Søren Skou – Chief Executive Officer Vincent Clerc – Chief Commercial Officer Søren Toft – Chief Operating Officer Morten Engelstoft – Chief Executive Officer-APM Terminals

Robert Joynson – Exane BNP Paribas Finn Bjarke Petersen – Danske Bank Casper Blom – ABG Sundal Collier Lars Heindorff – SEB Neil Glynn – Credit Suisse Marcus Bellander – Carnegie Joel Spungin – Berenberg Dan Togo – Handelsbanken Søren Skou: Good morning, ladies and gentlemen, and welcome to A.P. Moeller-Maersk's Conference Call on the Q1 Results. My name is Søren Skou. I'm joined here by Morten Engelstoft, who is CEO of APMT; by Vincent Clerc, our Chief Operating Officer; and then Søren Toft, our Chief Operating Officer; as well as Jesper Ridder Olsen, our Head of Accounting. Getting started on the presentation, as always, I invite you to review our statement about forward-looking statements. Moving on to the results. The – if we start with the positive story, then it's about growth. It's about the fact that we are replacing the revenue that is leading the group along with the energy companies, and we are becoming a smaller company as a result of this transformation. Revenue is up 30%, driven by the acquisition of Hamburg Süd, but also driven by organic growth across the business, including in the non-Ocean segments. We improved EBITDA by 5% during the quarter, impacted significantly by Hamburg Süd and also a very strong performance in Terminals & Towage. We saw quite some headwinds from rate of exchange during the quarter. The real negative story this quarter is that that our margins in the Ocean segment were significantly impacted by higher unit costs, partly by adverse developments in the fuel price and exchange rates, but also partly due to our own cost management. The underlying results is negative in a – with $239 million in a quarter where we report a profit of $2.8 billion driven by the closing of the Maersk Oil transaction. Operating cash flow was on par with last year. We have a very high conversion rate. The reason of why operating cash was not up return was really because we had an adjustment one-off payment of export VAT in Denmark due to a change in the scheme for payment of VAT. Gross CapEx was as planned $1.2 billion. We have reiterated our guidance for the year of result above 2017 and EBITDA in the range of $4 billion to $5 billion. Moving on to energy, the energy separation as I said, we reported a very strong profit in – of $3 billion that includes an accounting gain of $2.6 billion related to the sale of Maersk Oil, which we closed in March. We own 97.5 million shares almost 4% of total SI and those shares have a value of more than $6 billion. Right now they have of course benefited significantly from the increase in the oil pricing in recent months. We plan and continue to plan to return a material part of the value of those shares to shareholders during 2018 and 2019 as we have previously stated that we would do either in the form of an extraordinary dividend as share buyback or direct distribution of the shares. We continue to work on solutions for mass drilling and mass supply and we will – and we expect that we will find such solutions before the end of the year as we have previously stated that we would. Finally, moving through the – an update on where we are with our transformation, we are – for this quarter, we are introducing our new segment reporting with the four segments of ocean terminals until which logistics and services and manufacturing and all those. And I believe that with this change in the reporting and with the change of Maersk Oil leaving, Hamburg Süd arriving, we are starting to see the contours of the company that we will become when we are fully focused continue the shipping ports and logistics company. Revenue was significantly higher as I already said also compared to last year when including energy. We are starting to see the benefits of much better integration and collaboration between the previous independent units. And particularly, you can see that in the second results for Terminals & Towage because the ocean and gateway terminals have grown significantly during the quarter in terms of volume and that of course drive profitability in our Terminals business. We are also starting. We have now owned Hamburg Süd for five months. We are confident we will deliver on the synergies. They will be a little bit – or they will be arriving in the second half of the year in particular as we are able to extract Hamburg Süd from all of the vessel sharing agreements that they have previously been party to. Strong cash conversion during the quarter as I said and we have also this quarter, and I think this is an important point, been able to bring down our committed CapEx significantly from a year ago by $2 billion, and we now have committed CapEx going forward of less than $500 million per year through 2023. We are also progressing a lot on the digital agenda. Of course, it does not show up in the financial results list yet, but we see significant customer uptake in the digital offerings and moving through digital transactions online, and that will over time, result both in lower costs and also in our ability to sell more products on our online platform. 60% of all bookings, 84% of all quotes, $1.3 million worth of business every hour is currently transacted on maerskline.com. Moving on to financial highlights. I have already given the main numbers, but we do see a deterioration in the continuing business from $139 million to $239 million year-on-year. That is, of course, not a result that we can be in any way satisfied with. On CapEx, we now have committed CapEx of $3.2 billion going forward, and that includes commitments in the Terminals business that are beyond 2024, relating to concession agreements. So all in all, we have less than $500 million now in committed CapEx in going – per year going forward. During the first quarter, I believe we have bought one tugboat, but that's it. We have not ordered any ships, and we have not made any commitments to new terminals and alike. We plan to keep capacity constant, and Søren Toft will talk more about this, for the next 18 months, and we also do not plan to order any new ships at least for the next 12 months. The inflow of the proceeds from Total meant that we were able to reduce debt by about $1.4 billion to $13.4 million and, of course, we also now own around $6.2 billion worth of Total shares that are not included in the numbers. So with that, I will turn to Ocean and ask Vincent Clerc to take it from here.

