A.P Moller - Maersk A/S

Welcome everyone and thank you for joining us on this earning call today as we present our third quarter results for 2025. My name is Vincent Clercq, I'm the CEO of Epimolar Maersk and with me in the room today is our CFO Patrick Yanni. As usual, we start with the highlights of the quarter just passed. We are pleased with the strong execution shown during the quarter in all businesses. We improved our performance across the board and delivered on an EBITDA of $2.7 billion and an EBIT of $1.3 billion up from the previous quarter. All segments showed strong sequential volume progression while costs were kept under tight control. These efforts paved the way for the strong results notwithstanding the external environment. Specifically, in logistics and services, we're staying the course, focusing on operational margin improvements on both prior year and quarter to maintain the streak of good progress in 2025. We also registered good underlying and seasonal volume growth, which more than offset the softening observed in North America. For Ocean, this third quarter was the first full and clean quarter of the Gemini cooperation. While we kept delivering reliability at 90-plus percent, we also generated cost benefits well above the target we had communicated. This excellent performance was supported by strong volumes and high asset utilization, as well as asset turns. As expected, rates softened during the period as new capacity continued to be inflated ahead of demand. Finally, our terminal business delivered again record high revenues and profitability, driven by strong volumes, not least the ones delivered as a consequence of the Gemini implementation and the highest ever utilization across our portfolio of gateway terminals. With another quarter of sustained high demand, especially out of China, we expect a market growth around 4% for the full year. This strong demand, combined with the successful implementation of Gemini and progress across all segments, allows us to narrow the full year 2025 guidance to an underlying EBIT of between $3 and $3.5 billion. As usual, more details will follow on this later in the call. Now taking a closer look at each of our business segments. First, logistics and services continued to track positively. We achieved an EBIT margin of 5.5%, up from 5.1% last year and 4.8% last quarter. The key levers of progress remain asset utilization, productivity improvement and stringent cost management. Aside from these efforts, the top line also grew 2% year-on-year and 9% sequentially, the latter reflecting both seasonal strength and new wind implementation which offset the softening of demand in North America. In Ocean, as mentioned, we had our first full and clean quarter after the Gemini implementation. From already the first month since the implementation in February, we have seen the network deliver reliability above 90% and show resilience against disruptions such as weather, which we have seen recently in the Far East with the worst typhoon season in 10 years. Meanwhile, we continue to deliver 90-plus percent reliability in the third quarter, and we also achieved significant cost savings, even compared to the ambitious target we had communicated to you earlier this year. I will go into more details on this very shortly. What Gemini has allowed us to do with these savings is to use our fleet more efficiently and capture more volumes. Our volumes are up 7% year-on-year and 5% sequentially for this quarter, while the average loaded freight rate was more or less in line with the prior quarter. Good volume development has also driven high utilization of 94% for the quarter, up 0.5% points sequentially. All of this happened against the backdrop of decreasing rates, as expected. In terminals, we deliver another excellent quarter, driven by record on volumes, revenue, EBITDA and EBIT. What we had not talked about so much until recently is the volume uplift in our gateway terminals from Gemini, which has been a key contributor to our performance this quarter. Return on invested capital has delivered a further uptick to 17.2%. Here we note that with utilization close to 90%, we are approaching the full potential at which operations in some of our locations become less efficient and volume growth opportunities become more limited in the short term. We continue to de-bottleneck our existing terminals. as well as grow with new locations, as exemplified by the inauguration of Rijeka terminal in Croatia less than two weeks ago and several other projects in the pipeline. Turning to our mid-term target, as you can see, we have shown almost full delivery on our 2021 commitment. As mentioned, we continue to stay the course of regular progress in logistics and services, which is tracking positively with EBIT margin up both year-on-year and sequentially. although more needs to be done on that field. We continue to make good operational progress with our challenge products of air, middle mile, and last mile, while seeing good revenue growth in our other products more in line with our organic revenue growth targets. Our priority is to continue to improve in the fourth quarter as we round off the relevant period of these targets. Taking a step back from this quarter, I want to just take a couple of minutes to get into more detail as to what has been driving such a robust demand growth in ocean, and some of the consequences of this phenomenon which we do not think are sufficiently well understood. Despite talks of deglobalization, nearshoring, trade wars, container demand has shown a