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Edited Transcript of HLAG.DE earnings conference call or presentation 20-Mar-20 1:00pm GMT

Full Year 2019 Hapag Lloyd AG Earnings Call

HAMBURG Mar 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Hapag Lloyd AG earnings conference call or presentation Friday, March 20, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Frese

Hapag-Lloyd Aktiengesellschaft - CFO & Member of Executive Board

* Rolf Habben Jansen

Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO

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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

* Frans Hoyer

Handelsbanken Capital Markets AB, Research Division - Analyst

* Samuel James Bland

JP Morgan Chase & Co, Research Division - Research Analyst

* Sathish Babu Sivakumar

Citigroup Inc, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I'm Timo, your Chorus Call operator. Welcome, and thank you for joining the Hapag-Lloyd Analyst and Investor's Full Year 2019 Results Conference Call.

Hapag-Lloyd is represented by Rolf Habben Jansen, CEO; Mark Frese, CFO; Heiko Hoffmann, Head of Investor Relations; and Anthony Firmin from Investor Relations team.

(Operator Instructions) I would now like to turn the conference over to Rolf Habben Jansen, CEO. Please go ahead.

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [2]

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Thank you very much. And on behalf of Hapag-Lloyd and Mark and myself, thank you for making the time and apologies for the small delay in getting started. Let's get going. I mean if we look for you -- for those that are on the webcast, maybe a couple of opening remarks. Of course, when we look today, we talk about the full year 2019, but we definitely need to look also at today's situation where it sounds sometimes like 2019 is a very long time ago. Right now, our priorities are clearly personal health of all our staff, whether on land or at sea. Apart from that, when we look at our business, so far, the impact of the entire corona crisis, thus far, is limited. We would say, though, that when we look ahead, we do expect to start seeing impact from the month May onwards. And in order to make sure that we are well prepared, we are taking all kinds of measures to make sure that we are prepared not only for a smaller crisis, but it needed also for something that lasts a little bit longer.

In terms of the market, situation in the market today, I would say, is very different from the crisis that we saw in 2008, 2009, especially when we look at the supply situation where today, we have a very small order book. We'll talk a little bit more about that later on. When we look at the numbers and what we did in 2019, I think we've made good progress in terms of -- in our strategy and getting towards 2023. We did improve our profits significantly and also believe that on the back of that, it is justified based on what we know today to propose a dividend of EUR 1.10 per share. The transition into -- because of IMO 2020 was smooth. When you look at the numbers, a very significant increase in EBITDA also, if you exclude the IFRS 16 effect, very strong free cash flow of close to EUR 1.9 billion. Very good cash conversion, significantly better return on invested capital and a reduction of our debt of about EUR 1 billion.

In terms of the outlook, I think it's fair to say that the outlook today has a considerable high uncertainty than we would normally have. Of course, that is caused by the coronavirus outbreak. We've nevertheless chosen to provide you with an outlook based on the data that we have today, and we'll be happy to talk to that also a little bit later. Apart from that, of course, our focus going forward will be cost further deleveraging and make sure that we keep enough cash, and then we will adjust as things come by.

We go to the next page. We talk about the coronavirus, which is, of course, affecting the shipping industry, big time, in 2020. I would say, the magnitude, this is going to impact us, at the moment, very difficult to assess. For us, I would say there are 3 things really important: First and foremost, our team. It is about the safety of all of our employees, and we have put quite a lot of measures in place to ensure that to -- in Asia, we were working in China for a long time with 100% from home. Meantime, people are back into the office there. In other Asian countries, the situation is a little different. In some, we are already back. In others, we are still going to home office. That seems to be functioning fine. In Europe, we've had to move to significantly more home office as from roughly 2 weeks ago when it started with Italy and Iberia. As from the middle of last week, we have been doing the same in most of the north European markets. And so far, that has actually been going well. We have a crisis committee in place, which meets every other day, and we monitor the situation globally on a daily basis. Probably the single most challenging thing is the fact that we have to now have everybody work from home, which puts a totally different burden on our IT system, and that takes some time to get used to, both for our people as well as for our systems. Today, we are in materially better shape than we were when this whole process started, and I think we'll be back to pretty much normal in the course of next week.

