Hapag-Lloyd AG

Thanks, everyone, for making the time to join us here this morning. Well, we would be very happy to give you an update on the last quarter and also try to look a little bit ahead. I mean, maybe a couple of opening remarks. I think when we look back at the quarter, the first thing, of course, is freight rates remain very much under pressure, and that leads to an increasingly challenging market environment. I would say volumes have, on the other hand, been fairly healthy. For the first time, we report on the terminal segment. Also for us, a milestone, I think that we closed the transaction with Sam on the 1st of August. And also the fact that we got the okay to launch a new joint venture on Cabotage, I think is a good step ahead for us in South America. On the financials, if we look at the nine months, I think results are definitely solid. But also if you look at Q3, you can clearly see that results are increasingly under pressure. Volume picked up in Q3, but rates continue to go down. Net liquidity position very healthy. When we look at the market, order book still quite high. Demand not so bad, but not expected to go up very rapidly. And that also means that when we look at supply growth versus demand growth, that it's quite likely that when looking at the remainder of 23, but also in 24, that supply growth will outpace demand growth. What are we going to focus on going forward? I think we narrowed down the outlook for 2023, so we'll wrap up the year and start preparing also for the years to come. We adjusted slightly our – or narrowed down the bands of the forecast. Talk a bit more about that later. In terms of business, we'll continue to focus on providing good quality to our customers. We will put increasingly focus on cost because we do need to do whatever we can to get – cost out of the system, but of course, we'll also continue looking for ways to further grow and expand our business. When looking at bit more detail at volumes and rates, looking at the orange line in the top graph, you can see that over the last quarter, volumes have really not been that bad. A little bit clearly above 22 and even a little bit above 21, which I think is quite encouraging. And I do expect also that in the remainder of this year volumes will remain above the 2022 levels. That also means that towards the end of the year, we're probably going to be looking at a more or less flat development compared to last year, which is certainly better than some feared in the beginning of the year, but fairly consistent with what we have also seen. Rates, of course, are a problem. When we look at the Shanghai Index, which still gives a pretty good indication, you see that by and large, we are back to the levels that we had pre-COVID. and in some cases even lower, that is a problem because costs are up and are in reality 25, 30% above 2019 levels, not only because of inflation, but also because nowadays we're forced to use low-sulfur fuel and also face, for example, higher time charter rates. But of course, inflation also played a role there. Then when we look at what we are doing, as I said, we're definitely stepping up our efforts to take out costs because we have to find ways to mitigate the impact of the lower freight rates, which, as said, in some trades are definitely below cost. I would say in particular the Far East and the Atlantic are under tremendous pressure at this point in time. What we've done different this time than we have done in the past, and I'm actually quite happy with that, is that together with our partners, we have now not chosen to go and blank services on a week-by-week basis, but rather remove entire services from the network. And as you can see on this graph, that means that in the end, we have taken three or actually even four services out, one service already a little bit earlier to PSW. Now we take out the PN3, right? We also take out the FE5, and we take out the EC4. That does not mean that these port pairs are no longer being covered, but they're being covered through other ship systems. So what are our teams doing? Try to make sure we take all the costs out that was related to congestion. I think, in fairness, that's more or less completed. Adjust the network, as outlined also on this graph. Make sure we avoid all non-essential spend. step up our efforts on procurement to make sure that we indeed always get the services that we buy at a competitive cost and adequate quality. And, of course, we need to ensure that we also get the benefits out of the investments that we have done, amongst others, in our new built-in terminals and also in the beat-up grade program. Two more things before I then afterwards, before I hand it over to Mark. Since the third quarter, we're now also reporting the terminal infrastructure as a separate segment, as it definitely is a separate business. We have established a terminal holding in there. We have appointed Diras Bhatia as the head of the terminal holding. He will move into that position in January 24, and in that position, um, division, we will group all the investments that we have done. Uh, and that includes the ones that you see here on some, which was closed in August. Uh, Jim Bakshi says step one closed in April, but also things like CTA and, and group of Spinelli that have been with us for longer. I think the next time we'll try to put the terminal. Yeah. Uh, not upside down the way it looks right now, but, uh, That's for the next time. Then the other thing to mention here is the cabotage business in Brazil. Very happy that we have been able to get the OK from Antac to form this joint venture together with our local partner, Norsul. We've been working on preparing that for quite a long time. That will allow us to offer cabotage services in Brazil and give us access also to markets where so far our access was quite limited. The plan is to start sailing there in January or at least in the first quarter of 2024. That helps us to strengthen our position in Brazil, which we see as a very important market in South America. So very happy that we got the okay for that and looking forward to develop that business further. And with that, I would hand it over to Mark to take us through the numbers.

