Good morning, welcome to the Q1 presentation of Wallenius Wilhelmsen. Warm welcome to those who are here in the audience, and also to those following of us on stream. As always, we will have a Q&A at the end. If you would like to write your questions on the stream, feel free, or you'll have the chance to ask them after the presentation. Torbjörn Wist, the CFO, will join me in the presentation later on. We will follow basically the same sequence. I will talk through a few highlights, the market and the businesses. Torbjörn will talk you through the financial numbers. Let's get started. The first quarter... Let's see. Hmm. Okay. There we go.
We had a very strong first quarter in 2023, the third strongest on record. We saw still very tight market balance, and we have a very positive development in our logistics area, which we expected last year, and we can see that continue into the first quarter. For shipping, we had a temporarily somewhat lower EBITDA than Q4, partly due to some fuel effects and also due to congestion in Australia, and we'll come back to these topics later in the presentation. Our government segment is also continuing to perform strongly, so we see strong demand in all our segments in Wallenius Wilhelmsen. We just passed our AGM and concluded the dividends for last year, a total of $360 million paid back to the shareholders during 2023.
We also announced in Q1 an updated group executive management team, and I'm very happy to welcome Anette Koefoed to the management team as the Chief Communications and Marketing Officer, and also Gro Rognstad as our Acting Chief Technology and Information Officer. With this, I believe we have a very strong team to deliver on our strategy, which I will cover briefly in the next slide. Just to close with that, we still see a very strong market. Last year, we said that we expected 2023, market-wise, to be somewhat similar to 2022. That is correct, and maybe it's even stronger than what we expected last year. We thought there would be a negative development during the year in the demand for our services. We do not think that anymore. 2023 looks very strong.
The feedback we get from our customers are that their volumes are up for 2023 across auto and also high & heavy. The only area where we see somewhat weakening is on the breakbulk side, but this is well covered by the two other segments. 2023 looks from a market perspective, really strong. Of course, also from a financial perspective, we think 2023 will be a strong year. We will come back to that. Few words on our updated strategy, which we have covered in various for us. I just wanted to set some context for the rest of the presentation. We are the leader in our segment. We are the biggest provider of shipping services and logistic services to the auto and high & heavy industries in the world.
These industries are facing significant transformations, transformation in taking out carbon from their supply chains, we call it decarbonization, transformation in how they use technology and data to run their operations and redefine their logistics and their supply chains. Also we see a change in the global footprint of our customers, and to some extent, we are now in the phase of de-globalization, where we see more regional development in terms of production. These transformations are really set for Wallenius Wilhelmsen to drive, and we have as an ambition to lead the way in transforming how supply chains and logistics are run in our industries. We have set four goals to define how we will do that.
We will use the data and technology we have and, through developing new platforms, enable our customers to run their supply chains better. I just came out of a meeting in Japan with one of our biggest high & heavy customers, and they told us our data and information on how we run supply chains are a mess. "If you can help us with that would be very welcomed." That's exactly what we will do. Our customers have faced during the pandemic and now also post-pandemic that they need to get much more resilient supply chains. To do so, they need partners, they need data, and they need tools, and that's exactly what our strategic goal is, to be able to deliver that infrastructure to our customers. We still, we are number one in shipping.
We would like to be still number one in shipping, and we will be so increasingly for the customers that really look upon us as a partner. Further, we have a partner strategy on our logistics business. What does that mean? Well, that means that we are now increasingly working with customers and OEMs that use our capabilities at the end of their factory line, in our terminals, in shipping, and certainly also in their import markets, and use that to tailor their product to the market.
One of the examples we have, and I brought this nice little tractor, John Deere is one example of that, where we are basically sitting in their whole supply chain and helping them to tailor these specific products to the needs in Brazil, in Australia, or wherever the products are used. Last but not least, we have set ourselves a very stretched target to be able to deliver a net zero solution from end to end to our customers by 2027, meaning that we are now investing in zero-emission inland transportation trucks. We are looking into and we are investing in renewable energy in our terminals and our processing centers, and we are working actively to see how can we take our vessels to net zero. I know there are some questions on our fleet strategy.