remarkable resilience over the past few years that has confounded many observers and models. During this period, China's export growth into all regions of the world except for North America has not only been resilient, it had gathered pace. China's share of global export has increased significantly and never as fast as it has over the past two years. Specifically, its global export share has increased steadily from 33% only two years ago to about 37% this year. This growth is part of a longer trend as reflected from the chart to the left, but has accelerated recently. It affects all regions, with the Far East, excluding China, being the biggest market, and growing at 12% per annum, and Europe, the second biggest market, and growing at 10% per annum. North America, which in this case is including Mexico, which is the third biggest market, has been weaker, but still has seen growth at 5% per annum, despite the known trade tensions in 2025. Given the widely available production capacity in China and the very competitive products that are being exported, we do not expect this trend of accelerated export growth from China to stop. The momentum is strong. The consequences for us are not only the resilience of demand growth, which will contribute to absorbing some of the new capacity coming online, but also the increased trade imbalance that it is causing, which over time will lead to higher production costs and lower asset intensity for the industry. On both fronts, Gemini offered us a much-needed flexibility so that we can capitalize on the growth opportunity while minimizing the cost impact. Moving back to Q3 and to Gemini specifically, this is the first quarter where we can see the full effect of the new network, and we are pleased that the savings are higher than our original guidance. To give you a sense of the benefits, we separate the ocean cost savings, which were the ones we had communicated, into two buckets, namely bunker savings and asset turn increase. Aside from these, we can also present an upside that we have seen in terminal as a direct result of this new cooperation. Now, taking each of this in turn and starting with bunker, we can see that the advantages of Gemini stemming from a more efficient use of our vessels, for instance, through lower speed, shorter sailing distances, and shorter dwell time, are allowing us to reduce the bunker consumption. This quarter, we saw 6% higher capacity, but about 3% lower capacity. total bunker consumption, and this translates in an approximately 8 percent bunker consumption reduction corrected for the changes in capacity. Then, on our asset turn side, From the most efficient use of our vessels, Gemini allows us to transport more volumes at the same capacity. This quarter, we saw the capacity growth of about 6% against a volume growth of 7%. The delta of about 1% point represent the improvement in asset turns. Both these buckets are driven by improvements we have been able to do under Gemini. First, we have been able to deploy our largest vessels in most effective routes and on shorter loops. Secondly, these shorter loops have had fewer port calls and more efficient ones. Thirdly, locations outside these shorter mainliner loops have been serviced by fit-for-purpose shuttles rather than underutilized mainliners. We can quantify the bunker consumptions improvement to about 8% at fixed bunker into cost benefits of about $135 million for the quarter, which annualized is about $450 to $550 million, based on the full-year implementation and normal seasonality. Likewise, we can quantify the asset turn improvement of about one percentage point, which against our total network cost translates into about $50 million of cost benefit in the quarter, which annualized is about another $150 to $200 million benefits. The cost benefits on the ocean side alone, therefore, sum up to around $600 to $750 million on an annualized basis. Another advantage of Gemini has been to increase volumes in some of our gateway terminals, allowing us to significantly increase the throughput. These additional moves have improved port moves per hour and expanded operating terminal capacity. The additional uplift has generated about $40 million in benefits, which annualized is about $120 to $200 million based on full-year implementation and seasonality. Overall, across ocean and terminal, therefore, we have generated about $225 million in cost benefits in the third quarter, or $720 to $950 million in annual savings compared to our previously announced targets of about $500 million. As mentioned earlier, we now expect container volume growth to be around 4% for 2025, given the strong demand that we continue to see outside of North America. There is no change to our assumptions on the Red Sea disruptions, which we still expect will not reopen in the near term, absorbing net supply in the industry as long as it remains closed. Against the backdrops of these factors, as well as a strong year-to-date performance, we refine our financial guidance to the full year 2025 to an underlying EBITDA of $9 to $9.5 billion, from previously $8 to $9.5 billion, and an EBIT of $3 to $3.5 billion, previously $2 to $3.5 billion, and finally free cash flow of positive $1 billion or higher, previously negative $1 billion or higher. Our CAPEX guidance for 2024 and 2025 combined is revised down to about $10 billion, down for $10 to $11 billion, while the guidance for 2025 and 2026 remains unchanged. And I will now hand out to Patrick, who will walk you through the detailed financials at segment level for our performance.

