Capital Markets Day Hamburg, 21 November 2018 - Hapag-Lloyd
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Capital Markets Day Hamburg, 21 November 2018
Corporate Development CEO Rolf Habben Jansen
Hapag-Lloyd – 171 years young…
Founding Merger Takeover
of Hapag in of Hapag and NDL to by Albert Ballin
Hamburg Hapag-Lloyd Consortium
1847 1970 2009
1857 2005 Profit slump
in the course of the
Founding Merger global economic crisis
of Norddeutscher with CP Ships
Lloyd (NDL)
3
… and we continue to further build the company and help shape the
future of the Industry…
CSAV Merger Successful cash
Hapag-Lloyd kicked off
BCA
the latest wave of with UASC capital increase
signed of USD 413m
sector consolidation CSAV Synergies Closing of the
exceeded expectations UASC Merger
2014 Today
Successful IPO Compete-to-Win Successful bond First time
in challenging stock successfully changed the refinancing of dividend
market environment way how we sell EUR 450m at 6.75% Successful bond since the IPO
refinancing of
EUR 450m at 5.125%
4
…as illustrated by some key figures
when looking back only a few years
People Volume
12,660 11,700 TTEU
7,000 5,900 TTEU
2014 9M 2018 2014 LTM 9M 2018
Ø Vessel Size & Age Revenue
7,190 TEU USD 13,200 m
5,300 TEU USD 9,050 m
8.7 years 7.5 years
2014 9M 2018 2014 LTM 9M 2018
5 Note: Rounded figures, 2014 figures before CSAV integration in December 2014
The past years, the industry has gone through a needed and
unprecedented wave of consolidation…
Industry consolidation Global capacity share [%]
Carrier capacity [TEU m]
2.5
2.3
Ranking end of 2013
Top 5
1.5 Top 6-10
Remaining
0.8 0.8 0.7 0.7 0.6
44%
0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.3
64%
Maersk MSC CMA Ever- COSCOHapag- Hanjin APL CSCL MOL NYK HSüd OOCL Yang PIL K-Line ZIM Hyundai UASC CSAV
CGM green Lloyd Ming
17%
3.9
Ranking as of 2018
3.2
2.8
2.6
19%
39%
1.6 1.6
1.2
0.6 0.4 0.4 0.4
17%
Maersk / MSC COSCO CMA CGM Hapag-Lloyd ONE Evergreen Yang Ming PIL Hyundai ZIM
Hsüd / CSCL / / APL / UASC 2013 2018
OOCL
6 Source: MDS Transmodal (October 2013, Oct 2018), Alphaliner monthly (September 2018)
…and we leveraged our ability to integrate efficiently, which allowed
us to create significant value and achieve sustainable scale
Timeline of major integration activities Synergies gained (in USDm)
Initially estimated synergies
180
12 months CP Ships 218
integration
2005
Closing Integration completed 300
8 months
integration CSAV 400
2014
Closing Integration completed
4 months
integration UASC 435
2017
Closing Integration completed
7
In that process we have also renewed a major part of our fleet…
Vessels & Total Capacity [#, TEUm]
1.6 TEUm
1.0 TEUm
0.8 TEUm
222
144 172
Pre-CSAV Pre-UASC Today
31 newbuilds were delivered from 2015 to 2017 while 26 vessels have been recycled since 2015
6 x 19,870 TEU
11 x 15,000 TEU
5 x 10,500 TEU
7 x 9,300 TEU
26 smaller and inefficient vessels have been
2 x 3,500 TEU environmentally friendly recycled since 2015.
Total newbuild capacity of ~400 TTEU Total recycled capacity of ~100 TTEU
8 Note: Rounded figures
…resulting in one of the youngest and most fuel efficient fleets
in the industry…
Average fleet age [years]1) Average vessel size [TEU] Fleet ownership [%]
9.5 current chartered fleet Current own fleet3)
8.8 7,190
8.3
8.0
7.7 6,327 6,316
7.5
5,905
5,585 34% 35%
5,369 41%
51% 55%
66%
66% 65%
59%
49% 45%
34%
COSCO2)
MSC
MSC
COSCO2)
COSCO2)
CMA CGM
MSC
Hapag-Lloyd
Hapag-Lloyd
Hapag-Lloyd
Top 10
Top 10
Top 10
CMA CGM
Maersk
Maersk
CMA CGM
Maersk
9 Source: MDS Transmodal (October 2018), Drewry (3Q 2018) 1) Weighted by carrier capacities 2) COSCO incl. OOCL 3) Includes finance leased vessels
…we have a well balanced network…
Transport volume by trade 9M 2018
16% 16% 18%
22% 9%
13%
9%
9M 2014 5% 9M 2018
TTEU 23% TTEU
2,072
1,601
1,382 1,459
959 1,033 1,115
921 945
783
489 488
EMAO
Transpacific
Australasia
Latin America
Far East
Far East
Middle East
Atlantic
Atlantic
Transpacific
Intra Asia
Latin America
10…a relevant global market share and a solid presence
in all major trades…
Hapag-Lloyd’s Global Market Share on selected trades by transport volume [%]
Atlantic Far East
Transpacific
Middle East
10%
7% 22%
18%
146,235
Latin America
11,674
Intra-Asia
116,344 >9%
14% Market share
Other Trades
[excl. Intra-Asia] 10,632
Global Container Volume Hapag-Lloyd Transport Volume
2018e LTM 9M 2018
11 Source: IHS Global Insight (October 2018), Internal data…and are a core member of THE Alliance
Alliance members
THE Alliance 2M Ocean Alliance
Capacity consolidation on key trades has improved substantially due to alliances
Atlantic Transpacific Far East
Others 2M Others 2M Others 2M
9% 41% 12% 20% 0% 40%
34% 16% 27% 42% 24% 36%
THE Alliance Ocean THE Alliance Ocean THE Alliance Ocean
12 Source: Alphaliner Monthly Monitor (October 2018) Note: Rounding differences may occur.Despite increasing geopolitical risks, container shipping volume
