Hapag-Lloyd AG

Welcome to everyone. Thank you for making the time to join us here on the Q1 presentation. As always, Mark and I will split it between us and we'll be very happy to take any questions afterwards that you may have. Yeah, maybe a couple of opening remarks. I think when we looked at the market, volumes remained subdued. I mean, we also saw the inventory correction starting in the second half of last year, and I think that sort of continued into Q1. Would also say, though, that when you look at the quarter, that towards the end of the quarter, at least the like-for-like numbers were starting to look a little bit better. I don't think that means that we're now going to see a very quick recovery, but I do think that that underlines the point that destocking is slowly but steadily coming to an end, and at some point in time, we quite likely will see a bit of a pickup in demand. On our end, we've made good progress on all the things that we wanted to do. We'll give you some updates on that also as we speak, particularly on the terminal side. Financially, I mean, Q1 still has financials that are quite exceptional if you look at it in a historical context. Good cash generation, balance sheet remains strong, dividend meantime paid out. In terms of markets, as I mentioned, We think it's going to remain subdued for a little bit longer, even if I do believe that that second quarter market-wise will be better than the first one. Of course, we see ships coming, but the main effect of that is only going to come in 24, 25. And if we look ahead, no major change compared to what we announced when we published our full-year numbers. We do expect earnings to normalize, but we stick to our outlook. And in terms of what we plan to do, we'll continue to act on the things that we have defined in the context of trying to simplify and strengthen our business and invest where needed. And we also will work on our strategy towards 2030, which we hope to complete towards the end of this year. A little bit more detail on volumes and on rates. These graphs you know. We see that demand has been, yes, since August last year, clearly down. I do expect that the lines will get closer and closer to each other. And at some point in time, probably in Q3, I think they will cross and we'll start seeing some year-on-year growth. When you look at rates, some of the spot rates are back to the levels that we knew pre-COVID. Important to note here that that is a level that in the long run is not sustainable yet. as costs have come up since 2019, 2020. And I think the reality is that everyone today faces costs that are 25, 30% higher than they were at that point in time, which historically seen still means that costs are very low, but no longer anymore on the absolute low point as we have seen at that point in time. When looking back at the quarter, I think one of the highlights of the quarter for us was certainly that we continue to work on quality. You all know that our strategy is to try and do our utmost to become number one for quality. We measure that already since a number of years. On the one hand, the quality promises that we defined 10 of them, where I would say that by and large, we have made good headway. The one where we still have work to do is on on-time practices. schedule reliability and that is something that we will firmly put into our strategy towards 2030 as we simply must get better on that front. When we look at customer feedback, we measure that on MPS as some others do as well and we are about to wrap up our survey for the first half of this year and we were really happy with the outcome of that because the outcome of that will be a net promoter score that is significantly higher, again, than what we had this time, likely in the very high 40s, which we believe is a level that we now must then try to keep. And what's also important there is that the consistency in the quality that we deliver has improved a lot, as we see that every single area that we have around the globe has a a net promoter score that is significantly positive, and we believe that's probably one of the most important things and certainly a basis to build on. In terms of investments, nothing too new for any of you. Most likely you know that we have the new builds, the 13,000s already coming into our fleet, and also our dual-fuel energy ships are starting to come as from June this year. We are also doing the fleet upgrade program where we invest in two things. One is fuel savings, but the other one is also to increase capacity on existing ships by making technical modifications. We invest about 750 million in that program altogether. We have the container tracking. You know, we were the first one to announce that last year. Now the installation of the devices is in full swing, and we need to make sure that we get the majority of that done until the end of this year. On the digital front, we roll out new tools and things pretty much every quarter with a clear ambition to make it easier for our customers to do business with us. Then the last addition that we've had and which we launched last week is Shift Green, where people can avoid emissions of up to 100% of what they ship. We launch a product which is shipped between 25, 50, and 100. That dependent on your preference, you can book that with any confirmed shipments. It can be done easily because it can be done online. It can be done globally. And we will also give you full transparency on what you have done and quarterly you will get the you would get the certificates that are needed. We do this based on biofuel, and we're quite curious to see how that product will be taken up by the market. I hope that it will be sold out soon, because that will also be encouragement for all of us to do even more on that front. And then finally, before I hand it over to Mark, a bit on the terminal front. As you know, we did a number of investments last year and the beginning of this year. We are making good progress with that. The transaction with Spinelli was closed in the beginning of January after we got all the necessary regulatory approvals. JM Bakshi Ports and Logistics was signed in January and actually closed on April 19, which we think is great, yes. We had hoped that we could get all the approvals there in a period of three months, and I think in the end we did it in 87 or 85 or something like that days, so even a little bit ahead of target. The approval process for sound ports and logistics is still going on, and we expect that to complete hopefully early in the third quarter. And with that, I hand it over to Mark to talk us through the numbers.

