Good morning, good evening, and good afternoon to everyone watching us online. A very warm welcome and good morning to everyone here in the audience. Q1 2026, what can we expect today, Anders?
Well, there has been some geopolitical turmoil, so I think we'll hear about the impacts from that.
Good. As usual, our CEO, Lasse Kristoffersen, will take the market and the business, followed by our CFO, Bjørnar Bukholm, who will take the financial review. Then Lasse will take the prospects, and as usual, the Q&A.
The Q&A. We'll open for Q&A here in the audience, but we'll also open up for Q&A via our webcast. Please, fill in your questions, and we'll try to respond to them as best as we can. Do remember there might be a little bit of a lag between when you post the questions and when they arrive here, even in a digital age. You know, please be patient, and we'll try to respond to all of them.
I think we're ready.
Yeah, we're ready.
Good. Lasse, please take it away.
Thank you, Anders and Anette, and good morning. Welcome to people in the audience and online, I can see we have both friends and family and partners in the room. Thank you and welcome. When I stood here in front of you and where we were online last time was on February 11th, when we looked at the future, we thought it was pretty good. Again, we made the mistake of thinking it's linear. On February 28th, there was a escalation of the situation in the Middle East with an attack on Iran, affecting both business, but certainly oil markets. What we have seen in this quarter is really, and when we are now updating our full year expectation, is pretty much effects of that event.
If we go back one or two years, and you would ask anyone, I think, in our industry, probably us included, if we saw somewhat weaker Q1 2026, why would that be? All would say because there are too many vessels, the market will be softer and the demand will be softer. That is not the case. We are very positively surprised by the demand. We are sold out. As you will see, our activity in the logistics area is picking up. The reason why we are adjusting our forecast somewhat is purely because we see a different cost situation, of which we believe we will recoup most of the cost over time. I want to start with saying very clear that we are positively surprised by the strength and the demand in the market.
As you will see later, this is very much driven by the enormous success of Chinese exports. Let's jump to the highlights. For Q1, we delivered an EBITDA, or adjusted EBITDA, more precisely, of $389 million. That's down 3% quarter-on-quarter. Given the global events, we believe that is a relatively minor softening quarter-on-quarter. It is in the Shipping services that we have seen higher costs, while we have seen improved performance in Logistics Services. I just want to reiterate the demand, the utilization, the tightness in the shipping market is very high. We are sold out, and we will need to say no to business as we speak.
This has put pressure on the charter rates, meaning that it's much tougher to get access to more tonnage, more capacity, and prices have increased. We have for a while worked with improving the performance of logistics. I'm very proud of what the team has done last year, but also into this year. The Q1 improvement is partly due to better volumes, but also because we have been better at managing our costs and really implemented measures so that we have a good and well-adjusted cost base. The impact directly to us from the Middle East conflict, and I'll come back to some more number, is rather limited. The indirect effect is what hits us, and that is through the oil price and through that, the fuel price.
We have only seen the start of that, so we expect Q2 to be substantially affected by increased fuel costs. Bjørnar will come back to explain to you exactly how that works, but in or over time, we are recouping our fuel price. If the fuel price goes up, our earnings goes up, but with a lag. What we are saying is that within Q2, and maybe also within 2026, we will not be able to recoup that increased fuel cost fully. Over time, we do recoup it. This is more of a periodization. Due to that, we have adjusted our full year outlook.
We now believe that that will be about $1.6 billion, and I will then add still being a very strong result and cash flow for a company, putting us in a very strong position for future growth and development. All in all, we believe another solid quarter, and we still believe a very solid year for Wallenius Wilhelmsen. I'll tell you a little bit of why. Starting with the Middle East, in everything we do, we start with safety. Also, with the Middle East, we are happy to report that we have 1 vessel, not happy that the vessel is there, but happy to report that the people are safe. Of course, it's not a good situation to be in, but they are safe, they feel safe.
We have an operation with Logistics in the Middle East, and also they, you know, given the circumstances, feel and are safe. We have normally two monthly sailings into the region, and we have a processing center and a Logistics operation in Dubai. All in all, maybe 2% of our revenue in Shipping annually is linked to the Middle East, and this is fully replaced by other volumes of revenues from other trades. The direct impact from the demand into the Middle East is not really hitting us. Exposure is more or less $2 million of revenues on our Logistics per month. Right now, there's hardly any equipment moving or vehicles moving in the area, meaning that we are seeing negative numbers on our Logistics operation.