We are not coming with any news on that today, but we are continuously working on this side. We are in dialogue with yards, as we have said before, and we have promised to come back to the market in 2023 with a fleet strategy. Back to the quarter, starting off with a market update. In terms of auto, we have not changed any forecast for the total sale of autos this year. We expect it to be north of 80 million cars, close to 83 million cars sold. We saw in the first quarter a slight dip in the total car sales of the world, quarter-on-quarter. This is normal. There's a seasonality, and there's a big push on pushing out cars at the end of the year, and we see this every year.
However, worth noticing is that despite total reduction in sales, the deep sea volumes are growing quarter-on-quarter. We see that still the OEMs are prioritizing their export markets, and certainly this is also partly driven by China. If you look at the right-hand side of this chart, you can see the development in exports per quarter from China. This is an extreme development that is just continuing, and this is obviously driving a lot of demand for our services. These cars are primarily going far away to Europe, to North America, and other places. One thing worth noticing on the Chinese export is that to Europe, around 70% of the export from Chinese OEMs are EVs. We don't think that these Chinese producers are here just for a while.
They have basically positioned themselves for the EV transformation. We also now see that it's not only Chinese car manufacturers, but also Western OEMs that are now increasing their production and starting to deliver significant volume of EVs out of China this year and into the next. The EV sales development is faster than most in this in the market believed. Basically today, this is a the bet that most OEMs are on. The Western OEMs have already started that transformation. The Korean ones, which we are working very closely with, Hyundai and Kia, have had a tremendous transformation on EVs. Now also we see that the Japanese manufacturers are truly jumping on that.
We saw an announcement 2 weeks ago from Toyota saying that they are now really gearing up for a fast growth in EVs. EV will basically change the landscape of OEMs and the product we carry, and we also believe it will drive different needs, both in terms of processing, but certainly also in terms of decarbonizing supply chains. On high & heavy, we see stronger volumes than we expected, and we also have still significant order backlogs. Again, back to our dear friend, John Deere, we have many, but this is one of them. They have told us that they have basically sold out all production for the full year 2023. This is still a very strong market.
In construction, there has been somewhat weakening on the residential construction demand, but this has really been countered by a strong demand in the infrastructure construction, meaning that they are selling more of the bigger machines than the smaller machines that typically go into residential, which is good for us. We are probably the one best positioned to carry big, high & heavy equipment. Mining sector also continuing. In the agricultural side, we see somewhat weakening in the demand, but still most order books are sold out for 2023. We expected somewhat a slowdown in 2023 versus 2022, which will still maybe happen, but certainly still at volumes that are that we have not seen before, maybe except for 2022.
We are currently having more demand on High & Heavy transport than what we can deliver and the industry can deliver. The order book is continuously developing. We saw new orders added just the other day. Now I think the official number is 26.something, close to 27% of the world fleet. A lot of this will be delivered, second half next year and into 2025, and that will of course have an impulse in the market at that time. If you're on the right-hand side of this chart, look at the long-term fundamentals of the supply side, you will see that we are basically just now getting back to the long-term trend of growing the fleet, basically with the growth in the world economy.
The car carrier fleet has grown more or less at 3% year on year, as have the global economy, and we're now getting back on track on that. Also, it's worth noticing at the bottom of this chart that there is significant potential for phasing out vessels towards the second half of this decade. We are of the opinion that the current order book, in a long-term perspective and medium-term perspective, is what this industry needs. Of course, there are uncertainty on what happens when a lot of vessels are delivered within 12-18 months, but that's still a year and a half and 2 ahead of us. Before moving on to the business areas, I wanted to talk about the issue of the quarter, and that was congestion in Australia.
We have seen significant congestion in Australia, and this has been caused by stricter enforcement of biosecurity measures. What you see on this picture is on the picture to the right you see a small seed and the 10% of the Australian economy, and growing, is agriculture. They are protecting that as good as they can, we have for a long time done fumigation of stink bugs, basically small animals. Now also they're focusing in on the seeds, cars are coming in with seeds. They should have been cleaned before they came on board our vessels. This is the OEM's responsibility. They were not, we'd set up a significant operation in Melbourne. I was down there looking at it, one or two months ago.
