Edited Transcript of HHFGn.DE earnings conference call or presentation 12-Aug-20 1:00pm GMT

As indicated before, our numbers for the first quarter reflected the developments I just described to you. Roland will guide you through the figures in detail. So I would like to pick out just 1 or 2. Revenue fell significantly, while EBIT decreased even more strongly. In an asset-heavy business like ours, downscaling OpEx is a major task and one of the focal points for us as management. Still, we were able to keep all operations up and running, did not have to send our employees to short term work. Our highly skilled colleagues are on board and will work on the recovery with us now. The strong EBIT decline hit our return on capital employed as our average capital employed remained virtually unchanged.

With this, I would like to hand over to you Roland.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [2]

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Thank you, Angela. I’m afraid I’ll have to continue with figures hit by the historic development, while containers throughput decreased moderately overall, and grew at least in our international operations in Q1, the situation deteriorated dramatically over the first half year as a whole. In Hamburg, we saw a sharp decline. Pre pandemic, the storm conditions in the North Sea bay hit the volume development in Q1, followed by blank sailings due to the coronavirus pandemic in the second quarter. And thirdly, one Asian and Northern Europe service, which left us at the beginning of the year impacted the volume development as well. The international terminals held up pretty well, but were affected by the coronavirus too.

Container transport also saw a significant decrease. Although we kept our railway schedule nearly stable, there was much less demand for transport services. The significant sometimes dramatic drops in merchant traffic from both the North German and Adriatic seaports were only partially offset by strong growth in continental traffic. Road transportation suffered from lower demand due to the subdued development in the Hamburg region. These declines in container throughput and transportation translated into the figures shown on the next slide, we will start with the container segment.

The 11.7 percentage point drop in throughput volumes resulted in a revenue drop of 9.6%. 2 effects explain this disproportionate decline.

On the one hand, there was an advantage for model split with a high proportion of hinterland volume. On the other hand, storage fees increased temporarily because of the ship delays and longer containers well times. The actual cost of utilization over time could be characterized by extreme underutilization at certain points. At the peak, up to minus 40% in single months and on single terminals. Nevertheless, we successfully decreased material and personnel cost to the extent short-term possible. And we stayed the course to further adjust costs.

In the Intermodal segment, the decline in revenue was slightly stronger than that of transport volumes. Although the rig share increased, which is normally good for revenue, the coronavirus pandemic left a disproportionately strong decrease in freight flows with lower transport distances. As we maintain our service offer and responded to significantly lower demand for transportation, OpEx could not be reduced in line with the decrease in revenue. As a consequence, EBIT fell by 32%. This marked decrease was mainly due to increased fluctuations in import and export cargo, with a resulting fall in capacity utilization of the rail system. Still, the EBIT margin was at a sound level of 15.5%, which is a good result given the extreme circumstances.

Let’s come briefly to our smaller segment, the Logistics segment. We have poor vehicle logistics, consulting activities and new activities, i.e., digital projects and participations in this segment. The vehicle logistics division recorded significant losses in revenue as a result of the sharp decrease in volume. Consultancy revenue was also slightly lower than in the previous year. Additive manufacturing technologies were not included in the previous year’s figures, start-up losses for digital projects affected the segmental EBIT in line with the guidance given early this year temporarily negative. At equity, earnings fell significantly short of the prior year, but were still positive. Coming back to the Port Logistics subgroup as a whole. In our earnings bridge, the effects from the challenging environment described before continue to trickle down the P&L. Net financial expenses increased as interest income decreased. The lower results decreased, the tax payments with a tax rate at 30.7%. Minorities decreased with decreasing results in the container segment.

Net profit remained in positive territory. We recorded EUR 10.7 million, but strongly declined year-on-year. As usual, on my last two slides, we will have a closer look at the financial position and cash flows. Following the presentation of our business development and the resulting earnings, it is obvious that cash flow from operating activities decreased accordingly. Although investing cash flows look lower, we continue to invest in our business. The CapEx program we initiated in 2018 is ongoing, although at a slower pace. However, in the prior year, we made some payments for short term deposits, which we do not repeat this year.

