Wallenius Wilhelmsen ASA (WAWI) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to Wallenius Wilhelmsen's second quarter result release and also half year. Before we start, I would begin with just being clear that we stay true to our purpose and values through what remains to be a very, very difficult time for the world, frankly, and not different for us. Concerningly, if we look back 3 months ago, on the 15th of May, we presented Q1 results. There was 4.5 million cases of coronavirus in the world. This morning's figure is 22.3 million. So it's clearly a challenge for us in the markets, for the world and for society. And therefore, as a company, we consider it to be extremely important to stay true to these values throughout this quarter and certainly, for the remainder of this year and very much flavors the work that we have been doing across the company. We presented these back in Q1, so I'm reminding us all. So they're on your screen, but I will continue for you the material. So highlights for the second quarter, we had an adjusted EBITDA of $104 million. Volumes have, of course, been highly impacted by the pandemic across the world. We're going to talk a whole lot about this throughout this presentation and how that's affected us. But also importantly, how we've responded in terms of effective cost control throughout the company. Ocean volume did decline 45% year-on-year on a prorated basis. On an unprorated basis, we're actually at 50%. So it's fairly much in line with, unfortunately, what we were expecting. Performance in land bases fell quite sharply as production stopped around the world. So we've had the impact of that. Very pleasingly, however, we have $530 million in cash at the end of the quarter, which is up from $451 million at the end of the previous quarter. So despite a very difficult period, given the focus we've had, we've, in fact, been able to build cash. Lastly, we had to increase provisions by $55 million in the quarter relative to some customer claims. Also, an event that has occurred recently in the last few days relative to jurisdictions. Chile has made their final decision, and we will be receiving a fine relative to that process during the course of the coming weeks, but that figure is well within the provisions that we had planned for. So that now removes Chile from the cases. We have 2 remaining jurisdictions left, which are well known, and we expect to have them closed by the end of this year. That's the highlights. Let me dive into the agenda. It's very much the standard. I will give you a business update now. I'll hand over to Astrid, who will go through financial performance. I'll come back with the market update, and we'll finish with the outlook and Q&A. Now I forgot to mention, of course, again, this is purely a web conference today. We would love to see everybody back in the auditorium here at Lysaker but we don't think that is prudent right now. So thank you all for joining, by the way, online. Business update. We're going straight to volumes. As I mentioned in the highlights at the opening, we had a 45% reduction in Ocean volumes. Auto has been relatively hit harder than high & heavy. So automotive volumes were actually down 57% in the quarter year-on-year versus high & heavy, which is down 34%. I'd love to say only. So that's resulted in an impact where the high & heavy share has jumped up quite significantly to 40% of the total volume in the quarter. So a positive trend there relative to cargo mix and has partially washed through the results as well. Breakbulk, interestingly, has remained quite stable throughout this period. And probably worth to note that high & heavy manufacturers, a lot of the high & heavy equipment that we do handle and ship is considered as essential services, one of the reasons as to why that volume has held up relatively better than Automotive. Moving over to the trade to -- I'll do it, this time around, a very brief run around the world. It's a hard picture all around. You can see in the bar graphs, everything has fallen in all of our main trades. Not really a surprise. But here, we can see the specific trade breakdown. I'm going to start on the bottom left-hand corner with Europe/North America-Oceania. Hardest hit year-on-year, 60% down overall volume. However, important to point out, 30% of that drop is relative to a contract that we've previously talked to that we chose not to renew because we considered the conditions to be unfavorable and unprofitable. So a portion of that volume is self-chosen, and the rest has been taken down by market. From a non-prorated perspective, in that trade, automotive is actually down 77% year-on-year; and high & heavy, 50%. So trade has taken a hard hit. Moving across to the Atlantic. 