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

Casper Blom - ABG Robert Joynson - Exane BNP Paribas Neil Glynn - Crédit Suisse Lars Heindorff - SEB Patrick Creuset - Goldman Sachs Finn Bjarke Petersen - Danske Bank Søren Skou: Good morning, ladies and gentlemen. My name is Søren Skou. I'm the CEO of A.P. Moeller Maersk. Welcome to our Q2 Earnings Call 2018. As always, I would like to start by reminding you of our disclaimer about forward-looking statements. Now starting out with the highlights for the second quarter. I think we have a very clear headline that we are pleased with the momentum we have on growth, but we're not pleased with our level of earnings. We grew our business in Ocean -- or in total business by 24% during the quarter over last year, very much, of course, driven by the acquisition of Hamburg Süd, but also growth across all of the businesses that we are in. We are pleased about, in particular, the growth we had in our non-Ocean business, where our Terminals & Towage business and our Logistics & Services business is starting to show good growth momentum. Our earnings -- our EBITDA was negatively impacted significantly by the increase in oil price, which, on a like-for-like basis, added $260 million to our cost during the quarter due to a 28% increase in fuel prices. After a quite difficult first quarter this year where we had just taken delivery of Hamburg Süd in December of 2017, we had a negative development in our unit cost. We were able to, in the second quarter, I believe I can say, retake control of unit cost in Ocean. They were down by almost 6% since the first quarter. In the first quarter, we received a massive inflow of Hamburg Süd tonnage. We were tied to lots of vessel sharing agreements that severely limited our ability to scale our network. We were able to get started on that in the second quarter and that has impacted our unit cost quite significantly. We also have a positive effect from less interruptions of the network in the second quarter. Now turning to Hamburg Süd. We believe that, that integration is very much on track. We have delivered synergies to the tune of $140 million so far year-to-date. And we report a pro forma EBITDA for Hamburg Süd of $155 million for the quarter. We believe that the acquisition of Hamburg Süd has been a very good acquisition that is delivering. We still expect to deliver the $350 million to $400 million of synergies. And if you read the report very closely, you will see we have added a minimum to the guidance at this time. We had a very poor cost cash conversion in the quarter, most of it driven by short-term timing effects to tax payments and receivables. And we have seen already in July that this situation is normalizing. Of course, we do have a longer-lasting impact from increasing bunker inventories, but we retain and reiterate our long-term guidance of wanting to have a very high cash conversion and we also believe we can deliver on that. CapEx remains a focus area for us or rather not spending any CapEx. We have not done any new vessel orders in the quarter. As we have actually not done any new vessel orders, except for 2 since 2016, also, we have not invested in new major terminal projects and we will continue down this path for the -- until at least until 2020. We currently operate just around 4 million TEU of capacity. That will be plenty of capacity to take us through 2019. As we announced last week, we have downgraded our guidance for the year and now expects an EBITDA in the range of $3.5 billion to $4.2 billion for 2018. The other big news this quarter or this quarterly report, of course, is that we have decided on solution for Maersk Drilling. We were stock listed -- we list the company on Copenhagen, NASDAQ Copenhagen, during 2019. This is planned to be done in the form of a demerger. We're not planning to raise any capital. We have already financed the company with about $1.5 billion of new nonrecourse debt. And that means that Maersk Drilling will be able to go on to the stock exchange as one of the best-capitalized companies in that industry and have lots of strategic options moving forward. As I said, we are planning to do a demerger, and by that, we mean we will plan to distribute all of the shares in the company to the shareholders in the proportion that the shareholders today own shares in A.P. Moeller Maersk. We continue to look for solutions for Maersk Supply Service, but I also want to say that, that company is operating in a very, very difficult industry right now where there are not many -- or that right now, no very clear and obvious solutions for how to separate out Maersk Drilling -- Maersk Supply Service. As with Maersk Drilling, we are really looking for three elements when we consider options. One is that we want to make sure we create as much value for our shareholders as possible. Two is that we want to make sure that what we separate out becomes part of a viable company or becomes a viable company that has strategic opportunity and options. And finally, we're also looking for -- to finding solutions that are good for the employees and the headquarters here in Denmark. Right now, it's difficult for us to predict the timing around Maersk Supply Service, but I have to also underline this is the smallest company in our oil and energy-related portfolio. And whether or not we are able to separate out Maersk Supply in the near term will not really truly impact our strategic agility and balance sheet. During July, we decided to sell part of the shares that we own in Total. When we signed the deal with Total, the shares were valued at $4,950,000,000. We have seen a very impressive development in the share price as the oil prices improved. And we have decided now to sell about $1.2 billion worth of shares so that we retain a holding in Total with a current value of around $5 billion and the proceeds, of course, will be used to strengthen our financial