A.P Moller-Mrs Uns/Adr

Welcome, everyone, and thank you for joining us on this earning call today as we present our results for the first quarter of 2025. My name is Vincent Clerc. I'm the CEO of Epimore Maersk, and with me in the room today is our CFO, Patrick Yanni. We start with the highlight from the first quarter just passed. The quarter saw solid delivery across all of our businesses within an increasingly volatile environment. Specifically, on the back of good asset utilization, operational improvement, and proactive cost measures, we generated an EBITDA of $2.7 billion and an EBIT of $1.3 billion for the quarter. In logistics and services, we remained on track as reflected in the significant year-on-year improvement in the EBIT margin to 4.1%, owing to continued operational improvement and cost management. On our ocean business, we saw continued decline in rates in line with our expectation and demonstrated solid profitability as vessel utilizations remained high and contracts had a stabilizing effect. In terminals, we delivered strong results, yet again driven by strong volumes and higher revenue per move. The increased macroeconomic and geopolitical uncertainty since we shared our guidance in February inevitably affects our outlook for the rest of the year. Against this new backdrop, and especially on the back of the escalation we saw of the U.S.-China trade relation, as well as the unresolved questions around the other tariffs currently under a 90-days reprieve, We revised our expectation of container market volumes growth to be in the range of minus 1 to plus 4% from the about 4% which we had communicated previously. On the other hand, despite the lower volume outlook, we confirm our full year 2025 EBIT guidance of $0 to $3 billion. I will get more into the details of this later in the presentations, but now taking a closer look at each of our segments. First, logistics and services generated an EBIT margin of 4.1%, which has improved since the first quarter 2024 and is on track to reach our profitability goal of 6% during 2025. This steady margin uplift we have seen in the recent quarter owes itself to the continued operational improvements we have made in middle mile, also known as merged ground freight, and last mile, as well as the productivity gains across the entire logistics and services portfolio. Revenue remained stable year on year with volume growth across most products, while air and middle mile, we took targeted actions to re-base those businesses to focus on margin in favor of revenue. In ocean, we experienced a continuously declining rate environment since mid-2024, which continued through the first quarter in line with our expectations. Under these circumstances, we delivered on our planned profitability. Our utilization remains high in the 90s, while slight sequential downtick following normal seasonality. Contracts have provided some stabilizing effects, and our focus enabled us to roll back inflationary pressure on some of our cost items. You may recall our new Gemini network launched at the start of February. Early results on reliability are promising and in line with expectations. As of today, 94% of the mainliners are phased in. We expect the final port call of the old 2M network to happen later this month in May, such that June will be the first full month with all of our network on Gemini. Our expectations on cost savings remain unchanged in view of the phasing process. Finally, on terminal, we saw another excellent quarter, driven by strong volumes and higher revenue per move and supported by increased storage activities. The business achieved a further uptick in return on invested capital to 14.5%, well above our 9% midterm target. The strength of the business owes itself to the strong asset utilization, which reached 79% for the quarter across the whole portfolio, and the investments we have made in automation and operational efficiencies over the years. If we move to the next slide, which is our scorecard comprising our midterm targets, valid until the end of this year, our business performance over the last 12 months has been strong on all fronts, with overall APMM ROIC standing at 14.3%, driven by terminal and ocean in particular. Where we do fall a bit short is logistics and services, where our last 12 months EBIT margin is steadily ticking upward, but remains below the 6% target so far. As mentioned earlier, EBIT margin remains the priority, even if this has to come at the expense of some revenue growth for a while, as we saw with the rebasing of middle mile and air. We also see further room for improvement in our operational cost and productivity, which will have further impact in the coming quarters. We also acknowledge that while the last 12 months give a good picture of the progress we have made to date, some parts of these pictures are influenced by unusually high freight rate environment that we saw especially in the middle of last year. The next 12 months signal an increasingly volatile environment with significant amount of new tonnage coming online and this is where our focus lies. Between the sustained improvement in logistics, the flexibility offered by Gemini, and the very strong and diversified position we have in terminal, we have a lot of levers at our disposal to buffet our performance against possible effects of price volatility. You