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Wallenius Wilhelmsen

Quarterly Report Nov 2, 2022

3787_rns_2022-11-02_d2c15ec7-9bb7-408f-a9bd-b568bb07ae38.pdf

Quarterly Report

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Wallenius Wilhelmsen ASA

Investor Relations:

Anette Orsten [email protected] Anette Maltun Koefoed [email protected]

Media:

Highlights – Q3 2022

  • Revenue and EBITDA at all-time high, improving across all segments
  • Solid rates and fuel surcharges, combined with continued high utilization in Shipping
  • Solid financial position with net debt to adj. EBITDA at 2.3x
  • Xavier Leroi appointed new Chief Operating Officer of Shipping segment
  • Wenche Agerup appointed new Chief People Officer
  • No remaining anti-trust provisions after conclusion of last known customer settlement

"Our third quarter is the strongest on record. I am very happy to see improved performance across the Shipping, Logistics and Government segments.

We are still working hard on meeting growing customer demand in a time with limited shipping capacity and tough labor markets. I am proud of how our teams have shown resilience and flexibility in finding solutions for our customers.

Looking ahead, we expect a continued favorable supply-demand balance, but we closely follow the weakened macro-economic developments and the possible impact on our business."

Lasse Kristoffersen

CEO

Consolidated results and key figures – Q3 2022

The group delivered an all-time high EBITDA for the quarter, primarily driven by extraordinary results in shipping services, and improved revenues and margins in both logistics and government services.

USDm* Q3 2022 Q2 2022 % change
QoQ
Q3 2021 % change
YoY
Total revenue 1,356 1,190 14 % 990 37 %
EBITDA 440 311 41 % 223 97 %
EBIT 305 187 64 % 108 183%
Profit/(loss) for the period 246 126 96 % 6 5 277%
Earnings per Share 1 0.51 0.25 106 % 0.12 322%
Net interest-bearing debt 3,041 3,257 -7 % 3,403 -11 %
ROCE adjusted 2 11.6 % 8.9 % 3 % 3.8 % 8 %
Equity ratio 38.8 % 37.5 % 1 % 35.7 % 3 %
EBITDA adjusted 3 434 305 42 % 223 95 %

* Except per share and per cent

1. After tax and non-controlling interests

2. The calculation of ROCE has changed from prior periods to base the return on results for the last twelve months. Previously, returns were calculated as an annualized amount based on year-to-date results. Prior period figures have been updated on the same basis

3. Q3-22 EBITDA adjusted for the USD 6m reversal of remaining provision relating to customer claims (Q2-22 USD 6m gain on sale of vessel)

Consolidated results

Total revenues in Q3 were USD 1,356m, up 14% QoQ, with revenue growth in all segments. Compared to Q3-21, total revenue for the group was up 37%, with solid growth in all segments.

EBITDA for the quarter ended at USD 440m, up 41% QoQ. Adjusted EBITDA was USD 434, up 42% QoQ, excluding a USD 6m reversal in provisions for settlement of customer claims. The extremely strong performance in the shipping segment, with a QoQ EBITDA improvement of USD 105m, was the main contributor to the significant lift in the group results. High fuel surcharges boosted the results, with a net positive effect from fuel periodization of approximately USD 50m QoQ, while high freight rates, operational efficiency with lower voyage expenses per cbm, and the continued full utilization of our fleet also contributed to the strong performance. Logistics EBITDA increased by USD 12m QoQ on higher volumes and improved margins. In addition, government services EBITDA increased by USD 13m QoQ on higher volumes and improved margins.

EBITDA increased by 97% YoY, with adjusted EBITDA up 95%, again primarily driven by the growth in the shipping segment. Equally, both logistics and government services improved YoY.

Other gains in the quarter include a USD 2m change in value of the symmetric put/call option relating to the minority shareholding in EUKOR.

Net financial expense was USD 51m in Q3, compared to USD 58m in Q2, as unrealized gains on interest derivatives, increased interest income and net currency gains offset unrealized losses on currency derivatives and an increased interest expense. Interest expense including realized interest derivatives was USD 49m, USD 6m higher than the previous quarter. The unrealized gain on interest rate derivatives amounted to USD 33m in Q3. Net currency expense was USD 37m, with USD 55m in net unrealized losses on currency derivatives (largely USD NOK cross currency swaps related to bond debt issued in NOK and swapped to USD), partially offset by currency translation gains, both driven by the strengthened USD.

The group recorded a tax expense of USD 8m for Q3, compared to USD 4m in the second quarter.

The quarter ended with a net profit of USD 246m, up from USD 126m in Q2 and up from USD 65m in Q3- 21, due to improved operating results in all segments. USD 216m of the net profit is attributable to shareholders of Wallenius Wilhelmsen, while USD 30m of net profit is attributable to minority interests (primarily minority shareholder in EUKOR).

Capital and liquidity

Cash and cash equivalents were USD 1,063m, up USD 242m QoQ. Cash improved during Q3 on solid operational performance, net proceeds from refinancings and limited investments countered by increase in cash collateral related to currency swaps, increase in working capital and regular debt service for bank and lease debt.

In Q3, following settlement of the last customer claim, USD 38m of provisions were reclassified to current liabilities and the residual provision of USD 6m was reversed. The group paid USD 42m in customer settlements and jurisdictional fines during the quarter. At the end of Q3, USD 32m of current liabilities and zero provisions remain related to civil claims and customer settlements (see Note 12 – Provisions).

The net USD 14m of investment cash flow consisted of USD 11m of vessel maintenance capex, USD 10m relating to various logistics and intangible investments, USD 3m of proceeds from sale relating to a processing site move and USD 4m of interests received.

Financial cash flows include interest paid, scheduled debt and lease payments, as well as USD 101m of net proceeds from the new USD 800m facility and USD 15m of proceeds from a EUKOR vessel refinancing.

The company regularly issues NOK debt in the Norwegian bond market, with proceeds swapped into USD via cross-currency swaps at the time of each issue. If the USDNOK increases above certain thresholds from the rate at the time of issue, the company will need to post cash collateral with the counterparties based on the mark-to-market value above the threshold. The cash collateral is released back to the company if the USDNOK decreases. On September 30, the group had posted USD 42m in cash collateral relating to cross-currency swaps for the four outstanding NOK bonds. The cash collateral is registered as an Other current asset in the balance sheet.

In addition to the cash position, Wallenius Wilhelmsen had USD 377m in undrawn credit facilities. This figure has increased by USD 130m QoQ due to the new USD 800m secured fleet facility in WWO, which is available for general corporate purposes including newbuild investments.

The equity ratio was 38.8% at the end of Q3, up from 37.5% in Q2 as the group recorded a solid profit for the period. Net interest-bearing debt was USD 3,041m at the end of Q3, down from USD 3,257m in Q2, decreasing QoQ as the above-mentioned cash increase countered a slight increase in debt and lease liabilities due to the refinancing activities in Q3.

At the end of Q2, approximately 65% of interest-bearing debt had a fixed interest rate through interest hedges or through fixed rate agreements. On this basis, a 1% increase in interest rates is expected to lead to an increase of some USD 14m in interest cost per year.

Fleet

At the end of Q3, Wallenius Wilhelmsen controlled a fleet of 126 vessels, down from 128 vessels at the end of Q2. Short-term charters decreased, while long-term charters increased net by two vessels. One vessel on long-term charter was purchased in Q3, increasing owned vessels from 81 in Q2 to 82 in Q3. Two charter contracts remain up for renewal in 2022. The decision to extend or redeliver the charters will be dependent on the overall market situation, including price of charters, demand growth and the longterm fleet strategy.

Events after the balance sheet date

On October 12, the company repaid the NOK 201.5m outstanding under the WALWIL01 bond at maturity with a cash effect of USD 26m.

In October, Xavier Leroi was announced as the new EVP & COO of shipping services. He has more than 25 years of experience with Wallenius Wilhelmsen and comes from the role of Chief Customer Officer. Xavier will commence his new role on November 1. In other management news, Wenche Agerup was in September announced as the new Chief People Officer. She has broad international leadership, compliance, and HR experience, most recently with Telenor in Asia.

Shipping services

Shipping services delivered its best quarter ever as volumes remained high in a fully utilized fleet, while revenues and margins were boosted by fuel surcharges, as well as positive trade mix development.

USDm* Q3 2022 Q2 2022 % change
QoQ
Q3 2021
Total revenue 1,079 968 11 % 787 37 %
EBITDA 385 280 38 % 195 97 %
EBIT 286 191 50 % 114 150 %
Volume ('000 CBM) 1 16,186 15,647 3 % 14,549 11 %
H&H Share 2 31 % 32 % -3 % 34 % -9 %
EBITDA adjusted 3 379 280 35 % 195 94 %
EBITDA adjusted margin 35.1 % 28.9 % 6.2 % 24.8 % 10.3 %

* Except per cent

1. Prorated cubic meters ("cbm"). Historical volume figures subject to change as figures are based on estimates and prorating

2. Based on unprorated volumes

3. Q3-22 EBITDA adjustment relates to reversal of antitrust provision

Shipping services – Total revenue and EBITDA

The shipping services segment is engaged in ocean transportation of vehicles and RoRo cargo. Its main customers are global car manufacturers as well as manufacturers of construction and other high&heavy equipment, in addition to select industrial break-bulk cargo.