Financing cash flow has changed strongly for 2 reasons: one, as it postponed — as we postponed our AGM due to the coronavirus pandemic, the dividend has not yet been paid out to our shareholders. And secondly, the compensation obligation to a minority shareholder was not due yet.

In total, our available liquidity stood at EUR 276.8 million as of June 30. Ladies and gentlemen, with the further progress of the coronavirus pandemic, liquidity remains the primary focus for us our management, securing cash flows and providing sufficient cash to meet all due payment obligations is our main interest. Our financial position supports this goal.

A breakdown of the indebtedness helps to clarify the picture. While there is a total of EUR 1.35 billion in liabilities on our balance sheet, lease obligations and pension provisions account for the major share. Net financial debt only amounts to EUR 87 million. As of June 30, we had financial funds of EUR 277 million, with cash and cash equivalents amounting to EUR 232 million.

To further strengthen the financial position, we have decided to propose a dividend of only 70% per A class share, which represents a decrease of 12.5%, but we remained within the communicated payment — payout ratio of 50% to 70%. The proposal translates into a payout ratio of 52%. We remain committed to this amount. Furthermore, we will propose a scrip dividend to the virtual AGM. The Free and Hanseatic City of Hamburg has decided to support this model and to receive the dividend in form of listed shares in HHLA. This will further support our liquidity position, and we are grateful for the full support the city demonstrates with this decision. In the weeks to come, EBITDA will be the KPI of relevance before we hopefully can return to normal. Back to you, Angela.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [3]

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Thank you, Roland. Ladies and gentlemen, the macroeconomic prospects as of today are even darker than 3 months ago. As the coronavirus pandemic had a more negative impact on business activity than previously anticipated, and the recovery is projected to be more gradual, the IMF has lowered its expectations for 2020 as a whole. After a 3% decrease in April, the researchers now expect 4.9% slump. As China seems to be ahead of the infection curve and can resume business activity, the IMF expects small growth to the full year. All other regions will experience a sharp drop. On the assumption that we have passed through the trough and that from H2 on business can also be resumed again outside China, a gradual recovery is expected in Q3 or Q4. Worlds trade will be heavily affected. The IMF forecasts a plunge of nearly 12% this year. Sector researcher Drewry is sticking to its baseline scenario. The researchers assume that the market will bottom out in Q2 and capacity will return to the market from the second half year on. In that scenario, 2019 throughput volumes will be reached again in 2021. Still, they remain very cautious and calculate further scenarios with longer virus outbreaks or even new outbreaks in 2021. Whatever happens, the decreases in throughput, especially in Europe, will be significant.

Against that background, we are upholding our guidance. The degree of uncertainty continues to be high as the extent and duration of the pandemic cannot be predicted. We assume that the sharp decline in container handling and container transport in the first half of the year will not be fully offset by an economic catch up trend in the second half of the year, even if an upturn is expected. This will result in a strong decline in revenue and operating profit for the year as a whole. We have put our investment plans under review to adapt it to the changing market environment. And as Roland explained, we have sufficient liquidity to successfully navigate these stormy waters. Ladies and gentlemen, Roland and myself will now be happy to answer your questions.

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Questions and Answers

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Operator [1]

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Ladies and gentlemen, at this time, we will begin the question-and-answer session. (Operator Instructions) One moment for the first question, please. First question comes from the line of Adrian Pehl from Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division – Head of TMT and Consumer [2]