growth expectation remains on a healthy level…
Global Container Volume Growth & Real GDP Growth [%]
2000 = Indexed to 100
GDP
multiplier 1.9x 1.0x 1.3x
300
250
Container Volume
200
Growth
150
Real GDP
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2019e 2020e
13 Source: IHS (October 2018), IMF WEO (October 2018) 1) Average for the period.…which, combined with the historically low orderbook, will lead to a
further improving supply/demand balance in the years to come
Orderbook-to-fleet Newly placed orders
[TEU m, %] [TEU m, %] YTD
2018
3.2
Orderbook
61% Vessels > 14,000 TEU
2.0 2.2
Share of World Fleet 1.8
6.5 50%
1.2 1.1 1.0
6.0 0.8
38% 0.6 0.4
0.1 0.2
5.0 27% 28%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
21% 21% 19%
4.3 18%
16%
13% Drewry’s supply
3.9
3.6
3.8 11% Supply / Demand Balance estimate for 2020e
3.4 3.3 is highly unlikely
3.2
15 13.7%
2.8
2.4 9.7%
10 8.0% 8.0%
6.8% 6.1% 6.3% 5.7%
5.5% 5.5% 4.9% 5.3%
5 7.8% 3.1%
4.0% 3.8% 4.0% 3.5% 5.1%
0 3.1% 2.2%
2.0 1.7 1.2% 1.2%
1.4 1.7
1.4 -5
1.0
0.4 0.5 0.5 -9.2%
0.3 0.2
-10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 October 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2019e 2020e
2018
Demand Supply
14 Source: MDS Transmodal (October 2018), Drewry (3Q), Alphaliner Weekly (Issue 41)Financial Development CFO Nicolás Burr
Opening Remarks
01 Scale Substantial volume and revenue growth
02 Cost Continuous reduction of unit costs
03 Profitability Consistently above industry average
04 Balance Sheet Strengthening through capital market measures
16On the back of two mergers, Hapag-Lloyd was able to significantly
increase transport volume and revenues
Volume and Revenue Development Q1 2014 – Q3 2018
Capacity
1,009 966 963 1,573 1,596
year end [TTEU]
3,542
3,352
3,268
3,217
Transport Volume [TTEU] 3,119
3,052
Revenue [USDm] 2,987
2,861
2,807 2,774
+66.3% 2,620 2,629
2,593
2,411 2,376
2,276 2,271 2,287
2,229 2,225
2,152 2,182
2,124 2,088 +118.2%
1,945 1,934
2,130 1,861 1,822
1,774 1,811
1,947 1,950
1,892
1,560
1,474 1,473
1,399
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
2014 2015 2016 2017 2018
17We continuously reduced transport expenses …
Unit cost development Q1 2014 – Q3 2018
Hapag-Lloyd HL + CSAV as of HL + UASC as of
standalone 2nd December 2014 24th May 2017
Synergies CSAV Synergies UASC
1,363
1,089
1,057
925 921 926
Unit cost [USD] 929
Unit cost ex bunker [USD] -7.3%
825
785 765
2014 2015 2016 2017 9M 2018
18…and realised substantial improvements in every single
cost category
Total cost per TEU development 2014 – 2018
2014 -2018
Transport-
volume
TTEU 5,907 7,401 7,599 9,803 8,900
[USD] 1,562 -47%
306
1,232
160 1,067 1,074 1,059 -28%
100 136 161
1,057
929 -30%
825 785 765
91 78
73 72 64 -36%
108 70 70 74 69
2014 2015 2016 2017 9M 2018
Raw Materials and Supplies Cost of purchased services Personnel Depreciation
19While bunker prices increased since 2016, freight rates have
remained stable
Freight Rate vs. Bunker Price Q1 2014 – Q3 2018
Freight Rate [USD]
Bunker Price [USD/mt]
1,422 1,426 1,448 1,412
1,331 -1.1%
1,264
1,189
1,116 1,067 1,072
1,019 1,027 1,033 1,056 1,065 1,030 1,029 1,055
1,010
+150.4%
592 585
525
446
595 362 372 399
312 306 313 312 308 338
245 224 257
178 182
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
2014 2015 2016 2017 2018
20 Note: For the financial year 2018, revenues for additional services in Latin America and Turkey were included in the calculation of freight rates. The previous year´s figures have not been adjustedResults improve consistently since Q2 2016 despite a
challenging industry environment
EBITDA and EBIT Development Q1 2014 – Q3 2018
EBITDA margin 1.4% 9.4% 7.9% 10.6% 9.6%
EBIT margin -5.5% 4.1% 1.6% 4.2% 3.6%
EBITDA USDm
EBIT USDm 457
415 390
319
247 253 270 245
231 219 206
196 202 252
+453 150 152 144 167
136 111
88 103 90 83 92
73 66
34 18 41
5 8
-29 -50
4 -109
-110 +362
-403
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
2014 2015 2016 2017 2018
21Hapag-Lloyd’s profitability has been consistently above
industry average for the past 4 years
EBIT Margin Development Q1 2014 – Q3 2018
Hapag-Lloyd EBIT margin
Average industry EBIT margin
7.6% 7.1%
8 6.1%
4.9% 5.1% 5.4%
6 3.9% 3.8% 3.4% 3.5%
4 5.0% 2.1% 2.4%
0.9% 1.4% 1.4% 1.2%
2 0.8% 0.2% 0.4% 0.6%
-1.0% 2.7% -0.9% 2.7%
0 1.2% -1.8% -2.4%
-2 -3.0%
-1.3% -1.2%
-4 -5.9% -6
-6 -8.1% -7.7%
-5.2% -8.5%
-8
-10
-12
-14
-16.7%
-16
-18
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
2014 2015 2016 2017 2018
22 Note: Industry average only includes figures where available and does not claim to be completeOur efforts to reduce costs become obvious when applying the
2009 freight rate and bunker price to our 2018 cost structure
2009 freight and bunker price impact on 2018 results (indicative) Key takeaways
