A.P Moller - Maersk A/S

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.