Hapag-Lloyd AG — Investor Presentation 2016

Nov 14, 2016

Investor Presentation – 9M Results 2016

Disclaimer

Forward -looking Statements

This presentation contains forward -looking statements that involve a number of risks and uncertainties. Such statements are based on a number of assumptions, estimates, projections or plans that are inherently subject to significant risks, as well as uncertainties and contingencies that are subject to change. Actual results can differ materially from those anticipated in the Company ´s forward -looking statements as a result of a variety of factors, many of which are beyond the control of the Company, including those set forth from time to time in the Company ´s press releases and reports and those set forth from time to time in the Company ´s analyst calls and discussions. We do not assume any obligation to update the forward -looking statements contained in this presentation.

This presentation does not constitute an offer to sell or a solicitation or offer to buy any securities of the Company, and no part of this presentation shall form the basis of or may be relied upon in connection with any offer or commitment whatsoever. This presentation is being presented solely for your information and is subject to change without notice.

Opening remarks

Introduction	 We continue to progress on our strategic initiatives and achieved a profit in Q3 2016 (after a disappointing H1)
Market Update	 The industry fundamentals are showing signs of improvement  The sector is consolidating and approaching a turning point
HL Financials	 Rate levels have stabilized with some positive reactions lately  We are delivering on our cost savings with top-tier unit costs
UASC Merger	 UASC merger is strategically and operationally highly attractive  Combined Entity is very well positioned to benefit from upturn
Next Steps	 Main focus going forward on further cost optimization, start of THE Alliance and completion of the transaction with UASC

Introduction Market Update HL Financials UASC Merger Next Steps	Financial highlights:	We delivered a positive operating result in 9M 2016 …
	Transport volume	Freight rate	Transport expenses
+1.3%		-17.7%	-15.3%
9M 2016: 5.7 TEU m		9M 2016: 1,037 USD/TEU	9M 2016: 941 USD/TEU
	EBITDA	Q3 EBIT: EBIT USD 73 m	Group profit / loss
USD 425 m		USD 29 m	USD -149 m
6.7% EBITDA margin		Positive operating result	0.2% ROIC annualized
	Equity	Liquidity reserve1)	Net debt

USD 0.7 bn

USD 3.8 bn

72.2% gearing

Solid liquidity

USD 5.3 bn

44.6% equity ratio

1) Including additional USD 60 m drawn from existing ABS program as of 31 October 2016 (after balance sheet date)

	Introduction
	Market Update
	HL Financials
	UASC Merger
	Next Steps

Strategic highlights: … and continue to progress on our strategic initiatives

CUATRO and OCTAVE are expected to deliver synergies and earnings improvements of USD 600 m by 2017 – based on current predictions, more than 90% will already be implemented in 2016

In Q1, further measures were added – called OCTAVE II – leading to add. efficiency improvements of a high double-digit USD million figure by 2017

THE Alliance plans to deploy a fleet of more than 240 modern ships in the Asia / Europe, North Atlantic and Trans-Pacific trade lanes including the Middle East and the Arabian Gulf / Red Sea

The start of THE Alliance as the most integrated liner shipping consortia is

scheduled for April 2017 (subject to completion of all regulatory requirements)

With the UASC acquisition Hapag-Lloyd is consolidating its market position as one of the TOP 5 container lines

At the AGM shareholders voted overwhelmingly for a new authorized capital to issue up to 50 m new shares for completion of the deal

A cash capital increase of USD 400 m within 6 months of completion of the merger has been agreed

	Introduction
	Market Update
	HL Financials
	UASC Merger
	Next Steps

In Q3 most liners will continue to post negative results but freight rates are slowly improving from Q2 lows

Global volumes in line with expectations …

… while rates slowly improve from Q2 lows

CCFI composite index (SSE)

Q3 average margins slightly improving …

1) Calc. average EBIT margin of Hapag-Lloyd, Maersk, NYK, K-Line, MOL, Yang Ming

… but most carriers will still be negative

⁶ Source: Company information, Alphaliner, CTS, Drewry, SSE

Demand: Container shipping remains an industry with healthy growth (and more balanced trade dynamics)

Container shipping volume and global GDP growth

Source: Clarksons (November 2016), IMF WEO (October 2016)

Supply: Capacity growth is slowing (as a result of decreasing incremental benefits of ever larger vessels)

