Søren Skou – Chief Executive Officer Trond Westlie – Chief Financial Officer

Casper Blom – ABG Sundal Collier Christopher Combe – JPMorgan Marcus Bellander – Carnegie Investment Bank AB Neil Glynn – Credit Suisse Dan Togo Jensen – Handelsbanken Capital Markets Lars Heindorff – SEB Equities Johan Eliason – Kepler Cheuvreux Joergen Bruaset – Nordea Markets Thijs Berkelder – ABN AMRO Finn Bjarke Petersen – Danske Bank Søren Skou: Good morning, and welcome to A.P. Moeller-Maersk Q3 2016 Telephone Conference. My name is Søren Skou, CEO, and I’m joined by Trond Westlie, the CFO, and we are happy to make this presentation and take questions afterwards. I will just start out with the Group highlights and then talk about Maersk Line, and then we will move on to Trond Westlie taking the rest of the businesses. Before I get to that, let me just emphasize that we going to be talking about forward-looking statements and I encourage you to read the disclaimer on Page 2 of the presentation. For the third quarter of 2016, the Group delivered a profit of $438 million. It was down 44% from $778 million last year, pretty much driven by lower container freight rates. We delivered a return on the invested capital of just under 5%. We see this as not a very satisfactory result given that our target is to deliver a double-digit return on the invested capital. But we also note that this result, a 5% return, is delivered at a time with an oil price less than $50 and all-time low freight rates. We are pleased and consider the free cash flow of $736 million as a strong result given the development in the business, and note that all five of our business units delivered positive free cash flow in the quarter. This means that the Group maintains its very strong financial position with an equity ratio of 56%, and a liquidity reserve of just under $12 billion. As we have communicated a number of times, we are going to have a Capital Markets Day on December 13, and at that time, we look forward to updating you on the strategic direction of the Group. And all of the questions you may have in that respect will be handled on December 13. Now turning to Maersk Line. The main driver of the negative development in our Group results is the underlying loss that we are reporting for Maersk Line of $122 million against last year’s profit of $243 million. This is entirely driven by lower freight rates that were down 16% compared to the same quarter last year. We do, however, note that freight rates were up 5.5% compared to the second quarter of this year, and this is the first time since the third quarter of 2014 that we actually saw positive development in the freight rates. Maersk Line delivered a very strong volume performance in the quarter of 11% growth, which means that Maersk Line is taking market share. We expect that the market may have grown 1% to 2%, or maybe even 3% in the quarter, but in any event, we are taking market share. Of course, a significant part of that strong volume growth is coming from the demise of Hanjin, where Hanjin went into receivership during the quarter. Hanjin was the seventh largest carrier and 3% global market share, so there was a lot of business to go around suddenly, and Maersk Line captured, I believe, more than its fair share in the process, as we were probably seen as a safe place. I think also worth mentioning in our results for the quarter is that we, for the second quarter in a row, maintained costs below $2,000 so that we continued the strong performance on cost also in the third quarter, with a cost performance of 14%, down year-on-year. And now, I would like to turn over to Trond Westlie, who will take you through Maersk Oil and the coming businesses.

