Wallenius Wilhelmsen ASA

OSE:WAWI

Earnings Call Transcript 2019-Q4

[Astrid Martinsen, Head of Corporate Finance & IR]

Good morning, everyone. Welcome, and welcome also to all of those following us on the webcast today. Thank you for joining us for this presentation of the fourth quarter results for Wallenius Wilhelmsen. You know the drill, we will have 2 presenters. It's CEO and President, Craig Jasienski; and CFO, Rebekka Herlofsen. Following the presentation, there will be the possibility to ask questions. And for those on the webcast, you can also post questions online, and we will cover those at the end of the session. With that, Craig?

[Craig Jasienski, CEO & President]

Thank you, Astrid. Good morning, everybody. Welcome. I'm going to start with 2019 in brief before I get into the quarter. All in all, we had an adjusted EBITDA of $837 million for the full year. So aside from a little weaker Q4 than we expected, we're actually very satisfied of the full year, given the market circumstances in which we operate and everything that we've talked to throughout the year, but we finished as we did. We're actually very satisfied. So we're satisfied with 2019. Ocean volume did decline overall roughly 6% compared to 2018, and that was a combination of commercial prioritization, so pretty much our choice, but also a general weakening in the market. And we'll talk somewhat more about that during the course of the presentation. We have been running the performance improvement program. We're getting very good traction on that in the Ocean arena, particularly. We do have a higher net freight per cubic meter growing over time, so satisfied with that, and we continue to drive for operational efficiencies. So the message there is really what we did in the year was to continue to focus on all the things that we actually have in our hands, the things that we can control, and we've tried to influence them as much as we possibly could. Performance improvement program is going well. I'll talk a bit more to that again, and that's seen through the results. Landbased performance has fallen slightly during the year. That's mainly driven by volume, not so much the -- here about choice, but more the fact that the U.S. market weakening off a very high base has had its impact on the actual throughput on Landbased. So we've seen that during the course of the year. And terminal volumes has also slipped slightly. But all in all, year in brief, quite satisfied given the setting in which we generally operate. Moving on to Q4, again, slightly weaker than we expected, but from our perspective, nothing dramatic. And we had an adjusted EBITDA of $194 million and partly driven by lower volumes, but we also have the cost of the IMO transition, which came in a little bit better than we expected. So also satisfied with where we ended up there. Ocean volumes, again, 8% decline. That was a year-on-year number off of fairly high Q4 last year. Didn't quite see the seasonal lift in Q4 as we typically see across the globe for us. And that's represented in the volume numbers. Landbased results fell. Our performance fell, again, just off the back of weaker volumes. Now the big news for us in the quarter, it was at the very, very end of the year, and that's the fact that we did renew the Hyundai contract, very much as planned, as expected. That news always comes at the end of the year, and it did this time, too. But -- so we're very happy with a continuation of the business and a very, very long relationship with Hyundai. Stable rates, stable volumes, no impact compared to year-on-year as we've had it for the last couple of years. So we're very happy with where we are, and the relationship with Hyundai remains very strong. We had a successful transition into IMO 2020. It was also very much a highlight, a big issue for us in the fourth quarter as it was for the entire shipping industry, but we had a satisfying transition. And last but not least, the Board has decided to propose a dividend of $0.14 a share, so approximately $60 million to be paid out into steps during the course of the year. So that's sort of our key highlights of this fourth quarter. As Astrid said, you know the drill, so we're going to do the same. I'll give you a bit more of a business update, I'll hand to Rebekka to go through the financials, I'll come back and talk about the market and then we'll finish with Q&A. So overall volume picture, as you can see here, there has been a dip down in Q4 compared to previous fourth quarter. So it was a little bit weak from an overall volume point of view compared to a typically seasonally strong quarter. Again, half of that roughly is our own doing. It's our own choice. It's contracts that we've chosen not to renew because we consider the performance, the viability just to be too low to point. And the other half of that volume drop is roughly a general weakening in the market. If you take a full annual effect, 2018, we had approximately 69 million cubic meters. Last year, we had approximately 65 million cubic meters. So we're talking about a 4 million cubic meter drop in total. Again, roughly half of that by choice. So all in all, volumes are where we expected them, except for that little weaker Q4. The high & heavy share is holding up okay, but the volumes have weakened slightly, as you can see, in terms of actual nominal value. But as a portion of the total, at 27.2%, still quite satisfactory. To get into a little bit more nuts and bolts of the specifics per our sort of what we call our foundation trades or the main trading boundaries. I'm going to start at the bottom left-hand corner, so we'll start with the Europe/North America-Oceania trade. I'll just focus on quarter-on-quarter. Year-on-year is fairly stable. Quarter-on-quarter, you see a little dip there. Two main drivers. Firstly, we did have a loss of automotive volume that started to take effect in Q4. Again, our choice, a contract that was to be renewed, which we chose not to continue, an endless fight with spiraling downward rates. So that has an impact on volume. And then also, we have seen towards the end of the year a general slowdown in construction equipment to Australia. And Australia has been, up until recently, going through significant drought cycle, that's also been impacting agricultural shipments. Australia, as it typically does, has now gone to the extreme [indiscernible] but at least what's been hurting the ag market has been the droughts. Moving to the Atlantic. Year-on-year, basically flat. The big lift that you can see from Q3 to Q4 was actually the increase in some project shipments in the fourth quarter. So that drove volume up, and we also had slightly strong order volumes, in fact, in the Atlantic trade in Q4. Europe-Asia trade, moving around to the top up there. In Q4 '18, was probably one of the highest periods we ever saw. So that's kind of a peak from a bench perspective. So from there, we've only seen volume a little bit weaker. So we have no real concerns there in that trade, all in all. The slight uplift you can see from Q3 to Q4 was an increase in volume into the Persian Gulf and the Red Sea. It was the main drivers there quarter-on-quarter. But all in all, relatively stable picture in that trade. Moving across, Asia-Europe. Quarter-on-quarter, we did see lower order volumes. We are aware of some models which have been cut going into this year because of the new -- there's another WLTP regulation that took an effect from January for the total fleet of vehicles, the new version called 6D. And there are some models that we know that were produced in Asia which are actually being ceased in Europe because they would not meet the regulation. So that's clearly come as an impact during the fourth quarter as volumes were trickling down. We do expect, again, I'll touch upon this later, but WLTP will continue to see some distortion in the European market. We see for some time to come. [ There's no change in our ] story. Moving around to the right there, Asia-North America trade. We had a seasonal drop. It sort of normally is actually in that particular trade a little weaker in the fourth quarter anyway, so nothing alarming there. But there has been a model shift or at least a production shift. So some models that were produced in -- or a model, to be specific, that was produced in Japan for North American market has been shifted to North American production, so that volume disappeared from that trade in that market. And there's another model that's