A.P Moller - Maersk A/S

Welcome, everyone, and thank you for joining us on this earnings call today as we present our fourth quarter and full year results for 2024. My name is Vincent Clercq. I'm the CEO of AP Mall and Maersk. And with me in the room today is our CFO, Patrick Yanni. We start with the highlights from the year that just passed. On the back of a strong fourth quarter, we closed the books for 2024 with a full-year EBITDA of $12.1 billion and an EBIT of $6.5 billion. This figure marked the best financial year in Maersk's history outside the pandemic-fueled boom of the years 2021 and 2022. As important as these financial results are the great strides that we have made internally in making the business better, stronger, and more resilient, notwithstanding the high uncertainty we saw in our external environment. And I want to thank all of the team for achieving this. We made clear and tangible progress in our growth segment, logistics and services, with a sustainable step change in margin during the year from 2.5% in the first half to 4.6% in the second half. This step change owes to our continued focus on productivity and cost management, while achieving close to 10% growth here in the last quarter. We are not yet where we want to be, but the operational improvements that we have made in Fulfilled by Maersk are starting to show results. Then we have Ocean, which demonstrated strong operations and, more importantly, agility in the wake of the Red Sea disruptions, as well as strong market demand. We responded to the changes in the operating environment decisively, while maintaining stable and reliable operation for our customers. Meanwhile, we continue to look forward and plan and prepare for our new Ocean network, Gemini. In terminals, we did not only maintain but surpassed the strong performance from the year prior. The portfolio of gateway terminals generated an impressive return on invested capital of 13.5%, all the while undertaking growth investments to expand and extend the portfolio for the future. As we look ahead to 2025, we have several things to feel excited about. But our ocean network, Gemini, in cooperation with Hapagloid, is one of these. Gemini marks the most innovative milestone in the history of Maersk and represents the first step in what we call the network of the future. The launch of Gemini last Saturday on February 1st is the first result of years of hard work and collaboration by our teams from designing the network to preparing our vessels and hub terminals. I will have a bit more to say about Gemini later in the call. But looking forward to 2025, we count on our operating skills and our agility to continue to deliver good results. We expect global volume growth to be around 4%, subject to any major trade disruptions, and for us to grow in line with the market. There has been much discussion about potential Red Sea reopening in recent weeks. We do, however, see no imminent indication of the reopening, but we will continue to monitor the situation closely. What all of this means for our financial guidance is that we expect an underlying EBIT for 2025 to be between breakeven and $3 billion. I will explain the context and the assumptions underpinning the guidance in more detail later on the call. With the books now closed on 2024, we can also announce the dividend proposal for the year just past. For 2024, the dividend proposals will be set by the APP Miller Board at the AGM on March 18 and is a dividend per share of 1,120 Danish kroners. This is equivalent to a 30% payout of our underlying net results in line with our dividend policy and higher than last year's payout. On the back of a better than expected 2024, the strong balance sheet bolstered by further cash generation in 2024 and an improved outlook for 2025, we are also in a position to reinstate the share buyback program, which we suspended this time last year. The program will start effective tomorrow with a size of approximately $2 billion and a duration of 12 months. This implies that the total cash return to shareholder will be approximately $4.4 billion, of which $2.4 billion is the proposed 2024 dividend subject to AGM approval and the remaining $2 billion the reinstated share buyback. This follows the TSR of 8% in 2024 that we achieved for shareholders through the cash dividend for 2023, the Switzer dividend in-kind, and the share buyback until the suspension last February. Looking further forward, we are confident to continue the share buyback in the years following 2025, given the balance sheet strength that we have today. As mentioned at the start, this quarter marked a strong finish to a financial year with strong performance and operational progress notwithstanding a very dynamic external environment. In logistics and services, we saw good revenue growth