AP Moeller - Maersk A/S
CSE:MAERSK B
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
8 852
14 120
|
| Price Target |
|
We'll email you a reminder when the closing price reaches DKK.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
AP Moeller - Maersk A/S
You don't have any saved screeners yet
Good day, everybody. Thank you for listening to our earnings call for the first quarter of 2019 today for Maersk. My name is Soren Skou. I'm the CEO, and I'm joined here by Carolina Dybeck Happe, our CFO. So moving on to the second slide. I'd like to, as usual, to advise you to read our disclaimer regarding forward-looking statements. Let me start out with the financial highlights for the year. I believe we had a good start to the year, growing top line by 2.5% to $9.5 billion. Our EBITDA was up by 1/3 to $1.2 billion, and it was driven by an increase across both Ocean, Logistics & Services and the Terminals & Towage segment. Our operating cash flow performed strongly. We came in double of what we did in the same period last year, and the cash conversion was around 120%. We have, as a consequence of the strong cash flow from operations as well as the sale of the remaining Total shares worth about $2.6 billion, been able to significantly delever the company, $2.4 billion since the end of last year to $12.6 billion. And if we look at it from the same quarter last year, our debt has been reduced by more than $7 billion. So we feel in a much better place -- we are in a much better place in terms of our balance sheet's strengths. Return on invested capital also improved from negative 0.5% to 1.3%, and we maintained our long-term objective of getting to above 7.5%. And let me end by saying that our guidance of an EBITDA around $5 billion including IFRS 16 for the financial year 2019 is maintained. Now before I go further into the result, let me just recap a bit from what we said when we last had a Capital Markets Day in the beginning of 2018. At that time, we said we would focus short term on retaining our investment grade rating, on completing the Energy separation and distributing proceeds, restoring profitability and having a very strong capital discipline. We have, of course, given the deleveraging of the company a much stronger credit metrics by now, so that's -- we feel that we have a solid balance sheet. We have completed the Energy separation. We have commenced the distribution of proceeds with the demerger of Maersk Drilling, and today we are announcing a share buyback program of $1.5 billion. And we are restoring profitability. They're not where they need to be, but we are pleased with the progress in this past quarter. And then finally, on capital discipline, we remain very disciplined. We have not, as you all know, not started any new large terminal projects in the last 3 years, and we have basically not ordered any new ships as well. And we continue to maintain that policy. Longer term, our focus is going to be on growing our integrated offerings, growing our non-Ocean revenue disproportionately and becoming a more stable company with a reduced capital intensity. For those reasons, we defined these 4 transformation metrics that we will be reporting on every quarter to give you a better view of not only where we are doing in terms of the operations of the business as it looks right now but also how we are progressing on the transformation. So first and foremost, I want to highlight the fact that our cash return on invested capital in this quarter was 6.7%, a reasonably good number, driven, of course, by the fact that we had strong cash flow from operations but also because our CapEx was half of what it was in same quarter last year in broad numbers. Also we continue to make progress on our synergies, from putting our Transport & Logistics businesses together and from the acquisition of Hamburg Süd, where our target stated previously is of $1 billion. We are now, with the progress this quarter, at $870 million and have line of sight to achieving the target by end of the year. We also grew our non-Ocean revenue, 3.8%, when you adjust for the fact that we closed some container factories. And we grew gross profit 2.2% in Logistics & Services. Obviously, we're happy about the growth, but we also need to accelerate in this area in the coming quarters as part of our transformation. As you all know, we demerged Maersk Drilling and distributed the shares to our shareholders on the 4th of April. We believe that has been a good transaction for all and has created value. Maersk Drilling is still included in our numbers as a discontinued business in this Q1 report. [ Following ], we have a write-down, negative $628 million, which was the difference between the market cap at the end of the first day and the book value that we have. Now let me turn it over to Carolina.
Thank you, Soren. If we start by looking at last year, then we closed the sale of Maersk Oil and we booked an accounting gain of $2.6 billion in Q1 last year. We also received 97.5 million shares or almost 4% of Total, which we have been -- subsequently been selling, and now we have sold the remaining shares in Q1 this year. So the total cash flow from selling the shares were $5.6 billion, and we spent the first $1.2 billion last summer to reduce our debt. And we have previously communicated that we aim to distribute a material part of the proceeds of the Total share either as a dividend or as a share buyback. And now we have concluded our separation of the Energy business, and the Board of Directors have decided to issue a share buyback program. The size is DKK 10 billion or around USD $1.5 billion. The program will start in mid-June and will be executed over 15 months max. But we have decided to launch the share buyback program already now as we have seen a very strong cash flow from the business. We have been able, as Soren mentioned, to reduce our debt even further, and we have also sold the final stake of Total. So this has really enabled us to keep up our investment grade rating, which is very important for us. And now after the conclusion of the separation, we are, in the moment, relatively comfortable with our credit metrics. After this share buyback program has been finalized, the Board will evaluate our capital structure and outlook and we'll make decisions on further distributions, which is the intent. Moving then to the new dividend policy. A small recap. In the last 5 years, we have dividended out USD 11.1 billion. And this year, in 2019, we have dividended out USD 4 billion so far. And then, of course, there is the part of the share buyback we're just announcing to come. The new dividend policy will be an annual payout ratio of 30% to 50% of the underlying net result. But we, of course, adjust for the gains, impairments and restructuring. You can divide the work we do in the transformation of Maersk in a number of phases, and we have now finalized the phase of separating the Energy business and are now in the strategic phase of balancing the company between Ocean and non-Ocean. And while in this phase, it is our expectation that the annual payout ratio should be in the low- to mid-point range of this policy, so around 30% to 40%. And of course, the annual payout ratio will be set from an evaluation of the outlook, cash flow, CapEx, M&A opportunities and our credit rating. I always said that this means that the new dividend policy really gives us the flexibility to adjust within the range to accommodate the investments that we need to grow our logistics business, mainly inorganically.