Thank you, Søren. So our Ocean revenue grew by 38% year-on-year. Fueling this were mainly volume growth of 24%, where most of it is attributable to Hamburg Süd, who was, of course, not in our numbers last year. Without Hamburg Süd, volume growth would have been 2.2% from Maersk Line, in line with the guidance that we gave of growing slightly under the market this year as we integrate Hamburg Süd into our business. We see the market growing somewhere between 3% and 4% at the moment, and therefore, I feel that we are well within the guidance. Rates have increased by 7% or $119, where some of it was attributable to contracts getting reset at higher rate. And some of it is attributable to Hamburg Süd coming into the mix. Hamburg Süd bring into the mix a business that are high rate, but we will see also later a higher cost to serve. And out of the $119, $55 is directly attributable to Hamburg Süd coming into the mix and the rest is due to rate increases. On a like-for-like basis, overall, it has been difficult to pass on to the full extent all fuel cost increase to customers in contracts, especially also in a short-term market in some areas where we have faced strong capacity injection. Other revenues also increased on the back of higher demurrage and detention collection and also a higher level of slot sales to competitors out of the network. Getting into more detail on volume and rate development. You can clearly see the impact of Hamburg Süd on the volumes, where we see the growth in north-south from Latin America and Oceania and in intra-regional, which is for the intra-Americas. Headhaul volume increased slightly faster than backhaul, reflecting the underlying demand, which is stronger on headhaul at the moment that it is on backhaul, especially from Europe and North America into the Far East, we have seeing weaker demand than what we had expected. Freight rates increased primarily in the north-south and intra-regional, reflecting both the stronger underlying supply and demand we see in those trades. And the impact of Hamburg Süd, who is contributing volumes, as I mentioned, at higher revenue but also higher cost to serve, as we would see later. The situation has been a bit more tense on east-west, where significant capacity injections in Q1 have been a big impediment in achieving the increase that we were targeting and has not enabled us to pass on fully the higher fuel cost to our customers. North-south has traditionally been higher – has traditionally seen higher rates than east-west in the past, due to – which reflects also the higher cost to serve that there is in these trades, as we deploy smaller tonnage and have generally also longer transit time. This difference was temporarily disappeared in 2016 and 2017, as demand was impacted in some of the emerging markets by lower oil price and cascading of tonnage. And we are right, basically seeing right now a gradual recovery in the north-south, we rates are regressing back to where they were before the price were. So that's a positive development for this part of the business. Søren Toft: If we then jump just to the part of to the part of cost, and this is Søren Toft speaking. And let me start off by saying that we, and I and by no means is satisfied with our current performance. It's very dissatisfactory, and we are as we speak, putting in motion a number of initiatives to immediately change the course. Overall, as we can see from the numbers, our cost increased 8.6%, approximately 6% of that was due to rate of exchange and the mix effect that Hamburg Süd brings into the business. But obviously, we have no ambition of having a net increase as a residual of 2.6% to our cost base. The cost base mainly increased in the areas of what we call variable expenses. So that's terminal cost through the hubs, also partly affected by the rate of exchange, feedering expenses both as a result of fuel increases and also as a fact – as a matter of fact that as a matter of fact that the charter expenses year-on-year for so-called liquid ton, it's a up approximately 50%, and also on SG&A expenses. If you look at capacity then, Vincent Clerc explained, that our volume is up 24%, our capacity is up 31%. Here I just want to refer back to the previous quarterly call, where we also explained that slot sale to Hyundai Merchant Marine, which started taking off in Q2 2017, thereby not in the Q1 2017 numbers about 6%, so we are more or less aligned with a net capacity and the net volume increase. That being said, however, we have tender notice on all these existing VSAs in which Hamburg Süd serve. There is a minimum notice period of three to six months and that means also that in the first quarter, we have not been able to adjust a capacity. And that adjustment will not start in Q2, Q3 and Q4. On the bunker side, here we have been impacted by higher prices, of course. We have also been impacted by the fact that we have added Hamburg Süd. And then also, like, we have explained before, here we are measuring the tons that we consume, but we're not dividing by the FFEs that we have sold to Hyundai Merchant Marine. And again, that's about 6%, and therefore, the 3.4% year-on-year deterioration is in fact slight improvement. But we believe we can do more. We have put a number of plans in place right now ranging from the entire part of the cost toolbox. Let me explain a few. We will implement a number of capacity reductions over the next two quarters. Capacity reductions in trades that are not yielding the desired results. We will optimize the landscape of feedering, that means we will reduce the number of feeders that we have out there and generally channel more volume to direct ports. We will push harder on fuel efficiency over the coming quarters, as we have now fully integrated the Hamburg Süd fleet since two weeks. We'll do number of things in procurement, a number of things on improving our empty cost base and a number of things on improving utilization where it makes sense. On capacity, let me also say that in 2015, Maersk Line order the total of 27 vessels, 20 of them were large vessels. They've by and large been delivered. And as Søren Skou said, let me repeat, we have no plans of ordering any ships for at least the next 12 months. Equally with the initiatives we are putting in place, we believe we can keep the present capacity unchanged for the next 18 months, even airing towards a slightly lower capacity in the next couple of quarters as we implement the Hamburg Süd synergies. If we turn to the next slide on Hamburg Süd, then let me say that, we've had a strong start to the integration. The customer retention is in line or even a slightly better than the plan. But as we now move into the phase where we will emerge the networks, we will obviously also in that process do some cargo mixing as we move for forward. Hamburg Süd added 21.6% more volume and an EBITDA of $88 million, including $13 million integration cost. The synergies are moving as planned. Basically in the first quarter here, mainly from procurement. So that's terminal and intermodal and also by putting more volumes onto APM terminals gateways. We have also done a few revenues synergies from basically aligning best practices between Hamburg Süd and Maersk Line. We maintain the guidance that you see on the right-hand side of the chart. But I can also say that based on what we know from the first quarter, we do believe that we will be able to outperform the $120 million for 2018. For Q2, Q3 and Q4, the main network changes will happen. And in fact, also in 19, due to a long notice period between Asia and East Coast South America, there will also be changes happening then. The Hamburg Süd vessels have been fully reflagged. And during this quarter, quarter 2, operations will be fully integrated. We're pleased with the progress so far, and we're working very hard on outperforming the numbers that you see on the chart. And let me turn the word back to Vincent Clerc, who will go through the Logistics & Services segment.