Orderbook continues to deplete … … with decreasing new orders …

Orderbook-to-fleet [TEU m, %] Orders placed by year [TEU m]

Source: Clarksons (November 2016), Transmodal (October 2016)

… and vessel deliveries slowing down

	Introduction
	Market Update
	HL Financials
	UASC Merger
	Next Steps

Supply: Scrapping and idling help to further reduce effective supply growth

… keeping effective supply growth low …

2016 estimated capacity growth

Q3	Q3	Q3	Q3	Q3	Q3	Q3	Oct
2009	2010	2011	2012	2013	2014	2015	2016

… slowly reducing supply / demand gap

	Introduction
	Market Update
	HL Financials
	UASC Merger
	Next Steps

Freight rates have started to stabilize slowly

Shanghai – Latin America (SCFI)

Comments

Further freight rate increases planned for 15 November and 1 December 2016 by various carriers, e.g.:1)

• Transpacific USD/TEU 630, effective December
• Asia-LatAm USD/TEU 750, effective December
• Asia-ISC USD/TEU 200, effective November

Hanjin insolvency releases pressure on rates (temporarily)

• Short term positive effect on Asia Europe
• Rate increase in Transpacific still holding
• Majority of Hanjin vessels will eventually reenter the market Oct

1) Based on peer and industry publications * Hapag-Lloyd trade definition

Consolidation has accelerated as scale is important – Hapag-Lloyd is actively participating in that process

Consolidation in container shipping industry

Current consolidation wave

Note: Diagram assuming that all currently announced mergers (Hapag-Lloyd & UASC; NYK & MOL & K-Line) will receive regulatory approvals and are executed as announced. Simple sum of stand-alone operating capacity.

	Introduction
	Market Update
	HL Financials
	UASC Merger
	Next Steps

… leads to higher concentration

Top 5 Top 6-10 Remaining

Current consolidation wave …

2.5 2.3 Maersk 1.5 MSC 0.8 CMA CGM 0.8 Evergreen 0.7 COSCO 0.7 Hapag-Lloyd 0.6 Hanjin 0.6 APL 0.5 CSCL 0.5 MOL 0.5 NYK 0.5 Hamburg Süd 0.4 OOCL 0.4 Yang Ming 0.3 PIL 0.3 K-Line 0.3 ZIM 0.3 Hyundai 0.3 UASC CSAV Maersk 3.0 MSC 2.8 CMA CGM / APL 2.2 Hapag-Lloyd / UASC 1.6 COSCO / CSCL 1.5 MOL / NYK / K-Line 1.4 Evergreen 1.0 Hamburg Süd 0.6 OOCL 0.6 Yang Ming 0.6 Hyundai 0.5 PIL 0.4 ZIM 0.3 14% 13% 10% 7% 7% 5% 3% 3% 3% 2% 7% 14% 13% 8% 4% 4% 4% 4% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2% 2% 2% 1% 2% 2% Ranking as of 2017E Ranking end of 2013 39% 28% 17% 20% 52% 44% 2013 2017E Global capacity share [%]

Carrier capacity [TEU m] and global capacity share [%]

Note: Diagram assuming that all currently announced mergers (Hapag-Lloyd & UASC; NYK & MOL & K-Line) will receive regulatory approvals and are executed as announced. Simple sum of stand-alone operating capacity. Source: MDS Transmodal (October 2016, October 2013), Company data

12

On the back of this consolidation, alliances have been re-shaped with start of operations in April 2017

THE Alliance competitive on all trades Strong partners in THE Alliance

1) Total operating capacity of THE alliance partners, not all to be deployed in alliance (Hapag-Lloyd including UASC)

• THE Alliance covers all East-West trades
• Comprehensive network of 31 services will connect more than 75 major ports
• Binding agreement signed by all partners
• Begin of operation in April 2017
• The initial period will be 5 years
• Combined capacity of ~3.4 m TEU or around 17% of world fleet1) – vessel pool of more than 240 ships

Yang Ming

• Leading product characterized by
• fast transit times
• broad port coverage
• latest vessels
• After Japanese JV we are three strong partners in THE Alliance1): Hapag-Lloyd

13 Source: Alphaliner (October 2016), MDS Transmodal (October 2016)

Hapag-Lloyd achieved a profit in the third quarter – Positive operating result after nine months