When you look at our business, I would say, the overall impact on volume and cash flow in Q1 is very, very limited. If we look at the -- the volume, in Q1, is up and freight rate is more or less in line with expectations. Bunker prices were high towards the end of December and the beginning of January. It's hard to imagine that we used to pay off -- that we paid over $700 a tonne in Singapore for low sulfur fuel as late as 6 or 8 weeks ago. That will definitely have a dampening effect on the result in Q1, also because we will have to write down quite a lot of the bunker, if the bunker price stays at the level where it is today. We expect to see some negative impact from the crisis from -- basically, from May onwards. But to be fair, it's almost impossible to determine, at this point in time, what the exact impact will be and how long that will be. We do believe, however, that looking at what we can see today that we think this will remain to be manageable, and we will, in order to make sure that, that also happens, work very closely with our partners.

We've taken some additional measures already. First, we have on-hired equipment because we can see that due to the crisis, the global equipment flows have been very different from normal over the last couple of months, which meant that we had some difficulty getting the entities back to Asia. That's why we have on hired about 80,000 to use in Asia. We have also on hired some equipment in Europe because we've seen that the export from Europe has been very strong. So there, we've taken on about 20,000, 25,000 to use extra. We are, of course, looking at our investment plans. I don't think that if you look at it over the next 2 or 3 years, our investment program will change all that much. But if you look specifically at the next couple of quarters, we will very likely try to push out some of the investments and certainly, don't do any investment that not strictly necessary, especially if volume comes down. And in addition to that, we have already taken some measures to secure some additional liquidity to make sure that if the crisis last longer, we are well prepared for that.

We take little a step back and look at the market. And I think this is a chart that we usually show you when we look at order book and newly placed orders and idle fleet. I think the reason to show this chart also this time is may you point out the difference between now and what we have seen in 2008 and 2009 when we, after the financial crisis, had a very, very long period of recovery. We think the crisis today is a very different one. And one of the things that should actually help us there is that the order book today is at pretty much an all-time low of around 10% of the global fleet, which is, of course, very different than the 50%, 60% we used to see 12 years ago when we got into the financial crisis because then still a lot of supply came in and the years after that, when demand was slowly started to recover. We believe that, that will be different now. There will be a very significant idle fleet. The idle fleet, of course, has been pushed up already because of scrubber retrofits and also post Chinese New Year. I think it is not unlikely that we will see the idle fleet going up further as we and others will very likely be forced to adjust capacity to demand in the months to come.

We think net capacity growth in 2020 will, not as predicted, be 3 point something percent. As Clarksons has already indicated, it's definitely going to come down because of delayed retrofits and those types of things. We do believe, however, that because of additional measures that will have to be taken to adjust capacity to demand, that very likely when we look at effective capacity growth across 2020 versus '19. In the end, we will end up in negative territory. When we look at growth on the down side, this is probably anybody's guess. When you look at the exports, so far, they have taken down their estimates only a little bit. If we look at

(technical difficulty)

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Operator [3]

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Hello, this is the operator. Sorry, there was a technical issue. We are now back online. Sorry for that. Please go ahead, sir.

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [4]

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Thank you. So we are still on Page 6 of the presentation, trying to talk to demand, where I said that the experts opinion, so far, have indicated everybody has taken down their forecast. I would expect, though, that some of those forecasts are going to come back even further. Having said that, when we look at our business, we certainly see, for the first 3 months, still a fairly decent growth. We also -- are we -- okay. We still expect -- we expect decent growth for the first 3 months, volumes for April also look okay. That also means that as we believe that in the end, supply chain will have to function and goods will have to flow that there is still a likelihood that when we look at the overall year that there will still be some growth even if imminently, probably quite a lot less than people anticipated. That is, however, of course, surrounded with quite some uncertainty.

When we look back at 2019 for a minute, and we look at our key performance indicators there, transport volume, up 1.4% or close to 3% excluding Intra-Asia. Transfer expenses under control. Freight rate up. EBIT, group profit, EBITDA all significantly improved. Equity, up; liquidity reserves stable; and net debt, up, but only due to IFRS 16. If you look at how much financial debt we repaid, it's actually close to EUR 1 billion. Based on what we know today, we propose a dividend of EUR 1.10 per share, and we have also decided to adjust our dividend policy. Our dividend policy, going forward, will read that we intend to pay a dividend of at least 30% of the respective group net profit as we believe that, that is prudent looking at where markets are today. And again, we stick to the proposal that we made a few weeks ago for the very simple reason that we today do not see any data that would lead us to a different conclusion. I also noticed that data sales statement was actually made by one of our largest competitors also this morning. When we look towards our strategy and look back at 2019, I'd say, we made very good progress. Our 3 main goals remained a global player with a market share of roughly 10%. We maintain that market share by growing, excluding Intra-Asia, definitely in line and probably a little bit faster than market, and we came out of 2019 with some good growth. So with quite a momentum to 2020. We grew into segments where we wanted to do more, and we were also able to launch a couple of new services in what we would see as attractive markets.

