Hapag-Lloyd’s 1H 2020 earning is good, but Covid-19 uncertainties remain

Hapag-Llyod Hamburg Express
The "Hamburg Express" (13,169 TEU) under Hamburg’s Köhlbrand Bridge. Source: Hapag-Llyod
  • EBIT for the first half of 2020 increased to 22% compared to the same period a year ago.
  • Volumes dropped sharply in the second quarter due to the pandemic, however, a significant reduction in bunker prices along with cost reduction measures put Hapag-Llyod in a better position despite coronavirus.
  • Significant decline of bunker prices in 2Q 2020 pushed the company’s earnings higher.
  • Uncertainty brought by Covid-19 and the potential rise in bunker cost would hurt Hapag-Llyod’s financial results in the second half of 2020.

Although Hapag-Llyod’s earnings in the first half of 2020 is higher than the previous same period, the negative impact of Covid-19 will change the financial result in the coming period.

The company ended the first half of 2020 with earnings before interest and taxes (EBIT) of $563 million beating the prior-year figure of $440 million.  The Group profit improved to $314 million. At the same time, earnings before interest, taxes, depreciation and amortization (EBITDA) rose to $1.29 billion.

“After the year got off to a decent start, transport volumes significantly declined in the second quarter as a result of the COVID-19 pandemic. We benefitted from the sudden drop in bunker prices, adjusted capacity to lower demand and took additional cost-cutting measures as part of our Performance Safeguarding Program. On the whole, we have a good first half year behind us despite the coronavirus crisis,” said Rolf Habben Jansen, Chief Executive Officer of Hapag-Lloyd AG.

Revenues in the first half year of 2020 stood at approximately $7.0 billion, less than 1 percent below the prior-year level. This can primarily be attributed to the fact that transport volumes decreased by approximately 4 percent, to roughly 5.8 million TEU.

While transport volumes were still slightly increased in the first quarter, the second quarter saw a decline of roughly 11% compared to the prior-year period as a result of the pandemic. The average freight rate in H1 2020 slightly improved to $1,104/TEU.

Transport expenses were around 4 percent below the comparable figure for the previous year. An average bunker price of $448 per tonne, which is approximately 4 percent higher than it was in the prior-year period owing to the introduction of the IMO 2020 fuel regulation, was offset by positive effects from a volume-related decline in transport expenses and active cost management resulting from the PSP measures.

In addition, the sharply declining bunker prices in the second quarter had a positive impact on Hapag-Lloyd’s earnings.

The free cash flow was once again very positive, at $1.2 billion. The liquidity reserve was significantly increased in the first half of the year as active measures were taken to further strengthen the liquidity position as part of the Performance Safeguarding Program, and it stood at approximately $1.9 billion at the end of June.

“On the whole, the pandemic is and will remain a major source of uncertainty for the entire logistics industry.”

Looking ahead, the results forecast remains unchanged. For the current financial year, Hapag-Lloyd expects an EBITDA of EUR 1.7 to 2.2 billion and an EBIT of EUR 0.5 to 1.0 billion. Given the COVID-19 pandemic and the economic repercussions it has had in many parts of the world, the forecast will remain subject to considerable uncertainty.

In addition to the development of transport volumes, the development of freight rates and a further potential increase in bunker prices, in particular, should have a significant impact on Hapag-Lloyd’s results in the second half of the 2020 financial year.

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