Hapag-Lloyd AG

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Hapag-Leoids Analyst and Investor Annual Report Full Year 2023 Results Conference Call. Hapag-Leoids is represented by Rolf Haben Jansen, CEO, and Mark Frese, CFO. Throughout today's recorded presentation, all participants have been listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Rolf Haben Jansen, CEO. Please go ahead, sir.

Thank you very much and thanks everyone for making the time to join us here today at the investor presentation of the full year 23 results. Maybe with just a couple of things to kick it off. I think first of all, Even if the year was not as super as it was in 21 and 22, we still posted the third best results in our group's history, and we had a pretty good return on invested capital. So all in all, I think it's actually been quite a good year, even if the market was definitely a lot weaker than it was in 22. A couple of key things to note. I think, first of all, I think that our business mix, both in terms of the mix between contracts and short-term business, but also our diversified Geographical exposure has definitely helped us to achieve a strong financial result also compared to the rest of the market. Strategically, we made good progress on a number of fronts. We'll talk a bit more about that in the upcoming pages, particularly in the establishment of our terminal and infrastructure business. We worked hard again in 23 on quality, which helped us to further improve customer satisfaction and the feedback that we got from them, from our customers. On the sustainability front, good progress. If we look ahead into 24, that's definitely a challenging year. If we look at the fundamentals, they are not too favorable, but of course we also have the Red Sea situation, which at least temporarily creates a somewhat different situation. We wrapped up our strategy 23 last year. I think we achieved most of the objectives that we wanted to achieve, and we have also formulated our strategy towards 2030, which we are communicating internally as we speak, and we'll get back to you in more detail on that in the upcoming months. Looking at market, I already mentioned volumes relatively weak in the first half of the year, definitely better in the second half of the year. I would say that the market in the end ended with a small plus. I think that's something that we actually predicted in the beginning of last year when the overall outlook was much more negative, as we felt that in the second half we would see a bit of recovery. As you can also see on that graph, the start of this year has not been bad, and we are definitely ahead of what we saw last year, despite the disruption that we've seen in the Red Sea. And I would expect that the outlook that you hear from many of the analysts of about 3% or 4% growth is probably not going to be that far from the truth. Then when looking at rates, rates have come down post-COVID. to unsustainable levels, especially in Q3 and Q4. Some of the sports rates have been at levels for which we simply cannot move the boxes from Asia to Europe or to the United States. You have also seen that reflected in the results of many of the liner companies, including ours. I'd say that after the real dip around October, and that's why we made a little zoom of that graph, you already saw that rates were starting to come up somewhat from October to November to December. And then, of course, the Red Sea crisis hit us, which caused a lot of, on the one hand, uncertainty in the market. It also meant that we needed more ships to offer the same number of sailings. And as such, we saw a steep spike in spot rates that is starting to come down a bit now. In the end, what we shouldn't forget when looking out a little bit further is that... rate levels that we saw in Q4 are not sustainable because costs have gone up very significantly since 2019, which somehow for people still seems to be the benchmark. But we shouldn't forget that you then have five years of inflation that play a role, but also that some of the regulations have changed looking into 24, going from high to low sulfur fuel. And as from this year, we also have the EU ETS. Going into what have we been able to do beyond Q4, Just the numbers and market, I think it's been a good year for HAPAC, where we have been able to grow our fleet to around about 2 million TU in standing capacity at this point in time. We made very good progress with our fleet upgrade program as we had about 80 ships in dock. And also when it is around our dry container tracking, I think we started and launched that as one of the first ones. And we by now have more than a million boxes equipped, which means that In the course of this year, we'll be able to launch products based on that. On the terminal side, we completed three transactions with GM Bakshi, Spinelli, and Sam, which gave us access to quite a number more terminals in Latin America, but also in India and Europe. We established a team in Rotterdam that is taking up speed as we go. On the quality side, we improved our customer satisfaction scores, measured as NPS to about 58 towards the end of 23. That's the highest score we've ever achieved. Also, the first half was already quite good. I think now it's all about trying to stay at or quite close to that level. That also means that we have to work on our operational quality. Otherwise, that over time becomes an issue. On the sustainability and people front, for the first time, we significantly reduced our CO2 footprint, about 800,000 tons less than emitted in 23 than we had in 22. We launched our Ship Green product, which has seen quite a good uptake in the market. And on the people side, we continue to invest in the Hapag-Lloyd Academy, which is also gaining speed as we speak. Then before I hand it over to Mark, still a few words on Gemini Corporation. Many of you, if not all of you, will have read in the press that we've announced that Hapag-Lloyd and Maersk have agreed on a long-term operational partnership that starts in February 2022. That's all about a strong partnership on all of the key east-west straits. We believe that by teaming up with a like-minded partner like Maersk, we are able to make a step change in operational quality, which we believe is critical to deliver on our strategy to become the true and hopefully undisputed number one for quality. That means that we needed to come up with something new because just doing more of the same was not going to do the trick. Very happy that we managed to agree with MERS to go to a much more innovative hub-and-spoke concept, which can only work if you also control the terminals, especially the key hubs. And in the network that we are building, almost all of those key hubs are indeed controlled by either HAPAC or MERS. Other benefits from that cooperation would be that We believe that we can accelerate our efforts on the sustainability front and can decarbonize quicker. We think that we will be able to keep costs under control as we aim to deliver this network without incurring additional costs. And finally, we also think that with two partners, we can move quickly and react in an agile way to changes that may take place in the market. And with that, I think we come to the numbers. And Mark, over to you.

