A.P. Møller - Mærsk A/S (MAERSK-A.CO) Q4 2024 Earnings Call Transcript

Welcome everyone, and thank you for joining us for this earnings call today as we present our Fourth Quarter and Full Year Results for 2024. My name is Vincent Clerc, I'm the CEO of A.P. Moller - Maersk, and with me today in the room is our CFO, Patrick Jany. We start with the highlights from the year that just passed. On the back of a strong fourth quarter, we closed the books for 2024 with a full year EBITDA of $12.1 billion and an EBIT of $6.5 billion. This figure marks the best financial year in Maersk's history, outside the pandemic fueled boom of the years 2021 and 2022. As important as these financial results are the great strides that we have made internally in making the business better, stronger and more resilient notwithstanding the high uncertainty we saw in our external environment and I want to thank all of the team for achieving this. We made clear and tangible progress in our growth segment Logistics & Services with a sustainable step change in margin during the year from 2.5% in the first half to 4.6% in the second half. This step change owes to our continued focus on productivity and cost management while achieving close to 10% growth here in the last quarter. We are not yet where we want to be, but the operational improvements that we have made in Fulfilled by Maersk are starting to show results. Then we have Ocean which demonstrated strong operations and more importantly agility in the wake of the Red Sea disruptions as well as strong market demand. We responded to the changes in operating environment decisively while maintaining stable and reliable operation for our customers. Meanwhile, we continued to look forward and planned and prepared for our new Ocean network, Gemini. In Terminals we did not only maintain but surpassed the strong performance from the year prior. The portfolio of gateway terminals generated an impressive return on invested capital of 13.5%, all the while undertaking growth investments to expand and extend the portfolio for the future. As we look ahead to 2025, we have several things to feel excited about, but our Ocean network, Gemini, in cooperation with Hapag-Lloyd is one of these. Gemini marks the most innovative milestone in the history of Maersk and represents the first step in what we call the network of the future. The launch of Gemini last Saturday on February 1st is the first result of years of hard work and collaboration by our teams from designing the network to preparing our vessels and hub terminals. I will have a bit more to say about Gemini later in the call, but looking forward to 2025 we count on our operating skills and our agility to continue to deliver good results. We expect global volume growth to be around 4%, subject to any major trade disruptions and for us to grow in line with the market. There has been much discussion about potential Red Sea reopening in recent weeks. We do, however, see no imminent indication of the reopening, but we will continue to monitor the situation closely. What all of this means for our financial guidance is that we expect an underlying EBIT for 2025 to be breakeven -- between breakeven and $3 billion. I will explain the context and the assumptions underpinning the guidance in more detail later on the call. With the books now closed on 2024, we can also announce the dividend proposal for the year just passed. For 2024, the dividend proposals will be set by the A.P. Moller Board at the AGM on March 18th and is a dividend per share of 1120 Danish Kroners. This is equivalent to a 30% payout of our underlying net results in line with our dividend policy and higher than last year's payout. On the back of a better than expected 2024, the strong balance sheet bolstered by further cash generation in 2024 and an improved outlook for 2025, we are also in a position to reinstate the share buyback program, which we suspended this time last year. The program will start effective tomorrow with a size of approximately $2 billion and a duration of 12 months. This implies that the total cash return to shareholder will be approximately $4.4 billion, of which $2.4 billion is the proposed 2024 dividend subject to AGM approval and the remaining $2 billion the reinstated share buyback. This follows the TSR of 8% in 2024 that we achieved for shareholders through the cash dividend for 2023, the Switzer [Phonetic] dividend in kind and the share buyback until the suspension last February. Looking further forward, we are confident to continue the share buyback in the years following 2025 given the balance sheet strength that we have today. As mentioned at the start, this quarter marked a strong finish to a financial year with strong performance and operational progress notwithstanding a very dynamic external environment. In Logistics & Services, we saw good revenue growth driven by Air and LCL in our Transported by Maersk service model, by warehousing and Fulfilled by Maersk. We also continued to progress in improving the underlying performance in Middle Mile as well as Last Mile, who continued to track positively in the fourth quarter and would expect to see further improvement in the coming quarters. All in all a good performance in Logistics & Services with an improved EBIT margin to 4.1, some one-offs driven by strong margins -- and driven also by strong margins in Managed by Maersk and Transported by Maersk. In Ocean, we experienced robust profitability despite rates coming off the peak set in the third quarter. Rates surprised on the upside as they eroded more slowly than expected during the fourth quarter. We ran a tight and efficient ship with strong asset utilization at 95% and much of our efforts in Ocean in the last quarter went into preparing for the new Gemini network. Finally, Terminals continued its streak of excellent performance as reflected by a significant increase in revenue per move while keeping cost per move at bay and driving strong volumes throughput throughout the portfolio of gateways. All of these factors combined to make this quarter the strongest ever fourth quarter and a year which in all quarter exceeded EBIT of $300 million. The segment achieved a last 12 month ROIC of 13.5%, well above our mid-term targets of 9%. Before I dive into the scorecard, let me take the opportunity to announce the date for our next Capital Markets Day. We are pleased to announce that the Capital Markets Day will be held in London on November 13 later this year. We hope to see many of our analysts and investors at the event at which we intend to share our progress towards becoming an end-to-end logistics provider and further details will follow together with the executive leadership team at Maersk, I look forward to seeing you there. Now on the scorecard for the fourth quarter. With the throw of the normalization that we saw in 2023 now falling out of the last 12 months period, we see a much brighter scorecard highlighting our good delivery and on most of our strategic targets, but where we still fall short is within Logistics & Services. The job for us there is clear and simple. We must achieve profitable growth towards the 10% organic revenue growth and 6% margin targets that we have set for ourselves. We have made good