47% drop. Auto was down 63% in the period year-on-year; high & heavy, 49%. So we've seen similar relative drops in that particular trade. Moving across Europe-Asia. Auto has dropped 72%, high & heavy only dropped 23%. Interestingly, in this trade, the high & heavy share creeped up to nearly 50%, where it's normally hovering in the high 20s. So this is one of those trades where we've seen high & heavy volumes remain, relatively speaking, strong compared to automotive in Europe-Asia. That was also nearly a 60% drop in that trade year-on-year. Again, to note, some of that volume that we lost was a contract, again, that we chose not to renew also in that trade, which is part of the volume drop. So it's not all market. Of course, market is a large portion. The Asia-Europe trade held up better than most. We've seen general lag of volumes all around, but automotive was down 53%, the high & heavy, down 38% in that trade, but fared slightly better than some of the others. Turning around to the right -- far right-hand side, Asia-North America. 35% drop also fared relatively okay. Interestingly, the high & heavy also held up better in that trade than others as well as breakbulk. And then lastly, the bottom right-hand corner, Asia-South America West Coast, relatively speaking, a smaller volume trade for us, but nonetheless, a pretty severe impact with a significant drop in -- also in that trade. Automotive was down 71%; high & heavy, 56%. I'm not going to use more number -- time here because we have plenty to talk about relative to market and production, which we think might be more of interest in today's presentation. Moving over to rates. We had some few contract renewals in the second quarter with a minor impact all around still some rate pressure in the market, but a relatively manageable impact. What we have remaining for this year is 52% of the contracts to be renewed this year, and that equates to roughly $265 million based on last year's numbers of contracts to be renewed yet this year. And that will trickle through some in Q3 and the majority in Q4. So we'll continue to report on those as they are renewed. Next, managing cash. This has been a key focus for us. Going into this crisis, once we -- or COVID was declared as a world pandemic, we took very fast actions. We have always focused on cash, but of course, in a time like this, cash becomes an absolute critical factor. So we implemented very rapidly a series of measures across the entire enterprise. I will not read off and clear this whole deck in terms of what's written up on your screens there. But needless to say, there was a considerable number of actions taken across the company. All in all, we had 32 initiatives still running. And the result of that has given us a $210 million -- assumed $210 million impact on cash for this year. We realized $55 million of that in the second quarter. So it's a very pleasing attention and focus from the entire organization, in fact, to achieve this. So we're very pleased with that development in a tough environment, if there's anything to be pleased with these days. Moving to capacity. We have talked for quite some time now about our flexibility on the downside. We had no idea that we were having flexibility on the downside for this type of crisis, but we were ready for it. And what we can see in the fleet size here is our ability to continue to adjust our own capacity relative to our demand picture as a company. So we've had a steady rundown in terms of fleet size, as you can see there. We took early decisions to layup ships. We currently have 15 vessels down, plus in Norway and Malaysia, plus 1 in Greece. So a total of 16. The vessel that was in Greece was laid up for -- just prior to this crisis, in fact. The point being that we've been able to not just redeliver chartered capacity, but we've also been taking decisions and actions on our owned fleet that we control. Looking through it, June, as we ended the quarter with 117 vessels in operation. Interesting just to look quickly into July, which is already behind us, but not relative to this quarter. All of our vessels were, in fact, busy, the ones that we have in hand and in operations. So that's a good signal for how we see the development, which I'll come back to in the market outlook. We had 11 vessels that we could have redelivered to the charter market based on the end of 2019. We have redelivered 7. We retained 4 in the fleet at very good terms, which is the choice we've made on some of the chartered capacity. So all in all, we're comfortable where we stand with capacity under the circumstances. We do have room for further downside, should that be necessary. We sincerely hope not. But there is some further flex if need be. Should volumes spike at any point in time positively, we have all confidence that we're able to access the capacity that we need to handle our customer's requests and commitments. With that, I will stop on business update and hand over to Astrid to talk us through financial performance. Here you go.

