Wallenius Wilhelmsen ASA

OSE:WAWI

Earnings Call Analysis

Record Quarter with Strong Performance and Future Outlook

In the second quarter, Wallenius Wilhelmsen reported stellar results with an all-time high adjusted EBITDA of $507 million, up 16% from the previous quarter. The revenue grew by 8%, reaching $1.4 billion. Despite a $212 million dip in cash due to debt servicing and dividends, the company maintained robust financial health. All segments, including shipping, logistics, and government, showed strong contributions, with shipping achieving record adjusted EBITDA of $409 million. Wallenius Wilhelmsen expects 2024 to be slightly better than 2023, driven by high demand and attractive contract renewals.

Strong Quarterly Performance Amid Challenges

In the latest quarter, despite facing reduced volumes due to rerouting away from the Red Sea, the company achieved record results. Group revenue rose to $1.4 billion, an increase of 8% quarter-over-quarter, while adjusted EBITDA reached $507 million, up 16%. This robust performance was driven by strong contributions from all segments, showcasing the company's resilience and operational efficiency.

Segment Performance Highlights

The shipping segment delivered an adjusted EBITDA of $409 million, setting a new record, with a 12% increase attributed to higher contract rates and increased volumes. Logistics also saw growth, with revenue climbing 5% to $315 million and adjusted EBITDA improving 30% to $60 million, bolstered by steady throughput and storage revenues, as well as positive one-off effects from a legal settlement and government grants. The government segment reported an impressive 43% rise in adjusted EBITDA, reaching $48 million, reflecting sustained high activity amidst ongoing geopolitical movements.

Restatement of Financials and Impact

The company's financials for 2023 and Q1 2024 were restated due to changes in accounting principles for the UCOR put-call options. This resulted in a significant reduction in equity by $929 million at the end of Q1 2024, alongside the recognition of an $847 million put option liability. The restatement also impacted key financial metrics like the equity ratio, which dropped as shareholders' equity was adjusted.

Cash Flow and Dividend Payouts

Operating cash flow for the quarter was $393 million, representing a 77% cash conversion rate. Despite servicing net debt and paying dividends, which reduced the cash position by $212 million, net debt stood at $1.8 billion by the quarter's end. A substantial dividend payout is planned, totaling nearly $740 million for 2024. This includes a $258 million dividend for the first half of 2024, payable on October 10, following the second tranche of the 2023 dividend.

Positive Outlook for 2024 and Beyond

Looking forward, the company expects 2024 to be an improvement over 2023. While global car production has slowed, creating a tight market, demand remains strong, especially from Asia. Despite a reduction in high and heavy volumes, the company has successfully shifted to more profitable car shipments. Strategic contract renewals are ongoing, with key negotiations indicating increased volumes and higher rates for 2025, providing a positive outlook for continued growth.

Significant Operational and Strategic Developments

The company announced the sale of the MIRRAT terminal and the procurement of 12 methanol-powered vessels, highlighting its commitment to sustainability and future growth. Additionally, changes in the management team were made to support strategic initiatives and enhance customer service. These steps, coupled with efforts to reduce emissions and increase the use of biofuels, underscore the company's focus on long-term value creation.

Sustainability and Future Innovations

The company was recognized with an EcoVadis Gold rating for its exceptional sustainability efforts. It is on track to surpass its goal of a 45% emission reduction by 2030, already using over 10% biofuel mixed this year. Investments in zero-emission vessels and ongoing dialogues with customers about biofuel adoption are part of the company’s strategy to make environmental transitions profitable and align with customers’ sustainability goals.

Confidence in Long-term Financial Stability

Despite the complexities surrounding cash flow and debt management, particularly with the potential EUKOR put-call option, the company remains optimistic. It plans to maintain a robust liquidity position and continue paying substantial dividends, leveraging freed-up cash for both shareholder returns and strategic investments.

Market Conditions and Strategic Responses

Acknowledging the challenges of a growing order book and a tight market, the company sees opportunities to source vessels at lower costs in the future. High renewal rates for shipping contracts and steady demand in logistics and government services reinforce confidence in sustained earnings growth. The company's proactive approach in negotiating long-term contracts ensures stability against market fluctuations.

Earnings Call Transcript 2024-Q2

[Lasse Kristoffersen, executive]

Good morning, and welcome to second quarter presentation from Wallenius Wilhelmsen. We will have a few slides to show you first and then a Q&A afterwards. If you're in the audience, you will get the chance to ask them. If you're on the link, please type it in, in the chat and Anders will bring it up to us after the presentation.

First of all, I must say I'm incredibly proud to stand here on behalf of 12,000 people and look at what we delivered in the last quarter. It can sound like an easy job, but it's not. I can tell you that the care and the challenge and the commitment in this organization is unique. And we have had plenty of reasons why we should not deliver a record quarter. but we were able to do that. So I'd like to reach out and say a big thank you to the organization, and then let's jump into the presentation itself.

The highlights, we are delivering EBITDA of $507 million in the quarter, an all-time high. We are extremely pleased to see that the positive development in both Government and Logistics is continuing, and they are now a solid part also of our earnings. We are declaring a dividend of $0.61 for the quarter, and that represents 50% of the net profit for first half of the year, and in line with our new pay-as-you-go dividend policy.