In terms of the financials, and Mark will talk a lot more about that. I already mentioned results up quite a lot. Financial debt reduced by EUR 1 billion. Our leverage target of 3.5, actually overachieved to 3.0, and excluding IFRS 16, 3.1. Good liquidity reserve. We achieved the cost savings that we wanted, and I believe we also made good progress in revenue management.

On the quality side, we launched the quality promises, the 10 that we defined in the course of '19, the first 3 meantime operational. On our platform, quick quotes. Our online channel, we grew from a little bit over 300,000 TEU in '18 to close to 1 million in '19. In meantime, our run rate there is up further. We improved the profitability of indent corridors. We established a number of quality service centers, which are core for our network in Suzhou, Mumbai and a couple of other places and also feedback from our customers, as measured by the Net Promoter Score, was up quite a bit.

In terms of savings, not much to say to Page #10. We had a bit more than we anticipated, and we will try to do even more in 2020. We will step up our efforts there, and then we'll see how far we get. Hopefully, a little bit above the original target for 2021.

Quick update on IMO 2020. The operational transition went smoothly. We -- most of our ships on average switched from high sulfur to low sulfur fuel around the 20th of December. We think that's actually a very good outcome. We have, of course, seen that the fuel cost came up very significantly around the end of '19 and beginning of '20, that has certainly being resulted for us in some costs that was a little bit higher than we anticipated. The spread at some point in time was up to well over $300. We saw it actually afterwards markets already normalizing, again, quite quickly to a spread between, I would say, 150 and 200. And of course, that's come further down over the last 2 weeks as crude prices have really promoted.

I believe we've been successful in recovering the extra costs. Although, admittedly, sometimes with a little bit of delay, through the MFR that we have announced and also the surcharge on short-term business. So all in all, I would say the transition went fairly smooth.

With that, I would then now hand it over to Mark, who will take us through in a little bit more detail through some of the numbers.

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Mark Frese, Hapag-Lloyd Aktiengesellschaft - CFO & Member of Executive Board [5]

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Yes. Thank you, Rolf, and also good afternoon from my side. First of all, it's my first call. I'm quite excited to work for Hapag-Lloyd now, and very much in favor to support Hapag-Lloyd, the team and the Strategy 2023. And I hope to have the chance to introduce myself in the course of the next couple of months and to follow-up on your open and transparent relationship.

So the financial year 2019 was a very successful year for Hapag-Lloyd. The company delivered on the profitability goals and improved the balance sheet. Transport volumes increased in line with markets, slightly by 1.4%. Average freight rate increased by 2.7%, also a result focusing on profitable trades and implementing revenue management measures. At the same time, bunker consumption price was down USD 5 per metric tonne, which had a positive impact on transport expenses, which decreased substantially by USD 460 million, also due to the impact of the first-time application of the IFRS 16. Besides lower bunker cost, the development was mainly driven by lower cost for handling and haulage, but higher charger and repositioning costs for empty containers dampened the decrease in part. As a result, EBITDA increased significantly by over 60% to USD 2.2 billion, including a positive effect of IFRS 16, which amounted to roughly USD 500 million.

Earnings after tax increased substantially by more than USD 360 million to over USD 400 million, despite a negative effect from the first-time application of the new standard of around about 40 million. Ex-IFRS 16, financial debt was substantially reduced by almost EUR 1 billion, as already said, mainly due to our much better higher free cash flow and the repayment of our euro bond. So our cash conversion was very strong, roughly 100%, which shows that we are able to turn profit into cash.

Net debt-to-EBITDA reduced accordingly to 3x and thus, well below our 2019 target of 3.5. Driven by the strong result improvement, also the return of capital invested increased to 6.1% after 3.7% last year, and we are close to earn cost of capital.

Looking on Page 13, focusing shortly on Q4 2019, results improved compared to previous year, mainly due to lower bunker cost and continuous cost management. Revenue was 3.5 below previous year, mainly due to 2% lower freight rates and a strong fourth quarter, last year 2018. Also, revenue from demurrage and detention was slightly below previous year. EBITDA in fourth quarter, on the other hand, increased by roughly 40%, partially explained by the IFRS 16 effect, also due to -- and a positive effect of USD 77 per metric tonne lower average bunker consumption price and for sure, still and always focusing on costs. EBITDA margin increased to 15.2%. Accordingly, EBIT increased by over 10%, almost to USD 190 million, than EBIT margin of 5.4%. Group profit, then doubled to USD 85 million, was a little bit negative impacted by the new standard close to 10 million.

