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Edited Transcript of HHFA.DE earnings conference call or presentation 13-Nov-19 2:00pm GMT

Q3 2019 Hamburger Hafen und Logistik AG Earnings Call

Hamburg Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Hamburger Hafen und Logistik AG earnings conference call or presentation Wednesday, November 13, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angela Titzrath

Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board

* Roland Lappin

Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board

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Conference Call Participants

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* Adrian Pehl

Commerzbank AG, Research Division - Head of TMT and Consumer

* Christian Cohrs

Warburg Research GmbH - Analyst

* Nikolas Mauder

Kepler Cheuvreux, Research Division - Junior Equity Research Analyst

* Robert John Joynson

Exane BNP Paribas, Research Division - Senior Transport Analyst

* Stuart Gillies

Kempen & Co. N.V., Research Division - Research Analyst

* Tobias Sittig

MainFirst Bank AG, Research Division - Head of Equity Research Germany & Senior Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the HHLA's Analyst Conference Call on the 9 Months Results 2019. All comments will refer to a set of charts available since this morning in the IR section of HHLA's website.

(Operator Instructions)

HHLA is represented by Angela Titzrath, CEO; Dr. Roland Lappin, CFO; and Stefanie Steiner, Head of Investor Relations. I would now like to turn the conference over to Angela Titzrath, CEO. Please go ahead.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [2]

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Thank you. Ladies and gentlemen, since we last spoke in August, times have become more turbulent. The long-lasting economic upstream in Germany is probably coming to an end. The German government and the leading economic institutes have lowered the forecast accordingly. World output and world GDP show signs of a slowdown, partially caused by the still unresolved trade conflict. The challenges today and tomorrow for the entire transport and logistic sector, therefore, remain difficult. Nevertheless, in an increasingly volatile market environment, our business continues to make good progress after the first 9 months of 2019, even a bit stronger than we actually expected. And against this backdrop, we are able to update the forecast we have given so far for the year as a whole. We now expect a stronger increase in both container throughput and transport than currently guided. At HHLA, we do not look at the next quarter or current year, but taking more long-term view.

The current challenges cannot be neglected. Still, we continue to invest in equipment and technology to secure our future viability. To give you an example, last week, 3 out of 5 new gantry cranes of the latest generation were delivered to our terminal Burchardkai. This will allow us to serve mega-carriers at an additional berth.

According to our guiding principle of making responsible and sustainable use of the earth's natural resources, we are now introducing HHLA Pure, a product that can guarantee the carbon-neutral handling of our customers' goods and also their carbon-neutral onboard transfers by our rail subsidiary, Metrans. As a gateway to the future, we want to work efficiently and preserve natural resources for future generations.

Let us now turn to the economic side and the business environment first. The pace of global economic activity remains weak, especially the momentum in the manufacturing sector has weakened substantially to levels we have not seen since the global financial crisis. In particular, global trade reflects the rising trade and geopolitical tensions, and once again, grew more slowly than expected. China's economy weakened more than anticipated, while the Russian economy was expected to recover slightly, but still at a low level. This slowing momentum is also reflected in our sector. After a strong decline in volume growth in the first quarter, a recovery in global container throughput started in the second quarter and gained further momentum in the third quarter. As anticipated by the market research institute, Drewry, compared to the first 2 quarters, the outlook has brightened slightly, especially for Northwest European throughput volume. And again, all in all, we are still talking about growth in the industry.

As the factors of uncertainty are becoming more numerous, apart from trade conflicts, I'm also thinking here of the Brexit story or the rising geopolitical tensions, most notably in the Middle East, we have to keep a cool head. We will continue to pursue our strategic path and adjust our strategy where necessary.

On this basis, HHLA achieved encouraging key figures in the first 9 months of 2019, even slightly better than actually expected. My colleague, Dr. Roland Lappin, will elaborate on the figures in a second. Just 1 or 2 remarks from me. All segments, Container, Intermodal and Logistics contributed to the significant revenue growth of more than 8%. Improvement in EBIT was even more pronounced. Even if we disregard the effects from the new accounting standard, IFRS 16, our results were pleasing for us as management.