We announced in the quarter that we have agreed to sell the MIRRAT terminal, and I will come back to that in some more detail. We placed an order for another 4 vessels, total now of 12 Shaper vessels ordered. And we have had some changes in the management team. Mike Hynekamp, who has been running Logistics, has been appointed Chief Strategy and Corporate Development Officer, really working closely together with me and the rest of the management team to run the changes we need to deliver on new services to customers. And John Felitto will take over as the COO of Logistics. He is today running all of our vehicle processing activities in the Americas, the biggest single business unit in Logistics. And then we have levers, Torbjorn Wist resigned by the end of July. He's moving out in an island nearby.

So -- but all in all, we are very proud to deliver an all-time high EBITDA. And we reiterate that we are quite confident that 2024 will be somewhat better than 2023.

So then let's jump into some more of the details. Normally, we don't talk that much about strategy, but I wanted to give you a little bit of an update on what we are working on, and that we are also working on positioning Wallenius Wilhelmsen for 2027. We have said that we want to be our customers' first choice of shipping. We believe we are, and we think we have solidified that. We're now ordering 12 vessels that can run on methanol when they are delivered, it's not ready for, it's real stuff. We have a clear strategy of being the preferred partner to our customers when it comes to finishing of vehicles, handling of vehicles and high and heavy. And we see that our customers increasingly now are buying these services. The business area of logistics is growing. And the sale of MIRRAT is not a sign of less investments or growth into logistics, it's purely a consequence of taking value off the table when we have more of a financial than strategic holding.

We have set up a complete new team of new top competence within digital and supply chain, recruited people from Polestar and Volvo and Lincoln Co and others to really drive the digital agenda, where we see our customers need a lot of help and where we see there is a big growth opportunity for us going forward.

Then last but not least, we are delivering on our goal of reducing emissions. Last year, we used around 1% of biofuel mix; this year, more than 10%. And this year, our customers will pay more than $50 million for us to reduce emissions.

We are growing with the partners we want. We are turning down customers and we are increasing volume with those who are joining our journey. And we are now, as you know, in the negotiations with new contracts, and we're very happy to see that companies like Hyundai and Kia and others consider us a key partner and a strategic partner, and they actually want to grow with us.

And then last but not least, as I said, we are now setting up a unit. We realized that for us to really reach our strategy of being the post-production partner to the big OEMs of the world, we need to restructure our data or systems or processes and our structure, and that's exactly what we will do over the next year or 2. So we are also progressing well when it comes to delivering on our strategy.

Then to a bit more of the hard core for the quarter. The running 12-month earnings are continuing to increase, all-time high now of $1878 million. And we are paying a substantial dividend this year. For those who remember, we changed our policy. We had an annual dividend where we -- the following year, paid out the dividend in 2 tranches. So for 2023, we declared a dividend, and we paid out in 2 tranches. One has been paid of $0.68. And then we have another one coming in August of $0.46. In addition, we're this year declaring -- this first half, we're declaring $0.61. So altogether, if you hold a share of Wallenius Wilhelmsen in 2024, you get a dividend of $1.75 for the year. So an extraordinary year in terms of dividend as well.

A bit more details on shipping. On the green bar on the left, you can see that volumes are somewhat up. We had a challenge with the Red Sea in the first quarter. That has stabilized, still there, still about 5% of capacity gone but it has normalized, we were able to set up the trade efficiently, and we see that, that's driving volume. High and heavy share is stable, and I'll go a little bit back to that. Earnings are increasing. This is because we are now seeing that there are coming new contracts and new rates into our business. The net rate, the blue line is now pushing up to 60. But also, we see that on the earnings of the vessels, we are now on a record high of $56,000 a day for the quarter. And this is partly due to new contracts and new rates, but also that we are now increasingly moving volumes for customers with higher paying contracts.

Global production of cars has seen a slowdown. So despite -- that is still very tight in our segment. We saw in 2022 and in particular in 2023, that there was an overproduction of cars in the world. And the inventories increased substantially. So the world -- the global sale of cars this year expected to grow somewhat 2%, but the production will most likely be -- go down with 2% to 3%, meaning that we are now, as we speak, you will -- if you follow closely in the U.S., in Europe, there are a lot of campaigns on newly built cars to get down that inventory. The best analysis we can get and also when we look at other analysis that we will be able to do that during this year. So as of next year, we will be back to global production, will grow more or less on par with global demand for cars, growing with 2%, 3% a year.

The reason why it's so tight is that Asia in general and China in particular continues their growth. There's been a lot in the news lately about China and EU -- and EV tolls. That is right. We have seen over the last year, if you see the green at the bottom, that volumes into Europe has flattened. But year-over-year, more or less every other market from China has grown with 30%. So the Chinese growth in car exports is not only linked to Europe, it's a global phenomenon and it's growing tremendously, and we expect that to continue to grow at least for a while.

I said I would come back to the high and heavy volumes. These are actually over high and heavy volumes, what we have recorded, how much we have moved. And as you can see, we more or less since the peak plateau a year ago, our volumes in high and heavy are down by about 15%, meaning that there is less cargo to be moved. This is due to softening in the agricultural industry, farmers are investing less in equipment right now. It's a softening in the construction industry. As we all know, that construction is softening. Mining is still holding up. It is our firm view though, and also the feedback we get from customers is that we are probably now at a new, call it, low normal, and we expect a rebound in volumes into 2025. Meaning that we don't expect any further fall in high and heavy volumes. And if anything, there is an upside in these volumes.