Thank you. For the Logistics & Services segment, our revenue grew by 6%. It was positively impacted by growth in volumes in our supply chain management business, in Damco and in inland haulage for Maersk Line. Especially in supply chain management for Damco, we have seen higher number of win in the – in our commercial pipeline, and we see these projects coming online now gradually. This growth was more than offset – has more than offset slow start of the year in our Airfreight and Ocean business, where we drove stronger focus on margin and had to let go of some of the lower-yielding business. But the focus on margin and mix and growth in more profitable business yielded improvement in our GP margin and SCM was up by 8%, Air was up by 5% and Ocean was up by 22%. Despite these positive development in the underlying business, the EBITDA decreased by $9 million and the business was impacted by continued investment in some of the wins that we have as we prepare for implementation of new customer solutions, including on our digital platforms, both in supply chain management and in the ocean forwarding, and also by exchange rate and higher sales, general and administration. This drop in our EBIT conversion is being addressed through different initiatives that we've taken to reverse it, reduce SG&A and fast track the implementation of some of the projects that we have. Noteworthy also is the improvement that we have in working capital, as we have driven a very strong focus on our conversion cycle to – from business to cash. And that has yielded very strong results for us in that front. And now, I will pass it on to Morten Engelstoft to talk about Terminals & Towage.

Thank you, Vincent. So some words on the Terminals and Tucks segment, we increased our revenue by 11% compared to Q1 last year, first and foremost driven by strong volume in both our Gateway Terminals and towage activities. Our EBITDA increased by 41% to close to $200 million and to a 22% EBITDA margin, supported by the strong volumes and also supported by lower costs and higher margins in our controls, Gateway Terminals and in our Towage business. And I also wish to mention that the income from our joint venture terminals, where we have a minority share and which are not part of our EBITDA numbers, increased from $34 million to $54 million. If we turn to the next page, then I'll give a few comments on some of the selected key performance metrics. As mentioned, Gateway Terminals volumes were strong, up 9.3% compared to last year and well above the general market growth. We've had very good support from Maersk Line and Hamburg Süd at double-digit increases, and we've also increased volumes from our other customers by more than the market growth, as we, during last year, won four times as many new services as we lost. And this has continued during Q1 this year. Both our revenue per move and our unit cost were impacted by rate of exchange in each different direction. If we adjust for rate of exchange, then both our revenue per move and our unit cost were about flat compared to a year ago. And then I also wish to emphasize that our Towage business, Svitzer, performed very well and above market growth, with both organic growth and also new terminal towage contracts taking effect in Australia and in Latin America. And let me then give the word on to Søren Toft, again. Søren Toft: Thank you, Morten. Just very briefly on the Manufacturing & Others segment. We can say that we have seen improved sales, and thereby, turnover and EBITDA in MCI, mainly as a result of MCI being able to improve significantly orders to third parties. This is also helpful as, in this year, the integration year of Hamburg Süd into Maersk Line, we are obviously not going to need as many containers as we are improving efficiencies by combining the two fleets. And then I can say that in terms of other business, there, we have significant increase in revenue but EBITDA turned negative, mainly due to losses from mainly physical positions in future periods. Let me give the word now to Søren Skou. Søren Skou: Very briefly on our Maersk Drilling and Maersk Supply. Maersk Drilling, we are clearly seeing increased activity. Rates are still low, but idle fleet is going down. And we have been able to preserve most of our backlog by adding new countries. Overall, for Maersk Drilling, we have an EBITDA of $166 million, which translates almost 100% to free cash flow. Maersk Supply Service operates at EBITDA breakeven level in a very challenged situation. We have smaller operating cash flow positive, but free cash flow negative of $161 million during the quarter due to previously committed investments. So with that, I believe we will move to the guidance. We want to simply reiterate our guidance of delivering a result this year above 2017 and EBITDA in the range of $4 billion to $5 billion. We expect market growth of 2% to 4%, and we reiterate guidance on CapEx around $3 billion, high cash conversion, and we also would like to highlight the sensitivities that – to the guidance. Thank you. And I believe now we will move to Q&A.