I will leave the pleasure of explaining these figures to Roland.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [3]

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Thank you, Angela. As these figures are pretty straightforward, very briefly the throughput and transport figures. Container throughput grew at our foreign and domestic operations. In Hamburg, there were changes in liner service structures this year. As we always stated, a steady state after the reshuffling of the shipping alliances in 2017 has not been yet reached.

Transport -- the transshipment shipment in Hamburg remains weak. Container transport is moving at full throttle ahead, both rail and road transportation contributed to the significant increase.

Let's come to the monetary side of the business, starting with the Container segment. Increase in throughput volume, combined with an improvement in average revenue per TEU, led to a marked rise in revenue in the first 9 months of 2019. This was caused by contractual rate adjustments and an increase in the rail share.

OpEx were impacted by 3 main effects. Our terminal in Tallinn has only been consolidated since the second half of 2018. Then, we temporarily increased personnel deployment as a result of the introduction of a new terminal software on our first production site here in Hamburg.

And finally, the conversion of the company pension scheme. The initial application of IFRS 16 led to a slight improvement. EBIT increased by almost EUR 10 million year-on-year to EUR 112.6 million, approx EUR 8 million of this development is attributable to the application of IFRS 16.

The ongoing tasks for all managers in the segment are as follows: strict cost control and focus on the OpEx trend.

In the Intermodal segment, volumes are growing and costs are increasing at a lower rate. The revenue trend clearly outpaced transport volume growth. The rail share remained high in an environment of rising volumes, price adjustments and longer transport distances. This also contributed to the strong increase. OpEx rose at a slower pace, with virtually no effect from IFRS 16. At EBIT level, higher volumes, better average revenue and higher utilization of the train systems, all made positive contributions. The IFRS 16 effect is insignificant.

As a result, we maintained the outstanding EBIT margin of more than 20% again. We will work hard to sustain this level. Our

Our Logistics segment continued to good growth trajectory. Revenue increased significantly, driven mainly by vehicle logistics and our consulting activities. Cost control remains strict. The slightly lower EBIT was due to expected ramp-up costs for new digital business fields. In this segment, as an Intermodal, IFRS 16 played a minor role. At-equity earnings fell to EUR 3.1 million. This was largely due to the burden on earnings from 5 material handlings resulting from the initial application of IFRS 16.

Coming back to the Port Logistics subgroup as a whole. In our earnings bridge, the main changes were seen in net financial expenses and taxes. Minorities rose due to the positive results in the Container segment. Taxes increased due to higher profits. Tax rate was slightly above the prior year level and in line with expectations.

In net financial expenses, IFRS 16 was the main driver. As the impact from the interest expense related to lease liabilities is front-loaded, the impact should reduce over time. In total, net profit showed a stable development, leading to an EPS of EUR 1.09.

Now to the statement. I have a special eye on cash flow. The positive EBIT trend fuels our operating cash flow. This was due to the comparatively low increase in trade receivables and current financial assets as well as to the slight increase in trade liabilities. Our investing activities were characterized by an ongoing CapEx program.

In addition, we deposited some liquidity in short-term assets. The prior year figures included the Estonian acquisition last year. While financing cash flow last year was dominated by the payment of the remaining stake in Metrans, this year, the increase was due to the necessary payment of lease liabilities under IFRS 16. In total, our financial funds stood at a comfortable EUR 234.4 million as of the reporting date.

And with that, I'd like to hand back to Angela.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [4]

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Thank you, Roland. Ladies and gentlemen, the expectations for the macro side have changed little since we spoke in mid-August. In its October outlook for 2019, the IMF largely downgraded its GDP forecast and now expects growth of 3%, the lowest level since the global financial crisis. Also in light of rising trade tensions and weak global economic activities, this prospect for world trade has been lowered significantly, again, by 1.4 percentage points against the previous outlook in July 2019.