Having said that, we are able to replace the high and heavy volumes with very well-paying car and other type of volumes. So in terms of earnings, this has not proven to be a big issue for us.

The order book is a big discussion theme in RoRo shipping. And yes, it's big. And yes, it's growing. Also in the last quarter, we had new vessels coming in. We have now more than 40% of the capacity on order, which, of course, is historically high, not the highest on record, but historically high. But we did a little bit of a calculation to try to figure out why is it still so tight and what do we think for the next year? And if you take the end of 2023, you add in the tonnage that is delivered this year. Then we adjust for the fact that 5% of the global capacity lost due to the Red Sea, and we think that will continue for the year. And this year, we expect a 10% growth in global demand. We have actually seen a tightening of the market in 2024. And this is just a theoretical assessment. But if we assume that we were 100% sold out by the end of last year, we should be more than 110% sold out by the end of this year. Then adding 11% of fleet growth next year, even with [ no ] growth in global demand, we're probably back to more or less full utilization of the fleet. We have just for illustration, put in 5% growth, meaning that we are still having less capacity in the RoRo segment than demand requires. We see that, that volumes are not shipped. We see that they are shipped in containers and in other modes and our customers tell us that is not the preferred option.

So this is why, yes, the order book is big and over time, could become a challenge. But for the next year or 2, we see -- expect still a very tight market.

We also see that from our customers when we renew contracts that they are very concerned about getting access to capacity also for 2025.

Talking about customers, we are renewing a lot of contracts this year. 45% of our 2023 volumes are up for negotiations. We have announced 1 contract, which was successfully closed at what we believe are market terms. We are continuing dialogue with others. And if anything, they want us to grow with them, not reduce volumes, and we see that rates are reflecting the market. So we are quite confident that we will be able to close the contracts we are working on for this year. The majority of them will be coming into our business at the beginning of next year. Next year is a much smaller renewal. We have about 15% of our volumes and then another 15% later. On logistics, we see high activity level. On the left side, you see the production volumes in the U.S., they are more or less back to pre-COVID levels. We are sitting at the end of the factory lines. We are dealing with cars produced in the U.S. and North America and bought and used in North America, never seeing the sea. This is a big market for us, a big activity, and this is growing. And that's what you see on the right-hand side on auto, we have increasing volumes and also increasing margins because we are doing more. We are making more heavy installs in the cars, and we get better margins for those installs.

When it comes to high and heavy, we have seen a slowdown in volumes on the shipping. I'll show that. On logistics, this turns out a little bit different. It actually turns out in terms of resting time in our facilities. So the high and heavy equipment rests longer with us, gives us decent income, but somewhat lower margin than what we get when we're actually building high and heavy equipment. So -- but still pretty good earnings and activity in high and heavy. Terminals increasing partly due to the opening of the Brunswick Terminal that we announced earlier this year, which is a significant and the biggest terminal in the U.S. and now runs at more or less full capacity. Volumes, a little bit muted by the effect of Baltimore being shut down, but that is now back to full operation. And our full terminal network is now up and running.

Inland is more of a brokering and middle man business with lower margins and has less impact on the bottom line in logistics.

MIRRAT, I promise to come back to that. MIRRAT is our public terminal in Melbourne, Australia. We are running at basically on behalf of the Port of Melbourne and industry in Australia, meaning that this is run as a complete separate business. We have a business model where we are integrating services for customers. And if you go to Sibos here in Europe, you will see processing of cars and high and heavy equipment, even we have logistics and other type of handling services inside the terminals and out of the terminals. MIRRAT, we need to run completely separate and has no strategic link to the rest of the business. Has been a very good financial investment. But as it doesn't really relate to our strategy, when we were able to capture a price which we think were very attractive, we agreed to sell for USD 220 million. We expect to close that deal by the end of this year, latest early next year. And what's pending now are approvals from the Port of Melbourne and also from government in Australia.

Obviously, we will have a significant gain from that sale. We have communicated that, and that will add to the dividend capacity and the dividend policy for second half of this year, if we're able to close it.

Then quickly on sustainability before Torbjorn comes in. We are very proud that we, in June, were recognized with an EcoVadis Gold. This is a label that is put on companies where they do an exceptional in-depth wide study of everything we do on sustainability. And to get the gold, that's 5% of the global companies get a gold award and only 3% within our industry. So the fact that we are awarded or recognized with gold tells us that we're doing a lot of right things on sustainability, which is also demonstrated by our numbers. If you look at our emissions, we are delivering consistently lower emissions. We are actually ahead of the targets we have said to reduce by 45% within 2030. And we see improvement both in terms of absolute emissions and relative emissions to the transport work we do. Safety is our #1 priority. We see that we have continued good performance in shipping. Somewhat uptick is smaller incidents and logistics over the quarter, but we are still below the target for the year, and we see over time, a steady decline in incidents and accidents across our business also in logistics.

So with that, I hand it over to Torbjorn.

[Torbjørn Wist, executive]

Thank you, Lasse. Good to see everybody. I see some tan faces in the audience, which is always a good sign after a summer holiday. Very pleased to be here to talk about the second quarter results.

Turning to the highlights. There's been a phenomenal quarter. This is the record quarter, and this is despite some of the lower volumes that we have seen following the rerouting away from the Red Sea. More pleasingly, of course, is the fact that we have strong contribution from all segments. And in a system like ours with ocean, land based as well as government activities, it really is pleasing when everyone is firing on all cylinders.