been selling particularly poorly in North America, still produced in Japan, and that's really the answer for that drop that we saw in Q4. So easy to identify and easy for us to understand what it is. And then lastly, at the very bottom there, Asia to South America West Coast. A lot of turmoil in Chile, general market downturn. That's the trend that we see. They're not big volumes but still a slight weakening quarter-on-quarter and year-on-year. Keep moving. So touch upon rates as a highlight. Now again, our small disclaimer. As a reminder, this is the average net revenue per cubic meter. This is not the freight rates that we charge. This is just the average revenue across the entire business. What's good to see here is that we have a positive trend despite the peaks and troughs we've explained previously. What we consider to be quite good news in this picture is a continuous upward trend for our own business. And that's everything that we've been focusing on. And you'll see that in the profitability. Next, on capacity. We continue to manage capacity tightly. As you can see here, we were up in Q2 '18 at a peak of 137 vessels in operation, down to 123 in December. So that's the flexibility that we have, and we continue to drive to that flexibility. That's why we're able to adjust to a changing market pretty quickly. A few key highlights you'll see here. In October, particularly, we did have 1 vessel with a purchase option that was in the money, so we took that, which is why the number of owned vessels went up from 79 to 80. And in December, you'll see that long-term time charters went from 47 down to 46 vessels. We had 1 vessel that expired from its long-term charter, and we had no use for it, so we delivered back. So that's the 2 main changes in the fixed fleet, if you like. Beyond that, going into this year, we still have flexibility for other 11 ships if we need it to release during the course of the year at different points of time, 3 in '21 and 4 vessels in 2022. So we feel still somewhat comfortable. If we see a continued slip in volumes, we're able to release capacity as we need to. Next, Hyundai contract, I already mentioned that as a highlight, so I don't need to repeat it. What I'd like to talk about here is, you'll recall that we've continued to present the total volume, which is up for renewal last year in 2019. 86% of that volume was renewed. 14% was not renewed, but I'd like to underline the 14% that we did not renew was our choice. Again, these were at rate levels in certain corridors where it was just not worth chasing the business down. So we let that business go. So we see no drama in this other than it's still a lot of pressure on rates, but there was a portion of business that was not renewed. But we keep generating new businesses as well. So in total, we've been generating some new business during the course of the year, last year, too. So the net revenue impact of what we gained and what we let go is approximately $40 million. It's [indiscernible] revenue. And for the contracts that we did not renew, we have an EBITDA expected impact of between $20 million to $25 million coming into 2020. Had we chased that business down to the rate levels that they were secured at in the market, that picture would probably have been worse. So we are happy with that number, even though it's a reduction. If we look into this year now, the year of 2020, approximately 20% of our revenue is up for renewal. So that's what we'll be facing and reporting on during the course of the year. So what's happened with then some of the renewals that we have done. We've tried to tighten this slide up a little bit again, and we've lumped together the first 3 quarters into 1 set of colors. What we did in Q4 is the now light blue there. You'll see 1 very large bubble on the left-hand side of the screen. With a reduction in rates, that's a extremely important high & heavy contract that we're able to extend for another 3 years, so outside of a tender. So through a dialogue with the customer, we're able to resecure that business for another 3 years, which for us is very important, and this was a successful outcome. Yes, it's a reduction in rates, and it has its impact, but the alternative of having it out in the market would be potentially worse, and that was a risk that we were not willing to take, and good news is nor was our customer. They were very happy to continue working with us. In the middle there -- my daughter has a cold and I'm catching it clearly. In the middle there, we also had some contracts where we had extension options and renewals. We were able to seize them together with the customer. So that was quite satisfactory. And you'll see some of the other blue bubbles down the bottom side of the screen, we're still under rate pressure. But I think if we look at this from a macro perspective, we have rate pressure in certain areas, but we also have quite a lot of volume that we've dealt with during the course of the year. We were actually able to improve rates as well. It's very corridor-specific in most of these cases and volume-specific, too. So all in all, when we put this all together from 2019, we expect roughly going into 2020, full year effect of about $15 million negative rate impact in total. So that's where the market took us during the course of the year. But I would say we are very satisfied that all the business that we want to renew, we do, and the business that we want to keep out of tender, we do. So we're quite happy with that particular picture. Performance improvement program. I'm moving quickly here, but I'm going to watch time. Performance improvement program is tracking very well. So we can confirm $74 million as of Q4. I'm confident we'll reach our target by the end of this year, which is what we've committed to. Primarily, what is left, and I've talked about this before, but primarily, what's left is very much driven by the digitalization work that we're doing with the fleet, and it's all about seeking inefficiencies and basically getting data to understand the things that we aren't doing as effectively as we could be and then adjusting accordingly. That's tracking very well. We're now accessing data off a good portion of the fleet, and that's expanding quickly. So that would bring us to where we need to get through by the end of this year. So quite satisfied with where we're tracking at the moment. Lastly, before I hand to Rebekka on financials, so the big news for the entire shipping industry, of course, last year was the transition over to the new fuel type. We spent a considerable amount of time with our teams here to plan and prepare for that transition. So I'm very happy with [indiscernible] that was smooth. We estimated previously that would have approximately a $10 million cost. Now that's not to be recovered through [ VATs ]. That's the cost of sloshing tanks, cleaning out the old fuel, bringing on a new fuel. So that's just a direct expense. That ended up at $8 million, so we're $2 million better than we expected. We're happy with that. The change over to the compliant fuel was very smooth. We've had no technical issues registered so far, but quality remains a focal point. So that's something we'll continue to focus on, of course. And we're monitoring the quality of the fuel type coming out of the different places where we're sourcing them. But from a technical point of view, it's been an absolutely smooth transition. So very, very happy with that. Availability has not been a problem for us. We used a lot of time over the last few years, in fact, to secure contracts, so we have supply. We have suppliers, we have contracts, and we have what we need. So that's not been a concern. And again, financially, the actual one-offs were better than expected. Moving forward, every single one of our BAF clauses has now been adjusted to represent a new -- to reflect the new fuel quality. So we will no longer talk about HFO, we'll only ever talk about VLSFO. There's no need to ever talk again about what -- how was it before and how is it now. We only need to look forward and see that the best that we have are calibrated to the new fuel type, and that's the only way we need to look at it. The coverage that we have is pretty much the same as it was before. So that's relatively unchanged. We've just adjusted the clauses to represent the new fuel type. So that's where we stand on that. Okay. I don't know if I'm going too fast or too slow, but we [indiscernible] and turn to Rebekka.