Shipping services have delivered strong results since the middle of 2021 following several years of weak markets and fleet oversupply. The reason for the improvement in the last year is mostly related to the very tight global RoRo fleet situation exacerbated by supply chain challenges, despite low global light vehicle sales numbers. Global congestion issues continue to create challenges for Wallenius Wilhelmsen and our customers. Renegotiation of customer contracts to more sustainable rate levels, a good trade route mix development with strong exports from Asia, very high utilization of the fleet and solid maintained high&heavy volumes contribute to the increase in revenue and margins. Q3 was the strongest quarter the segment has experienced historically. Looking ahead, as mentioned in the Prospects statement below, we continue to expect increasing light vehicle sales in 2023, despite a shift from supply driven constraints to a softening of demand. We further expect the fleet supply side to remain constrained during 2023.

Total revenues were USD 1,079m in Q3, up 11% QoQ on a positive development in total carried volumes and an increase in fuel surcharges. Shipping volumes increased by 3% QoQ due to network optimization and trade mix.

Net freight rate in Q3 was USD 52.8 per cbm, up from USD 51.4 per cbm in Q2, mainly on trade mix development. Cargo mix was 31% in Q3, down from 32% in Q2. Volumes out of Asia grew in Q3, particularly in Asia to Europe and Africa trades, while exports out of Europe and US saw a decline due to tonnage allocation, causing trade mix to shift and increasing average net freight rates. Contract renewals already had positive effects on the net freight rate and continued into Q3.

The semiconductor shortage continued to be a challenge for the industry but eased in Q3 compared to Q2. Further, operational disruptions and port congestion in several central ports around the world continued to be a challenge in Q3 due to labor shortages in ports and general bottlenecks in the logistics supply chain. Consequently, waiting times at key ports created challenges for Wallenius Wilhelmsen and our customers throughout the quarter. We are doing our best to mitigate these challenges by having a continuous dialogue with our customers and re-routing to other ports with less congestion whenever and wherever possible.

EBITDA was USD 385m, up 38% QoQ, while adjusted EBITDA was USD 379m, up 35% QoQ. The adjusted EBITDA margin was 35%, increased from 29% in Q2.

Total revenues increased QoQ due to higher carried volumes, and increased rates paid by customers. The rate increase was driven by both increased net freight rates and more importantly, increased fuel adjustment factor (FAF). Net freight was up by USD 51m and fuel surcharge revenue under FAFs grew with USD 75m QoQ countered by a USD 26m increase in fuel expenses. The surge in fuel surcharge revenues was driven by all-time high VLSFO prices in Q2, which then fell in Q3. As noted previously, in periods of falling fuel prices, fuel surcharge revenue will develop favorably compared to fuel costs. Conversely, in periods of rising fuel prices the opposite will be the case. Due to the lag effect on FAF calculation, fuel surcharge revenue is expected to drop in subsequent quarters as fuel prices decreased during Q31.

Voyage expenses were stable during the quarter due to increased operational efficiencies despite the increase in carried volumes. Charter expenses decreased during Q3 despite continued high charter rates in the market, due to a decline in short-term charter activity. The tonnage situation remains tight as port congestion continues to be challenging. As at the end of Q3, some 10% of capacity was tied up in congestion. Ship operating expenses and SG&A remained relatively stable QoQ. Adjusted EBITDA was USD 6m lower than EBITDA due to reversal of customer claims provision in Q3.

The market recovery is the key driver for the changes YoY. Revenues increased by 37% from Q3-21, due to strong development in net freight rates, growth in volumes and higher fuel surcharges. Adjusted EBITDA improved by 94% YoY, driven by a relatively higher increase in revenues versus expenses.


1FAF (fuel adjustment factor) is a main mechanism to manage fuel price risk in the segment and the main contributor to fuel surcharges revenue. However, the segment has a short-term exposure to the fuel prices since FAF is calculated based on the average fuel price over a historical period and then fixed during an application period, creating a lag effect. As such, in periods of rising fuel prices the segment will not be able to recoup the higher prices through the FAF. Conversely, in periods of falling fuel prices the segment will benefit from higher FAF

Logistics services

All Logistics services product areas saw revenue and EBITDA growth compared to the previous quarter, driven by higher volumes and increased accessorization.

USDm* Q3 2022 Q2 2022 Q3 2021 % change
YoY
Total revenue 231 208 11 % 184 25 %
EBITDA 3 0 1 8 62 % 2 1 41 %
EBIT 5 (6) n.a. - 4 n.a.
EBITDA adjusted 3 0 1 8 62 % 2 1 41 %
EBITDA adjusted margin 12.8 % 8.8 % 4 % 11.4 % 1 %
EBITDA by product
Auto 5 1 301 % 6 -13 %
H&H 7 3 154 % 3 123 %
Terminals 1 6 1 3 21 % 1 1 36 %
Inland 5 4 17 % 4 27 %
Other (3) (3) 10 % (3) -4 %

* Except per cent

Logistics services - Total revenue and EBITDA

Logistics services serve mainly the same customer groups as shipping services. Customers operating globally are offered sophisticated services such as vehicle processing centers, equipment processing centers, inland distribution networks and terminals.

In Q3, logistics services saw improving revenue and margins after a challenging 12-month period as parts' shortages were easing. The segment quickly rebounded in the end of 2020 after the initial pandemic lockdowns, but from Q3-21, semiconductor chip shortages, labor shortages and global supply-chain issues significantly impacted production volumes for the customers despite solid underlying demand for light vehicles. Historically the largest earner in the segment, the light vehicle processing services (Auto), has been the most impacted by these supply issues. Terminals continue to experience solid results as their activity generally reflects the same drivers as the shipping segment. Looking ahead, we expect continued easing of part shortages to improve the supply of light vehicles and normalizing Auto earnings going forward, while access to labor remains a challenge and demand for light vehicles might be impacted by the increasing economic headwinds.

Q3 revenues for the segment were USD 231m, up 11% QoQ. Volume development for all products was positive for the quarter but most significant in Auto and H&H products.

Q3 EBITDA was USD 30m, up 62% QoQ as all products performed well, mainly driven by significant improvement in Auto & H&H in the US, plus overall strong performance from Terminals, shifting the balance to higher margin business.

Autos is the largest product group in the logistics portfolio, providing light vehicle processing services to auto producers globally with the largest concentration in North America. QoQ, volume increased 14% in the US, overall revenue increased 21% and EBITDA increased 301% as a result of increased volume and accessorization from the main customers, specifically in the US.

H&H includes equipment processing centers on and off port sites globally with the largest concentration in the US. QoQ revenue increased 20%, mainly due to strong volume and fumigation seasonality in China, strong processing, accessorization and storage in the US and strong volume in Australia from existing and new business. EBITDA increased 154% QoQ directly related to increased revenue and efficiencies, improving margins.

Inland includes the global transportation of cargo by road or rail to a port or final point of sale. QoQ revenue slightly increased 1%, primarily due to stronger volume in the US and Asia, while Europe was overall negatively impacted by lower volumes from key customers. EBITDA increased 17% QoQ with improved fuel cost in the US and improved margins in select European sites.

Terminals offer our cargo processing, handling and storage at some of the world's largest RoRo ports. Revenue increased 2% QoQ, mainly due to increased vessel calls in Australia after the release of the China lockdown and increased volume in Asia, partially offset by lower volume in Europe. EBITDA increased 21% as a result of increased revenue in Australia and fumigation seasonality.

YoY, revenues increased by 25% with all products positively contributing, with the most significant increases coming from Auto with increased volume and accessorization. H&H saw increased volume and storage in US and strong volumes in China. YoY, EBITDA increased 40%, mainly due to H&H US and Australia as a result of strong revenue, Terminals saw increases in volumes and in value added services.

Government services

USDm* Q3 2022 Q2 2022 % change
QoQ
Q3 2021 % change
YoY
Total revenue 9 1 6 5 41 % 6 1 50 %
EBITDA 2 8 1 5 86 % 1 1 145 %
EBIT 1 7 4 321 % 2 661 %
EBITDA adjusted ¹ 2 8 9 204 % 1 1 145 %
EBITDA adjusted margin 30.8 % 14.3 % 17 % 18.8 % 12 %

Government services revenue and EBITDA improved QoQ due to increased U.S. flag cargo volumes.

* Except per cent

1. In Q2 EBITDA was adjusted USD 6m for the gain on sale of a vessel.

Government services - Total revenue and EBITDA

The Government services segment provides ocean transport of RoRo cargo, breakbulk and vehicles. The segment also performs logistics services primarily related to multimodal transportation, stevedoring and terminal operations. The primary customer is the U.S. government, but the segment also includes commercial cargos such as those generated by the financial sponsorship of a federal program, or a guarantee provided by the U.S. government. In the segment, contract duration can vary from less than one year up to ten years. Segment revenue and EBITDA is primarily driven by government activities which are in part driven by world events and government objectives and does not necessarily follow regular seasonal patterns or quarterly trends.

