Svitzer Group A/S

Welcome to our Q3 call and thanks for dialing on everyone. I am Kasper Nielaus, I'm the CEO of Switzer and I'm joined by Knud Winkler, the CFO, and we'll take you through the presentation and then happy to take any questions you may have in the end.

Good.

So if we start an agenda, I will take you through the business performance. Then Knut will go into detail on the financials. And then, as mentioned, we'll have a Q&A session in the end. So let's jump into it. So the highlights of the quarterly results. So we had a revenue growth of a little more than 9% in context. exchange rate when compared to Q3 2023, and the EBITDA increased by more than 14% in the constant exchange rate, which also led to an increase in the EBITDA margin. So we are on track to deliver the financial outlook for 2024 after so far solid performance in 2024. So overall, we are very happy with the result of quarter three. It's a solid performance. Then we took delivery of our first transverse truck. We can talk a little bit about the transverse truck in previous calls and communication. It's a new design that we have done in Switzerland. We took delivery of the first one. We're currently doing jobs with it in Amsterdam and collecting all the data. But so far, it's proving to be as good as we hoped. We also placed an order for another transverse truck. We'll go a little bit more into it on the next slides, running on battery with a methanol backup engine. And then we actually also order four more transfer to us for feed renewals. So we have quite a few in the order book. On the commercial side, we have so far extended all the contracts that were expiring this year. So all our terminal tourist contracts expiring have been extended. And we started a new operation on a five-year contract for a truck in Brazil. Also on the commercial front. If we dive a little bit more into our transfer truck design, then we took delivery, as I mentioned, of the first 26-meter long transfer truck. We have put it into Amsterdam where there are a lot of truck jobs, so we can get a lot of experience with it quickly. The hypothesis was, which was, of course, backed up by tank testing and modeling and so on, that it will be more efficient, so less fuel consumption, and also able to do truck jobs faster than traditional truck designs. And so far, our results confirm it. It seems to be a nice fuel saving on double digits, at least on the fuel consumption. And it is as maneuverable and as safe as we hoped it to be. So when we have enough data to fully document the performance, then of course, we'll be explaining that to a larger audience. So as I said, we ordered in the quarter one new truck running on batteries. I think that's the next slide. So battery, six megawatt battery package on this truck. It has a backup engine that can run on methanol and also another backup engine that can run smaller engines on diesel or biofuel. We will deploy it into Gothenburg when it's delivered in 2026. We expect that it can do 90 percent of its operations on the batteries, so green shore power, and then it will have backup power from the two engines. So what this signifies, of course, for us, a significant milestone, also the industry-first battery methanol truck. And then it also – we've also focused our efforts and decarbonization agenda on the electrification of truck boats. So expect to see more in the future on this front. If we dive down to the regional highlights, Australia, we have seen progress across all regions. Australia, which is our largest region, it's more than a third of our revenue and earnings. We had a good revenue pickup, also a significant EBITDA increase. led by the contract we've been talking about a few times. New contracts have started up, including the Woodside contract that started up in Q4 last year, so full effect in Q3 this year. Also, the contract with BHP, the mining company, where we now have four TOFs deployed, still waiting for the fifth one, has full impact here in Q3. So, big impact from the terminal toad segment, also from the harbor toad segment by turf increases. And then we had a few special jobs that we also did. The volumes were a little bit lower than Q3 2023 in Habitats, but more than made up for by the revenue increase or the tariff increase. So also a good margin increase. If we look at Europe, Europe is the other big region, a little bit smaller from a contribution size than Australia. Then we also here saw a significant revenue increase and a big EBITDA uplift. Again, we had impact material increases. We had the contract in Greece, the terminal torch contract in Greece that had a full effect in quarter three and was not in quarter three, 2023. And there was also a special operation job, a smaller, yeah, special operation job in Northern Denmark. And the activity also improved in harbour torch. So good progress also in Europe. Americas, we have traditionally seen over the last few years significant growth. And we have a mix of harbor toads and terminal toads, primarily harbor toads. So we also saw revenue increase and EBITDA increase, not to the same extent as we have seen in some of the other quarters or the other regions, primarily due to also Q3, last year in America has been quite strong with a special operation job in Q3 last year. So still strong performance from America, still good volumes, and also here we've seen we've also had a special job during the quarter. And then we started up, as I mentioned initially, this new contract for a top for five years in Brazil. If we look at Asia, Middle East, Africa, It's a region primarily almost exclusively made up of terminal storage. However, we do have one operation in Morocco, that's harbour storage terms. We saw also revenue increase primarily from the harbour storage operations, of course, also from the escalations we have in the terminal storage contracts. And then at Flat Ibida, we also saw cost increases in the harbour storage operation in Morocco due to the high volumes. We extended our terminal storage contract in Liberia for a five-year term during quarter three. So I'll hand it over to Knud.