Our focus now is to make sure that their people are safe. To the market, and I'd like to talk to you about three things. One, the Middle East and how does that affect our market. As always, and I probably will do for many quarters to come, talk about China. Also on the shipping market and the tightness of tonnage. Starting with the Middle East, if you look at the left, the total sales, global total sales is around 90 million cars. Out of those, roughly 3 million are sold in the Middle East. 3% of the global sales are in the Middle East. However, if you don't look at Iran, where they are producing cars for themselves, the import, the region is importing their cars.
Even though it's only 3% of the volumes, it's actually 10% of the global demand for shipping. Whereof Saudi Arabia is by far the biggest. You have UAE, Kuwait, and these are new cars. In addition to that, the Middle East is a major hub for used cars. Traded used cars coming in from, both from Asia and from the West, and typically, transloaded and sent to more developing markets from the Middle East. The Middle East has an impact on the total volumes in the market. Despite the fact that 10%+ of the demand in the market has more or less disappeared, it's still super tight. If you look at the players, we are a relatively small player in the area. We have put up on the left-hand side, our peers, on a no-name basis.
As you can see, of the total transit in Hormuz last year, for ro-ro vessels, we had 4%. We are not a big player in the region. Right now, there is no trade going into the region. We can neither get our vessels out. There was one vessel reported going out yesterday under very special circumstances, but we are still in there. If you are to feed this market, which happens now, you need to go all the way around Africa, through the Mediterranean, down Suez and to Jeddah or possibly Aqaba, adding a lot of demand to shipping.
The main effect for us has been on the fuel, and as you can see, we had a spike in fuel prices following the incident, not very dissimilar to what happened with the invasion of Russia into Ukraine. The big difference is that the spread between the heavy fuel oils, the VLSFO, very, the low sulfur fuel oil that we use, and the distillates, being the marine gas oil and diesel oil, has gone out tremendously. Meaning that Middle East is important for oil and heavy products, but even more important for distillates. And that's why you see concerns on diesel and petrol for other industries because these are really much more tight than the fuel we use. When we came into March, we were worried whether we would get access to enough fuel.
That risk is now significantly reduced. Right now, we believe that there will be enough supply, also in Asia, of heavy fuel oil, although we see some limitations on the distillates in the marine gas oil and marine diesel oil area, but we can manage without. Generally speaking, this is a pricing issue, not an availability issue. As Bjørnar will come back to, for us, it's not an absolute earnings problem, it's a periodization of earnings issue. To China, we need to brag a little bit. Last time you were here, I think maybe two meetings ago, we said that the world or the forecasters get it wrong. The expectation was that China growth would slow down. We talked to our customers. We looked into what they said and what their plans were.
We looked at what they actually gave us of bookings. For once, we were right. That means that the growth is continuing, maybe with increased speed. This year, we would most likely see closer to, I mean, around 8 million cars compared to some 6 million cars in 2025 exported out of the region. That goes, also supported by strong volumes out of the rest of Asia, marginally growing, doesn't look here, but it's marginally growing if you add Korea and Japan together. Their push out of Asia is enormous. The trend, unfortunately, out of the West also continues to soften. The imbalance, and I'll come back to that in the market, is still an issue for us. The demand is strong.
Remember, for every single car or vessel load added out of China, you need a vessel. There are no volumes that match that on the other side, so there's a full round trip. If you have 5,000 cars that need to go to South America, one vessel to South America, empty back, it really takes a lot of capacity. Just to qualify these exports, as I said, if you take away the U.S., Chinese cars and Chinese equipment goes to all over the world. They're growing in more or less all markets and in all segments. For those who believe that the Chinese story is about electrical vehicles, that's not right. Very roughly told, a third of what they sell are normal cars, ICE cars, then they have hybrids, and then they have EVs.
They are succeeding in all parts of the auto industry and in all parts of the world, and we believe they will put another record this year. Underlying this, we also see that slowly but steadily, volumes are moving from containers and other segments into ro-ro, because when the volumes really become big, they need a more efficient and better logistics solutions. With big volumes, as we have seen in Korea, as we've seen in Japan, nothing beats ro-ro. In Europe, we can see this country by country, that the Chinese market shares are growing, and they're growing fast. Only from Q1 last year to Q1 2026, we have seen more or less 50% growth in market share. Roughly 2025 over 2024 was a doubling of market share of the Chinese cars. We believe that this story has just started.