▪ Results in 2009 show
disappointing cost
Market 2009 9M 2018 Indicative 20181)
management
Freight rate (USD/TEU) 1,257 1,032 1,257
▪ The industry was aware
of the need to reduce
Bunker price (USD/mt) 331 406 331 costs and has done so
▪ Hapag-Lloyd has put in
Results 2009 9M 2018 Indicative 2018 a great effort and
significantly reduced
EBITDA (USDm) -407 972 ~ 4,000 unit costs
▪ When applying the 2009
EAT (USDm) -958 15 ~ 2,700
freight rate to our 2018
cost base, results would
be substantially higher
23 1) Figures based on LTM 9M 2018; simplified application: bunker price 2009 used to calculate raw materials and supplies only; other cost categories LTM 9M 2018 not adjustedWe have also strengthened our equity base while at the same time
optimizing our debt capital structure …
Capital Market Projects
Capital Increases Bond Issuances
Issuance of two new bonds with a total value of EUR 900 m
Takeover container activities ~ USD 1.5 bn The proceeds were used to proactively refinance outstanding
2014 CSAV
Subsequent capital increase USD ~ 0.5 bn bonds due 2017, 2018 & 2019
2015 IPO ~ USD 300 m
9.75% 7.75% 7.50% 6.50%2) 5.125%
EUR 450 m EUR 450 m
EUR 400 m
Contribution in kind ~ USD 1.4 bn EUR 200 m
2017 UASC EUR 200 m EUR 250 m
Cash capital increase ~ USD 0.4 bn
USD 125 m
EUR 200 m EUR 250 m
2017 2018 2019 2020 2021 2022 2023 2024
24 1) Annual Result and FX effects 2) Yield to maturity at issuance: 6.50% (weighted average: (6.75% x 250 + 6.186% x 200) / 450 = 6.50%)…and reduced financing
Capital increase II costs as well as improved the
maturity structure of financial liabilities
Financial Debt Profile as at 30 September 2018
Contractual Repayment Profile as per 30 September 20181), [USDm]
2,801
Liabilities to banks Liabilities from finance lease contracts
Bonds Other financial liabilities
Lease liabilities to be recognised under IFRS 163)
1,970
USD 0.5-1 bn
1,496
1,162
2) 908 USD 4-5 bn
847 459
722
521
725
605 619
265 521 16 USD 6-8 bn
237 44 16 295
78 78 20 87 17
20 9 50
Q4 2019 2020 2021 2022 ≥ 2023
1) As of January 2018 financial debt profile has been changed to the statement of repayment amounts. Deviation from the total financial debt as shown in the balance sheet as per 30.09.2018 consist of
25 transaction costs and accrued interest 2) ABS programme prolonged until 2020 3) Estimates for operating lease liabilities to be recognized under IFRS 16 as from 1 January 2019 onwards;
Based on annual and quarterly reportsReduced CAPEX and substantial positive operating cash flow
generation help to increase FCF and to deleverage the company
CAPEX 2014-2018 [USD m] Cash flow 2014-2018 [USD m]
Operating Cash Flow
Other Containers Vessels
Free Cash Flow
159 -38 109 1,048 651
925 1,020
105
872
279
635
521
449 11
433 501
11 461
14 209
65
181
263
542 12
354
301 196
257
55
2014 2015 2016 2017 9M 2018 2014 2015 2016 2017 9M 2018
26Stable equity base of USD 7.2 bn, solid liquidity reserve of USD
1.2 bn and reduced net debt of USD 6.5 bn
Equity base [USDm] Net debt [USDm]
Equity ratio 41.3% 45.5% 44.6% 40.9% 41.0% LTM
Net debt /
Gearing 72.1% 66.1% 71.0% 93.8% 91.1% 27.9x 3.9x 5.7x 5.7x 4.8x
EBITDA
7,595 7,272
7,263 7,171
783 737
5,068 5,497 5,342
4,518 4,256 4,415
Cash 1) 865 625 622
6,812 6,535
Net debt 3,653 3,631 3,793
2014 2015 2016 2017 9M 2018 2014 2015 2016 2017 9M 2018
Liquidity reserve [USDm] Invested capital [USDm] & ROIC [%]
1,328 14.134 13.749
1,121 1,164
1,048 9.128 9.136
Unused 545 8.722
256 822 470
credit lines 3,1% 3,2%
423 1,3%
200
4,1%
1) 865 783
Cash 625 622 694
-6,0%
2014 2015 2016 2017 9M 2018 2014 2015 2016 2017 9M 2018
27 1) Includes Restricted Cash booked as other assetsOur continuous efforts have been recognized by the capital markets
Share performance since 6 November 2015
Indexed Price
225
200
175
150
125
100
75
50
HLAG Maersk Evergreen OOIL SDAX DAX Global Shipping
Bonds trading
110
105
103.4
100.9
100
95
HL EUR 6.75 % 2022 HL EUR 5.125% 2024
28 Source: Bloomberg (19 November 2018)Wrap-up
Key takeaways
▪ Hapag-Lloyd financials show clear positive development
Scale ▪ Since 2014, Hapag-Lloyd has substantially grown transport volume and revenue
▪ At the same time, we were able to significantly reduce our unit costs
▪ In a challenging market environment, we were able to steadily increase our
operational result
Profitability
▪ Hapag-Lloyds profitability has been consistently above industry average
▪ Profitability supported by improved ownership structure and synergies
▪ We have strengthened our capital structure and optimized our maturity profile
▪ At the same time we have reduced our investments to maximize free cash flow
Financial policy
▪ Therefore we were able to clearly deleverage over time
▪ And we managed to maintain an adequate liquidity reserve
29Strategy 2023 CEO Rolf Habben Jansen & CFO Nicolás Burr 30
Going forward, what do we assume?