Thank you, Kasper, and welcome from me as well to this webcast. You have all read the trading statement, so we're not going to repeat exactly what is in there in terms of the numbers. I'll try to give you a little bit more nuance to the numbers presented. So as Kasper mentioned, during the quarter we've seen a 9% growth in revenue compared to last year. The drivers behind that growth, Kasper mentioned the volume in Harbour Toad is not growing, it's actually going a little bit backwards. So there's no revenue increase coming from that front. The revenue increase is coming from two other factors. One is the escalations in terminal toad, but even more so the price increases that we are driving through in Harbour Toad. And as we've mentioned a couple of times, we're trying to be a little bit ahead of the curve in terms of adjusting for the inflationary pressure on our cost side and we have seen that effect also in the third quarter this year. The other factor driving the growth is the new contracts in Terminal Toast that have come on stream since Q3 last year and now we basically have all of our growth projects live for this year. The growth projects that have come on are the ones in Australia and in Greece. If we look at the EBITDA development, then again, we see an overall growth of roughly 13% compared to last year. The volume impact has had a limited negative impact, so we go 4 million kroner backwards. The price increases, as I mentioned, we are pushing forward on that, topping up on CPI. So that gives us an uplift on the EBITDA. We do also see some improvements, Kasper mentioned improvements on the profitability in Europe. We've talked about the UK a couple of times and the challenges that we have there. We are moving forward on the profitability in the UK. So part of the EBITDA increase from Harbour Toast is also an improvement in the underlying performance in the UK. The other big block here is the EBITDA impact from our new terminal toast contracts to 33 million kroner that we've seen in the core since last year. We have not included the separation and listing cost in this overview. We have realized a total cost of 22 million Danish kroner in the quarter related to separation and listing. We are continuing to complete the separation and taking over the activities that were previously performed by AP Monomersk. And the cost that we incur related to that is primarily related to establishing systems that were previously running in Epimolar Musk. If we go to the CapEx side, we see a slowdown on our investments in growth. You will recall that we have over the last couple of years invested significant amounts in growth projects. which has also materialized on the revenue line. We have not won significant projects this year to be invested in, and therefore we do see that the growth capex is coming down to a lower level than what we've seen in the past. Also, we're seeing the maintenance capex is coming down, the dry dockings. This is much more a reflection of the number of dockings than it is the cost of the dockings. We actually do see an increased cost pressure on the dockings, and this is in essence two factors. One is the OEMs are pushing the prices up on the main equipment, and the other factor is the shortage of availability of yards in certain geographies that allow them to increase the prices more than inflation. So we do see some pressure on that one. Fortunately for this quarter, we have seen less dockings than what we did last year. And then there's a small amount on fleet renewal. We've basically only taken delivery of one vessel this quarter, which is the transverse truck that is now operating in Amsterdam. And there are no further deliveries planned for the rest of the year from the new building pipeline. We have 14 vessels in the pipeline, in the order book. to be delivered during 2025 and 2026. I think the last one is planned to be delivered in the fourth quarter of 2026. Half of those vessels are dedicated to our growth pipeline. The other half is, for now, dedicated to fleet renewal. The four transverse tucks that Kasper mentioned previously They are labeled for fleet renewal, but we have some flexibility to reallocate them to growth projects should such projects materialize between now and delivery. Then moving on to our financial outlook for the year, we are maintaining the guidance as we have showed previously. We are showing or expecting a growth in revenue of six to seven and a half percent and we've previously said we will end up in the upper range of this and we'll reiterate it will be top end of the range that we see materializing as we see it now. When we look at the EBITDA we have given a range of 1775 to 1875 and as previously said upper end of the range and reconfirming now it will be top end of the range for that one as well. we need to remind ourselves that the fourth quarter last year was a very strong quarter. I think Kasper mentioned also there were growth projects coming in in the fourth quarter last year and also we had a few of these rather lucrative special operation jobs that sort of bumped up the numbers in Q4 last year. So it's a very tough comparison that we see in Q4. So the growth will be flattish the revenue growth will be flattish in Q4 compared to last year. And then, again, the separation listing cost, we have upped that a little bit to now 130 million kroner in the P&L, and we have capitalized 31 million kroner related to the new debt that we've taken on, and that will, of course, be amortized over the period of the term loans. Finally, our gross capex. we maintain the guidance of 900 to 1.1 billion. You can argue so close to the year end, would we not be able to narrow it down a bit? And in principle, yes, but there's always a bit of uncertainty as to the installments on some of the new builds, whether they will fall before or after the new year, depending on the achievement of milestones on the yards. So if the yards are super efficient and according to plan, we will see the CapEx probably in the middle or slightly above the middle of the range. If we delay those installments to just after New Year's, we may end up sort of in the lower half of the range. But again, it's a relatively short timing difference between those payments and they are committed already. So just reiterating what Kasper said from the beginning, it's another quarter with strong financial performance, 9% growth compared to last year on the revenue, an increased dividend margin by 0.9 percentage points, and we are on track to deliver on the full year, as I just said on the previous page. We are moving forward with our innovation and putting that into operation with the transverse tuck and also further pursuing our green ambitions by ordering a methanol battery tuck that will be built and delivered in 2026. And then finally, I think it's worth repeating that all of the contracts the terminal contract that have expired this year have been renewed uh you will remember from our capital market state presentation we had a 94 renewal rate over the past three years and we've continued to renew those those contracts as we see them expire so i think all in all it's a strong testament to how we perform the services to our customers and with that we would open for a room for for q a