strides in improving the quality of our Logistics & Services business over the past 12 months, but we are not done yet and our mission is to deliver in Logistics & Services in the year ahead and that's actually a good segue into the next slide. As we move into 2025. We have set these strategic priorities around our main business segment. In Logistics & Services, we maintain our bearings towards profitable growth, namely achieving 6% EBIT margin and continuing the growth trajectory we have set for ourselves in 2024. A main element to achieve this will be to continue the recovery momentum we have achieved in Fulfilled by Maersk, specifically in Middle Mile and Warehousing. And finally across the board in Logistics & Services, we maintain our relentless focus on productivity and cost to become a best-in-class logistics operator. In Ocean, our number one priority is to successfully phase in Gemini and reach 90% schedule reliability which will both deliver better service to our customers and a more agile and cost effective way to operate our fleet. That will allow us to grow our volumes and reduce our cost per unit with the same equipment. Finally, Terminals will provide the world class hub terminals in which we have invested $3 billion to increase capacity by about 30% and capabilities such as IoT technology and digital twin modeling all to facilitate effective and second to none transshipment. On our gateway specifically, we seek to grow in line with the market on our existing portfolio while expanding the portfolio opportunistically through securing of new concessions. You've heard me mention Gemini numerous times now and that is perhaps a testament to how excited we all are at Maersk about our plan to transform the Ocean industry in the quarters to come. Last Saturday we hit the launch button on the new network after switching our bookings over from the existing network to the new Gemini network from December 2024. Customer feedback and retention have been very positive with bookings into the new network continuing as planned. As we phase in the new network and phase out of the old, there will be a period of 12 to 15 weeks or about one calendar quarter representing a typical east west cycle during which the two network will in parallel. June will therefore be our first month in which Gemini will run on its own and alone and therefore be fully phased in. Leaning on the operational strength of our hubs, we can design a network with more density, higher asset turn, while we maintain the same geographical coverage and competitive transit times for our customers. Those were guardrail principles we had set for ourselves during the design exercise. Gemini represents a more efficient network with benefit for customers and for us. The goal of higher scheduled reliability for more than 90% on time arrival such that the Ocean cargo is more likely to arrive on time and onwards to the customer supply chain than anywhere else. For us it represents better asset utilization leading to decreased cost of approximately $0.5 billion, mostly from lower bunker consumptions. It's horse for course smaller vessels on shuttle services calling a smaller number of ports feeding into hubs and the larger vessels on the main liners serving and calling mostly the very big ports and hubs, many of which operated by APMT. These mainliner service will therefore have fewer stops than the shorter loops at the extremities of the old loops that will be serviced by shuttle services. On the right hand side of the slide you have an example of how cargo from Shenzhen to Bremerhaven will flow in the new network. With the old network, the point to point route would have had seven stops. With Gemini, we can simplify this to only three stops across the entire route. The fewer the stops, the lower the risk that cargo will experience and accumulate port side delays. Furthermore, with six out of the eight hubs Terminals that we rely on operated by APMT, there will be a better real time planning, prioritization and turnaround of vessels so as to neutralize any delay accumulated earlier in the journey and to prevent delays from accumulating during the transshipment. Overall, Gemini represents a rare phenomenon of quality, namely better schedule reliability for the customer that is also more efficient for us to service. It's a win for customers and a win for us. Throughout the course of 2024 we spoke much about the significant oversupply challenge and the high uncertainty surrounding the duration and degree of the Red Sea disruption. Fundamentally, the supply demand imbalance that we could have seen in 2024 has likely been pushed back to 2025. However, we think that the outlook from where we stand today is much more nuanced and benign than what we had in front of us just a year ago before the outbreak of the Red Sea disruption. If we first look at the supply side, the new deliveries that will come online throughout 2025 representing a capacity increase of about 2 million TEUs. On top of this will come a potential reopening of the Red Sea, which would remove the supply chain disruptions that we and our customers have experienced over the past year, but would also cause a capacity release of anywhere between 1.5 million TEUs and 2 million TEUs, all representing about 5 to 6% of the global fleet, as vessels need to sail shorter routes through the Suez Canal. On the other hand, the increase in supply will be partially offset by other supply side drivers such as scrapping of vessels that are near or have passed the end of life and slow steaming out of the environmental and financial consideration. Further, in the short term, potential congestion could ensue from a potential reopening of the Red Sea and from port congestions from vessels bunching and arriving simultaneously at destination the one via the Cape of Good Hope and another going the faster route through the Trans Suez. Another change compared to last year's assessment is that we can count on improved demand. We are looking into continued strong market demand in 2025 on the back of a strong 2024, which can further net-off an increase in supply of about 1 million TEUs to 1.5 million TEUs. All these factors point towards a supply demand imbalance that is likely not as bad as what we faced 12 months ago. So what does this mean for the guidance? Well first we expect the container volume growth, as I mentioned, to remain robust at about 4% and for Maersk to grow in line with the market. As far as our broader financial outlook is concerned, we present to you a range with the timing of the -- that it depends on the timing of the potential opening of the Red Sea, as a variable. The low end of the range assumes a mid-year reopening in the Red Sea, while the high end represents a year end opening, implying no financial impact from the reopening in 2025. Considering these factors and assumption, we expect the full year 2025 underlying EBITDA of $6 billion to $9 billion, an underlying EBIT of breakeven to $3 billion and a free cash flow of negative $3 billion or higher. On CapEx, we maintain our CapEx guidance for 2024 to 2025 of $10 billion to $11 billion and confirm the same level for 2025 to 2026. I would now like to pass over to Patrick for a closer look at the financials.