§
Technology
Market structure External restrictions
opportunities
▪ Reasonable growth ▪ Increasing legislative ▪ Carriers build online channels
and societal pressure on to target smaller customers
▪ Reasonably rational capacity environmental sustainability
addition ▪ Automation opportunities for
▪ No further consolidation ▪ 3 alliances going forward back-end processes
within Top 7 carriers ▪ Start-up companies
remaining/entering logistics
▪ Opportunities to
de-commoditize
31In our industry marginal returns from further scale have
diminished significantly
Hapag-Lloyd HL + CSAV as of HL + UASC as of Twice-the-scale
standalone 2nd December 2014 24th May 2017 scenario
-12%
-11%
-5%
-3%
-2% to -4%
Unit cost ex bunker
2014 2015 2016 2017 9M 2018
32Hapag-Lloyd has a number of clear strengths to build on
Process quality In-house IT Strong brand
Global blueprint data management Quality reputation
Strong global
Balanced trade
shareholder base Pure play carrier
portfolio
Solid Balance Sheet
Global player
The best team from
with a relevant Young and large
4 lines
market share in vessels
Truly global culture
all major trades
Operational execution excellence
33Our Strategy 2023 has 3 overarching goals
Number 1
Be profitable Profitability Deliver unparalleled
for quality
throughout the cycle quality, be
customer-oriented,
and create value for
customers as well as
capture value for
Hapag-Lloyd
Global
Reinforce strongholds
player Focus on customer
Expand in key growth markets
segments willing to
Global market share (excluding pay for value
Intra Asia) greater than 10%
34Overview of core elements to achieve the goals of our Strategy 2023
Continuously earn and keep Mid and long-term differentiating strategy
the “right to play”
Environmental
No. 1 quality carrier
responsibility
Continuous
Cost Management
Superior land side Best-in-class
capabilities Web Channel Sustainable
value
creation
creation
Revenue Management Focus on selected
attractive markets Opportunistic M&A
and segments
Digitization & Automation
Agile Organization
35Continuously earn and keep the “right to play” 36
To enable our differentiation strategy,
remaining cost competitive is a pre-requisite…
From vendor to partner
Continuous
Cost
Management
Container Terminal
Steering Partnering
Improve cargo
Increase quality
steering
Network Collaboration Optimize port-stay
Container Procurement
Fix unprofitable substitution Partnerships with key Win-wins in tighter
services / feeders players along the value partnerships Further build
chain global procurement
Improve vessel &
fleet composition Vendor management
Optimize transshipment
flows
37…and we launched a cost management program, structured in
5 modules with a savings run-rate of USD 350-400 million1) by 2021
350 – 4001)
Cost savings, USDm
Modules: Network Container Collaboration Terminal Procurement Total
Steering Partnering
38 1) Compared to a FY 2017 cost base (incl. UASC business for 12 months) Subject to further evaluation and specification in 2019/20Many of the initiatives are currently already in the
implementation phase, with more to come
Example: Transshipment Advanced analytics tool developed
Optimize share of transshipment and direct cargo
Network Optimization of all shipsystems
Managing surplus / demand Reduce empty moves
Advanced analytics further enhanced
Avoid container type imbalances through substitution
Container Steering Direct moves between customers to avoid depots
Example: Feeder network ONE Enhanced and jointly operated Feeder network
Shift volumes from 3rd-party feeder to own services
Collaboration Review and expand collaboration opportunities
Partnering approach Timely exchange of information
Reduced waiting time
Improved productivity
Terminal Partnering Early departure
39Revenue Management Excellence is based on Product, Pricing
and Uptake Management
Decision on Decision on Booking
Decision on Pricing
Product/Contract Uptake
▪ Clearly defined products ▪ Analytics-based decision ▪ Better forecasting
▪ Improved contract adherence support for dynamic pricing capabilities
▪ Reduced revenue leakage ▪ Data-driven tender pricing ▪ Automated acceptance
decisions
40To achieve our vision, we will transform Hapag-Lloyd’s
Pricing & Revenue Management in three phases…
Strengthen the basics Foundations of new Advanced Revenue
Revenue Management Management excellence
2018-2019 2019-2020 Long-term aspiration (2020+)
Dedicated change management along the journey
41…which we started in 2018 with the “Contribution Boost”
▪ Focus on 10 short-term initiatives with Examples: Reduction of low
no major system changes contributing business
Strengthening the basics: ▪ Improve cargo mix steering and reduce
Contribution Boost revenue leakages AT WB -63%
▪ Replacing least contributing cargo LA-E NB -34%
▪ Ensure collection of Demurrage & Detention
& local revenue FE WB -46%
▪ Develop new Marine Fuel Recovery
mechanism and implement same by the Baseline Sep-18
beginning of 2019
42Mid- & long-term differentiating strategy 43
Our strategy is based on our unique strengths and
true differentiation through six strategic pillars
I No. 1 quality carrier II Superior land side capabilities III Focus on selected attractive
markets and segments
Rationale: Proven willingness Rationale: Inland is a differentiator and Rationale: Shifting market growth
to pay for quality in the market can offer contribution beyond port-port to emerging and niche markets
IV Environmental responsibility V Best-in-class Web Channel VI Opportunistic M&A
Rationale: Changing environmental Rationale: Serve smaller customers by Rationale: Seize opportunities that
regulation and a good asset base building the best customer front-end support HL's strategic goals
using our strong IT backbone