Prior to this quarter, Government services had relatively stable revenues with margin pressure from inflation and Covid-19 related costs. As the United States and NATO respond to the Russian invasion of Ukraine, we have experienced increased U.S. flag cargo activity. The Ukraine situation combined with the summer peak period enabled the segment to deliver strong results in Q3. Looking ahead, the development of the war in Ukraine and other geopolitical tensions will impact the demand for government services.

Total revenues in Q3 were USD 91m, up 41% QoQ. Increased U.S. flag cargo in part due to the U.S. and NATO response to the Russian invasion of Ukraine was the key driver during the quarter along with the summer peak government moving season and higher levels of U.S. flag civilian agency project cargoes.

EBITDA ended at USD 28m, up 86% QoQ. Increased mix of higher margin U.S. flag military cargo noted above, and government charters helped improve profitability QoQ.

Revenue was up 50% YoY on increased U.S. flag cargo, and EBITDA was up 145% YoY, again due to increased U.S. flag cargo, partially offset by higher cargo and vessel related costs.

Market update

Automotive sales developed positively in Q3 and increased 9.8% QoQ and 9.6% YoY, driven by robust growth in China. The semiconductor shortage situation is gradually improving. Global High & heavy exports increased further from last year's high base to reach another all-time high.

From the start of the year and until the end of Q3 the global activity levels have come down. At present, S&P Global is projecting growth for the global economy of 2.8% YoY in 2022, compared with a forecasted 4.2% at the beginning of the year. As a base case, most forecasters still expect the economy to expand, albeit at a slowing pace, over the next 18 months. Further, GDP growth prospects for 2023 have been adjusted down to 1.4% including several quarters of GDP decline in US and Western Europe in the base forecast. The current headwind in the global economy has increased the probability of a broader recession.

Accepting that high inflation will not go away quickly, the world's major central banks are toughening their policies. We observe major interest rate increases and a clearer resolve to restrain actual and expected inflation, despite the unfortunate economic consequences. The bolder rhetoric and policy actions have unsettled financial markets, driving up term yields and risk spreads. In turn, equity prices have fallen. Light vehicle sales are already at low levels but resilient as there is still pent-up demand and a need for rebuilding inventories. However, should the economy develop weaker than expected the industry will be affected.

Auto markets

Global light vehicle ("LV") sales include all passenger cars, SUVs, MPVs and light commercial vehicles. Sales1 in Q3 were up 9.8% QoQ and 9.6% YoY as Chinese sales rebounded. LV sales and production continued to be held back by disruptions in the automotive supply chain, particularly in Europe and North America. The semiconductor shortage has led to low but slightly increasing vehicle inventories. Compared to sales in the same pre-Covid-19 quarter in 2019, sales were down 7.9%. The strong demand side is moderating as consumers see a downside in increased inflation, higher interest rates and lower disposable income. However, OEMs report inventories at low levels and continuing significant order backlogs. Easing of lockdowns and new incentives contributed to a robust rebound in the Chinese LV market. Shortages of semiconductor chips have gradually improved, and this positive momentum is expected to continue. Continued sales growth in auto markets is in addition to stabilization in the global economy dependent on higher production volumes as inventories run low. Incentives in the LV sector globally have resulted in a sales mix with an enhanced focus on low emission vehicles.


1 S&P Global

North American sales edged up 0.6% YoY (-1.7% QoQ). Despite the uncertainty in the economy, pent-up demand and household savings contribute to solid underlying demand which is not fully reflected in high sales as production continues to a certain degree to be is hampered by semiconductor shortages. Original equipment manufacturers ("OEMs") prioritize the most profitable models. Average transaction prices are high, inventories are relatively low and retail sales performed better than fleet sales in the US.

Sales in Europe declined 4.0% YoY and 0.5% QoQ as vehicle production was held back by issues in the supply chain (including the semiconductor shortage) and moderating consumer sentiments. Governmental subsidies continue, mostly focused on low-emission vehicles generally and Battery Electric Vehicles (BEVs) specifically. The war in Ukraine is leading to some inbound supply chain issues for the OEMs, including shortage of wiring looms and some OEMs suggest uncertainty on energy supply might lead to reduced production.

The rebound after the Covid-19 related lockdowns influenced both LV production and sales positively in China, and sales were up a robust 22.7% YoY and 30.2% QoQ. The government put in place various stimulus measures to improve LV sales including reduced purchasing tax. In addition, several cities and provinces introduced local incentives.

Global deep-sea exports recorded the best quarter since Q3 last year. Volumes were up 5.8% QoQ and down 3.9% YoY as semiconductor shortage held back LV production and export. The high retail prices also leave some potential buyers reluctant to order a new vehicle. Exports out of North America were down 8.1% YoY (up 17.7% QoQ). European exports were up 1.5% YoY, up 9.1% QoQ. Japanese exports declined 17.7% YoY, up 7.7% QoQ, with main volumes exported to North America and Europe. Exports out of South Korea declined 2.7% YoY, up 1.8% QoQ. Chinese exports were up 15.7% YoY, down 13.0% QoQ.

Our shipping volumes continued to develop more positively than market volumes as we were present in more favorable trades and as our customers perform better than the overall market.

High and heavy markets

High & Heavy exports continued to break records in Q3 – with volume growth accelerating to 13.5% compared to the same period last year1.

Exports of construction equipment increased 16.4% YoY to another all-time high as volumes increased to all market regions. Meanwhile, construction activity2 in key markets slowed compared to last quarter. The downturn in Eurozone construction activity extended to five months in September, with a broad decline across construction sectors. U.S. construction spending posted the biggest drop since early 2021 as residential outlays declined sharply in both July and August. Australian construction activity declined across the sector for the fourth straight month in September, with residential activity contracting steeply.

Global mining equipment markets continued to grow in Q3, with equipment manufacturers reporting growing sales in key markets. Despite a steep pullback in metal and mineral prices, miners continue to generate some of their strongest profits on record. Miner investment plans remain unscathed by the market turmoil with capital budgets well above pre-pandemic levels.

Global exports of farm machinery increased 2.7% compared to the same period last year. Farmers continue to enjoy historically high revenue despite the decline in commodity prices, but farmer margins remain under pressure from rising input costs (e.g., fertilizers). Demand for tractors from end-users was mixed around the world in this quarter3. Growth in U.S. high-horsepower tractor sales accelerated to 10.6% YoY, and Australian large tractor sales are on track for another record year after increasing 13.0% YoY. German registrations held steady at 0.1% YoY, while the UK market recorded its third consecutive quarter of decline with registrations 4.3% lower than last year.

Global fleet

The global car carrier fleet4 (with size >1,000 car equivalent units, "CEU") totaled 699 vessels with a capacity of 3.93m CEU at the end of Q3. No new vessels were delivered and no vessels were recycled during Q3. 9 new orders were confirmed for the official orderbook in the period (for vessels >4,000 CEU). The orderbook for deep-sea vehicle carriers (>4,000 CEU) stands at 84 vessels, representing some 14% of the global fleet capacity. 11 newbuildings is expected to be delivered in 2023, and the rest in 2024 or beyond. The RoRo

market is expected to be at a high utilization rate next year due to the significant recycling of 23 vessels in 2020, limited new capacity in 2023, in addition to supply chain issues such as congestion.


1 Source(s): S&P Global. All import/export data refer to the three-month rolling period ending in August 2022 unless otherwise specified and are limited to countries that have reported data per October 25th, 2022

2 Source(s): S&P Global, U.S. Bureau of Census, Ai Group, Eurostat

3Source(s): AEM, TMA, AEA and VDMA. High-Horsepower tractor sales/registrations

4 S&P Global / Clarksons

Sustainability

In Q3 we became the first global shipping company to adopt a fully AI-based approach to voyage optimization, with a fuel and emissions savings potential of up to 10%.

People

There has been a continued effort to protect our seafarers from Covid-19. In close cooperation with our ship managers, we have achieved close to full rate of vaccination of our crew. All seafarers have been offered a 3rd booster shot.

The lost time injuries frequency (LTIF)1 for shipping and government services remain low and below our target of <1 at 0.67 in Q3. Although we have achieved improvements over the years, the LTIF2 in logistics remains higher than our 2022 target of <14.5. The increase in LTIF from 15.68 in Q2-22 to 17.54 in Q3 reflects a 14.6% increase in the number of LTIs compared to the last quarter. This increase is in large parts due to an influx of new personnel to several facilities. No serious injuries were reported in Q3, and most LTIs were related to ergonomics, such as muscle strains.

There is a negative trend on safety performance YoY in Logistics, and it remains a priority for the company to reverse this development.