Thank you, Vincent, and welcome to everyone on the call. Q3 2025 was a quarter with strong financial performance across the group, significantly up sequentially. Overall, we generated an EBITDA of $2.7 billion and an EBITDA of $1.3 billion, implying a margin of 18.9% and 9%, respectively. As expected, the delta to the previous year is driven largely by the shift in rates we have seen in ocean since the peak levels in mid-24, which was at the height of the Red Sea disruption, while the progress on the previous quarter is driven by higher volumes and operational improvements across all three businesses. Net profit after tax worth $1.1 billion, generating a solid return on invested capital of 9.6%, still at a good level, but decreasing as strong 2024 quarters progressively fall out of the yearly calculation. Solid free cash flow supported a strong balance sheet, with cash and deposits standing at $20.9 billion at quarter's end. Our net cash position is down from $5.6 billion last year to $2.6 billion, driven mostly by the strong returns to shareholders, which totaled $4 billion in the first nine months. Let's take a closer look at cash flow on slide 12, where we see that cash flow from operations increased sequentially to $2.6 billion in the third quarter, driven by higher EBITDA of $2.7 billion, while the movements in net working capital was largely flat. Overall, we had a strong cash conversion of 97%, up from 89% last year and 81% last quarter. Further, across the chart, gross capex for the quarter was $1.2 billion in line with our multi-year capex guidance, driven by our ocean fleet renewal program. Meanwhile, capitalized leases stood at $868 million, also in line with expectations, and down from the previous quarter, which was impacted by the Port Elizabeth concession extension, and free cash flow was therefore at $771 million. Capital return via share buyback was $578 million this quarter. And finally, most of the $850 million you see in movements in borrowings relate to our nine-year 500 million euro green bond issuance in September, extending our maturity profile early in light of extending bonds maturing in March next year. Taking all together, cash generation was strong in the third quarter and supported an already strong balance sheet alongside the continuation of our share buyback. Turning to our Ocean segment on slide 13, Ocean delivered a strong operational performance in the third quarter, which marked the first full quarter of Gemini implementation. From a financial standpoint, Ocean generated an EBIT of $567 million, implying a margin of 6.2%. This is down on last year, driven by the expected rate decline, but significantly up sequentially, driven by the strong volume growth of 7% in Gemini. Specifically on Gemini, as Vincent mentioned earlier, the new network generated cost benefits in the form of bunker savings and higher asset terms, without which we would have expected our third quarter ocean costs, and therefore EBIT, to be impacted negatively by about $185 million. Meanwhile, freight rates were significantly down year on year, driven by the ongoing market pressure on rates since 2024, but broadly in line sequentially. CAPEX was in line with guidance and comprised mainly installments on vessel orders announced last year, as well as a broader equipment renewal and vessel deliveries that are part of our ocean fleet renewal program. As usual, the chart on slide 14 illustrates the main elements of the year-on-year EBITDA development in our ocean business. On the left, you can see the large impact on profitability from the 31% lower freight rates, cushioned by the tailwind of the 7% increase in volumes year-on-year. Ocean also saw a positive impact of $211 million from lower bunker prices compared to last year, while container handling and network costs increased, driven by higher empty repositioning and terminal costs. Also note that EBITDA was further supported by higher detention and demerit revenue and a positive delta in revenue recognition, the latter of which accounts for the vast majority of the net $551 million in the final bucket. All in all, these offsetting factors allowed EBITDA in the third quarter to settle at $1.8 billion, down from the previous year but up on the previous quarter. Let's now have a look on the ocean KPIs on slide 15. Ocean's operational performance in the third quarter is highlighted in these metrics, with strong volume performance and Gemini helping to offset headwinds in cost and rates. Loaded volumes increased by 7% year-on-year, reaching 3.4 million FFEs, as demand was strong on key trade lanes. Sequentially, volumes grew by 5.2%. As mentioned earlier, our average loaded freight rates declined by 31% year on year, reflecting market fundamentals that we have seen since 2024 from growing assess capacity. Nevertheless, as reflected in the flat sequential development, the lower levels in third quarter at quarter end were actually offset by the high levels at