The revenue for the group came in at about USD 1.4 billion, which is up 8% quarter-over-quarter. And the adjusted EBITDA came in at USD 507 million, which is up 16% in the quarter. Our cash position was down 212 million, and this is due to debt service as well as the dividend payment that took place during the second quarter. We continue with debt service as a result of which net debt ended up at 1.8 billion. The proposed dividend for the first half of 2024 is 50% of profit for the first half, which came in at $516 million. Hence, the dividend is $258 million, and this dividend will be paid along with the second tranche of the '23 dividend on October 10.

As announced before the summer, we have restated our financials due to the accounting for the UCOR put-call. This has impacted the -- some of the key financial targets, and I will come back to that later in the presentation. But all in all, we continue to deliver very well on all financial targets being ROCE equity ratio and the leverage ratio.

Turning to the segment performance. Shipping reported an adjusted EBITDA of $409 million, which is a record quarter for the segment. The 12% increase in adjusted EBITDA is linked to a combination of higher contract rates as well as higher volumes in the quarter. Logistics reported revenue of $315 million, which is up around 5% in the quarter. And this reflects steady throughput of auto and storage revenues. Costs were almost flat, leaving adjusted EBITDA at $60 million, up 30% in the second quarter. In the result, there is around $2 million worth of positive one-off effect due to a legal settlement in 1 terminal as well as some government grants from -- in Baltimore as a result of the bridge collapse. government, we all see the geopolitical activity, and there is continued high activity in this segment, and the adjusted EBITDA ended at $48 million, which is up 43% quarter-over-quarter.

So turning to the restatement of accounts and the treatment of the UCOR put-call options. Our financials for 2023 and the first quarter of 2024 has been restated following the change in accounting principle. The graph at the bottom shows the impact on the equity ratio and the return on capital employed as at the end of 2023, just as an illustration. If you look at the equity ratio, that obviously took a fairly significant hit as a result of posting a big number to the shareholders' equity. While the return on capital employed increases as the denominator decreases with the reduction in equity.

If we look -- and just for your information, if you want to deep dive into these things, they are listed in note 2 of the financial report. But just going through some of the adjustments that were made to our Q1 2024 financials. Other noncurrent assets of $82 million was removed. This was the old way of accounting for it as a net asset. A put option liability of $847 million was recognized in Q1. Just for information, that number is now $826 million, essentially due to FX movements in the quarter. On the equity side, we have reclassified $316 million from noncontrolling interest linked to EUKOR and the balance of $613 million has been booked against equity attributable to the owners of the parent. The sum of the equity reduction is $929 million at the end of Q1 2024. And there is also a small P&L effect as we will no longer recognize value changes in the [indiscernible] structure through the P&L that will be taken directly to the equity now going forward. So all the accounts have now been restated and will now form the basis of our accounts going forward.

Looking at the revenue and EBITDA bridge, I touched on some of these already. Revenues is up $105 million in the quarter. Shipping had positive volume effects of $54 million and higher rates and fuel charges delivered $17 million. There were also clear positive revenue effects on logistics and government who delivered $14 million and $18 million increase, respectively. The adjusted EBITDA is up $69 million quarter-over-quarter. Shipping increased by $43 million on the higher rates and volumes. Costs were a little bit up on the higher volumes, but the EBITDA margin improved quarter-over-quarter. Logistics was up $14 million on higher revenue but almost flat costs and Government was up $15 million.

So if we look at the cash flow slide, operating cash flow in the quarter delivered $393 million, and this represents a cash conversion of 77% in Q2, not LTM, but in Q2. We had some CapEx that includes investments related to dry dock, some projects and other tangible assets. We had some net debt service, as we outlined in our connection with our Q4, we are systematically working on lifting cash up to ASA, including lifting dividends up from EUKOR. Of course, there, we have a minority in HMG. So any dividends that we lift up to the parent, there will also be a payment to the minorities, and this is included in other financial items. In the quarter, we paid $287 million to the shareholders of ASA and I'll come back to the dividend for the rest of the year. We have undrawn credit facilities of $372 million. And then there is an upcoming dividend in October now, which includes the tranche 2 for the '23 dividend of $193 million plus the new policy dividend of $258 million for the first half. So in total, we are paying out almost USD 740 million during 2024.

To the very right of the chart, there is an asset held for sale cash position. Following the announcement of the sale of MIRRAT, we have reclassified the assets and liabilities of this assets held for sale and this is in relation to the cash.

So when we look at last 12 months, we continue to have good cash generation in terms of operating cash flow divided by EBITDA. Perhaps more importantly, when you look at the right side of the page, with the paid and announced dividends for 2024, we are essentially paying out 100% of the cash flow to equity rolling 12 months as of Q2 '24. And here, we have taken essentially all the cash flow before any dividend payments, before any share repurchases and before the changes in the collateral, which is related to our U.S. dollar debt, which -- bond debt, which sometimes requires a cash collateral. So this shows that we are paying a substantial dividend to our shareholders in 2024.