These are pictures I took, you can see we have had recruited a lot of people now standing with the torch and the stick. The stick is one in the middle, very high tech. Wooden stick with a double-sided tape at the end, picking every single seed on these cars. This is why suddenly there was a big backlog of vessels in congested and a big backlog of cars that was not cleared for the market. When I was there in, I think in March, we had a backlog of 7,000 cars just sitting there waiting to be cleaned. Now that is down to around 1,000. In our view, the Oceania issue is now under control. The congestion is significantly lower, and we believe the situation should be normalized by the summer.
We already see that the impact on our business is far less in the second quarter than in the first quarter. A few words about the segments before I hand it over to Torbjörn. Shipping is still sold out. We could probably have added 10%, 20% to our capacity and still only meeting the current customers' demand. There are too little capacity in shipping, and that was also the case in Q1. The reason why we saw a somewhat dip in the in the numbers for Q1 was purely due to this Oceania situation and also some fuel effects that Torbjörn will cover.
We are, we have been for a while, the most significant player in the Oceania market. That's why we were somewhat hard hit in the first quarter. Looking more into the details, the volumes are down 3.3% as a consequence of this. Basically, our vessels sit there waiting. They can't move cargo. Also, this affected some of our trade mix. The most important export area we have, that's out of Asia. That's out of Korea, Japan, and China primarily. As our vessels were stuck in Australia, typically that would bring them back to Asia after. We had less liftings out of Asia in Q1 than what we normally should have. We have now seen through March that these number of voyage starts out of Asia have picked up significantly.
We are now back to at least the expectations we had in terms of volumes out of Asia. That's why we believe that this is a temporary change. The cargo mix in terms of high & heavy and breakbulk versus cars were stable quarter-on-quarter. Still very strong high & heavy volumes, but less breakbulk volumes. This is partly due to prioritization on our end. We have limited capacity to bring it on, but also no doubt that some volumes have gone back to container. When we saw a real hike in the container rates, a lot of volume moved into the ro-ro industry. Now, as the container rates are down, some of this volume is moving back.
This does not mean that the volume that we carried on breakbulk before the container hike are going away. These are typically things, as you can see on this picture, that you can't fit into a container easily. Breakbulk volumes are not gone, but they are lower and now at a, I would say, a cross cycle normal level. Our fleet was stable. For those who read our reports extremely closely, you can see that the fleet is somewhat bigger than the last report. That is because we are now including our Armacor long-term vessels in our fleet count as Armacor is a significant part of us and we eventually will have Armacor as full part of Wallenius Wilhelmsen.
You can also see the effect of the congestion, and that we had close to 1,000 vessel days sitting idle, primarily in Australia in the first quarter, and this is about 10% of fleet capacity. 10% of our vessel days during the quarter were just sitting there doing nothing. This is something we work extremely hard on. We had a big issue last year in Europe. We were able to fix that, at least for now. The problem moved to Oceania, and we also now see that there are congestion picking up on the west coast of the U.S., and this is just an expression that there are too much volume going through a supply chain that is not sized to this level of volume.
We expect this issue to pop up different places, but as we said. For Oceania, 2nd quarter looks much better than 1st quarter in terms of our own congestion. In logistics, I'm very happy to report that the positive development continues. The development has been very strong in terms of volume increases. This picture is an example of what we call end-of-factory line. In the U.S., we're sitting at the end of several companies' factory lines, Nissan and Volkswagen and others, and basically we finish the last piece of the vessel, not the vessel, the car. We make it ready, we inspect it, make it ready for shipment, and we make sure that it's transported out of the factory. These operations were muted last year due to limited access to semiconductors. That is now mostly gone.
These factories are getting back to normal levels of production. Also, due to big value fluctuations in volume last year, we need to do a lot of temporary employees. We have now been able to replace them with more permanent employees, giving us a better cost base. Our logistics activity in general, and in particular related to auto volumes in the U.S., had a very positive development during the first quarter. You can see that on the revenue growth on the left-hand side, which is very strong quarter-over-quarter. No, sorry, year-over-year, and also somewhat strong quarter-over-quarter. High and heavy, a little bit down. This is due to seasonality, but also partly due to the Australia issues, because Australia is a big importer of heavy equipment, both to the agricultural and the mining sector.