For the sector, Drewry has made slight adjustments to its sector outlook for certain shipping regions compared to the middle of the year. While they downgraded forecast for global container throughput, the outlook for throughput in the European shipping regions, however, has brightened slightly. Based on this assessment of the environment and the good results achieved in the first 9 months of this year, we have updated our guidance. We now expect a moderate increase in container throughput and a significant increase in container transport. This should lead to a significant increase in revenue, too.

We expect our EBIT to rise significantly again, mainly triggered by the IFRS changes. We continue to expect different developments in our segments. We now anticipate, based on the top line development, a moderate increase of EBIT in the Container segment and the continuation of the growth path in our Intermodal segment with a strong development. We will pursue our investment program and expect capital expenditure of around EUR 200 million in 2019, mainly in the Container and Intermodal segments.

To put it in a nutshell, 2019 will be another very good year for HHLA, but the clouds on the horizon are becoming darker. Thank you for your attention, and we would like to open the Q&A session now.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

And the first question comes from the line of Christian Cohrs of Warburg Research.

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Christian Cohrs, Warburg Research GmbH - Analyst [2]

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Maybe just coming to the outlook you just mentioned. Just for clarification reasons. You raised the divisional outlook for volumes and earnings in Container and Intermodal, but you stick to your outlook for the group EBIT figure. Here, you just didn't change the wording, you just -- you stick to your assessment of a significant increase. Does this mean that OpEx in Logistics and in the holding other units are higher than you had originally anticipated, making up for the better performance in Container and Intermodal? That's question number one.

Secondly, also, just for clarification reason. Looking solely on the third quarter in Intermodal, EBIT contribution is moderately below last year's level. Is there something going on? Is this a change in trend? Or it's just that the quarterly picture a bit distorted and overstating something which does not take place? I think a bit more light here would be helpful. And then the last question on feeder. You mentioned that the feeder volumes have gone down a bit versus last year. I wonder whether after the Elbe River dredging, is it fair to assume that you will see a recovery or that you should experience a recovery in the feeder ratio?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [3]

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Starting with your last question on the feeder volume, we are not forecasting any significant increase in the feeder volume. With regards to the third quarter, Intermodal, my colleague, Roland, is answering you.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [4]

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Starting with your first question. Please bear in mind that the guidance given for the full year, the qualitative guidance, and as you know, this -- it should be translated to markets in that range and the upgrade of the guidance for the full year, fully factored in this aspect. So no change is needed as outlined before.

The second question is with regard to the earnings development on quarterly level. I would comment on that as follows: don't overestimate a 90 days development in the Intermodal segment. It is infrastructure-related. It's long term. I think the principal trends are factored in the full year's guidance. Given the volume-wise, we upgraded the guidance, and we stayed the course with regard to the expected results for the full year. And last remark on that, I clearly outlined the outstanding performance level, translating into an EBIT margin in the range of slightly exceeding 20%, once again, 20% on EBIT line in this segment. So I think 3 months, as a quarter, results are needed in line with the market-reporting scheme that is not appropriate to assess on the performance, nor the current performance, neither the outlook for the business.

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Operator [5]

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The next question comes from the line of Adrian Pehl of Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [6]

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First of all, on Container, I've got 2 questions. One is linked to your international operations in Odessa and also in Muuga. It seems like, also, here the quarterly volume performance actually accelerated to some degree. I was just wondering what were the drivers behind that? And should we expect that to continue also in Q4 and maybe early next year?

The second one in Container is, if my math is correct, I saw that the unit cost per TEU was actually flat to slightly down in Q3, while it was up before. And so maybe you could share some insight on that? And is that actually a good level where we stand also going into Q4?

And a third question, I have on the holdings expenses or consolidation or on the EBITDA line, which was just EUR 6.5 million, so down EUR 2.6 million versus last year. I was wondering whether that is also a level that we should factor in for Q4? What was the delta in terms of cost versus last year? And then I might have 1 or 2 follow ups.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [7]

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I'll start with the drivers to -- with regard to the sales on the international Container segment. Obviously, the big advantage that we are having is that we have an existing sales organization, which is catering services to the major customers, and therefore, we can leverage our existing relationships as well towards extending services in Muuga and Odessa. And this is obviously done in a highly professional way and not done from a local regional prospect. And I think that's now shown as well that this is factored into the numbers. With regard to the unit cost?