It's certainly not ending anytime soon. We also have high and heavy this quarter, around 25% of our volumes, and that picture is more mixed. In the construction area, if you look all over the world on the more residential typical housing, it's still soft or flattish, but we see quite strong demand in parts of the world, in particular in the U.S., on infrastructure construction, and this is very much related to the new data centers. It sounds crazy that one thing can drive a whole market, but it actually does. In all parts of it. We see that what we now see from our customers, both Western and Eastern-based, is that they are increasing their bookings for the rest of the year. Mining has been strong, continue to be strong, and investments are keeping up.
The situation in the agricultural industry really has become, if possible, worse. They've seen low commodity prices for a while, now that is matched with increasing costs on fuel and on fertilizer. We don't expect the demand for equipment in the agricultural industry to turn anytime soon. All in all, we see an uptick in volumes and increased projections from our customers in the high and heavy area. As you would remember, these are companies like John Deere and Caterpillar and Komatsu and Volvo and construction equipment, agricultural equipment, and mining equipment producers around the world. Thirdly, what really drives the market now is that there are too few vessels. Despite the fact that the fleet has grown from 4 to 5 million units in capacity, meaning 25% growth in two years.
The growth coming into 2026 and the capacity coming into 2026, more or less already taken. The market is still super tight. We saw we were right, two years ago, that we thought market would soften, but we did not think that we will see the strength we are seeing today. Since late last year, early this year, we are actually seeing an uptick in time charter rates, meaning that there are still less vessels than there are demand for vessels in our segment. That is something we expect to continue throughout this year because there are hardly any vessels available. Then of course, there are always opportunities, and we have some very good and deep partners that we are working with long-term, and we're able to secure what we need.
For sure, the market is what the market is, and that is currently strengthening. All in all, when we summarize the market, when what we thought maybe two years ago about 2026 was that we'll still be good, but probably a bit softer in terms of utilization. If anything, maybe the trend of falling fuel costs will continue. That is not the case. Massive demand, very high utilization, even into logistics. What we see now is a surge in fuel cost, which we believe is a temporary effect. To the business, Shipping services down 6% quarter-on-quarter, driven by two things. The biggest issue, and I've already touched it, that's fuel cost.
The second is capacity cost, meaning that we are paying a bit more for capacity than we thought than we did last year. Logistics improving partly due to better volumes, in particular on the auto side in our operations, and also because we have reduced our cost base, and I'll come back to that, but this is, in historical context, a quite strong quarter for Logistics. Government Services are keeping busy, but with less government cargo than we have had previously. That means that we have another relatively soft quarter for the Government Services compared to what we did last year. I need to add that Q1 2025 was a especially strong year due to what they call presidential direct cargoes, when one president went out of office and a new one came in.
Total volumes for shipping in the quarter was somewhat down. This is what we call normal seasonality. I would just like to add there is no vessel leaving port without a full load, more or less, at least from the east. This is purely due to periodization and seasonality of cargoes. Of course, the volumes are going down because we have less return cargo. We are growing more out of the East, more capacity added there, and less cargo coming back. The total volume, even though we're sold out, is somewhat down. You will see, as I mentioned, that the share of high and heavy cargoes are going up, which is good for us.
That's a segment that I believe I could say that we are by far the market leader. It's also a premium-paying cargo segment. We have seen a positive trend, or stable since. We're now ticking up. We believe, and based on the input we get, that this is the start of a gradual improvement, not a massive improvement, but a gradual improvement in this segment, which we are well prepared for with the vessels and the operations and the integrated offerings we have to the industry when it comes to high and heavy. The net rate was marginally up quarter-on-quarter, down year-over-year. Do not look too much on these quarter-over-quarter changes. Those are more periodization.
If I focus on year-over-year, which is more relevant, for sure, the contracts we have for this year is slightly lower priced than averaged than what they were last year, as we had more of peak earnings bringing in. As we are increasing the amount of cargo going out of Asia and less coming back, the average rate is going up. That doesn't mean that it's good for us. We'd rather have high-paying cargo out of Asia and lower-paying cargo going back, but that will then increase the average. In general, we would say it's rather flat, and I would say that right now, freight market is so tight that the prices are going back up.
We've seen a decline through 25, but right now we see a pushback in terms of also freight rates, which is natural as we see a strong time charter market that is also pushing up. As I said in logistics, if you take out Mercosur, which is this dotted boxes, this quarter is the best we've had more or less since COVID. Still we have improvements to come, and we believe it can become even better. In historical context, this is a strong quarter. As I said, it's driven by the auto volumes, meaning that we have more volumes coming out of the factories in which we work end of factory line, but also more auto volumes moving through our terminals, which is the lower one.