Hapag-Lloyd Results 9M 2016

	Q1 2016	Q2 2016	Q3 2016	9M 2016	9M 2015	YoY ∆ / %
Transport volume [TTEU]	1,811	1,892	1,947	5,650	5,579	71 / 1.3%
Freight rate [USD/TEU]	1,067	1,019	1,027	1,037	1,260	-223 / -17.7%
Bunker price [USD/t]	178	182	224	195	333	-138 / -41.5%
Exchange rate [EUR/USD]	1.10	1.12	1.13	1.12	1.12	-0.00 / -0.2%
Revenue [USD m]	2,124	2,088	2,152	6,364	7,598	-1,225 / -16.1%
EBITDA [USD m]	136	83	206	425	770	-345 / -44.8%
EBIT [USD m]	5	-50	73	29	389	-360 / -92.5%
EAT [USD m]	-47	-111	9	-149	179	-328 / n.m.
Investments [USD m]1)	105	115	44	264	791	-527 / -66.6%

1) Balance sheet investments in PPE

Introduction
Market Update
HL Financials
UASC Merger	Transport volume up 1.3% to 5.7 TEU m in 9M 2016
Next Steps

Transport volume [TTEU]

9M average freight rate decreased by 17.7% – But Q3 freight rate slight up vs. Q2 (first time after 2 years)

Freight rate1) [USD/TEU] vs. bunker price2) [USD/t]

1) Hapag-Lloyd average freight rate for the period 2) Hapag-Lloyd average (MFO) consumption price for the period

Transport expenses reduced by USD 885 m thanks to bunker, synergies and efficiency programs

Transport expenses per TEU [USD/TEU]

1) Cost of purchased services 9M 2016: 847 USD/TEU

	Introduction
	Market Update
	HL Financials
	UASC Merger
	Next Steps

The effects of our further cost savings are clearly visible when looking at the relative performance

Note: For selected peers including terminals and other business if no liner figure available. Translation into USD based on average FX rates for individual periods.

¹⁸ x% EBIT margin Source: Company information (11 November 2016)

Equity at USD 5.3 bn and liquidity at USD 0.7 bn – Capital increase of USD 400 m post Closing

Solid liquidity position [USD m] UASC Merger implications

• Cash capital increase of USD 400 m (equivalent) to be executed within six months after closing (backstopped by certain core shareholders)
• Strengthening of shareholder base with the new key shareholders Qatar Holding LLC and the Public Investment Fund of the Kingdom of Saudi Arabia
• Value protection via guaranteed equity, cash and debt covenants (as of certain Relevant Dates)

Introduction
Market Update
HL Financials
UASC Merger	Positive free cash flow of USD 27 m in 9M 2016
Next Steps

Cash flow 9M 2016 [USD m]

Hapag-Lloyd / UASC merger creates a top tier pure-play carrier

	At a glance			Deal rationale
			Combined Entity1)	e  Combination assures top 5 position globally al c and on key trades in a consolidating market S
Corporate HQ	Hamburg	Dubai	Hamburg	k or  Further balancing of trade portfolio with w leadership on Middle East Trades et N
Alliance membership	G6	Ocean 3	THE Alliance	 Access to young and fuel-efficient fleet with large share of ULCVs et e  Sustainable market position without further Fl short-term fleet investments
Ships [#]	166	61	227	s e gi  Significant value creation through expected
Capacity [TEU m]	1.0	0.6	1.6	er run-rate synergies of USD 435 m p.a. n y S
Container [TEU m]	1.5	0.7	2.2	 Strong partner in light of the ongoing er alliance reshuffling n art  Supportive core shareholders and capital P market investors
1) Sum of stand-alone figures

Scale: On important trades TOP 5 players now make up ~70% capacity share after current consolidation wave

TOP 5 concentration on individual trades (2013 versus 2017E)

Capacity share of TOP 5 container shipping lines

Source: Alphaliner monthly newsletter (June 2013 / October 2016) assuming Japanese merger Note: Diagram assuming that all currently announced mergers (Hapag-Lloyd &

UASC; NYK & MOL & K-Line) will receive regulatory approvals and are executed as announced. Simple sum of stand-alone operating capacity.