44Market research reveals that PROVEN and CONSISTENT quality
matters to more than half the market…
"Price
A seekers"
01 Capture willingness to pay
Mainly from existing customers by
cost-driven delivering the required quality
selection levels
Optimize customer mix by
"Value
02 leveraging willingness to
B seekers"
award more business from
existing quality customers
Quality driven Quality matters
selection >50% to more than
half the market Further optimize customer
"Service 03 mix by gaining new
C seekers" customers in target segments
to reach market customer mix
Market research
participants
45 Source: Market research, December 2017…and we will deliver a clearly articulated core product to
all customers and more for value and quality seekers
Premium
Product Diversified to target specific Improved service levels for
customer needs customers who value
not addressed by premium service level,
base product as clearly differen-
tiated products with
price premium
Base Consistent across Transparent with
Product customers of all size, measured and
contract type, and industry communicated
Clearly articulated performance levels
through quality promises Calibrated "slightly
above market average"
46We have defined our future Quality Commitments – which will be
an essential part of the “handshake” with our customers…
Responsive service
Commitment to volume and
bookings
Timely and accurate
documentation
Booked and loaded Provision of accurate
as agreed information on time
Reliable transport
Payment as agreed
Quick issue resolution
47…and we have already taken the first steps on what we know is
a multi-year journey to differentiate on quality…
This will require us to reach deep down into our organizational structure and operational “engine room”,
building on our proven track record of executing large scale projects.
We have already started mobilizing the organization to truly deliver on our initiatives,
More to come…
and have the ability to systematically monitor progress and development and adjust course as necessary.
Procurement and supplier
management
Partnering
Web Channel First pilot in Benelux
successfully completed
Premium product Enhance product and new
partnerships
development
More product additions
Continuously launch
premium products
48…and some of it is already in place today
Some examples of segments where customers are willing to pay for value
Web Channel Cherry Express Dangerous
Goods
Instant quotes Fast transit times Safety
Immediate booking Direct port calls High quality
documentation
Direct confirmation Special care
Highly skilled and
experienced staff
49Hapag-Lloyd intends to offer more end-to-end business, as we believe this can be beneficial for all parties Higher profitability by Increased differentiation Improved control over Improved cost through capturing some value through better E2E equipment flows and integrated procurement pools and feed more service better steering of the and reduction of 1-way contributing cargo onto imbalances trips our ships 50
We will expand our position in attractive niche segments,
reinforce our strongholds and further build growth markets
Attractive markets Niche segments
▪ High market growth
Reefer ▪ Customers are prepared to
pay for high quality & value
▪ The market offers
Special untapped opportunities
Cargo ▪ Ambition is to "scale beyond
Europe”
▪ One of the historical
▪ Growth in container shipping increasingly shifts Dangerous strength of Hapag-Lloyd
towards emerging markets Goods ▪ High quality service is already
▪ We are well positioned regarding our strongholds valued by customers
51Sustainable value creation 52
Creating Shareholder Value through Strategy 2023
To recap, we have described …and in financial terms our
the 3 goals of our Strategy 2023… objectives are to:
Number 1
Profitability Return more than
for quality 01 our cost of capital
Deliver on our Financial
02
and Non-Financial
Global Targets
player
53Financial Targets to be achieved until 2023
Profitability ROIC (throughout the cycle) > WACC
[This implies an EBITDA-margin of ~ 12%]
Deleveraging Net Debt / EBITDA ≤ 3.0x
Equity Equity ratio > 45%
Liquidity Adequate liquidity reserve of ~ USD 1.1 bn
54 Note: All KPI’s subject to IFRS 16 adjustments – adjusted KPI’s will be communicated accordinglyNon-Financial Targets to be achieved until 2023
Quality Achieve best in class Net Promoter Score (NPS)
Measure and improve On Time Delivery
Superior landside Increase share of door-to-door business to over 40% of total by 2023
Grow volume in selected attractive markets and achieve a market share
Attractive Markets
of ~10% (excl. Intra Asia) in reefer market by 2023
Environmental Comply with or exceed all IMO environmental regulations
Web Channel Grow volume booked via Web Channel to 15% by 2023
55Wrap-up
Key takeaways
▪ Marginal returns from further scale have diminished significantly
Industry ▪ We believe that the industry is at an inflection point and the future is about
differentiation
▪ Hapag-Lloyd has a strong starting position to take the next step to become the
number one for quality
Strategy 2023
▪ Customers are willing to pay for quality and value
▪ We have set up a robust strategy that differs from what others do
▪ We are convinced to succeed as we have proven repeatedly that we are able to
Strategy implement the measures necessary to reach our self-imposed targets
implementation ▪ We looked at multiple scenarios and have a clear approach for all kind of defaults
▪ To ensure a successful implementation we will follow a set of clear principles
56Agile Organization – Ongoing organizational improvements to implement Strategy 2023 CPO Joachim Schlotfeldt 57
Hapag-Lloyd became a truly global company over
the last couple of years…
The "new Hapag-Lloyd"...