flexibility. We are reiterating today that we will plan to distribute to our shareholders a material part of the value of the Total shares, the 5 billion, to our shareholders through a share buyback program, through an extraordinary dividend or through a dividending out the actual shares or a combination thereof. We said originally we would do that in 2018-2019, and we are now saying we will do that after the distribution of the Drilling shares in 2019. Now moving on to the numbers. Very solid revenue growth, 24%. We came in at $9.5 billion. It means that no likelihood are going to get very close to $40 billion of turnover for our Transport & Logistics businesses this year. This is a major improvement over 2016, when we started at the journey of transforming the company. That year, we had just over $27 billion of turnover, and we lost about $0.5 billion in our Transport & Logistics businesses. We would have liked to see a lot more of the growth in turnover actually also hit the bottom line. We're not seeing that. And we explained that basically by the increase in the oil price during the last year, which are going to cost us in the second quarter around $260 million on a like-for-like basis, and for the year, probably somewhere north of $1 billion of extra fuel cost that we have to absorb this year. Now moving on to CapEx. We are, as I already said, continuing on the journey of reducing our CapEx. We are not making new significant CapEx commitments. As I've already said, most of the CapEx we are spending now are decisions that have been taken prior to 2016. Our guidance remain for the year $3 billion of CapEx. But I do want to highlight that once we get to the end of 2019, so about 1.5 years from now, we'll have almost no committed CapEx except for the commitments we have on the certain terminal concessions in the long years and that will give the company significant flexibility in terms of strategic agility. Now on cash flow, we had a quarter which was negatively impacted by our working capital. As I already said, we believe these are mostly short-term effects and that we will get back to a high cash conversion during the third quarter. And I believe I will leave it at that, and then I will turn over to my colleagues, Søren Toft, our Chief Operating Officer, to start the discussion on the segments. I will then be joined by my colleagues, Søren Toft, Vincent Clerc, Morten Engelstoft and Claus Hemmingsen in explaining the specific segment results. Søren Toft: Thank you, Søren, and good day, everybody. Diving in specifically on Ocean. We grew our revenue, both including and excluding the contribution of Hamburg Süd. Obviously, as we have also reported, we have a significant impact by the higher oil price, also more than offsetting the increase in freight rates. But we did also manage to grow other revenues, especially so-called demurrage and detention, which is storage fees, and also income from slot sales, mainly the agreement with HMM. Q2 -- or sorry, in Q1, we reported that we would launch various plans to improve, let's say, our fortunes on revenue and cost and we work very hard on this during Q2. And we also believe we have achieved some progress, but clearly, we also believe that we have more to come. As announced, we would curtail our capacity, and we have done so, but in the meantime, we have not given up volume or market share. We have grown with the market, if not even a little bit above. Also, reliability recovered, which was also something that we have put in as part of our plan. This helps delivering towards our customers. It's very much in the Maersk brand DNA, and it has also assisted us in improving our variable cost. If we then dive in a little bit deeper in the cost improvements, then quarter two saw an improvement of nearly 6% at fixed bunker versus quarter one. That being said, quarter two over quarter two, you can see that we actually do have a cost increase. But when we then separate out the mix effects of Hamburg Süd and the exchange rates, we do get down to a quarter year-on-year improvement of about 1.4%, within the 1% to 2% that we still believe that we can achieve for the year. It's maybe important to say also that the mix effect of Hamburg Süd last time around was a little bit higher and that obviously reflects that also here, we are seeing progress in their cost base because they take a share of the synergies. The capacity curtailments that we have done and the general efficiency improvements that we have done has helped us deliver an improved efficiency. It's true that bunker price and bunker cost increased mainly due to the price. But we have now, this quarter again, dropped back down well below the 900 kilos per FFE mark. And now we're also giving a new disclosure on efficiency, which is so-called grams fuel per total TEU deployed times nautical miles, which is a measure that gives a little bit better indication and insight into the real efficiency of running the fleet, whereas the other one poses efficiency and utilization asset intensity. We will be disclosing this also in the quarters to come. If we then, on the next page, look a little bit closer into capacity, then we said that in quarter one that we would start reducing our capacity. We would not order any new ships for the next minimum 12 months, and we would keep our capacity constant and we said last time with a downward trajectory short term. We have reduced capacity nearly 2% quarter-on-quarter. Obviously, part of this is the improvements that we have done. Part of these are the Hamburg Süd synergies, but we have also taken actions on certain trades, services that we don't believe are contributing positively to our business. So it's a combination of these things. We have further plans of this and hope to continue to improve this. Obviously, that will also help utilization of the network. Let me then turn it over to Vincent Clerc, who will speak more about the freight rates.