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Actually, a couple of questions. First of all, I know you’re not giving a concrete outlook for 2020, but maybe you could share with us a couple of ideas of what you’re currently seeing as we advance into Q3, in particular, maybe starting from the element, if you could give us some indication how the months of April, May and June worked out volume-wise for your 2 main segments, Container and Intermodal? And what do you see going into Q3, which is on a normal times rather the peak season. Should we actually expect further improvement of volumes? And in particular, on your Intermodal division? It looks like it has a bit decoupled from the more negative volume trends in container, to some degree, do you see actually this development to continue, i.e., a relative strength of the division also going into the second half? And coming to the margins in the divisions, obviously, it looks like that the cost base has been a bit more rigid on container, while you have been more flexible on the Intermodal side of things. I don’t know if you share that view? And if so, maybe you could help us with the moving bits and pieces, fixed cost relative to variable temporary staff relative to the fixed staff base that you have and how flexible you have been actually with improving the situation here? And then one housekeeping question or 2 housekeeping questions. Actually, I saw in your numbers that actually your smallest segment logistics, I wonder my math is correct, had quite a substantial increase in EBITDA, while the top line was coming down, but also relatively high depreciation and amortization. I was wondering what was the background here? And lastly, on the financial expenses line, which was substantially lower compared to the Q1 and also last year, I was wondering, is there a particular effect included in here, we should consider as sustainable? Or is that kind of a one-off that caused this development to happen?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [3]

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So I would start with your first question with regard to the indications to Q3 or basically looking back into Q2 in terms of volumes. I think it’s worthwhile to really focus in that, in particular, the big hit in terms of volumes were coming in April, May and June. And I would like to quote the sailing reports from Drewry here because the blank sailing list gives a very good indication on the volumes that were in the global market on one hand, as well as gives you an idea on the measures that the different vessels or basically — data, the different customers of us have actually ever agreed upon. And which was very visible that the peak of blank sailings and scheduled sailings was in April and May, basically, in some regions, up to 30% of the volumes were taken out in May. And we have seen, let’s say, a certain bottom than at June and seeing into what the sailing report is forecasting so far through July and August. We are no longer in high digital — 2 digital numbers, but rather, July was around 6%, blank ceilings and August, even less. So which gives you an indication that this is a cautious sign of recovery in terms of volumes as well as in terms of — yes, volumes available in the market. And as I mentioned in my introduction, China is the first one in the crisis and was obviously then as well the first one coming out of the crisis. This as well is visible, in particular, for us here in Hamburg. Asia, North Europe is a strong — has a strong signal of recovery.

On the Intermodal business side, obviously, we — as you know, we are regionally well distributed. On one hand, we had a very good regional spread in terms of traffic, something which was not seen by a lot of people is that the vessel volumes were down in April and May in June. But in particular, China was putting quite an amount of volume on rail. And obviously, this was very helpful and useful for us as well. We have there a very strong setup. And as you could see, we were able to flexibilization– to do some flexibilization on the cost side as well. So if the volumes are picking up in Q3 and Q4, we can see there as well, good positive signs.

On the flexibilization of personnel costs in general, you know very well our business model. And obviously, in particular, high asset volume invest here in Hamburg. If you have months like April where you have up to 30% of volume missing, you can — you’re reaching your limits of flexibilization. So therefore, we have negotiated very hardly as well with unions. We have negotiated with our employees. And we’ve found, I think, a very good way of helping them to use the maximum of vacation time, of extra hour time in those periods where we had basically less volumes, which allows us now in the second half of the year to make use of our employees and not of temporary employees, but use our own workforce.

On the Logistics group, and Roland will jump into this. As he mentioned, we have some of our start-ups in there. So these are all, to a certain degree, planned costs, which are reflected in the amortization.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [4]

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Yes. And I would draw your attention to the notes of the interim report with regard to a onetime effect. We successfully renegotiated an obligation to pay in a certain conditions earnout that has been renegotiated, and we were successful. As a consequence, we were able to write-off part of the goodwill, and this is reflected in the amortization line, and has an impact on the quarter results in the smaller segment. But the net effect is plus 300,000, so nothing substantial, but positive with regard to the quality of our balance sheet with regard to new activities, but you can follow-up with details in the notes because all the details are highlighted there.

The other question was — and I want to come back and maybe you can clarify the point with regard to the financial expense year-on-year. As I mentioned before, when I commented on the development that it has slightly gone up. The financial — net financial liabilities are still low, I mentioned, EUR 87 million, but the capability to keep the interest income positive in a negative interest environment is declining. So — and as a consequence financial income is going down, but it has nothing to do with extraordinary or onetime things.

