Höegh Autoliners (HAUTO), a leading global car carrier, has announced strong financial results for the third quarter of 2023. CEO Andreas Enger and CFO Per Øivind Rosmo reported a significant EBITDA of $178 million and a net profit of $193 million, largely supported by vessel sales. The company also declared a substantial dividend of $245 million for the quarter.
Despite a slight decline in cargo volumes, the company experienced an increase in net rates and maintains a stable outlook for Q4. The successful delivery of the Höegh Aurora, the world's largest environmentally-friendly car carrier, marked a key achievement in the company's fleet renewal strategy.
Key Takeaways
- Höegh Autoliners reported a strong EBITDA of $178 million and a net profit of $193 million in Q3.
- The company announced a significant dividend of $245 million, reflecting a robust balance sheet with a 64% equity ratio.
- Cargo volumes declined by 2.8%, but net rates increased by 4.2% due to successful contract renewals.
- The delivery of the Höegh Aurora, a major step in the fleet renewal strategy, is expected to enhance fleet performance and reduce carbon emissions.
- The company's outlook for Q4 remains stable, with plans to increase contract shares and maintain positive performance.
Company Outlook
- Stable Q4 EBITDA expected, reflecting current run rates.
- Focus on increasing contract shares with an improvement in contract coverage to 75%.
- New vessel deliveries anticipated to ease market pressures while strengthening the fleet renewal strategy.
- Positive contributions expected from the Höegh Aurora in the next 12-18 months.
Bearish Highlights
- A 2.8% decline in cargo volumes was reported in Q3.
- Acknowledgment of potential market impacts from macroeconomic factors, including tariffs and the upcoming US elections.
Bullish Highlights
- Successful delivery of the world's largest environmentally-friendly car carrier, the Höegh Aurora.
- A strong balance sheet with net debt at $255 million and cash reserves of $344 million.
- Plans for organizational changes, including a transition in CFO leadership, to bolster future growth.
Misses
- Despite overall positive performance, the company experienced a minor currency gain and a decline in cargo volumes.
Q&A Highlights
- The company's LNG capabilities are ahead of schedule by nearly six months, expected to improve performance and reduce carbon emissions.
- Emphasis on the aging fleet and the significant order book for new vessels to alleviate industry pressures.
- Introduction of 12 larger Aurora class vessels expected to reduce carbon emissions by over 50% without additional costs.
- Commitment to keeping stakeholders informed about developments and performance.
In summary, Höegh Autoliners (ticker not provided) has demonstrated resilience and strategic growth in Q3, with the delivery of the Höegh Aurora and a strong financial performance. The company remains cautiously optimistic about the future, with a focus on increasing contract coverage and renewing its fleet to meet industry demands for environmentally-friendly and stable supply chains.
Full transcript - Höegh Autoliners (HAUTO) Q3 2024:
My Linh Vu: Good morning and welcome to Höegh Autoliners Third Quarter Presentation. My name is My Linh Vu, Head of Investor Relations and we have with me today our CEO, Andreas Enger; and our CFO, Per Øivind Rosmo, who will walk you through the last quarter business and financial updates. As usual, if you have any questions, we have a Q&A session at the end of the presentation and questions can be sent to our Investor Relation mail box at ir@hoegh.com. So, with that, I will leave the stage to you Andreas.