[Rebekka Glasser Herlofsen, Chief Financial Officer]

We might break your new rule, Craig, and talk about the HFO because we have a few scrubbers coming into the fleet.

[Craig Jasienski, CEO & President]

Sorry, you're correct.

[Rebekka Glasser Herlofsen, Chief Financial Officer]

So hopefully, that will bring me gain this far. Good. Okay. Good morning, everyone. As Craig has said, weaker markets. But we're very happy to be able to present decent results, good cash generation in what remains quite challenging markets, both from a volume perspective and also the increased competition. I will take you through the numbers with the usual drill, starting from the top. We delivered revenues of $932 million. That's quite a drop from last year, it's 9% down, but only 2% quarter-on-quarter. And as I'll go on to explain, that's very much related to the volume drop on the Ocean side. And volumes down 8%, both for autos and high & heavy. And of course, as Craig said, the majority of this is related to our own choice. It's prioritization of profitable cargoes, and it's rationalization of voyages, but there is an underlying weakening. And then moving down to adjusted EBITDA, $194 million. Year-on-year, that looks like a good improvement, but as I've been explaining before, we introduced IFRS 16 this year, and this is finally the last quarter that we have to mention that and adjust for that. But if you exclude that effect of $41 million, there is an underlying weakening in EBITDA. It's down by $15 million year-on-year. As Craig said, roughly half of this is a one-off on IMO 2020 transition, where we had the sloshing cost, the early purchase of VLSFO as well. So if you adjust for that, it's a smaller weakening of $7 million or a 4% decline. And what that really means is that all the operational improvements that we've been doing aren't fully offsetting the negative volume development. There's 2 one-offs that are affecting EBITDA this quarter, hence the large adjustment. The first one is an increase of $30 million in the antitrust provision. We're generally making quite good progress on this case, and it's in line with our expectations. But there's a few cases that are now moving into litigation, and accounting-wise, that means that we now have to provide for the estimated legal costs for these cases as that is what happened this quarter. Secondly, we have also made an adjustment on the pension cost for U.S. personnel this quarter, $2.5 million, mainly related to early retirement. And then moving down to EBITDA. There's a large gain of $49 million, disturbing that line a little bit. That is related to the EUKOR put and calls option. As you may recall, there is a shareholder agreement for EUKOR which entails put and call provisions for both owners. The put is very far out to the money, quite low, and the call is not a call that we intend to use, but accounting-wise, we still have to provide for this as a net derivative. And the main reason that the valuation improved this quarter is related to lower interest rates, which reduced the [ buck ] in the calculation. So it's all a little bit technical. On financials, it looks quite good this quarter. Interest rate expenses are stable though. This is related to mark-to-market effects on interest rate derivatives and currency derivatives, whereas the bunker derivatives had only a small negative adjustment, but we had a $28 million gain on the other derivatives. So quite a positive this quarter. And the final thing to explain on the P&L, when we come down to the tax line, you see a relatively high tax cost this quarter, and that's related to a write-down of $17 million on deferred tax assets for the Norwegian legal entities. We have very large tax losses carried forward in Norway. They don't go away. We can still utilize them. But for accounting purposes, we have to show that we can utilize them within the next 10 years, and that hasn't really been the case. So hence, we've taken it off the balance sheet. But if we, again, come into the position where we can utilize them, then of course, we will book them again. So that leaves us with a profit for the period of $41 million, return on capital employed of 3.9%. So it is lower than the previous quarters this year, unfortunately. Moving on then to the Ocean segment. Here, we had revenue of $756 million, a 6% decline. We did see an improvement in net freight per cubic meters, as Craig showed you. We had some benefits from project cargoes in the Atlantic this quarter as well. But we had the overall reduction in volumes. We also had lower surcharges from customers this quarter partly because we consume less bunkers, but also because prices have come down. Quarter-on-quarter, less of a drop. It's 2%, volume-related and then also a little bit on surcharges. And this is really related to the loss of the contracts that Craig referred to, that took it back from November, the fourth quarter. If we then move to EBITDA, adjusted EBITDA for Ocean is $171 million. That's an improvement. But again, we had IFRS effects here. So underlying, it's down by $11 million. $8 million of those related to IMO transition. So really just a $3 million decline, which is not substantial. This is related to the volumes, of course, and the transition. But on the positive side, the performance improvement program continues to help us, and that's a $12 million