Thank you. To ask a question, you will need to press star one and one on your telephone. That is star one one to ask a question and you will wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to the first question.

One moment, please.

And your first question comes from the line of Pramod Dote from HSBC, please go ahead.

Hey, hi, this is Deepak here from HSBC. Sorry for the name confusion. I had a couple of questions. Firstly, you mentioned that all the contracts which were probably due for renewal have been concluded positively. Is that what you mentioned?

Yes, that's correct.

Okay, and just a clarification on that. How has been the pricing on these contract renewals? Have they been as per your expectations in terms of passing on the inflation and your expectations of higher charges?

Yeah, so I think just to make clear, we need to, you know, the contract renewals are only the contract where it runs out. So in that case, we had, for example, a 20-year contract meetup, it's closing in on running out. And then, of course, there is a negotiation. We have 20-year-old trucks. Do we extend those, or do they go for 10, or do we bring in new trucks? And for those, we have extended all of them. Some of them, we have given a smaller rebate, and one of them was extended for a few years. We have, you can say, frozen the escalation. But that is only a small part of the contract. In the rest of the contract portfolio, that Every year, most of these contracts every year escalate with cost increases. So just to make clear that there is that difference. And actually, some of the contracts also, when they expire and we renew them, some of them actually comes with an increase in rates because the market has changed. So it's just important to distinguish between the ones that actually run out, where you have a commercial negotiation, and then the bad majority of them that you have this mechanical escalation every year.

Okay, that's clear. Thank you so much. And the other question which I had was, we've just had a new president being elected in the U.S., and there's a lot of chatter about the escalation in trade tensions and potential unwinding of any geopolitical tensions which are happening. We have two conflicts, one in the Middle East and one in the Eastern Europe region. So is there any color you could provide in terms of how it might impact your portfolio of business? I know you do not operate in the U.S. or in China, but in the regions where you operate, is there any positive or negative fallout from these events and potential escalations in trade tensions?

Yeah, thanks. So good question. And yes, you're right, we don't operate in the U.S. We have very, very small closer to China. So those two countries cannot be affected. We operate in Europe, but we operate in 37 countries in the world. And it's very difficult to predict how this will fall out. It's very difficult to predict trade patterns. What we, for example, saw during Corona was for a period of time, you saw trade coming down in Europe, but then trade went up in Brazil and Australia. So it is very difficult to have a view on how it will affect us. Overall, a slowdown in global trade is, of course, not great because we live out of global trade. But I'll also say, as we have demonstrated time and time again with the portfolio of operations, we have 140 ports, 40 terminals in 37 countries, different parts of the world. We are very resilient to, you can say, local trade shifts because they tend to go elsewhere and we have that big exposure.

Yeah, I mean, I do understand the advantage of the great diversification. which you have. Maybe just for our understanding because the business is new to us and at the same time we do not know much about the history. Maybe if you could illustrate with what happened during Trump 1.0 when the tariffs were imposed. Did you see any meaningful impact in any part of your portfolio?