Terminal revenues are significantly up. A huge part of that is the fact that we, these services, I showed earlier on, where we are handpicking seeds from our, from cars, and that revenue has really boosted our operation in Melbourne, MIRRAT, during the quarter. Inland revenues are also up as we see increasing volumes. In general, the picture for our logistics services is that we are, the activity level is picking up, and the constraints on the OEMs on producing the volumes they intend are now more or less gone. Still, there are upside potential in the volumes. On the left-hand side, you see, the production, levels in the US before COVID and where they are now. We still believe that there are growth opportunities in the key markets we're in.
We are a leading, maybe the leading player in logistics services for cars and heavy equipment in the U.S. On the right-hand side, you see the graph on how the U.S. market is positioning themself for electric vehicles. Thanks to many different elements, but in part also the new IRA regulations, we see a significant growth in investments in EV production. Of course, not only EV production, but also battery production in the U.S. We believe we are perfectly positioned for this growth. These are new players coming in with new factories needing the services we have at the end of their production line in transport, in terminal, and in logistics. We expect the volumes produced in the U.S. to remain strong in the long term going forward.
Another anecdotal example is that Toyota, as I said, are now announcing, announced their new EV strategy. The first they announced was the establishment of a significant factory in the U.S., battery and car production. Sustainability before we move into the numbers. This is really the sad part of this presentation. We are not happy with the safety performance in the first quarter. We had two serious incidents on our vessels, both related to mooring operations. One where sadly, one of our crew members lost part of their leg, and another where there was broke their leg and had to be hospitalized. This is not acceptable. We are working forcefully on safety, and we are not happy with the performance we have.
These have limited impact on our financial numbers in the short term, but we are the, of the, you know, real, view that our safety performance is an indication also of our long-term financial performance, and we are really dedicated to get safety back to where it should be. We're also working hard on decarbonization, due to a lot of disruptions in the supply chains, congestion, vessels waiting, and through that, we also need to increase speed of our fleet. We saw a more or less flat development on carbon footprint during quarter-on-quarter. We are totally committed to our goal of reducing our emissions by 27.5% by 2030, and committed to the goal of providing zero, net zero emission services by 2027. I think I'll stop there and leave it to you, Torbjörn.
Thank you, Lasse, and good to see everybody. Here to present the financial update for first quarter. If we start with the financial highlights. As Lasse has been through, we did see a decline in the first quarter due to the congestion that we saw in Australia. In addition, we had some negative effects from fuel, which I will come back to later. The adjusted EBITDA was $398 million, which is down 19% quarter-on-quarter, but up almost 30% year-over-year. The net profit ended up at $173 million.
This was partially impacted by the decline in result, but also due to some unrealized mark-to-market on our derivatives on cross-currency swaps. Just for comparison, in Q4, we had some positive effects on that which accentuates the decline in the net profit. We did see a solid increase in cash, and while Q1 is lower in terms of EBITDA, in the first quarter, the cash generated in the first quarter is $70 million higher than the cash generated in the fourth quarter. We did see a solid increase in the cash. We had some scheduled repayments on debt, which meant that our net debt decreased, and of course, our cash position has strengthened. Last quarter, we also communicated our new financial targets.
I will not go through the targets that we have set, only to say that we ended the quarter with strong performance on all the financial targets, with ROCE 14.5%, equity ratio 42.4%, and of course, a leverage ratio of 1.5 times, which is very strong. Again, I like to remind people that when I started, we were at 6.4, it's nice to see the trajectory that we have experienced on the leverage side. If we look at the segments in themselves. Shipping, again, year-over-year has been strong, down in the quarter. Again, it is the congestion effects, which has affected CBM as well as the trade mix that we have, of course, we have the net fuel.