the start of the quarter, therefore providing a fairly benign rate environment in the quarter. On the cost side, unit costs at fixed bunker decreased both year-on-year and sequentially by 0.8% and 2.2% respectively, as strong volume performance, high utilization, as well as cost benefits from Gemini, offset the general cost pressure. Bunker costs were down 14% year-on-year due to both lower fuel prices by 13% and increased efficiency from Gemini, leading to lower bunker consumption of 3.2%. This is despite us carrying more volumes and managing a larger fleet. Specifically on the fleet, the average operating fleet grew 5.5% year-on-year, reaching 4.6 million TEUs, all while capacity utilization remained high at 94%. Let's now turn to our logistics and services business on slide 16. In the third quarter, logistics and services delivered revenue of $4 billion up 2.3% year-on-year and 8.6% sequentially, the latter reflecting seasonal strength. The year-on-year growth was driven by growth across most products. On the bottom line, EBIT showed a significant increase to $218 million, which also implied a continued EBIT margin improvements of 0.4 percentage points year-on-year and 0.7 percentage points sequentially to 5.5%. The margin improvement is primarily driven by the continued operational progress that the team has made in Fulfilled by Maersk, all while continuing to exercise stringent cost control across all service models. CAPEX is down on last year, but remains at a stable level sequentially to support growth with particular focus on depot and warehousing this quarter. Now let's have a look at the breakdown by service model within logistics and services. On slide 17, starting with our supply chain management offering, revenue here decreased by 4.8% year-on-year to $594 million, with the EBITDA margin decreasing to 22.6%, down from 24.2% last year. This decline was driven by weakness in lead logistics, our 4PL business, volumes primarily from China to the US, on the back of the stop-and-go volatility we have seen in the external environment. In fulfillment services, operational progress in middle-mile North America and warehousing led to significant improvements in profitability with an EBIT margin of negative 0.9%, up from minus 4.5%. Revenue increased by 2.9%, reaching $1.5 billion. Finally, revenue increased in transported services to $1.9 billion, equal to a 4.3% increase year-on-year. This was supported by higher volumes in landside transportation in the peak season. However, the EBITDA margin was impacted by weakness in air landing lower on the previous quarter, at 7.3%. we round off our with our terminals business on slide 18 terminals delivered another excellent quarter continuing the positive trend revenue grew by 22 percent year-on-year to 1.4 billion dollars driven by 8.7 percent higher volume supported by gemini and improved rates specifically on the gemini impact volumes from earth's caution increased 26 percent year-on-year. The higher volumes brought a further uptick in utilization, which stands at 89%. As mentioned earlier, while this is supportive of high margins, it also highlights the necessity to invest in capacity extension in the coming years to cater for the long-term growth of our port operations. Revenue per move increased by 7.8%, reflecting improved rates and mix. Meanwhile, cost per move increased by 6.7%, largely due to labour inflation and higher SG&A costs, but mitigated by higher utilisation. Overall, EBIT increased by 69% year-on-year to $571 million, with a margin of 39.4%, up 11 percentage points from last year, and 4.1% higher sequentially. This underlying good margin was supported by a net $139 million positive impact from one-offs, including the reversal of impairments due to the successful extension of a concession. ROIC rose to a record 17.2%, underlining the intrinsic strong return profile of this business, although levels will taper down progressively with increased renewals and investments. CAPEX for the quarter came in at $154 million, more or less in line with previous year, and reflect the continued investment in our Gateways portfolio. Turning to the breakdown of terminals EBITDA on slide 19, terminals delivered an increased EBITDA from $424 million last year to $501 million. The increase in cost per move of $56 million was more than offset by higher revenue per move and volume impact. Currency, exits and other movements brought a further positive impact of $29 million, bringing the EBITDA to a record level for the quarter. And with that, we finish the review of our business segments and are ready for the Q&A. Operator, please go ahead.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and then one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from said question queue, you may press star and then two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star one at this time. Our first question comes from Patrick Croizet from Goldman Sachs. Please go ahead.