effect compared to last year. In addition, of course, the positive net freight development, we had lower net bunker costs of around $10 million and some positive currency effects as the dollar strengthened. Quarter-on-quarter, as you see, EBITDA is also down when we adjust for IFRS, and when we also adjust for the IMO transition, it's a 5% weakening related then to volumes and surcharges. Moving on to the Landbased segment. Here, you will see somewhat of a revenue drop. It's down by 10% when we look at the previous year. And of course, some of that is volume related, as you will have guessed by now, but actually also an accounting change that we have made this quarter where revenues related to freight forwarding activities that we have in Belgium and some storage activities in the U.S. are now accounted for net instead of gross. So it comes off the revenue line, but it still impacts the EBITDA positively. And this is basically because we provide these services more as an agent than a real service provider, and then that is the way it should be accounted for. That's $14 million of the $23 million drop in revenue. And so it's not as bad as it looks was my main message. So if we adjust for this, we're talking about revenue decline of around 4% and actually quite flat quarter-on-quarter. The lower revenues did impact all segments in Landbased, except for the high & heavy business in the U.S. They're still fairly -- doing fairly well and showing good growth. And adjusted EBITDA is then $29 million, which is also down when we adjust for IFRS effects, by $4 million, but relatively flat quarter-on-quarter. There is a one-off also here on Landbased. That's the pension cost that I talked about of $2.5 million. And we also have some higher costs this quarter due to quite high activity in this segment. It's projects and higher activity in general. But I think still, it's important to note that even if there is a volume effect here, revenues are down. We have a very good ability to take out variable costs and keep a good performance in the Landbased segment.Then, of course, we leave a full year behind us, so it makes sense to go a little bit into the numbers for the full year as well. We touched $3.9 billion in revenue. It's a decrease of 4%, for decrease in both Ocean and land. Ocean down 2% and mostly driven by volumes, which were down 6%, but also some other revenue, which is related to [ TC ] income and commissions. But on the positive side, we did show the improvement in net freight per CBM and had some increase in fuel compensation throughout the year. Landbased revenue is only down 1%, and then a big factor behind that is that change in accounting principle for Landbased. So we ended up at $837 million for the year. Looks like a huge improvement over last year, of course, on this chart. But $166 million of that is how we have now booked leases. But adjusting for that is actually still an improvement of $65 million, which is pretty good in a challenging year, I have to say. So I think to sum up the year, it is still challenging on the volume side and competition side, but we've been very successful in improving our flexibility, bringing down our cost. And we're quite happy to deliver such good results in this market. The profit, as we can see, ended up at $102 million. Return on capital employed, 5.4%. It's not a great number, of course, but we have many one-offs this year. We also had quite big changes on mark-to-market, so a negative effect there of $54 million. So if we adjust for the mark-to-market, if we adjust for IFRS, which is negative on the bottom line, if we adjust for the one-off provision and the IMO transition and also the put and call effect, then actually, the bottom line would have been $170 million, which is fairly decent, I have to say. Towards on cash flow this quarter. We had -- continued to have good free cash flow, $47 million. But as you can see, cash itself is down by $115 million, which sounds like a big number. But when you look at the totality, what we also have in [ our draft ] facilities is only down by $60 million. There are 2 main reasons for this. Some early payment of bunkers and payables in the fourth quarter because we were changing IT systems. So there's a working capital effect. And as Craig mentioned, there is one vessel that we took over that had been on a lease, that was purchased this quarter. So there's a CapEx related to that. And we also had significant dry docking expenses this quarter. But we still, as you can see, have a very decent and good cash buffer. Finally, then the balance sheet, not so much to say, but it keeps strengthening. Equity ratio is now up to 37.5%. It was 36.3% last quarter. We have a very stable net debt this quarter. But generally, we are reducing the debt of the company. So with a strong cash flow, continued solid balance sheet, this is the reason why the Board now proposes a dividend also for 2019. So up to $0.14 will then be proposed to the AGM. First $0.07 are then payable directly after the AGM, and then up to $0.07 will then be decided in the fall. That's subject to both Board approval and AGM approval. And this dividend is a 20% increase over last year's dividend. It's around 60% payout from the bottom line, which is above our policy, and it gives a dividend yield of around 5%. So very happy to announce that. That's it from me.

