Hamburger Hafen und Logistik Aktiengesellschaft (HHFA) Earnings Call Transcript & Summary

Thank you. Good afternoon, ladies and gentlemen. I would like to welcome you to our conference call presenting our financial results for the first quarter in 2021. We are operating in challenging times. The pandemic-related delays in shipping schedules led to imbalances in transport flows that put high pressure on our systems. Hardly any ships are docking at our quay walls on time at the moment. Schedules are not being adhered to, resulting in containers being left where they are not needed or missing where they are needed. But we take this opportunity to demonstrate our operational flexibility and reliability that are highly appreciated by our customers. The stuck of the Ever Given in the Suez Canal end of March is just another example of how closely intertwined our global supply chains are. However, the Suez Canal congestion did not have any impact on the Q1 development. Looking forward into the second quarter, I can assure you that we will master this challenge together. For example, we rent additional storage area to help out our customers in that prevailing difficult situation. The volume recovery in Hamburg was still blurred by the loss of a Far East service in May 2020. Adjusted for these volumes, our throughput would have been at pre-pandemic level. This underlines the importance of our efficiency program in the Container segment in Germany. The success of implementing operational and personnel measures to increase the efficiencies of our terminals is a decisive prerequisite for regaining market share in the North Range. With our intermodal activities, we have once again proved that we are able to shape efficient transport flows. Therefore, I'm confident that we will succeed. Even though China and the U.S. reported record GDP levels for Q 2021, the economic recovery has not yet reached Europe. The Eurozone economy contracted in the first quarter of 2021 as countries implemented new lockdowns and restrictions amid a third wave of coronavirus infections. Gross domestic product fell by 0.0 percentage quarter-on-quarter according to preliminary data released by Europe statistics office, Eurostat. The ongoing corona crisis also burdened the German economy in Q1, postponing the recovery even further. However, the outlook for the remainder of the year is brightening as vaccination in the EU is spreading up and enables governments to think about easing tight restrictions. HHLA has come through the ongoing crisis quite well in the first 3 months of the 2021 financial year. The subgroup's revenue rose by 4.4 percentage to EUR 342 million, and EBIT even grew by 33.4% to EUR 43.3 million. Both developments were driven by temporary higher storage fees and strong momentum in container transport. Based on that Q1 development, we are confident on achieving our full year targets for 2021. For more details on HHLA's financial performance in Q1 and development at segment level, I would like to hand over to my colleague, Roland. Roland, please.