driven by air and LCL in our transported by Maersk service model, by warehousing and fulfilled by Maersk. We also continued to progress in improving the underlying performance in middle mile as well as last mile, who continued to track positively in the fourth quarter and would expect to see further improvement in the coming quarters. All in all, a good performance in logistics and services with an improved EBIT margin to 4.1, some one-offs driven also by strong margins in managed by Maersk and transported by Maersk. In Ocean, we experienced robust profitability despite rates coming off the peak set in the third quarter. Rates surprised on the upside as they eroded more slowly than expected during the fourth quarter. We ran a tight and efficient ship with strong asset utilization at 95%, and much of our efforts in Ocean in the last quarter went into preparing for the new Gemini network. Finally, terminals continued its streak of excellent performance as reflected by a significant increase in revenue per move while keeping cost per move at bay and driving strong volumes throughput throughout the portfolio of gateways. All of these factors combine to make this quarter the strongest ever fourth quarter and a year which in all quarter exceeded EBIT of $300 million. The segment achieved a last 12-month ROIC of 13.5%, well above our mid-term targets of 9%. Before I dive into the scorecard, let me take the opportunity to announce the date for our next Capital Markets Day. We are pleased to announce that the Capital Markets Day will be held in London on November 13th, later this year. We hope to see many of our analysts and investors at the event, at which we intend to share our progress towards becoming an end-to-end logistics provider, and further details will follow. Together with the executive leadership team at Maersk, I look forward to seeing you there. Now on the scorecard for the fourth quarter. With the throw of the normalization that we saw in 2023 now falling out of the last 12 months period, we see a much brighter scorecard highlighting our good delivery and on most of our strategic targets. But where we still fall short is within logistics and services. The job for us there is clear and simple. We must achieve profitable growth towards the 10% organic revenue growth and 6% margin targets that we have set for ourselves. We have made good strides in improving the quality of our logistics and services business over the past 12 months, but we are not done yet. And our mission is to deliver in logistics and services in the year ahead. And that's actually a good segue into the next slide. As we move into 2025, we have set these strategic priorities around our main business segment. In logistics and services, we maintain our bearings towards profitable growth, namely achieving 6% EBIT margin and continuing the growth trajectory we have set for ourselves in 2024. A main element to achieve this will be to continue the recovery momentum we have achieved in Fulfilled by Maersk, specifically in middle mile and warehousing. And finally, across the board in logistics and services, we maintain our relentless focus on productivity and cost to become a best-in-class logistics operator. In Ocean, our number one priority is to successfully phase in Gemini and reach 90% schedule reliability, which will both deliver better service to our customers and a more agile and cost-effective way to operate our fleet. That will allow us to grow our volumes and reduce our cost per unit with the same equipment. Finally, terminals will provide the world-class hub terminals. hub terminals, in which we have invested $3 billion to increase capacity by about 30%, and capabilities such as IoT technology and digital twin modeling, all to facilitate effective and second-to-none transshipment. On our gateway specifically, we seek to grow in line with the market on our existing portfolio while expanding the portfolio opportunistically through securing of new concessions. You've heard me mention Gemini numerous times now, and that is perhaps a testament to how excited we all are at Maersk about our plan to transform the ocean industry in the quarters to come. Last Saturday, we hit the launch button on the new network after switching our bookings over from the existing network to the new Gemini network from December 2024. Customer feedback and retention have been very positive with bookings into the new network continuing as planned. As we phase in the new network and phase out of the old, there will be a period of 12 to 15 weeks, or about one calendar quarter, representing a typical east-west cycle during which the two networks will run in parallel. June will therefore be our first month in which Gemini will run on its own and alone, and therefore be fully phased in. Leaning on the operational