On Page 14, we we can see that 2019 was a successful year. Results improved significantly, mainly due to efficiency gains and the implementation of our strategy. Group revenue grew by over USD 400 million or almost USD 400 million to USD 14.1 billion, representing increase of almost 3%. The increase was mainly driven by slightly increased transport volume and higher freight rates.

EBITDA increased significantly. EBITDA margin increased, accordingly, assets to 15.8%. EBIT also increased significantly to, in total, over EUR 900 million and accordingly to a margin of 6.4%. Overall, group profit was significantly up to previous year assets to EUR 480 million. Earnings per share amounted to $2.31 per share. Our return on invested capital reached to 6.1%.

Overall, looking at the transport volumes, so looking at the global economic environment, which was already described, transport volumes grew slightly by 1.4% to roughly 12 million TEUs and was, therefore, more or less in line with the market, as we said. The growth was primarily driven by Atlantic Far East, Latin America and EMA trades. Whereas Transpacific, especially Intra-Asia and especially Intra-Asia have seen the volume decline. Especially, Intra-Asia was a strategic decision to focus on much more profitable services. The continued strength of the domestic economy in the U.S. enabled a year-on-year increase of roughly 6% in the transport volume on the Atlantic trade. On the Far East rates, the year-on-year rate was 4% due to rising market growth and increased allocation with it, so more vessel capacity. At the same time, the transport volume of the EMA trade grew significantly by around about 14% as a result of the introduction of new services in 2009 year, which was part of the strategic measures 2023. In Q4, transport volume increased by 1.7% compared to previous year, excluding the Intra-Asia effect already mentioned. The growth was 2.9% and thus, in line with the total year 2019.

So on Page 16, having a look on the freight rates, it increased to -- by 2.7% to USD 1,072 per TEU. Year-on-year increase was primarily due to the profitable trades and to reduce Intra-Asia business and the revenue measures we took in addition, focusing on reefers and on special cargo as part of the strategy really paid off. The average bunker consumption price decreased, at that time, by around about 1.2% to USD 416, especially driven by the development at the end of the year. Adjusted for bunker, average freight rates increased by almost 4% year-on-year.

Looking at Page 17, we have already a quite competitive transport expenses per unit. Still it decreased further slightly by roughly 1% compared to previous year due to lower bunker, but also due to cost savings initiated. Especially unit costs for handling and haulage declined as less profitable inland business were actively reduced. Those measures, amongst others, had to compensate for increases in other cost areas like higher container repositioning cost and higher charter rates. Cost competitiveness, for sure, remains, as Rolf already said, a clear, clear focus. So it's, for sure, must remain also in 2020.

Looking at free cash flow on Page 18. On the basis of good results we have just described, we had just really strong development of our free cash flow compared to last year. The increase of over 60% plus besides the IFRS 16 effects, mainly due to very high cash conversion, the working capital management and a very cautious investment policy still way below our depreciation. CapEx in 2019 was primarily focused on containers. In addition, for sure, we had some investment on ship equipment, retro fitting of ships and for sure, to comply with the IMO 2020. The strong cash flow was used to repay that substantially, as already said, so therefore, we could really delever our balance sheet liquidity reserves is on EUR 1.2 billion, and therefore, still in line with our targets.

Looking at Page 19, showing that our balance sheet was substantially influenced by first-time application of the IFRS 16. Fixed assets increased strongly and without the IFRS 16 effect, assets would have decreased by around about USD 400 million to USD 14.2 billion. Equity increased and with that, on the same level of 41% was possible even despite the IFRS 16 driven increase to keep that on that very stable, on good level. On the debt side, we clearly delevered the group, which was an important focus.

On 20, showing that we surpassed our leverage ratio, as already said. And we are now at 3.0, including an ex-IFRS 16, it would have been 3.1x. So concluding, from a financial perspective, very good 2019 substantial improvement of operational results. We fulfilled our targets, reduced our financial debt load and kept very adequate liquidity position. We will, for sure, keep our very conservative financial policy on the basis, even we have to react to our coming market changes and market conditions as Rolf already said, that we have taken already some measures here. Our cost focus must remain to keep a very cost -- competitive cost structure. Debt is pretty clear, already set. Our financial strategy is and has to be very cash oriented, and we have to cope with these increased uncertainties coming up.