When we have problems on the congestion side in Australia, this has driven business into the logistics side. It's really encouraging to see that we've had a strong performance in logistics. You will see on the slide that EBITDA is $37 million in both quarters. In the $37 million for Q1, there is also a $6 million effect of bonuses to call it non-bonus entitled employees as a reward for the strong performance that we had in 2022. If you were to add back the $6 million there, you will see that the underlying development in logistics is really, really strong. Government is down.
Yes, it has been impacted by congestion, but one of the reasons that performance has been a bit lower is due to dry docking of a vessel, so some of the capacity was taken out. What we see in the government segment is that due to the conflict in the Ukraine, volumes continues to be very high. There's a strong demand for the services of our government services segment. We've talked about the EBITDA. If you look at the sort of sum of the volume and the revenue per CBM effect, that's roughly $47 million explanation in terms of call it the drop of revenues. You can see that we had $55 million less fuel surcharges in this quarter, and I will come back to the fuel side in a minute.
When you then look at the EBITDA, you take in the revenue effect of $95 from the top chart. We had slightly lower fuel costs, the net fuel effect in the quarter was $36 million. That meant that we, our EBITDA fell by $90 million in the first quarter, and again, it is explained by the congestion effect as well as the fuel. If you read our report, you will see the explanation of the fuel adjustment factor. In periods where fuel prices are rising, you will, in general, have a net fuel cost which is higher. The reason being that the surcharge adjustments is lagging the whole time.
If the fuel prices keep increasing, you're not getting compensated for that by your customers before, you know, 3 to 5 months later. Conversely, in periods where fuel prices drop, you will benefit from lower fuel cost, and you will have higher fuel surcharges. If you look at the line at the bottom of the chart, you will see that fuel prices, this is VLSFO prices, peaked in the second quarter. Into third and fourth quarter, we benefited from high surcharges that we sort of carried with us into Q3 and Q4. When you look at the strong result that we had in Q4, we essentially carried in a $68 million benefit from call it the curve and the lag effect of surcharges. You can see that the VLSFO price flattens out.
What we saw in this quarter is that fuel prices were just marginally down, roughly 4% on average. That meant that we have now flattened out in the fuel, and the surcharge effect is tapering away. The effect that we saw in this quarter with a negative development in net fuel cost, net fuel, i.e. fuel cost less surcharges, is likely to carry into the second quarter, unless, of course, there's a radical change in the fuel price in either direction. Cash increased by $223 million, driven by the solid EBITDA as well as changes in working capital. That meant that we ended the first quarter with $1.4 billion of cash. For comparison, in Q4, that cash generation was $153 million.
When you look at the CapEx that we've had in the quarter, mainly relates to the investment that we made in Sungin, where we bought out minorities there. We've had some dry docking events and smaller investments in minor projects and vehicle replacement. You have another investing items. This is essentially interest received on deposits. We have at the moment we're all following the Norwegian kroner. It seems to be in the headline every day. In this quarter, we had to increase the collateral. These are on the cross-currency swap we have on our nokkie debt. When you look at the net debt position, we have repaid debt in the quarter. Finally, we have increased credit facilities by $100 million.
As of end of Q1, we have $347 million of undrawn credit facilities that can be used for general corporate purposes. We have a very solid balance sheet and a strong liquidity position. Equity ratio is at 42.4, as I mentioned. The net debt decreased, thanks to the cash generation and the net debt, and the debt repayments. We have no bond maturities until September next year, and any other debt maturities will just be refinanced on a running basis. Finally, we're extremely proud and pleased to have received the award for the deal of the year for our 1.25 sustainability-linked bond that we did last year. Very pleased with that. A little marketing at the bottom. With that, I will stop and hand over to Lasse.
Thank you, Torbjörn. Before we move into the Q&A, I'll just have a quick wrap-up of the prospects as we see it. The market demand is still very strong, similar to what we saw in 2022. This is despite an economic slowdown that we see in the world. This is partly due to the fact that there's been muted delivery of products in our industry for quite a while, and there is a big pent-up demand. That means that we believe the volumes to stay high all the way through 2023. We also believe the long-term fundamentals look really strong for our industry. There is still a significant upside to the global volumes on cars and high & heavy compared to pre-COVID. Of course, looking forward, there is more uncertainty.