We are seeing relatively soft activity in high and heavy, meaning that what we do is more or less keeping the equipment for storage rather than processing them, which is high-value work. We expect that to, or hope that and believe that will strengthen throughout this year and into next year. In Government, as I said, a soft start to the year, partly because of less cargo coming from U.S. government. We are utilizing then the vessels for commercial cargoes, which have somewhat lower revenues than U.S. government cargoes. There was one effect this quarter that our stipend, because we run U.S.-flagged vessels, went up. That's a one-off effect and Bjørnar can cover more details on that later. Contracts, good quarter, again, not a massive quarter in terms of renewals.
We signed contracts for around $450 million. We are, as I said, sold out. When you look at this 2027 for shipping and you can see that we're still open 42%. That is only because we have a couple of big renewals coming up this year, and we are confident that we are able to renew those contracts. We have had them for ages, and they are fundamental contracts to us, and we are fundamental to our customers. This is just a normal renewal cycle that we see coming up for 2027. Last but not least, we are finally getting some of our new Shaper Class vessels coming out in terms of size, economy of scale, fuel, decarbonization. We believe this is the best the industry can offer at the moment.
The first Shaper vessel will come in around the summer this year. We have seven vessels coming with 9,300 capacity. Late next year, we will have the first big one, 11,700, coming out, which will be a new standard for the industry. We believe that will set the stage for even better economies of scale. Altogether, we are convinced that the Shaper program will improve our competitiveness and also add to our earnings. Progress is very good, quality is very good, and if anything, deliveries are ahead of schedule. Sustainability, we are doing well on safety KPIs, although a little bit of uptick in Q1 for Logistics Services.
That is due to weather-related slip, trip, and falls in the quarter, and also one accident where we were completely innocent, but we were actually hit by another car on the road that took the wrong turn. All in all, if you look at our safety statistics, we're doing well. On our emissions, we are somewhat improving, partly due to lower speeds, but also because we are implementing energy efficiency measures, and we are improving our green fuel amount. That's what I wanted to leave you with today. I've had the luxury of being in Asia a couple of times lately. I'm going back in two weeks. Sitting in Europe, and maybe even listening to the U.S., you could believe that the decarbonization journey is over. It's not. It's live.
When I meet customers in China, in Japan, in Korea, this is still on the agenda. Don't get mistaken. The climate issue is not solved. People believe companies are investing for the next five to 10 years for competitiveness. In China, they are really investing into the green transitions, and our customers are investing into the green transition. The left-hand side shows how much of our cargo are paying up our customer in volume, customers in measure of volume of cargo, are paying up for less emissions. When we came into 2026, 55% of the cargo volume we carried, customers paid extra for less emissions. Let's say typically 10% more for 20% less emissions.
When we leave this year, we have an ambition of 75%, and already in March, we got the report yesterday, we were at 70% of our volumes. So we are able to offer our customers what we our strategy, meaning that we want to offer low and no carbon solutions and make it available and make it affordable, and our customers are signing up. We believe this is a massive competitive advantage going into the next few years and certainly into the thirties, when we find effective ways together with customers to decarbonize, create competitive advantage for them and for us. With that, I'll hand it over to you, Bjørnar.
Thank you, Lasse, and good morning, every day, everyone. As you may recall, I started in the position 1 year ago. I have received zero congratulations, but I rather used the opportunity to do some reflection. Before I started, you know, a lot of players in this industry was really concerned about a couple of factors. Was this mountain of new vessels coming into the market with the big order book. We just had Liberation Day. What would happen to tariffs? Would demand go away? Then some were also concerned about [EUKOR] and that we had a put option on 20% of the shares in [EUKOR]. Where do we stand today? It's not that many today that are concerned about this mountain of an order book.
Lasse is actually concerned about capacity cost and that the time charter market is going up because the demand out of Asia is so strong. Tariffs has been introduced, but they have been introduced at a lower level than what we feared. As you have already heard from us, the [Hyundai Kia] put, we have at least sold for the next five years. I would say quite happy with the first year and where Wallenius Wilhelmsen stand today. Let's look at the quarter from a financial perspective. I would say it's another strong, solid quarter for Wallenius Wilhelmsen. We are delivering well in what is a continued challenging global economic environment, lastly, with the Middle East impacting over net bunker cost in the quarter and also in subsequent quarters. Starting to look at the revenues.