Based on that very solid liquidity reserve of almost EUR 1.2 billion at the end of 2019, we have sufficient resources. And we will, for sure, preserve with new measures, our liquidity buffer. We have increased our already prolonged RCF program of USD 600 million until end of August 2023. Have additional liquidity cushion due to our ABS program of USD 550 million. And as we have repaid our bond earlier, there is no maturity to come, which helps us. Therefore, that the current weakness in the secondary market has no immediate impact on us. All in all, we have sufficient liquidity buffers for the times to come and the unsecured situation which might occur. So from a CFO perspective, we will focus on debt, focus on liquidity and on cash.

Having said that, I would like to give back to Rolf to focus and explain our outlook.

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [6]

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Yes, Mark, thank you very much. Well, I think as it says in the head of the chart as well, the earnings outlook is clearly subject to very considerable uncertainty, particularly because of the coronavirus outbreak. And I think that is important to keep in mind, when we look at that, our approach has been to look at the data that we see today, and then to try and make our assessment, how do we think things will go further. We have seen -- first, we have seen -- from a market and volume perspective, we've seen a very robust first quarter. We don't see any material change in the month of April, but we do expect to see effects from May onwards. Having said that, we also do assume that there will be somewhat of a recovery later on in the year. And on the back of that, we think that it is not unlikely that we still will see a slightly increase -- slight increase in the volume that we carry. We look at freight rates have been robust in the first quarter, more or less it's same story. We do expect that, that will also hold throughout the year. Although, that, admittedly, is also linked somewhat to the third point, which is around bunker. If you would have asked anyone probably 2 weeks ago, everybody would have said, well, bunker prices also, on the back of IMO 2020, will increase very clearly. Looking at what happened in the last 10 days to 2 weeks on the oil markets, one could now have another opinion. We've chosen for the time being to leave that unchanged as we recognize that markets are very volatile, but there is clearly also a connection there between how you look at freight rate, and how you look at bunker price.

When we look at results, we're predicting an EBITDA of between EUR 1.7 billion and EUR 2.2 billion, and an EBIT of between EUR 0.5 billion and EUR 1 billion. You will notice that we made the range a little bit broader than we did last year. That reflects also, I think, a little bit the uncertainty that we see in the market. We do believe, however, that looking at everything that we can see today, there is, right now, no reason to adjust this forecast or to leave it out because I do believe that even if there is a fair amount of uncertainty, it still helps if we try to provide you with our outlook based on the data that we see at this point in time, recognizing that if things come different, then at some point in time, you will have to revert to that.

With that, that brings us to our main targets or priorities for 2020, which remain largely unchanged. As always, we'll need to react swiftly if markets change. In light of the crisis, we reemphasize that our financial policy remains conservative, and we will keep a very strong focus on cash. We need to make sure that if markets come back, we pass on the higher bunker costs that are coming on the back of IMO 2020, and we will also continue to implement a number of initiatives that are linked to our Strategy 2023, even if some of them may be delayed a little bit. I think that sums it up, so far, from our side, and then we would be happy to take any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is of the line of Sathish Kumar with Citigroup.

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Sathish Babu Sivakumar, Citigroup Inc, Research Division - Analyst [2]

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I have 3 questions. Firstly, on the current bookings for Q2, you mentioned that you're not seeing any impact on April bookings so far. Just to clarify on that, are you saying that volumes are actually or bookings are actually up year-on-year? And what is the -- directionally, what is the trend is like? And on that, actually, are you seeing any pocket of weakness by different trade links? So that's my first question.

Secondly, on the contract negotiation, if you could just update us on the Transpacific negotiation. Have we started to see any impact due to the recent uncertainties on Transpacific? And also how does we ended up Asia-Europe contract negotiation?

And finally, on the scrubber, you mentioned that you're seeing -- likely to see more delays. What is the average days that vessel is actually being held up at a dry dock? And what do you expect it to be like in terms of all the vessels coming back into this service by Q3 or Q4? That's it.

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [3]

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Maybe first one, first on bookings. If we look at bookings, then we tend to look at the start of shipments. So that means shipments leaving last week or this week or next week, and those are typically the ones that will then arrive in the month of April. So far, we see bookings every week in the last couple of weeks to be around or slightly better than what we have seen last year in terms of numbers. So as most of the bookings for April meantime have been done, that's why we do not anticipate any material impact into April. If we look at forward bookings, I think that's where the uncertainty comes in because that's when people still have an opportunity to change that or cancel that. And that's also why, at this point in time, we don't want to say anything beyond April because I believe, it will take a couple of weeks before we will have some more clarity on what is actually going to happen with most of those booking curves.