[Audio Gap] to 1.677 million TEU. This decrease primarily resulted from the Hamburg container terminals and was mainly related to the loss of a Far East service in mid-May 2020 and lower feeder volumes in the reporting period. The international terminals recorded only a slight decline in handling volume. Adjusted for the lost service volumes, total container throughput would have been on par with last year's quarter. However, the overall decline in volumes was more than compensated by an improvement in revenue quality that led to a revenue increase by 1.3 percentage points to EUR 198.1 million compared to 2020. The average revenue per container handled on the water side increased significantly by 8.5 percentage points. This was due to the temporary increase in storage fees based on longer dwell times as a result of pandemic related delays in ship departures as well as a favorable modal split with a high share of hinterland volumes. EBIT cost decreased by 2.5 percentage points in Q1 due to the volume-related adjustments of material and personnel expenses, i.e., the use of external staff in particular. Consequently, the operating result increased by 26.6 percentage points to EUR 32.7 million due to the aforementioned improved revenue quality. The EBIT margin rose by 3.3 percentage points to 16.5%. So let's move on to the next slide and have a look into the Intermodal segment, which recorded a strong increase in transport volumes in the first 3 months of 2021. Container transport grew overall by 10.7% to 418,000 TEU. Rail transports benefited substantially from the recovery in cargo volumes that already began in the second half of 2020 rather than road transports. Compared to the previous year, rail transport increased by 12.1 percentage points to 336,000 TEU. Whilst the North German and the Adriatic seaports showed significant momentum, the strong growth in Q1 was mainly driven by the increase in continental traffic. With a plus of 6.8% to EUR 124.7 million, increase in revenue lagged somewhat behind as a result of lower average per TEU due to the changes in the structure of cargo flows. Still, the EBIT climbed by more than 25% to EUR 21.6 million and led to a further rise of the EBIT margin to 17.3%. Let's turn briefly to a small segment, the Logistics segment, where we have pool vehicle logistics, consulting activities, digital projects and participations. In the first quarter, the revenue of the consolidated companies exceeded the previous year by 25.9 percentage points to EUR 17.9 million. In particular, the first-time consolidation of the iSAM Corporation, a specialist for automation technology, contributed to the positive development. In addition, vehicle logistics was able to strongly increase sales. In contrast, the consulting activities remained below the previous year's quarter. The operating result showed a loss of EUR 0.7 million, in line with expectation. The reason for this were planned start-up losses of the new activities. And equity earnings recorded a strong increase in the first 3 months of 2021. The result almost tripled to EUR 1.1 million, in particular due to the favorable development of bulk cargo. Coming back to the Port Logistics subgroup as a whole, let's have a closer look at our cash flow development. Cash flow from operating activities decreased by EUR 10 million to EUR 63.5 million as at March 31, 2021, resulted from higher tax payments compared to the previous year. The higher EBIT has an opposing effect. Investing activities resulted in a cash outflow of EUR 36.5 million. This development resulted primarily from lower payments for investments in property, plant and equipment and short-term deposits. Increased payments for the acquisition of shares in consolidated companies had an opposing effect. Accordingly, free cash flow increased to EUR 27.1 million compared to previous year's figure. Cash flow from financing activities totaled EUR 21.8 million. The increase by EUR 8.2 million compared to previous year's figure was mainly due to the higher repayment of financial loans. Overall, our available liquidity as of 31st of March stood at sufficient EUR 207.7 million. This concludes my remarks, and I would like to hand back to Angela for the outlook.

Yes. Thank you, Roland. Ladies and gentlemen, although the development of the first 3 months of 2021 was quite promising, we kept our guidance for the full year unchanged. We are still in a pandemic situation and have to cope with the poor adherence of shipping schedules that requires high operational flexibility on our side. Following the statements of shipping liners regarding the current situation, we don't expect the end of this challenging situation before the third quarter of this year. Therefore, we weren't surprised by Drewry's research update on 2021 throughput forecast in March that showed a significant lower throughput forecast for Europe and Northern Western Europe, in particular. We had already assumed subdued growth for the European shipping regions in Q1 at the beginning of this year and can, therefore, confirm to our current forecast given for 2021. This means exactly, we expect a moderate year-on-year increase for both container throughput and transport. Revenue of the Port Logistics subgroup is also expected to increase moderately compared to the previous year. EBIT is expected to be in the range of EUR 140 million to EUR 165 million in the current financial year. In order to further increase productivity in the Container and Intermodal segment, capital expenditure at subgroup level is expected to be in the range of EUR 220 million to EUR 250 million in 2021. The main focus will be on the implementation of a restructuring and efficiency program in the Container segment and on the renewal and expansion of the group's own transport and handling capacities in the Intermodal segment. With this outlook, I would like to close the explanations on the interim results. Roland and myself will now be happy to answer your questions.

[Operator Instructions] First question is from the line of Adrian Pehl from Commerzbank.

Two questions, if I may. Well, first of all, I suspect that the quarter had quite a significant portion of storage revenues, as you obviously alluded to in our press release. But I was wondering if that was sequentially actually up versus Q4, what we saw in volumes there. And maybe you could give us some kind of indication where we stand now after the Suez incident, how things are proceeding, ships coming in and what does it mean for storage in Q2. And then a second question on Intermodal, which had quite a nice volume development, you were stating in the summary that actually the revenue line obviously did not fully follow that trend. I was wondering if that was kind of a mix effect, i.e., shorter routes that you travel because I think you spoke about changing structure of the cargo that was transported, maybe you could elaborate a little bit on that. And very lastly, not to miss anything, would you say besides storage I addressed already, are there any effects in Q1 which we should rather consider to be kind of onetime effects, any kind of subsidies or anything else that might not necessarily repeat into Q2 and the upcoming quarters?