… is younger in age… … and is more international
[Average age] [Nationalities employed]
39.2 76 78 90
39.1
38.4
Pre-CSAV Pre-UASC Post-UASC Pre-CSAV Pre-UASC Post-UASC
Hapag-Lloyd in numbers:
~12,600 employees 127 countries 394 locations*
58 * Thereof 191 own offices and 203 agents…and it’s organization is in a strong starting position to master
future challenges
Capabilities ▪ Strong and recognized IT & process quality
Execution
excellence
▪ Ability to successfully manage large-scale projects, e.g. CSAV and UASC integration
Sales and ▪ Global Sales and Customer Service network
customer
service ▪ Good brand perception with accessible and knowledgeable sales/CS staff
Global
player ▪ Global footprint and strong home turfs (Germany, Italy, Canada, South America, Middle East)
People & ▪ Loyal, committed, and qualified workforce that is open to change
culture ▪ Value-driven and principled organization
59But to be able to execute Strategy 2023 successfully we need to
modernize our organization and improve agility…
Introduction to Agile Organization
Our goal: Steps of the organizational transformation
Increase the agility of the organization
Core Processes
Improve core processes,
optimize / simplify organization
Faster decision making
Continually learn and improve Quality Service Centers
Develop projects flexibly Improve consistency and quality of service
Deal with risks earlier
Partner easily with other players Automation
Drive automation of standardized processes
60…which requires streamlined processes, better tools
and a focus on core business functions
Core Processes
Business Admin Excellence: Voyage Control: Cargo Control:
Streamline planning and Increase schedule Improve quality of
steering processes reliability allocation management
and ship planning
Approach
Optimize and simplify processes
Introduce additional and better tools
61Establishing Quality Service Centers will increase consistency
and quality…
1. Improve the consistency and quality of the service provided by Hapag-Lloyd in
Areas
2. Make continuous improvement of processes easier
3. Make process and system roll-outs / updates much faster and more reliable
Regional centralization of certain functions of:
Customer Service
Operations
Business Administration
Build on extensive experience with bundling of non-customer facing processes in
Global Service Centers in Mumbai, Chennai and Shanghai
Quality Service Centers (QSC) already established in Atlanta and Suzhou
Set up QSC in further Regions, e.g. Region Middle East (Mumbai)
62…while automation will allow staff to focus on tasks
with higher value-added
Robotics Focus staff on value-adding functions
Natural language Increase quality and speed of work,
generation reduce errors
Cognitive agents Support further volume growth of HL
Build on automation already in place
Machine learning due to strong operating backbone
and process structure
63Our organization will look substantially different in 2023 with more
analytically driven roles and reduced data entry & processing roles
Resource shifts Illustrative
Additional staff Regular Additional staff to support
to cover productivity Long-term strategy, e.g. niche specialists,
volume growth gains automation ambition revenue analytics specialists, etc.
Starting point Steady-state
64Continuously earn and keep the “right to play” – Procurement Focus CPO Joachim Schlotfeldt 65
We will significantly strengthen our procurement and
supplier management capabilities and competence
Transport+ initiative to
reduce transport spend
Bunker procurement
Corporate procurement
Terminal procurement
▪ Objective is to raise service levels and reduce cost – i.e., improve value for money, not just
drive down cost
▪ Impact on all levels of the organization: central, regional, and local
▪ Build up partnerships with our key suppliers
66Procurement excellence program in transport aims at capturing
the full potential by reducing costs and increasing service levels
Standard procurement Individual levers Focused enablement to
methods ensure savings capture
▪ Apply standard procurement ▪ Develop market specific levers ▪ Ensure successful
tools on Area level implementation
▪ Establish standards across
Hapag-Lloyd
Significant
cost reduction
Efficient processes
Continuous communication „From Vendor to
Partner“
Increased transparency
Better quality
67The procurement program will initially focus on transport spend
and additional locally sourced spend categories…
Key takeaways
▪ Transport spend
fully in scope
2,882 ▪ Further increase
due to general cost
inflation cannot be
ruled out
Rail
▪ Additional locally
sourced cost
Container
transport Barge / Feeder categories to be
costs addressed
[USDm]
Truck
▪ 13 lighthouse
projects across all
regions already in
Other implementation1)
LTM 9M 2018
68 1) Also covering terminal spend…and the first results illustrate that this ambition is feasible and
realistic
First pilot in Area Benelux completed with positive results Next steps
Cost savings of mid single digit USD million as well as process and quality ▪ Europe-wide rail
improvements tender
▪ Currently
addressing
Partnership discussions held with trucking and barge vendors Germany,
Central Europe
and Indo-China
Optimised modal mix ▪ Thereafter broad-
scale rollout in all
Areas in 2019
69Wrap-up
Key takeaways
Strong
▪ Hapag-Lloyd became a truly global company over the last couple of years…
backbone ▪ …and can build on acknowledged core competencies
▪ To adapt faster than competition to changing business environment and to adapt
Become successfully Strategy 2023 we need to further modernize our organization and
an agile increase agility