In terms of the contracts, to be honest, it's still a little bit early to say something around that. I think when we look at the Asia-Europe trade then I think we've been generally quite happy with what has been closed. Most of the rates have been up, and we have also seen a reflection of the -- because pretty much all of the contracts we have the fuel price closer, so also that is properly reflected in those contracts. Of course, if fuel price remains at the level where it is today, then in the end, the oil price could actually not be up, but I think that's too early to really speculate about that.

On the TP, the whole season has actually been a little bit delayed. So we are really there only in round 1, round 2 with most of the customers, the few contracts that have been closed, so far, have been closed at slightly higher levels than what we had last year, but also because the TPM got canceled. The whole season has actually been shifted backwards a little bit. In terms of scrubbers, there is a high variance in the delays that we have seen most of the delays have been between 30 and 60 days. We also see that the yards start to operate more and more normal again. We are now going into -- we actually have a couple of ships that are going into dry dock now, and we expect them to come out without much delay.

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Sathish Babu Sivakumar, Citigroup Inc, Research Division - Analyst [4]

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Yes. Just have one quick follow-up on your contract negotiation. So when you say, it's been done higher than last year, does that include the impact of bunker surcharge? Or we are just talking about ex-bunker surcharge on both the years?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [5]

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If you look at the year-on-year, then the ex-bunker rate is up. If you look at what the effect will be on fuel, nobody knows. I mean normally because of the formulas that we've had, that would have pushed the rates up. If fuel stays at the level where it is today, then after Q1 or after Q2, then that will come down.

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Operator [6]

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The next question is from the line of Adrian Pehl with Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [7]

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Actually, I've got 4 basically. Well, first of all, a question of understanding. I don't know if I got that correct. You said, obviously, in Europe, you see quite some good export business. And for that reason, you have a bit more of capacity. I was just wondering whether that was referring rather to the status as we have been just recently. Or is that actually what you expect going forward? Because obviously, the market seems to play a little bit the demise of the automotive business and also probably, a bit industrial engineering. So I was really wondering myself, what you actually do see here?

The second question is on your guidance and I'm trying to get my head around what triggers the lower and the upper end? I mean I understand that, obviously, it is given on the potential impact or non impacts that you see from corona already. You're obviously saying, well, there could be some effects going forward, but I should take it that those effects might be baked into it already. However, maybe you could share with your view on what triggers the lower, the upper end in terms of how many months of corona do you see here? And also, in particular, what is the bunker range that you have in mind for the full year -- actually, for your guidance?

And thirdly, as there is a nice chart in the appendix on Page 36 on the bond trading -- actually, the bond that is outstanding still has been hit quite severely. It's recovering today. But would you consider actually buying your bond back in the market at a certain threshold of whatever, 80 or something, to potentially make some profit on this?

And lastly, on market share, is this actually the time now where you can prove to your customers being in an industry considered a commodity that you actually can differentiate in terms of services? And have you been successful on that, also with the expanded services that you're offering in the interland? Or what are your experiences short term on that?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [8]

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Okay. Thank you. Well, I'll try to take them one by one. As far as we talk about European export, I mean, that's mainly being export in the beginning of the year. As you rightfully point out, there are now a number of factory closures, which very likely, at some point, will result in a reduction. We have, however, seen very strong exports in the first couple of months and still have a backlog in order to get that cargo out. So that's not going to change from today to tomorrow.

Your point on the guidance. I mean I think in the end, what we did is -- in the end, you try to look at what you see in terms of data for the first couple of months, and then you try to make an assessment what's going to happen in the rest of the year, where, of course, we have tons of scenarios. And I think we are looking at a scenario where we definitely will see some pretty significant impact in the months to come. That will probably not all be over by Q2, but we also don't expect it to -- we also don't expect that there will be no recovery whatsoever until the end of the year. And in between debt, bandwidth, that's why you roughly have to see the forecast.

In terms of bunker price, that's probably anybody's guess. I think in the end, there will be quite a correlation between what happens with the bunker and also how quickly markets recover. We anticipate that at some point, markets will recover, and we expect the fuel price then also to recover, maybe not to the level that we saw in January, but we expect to see some recovery.

In terms of the bond, your third question, we have also seen it trading below par. And yes, we would consider at some point to buy some of that back at some price.