Thank you. And we will now being the question-and-answer session. [Operator Instructions] And the first question comes from the line of Robert Joynson from Exane BNP Paribas. Please go ahead. Your line is open.

Good morning, everybody. I've got three questions. It's probably easier if we take them one at a time. I'll start off with the unit cost, given the fact that that's the main reason why the share price is down by so much today. And I appreciate that you provided a breakdown in the accounts of what drove the year-on-year increase in the fixed bunker unit cost, in terms of the FX, the portfolio mix, et cetera. But of course Q1 2017 was itself a relatively poor quarter of unit cost given that they had problems at Algeciras and Tanjung Pelepas that restarted then. And so the comp isn't particularly difficult in that respect. If we look at the fixed bunker unit cost on a quarter-on-quarter basis versus Q4, it was up by $151, which is a surprisingly large number, even if you allow for the inclusion of Hamburg Süd over full three months. So the first question is really, could you just provide some more clarity on what drove that large increase in the fixed bunker unit cost versus Q4? Søren Toft: This is Søren Toft, Rob. You're completely correct. As I said also, $150 is the number. And you're probably referring to the previous statements that we gave also on Maersk Line. Two-thirds of it, so 6% out of the 8.6% is rate of exchange and the mix effect of Hamburg Süd. The rest is really within mainly the variable cost areas. Let me explain. We have, as a result of, also you could say, weather and reliability challenges, more moves to move the cargo. We have higher feedering cost. You don't really see that in the fixed bunker because when we do third party feedering, the bunker cost is part of the rates that we pay. We have higher TC expenses, which also hits the feedering cost. And on the intermodal side, which is also an element, also here you will see some of fuel healing through, which is not you could see equalized out in the fixed area. So about 2.6% of the 8.6% is related to variable expenses. Finally, the category SG&A, so administration cost, including IT, has gone up here. We're investing, as Søren Skou also explained, in a number of digital solutions, but at the same time we're working on improving the rest of the SG&A cost picture.

Okay. And the second question on Hamburg Süd. Even if we add back the $13 million integration cost to the reported EBITDA, we're still only getting about $100 million EBITDA, which is equal to just 18% of the $554 million that was reported for last year. I mean, given that the north-south rates are up quite materially versus last year and also I think I'm right in saying that Hamburg Süd suffered negatively from its east-west slot purchase agreements in – up until Q1 of last year when they were ended, it's a little bit surprising to see the EBITDA not doing better for Hamburg Süd because – maybe could you just talk us through the moving parts versus Q1 of last year.

Yes. Here, Vincent Clerc to take that question. There is no doubt that if you look at the seasonality of the business, we always see that impact in the first quarter being our lowest quarter principally, because of Chinese New Year. So whereas, we have seen the nominal rates go up quite a bit as you can see in the illustration, we still see this quarter as being the low quarter because of the volumes that we get specifically out of Asia, which is also the better paying part of the business.

Okay, thank you. And final question on the contract rates, on the full year conference call, it was mentioned the contract rates have been agreed higher rates this year, even adjusting to the higher bunker expenses. Does that statement still stand?

The contracts have been closed. I would say we have not been able to recover on average totality of the bunker increase. And that as had allowed to do with a contract that we have negotiated recently on the Pacific. So you have had the double impact of capacity introduction on the Pacific, which has depressed rates and the continued increase the bunker, which is actually made the quantum that we needed to achieve bigger than what we had anticipated and combination of those two factors have landed at short. So for the stuff that we have negotiated early in the season, we’ve been able to retrieve it, but that our ability to pass this on has decreased as the season progressed.

