Hapag-Lloyd AG defying downturn - Third highest profit in company history

Hapag-Lloyd Group achieved an outstanding profit in 2002 despite the slowdown. With further investments the group is preparing for future growth.

In 2002, Hapag-Lloyd Group, which is focused on transport and logistics, achieved sales of €3.8 billion, slightly down on the previous year (€3.9 billion), and an operating profit of €202m (€299m). "In view of the economic parameters, this is a very acceptable performance. It is, in fact, the third highest profit in the company's 155-year history," commented Michael Behrendt, chairman of the executive board of Hapag-Lloyd AG, when presenting the group results for 2002. Behrendt added that related to operating profit return on equity before tax was an impressive 15%.

The most significant contribution to this successful performance was made by the segment "Shipping", comprising Hapag-Lloyd Container Line and Hapag-Lloyd Cruises. This activity achieved sales of €2.2 billion and an operating profit of €103.6m (€184.7m) last year.

Hapag-Lloyd Container Line again achieved double-digit volume growth, transporting 1.9m TEU (twenty foot equivalent unit = 20-ft standard container), which was 12% up on the already high volume of 1.7m TEU the previous year. However, the dramatic slump in rates –which fell again, tumbling by 15–20% compared with 2001 – was reflected in sales, which declined slightly to €2.1 billion (€2.2 billion) despite the rise in volume. Operating profit was €98.2m (€186.4m).

The main reason for Hapag-Lloyd Container Line's good performance compared with the sector on average was its continued increase in productivity. "In 1996, we transported about 900,000 TEU, handled by a staff of 3,300. Today we carry more than twice as many containers with the same number of employees," explained Günther Casjens, CEO of Hapag-Lloyd Container Line. The most important region for Hapag-Lloyd was Europe-Far East (750,000 TEU), followed by the North Atlantic (500,000 TEU) and Trans Pacific (470,000 TEU). Hapag-Lloyd carried 132,000 TEU between Europe and Latin America.

Hapag-Lloyd Container Line expects to transport approx. 2.1m TEU in 2003. It should increase both its sales and profit if the improvements in rates so far apparent continue and the dollar exchange rate does not continue to decline rapidly.

Last year, Hapag-Lloyd Cruises continued to focus on the premium segment with relatively stable prices. It thus achieved almost stable sales at €151.4m, although passengers numbers fell slightly. However, it still achieved a good operating profit of €5.4m. Hapag-Lloyd Cruises expects to achieve lower sales and profit in the current year. Although bookings have picked up since the end of the Iraq war, it is still not clear whether this already indicates a recovery.

The segment "Logistics", comprising VTG-Lehnkering, Pracht Freight Forwarding and our French holding Algeco, increased its sales by 3%, although operating profit fell slightly to €82.3m (€94.6m) owing to pressure on margins.

Last year, VTG-Lehnkering boosted its sales from €932m to €971m, although its operating profit fell to €20.8m (€29.9m). The main area was once again rail and tank container logistics, which generated sales of €413m, although this was also affected by the slowdown. Other negative factors were higher maintenance costs as planned and acquisition and integration costs in connection with the takeover of the Brambles European Rail Division (ERD). With its acquisition of the ERD activities, VTG-Lehnkering became the leading supplier of integrated rail logistics services in Europe.

In view of this focusing, Hapag-Lloyd has decided on a reorientation and is currently investigating the possibilities of selling the activities pooled in the area bulk and special logistics. With Hapag-Lloyd Group's concentration in future on shipping, container modules for use as temporary premises, forwarding and rail logistics services, it can be assumed that capital available in the medium to long term will flow into the core areas, so that peripheral activities will not able to develop adequately.

Pracht Freight Forwarding, based in Haiger near Frankfurt, increased its sales by 13% to €190m in 2002, despite the negative developments in its sector and the generally sluggish economy. Pracht also increased its operating profit to €3.1m (€2.7m) and expects to increase its sales slightly and achieve a stable operating profit in 2003.

Algeco Group, in which Hapag-Lloyd has a share of approx. 67%, has as core business the hire and sale of mobile and modular structures. Algeco, which is quoted on the second market of the Paris stock exchange, achieved sales of €395m and an operating profit of €58.4m in 2002. Both sales (€401m) and profit (€62.0m) were slightly down on the previous year. However, its return on sales of over 10% was still high in view of the slowdown. Algeco aims to achieve roughly stable sales and profit in 2003.

Hapag-Lloyd again invested very heavily in group expansion, spending €353m, with shipping accounting for €79m and logistics €274m. This figure also includes the purchase of shares of VTG-Lehnkering in line with a squeeze-out and the acquisition of assets in the context of the Brambles ERD acquisition, totalling €128m. Normal equipment investment was financed entirely from operative cash flow at €310m.

Michael Behrendt concluded by appealing to business and political leaders to overcome the impression that the Germans do not know how to tackle their problems. "What we need is a spirit of optimism in this country. We at Hapag-Lloyd want to make our contribution to this," Behrendt explained, adding that this is shown by the group's medium-term investment programme. "We consider that we are well-equipped for the future and are confident that we will also be able to meet new challenges in a versatile manner," Behrendt emphasized.


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