may recall this slide from our fourth quarter presentation in February, in which we shared our view on the supply and demand imbalance and the various supply and demand side factors. Much has happened since then, so let me explain to you the situation as it stands now and the key delta that we have seen since last time. First, our view that the supply-demand imbalance will increase in the course of the year remains unchanged. This is driven by new deliveries, which are planned and fixed at about 2 million TEUs for the full year. In response to these new deliveries, various supply side drivers exist within the industry, and the potential impact of those measures remains at 1.5 to 2 million TEUs of potential. What has changed, however, is that we are seeing a delay in the reopening of the Red Sea, such that the supply increase of 1.5 to 2 million TEUs in 2025 is looking more and more unlikely. On the other side of the equation, the strong market demand which we had guided for in February is now looking more uncertain. This has led us to revise our volume growth assumption outlook to minus 1 to plus 4% instead of around 4%. So for now, these two factors, namely the delay in the Red Sea opening and a more ascertained market demand, are offsetting each other such that our overall view can remain unchanged. Of course, any of these factors can rapidly move in and out of favor, so we will continue to monitor the external environment closely. In terms of the external environment, let me qualify this by saying that while the level of uncertainty has increased from potentially worse-than-expected tariffs and ongoing trade tensions, the uncertainty has so far been very US-centric rather than global. As long as this is the case, our relative underexposure to the US market offers some significant offsetting opportunities by looking at other geographies such as emerging markets and intra-regional trades where demand so far continues to be robust. Nevertheless, we also continue to pull on all levers within our control to ensure that our businesses are fit and ready to continue to deliver for our customers and shareholders. In logistics and services, our broad solution offering is a big advantage in these uncertain times and allows us to support our customers and navigate the volatility ahead. With LEED Logistics, we can help shippers flex their supply chain through alternative sourcing or also adjusting the speed of their shipments. Our bonded solutions also allow shippers to hold off clearing cargo at destination until there is more certainty around the tariff regime. Our custom services offer shippers also advice on how to comply with any tariff changes and other trade barriers. These have a positive impact not only on our logistics and services, but can also have an impact on our ocean volume support. Meanwhile, internally, we continue to focus on cost management and productivity to protect the margin uptick we have achieved so far and continue to enhance and build on this towards our target. Finally, we continue our sales focus to secure new wind and grow despite the slowing market. Despite all of these current uncertainties, we have the levers that we need to get where we have ambition to be. In ocean, Gemini has introduced greater flexibility in our fleet and wider operations. This happens at a time where the China-US volumes have dropped 30 to 40 percent in April. However, it is important to note that China-U.S. volumes only make up 5% of our total, while the remaining 95%, comprising the rest of the world, continues with unchanged demand. In response to any demand shock, our new modular network allows us to swap capacity from lower to higher demand services and to optimize for utilization without disrupting reliability. Further, the cost synergies that we have previously communicated still stand and can be realized irrespective of any weak China-U.S. demand. And finally, our relatively low order book, at least relative to the industry, protects us against protracted trade tensions. In terminals, we have a well-established toolbox to tackle uncertainties ahead and have a geographically diversified portfolio of gateway terminals. We also maintain our focus on cost and productivity, so we protect our margins and maintain a strong ROIC for the group. All in all, our business portfolio and operations mean that we are well prepared and positioned to weather any challenge ahead. So what does that mean for the financial guidance? Well, as I mentioned into the intro slides, we now expect the container volume growth to be between minus one and plus four percent in 2025. This reflects the increased macroeconomic and geopolitical uncertainty. we expect to grow in line with the market. These risks represent the largest unknown at this stage as to how the supply and demand equation will play out for the year, as we now expect the red sea situation to last for the full year. Considering these factors and the progress made on operational quality, we maintain our guidance at an underlying EBIT of $0 to $3 billion, with the same corresponding range of EBITDA of $6 to $9 billion and free cash flow higher than $3 billion. CAPEX at $10 to $11 billion for the financial year 2024-25 combined and 2025-26 combined is also maintained. And with that, I would like to pass over to Patrick for a closer look at our financials.