Thank you, Vincent, and thanks to everyone on the call for joining us today. With the fourth quarter driven by good results in all our segments, we had a strong finish to our fiscal year 2024, a year defined in large part by the ongoing uncertainty about the Red Sea disruption and strong volumes. When we announced our initial guidance back in February of last year, we expected a loss for the year driven by a significant impact of the oversupply situation in Ocean, which we saw materializing in Q4 a year ago, together with the limited impact of the Red Sea disruption. As it became increasingly evident that the Red Sea situation became entrenched and that demand picked up more than we anticipated, we were able to raise our guidance on multiple occasions reflecting the improving outlook for the year. In that context, our full year numbers with an EBIT of $6.5 billion, a free cash flow of $5.1 billion and a ROIC of 12.3% reflect both a stronger environment and a great operational performance and cost control of our businesses. Looking closer at the fourth quarter, the improved year-on-year performance across all segments resulted in significantly higher profitability compared to the fourth quarter of 2023. The business delivered an EBITDA of $3.6 billion and an EBIT of $2.1 billion compared to an EBITDA of $839 million a year ago and an EBIT loss of $537 million. Consequently, net profit after tax increased $2.1 billion and free cash flow increased to $2.2 billion for the quarter supported by favorable working capital development, a stark contrast to the free cash flow loss in the fourth quarter of 2023. Given the fourth quarter results, our total cash increased to $24 billion with a net cash position of $7.4 billion, up both sequentially and year-on-year. As mentioned earlier by Vincent, our strong balance sheet allows us to re-launch the share buyback program and, looking past 2025, we are confident to be in a position to continue to return cash to shareholders, while continuing to invest in the growth of our business despite quite volatile times ahead. When considering both the significant dividend and the announced share buyback, we will be returning 4.4 billion to shareholders, equivalent to 18% of the market capitalization. Let's take a closer look at our cash generation in the fourth quarter on the next slide. Cash flow from operations was $4.4 billion, a significant increase from $166 million in Q4 last year, driven primarily by the increased business performance and by the positive impact of $837 million from net working capital. The improvement in working capital came mainly from better collection and a favorable currency impact. All in all, cash conversion for the quarter increased significantly to 123%, representing an increase both sequentially and year-on-year. As we highlighted in last earnings call, we had higher CapEx in the fourth quarter with growth CapEx amounting $1.7 billion, of this $1.2 billion relates to Ocean, with 60% going to installments of the vessels we ordered during the summer and the remaining 40% relating to our equipments and hubs. Overall, CapEx remained tightly managed and below the original yearly guidance. Of the $2.2 billion free cash flow in the quarter, most of the net proceeds were reinvested into short-term deposits. Now let's move on to our segments starting with Ocean on slide 15. The Ocean business had another strong quarter with high freight rates supported by strong demand resulting in a significantly better performance than the fourth quarter of 2023. Volumes increased 0.8% year-on-year while sequentially decreasing 1.3%, following the ordinary seasonal pattern where the third quarter is usually stronger than the fourth in terms of volumes. While freight rates remained high compared to 2023, they have come down from the peak in the third quarter as expected, but erosion was slower than expected with some pickup in rates throughout December, which supported business performance in Q4. Operationally, we were able to ensure further sequential improvements to schedule reliability while running close to full capacity and handling the ongoing impact of rerouting. Consequently, profitability increased, delivering an EBIT of $1.6 billion compared to a loss of $920 million last year and equivalent to an EBIT margin of 16.2%. Moving on to the Ocean EBITDA bridge on slide 16, here we can clearly see the large impact of higher freight rates compared to the fourth quarter of 2023, while a reduced bunker price helped to compensate for the higher bunker consumption which is given due to the rerouting around the Cape of Good Hope. Finally, there was a positive contribution from higher retention in marriage revenue as well as the mechanical impact of revenue recognition. Now let's look at our KPIs for Ocean on slide 17. As I've touched upon previously, freight rates were significantly up year-on-year, averaging $2,659 per FFE in the quarter, representing an increase of 38% compared to Q4 2023 but an 18% sequential decline as we moved beyond the freight peak. We successfully kept operating cost excluding bunker flat year-on-year, offsetting inflation and all the additional costs relating to the re-routings. As in every quarter in 2024, unit costs at fixed bunker increased though year-on-year, given the higher bunker consumption due to the longer sailings. Our average operating fleet increased 6.4% year-on-year, mainly on additional chartered vessels. This reflects our approach of strategically injecting capacity to meet market demand and maintain the necessary agility in the network, which can be seen in light of our continued high vessel utilization. Volumes increased 0.8% in the fourth quarter, driven by strong demand in Asia, Europe and Inter Asia amongst others, and marking a 3.6 volume increase for the full year. While our 2024 volume growth was below our estimated global container market growth, it's important to note that our vessels have been sailing at full capacity throughout the year with vessel utilization at an excellent 96% for the full year. Now let us now turn on Logistics & Services on slide 18. Financial performance in the fourth quarter highlights the improvements made to the business since the trough reached in the first quarter of the year. Revenue increased by 9.9% year-on-year to $3.9 billion on the back of a solid development in all regions and in most of our products, supported in particular by strong year-on-year growth in Transportation, Air, Less than Container Load and Air. Profitability also increased year-on-year with an EBIT of $158 million which is more than twice the amount delivered in Q4 2023 and equivalent to an EBIT margin of 4.1%. While this represents a sequential margin decline from the third quarter mainly due to the business mix and some one-offs, the margin recovery throughout 2024 shows that our logistics business is strengthening and that our cost initiatives are paying off. There is still some way to go as we pursue the 6% EBIT margin, but we are confident we are moving closer to reaching our ambition. We continue to invest in CapEx as well, as we pursue organic growth and optimizing product offering. The $232 million CapEx in Q4 related mostly to Air and our Contract Logistics business. Looking closer at the performance by product family. Managed by revenue increased 20% to $584 million in the fourth quarter driven by solid growth in Project Logistics and Lead Logistics. Revenue together with stronger operational performance across most products resulted in an overall EBITDA margin of 20.6%. Fulfilled by also saw year-on-year growth in almost all regions with the largest revenue gains coming from Warehousing and in particular from the North American market. Despite increased revenue and improved margins in Warehousing, lower results in operational one-off costs in last mile and ground freight contributed to an EBITDA margin decline to minus 5.5% for the quarter. Revenue also increased in our largest product family, Transported by, where solid volume growth in most of our products together with the higher rates in LCL and Air resulted in the 9.9% year-on-year increase to a total of $1.8 billion. Meanwhile, refocusing on customer profitability and unit cost savings from route optimization and procurement in Air, supported an EBITDA margin increase to 9.5%. Let's move on to our Terminals business on Slide 20. Terminals delivered another quarter of excellent results with Q4 2024 marking the best fourth quarter in the segment's history and closing off the best ever year in that business. Top line growth was strong as revenue increased 17% to $1.2 billion driven by higher volume growth and revenue per move. Volumes grew 6% year-on-year, particularly from strong growth in Los Angeles, while revenue per move increased 9% from inflation, offsetting tariff increases, better product mix and higher storage. Revenue cost per move increased 1.1% reflecting inflationary impact together with depreciation and product mix. With supplying growth outpacing higher costs, EBIT logically increased 44% to $338 million and resulting in a return on invested capital of 13.5%. Finally, CapEx decreased to $158 million this year as the investment into Pier 400 and Port Elizabeth, which we have mentioned last year, have been completed. Turning on to the Terminal's EBITDA bridge on the next slide, starting from the left, you can see the profitability impact from the 6.7% like-for-like increase in volumes with growth coming from the mainly external customers and as well as regionally driven by North America. The 9% higher revenue per move made the largest contribution to profitability, more than offsetting the increased cost per move together with high utilization. And with this I conclude the financial review of our fourth quarter earnings and we shall proceed to the Q&A section. Operator, please go ahead.

