Hapag-Lloyd AG

Ladies and gentlemen, welcome to the Hapag-Lloyd Analyst and Investor Annual Report 2024 Results Conference Call. Today, Hapag-Lloyd is represented by Rolf Harben-Janssen, CEO, and Mark Frese, CFO. I'm Sandra, the course call operator. I would like to remind you that all participants have been listed on the mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rolf-Haben Janssen. Please go ahead, sir.

Thank you very much and welcome everyone and thanks for taking the time to join us here today. as the presentation of our full year results, which I think when purely looking at the numbers should not be a big result as we surprised as we published preliminaries already some weeks ago. Maybe a couple of key things around 2024. First of all, I think when looking at the financial numbers, despite all the operational challenges we face, it is the third best operational result in the history of our company. And as such, certainly a much better year than we thought at the end of 23, beginning of 24, mainly due to two factors. One is because the balance between supply and demand was changed a bit after the Red Sea was closed as we simply needed more ships to transport the same amount of cargo. And secondly, significantly stronger growth in the market than we expected. I think everyone expected two to 3% and then to see more than six in 2024. That's certainly also a reason why the market was a lot stronger. In terms of fleet, we did substantial investments in our fleet, as you will have seen the announcement from us that we are ordering 24 new vessels, which we did at the end of Q3. That will help us to remain competitive, will also help us to reduce emissions. We put a lot of emphasis in preparing Gemini, where over the last couple of months we have been off to a really good start. consolidated all our terminal infrastructure investments under Hanseatic Global Terminal mid last year. And as far as we look into 2025, I think we expect a solid start of the year, but of course there is a lot of uncertainty out there, not least around what's gonna happen around the Red Sea, but also on the trade front with all kinds of discussions on fees and tariffs. Looking a bit deeper into volumes, last year, as I mentioned already, Very good growth, much better than everyone expected. Particularly also, and you can see that quite nicely in the top graph, in the period from May to September, indeed a little bit of an early peak season, and that's also reflected in what happened on spot rates. In the beginning, it's a spike on the back of the Red Sea crisis, then somewhat of a normalization towards the end of Q1, and then a very strong spike as we were all somewhat surprised with the strong and early peak season that lasted then until August, September, after which spot rate seasonally came down. We look at the start of this year, pretty normal run-up to Chinese New Year ever since, a good recovery in terms of volumes but sports rates certainly under pressure. When looking at a couple of other items, we invest in the fleet, already mentioned that. The number of ships that we deployed went up quite significantly over the last two years. That is partly certainly because of Gemini, but also because we simply have longer shipment duration with Suez being closed. Couple of other things worthwhile mentioning, very good customer satisfaction. pretty stable at the moment with an NPS score of above 50. As we said, expansion of the fleet also because we took on some long-term charters that secures our top five position. A lot of work on the digital front, whether it's about tools that make life easier for the customers like shipping instructions or the investments we did in trackers and life position and still more to come there. On the sustainability front, We sold more than double the number of TUs on the ship green last year compared to 2023. In addition to that, significant investments in the fleet upgrade program, whereby now we have over 100 ships modernized, which means lower emissions, also better fuel consumption, and all these things help us to move in the right direction. We also signed an offtake agreement or our first offtake agreement for green methanol. And as I said, we started with Gemini. A bit to that, let's talk about Gemini. I think it's been really successful so far. Admittedly, it is still very early days. Nevertheless, we meantime have 46 out of 57 services up and running. More than half the ships have been phased into the network as we speak, around 200. Those 200 chips have meantime made more than 900 port calls, and our schedule reliability is still around about 90%. And especially when you also compare that to what the schedule reliability is in the market, that is definitely way above average. We're very happy there. We know that there are still a number of things to be addressed. We also know that there are a few terminals that are still somewhat problematic, but we are attacking those. and trying to get that under control. So at the moment, the confidence level that we indeed will get to that 90% over time is really high. And then before I hand it over to Mark, a few words on Hanseatic Global Terminals. Launched as an independent global operator within the group with headquarter in Rotterdam. A couple of things worthwhile mentioning. Last year, we extended a number of concessions. We inaugurated the terminal in Tutikorin. We acquired 60% of CNMP in Le Havre, which was announced very recently. And in terms of greenfield projects, Damietta, the one that's worthwhile mentioning. Large terminal will play a key role in the Gemini network, and construction is on track, and we expect to get that on steam in the second half of this year. Overall at the moment, a portfolio of around 20 terminals, 21 to be precise, with a throughput at 100% basis of around 11 million TUs and represent at this point in time in 11 countries. So with that, let me hand it over to Mark who will take us or take you through the numbers.