Good morning from me as well, ladies and gentlemen. Being on my last leg in A.P. Moeller-Maersk, I’ll go through the remainder of the presentation and going then to Maersk Oil. It’s a good quarter, it’s good returns, it’s good operating performance and a good progress in cost efficiency and in addition to that, good progress in projects. So, overall, a very good third quarter for Maersk Oil, delivering an underlying profit of $146 million at an average oil price of Brent of $46. That shows that we basically are working on our cost program and are efficient on that, and that is also why we say that we see now that we have a breakeven level below the $40 a barrel. Producing or having entitlement production of 295,000 barrels a day and you can see the allocation of those 295,000 barrels, if you go to the bottom of the page and look at the different countries. Be aware, though, that at least in the North Sea, it’s the third quarter and as a result of that, there are some maintenance projects that have been going on during the quarter that affects the production levels. All in all, very good progress on the OpEx efficiencies, and a reduction of 21% compared to last year, and we raised our ambition of the cost reduction to be between 25% and 30% by the end of 2016, when we compare the baseline to 2014. Looking at the projects, Johan Sverdrup Statoil have announced a new breakeven level of $25 a barrel in Phase 1 in the project, which we, of course, are very satisfied with, and are giving our contribution where we can. In Culzean, the rig, Highlander, is in place and have spudded and basically have started drilling, so good progress in Culzean. And we also see a smaller project called Flyndre being on track and seeing first oil in the beginning of 2017. In addition to that, we have decided to exit Buckskin in the Gulf of Mexico, and we’re also continuing on our pre-development in Kenya. So, overall, very good progress. We are also continuing on our efforts to adjust the business and the organization, both due to the low oil price environment and, of course, the exit of Qatar that’s coming up in the mid of 2017, but third quarter with a return on 13.5% is a good quarter for Maersk Oil. Going to the Terminals. We see that Terminals is delivering an underlying profit of $126 million, down from $175 million last year, but still remaining on a return level of 6.6%. If we exclude the projects under development, the return is 9.5% for the quarter, still down from 13.8% last year. So we are of course, experiencing some commercial challenges specifically in the areas of Latin American, Northwest Europe and Africa. Having said that, for the oil-related or dominated countries we’re in, we’re seeing a bit of a mixed picture. Nigeria showing a small positive improvements; Russia saw some stabilization; while Angola continues to be severely impacted by the lower oil price. All in all, focusing on cost efficiency around the world in the different terminals and having been – the efficiency of that, as a result, we’ve been approximately reducing the staff with about 1,000 by the end of Q3. Integration of our acquisition of Grup Maritim is progressing, and Grup Maritim is delivering a small profit, according to plan, in the third quarter. So, overall, generally good operational performance, but slightly more mixed bag internals. Going then to Drilling. Very good operational and financial quarter and of course delivering $340 million in underlying profit, affected by the cancellation or early termination of Maersk Valiant. That isolated incident has an effect of $210 million this quarter. As we earlier said, the full-year effects will be above $100 million; we are now saying around $150 million. The reason for not providing for the costs for Valiant in the third quarter is that we do not have any obligations towards the customer and, as a result of that, we have to take the costs as they come along. So but the net effect of Valiant will be around $150 million for the second half. On the cost side, we’re improving; 12% reduced to third quarter 2015, and also, we see that it is a reduction of a total 18% since the launch of the cost-reduction program. Operationally, continuing to do well; uptime was 99% for the jack-ups, and 98% for the floaters. Going forward, we see that we have eight rigs idle as this point in time. There will be two more coming out of contract in the fourth quarter. So we’re going to have 10 idle rigs at year-end. In 2017, it’s only two rigs coming out of contract. So, as of now, we see that the contract coverage is 55% for 2017 and 45% for 2018. As I mentioned in Maersk Oil, Maersk Highlander have come in place and is operational and working well. So that acquisition has been effective so far. And the focus point for Maersk Drilling going forward is, of course, the upcoming contracts and revenue-generating activities that’s going to drive a lot of the effects. In addition to that, we’re working very much on reducing the stacking costs and also measuring where and when to stack the rigs. But, all in all, delivering return on invested capital on 7.2% [ph]. Even considering the cancelation effect, still good return in Maersk Drilling in the third quarter. Going to shipping services, we see that we’re delivering $25 million of underlying profit, good operational cash flow. The decline from last year, from $150 million to $25 million, is coming from Maersk Tankers and Supply Service, as you can see at the bottom left of the page. The effect from Tankers is caused by rates declining across all segments and only partially offset from other commercial effects and cost savings. Generally, the market pressure is coming from a bit of inventory changes but also, margin pressure in the downstream market that puts additional pressure on the rates. On Supply Service, it’s the general market