Thank you very much, Craig. So I'll start by taking us through the income statement. Revenues ended up $606 million this quarter. That is a decline of 40% compared to the same period last year and 27% comparing to the first quarter. This is obviously driven by the large drop we had in volumes and activity levels for both our Ocean and our land-based segments. Ocean volumes, as Craig mentioned, were down 45% year-on-year and 25% compared to the previous quarter. And well, we have some impact from contracts that were not renewed. It is, of course, difficult at this time to separate any effects from the all-encompassing effects of the ongoing pandemic. Going to our operating results, we reported an EBITDA of $42 million this quarter. But this was affected by a couple of items in the Ocean segment, which we adjust for. One was, as mentioned, an increase in provisions of $55 million related to updated estimates for customer claims, and the other was a $7 million negative impact from already paid installments towards planned scrubber installations that we decided to cancel and the payments made were foregone. When taking these effects out, the adjusted EBITDA for the second quarter came in at $104 million, a decline of 51% compared to last year and 20% quarter-on-quarter. In light of the large drop in revenue, a relatively strong performance, and this is due to a few factors. We had a very favorable cargo mix, as Craig mentioned, as the high & heavy volumes were relatively less impacted. This took the high & heavy ratio of low order volumes 40%, which is compared to around 30%, on average, over the recent quarters. This leads to a high net freight earned per cubic meter volumes carried as the high & heavy cargo is typically better paid and has higher profitability. I think as auto volumes are now starting to show recovery going into Q3, we also expect to see more of a normalization of the high & heavy ratio among our volumes. Second factor, which was impacting our result is the fact that we have succeeded with adjusting costs. And interesting to mention, I think for the Ocean segment, when we adjust for the $62 million items mentioned before, our operating expenses have, in percentage terms, actually come down as much as our revenue, proving our ability to adjust costs as our activity levels adjust as well. This is both due to being able to bring down variable costs, but we've also taken significant actions to reduce the costs that are of a more fixed nature. I think that said, on the cost side, we should mention that we had a significant positive impact from lower net bunker costs for this quarter. This is a result of fuel prices declining sharply going in towards Q2 while the fuel compensation paid by our customers is typically calculated with a time lag, so based more on the prices towards the end of the year and early first quarter, when they were very high. This creates a lag effect. And even when adjusting for the volume effects, both on the surcharge revenue side and due to lower bunker funds consumed, this is a positive contribution and they are around $35 million to $40 million, so significant. We have seen fuel prices stabilize somewhat more the last few months. And therefore, we do not expect to see such a significant effect going forward. Moving to earnings before interest and taxes. This was minus $45 million this quarter. However, also here, we have an impact by a gain of $26 million related to the put call feature in a shareholder agreement for EUKOR, which I think we now talked about the past few quarters, and the upward adjustments in the value of this net derivative impacts, the profit and losses and other gain or loss. This quarter, the estimated value increased as the estimated value of the EUKOR shares came up due to higher expected cash flows. So that was an impact of $26 million. Worth mentioning also in terms of items going into the EBIT. Our depreciation and amortization expenses have come down, and this is partly related to the redelivery of chartered vessels following this change in the accounting standard for lease contracts. The expenses we have related to charter vessels now enters the P&L through both 1 share on OpEx, but also substantial part of depreciation charge and some interest expenses. Adjusting for the positive gain on the derivative and the negative effects mentioned earlier, EBITDA would have been minus $8 million. And the return on capital employed, based on the adjusted EBIT, would have been minus 0.5%. Moving on to financial expenses, a much smaller number than the previous quarter. That is due to the large effects we had from mark-to-market movements in derivatives in the first quarter. But to start off with our interest expenses, they have continued to decline in line with interest rates coming down and were $36 million when we include realized interest rate derivatives. That is down $15 million compared to the same period last year and $12 million quarter-on-quarter. Some effects still from mark-to-market movements on derivatives. We had unrealized interest rate derivatives impacting by negative $10 million. But on the other side, we had a $20 million gain from unrealized FX derivatives. That is related to the basis swaps that are tied to our bonds issued in Norwegian kroners that have been swapped to dollars, and that is a result of the Norwegian krone retracing some of the depreciation against the dollar, which we saw in the first quarter. We have some bunker derivatives. From those, we saw a realized loss of $6 million in the quarter as fuel prices declined quite sharply, but we had an unrealized positive adjustment of $5 million. So all in all, that took our net financial expenses to $30 million, much lower than both last year and the previous quarter. Because as I mentioned, this is very much related through those movements in our hedges that are noncash effects. We recorded a tax income of $6 million, that is due to a recognition of deferred tax assets as we had tax losses in the land-based segment. And bringing us to the bottom line, that meant that we had a profit for the period of minus $69 million in this period, translating to an earnings per share of minus $0.15. However, if we adjust for the factors that I've been talking through the provisions, the impact from scrubber cancellations, the put call derivative and unrealized movements on derivatives, this would take us to a net profit of minus $47 million and an earnings per