21% 15% 19% 13% 7% 30% 1) Including Middle East volume as Middle East is no reported Hapag-Lloyd trade 2) Allocation of UASC volume according to Hapag-Lloyd trade definition plus Middle East trade based on Middle East Other5) Atlantic Transpacific Far East Latin America

9%

32%

17%

23%

12% 11%

16%

5% 14%

Total 7.4 Total 2.6

14%

30%

22%

23 assumptions and not necessarily final 3) Middle East is no reported Hapag-Lloyd trade 4) As of October 2016. Breakdown based on capacity deployed by individual carriers on direct services only. Excl. wayport capacity, transshipment services, slot exchange arrangements and cross-trade intra-alliance arrangements; numbers for Hapag-Lloyd based on exposure to global trades 5) Includes EMAO, Intra Asia trades and idle fleet Source: Alphaliner monthly newsletter (October 2016)

6% 5%

Breakdown of capacity operated by trade4)

Hapag-Lloyd Maersk MSC CMA CGM COSCON

29%

3% 20%

11%

27%

26%

1%

9%

29%

Total 10.0

24%

Fleet: Access to young and fuel-efficient fleet with large share of ULCVs …

1) Weighted by carrier capacities

24 Source: MDS Transmodal September 2016 plus HL internal data (HL Fleet as of 30.09.2016, Combined as of 30.09.2016), only vessels >399 TEU

Fleet: … with no need to further invest in the next years due to complimentary ship newbuildings

Vessel delivery schedule 2015-2017

25 1) One vessel has already been delivered in November 2016

No further investments needed

• In order to be competitive mid-term, Hapag-Lloyd would have needed significant investments in ultralarge container vessels in upcoming years (as envisaged in IPO process)
• UASC had recently ordered 17 big ships (6x 18,000 TEU and 11x 15,000 TEU) with an investment amount of c. USD 2.3 bn most of them delivered in 2015/2016
• The Combined Entity will thereby operate one of the youngest and most efficient fleets in the industry
• Hence, no need for new vessel investment in next years – the fleet expenditures have been basically "pulled forward"
• The Combined Entity will focus on maximizing free cash flow to deleverage quickly

Introduction
Market Update
HL Financials
UASC Merger
Next Steps

Synergies: Synergies of USD 435 m expected mainly in network and overhead

Synergies of USD 435 m per year from 2019 onwards – approx. 1/3 to be achieved in 2017 already One-off costs of approx. USD 150 m largely payable in 2016/2017

• − Optimization of inland haulage network
• − Best practice sharing

	Introduction
	Market Update
	HL Financials
	UASC Merger
	Next Steps

Partner: New core shareholders with strategic interest in the Combined Entity

Transaction overview

• Float UASC shares contributed to Hapag-Lloyd in exchange for newly issued Hapag-Lloyd shares
• Continued investment of sovereign wealth funds QIA and PIF highlight continued strategic importance of HL for the region
• C. 39% of shareholders representing governmental bodies and interests
• C. 37% of shareholders backed by wealthy entrepreneurs with focus on and long experience in logistics
• Planned cash capital increase of USD 400 m 50/50 backstopped by incumbent and new key shareholders within six months post closing

1) "QH" refers to Qatar Holding LLC on behalf of the State of Qatar 2) "PIF" refers to The Public Investment Fund on behalf of the Kingdom of Saudi Arabia 3) Other UASC Shareholders include Kuwait Investment Authority on behalf of the state of Kuwait (5.1%), Republic of Iraq (5.1%), United Arab Emirates (2.1%) and Bahrain (0.4%) 4) Including 3.6% Other UASC Shareholders (KIA, Iraq, UAE and Bahrain) 5) Shareholding structure prior to cash capital increase

Closing expected by the end of the year depending on approvals of competition authorities and banks

1) Subject to necessary approvals 2) Long stop date for closing conditions

1) Cash and cash equivalents plus undrawn credit lines 2) 50% backstopped by QH and PIF, 50% backstopped by CSAV and Kühne

Q&A

30

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U A B C	U A B E	UASC	U A B C	E Hapag-Lloyd	Himag-Lloyd	K Hapag-Lloyd	E Hapag-Lloyd		E Hapag-Lloyd	E Hapag-Lloyd	CE Hapag-Lloyd	EE Hapag-Lloyd
U A B C1	U A B C	$U$ A_B C	U A B C	A Hapag-Lloyd	Hapag-Lloyd	K Hapag-Lloyd	A Hapag-Lloyd	TELEVISION	E Hapag-Lloyd	A Hapag-Lloyd	CE Hapag-Lloyd	EE Hapag-Lloyd
							The company's company's company's company's and the company's company's company's company's company's company's	WE LEE HE LEE SAN