Now to the financial highlights. As I said, the revenue grew 2.5% to 2.5% (sic) [ to USD 9.5 billion ] with increases both in Ocean and in Terminals & Towage, while Logistics & Services was flat. Overall, profitability was up. EBITDA by 33% in Q1, and the EBITDA margin improved 3 percentage points. EBIT was $230 million compared to $7 million in 2018. And the underlying result in the continuing business was a loss of minus $69 million to a loss of $329 million in the first quarter last year, impacted by higher depreciations and amortizations of $62 million.
Turning then to CapEx. And this slide is looking better and better, especially from a CFO perspective. In the first quarter, our gross CapEx was $778 million. That actually includes a $175 million from Maersk Supply Service, which we reclassified back into continuing operations. But it's important to notice that we are keeping our CapEx guidance of $2.2 billion for the full year, so $800 million of the $2.2 billion in the first quarter, but we are sticking to the $2.2 billion guidance for the year. And also, we can say the carryover or the current contractual commitments, we are now at the end of Q1 on $2 billion in sort of carryover. And that is to be compared to a couple of years ago, which was almost $7 billion. So a significant reduction here. And really, if we look at that, it's only 2 vessels that are sort of left to be delivered and some smaller terminal concessions. Turning then to cash flow. On the cash flow development, we have also made significant progress. You can see that the operating cash flow increased with more than 100% to $1.5 billion. The cash flow from operations was positively impacted also by the working capital improvement of $370 million as well as, of course, the increase in EBITDA up to $1.2 billion. And the cash conversion was full 120%. So all in all, for Q1 2019, free cash flow was $3.5 billion. And if we adjust that for the sale of the remaining shares in Total, which were $2.6 billion, the free cash flow was $0.9 billion. Also we have the joy of IFRS 16 in this quarter to compare with, and adjusted for financial leases, the free cash flow was $0.6 billion. And with the strong cash flow, that has a good effect on your balance sheet. So moving on then to the next slide and looking at the net debt. But the net interest-bearing debt decreased to $12.6 billion, and we started the year with $15 billion. So we've obviously been positively impacted by the sale of the Total share, the change in working capital, the improvement in the profit. And then we spent CapEx, I would say, in a good way and in a controlled way. We have a positive effect on -- well, so no, we have a negative effect on the new financial leases, which are increasing with $0.9 billion. The biggest part of that is actually a hub in Morocco. I would say, an important thing to remember, here, we compared just with previous quarter. But if we look a year back, we were actually almost $20 billion including IFRS 16 then. But we were almost on $20 billion in net debt, and now we're down to $12.6 billion. And that's a big, big change.
Now moving to Ocean and the specifics for the different segments. So what we are relatively happy with is the fact that we improved EBITDA by 42% in Ocean compared to Q1 in 2018. EBITDA margin improved by 3.8 percentage points to 13.4%, and we did that despite having slightly lower volume. The improvements were driven by higher freight rates, synergies and a reduction in the total cost base. We also saw an increase in other revenue, mainly driven by higher D&D income, partly due to higher volumes into North America where the tariffs are higher and also a number of places where we saw port congestions. Freight rates increased 3.9%. Volumes were down 2.2%. And that was -- the freight rate increases were driven by high recovery and of fuel price increases but also general increases across the board. East-West trades increased by 4.9%; North-South, 4.7%; and regional trades by 5%, a positive development driven by our continued focus on margins. And it's important for me to say here that at the end of the day, right, we are very much focused on improving earnings more than we focus, as the numbers also indicate, on improving our market share. Total volumes declined by 2.2% driven by North-South with decline of 5.6% and weak demand in Latin America and also India. But we also have to say for comparison that Q1 2018 was the first quarter where we had just taken over Hamburg Süd. They had all of their business, so to speak, so the decline in this quarter compared to this quarter last -- same quarter last year is a reflection of the retention of the business. Moving on to operating costs. Total operating cost was positively impacted by lower container handling costs and network costs, and our total cost was down by 2.8%. But if we adjust for rate of exchange, development in total cost declined by 0.5% mainly due to higher empty positioning costs because of lower backhaul volumes. Unit cost at fixed bunker improved slightly. However, it was negatively impacted by the declining volumes that came in weaker than what we had expected. Bunker cost decreased by more than 4% despite an increase in the bunker price, and the improvement was partly driven by bunker efficiency, which improved almost 9%, and partly due to less capacity in the network. Average nominal capacity in first quarter came in at 4,048 million TEU, which is on par with the Q4, and is also very much in line with our long-stated ambition of maintaining our