Thank you, Søren. Compared to last year, the freight rates were, unfortunately, slightly down. And compared to last quarter, it was flat and this is really despite the increases that Søren mentioned on the bunker price. Actually, if we exclude the positive effect from the higher rate that Hamburg Süd brought into the mix of A.P. Moeller - Maersk, the freight rates were down 5% compared to the same quarter last year. The delivery of newbuilding capacities was heavily skewed towards the first part of the year, and we saw that impact the freight rates here during the second quarter. We were, however, successful at implementing an emerging bunker surcharge in June, which helped mitigating partly the rate slide that we saw at the beginning of the quarter, and that will have more impact, more positive impact going forward. When we exclude Hamburg Süd, the volumes grew in line with the market, around 4%, which is also in line with the plan that we have set for this year. It should be noted on the table that the high increase in rates on the intra-regional segment is due to the Hamburg Süd intra-Americas -- or intra-Latin America rates, which have high inland components and coming at a much higher gross level than the rates that we have on intra-Asia or intra-Europe. So it's really a significant change in the composition of what makes that segment that is the cause for this. If we now turn our attention to Logistics & Services, revenue increased by 6.7%, just shy of $1.5 billion, and they were positively impact by volume growth in supply chain management and inland haulage, which are two -- which are segments of our Logistics & Services that are of high strategic impact for us. Throughout the quarter, we managed to secure significant new customer wins on supply chain management especially. And we continue to roll out Twill, our digital forward platform for SMEs in France and Malaysia and Thailand, which increases the scope that we can -- and the growth that we can expect from these initiatives. EBITDA was, however, negatively impact by higher IT spend and the lower profitability on inland services where we were -- where we are affected also by the higher fuel costs from our vendors. We also had some timing on the maintenance in Star Air that had an impact this quarter. Continued improvement in cash conversion cycle resulted in a significantly improved working capital and positive cash flow development for Damco, something that we intend to continue here in the quarters to come. Gross profit improved by 4.5 -- by 4.9% to $278 million, positively impacted by the product mix. Supply chain management is a very profitable segment for us. And foreign exchange movements were actually immaterial this quarter. The margins in supply chain management increased by 8.9%, but we also saw a very positive development in our Air and Ocean, where we saw improvements in margin by 16% and 2.7%, respectively. The EBIT conversion, however, decreased to 8.5%, which is highly unsatisfactory. Logistics is a segment where we want to grow. And for us to create a higher growth platform, we need to have some upfront investment into this growth, which is mainly being done through IT spend, but also hiring colleagues that bring in some of the capabilities that we need to generate that growth. That being said, we are working hard and have several cost initiatives to bring our cost base down and to improve the profitability that we want to get out of these segments. We cannot be satisfied with an EBITDA margin in the low single digits and that will be a key focus area in the coming quarters to improve this number. With this, I will hand it over to Morten Engelstoft for Terminals & Towage.