Andreas Enger: Thank you, My Linh. Welcome to this quarterly presentation. We're starting with the front page of a beautiful picture of Höegh Aurora, the largest and most environmentally-friendly car carrier in the world that we took delivery of in early August. And on this picture just finishing its maiden voyage -- successful maiden voyage to Europe and is in the process of loading cargo for Australia. A very important milestone for the company since our fleet renewal program has been one of the driving pieces of our strategy, actually also one of the triggers of the IPO back in 2021 and we're very pleased now to see the vessels coming with this one in Europe. And also Höegh Borealis, the second one is after the end of the quarter left the yard in China and is loading in Asia as we speak. The quarter, pleased to report another strong quarter EBITDA of $178 million. We had previously announced vessel sales meaning that we have a net profit of $193 million. We have continued the growth in gross rates. And with our dividend policy of paying out free cash because we are fully financed and have -- for our newbuild program and have a strong -- very, very strong balance sheet. The dividend for the quarter will be $245 million. And as I said, we have taken delivery and put in operation the first of our Aurora class vessels successfully in the third quarter. And as I said, we have another one that is now in operation and we have another two coming towards the end of the year. Equity ratio, 64%, reflecting what I said about a very, very strong balance sheet. We're going through a traditional presentation commenting a bit on the market on capacity and sustainability before we go into the financials. Just before we start and that's -- I mean at this stage just for the sake of good order, we've just released a notice of planned future organizational changes. And that is we are continuously working developing the organization, building a strong succession plan and creating opportunities for our people. And one important element in that is that we have an operating model in Höegh Autoliners where we do all the critical tasks related to our business internally with our own staff and the largest office in the system is in Manila. During the last several years, we have added substantial new activities to the Manila office, includes activity -- we have traditionally had crewing. We had technical management of our vessels. We have the newbuilds. We've also -- and we had our entire financial -- or most of our financial office operating out of Manila. Recently, over the last few years we've added IT. Our entire global IT is run from there. We've also built customer service. So it's becoming the largest and most important office in our system and an operating model. And we've also decided that that also the further development and optimization and getting the full effect out of that office is very important to us and requires some more executive attention also from corporate management. And we have therefore, I'm happy to -- we agreed with Per Øivind that he has been one of the key architects in creating the office and will from the beginning of next year has spend more time on providing overall leadership in an Executive Chairman role for that office which means that he will step out of the CFO role and will be replaced with Espen Stubberud in that role. It's -- this is not happening now. It's happening in a planned process at the end of the year, but it's a reportable issue. So we want to make sure that we have shared that information. Going into the market. We have fairly stable, but as you know somewhat lower volumes driven by the Red Sea and also a fairly high activity on 5-year dry dockings of vessels and also obviously for the fact that we have sold some vessels, although they are being more than fully compensated by the additions of newbuilds that are happening this year. High and heavy breakbulk volume is stable. The net rate is continuing upwards reflecting that we still -- we have a continued strong market and we have a very positive activity on renewing and actually also adding new contracts. To the contracts, we have -- as we said, we've successfully signed a number of contracts adding up to five million cubic meters, still with an average rate on new contracts above the $100 million mark and a duration of 4.2 years which is I think longer than we had usually. We still have some volume to renew before the end of 2024. There are good processes around that. And we basically continue to have contracts that are strengthening our backlog and creating a more robust rate level. In Q3, the contract coverage was up to 75% which is historically high, but we are continuing to build and are aiming for the 80% mark during 2024. And this is obviously, a very important part of our priorities and economic model that we are now focusing on creating a robust platform with customers and happy to report that we're making great progress on that. And also on the volume side, deep sea shipment of cars is increasing. It's still very much driven by Chinese exports but a robust development for – also in many other markets. With high and heavy in many ways the same development. There's been – we've talked about before a dip in 2024. We believe we're back on a growth track. And also in that segment we see fairly stable volumes or slight declines but it's a fairly stable level out of Japan and Korea but – and a strong growth out of China. Capacity. We now entered into the kind of delivery phase for newbuilds through 2024. There has been a series of vessels delivered including then one of ours if you include only the third quarter two, if we include to date in the fourth quarter and four, if we count to the end of the year. That is easing the charter market slightly but still at a high level. And obviously the deviation around Africa with the closure of the Red Sea is also continuing to create a strain on capacity. On sustainability, I started off with talking about delivery of Höegh Aurora. And these vessels with LNG and due to its size and lots of improvements in fuel efficiency in the design is actually from yard today delivering 58% lower carbon emissions per car transported than a typical or an average car carrier in the market today. And as we add those newbuilds and also as we continue technical upgrades to ensure optimized fuel efficiency on – during dry docking of older vessels, we are on a trajectory to improve our carbon intensity substantially in the years to come. That is the start and I'll leave the details on the financials to Per Øivind