condition and, as a result of that, Maersk Supply Service have decided to reduce its fleet up to 20 vessels, either by scrapping or selling them off, with clauses that they cannot come into the supply market again. Cost efficiencies are on their way, have been underway for a period; close to 400 redundancies will be made in connection with the reduction of the fleet. Svitzer and Damco delivering stable earnings. Svitzer slightly pressured by the market as well as some operational investments in entering into some places in the Americas. On Damco, it’s basically showing that they’ve turned the corner and delivering well on the third-quarter results. Coming to the operational cash flow generation. I’ll focus on, just to show you that, historically, on the bottom left, we’re showing that we’re self-funded on capital expenditures. Focus point the first half was that it was low cash conversion. The reason for that was both some working capital elements as well as some provision payments that went out; mostly the provision payments that affected it. This quarter, we’re coming back to the same level of operational cash flow with short of $1.7 billion in operational cash flow. We’re doing fairly well on the conversion rates. Going then to the bottom right, commitments. Investment commitments in 2017 are basically fixed, as we are in November of 2016. And as a result of that, we also see that the commitments for 2018 to 2021 is fairly limited, so our flexibility on the CapEx coming out of 2017 is fairly high. Going then to the development in the quarter on the financial position. Starting our net interest-bearing debt end of second quarter on the top right was $11.7 billion, and we’re ending the third quarter with $11.4 billion. I’m not going to go through the different details on this, just to focus on the Other point of $0.5 billion. That is a non-cash effect due to the element of – the major part of that is the non-cash effect of having a lease extended, being defined as a financial lease and, basically, just short of $400 million is basically taken into debt. Stable high equity ratio, as Søren mentioned in the beginning, of 55.5%; and the liquidity reserve at the end of the quarter of $11.8 billion. Going then to the consolidated aggregated numbers, delivering revenue of $9.2 billion; decline of 9.2% last year. The major driver on that is the rates in Maersk Line. The second biggest is the oil price. But as a result of oil price not having come down that much from the third-quarter 2015, it really is the Maersk Line driver. EBITDA of short of $1.9 billion, and that gives us a profit for the period of $438 million and an underlying profit of $426 million. Earnings per share this quarter is $21, and, as mentioned, a return on invested capital of 5%. So, overall, I must categorize this as even though we don’t like the returns of 5%, considering the oil price, considering the challenging oil service market and the loss of Maersk Line this quarter, I must say that I have to define 4.9% return as a very acceptable number. And, with that, we go to the guidance for 2016. We only have two months left of the year, so we are trying to specify what we mean by significantly below last year for the Group. And we have said that we expect an underlying result below $1 billion. We have also specified what we mean by significantly below last year for Maersk Line, and that is that we now expect to come into a negative underlying result for 2016, having taken into consideration that the result year-to-date for Maersk Line is a loss of $230 million. Maersk Oil still expects a positive underlying result. Break-even, we have now changed to below $40 a barrel from previously $40 to $45. And we still expect our entitlement production of between 320,000 to 330,000 barrels a day. Terminals still expects an underlying result significantly below 2015, and Drilling now expects an underlying result in line with last year due to the fact of the cancelation effect. But we also like to specify that, as a result of that and taking the cost of Valiant in the fourth quarter, we are now changing the earnings pattern in drilling and coming to a break-even result level going forward. And that’s what we also expect in Q4. For shipping services, we reiterate the expectation of an underlying result significantly below 2015, basically as a result of low rates in supply and weaker rates in Maersk Tankers. As always, there are a few factors that dominate the sensitivity in these guidelines, and that is, of course, the container freight rate and the oil price. So I urge you to look at the sensitivities for the rest of 2016 on the bottom right. And, with that, I leave the word and the closing remarks to Søren. Søren Skou: Thank you, Trond. Before we take questions, I would just like to summarize the third quarter of 2016. I think, if we look at the lowlights first, clearly, rates in Maersk Line, 16% below last year; and the reported loss in Maersk Line as a result of the low freight rates. We also are not entirely happy with the low like-for-like volume growth in APMT, causing a significant part of the reduction in the results. And, of course, a very negative development year-on-year in Maersk Tankers and Maersk Supply. In terms of highlights, I would like to first of all focus on Maersk Oil. It’s a profitable Company now. For the second quarter of the row, it has double-digit return at break-even, and that is reduced to $40, and continued ambitions to drive costs even further down to the 25%, 30% level compared to last year, by the end of this year. Also a highlight is the volume and cost performance in Maersk Line, and the increasing rates on a quarter-by-quarter basis. And finally, I would also of course, mention the strong cost performance in Maersk Drilling as a highlight. We are now ready to take your questions. Thank you.