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [8]

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Yes, of course, quarter-on-quarter, you're completely right. Unit costs are down by, according to (inaudible), negative 5.1%. As we outlined, when we commented under the first 6 months, Q2 was highly impacted by the introduction and the go-live procedure of the new terminal system at our first site here in Hamburg, and this is going to normalize going forward. This is one thing. And the other thing is, with regard to efficiency, we are working hard on that, and this is slightly impacted. Thanks to the higher utilization, not to forget the utilization and the strong development in Q3, the unit costs, accordingly.

And your third question was with regard to your holding costs. To be frank, ramp-up costs with regard to strategic initiative is to a certain extent impacting the holding costs on quarterly basis. So it's not a flat development that you should expect, but for the remaining 3 months, I guess, the Q3 development is a good indication.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [9]

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Okay. Very good. And actually, 2 questions on nonoperating items in Q3 or going forward. One is, I saw your financial income was negative; I was just wondering what that was EUR 339,000. And lastly, since the tax rate developed still quite favorably, now below 25% in Q3, is it that -- the 9 months tax rate of 25.6%, is that actually a good proxy for Q4? Or should we rather assume a lower rate, maybe due to the international expansions on volume, but maybe you could share some insight on that again with us?

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [10]

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To be frank, the compound tax rate on subgroup level is very much impacted by our international income in relation to the local income. And as you know, it takes differential and plays in favor of the international activities. And with regard to the current level, please understand that we do not guide the tax rate on a quarterly level. Assuming at current level for the full year, I think this is good guidance and more in principle. Give us some headroom for some fluctuation in the range of -- well, we are lucky, it's 25%. If it's normalizing or if volumes locally are picking up, this could lead us currently to a range of 27% or so. And take this as an indication for the full year, between 25% and 27%.

The financial income, I think it's nothing significant to comment. And the main impact is the application of IFRS 16. You know that the inherent interest of rental expenses are now allocated to the -- and recorded in the financial results. And this is the main driver for the differential if you compare it year-on-year.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [11]

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All right. I suspected that. Lastly, more general questions on, let's say, the link between your 2 main segments, Container and Intermodal. As you were referring in your statements to see the trade this way, a more volatile development going forward potentially in the -- in your port operations in Hamburg. And on the other hand, given that Intermodal growth has been consistent throughout the years and grown quite substantially, would you think that actually once the volumes in your port operations were a little bit impaired from the overall macro picture that there's a good chance for a significant offset of your Intermodal division going forward? Or should we still assume a relatively strong link between these 2 divisions, in maybe early 2020 or beyond depending on macro?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [12]

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I would try to answer this in the following: obviously, our opportunity here in Hamburg is heavily as well depending on the macroeconomic development, in particular, obviously, Germany. Our Intermodal section has a broader market they are standing on, particularly Mid-Europe or Eastern Europe and linking the different countries. So there are interdependencies, but obviously on a broader market base.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [13]

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Will you agree that over time, the interdependency between these 2 segments has declined?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [14]

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Yes and no. It all depends on the global overview, right? So there is always an interlinkage in between.

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Operator [15]

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The next question comes from the line of Tobias Sittig of MainFirst Bank.

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Tobias Sittig, MainFirst Bank AG, Research Division - Head of Equity Research Germany & Senior Equity Analyst [16]

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Two for me, please. Firstly, you showed us that European throughput has exceeded the global throughput, which is a bit counterintuitive when you look at the macro softness in Europe. We heard from the shipping lines that there's been maybe some special effects from meat exports to China on the back of a swine flu. Are there any special effects in there that you see contributing to the strength or a relative strength in Europe? And secondly, you made a comment that you said the reshuffling of alliances and services isn't really done yet. Are there any major services up for renegotiations? Do you have some hope to get some of the Far East services or volumes back? Is there anything you can share with us in terms of what could be out there for you in terms of market share in Hamburg?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [17]