In September, the operations in Zeebrugge successfully completed their first RoRo Rodeo, a regular knowledge-sharing event arranged by Wallenius Wilhelmsen at several US sites since 1996. The focus of the two-day event at Zeebrugge was to upskill the European operations teams in cargo securing techniques, ergonomic safety, and damage prevention. Experts from our customers brought their vehicles and machinery and demonstrated how to operate them in the safest and most efficient manner. In total, more than 300 people received training over the two days.

Planet

As a leading provider of logistics services, both on land and at sea, we work to reduce our environmental impact. To further align with the Paris Agreement, Wallenius Wilhelmsen committed to a carbon intensity target which was approved by our board. Our target is to reduce our carbon intensity by 27.5% from 2019 to 2030.


1 Per million exposure hours, which for our crew means 24 hours a day while at sea, including free time

2 Per million man-hours, reflects actual hours worked

Carbon intensity decreased 1%, measured in grams of CO2 emitted per tonne kilometer, compared to Q2- 22. Total CO2 emitted for Q3-22 increased by about 4% compared to the previous quarter, while the corresponding cargo work done increased by about 5% measured in tonne-kilometers. The high activity in the shipping segment, in addition to port congestion over the last year led to higher speed and thus increased fuel consumption. This has caused an overall increase in CO2 emissions and intensity throughout 2021 and 2022 and will make it more challenging to reach the interim CO2-intensity target for 2022.

Wallenius Wilhelmsen is the first global shipping company to adopt a fully AI-based approach to voyage optimization. Having implemented livestreaming of vital data onboard 65 vessels, this new approach will help reduce fuel consumption by up to 10 percent. By sourcing the data through the cloud and running it through a complex mathematical model and the DeepSea AI system we can ultimately provide the vessel captain with detailed instructions regarding optimal route and vessel speed. This will in turn reduce fuel consumption, corresponding CO2 emissions, and increase safety.

In Q3 Wallenius Wilhelmsen, in partnership with our ship managers, included a new fixed routing for all our vessels to avoid disturbing blue whales at know feeding grounds on the southern tip of Sri Lanka. In addition, we have for some time cooperated with Wilhelmsen Ship Management on a pilot to collect, reuse or repurpose expired mooring ropes. Such ropes are made from virgin plastics, and thus far retired ropes are sent to incineration, or end up at landfills. The goal is to build a functional and circular value chain for mooring ropes, and as such reduce use of virgin raw materials and minimize the amount of waste.

Prosperity

Our focus is to create long-term financial value whilst contributing to local and global economic, environmental, and social progress. By solving some of our industry's greatest challenges, we create prosperity for our employees, customers, and partners. We have identified our main contributions to Prosperity to be a focus on innovation, quality of service, promote sustainable consumption of our own services, rigorous supply chain management and responsible tax practices.

Principles of governance

Wallenius Wilhelmsen adheres to good corporate governance standards to realize our strategy to deliver long-term prosperity for our shareholders and other stakeholders.

Prospects

We continue to expect the supply-demand balance in shipping to remain favorable during 2023 due to the overall global fleet situation.

We continue to expect increasing light vehicle sales in 2023, despite a shift from supply driven constraints to a softening of demand. Production, inventory, and sales levels of light vehicles are already constrained, providing support for continued volume growth despite reduced demand.

We see some weakening in the sentiment for H&H equipment due to the macro environment. However, volumes remain at all-time high levels.

The expected sales development of light vehicles and H&H equipment is supportive to both the shipping and logistics segments.

Potential risks include demand destruction from a deeper than expected economic recession, further disruptions to the global supply chains, labor cost and availability, and further escalation of geopolitical tensions.

Overall, we expect to further strengthen our financial position and drive shareholder value creation.

Lysaker, November 2, 2022

The board of directors of Wallenius Wilhelmsen ASA

Rune Bjerke – Chair

Margareta Alestig Anna Felländer Thomas Wilhelmsen Hans Åkervall Yngvil Eriksson Åsheim

Forward-looking statements presented in this report are based on various assumptions. The assumptions were reasonable when made but are inherently subject to uncertainties and contingencies that are difficult or impossible to predict. Wallenius Wilhelmsen ASA cannot give assurances that expectations regarding the outlook will be achieved or accomplished.

Consolidated income statement

USD million Notes Q3 2022 Q3 2021 YTD 2022 YTD 2021 2021
Total revenue 3 1,356 990 3,695 2,806 3,884
Operating expenses 3, 7 (916) (767) (2,635) (2,282) (3,054)
Operating profit before depreciation, amortization and
impairment (EBITDA) 440 223 1,060 524 830
Other gain/(loss) 2 2 4 7 (2) 21
Depreciation and amortization 4, 5, 6 (137) (119) (397) (350) (483)
(Impairment)/reversal of impairment 4, 5, 6 - 0 - 14 (62)
Operating profit/(loss) (EBIT) 305 108 669 185 306
Share of profit/(loss) from joint ventures and associates 0 0 2 1 1
Interest income and other financial items 58 7 179 51 95
Interest expenses and other financial expenses (110) (49) (285) (152) (203)
Financial items - net 8 (51) (42) (106) (101) (108)
Profit/(loss) before tax 254 66 564 85 199
Tax income/(expense) 10 (8) (1) (16) (7) (23)
Profit/(loss) for the period 246 65 549 78 177
Profit/(loss) for the period attributable to:
Owners of the parent 216 51 476 57 133
Non-controlling interests 30 14 72 22 43
Basic and diluted earnings per share (USD) 9 0.51 0.12 1.13 0.13 0.32

Consolidated statement of comprehensive income

USD million Q3 2022 Q3 2021 YTD 2022 YTD 2021 2021
Profit/(loss) for the period 246 65 549 78 177
Other comprehensive income/(loss):
Items that may subsequently be reclassified to the income statement
Currency translation adjustment (10) (3) (18) (5) (6)
Items that will not be reclassified to the income statement
Changes in the fair value of equity investments designated
at fair value through other comprehensive income - 3 22
Remeasurement pension liabilities, net of tax - - - - 3
Other comprehensive income/(loss), net of tax (10) (3) (15) (5) 19
Total comprehensive income/(loss) for the period 236 62 534 74 196
Total comprehensive income/(loss) attributable to:
Owners of the parent 207 48 463 52 149
Non-controlling interests 29 14 70 21 47
Total comprehensive income/(loss) for the period 236 62 534 74 196

Consolidated balance sheet

USD million Notes Sep 30, 2022 Sep 30, 2021 Dec 31, 2021
Assets
Non-current assets
Deferred tax assets 10 62 86 71
Goodwill and other intangible assets 4 429 542 455
Vessels and other tangible assets 5 3,917 4,051 4,033
Right-of-use assets 6 1,545 1,417 1,507
Other non-current assets 2 308 190 249
Total non-current assets 6,262 6,285 6,315
Current assets
Fuel/lube oil 167 103 147
Trade receivables 626 385 457
Other current assets 276 147 144
Cash and cash equivalents 1,063 587 710
Assets held for sale 7 - - 21
Total current assets 2,131 1,222 1,479
Total assets 8,393 7,507 7,794
Equity and liabilities
Equity
Share capital 9 28 28 28
Retained earnings and other reserves 2,909 2,415 2,511
Total equity attributable to owners of the parent 2,937 2,443 2,539
Non-controlling interests 316 240 266
Total equity 3,252 2,683 2,804
Non-current liabilities
Pension liabilities 46 66 55
Deferred tax liabilities 10 71 76 82
Non-current interest-bearing debt 11 1,957 2,265 2,158
Non-current lease liabilities 11 1,228 1,170 1,218
Non-current provisions 12 - 4 16
Other non-current liabilities 140 101 68
Total non-current liabilities 3,443 3,683 3,596
Current liabilities
Trade payables 121 112 154
Current interest-bearing debt 11 638 349 515
Current lease liabilities 11 281 205 238
Current income tax liabilities 10 10 5 4
Current provisions 12 - 117 28
Other current liabilities 647 352 455
Total current liabilities 1,698 1,141 1,395
Total equity and liabilities 8,393 7,507 7,794

Consolidated cash flow statement

USD million Notes Q3 2022 Q3 2021 YTD 2022 YTD 2021 2021
Cash flow from operating activities
Profit before tax 254 66 564 85 199
Financial (income)/expenses 51 42 106 101 108
Share of net (income)/loss from joint ventures and associates (0) (0) (2) (1) (1)
Depreciation and amortization 4, 5, 6 137 119 397 350 483
Impairment/(reversal of impairment) - (0) - (14) 62
(Gain)/loss on sale of tangible assets 0 (2) (14) (2) (0)
Change in net pension assets/liabilities (3) (6) (9) (2) (8)
Change in derivative financial assets 2 (2) (4) (7) 2 (21)
Net change in other assets/liabilities (100) (47) (266) (114) (173)
Tax (paid)/received (6) (2) (13) (12) (24)
Net cash flow provided by operating activities1 332 166 757 395 623
Cash flow from investing activities
Dividend received from joint ventures and associates 0 - 0 0 0
Proceeds from sale of tangible assets 3 1 45 5 5
Investments in vessels, other tangible and intangible assets (21) (29) (65) (68) (141)
Investments in subsidiaries, net of cash acquired - - (10) -
Investments in joint ventures - - - (8) -
Investments in financial investments - - - - (7)
Interest received 4 0 6 1 2
Net cash flow provided by/(used in) investing activities (14) (28) (24) (70) (140)
Cash flow from financing activities
Proceeds from loans and bonds 685 174 1,005 287 474
Repayment of loans and bonds 11 (599) (194) (963) (400) (531)
Repayment of lease liabilities 11 (69) (54) (189) (148) (204)
Interest paid including interest derivatives (49) (40) (136) (128) (165)
Realized other derivatives (2) (1) (5) 2 7
Changes in cash collateral 8 (42) - (42) - -
Dividend to non-controlling interests (1) (2) (13) (6) (8)
Dividend to shareholders 9 - - (38) -
Net cash flow used in financing activities (77) (117) (380) (393) (427)
Net increase/(decrease) in cash and cash equivalents 241 21 353 (68) 56
Cash and cash equivalents at beginning of period 821 566 710 654 654
Cash and cash equivalents at end of period1 1,063 587 1,063 587 710

1 The group is located and operating world-wide and every entity has several bank accounts in different currencies. Unrealized currency effects are included in net cash provided by operating activities.