[Craig Jasienski, CEO & President]

Thanks, Rebekka. So let me jump over to just a general market outlook. A little bit of history still for this first few slides, just a little bit market by market. But firstly, if we look at the whole world, looking behind us, auto sales were down 1.5% year-on-year. Chinese sales are still, generally speaking, slow. There was actually a very strong Q4 for China, but the overall trend for the year is actually relatively slow. If you take a full year effect 2018 to 2019, we had a approximately 4.5% total market decline in the world. So we've gone from -- we're going from 93.7 million units sold to 89.5 million for the full year effect. China was actually down 8.3%. So you can see how much of an effect China really has in terms of the global light vehicle sales. Moving on to the right-hand side of the screen is more about exports, which, of course, is way more interesting to us. That's our market from an Ocean perspective. Deep-sea volumes, however, only declined 1.6%, if you take the same period, full year 2018 to full year 2019. So our total market size has gone from approximately 15.1 million units down to 14.8 million, so actually not overly dramatic. But of course, in some corridors, the drop has been steeper than in others. If we look forward to expected deep-sea shipments, based on IHS information and data that we use, the current average growth rate from 2020 through 2026 is still 2.1%. So we expect a growing market, but relatively conservative growth looking forward. I'm going to come into how we see these next quarters, of course, shortly. Diving into same picture then, but specifically for North America. Still the U.S. market was -- shouldn't say U.S., [ the North American market is still at a relatively high level, so still quite solid. ] But there has been a decline in sales looking over the quarters. What's good to see with the American market now, particularly in [ auto of ] U.S., is that inventory days are getting down to a somewhat more normalized and hopeful level, so below 60 days of inventory. In fact, at January 1, it was 58. That's a good signal. There was a degree of overstocking that we talked about last year, and that's been slightly taken away. So we see that as encouraging for the U.S. market. We also don't expect any major changes in interest rates for U.S. specifically, so that should bode well for a degree of consumer confidence. So whilst U.S. is still a very high base, and this is important for our land activities as well, where it's our certainly largest region, it's a high base, a little bit of weakening, but we expect it to remain relatively stable, which is good to see. On the right-hand side, we have North American light vehicle exports. There's a growth. If we take a year-on-year perspective, that's actually primarily driven by U.S. to China, believe it or not, despite all the trade disputes and issues that we had during last year. But there was actually a growth in volumes from the U.S. to China. We don't talk specifically about manufacturers, as you know, but this one happens to be electric. So you can work it out. But that's really driven that year-on-year change.Western Europe remains a challenge from a predictability point of view because of the shifting WLTP regulations. And we saw that during the course of last year's total sales picture, which is on the left-hand side. Q4 2018 was actually a very low base, and a lot of that was driven by the new regulations that were coming into force at that time. So we have to bear in mind that 2018 Q4 was a low base. So we have had an uplift from there during most of the year, except Q4 this year was slightly better but down from previous quarters. Again, this is mainly driven by what we see the shift with the new regulations and also just an underlying concern relative to Brexit, which will continue to plague us for a little while. The reason why we believe Brexit will continue to plague us for a little while from a sales point of view, is looking into this year and next year, a couple or a number, actually, of the non-British manufacturers that produce cars in the U.K., they have some important investment decisions to make. Do they put new kit into their plants? Do they change model throughput or not? They're the regular cyclical decision and investment decisions that they make. Some of those manufacturers are going to make those decisions in the next couple of years. That will be quite decisive on whether they continue to produce in the U.K. or not because the vast majority of the volume they're producing in the U.K. is going back into the EU, at least 3/4 of them. So sort of one to watch, again, from a total sales perspective. Again, we don't want to be experts on WLTP in specifics, but there is a new regulation that took place in January 1. That's 6d. Then we're talking 95 grams of CO2 for 95% of your fleet as a manufacturer sold from here on. We do expect the number of manufacturers are going to struggle to meet that, and we expect that we'll be paying massive penalties during the course of the year. It also means that sales of some models is being distorted. And as I mentioned earlier on, some models out of Asia, even when we ceased, to stop coming into Europe simply because they will not meet their targets. So continued pressure for those reasons in Europe. Moving over to the right-hand side. Light vehicle exports remained relatively stable picture. One of the main reasons for the drop, if you take a year-on-year perspective, is actually just a shift in production. So one particular model that was produced in Europe for the North American market has now moved to Mexico for production, so it's no longer shipped. That's the primary driver of the year-on-year drop for auto exports out of Europe, light vehicles, I should say. Moving to China. As I mentioned earlier, China had a bumper quarter. Q4 was a big lift compared to Q3 but still down on a year-on-year perspective, and again, the overall market had dropped. China's market in 2019 was 24.9 million units of light vehicles. In 2018, it was 27 million. So that's the 8.3% drop. So a big driver of overall sales around the world. Looking forward, and we will touch upon coronavirus at the very end of this presentation, but just looking forward, there is an expected continued weakening of GDP in China, so we expect sales will continue to be under pressure. Conversely, we don't expect to see a massive change in the portion of imports going to China. And that's way more important to us because that's what we carry. We don't get involved in anything that's produced and sold locally in China. Moving to the right-hand side. A nice little lift in exports out of China. It's still a relatively small market from an export point of view. A slight lift that was mainly volumes going into Saudi Arabia, in fact out, of China. So generally, a stable, growing picture of exports. So if we scale it forward to 5 years, we expect China to be a serious exporter of vehicles. But right now, they're slowly building. Let me touch a couple of other markets, just stats for us while we're standing here. We