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Adrian Pehl, Commerzbank AG, Research Division – Head of TMT and Consumer [5]

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Was just referring coming back to this point. When I did my math correctly. And then you had financial expenses amounting to EUR 11.4 million in Q1 but only EUR 6.65 million in Q2. So that was actually the amount I was wondering because that looked pretty low in Q2 relative to the quarter before.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [6]

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We would provide with (inaudible) or later.

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

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Yes, maybe you can take that off-line. No, no worries about it. Then quickly, nevertheless, a follow-up one, housekeeping, one strategic on holding expenses, I note that there was no improvement versus prior year. Actually half year figure was up, what was it, EUR1.5 million, EUR2 million, something like this. So I would have expected also some more stricter cost control also on the holding side of things. You were referring a little bit already to the start-ups, which I can understand to some degree, but maybe you could add some flavor here? And the second question is, obviously, I don’t expect you to be very verbose on this one. But on the strategic talks that are ongoing or was announced actually, where do we stand right now? Maybe you could help us what — how many talks have you already done with potential partners? And what is the content of the talks in the sense of, are you considering rather some kind of, let’s say, more loose collaboration when you think about attributing the volumes? Or do you go that far and consider potential amalgamations of shareholding? Or what is the — where do we stand here also?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [8]

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So you know or you’re referring to our ad-hoc announcement at the end of May. We are still currently conducting initial exploratory talks. They have paused actually over the summer, and they will be continuing again in September. We are exchanging views on opportunities of a closer cooperation. This is just focusing only the container business at the German bay. Still open end, still at a very early stage.

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

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And on holding expenses?

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [10]

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Well, we are working on that. We are preparing for the change of the SAP ERP system, implementing or we are preparing to implement S/4HANA. But it’s not a technical thing. We treat this project as a change project. This means we are aiming at implementing end-to-end procedures in all administrative and administrative related procedures that we have in place in the group. And as a consequence, we are aiming at higher efficiency. And we have fully implemented the system, of course, this should have a positive impact on the administrative costs on holding level.

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Operator [11]

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(Operator Instructions) Next question is from the line of Nikolas Mauder from Kepler Chevreux.

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Nikolas Mauder, Kepler Cheuvreux, Research Division – Junior Equity Research Analyst [12]

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I hope you can hear me well. Just one question from my side. There was an article this morning in Hamburger Abendblatt. On Eurogate, I won’t ask about the competitor, but there was an interesting statistic in there. Apparently, McKinsey did a study on the European north range, and they claim that, for instance, the port of Antwerp is managing 30 to 32 container movements per hour, whereas Hamburg, Bremerhaven and Wilhelmshaven only manage 20 to 25. I understand that this is a Eurogate focused study, but how do you — how do your numbers match up against those figures presented by McKinsey. Can you present any color on this? Would be interesting to understand sort of the underlying competitive situation there?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [13]

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Thank you for making the hint to the article because sometimes journalists do put titles on articles and are generalizing. As there is no German, there is no Hamburg Port. So this article was reflecting the view of our competitors. So these numbers as well, the analysis of McKinsey is due to what they have established and what they have analyzed and what they have identified as a gap to match the expectations of the customer. So from our side, and I will hand over as well to Roland, I can just confirm that we are basically, from a customer perspective, are getting satisfied remarks. There are many ways of measuring efficiency as well as productivity. For us, decisive, it’s the productivity at the vessel in the eye of the customer. And there, we provide and get extremely positive feedback to being the benchmark in the Hamburg Port.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [14]

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Yes. And 2 remarks from my side, I can’t comment in deep on these pure figures only because the first question with regard to transparency is what’s the definition of moves per hour, for instance, is it a gross or net figure? Does it include lead time or not? Things like that are not released in this article. And of course, there’s a difference between net and gross productivity in terms of moves per hour or per train. But this has to be clarified before we can indeed comment on that. The other aspect is the differential as such with regard to productivity, what are we aiming at? And I would bring it into a perspective, where does the journey need us to going forward, and it is clear that the productivity at the key wall has to increase. There is no doubt, and this depends, for instance, on the degree of automation in place that you use. So whether it’s gross or net, I’m not so much surprised about the 30 that are posted in the article, it’s more the question, what are you aiming at in the design of your terminals?