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With regard to special effects, I think every year has a certain special effect. Obviously, this year, whole of Germany was the second year of heatwave, which caused significant damages in the wood industry, in particular, and we see quite a significant volume of wood exported to China, but I wouldn't call it significant. You have always some fluctuation in between. So I would not call this special, but it's special as, obviously, those heatwaves in this famous animal called [bock, in case], which I don't know, which is the English translation. It has made this effects to our wood and trees. And yes, but overall, I would say it's a certain impact, but not as significant.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [18]

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With regard to the steady state, I think you -- all of you have to understand that it is still a fragile industry. Of course, they try to improve, especially from a financial point of view, but starting with top line, determine -- the sea freight is still challenging, and it's a volatile thing. So this is why I mentioned, don't expect a steady state from today's point of view. I think consolidation this way or the other will continue, but we have nothing specific on hand that we could explain to you.

On the other hand, with regard to the current year, please bear in mind the changes in the first quarter. The reshuffling of North American services from our competing port in Bremerhaven to Hamburg. And on the other side, one of our Far East services left us to our competitor in Germany. So in the aggregate, it's reflected in the dynamics, but this, again, is not a steady state still. And if you try to link it to the macro development and the trade flows, you have to factor this in on top.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [19]

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And with regards to negotiations, every year starts where the ship liners are negotiating among themselves the so-called worse windows of the different ports on a global level. And starting from different starting points, usually, it starts from Asia, it has an impact as well for all ports linked to each. And therefore, obviously, there can also be some fluctuations, which we cannot foresee right now.

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Operator [20]

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The next question comes from the line of Robert Joynson of Exane BNP Paribas.

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Robert John Joynson, Exane BNP Paribas, Research Division - Senior Transport Analyst [21]

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Three quick questions from me, please. First of all, just on the CapEx guidance. It was unchanged at EUR 200 million, but obviously only EUR 96 million was spent in the first 9 months. Is the Q4 CapEx generally likely to be more than EUR 100 million? Or is it likely that a significant chunk of the remaining EUR 104 million or so could be pushed back into 2020. The second question, just on pricing discussions again and then specifically, on IMO 2020. It's obviously just several weeks away now. And I was just wondering, are the terminal operators, including yourself, seeing any signs of container shipping lines being more aggressive in their pricing discussions ahead of IMO 2020? And then the third question, just on the Intermodal EBIT. Again, it follows up on one of the previous questions about EBIT this year being a little bit lower than it was in Q3 of last year. Could you just remind me, because I can't find anything in my notes, were there any positive one-offs that boosted the Intermodal EBIT in Q3 of last year?

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [22]

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Starting with your third question. Yes, we re-elevated -- we re-reviewed the lifetime assumption for the equipment in the Intermodal segment. And as a consequence there, there was a certain onetime effect impacted in the Q3 comparison basis in 2018. So the answer is yes. With regard to your first question, we mentioned that we just got a lot of new equipment as expected and as factored in our CapEx for the full year a week ago. This means a new ship to short -- 3 out of 5 new ship to shore cranes to comply with the mega-carriers dimensions. So we feel quite comfortable with the guidance for the full year, ending up at a range of EUR 200 million with regard to the CapEx in 2019.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [23]

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With regards to the pricing, you mentioned the IMO 2020, obviously, the shippers are -- indicate with their customers, and in consequence, what we have learned, I mean, if you just take this quarter, pricing, it's 20%, the trade's price under last year. So we don't see that the shipyard -- shippers are realizing their price estimates right now in the market, which is overall a pressure, which is obviously in the market overall, and therefore, including every participants of this marketplace.

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Operator [24]

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The next question is from Nikolas Mauder of Kepler Cheuvreux.