Per Øivind Rosmo: Okay. Thank you, Andreas. As usual starting with a short recap of volumes and rates being the main driver for both the top line but also the EBITDA and the cash flow. We had a small reduction in volumes, 2.8% down from 3.5 million CBM to 3.4 million CBM, mainly coming from as Andreas mentioned, periodical maintenance of more vessels, but also some repositioning mainly due to the issue in the Red Sea. It still creates a need for us to reposition vessels between continents and that absorbs of course capacity. The net rate continued to increase 83.2% to 86.7%, plus 4.2%. And the main driver now for the rate increase, as it has been in the last quarter is actually renewal of contracts, leaving behind us old legacy contracts with low rates and replacing them with contracts with higher rates. That's the driver more than the spot rate time being. And converting this to numbers it has been very stable. The last quarters we had revenues of $349 million. The lower volumes was offset by the higher rates taking us from $341 million to $349 million, if we compare with the last quarter. But as you see over the last five quarters, this has been pretty stable. And the same goes for EBITDA. The EBITDA margin is between 50% and 52%, 51% the two last quarters. And we had a small increase in EBITDA from $174 million to $178 million. So out of the $8 million that we increased the top line with $4 million was converted into EBITDA. Net profit before tax is a record high this quarter. It's $196 million. The main reason for that is that we in addition to the result coming from the operation have included the sales gain from the sale of Hoegh Kobe and Hoegh Chiba, and that is together USD 52 million on top of the normal operating profit. The bridge between first quarter and third quarter, it's basically driven by cargo revenues in -- from first quarter to second quarter, it was volume that increased. And now from third quarter -- from second quarter to third quarter, as I said it was the rate increase that was the main driver for the uptick in EBITDA. Other expenses like bunker and other operating expenses voyage expenses is pretty flat actually between the quarters. The balance sheet Andreas said it, it is -- we have a very strong balance sheet. We had net debt by the end of third quarter of USD 255 million only. Net interest-bearing debt EBITDA ratio 0.4. The book value of the equity is USD 1.3 billion, 64% of the total balance sheet. And we built a substantial amount of cash during the quarter that is also reflected in the proposed dividend. In addition to a solid cash flow from operation, we also had the net proceeds from the sale of the vessels of the two vessels that I mentioned of USD 119 million. And both vessels were debt-free. So that cash is going directly into the cash balance here. There is no repayment of debt. In addition, we have unused drawing facilities of $208 million. So the liquidity reserve by the end of third quarter was USD 551 million together. Closer look at the cash development. We started with USD 195 million. We generated $190 million from the operation. EBITDA was $177 million. So we had a positive development in working capital reducing the working capital through the quarter. We spent $10 million on investing activity other than vessels mainly dry docking and maintenance expenses. We sold the two vessels that I mentioned Kobe and Chiba $119 million net proceeds. And then we have taken delivery of Höegh Aurora that was $70 million out of the $100 million and then we also have purchased Höegh Jeddah during the quarter. We have used $19 million on debt service amortization repayment and interest expenses. And we have taken $110 million in new debt $70 million on Höegh Aurora and $40 million on Höegh Jeddah. And then we have other lease payments of US$17 million. And then we paid US$127 million in dividend and then a minor currency gain. So that is taking us from $195 million to $344 million. Balance sheet as we have said already very strong. Our balance sheet is easy to understand. Most of the balance sheet is vessel and newbuilding close to US$1.5 billion. We still have some right-of-use assets vessels, but it has been considerably reduced over the years as we have purchased most of the vessels that we previously had on leases that is $72 million. And we have bunker and receivables of $141 million and cash of $344 million. That takes us to somewhat in about $2 billion in total assets. And the equity is $1.3 billion. The interest-bearing bank debt is now $513 million. We have some lease liabilities of $119 million and we have all the current liabilities of $86 million. The book equity per share is calculated to US$6.8 equivalent to NOK 74. If we replace book value with market value for the vessels we end up with total assets of $2.5 billion and that is represents a value per share of NOK 13.3 or net asset value of NOK 145 million -- NOK 145 per share. We have disclosed it and Andreas mentioned it initially here. We are proposing a dividend of US$245 million. We expect to pay that in middle of December and it adds to the considerable dividend payments that we already have done so far this year. Okay. Outlook for you Andreas.