Thank you, Vincent, and welcome to everybody on the call from my side as well. The first quarter of the year was characterized by solid year-on-year performance across our businesses, delivering higher volumes and increased profitability despite a volatile environment. When looking at the sequential development, ocean profitability came down within expectations given the eroding environment resulting from increasing supply, while logistics and services managed to retain stable margins sequentially by building on the operational momentum achieved throughout 2024. Meanwhile, our terminals business delivered another quarter of excellent performance and near-record profitability, benefiting from continued high volumes and storage income. All in all, the businesses delivered an EBIT of $1.3 billion, equivalent to a margin of 9.4%, a substantial increase over the previous year's EBIT of $177 million, in line with the quarterly path expected for 2025. Free cash flow also saw a substantial increase, reaching $806 million, supported by stronger earnings and disciplined working capital management. Net profit after tax came in at $1.2 billion for the quarter, also on the back of a strong financial result. In the first quarter, we also returned $2.5 billion to shareholders through dividends and share buyback, up from $1.5 billion in the same quarter last year. Our total cash and deposits stood at $22.3 billion, with a net cash position of $5.2 billion, both higher year on year. Return on invested capital rose to 14.3%, up from 3.2% in the first quarter of 2024, reflecting the strong earnings we delivered in the latter half of 2024, and our continued focus on capital efficiency. Looking ahead, our strong balance sheet gives us the flexibility to continue investing in growing our business while returning capital to shareholders, even in a market environment that is characterized by increased volatility. Now let's have a look at our cash flow movements on slide 12. There we see that we generated $2.8 billion cash flow from operations in the first quarter. The increase from the $1.1 billion in the previous year was primarily a result of the higher EBITDA and was further supported by substantial favorable unwinding of working capital. The cash conversion was 102%, up from 69% in the previous year. Gross capex for the quarter amounted to $1.4 billion, a year-on-year increase reflecting the timing of installments to vessels ordered in 2024. As such, $1.2 billion is related to Ocean, with about half going to vessels and the remaining two hubs and equipment. The final parts of the bridge highlight the significant return to shareholders in the quarter, with $2.5 billion through dividend and share buyback, as mentioned earlier. I will continue with a detailed review of each of our business segments, starting with Ocean on slide 13. The Ocean business delivered solid profitability in the first quarter, driven by higher year-on-year freight rates and supported by low bunker costs, mostly offsetting inflationary cost pressure. Volumes remained stable year-on-year as volume growth in Inter-Asia, Asia-Europe and Latin America was offset by lower volume growth in Inter-America, Inter-Europe and Africa. Utilization was 92%, sequentially in line with normal seasonality following Chinese New Year. This is a decrease compared to the 95% in the same quarter of 24, when we just had started to reroute our vessels in response to the Red Sea disruption, but is in line with the first quarter levels in prior years. At the same time, our schedule reliability is steadily improving. Compared to the previous year, EBIT increased by around $900 million to a total of 743 in the first quarter, equivalent to an EBIT margins of 8.3%. Sequentially, EBIT decreased quite significantly due to the steep decline in rates since the fourth quarter. On slide 14, you can see how the bridge on the year-on-year development is coming in ocean profitability. Starting from the left, you see the positive impact from both higher freight rates and lower bunker prices in the first quarter, partially offset by higher container handling costs. Notice that compared to the previous four quarters, there is no longer a visible year-on-year impact from higher bunker costs and higher consumption, as our vessels also were rerouted around the Cape of Good Hope in the first quarter of 2024. Finally, there's a positive impact from detention in the marriage income, but the largest comparative impact by far is the timing effect of rates year on year, as we are in a decreasing phase compared to an increasing phase of the last year. We turn to the ocean business KPI on slide 15. the impact from continuously increasing supply can be directly seen in our average freight rate, which decreased 8.7% since Q4 2024 and was only 2.5% higher than the first quarter of the previous year. Total costs were stable year on year on the basis of higher container handling and network costs, which were compensated by 11% reduction of bunker costs coming from a 9% lower bunker price and a 3.4% lower consumption. Lower SG&E also contributed to the good cost picture. An average operated fleet increased 6.9% year-on-year, reflecting the injection of supply in order to meet market demand and the new network implementation. I would like to highlight that we have changed our reporting on ocean products. to align with the performance management of the business. The new classifications are rated on rate validity, that is, the period for which rates are fixed, and should offer a clearer view of the rate commitments compared to the previous split between contracts and shipments. In short, contracts with a rate validity longer than three months are considered long-term, and contracts with a rate validity of three months or less, together with the spot shipments, are considered short-term. For comparisons between the new and the old split, please refer to our Q1 interim report. In 2025, we expect a roughly equal split between the long-term and the short-term volumes. Let us now move to logistics and services business, which delivered volume growth across most products in the first quarter. In particular, our customs business grew strongly, with volumes up 10% year on year, driven by increased demand resulting from the rapidly changing tariff landscape. Our contract logistics business also increased in volumes, with growth from new customers' wins in warehousing and e-fulfillment. Revenue overall remained stable year on year, as growth in volumes was offset by initiatives to rebase our last-mile and middle-mile business in North America, as well as our air business. LNS delivered an EBIT of $142 million for the quarter, equivalent to a 4.1% EBIT margin, unchanged from the previous quarter and significantly improving from the low profitability levels in the previous year. This is a result of a broad improvement across products, consequent cost and productivity focus, and in particular supported by addressing past operational issues in our last and middle-mile business. These results keep us on track towards our 6% EBIT margin target. We can see the performance breakdown on our product families on slide 17. Our freight management revenue increased 18%, or $85 million, reaching $553 million. The growth was fueled by strong performances across all products, most notably customs, project, and cold chain logistics. Consequently, the EBITDA margin improved to 21%, up from 17.3% the previous year. For fulfillment services, revenue experienced a decline of $101 million, settling at $1.3 billion, representing a 7.1% drop. Despite the lower top line, the EBITDA margin saw a notable improvement, rising to minus 2.5%, which, while still negative, reflects an improvement both sequentially and year-on-year. The positive shift was primarily driven by enhancements in warehousing, and the ongoing rebasing of middle mile and last mile in North America. In our transport services segments, revenue remains stable at $1.6 billion, consistent with Q1 2024 figures. The EBITDA margin slightly decreased to 6.4% compared to 6.5% the previous year, reflecting steady performance across our product lines as decreased volumes were offset by increased rates. Now let's turn to our terminals business on slide 18. Terminals once again delivered another quarter of outstanding performance. Revenue increased 23% year-on-year, driven by higher revenue per move and strong volume growth, particularly in North America, Latin America, and Europe. The 13% year-on-year increase in revenue per move came from higher storage revenue as well as price increases. Cost per move increased as well, primarily due to labor cost adjustments, together with increased concession fees linked to higher turnover. With higher utilization and revenue in the quarter, profitability increased 31%, resulting in a strong EBIT performance of $394 million, equivalent to an EBIT margin of 32%. On slide 19, you will see a breakdown of the individual components making up the year-on-year EBITDA development process. Volume growth of 8.4% was a strong driver of results, with the strongest market in the quarter being North America, which alone saw volumes grow 15% during by significant growth in Los Angeles and Port Elizabeth. The largest increase to EBITDA, however, came from the increased revenue per move, which managed to offset higher labor costs through price increases and was further supported by strong storage revenues. This concludes our financial review of the business, and we are now ready to answer any questions you might have on our earnings announcement. With that, operator, I think we can pass to Q&A.