Consolidated statement of changes in equity

Retained
earnings Non
Share Own Total paid and other controlling
USD million Note capital shares in capital reserves Total interests Total equity
2022
Balance at December 31, 2021 28 (0) 28 2,511 2,539 266 2,804
Profit for the period - - - 476 476 72 549
Other comprehensive income - - - (13) (13) (2) (15)
Total comprehensive income - - - 463 463 70 534
Sale of own shares - 0 0 1 1 - 1
Acquisition of non-controlling interest 13 - - - (3) (3) (7) (10)
Dividend to owners of the parent 9 - - - (63) (63) - (63)
Dividend to non-controlling interests - - - - - (13) (13)
Balance at September 30, 2022 28 (0) 28 2,909 2,937 316 3,252
Retained
earnings Non
Share Own Total paid and other controlling
USD million Capital shares in capital reserves Total interests Total equity
2021
Balance at December 31, 2020 28 (0) 28 2,363 2,391 224 2,615
Profit for the period - - - 57 57 22 78
Other comprehensive income - - - (4) (4) (0) (5)
Total comprehensive income - - - 52 52 21 74
Sale of own shares - - - - - - -
Dividend to non-controlling interests - - - - - (6) (6)
Balance September 30, 2021 28 (0) 28 2,415 2,443 240 2,683
Retained
earnings Non
Share Own Total paid and other controlling
USD million Capital shares in capital reserves Total interests Total equity
2021
Balance at December 31, 2020 28 (0) 28 2,363 2,391 224 2,615
Profit for the period - - - 133 133 43 177
Other comprehensive income - - - 16 16 3 19
Total comprehensive income - - - 149 149 47 196
Sale of own shares - 0 0 0 0 - 0
Change in non-controlling interests - - - (1) (1) 3 1
Dividend to non-controlling interests - - - - - (8) (8)
Balance at December 31, 2021 28 (0) 28 2,511 2,539 266 2,804

Note 1. Accounting Principles

This consolidated interim financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The consolidated interim financial reporting should be read in conjunction with the annual financial statements for the year end December 31, 2021 for Wallenius Wilhelmsen ASA group (the group), which have been prepared in accordance with IFRSs endorsed by the EU.

The accounting policies implemented are consistent with those of the annual financial statements for the group for the year end December 31, 2021.

Use of judgements and estimates

In preparing these interim financial statements, management has made judgements and estimates that affect the

application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The effect of a change in an accounting estimate is recognized in profit or loss in the period in which the estimate is revised or in the period of the revision and future periods if the change affects both.

The significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements.

As a result of rounding amounts to the nearest million, totals presented may deviate from the sum of individual amounts.

Note 2. Other gain/(loss)

Non-controlling shareholders in EUKOR hold a put option for their 20% interest, pursuant to the shareholder agreement entered into in 2002. The shareholder agreement also contains a symmetrical call option held by the group.

The symmetrical put and call option options are recognized as one integrated derivative financial instrument. The derivative financial instrument is recognized as a non-current asset when the options are exercisable and the fair value of the non-controlling interest exceeds the value of the exercise price for the symmetrical put and call option.

During the third quarter of 2022, the change in the value of the derivative was USD 2 million recognized as a gain within Other gain/(loss) in the income statement. The gain for the

nine months ended September 30, 2022 is USD 7 million. Comparatively, the change in value during the first three quarters of 2021 resulted in a loss of USD 2 million.

Key elements in calculating the gain/loss is the estimated value of the 20% non-controlling interest related to EUKOR and the input factors used in calculating the strike price of the symmetrical options.

The financial derivative is recognized in Other non-current assets in the balance sheet and has a carrying value of USD 159 million at September 30, 2022, compared to USD 152 million at the end of 2021.

Note 3. Segment description

The group's operating segments, which are the same as the group's reporting segments, are the key components of the group's business which are assessed, monitored and managed on a regular basis by the Chief Executive Officer (CEO).

The reporting segments comprise:

  • Shipping services
  • Logistics services
  • Government services

The Board of Directors and management have identified the three reporting segments based on the current organization of activities. Such organization of activities and reporting segments are continuously being assessed and remains subject to future changes.

Shipping services

The shipping services segment is engaged in ocean transport of cars and RoRo cargo. Its main customers are global car manufacturers as well as manufacturers of construction and other high and heavy equipment, in addition to select industrial break-bulk cargo. The customers' cargo is carried in a worldwide transport network. This is the group's most capital-intensive segment. The revenue is generated from transporting these products and varies with voyage routes. The total vessel capacity is balanced by time charter, both in and out. The shipping services segment's margin is highly influenced by fuel prices. FAF (fuel adjustment factor) is a key mechanism to manage fuel oil price risk in the segment and the main contributor to fuel surcharges revenue. However, the segment has a short-term exposure to fuel prices since FAF is calculated based on the average fuel price over a historical period and then fixed during an application period, creating a lag effect. In periods of rising fuel prices the segment will therefore not be able to recoup the higher prices through the FAF. Conversely, in periods of falling fuel prices the segment will benefit from higher FAF. In the shipping services segment, contract duration is normally one to five years, with some 20-30 percent of contracts being renewed annually. Fixed prices are usually applied, with review for CPI development or other applicable index for contracts exceeding three years. FAF adjustments are reflected in most contracts and represent a variable pricing

element. In some contracts, the group is guaranteed a fixed percentage of a customer's volume, but mostly there are no defined minimum volumes.

Logistics services

The logistics services segment has mainly the same customer groups as shipping services. Customers operating globally are offered sophisticated logistics services, such as vehicle processing centers, equipment processing centers, inland distribution networks and terminals. The segment's primary assets are human capital (expertise and systems) and longterm customer relationships. In the logistics services segment, contract duration is normally one to five years with options to extend and in some cases a term up to 10 years. Pricing is usually fixed with CPI or other adjustments applicable for many contracts. Volumes may vary depending on customer output.

Government services

The government services segment provides ocean transport of RoRo cargo, breakbulk and vehicles. The segment also performs logistics services primarily related to multimodal transportation, stevedoring and terminal operations. The primary customer is the U.S. government, but the segment also includes commercial cargos such as those generated by the financial sponsorship of a Federal program or a guarantee provided by the U.S. Government. In the government services segment, contract duration can vary between less than one year and as long as ten years. Segment revenue and EBITDA is primarily driven by government activities which are in part driven by world events and government objectives, and does not necessarily follow regular seasonal patterns.

Holding/Eliminations

Remaining group activities are shown in the "holding & eliminations" column. The holding segment includes the parent company, and other minor activities (including corporate group activities such as operational management, tax and finance) which fail to meet the definition for other core activities. Eliminations are transactions between the group's three segments described above.