Hapag-Lloyd stock in SDAX since March 2016 – New bond call dates from October 2016

1) Partially redeemed by nominal USD 125 m on 30 Dec 2015

32 Source: Bloomberg (11 November 2016); Citi (10 November 2016)

Introduction
Market Update
HL Financials
UASC Merger

Next Steps

	Income statement [USD m]		Transport expenses [USD m]
	9M 2016	9M 2015	% change
Revenue	6,364.0	7,589.4	-16%	Expenses for raw materials
Other operating income	100.7	162.7	-38%	and supplies Cost of purchased services	4,783.7	5,251.6
Transport expenses	-5,315.1.1	-6,199.6	-14%	Thereof Port, canal and terminal costs	2,209.8	2,297.7
Personnel expenses	-420.6	-401.6	5%	Chartering, leases and
Depreciation, amorti zation and impairment	-395.8	-381.4	4%	container rentals Container transport costs	1,568.4	1,852.5
Other operating	-324.6	-401.0	-19%	Maintenance/repair/other	181.7	132.5
expenses				Transport expenses	5,315.1	6,199.6
Operating result	8.6	368.5	-98%	Transport expenses per TEU [USD/TEU]
Share of profit of	21.8	25.1	-13%
equity-acc. investees Other financial result	-1.6	-4.9	-67%	Expenses for raw materials and supplies
Earnings before interest and tax	28.8	388.7	-93%	Cost of purchased services Thereof	846.7	941.3
(EBIT)				Port, canal and terminal costs	391.1	411.8
EBITDA	424.6	770.1	-45%	Chartering, leases and container rentals
Interest result	-161.5	-188.5	-14%	Container transport costs	277.6	332.0
Income taxes	-16.4	-21.3	-23%	Maintenance/repair/other	32.2	23.8
Group profit/loss	-149.1	178.9	n.m.	Transport expenses	940.7	1,111.2

	9M 2016	9M 2015	% change
Expenses for raw materials and supplies	531.4	948.0	-44%
Cost of purchased services	4,783.7	5,251.6	-9%
Thereof
Port, canal and terminal costs	2,209.8	2,297.7	-4%
Chartering, leases and container rentals	823.8	968.9	-15%
Container transport costs	1,568.4	1,852.5	-15%
Maintenance/repair/other	181.7	132.5	37%
Transport expenses	5,315.1	6,199.6	-14%

Transport expenses per TEU [USD/TEU]

35%
-16%
-16%
-5%
-10%
-45%

Introduction
Market Update
HL Financials
UASC Merger
Next Steps

Hapag-Lloyd with equity ratio of 44.6%

	30.09.2016	31.12.2015	30.09.2015
Assets
Non-current assets	10,241.0	10,363.7	10,442.8
Of which fixed assets	10,169.0	10,301.7	10,381.0
Current assets	1,586.2	1,704.8	1,613.0
Of which cash and cash equivalents	549.3	625.0	542.8
Total assets	11,827.2	12,068.5	12,055.8
Equity and liabilities
Equity	5,280.1	5,496.8	5,240.6
Borrowed capital	6,547.1	6,571.7	6,815.2
Of which non-current liabilities	3,875.9	3,958.4	4,275.1
Of which current liabilities	2,671.2	2,613.3	2,540.1
Of which financial debt	4,360.9	4,256.3	4,362.0
thereof
Non-current financial debt	3,449.9	3,591.7	3,857.7
Current financial debt	911.0	664.6	504.3
Total equity and liabilities	11,827.2	12,068.5	12,055.8

Balance sheet [USD m] Financial position [USD m]

	30.09.2016	31.12.2015	30.09.2015
Cash and cash equivalents	549.3.	625.0.	542.8.
Financial debt	4,360.9	4,256.3	4,362.0
Net debt	3,811.6	3,631.3	3,819.2
Unused credit lines	75.0	423.4	486.4
Liquidity reserve	624.3	1,048.4	1,029.2
Equity	5,280.1	5,496.8	5,240.6
Gearing (net debt/equity) (%)	72.2%	66.1%	72.9%
Equity ratio (%)	44.6%	45.5%	43.5%

Henrik Schilling

35

Senior Director Investor Relations Tel +49 40 3001-2896 Fax +49 40 3001-72896 Henrik.Schilling@hlag.com https://www.hapag-lloyd.com/en/ir.html