Revenues for the quarter are down 1% on seasonally softer volumes for the shipping side. That is normal. Partially offset by very strong volumes on the logistics side, where especially in the U.S., we are seeing that volumes and activity level is increasing. Adjusted EBITDA ended at $389 million, as you heard from Lasse , down 3%, mainly related to seasonally soft results from the shipping side, partially offset by improved results on the logistics side. We also have a couple of adjustments in the quarter versus then adjusted EBITDA and EBITDA, around $8 million. That is related to the cost leadership initiatives that we introduced in Q4 with digital transformation and that we're also taking some actions on the cost side. Looking at net profit.
Net profit for the quarter ended at $177 million, largely in line with the previous quarter, and as a consequence, also earnings per share, largely in line with the previous quarter at close to $0.40. Taxes in the quarter, $11 million, $8 million higher than the previous quarter. The reason for that is withholding taxes. As we took dividends from Ukraine, we need to pay some withholding tax for getting that funds from South Korea to Norway. In terms of financial expenses, stable at just south of $30 million. Net debt, $2 billion, up by $330 million. The simple explanation for that is that we paid a dividend of $428 million in the quarter. Moving over to the financial targets, which remains very solid compared to over threshold.
Return on capital employed, which is rolling 12 months, stands at 17.3%. If you look isolated for the quarter, it was a little bit below 15%. Equity ratio close to 40%. It's down 2% quarter-on-quarter due to the dividend payment. Leverage ratio just north of 1.2x. It's also up because we have increased the net debts and also the rolling 12 months EBITDA is slightly down as Q1 2026 was somewhat weaker than Q1 2025. Liquidity reserves, we are starting to rightsize the liquidity reserves. Going into this quarter, we had close to $2 billion.
We are now at $1.4 billion, with the two main drivers for the reduction being, one, the dividend payment, and secondly, that we have repaid $275 million of debt in the quarter, and that include an outstanding bond that was maturing in March that we decided not to refinance. Moving over to the shipping segment and going a little bit into the details. If you start with the revenues. Revenues are down by $30 million. You can split that in two. Net freight is down by around $20 million. That is explained by 4% lower volumes, partially offset by increased net freight rates.
As you have heard from Lasse, the increase in net freight rates, that is largely explained by a change in the trade and the customer mix, as the underlying price is slightly down following contract renewals at the end of last year. We also have a reduction in our BAF, Bunker Adjustment Fuel surcharges of around $10 million. Looking at adjusted EBITDA in the quarter and the $333 million, that is $20 million lower than the previous quarter. Let me take you through the bridge, which you can see. Net freight, minus $21 million, volume related, partially offset by improved rates. We have net bunker cost increase of $12 million. That is one part is due to the lower BAF.
In March, we got not a big hit, but somewhat of a hit of spiking fuel prices in March. That partially also impacted the results in March. Other voyage and cargo expenses, that is down $8 million. It's mainly related to lower volumes. Lower volumes mean less cargo expenses. Another factor actually in this number is also what we call space charter cost. We had to rely more on the space charter market in this quarter due to high volumes. We had to rent capacity with other carriers at a high cost. Let's move over to charter expenses. Charter expenses increased by $8 million a quarter, and you heard a lot about this from Lasse as well. This is also partially a technicality.
In Q4 and in, into early Q1 2026, we redelivered 4 long-term charters where the cost is taken below the EBITDA line, so IFRS 16 lease accounting, so it doesn't impact EBITDA. That was partially replaced by short-term charters where you take the cost above the line, negatively impacting EBITDA. What we used to have with long-term charters below the line replaced by short-term charters then above the line impacting EBITDA negatively. We also then, as mentioned, had to rely somewhat on the space charter market to cover that capacity, both of them negatively impacting EBITDA. This is more a mix effect than a negative effect on the totality. SG&A, it's a positive effect of $7 million.
The reason for that is that we made a material bonus accrual in Q4 last year, and we also had some year-end adjustment on the SG&A side. That's Shipping services, another solid quarter, although somewhat down quarter-on-quarter for reasons that I have explained. Let's touch a little bit about net bunker cost and how this affects Wallenius Wilhelmsen. First of all, we need to say that Wallenius Wilhelmsen is very well covered when it comes to fluctuations in fuel cost over time through what we call bunker adjustment factors in our customer contracts.
There is a time lag in these contracts of one to four months, and this varies from customer to customer, meaning that when prices go up, we take a hit, then we get normal recovery and prices stabilize, and then we take the benefit when prices go down, meaning that over time, we would say that we are fully covered. Let me illustrate this with an example. As you see on the chart here, if you look to 2022, when Russia invaded Ukraine, fuel prices were also spiking, as you can see with the red line. We took a hit, meaning increased net bunker cost in Q1 and Q2 2022. Our bunker adjustment factors kicked in in Q3 and Q4 2022, and we got increased recovery.