Thank you, Vincent. Overall, we had a quite steady performance for Terminals & Towage, with both gateway terminals and APM Terminals and Towage in Svitzer developing well compared to last year. Our EBITDA was up by 19% compared to last year, and our CapEx spend across the 2 part of the business was down by 25%. Our EBITDA margin increased to 21%. And in general, our results were boosted by a strong volume development both for Terminals and for Towage, and I'll give a few more details on that in just a moment. Income from our joint ventures, which is not included in our EBITDA, increased by $19 million to $51 million with increased contribution, especially coming from West Africa, Russia and the Latin American joint ventures. If I, for a moment, compare Q2 EBITDA with the Q1 EBITDA here for this year, then our results decreased by $18 million for three reasons. Half was due to one-off adjustments in each direction in the quarters. We also saw a 4% revenue per move decrease from Q1 to Q2, mainly due to rate of exchange and also a mix effect. And finally, we saw higher operating cost in 2 of the projects under implementation compared to what we had in Q1. As mentioned, we saw a good increase in our volumes in Q2, both for Terminals & Towage. On financially consolidated terminals, so the ones that we run and control, we had a 10.6% growth, approximately twice the growth in the market. And this was especially supported by a strong 20% increase in volumes from Maersk Ocean, including Hamburg Süd, whilst other shipping line customers, by and large, increased in line with the markets. The stronger volumes then had a significant -- led to a significant increase in our utilization, which again led to a unit cost improvement of 7% for financially consolidated terminals. And we have especially seen a strong volume development in Latin America. Our equity-weighted terminals saw -- including our minority joint ventures, actually saw a unit cost increase, mainly due to the terminals in Far East Asia, where most of our terminals are full and where cost inflation is high. Revenue per move increased slightly across the portfolio. If we exclude for mix and rate of exchange, revenue per move was approximately flat. And finally, I'll mention that our Towage business in Svitzer continues to develop well with increasing volumes, amongst others, boosted by new projects becoming operational, as an example in Bangladesh, and also increased volumes and business in Latin America. And let me then give the word back to you, Søren. Søren Toft: Yes. Thank you, Morten. This is Søren Toft. Just very briefly on Manufacturing & Others, then what we can say is revenue was, quarter-on-quarter, up quite a bit. But that's really because we have, in this segment, included mainly the bulk activities that we took over as part of the takeover of Hamburg Süd. We can also say that we are working on finding, let's say, the best future solution for the bulk activities, so more will come on that in the near future. When we then look at the main activity in this segment, MCI, then the result, the EBITDA is impacted by primarily the decision that we communicated in Q2 to close down the reefer factory in Chile. The reefer market is plagued by significant oversupply with also generally lower demand, and we could not find a viable solution for the factory in Chile. We naturally regret it, but at the end of the day, this was and is the right decision. Then finally, what we can say is that for the rest of MCI's activity, it's going well, and we have concluded the largest-ever third-party deal for MCI this quarter and they are working hard on securing more. And then let me pass the word to Claus Hemmingsen. Søren Skou: Thank you, Søren, and let's turn to Maersk Drilling and the Supply Service. And just on Maersk Drilling, I'll just repeat Søren's comments about the decision and the conclusion we reached to demerge the company via a listing at the NASDAQ Copenhagen. I just want to reiterate that we are listing a company that has one of the most modern and youngest fleets in the world with no new CapEx coming. We are listing a company with a leading operational performance and incredibly strong customer relationship. We are listing a company with a very strong financial position and conservative balance sheet and a secured gross debt of $1.5 billion and a company with innovative solution and a cost efficient operation and a strategy in place to benefit from the future growth in the drilling sector. So we really think this is the best solution for our shareholders, for the company and for the employees. Now turn to Maersk Drilling. Second quarter, the revenue increased slightly despite of the challenging market environment, and they managed to add another 1,200 days and $105 million to the backlog in the quarter. Maersk Drilling also reported a positive free cash flow of $84 million, slightly impacted by a late payment that has since then been received. The forward contract coverage for the year '18 is 66%. And for 2019, more than 40% of the rig days is signed up, giving the company a revenue backlog of $2.7 billion, which is one of the highest backlogs in the industry. So EBITDA was still negatively impacted by several idle rigs and higher cost for the planned separation. However, it was also positively impacted by slightly more contracted days, higher operation uptime and general cost savings across the operations. Turning to Maersk Supply Service. Maersk Supply Service reported stabilized revenue in spite of the continuing challenging market conditions. EBITDA was a negative $3 million. And the free cash flow was also negative due to delivery of two new buildings. One payment of one new building was successfully delayed to 2019. As Søren said, we are still working on finding structural solutions for Mærsk Supply Service, but the market remains challenging. On the positive side, the strategy to diversify its business into new markets has progressed, amongst others, with the announcement of the partnership with Vestas, aiming at lowering the logistics and installation cost within sustainable wind turbine solutions. And with those few words from Mærsk Supply Service, I'll hand it back to Søren Skou. Søren Skou: Yes. Thank you. And I have already addressed the guidance so I won't repeat that, except to say that we believe that the market is growing. We'll grow 2% to 4% this year. Second quarter was in the very high end of that range. So in terms of impact from trade tensions, then at least at this point, there's nothing -- there's no impact on the ground. And in the third quarter, we also started off with solid volume. But at the end of the day, obviously, given all of the press coverage of trade tensions, tariff increases, trade wars and so on, if it were to materialize, it will have an impact on our industry. So with that, I think we are ready for questions.

[Operator Instructions] And the first question comes from the line of Casper Blom from ABG.

First question goes to your, how can I say, your guidance for the remainder of 2018. Can you talk a little bit about your expectations for, how can I say, the freight rates or maybe more how successful you expect to be in pushing through higher rates and potentially maintaining the bunker surcharges that have been installed so far? That's my first question, please. Søren Skou: Well, Casper, we are not keen to guide on our guidance. But if you do the math, on the back of an envelope, then you have to -- it's pretty clear we have to do better in the second half than we did in the first half in order to reach our guidance. Given what I also have said today, we do have good line of sight to the third quarter. We are halfway through, and we know that the freight rates will be higher.