So if we look at our balance sheet, we continue to maintain a very robust balance sheet and a strong liquidity position. The equity ratio was 35.7% at the end of Q2, slightly down from 36.5% in Q1 after the restatement. Why is it a little bit down? The reason is that once a dividend has been approved, even though it is paid in 2 tranches at the -- approved at the AGM, that entire dividend for the year, no matter when it is paid, it's taken to equity during the second quarter. So in Q2, the equity was affected by the fact that you recognize 100% of the dividend for 2023 plus the dividends paid to the noncontrolling shareholders in EUKOR. Net debt declined $40 million due to debt service and operating cash flow. And this is despite the dividend that has been paid. We have 21 unencumbered vessels with rough market value of $1.2 billion and book value of $418 million. We continue our important work to be able to upstream cash to ASA. We have a different structure than some of our peers, and we make -- we went through that at Q4, but we are systematically working on ways of lifting the cash up to ASA in order to free up cash that can be spent, including paid in terms of dividends. As part of that, we have made very clear that we are reducing the bond debt that we have at ASA level. The -- we have 4 bonds outstanding right now. The last one, we partially repaid in connection with the bond issuance earlier, but the remaining will be paid, I think it is October, it matures. So that will take down any future principal bond repayments out of ASA, and it would, of course, also reduce the coupon payments that is covered by ASA.

So with that, I will hand it over to Lasse to go through the prospects. Thank you.

[Lasse Kristoffersen, executive]

Thank you, Torbjorn. And let me do that quite quickly. We see tight markets. We expect tight markets to continue. This is driven by volume from -- primarily from cars. high and heavy, it's somewhat muted, but we believe has found its floor. Logistics, demand for services and logistics are increasing, in particular, in the U.S. And the Government -- demand for government services have kept up high due to the current geopolitical situation in the world. We have seen some disruptions this year, in particular, Red Sea. We expect that to continue for the rest of this year. Of course, it's impossible to predict what happens in Red Sea, but we see no signs that this will go away this year. And that in itself has an effect of around $100 million on our bottom line. But despite all that, we see strong demand we see attractive contract renewals, and we expect this year to be somewhat better than last year. Thank you.

So Anders?

[Anders-Redigh Karlsen, executive]

Is this working?

[Lasse Kristoffersen, executive]

Yes.

[Anders-Redigh Karlsen, executive]

Yes. Sun is shining, we have a rosy outlook, everything looks good. We're paying a new dividend. We even have some questions from the web. So on that, I think we'll start with you Lasse. There are a few questions around the renewals for 2024, pushing into 2025, whether you can say something about the outlook in terms of earnings for the year after this? And there is also some questions around what is the target contract level and how negotiations are going? Can you talk a little bit about that?

[Lasse Kristoffersen, executive]

Yes, that's a lot of things. I mean, first of all, negotiations are going extremely well. We see that customers really want our services, and we are very happy to see that we are in a unique position that we can offer both ocean transport terminals, processing and inland movements. And increasingly, that is of interest for our customers. Our customers are concerned about capacity. They really advance their contract negotiations. And we are well advanced in all negotiations for contracts that are expiring this year. There is no doubt that there are a couple of real big ones, and we have previously announced that the HMG contract is up for renewal, and this is no exception. We are moving forward with very constructive and very good dialogues with them. At the back of that, we believe that if anything, our volumes will be higher, a lot lower next year. We are renewing at higher rates. So there are all reasons to believe that 2025 will be another very good year, but we are not at this stage, giving any specific indications on earnings levels for '25.

[Anders-Redigh Karlsen, executive]

Okay. Next 1 is for you Torbjorn. Could you provide details on the company's debt management policy and target leverage ratio for the long term? It says here, in the last quarter, you mentioned the objective to maintain these 3 bonds outstanding with the upcoming September '24 maturity. Could you shed some more light on your intentions moving forward?

[Torbjørn Wist, executive]

Yes. No, as I said in the presentation, our intention is to repay the 1 bond, which is maturing this fall. And then we would like to maintain the 3 bonds that we have outstanding in order to have a curve should we want to access that market later. And we obviously in terms of the debt -- normal debt service, we have sort of 2 main components on the debt outside of bonds. It's bank debt, and it's the lease debt. The bank debt we continue to service as per schedule. And of course, now with the newbuild financing coming forward, we will be taking our new bank debt to finance that. We are in a very good dialogue with a group of international and Korean banks to finance the first 6 vessels that will be located in EUKOR. And then we will engage a little bit later, with banks to put in place funding for the remaining 6, which will be placed in [ WWO ].

[Anders-Redigh Karlsen, executive]

Okay. Thank you. Then on to Lasse and a little bit outside of shipping, there is questions about how the Logistics and Government segment should be viewed going forward? Should we expect that the very strong performance that we saw in Q2 is going to continue into the second half of the year and into next year?

[Lasse Kristoffersen, executive]

Yes. Well, we -- into next year, as I said, that's a little bit too early for us to comment on now. Also for Logistics and Government, as we said before, we believe that 2024 will be somewhat better than last year. We see the volumes, in particular, on the processing side and on the car vehicle side in the U.S. are strong and keeping up. If anything, we see increased local production of cars in the U.S. and partly also now in Europe. So we believe structurally for the long term, the services we have in terms of also handling volumes within a region, not only in and out of the region, has increasing attractivity. For Government, it's a bit more difficult to predict what happens in terms of geopolitics and priorities for our government. The signals we get is certainly that there is a high activity this year. Typically, in the government, they put already now plans for next year and for whatever we can see, activity level is still high. For Government, it's important also to say that, that capacity can also be used for regular oceangoing shipping. So there is a flexibility and we already use that flexibility between government and shipping, where we charter vessels and borrow vessels across the businesses. So all in all, we expect second half of this year for Logistics and Government to be very busy with high activity.