Yes, thank you, Roland, and good afternoon from my side. To everybody, let's start with a quick KPI overview. Hapag-Lloyd, as you can see, delivered a strong business and financial performance in 24. and that's clearly surpassing our initial expectations at the start of the year. Group revenue came in at 6.6% higher, reaching 20.7 billion US dollars, especially driven by higher volumes across both business segments. Same time, group EBITDA improved to 5 billion US dollars, and that is despite increased transport and terminal costs. We will come to that a bit later. Our strong operational performance enabled us to generate robust cash flow of $2.6 billion, and that is strengthening our solid balance sheet while we continue to make sizable investments in our business right now, as you could see. And now let's take a closer look at the financial results, and starting on the next page, With our quarterly P&L, we ended the year with strong momentum. Q4 24 EBIT amounted to $849 million. That is a notable improvement from the $253 million loss in prior year. Full year group EBIT 24 increased slightly to $2.8 billion. However, group profit declines. And that is primarily due to a lower net liquidity position, which resulted in reduced interest income. With return on invested capital of 14.1%, we once again exceeded our cost of capital. Now jumping over to our liner shipping performance, our liner business benefited from a strong demand. leading to higher transport volumes and good freight rate levels across most roads. Even growth was primarily driven by the revenue growth was primarily driven by increased volumes while our average freight rate in 24 remained stable year over year. This revenue increase was partially offset by higher transport expenses mainly due to the rerouting of our vessels around the Cape of Good Hope, and yes, also inflationary cost pressures we are still having. Despite these challenges, Lina EBITDA improved to a number of 4.9 billion US dollars, and that is an increase of around about 100 million US dollars. EBIT remain flat year over year, due to higher depreciation and amortization expenses. Coming to our rate and volume development, looking at the key value drivers of our liner shipping segment, we see that while the average freight rate remained flat in 24, quarterly fluctuations were still absolutely significant. So despite our high share of contracted business, Trade rates bottomed out in Q4 23, then gradually increased, peaking in 24 in Q2 to a number of $1,612 per TU, and then softening again in Q4. Looking at the trade, the Asia-Europe trade saw clear improvement in trade rates, while rates on the Atlantic trade weakened noticeably. Transport volume on the Asia-Euro trade declined slightly due to lower Middle East volumes, which is mainly related to the avoidance of the Red Sea Suez Passage and hence fewer port calls in this region. In contrast, the Pacific trade experienced strong demand from the U.S., leading to double-digit volume growth. Overall, our liner shipping transport volume increased by 4.7% to 12.5 million to use in 24. And as I said before, let's jump to the unit cost now. Throughout 24, our unit costs were significantly affected by the rerouting of our vessels. Operational disruption at ports, stricter environmental regulations, and general cost inflation further contributed to higher unit costs. Total bunker consumption rose by nearly 19% due to longer voyage distances. And additionally, bunker cost increased following the shipping sector's inclusion into the EU emission trading system for the first time in 24. And that was adding 91 million US dollars in additional expenses. And when we look forward, the scope of the EU ETF has been expanded from 40% to 70% of the relevant emissions in 2025, and the fuel EU regulation has come into force now, and both will double the compliance cost this year. Handling and haulage costs increased due to higher-turn shipment activities and rising storage costs, driven by longer dwelling times in our ports. And on the other hand, vessel and voyage costs declined, mainly due to the reduced or lower Suez Canal piece. However, this was partially offset by higher expenses for short-term charter ships and container slot charters on third-party vessels. Despite these challenges, our total unit cost in 24 increased We could say only by 2% to US$1,283 per TU, and that is the demonstration of our continuous strong cost management efforts. Jumping now to T&I performance, our terminal infrastructure business completed first full year of operation in 2024. Overall, delivering good results. Revenue and earnings saw positive development, and that was mainly driven by solid volume growth. On top, we have some consolidation effects. EBIT increased to $72 million, and that reflects a positive momentum in this segment. While we have already started realizing synergies with our liner business and improving operational performance, This segment is still in the ramp-up phase, and we will, should, and want to see more here. Looking ahead, our recent acquisition of the CNMP terminal in Le Havre and the scheduled start of the operations in Damietta in the second half, as Georg already mentioned, will further increase our scale and strengthen our infrastructure footprint. Now in total, jumping to cash flow, so turning to group cash flow development here on that page, I think we can be pleased to report that we once again generated substantial free cash flow, even as we increased our investments to grow and modernize both segments. Operating cash flow in 24 reached 4.7 billion, although it was slightly impacted by negative working capital effects due to higher volumes and the rising freight rates. In line with our strategic objectives, we invested nearly 2.3 billion US dollars in the expansion of our vessel and container fleet. With recent deliveries, we are now very close to reach a vessel capacity of 2.4 million TUs. This will support our growth ambition and for sure also the new Gemini network. Simultaneously, we increase our container box capacity to nearly 3.7 million TU to accommodate longer turnaround times and higher volumes. On top, maybe interesting to say that interest income dividends from equity participations and divestments and a couple of minor contributions add up to 439 million US dollars in cash inflow. Despite positive free cash flow, our cash position declined to $5.7 billion, mainly due to a dividend distribution of $1.8 billion to our shareholders and the repayment of debt and lease liabilities totaling to $1.2 billion. Now to our balance sheets. As a consequence, I think we can say that we really supported our strong balance sheets. It remains very robust. Liquidity reserves stand at 8.5 billion US dollars, including strategic liquidity, which is currently invested in fixed income assets and undrawn revolving credit facilities. Financial debt increased in 24, and that is primarily due to higher lease liabilities related to the charge of additional assets. In contrast, our bank debt remains modest with no significant maturities in the near term. Reflecting all of that and our financial strengths, Moody's upgraded our corporate family rating and unsecured debt rating to BA1 last December. Now jumping over to The dividend proposal, so based on strong results, the executive board and supervisory board will propose a dividend payment of eight Euro, 20 Euro cents per share at the 2025 Annual General Meeting. This equates to a total dividend payout of 1.4 billion Euros, once again, making Hyperglot one of the most attractive dividend payers in Germany and the AGM will head on the 30th of April. And with that, I hand it back to Rolf for the market outlook update and our outlook. Thank you.