don't have charts on it. But if we look at full year effects, Brazil market was up 7.9% 2018 to '19. So that had a solid growth. But Russia was down 2.5%. India was down 12.5%. And Australia, an important market for us, is also down 7.8%. So we have seen some of those larger markets with a fall in sales from '18 to '19, again, driving the overall global sales picture. To talk about -- we put Japan and Korea on the same page here because for us, it's really about the exports. Japan and Korea, there's no real big stories here. It's quite stable in terms of exports out of both markets, which is good to see. The biggest change we see in Japan is the really one particular product where the production has shifted from Japan to the North American market into North America, so volume disappeared. And another model that's produced in Japan for North America is underperforming. And we look into those numbers, and we can see that they are the drivers of the volume change. So again, explicable and understandable. On the right-hand side, Korean exports. Some impact of some models coming into Europe because of the WLTP regulations, we've noticed that, but other volumes or other models have been doing quite well. North America is strong. There's a new SUV that's being produced in Korea, and that's being well received in the North American market. So we've seen a growth in exports out of Korea to North America. So all in all, we expect a stable picture out of these 2 markets. So to the forward view, look, we keep talking about continued market uncertainty, and we have the list of trade barriers and WLTP and all the same macro events that are occurring around us which are impacting global sales, and we've talked about this over many quarters. So yes, we still see that uncertainty, but the long picture is a relatively conservative growth, but we do expect to see a decline over the coming quarters before we start to see a build back, again. And this is very much reflected in what IHS are also predicting from an overall sales point of view. And that washes out through to the bottom chart, which is about actual light vehicle exports, which is our shipping market. We expect a slow start but building as we move through the course of the year. On trade barriers, by the way, so far, the main impact we've really seen has been just sourcing ships, which is not unnatural, but again, not massive, but that's what we've seen as a real impact in the market that we play in. Okay. Moving to the high & heavy segment. Trying not to be much detail on this one again either, but I'll start with the construction machinery on the left. These numbers for shipments to August only for construction, just to be very clear on that, more exports, specifically. Basically flat or down in all regions. We have seen variations in our different trades. But if we take a snapshot of selective trades from an export point of view that are relevant to us because these are global numbers, we take what's relevant to us as a company, we actually saw a year-to-date increase of 6% as of August 2019. So we have seen slight construction shrinking globally. In the selected trades that we look at, we have actually seen a 6% increase, not massive, but stable. Some of our markets are down, Oceania, in particularly, but others we have been up. Moving to the middle, mining machinery. These numbers are out of December. I'm sorry about the differences, but this is all we are able to access this time of the year. These are for December. Again, taking those same group of trades that are important to us, we saw a 3% growth, full year effect, '18 to '19. So we have seen some growth in the mining shipments, but not massive. We have continued to talk about this replacement cycle. The replacement cycle is there. It will need -- there are a lot of machines out there that are aging out, and they will need to be replaced. Regrettably, it would seem as though that curve just continues to move in front of us, and the primary driver of that is most likely hours on the machine as opposed to its years of age. So 13 to 15 years was the estimated age with -- particularly coal mines, using a lot of dump trucks. There was a degree of idling in 2013 and 2015, which is being more and better understood now, generally in the market, and that's creating a fact that those machines weren't used. They weren't getting the hours up, and therefore they may take longer before they're replaced. But the fact is in front of us, there is a replacement cycle. But regrettably, it would seem as though it's just getting pushed a little bit further in front of us. To the right-hand side, ag, bring your minds back to August. These are also early August numbers, not full year to December. We see generally for the Atlantic trade, which is important to us, kind of plus/minus 0. Oceania is down driven very much by the droughts that we've seen in Australia. So we have seen a drop in ag in those markets. But again, for our select trades, we can see an overall growth of around about 6% year-on-year. So not again negatively dramatic. The period 2016-2018, the average growth rate was 14%. So ag remains -- it's a mixed bag as it does. It's going to be very seasonal, but looking to be relatively flattish, these numbers also indicate to us. Next, moving on to fleet size -- side, no major changes. This is a good picture. The fundamentals will continue to move in the right direction for the industry. Net fleet growth is getting down to 0 and actually a small dip during the course of this year. And we see, again, demand growth is relatively conservative. So from a fundamentals point of view, this is still moving in the right direction as far as we determine it. Okay. The outlook, to wrap up. To avoid the risk of repeating everything that we've just spent a little time talking about, I'm only going to talk about coronavirus at the bottom. The rest of it that you can read because it's a summary of everything we've talked about. We do expect the outbreak of the virus will have some impact on volumes. The issue has been stopped production in China, which has affected wiring harnesses specifically to the auto industry. We know it's affected Korea. It's been announced publicly. We know it has had an impact on production. What we don't know is by how much and how long it will take to recover. So there is some short-term effects. We need to be prepared for that. It looks as our manufacturing is getting back to normal levels. Again, in China, at least they're starting to move back to the right place. So how long that effect is and how big, we don't know yet, but it's there. Now that's just on the volume side. From a health and safety point of view, obviously, our first point of checking was our employees and where do we stand. We have weekly crisis meetings on that. You have no people affected. Everybody is safe, sound and healthy, and we continue to follow that very closely. But there is a risk here that it will have a short-term effect on those. With that, I say thank you, and I'll ask Rebekka to join me, and then we'll open for questions from the floor and from the web. Okay.

