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The prime strategic objective of the Hapag-Lloyd Group is to achieve long-term profitable growth measured on the basis of developments in the transport volume and the key performance indicators of EBITDA, EBIT and return on invested capital (ROIC). Hapag-Lloyd intends to increase the transport volume in line with market growth. Hapag-Lloyd wants to further increase its operating result by means of an expected growth in volume, an improvement in revenue quality and additional cost savings as well as efficiency gains.
The current financial key performance indicators of the Hapag-Lloyd Group will remain EBITDA and EBIT. As part of Strategy 2023 (for details see section “Strategy 2023”), further medium-term financial targets were also defined: Hapag-Lloyd aims to achieve profitability over the entire economic cycle, i. e. a return on invested capital (ROIC) at least equal to the company’s weighted average cost of capital (WACC). In the 2019 financial year, Hapag-Lloyd generated a return on invested capital (ROIC) of 6.1% (previous year: 3.7%). The weighted average cost of capital was 6.8% in the 2019 financial year (previous year: 8.2%). The reasons for the decrease in the weighted average cost of capital include a lower risk-free base interest rate and a change in the financing structure.
The reduction of debt remains a priority, and the Company’s target is to achieve a ratio of net debt to EBITDA of 3.0x or less by the end of 2023. Its target for the end of 2019 was a ratio of net debt to EBITDA of 3.5x. It exceeded this target with a ratio of net debt to EBITDA of 3.0x as at 31 December 2019. Furthermore, Hapag-Lloyd is aiming for an equity ratio of over 45% latest end of 2023 and a liquidity reserve of around USD 1.1 billion. As at 31 December 2019, its equity ratio was 40.9% (previous year: 40.9%) and its liquidity reserve was USD 1.2 billion (previous year: USD 1.3 billion).
The Executive Board of Hapag-Lloyd AG first reported on the Group’s new strategy (“Strategy 2023”) at a capital market day in November 2018. Strategy 2023 is also described in detail on pages 58 ff. of the Group management report in the 2019 annual report.
The 3 core objectives of Strategy 2023 are:
The focus of Strategy 2023 is on quality leadership and profitable growth based on continuous, consistent cost and revenue management. Internal processes will be improved through increased agility and the exploitation of technological opportunities such as digitalisation and automation.
Hapag-Lloyd has already launched a number of projects to ensure that the company’s cost structure is competitive. At the time of publication of the strategy, Hapag-Lloyd expected to achieve cost savings of between USD 350 and 400 million annually by 2021 thanks to improved cost structures. With cost savings in the mid three-digit million range already achieved, a large proportion of the planned savings have already been realised in the 2019 financial year. As a result, efforts to expand the cost savings programme are under way and will be communicated in 2020. The cost structures will be continuously reviewed and adjusted.
The key levers for optimisation in revenue management have also already been identified and initial measures have been introduced. In 2019, revenue management focused on the implementation of the new standardised and transparent marine fuel recovery (MFR) surcharge in preparation for the rising bunker costs as a result of the International Maritime Organization’s (IMO) new exhaust gas regulations which came into effect on 1 January 2020. Efforts were also made to improve the cargo mix and to increase the share of automated price quotations.
The planning period for Strategy 2023 will run until the end of the year 2023. Although further implementation will take place in 2019, most of the measures and their effects on earnings will be seen in the subsequent years.
The most important elements of Strategy 2023 are presented in the following illustration. The focus here is on clearly differentiating the Company from its competitors.
In addition to the key financial indicators mentioned above, the following new non-financial goals have been set:
Quality leadership is to be measured using a Net Promoter Score (NPS). In addition, the Company intends to improve reliability, i.e. punctuality, to clearly define its pledge on punctuality and to put in place the technical requirements for measuring and reporting on punctuality on a standardised basis.
Hapag-Lloyd aims to increase the percentage of door-to-door business to over 40% by 2023. This cargo type requires additional services which Hapag-Lloyd offers customers and which enable it to generate higher revenue and a higher margin.
Hapag-Lloyd is aiming for a global market share (worldwide, excluding Intra-Asia) of more than 10%. To achieve this goal, Hapag-Lloyd wants to increase its presence in attractive growth markets and in the area of special cargo as well as reefer cargo. Hapag-Lloyd already sees its strength in these areas today.
The success of Hapag-Lloyd’s digitalisation strategy is to be measured by whether it increases the volume of cargo booked via the web channel to 15% of total volume by 2023.
As a company with a tradition of environmental awareness, it is a matter of course for Hapag-Lloyd that the Company complies with the stricter environmental requirements, such as IMO 2020, and that it implements the necessary technical and organisational changes with the greatest care and attention. In the context of the International Maritime Organization’s (IMO) requirements from 2020 to reduce sulphur dioxide emissions, Hapag-Lloyd will install exhaust gas cleaning systems (EGCS) on 10 own larger container ships and 9 container ships chartered on a long-term basis, and test the use of liquid gas (LNG) by converting one of its large vessels. All of this is in addition to its predominant use of low-sulphur fuel.
Strategy 2023, including the aforementioned targets and goals, will become even more concrete as the strategy is implemented and it will be flexibly adapted to the changing operating environment if necessary.
In the 2020 financial year our focus will be on:
|Key benchmark figures for the 2020 outlook||Outlook|
|Global economic growth (IMF, January 2020)||+3.3%|
|Increase in global trade (IMF, January 2020)
|Increase in global container transport volume (Seabury, December 2019)||+3.1%|
|Transport volume, Hapag-Lloyd Group
|Average bunker consumption, Hapag-Lloyd Group||Increasing clearly
|Average freight rate, Hapag-Lloyd Group||Increasing slightly|
|EBITDA (earnings before interest, taxes, depreciation and amortisation), Hapag-Lloyd Group||EUR 1.7 - 2.2 billion
|EBIT (earnings before interest and taxes), Hapag-Lloyd Group||EUR 0.5 - 1.0 billion|