strength of our hubs, we can design a network with more density, higher asset turn, while we maintain the same geographical coverage and competitive transit times for our customers. Those were guardrails principles we had set for ourselves during the design exercise. Gemini represents a more efficient network with benefit for customers and for us. The goal of higher scheduled reliability for more than 90% on-time arrival, such that the ocean cargo is more likely to arrive on time and onwards to the customer supply chain than anywhere else. For us, it represents better asset utilization, leading to decreased cost of approximately half a billion dollars, mostly from lower bunker consumptions. It's horse for course. Smaller vessels on shuttle services calling a smaller number of ports feeding into hubs and the larger vessels on the main liners serving and calling mostly the very big ports and hubs, many of which operated by APMT. This mainliner service will therefore have fewer stops than the shorter loops at the extremities of the old loops and will be serviced by shuttle services. On the right-hand side of the slide, you have an example of how cargo from Shingeng to Bremerhaven will flow in the new network. With the old network, the point-to-point route would have had seven stops. With Gemini, we can simplify this to only three stops across the entire route. The fewer the stops, the lower the risk that cargo will experience and accumulate portside delays. Furthermore, with six out of the eight hubs terminals that we rely on operated by APMT, there will be a better real-time planning, prioritization, and turnaround of vessels so as to neutralize any delay accumulated earlier in the journey and to prevent delays from accumulating during the transshipment. Overall, Gemini represents a rare phenomenon of quality, namely better schedule reliability for the customer, that is also more efficient for us to service. It's a win for customers and a win for us. Throughout the course of 2024, we spoke much about the significant oversupply challenge and the high uncertainty surrounding the duration and degree of the Red Sea disruption. Fundamentally, the supply-demand imbalance that we could have seen in 2024 has likely been pushed back to 2025. However, we think that the outlook from where we stand today is much more nuanced and benign than what we had in front of us just a year ago before the outbreak of the Red Sea disruption. If we first look at the supply side, the new deliveries that will come online throughout 2025, representing a capacity increase of about 2 million TEUs, On top of this will come a potential reopening of the Red Sea, which would remove the supply chain disruptions that we and our customers have experienced over the past year, but would also cause a capacity release of anywhere between 1.5 and 2 million TEUs, all representing about 5 to 6% of the global fleet, as vessels need to sail shorter routes through the Suez Canal. On the other hand, the increase in supply will be partially offset by other supply-side drivers, such as scrapping of vessels that are near or have passed their end of life, and slow steaming out of the environmental and financial consideration. Further, in the short term, potential congestion could ensue from a potential reopening of the Red Sea and from port congestions from vessels bunching and arriving simultaneously at destination, the one via the Cape of Good Hope and another going the faster route through the trans-sewers. Another change compared to last year's assessment is that we can count on improved demand. We are looking into continued strong market demand in 2025 on the back of a strong 2024, which can further net off an increase in supply of about one to one and a half million TEUs. All these factors point towards a supply demand imbalance that is likely not as bad as what we faced 12 months ago. So what does this mean for the guidance? Well, first, we expect the container volume growth, as I mentioned, to remain robust at about 4% and for Maersk to grow in line with the market. As far as our broader financial outlook is concerned, we present to you a range that depends on the timing of the potential opening of the Red Sea as a variable. The low end of the range assumes a mid-year reopening in the Red Sea, while the high end represents a year-end opening, implying no financial impact from the reopening in 2025. Considering these factors and assumptions, we expect the full year 2025 underlying EBITDA of $6 to $9 billion, an underlying EBIT of break-even to $3 billion, and a free cash flow of negative $3 billion or higher. On CapEx, we maintain our CapEx guidance for 24 to 25 of 10 to 11 billion dollars and confirm the same level for 25 to 26. I would now like to pass over to Patrick for a closer look at the financials.