Thank you. We will now begin the question-and-answer session. This session will end no later than 10:40. [Operator Instructions] We have a question from Casper Blom from ABG Sundal Collier. Please go ahead. Your line is open.

My questions will focus primarily on Maersk Line. You have 11% volume growth in the quarter. Could you try and break down a little bit this volume growth? How much of that is related to maybe picking up volumes from Hanjin? And maybe also, how much of the volume growth is sticky; i.e., what can we expect when looking into the fourth quarter and maybe also into 2017? Also on the volumes. You mentioned in your results update that part of it is explained by growth on the backhauls. Maybe if you can give a little bit more flavor to what kind of cargo it is that you are picking up there and the profitability on that. And then, finally, on the back of Hanjin’s bankruptcy or whatever state they are now in, have you seen any change in the behavior of your clients? Is there any type of flight to safety? Or is it still the price that sets the agenda in container shipping? Thank you.

Yes, thank you. First of all, 11% volume growth; clearly, a part of that is what you call flight to safety. We grew significantly on the Pacific; about 14% year-on-year. And that is because of Hanjin having a 3% global market share but a 6% or 7% market share in the Pacific, where they were strongest. And I’m sure that part of the volume growth that we got out of that was because many clients saw us as a safe bet in a very difficult situation. We do believe, however, that the volume growth that we have seen and the market share gains that we have achieved, they are sustainable. It doesn’t mean that our market share cannot vary from quarter to quarter. But we are well positioned. We have grown share every quarter this year. And that’s a testament not just to Hanjin’s demise, but also to our own sales performance and the product and services that we deliver in the marketplace. In terms of backhaul, we grew in many backhaul markets significantly, mostly in North America, but certainly also in both Europe and what we call West Central Asia, so, out of India and in the Middle East. Clearly, the freight rates of those volumes are significantly below the freight rates in the headhauls and that is impacting our average freight rates negatively. We, of course, do still see an economic benefit, and backhaul volumes are part of the reason for why our cost performance is as strong as it is.

Okay. Maybe just a little follow-up then on Hanjin. Do you think – has the situation normalized now? Are we back to a normal, or is it still having an impact on the rate environment, what we saw from Hanjin? Søren Skou: Hanjin, the demise of Hanjin will have had a significant impact on the freight rates in the markets where Hanjin was a significant player, most importantly, in the Pacific market. And I do think it will have some effect also in the coming months. We have seen freight rates – spot freight rates go up significantly since March of 2016, although it was from a very low base and we have also seen contract rates increase. And part of that is the fact that Hanjin is no longer here. Hanjin did have a 3% global market share, so we are talking about one year of demand growth that was added to the market in the middle of the peak in the third quarter. So it has had a positive effect, and it will have for a while.

Thank you very much, Søren.

Our next question comes from the line of Christopher Combe from JPMorgan. Please go ahead. Your line is open.

Good morning and I have a bit of a follow-up. Can you elaborate a bit on what the headhaul market growth looked like in the quarter, and how you would have compared? And then, second, how long are you willing to sustain these types of returns, absolute returns in order to attain your market share targets? And lastly, if we look at scrapping and idle rate scrapping, it appears to be on track to break records this year. Idling is at very high levels. A lot of that is engine tonnage. What are your expectations with respect to those two factors, looking into the fourth quarter and to next year? Søren Skou: We don’t provide detailed information about growth in headhaul versus backhaul. But I can say, as a general guidance, that we have had solid growth also in headhaul and in volume terms, of course, because of the trade imbalance. In absolute terms, most of the growth is in headhaul. In terms of the development in idle and scrapping, as you point out, we have about 6% or 7% of the global fleet idle today. And with the demise of Hanjin, the idle fleet has jumped to, I think, almost 1.5 million TEU. And I expect that we will see continued high levels of both scrapping and idling, as long as the carriers are in the current position. Many carriers are significantly lossmaking and many carriers are also having significantly negative cash flows. And if you’re making a huge cash loss, then, frankly, even a free charter is not cheap enough. So I do expect the industry to continue to, in a way, push part of the capacity – overcapacity problem onto the leasing companies or tonnage providers and also continue to scrap vessels. We’ve seen, as you point out, significant scrapping this year, and the average rate – age of scrapping is now, I believe, down to 20 years of ship age. And we have seen ships being scrapped at even lower ages than that. I would expect that to continue until results improve in the industry. And then, I think there was a question also concerning how long we can sustain returns to get our market share. We believe that prices are set by supply and demand in the industry. And the fact that we have grown a lot is because of the factors that I discussed before about Hanjin, and our own sales performance. And at a time where CMA completes its acquisition of Hapag, you have the two Chinese carriers that emerged this year, and we have Hanjin going into restructuring, then there are a lot of customers that are considering their carrier choices. And we have been benefiting from that, because we’ve had a stable situation with the 2M network in the east-west trades. And probably also – but this is speculation on my part, but probably also because it’s recognized that we have a very strong capital structure and funding situation compared to most, if not all, of our competitors.

That’s clear. Thank you.

Our next question comes from the line of Marcus Bellander from Carnegie. Please go ahead. Your line is open.

Thank you. One question regarding Maersk Line. Obviously, very strong volume growth, both year on year and quarter on quarter, and utilization seems to be at healthy levels. As you also mentioned, rates are up quarter on quarter. You talk about good cost performance and say that backhaul volumes are added at favorable economic conditions, yet the profits are deteriorating further in Maersk Line. Something’s not adding up there. Why are profits falling further? Søren Skou: We are seeing an improvement in profits compared to the second quarter.

Yes, but that only seems to be because of a positive tax effect. If I look at EBIT in Maersk Line, it’s deteriorating.

Yes, the element of that is, of course, that the bunker costs go up in this quarter. And as a result of that, bunker is actually increasing slightly more than the increase in rates. So the element the short-term effects, but the trend line is, of course, as Søren says. But the short-term cost element is the bunker effect this quarter.

Okay. Yes, maybe I’ll get back to you on that, if I can. Yes, I’ll get back to you on that. Thank you.