[Unknown Analyst]

I was wondering, obviously, you sort of said no to some of the less profitable work [indiscernible] the business. And it has helped to improve your net freight per CBM. But now you are sort of saying no to working some of the volumes. You are not renewing [indiscernible] some of your contract in volumes. And you can get rid of 9% of your fleet while that [ fleet's parts ] expire. So unless you improve your profitability even more from that period in 2019, that should have a negative impact on your EBITDA.

[Craig Jasienski, CEO & President]

To clarify, that's 14% of the volume that was renewed during last year. So it's not 14% of our total. So what we renewed last year was roughly 30% of our total volumes, roughly, if I get the number correct. So of the 30% of our volumes, only 14% of that 30% was not renewed. So it's not as dramatic as I would say.

[Unknown Analyst]

But just talking about the dynamics and then let [ single ] ships go, right, they will disappear from the market, but they will be there and they will be pointing against you and there is [ work offers. ] So I was just wondering how you sort of see that, the supply-demand picture playing out in 2019 because based on everything you say, it looks quite challenging.

[Craig Jasienski, CEO & President]

Yes. So again, we look at the macro picture, which was the last slide I showed it, and that to us is more important. The reality is the ships follow the volume. That's a reality. So whatever we have leased has ended up going into service [indiscernible]. So that doesn't change the macro picture. It makes a shift between carriers, yes, but again, conscious choices from our side, but it doesn't change the macro picture now.

[Unknown Analyst]

Okay. And then the question on the Landbased business. I mean there's been quite significant decline compared to 2018, if you look at the fourth quarter, in particular. And I was wondering maybe if you could provide a bit more color on what is the result and what you expect to do there going forward.

[Craig Jasienski, CEO & President]

One of the bigger effects is we have a very large manufacturer in the U.S. which represents a large part of our processing business, and they struggled with sales. So that's had an impact on the volume. It's created a lot more storage work and less technical work. So we still have a degree of volume around us, but at different margin levels. So -- but that's partly driven by our manufacturer. Secondly, on the terminal side, because Ocean volumes are a little softer, you see a slower throughput through the terminals. That's been the main drivers that we're seeing.

[Rebekka Glasser Herlofsen, Chief Financial Officer]

Just to add, as I explained, there is also an accounting impact on revenues, so the real decline is not as much as you would think as actually, EBITDA development is relatively flat quarter-on-quarter.

[Craig Jasienski, CEO & President]

[ Nikolas? ]

[Unknown Analyst]

Yes, just provision. Is it to -- is it for legal fees or claims or call it...

[Rebekka Glasser Herlofsen, Chief Financial Officer]

It's legal fees related to claims, claims that are likely to go to litigation. So it's an estimate...

[Unknown Analyst]

So it's no more provisions for new [ filings? ]

[Rebekka Glasser Herlofsen, Chief Financial Officer]

Yes.

[Unknown Analyst]

Can you give an update on the civil claims?

[Craig Jasienski, CEO & President]

Basically not because they're -- once they're litigated, they're public. Otherwise, they're private discussions.

[Unknown Analyst]

So what sort of time line we'll expect on the civil side, given the other stake in [ 8 years ]?