Fair enough. The better start to -- or the solid start to Q3 that you've seen, to what extent do you think that is, how can I say, inventory building or whatever you might call it ahead of the, yes, potential trade war and tariffs?

Casper, Vincent here. So this is something that we're in close dialogue with our main customers. And in some of the trades, we -- there could be an element of buildup ahead of sanctions. It has been very difficult so far to really get an aligned view from customers on what drives the numbers right now. So I think I will stay with the guidance that Søren had, that so far we haven't really seen anything. I also want to remind you that, really, this only affects the Transpacific at this stage. Really, between China and the U.S., it's the only major trade and it's a trade where we're underexposed to. So for us, it's still -- the majority of the business is not really engulfed into any type of sanctions at play.

Okay. Then just my last question, COSCO was affected by a cyber attack in the U.S. not that long ago, maybe not to the same degree as you were last week. But has there any been -- been any sort of incidents where we're, how can I say, you've been able to benefit a bit from that, like your competitors benefited from your cyber attack last year? Søren Skou: So the cyber attack from -- on COSCO, as far as we understand, only hit their U.S. operation. And I mean, we have a relatively small presence there. But also, our network has been full for a while, so we have not really seen any difference in our loadings because of what happened to COSCO.

Our next question is from the line of Robert Joynson from Exane BNP Paribas. Please go ahead. Your line is now open.

I have three questions, if I may. Firstly, on Maersk Line, I noticed that the like-for-like volume growth improved from 2% in Q1 up to more than 6% in Q2, which is, of course, the opposite of a slowing volume trend that we see at the market overall. Could you maybe comment on what drove that improvement? That's the first question. The second question on unit cost. It was good to see such a large improvement versus Q1, which was obviously helped by the 2% reduction in capacity seen versus Q1. You already mentioned on the call that capacity should continue to decline. But could you just comment on whether it may be possible for reduction in capacity during Q3 could actually be greater than the reduction in capacity seen during Q2? And the final question is on the Total shares. You said that a material part will be distributed to shareholders. Could you perhaps be a bit more specific about what is meant by a material part? Søren Skou: Thank you, Robert. I will start with the Total shares, and then Vincent and Søren Toft will cover the questions to the performance in Ocean, on cost and volumes. So on Total's shares, what we are saying is that we still expect to pay out a material part of the value of the shares. The shares were worth $4.95 billion when we announced the transaction. And the shares that we have left, so to speak, are still worth around $5 billion. It's a material part of that amount we are talking about. I cannot give any more guidance than that, only to add, which I already mentioned before, that we will do this distribution after the distribution of the Drilling shares in 2019. And then, Vincent, on volume growth?

Yes. So on the volumes, so there is some delay in the market statistics to know exactly what the volume growth is. And in some of the geographies in Africa and in Latin America, we don't always have exact statistics before quite a few months. Our expectation, as Søren mentioned, is that the growth that we expect for this year, between 2% and 4%, will really be at the upper end of this in the second quarter. So we have, ex Hamburg Süd, 4.3% in Maersk Line, which has had very little changes to its network and 2.2% on Hamburg Süd. So we are actually growing slightly better than plan. I think the guidance from Søren last -- at the last investor call was that we would be slightly below market. We think we're about doing as market because the disruption on the Maersk Line network has been very small. And also, we are outperforming better on customer retention than we had expected as a result of the integration of Hamburg Süd. Søren Toft: And then, Robert, on capacity, what we can say is, also in Q3, we will continue to see, you could say, some of the efforts that what we have done as part of the Hamburg Süd synergies and as part of also reviewing the network and closing unprofitable trades. We cannot give a number exactly what that will mean in Q3. But what we can say is that we expect to further improve, but of course, not at a point where we're also starting to give up market share.

Could I just ask maybe one cheeky follow-up, i.e. you've previously spoken about potential to reduce Maersk Line capacity down to 4 million TEUs. But based on the data that I see, I think that Maersk Line's capacity is pretty much at 4 million TEUs as of today. So should we conclude that there's potential to do better than 4 million TEUs now? Søren Toft: Well, what we said, Robert, in Q1, I can actually repeat again here, that is that I said that short term, actually, we expect to go even further down. But the 4 million was more kind of a more mid-range guidance for where we believe that you should see our capacity over the course of the next 12 months.

And the next question is from the line of Ben [indiscernible] from Carnegie.