Our next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead. Your line is open.

Good morning. If I could ask three questions please. The first one with respect to Maersk Line. Charter vessels were down from 347 the second quarter to 325. Just interested in terms of whether we could expect charter capacity to continue to fall, or whether we’re at a more stable level now. The second question with respect to Damco. Contract negotiations with Damco customers, have they altered or been – has the strategy changed at all, the function of announced plans with Maersk Line at this point, or is that all to come in the future? And then, the third question, regarding Maersk Line and Damco, and, indeed, Terminals’ plans to work more closely together. It seems volume, clearly, is crucial to the achievement of synergy plans. So is it fair to say your appetite to discount to gain share is higher than it would have been under the previous strategy? And one would expect you might be likely to sacrifice some freight rate weakness for targeted volumes for the foreseeable future, as you execute? Søren Skou: Neil, I have to say, it was very difficult to hear your questions. So please follow up if we’re not answering correctly. But first of all, in terms of charter capacity, I think the key metric for us in Maersk Line is to review the development in the total capacity, and ensure that we don’t deploy more – we don’t grow our total deployed capacity more than our volumes and preferably, as we have done this quarter, less so that we – less growth in our capacity than our growth in volumes. So that we continue to improve the utilization of our network, as we have done this quarter and the network utilization is pretty much close to record high right now. On your question about how we will work more closely together between Damco, APMT and Maersk Line, this is one of the things where I would like to say that that’s what we’re going to address at the Capital Markets Day in December, where we hope to flesh out and provide more details on how we see the up to 2 percentage point of return on invested capital improvement is going to be – where that’s going to come from. And you had one more question, I think about Damco, which frankly, we could not quite hear.

I think you’re probably also going to have to postpone it to Capital Markets Day given your comment. It’s about a higher appetite for discounting volume is clearly an even more crucial element of your plan to achieve synergies going forward. But just interested in terms of whether it is fair to say that you have more tolerance for lower freight rates, given a likely prioritization of volume under the new strategy? Søren Skou: We’ll be happy to address it in December, but we have zero tolerance for lower freight rates. Let’s just make that clear.

Okay. Great, thank you.

Our next question comes from the line of Dan Togo, Handelsbanken Capital Markets. Please go ahead. Your line is open.

Yes, good morning. A couple of questions from me as well. Firstly on oil, breakeven now below $40 per barrel, how much further can you drive that down and what would it take, so to say, to take it to like $35? And also, does this lower level and the oil price around $50, does this now support actually more CapEx in your region and environment? And another one on oil; when you leave Qatar in the course of 2017, will that trigger any costs for you? Søren Skou: Yes, thanks, Dan. I mean as we say in our presentation, we believe that we will have taken costs down by 25% to 30% by the end of the year. So, as we also said in the presentation, we believe this is a continuing effort. We are, as we speak, making our plans for 2017 and the years to come and obviously, we will have, as an ambition, to continue to drive costs out also in the oil business. But I’m not able to give any guidance on whether $35 is within reach or not. As I’ve said on oil price and cost a number of times before, if you go back 11, 12 years when the oil price increased to $50, we were making a lot of money because the cost was much lower than $50. Now it’s become a huge problem that the oil price decreased to $50. The difference is that the cost structure and the government take that was built up in the meantime. And given time, and we have had some time now, you can do something about that. And I think costs will come down and probably also in some markets, the government take will come down. So I don’t really see necessarily that the breakeven price stops at $40, but we cannot get it any closer than that. Obviously, if the Company is making money and is profitable and having returns in line with or above its cost of capital, at some point, this will mean more investments in the business.

And on Qatar? Søren Skou: So, on Qatar, we don’t have any costs as such to factor in for next year when we depart Qatar.

And then just one question if I may on Maersk Line. Clearly, the market currently is oversupplied in terms of capacity and in the current demand environment growing to, at best, maybe 3% per annum, how oversupplied is the market in your view? What more – I mean how much more scrapping, how much more idle-ization do we need to bring the market to some sort of balance? Søren Skou: That’s a tough question, because at the end of the day, there are many moving parts here. We see a lot of consolidation, as you have noticed. The three Japanese carriers have decided to merge, but only with effect from 2018, but they will be, together with the new THE Alliance, designing a new network for next year. A big driver of that will be with the Ocean Alliance, how much will the THE Alliance grow next year in terms of what they deploy in their networks. If they have a conservative approach, that will be very good for the market but not very good for the time charter owners because a lot of ships will be redelivered and vice versa. So I think it’s very difficult to predict what will happen. At this moment, we have had some positive momentum because the ships are full, driven by engine, and freight rates have come up off their lows in March and April and at least for the fourth quarter, we see a continued positive development in freight rates.