Yes, thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the 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 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to one question. Anyone who has a question may press star and one at this time. We have the first question from the line of Muniba Kayana from BOFA. Please go ahead.

Good morning. Thank you for taking my question. So just wanted to ask, you know, you said volumes are down 30 to 40 percent on the China-U.S. trade. Just kind of where, how do you see this evolving scenario? straight deal or kind of what are you hearing from customers in terms of where their inventory positions are right now? Like could there be a scenario where there is a rush of orders and rates go up? So just kind of what you're hearing from customers and how you could see things developing in the near term. That would be very helpful to understand. Thank you.

Hi, Moliva. So, yes, we've seen a 30% to 40% drop. And I think even Gene Sirocco at the Port of Los Angeles mentioned 35% on the first ships arriving after this Liberation Day. So it's pretty aligned, I think, across the board what we have seen as a consequence. Basically, this is the – and it has gone very fast. So this is the result of customers reacting very, very fast on canceling orders or stopping orders. and waiting to see if this is going to resolve itself. I think that the way to think about this is, There is a meeting this week. I don't think the trade deal will necessarily come out of one meeting. But if a de-escalation was to happen, it is not unlikely that there would be a catch-up effect where at some point the situation resolves itself, and then you see a much stronger demand coming out of China. I think what is important to realize is there is, for some products, some makeup products, elsewhere to source your goods, but there are also certain goods where this is either non-existent or fairly limited, and therefore there is a strong dependency on getting these goods from China, whether it is semiconductors, whether it is something as simple as snowboard boots. There is really different products where the supply chains are very verticalized in China, same with solar panels or battery parts. So that's one possibility. The second possibility, of course, is that things get entrenched. So what is happening in these weeks where the volumes are not moving is basically our customers are drawing on inventory and are trying to wait and see for as long as possible what is going to happen. And what we see them doing is they're drawing not only on their own inventory, but they're drawing on the inventories that they have in Canada. They're drawing on inventories that they have in Mexico. They're drawing also on distributors and other vendors of the products and the parts inside the U.S. to see how long they can – hoard those goods and wait before they find out what tariff regimes they have to plan in their supply chain. And I don't think there is a final answer today as to how this is going to play out, also for them, in the case where this does get entrenched. If the tariffs go away, they will reopen the gates for purchase orders and parts purchase. If it doesn't, I don't think our customers at this stage have a good playbook. And I've talked to out of our top 400, probably 20 or 30 of them. There is not a good view of if that gets entrenched, what do we do? Because in certain cases, that would have quite significant impact with respect to risk of recession in the U.S.

Thank you.

The next question comes from the line of Lars Heindorff from Nordea. Please go ahead.

Yeah, one, thank you for taking my question. It's on the ocean part of the business. The development of Gemini, as you talked about, Vincent, earlier on, is that one of the reasons why you've been adding as much capacity as you've been adding? And also, the question here is basically about your capacity plans going forward. Will you continue to uphold around about 4.5 million to you in nominal capacity?

Yeah, thank you, Lars. So actually the increase in capacity is a function of having to sail these long distances around the Cape of Good Hope. When we started to do that about a year and a half ago, if you remember, the reason why the rate actually shot up in the second quarter of – or first and second quarter of last year was actually because there was holes in the network sailing these longer routes meant you need more tonnage to carry the same amount of containers. And during the year, we have, if you will, plugged the hole and got ourselves ready for a network that can ensure the reliability that we have ambition to deliver and the capacity that we have ambition to deliver. Because whereas we're not very concerned about our market share, We are concerned about our ability to lift these 12.5 to 13 million FFEs a year, which we think is quite important to maintain the scale that we have in our network. So actually what you see now is the consequences of a steady work that has been going on as a result of the crisis in the Red Sea. Once this reverse itself and we go back to sailing on the trading route, we will gradually get back into, based on the same philosophy, get back into the capacity that we need at that time.

Just to follow up on that, which is, We've seen a huge number of blankings in connection with the decline in volumes recently. But from the stats that I can see, Gemini, which means both you and Hapac, have been doing far less blankings compared to many of the others. Is this something to do with the need to uphold the schedule reliability in the network, or what's the reason for that?

So the reason for that is actually the unprecedented flexibility that we have in our deployment. If you look at the blankings, if you look at all the capacity actions that have been taken across the alliances, there's about 20% to 22% of the market capacity that has been withdrawn since the beginning of April. And Gemini has withdrawn about 20% to 21% also of its capacity. But we've done it less through blanking and more through vessel swapping. So you have an 8,000 TU ship. The demand drops by 40%. You swap the 8,000 with a 6,000 TU ship. That kind of helps soften that. And then you deploy your 8,000 TU ship in another trade where the 6,000 was before and where there is better demand and where you can get better asset utilization going forward. Because we have so few ports and because the network is modularized, the ability that we have to do this basically almost on the fly and to reverse this just as flexibly I think is one of the advantages that we have built through Gemini and that will come quite handy in times like the ones that we're going through right now. But I want to be clear on the fact that we are managing capacity down to demand. We'll continue to do that, and we're doing it as aggressively as any other alliance. Thank you.