share of minus $0.10. Then I'll move over to talk a little bit more specifically about our 2 segments, starting with the Ocean segment. Total income for Ocean was $495 million. That is a reduction of 38% year-on-year and 24% compared to the previous quarter. This is driven by the lower volumes that we have seen. However, we had a positive impact on revenues from the favorable cargo mix with the high share of high & heavy cargo. And we also saw a much smaller decline in surcharge revenue when comparing to the previous year as surcharges are now calculated based on the higher VLSFO fuel prices. Adjusted EBITDA for Ocean came in at $104 million. That is down 40% comparing to the previous year. Again, volume is what it's all about this quarter. But our results was -- were, how should I say, the fall in revenues were countered by significant efforts to reduce costs, as we have been talking about. And in particular, for the Ocean side, that has been also driven through rationalizing [ our say on ] things and taking efforts to optimize cargo between vessels. So that despite having vessels idling, the vessels that have continued to sail have had a very good utilization rate. We've also adjusted speed, taking down speed, which reduces our fuel consumption and hence, costs on that side. And as mentioned, we have redelivered vessels that came towards -- to the end of a long-term charter contracts, taking out the charter expenses. Again, I should just mention that also, your net bunker cost obviously is making up a significant share of the cost savings that we have seen. Comparing to the previous quarter, adjusted EBITDA was down by a mere 8%, as the drop in volume was offset by the favorable cargo mix leading to higher net freight for CBM and the large positive impact from lower net bunker costs. Moving to the land-based segment. As Craig mentioned, this part of our business was heavily hit and impacted by plant closures and production cut backs. So revenues came in at $126 million. That is down 46% comparing to the previous year and 39% when we compare it to the first quarter. The volume drop impacted our land-based activities broadly across all the segments, but there were some areas that were more affected. In particular, solutions submarkets, the auto segment was very heavily hit as plant closures drove volumes down by 70% in that area, both comparing to the previous year and the previous quarter. Also on the Terminal side, we saw a volume decline of 50%, which is in line with the development we've seen on the Ocean side. Here as well, significant measures were taken to adjust costs in line with this impact that we saw on activity, and this has helped counter the impact of a sharp decline in revenues, bringing the EBITDA to $2 million for this quarter. Still, when you look at the relative drop, a very large drop compared to both previous quarter and previous year of around 90%. We've come halfway through 2020 already. So we also summarize the first half year results. And we had a total income for the first 6 months of about $1.4 billion. That is down 29% compared to the income of around $2 billion for the first 6 months of 2019. Obviously, it's -- with the volume impact driving this with the Ocean volumes year-on-year being down 33%. And as mentioned, it's very much driven by the impact of the pandemic, but also some of the contracts that were not renewed last year. Adjusted EBITDA was $234 million. That is a decline of 46% year-on-year, driven by the volume decline. I think just one more comment on this is we had financial expenses were quite impacted by mark-to-market movement in the derivatives portfolio, both this year and last year. So that creates those high numbers seen there. But worth noting is that our interest expenses have come down by $20 million in the first 6 months of 2020 compared to the first 6 months of 2019, as we benefit from the falling interest rates. Profit was minus $353 million for the first half year, but we have had several items impacting profit in both Q1 and Q2, including in this quarter, the increase in provisions, the scrapping of scrubber installations, the change in the fair value of the EUKOR net derivative. In total, over this 6 months, has been a negative impact of $35 million. And in the first quarter, we had impairment related to recycling of vessels and land-based goodwill of $84 million, all of this totaling negative effects of $182 million. If, in addition, we adjust for the unrealized impact on the derivatives, which totaled $106 million, a negative impact over this period, net profit would have been minus $65 million over those first 6 months. Moving on to talk about cash flow. As Craig mentioned, we've been able to strengthen our cash position since the end of the first quarter, going up by $88 million. This is partly a result of a good operating result, relatively. But we also had a big positive impact from a reduction in working capital losses. It's part a natural effect as activity levels come down, but also driven by our efforts to bring in and protect cash. We had CapEx of $17 million in the quarter, and most of this is related to dry docking of vessels of about $8 million and scrubber installations in the same amount. For the land-based segment, we only have minor maintenance expenses this quarter. We also received $3 million in proceeds from the sale of a vessel for recycling. In total, this gave us a free cash flow of $178 million, which has gone towards reducing debt and other financial items of about $90 million and increasing our cash position by $88 million, as mentioned. The movements on the debt side, we had an increase in drawings on credit facilities by net $18 million, and we also drew down $10 million on the scrubber financing facility. On the other side, we paid regular installments on bank and lease financings of $106 million, and that includes $27 million related to the so-called IFRS 16 leases or leases previously considered operating leases. Lastly, on the balance sheet, no dramatic movements there. Equity ratio was marginally down since the first quarter, currently at 34.4% compared to 34.6% previously. And also net debt has remained relatively stable over this period, a small decline as the cash has increased. And furthermore, the balance was impacted by the increase in the provisions related to the antitrust case of $55 million. That brings me to the end of what I want to cover, and I'll give it back to you, Craig.