Also the impulse of vessels coming in 2024 and 2025 will have, or could have a short-term effect. As we showed on the long-term fleet development, we believe that there is a strong fundamental, fundamentals for our industry in the long term. Through that, we also expect our numbers and our financial results to grow and improve through the year. Q1 had a short-term effect, as Torbjörn explained. The whole year looks strong, and we believe we will, through this year, continue to strengthen our financial position. With this, we close the presentation and move into the Q&A. Should we start in the room, Anette?
Yes. We'll start in the room.
Remember to say your name and get a mic as so those at the stream can hear as well, if you have questions. No hands here. Did you have any questions on the stream?
Yes.
Okay.
First question goes to you, Lasse. We're on CII. It is from Even Kolsgaard saying, "With shipyard delivery times extended, extending into 2026, you will likely operate all the vessels longer to maintain capacity. How do you plan to comply with CII in the coming years, and what are the estimated costs?
We are certainly looking at how we can run our vessels as long as possible. We also think this is a environmentally friendly thing to do as there's a lot of emissions related to decommissioning of vessels and building. First, on the new building side, he is correct. Vessels can be delivered sometime in '26. That's what's available now. We are really looking into how we can keep on running our vessels. CII regulations will kick in from this year. We have done a lot when it comes to operational and technical measures. We will continue to do that. As we presented in the previous quarter, we are now testing out sails that we are trying putting on most likely next year on one vessel.
We're also actively looking into biofuel to reduce the carbon footprint of our vessels. We have a very rigorous plan on how we are gonna meet the CII regulations. That will come at some cost. At the same time, it's important also to mention that our customers are now starting to pay for decarbonization. In the contracts that we are now renewing at sustainable earnings levels, we're also able to partner with our customers to start paying for decarbonization. In the short term, that means using biofuels.
Great. We have another question, and that a lot of questions in one question, actually. I think maybe both of you will answer that. That's from Eirik Haavaldsen. "Can you please help us understand a little bit better how the net freight per CBM now is the lowest since Q4 '21?" First question. "Can you be more specific on 2023 prospects? Is Q1 firmly the low point?" I don't know if you want to start, Lasse, and then.
I can start, and then you can fill me in. On the first one, on the net freight, the net freight rate for us, that's basically driven by two main components. It's cargo mix, how much cars versus high and heavy and breakbulk do we have, and even more so, the trade mix. That means where are we picking up cargo? As we said, due to the congestion in Australia, in Q1, we had less voyage starts out of Asia than we normally have. Asia is where we have the most favorable rates, and this affected our net rate. Also, that the sum of the breakbulk volumes, we have a lower cargo mix in terms of lower breakbulk volumes.
The main reason is the trade mix, and as we said, this is a temporary effect. Then you need to remind us of the next questions.
Can you be more specific on 2023 prospects? Is Q1 firmly the low point?
Well, we are not giving guidance specifically on quarters, but I can just repeat what I said. One, the market is really strong. We see no dampening in demand. There is more demand than we have capacity. There were temporary effects in the first quarter, so that gives an indication of what we think of the rest of the year.
Great.
Yeah.
Torbjørn, any add on here?
No, I think, yeah, just to add the, you know, in this quarter, we had some negative development in the net fuel, and as explained on the fuel slide. You know, barring any sort of radical changes in the fuel prices, we expect some negative development on net fuel into second quarter as well. As far as the trajectory is concerned, you know, we see that it's a strong demand and a strong curve for 2023.
Great. Thank you. We can see since there is a lag online. Are there more questions in the room? Please raise your hand. This must have been very clear.
No
because there are very few questions today.
No, that's okay. Super clear.
Let's just give it... I don't know. We'll soon conclude. Are there anything you guys want to add? We'll see if we get more questions here since there's a lag.
No, I think we've covered it. The, again, we are very happy to see the robustness of our business model. Shipping has been strong for a while. We are now really getting payback for our position in the logistics segment, both in terminals and in processing. Volumes are increasing. Also, our government services are in high demand, and we see that there is strong, high demand also going forward to provide government transport primarily from the U.S. into Europe.
No more questions, so I think with that we'll say thank you.
Okay.
Thank you.
Thank you.