We also had an effect in Q1 2023 on the negative side because the bunker adjustment factors were then less beneficial, and then things started to normalize. This is the same we expect to see right now. Q1, we had a small hit. In Q2, we expect to have a substantial hit. Assuming that things start to normalize, or at least stabilize, we expect to then have positive recovery and lower costs going into Q3, Q4, and potentially also going into 2027. As Lasse said, this is mainly a periodization and timing effect, but it's expected to hit the results for Q2 and for 2026 as a whole compared to our expectations when we were standing here 11th of February. Moving over to logistics. As Lasse has already said, good quarter for logistics.
EBITDA of $42 million, up 50% quarter-on-quarter with revenue growth across several areas of the business. We also have rate increases in this business. Rates are actually going up in many areas. Significant efficiency gains, both on, you know, OpEx side, but also on the SG&A side. When we compare to last quarter, we also similar to the Shipping segment, we had some material bonus accruals and year-end adjustments for SG&A in Q4. This results. Let me take a step back. Last quarter, we shared with the market that we had ambitions to really turn around the Logistics business, and we were shooting for what we call a cash EBITDA of 10%. The result you are seeing here, that is a cash EBITDA of around 5%.
We are really happy with the result, we are really happy with the development, but our ambitions are higher, and that is what the entire team in logistics is working on as we speak. Moving over to government, a seasonally soft quarter. It's typically a seasonally soft quarter, except for last year where they had this extraordinary presidential cargo partially going into Ukraine. If you look quarter-on-quarter, relatively stable, it's up $1 million. The best way to explain the results in the Government segment is actually to look at the different revenue categories. What we're seeing is that the U.S. government revenues are going down. It's seasonality. There's also some softness in the market in Q1. That was partly replaced by commercial revenues, but with lower profitability.
We had a rather significant increase on this MSP, so the Maritime Security Program stipends. There are two effects here. In February this year, the U.S. authorities announced that the stipend per vessel per year would increase from $5.3 million to $6.5 million, dating back to October 1st, 2025. What you are seeing in Q1 2026 is then the increased stipend for Q1 retroactively also back to Q1 2025. You get an extra benefit in Q1 as it was dated back to last year where we were not able to take that increased MSP because it was announced in February. On the cost side, it's relatively stable. Moving over to cash flow and liquidity position.
Cash flow and liquidity position remains very strong, currently at $1.4 billion in total with cash of $900 million. Operating cash flow, $322 million. We have been proud to present a cash conversion of close to 100% on many, many quarters in a row. This quarter, we're actually only at 83%. The reason for that is also linked to the Middle East, where we have had a need to reduce risk by adding significant amounts of fuels on our vessels to ensure that if things get even worse, we would have the fuel available so that we can actually serve our customers.
We have more fuel on our vessels at a higher cost, and that is impacting our working capital and hence there's a negative impact on operating cash flow in the quarter and the cash conversion ratio. That is a temporary effect, we expect that to normalize in subsequent quarters. Looking at investing cash flow, $66 million, mainly related to installments on the new building program. We also started a construction phase for the Drammen processing center that will open in 2027 together with Bertel O. Steen. Financing cash flow, negative $439 million. That is mainly driven by the dividend payment of $427 million. We also, as already mentioned, had material debt repayments in the quarter, $275 million, with a big chunk of that being voluntarily.
That was partially funded by us temporarily drawing on credit facilities. Moving on to the balance sheet. Most has already been mentioned. Equity ratio now 40%, leverage ratio 1.2x, and then liquidity reserves at 1.4. All in all, we maintain a very strong balance sheet, and we have now started to right-size the liquidity position. Last but not least, let me cover the agreement we have reached with Hyundai Kia regarding the put call option. Most of us know, Hyundai Kia, they are our partner in EUKOR and our most important customer on the auto side. Hyundai Kia, they own 20% of EUKOR.
Hyundai Kia, they have a put option on that 20% stake, and we have a call option on that 20% stake. In April 2026, Wallenius Wilhelmsen and Hyundai Kia, we reached an agreement that the put and call option cannot be used during the current OCC program contract, or in new contracts as long as the share we are contracted to carry is 50% or higher. The current contract runs until end of 2029, and the date we have agreed that is the first exercise that date is January 1st, 2031, so meaning 12 months after the expiry of the current contract. If the new contract is renewed with 50% or more of the volumes, another 5 years will be added to that expiry date. This has impacts on the accounting treatment of the liability.