Thank you, Rolf, and also good afternoon from my side. Yes, 2023 was financially, once again, a quite successful year for HarperCloid. While earnings declined as expected, we were able to manage to achieve a very good result and maintain a very strong balance sheet. Group EBITDA stood at $4.8 billion, which accounts for EBIT margin of 24.9%, quite a remarkable number in such a year. And our net liquidity position amounts to 2.9 billion US at the end of the year. Based on this result, we will propose to the AGM to distribute, again, sizable dividends. We're coming to that a little bit later. So it's also, however, true that the good result was predominantly driven by the still very strong performance in the first half of the year. As we can see on the next page, we recorded for the first time since Q2 2016 as most of our competitors in EBIT loss of around $251 million in Q4 last year, mainly due to unsustainable low freight rates, the unsustainable freight rate development. For the entire fiscal year, 23 group EBIT amounted to 2.7 billion US, which is an EBIT margin of 14.1%. With the normalization, also our invested capital declined accordingly to 15.6%, still quite a good number and a strong number. And as we said last year, the return on invested capital of 2022 was really exceptional and, yeah, for this reason, not a sustainable lever. Group profits stood at 3.2 billion U.S. dollars and was with that even higher than the operating profit as we generated a positive financial result thanks to our sizable net liquidity position. Looking at the, and that's for the first time in an analyst meeting here, first time to two segments in our business and on the performance of the two business segments, we see that in 2023, for sure, the majority of income was generated in the liner business as the terminal infra and infrastructure segment is the new segment. The liner business recorded a strong start to the year, but results declined sequentially due to the gradual decline of our average freight rate, what we can see on the next page. Our average freight rate continued its downward trend in the fourth quarter due to generally low spot freight rates on most of our trades. However, at the end of the year, and even before the escalation of the situation in the Red Sea, the downward trend has been stopped. Our transport volumes ended with an increase of 0.5%, and after a weak start in the year, there was quite a solid recovery in the second half. Growth was driven by the higher demand, but also by soft comps, as destocking in the U.S. caused volumes to fall sharply in the second half of 2022, so slightly easier to catch up. Towards the very end of the year, the conflict in the Red Sea had a negative impact on volumes as a diversion of vessels around the Cape of Good Hope prolonged voyage times. That had also, for sure, an effect on our unit cost, because the longer voyages had respective effect. In particular, Hayabanka pending voyage expenses led to a rising unit cost in Q4 when we compared to the previous quarter. Over the year, in 2023, nevertheless, we reduced our unit cost by 10%. The improvement was here, therefore, mainly driven by lower bunker prices, active cost management, and easing of port congestions, which we have seen. As the rerouting of ships only started in mid-December, the impact of longer voyages naturally will be seen more in Q1 of this business year. Jumping to the terminal division and looking at the performance, we have to remind ourselves that it's a new business segment and is still in the process of being formed and therefore does not reflect the result of a full fiscal year. Looking at the revenues in that year, especially we see an increase up to $202 million U.S. dollars due to the first-time consolidation of the Sanport and logistics business, which is integrated or consolidated since August 2023. The segment EBIT amounted to $20.5 million, which was negatively affected by the one-offs, especially for the transaction costs and further ramp-up costs for the newly acquired businesses. And we have to say in 2022, results included a net positive effect of $52 million in connection with the acquisition of the CTW, so our terminal in Wilhelmshaven. Jumping to our cash generation, so group cash flow, as we can see now and here, especially beginning with the operating cash flow, came in with 5.4%. a billion U.S. dollars due to the good operating result and positive working capital effect. Cash outflow for investments, especially into the build-up of our terminal business, includes in particular the acquisition of Spinelli, J.M. Buxey, and the portfolio, the terminal portfolio of Sam, which altogether amounted to an investment of 1.8 billion U.S. dollars. Same amount, roughly, we invested into our vessel and container fleet. These investments include, for the time being, the first three of our total 12 fuel vessels, which, to remind us, have a nominal capacity of 24,000, or close to 24,000 TU each. The investment cash flow includes also a net cash inflow of $1 billion from the liquidation of time deposits and of interest and financial income, which is due to our strong financial and substantial cash position overall. The financing cash outflow of $13.4 billion is mainly related to the dividend payment and debt redemptions. In total, our cash balance stood at the year end at $6.4 billion. And if we include our strategic liquidity of $2 billion, which has recognized our financial assets, which is not in here. When we take the net liquidity position in focus and would include that strategic liquidity and our fixed income strategic liquidity, which is invested, sorry, into fixed income assets and the undrawn revolving credit facilities or liquidity reserve would amount to north of nine, precisely 9.2 billion US dollars. And as already mentioned, with a net liquidity position of 2.9 billion and our book equity of 20.8 billion US dollars, the balance sheet remains very solid and strong. Based on the still very good result in 2023, the executive board and the supervisory board will propose to the annual general meeting a dividend payment of €9.25 per share. This translates into a dividend payment of €1.6 billion, and if approved, would be the third highest dividend ever paid by Hapag-Lois. Our AGM this year will take place as a virtual meeting on the 30th of April. And with that, I hand it back to Rolf again for the market updates and a financial outlook.