organization
▪ Several initiatives have already been implemented
Develop ▪ With the enlarged organization and changing market environment also
enhanced Procurement needs to change
procurement ▪ We will significantly strengthen our procurement and supplier management
capabilities capabilities and competence
70Environmental Responsibility – IMO 2020: Tackling regulatory challenges COO Anthony Firmin 71
Regulatory challenges have always played a role in shipping
Hapag-Lloyd has successfully adopted new regulations throughout its history
Tier 3 IMO2020
24-hour rule SOX max 3.5%
ISPS
Shiprecycling Ballast water
…
72As of 2020, all ships will be required to use fuel with 0.5% sulphur
content or less on all the world‘s oceans
IMO 2020 Sulphur Regulation Bunker fuel Sulphur limit
% Sulphur (by weight)
4.5
Global
4.0 ECA
3.5
3.0 Emission control All international
0.5% worldwide areas (ECAs3: bunkers outside
2.5 Europe and North ECAs3 scheduled
0.1% at berth
2.0 America) with move to move to 0.5%
0.1% Emission control areas (ECAs) to 0.1% Sulphur Sulphur on Jan 1
Targeted 0.1% ECAs China
1.5 levels in 2015 2020
1.0
Fuel type Today 2020
0.5
Worldwide Only with
HSFO 3.5% (excl. ECAs) scrubbers2 0.0
2010 11 12 13 14 15 16 17 18 19 20 21 22 23 24 2025
No large scale use Worldwide
LSFO 0.5% (excl. ECAs)
ECAs3 + ECAs3 +
MDO 0.1%
EU Ports EU Ports + New
ECAs China
73 1) Marine Diesel Oil (0.1% sulphur) 2) Possible use of scrubber for Sox post-treatment 3) Emission Control Area (ECAs) = The Channel, North Sea, Baltic Sea, North America, US CarribeanThere are three options to comply with IMO2020 but Low Sulphur
Fuel Oil will be the key solution in the short term
Options for ensuring compliance
1 2 3
Liquefied natural Exhaust gas Compliant
gas (LNG) cleaning systems fuels
Estimated containership fleet as at 2020E
LNG powered newbuildings
LNG powered conversions
2
33 160 5,200 5,406 Scrubber newbuildings
11 Scrubber retrofits
Compliant fuels
More than 90%
of the container world fleet will run on compliant fuels
74 Source: Alphaliner weeklyLiquefied Natural Gas (LNG)
Hapag-Lloyd believes LNG could be the mid-term fuel solution for the shipping industry
Hapag-Lloyd’s position
Regulatory certainty
+ Lower emissions 17
vessels LNG
Future availability ready1)
Refitting
High capex one 15k
–
class vessel
Bunkering network not yet in place
Availability in ports not yet
Further
Lower
sufficient sulphur
refittings content
possible
and CO2
Mid-
Estimated cost for conversion and term
additional cost for new builds: solution
USD 25 – 30 million per ship
Attractive payback
75 1) approx. 18% of current total capacityExhaust Gas Cleaning Systems (EGCS)
The use of EGCS is economically attractive as a short- to mid-term solution
Hapag-Lloyd’s position
Lower capex than LNG
+ No issues with fuel (HSFO 3.5%)
10
retrofits
Economically attractive planned for
2019/2020
Proven base technology
Retrofits for
13k TEU
– Increased fuel consumption and vessel class
higher CO2 emissions
Further Higher
Direct discharge of scrubber water into
refittings CO2 and
the ocean subject to water
pilot
No long-term solution pollution
Short-/
Estimated cost for conversion: mid-
term
USD 7 – 10 million per ship solution
Attractive payback
76Compliant Fuels
Compliant fuels are the key solution for ensuring compliance from 2020 onwards
Hapag-Lloyd’s position
No capex
+ Currently most environmentally
Key
solution
friendly solution going into
2020
Confirmed availability1)
~90%
of ships in
– High price
industry
Higher opex Major
Possible compatibility problems
refittings Low
not sulphur
emissions
before 2020
No downtime or cost for conversion
Additional cost of USD ~1bn annually
due to higher price
77 1) Confirmation by major suppliersThe IMO2020 regulation will make the industry greener but it
will come with a price
Costs will go up as both compliant fuels and investments into new technologies will be expensive
Estimated impact Estimated impact Estimated impact
on entire on container on Hapag-Lloyd
shipping industry shipping industry
On the assumption that the spread between high-sulphur fuel oil (HSFO) and low-sulphur fuel oil (LSFO 0.5%) will be
~250 US dollars per tonne by 2020, Hapag-Lloyd faces additional costs of around 1 billion US dollars annually
78To recover fuel related costs caused by the IMO2020, Hapag-Lloyd has developed a Marine Fuel Recovery (MFR) mechanism Marine Fuel Recovery Mechanism will be gradually implemented from beginning of 2019 – all customers will take part in this change Hapag-Lloyd will replace all existing fuel charges with a new MFR mechanism 79
The new MFR mechanism is logical, transparent
and easy to understand
MFR creates transparency and is based on market data and averages for market class vessels
Helps our customers predict and plan price development
Customer feedback on the MFR has been largely positive
The MFR is based on market data (fuel consumption, fuel price and
carried TEU) and derived from averages for Market Class Vessels
Unique approach also considering price difference between 0.1% and
0.5% Low Sulphur Fuel
Dominant and non-dominant legs are treated in the same way
80Governance is crucial – Hapag-Lloyd welcomes the Carriage Ban
A robust enforcement regime is necessary for ensuring a level playing field
The IMO itself has no authority for Each Flag and port state responsible
governance for enforcing the regulation with sanctions
and fines
Carriage Ban as of March 1, 2020
Strict control in ports is extremely
important
IMO bans vessels that carry HSFO when
not equipped with scrubbers
81Will the new regulation affect the supply / demand balance
in liner shipping?