Okay. Thank you.

Our next question comes from the line of Lars Heindorff from SEB. Please go ahead. Your line is open.

Thank you. Good morning, gentlemen. A couple of questions from my part. Firstly, regarding Maersk Line, you’ve been adding more capacity to the market here in the third quarter. As far as I can see, your capacity has been growing by 3.5% in a market that you state is growing by 2%. So I just want to hear a little bit more about your capacity strategy going forward. Will you continue to add more capacity to the market than the market has actually grown by? Søren Skou: So, first of all, of course, this quarter we’re adding 3.8% capacity to our network. Year-on-year, we’re growing 11% volume, year-on-year. So for Maersk Line isolated I think that’s a very positive development. We are adding a lot less capacity than we are growing. Secondly, in our announcement on September 22, we did say that we have as an ambition in Maersk Line to grow market share organically, on a consistent basis. It doesn’t mean that we have to grow market share every quarter and that you cannot see some variation. But on a year-to-year basis, it is our aim to grow market share organically and that will likely mean that we are going to have to add at least as much capacity, maybe a little more than the market is growing, going forward, considering that our network utilization is now really, really high. So it’s hard to squeeze a lot more onto the network without adding capacity in line with growth.

Okay. Then regarding Maersk Oil, obviously, lower break-even, which is good. Can you quantify how much of that which is caused by currency movement? Obviously you must have quite a bit of operating cost in British pound which has depreciated against the U.S. dollar, which is the selling currency.

That is correct. A portion of our operating activities is, of course, in British pounds and the effect on UK is affected by that. So, but to quantify that, we also have to consider that a lot of our earnings comes also from all the other countries at this price level. So basically, we are making money and are taxable in all the countries we are in actually right now. So, all in all, I cannot quantify the numbers because it’s more generic than that, Lars.

Okay. All right, understood. Maybe – okay, that’s the first one. Then regarding drilling, you mentioned earlier on that all the drilling that you have been stacking or won’t stack, are you considering co-stacking them? And if you do so, what kind of cost impact will that have?

Well, right now we are working on how warm is warm stacked. And the element is we are being much more efficient on how to warm stack and also geographically how to place the rigs. The challenge on the cold stacking is that we don’t believe any operator have basically cold-stacked a rig and basically made it hot again. And as a result of that, the uncertainty on the investment level and what it takes to actually go from cold to warm is still an ongoing project and we haven’t really got the answer to that. So, when we are evaluating this, we are evaluating the options, the net present value when we believe contract is going to come back, and we have evaluating a lot of elements going into this. So we are continuously evaluating it, but we also have to evaluate the risk of taking a cold-stack rig up to a hot rig again and how much investment that will take. And that’s sort of the uncertainty level as of now since nobody has really done that successfully yet.

Okay. All right. And so lastly, regarding CapEx, so far, as far as I can see, you have been spending roughly $3.5 billion on CapEx this year. You’re still guiding for $6 billion which suggests quite a considerable step-up in CapEx spend here in the fourth quarter. I’m just curious to find out are there any specific projects, which is the reason for this coming in the fourth quarter and which is the reason why you still maintain your $6 billion guidance in CapEx?

Well, we are guiding on around $6 billion and not on $6 billion. And we don’t see any reason to change that. Even though $2.5 billion is a high number in the fourth quarter, I can agree to that.

Okay. All right. Thank you very much, guys.

Our next question comes from the line of Johan Eliason from Kepler Cheuvreux. Please go ahead, your line is open.

Yes, hello, just some details here. I understood you said something about Maersk Drilling targeting break-even going forward and also in Q4. Is that to be understood that for 2017, you are targeting break-even results for Drilling?

The element is we haven’t guided on the 2017 numbers, but as a result of having eight rigs idle at the end of third quarter, having the costs of Valiant in the fourth quarter and having two new rigs coming in or coming out of contracts in the fourth quarter, we are saying that it will be a step down of the earnings level and further guidance will be given on the Capital Markets Day or on the fourth quarter results.

Okay, good. Then on this lower oil price break-even level, I think you said last quarter that the break-even level was basically similar, also excluding the Qatari business. Is the new lower break-even level also valid for the non-Qatari business?

The element is that this is, of course, an average with Qatar. We have not, to my knowledge, specified what the break-even level is with and/or without Qatar. Next year, we’re still going to have Qatar for six months, so at least it’s going to be an averaging out. But I do think it’s clear for most that the break-even level in Qatar is a bit lower in general than the others.