Okay. I will start, and Roland will add to it. To the onetimers, I think that's mainly focused on the storage costs, which were higher in the first quarter than in the last quarter of last year. On the intermodal sector, you need to factor in that we are doing as well investments this year. So this is something which has obviously a certain impact. In sort of distance, there is no change, but we have seen certain imbalances, obviously. But as we have shown last year, it plays into the relationship of customers. If you are able, even in the pandemic situation where actually everything is upside down, you still deliver on time and on your transport on the intermodal section side and you are able to help and support the customer in every direction, that is something that has paid back this year in increasing volumes numbers. And maybe Roland is adding to it.

Yes, Adrian, with regard to the KPI revenue per TEU, you might have calculated already, it was up to EUR 218 million in Q1 compared to EUR 112 million in Q4. So it's further up. But as outlined already, expect it to fade out over the course of the year. So it's a temporary effect.

On investments in Intermodal, indeed, I was a little bit expecting this. So could you quantify the amount on operating expenses related to the additional investments? And a question linked again to Intermodal, as you were alluding to the, let's say, timeliness of transport, I mean is there anything in terms of delays we should also take into account on the Intermodal side? Or is that less affected actually from what is going on in the ports and on the global shipping lines there?

The delay situation is not affecting in the same amount the Intermodal side. It's actually you could rather say it's all customer-driven. So it's rather the frequency, which might change. And as we have an agile system, and we are responsive to customers, this is actually playing into the relationship and is not affecting in terms of delay of volumes or so or something that is -- as it is on the water, on the terminal side. On the investments, let me just make one example, there's the construction of a new rail terminal that we are doing in Hungary, in unfortunately, a city, I'll try to pronounce, Zalaegerszeg. So please forgive me for the -- it's a very difficult name. Total investment is over EUR 40 million and includes a grant from the Hungarian administration amounting to approximately EUR 1 million -- EUR 11 million, sorry. This time line will be our first section into operation in 2023.

Okay. So should we -- how is the time line of that kind of investments in terms of operating expenses? So should we familiarize ourselves of, let's say, the cost structure that we saw in Q1 in Intermodal for the next couple of quarters then? Or is it kind of a front-end loaded investment scheme and then it phases out a little bit? Or how should we think of it?

It's nothing significant given the principal financial performance we have achieved already. So we extend the network and, well, the ramp-up phase shouldn't harm the interim results of the next quarters significantly.

[Operator Instructions] The next question is from the line of Robert Joynson from Exane BNP Paribas.

Three questions from me, if I may, please. First of all, on pricing, you mentioned that the average revenue per container benefited from higher storage fees during Q1. Could you just provide some color in terms of what the underlying like-for-like price increase was at Hamburg, please? And then second question on the recent Suez Canal disruption. Can you provide an update on when you think operations at the Port of Hamburg will get back to normal? Is that possible by the end of Q2? Or is it more of a Q3 issue or potentially even later? And then the final question, just on the services being routed through your terminals at Hamburg. April is typically the time of the year when the shipping lines adjust their sailing schedules. Were there any notable changes this year in terms of services being won or lost?

I'll start with your last question, service rotations. There will be no significant changes. You need to understand that you have a planning circa -- usually in April, they are releasing the new schedules. We are not expecting any change right now. The Suez channel disruption is something which I really would like to outline that the terminals of HHLA has handled all the difficulties coming with the channel disruptions very, very well. In hinterland on the terminal side, we were able, through our network, to handle all our customers independently, how and when they're arriving at our terminals, even being sometimes up to 12, 14 days' delay. The delay situation is not caused by the terminals but by the ship liners. And actually, the point is that what we hear from our customers that this might drag on for many reasons not only because of the Suez channel disruption but for many reasons, they say it will drag on into quarter 3, the third quarter of this year. In terms of pricing, please understand that we are not giving any details with regards to the pricing levels. But as you know, we have long-standing contracts, which have different, let's say, positions in it. And usually you have a price and you have a certain time that you have storage and free storage. And depending on how much you use this, then it will increase the storage costs or not. So it's a little bit as well depending on how the ship liners performed arriving and taking on the containers from the terminal.

