Hapag-Lloyd Cuts 2016 Earnings Guidance as Freight Rates Sink -- Update
By Ulrike Dauer
FRANKFURT--Shares of Hapag-Lloyd AG (HLAG.XE) tumbled as much as 11% in early trade Monday after the German shipping company warned that 2016 operating earnings would undercut last year's figures due to weak freight rates and potential costs related to the merger with United Arab Shipping Co.
Falling freight rates mean Hapag-Lloyd's operating profit and earnings before interest, taxes, depreciation and amortization would "clearly decrease" compared with 2015, it said.
In the second quarter, Hapag-Lloyd's average freight rate fell to $1,019 from $1,264 per twenty-foot equivalent unit, or TEU, a key measure for container ship capacity. Increasing bunker prices also curbed earnings between January and June, it said.
"The [freight rate] recovery at the beginning of July does not seem sufficient and sustainable enough," the company said.
The container ship industry has seen a substantial volume of consolidation recently as companies combat weak demand amid anemic trade growth and excess cargo capacity. Hapag-Lloyd and UASC expect their merger to bring annual synergies of $400 million, they said.
At 0900 GMT, Hapag-Lloyd shares traded down 8.5% at EUR17.18, with the market focused on the remarks about July's weak recovery. "That's a poison pill for the share price," said one trader.
One-time costs related to the planned merger could further impact this year's results, Hapag-Lloyd added. A spokesman said he couldn't be more specific at this point.
Hapag-Lloyd signed the official merger agreement on Monday, and controlling shareholders of both companies have signed an agreement committing them to support a $400 million capital increase by way of a rights issue within six months of closing the transaction.
The merged company will continue to be named Hapag-Lloyd AG, the spokesman said. It will remain listed in Germany and headquartered in Hamburg.
The two partners now expect completion of the tie-up by the end of the year, after receiving regulatory and remaining contractual approvals. Qatar Holding LLC and The Public Investment Fund of the Kingdom of Saudi Arabia will become new key shareholders of Hapag-Lloyd.
The majority shareholders of UASC, Qatar Holding LLC and The Public Investment Fund of the Kingdom of Saudi Arabia, will become new key shareholders of Hapag-Lloyd holding 14% and 10%, respectively.
Write to Ulrike Dauer at firstname.lastname@example.org