We now have a question from the line of Senator Ekblom from Morgan & Stanley. Please go ahead.

Thanks very much. Two questions from me. Can you please talk about the Fulfilled by Mask business? still seems to be delivering negative EBITDA in the quarter. What measures are you taking there to improve profitability of that segment within your LNS business? And then can you just talk a little bit more about your volume performance in the first quarter? It was flat year on year. And in the release, you talk about market growth being more like 3.5% to 5.5%, and then the ambition to grow with the market over the remainder of 2025. I'd like to understand why your volume performance in the first quarter seems to be less than some of the peers and less than your own market assessment. Thank you very much.

Let me come back on your question on Fulfilled Banner. So what you see here is effectively you also see a reduction in revenue which we have highlighted as we are handling what we also highlighted in previous quarters on settling our operational issues primarily in last mile and middle mile in the U.S. So we have been stepping out of our contracts, which we also have highlighted in various occasions in the last six months, of rightsizing the business to operations that are actually profitable and and also having a strong cost focus to reestablish profitability in this business. So you start to see an improvement. It takes some time to rebuild the business, which we are doing now, but you'll see a further improvement in the coming quarters coming through. I think as well on the one positive element here is also the warehousing, which has already actually turned around and is starting to be developed. So you will see here a sequential improvement of those numbers as we go forward.

Let me just add to this, that basically what is missing for us from the 4.1% that we have to get to our long-term target is to bring that number up. I mean, as far as transportation services and lead logistics in Managed by Maersk are concerned, the margins are, if not best in class, they're very, very competitive. In Fulfilled by Maersk, we're lagging the industry, and the plan for us to get back above the 6% require that all the improvements need to come from Fulfilled by Maersk in the coming quarters. If I go to the second, on your volume performance, So we have said, first of all, the quarter-on-quarter thing, I wouldn't put too much on because what you look at is there are certain times because of your geographical exposure or how you're – your tonnage is deployed and what have you, you may have a quarter where you move a bit different from the market. So look at it for the year usually, and that's probably a better indication. But it is true that in the first quarter, the market probably grew somewhere around 4.5%, and we were flat. And the reason for this is actually, you know, we have the capacity that we have back to Lars' question before. And as we were going through the redeployment into Gemini, it was difficult to do everything at the same time and try to be as opportunistic as maybe we would be in a more separate or in a different network. As you know, one of the key benefits of Gemini, outside from the flexibility we just talked about on capacity, is actually the fact that it frees tonnage. And as we complete this redeployment now, we will have more tonnage available, and that's why we can actually grow with the market for the rest of the year and ensure that the vessels that are being freed are actually optimally utilized.

The next question comes from a line of Ulrich back from Danske Bank. Please go ahead.

Yes, hello, Vincent Patrick. My question is on the ocean unit cost. It increased 4% quarter over quarter, and I guess this was driven by the phase-in of the Gemini network. But how should we think about the unit cost going into Q2? I guess there are some moving parts. Volumes are likely going to be lower, but then you also... progressing in the facing of this Gemini network. So what should the net effect here be? Could we already see a decline in Q2 and then further improvement in Q3?

Thank you. Thanks very much for your question. So indeed, I think the previous question also highlights that to get a good cost per unit, you obviously need to have also good volumes, right? So I think on the pure cost side, the costs were actually in line with our ambitions. They were stable costs. We have had a good control on the network costs. Those positions are expected to continue to be under control in slightly degrees over the rest of the year, and you'll have, as Vincent was mentioning, higher volumes as we grow with the freed capacity of Gemini, so the cost per FFE will actually improve when you look forward during the year. So not counting specifically on Q2, which is still a quarter where we are implementing Gemini, But if you look forward, we will have cost benefits and the cost per unit will also improve looking forward.

The next question comes from the line of Marco Limiter from Barclays. Please go ahead.

Hi, good morning. Thanks for taking my question. My question is on the inventory in the U.S. Do you have a feeling of how big is inventory at the moment and basically for how long? your customer can live with inventory. And, you know, when we will start to see eventually if there's no trade deal, we will start seeing people panicking and start importing stuff at any price. Thank you.