Maybe just one quick follow-up, if I may. Did you expect the storage revenues to continue to increase sequentially going into Q2? Or is it maybe too early to say?

It's a little bit too early to say. Increase, I don't think so. It's more of the question on how long the situation of disruption, basically of not being in time, will continue and how actually everybody in this logistic chain will handle this because this depends not only from us, from the ship liners, but from everybody, bringing and taking away containers. So I'm not expecting an increasing number.

We have a follow-up question from the line of Adrian Pehl.

So just quickly on Burchardkai, actually with the invitation to the AGM, there was some data made public on the development of the earnings at Burchardkai. And just to get a sense on, obviously, the assets lost, kind of EUR 37-ish million of revenue, profits actually, from '19 into '20. After-tax were down like EUR 10 million then only. I was just asking myself, on the wage side of things in last year, did you already have here some benefits from short time work for Burchardkai? Or what kind of probably looks like initial kind of cost measures you have implemented? Anything you could elaborate on this would be pretty helpful, and what you think on the assets will look like in this year. So do you expect again to post significant after-tax losses? Or will you mend already the loss situation, thanks to potentially increasing volumes as you are guiding for, say, moderate increase?

Yes, let me comment on the statutory results of 2020. They have been affected by a substantial decrease of throughput. With regard to adjusting personnel costs, we do not use the instrument of short-term labor schemes. But what we did, we adjusted the head count and personnel costs to the extent possible by laying off labor pool employees. This is the way we deal with the high volatility last year. And the second question was with regard to 2021. For principle reasons, we do not comment on terminal level.

Yes. I know. So unfortunately, yes. But it's fair. Then let me just get a sense a little bit, when you say moderate throughput increase for your business in general for 2021, I mean, given that I would assume, correct me if I'm wrong, on CTA, you're already quite loaded, meaning that it should maybe grow a little bit less pronounced than the other 2 terminals, so is that correct? And then it would mean that for CTT and CTB, growth would be, whatever, kind of more than moderate or, let's say, at the upper end of what every definition is on moderate is. Is that the right way of thinking about it? Or how should we see that?

Please bear in mind that the Far East service we are talking about that we lost last year was handled at CTB. So if you look at the comparison basis, bear in mind that for the first 5 months in the current year, this volume was still at CTB. On the other hand, we are focused -- with regard to restructuring the segment, I think it's clear that we concentrate very much on CTB.

Next question is from the line of Nikolas Mauder from Kepler Cheuvreux.

Three questions from my side, please. First one on the fairway adjustment. We recently saw the clearance for the first stage of the dredging works. Can you point to any positive development coming from this already? Or when should we expect positive effects coming in? Then I noticed on one of your first slides in the presentation, you mentioned a medium- and long-term target for ROCE of 8.5%. Is that reconcilable with your medium-term target of EUR 300 million in EBIT? And finally, can you give us an update what, in your opinion, net debt is, not only liquidity but also group-wide -- or Port Logistics-wide net debt?

I'll start with your dredging question. Actually, that was just last week where the City of Hamburg announced that the dredging -- so the depth of the River Elbe has reached now completion. Obviously, this is yet not factored into the planning of our customers as this was actually in the planning announced to be at the third or fourth quarter of this year. So this is giving already the answer to your question that, so far, we don't see yet any impact, but I think we can see the impact starting -- beginning at latest next year. So beginning of next year to the end of this year, we might see some effects coming from this. And the EUR 3 million (sic) [ EUR 300 million ] EBIT, yes, it's still our plan. And maybe, Roland, you can add to that.

Yes. Of course, we posted 8.7% on group level. And with that, you see the sequential recovery of ROCE performance. With regard to the EUR 300 million, of course, we are aiming for more. But in the current situation, I think it's not to be. Our benchmark internally is that we calculate capital cost on a back basis by 8.5%. So we are earning our capital costs, and this includes equity with the results posted for Q1. The other question was regarding the net debt. By definition, we calculate the dynamic debt ratio. We include pension provisions and IFRS liabilities that I take for granted that you are referring to the net financial...

Both are interesting.