And your last point on market share. In the time like where we are today, when we face a lot of uncertainty, our approach is not to go and hunt for market share. Our approach is to take care of our customers, make sure we provide them with good service and hopefully, get some loyalty out of them -- out of that for them. We are definitely not going to go aggressively to try and and gain market share.

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

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All right. And maybe follow-up on bunker. The question, to some extent, it has been asked before on scrubbers. I mean given actually that the bunker price is so fair at the moment, in particular, actually, as the spread has decline quite substantially, I mean, how rewarding is it at the moment actually to push for scrubbers? Or what would you actually think about it, not pushing for that to the extent you planned before?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [10]

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Well, I mean, you know that we have never been the one that has gone the most for scrubbers. We've always said, we look at it as a portfolio of our fleet, and we believe that a portion of that should have scrubbers. To be honest, the fact that the spread is now very narrow, doesn't really change my view. The fact that they were high in January also didn't change my view. I think it's all about what do you believe midterm. Midterm, there is probably going to remain a spread. And if you believe that, that's going to be around about $150 a tonne or something like that. Then if you believe that, then there might still be some ships where you want to install scrubbers. We are not going to have those type of decisions being driven by what happens in the oil markets in the last 2 weeks or in the next 2 weeks. We'll try to look at what do we expect longer term, looking at the fundamentals of that market. And I think actually that, that will likely lead to a decision to install a few more scrubbers at some point beyond what we have commissioned already today.

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Operator [11]

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The next question is from the line of Frans Hoyer with Handelsbanken.

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Frans Hoyer, Handelsbanken Capital Markets AB, Research Division - Analyst [12]

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I believe, I'm right in thinking that Hapag-Lloyd does not have any new-build vessels coming in 2020, but a number of other peers will take deliveries. And I hear what you're saying about not chasing volumes and market share. But look at the dynamic, others will need to add some market share to fill the incoming new builds. What are the risks? How do you plan to operate in that environment, please?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [13]

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I mean the number of new builds that's going to be delivered this year is actually not a lot as we saw also in the chart on what do we expect to see in terms of net capacity development. I expect that net capacity available to the market will go down this year because people will have to take measures to adjust to declining demand, at least, for some months. I also do not expect that there will be a very aggressive fight for market share, but of course, you never know. We will protect what we have, but we will not try to grow aggressively. I mean all the rest is just a speculation. And because not that many ships come in, I don't think anyone actually in today has a huge problem to deploy those ships within the services that they already operate today. And as the market will quite likely face some disruption in one way, shape or form, it might also be that we need a few more ships to offer the same type of schedule, simply because there may be delays here or there if disruption would occur at one or the other part.

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Frans Hoyer, Handelsbanken Capital Markets AB, Research Division - Analyst [14]

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Understood. Now I saw your slide that the realized bunker price was $390 per tonne in Q4. And with the transition taking effect in early January, can you give us an idea of ballpark figure what your realized price is going to be in Q1, please?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [15]

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Yes. I mean I think it's going to be a little bit north of $500.

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Operator [16]

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And the next question is from the line of Sam Bland with JP Morgan.

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Samuel James Bland, JP Morgan Chase & Co, Research Division - Research Analyst [17]

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Two questions for me, if I can, please. The first one was just to clarify on Q1 volume. I think you said that maybe bookings were slightly up year-on-year. Does that also mean that Q1 volumes are up slightly year-on-year? One of your peers, obviously, reporting this morning, and I think they're saying something quite different. And the second one was, just could you talk about the use of blank sailings. I know you've obviously mentioned that idle capacity is expected to probably increase a little in 2020. How does these blank sailings impact profitability? Obviously, I guess, they support freight rates by taking capacity out of the market, but some of the cost presumably doesn't go away. So how do you think about the right level of those to use?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [18]

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Maybe to take your first question first. I mean when we look at volume in Q1, we indeed expect that volume in Q1 year-on-year will be up. Not massively, but it will be up. Your question on BS, or blank sailings. I mean if there is no demand, then you have to cut cost. That's in the end the -- what our job is because we need to make sure that we don't provide too much capacity for the amount -- for the demand that is there. And then ideally, you would like to do that by restructuring services, but on short notice that, in many cases, is not possible and then the only alternative that remains is to blank a sailing because then you at least save the variable cost, which -- if you look at it on a very high level, it's roughly 60% of the sailing. So then you save at least 60% of the cost, and it get only stuck with roughly 40% of the fixed cost. So it's not great, but it's better than sailing empty.