Okay, thank you.

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

Yes. Hello, sorry. Yes. A few questions from my side as well. Unit cost, if we start there, and one on expectation for the rest of the year. Unit cost, how much does VSA affect the unit cost calculations? Søren Toft: This is Søren Toft. I’m not really sure what your question is. I mean, when we do VSAs, we obviously provide sometimes capacity. In the case of HMM, we sell slots but we get as slot income. So on the overall unit cost, this is factored in. But on the key metric that we share like the fuel price, kilo per FFE there, obviously, we need to adjust for that.

Yes. So it’s not included in your bunker costs. But when you say you have a unit cost of $2,072 in the quarter, you include VSA income in that number. Is that correct? Søren Toft: That’s correct.

How much is included? Søren Toft: We don’t disclose that number other than we can say that its part of the overall unit cost.

Okay. Finally, the – on the cost side. How long does it take you to get cover for increased oil prices. One of your competitors was talking about time horizon that takes before you can factor increased oil prices into your prices. Do you have any statement on that of you and how long does it take you to cover the obvious higher unit bunker costs that came into second quarter?

So in principle, the – Vincent here to answer the question. In principle, the lag is between one and two quarter, a little bit depending on how the increase phases in during the quarter, because the formula kind of takes average for the quarter. The only exception though is that when you renegotiate the contract, basically reset the clock for the year to come. So that’s where you should usually it’s pretty dicey as we renegotiate the contract to make sure that we can capture that in full there while we’re in the procurement cycle.

So that means that your contracts as not – there is no BAF close in any of your contracts?

No, there is BAF close in 80% of our – more than 80% of our contracts. What I’m saying is as we’re renegotiating the prices whenever the contract needs to be renegotiate, we renegotiate the total package, including the BAF element. So you can have your bunker formula increase and then your Ocean freight decrease, so that the price stays the same on an overall basis. And that doesn’t happen during the life of the contract, but it can happen during a negotiation.

Okay. A final question, looking at the market conditions in the second half of this year and 2019, how do you see the supply-side develop? And also demand side then so general balance in the market? Søren Skou: We continue to – this is Søren Skou here. We continue to have a view that we will see improving results driven by improvements in freight revenues and then pay the supply demand balance over the year. If you look at the long-term picture on supply and demand then the industry has come from a situation 10 years ago in 2008, where the order book of existing capacity was equal to 60%. And now it’s 12%. We’ve had to work through all of that excess capacity. Of the 12%, that is more or less in line with what we would need to meet demand when we also consider deletions of old ships. So that seems like a very manageable number. A lot of that capacity, however, is being delivered in the first half of this year, whereas things will a table of in the second half. So our view is that supply demand will continue to improve in the next 12 to 18 months.

So do you have any number for the supply gross in the second half in your budgets? Søren Skou: Somewhere around 2%.

Okay. Just – could I have one question more that you’re not started to talking about currency, which have not really been question earlier in your cost talks. Is that associated with the – has probably something to do with your hop, that hop is coming into Ocean. Søren Skou: No, no, no. It’s just because it was such a big effect this year – this quarter.

So no change – fundamentally changes? Søren Skou: No.

Okay, thank you.

And next question is from the line of Casper Blom from ABG Sundal Collier. Please go ahead, your line is now open.

Thank you very much. Couple of questions from my side as well. I’m going to start off by taking more into this unit cost question. Very kind in breaking down the 8.6% increase into three different brackets. I understand that it’s difficult to do anything about business mix and FX. But the remaining 2.7%, would you sort of expect that to disappear when we look into Q2 or how long will it take? And what is sort of the scope of improvement that you see in these short-term initiatives that you’re doing? I mean, how much improvement could we really expect sequentially in the coming quarters? That’s my first question. Søren Toft: Thank you, Casper. Søren Toft here. As I started off by saying, we are not happy, but at the same time, we also going to do something about it. And I outlined some of the plans that we have. We will amongst others improve the capacity equation and the feeder equation. And that’s going to ensure that we – for the remaining three quarters of the year, drive the cost down. We still expect that we can drive cost down for the year 1% to 2%. But we have to say that, that is the net of the FX effects, because they are so significant, at least they were for the first quarter. But we still have plans for the rest.

Okay. My second question then. Vincent you mentioned, that you sort of seen the, how can say, normal balance between north-south and east-west rates a bit compact with north-south see higher rates than east-west. Do you think what done in that sort of return of things now as they should be between the two trade lanes? Or should you – we sill expect to see north-south bouncing back more?