We will now begin the question and answer session. [Operator Instructions] The first question comes from the line of Alexia Dogani from J.P. Morgan. Please go ahead.

Yes, good morning. Thank you for taking my question. Really, it's about competition. Obviously your largest competitor is pulling ahead in terms of size and it seems that it has started crossing the Red Sea more recently. How should we think about your use of cash? I mean clearly you've decided to do a share buyback. Could you have considered M&A again in Logistics & Services? And if no opportunity is there, could you look at doubling down on container shipping again to close the gap with your largest competitor? Thanks.

Thank you, Alexia. So first, I think it's true that MSC and CMA have a very ambitious investment program in new fleet. It's true also that we have been very clear on what we want to do with Ocean shipping, which is to stay where we are because we don't see any correlation between size and increased margin, so there is no more correlation there. So therefore with the Gemini network, we have the most competitive and the cheapest network to serve our customers and that's really what matters. So that's I think one key point. It has been true for the past years and it will continue to be true for the foreseeable future. The other thing that I want to say is actually the situation on the Red Sea is the same that it has been all the time. They are not starting to cross again. We have one competitor, CMA that tried to make one test service and then they have one service that has throughout last year been sailing through the Red Sea and that's still what they have, and the test service is sailing the long route today. So, actually what you're seeing is everybody I think is, is worried about the same thing, a, is it safe to travel and, two, if we need to -- or when we get to sail back to the normal trade routes, we need to be sure that it is not only safe today, but that we won't have to go back a few months later because suddenly situation has reignited and the situation on the ground in the Middle East is still way too complex and unsettled for us to make that decision. Then I think to the last point, with respect to capital allocation, I think we're -- you're hopefully pleased with the decisions that we have made on both dividends and share buyback and our communication on this respect. We believe that the balance sheet that we have today allows us to be both generous to our shareholders and to continue the execution of the strategy that we have. So when the time comes and we feel that we have the right solidity in the platform, both from a profitability, from a control and from a tech perspective, we will see when it's time to re engage on M&A, but that will be, that will be on the logistics side or the terminal side, but it won't be by doing something big in shipping, which would close a gap that has no impact on profitability.