And I can tell you, this is no secret that we with all the experience, how to operate automated systems are definitely aiming at pleasing our clients in terms of productivity. And this is what Angela mentioned, from a client point of view to deliver appropriate service quality in terms of productivity that is expected in the market to be delivered by terminal operators.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [15]

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And let me please add as well. The enemy is good as well. So to improve as well for us, obviously, continuous improvement in productivity, efficiency and cost base. That’s our daily management task.

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Nikolas Mauder, Kepler Cheuvreux, Research Division – Junior Equity Research Analyst [16]

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Okay. So as a conclusion for that I got you correctly. So from your benchmarking perspective, whatever the definition is, you feel that you are at a competitive level towards ports or port operators in Antwerp or Rotterdam base — yes, based on your definition. Is that the right conclusion from what you told me?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [17]

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Yes. Otherwise, we would be out of the market. Okay.

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Operator [18]

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Next question is from the line of Christian Cohrs from Warburg Research.

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Christian Cohrs, Warburg Research GmbH – Analyst [19]

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Just 2. First of all, on Intermodal. You mentioned that you experienced a stronger decrease on the longer transportation distance volumes. Can you shed some light on the explanation? And also whether you should or we should expect that to revert and to normalize? And the second question relates on the Kiel Canal. If I’m not mistaken, the fees are suspended? And do you think that this will actually help to improve your field ratio? Or do you think that this is more like some sort of PR exercise? That would be helpful.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [20]

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Starting with your — to answer your second question, of course, in the current environment, everything helps. So we see Kiel Canal fees declining. This is highly appreciated, to which extent, it helps us if I factor in the current stages of the pandemic in Russia, and this is the most relevant volume flow. It remains to be seen, to which extent, it helps us to rebound with regard to the field ratio. And the other question, I don’t want to get you wrong. You wanted some color on the average distance development in the Intermodal segment. Again, Angela outlined this. We have to factor in different statuses of the impact of a lockdown and make effects in the areas we cover. And of course, in the (inaudible) as it states, you know that some of them closed boundaries, temporary, et cetera, et cetera. We had a different situation to factor in, in all these countries and different situations, let us as an aggregate to a declining average distance per box that we handled in the first half. So going forward, hopefully, it will normalize, to which extent? Remains to be seen. I think the — given the principal efficiency of the system in place, it is clear, and I think this was outlined by Angela before already. If volumes recover, that the system is extremely strong in regards to translate utilization into margins and returns. And again, in line with the uncertainty maintaining, I’m not in a position to quantify these principal effects that we expect indeed.

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Christian Cohrs, Warburg Research GmbH – Analyst [21]

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Okay. But I think then it’s clear. So what you want to tell us is or what you’ve told us it’s just pandemic. There is not — this is not driven by any change in the competitive environment or something like that. And therefore, if the pandemic withdraws, then hopefully, the country mix and the transportation distance would — should revert back to normal.

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [22]

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Well, I’ll leave it for the people that attend the call whether it is the only pandemic accused. This is your explanation. I think I outlined the effects. And feel free to comment me in this way. And please carefully listen to what I explained. I think this would be more helpful. But last general remark on that is, I think we have nothing to adjust with regard to the cost base and the professionalism to manage a fixed cost, highly efficient block train system, even in an environment where volumes are extremely affected by a pandemic situation. And this remains in place. And with regard to the competitiveness in the months to come. There’s nothing to adjust. I think we feel comfortable with the cost base and the efficiency of the system. And we’re pleased our clients, because we were the guys that maintained the schedules more or less in place even hampered by pandemic circumstances. And there is no complaint about service quality in the market with regard to our systems in place, and I do not see any reason why we shouldn’t continue to maintain or even extend our market share if volumes recover?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [23]

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Well, let me just add to this. It’s not only a volume question, as you’re all aware, that logistics chains in a pandemic situation were different countries with different application of shutdowns of the relevant economic environments have caused quite a turmoil for some of our competitors, even leading to a full paralyzation and shutdown in days and weeks. This was not the case within our Intermodal group and not within HHLA. And obviously, the imbalances have obviously as well a significant impact, not only the volume, but it’s the volume in addition to the imbalances. As I think this was a historic chaotic situation. And I would like just to confirm and reiterate what Roland has said, our group, our Intermodal segment has set there a benchmark, in such a historic situation to deliver in terms of revenues and EBIT.