A few questions from me as well. Firstly, back to the rate question here. You mentioned that the rate is expected to go up in second half. Is that compared to where we are today? Is it compared to the level in Q2 or compared to last year? That's the first question. Søren Toft: Yes. So when we say -- I think what Søren said was that if you look at the first half year EBITDA and you look at the guidance, then you have to see that we need to do better in the second half to be there. And a lot of it will be -- or some of it has to come with -- of course, some of it has to come from the rates. So it is over the Q2. And if you see, actually, since April, the SCFI has increased by 20%. So July over April was 20%. And if you look at from the lowest point to where it is today, it's close to 30%. So not everything is -- not everything is, of course, indexed on the SCFI, but it gives you an indication for what has happened. I also want to say that when we have fuel increases to our long-term contract, that our ability to capture that is delayed. So we will see some of that also come through in the second part of the year.

But I guess, you also expect the usual seasonal pattern to be repeated at this year, that rates usually now go soft after the peak season? Søren Toft: Yes. I think this is where I think some of the -- I mean, our plan calls for a very tight capacity management, as Søren just outlined. 4 million TEU is a midyear range or a range for the coming 12 months, but we can take that further down here in the slack to support the high utilization and decent prices.

That exactly bites into my next question because I was wondering if you could give some sort of indication how we should see your capacity development in coming quarters. Is that a reduction around these 2% as you managed here in Q2? Is that a fair assumption? Søren Toft: Well, as I hopefully explained, I mean, short term, we believe that we will be able to reduce the capacity even further. I mean, number one, we haven't seen all the, you can say, annualized the full effects of the synergies and the inclusion of the Hamburg Süd network in Maersk Line, which really only took effect from April onwards. Secondly, some BSA agreements that Hamburg Süd had did not expire exactly on that date, but some expired a little bit later. Thirdly, we had taken decisions to actually also curtail some trades and close some trades that we don't feel could give a meaningful contribution to our results. So there will be a further improvement in Q3. But obviously, over the mid-range, the 4 million is kind of what we see as the right place that will both secure -- that we can cater for the volumes that we have, at the same time, have a good and stable capacity utilization.

And then on the unit cost, you mentioned in the report that there were also some one-off items in the unit cost. What drives the unit cost down Q-on-Q here in Q2 compared to Q1? Could you specify how much of this reduction is one-off? Because I can see in the slide there are some FX-related arguments there. But what is due to, so to say, is a deployment argument? And what is due to the one-off effects? Søren Toft: Yes. So quarter-on-quarter, Q2 versus Q1, unit cost was down 5.9% and the one-offs was less than 1%.

And then a bit into the capital structure, just two questions relating to that. Firstly, why not sell all Total shares? Why stick to holding on to the Total shares? And then on the Drilling demerger and the leveraging of the Drilling, what sort of metric are you using for deciding what kind of debt carrying capacity you can have in Drilling? Because 1.5 billion in debt, as you mentioned yourself, it would be quite comfortably finance. Why not more debt in Drilling? Søren Skou: On the Total shares, then we continuously evaluate how we secure the most value. And right now, we believe that it makes sense for us when we have sold part of the shares, they have increased a lot and we have taken that. And we, of course, continuously evaluate whether we should do that or we should hang on to them. Total also pays quite a significant dividend. That is important. So that is an ongoing evaluation for us. And in terms of Maersk Drilling, it has been very important for us to make sure that the company has a viable future, that it is well capitalized, that the new management, the new board will have strategic options. And if we were to leverage off the company to the ceiling, then we would not, in our view, do the right thing for neither our shareholders. We will get the shares, but not for the company's liability or, for that matter, for the employees and so on. So it's a balance. But for us, it's been very important that Maersk Drilling is a viable company so that has a chance to become a successful company.

And next question is from the line of Neil Glynn from Crédit Suisse.

If I could also ask three questions, please. The first one on ex bunker cost visibility. The quarterly trajectory I've seen from quite significant populations over the recent couple of years. I was just interested. Have you embedded in the network the decisions you've made on the capacity over the rest of the year? Are you more comfortable now in your ability to predict unit cost on a quarterly basis going forward? Second question, bunker consumption. It's been the lowest in a couple of years, if you look at it -- touched on in terms of tonnage per 40 foot equivalent. Is that a normal level that we should think about, at least maintaining or maybe even improving going forward? And then the third question on logistic services. You've touched on the EBITDA conversion level is still very low. Understandable due to investments, but just interested in your thoughts to recover to, say, 2017 levels. Is this a medium-term project as investments bear fruit? Or how should we think about that conversion ratio on the short and then the medium term? Søren Skou: So if we take the first couple of questions on capacity and bunker, I believe it was, I mean, in terms of -- or sorry, unit cost and then bunker. When it comes to cost, I mean, we are not going to give any further guidance on what we have already done, which is the 1% to 2% at fixed -- or at fixed exchange rate and fixed bunker. We do believe that we have more things that we need to do and that hopefully also spills into the coming quarters. On bunker efficiency, it's true that the levels have come down. We had a period where the quarter-to-quarter comparisons were really tough because we were comparing to a period before the big sale to HMM and then with the big sale to HMM. And there, we have to remember that we count the tons, but we don't count the volumes that they have. Now we have come -- now it's better to compare. We have come down at a lower level. Do we believe we can improve it further? Yes, we do, but it will be over several quarters and not just a short sprint to into the next quarter.