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Nikolas Mauder, Kepler Cheuvreux, Research Division - Junior Equity Research Analyst [25]

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Just one remaining and coming back on the pricing topics in the presentation. There are 2 remarks on contractual rate adjustment for the Container segment and price adjustments in the Intermodal segment. In the Container segment, how -- do we have to look at this in the light of the upcoming negotiations with some ocean carriers, I think? And in Intermodal, was that driven -- how was that price increase or adjustment driven, whether it's from your side or was it the market level? Any color, I'd appreciate it.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [26]

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Well, starting with the Container segment, in the current environment, assume the pricing power from a terminal point of view next to nothing. In principal, the environment can be characterized as a deflationary environment. So the chance to successfully adjust the pricing in line with cost inflation is very limited, and this is still the situation. So don't overestimate the adjustments mainly agreed upon in previous periods already in existing contracts. So it's nothing that we currently negotiate. On the other hand, with regard to the composition of the average income per box, please factor on top the dual-time development that, as you know, temporarily, all the storage fees as we call it internally, that temporarily impact the average income per box on top of it. So price-wise, I think it's very limited with regard to adjustments in the Intermodal segment -- sorry, in the Container segment. And with regard to Intermodal, I think the development is very much a distance related. And this might lead us to a higher income, but I'll just crosscheck the metrics and comment on that in a minute.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [27]

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But I can just reiterate it. Basically, they are very, very, very rotted increases on the Intermodal side on the pricing. Actually, the junk of the volume is coming through longer transport distance. That was the significant impact in combination of a very, very modest price increase itself.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [28]

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Yes. And if I walk on the quarterly developments in the current year, based on the metric revenue in the Intermodal segment per TEU transported, I think the 3 figures in the trend is almost stable, starting with EUR 311 million, EUR 312 million, EUR 308 million in the third quarter. And bearing in mind the changes and the structure of the distances, there is nothing significant to comment on. And again, it's -- increases are very much distance related, if any at all.

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Nikolas Mauder, Kepler Cheuvreux, Research Division - Junior Equity Research Analyst [29]

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One follow up, if I may. I've forgotten. The product that you announced at the beginning of the call, the new one, HHLA Pure, how is the feedback from customers like? Is this a real differentiator versus European port operator competition? And is this a near-term driver?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [30]

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We will announce this in December. We will have a separate communication on sustainability, and we will basically put this into the center of our communication as we already acquired test customers on the trade show that was in Munich. And yes, to be very frank, it's not lip service. It is a differentiating element and the response of the overall customers are extremely good to this product, as not only sustainability in the remission is after the Friday demonstrations an interesting topic but as well we are able, together with the Port of Hamburg, with our terminals here and with our Intermodal daughter to make here a differentiating offer to our customers.

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Operator [31]

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The next question comes from the line of Stuart Gillies of Kempen.

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Stuart Gillies, Kempen & Co. N.V., Research Division - Research Analyst [32]

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I've just got one, and it's on the back of your comments on sort of, like, the lack of pricing power, and obviously, we have seen the Container margin segment once again down on a like-for-like basis. Just going forward, what specific initiatives you have in place to try and improve the efficiency in the Container segment? So is there any specific projects you have underway, and I'm talking into 2020 and to 2021 to try and somehow offset the cost inflation that we're seeing.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [33]

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Well, the lack of pricing power is driving initiatives overall. One, Roland has mentioned before is, obviously, the introduction of the new IT system, the N4, which we have just significantly implemented and successfully implemented beginning of the second quarter. And obviously, we are testing ideas of unification of standardization. We have another project around (inaudible). So basically, with intelligence to analyze data for further basically optimizing, for example, in particular, our lag assistance, our stock inventory. It's all about scalable elements that we are looking at. And obviously, that's a focus not only for 2020 but for the upcoming next 5 years. It's a long-term project. Obviously, in a business model that we are in, you don't have quick fixes, right? So you need to work on a constant base and with a long-term view on achieving further enhancements.