Astrid, thank you. Let me go into the market update and also our outlook. A lot of things to talk about here, so I'll try to be brief on some of it. Quick view of global light vehicle sales, based on the quarter, down 34.7%. But to break into some specific markets, if you look at North America, just to give a bit more flavor here on the sales side, which is the left-hand side of the screen. North America was down 38% year-on-year; EU was down 52% year-on-year; China was actually up 1.1% year-on-year, which then distorts given the relative size of the Chinese market, has a distorting effect in terms of positivity. So that's a quick snapshot of how sales developed in the quarter. If we look at actual exports, we're down 41%, about nearly 42% across the board. The big exporting regions, Japan was down 39%; Korea was down -- South Korea was down 42%; North America, 41%; and EU, 37%. So those adjustments, in terms of actual -- not just production, but clearly, exports have washed through in the quarter, if you look at it on a year-on-year basis. I'm going to spend some more time talking about stocks and stocking later when I get into production numbers. So I think I'll continue to move. What's an interesting point here -- this is new information for those that follow us regularly. Just to give a slightly different picture of the total size of market relative to both imported volume and domestic volume. This is a global picture looking at the years. If I just start with the total market size, IHS are estimating the total market this year to be around about 70 million units, which is 22% down year-on-year if we compare to 2019. When we look on plant closures, which has been significant throughout this period, what we need to expect as we go forward is a degree of sort of stop-and-start. We don't expect production to just simply return and stay at stable levels. It will increase. It will spike. It will drop down again. I'm going to talk more about this after. When you look, though, at the deep-sea trades, which is what's most important from us from an ocean shipping point of view, 2019's volume was 14.9 million units. That was market size. This year, we expect it to be around 11.4 million. So it's a drop of 23%. So the overall drop in deep-sea trades is pretty much in line with what we've seen in overall sales. If you look over to the right-hand side, it's a busy slide, but the line I would like to draw attention to is actual deep-sea share of trade or total market sales. The average is around 16.8% or roughly, it is. 16.8% over that period of time. What's very interesting to observe, and it's something that we continue to watch pretty closely, is if we look back the last 3, 4 years, that portion has dipped slightly. But if history built again, looking into the forward forecast, it will hold. There's been a lot of questions historically around -- recently around what's going to happen with deep-sea trade relative to localizing production, battery vehicles, battery electric vehicles, et cetera, et cetera. Our picture that we see is that we'll not significantly change the portion of deep-sea volume going forward. Of course, global sales will impact that. So as global sales increase and decrease, we will have an increase in decrease in normal volume. The total share looks to remain unchanged, which we think is a good picture to see. Let's move to production. New numbers for us to present. We haven't talked about this before, but we think we're very prudent in these times. The picture you see in front of you is broken into quarters. It's a mixture of actual production globally versus sales and how the deep-sea volumes have fared relative to that and then looking forward. So Q2, of course, in the middle there. We used the term in Q1 that we would likely reach the low watermark in Q2. Looking at sales and production, that seems to match. An interesting thing to pick out of this picture here is that sales have dropped 35% year-on-year in Q2 local sales, whereas production dropped 47%. There's a noticeable portion of destocking that's happened naturally because of that, point being that manufacturers have cut production faster and harder than sales have reduced. That's partially driven by reduced demand, of course, there's been a choice to not continue producing. However, there's also been the impact of lockdown, where simply, it's been impossible to have workers in the plants. So production has been hit relatively harder. With the 47% drop in Q2, matches very much what we've talked about before and has washed through in our results in that we also saw a 45% drop in our Ocean volumes on a prorated basis. Looking forward, based on forecast, this would look like a positive recovery. We'll still end with a production volume expected to be 12% down year-on-year. That's the expectation, with a little slippage again into Q4 this year, further slippage into Q1 next year before it slowly starts to rebuild. That's a very smooth looking line. We live in a month-to-month world in operations, not in a quarter-to-quarter. So we will expect to see significant peaks and troughs throughout these quarters. And that will have an impact in our results in different ways, positively, negatively at different points in time. And that's something we just need to be prepared for. If we look to specifically July sales, given that the number I just talked about for June/July was only down 6.8% year-on-year. So sales have rebounded quite well. There has been a significant degree of destocking. That will mean that manufacturers will want to catch up, assuming that they're able to access parts and employees and can operate their clients effectively, but they will want to catch back quite quickly. That may result in overstocking because what's still unclear is how strong is the true demand out there. In the real economy, there are real job effects. There are real income effects. And there's a real question of confidence among consumers. So until we have a more balanced demand market, until that time before we see a stable reduction market. So the point being that we expect peaks and troughs, and we need to see some degree of confidence return before we can be very firm in our predictions in how the market looks going forward. We have a view on Q3. We should share that. But beyond Q3, it remains unpredictable. It will be unpredictable for those reasons. Some of the upsides on what could drive positive demand is stimulus packages around the world. We've already seen a few announced in Europe. We expect China will do similar. In fact, they already have with new energy vehicles. That may reverberate into other economies in the world. So there is some positivity relative to stimulus packages. There's a general shift, people moving away from public transportation, still having the need to have mobility. That may drive car sales. So there's also some positive signs that we're watching out for. People are very concerned with their personal safety, as they should do, and public transport is being seriously challenged as a result of that. So will that drive an increase in car sales remains to be seen. But it could be a positive sign. And the vaccines seem to be closer and closer, and that will also have a positive effect on consumer confidence and demand. So there's a number of factors that we need to continue to weigh and balance here. And we continue to -- it's a term we've probably overused, but we'll continue to use, we continue to err