Note 3. Segment reporting - QTD

Government Holding &
USD million Shipping services Logistics services services eliminations Total
Q3 2022 Q3 2021 Q3 2022 Q3 2021 Q3 2022 Q3 2021 Q3 2022 Q3 2021 Q3 2022 Q3 2021
Net freight revenue 855 706 - - 48 27 - - 903 733
Fuel surcharges 228 72 - - 3 1 - - 231 73
Operating revenue (8) 6 205 161 24 16 - - 221 184
Internal operating revenue 4 3 26 23 16 16 (46) (42) - -
Total revenue 1,079 787 231 184 91 61 (46) (42) 1,356 990
Cargo expenses (159) (164) - - (10) (12) 33 33 (137) (143)
Fuel (307) (190) - - (13) (7) - - (320) (197)
Other voyage expenses (104) (104) - - (3) (3) - - (107) (107)
Ship operating expenses (57) (52) - - (20) (14) - - (77) (66)
Charter expenses (36) (47) - - (3) (7) 10 7 (29) (47)
Manufacturing cost - - (81) (62) (6) (1) 3 2 (84) (61)
Other operating expenses 7 (2) (87) (68) (3) (1) - - (83) (70)
Selling, general and admin expenses (37) (33) (34) (34) (6) (4) (3) (4) (79) (76)
Total operating expenses (694) (592) (201) (163) (63) (49) 43 38 (916) (767)
Operating profit/(loss) before
depreciation, amortization and
impairment (EBITDA) 385 195 30 21 28 11 (3) (5) 440 223
Other gain/(loss) 2 4 - - - - - - 2 4
Depreciation (101) (84) (16) (17) (9) (8) - - (126) (108)
Amortization (1) (1) (9) (9) (2) (2) - - (11) (11)
(Impairment)/reversal of impairment - - - 0 - - - - - 0
Operating profit/(loss) (EBIT)1 286 114 5 (4) 17 2 (3) (5) 305 108
Share of profit/(loss) from joint
ventures and associates - - 0 0 - - - - 0 0
Financial income/(expense) (38) (25) (2) (8) 3 (1) (13) (8) (51) (42)
Profit/(loss) before tax 247 89 3 (12) 20 2 (16) (12) 254 66
Tax income/(expense) (9) (4) 0 3 1 (0) - - (8) (1)
Profit/(loss) for the period 238 86 3 (9) 21 1 (16) (12) 246 65
Profit for the period attributable to:
Owners of the parent 208 72 3 (10) 21 1 (16) (12) 216 51
Non-controlling interests 30 14 0 0 - - - - 30 14

1Cash settled portion of fuel hedge swaps is included in net operating profit by reduction/(increase) of voyage related expenses.

Note 3. Segment reporting - YTD

USD million Shipping services Logistics services Government services Holding & eliminations Total
YTD YTD YTD YTD YTD YTD YTD YTD YTD YTD
2022 2021 2021 2022 2021 2021 2022 2021 2021 2022 2021 2021 2022 2021 2021
Net freight revenue 2,466 1,982 2,742 - - - 93 80 110 - - - 2,558 2,062 2,851
Fuel surcharges 495 155 246 - - - 5 4 4 - - - 500 159 250
Operating revenue 9 23 33 571 514 687 57 48 62 - - - 636 585 782
Internal operating revenue 8 7 8 79 75 102 60 44 60 (147) (127) (170) - - -
Total revenue 2,978 2,168 3,029 650 590 789 214 176 236 (147) (127) (170) 3,695 2,806 3,884
Cargo expenses (499) (497) (660) - - - (29) (37) (48) 113 110 147 (415) (424) (561)
Fuel (824) (506) (701) - - - (30) (17) (25) - - - (854) (523) (726)
Other voyage expenses (311) (316) (402) - - - (10) (9) (13) - - - (321) (325) (415)
Ship operating expenses (168) (154) (219) - - - (59) (42) (56) - - - (228) (196) (275)
Charter expenses (129) (134) (173) - - - (15) (22) (31) 28 13 19 (116) (143) (185)
Manufacturing cost - - - (229) (190) (254) (7) (3) (4) 5 4 4 (230) (189) (254)
Other operating expenses1 (5) (39) (72) (246) (225) (300) 10 (1) (2) 10 - 32 (231) (264) (342)
Selling, general and admin expenses (109) (99) (133) (105) (91) (126) (15) (12) (17) (11) (16) (20) (240) (218) (296)
Total operating expenses (2,045) (1,745) (2,359) (580) (505) (681) (155) (143) (196) 145 111 182 (2,635) (2,282) (3,054)
Operating profit/(loss) before depreciation,
amortization and impairment (EBITDA) 933 423 670 70 85 108 59 33 40 (2) (16) 11 1,060 524 830
Other gain/(loss) 7 (2) 21 - - - - - - - - - 7 (2) 21
Depreciation (289) (244) (340) (49) (50) (66) (27) (25) (33) - - - (365) (318) (439)
Amortization (3) (2) (4) (26) (26) (34) (5) (5) (6) - - - (33) (32) (44)
(Impairment)/reversal of impairment - - (76) - (0) (0) - 14 14 - - - - 14 (62)
Operating profit/(loss) (EBIT)2 648 174 271 (4) 9 8 27 18 15 (2) (16) 11 669 185 306
Share of profit/(loss) from joint ventures and
associates - - - 2 1 1 - - - - - - 2 1 1
Financial income/(expense) (69) (65) (66) (3) (22) (26) 2 (1) 1 (36) (13) (17) (106) (101) (108)
Profit/(loss) before tax 579 109 205 (5) (12) (16) 29 17 17 (38) (30) (6) 564 85 199
Tax income/(expense) (21) (10) (27) 6 4 4 (1) (0) 1 - (0) (0) (16) (7) (23)
Profit/(loss) for the period 558 99 177 1 (8) (12) 28 16 17 (38) (30) (6) 549 78 177
Profit for the period attributable to:
Owners of the parent 486 79 136 1 (9) (14) 28 16 17 (38) (30) (6) 476 57 133
Non-controlling interests 72 20 42 0 1 2 - - - - - - 72 22 43

1 Sale of a vessel from shipping to government services segment in Q1 resulted in a USD 10 million loss in the shipping segment included in Other operating expenses. This amount is eliminated on group level.

2 Cash settled portion of fuel hedge swaps is included in net operating profit by reduction/(increase) of voyage related expenses.

Note 4. Goodwill, customer relations/contracts and other intangible assets

Customer
relations/ Other Total
USD million Goodwill contracts intangibleassets intangible assets
2022
Cost at January 1 346 421 58 824
Additions - - 6 6
Disposal - - (0) (0)
Currency translation adjustment - - (0) (0)
Cost at September 30 346 421 64 830
Accumulated amortization and
impairment losses at January 1 (116) (225) (28) (369)
Amortization - (27) (5) (33)
Impairment - - - -
Disposal - - 0 0
Currency translation adjustment - - 0 0
Accumulated amortization and impairment losses
at September 30 (116) (252) (33) (402)
Carrying amount at September 30 230 168 30 429
Customer
relations/ Other Total
USD million Goodwill contracts intangibleassets intangible assets
2021
Cost at January 1 346 421 54 820
Additions - - 5 5
Disposal - - (0) (0)
Currency translation adjustment - - (0) (0)
Cost at December 31 346 421 58 824
Accumulated amortization and
impairment losses at January 1 (40) (188) (21) (249)
Amortization - (36) (8) (44)
Impairment1 (76) - (0) (76)
Disposal - - 1 1
Accumulated amortization and impairment losses
at December 31 (116) (225) (28) (369)
Carrying amount at December 31 230 196 29 455

1 In the fourth quarter of 2021, a goodwill impairment loss of USD 76 million was recognized.

"Other intangible assets" include port use rights and software.

Note 5. Vessels and other tangible assets

Property & Other Vessels & Newbuild Total
USD million land tangible assets docking contracts1 tangible assets
2022
Cost at January 1 125 92 5,439 1 5,656
Additions 1 24 27 7 59
Disposal (0) (4) (15) (1) (21)
Reclassification - - 61 (3) 58
Currency translation adjustment (10) (4) - - (15)
Cost at September 30 115 107 5,512 3 5,737
Accumulated depreciation and impairment
losses at January 1 (23) (43) (1,557) - (1,623)
Depreciation (7) (8) (186) - (201)
(Impairment)/reversal of impairment - - - - -
Disposal 0 (1) 10 - 10
Reclassification - - (12) - (12)
Currency translation adjustment 4 2 - - 6
Accumulated depreciation and impairment
losses at September 30 (26) (50) (1,744) - (1,820)
Carrying amount at September 30 89 57 3,767 3 3,917
Property & Other Vessels & Newbuild Total
USD million land tangible assets docking2 contracts1 tangible assets
2021
Cost at 1 January 127 89 5,307 45 5,567
Additions 2 11 63 60 136
Disposal (1) (3) (23) (0) (27)
Reclassification 2 (2) 92 (104) (12)
Currency translation adjustment (5) (2) - - (7)
Cost at 31 December 125 92 5,439 1 5,656
Accumulated depreciation and impairment
losses at 1 January (16) (33) (1,343) - (1,392)
Depreciation (10) (12) (242) - (264)
Impairment/(reversal of impairment) - - 14 - 14
Disposal 1 1 22 - 25
Reclassification - 0 (8) - (8)
Currency translation adjustment 2 1 - - 3
Accumulated depreciation and impairment
losses at December 31 (23) (43) (1,557) - (1,623)
Carrying amount at December 31 102 49 3,882 1 4,033

1 Newbuild contracts include instalments on scrubber installations and dry-dock expenditure.

2 During the fourth quarter 2021, a new vessel (Nabucco) was delivered, resulting in a reclassification from newbuilding contracts to vessels of USD 74 million. The reclassification balance in Total tangible assets (cost and related depreciation) relates to the classification of two vessels to assets held-for-sale as at 31 December 2021, and the reversal of a vessel classified as held for sale back to tangible assets, as it continues to be used in operations.