Yeah, that's a really, really good question. And I wish I had a super sharp answer to tell you, you know, it's week 21 and you'll see what you'll see. But it's not exactly like that. I mean, the fact of the matter is there is no real good data on inventory. And then the problem that we're going to see is not all... It's not all companies running out of all SKUs at the same time. So I think right now the race is about trying to get your hands on as much inventory as possible. I mean, you know, you... If you're a home improvement retailer, you have imported a certain amount of, I don't know, grills for the summer, so you have a certain amount of weeks of inventory. It's going to depend on how many you sell, obviously, and it's going to depend now also on how many you can source domestically from local distributors and so on that may sit on inventory and may be willing to sell it to you for something that is much more advantageous than what you otherwise would have to pay if you brought them in from China. Okay. All this haggling inside the U.S. right now is happening. I mean, everybody is rewiring their supply chain. Everybody is actually looking at bringing in extra inventory based on the SKUs that they're most concerned with because what you want is you want to be the last one that's going to run into the problem that you just mentioned. So I don't have a really good thing. I can tell you that in some, especially in industrials, automotive and so on, restrictions on rare earth and restrictions on semiconductors, it's going to bite fairly soon. And whereas maybe for retail and certain things, it may take longer for it to really be meaningful. So if you – the pictures of empty shelves in big box retails in the U.S. is maybe not around the corner. But, I mean, let's be clear. If we don't find – something before the summer, it's going to start to hurt quite a lot across the board because there are certain commodities and certain things where you can't really substitute some of these imports freely, both in terms of SKU but also in terms of quantities. I mean, the capacity that there was in China is not available or readily available elsewhere to support the U.S. market.

Thank you. And if I may follow up, so do you think that what we're seeing at the moment is also a bit of front-loading and inventory rebuilding from, you know, from the other countries and, you know, clients trying to get as much as they can from everywhere? And then volumes might, let's say, slow down also on other trade lanes if we don't get any more clarity after the 90-day pause. Thank you so much.

Yeah, so I think First of all, I've talked to a lot of customers since these tariffs were done, and there is not one strategy that everybody is following. And also the ability to pivot and do things differently is not there in the same way if you are importing laptops or if you're importing fishing rods or garments. So those are very different challenges to say. I think what is going on at the moment is – is two things. One is to try to figure out how much can I source domestically, as I mentioned. We see also a lot of inventory moving from Canada to the U.S. because it's easy to replenish Canada right now. So you can deplete your inventories in Canada and then replenish those. That's what's happening. We see also some of that happening from Mexico. So that's one thing. The other thing is you look at where you have alternative sourcing. So for garments, for footwear, for different of these commodities, you can go to Guatemala, you can go to Bangladesh, you can go to Indonesia, and you can try to sit on as much capacity as possible there. And there are certain things where you might have to decide to just pay for the goods. because there is no alternative to China, and this will eventually come into inflation to the U.S. consumer, whether it is in the final product. You know, auto is quite subject to that. The domestic producers in the U.S. have made some pretty substantive declaration about what that would mean for them if it stayed this way in terms of also cost per vehicle and so on. And I think that's what is going to play out in the coming weeks. Now, there is maybe an announcement later about... A trade deal between the U.S. and the U.K., that would be a first and maybe hopefully a step towards more of those in the coming weeks before the 90 days expire. The 90 days can be reconducted also, can be extended in the case where people feel there is positive momentum, but they just need more time to get things sorted. There is a meeting in China with China as well this weekend in Switzerland. Maybe that's the first step towards a de-escalation. That's a process that will take a while. But that could be a first step. So I think there are certain scenarios where you see. a type of retreat towards something that is maybe more bearable for the economy, or you will see maybe a hardening of the stance in the coming weeks, which in my book would increase the risks of recession in the U.S., because ultimately, given the lack of alternatives to China, both in terms of scale and breadth, you would have to pass this on to consumers. Thanks.

We will have the next question from from UBS. Please go ahead.

Hi, thank you very much. I'm just coming back to your comments earlier that 20-22% of trans-Pacific capacity was withdrawn. Maybe the first question would be, can you help us assess how fast this 20% capacity can be reactivated on Trans-Pacific? I think you've alluded that on Gemini, you can do it relatively fast. What about your peers, and could you give us a bit of a timeline? And secondly, you've also alluded that a large part of this capacity is being repositioned on other trail lanes. So how do you think of the implications of this repositioning for freight rates on Asia, Europe over the next month? They have been falling sequentially recently. Do you see the risk of further significant drops here or anything that gives you more comfort that we can avoid that? Thank you.

Yeah, thank you, Christian. So basically the way this works is you can blank a ship with about 10 days' notice and you can reactivate it with less than that. So if you had a big surprise, you come out with a big trade deal tariff, go back to zero out of China tomorrow, you would see a catch-up effect on volumes from the following week, and you would have capacity ready to cater for it. The flexibility, I mean, so far, a lot of the autonomous blank is just idling for waiting for the next position. Eventually, you might see more of that going to other trades. We've been able to do it through swaps because of Gemini. So that's the way we have dealt with it. So far, you know, without impact on rate. Actually, the rates have been decreasing sequentially for three quarters in a row basically since July of last year and all the way through March. But in the last six to eight weeks, they have been some of the most stable they have been in the last few years overall. So I don't know if this is going to stay forever. It depends on how demand holds. It depends on how supply is being managed. The market grew about 4%, 4.5% this quarter. The capacity is 9% up year on year, and the rates are okay. So you see actually some pricing discipline across the industry right now that looks – better throughout last year and this year that looks better for me than maybe what we have seen on the back end of COVID in 2023. If you remember, in 2023, we finished the year with a very difficult last quarter. So it was like prices fell, hit the floor before they kind of rebounded. In this case here, prices didn't hit the floor. They actually normalized at a level that is sustainable. and they have been stable there for almost two months now. So I cannot provide any guarantee that this will continue for the rest of the year, but I can say that at least we're seeing a much more responsible pricing behavior this time around than we did last time.