on caution looking forward, even though we see production is certainly increasing right now. This was automotive. High & heavy, plenty of information on this slide as well. High & Heavy has not been as hard hit as automotive in the global marketplace -- space nor has it us -- has it for our volumes, either. Some interesting signs though. So IMEC is roughly a 22% drop globally. But some interesting signs we see in terms of machine utilization based on data that's trackable. Although of a fleet of around about 150,000 machines across North America and Europe, utilization vectors are up, construction equipment, that is. So machines are being used. There is plenty of activity out there. Most high & heavy products that we carry, as I touched upon earlier, are considered as essential services. So production has held relatively well and sales have held relatively well. But OEMs have adjusted production. You'll see that in the next bullet point on the left-hand side. There is a new reality. The market is down by 20%. So there has been production adjustments. What's interesting to note is some manufacturers is they cut back production fairly hard to destock. Caterpillar specifically have indicated that they've destocked in a value of between $1 billion to $1.5 billion per product. There is some concern amongst dealers that, that destocking has been too harsh, which means that there will be a need to restock, so production would spike back again for a period in order to replenish the marketplace. So not dissimilar to automotive, we expect high & heavy to be a little bit peaks and troughs over these coming quarters. But all in all, let's say, it's a stronger underlying future than Automotive. If you look into the forward forecasts going into next year. So you can see the decline across the different segments of Construction, Mining and Ag in 2020. Looking into 2021, there is an expectation that sales will improve again and that we'll have year-on-year positive changes for these 3 main commodity groupings. There are some stimulus packages out there. Just to touch upon that, it's the third point on the left-hand side. As governments will continue to stimulate their economies, construction is always an area that large infrastructure projects are areas that are positive. And that's certainly an indication that we'll continue to watch for. Let me just add further on mining, I talked to that in Q1. We cannot forget when mining -- as far as mining is concerned. The truck fleet is aging. It will need to be replaced. That cycle may be pushed forward by another year or so. But the fact is that the machines are just getting old and they will need to be replaced. So that replacement cycle is still on our horizon, which we think is -- remains very positive. Over to the fleet. From a global fleet point of view. We talked about our own fleet. This is the global picture. On the left-hand side, you can see the portfolio of global fleet in the Europe build. Of course, a lot of buildings in the late -- or the 2000s, if you like, through till 2010 was kind of last peak. But if we look back at the vessels in range for recycling, that number is 47 of a global fleet of around about 770 vessels, so roughly 5%. Sorry, a little bit over 5%. There's already 15. Well, there's -- 9 vessels been recycled in the quarter with 15 vessels in the global industry so far this year. There's 32 to go, if you like, and what we say then is that there's 32 more vessels that are in the age range where they are due for recycling. And one should expect in a market like this, where we have a degree of overcapacity, that, that will, in fact, take place. Wallenius Wilhelmsen have taken responsibility. We have recycled what we should and can do, and we'll continue to do so going forward. The order book remains low. You then see that picture on the right-hand side. We have, basically, when you consider all of recycling and the current order book, net fleet growth of 0. Demand clearly dropping this year, but expected to then recover and start this recovery trend next year. So the mid picture on the fleet side is positive. Right now, it's tough with idle fleet and capacity globally. But when we look forward, one can assume that a crisis like this will help us remove the excess capacity and we'll have a more positive picture looking forward. Okay. And I think we have cleared everything we would hope to have cleared today. I'd love to talk for longer in the market, but we will close off with a quick set of outlook statements and then open up to the web before Q&A. Well, looking forward, we -- our focus is remaining firm and solid throughout this period and going forward for the rest of this year. Health and safety is #1. We continue to focus on safe operations, safe return to work back at our production sites where we're bringing people back to work to ensure that we're operating in a safe and health-conscious way relative to not just our normal operations, but obviously with the virus. We've been supporting our ship managers for crude repatriation as much as we possibly can. That's been certainly a challenge, and we're very concerned with the plight of the seafarer, and we've been working tightly with our ship managers to help facilitate safe and efficient crew change. On the operations side, Astrid talked a bit to this when she talked through Q2 numbers. But Ocean, we continue with the dynamic vessel scheduling. We do not stay locked in a bus route system, if I can use that term, crass term. We continue to adjust capacity and scheduling to match demand from our customers, and that certainly washes through in positive earnings and positive results. Slow steaming, reduced sailings, whatever we need to do, and idling, where necessary, in order to just manage our costs. Terminals and processing centers are ramping up now. We see volumes as they return. We're bringing temporary laid off workforce back to work safely, and we'll continue to adjust that capacity to meet that demand. On the commercial side, we're still working hand-in-hand with our customers, adjusting schedules right here and right now. Also looking forward, they will have different needs from us, and we're working to be as adaptive as we can to support their forward expectations as we expect their volumes and production to peak and trough month-to-month coming forward. As we said, the long-term outlook remains uncertain for the factors we talked about, so we are on caution. But looking into Q3, definitely an improvement on Q2. We expect volumes to be 25% below year-on-year in the third quarter is our expectation. Looking forward, there is a life beyond COVID-19 as well, and that's a huge focus of ours. We have to look to 2021 and beyond. We continue to explore new service opportunities that arise from the current market needs. Customers are having some very explicit demands right now, things like sanitizing vehicles, for example. We're supporting our clients and developing new needs -- new opportunities where we can. We're also looking at leveraging digitalization opportunities for our own efficiency, but also revenue expansion. That's a core part of our strategy. And relative to that long-term strategy, we will continue to adapt that given the current environment. So with that, that's a mix of outlook and focus for the future. We're going to continue to look forward, at the same time, take care of everyone's health and safety. With that, I'll stop and ask if there's any questions.