Thank you.

The next question comes from Daniel Togo Jensen from Carnegie. Please go ahead.

Yes, thank you. And congrats with the strong finish in 2024. One question on unit costs. With a utilization of 95% what are the levers so to say to improve the unit cost going further? I can understand of course the bunker argument when you start to sell shorter, but with this utilization, what are the levers to further drive down unit costs? Thanks.

Yes then. So I think you have -- I would put this in two buckets. One -- so obviously at 95% for the year across the network, higher utilization is a bucket that is pretty much exhausted. This is actually a higher utilization that we had during COVID. So that's attributed to the team, they have really done something amazing to have this new efficiency frontier. So I think this one is pretty much maxed out. So I think we have two ways to do it. One is through what I would call operational efficiency, which is what Gemini is about. How do you create more density in the network? How do we create better asset turns? Having fewer port calls and having the coverage that we're building now together with Hapag-Lloyd will achieve these $500 million of savings. You can see the volumes that we have. You can see how meaningful it is on a per FFE basis to bring the unit cost down. I think this is one of the things that we have. The second and I will -- the second will follow more -- I think the return to the Red Sea is we will see some of the inflation that there has been in some of the cost items such as the charter rates and so on. That will come down as this gets renewed and that will continue to bring our unit cost down as just the input into our network gets to be cheaper. So I think is these two buckets is where there has been inflation. As you see the situation loosen up, you will see these inflation revert on leasing, on container leasing, on ship leasing and on procurement as well, terminal capacity and so on, there will be maybe some opportunities to do someplace there and then the operational efficiencies in -- and I think a big one there is Gemini, but we will continue every year to find new ways of getting more effective on how we design our network. There is still -- on the asset turn, there is still a lot to go there.

Can you maybe give some guidance? What are we talking about here in percentage terms per annum? Just to get a flavor.

I think I'll give you the guidance that it's a $500 million annualized with Gemini and you will have half a year of Gemini this year. So I would certainly expect 250 in the second half year and a minimum of 500 the following. And then after that we'll need to continue to dig into that toolbox to see how much more we can get. I think maybe that will be one of the topic we will be happy to talk to in a little more detail when we get to our capital markets day. I think it needs a bit of time to be unpacked.

Sounds good. Thanks a lot.

The next question comes from Robert Joynson from BNP Paribas Exane. Please go ahead.

Good morning, Vincent and Patrick. I'll focus my question on the bigger picture if I may. The context being that it's now been more than eight years since the Global Integrated Strategy was announced, over which time I think it's fair to say progress has been seen slower than expected and it's certainly true that Maersk has consistently lagged its competitors in terms of profitability. So looking forward, I think part of the problem for Maersk investment case is that investors don't know what the Integrated Strategy will look like when it's completed, they don't know when it will be completed and they don't know what investment or M&A spend will be required to get there. So if you could provide some color on latest thinking around those issues, I think that would be super helpful. And also just in that context, with the stock trading pretty close to historic lows and actually quite a wide range of metrics, even after this morning's bounce, to what extent do you take into account valuation when thinking about the future strategy and future actions? Thank you.

That's quite a wide question. So let me try to give a couple of thoughts on this and I think some of the things that you allude to is also something that is, I think, better parked into a capital markets day where we can again unpack the different elements. But let me start by saying that obviously valuation is something that weighs when we consider what we need to do and where we take the strategy. So let me take it -- besides that, let me take it from the other side. If you look at the way the world is going with all the disruptions and all the changes that there has been, there's no doubt if you talk to any companies that has -- that produces goods that these disruptions in the supply chain is going to make logistics an area where there is more value to add by supporting customers and being good at doing the job. So for us to continue the diversification and the development of capabilities for the long run in logistics makes more sense today than it did eight years ago when we started the strategy and that's why it continues to be our direction. Now you point to the fact that the progress have been slower than expected, I think for me there are two reasons for that. One is fairly mundane. In some cases it's -- there are some operational pains that comes into growing into the scale that we need to have. It sounds easy to do M&A, but there is a lot of difficulties with that. It sounds easy to go full organic, but there is also some difficulties to go with that. And I think that this is what we're getting on top of. The second has been the huge volatility of having had to go through both COVID, especially COVID on the way and the many disruptions it does create something where actually because of the abnormally high profitability of Ocean in the last five years and a huge volatility in the market in general, the program progresses that have been made in Logistics & Services are not really coming through because the volatility on Ocean is taking a lot of that light. But there is -- the direction is the right one. The destination that we have is still the same. And I think to unpack a little bit more what does that look like when we get there? I would like to park this to the Capital Markets Day. I think that's one of the key reasons why we feel it's important to hold such an event and to be able to really take you through how does that look like and why do we think that we have a much – we’re in a much different place today than we were just a couple of years ago with respect to actually getting that executed.