[Anders-Redigh Karlsen, executive]

Thank you. Then I guess this one is for you, Lasse, and it's touched the put-call structure in EUKOR. Do you have any plan to reduce the financial risk that the put-call structure in EUKOR creates for you? If so, what is the plan?

[Lasse Kristoffersen, executive]

We always have a plan to reduce exposure for sure. But the most important plan we can have in that is to make sure we have a close deep partnership with HMG, and that's what we have. We have had this put-call structure for 20-odd years. Has never really been discussed on our side, on their side. No intention of changing anything. The ongoing contract negotiations, if anything, we are getting closer to HMG and increasing activity with them, not less. So we have been living well with this put-call for a while. We just had to change the accounting principle. And there are no signs whatsoever from HMG that they think anything different around it either.

[Anders-Redigh Karlsen, executive]

Right. Another one for you Lasse, on the demand side. If demand weakens a little bit, is the company hedged against weaker rates because of the contract?

[Lasse Kristoffersen, executive]

Yes. For sure. And we did -- so if you take '23 and '24, we have done 70-ish percent of our book of business. These are contracts that we go through '25 and '26, and some of them '27 and beyond. So if we see a little bit of softening on the -- in the market, we will still have volumes with agreed rates. And remember, we don't expect global volumes to reduce. Actually, we think both in terms of cars, we think global volumes will increase next year. And for high and heavy, we think we're on a new low plateau and we will see that growing going forward. So in our industry, the issue is not whether the volumes are there. And if our customers have contracted with volumes, they have to deliver. The challenge in our industry that has been raised by some is the supply of new vessels. But for us, that's really an opportunity. If we can see a somewhat weakening in the time charter market in a couple of years, we can source lower -- I mean, vessels at lower costs and maintain -- maintaining delivering on the contracts we have already agreed. So yes, for sure, we are actively now building a bridge for the next few years with contracts -- with customers that we believe will have substantial volumes.

[Anders-Redigh Karlsen, executive]

Very good. Then to you, Torbjorn, and it goes on what is sufficient cash -- what is sufficient cash and long-term liquidity position that you need to hold to take on the fleet renewal and the fact that the EUKOR put is potentially there at some point?

[Torbjørn Wist, executive]

Yes. Look, we, of course, look at both fleet renewal when you look at distributable reserves. You will, of course, look at things like the put-call even though we don't think it is likely that it will be exercised. And we have always been very clear that we want to have a liquidity position that allows us also to act countercyclically in different markets. Then we have introduced a new dividend policy as a result of which we are now paying a record dividend, which keep in mind is more than 2x what we paid last year. So it really shows that in this year, we are delivering an extraordinarily high dividend. Then we continue to work on freeing up cash liquidity in the group. This is a complex matter, but as I mentioned in Q4, when you have a Korean entity, it used to be that we could only lift up cash once a year through a dividend. With privately held Korean companies, we have now -- you're allowed to do it 2 times, which we have now implemented. So we are consistently working on freeing up cash lower down in the system in order to ensure that we maximize liquidity at the top because obviously, once you have it at the top, where we also get the best returns, we have the opportunity to pay out more to our shareholders as well as dispose through investments in the group as well.

[Anders-Redigh Karlsen, executive]

All right. Next one is -- it could be for either or probably more towards you, Torbjorn, what is the annualized EBITDA contribution from MIRRAT?

[Torbjørn Wist, executive]

Yes. Look, EBITDA contribution of MIRRAT has been strong, particularly as the whole biosecurity situation in MIRRAT led to a lot of extra activity, as you may remember, Lasse was showing you pictures of people sitting with big paintings into the engine block of the car picking up [ seeds ]. Those type of activities draw some fairly significant super profits through the MIRRAT, but -- so MIRRAT has been a strong contributor, no doubt. But again, not strategic in terms of our overall end-to-end strategy. What we do see is that other parts of the business is also now starting to show strong contributions. And of course, this is an important part of the whole end-to-end strategy is to ensure that we leverage, for example, customers we have on the shipping side to drive profits into terminal side and into further land-based activities. So MIRRAT has been a strong contributor, but there are also other strong performing units.

[Anders-Redigh Karlsen, executive]

Okay. Then for you, Lasse, and it goes on the outlook. What -- can you quantify a little bit about somewhat better. Is that low single digits? Low double digits?

[Lasse Kristoffersen, executive]

Yes. We have deliberately not done that somewhat. I can tell as much that in my world, 20%, 30% is not somewhat. So obviously, we're not in that range. But it somewhat means that it's better. There is still, of course, uncertainty for how the year will turn out. But we are very confident now that it will be a better year than last year. And we say somewhat, it means that it's better, but it's not crazy much better than last year. But you can probably also see that on how we're trading so far this year. So we have deliberately not put a number on it and said somewhat. So -- but I understand the question.

[Anders-Redigh Karlsen, executive]

And then back to dividends. There is a question here. Can we expect a special dividend this year?