Andreas Enger: Yes. And I think this is becoming a slide that is not changing so much between the quarters. And there are really sort of three points in this. And one is that the market remains strong. We are in a good track. We have started to add capacity with top-notch modern vessels. And we are having good progress as I said on contracts and contract renewals. The geopolitical situation, I don't think is changing much either. It's complicated and it's obviously some effects of Suez being effectively closed for our type of operation, but it's not much change in those dynamics and we have adapted and responded to that I think operationally in a good way. And when it comes to expected Q4 there is a level of -- I think there is a high level of stability in this, meaning that we expect Q4 EBITDA to basically be in line with our recent run rate. And we are in the process of increasing our contract share securing more cargo under longer contracts at strong rates. So that ends our presentation. And thank you for listening in and we're opening for Q&A
A - My Linh Vu: Yes, we have received quite a few questions from our audience this morning. And the first question is about the general capacity planning. What is our plan with the older vessels where we have more and more delivery of the new Aurora class vessels?
Andreas Enger: I mean, I think we have – first, we have obviously used the opportunity to sell some vessels and we still have one vessel Hoegh New York where we made an agreement and will deliver -- which we will deliver early next year. So we have chosen to sell some older vessels at good prices to match the delivery schedule, meaning that we are adding capacity but we're not adding massive capacity. But I think the future capacity strategy we will work on as it goes along. Right now we are quite tight. I mean, we could easily have employed the vessels that we have divested. It's a bit of sort of balance sheet and fleet balancing. There are some vessels that are going to be -- also be retired in the years to come with age, but we're managing that carefully. But I think the main thing about our capacity strategy now is that we have world-class newbuilds. We have a large legacy fleet that is well performing and unencumbered with no debt. So we have flexibility to basically continue and we could add extra charter vessels as that market gradually opens up. So in a way we are in a very comfortable situation where we are -- we have all the tools in our bag to number one go green with our customers, but also to balance our total capacity to our total requirements. And I think we will report on that as we make decisions going forward.
My Linh Vu: Yes. Thank you Andreas. And the second question since has been called by a few different analysts and audience is about the sentiment of the recent contract renewal. What are we are seeing? What can we say anything about the negotiation and the rate we are seeing for the recent contract renewal compared to earlier this year or last year?
Andreas Enger: No, we don't really comment on rates on individual contracts and that differs. But I think I will comment on the processes in the sense that -- I mean to some extent we have -- we're also getting some questions, but when do we announce contracts? And the dialogues with our customers are positive going well. We are working hard to make sure that we get balanced terms and we are -- have sort of taken some time to make sure that -- we do improve the contract language and terms. And these are large organizations so it naturally takes some time. So while we would like to sort of announce sooner we have to have the entire process completed before we sign. But we're quite pleased with the processes and I don't think we've experienced any setbacks or things regarding neither rates or terms nor contracts. So it's quite a positive environment. It's -- I think we've seen our industry moving in a more industrial direction. I mean we are not sort of chartering out vessels on spot trades and stuff. We are creating trade systems that has multiple customers and that creates some stability. And we've reported the fact that we now have a contract coverage up to 75% is a substantial improvement to previous. And with what we're doing that contract coverage is also moving upwards.