So I think what is really driving this is that as the oil price recovers actually a lot of the weakness that we saw in our 2016 and 2017 was actually as a result of lower demand from a lot economies that had – where oil is a big component in generating that demand. As this is coming back, we’re seeing more strength in the emerging markets demand. And as the supply and demand situation becomes more benign, as Søren outlined, just before we’d expect that we see more progression across the board. And if you look at the delta between north-south and east-west right now, it is still below what it was prior to the price war. So we had about $300 before, it varied a little bit. Today, we’re closer to $200. So we would like to see it improve further.

Okay, great. Then just my last question. You just mentioned the higher oil price. Have you started seeing any signs of people starting to slow steam on the back of the higher bunker cost? Søren Toft: Søren Toft here. No, we have not, you could say seen that. But what we can share is that as a result of also this year unprecedented closures in Asia, basically at a level of three times the level of Q1 2017, and the fact that there are a lot of issues around the world in ports. Also we have had on a few trades to put in ships simply to safeguard a weekly schedule, but also because given the current bunker price, that could be economics in doing so. But something structurally has not yet been seen.

Would you expect to sort of see it happening? I mean, now we’re at $80 per barrel? Søren Toft: I think it’s too early to say. I mean we’re reviewing certainly what makes sense for us.

Thank you very much.

And next question is from the line of Lars Heindorff from SEB. Please go ahead, your line is now open.

Thank you and good morning. The first is regarding the bunker price. So if you could give us any indication of what kind or what bunker price you have assumed in the guidance for the full year? Søren Skou: We always assume the forward curve for the bunker price.

All right, thank you. Secondly, regarding the outlook here into Q2, one of your competitors has mentioned on the conference call here recently that they’ve seen some weakness in north-south in the past couple of months. You’ve been mentioning that you have seen a gradual improvement. I just wanted to confirm that the view and that there hasn’t been any signs of weakness in the north-south volume or rate for that matter recently?

Yes, Vincent here. So the – I think how you will asses north-south would very much depend on your exposure to different geographies. One of the – and it’s certainly not a uniform picture. So there’s been a gradual recovery. I’d like to add also that the first quarter of 2017 was really the low point for the delta between north-south and east-west. So right there, you already have some of the explanation for why it increases so much here. But on some of the geographies, and especially on the Far East into the West Coast of Latin America and the Caribbean, we’re facing quite a significant oversupply of tonnage and there is a pretty big price war our ongoing and has been ongoing for the last couple of months there. So without knowing exactly what was being referred to by the other carriers, I would expect that this refers to something like this.

Okay. And then maybe a housekeeping question, because of this relates to the transparency now that you’ve changed the reporting structure. I’m still missing a bit of like-for-like numbers in terms of volumes. You can actually calculate that, but particularly on the rate side and also on the capacity side, how much is Hamburg Süd and how much is Maersk Line? I don’t know if you can share you have a fine table in the report, showing the capacity. How much of that is Hamburg Süd and how much is Maersk Line? Søren Toft: Søren Toft here. Maybe just repeating on capacity, as we put in the slide on cost, capacity is up 31%. But here, first of all, you need to deduct the approximately 6% to 7% that we have deployed specifically for the 8M agreement into 2M. And then going forward, as we have said, we don’t expect that we will be needing any more capacity than we have today for the next 18 months. And on the short-term basis, in fact, we will work on reducing the number as a result of implementing the merger network between Hamburg Süd and Maersk Line.

Okay. I can see unity reduce capacity post the end of the first quarter. Can you give us an indication of how much more you need to reduce if it towards the end of the second quarter? Søren Toft: We’re going to give detailed guidance on that. It’s an integral part of our synergy case. So you could say, you will have to deduct it from the $350 million to $400 million that we’re disclosing on the Hamburg Süd synergy case.

Okay. And regarding the rates any chance if you could get rates separate for Hamburg Süd and Maersk Line?

Yes, Vincent here. No, I mean – you also have to realize, the more we go, the more it is difficult to separate the two. But we will not disclose the rate separately.

Okay, all right. Thank you.