And then on APM Terminals, I think you said in the strategy update that you will be less aggressive on organic growth, but you will pursue the projects you have in place. And then I saw something about you being involved in a tendering for a new port in Panama. How does this add up? Søren Skou: Basically, all we can say is that what we said at the announcement on September 22 in terms of APMT’s reduced focus on planting new flags, so to speak, still holds true. And our plan is to focus APMT on delivering a better result on the existing portfolio and implementing the terminals that are currently under construction in a good way, and that is the focus of APMT.

Okay. And then just finally, coming back to Maersk Line and the capacity development. I think you said last quarter that now in the second half, you need to grow capacity in line with volumes, but obviously, the volumes were quite much stronger. Now you are, as one pointed out, cutting the number of chartered units. Is this ahead of next year will obviously be a big delivery year for you? When do you see the capacity starting to increase from the new ships coming? Søren Skou: We have plenty of flexibility in our charter book and we do not plan to grow our deployed capacity significantly above market growth in 2017. So when we get delivery of new ships and it’s spread out over the year, we will adjust the total deployed capacity by returning charter ships so that we don’t have a growth that is significantly above the market growth. In terms of capacity, I would like to highlight the graph that we have on page 4 in the document, which is really showing the growth in capacity over the last few years since 2013. And what it does show globally is that there was a big expansion of capacity, more than 6%, 7%, 8%, throughout 2015 and that’s really what I think triggered a very competitive rate environment. But the growth in capacity has come down, and this quarter also, the global growth is relatively modest and we expect, at least as far as Maersk Line’s concerned, to continue to have a very disciplined approach to deploying new capacity.

But if you look at the market, it looks like 2017 will be a big year with new capacity coming into the market. Should we then expect a similar pattern to repeat itself on the freight rates in the beginning or in 2017, with rates significantly down again? Søren Skou: I cannot speculate on what the competition is doing but there are two choices: you can deploy a lot more capacity than what is needed; or you can return ships to charter owners. You can idle ships or you can scrap ships and I will have to see what will happen in 2017, of course. And we don’t know what the demand side would be either, that will also have an impact.

Yes, good. Thank you very much.

Our next question comes from the line of Joergen Bruaset from Nordea Markets. Please go ahead, your line is open.

Thank you very much. Just two short questions from my side. Could you just give some color on your BAF contracts and the rationale for maintaining a three-month BAF, which seems to me to have a negative impact when we see the increasing oil price? So do you still regard it as beneficial having a three month BAF contract or should we expect to see that being adjusted going forward? And just a short clarification. On your slides, I’m just looking at the EBIT margin gap to your peers; could you confirm that that’s around 8% for Q3, 2016 because it’s Q2 in your slides? Thank you. Søren Skou: In terms of the EBIT margin gap, we can – the numbers that we are showing are the numbers for the second quarter of 2016. Only the three Japanese carriers, to my knowledge, have reported for the third quarter yet. So we will only, as usual, be able to report the EBIT margin gap with one quarter delay. You had a question about BAF contracts. I’m not exactly sure I caught it right. There was a lot of noise on the line. But if the question was about whether we see the BAF contracts being an effective mechanism for passing on increases or decreases for them in the oil price, then yes, we do believe actually that the BAF contracts, for the contract portfolio that we have, allow us to, with a time delay, pass on or get effects of changes in the fuel price.

Just to clarify on the BAF contract. So would you say it’s more beneficial to have the three-month BAF rather than to have a one-month contract like most of your peers? Or how should I interpret that? Søren Skou: Okay. So I heard the question as being the difference between three-months contracts and one-month contracts. We don’t have any BAF clauses in one-month contracts because there, it’s basically whatever the market is at that time.

Thank you.

Our next question comes from the line of Thijs Berkelder from ABN AMRO. Please go ahead. Your line is open.