Note 6. Right-of-use assets

Property & Total
USD million land Vessels Other assets leased assets
2022
Cost at January 1 484 1,464 31 1,979
Additions 57 154 6 217
Change in lease payments (1) 62 8 70
Disposal (5) (3) (1) (9)
Reclassification to tangible assets - (58) - (58)
Currency translation adjustment (39) (14) (1) (54)
Cost at September 30 495 1,606 44 2,145
Accumulated depreciation and impairment losses
at January 1 (114) (348) (10) (472)
Depreciation (40) (115) (8) (163)
Disposal 7 3 1 11
Reclassification to tangible assets - 12 - 12
Currency translation adjustment 11 2 0 13
Accumulated depreciation and impairment losses
at September 30 (136) (447) (17) (599)
Carrying amount at September 30 359 1,159 27 1,545
Property & Total
USD million land Vessels Other assets leased assets
2021
Cost at January 1 478 1,226 4 1,708
Additions 19 166 28 214
Change in lease payments 33 85 - 119
Disposal (29) (13) (0) (42)
Currency translation adjustment (18) (0) (0) (19)
Cost at December 31 484 1,464 31 1,979
Accumulated depreciation and impairment losses
at January 1 (91) (250) (2) (344)
Depreciation (55) (111) (8) (174)
Disposal 29 13 0 42
Currency translation adjustment 3 0 0 4
Accumulated depreciation and impairment losses
at December 31 (114) (348) (10) (472)
Carrying amounts at December 31 370 1,115 21 1,507

Note 7. Assets held for sale

During the fourth quarter 2021 two vessels were classified as assets held for sale as their sale was highly probable. The vessels were measured at their net carrying value, USD 21 million, which was lower than their fair value less costs to sell. In Q1 2022 one of the vessels was sold for a consideration of USD 21 million, resulting in a gain to the group of 8 million, and in Q2 the second vessel was sold for a

consideration of USD 21 million, with a gain to the group of USD 6 million. There have been no transactions during the third quarter of 2022 and there are no assets held for sale as at September 30, 2022.

Net gain/loss on disposal of assets is presented as part of operating expenses.

Note 8. Financial income and expenses

USD million Q3 2022 Q3 2021 YTD 2022 YTD 2021 2021
Financial income
Interest income 4 0 6 1 2
DNK distribution1 - - - 2 19
Other financial items 0 1 0 - 6
Net financial income 5 2 6 3 27
Financial expenses
Interest expenses (48) (34) (123) (105) (140)
Interest rate derivatives - realized (1) (6) (13) (23) (25)
Interest rate derivatives - unrealized 33 9 109 41 58
Other financial items (3) (2) (10) (7) (9)
Loss on sale investments (0) - (0) 0 0
Net financial expenses (19) (33) (36) (93) (117)
Currency
Net currency gain/(loss) 20 (4) 64 (11) (9)
Foreign currency derivatives - realized (2) (5) (5) (4) (3)
Foreign currency derivatives - unrealized2 (55) (1) (135) (2) (12)
Net currency (37) (11) (76) (17) (24)
Financial derivatives bunker
Fuel oil derivatives - realized - 4 - (0) 10
Fuel oil derivatives - unrealized - (4) - 6 (5)
Net bunker derivatives - 0 - 6 6
Financial income/(expenses) (51) (42) (106) (101) (108)

1 In the fourth quarter 2021, the group received a distribution from Den Norske Krigsforsikring (DNK) of USD 19 million less withholding tax of USD 5 million. The gross amount is recognized as finance income, and the related withholding tax is recognized as an income tax expense/receivable.

2 On September 30, 2022, the group had posted USD 42 million in cash collateral relating to cross-currency swaps for the four outstanding NOK bonds to the counterparty. The cash collateral is recognized in Other current assets in the balance sheet. The transaction has no effect on profit or loss.

Note 9. Shares

Earnings per share takes into consideration the number of issued shares excluding own shares in the period.

Basic earnings per share is calculated by dividing profit for the period attributable to the owners of the parent by the average number of total outstanding shares (adjusted for average number of own shares).

Basic earnings per share for the third quarter of 2022 was USD 0.51 compared with USD 0.12 in the same quarter last year. Earnings per share for the first nine months ended September 30, 2022 was USD 1.13 compared with USD 0.13 in the same period in 2021.

The company's number of shares Sep 30, 2022 Sep 30, 2021 31 Dec 2021
Total number of shares 423,104,938 423,104,938 423,104,938
Own shares 588,983 706,856 700,883
NOK million USD million
The company's share capital is as follows: 220 28

On April 26, 2022 the annual general meeting approved an ordinary dividend for 2021 of USD 15 cents per share and the total amount of USD 63 million was reclassified from equity to current liabilities. Of this, USD 9 cents per share, totaling

USD 38 million, was paid to shareholders of the parent company in May 2022. The remaining USD 6 cents per share, totaling USD 25 million, will be paid to shareholders of the parent company in November 2022.

Note 10. Tax

The effective tax rate for the group will, from period to period, change depending on gains and losses from investments inside the exemption method, and tax-exempt revenues from tonnage tax regimes. Tonnage tax is classified as an operating expense in the income statement.

The group recognized a tax expense of USD 8 million for the third quarter 2022, compared with a tax expense of USD 1

million for the same quarter in 2021. The tax expense year-todate 2022 was USD 16 million, compared with USD 7 million in the same period last year.

The group continues the non-recognition of net deferred tax assets in the balance sheet due to uncertain future utilization of tax losses carried forward and non-deductible interest cost carried forward in the Norwegian entities.

Note 11. Interest-bearing debt

USD million Sep 30, 2022 Sep 30, 2021 Dec 31, 2021
Non-current interest-bearing loans and bonds 1,957 2,265 2,158
Non-current lease liabilities 1,228 1,170 1,218
Current interest-bearing loans and bonds 638 349 515
Current lease liabilities 281 205 238
Total interest-bearing debt 4,104 3,990 4,128
Cash and cash equivalents 1,063 587 710
Net interest-bearing debt 3,041 3,403 3,418

Repayment schedule for interest-bearing debt

Leasing Other interest
USD million Bank loans Bonds commitments bearing debt Sep 30, 2022
Due in 2022 61 69 82 0 211
Due in 2023 598 - 279 19 897
Due in 2024 254 186 223 0 663
Due in 2025 347 - 209 0 556
Due in 2026 and later 777 302 716 0 1,796
Total repayable interest-bearing debt 2,037 557 1,509 19 4,122
Amortized financing costs (13) (5) - - (18)
Carrying value interest-bearing debt 2,024 552 1,509 19 4,104

Reconciliation of liabilities arising from financing activities

Non-current
interest Current interest Non-current Current lease Total financing
USD million bearing debt bearing debt lease liabilities liabilities activities
Total debt December 31, 2021 2,158 515 1,218 238 4,128
Cash flows from loans and bonds (proceeds) 920 85 - - 1,005
Cash flow from loans and bonds (repayments) (91) (872) (7) (183) (1,152)
Net change lease commitments - - 248 28 276
Foreign exchange movement (110) (4) (30) (3) (148)
Other non-cash movements (6) 1 0 0 (5)
Re-classification (914) 914 (201) 201 (0)
Total interest-bearing debt September 30, 2022 1,957 638 1,228 281 4,104
Non-current
interest Current interest Non-current Current lease Total financing
USD million bearing debt bearing debt lease liabilities liabilities activities
Total debt December 31, 2020 2,353 378 1,176 174 4,081
Cash flows (proceeds) from loans and bonds 430 44 - - 474
Cash flow (repayments) from loans and bonds (104) (427) - (204) (735)
Net change lease commitments - - 258 67 325
Foreign exchange movement (2) (6) (15) (1) (24)
Other non-cash movements 7 - - - 7
Re-classification (526) 526 (202) 202 -
Total interest-bearing debt December 31, 2021 2,158 515 1,218 238 4,128

In the second quarter of 2022 the group signed USD 1.15 billion of new debt for refinancing purposes, including a USD 144 million sustainability linked bond, new USD 800 million sustainability linked bank facilities, a USD 100 million unsecured revolving credit facility, and USD 100 million of vessel and corporate debt. During the third quarter, there were net proceeds of USD 101 million from the new USD 800 million

facility and USD 15m of proceeds from a vessel refinancing. At September 30, 2022, the group had USD 377 million in undrawn credit facilities.

At September 30, 2022, the group had 13 unencumbered vessels with a total net carrying value of USD 211 million.

Note 12. Provisions

USD million Sep 30, 2022 Sep 30, 2021 31 Dec 2021
Current provisions - 117 28
Non-current provisions - 4 16
Total provisions - 121 44

The operating entities WW Ocean and EUKOR have been part of anti-trust investigations in several jurisdictions since 2012.

Proceedings with the outstanding jurisdictions were resolved in 2021, and amounts not yet paid were reclassified from provisions to other current liabilities.