Thank you very much.

The next question comes from the line of Parish Giant from SHBC. Please go ahead.

Hi, thank you for taking my question. If I may ask with respect to your terminal business, the first quarter's growth, would you attribute this proportionate growth in North America as you alluded to? Is there a role of Gemini Network bringing additional volume to your portfolio's terminals? How would you stack between 2M versus Gemini? Is most terminal portfolios gaining additional volume as a result or not? Any color on that would be helpful.

Thanks very much for your question, Paris. I think, as you see, during Q1, the coming of Gemini, you have had some swaps. Typically, we replaced volumes, right, in the terminals. The net effect is not substantial per se. The net effect really comes from – or the main driver of profitability and revenue growth in terminals comes from the actual growth we have seen, highlighted as well through – the arrivals and the disclosure we have in our Q1 report on the different volume growth throughout the world, with the U.S. with 15% being the biggest increase. So that's really, I would say, additional volumes coming in, which obviously improved both the revenue but also the storage income and was a main driver of the significant increase in revenue for terminals in Q1.

Maybe if I can ask differently, on a like-for-like basis, would APM terminal portfolio would handle greater volume from Gemini network versus non-Gemini propositions?

Yeah, so the terminal network is going to have more volumes from Gemini for the simple fact that before in 2M, MSC had a comprehensive terminal portfolio. We had a comprehensive terminal portfolio, so we had to kind of share a bit volumes, especially in areas where there was overlapping assets, such as, for instance, the U.S., that was leading to some dilution of volumes. This is not the case in the current network, so this is a net positive for APMT. Now, I just want to attract your attention on the fact that the asset utilization across the portfolio was at 79%. So I know in shipping, you need to be in the 90s, but in the terminal business, once you go too far up from 80-85, you usually start to get into some real trouble on operation and cost. So we are very close to the soft spot with respect to terminal utilization, where if we want to grow volumes much further, we either need to expand the facilities that we have or we're going to need to add new facilities to the portfolio.

Absolutely. That is very helpful. Thank you so much, and have a good day.

We have now a question from the line of Omar Nocta from Jefferies. Please go ahead.

Thank you. Hi. Good morning. You painted, obviously, an uncertain picture on the outlook with several factors that could swing things. Either way, I just wanted to ask, given this ongoing uncertainty, does this at all shift your view on the buyback or change the timetable on deploying the $1 billion U.S. by August and the other billion by February next year?

Yeah, thanks so much for the question. I think the The buyback that we have is actually dimensioned in a way that is maximizing the possibilities we have, given the free float and the rules of not influencing the market. So we're limited to 20%, 25% of the volumes per day, and that's where we trade. So from the pure dimensioning, I think on a daily volume, that's where we are. On the other hand, taking a step back, I think the balance sheet is strong. And as we highlighted, we are in a position to invest in the business because obviously the business will continue. We are investing in growing both terminals and logistics and also renewing our fleet. which are long-term things that are much more important, and we will continue to do. But we still, with the balance sheet we have, can continue to share buyback in the dimension that we have indicated before, which is pretty much maxed out on a yearly basis.

The next question comes from the line of Alexia Dogani from J.P. Morgan. Please go ahead.

Good morning. Thanks for taking my question. Could you help us understand the parameters now of your low and high end of your financial guide? Obviously, previously you had assumed at the low end that the Red Sea reopens in the second half. That has been taken away. So implicitly there is deterioration, let's say, in organic kind of development. Can you help us understand that? what needs to happen to stay at the low end and what needs to happen to get to the high end, especially given your comments in Q2 that imply volumes likely will be down year over year. Thanks.

Yeah, so let me, Alex, let me try. So we have not said that the volumes will be down, likely will be down. We've said there will be between minus one and plus four. So depending on the distribution that you have on this, you still have a much more than 50% chance that there will be positive volume growth during this year. I think that's the first thing I want to say. The second thing is you've basically, what we had before was a supply-side risk. in the sense that with both the new tonnage coming and the Red Sea reopening, you would have had a lot of supply coming online over a fairly short period. which would have put pressure on prices and utilization. This we see as being less than before because we still have the new tonnage coming in, but the likelihood of us having to sail through the Red Sea is very low. So we see the supply side as being more sure right now. On the other side, I think the erratic nature of how this tariff and this trade war is rolling out is creating a new level of uncertainty. I don't know if it was a surprise to you, but for me, 145% tariff on China was not really in the base case that we had or even in one of the scenarios that we had when we looked at it. And some of these other tariffs that have been set on pause for 90 days, they were also higher than maybe what most people had expected. That's why we saw that if this resolves itself fairly quickly with a lot of trade deals within the 90 days and maybe a de-escalation with China, you will see the demand side bounce back to somewhere around 4% for the year, and that would have a positive impact. On the other side, if you see an entrenchment of the trade war, if you see more tariff being implemented because – the 90 days rollout and are not being extended or the trade deals are not good and still have a significant amount of tariffs and so on and so forth, then you could see a lower demand, obviously. I mean, we've seen it already in China, U.S., so that could spread itself a little bit more. And I would say for us to get into the lower end, you would need to see actually a reduced on the consumption side in the U.S. because as long as you want to sell, you're going to need to import more. eventually the amount of imports that you're going to have is a function of the consumption that you continue to have in the U.S. So I think for us, we also follow what the IMF and other economic institutes are seeing. And as they increase the risk of recession for the U.S., obviously it also moves where we see the range of possible and the scenarios that could play out.