This is currently in Q1. It's treated as a current liability. This will now be treated as a long-term liability. The value of that, or you can say the amount for that liability, we'll assess based on the highest of two alternatives. It will either be the net present value of the forecasted taxable result for the years 2028, 2029 or 2030, or the forecasted net asset values at the end of 2030. It is a little somewhat complex to put an exact value on what will that actually be in five years. For that reason, we don't have an exact figure to share with you today. We will share that figure as part of our Q2 presentation results. It will be in the balance sheet.
What we can say today is that that amount will be significantly reduced compared to what the amount is on our balance sheet today, and it will also impact the equity ratio positively, but it will actually impact the return on capital employed negatively for accounting reasons. We are coming back to that as part of Q2. With that, Lasse, I hand it back to you.
Thank you, Bjørnar. Well done. Well explained. Some complex things to take us through. I will just very quickly say that the prospect for Wallenius Wilhelmsen are really strong. The demand is strong. We are sold out in shipping. We expect to be continued to be sold out in shipping. We expect the cost, fuel cost issues to be neutralized over time. What we thought would be maybe the issue going forward was a tight, a less tight market. We see a very tight market in shipping. We do see a improvement in logistics, both in demand, revenues, rates, and in our cost position. We had a soft start to the year in government, meaning that we believe that this year will end around $1.6 billion in adjusted EBITDA.
With that, I will hand it over to Anders and Anette and Bjørnar to join me for the Q&A. Thank you.
All right. Q&A. Once again, I remind you that, you know, if you have questions, please post them in the webcast. We can start, with a few questions, just, you know, Lasse, going back a little bit more than a year.
You know, what did you believe at that time, and what has been the biggest surprise compared to where we stand today?
Well, I must admit that as a shipping person for more or less my whole career, we're used to cyclicality. Two years ago, we were quite convinced that due to the new building order book and the massive amount of vessels coming, that we would see a softening in a year or two. I'm quite surprised that that has not happened, and I think I've never seen before a segment that's been able to accommodate a 40% more or less, growth in capacity without seeing reduced utilization of the fleet. This cycle and the strength of the market continues longer than we actually expected.
Although we made contracts and we were well covered, the strength of the market in the Shipping segment is amazing, and it is due to the unprecedented growth of exports out of China.
Yeah. Bjørnar.
Yes
We're one third into the year. We've adjusted our prospects a little bit. How confident are you that, you know, we're going to meet our targets?
Do you want that answer in decimals or?
Yeah. Decimals is good.
I think I would say three things. First of all, when we share our outlook, it's always based on no material adverse effect. Now we have Middle East, that changed the rules of the game. Secondly, I would say that the reason why we are reducing our forecast, that's not due to lower demand or lower utilization. It's due to higher cost, which we have explained. Thirdly, at all points in time, what we aim to share is, you know, our best estimate of what we believe the year will bring in terms of results.
Okay. Are there any questions in the audience? Last time I think I forgot all about that, so I'll take that first.
Not yet.
there seems to be no.
Yeah.
We'll take our first question is from Sondre at Nordea. In terms of contract renewals, you touched a little bit upon it, but we have around 40% coming up for next year.
Yes.
How can you split those and, you know, how where do you think that negotiations is going?
I would say that you can split it into two. We have two very big contracts coming up for renewal, one in the high and heavy segment and one in the auto segment. The high and heavy contract is with a long-term strategic customer of ours. They want and we want to conclude that contract, and that is progressing well, starting late this year. The other one with the auto customer, I will also believe that we have a unique product due to our size and coverage. We are both confident in both of those. The other part is related to growing volumes out of China and also renewal of contracts out of China.
I'm sure we could have doubled our volumes today out of China based on our fantastic presence and product there, but we don't have the capacity. I'm not concerned about our ability to fill the book for 2027. It's more a question of who do we prioritize.
Yeah. He also has a follow-up question. It's on China, really. You know, how is our customer relationship with our Chinese customers, and how is that differing from, you know, what we see towards our legacy customers?
I think what we see in China is natural in the phase that China is in, meaning that they are growing extremely fast. They don't know what the future and next quarter and next year brings. That means they've been rather transactional short-term when it comes to shipping. They are much more structural and strategic when it comes to what we call destination logistics. As we've shared earlier, we have, with the Chinese account, built up the complete distribution capability in Oceania with picking up the cars in the terminal, processing them, making them ready to deliver to you as a customer, bringing them out to the dealers, doing everything basically. This is something that's much more strategic for them now.