Yes, thank you, Rolf. Also from my side, good morning to everyone. As Rolf already said, the first quarter of 2023 was characterized by weak demand and declining freight rates for container transports. But we can say even in this challenging market environment, we were able to post another strong quarterly result by clearly benefiting from our balanced geographic exposure, high share of contract business, and the successful execution of our strategic initiatives. And we will come to that in a bit. When we look at the next chart, as expressed a couple of times and as expected, earnings normalization continued in Q1 2023. Revenue was down by 33% to $6 billion, mainly due to lower volumes and freight rates. while EBIT of 1.9 billion US dollar was clearly below the prior year figure, the EBIT margin of 31% and return on invested capital of 46% remained still on a historically high level. Coming to the volumes, so transport volumes in Q2 declined by 4.9 to 2.8 billion, a million TUs. The Atlantic trade saw robust demand, mainly from industrial customers and benefiting from the gradual easing of port congestions. In the African trade, we benefited for sure from the acquisition of the container liner business Deutsche Afrika Linien in Q2 2022. All other trades were affected by destocking assets and weaker global demand, which overcompensated the volume increase in Atlantic and Africa. On the average freight rate, we have to say it decreased by 28% to US$1,999 per TU due to significantly lower spot freight rates and the resetting of long-term contract rates. Nevertheless, compared to an even more negative market development, our quality freight product supported our freight rate development positively. At the same time, the average bunker consumption price was up 5% as compared to the prior quarter. In comparison to Q4 2022, the average bunker consumption price declined further on the back of lower oil prices. Unit costs increased year over year, mainly due to higher bunker and repositioning expenses, but were clearly below the previous quarter. Equipment and repositioning expenses increased by 15% due to the high expenses for moving empty containers. Vessel and voyage expenses increased by 5% as lower slot charter renters and third-party vessels were more than compensated by higher port and canal costs. In total, unit costs in Q1 were up 3% or US$43 per TU as compared to Q1 2022. But after the comparison to Q4 2022, unit costs started to decline due to lower congestion-related charges, bunker prices, and our cost control measures. Now, looking at our cash flow, we see that despite much lower earnings, a strong cash generation continued in the last quarter, leading to a very high cash balance of 19.2 billion US dollars at the end of Q1. The investment cash flow includes a cash inflow of nearly 1 billion US dollars from money market transactions. And as a reminder, last year we have started to invest excess cash in money market funds, which under certain circumstances do not qualify as cash under IFRS accounting. So instead, the investments are recognized under other financial assets in our balance sheet. In addition, we have invested almost 500 million US dollars in our vessels and in our equipment, as well as in the purchase of 49 stake in the Italian port and logistics company Spinelli. I've talked about it already. The financing cash outflow of almost 500 million US dollars was mainly related to repayments of debt and leasing liabilities. And as a result, finally, The very strong cash generation in the last two years, our balance sheet and credit ratios reached exceptional levels. At the end of Q1 2023, our equity ratio improved further to 74%, and net liquidity stood at 15.7 billion US. And you know, last week, the Hapag Lloyd AGM approved the joint proposal of supervisory and executive board to pay out a dividend of 63 euros per share, or 11.1 billion euro in total. The dividend has been distributed to the shareholders on Monday this week. And we have to say, even after distribution of this outstanding dividend, we continue with a solid net liquidity position. And I think with that positive message, I hand it back to Rolf for the market outlook and closing remarks. Thank you, Mark.

Yeah, just a little bit about the market. I think, as always, this is all about supply and demand. Maybe first let's look at the order book. The order book is still very significant. I mean, it seems to stabilize around about 27%, 28% of the global fleet. Clearly less orders again this year than we saw last year. I think that's entirely to be expected. But of course, quite a lot of ships in the pipeline. Now we need to see what that is going to mean when looking forward. I don't think the situation is comparable to as we had an order book which was over 50% at the peak. on the other hand, it is still a very significant order book. And yes, some of it will be hopefully absorbed by recovery of demand, and some of it will be because CII and certainly scrapping will pick up significantly. But I do think that it's fair to assume that when we look ahead into particularly 2024 and 2025, that the likelihood that supply growth will outpace demand growth is high. Inactive fleet is still at a very So if we compare supply and demand on the next page, then I think we can clearly see that for 23, I think the effect is still manageable also because quite a lot of the new ships are actually only coming in the second half of the year, which means that they will really start having an impact on the supply and demand balances from 24. but it looks right now as if certainly for the next two years we will see more supply growth than demand growth, which will certainly put some pressure on the market. Remains to be seen how much will really be absorbed by CII and how quickly scrapping will pick up. We start to see some first signs of chips being sent to demolition yards, but still clearly more will need to be done. In terms of our outlook, We commented on that as we published our full year results and no reason to deviate at that now. We think transportation volume will increase slightly. We are, of course, down in Q1. Probably are going to see the growth only really in the second half of the year. When we look at it year on year, we should still be able to close a little higher. Bank consumption price, we expect it to go down. Of course, the freight rate, too, and the ranges that we've indicated previously for EBITDA and EBIT are still valid. What are our priorities for 2023? First and foremost, let's continue to make sure that our service quality is good and customers are happy, because particularly in markets that are not so strong, loyalty of customers is important, and also the service that we're able to offer to them When needed, we will, of course, adapt to market conditions, which are always somewhat unpredictable. We'll continue to have a prudent financial policy, as Mark also alluded to a little earlier. We'll focus increasingly on cost. Yes, our unit cost is slowly starting to come down, but we must still get it down further, even if we will have to accept that the cost will remain at a higher level than what we had pre-pandemic. We'll continue to work on building our terminal portfolio. We'll continue to invest in our teams, Hapag-Lloyd Academy being a good example there. We'll continue to look for new and additional measures to boost the progress that we make on the decarbonization and sustainability front. And we are working hard to develop our new medium-term strategy where we set our eyes on the year 2030. With that, that's the introduction from our side and we happily hand it back over to you.