We had no breakdown, not one day, not 1 hour, the logistics chain and we, as a European logistics group, we have delivered under the worst circumstances. The logistic chain was no day interrupted. So we have proven to be reliable in terms of our customer service. We have service Germany, and we have service as well Europe, and this was not only viewed but as well valued by our customers.

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Operator [24]

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(Operator Instructions) We have a followup question from the line of Nikolas Mauder from Kepler Cheuvreux.

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Nikolas Mauder, Kepler Cheuvreux, Research Division – Junior Equity Research Analyst [25]

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Can you please comment on the import VAT reform that was part of Germany’s second, whatever, corona package. We discussed this a couple of times in the past as being one of a competitive barrier versus ports in other countries. Is this the change in regulation that you wanted? Or is there some flaw in it that prevents you from sort of exploiting it?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [26]

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Well, let’s put it this way. All progress is a progress as well, this proposal is going into the right direction. It gives us here in Germany, an advantage. The question now is that we need to understand the speed of implementation as well as how practical this is for our customers. So unfortunately, we have no details yet. Ideal, it would have been done in the same way as it in the Benelux countries so that you have basically a virtual second where everything can be netted. This is not the case. But as Germany is very professional and all the details. I’m trusting that they will work out this further so that this will be definitely an immediate positive impact for our customers and will ease off the situation. And hopefully, there will be another second step to further optimize it.

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Nikolas Mauder, Kepler Cheuvreux, Research Division – Junior Equity Research Analyst [27]

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And any idea when this will impact daily business?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [28]

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A daily business in terms of customer, the customers or a shipper, basically is a liquidity advantage. There will be a liquidity boost for them instead of 3 to 6 months, this will be definitely a shorter period of time when they can claim and get their liquidity back. So it will be a more easier process for them. But I personally haven’t seen yet the handling — the IT applications and so on. So I’m not into it, but I — we can ask for further details, if you like. But it — again, it’s a liquidity advantage as well as easier way of handling.

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Operator [29]

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Next question is a follow-up question from the line of Adrian Pehl from Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division – Head of TMT and Consumer [30]

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Actually, I’ve got 2. The first one is linked to a comment you made Mr. Titzrath on China, actually being the first coming out of the crisis, and they put some volumes on rail. I think that was probably referring to the once that are the rail part of the silk road, I guess. And I was curious just to hear whether you could help us a little bit on the magnitude? I mean, is it like low single-digit volume that’s coming from there? Is it like 5%? Is it already 10%? Or where do we very roughly stand ballpark wise on these kinds of portions or any clarification would be helpful.

The second question is a follow-up actually on the cost base or cost structures. I mean, probably some of the cost savings that you had in Q2 have probably been affected with some kind of lag. So I was wondering, is it fair to assume actually that your Q3 cost base irrespective of volumes probably picking up could be very similar to the one we saw in Q2? Or is that not correct as it should go up as volumes are coming back in line with that development?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [31]

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Yes, to my first remark, that was basically in the second quarter in the period where the blank sailings and the shipping volume was taken out of the market. We have seen that China was putting significantly more volume on rail. It’s still a very small volume overall, but it was about 10% more volume on rail than we have seen in the months before. So more — and we can give you some more details maybe then later on the call. If you need the exact volumes. Again, on rail, still coming from China to Europe is in comparison to what is on the vessels, still a very small volume, but this small volume was overall was picking up as well as we have seen a shift from China going into Vietnam, Korea. So there was some remarkable movements happening there that basically the plant or the production side of China was shut down, and we have seen volumes coming and picking up from Korea and from Vietnam. So that was quite visible. Yes. But still, we are talking about small numbers, but for us, important because all those volumes coming on rail, has a good chance as well to hit our systems as we as Intermodal group are perfectly positioned with all our terminals in Eastern and middle of Europe. In terms of costs?