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Samuel James Bland, JP Morgan Chase & Co, Research Division - Research Analyst [19]

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Sure. And just a quick follow-up on the first one. Presumably, I would guess that market volumes probably weren't up slightly year-on-year in Q1. Although, I could be wrong there. Do you expect you probably had some share?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [20]

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I don't know. I mean, in fairness, I think we came out of 2019 with quite good momentum in the last number of weeks. As we -- I think as pretty much anyone account on an end of voyage basis, and we also had a good run up to Chinese New Year. And ever since, I've been able to compensate some of the volumes. Also elsewhere, I think we are up. I think if you start looking also at the trade mix, et cetera, that may still look a little bit different. I would still not be surprised, though, if overall market is not down a lot in Q1, but those data...

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Operator [21]

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The next question is from the line of Christian Cohrs with Warburg Research.

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Christian Cohrs, Warburg Research GmbH - Analyst [22]

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Yes, hello. I hope you can hear me.

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [23]

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Yes.

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Christian Cohrs, Warburg Research GmbH - Analyst [24]

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Okay, great. Maybe the first question on the dividend. You expressly said that the proposal is based on what you know as of today. So does this actually mean that you do not rule out that you will pull the dividend proposal in case things will get worse?

Second question relates to your shareholder structure, which is, yes, not very attractive from the free fill perspective. Is there any change there or in the part or any thoughts?

And last but not least, Hyundai will join your alliance as of May, so how are the preparation works doing? Is there anything that you can highlight? And what does that also actually mean for the competitiveness of the alliance with the 2 competing ones?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [25]

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Okay. Well, maybe first question. I mean, as always, you have to make a dividend proposal based on the knowledge that you have at that point in time, and we would not make that dividend proposal, if we would have the intention to withdraw it at a later stage. Otherwise, you shouldn't make the proposal. So you shouldn't read too much into that. The free float is low at the moment. There is no material change there right now. We still hope that we'll be able to get it up over time, but that's not going to change from today to tomorrow. We're happy that Hyundai joined us in the alliance because that helps us to become more competitive and the preparations for that are actually pretty much on track. So I don't expect any difficulties. I think the last critical thing was that Maersk and MSC were going to give back some of the ships to Hyundai that has been done as planned, so we should be good to go.

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Operator [26]

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The next question is from the line of Adrian Pehl with Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [27]

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Actually, I've got 2 of them. First of all, if you read articles, they suggest that there is a huge problem in the supply chains on container being at the wrong ports and locations and actually that contain aligners will obviously take some time to sort that out. I was wondering what you think of that, how long it's going to last? Are you taking some benefit out of that? Or some extra cost associated with this incident here?

And secondly, on the lead times in terms of travel, do you see risk rising that you have to take your ships into quarantine at some ports, simply adding 2 weeks to the normal lead times or travel times that we have? Or what's the situation that you're currently experiencing here?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [28]

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Let me take the second question first. I mean in these days, I think it's very difficult to rule anything out. But right now, we don't see any indications that lead times are being significantly extended because of quarantine measures in ports, but we've seen so many new measures from all kinds of governments around the globe that I won't rule out anything on that at this point in time. That's also why I mentioned earlier that because of some of the disruptions, I do expect that some of the new ships that are actually coming in May, actually be needed to ensure that the schedules are somewhat maintained.

In terms of boxes, it is correct that because of the disruption we've seen in normal patterns in Q1 as China was shut down for longer than normal, that we have some shortages and surpluses of boxes in places where we normally don't have them. The way that we have reacted on that is by on-hiring boxes. So we've on-hired, I believe I mentioned it also, between 20,000 and 25,000 TEU in Europe, and we have also on-hired about 80,000 TEUs in China. And we do that basically to ensure that we indeed can continue to load the boxes.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [29]

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Okay. I'm a bit surprised that actually that capacity is obviously available. So is that at significantly higher prices, I assume?

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [30]

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I think it's actually okay. No, I think the prices are -- I mean, they are not record low, but they are on -- if you look at it over, say, over a longer period of time, they are definitely not above market.

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Operator [31]

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This was the last question. I hand back for closing remarks.

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Rolf Habben Jansen, Hapag-Lloyd Aktiengesellschaft - Chairman of the Executive Board & CEO [32]

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Okay. Well, thank you very much for taking the time to join us here today. I hope we were able to shed a little bit of light on things here at Hapag. And again, thanks for taking the time. If you have any further questions, please reach out to us any time, I will try to respond to you as good as we can. Thank you. Buh-bye.

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Operator [33]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.