Very good. Thanks, Rolf. And also from my side, good morning to everyone. Looking at the first nine months, they were characterized by weaker demand and significantly lower freight rates, as said, with the corresponding negative impact on groups' revenue and earnings development. In this challenging market environment, we have again delivered a solid operating result and maintained a strong balance sheet. And yes, with a comfortable net liquidity position coming to that a bit later again. However, the downward trend in quarterly earnings has continued in Q3, as shown on the next slide. As expected, the tailwind from last year's exceptional freight rate environment dissipated over the year. In comparison to the peak earnings in last year's Q3, the Q3 23 group EBIT declined significantly. quite significantly to 228 million U.S. dollars, as you can see here. For the nine-month period, revenue decreased by 46% to 15.3 billion U.S. EBITDA and EBIT fell to 4.5, or respectively, 3 billion U.S. dollars for the EBIT. Rule profit came in higher than the operating profit at 3.5, 3.4 billion, sorry, due to positive interest income on our substantial cash balances and fixed income from investments. As previously mentioned by Rolf, business activities have been structured in Q3 into the liner shipping and the terminal infrastructure segment following the acquisition of sound ports and logistics. And with this new segment structure, we want to emphasize the rising importance of our growing terminal business, and for sure improve transparency on the two segments. The new terminal and infrastructure segment comprises Hapag-Lloyd's stake in 20 terminals in Europe, Latin America, the United States, India, North Africa, as well as other infrastructure investments. It has contributed an EBITDA of 38 million U.S. and an EBIT of 29 million U.S. in this year. And it's important that you bear in mind that the new business segment is still in the process of being formed and therefore does not reflect the result of a full nine-month period. As said, Spinelli is integrated since June, Jay and Baxi since April, and Sam since August, so only for two months. Overall, transport volumes in the liner shipping segment increased by 4.5% in the third quarter compared to the same period last year, and that is mainly due to the good performance on the trades from the Far East to the Americas and Europe. In contrast, volumes on the Atlantic declined both quarter on quarter and year on year in that very difficult market situation. in this trade. Following the good volume development in Q3, nine months' volume are close to last year's levels, and we expect this neutral to positive volume trend to continue in Q4, looking at the development we are seeing right now. The average rate rate in Q3, 23, decreased further. and that by more than 200 US dollars per TU quarter-on-quarter to 1,312 US per TU, and the average rates bunker price declined only slightly to 583 US dollars per ton. Our high contract portfolio, including multi-year contracts and our balanced geographic exposure have helped us to cushion the CVS spot freight rates decline in the first nine months of 23. And I think it's important to say, but it's clear, however, going forward, it is clear that we are not immune to the deteriorating market environment and the spot rates on many trade planes have reached or are approaching unsustainable levels with the respective effects. As outlined already by Rolf, we are accelerating our initiative to bring down costs to mitigate the impact of the low freight rate environment. I think that is the focus for today. That's pretty clear. Unit costs in the first nine months of 23 were down by 9%, or around about $120 per TU, when we compared to the prior year period. In comparison to the peak unit costs seen in 2023 and 2024-22, we were able to reduce the cost levels by more than 16% to 1,222 US per TU in Q3. And this improvement in unit cost was mainly driven by lower bunker prices for sure, active cost management, and the benefits from the easing of port congestions, such as lower storage costs for containers, which we see in the handling in the haulage. Looking at our cash flow, we see that free cash flow stayed clearly positive, which was driven by the still very good results in Q1 and Q2. However, without the payment for the SAM terminal business in August, which led to a cash outflow of $847 million, free cash flow in Q3 would also have been positive. The nine months operating cash flow came in at $5 billion due to the solid operating results and positive working capital effects. Cash outflow for investment in the terminal business, including the participation in Spinelli J.M. Baxi and the acquisition of the SAM portfolio, amounted to $1.8 billion. Investments in vessels and container fleet amounted to $1.4 billion U.S. The investment cash flow also includes a net cash inflow of $1 billion from the liquidation of time deposits and interest income on our substantial cash position of more than $500 million in that period. The financing cash outflow of $13 billion is mainly related to the dividend payment in May, as you know. In total, our cash balance stood at 6.7 billion US at the end of Q3 23. And as usual, I would like to conclude with a brief look on our key balance sheet ratios. Per September 23, our equity was around 21 billion US. That is 65% as equity ratio, which is well above our target, you know, of 45%. despite the high dividend payment in may and the investment in our fleet and the terminal portfolio we maintained a comfortable liquidity position of 3 billion us dollar and at the same time when we add up the liquidity reserve which includes fixed income investments of around 2 billion and our undrawn revolving credit facilities And at the end, it stood and amounted to 9.5 billion US dollars as liquidity reserves. And having said that, I hand over to Rolf again for the market update and financial outlook.