No, I don't think so. No, not to our regulation.

Okay, thank you. That's it from me. I'll fall back in the queue and all the best. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad, star 1 and 1 to ask a question. We will now go to our next question. And your question comes from the line of Anders Pretzmann from Danske Bank. Please go ahead.

Yes, thank you for that. And hi, Casper and Kenan, thank you for taking my questions. I also have a few, maybe just going back to the performance on the different geographies. If we could start with Australia, and maybe you have given some flavor on this, but it comes in at quite an impressive EBITDA margin, I think. Are you able to elaborate a bit on this, maybe give some nuance to why that's the case?

Yeah, so there is an element of the new contracts coming in. The contract with BHP in Port Hedland comes with a rather high IPDAR margin. That's mostly a bare boat charter with some chip management to it. So we don't have the same amount of costs related to that contract. But it is just an overall good performance in Australia. very much an effect of the price increases that we've pushed through. We see the volume coming back a little bit compared to what it was last year, so it's very much around the price increases and a few cost saving initiatives that we've run through down there.

Okay, yeah, thank you for that. And maybe also then the same question to Europe, and you have also answered this with you guys moving forward on the underlying performance in the UK, but Are there any other things in Europe that might have surprised you? I recall that you were a bit conservative, maybe a bit bearish on the European market when we last spoke.

I think our expectations to the volume development in Europe has probably been exceeded by a small market, right? So a little bit more activity in the harbors than what we had expected. But it is very much related to the fact that we're getting our arms more and more around the problems in the UK. They were not completely solved during Q3. There's still a few internal handles that we need to pull that can further improve the performance a little bit in the UK. But the big ticket item in terms of the overall market adjustment of capacity to demand, that still needs to take place. So we are obviously working on our side, matching demand and the capacity in the port where we're in. But there's still some, you could say, structural alignment in the market that needs to take place before we can get the right utilization and the right pricing in UK to be at the level we want to be. For the rest of Europe, Scandinavia and continental Europe, things are moving forward quite substantially.

Okay, yeah, thank you for that. In the report, you also mentioned the volume decline of 2% overall. Can you maybe give us some nuance on what you expect for Q4 and what are you looking into there?

For Q4, we see a rather flat development on the volume side. There is this impact in Australia. There's a couple of things that come into play in Australia. There was a question a minute ago around the geopolitical situation. Just to sort of give a slight peek into the uncertainties of what that means, the Red Sea crisis obviously led to less activity in the Red Sea and in the Suez Canal. We're on time trial there, so that's not a big issue for us as such. but it has come with a significant uplift in the activities in our port in Morocco, because basically all of the volume going into Northern Europe and into the Mediterranean, they will come through either Morocco or Algeciras. So there's been an uplift in the activity there. What we also see is that the East-West trade then absorb capacity, for example, on containers and that capacity at least based on the feedback we get from our customers, is that that has been taken out of the Australia trade. So there's less vessels calling Australia than what we've seen in the past. It's a significant part of the decline in the volume that comes from container trade in Australia. The other thing that comes into play in Australia is the grain harvest, which was a record year in 2023. we don't see that coming again this year the the grain harvest seems to be much more of a normal level this year so there's a bit of a of a of a of a negative impact from that in a few of the southern poles in australia so so it's a mix of a couple of different things right and as i said the geopolitical part is quite unpredictable uh whatever mr trump is going to do i think that can have uh derived impacts in sort of a few a few different levels uh of course not in the fourth quarter right but going into 25 so but fourth quarter it is primarily the australia thing container and okay thank you for that that was very helpful and then maybe my my final question then and and um just going back to the guidance for 2024 i mean you reiterate the guidance but but yet you state that you

expect to end up at the top end of the range i mean why not just adjust it upwards on the bottom end is there any factor that could determine that you would end up in the lower end of the range i mean it seems very conservative

I think you can basically choose between narrowing the range or just stating that it will be top end of the range. I don't think that it should not be taken as there is a risk that we will end up in the lower end of the range that we simply do not see. We're quite confident it will be top end of the range. That was very clear.

Thank you for that. That was my question.

Thank you. We will now take the next question. And your next question comes from the line of Ulrich Back from SEB. Please go ahead.