Hey, good morning. A couple of questions. Can you maybe give an indication on whether you see contract cautiousness with clients due to Brexit and maybe already due to Donald Trump? Secondly, can you maybe give a bit of indication on whether APM Terminals suffered Hanjin-related costs? Thirdly, there was quite some press news on Maersk disposals and decommissioning taking place on beaches, I think, in India. Can you maybe explain your policy going forward there? Søren Skou: So, on contracts, we have had quite a significant part of the contract portfolio rejigging here in connection with the year-end or early – or January 1. And that contract season has just started and we haven’t actually closed any contracts that I’m aware of, at this point. So it’s really too early to say anything about that. And in terms of APMT, Hanjin was a customer of APMT, but there’s been a marginal impact on APMT from Hanjin. So this was pretty clear for a long time that Hanjin was in financial trouble and we have, of course, managed the exposure as best we could in that respect. In terms of the Group’s policy on scrapping, then we have received a significant amount of media interest in the last few weeks, it’s particular in Denmark. It’s really three cases. One is about our policy for working with the shipyards in Alang, India to upgrade the facilities and to provide better conditions for the workers there and for the environment. We will continue to work on that agenda. We believe that as a big large carrier it’s much better to actually engage and try to do something about the poor conditions where 75% of all ships are being scrapped at, than it is to just stay away and leave tens of thousands of workers to fend for themselves and deprive them of their livelihoods. So we are – our policy is to scrap in India if we can do that at shipyards that are certified in accordance to the UN/Hong Kong Convention for sustainable scrapping, and we have additional requirements to the shipyards that we put on top of that. That convention is, as I said, an IMO convention. That is not even ratified yet and not in force, so we are scrapping in accordance with the requirements that are significantly higher than what the law tells us to do at this point in time. We had a couple of other cases. One is an FPSO that we have operated in a joint venture with the Brazilian company, Odebrecht, in the North Sea for a long time. That FPSO was sold to a buyer with the intent to continue to trade the FPSO. And the sales contract included clauses to the effect that if the ship were to be scrapped, then it should be in accordance with the Hong Kong Convention. Unfortunately, the buyer did not live up to that obligation and we suddenly saw the ship on a beach in Bangladesh, much to our dismay. But, frankly, I think we can say we got cheated. We have learned from that and we’ll have to do a better job on the legal contracts going forward. And then the last case is a case where ships that we have had on charter but no longer on charter, are being scrapped by its owner on a beach, also, I believe in Bangladesh or India. And we’re, of course, not very happy about that but we have not breached any of our internal policies. We do not, as of yet at least, take responsibility for what other people do with the ships that they own. All that being said, we are very sad about these stories and we wish we could have done more to avoid them altogether.

That’s clear, thanks.

Your next question comes from the line of Finn Bjarke Petersen from Danske Bank. Please go ahead, your line is open.

Yes, good morning. It’s one question regarding Maersk Line. You were saying that your utilization is almost at all-time high. You said spot rates are up significantly and after hedging, you have seen contracts rates going up as well. My question is how should we think about these higher rates finally find their way into the P&L? Could you give us a little bit of flavor of how the dynamic works here? Søren Skou: Well, there are many things at play here. Obviously, when we grow, first of all, the portfolio of business that we have, backhaul versus fronthaul, growth in backhaul does lower the average rate. Secondly, the way we recognize revenue has an impact here, so there is a delay factor both when prices increase and when they decrease, because we recognize revenue as the voyage happens, along that voyage. And, finally, of course, our average rates are impacted by the trade mix that we have. And it has been negatively impacted by the fact that a lot of the growth has been in the U.S. trades, for instance, where the average rates are lower than they are in the north-south trades where the market has been quite poor in the last year. So it’s very difficult to help you here because there are many, many different moving parts. All I can say is that I’m sure all of you follow the Shanghai Containerized Freight Index and spot rates have gone up from a very low base, almost doubled since March of 2016; and the contract rates have gone up 14% since April. And if that development continues, it will impact our results positively.

Okay. But there is no – the effect on the contract is correct that the Asia/Europe one-year contracts is negotiated during this quarter here and we have the – on the Pacific, it’s in the first quarter or the beginning of the second quarter. How do those contracts negotiation stand at the moment? Do you see any – could you give any flavor of where you expect rates to fit in and how much of your volume’s in Asia/Europe and how much of your volume on Pacific is on one-year contracts? Søren Skou: So you’re correct. Most of the Europe contracts, they get renegotiated around the turn of the year; and the Pacific contracts, for May 1. As I said earlier, we’re just starting on the Asia/Europe contracts now and we haven’t actually closed any. And it’s very hard to predict how it will develop. The only thing I can say, as a simple fact, is that we are currently in a situation where the spot rates in Asia/Europe are significantly higher than they were at the same time last year. So we have a more positive situation at the start of the contracting season. I’m not making any predictions about what will happen later in the months or so on, but we are in a better position than we were a year ago. And if this continues for the rest of this quarter, then we’re also going to see contract rates that are significantly higher than last year.

And my second question here was the percentage of one-year contracts on your Asia/Europe traffic? Søren Skou: I don’t think we have any – we’re not expecting any change in that and we are around the 50/50 mark.

And any flavor of what you see for you on the Pacific? Søren Skou: No, that’s way too early. That’s simply too early.

Okay, thank you very much. Søren Skou: All right. In that case, thank you. I would like to thank all of you for joining and listening in. And we look forward to seeing you, hopefully, most of you in person, at the Capital Markets Day in December. Thank you.