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [32]

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Yes. Depending on your assumption with regard to the utilization in Q3, I would comment on your question a little bit. And I understand you — in the right way, you expected a recovery of volumes to a certain extent in Q3. So utilization should go up. So what’s the principal characteristics of the cost base. And I would comment on the expectations of the metric of unit costs. I think this is key in order to better understand the characteristic of the cost base. It should normalize. And this is what I mentioned. I commented on, we stay the course to adjust costs in the month ahead of us. And on the other hand, I commented with regard to the first 6 months and that we adjusted costs to the extent short-term possible. I think this, as we understood, if you look at the cost base in the first 6 months and especially with regard to the deterioration of volumes and we’re up to — and I mentioned in single months on single terminals up to 40%. This is extremely — to manage short-term with regard to the cost base. Now the other way around, if it normalizes, it is clear that cost base should, on a unit cost base, normalized this means go down if utilization picks up, whether it led us to a cost base that is on a consolidated basis, flat remains to be seen. It depends on the intensity of the recovery that you assume, but in principle, the mechanic is as outlined.

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Operator [33]

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Next question is from the line of Peter Hyde from Atlas Infrastructure.

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Peter Hyde, [34]

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I just wondered if you could go back to the Intermodal business a bit and talk about certainty of customers and also volume volatility by corridor. So how clear optics, not through COVID-19 necessarily, but on an ongoing basis, how certain are you about volumes, let’s say, 6 months ahead when you put together your train schedule. So that’s one question.

I think the second one would be how much volatility have you had on different corridors historically? And I’m sort of thinking about, let’s say, into Central and Eastern Europe from different ports. Has the volume been very volatile over the last 5 years? Or has there been a gentle upwards progression year on year?

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Roland Lappin, Hamburger Hafen und Logistik Aktiengesellschaft – CFO & Member of Executive Board [35]

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This is Roland. Peter, I would offer to you a separate call because we should prepare the answers a little bit more deep. If you ask me for the development in the last 5 years. Let’s stick to the development in H1. I think this is the purpose of today’s call. But feel free to give Investor Relations a ring, and then we come back to your question, in deep.

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Peter Hyde, [36]

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Okay. Could you just answer then sort of coming back to the last 6 months then? Can you plan — it feels like you’ve put the — you’ve put the network there, and then you kind of filled the volume, and you’ve been successful because you’ve only had, if I can put it like that, a 500 basis points drop in EBIT margin. So it kind of feels to me that the team has managed the volumes pretty well against the schedule that you’ve been offering. Would that be fair to say?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [37]

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Yes. I would like to hand this complement to our management as we see this exactly as you have described, we have a highly professional management, and they have done an extremely good job in these very difficult pandemic situation. I think what one of our assets is that we have, to a certain degree, flexible structures. We are highly invested in terms of terminal and asset structure, but we are able to handle the flexibilization.

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Peter Hyde, [38]

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And can I just ask one supplement on that, which is that when you look between, say, your hub terminals and your end terminals, I was sort of presuming, but I’m asking the question, that volume is very dependent on the volume that’s going to or from the ports to the hub terminal because it’s essentially a hub-and-spoke system. Is that right?

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [39]

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Correct.

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Operator [40]

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There are no further questions at this time. And I would like to hand back to Angela Titzrath for closing comments.

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Angela Titzrath, Hamburger Hafen und Logistik Aktiengesellschaft – Chairwoman of the Executive Board & CEO [41]

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Yes. Ladies and gentlemen, we find ourselves in the middle of the year, and it’s a special year. It can be considered historic. The coronavirus pandemic has presented people, companies and entire countries with challenges that likes of which they have never seen before. You can rest assure that we will do everything, everything necessary in this current situation to steer HHLA safely through these turbulent waters. Our eyes are firmly trained on the compass, which is set to sustainability, efficiency and growth. Thank you very much for your interest and your ongoing support for HHLA. And please stay healthy and take care. Goodbye.