If we just to think about the integrated strategy in a simple terms, let's say it was a football match. Are we at half time yet? Is that a fair assessment or maybe not?

So, I'll take another metaphor. It's a bit difficult because as you know in business we never get the end whistle that says we can go rest and think about next week's game. It's a continuum. But what I would say is in my book, we've gone through the hard stuff which is all the building, the foundational capabilities on the technology side, on the job side, on some of the site side, on the connecting the different parts. All of this is stuff that is not visible and that is super hard to do, and that is what we have spent actually most of the time in these past few years doing. We are in a position today that is completely different from what we're looking at. We have a couple of areas such as middle market mile and last mile where it's dragging us down in our Fulfilled by Maersk compared to where we need to be from a profitability. So I think the first thing that we need going back to the slide that I had, we need to get to the 6% next year because that means that all that foundation is done and that we have what it takes then to accelerate the execution of this. So I can't give you a percentage but I would say the foundational, the hard stuff is done, now we need to continue the work, but I think we've done the hardest part of what there is in our strategy.

Okay. Thank you, Vincent, and look forward to catching up tomorrow.

The next questions come from Omar Nokta from Jefferies. Please go ahead.

Thank you. Good morning. Just a question on the contracting. So far how would you say the Asia Europe season went in terms of securing contracts for this year and any kind of color you can give on what percentage was put under contract and how it fared in relation to 2024, and then also maybe kind of what the setup is for the Trans Pacific contracting season. Thank you.

Yes. So on the contracting, I have two points or two or three points that I want to make for. So first of all, at the overall level, we're going to be around the same percentage of contract as spot. I think when the market weakens, it's a good idea to lean into contracts because they tend to adjust lower than the spot. So I think this is something we're continuing to execute. The contracting so far has been progressing quite well. Volumes are in line with the guidance that we have made with respect to volumes. So what customers expect at this stage, rate levels are also at fairly decent level. Now I have to stress that with the fact that contract levels have been adjusted a couple of times up during the last year, we should expect that if rates on the spot market move significantly, customers will be also more willing than usual to come to the table and say we need to relook at this. So I think given how much we have adjusted in 2024, we should expect also that the stabilizing effect of contract will maybe erode a little bit compared to what it has been in the past. In Pacific, it's the same thing. Actually, from a market growth perspective, customers are very positive on market growth. They expect that the incoming administration will be good for consumption and therefore they are talking about fairly strong volumes. It's too early to talk about rate levels there on the Pacific, but at least from a volume perspective, this is continuing to look positive. And then a final note on emerging markets, so the wider south, it also look like there is some good resilience and some good demand for transport still.

Okay, thanks, Vincent.

Next question comes from Lars Heindorff from Nordea. Please go ahead.

Yeah, thank you. It's also on Gemini. I'm just wondering, so with you and Hapag now entering into this hub spoke, why do you believe that none of the other carriers think this is a good idea? Is the cost in terms of the savings that you have mentioned now the 500 million here are the cost cheapest to run the Gemini network compared to a point to point. And last but not least, are the customers, are they willing to pay a premium for the service that you offer?

So I think, let me start with the last point that you have on customers. I think we're going to need to prove it before we can even entertain conversations on premium. The customers have been educated to having low reliability. I think they're going to need to feel the good stuff before they can actually draw benefits from it. So that I think is the most important -- is a very important point. We are doing this for the reasons that I mentioned in my presentation. It's good for the customer because it will deliver 90% and it's good for us because it is cheaper to run. The reason why others are not doing it, I think there is one good reason and one not so good reason. One good reason is if you don't have 100% operational controls of your hubs, you can't do it. So you need to make -- you need to -- we have worked three years in reviewing all the working processes and all the integration of technology between the operation of the hubs and the operation of the shipping line in order to transform hubs into a point that helps you be more on time rather than a point that creates delay. So that's -- you need to control the hubs. If you rely on third-party hubs, your incentives between the hub operator and the shipping line destroy the ability that you have to deliver what we deliver. So I think that's the good reason why some of them are saying they don't believe in it because they can't do it. The second is, I think that it's an industry that has not invented anything fundamental in quite a long time and therefore there's quite a lot of caution when somebody try something new as to whether it's going to work or not and that's a bit the default position, and I don't think it's a great position, but that's the position that they have. Today it's a matter of opinion whether Gemini is better or not. The good thing is on the second half of the year we will show it in fact and it will be a matter of fact whether it's better or not. We will sit on the reliability and we will see it on the cost. And I think for us now, we worked on it for three years, we started to get into it, so we can't wait to look at the results in the second part of the year.

Thank you.

I think it's the most innovative thing that has happened in this space in a couple of decades.

Next question comes from Alex Irving from Bernstein. Please go ahead.

Hi, good morning, gentlemen. My question is as follows. What needs to happen for you to start reshaping your network returning to Red Sea and Suez Transit, please?