[Craig Jasienski, CEO & President]

It's hard to predict on civil claims. Question is whether you settle or fight. So we'll have to come back and report on that as we know more.

[Rebekka Glasser Herlofsen, Chief Financial Officer]

As we said, for the remaining jurisdictions, we are getting to the end of that, and we will probably see a finish for that this year. Civil case will have to take the time, it takes -- that could be years.

[Petter Haugen, Equity Research Analyst]

Petter from Kepler. On the IMO 2020, are you now seeing the availability of all the types of tools you need in terms of [indiscernible] for the others? And also, have you had any inspections as of now from authorities anywhere ensuring that you are actually in compliance?

[Craig Jasienski, CEO & President]

To your first question, no, we've had no concern with supply for either. And bear in mind, we've only got 5 vessels with scrubbers today. So the program is going to take the next 2 years to wind out -- to wind up. So supply has not been a concern. I have to admit, I don't know if we've actually had an inspection. We wouldn't be concerned because we're 100% compliant, but I don't know if we've actually been inspected.

[Rebekka Glasser Herlofsen, Chief Financial Officer]

I don't think so.

[Unknown Analyst]

Can you provide some clarity on the CapEx, how much of that was for the vessels and especially acquired and [indiscernible]?

[Rebekka Glasser Herlofsen, Chief Financial Officer]

So I think it's 26.

[Unknown Executive]

29.

[Rebekka Glasser Herlofsen, Chief Financial Officer]

29 on that individual [indiscernible].

[Unknown Analyst]

Is that like a purchase price? Or have you already paid some of it with the rate...

[Rebekka Glasser Herlofsen, Chief Financial Officer]

Yes, it's a purchase option at the end of a lease agreements. So that's paid the annual payments as well.

[Unknown Analyst]

And the rest is for...

[Rebekka Glasser Herlofsen, Chief Financial Officer]

It's a mix, but mainly it's related to dry docking, but also some maintenance CapEx on the Landbase side.

[Unknown Analyst]

And dry docking, excluding any scrubber [indiscernible].

[Rebekka Glasser Herlofsen, Chief Financial Officer]

Yes, I don't think we had any scrubber installations in the fourth quarter. But ballast water treatment systems is part of it.

[Unknown Analyst]

How does the civil claims affect your contract negotiations?

[Craig Jasienski, CEO & President]

So far, not at all.

[Unknown Analyst]

So no impact on client communication in civil claims and rates?

[Rebekka Glasser Herlofsen, Chief Financial Officer]

It's handled very separately [indiscernible].

[Craig Jasienski, CEO & President]

Any other questions? Anything from the web?

[Astrid Martinsen, Head of Corporate Finance & IR]

Yes, I have a couple from the web from Anders Karlsen at Danske Bank. One, to begin with, can you provide any guidance on what level you purchased VLSFO into Q1, given the volatility in prices late December, early January?

[Rebekka Glasser Herlofsen, Chief Financial Officer]

No, I don't think we can guide specifically on pricing. We've secured volumes at different times. We saw prices moving up, but they've come back down again. So I think it's too early to kind of say where we will be concluding. But importantly, they will be matched towards BAF clauses that related to kind of October, November period last year.

[Astrid Martinsen, Head of Corporate Finance & IR]

And then there's question #2. The Atlantic project cargo mentioned, can you say anything of value of that particular cargo?

[Rebekka Glasser Herlofsen, Chief Financial Officer]

Similar to what we've said for previous quarters.

[Astrid Martinsen, Head of Corporate Finance & IR]

That's it for now.

[Craig Jasienski, CEO & President]

That's it? Thank you. Anything else? Any other questions?

[Unknown Analyst]

Craig, I'll just follow up. I mean, Craig, you are usually cautious on the outlook.

[Craig Jasienski, CEO & President]

I remember you are quite very...

[Unknown Analyst]

But given where we stand now and what you say, are you more cautious than usual? Or...

[Craig Jasienski, CEO & President]

We've been consistently cautious and continue to be. So look, the market is what the market is. What we have to focus on is what we can control, what we can do something with, and that's where we have to have our attention. And we have to be as adaptable as we can be. And we'll continue with that focus and reality.

[Unknown Analyst]

But you have had some sort of, I would say, from on the savings and performance improvements, taking out almost $200 million from your cost base since the merger. And the question is if the market remains challenging, do you still have the ammunition to continue on that performance improvements? Or is it inevitably coming to an end?

[Craig Jasienski, CEO & President]

I think there's 2 aspects to take from an Ocean network point of view. The Ocean network is a moving thing every quarter, every year. It's changing in its nature, it's shaping its costs, so there's always something to focus on from a network efficiency point of view. That will never go away. Secondly, I'd say from a digitalization point of view, the shipping industry is still relatively at a low point, relatively speaking, compared to many other industries. So whilst we've made some steps now and we've identified some savings now, I think we all believe that there's more to come and more to get at. But that needs to be part of running business. That's just what we need to do. And again, that's back to controlling what we can control ourselves. So it's -- that work is never done. That's what we do. Okay. Thank you very much. Thanks for your time. Enjoy the rest of the day.