Disadvantage of inefficient vessels will become more apparent as older vessels need to
use more expensive fuels Illustrative
Fuel costs per day for an old +62,5%
4,000 TEU vessel
32.850
[USD/day]
+$6,407
20.216
+$3,943
Cost per sea day Cost per sea day
@ 400 USD/mt @ 650 USD/mt
Might lead to increased scrapping of older, less efficient vessels…
…which would further improve supply / demand balance
82Wrap-up
Key takeaways
IMO 2020 will effect the industry as a whole
Regulation 2020 Three options are available to achive compliance (LNG, EGCS, Compliant Fuels)
Majority of containerships will run on compliant fuel as of 2020
Hapag-Lloyd embraces new regulation as industry is becoming greener
Hapag-Lloyd We will test LNG and install EGCS in 2019 / 2020
approach
Compliant fuel most relevant solution in the short-term
MFR mechanism in place to tackle higher bunker costs
Positive results of refitting and pilots will lead to further installation of EGCS and LNG
Going forward
IMO envisions significant emission reduction by 2050
83Digital Transformation CEO Rolf Habben Jansen 84
Hapag-Lloyd’s journey to digitization started in the early 90’s
„Electrification“ Digitization
1990 Today
Integration
93 00 10 CSAV & 18
UASC
Advanced functions and process Advanced
System standardization &
coverage, EDI-connectivity, forecasting &
integration for core processes
automation, system architecture optimization
Enhanced biz
Process Ease of doing biz with, new
steering through
Excellence architecture
BI
85Hapag-Lloyd’s existing IT is the basis for our digitization efforts…
Compass
Integration Single Version of Truth FIS
Biz Analytics
High Degree of Automation,
i.e. Quality and Efficiency
Customer
Supplier
SAP
Connectivity EDI/API/Web/Mobile
Communication CRM Marine Ops
Analytics to manage global networks Base Systems
Standardized Processes & Organization
Excellent starting point to continuously enhance Hapag-Lloyd’s service products and quality
by leveraging digital technologies
86…which can only be successful if there is close alignment
between Business and IT
HL IT Biz-IT Alignment Digital Excellence
Integrated management of digital
Tech Watch Unit development programme Digital Channel & e-Biz Unit
Track >200 start-ups Commercial, Operations, BA, IT, Board Hapag-Lloyd online channel
Discussions with >50 Agile project pipeline management Portal partnerships
Partnerships with ~10 Disciplined project execution – on time, Agile product development
on budget
~ 100 IT projects p.a.
Process excellence
Automation
Collaboration
87Hapag-Lloyd is actively monitoring digital developments
and partnering with leading-edge companies…
We are closely monitoring developments. Where sufficiently
interesting we start discussions, leading to pilots, and eventually to
partnerships
TechWatch
Objective Artificial
Forecasting of empty container demand, network
▪ To build on our strong Intelligence,
analysis and yield management
operating backbone and IT Machine
competence to Learning
differentiate from the
competition
▪ Become an increasingly Participating in three consortia to evaluate
different opportunities to exploit blockchain
agile and customer- Blockchain technology.
responsive organization In parallel preparation of technical setup
Automation
Already very active with Web Channel, FIS Macros, Container
Steering, Auto Booking Confirmation, Auto Shipping Instruction
and a steadily increasing number of simple process robots
88…as we know that technological innovations help to create new
and better customer solutions…
There are plenty of
opportunities for carriers to
differentiate, also with
regard to digitization
While the basic customer Customer service
needs have not changed Physical services
much, customers today Contractual commitments
expect to conduct their Digital services
business with the comfort Customer
of modern technology:
Mobile applications
Centricity
Transparency
Fast response Digitization enables us to
interact more directly
with customers (and
suppliers)
89…and to accelerate this we set up the
Digital Channel Incubation Unit (DCIU)…
Hapag-Lloyd’s new Digital Channel Incubation Unit Customer
(DCIU) drives digitization within the company Insights &
Data
Working with continuous real-time
market & customer research,
product development,
marketing and IT
together as one team
DCIU
Agile
By empowering digital Digital
Digital
transformation, we provide Product
Marketing
customer solutions to unleash Develop-
the potential of the future of ment
logistics
90…who in a joint effort with IT & Business launched
Quick Quotes in 2018…
24/7 access to the Quick Reception of rate in immediate Quotation with just a
Quotes tool whenever and response few clicks
wherever
Access for all customers Start of booking process follows Flexible access to Hapag-
regardless of size or location directly Lloyds extensive global
network
91…which in 10 months has grown to around 6% of global Hapag-
Lloyd volume – a business of over USD 0.5 bn annualized revenue!
Quick Quotes volume development
Volume1 Quotations2
‘000 TEUs ‘000
New product
15 Public launch of (Open Top) 100
Project Web Channel
start (week 33)
12 80
New products
9 (e.g., Reefer) 60
Full Minimum-Viable-
Product rollout
6 40
3 20
0 0
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44
Volume Quotations Calendar week (2018)
92 1 Start of Shipment based 2 Quotations: Successful customer requests based on creation date (excl. 2nd quotes)
Data as of: November 5th, 2018Wrap-up
Key takeaways
▪ Hapag-Lloyd has always been at the forefront of IT developments
Single ▪ Our global single operating system is an industry acclaimed competitive
operating advantage…
system
▪ …and a strong basis for further digital development
Digitization ▪ Providing customer solutions by driving digital transformation
focus & ▪ New focus on collaboration and customer centricity
customer ▪ Digital Channel Incubation Unit (DCIU) drives digitization within the company…
solutions ▪ …and develops new digital products in an agile way
New products,
▪ We kicked off a number of potentially interesting collaboration efforts
features and ▪ Web Channel has so far been a huge success
enhancements ▪ Further digitization products and features are in the pipeline
93Number One for Quality!
Actively drive change by building on our capabilities
Continually earn and keep our right to play
Deliver unparalleled quality
Become a more agile organization
Deal with regulatory changes in an environmentally friendly manner
Create new and better customer solutions through digitization
Systematically monitor progress and development
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