Excuse me?

Both levels are interesting. If you have the numbers, it doesn't matter if they're not readily available.

No. I'm referring to the data that we released to you this morning. And as I outlined before, the liquidity accounts for approximately EUR 207 million whereas the financial debt accounts for approximately EUR 430 million or so. So if you deduct, you end up with a net financial debt in the range of EUR 230 million.

[Operator Instructions] The next question is from the line of Marc Zeck from Stifel.

Two, if I may. One question on the current negotiation with Eurogate and the potential cooperation. Could you maybe remind me what's the current state of affairs? I got a couple of news reports that you don't pursue a joint venture anymore or maybe that was even not planned in the initial phases. Could you just give an update here what's currently going on, why talks are currently stalling somewhat?

Yes. Thank you for your question. There is sometimes of people not involved but pretending to be involved, talking to mass media and press, then they're coming out with some funny articles. Let me comment this way. But maybe to recall what is the idea, the idea is that HHLA is thinking about the container terminals in Germany and looking for cooperation possibilities with the other German terminal -- container terminal operators. Therefore, BLG, Eurokai and HHLA are talking and inquiring what could be synergies, what could be common ground and, therefore, there is not yet a clear outcome on, let's say, corporate governance, legal structure or anything like this. But in the way of shortening, in the communication, it's not a joint venture of HHLA and Eurogate, but it is the inquiry of cooperation between the German container terminals of BLG, Eurokai and HHLA.

Okay. Second question would be on your 2025 target of EUR 300 million in EBIT. If I take the midpoint of the current guidance for 2021, this would require about 20% growth per annum in EBIT to reach that number. This is quite ambitious, isn't it? I mean, in the past, I guess, you haven't really -- I guess there was 1 year where you got like a 20% EBIT growth. But to achieve this like for every year going forward is certainly quite ambitious. What could derail your plans to get to EUR 300 million EBIT in 2025?

I think there are 3 major points that you should reflect to get a better understanding of the midterm target. First is the current level of returns doesn't reflect the pre-pandemic earnings power of the asset before the Container segment has been restructured and before you factored in organic growth, especially in the Intermodal segment and with regard to new activities. And if I draw your attention to the 2019 results, I think on subgroup level, they have been above EUR 200 million already. So we are still in the phase of fading out the impact of the pandemic development. This is remark one. Remark two, as outlined, of course, you look at the restructuring of the Container segment, and Adrian mentioned before CTB, of course, we are aiming at a higher degree of automation. And we released to you that we will substitute labor-intensive horizontal transport, so-called straddle carriers, with automated platforms, AGVs, to be used by CTA. And they have substantially lower unit cost per move or per transport of a box. And of course, this won't follow the development. It will take place in a way that we simply substitute technologies. And of course, this will lead us to a jump or a decrease of OpEx costs accordingly as soon as we have fully implemented this automated systems at CTB. So it's not a question of an average increase over the course of 5 years' time frame. It will take place and be P&L effective as soon as we have fully implemented the new system. And this is what we are working on besides a lot of other measures where we concentrated to increase efficiency on our terminals. And the organic development in the other segments, especially in Intermodal, I think it's self-explanatory, if you look at the current results with regard to growth dynamics underlined by a clear performance path.

And let me add to this, Roland, we do a lot of R&D, research and development, and invest in areas which we believe could be potential growth areas. We just did take over the iSAM company, which is a hidden champion for brownfield automation, a huge potential as well with this company. On January 7 this year, we closed the majority stake in the multifunctional terminal HHLA Pia to Italy, which we now have as well on our books, just signed it in January. In March '20, we had already the first commercial ship calling this new terminal. So these are all areas of growth, which you will not see today in our balance sheet other than on the cost side, invest side. And this network of international participation is playing in both ends, on the multifunctional terminal side as well as on the [ on-rail ] connections. So it's playing very well into the idea of continuing growth of European logistics group of HHLA.

We have another follow-up question from Adrian Pehl of Commerzbank.