Thank you, Craig. Yes, we have a couple of questions. First one from Anders Karlsen at Danske Bank. On the working capital, what were the key drivers behind the significant change in working capital? And further, can we expect a reversal? Or is it expected to remain stable over the coming quarters?

Yes. The 2 key drivers there were on both receivables -- accounts receivables from customers, which has come down quite significantly. And that is due to a combination of -- there's a natural reduction as revenues go down, but also we have had focus on bringing in cash in the quarter. And also, our bunker inventory has come down very significantly with the $76 million impacts in the quarter. That is partly offset by also reducing payables on the other side. So overall, the net effect from, I shall say, from that narrow definition of working capital is about $135 million. But receivables and inventories is the main -- are the main drivers there, partly due to our own efforts to bring cash in and protect the cash flows.

So a second question from someone with the signature [ P. Text ]. You state that 52% of your contracts are to be renewed this year. We think it's unlikely, given the competition and volumes, that you will renew all and expectations -- and what are expectations about the rate.

The expectation is to renewal. We will always make an evaluation with every contract relative to the service that we need to provide, the rate that the market attracts, the profitability. So the intention and plan is to renew all. But given the trend or the focus that we have had, we're not willing to enter significant loss-leading businesses. That's a choice. That choice remains. However, in this particular cycle, we do not have that many major contracts which are driving in the same way as we have had previously. We have a couple, and they remain a very tight focus. They're also strong partner customers of ours. So we see limited risk there.