So let's just be clear on -- there are two things that I'm looking for. First, it need to be safe because I have colleagues that I need to send in the Red Sea on board those ships. I want to make sure I don't put them in harm's way when I sent them through that. It's true for our colleagues. It's true also as an expectation for all the cargo and the assets that we have. So safety is number one. The second thing that we have is it cost actually a lot of work and money to redo the network, redo all the berthing lineups in the US, in Europe, in the Mediterranean so that we can cater for this new service that arrives suddenly at different times. I need to be sure that it's not only safe for the first time that I send it, but I have reasons to believe that this is going to be safe for the foreseeable future. Because if it's not, and I risk to flip back three months, six months, even a year later to go back to the Cape of Good Hopes, that's hundreds of millions of dollars of cost to us, maybe more, and it's huge disruptions to the customers. And I think I'm engaging with customers a lot, they're all eager to go back, but they all have always that caveat, we don't want to go and flip flop back and forth. You get one shot at going through to Suez. And therefore, I think you need to look at the situation on the ground and say, are the Houthis either no longer capable or what gives them the willingness to attack is no longer there? That's one of the two things that would need to happen. So it's either a full degradation of their capabilities or there is some type of permanent deal on Gaza and permanent deal between the US Administration and Iran that takes away the incentive for them to do something like that and then I think it will be safe for us to go back.

Thank you.

The next question comes From Ulrik Bak from SEB. Please go ahead.

Yes, hello, Vincent, Patrick. Thank you for taking my question. It's on the Ocean volume growth, in Q3 and Q4 your growth has been between 0% and 1% while market growth has been 4% to 5% according to my figures. Now you state that you want to grow in line with the market in 2025. So considering that your order book is lower than most of the top 10 carriers, how will you achieve bridging that gap between the underperformance in Q3, Q4 and in 2025? Thank you.

So Ulrich, that it's quite simple. It's Gemini. Gemini's because it increases the asset turn. It frees ships that you can dedicate to growth while maintaining a higher asset turn. So as I mentioned before from a utilization perspective with the current, with the old way of designing network, we're pretty much at the max of what we can do. Thanks to Gemini we're freeing the possibility for us to grow in line with market for the coming years.

Perhaps just a follow up then. So in the contracting season you've had on the Asia Europe, is that also talking -- supporting your view that Gemini will be increasing the growth for you?

Yes.

Okay, that's very clear. Thank you.

Next question comes from Parash Jain from HSBC. Please go ahead.

Thank you for taking my question. I have two if I may and with respect to your 6% logistic business margin, in terms of the building blocks, is it much to do with the self help with respect to looking at your cost or you think it will still depend upon the market dynamics in your logistics supply chain? And second question with respect to Gemini, while it certainly will free up your main vessels in terms of the turnaround, who would be responsible for the feeder vessel network? Would it be only two of you or you will rely on the independent players to do the heavy lifting with respect to connecting the cargoes to your hub network? Thank you.

Yes, thank you. I think for to your first question, the big delta as we've mentioned throughout the year is on what we call Fulfilled by Maersk, so it's both. We need to continue the progress that we have made in Contract Logistics and we need to continue the progress that we have made in especially Middle Mile. The big problem that we have there is a problem of asset utilization and density. So we have too much white space still in our warehousing network. So we need to -- this is why actually we don't want to say only margin and then growth because the growth is when we target it in the right place is part of the solution. So we need to have -- to utilize the white space that we have and bring that white space percentage significantly down. That's one big part. And then the other part, our ground freight, it's actually the density that we have in the network of freight stations that we have across North America is way too low, so here too we need to increase density and increase traffic so that we get higher utilization of our assets and higher utilization on -- and higher density on the loads -- the trucks that move around. So a lot of it now is really focused on Transported by Maersk and Managed by Maersk. We are at the margins that we need to be in Fulfilled by Maersk, we need to continue the progress that we have made during this year and that's the part that needs to get us and lift us above the six and it is. There is some cost items that we need to address but the biggest building block there is higher asset utilization and more density across the network. For Gemini I want to be clear, most of what you call the heavy lifting of the shuttles, it will be executed by us. As we have done always in the past, there is a few corridors and a few services where we rely on third-party feeder service providers. It was true in the old network, it will be continued to be true in the new one. And we have actually worked very strategically with them on service level agreements and so on so that what they deliver to us, we can expect it to be at the same level of quality as what we can produce ourselves.

Okay, that's very helpful. Thank you and have a good day.

The next question comes from Jacob Lacks from Wolfe Research. Please go ahead.

Hey, good morning. Thanks for taking my question. So as things currently stand, do you see any risk of demand destruction from US tariffs on China? It didn't really sound like it based on your comments around transpacific expectations, but just wanted to get your thoughts there and then did you see any pull forward ahead of the tariffs in the near term and port labor or has demand on the trade lane held pretty steady in your view?