So just quickly on the passing boxes, could you elaborate a little bit on how much that supports you now given the -- post the incident of the Suez Canal? I mean, obviously, you added quite significant, if you want, kind of parking lots there, which should massively help you now in handling ships. So what are your experiences there? And how are the passing boxes being utilized at the moment? And then on the talks between BLG, Eurokai and yourselves, just thinking of maybe you could share your ideas how we should see the market in a kind of definition because, obviously, it may not be too easy to have finally kind of, however it looks like, collaboration given when you define the market as Germany or port business Germany, whereas the real competition is probably the complete North Range. So is there a chance actually that, let's say, from an antitrust perspective, the market will likely be defined as North Range, and then it should be easier to come up with the amalgamation in any kind of way? In particular, now after the Bergen and Antwerp, obviously, you're joining forces, should that support you? Or what is your way of thinking around this?

The Bergen and Antwerp joining forces there, these are the port authorities, not the terminal operators, so 2 sides of a different coin, if you like. But you are absolutely right on the perspective that we are looking at the North Range. And actually, this would be as well a motivator for a potential cooperation in Germany is that our competition is the North Range. Our competition, obviously, is not the terminal operator within Germany but actually rather outside. So it's Poland, it's obviously Rotterdam as well and Antwerp. So from an antitrust perspective, we are very relaxed as we see that. Obviously, it's a European view. It's a North Range view. You have already participations in Germany of other ship liners at the terminal in Hamburg as well as in Bremerhaven as well as in Wilhelmshaven. Therefore, there is a lot of competition already there and should not harm from an antitrust perspective. In terms of the dredging and the passing box, the passing box, which has been created between Wedel and Blankenese, this is enabling especially wide sea-going vessels to meet and pass. And this is obviously depending on what time of the day [ and feeder and so on. This is increasing the reachability of the harbor significantly. Again, it's depending on when they are arriving, but it could lead to 1 [ feeder ] early into the harbor, which can be up to 12 hours earlier, reaching the Port of Hamburg.

Yes. Because I was just wondering if you're -- you sound quite relaxed actually on potentially handling, let's say, all the queuing up in Hamburg and how much is actually based on now the waterway being so much better than it was before.

So actually, this is one factor. And the other factor is that we have the Hamburg Vessel Coordination Center, which we are leading. And actually, it's a digital port coordination, if you like. And in such queuing situation, it allows us to be maximum agile and offering the right hints, as we say, to our ship liners, when they have to go slow and when they should go a little bit faster, to be in the most efficient way at the terminals in Hamburg without queuing and without lining outside. And this is a huge, huge advantage, which is very well taken from our customer side.

And again, on the potential collaboration and on antitrust kind of thinking behind it, would you -- do you think there is -- whatever you call it, maybe risk and chance on both sides, as a remedy to make a potential amalgamation happen? Would you also be open or at least not excluding that? For example, a remedy could be to have a container liner taking, let's say, share in terminals, for example, as a remedy to make it happen.

I don't understand really your question why this would be a remedy or would it make easier because I think what we all have to learn from each other is that -- I have to say, hopefully, without quoting me, but I can say I'm not born in Hamburg, that's why I find it very easy to talk to everybody. But unfortunately, there are different cultures between different areas of Northern Germany. And that's something which we learn is something that needs a long-standing base for trust to overcome some cultural hurdles, yes.

I was thinking about the point actually that, let's say, if you were to join forces and be dominant, and obviously, as, whatever, one unit, and let's say, the German container liners could oppose and say, well, there's obviously a new kind of price charter coming up and the remedy for that could be, for example, to make it open to everyone, to auction a part of, let's say, a terminal, for example, that might be the thinking of the antitrust authorities behind it. So would you agree on that? Or is it a possibility? Or would you say no, this is completely out of range?

I would say it's out of range because you have already participations of Hapag-Lloyd, of Maersk, of MSC. And if you put this in to an antitrust perspective, you have already a lot of competition and no dominating terminal in the North Range or in Germany.

There are no further questions at this time. And I would like to hand back to Angela Titzrath for closing comments. Please go ahead.

Yes. Thank you. My closing comment is nothing else then. Thank you very much for your questions for being interested in our results of Q1. Please stay healthy and hope to see you soon. Bye.