Our strategy with Chinese customers is really to use our global footprint, the fact that we can serve them and help them scale in destination markets, and use that also to have more long-term strategic relationships with them on shipping side. Right now, I would say that the rule of thumb, in China when they source shipping contracts is to typically do one year. Again, they are renewing with us and with their partners because they really need support.
Okay. Another question from Sondre was around our fleet strategy. Our average age is increasing, demand seems to be high.
Yes.
How do we care to approach that?
We are, we've been around for decades. When we think on fleet strategy, we think for decades. That's why we developed a Shaper program, because we believe we need to make vessels that are cost-effective and energy-effective and able to reach net zero over the next 10, 20 years. We have filled up with quite good, contract Well, fleet renewal now up until 2028. We are continuously looking at opportunities beyond that. We will continue to build vessels. We will renew our fleet. We will continue to build vessels that create competitive advantage, and we will continue to source vessels in the market from close partners, and we are doing that as we speak. We have a very long-term perspective on keeping our capacity and growing with our customers.
Okay. I have one for you, Bjørnar.
Cost pressure in Q1 from TC in vessels. Can we expect that to continue into Q2 and Q3?
Yeah. So what we are seeing is that the demand is so high, so we are in need of somewhat more capacity what we expected going into this year. The market is very tight, so the charter prices are high. We're also going to be space charter with our peers. The prices are going up. We are expecting that capacity costs going into 2026 or for the rest of 2026 will be somewhat higher than what we expected just going back three months.
Let me add to that. We're also expecting the freight rates will pick back up because these two factors are of course very closely linked. We're talking about the charter expense is both our need, that we have more volume than we thought, we need more help to carry it, and that the rates are going up somewhat. Not so materially that it's threatening our margins in any significant way.
Okay. On rates, Petter Haugen has a question. Last quarter, we, you know, disclosed that our average rate in our book of business on the shipping side was around $55. Whereabout is that now?
Uh, on the-
Average rate.
The Time Charter Equivalent.
The-
the daily rate?
no, the-
TC rate
rate per cubic meter was around $55.
I should have been able to take that off the top of my mind, but I can't. We'll look it up, and we'll make sure to send it to you, Petter.
All right.
Probably quite close.
Yeah, I think it's.
Yeah
Very close.
We can guess, but let's find the number. Yeah.
There is a question from Vegard. Do you see any positive effects of the recent trade agreements the U.S. signed with Mercosur, India and Australia?
Not really. I would say that both India and Australia are not typically sourcing areas for the U.S. Somewhat we see an increase in the global production output of high and heavy equipment in India, but still early days. The export out of the U.S. in terms of autos are soft, not very relevant. The high and heavy volumes are stable. I would say we have not seen that, and we don't expect to see it that much. Having said that, what we hear from more and more customers, in particular in the high and heavy segment, is that India is becoming an increasingly important global production hub. We are certainly keeping a good eye on India in terms of their exports of heavy equipment.
Okay. Another one for you, Bjørnar. Cash EBITDA of 10% in Logistics. When do we think we can come there, and do we do that organically or, you know, by M&A?
Yeah. We haven't set an exact date, but it's certainly not in 2026. We have, the way we think about is that we have now, let's say, two years to work hard on improving this, and then we have an ambition that when we enter 2028, we should have a materially higher margin in the business, and that is largely fixing what we have today, filling sites, being more cost-efficient, et cetera, et cetera. It's not about buying our way out of the problem, although we are always open for good investment opportunities on the logistics side.
Okay. Another logistics question. There are many operators that invest in multi-story facilities on their terminals. Are we planning to do such things?
We are doing such things. We, you can come to Drammen next year, or actually maybe start. We already starting. That is a multi-story facility, fully integrated with a with a vehicle processing center and a storage with multi-story. You might ask why is that relevant question. For sure, ideally would like to have big open spaces, put the cars where we want them and not drive them up and down in buildings. The world is such that most of these terminals sit in close to city centers, and that's why we need to be more efficient. We will have this in Drammen. We already have it in Southampton, and we have good experience with operating these kind of facilities.
All right. There seems to be no further questions. We'll pause a little bit just to make sure that there aren't any, you know, sitting in the queue. This is a final warning, if you have more questions, you know, you should post them now. I think there is none. You know, if there are additional questions, we'll answer them on email or other ways. I guess that ends it for today.
Thank you, and see you again after the second quarter.
Thank you.