CP Ships integration drags Hapag-Lloyd into red
TUI AG reported Tuesday that integration costs relating to its $2.3 billion purchase of CP Ships last October saw its container and cruise shipping subsidiary Hapag-Lloyd post a first quarter net loss of 25 million euros ($31.8 million).
“One-off expenses of 40 million euros ($50.9 million) arose in the framework of the integration of CP Ship in the first quarter,” TUI said.
In the first quarter 2005, Hapag-Lloyd posted net profit of 32 million euros ($40.8 million).
The CP Ships purchase did help TUI’s shipping revenue soar 145 percent to 1.64 billion euros ($2.08 billion). Hapag-Lloyd Container Linie contributed 849 million euros ($1.08 billion) up 27 percent compared to 669 million euros a year ago. CP Ships’ revenue for the quarter was 791 million euros ($1 billion), just better than $966 million last year.
During the quarter, Hapag-Lloyd moved 699,000 TEUs with its average freight rate down slightly by 0.5 percent to $1,312 per TEU. TUI said that CP Ships’ average freight rate improved 9 percent to $1,682 per TEU after it transported 497,000 TEUs.
“This turnover growth was accompanied by a relatively stronger increase in charter rates year-on-year and oil price-induced increases in bunker costs,” TUI said.
“The integration of CP Ships into Hapag-Lloyd Container Linie will significantly affect earnings in 2006,” said TUI looking ahead. “The integration process will be accelerated and will be mostly completed already by 2006. In 2006 most of the integration costs will be incurred.
“Based, among others, on the development of freight rates in individual trade lanes, in particular in Asian transports, the persistently high bunker costs and short-term charter rates, the container shipping division will probably not reproduce the high earnings levels achieved in 2005,” TUI said.
Speaking at the group’s annual general meeting, Michael Frenzel, TUI’s chairman, said the company paid a fair price for CP Ships and expects increased synergy effects in the near future.
“The tough competition dictated the time of the acquisition and despite this we did not pay any unreasonable strategic premiums,” Frenzel said.
“The integration of the CP Ships business in Hapag-Lloyd AG is progressing at a faster rate than expected. We are sure that we will be able to considerably accelerate the integration process.”
Frenzel anticipates TUI’s shipping division will double its revenue by 2008. “Shipping will develop into the second strong pillar for our group over the next few years. With the expansion of the shipping business, we are reducing the volatility of our results and creating a more balanced earnings structure for the Group.”
In a separate development, Michael Behrendt (shipping) and Peter Rothwell (tourism) were elected as ordinary members to TUI’s executive board.