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

Good morning. If I could first ask a question on FX. It’s the first time, I remember certainly, you quantifying an FX here in the quarter. But just looking at rates going forward if you had $100 million hid in the first quarter, it seems to me it maybe feasible you have something like $300 million-or-so for the full year. Just wanted to check that stuff sensible and certainly, can we expect another hit in the second quarter at least. Then on – second question, sorry, but back to the unit cost side. Just interest, there is clearly a lot going on. You’ve the integration of Hamburg Süd, you’ve got a difficult market, as well as clearly the medium and long-term initiatives you’re pursuing. But can you give us some color as to how much the unit cost development here in the first quarter has been surprising? I mean, we’ve been hearing about disappointment, so I guess for a few quarters now. I’m just interested in the area where, I guess, you’ve been most in control of within the business. Now it seems a little bit out of control. So I would like some perspective on how bigger risk distractions from other things maybe are to the cost control. And then the third point, again, on the cost side. It does seem the cost of operating and global logistics network is rising with inflation. Another factors such as demand for infrastructure or assets, we’ve heard. Snip it to elsewhere this quarter from other big global logistics players. Just interested is the challenge to avoid inflation getting larger, perhaps requiring an increasing array of initiatives to combat it? Søren Skou: So this is Søren Skou here. First of all, on rate of exchange sensitivity, I would like you to – I would just like to refer you to the guidance section on page – where is it – I don’t have that here. But anyway, it is in the rate. Oh 8, Page 8, the rate of exchange, there we show the nine months or the rest of the year guidance on rate of exchange sensitivities. On distractions, what I can say is that Søren Toft and his team are fully focused on driving the Ocean business and the operation and the cost side of that and are not involved in the – let’s say all of the other corporate maneuvering on energy and so on to any significant degree other than as being part of the management board. Some confident that the teams need to be focused on driving cost out will also be able to drive cost out for the rest of the year. And then finally, in terms of inflation, I mean as an industry, we have been of course, on I think 30-year or 35, 40-year journey of slowly but surely every year mitigating inflation and taking out 1, 2, 3 percentage point of cost. And of course, we will have – we have some headwinds right now that we need to figure out how to adjust too. I mean, the fuel oil price – the fuel increases that’s not hit us only in the Ocean. It also hit us on land, because stroking rates and stuff like that to become affected. But here again, while we may have some cost elements that go up, there will be others that will go down. Not least as we continue to digitize the business we’ll see our sales channel administration cost per container will go down. I also do believe that there is plenty of opportunity for us yet to optimize the way we design the network and the way we feel the network. So we have quite a large toolbox and we are – we remain confident that we will able to drive deflationary cost, as a trend, not necessarily quarter-by-quarter, but as a general trend also in the coming years.

Thanks, Søren. Just around out the FX question. I see the sensitivities, but is it possible to confirm even broadly how much of an FX it is in the guidance for the full year, just to help us understand what’s quite a tricky bridge, given the new reporting structure? Søren Skou: No, I don’t think we want to give any more guidance on the guidance.

Okay. Thank you.

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

Thank you. Two questions regarding guidance for me. The upper end of your EBITDA guidance range, in light of the Q1 results and in light of what freight rates have been doing thus far in Q2, it looks like there is – it looks far away simply. I’m just curious what kind of assumption you make regarding break rate in the second half of the year to keep guidance unchanged. Søren Skou: I don’t think we want to expand further on the guidance, and we don’t guide shorts on – specifics on freight rates assumptions. We do believe that the year will see continuous improvement. The first quarter is a weak quarter to begin with from a seasonality point of view. Supply and demand we’ll be improving in – throughout the year assuming that we don’t have any – let’s say major trade was – other geopolitical things that gets in the way. And then again, we have the sensitivities and there you can see what needs to happen for us to hit the upper end of range.

All right. Thank you. And then the second question regarding – at the capital market day, earlier this year, you gave a preliminary CapEx guidance for 2019 of $2.5 billion to $3 billion. But you clearly stated that you don’t plan on ordering any new ships in the coming 12 months and one of your gentlemen also mentioned that you’re not going to need as containers and now that you’ve integrated or that you are integrating with Hamburg Süd. So I’m just wondering what’s going to drive that CapEx figure in 2019? Or is it too high perhaps? Søren Skou: Well, I think it’s too early for us to really think about our CapEx guidance for 2019. It’s an very important part of our strategy that we do become more discipline in terms of CapEx. I mean, if you go back just a few years, this was a company that use to invest somewhere between $6 billion and $8 billion every year when we were conglomerate. We’re planning to build a business or have a bit of similar size, but certainly with a lot more discipline on CapEx and that is the journey we are our on – it takes time, because we do make in our industry commitments that the last two, three years before they fulfilled, especially on the terminal side, but also when we order ships, it takes a couple of years to get there. But the fact is, we have reduced our committed CapEx by $2 billion year-on-year from $5.2 billion to $3.2 billion. We have only less than $0.5 billion of committed CapEx per year for the next five, six years – six years on through 2023. And this is, should be and it is a very clear signal that we will be much more disciplined when it comes to CapEx. We will get back to the guidance for CapEx in 2019 later in the year, but we are determined to be disciplined and obviously, given returns right now, investing a lot more in more physically as it does not seem to make more sense. And that’s also one of the reason for why Søren Toft clearly states that we are not going to at least for the next 12 months or anymore new ships. We will still need containers. We will still need to do maintenance CapEx, including on terminals. We have some automation projects and other things that we probably will do, but the general picture should be very disciplined on CapEx.

Understood. thank you.

And the next question comes from the line of Joe Spungin from Berenberg. Please go ahead, your line is open.