On Logistics & Services, obviously, I mean, it is a very high focus for us to attack our cost base here and bring it to something that we can be proud of. But we cannot guide at this time on what time horizon this is going to play out with.

Understood. If I could just follow-up, the first question was more -- I'm not necessarily looking for more guidance on unit cost, but just the internal visibility on how you actually manage cost development ex bunker. Is it fair to say that that's improving following the recent decisions? Or do you not feel that there was any need for improvement in terms of how you actually manage those costs? Søren Toft: Yes. That we can say clearly, yes, to visibility is improving. And maybe just adding that, obviously now, we are 8 month into the acquisition of Hamburg Süd. The first few months there, we had to get everything together and get the visibility right. We have that now. We have joined up the network. We have joined up the equipment pool. So now we can take real decisions, the best decisions across all the brands. Thank you.

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

Also two questions from my side, please. Firstly, still regarding your capacity development, which has been quite extraordinary here during the first part of the year. I'm just curious to find out what is the reason why you are reducing capacity at the speed that you've been doing. I mean, you've increasing capacity very, very significantly both for '16 and '17. Is this a new strategy to grow less than the market? Or what's the reason for this huge movement in capacity this year? Søren Toft: Lars, Søren Toft. Well, first of all, at the present moment, we are not really taking on any significant new vessels. We did that predominantly in '17. Secondly, we were tied in the first quarter with taking onboard all of the Hamburg Süd tonnage but still being locked up in to the VSAs. And then as bunker prices have increased, we have also looked very critically at some of the trades and some of the services and decided where we don't believe that there's a viable path. But overall, we still believe that we can grow with the market as we have done in the quarter.

Okay. And then secondly is regarding Hamburg Süd. Rates up clearly. I haven't done the full math yet, but they're up year-on-year and then in the second quarter. Looking into the seasonality in Hamburg Süd -- I mean, in Maersk Line, obviously, we have the peak season in the third quarter where rates normally, at least, is higher. What is the seasonality in Hamburg Süd? Do you expect -- or is it normal to see that rates in the third quarter is higher compared to the second quarter? How is that playing out during the year?

Yes. Vincent here. The Hamburg Süd seasonality is not as pronounced as Maersk Line because they are slightly less exposed to the Far East and the East-West trades, of course, in general. But it's also, even though less pronounced, also towards the third and fourth quarter with the higher, higher volumes.

Now you said volumes, so I was more interested in rates.

Well, they obviously operate in the same market environment as Maersk Line does. So corrected for their exposure to different trades and geographies, their rates will move in sync with Maersk Line.

And next question is from the line of Patrick Creuset from Goldman Sachs. Please go ahead. Your line is now open.

I've got two questions, please, one on liner, one on CapEx and one on Terminals. So starting with liner, first off, congrats. I think -- I can see you've made it back to the top of the lead table when it comes to margin in Q2. I think question is, if you can quantify how much more incremental cost benefits you're going to get particularly from the hand back of the chartered fleet and also from Hamburg Süd synergies in the second half, given you've been running ahead of schedule, I think, on those synergies? Søren Toft: So if we start with that. I mean, we have said and also guided slightly different that we believe we will now not reach, but minimum reach the synergies of Hamburg Süd. And they are, by nature, back-end loaded. But we are reaping them in a little bit faster, and we hope, of course, eventually we can even do better. In the second half, we obviously plan to benefit from the efforts that we have done, no doubt. But we are also, on some of the variable cost, seeing a spillover of the higher fuel price into our -- some other variable costs like feedering cost, like intermodal cost. And equally so, on feedering cost, we are seeing a spillover of generally higher time charter rates than we have seen in Q1. But the focus is on making sure that we continue to drive benefits out from the improved picture we see right now.

So just to clarify, net-net, do you expect unit costs to be, ex fuel, to be down sequentially into HMM? Søren Toft: We're not going to -- I mean, the guidance we've given previously is, the guidance we have given previously stays and that is that we expect to reduce costs 1% to 2% fixed bunker net of FX for the year.