So from a labor perspective, I think we're -- the negotiation on the East Coast has been concluded so we don't expect more disruptions and, as far as we can see, we don't plan on any major or we're not expecting any major disruption. With respect to tariffs, I just want to start by saying that nobody knows at this date what's going to happen on the tariff front. So this, what I'm going to say here is of course with a pinch of salt, but the way customers are thinking about this and the reason why they're very strong still on, when I look at how many purchase order have been placed for the next -- for the coming months despite the talks on tariff is two things. They think that the new administration came in because the American people was tired with inflation and therefore that they are very aware that whatever they do reigniting a bout of inflation is going to be very detrimental politically also and that creates a lot of confidence amongst retailers and companies that they can continue to count on high level of consumption because that's what has been promised to the US consumer. Now there are some tariffs that are implemented. The other thing that feeds a lot for our customers is the fact that when the first round of tariffs were implemented under the first Trump administration actually ForEx movements between the Renminbi and the Dollars compensated for the tariff, so that in US term the US consumer could basically pay the tariff without filling it in US terms when he was going to his department store to buy the goods. And I think there is some expectations that as long as the tariffs are measured and as long as the administration stays true to the fact that they are going to do something on tariff but with an eye on inflation, that things will be okay and will not have a huge impact on volume. Of course, if things turn completely and somebody slaps 60% tariffs overnight, then this will have an impact, but that is not what seems to be the dominant scenario so far. And we're seeing actually a more measured implementation and also a more measured response from China which leads us to believe that at least so far there is some balance. But that of course is subject to a lot of things neither you nor I can really forecast accurately, I think.

Very clear and helpful. Thank you.

The next question comes from Muneeba Kayani from Bank of America. Please go ahead.

Yes, good morning. So just on your balance sheet and as you've thought about the 2 billion buyback and you said that you expect to continue that beyond this year. Kind of, how do you see your balance sheet evolving at the end of this year and in the scenario that 2026 is tougher, like what are the buffers in that, as you've thought about the balance sheet not just this year, but beyond that?

Yeah. Thanks, Muneeba. So, indeed we do have a balance sheet today which is even stronger than it was last year. While we are actually more confident in terms of the impact of imbalance of supply and demand in Ocean that makes us more confident that actually we will be able to continue to return cash looking past 2025, so also 2026 and onwards in the scenarios that we have today because we can indeed have a necessary buffer to absorb a bit of volatility in Ocean which will come. We just talked about macroeconomics which none of us can really forecast precisely now. But overall the demand is solid. There is a way out of the supply demand situation which is more benign than we thought a year ago and, therefore, I would say we do have the strength to both continue to return cash to shareholders and to invest in growth, whether it's organic growth and, as Vincent earlier mentioned as well, when we are ready and have the right opportunity as well in logistics. So from that point of view, I think we are in a good position now to continue and accelerate as well the implementation of our strategy right. You have to see the balance sheet is strong and actually we just had the third year best ever. We have Ocean which runs operationally in a new dimension with Gemini, which we talked about a lot during the call. We have LNS which actually starting to perform and generate cash and we have Terminals which is actually at best ever. So the operational picture is actually pretty good and there's clear progress here in the implementation of our strategy.

If I can follow up, when do you think the industry would react? You have this estimate around scrapping, idling, slow steaming. What is needed to trigger that response from the industry?

Muneeba, that's an inexact science. But I can say that, as Patrick said, because we have visibility basically four to five years out on the supply side with the order book of the yard and because the delivery of new ship was very front loaded in 2024 and 2025 and actually quite low in the years that that follow. We think that the situation actually is much more benign than what it was -- that what we were facing last time mainly because we have absorbed quite a bit of that capacity and because also the market has been much more resilient, the demand side has been much more resilient that we have now. There was one other slide, there's still 2 million capacity coming and there's about 1.5 million that will eventually be freed when we go back through the Suez. There is also pent up demand for scrapping. There is a lot of ships that can be returned. So I think the tools are there, but you should probably expect two to three bumpy quarters when that happens because it takes a bit of time for the leasing contract to expire and being able to return tonnage. It takes a bit of time to actually act on some of the scrapping to secure the positions and so on. So I think the outlook is much more benign if you take the three to five year view, but it doesn't mean that there won't be a couple of quarters here and there where things will get a bit more bumpy. That is as we deal with some of the supply shock, for instance, from sailing back through to Suez. I've not factored in here any type of demand shock, back to the previous questions on if there is like a big tariff impact and so on, that we would also have to deal with through the same measures like we have done at the beginning of COVID like we have done before.

Ladies and gentlemen, in the interest of time. That was the last question. I would now like to turn the conference back over to Vincent Clerc for any closing remarks.

Thank you everyone for all of your questions. I would like to make a few final remarks before wrapping up the call. We closed the year with a really strong finish in the fourth quarter and 2024 marks the best financial year in the history of Maersk outside this pandemic fueled boom that we had in 2021 and 2023. Overall, we saw strong business performance across all segments on the back of strong demand and operational progress. Specifically, we saw tangible progress in the form of margin improvement in Logistics & Services, strong operation in Ocean, as we responded decisively to the Red Sea disruption and captured strong market demand and high performance in Terminal as well, confirming the new normal that we had set for ourselves at the end of the previous year. The financial performance in 2024 translates into a proposed dividend per share of 1,120 kronos for 2024, while our wider financial position and outlook for 2025 support the reinstatement of the share buyback program of approximately $2 billion over the next 12 months. Overall, our strong business, our agility to respond to changes and our financial position makes us confident that we can continue to progress and grow further in 2025 at a time where resilient supply chain are more important than ever for our customers. We also look forward to seeing many of you in our upcoming roadshows and investor conferences. Thank you for your attention and see you soon. Bye-bye.