Thank you, Vincent, and thanks to everyone on the call for joining us today. With the fourth quarter driven by good results in all our segments, we had a strong finish to our fiscal year 2024, a year defined in large parts by the ongoing uncertainty about the Red Sea disruption and strong volumes. When we announced our initial guidance back in February of last year, we expected a loss for the year driven by a significant impact of the oversupply situation in ocean, which we saw materializing in the Q4 a year ago, together with the limited impact of the Red Sea disruption. As it became increasingly evident that the Red Sea situation became entrenched and that demand picked up more than we anticipated, we were able to raise our guidance on multiple occasions, reflecting the improving outlook for the year. In that context, our full year numbers with an EBIT of $6.5 billion, a free cash flow of $5.1 billion, and a ROIC of 12.3% reflect both a stronger environment and a great operational performance and cost control of our businesses. Looking closer at the first quarter, The improved year-on-year performance across all segments resulted in significantly higher profitability compared to the fourth quarter of 2023. The business delivered an EBITDA of $3.6 billion and an EBITDA of $2.1 billion compared to an EBITDA of $839 million a year ago and an EBITDA loss of $537 million. Consequently, net profit after tax increased to $2.1 billion and free cash flow increased to $2.2 billion for the quarter, supported by favorable working capital development, a stark contrast to the free cash flow loss in the fourth quarter of 2023. Given the fourth quarter results, our total cash increased to $24 billion with a net cash position of $7.4 billion, up both sequentially and year-on-year. As mentioned earlier by Vincent, our strong balance sheet allows us to relaunch the share buyback program. And looking past 2025, we are confident to be in a position to continue to return cash to shareholders while continuing to invest in the growth of our business despite quite volatile times ahead. When considering both the significant dividend and the announced share buyback, we will be returning 4.4 billion to shareholders, equivalent to 18% of the market capitalization. Let's take a closer look at our cash generation in the fourth quarter on the next slide. Cash flow from operations was $4.4 billion, a significant increase from $166 million in Q4 last year, driven primarily by the increased business performance and by the positive impact of $837 million from net working capital. The improvement in working capital came mainly from better collection and a favorable currency impact. All in all, cash conversion for the quarter increased significantly to 123%, representing an increase both sequentially and year-on-year. As we highlighted in the last earnings call, we had higher capex in the fourth quarter, with growth capex amounting to $1.7 billion. Of this, $1.2 billion relates to ocean, with 60% going to installments of the vessels we ordered during the summer, and the remaining 40% relating to our equipments and hubs. Overall, capex remained tightly managed and below the original yearly guidance. Of the $2.2 billion free cash flow in the quarter, most of the net proceeds were reinvested into short-term deposits. Now let's move on to our segment, starting with Ocean on slide 50. The Ocean business has another strong quarter with high freight rates supported by strong demand, resulting in a significantly better performance than the fourth quarter of 2023. Volumes increased 0.8% year-on-year, while sequentially decreasing 1.3%, following the ordinary seasonal pattern where the third quarter is usually stronger than the fourth in terms of volumes. While freight rates remained high compared to 2023, they have come down from the peak in the third quarter as expected, but erosion was slower than expected, with some pick-up in rates throughout December, which supported business performance in Q4. Operationally, we were able to ensure further sequential improvements to schedule reliability, while running close to full capacity and handling the ongoing impact of reroutings. Consequently, profitability increased, delivering an EBIT of $1.6 billion compared to a loss of $920 million last year, and equivalent to an EBIT margin of 16.2%. Moving on to the Ocean Ebitda Bridge on slide 16, here we can clearly see the large impact of higher freight rates compared to the fourth quarter of 2023, while a reduced bunker price helped to compensate for the higher bunker consumption, which is given due to the rerouting around the Cape of Good Hope. Finally, there was a positive contribution from higher detention in marriage revenue, as well as a mechanical impact of revenue recognition. Now let's look at our KPIs for Ocean on slide 17. As I've touched upon previously, freight rates were significantly up year on year, averaging $2,659 per FFE in the quarter, representing an increase of 38% compared to Q423, but an 18% sequential decline as we moved beyond the freight peak. We successfully kept operating costs, excluding bunker