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Operator [34]

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Our final question is from Adrian Pehl of Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [35]

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I've got 3 follow-ups, actually. The first is on the Elbe dredging. I mean, obviously, since you're much closer to the river than I am, could you give us an update on the works on anything that might potentially cause a delay from your end or you can see is everything going as planned? And secondly, could you remind us where we actually are going into 2020 on the next wage negotiations with the unions? And do you expect actually negotiations to start? Or is it a topic actually for later period? And lastly -- I'm sorry to bother again on pricing. I mean, Mr. Lappin, you've been saying that, probably rightfully, that there is pressure on prices and actually from your end, it's tough. On the other hand, I do understand 2 elements. First of all, storage was probably good, but what is it like? I presume not more than 10% of your revenue in Container. And second, the mix should have been, if you want so better, on lower feeder ratios. But I think these effects are not as significant. So netting this out, it really looks like that you've done a good job, at least, on negotiation, or let's say, prices have been relatively stable from my perspective. So I just was wondering whether we should prepare for something structurally going on actually in 2020 beyond IMO that is coming up?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [36]

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Well, the Elbe dredging, obviously, you're right. We are very close to the river. But sometimes, we would like to be even closer to the river, accelerate a little bit the dredging. But on the other hand, to be patient after 17 years, we can be patient for another couple of months. Overall, to summarize it, they are in time. They are -- We don't see so far any delays, and they are progressing very well. The official dredging was opened up together with the Minister of Infrastructure, Mr. Scheuer, and it's done very thoroughly. The ships, actually, is not a crane. It's a ship, actually, which is doing the dredging. It is the latest technology, extremely impressive on how fast you can realize this. Obviously, we are not that close in the river or to the river that we don't know if there's any fish or anything coming up injuring this, but so far no delay, in time. And everybody is basically observing this very carefully. So that from this prospect of today, we don't see any further delay or any problems coming now. On the wage negotiations, obviously, it's all factored in into our plans. So independently, when we started negotiating, the effect will be always a full year effect. With regard to the storage percentages, I have to disappoint you because we don't disclose this, and I think, Roland has something to add as well.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft - CFO & Member of Executive Board [37]

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Yes. Take a short look at the figures, where do you -- what's the trend of average income per TEU in the Container segment. According to my metrics, we started with EUR 107 million, continued in Q2 with EUR 105 million and now stay at EUR 104 million. Year-on-year, it's close to EUR 106 million compared to EUR 104 million than previous year. So nothing significant in terms of changes. And as I mentioned with regard to margins and performance, we concentrate on cost measures mainly, aiming as outlined before on scalability of -- on our 3 sites, here, in Hamburg mainly. And don't forget the operational gearing, what helps us a lot is utilization. This answers your question with regard to expected recovery of feeder volumes going forward. I think this makes sense, if in the first instance we successfully manage our unit costs on one hand. And then if you add up a higher degree of utilization, I think this should lead us to margin progression on segmental level. And what I want to add to Angela is, don't forget that this -- the unified thermal system is a prerequisite for better scalability of procedures on all 3 sites in Hamburg, and the other aspect is related to automation. And you know that the transition of CTB is volume-related. We have started with that introducing the automatic storage blocks. We have now achieved the status that we have implemented more than half of them compared to the design. We are through with the transition, and we'll continue to do so. And we do all these things to offset the cost inflation that is labor-related to make sure that margin remains stable or if utilization picks up -- might increase.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [38]

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Let me add one more view on the pricing hedge. At the very end, obviously, pricing is important to our customer, what will be the final rate. But at the end of the day, for the customer, our customer, to provide quality, delivering in time, to handle peak situations as well in situations where actually difficulties are shown as the vessels are delayed or have to leave earlier. The ability to deliver quality service in those situations makes a difference and stabilizes, obviously, as well as the pricing.

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Operator [39]

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And this concludes the question-and-answer session. I hand back to Angela Titzrath for closing comments.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft - Chairwoman of the Executive Board [40]

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Okay. Thank you. Ladies and gentlemen, thank you very much for your questions and your ongoing support for HHLA. As we assume that you would like to continue following our development, please note that 2020 publication dates in your calendars. For us, the Capital Markets Day, next week, will be the last big analyst and investor event this year. Registration is closed, but I could imagine that you might still get a seat if you ask for our IR Department, kindly. In addition to that, there is not much more to say than enjoy the day. Thank you, and goodbye.

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Operator [41]

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Ladies and gentlemen, this concludes the conference call on the 9 months results 2019. Thank you for joining. And have a pleasant day. Goodbye.