that matches quite well. Whereas the price increases, we estimated those over the six-year period between 2024 and 2030. that that would be around 1.5 percent, and clearly the high inflation that we've seen has also had an impact on our ability to push through price increases. So that was on the revenue side. If we move on to the adjusted EBITDA, then that has increased by 15 percent, and I would say despite the continued high fuel prices. and I would say more unplanned maintenance than what we usually have. We've managed to increase the margin from last year, so it's now for this year 30.8% for the first six months. If we look at how that is, again, how is that composed, the activity growth that we're seeing, and this is predominantly, again, the terminal toll side, has contributed by 7.5%. growth out of the 15, and the pricing has been 4.1, and there's a few other items here that impacted. The adjusted EBITDA, as you can also read in the interim report, the adjustment is for this quarter only related to the separation and listing cost. We have 104 million kroner in the profit and loss that we adjust for, and those are They are one-off costs. They consist of fees to banks, lawyers, auditors, and also cost of setting up systems that were otherwise systems that were provided by the EpiModimers group before the separation. It's clear that the running cost of such new systems that is not included in this, that's going into the underlying normal EBITDA. If we then move on to the cash flow, the increase in EBITDA, of course, would have an impact on the cash flow from operations. The increase that we see is only 15 million compared to last year, and that is because we have paid taxes more than the taxes that are included in the P&L, you can say. So there's a settlement of a tax base from previous years that's been done in the first half. The gross capex is slightly higher this year compared to last year. It is very much related to the growth vessels that are being put into Brazil and Australia, but of course there's also the continuous investments in dry dockings. We have sold some vessels during the half year. The biggest part of this is the proceeds from the sale of the four vessels in Russia. So for this half year, the proceeds from sale of assets is higher than what it would normally be. So the net, the pre-cash flow, according to our definition, has gone from 288 to 303 million kroner in this quarter. Then looking at our dividend policy and leverage target, so we have a target to retain or remain at a two times adjusted EBITDA leverage ratio. And in this report, you will see that we are currently at 1.9, so slightly below. The net interest bank debt came down to 3,541,000,000. We started out the year at 3.745, so a reduction of a little more than 200 million in the net debt. The gross debt today consists of the long-term facilities that we have entered into, the 320 million euro term loan, the 200 million Australian dollar term loan, and then our revolving credit facility of about 8 million euros. All of them have a tenure of five years. At the end of the quarter, we had drawn 100 million euros on the revolving credit. And you will see that our liquid funds in the balance sheet is at 800 million. And that, of course, is something that we continuously work to optimize to reduce the gross debt so we pay less interest. We maintain the target of two times adjusted EBITDA to make sure that we have sufficient financial flexibility to seize opportunities that may present themselves, whether that is investments in growth opportunities of organic growth or it is investments in inorganic growth opportunities. Then if we go to the outlook, and as Kasper mentioned, I think we changed our outlook in June, on the 20th of June, and we upgraded it from the original outlook that was published with our annual report. So now it is revenue growth, 6.5% to 7.5% in constant exchange rates, and we've slightly modified the wording around it, so we now expect to end up in the upper end of that range, so close to the 7.5%. Similarly, on the adjusted EBITDA, we upgraded to 1.775 to 1.875 billion kroner. And we also here expect to end up in the upper end of that range, which is consistent with an EBITDA margin around the 30%, which is slightly higher than what it was last year. And this, again, is excluding the separation listing cost, as mentioned just a minute ago. When we look at the adjusted EBITDA expectations for the year, we now expect the currency, the exchange rates, to be flat compared to what we've seen in the first half year. So you might remember from early on that our original expectations for the year were a strengthening Danish kroner. We are now changing that outlook to be a flat development. When we look at the gross capex, that is maintained with an outlook of 900 million to 1.1 billion. And in the first half of the year, we spent 483 million, so roughly 50% of that. And we do expect that level to be the same in the second half of the year. Then just reiterating the key highlights, revenue growth 11%, EBITDA growth 15%, so that means an improvement in our underlying margin, largely driven by the tariff increases, but also the slight change of mix where we have a bigger part of our business now in the terminal storage. On the operational side, we continue on the decarbonization journey, finding more ports, more places to utilize the biofuel option. and we're also growing the business with the BSP operations in Port Hedland in Australia. Finally, we renew contracts, we win contracts, so we continue to grow the business and maintain the underlying customer relationships that we have. I think those were the words, and I think we are now ready to enter the Q&A session.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Ulrich Buck from SEB. Please go ahead. Your line is open.