And we have another few questions from Lukas Daul with ABG. First one being, how quickly can idle capacity return to the market? And what are your criteria for putting vessels back to work?

Yes. Currently, at the end of the second quarter, if you take a global fleet perspective, it's indicated that roughly 20% of the fleet was -- the global fleet was idle. That number seems to be holding through August. So in the very short term, if there is a need to -- for us to increase capacity in the short term, we'll take it from the market, from the charter market. Rates are quite low, and there is ample capacity out there. The threshold to take vessels out of layup will be relative to those 2 pictures, how do we see the stability of the forward demand picture, number one. And number two, are we able to access short-term capacity in the market at a cheap cost? And they will be the decisive points before we bring vessels out of layup. To be very frank, we wouldn't be happier than to bring vessels out of layup, but we'll only do that when it's economically sound.

So second question. How is the destocking, overstocking dynamics that you talked about production going to affect your volumes? Positive, negative impacts?

So given that stock levels are quite low, relatively low for both Auto and high & heavy, that's positive for us in the short term, meaning that there's a need to replenish those stocks, which means that volume, as you saw in those production numbers, production will increase, volume will increase. For us as a business, there's a certain lag we have to keep in mind when we talk about increased production on the production line today. We will see that in our VPCs tomorrow or the day after. We won't see it on our terminals until next month. We probably won't see it on the ships until the month after. So that's a good indication of the lag that we will expect to see in the actual volume coming through our business.

And the last question from Lukas. Is the net bunker cost effect going to reverse in the second half year of 2020 given the oil price is stabilizing at your storage of $45 per barrel?

Yes. I don't -- we don't expect to see a reversal of that effect. That will first come if oil prices start to increase again. But we don't expect to continue to have such a positive impact from it. I think if you look at the period now going in towards Q3, fuel prices have increased somewhat. And our -- the surcharges that we charge towards our customer will now be based much more on the period. On average, simplified March through May, where prices were quite low. So we might see a little bit of an impact the other way, but not a reversal of that large number. While I'm on that, I realized I forgot to answer the second part of the question from Anders Karlsen as well regarding if we expect a reversal of the impact on the working capital. Also there, I think yes, as activity starts to increase again, there will naturally be a bit of a reversal of that effect. However, we see that the recovery is much more gradual than the drop we experienced in the second quarter. And also, as long as fuel prices remain quite low, we will hold on to some of that impact on our inventory.

Very good. That was all the questions from the web.

Terrific.

Thank you.

Thank you very much for your participation. Look forward to seeing you in our Q3 report. Thank you.