Yeah, thank you. And just if I can follow up, what I meant is in the second quarter, you told us that China, U.S. is 5%, and these volumes are down 35%. It implies if all else equal, and I assume kind of broadly flat on your comment that nothing else has changed, it implies volumes in Q2 negative. So my question is – No, no, that's incorrect.

That's incorrect. Okay. So basically the way to think about this is we have 95% of our volumes that grow close to 4%, and we have 5% of our volumes that drop 35%. then you can do the weighted average of what that means for April and May. In June, I don't know yet. But in April and May, that can give you a weighted average view of what we think the market is doing at this state.

Perfect. And just one last point. When you talk about de-escalation and deal, is the assumption, therefore, that the 145% tariff on China goes to zero, it gets halved? I mean, what kind of the magnitudes... for things to then recover really strongly.

I think, first, we don't guide on tariffs, I just want to say, and I think I'm quite happy I don't have to, because I don't know that anybody could do that, including in the White House. But I think what I want to say on this is there is not a mathematical formula that equates 10% of tariffs equal plus 2% or minus 2% on volumes and so on. And therefore, I don't think it's very meaningful for me to give you something like this or a guess because it has – what we can tell you is if we start to see the U.S. move towards a recession, there is a possibility that the market moves on slightly negative for the year despite the fact that – almost five months into the year it's been actually quite resilient demand that's what i can that's what i can give you and but if this goes back to something that is manageable and i don't know because it's a question of tariff it's a question of forex it's a question of how sustainable is it because all this reprieve of 30 days and 40 days and 50 days it doesn't really help a lot of decisions so I don't know how all of this will shape, and I don't think anybody does, but I can tell you that if there is a normalization of things, we will see a catch-up effect, which will enable us to go back close to or up to 4%. And if there is not, then you could see risks of recession that could take it to zero or a slight negative despite this first five months. That's the best I can do.

Maybe to conclude on that, I think what we want to say with our guidance is that actually the year is actually pretty okay. So even if you have a wide range of scenarios, which Vincent alluded to, with nobody really knows how it's going to develop on the volume side, our results are actually pretty solid, and we're going to weather that through because the EBIT is actually pretty okay.

We now have a question coming from Alex Irving from Bernstein. Please go ahead.

Hi, good morning. How confident are you that we will not see a return to Red Sea sewer transits this year? Specifically, does this week's news on the ceasefire agreement change anything in your scenario plan, please?

So I want to remind you, first of all, that there is a strong link between what's going on in Yemen and what's going on in Gaza and in that conflict. And therefore, given at least the expectations that things are, or given what we're seeing every day and the expectation that it's worsening on the ground in Gaza and that things could worsen even further, then I think that today going through something As complex, costly, and hard to reverse as a complete redeployment of our shipping networks to go back through the Red Sea, based on the news of a deal whose contour we don't understand, whose terms we don't understand, and who has been breached already, I think is really not responsible. So for me, this thing around the Houthis, if the U.S. will stop bombing them, that's good. But whether this means that there is not only safety today, but there is safety for the foreseeable future in us sending our colleagues, our assets, and our customers' cargoes to the Red Sea again, we're pretty far from that threshold.

Ladies and gentlemen, that was the last question. I would now like to turn back the conference to the CEO, Vincent Clerc, for any closing remarks.

Well, thank you, everyone, for all of your questions. And I would like to make a few final remarks before wrapping up the call. The first quarter marked a solid delivery on the back of continued operational improvement and proactive cost measures. This is actually what is carrying us through, despite the difficulties that there is and the uncertainties that there is ahead. Our logistics and services business is on track to make its year-on-year EBIT margin improvement. Ocean demonstrated solid profitability despite the declining rate environment, and terminals demonstrated strength and stability with continued strong results. While our performance in Q1 has been solid, our focus is on the future and the uncertainty it represents, which we spent most of the questions addressing. Here, we are deploying all levers to further improve our operational efficiency, not the least through Gemini, and to give ourselves the agility that we need to handle whatever difficulties might come our way. This also allows us to maintain our guidance notwithstanding this greater uncertainty. Ultimately, we are well positioned to weather whatever challenge comes our way while helping our customers navigate the volatility in a time when resilient supply chains are critical. We look forward to seeing many of you on our upcoming roadshows and investor conference. Thank you for your attention and see you soon. Bye-bye.