flat year-on-year, offsetting inflation and all the additional costs relating to the reroutings. As in every quarter in 2024, unit costs at fixed bunker increased though year-on-year, given the higher bunker consumption due to the longer sailings. Our average operating fleet increased 6.4% year-on-year, mainly on additional chartered vessels. This reflects our approach of strategically injecting capacity to meet market demand and maintain the necessary agility in the network, which can be seen in light of our continued high vessel utilization. Volumes increased 0.8% in the fourth quarter, driven by a strong demand in Asia-Europe and inter-Asia, amongst others, in marking a 3.6 volume increase for the full year. While our 2024 volume growth was below our estimated global container market growth, it's important to note that our vessels have been sailing at full capacity throughout the year, with vessel utilization at an excellent 96% for the full year. Now, let us now turn on logistics and services on slide 18. Financial performance in the fourth quarter highlights the improvements made to the business since the trough reached the first quarter of the year. Revenue increased by 9.9% year-on-year to $3.9 billion on the back of a solid development in all regions and in most of our products, supported in particular by strong year-on-year growth in warehousing, less than container load, and air. Profitability also increased year-on-year with an EBIT of $158 million, which is more than twice the amount delivered in Q4-23 and equivalent to an EBIT margin of 4.1%. While this represents a sequential margin decline from the third quarter, mainly due to the business mix and some one-offs, the margin recovery throughout 2024 shows that our logistics business is strengthening and that our cost initiatives are paying off. There is still some way to go as we pursue the 6% EBIT margin, but we are confident we are moving closer to reaching our ambition. We continue to invest in CAPEX as well as we pursue organic growth and optimizing product offering. The $232 million CAPEX in Q4 related mostly to air and our contract logistics business. Looking closer at the performance by product family, it managed by where revenue increased 20% to $584 million in the fourth quarter, driven by solid growth in project logistics and lead logistics. Revenue, together with stronger operational performance across most products, resulted in an overall EBITDA margin of 20.6%. Fulfilled by also-so year-on-year growth in almost all regions, with the largest revenue gains coming from warehousing and in particular from the North American market, Despite increased revenue and improved margins in warehousing, lower results and operational one-off costs in last mile and ground freight contributed to an EBITDA margin decline to minus 5.5% for the quarter. Revenue also increased in our largest product family, transported by, where solid volume growth in most of our products together with the higher rates in LCL and air resulted in a 9.9% year-on-year increase, to a total of $1.8 billion. Meanwhile, refocusing on customer profitability and unit cost savings from route optimization and procurement in air, we supported and ebbed our margin increase to 9.5%. Let's move on to our terminals business. On slide 20, terminals delivered another quarter of excellent results, with Q4 2024 marking the best fourth quarter in the segment's history and closing off the best-ever year in that business. Top-line growth was strong as revenue increased 17% to $1.2 billion, driven by higher volume growth and revenue per move. Volumes grew 6% year-on-year, particularly from strong growth in Los Angeles, while revenue per move increased 9% from inflation offsetting tariff increases, better product mix, and higher storage revenue. Cost per move increased 1.1%, reflecting an inflationary impact together with depreciation and product mix. With stop-line growth outpacing higher costs, EBIT logically increased 44% to $338 million and resulting in a return on invested capital of 13.5%. Finally, CAPEX decreased to $158 million this year as the investment into Pier 400 and Port Elizabeth, which we have mentioned last year, have been completed. Turning on to the terminals EBITDA bridge on the next slide, starting from the left, you can see the profitability impact from the 6.7% like-for-like increase in volumes, with growth coming from the mainly external customers and as well as regionally driven by North America. The 9% higher revenue per move made the largest contribution to profitability, more than offsetting the increased cost per move together with high utilization. And with this, I conclude the financial review of our fourth quarter earnings, and we shall proceed to the Q&A section. Operator, please go ahead.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to use only handsets while asking questions. Please limit yourself to one question. For any further questions, you may queue up again. Anyone who has a question may press star and one at this time. The first question comes from the line of Alexa Dugani from JP Morgan. Please go ahead.