Secondly, on CapEx. You said in your presentation that you wouldn't place any new vessel orders until at least 2020 and also not invest in any new terminals. And then I look at your CapEx commitments and I think they only stand at $1 billion, '19 to '23. So is it therefore a fair assumption that maybe you could temporarily undershoot your medium-term CapEx outlook of, I think, $2.5 billion to $3 billion per annum in '19 and '20? Søren Skou: Well, we would provide a new guidance for CapEx for 2019, probably in connection with our full year result in February next year. What I do -- what you point to, which is also, I think, what I tried to say earlier, we have a lot of flexibility as we move on because we will be done with the 4 big construction projects we have ongoing in APMT, in Morocco, in Abidjan, in Ghana and in Moin. And then, of course, we'll significantly reduce CapEx in APMT. And then we have basically very few ships left still to be delivered. I believe it's around 4 ships left. So that means we only really have to invest in CapEx to make sure we have the containers to grow with the market. Overall, what you should expect is that we will be targeting a CapEx level that is more or less in line with our depreciation level over the cycle, which is 2.5.

Just a follow-up on the CapEx. Do you also anticipate any increased investments into retrofitting ahead of the IMO 2020 implementation? Søren Skou: We don't have any major plans at this point. I assume you're talking about investing in scrubbers?

Yes or LNG. Søren Skou: Well, I don't think it's feasible to retrofit ships with LNG propulsion. So for us, it's really about scrubbers. We don't like the solution. I've spoken to that many, many times. We think that the sulfur should be taken out of the fuel at the refinery where you have the big process plans to do so. And for us to build washing plans on 700 ships simply does not make any sense to me. But we are experimenting with various things and we may also invest in a few scrubbers simply to understand the technology.

Final one on terminals. You've mentioned a few reasons for the weak margin performance in the second quarter. Can you just give us an idea of the sequential margin evolution in the second half? I mean, do you expect basically some of these one-off effects to wash out and perhaps have stronger volumes? Søren Skou: So I'll not guide specifically on second quarter per segment. But what I will say is that we have an EBIT margin gap to competition and t hat is a gap that we seek to close gradually. And way of doing it is winning more business, boosting utilization, reducing unit costs. And we have, so far, been able to grow well above the market, well above main competition. And certainly, we expect to be able to convert that higher volume and increased utilization to also better margins over time.

And our final question for today comes from the line of Finn Bjarke Petersen from Danske Bank. Please go ahead. Your line is now open.

Second quarter and first quarter were both some very disappointing in terms of cash conversion, and hence, you have a quite significant increase in working capital and then net interest-bearing debt in the second quarter. Could you guide a little bit about what is your target for cash conversion in the second quarter or for the full year? Søren Skou: So our guidance remains, Finn, that we want to have a high rate of cash conversion. And by that, we mean 85% or better. If you do the simple math on our guidance and the CapEx so far, you'll see we have spent 1.9 billion of CapEx so far this year. If we deliver on our CapEx guidance of 3 billion, it means we have to spend 1.1 billion in the remaining. We also have a guidance of an EBITDA of 3.5 billion to 4.2 billion. We have 1.5 billion in the first half. So if you deduct those numbers, you will see that we need to generate significant cash in the second half. I think that's as close as I can get to it.

I read you a significant reduction in your working capital, if we are talking about an 85% cash conversion, full year. Søren Skou: I think I can disclose that the cash conversion was more than 100% in July, but that was the short-term effects that hit us in the second quarter.

And that was our final question for today. I will now hand the call back to Søren. Please go ahead. Søren Skou: Thank you very much for listening in to our earnings call for Q2 2018. For us, it's a call where we clearly wanted to get the message across that while we are not satisfied with the absolute level of profitability, we do see a number of positive aspects: first and foremost, our growth, which is very strong, which means that we now have grown our Transport & Logistics businesses almost 50% since 2016; and we are also taking note of good growth in the non-Ocean part of the business, which is the part which we want to grow disproportionately. We also believe that we are on the right track when it comes to taking control of our unit cost, driving network utilization and so on. Hamburg Süd is on a good track. Company is doing really well, and we are getting the synergies and we are providing, let's say, a very, very small but still important upgrade in the synergies because we now say minimum $350 million to $400 million. More will follow on that in the coming quarters. We are also pleased with the fact that we're actually maintaining our market share now, so the customer retention in the Hamburg Süd is better than expected. So given the guidance we have provided, we also, of course, have to improve results in the second half of the year and that's what we are setting out to do now. Thank you very much.