Yes. Hi, there. Good morning. I just have couple of questions. I mean, just take them one at time. I mean, I appreciate, you don’t want to say too much about what your freight rate assumptions are in your guidance. But I was wondering maybe if you could maybe just provide some observations on what you’ve seen through the early part of the second quarter. And then related to that, whether or not you can give us a sense please on whether you think given the move in the fuel prices and the fact that that probably were in the impact until later in the year whether or not you think that will be compensated for?

Yes, Vincent here. We’re not going to guide on developments as recent as this for the simple fact that the quarter is far from being over and those are information of high sensitive value for the business right now.

Okay. And maybe just sort of changing tack a little bit. I wondering if I could come back on Neil’s question earlier about FX, because as he said, a bit confused, you’ve never really spoken about FX much before. Could you maybe explain what – how this – what explains this FX? Is it relates to that your $14, but you have a disproportional relates amount of cost in euro. Is that the right way to think about it or is there something else going on there? Søren Toft: So – I mean, we have basically, I guess what we can say is the effect – the FX effect is really in our Ocean segment. I mean there is positive and negative in the other segments, but those are not something that in anyway material. We’ve had a very big negative from the effect that in Ocean from the fact that most of our revenue is in U.S. dollars. And a very large portion of our cost of course, is in local currencies, when we order a truck in Europe, we pay in euros and the same goes for the container, the container terminals. So we do have some hedging that has worked in the other direction, but it is generally the situation for us that we have most of our income in U.S. is U.S. dollar denominated, most of the freight rates are U.S. dollars denominated. And then we have a massive amount of local currency cost. I think the reason for why we decided to mentioned at this time is that it was so material.

Okay. Thank you. And then maybe just one final question, I’m just thinking longer term about capacity obviously, as I understand that you’re saying, you’re committing to not placing any new vessel orders for at least the next 12 months. And then you feel you have sufficient capacity for the next 18 months. So just thinking about the midterm review on a sort of maybe three-year view, given lead times on new orders and so on and so forth. If the market continues to sort of develop at a, sort of a 4%-ish rate for the next few years, how will you go about growing with the market? Søren Toft: This is Søren Toft. I mean first of all, we are not going to give any specific capacity guidance beyond what we have given today, but I can say that there are various ways of growing the capacity. one of them is of course; right now we are deploying capacity, selling debt to third-party. So we can of course, also not to that and we could even become in certain cases where it makes sense and its seller. We have a lot of focus on utilization and there are still a number of progress, where we will improve this. And obviously, we’ll continue to work with our design. We are not deploying capacity of around $4 million to use and that obviously, gives us some more options. And then finally, as I mentioned already, we are short-term going to optimize our feeder deployment, because if we ship a container from one end of the world with one feeder through a mainline to the other end of the world. Another way of moving that box can of course be without the feedering. So we’re doing that to continue to optimize. Finally, let me say of course, depending on what happens to the bunker price and one was already alluding to it, we will of course, closely look at where the cases for a slow steam and always have a positive notepad view on these decisions.

Thank you.

And the final question for today comes from the line of Dan Togo from Handelsbanken. Please go ahead. Dan, your line is open.

Thank you. Just few ones back here. On Ocean, Søren, you mentioned early in the presentation that profitability currently is at an unsatisfactory level. Could you elaborate a bit on this what would be a satisfactory level and what kind of measure would you use sort of say to get to that? Søren Toft: So ultimately, we miss ourselves on a return on invested capital. And we have a target across a cycle of 8.5%. We have about $25 billion invested in the Ocean segment, right now. So we have to get north of $2 billion in earnings from Ocean to be – to call it satisfied.

Okay, understood. So that how could it be changed? On bunkers, how should we think of that going into Q2? I understand that you’re still on sort of saying a lacking curve on the cost curve basically and i.e., process will increase. So how should we look at that bunker cost per ТЕU or per FEU and what is your assumptions of bunker recovery that still around 50%? Søren Toft: Dan, Søren Toft. That’s as we said before, I mean we have our assumptions based on the forward curve. Obviously, the price right now, you can see is steeply up compared to just Q1. We generally have an eight-week lack on what we put into the tanks and what we consume. That’s the amount of detail that we can give them at this point.

And on the recovery parts, what are your assumptions there? Is that around 50%? usually you can sort of pass through.

So, Vincent here, as we mentioned before the recovery through a bunker adjustment formula, will be for increases that we see over and above what is already built in to here, because the contracts have been negotiated with the starting point being the bunker, the fuel costs that we had in – basically in the first quarter. So it’s – I think with one to two quarters delay, we can recoup the increases that will come over and above that level, and if the bunkers were to stay stable, then basically, there is no recovery mechanism for what is, if there is no volatility or no change.

Okay, understood. Thank you.

And that was our final question for today. I will now hand the call back to the speakers. Please go ahead.

Yeah. I just want to say thank you for your participation today and all of the questions. We remain committed to delivering on our guidance and we look forward to talking to you in the – at the end of the second quarter. Thank you.