Yes, hello. Thank you for taking my question. So my first one is also on the guidance, because you deliver quite a strong Q3 report. And again, you keep your guidance unchanged. And you already covered the revenue growth deceleration and the drivers for that. But the implied adjusted EBITDA for Q4 also seems quite conservative in my view. As it implies, the top end of your guidance range implies that it will be flat quarter over quarter. And I have previously understood that Q4 should be a seasonally stronger quarter than Q3. So please add some flavor on why it should be flat quarter over quarter on EBITDA as well.

Thank you. Yeah. I'll just repeat my statement from a couple of minutes ago. The Q4 in 2023 was a very strong quarter, both in terms of the revenue, but also in terms of the profitability. And compared to that, we do believe it's going to be a flat development year on year.

Yes, but my question was merely on a sequential basis. because you previously stated that Q3 is a seasonal low, whereas Q4 is a more seasonal high. So why should you earn more on EBITDA in Q4 versus Q3?

I think it's a very good question.

I think what we have seen in Q3 this year is a strong performance than we initially expected of Q3 this year. We've also seen we had a few space operations jobs in Q3, both in Brazil and Australia, and still this impact. So we have, you know, yes, I hear what you're saying, but we already have, you can say, some of the effects we normally see in Q4, we've already seen some of that in Q3.

Okay, that's clear. And then a question on this dynamic between the tariff increases that you impose and then the timing of your OPEX increases because it seems you also noted that you're trying to increase or stay ahead of the curve in terms of cost inflation. But revenue per talk job went up 10% year-over-year in Q3, and we don't have the OPEX per talk job for Q3, but for the first half of the year, it increased 6%. Is there an element that there will be a catch-up effect from this OPEX production growth over the coming quarter, so it will sort of catch up with the revenue production increases? Or will you then also, over the coming quarters, increase this revenue production even further, so you will keep being ahead of the curve, so to say? Or is there a risk that you will essentially dilute your margins as we walk along?

I think we will continue to be ahead of the curve. As you say, 10% increase on the revenue for top job, 6% on OPEX. It's not unlikely that there will be some catch up on the OPEX, but not up to the 10%, right? So we do believe for the full year, we will see a better development on the top job revenue than on the OPEX. So margin expansion, basically, right?

That's clear. And just to get a feeling of these price escalations that you are currently adding to your contract, we have seen inflation rates decline over the past several quarters. But on the other hand, you mentioned bunker prices have increased. So what kind of increases are you adding to your current contracts?

So if you look at the tariff increase in Harbortoads, Europe, that's primarily 1st of January. We implement those. In Australia, it's primarily 1st of April. We implement the tariff increases. So the new tariff increase. So when we do that in Harbortoads, we take a broad view of, you can say, the world around us. How has inflation developed the last 12 months? How do we expect the continuous to develop? What are the agreements we have with our crews for inflation? Salary increases and what do we see in our own experience, for example, something like spare parts that don't always correlate with normal inflation or indices. So we're working on the tariff increase in Europe that takes place 1st of January. And although inflation has come down and we, of course, we don't expect we will not continue increasing rate per charge of 10%. But we do expect that we will see tariff increases and also hopefully a little bit above at least the headline inflation.

Okay, that's very clear. Then just a bookkeeping question on these demerger costs. You mentioned that there are some costs related to system implementation for these services previously covered by MERSC. What is the status of this project, and will there be more costs related to this over the coming quarters and perhaps into 2025?

There's a small amount that will materialize in Q4, but we are not planning to see any separation costs beyond the 31st of December. The adjustment for separation listing costs, we'll see that in 2024 only. There will be nothing in 2025.

That's very clear. And then this cost of 31 million, which will be recognized on your balance sheet, are these costs related to the system implementation, which you mentioned? And also, how will these expenses flow through your financial account?

So this is the bank fees that we realize in connection with establishing the new loans, replacing the funding from AP Monomersk. And it's simple accounting. You have to capitalize those fees and amortize them over the period of the loan. So the 31 million that we capitalize will be amortized over the five years, the term of the loan. And it will come in financial items. Yes, that makes sense.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. That is star 1 and 1 if you would like to ask a question. There are currently no further questions. I will hand the call back to Kasper for closing remarks.

Thank you very much. So thanks a lot for listening. Thanks for the good questions. As I mentioned, we are very satisfied with our quarter three results. We have a solid financial performance. I think we're in a good shape. We've extended the context of aspiring investing in growth trusts, but also feed mill trusts and also moving ahead on this transverse concept that we believe will be benefit to us in the future. So overall, good progress and looking forward to closing the year also well. Thanks a lot.