[Lasse Kristoffersen, executive]

Well, the beauty now is that we have a new dividend policy, which is much more dynamic. Every half year, we can make up our mind on the dividends. And remember, we have an extra dividend this year. We are paying the full 2023, and we're adding the dividend for the first half of 2024. So when you look at how we are paying our dividend this year, we are at $1.75, which is a substantial dividend for us. And we are paying out all free cash flow to equity over the last 12 months. So the way we see it as we already pay an extraordinary dividend. And then we have a new chance to do that by the end of this year or early next year when we have concluded second half. We see how the year turns out. What the cash position is, the financial commitments we have and also how the MIRRAT transaction turns out. So of course, we cannot give any forward promises when it comes to dividends. But for sure, we are in a position now that we can be more dynamic in terms of dividends.

[Anders-Redigh Karlsen, executive]

One last on dividends for you, Torbjorn. And there is a guy -- he's a little bit confused about the second tranche of the '23 dividend and this year's dividend. If we assume that you have the same run rate in the second half, what dividend can you expect if you were to maximize the dividend policy?

[Torbjørn Wist, executive]

Look, I'm sure he can use his own calculator, but I'm not going to stand here and say what the dividend will be for H2. But we're obviously delivering max in terms of the dividend policy for the first half, and then we'll have to come back and see what the dividend will be for the second half once we close the year.

[Lasse Kristoffersen, executive]

And just adding to that, we're delivering max of what we call a normal dividend, but also in the policy, we can do extraordinary dividends, which is something we can also look at in the future. But -- and as we said, we think this is already an extraordinary year.

[Anders-Redigh Karlsen, executive]

On the web now, there is only a few housekeeping questions, which I'll be replying to on e-mail, but we will open up questions from the audience, and I'm pretty sure we have some. Anyone? Petter?

[Petter Haugen, analyst]

Yes. Petter Haugen from ABG. On rates, first, on your Slide 11, you show that you're renewing 45% this year. And earlier, when asked about levels here, you've said that you are in the same market as [indiscernible], which has been more specific than yourself, saying that the renewals are all above $100 per cubic. Can you shed some light now that you're coming into these negotiations on the levels?

[Lasse Kristoffersen, executive]

The problem is that we have to be careful in how we share these rates because we have -- I mean, we would love to, if we could. But there are limitations. And as you have seen in our announcement, we cannot even announce the names of the contracts we do. So this is governed by our counterparts. What we said last year is that we see that all renewals are at least 20%, 25% rate increase and some were up to maybe 100% rate increase. When it comes to the actual number on the rate, that depends on the trade, on the -- everything. So having a number of 100, I mean that only makes sense for 1 specific trade, not for other trades. For instance, for us, it's very important to reset the rates for the Atlantic. For us, it's very important to reset the rates for our backhaul from Europe to Asia, which we are probably the biggest player in the world, which looks like low rates, but they're actually filling up the vessels on the backhaul. So for us, it's not a question of what's that 1 number from Asia to Europe? Is how we are renewing the whole portfolio of our business. And we see substantial increases in rates. Maybe we saw some of the top increases last year, but that was also contracts that came from earlier years than this renewal. So there is nothing -- no sign in the market that it's, call it, the big dynamics are changing from last year.

[Petter Haugen, analyst]

Okay. I'll follow up with a few others, if it's okay. And you were now, if I understood you correctly, in terms of the put-call parity and the Hyundai, Kia contracts coming up for renewal. My understanding is that if you now renew that contracts to very high rates, the profits in EUKOR is going to be fantastic for the next 3 years. And then if you look 3 years ahead, you'll still have -- then you'll have, what, close to 20-year-old vessels, which is then puttable to yourself from HMG at 10x earnings. So paying 10x top earnings for 20-year-old ships, doesn't that inflict some risk?

[Lasse Kristoffersen, executive]

Absolutely. Of course, that risk is there. We just think it's very, very, very unlikely. But the consequence, of course, is there, but it's very, very, very unlikely. So close that it's not 0, but it's pretty close. Why? Because HMG do not look at EUKOR as any financial instrument. This is their guarantee that they get the cars out to the world. And if you would ask any one of our customers in HMG today, they are extremely happy with how we have made sure that they get the capacity they need to get to the U.S. Kia is the fastest-growing brand in the U.S. So for HMG, this is -- this holding, even though it's big for us, it's nothing for them. And it has nothing to do with any financial disposure. It is how can we make sure that we have a partner that take care of our exports. And if nobody picks it up at the terminal, we can't sell cars. So that's why the consequence, as you said, could be big. Yes, it could be that you have a historical high earnings and things are falling, and we are in a bad position. We're just saying that it's extremely unlikely that they will do it.

[Petter Haugen, analyst]

Just a quick follow-up because this is put-call parity was became very relevant when the volumes dropped to less than 50%. So if the volumes...

[Lasse Kristoffersen, executive]

It was kind of triggered by that.

[Petter Haugen, analyst]

Precisely. So if I got this right, if you were now able to lift volumes back to 50%, then this put-call parity would not be effective anymore.

[Torbjørn Wist, executive]

But it would -- that would not result in the put-call liability or the put liability being removed from the financials. Essentially, what you would see then is that, they would then say, "Okay, what is the first possible point in the future, at which point it can be triggered again?" So let's say, if you enter into -- just pick a number, a 10-year contract, then it will be the present value of a future exercise that will be recognized as the liability today. So you wouldn't remove the put liability in accordance with the way this should be treated going forward.

[Petter Haugen, analyst]

If you would remove the possibility for HMG to strike that..