Thank you, Marc. Yeah, a few more words from my end. First of all, let's have a quick look at the order book. We see the order book still very substantial with at the moment about 26% and quite a lot of deliveries also being scheduled. I think that leads us also to the view, as I mentioned in the beginning, that when we look at the upcoming number of quarters, probably six to eight, then we certainly expect supply growth to outpace demand growth, which will continue to put pressure on the market. We see orders that are being placed coming down. I think that's good news. I do expect that also to continue. And as such, the order book will gradually start normalizing. Idle fleet is still relatively low with quite a big number of ships in dry docks. That will also be the case in 2024. But I do expect that idle fleet to pick up. It also shows you that if, in the end, you look at what is actually that balance between supply and demand, that it's not so easy to assess how big that gap really is. If I look at the reports that have been out over the third quarter, then most people report on quite good utilization. That goes for us, but also for some of our competitors. There's actually not that much that is really idle at this point in time. So how much real effective overcapacity there is at this point in time, that may actually be a little bit less than many people think. That doesn't take away, though, that supply growth has probably gone out based among growth when you look at the upcoming six or eight quarters. Looking at the next graph there, I think we see exactly what I just tried to point out. We do not expect to see a dramatic recovery of demand in the next couple of quarters. There, the macro environment remains challenging with two wars going on around the globe. Interest rates still pretty high, inflation also higher than it should be, and consumer sentiment not great. Having said that, The volume at the moment is, as we said before, not that weak. And that also means that as we compare to a weak first half of this year as we move into 2024, that we most likely will see a decent growth rate in 2024. And we also shouldn't rule out the possibility that some of the commodities that have been very much down but that are quite voluminous, like furniture and outdoor, for example, that that comes back a little bit. So I think there is also... a scenario thinkable where we're going to be a little bit positively surprised on the demand side. But by and large, it will be a challenging market, not only in the remainder of this year, but certainly also in 24 and potentially also still a bit after that. We have narrowed down the range of our outlook as we are approaching the rest of the year, as we're approaching the end of the year. I think on transportation volume, we do expect to see some growth towards the end of the year. We're flat until Q3, but we do expect to see growth in Q4. Bunker consumption prices is down. Very volatile, though. It's been up a couple of weeks ago. Now it's again quite a bit down. Freight rate, of course, very much under pressure. And then we narrowed down the ranges on EBITDA and and EBIT. Of course, there is the usual uncertainty around that, but I do believe that this is a fair adjustment and narrowing down of the range. That brings me to the priorities for the rest of this year and also beyond. First of all, we need to make sure that we remain focused on providing good quality service and make sure that our customers remain happy. We just completed a our last customer satisfaction survey, and there we got very good feedback, so that's at least on the right track. We need to make sure we adapt to the challenging market environment and take out costs there where needed. We gave you some examples in this presentation. We'll continue to further build the terminal business and make sure that we leverage also the synergies that there are between the two segments of our business, and then we will also wrap up our strategy towards 2030. Yep. towards the end of this year, and we will communicate that to our teams in the first quarter and most likely also externally a little bit after that. That brings us, I think, to the end of the presentation that we have prepared, and with that, be happy to take any questions that you may have.