In the third quarter, the last known customer settlement was concluded, as a result of which an amount of USD 38 million was reclassified from current provisions to other current liabilities and the remaining provision of USD 6 million was reversed. The gain from the reversal is presented within Other operating expenses. As at September 30, 2022, the group has recognized 32 million of other current liabilities

related to civil claims and customer settlements. During the third quarter of 2022, the group paid USD 42 million in customer settlements and fines to jurisdictions (year-to-date USD 83 million), reducing other current liabilities accordingly.

Contingencies

The group is sometimes party to lawsuits related to laws and regulations in various jurisdictions arising from the conduct of its business. Based on information currently available, the probability of any such cases resulting in a material outflow of resources is low, and a provision has not been recognized.

Note 13. Acquisition of non-controlling interest

In March 2022, the group acquired the remaining 40% of the shares in Wallenius Wilhelmsen Logistics Abnormal Load Services Holding B.V. (ALS) for cash consideration of USD 10 million. With an existing 60% ownership, the group already

controlled ALS and consolidated the investment as a subsidiary. The acquisition of the non-controlling interest was thus recognized as an equity transaction.

Note 14. Events after the balance sheet date

On October 12, 2022, the group repaid the NOK 201.5 million outstanding under the WALWIL01 bond at maturity with a cash effect of USD 26 million.

Reconciliation of alternative performance measures

Definitions of Alternative Performance Measures (APMs)

This section describes the non-GAAP financial alternative performance measures (APM) that are used in the quarterly and annual reports.

The following measures are not defined nor specified in the applicable financial reporting framework of IFRS. They may be considered as non-GAAP financial measures that may include or exclude amounts that are calculated and presented according to IFRS. These APMs are intended to enhance comparability of the results and cash flows from period to period and it is the group's experience that these are frequently used by investors, analysts and other parties. Internally, these APMs are used by management to measure performance on a regular basis. The APMs should not be considered as a substitute for measures of performance in accordance with IFRS.

EBITDA is defined as Total revenue less Operating expenses. EBITDA is used as an additional measure of the group's operational profitability, excluding the impact from financial items, taxes, depreciation and amortization and impairment/(reversal of impairment).

EBITDA adjusted is defined as EBITDA excluding items in the result which are not regarded as part of the underlying business. Examples of such items are restructuring costs, anti-trust, gain/loss on sale of vessels and other tangible assets and other income and expenses which are not primarily related to the period in which they are recognized.

EBIT is defined as Total revenue less Operating expenses, Other gain/loss and depreciation, amortization and impairment/(reversal of impairment). EBIT is used as a measure of operational profitability excluding the effects of how the operations were financed, taxed and excluding foreign exchange gains & losses.

EBIT adjusted and Profit/(loss) for the period adjusted is defined as EBIT/Profit/(loss) for the period adjusted excluding items in the result which are not regarded as part of the underlying business. Example of such items are restructuring costs, anti-trust, gain/loss on sale of vessels and other tangible assets, impairment, other gain/loss and other income and expenses which are not primarily related to the period in which they are recognized.

For the quarterly reporting, Capital employed (CE) is calculated based on the quarterly average of Total assets less Total liabilities plus total interest-bearing debt. For the full year CE is calculated based on the annual average of Total assets less Total liabilities plus total interest-bearing debt. CE is measured in order to assess how much capital is needed for the operations/business to function and evaluate if the capital employed can be utilized more efficiently and/or if operations should be discontinued.

Return on capital employed (ROCE) is based on last twelve months EBIT/EBIT adjusted divided by capital employed. ROCE is used to measure the return on the capital employed without taking into consideration the way the operations and assets are financed during the period under review. The group considers this ratio as appropriate to measure the return of the period. The metric was changed with effect from the financial year 2022, and previously utilized annualized profit/(loss) based on the current quarter results in the calculation. Prior period figures have been changed to reflect this.

Return on equity is based profit/(loss) after tax for the last twelve months divided by annual average of equity. The group considers this ratio as appropriate to measure the return for the period. The metric was changed with effect from the financial year 2022, and previously utilized annualized profit/(loss) based on the current quarter results in the calculation. Prior period figures have been changed to reflect this.

Total interest-bearing debt is calculated as the end of period sum of Non-current interest-bearing loans and bonds, Noncurrent lease liabilities, Current interest-bearing loans and bonds and Current lease liabilities. The group considers this a good measure of total financial debt.

Net interest-bearing debt (NIBD) is calculated as the end of period Total interest-bearing debt less the end of period Cash and cash equivalents. The group considers this a good measure of underlying financial debt.

NIBD/EBITDA adjusted is calculated based on the end of period Net interest-bearing debt divided by the aggregate last twelve months of EBITDA adjusted. The group considers this a good measure of leverage as it indicates how many years of EBITDA adjusted, being a proxy for normal cash flow from operations, is needed to cover the NIBD.

Reconciliation of alternative performance measures, cont.

Net interest-bearing debt

USD million Sep 30, 2022 Sep 30, 2021 Dec 31, 2021
Non-current interest-bearing loans and bonds 1,957 2,265 2,158
Non-current lease liabilities 1,228 1,170 1,218
Current interest-bearing loans and bonds 638 349 515
Current lease liabilities 281 205 238
Less Cash and cash equivalents 1,063 587 710
Net interest-bearing debt 3,041 3,403 3,418

Net interest-bearing debt divided by last twelve months adjusted EBITDA

Net interest-bearing debt/adjusted EBITDA ratio 2.3x 4.8x 4.0x
Last twelve months adjusted EBITDA 1,346 710 865
Net interest-bearing debt 3,041 3,403 3,418
USD million YTD 2022 YTD 2021 2021

Equity ratio

Equity ratio 38.8% 35.7% 36.0%
Total assets 8,393 7,507 7,794
Total equity 3,252 2,683 2,804
USD million Sep 30, 2022 Sep 30, 2021 Dec 31, 2021

Reconciliation of Total revenue to EBITDA and EBITDA adjusted

USD million Q3 2022 Q3 2021 YTD 2022 YTD 2021 2021
Total revenue 1,356 990 3,695 2,806 3,884
Operating expenses excluding other gain/(loss) (916) (767) (2,635) (2,282) (3,054)
EBITDA 440 223 1,060 524 830
EBITDA shipping services 385 195 933 423 670
Loss on sale of vessel - - 10 - 32
Anti-trust expense/ (reversal of expense) (6) - (6) 35 35
EBITDA adjusted shipping services 379 195 937 458 736
EBITDA logistics services 30 21 70 85 108
EBITDA adjusted logistics services 30 21 70 85 108
EBITDA government services 28 11 59 33 40
Gain on sale of vessel - - (14) - -
EBITDA adjusted government services 28 11 44 33 40
EBITDA holding/eliminations (3) (5) (2) (16) 11
Loss on sale of vessel - - (10) - (32)
EBITDA adjusted holding/eliminations (3) (5) (12) (16) (20)
EBITDA adjusted 434 223 1,039 559 865

Reconciliation of alternative performance measures, cont.

Reconciliation of Total revenue to EBIT and EBIT adjusted

USD million Q3 2022 Q3 2021 YTD 2022 YTD 2021 2021
EBITDA 440 223 1,060 524 830
Other gain/loss 2 4 7 (2) 21
Depreciation and amortization (137) (119) (397) (350) (483)
(Impairment)/reversal of impairment - 0 - 14 (62)
EBIT 305 108 669 185 306
Anti-trust expense/ (reversal of expense) (6) - (6) 35 35
Gain on sale of vessel - - (14) - -
Change in fair value of derivative financial asset (2) (4) (7) 2 (21)
Reversal of/impairment asset held-for-sale - - - (8) (8)
Impairment goodwill and intangible assets - - - - 76
Total adjustments (8) (4) (27) 30 82
EBIT adjusted 297 104 642 215 388
Profit/(loss) for the period 246 65 549 78 177
Total adjustments (8) (4) (27) 30 82
Profit/(loss) for the period adjusted 238 61 521 108 259

Reconciliation of total assets to capital employed and ROCE calculation and return on equity calculation

Quarter average YTD average Year average
USD million Q3 2022 Q3 2021 YTD 2022 YTD 2021 2021
Total assets 7,959 7,611 7,893 7,609 7,620
Less Total liabilities 4,981 4,991 4,966 4,991 4,959
Total equity 2,977 2,620 2,927 2,618 2,661
Total interest-bearing debt 4,029 4,122 4,052 4,127 4,099
Capital employed 7,006 6,742 6,979 6,745 6,760
EBIT last twelve months 790 238 790 238 306
EBIT last twelve months adjusted 816 253 816 253 388
ROCE 11.3% 3.5% 11.3% 3.5% 4.5%
ROCE adjusted 11.6% 3.8% 11.7% 3.7% 5.7%
Profit/(loss) last twelve months 646 124 646 124 177
Profit/(loss) last twelve months adjusted 673 141 673 141 259
Return on equity 21.7% 4.7% 22.1% 4.7% 6.6%
Return on equity adjusted 22.6% 5.4% 23.0% 5.4% 9.7%

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