[Lasse Kristoffersen, executive]

Yes, that's -- before that period. So that's why you discount it from the future point in time at which they may be able to exercise in the future, but obviously not now. But having said that, and to go specifically back to you, Petter, of course, this is a rather new event for us. I mean we shared with the market when we -- I wouldn't say discovered, but realized at least that we had to change the accounting policy just before the summer. We're now in discussions with HMG on new contracts, that's the core of what we're discussing with them. Of course, we will discuss with them how can we structure this so that the liabilities on our side are more manageable in a way. But we have no plan for them removing their put, and we don't want to give away our call. When you have a joint venture, you normally need some kind of exit mechanisms, but probably we'll find better ways to manage them. But this is not discussed now, but probably something we'll come back to later in the year.

But let me just repeat that, everything HMG tells us is that we need you, you're our partner, and thanks to you, we get [ oil ] cars out in the world. And there are no intentions to change that partnership on their side. If anything, increase it.

[Petter Haugen, analyst]

Okay. Yes. On the newbuilding side, you have 4 more options. And those are elapsing sometime later this year, I assume. You didn't write anything now. But in your wording earlier, I've come to the conclusion that it seems unlikely for you to strike those 4. Can you confer that or confirm that?

[Lasse Kristoffersen, executive]

Yes. We have not said whether it's likely or unlikely. We have said previously is that we started this, call it, Shaper class with 12 vessels or 4 firm and 8 options. The fact that we got more options did not change our intentions. But every, let's call it, every responsible player need to assess every option they have when the option runs out. So we will, of course, look at it. But we said -- what we said when we announced the last 4 vessels was that we have not changed our intention of the Shaper program, which is a bit of a vague answer, but that's where we are right now.

[Petter Haugen, analyst]

Final question for me. During this weekend Lasse, you had noted in [indiscernible] advocating for -- well, the need to pass and come to [indiscernible], if you will. And does this mean because my reading from it is that, well, that's the intention, but it's consumers that needs to pay. One way to fix that with the company here would be to increase the amount of biofuel in the full fleet and not build new ships. But those are 2 very different sort of strategic directions. I read, well, again, my interpretation is that you were now sort of coming closer to more biofuels and not a lot of new ships.

[Lasse Kristoffersen, executive]

For us to get to 0 by 2040 and down by 45% in 2030, we need to do everything we can. And I see again on the team sitting back here. We have people working day and night to drive up the efficiency of our vessels, consuming less fuels. We are in every discussion with our customers, discussing with them how can they buy more biofuel, so we can start reducing emissions now. And then we are preparing for vessels for the future where we can burn alternative fuels. And also for a lot of the vessels that we can possibly have a long-term charter on, they will be able to convert into ammonia as well for the future. So this is not a question of either or. We need to do everything we can on energy efficiency. We do as much as we possibly can do having customer paying for biofuel, and we need to phase in a lot of new vessels. And for us to get to these goals, for every single vessel that we replace, has to be replaced by a zero-emission vessel for us to reach our goals.

Our customers see the same. Most of our customers have a target of getting to 0 in 2040, and we're now structuring with them what we call the new approach to the bunker adjustment factors, technicality for those who don't know. But anyway, where they actually get a guarantee that we will deliver a curve to them that meets their strategy. So we are -- yes, for sure, we're pushing on every single area. But what I also said in that article is that our job is to make that transition profitable. We cannot fund the transition as well in Wallenius Wilhelmsen. We would only be able to do part of it and then even run out of money. So we need to get our customers to pay and the Volvos and the Hyundais of the world need to get every one of us to pay. The good news is that it's hardly anything when it comes to the price tag on the car. But when it comes to the freight of the car, it has certainly an impact.

[Anders-Redigh Karlsen, executive]

Any further questions from the audience? If not, we have 1 last question from the web. And this goes for you, Lasse, and it goes on whether TCE is a better measure on earnings and dollars per cubic meter?

[Lasse Kristoffersen, executive]

Yes, I think so, to be honest, because that's really what hits the bottom line, and that's where you look at the earnings because the problem with looking at the dollars per CBM is that we have a front haul and backhaul with different trading patterns, which are not similar to everybody else, meaning that we increased earnings of the vessels even though if we put in a low rate from Asia -- from Europe to Asia, but on the average earnings and rates, it would certainly pull down the average. So in my view or in our view, the best indicator of how we're actually turning contracts into cash flow, that's the TCE, the earnings of the vessels.

[Anders-Redigh Karlsen, executive]

All right. Mindful of time, I think it's time to round off, but I don't know, Lasse, do you have any final words that you wish to...

[Lasse Kristoffersen, executive]

Yes, very short. We're very proud of delivering a strong quarter. Very happy that we're able to pay off significant dividends. We are performing well on contract negotiations and the renewals. And I just realized now this picture here is a good example of what we do in logistics. This is in South Africa. There's not a single -- I mean, if you -- I think it's a 3 class, it doesn't matter, Mercedes. Everywhere in the world, if you buy that you think it's built in Germany, it's not, it's built in South Africa. And we have had our fingers on all of them. This is just our facility at the end of the Mercedes facility. If you ever were to see up on the right corner, an AMG version, and there's all the trimmings and stuff, we do that. When it comes out of the factory, it's a quite enough simple car. We do all the trimmings -- makes it look a little bit cool for those who like those kind of trimmings. So this is a very good example of how we add value to our customers way beyond just moving. We are also completing their cars, and we are orchestrating the whole supply chain. Thank you.