My Linh Vu: Thank you. And the next question also from a few different analysts is about the outlook. So you wrote in our outlook that we expect Q4 to be in line with the last nine-month run rate. Can you say anything more about that?
Andreas Enger: I mean, I think, we are expressing a level of stability in the outlook and that we have a robust platform for performing at the current level. I don't know Per Øivind if you would add any details to that.
Per Øivind Rosmo: That's what we tried to say. It's quite stable. We don't expect a lot of changes in fourth quarter. And so I think that's what we can say about it. It's...
Andreas Enger: And you should add something. I mean it's a -- we're operating a complicated system. There's lots of moving parts and we have the impression that many analysts think a couple of percent up or down is a big deal. And on that background I think it's fair that we hedge our language a bit on the outlook.
My Linh Vu: Thank you. Yes, the next question is about our new vessels Höegh Aurora. How will the ship perform versus expectations? So how -- when could we expect some cost impact when the vessel is fully integrated in our system?
Andreas Enger: I mean, the vessel has performed fantastically. It's been what the people that have been in this much longer than me says that it's probably the best build number one of a series we've had. So we worked -- we had a very, very good cooperation with the yard and all our partners on that. So the performance is very good. It has completed the first main voyage. Cargo operations are fine. Its operation is good. It has the LNG capability that is important. So we are very, very pleased with having it. And I also want to emphasize the fact that this I guess according to our original plan it's almost half year early. So it's also ahead of schedule. And that will gradually go into both our performance and our carbon emissions. But it's -- now it's one voyage on one vessel in the fleet. So that's coming gradually I think into the fleet over the next 12 months to 18 months.
My Linh Vu: Thank you. Yes. And things to build up on the newbuilding program or newbuilding, it's not a secret that we see a large order book in the segment. And we also write in our outlook that with the deliveries of the new build to the other operator as well we will take away gradually some of the pressures seen in our industry. How could we comment about -- what could we comment about the outlook with increasing delivery of the new vessels?
Andreas Enger: I think that -- I mean that is a big question. But I think we should start with the fact that we have had an aging fleet over more than a decade. So we believe that there is a quite substantial renewal overhang. And I think also. it's like we also see the quality of the new vessels. And we have all these discussions of decarbonization and new fuels and willingness to pay, but we are quite confident that when we're taking on vessels that are really able to reduce carbon emissions per unit transported by more than 50% actually with no additional cost even with more efficiency that is a good platform. And the fact that with the 12 Aurora class, vessels being substantially larger than the average, we are making a very substantial renewal. We have captured the opportunity to divest some older vessels at very attractive prices, paying actually a large -- covering a large part of the equity installments in the newbuild. So we are confident that we're building a more robust -- both more robust fleet, a better performing fleet. We're building a stronger contract portfolio. And it's our clear ambition or impression that our customers want that stability in their supply chain. So we are optimistic, but I don't think we're going to speculate on what's happening. But still at currently what the newbuild deliveries are there, yes, they're easing some of the extreme pressure, but it's also filling in the gaps from a decade of underinvestment.
My Linh Vu: Thank you. Yes. The next question is about the fluctuation in rate from month-to-month. And this question I can answer. So, I think where we all previously guide before, I mean or informed the market before, the fluctuation in the market is simply because as a result of different vessel positions in different months. And I would -- we will not try to treat it as any indication about the general macro market in general. And yes, we have received a few questions about the macroeconomics and the impact of tariff and the impact of the potentials of the upcoming US elections. And what we can say is that any kind of tariff in general not good for the business, but it is something we are closely monitoring and -- yes, and we will take actions accordingly.
My Linh Vu: Yes. So with that, I would like to conclude the today's Q&A questions. Thank you very much for your attention, and we look forward to see you next time. Thank you.
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