network just around 4 million TEU. Now turning attention to Logistics & Services. Revenue declined very slightly, $7 million, and it was mainly driven by lower airfreight forwarding volumes. Gross profit improved by 2.2 percentage points, positively impacted by higher intermodal and warehousing, and EBITDA improved by $6 million. At the beginning of the year, we merged the commercial organization of Logistics & Services and Ocean. And that means that -- and we have lately announced that we're also adding what we previously called intermodal terminal in-line services into this organization, and what that effectively means is that we are now completely organized to execute on the strategy that we have outlined. On the next slide, briefly on supply chain management. Volumes in supply chain management increased slightly, impacted by new customers. Gross profit also improved to $79 million supported by higher volumes and increase in margins of about 1.4%. On the forwarding side, we saw margins in sea freight decreasing, in fact, 25% per TEU. And in airfreight, we saw an increase in margins of 6.6% per tonne. Our EBIT conversion ratio was 6.8%. It was more or less on par with the 7% in Q1 '18, mainly because of loss on debtors' provision and one-off gain in Q1 in 2018 in inland services. Adjusted for this, the EBIT conversion improved slightly compared to last year. On Terminals & Towage. We grew revenue by 9%, and gateway terminals contributed with the increase -- both increased revenue and EBITDA, while our towage activity faced headwinds mainly related to foreign exchange. EBITDA in gateway terminals increased by 15% as we added Moin in Costa Rica ramping up and general growth in volumes ahead of the market. And we did see also some increasing in costs mainly because a lot of the growth was in the U.S. Overall, I want to say on Terminals & Towage that we've seen significant progress in the terminals business over the last couple of years, and if we go back to Q1 of 2017, EBITDA is up by 61%. Those improvements in the results are continued good growth. Throughput increased by 3% in Q1 driven by volume from Ocean, which grew 5%. And volumes from external customers grew by 2%. We continue to see strong improvements in the utilization by basically 10 percentage points to 79%, driven by the strong volume growth over last year. Revenue per move increased 7.5% reflecting higher revenue from storage in West Africa and Latin America. While cost per move increased by 8.7% mainly driven by higher volumes in high-cost terminals, only partly offset by the increased utilization. On the Svitzer side, harbor towage activity as measured by truck jobs grew by 2.3%. However, the revenue was impacted by negative currency developments and volume decreases in Australia. In Terminals & Towage -- in terminal towage, annualized EBITDA per tug decreased, mainly driven by negative currency impact. And apart from this, new contracts have started in Australia, Bangladesh and Costa Rica in 2018, partly offsetting the decrease in EBITDA per tug. And now let me move on to Manufacturing & Others. Mass Container Industry reported a decrease in revenue to $140 million from basically double $288 million last year, but that was driven entirely by the exit of the dry container business as previously announced and a 30% lower revenue from the reefer business. Then we had also closed a factory in 2018 in Chile. And EBITDA was negatively impacted by the restructuring costs in connection with the -- of $31 million from closing of the dry factory. We also now have Maersk Supply Service in this segment, which reported an increase in revenue about 15% reflecting higher rates, and EBITDA increased to $5 million. Maersk Supply Service took delivery of 2 new buildings in Q1 2019, which thereby completes the order book of Maersk Supply Service. Now I'll hand back to Carolina.
So commenting then on the guidance. At A.P. Møller - Mærsk, we reiterate our guidance for 2019. Our EBITDA guidance is that we would be around USD 5 billion for 2019, and this is now, of course, including the effect from IFRS 16. The organic volume growth in Ocean is still expected to be in line with the estimated average market growth, which is 1% to 3% for 2019, as we still see uncertainties related to the market outlook, mainly related to the weaker -- well, the weak global economic growth in addition to risk from further escalation of trade tensions between U.S. and China. And please remember, as you can see from the sensitivity table, how volatility really affects our numbers. You can see the changes in freight rates continue to have a high impact on the EBITDA, and of course, also volume. When it comes to the CapEx, the gross CapEx for '19 is maintained at around $2.2 billion. And we still expect a high conversion of cash for 2019. And with that, Soren and I will open for ...
Yes.
Yes. Questions? Yes. Questions.
[Operator Instructions] The first question is from Casper Blom from ABG.
So I will take the opportunity to ask 3 questions then. First of all, Soren, you touched a little bit upon this with your comments about focus on profitability. There has been some media reports out stating that you had initiated, how can I say, a new price war in the container industry by cutting rates. Is that something that you can confirm? Secondly, with regards to your focus on a more capital -- or sorry, reduced capital intensity in the business, would that mean that we would in the future see a larger proportion of chartered vessels and less owned vessels? And then finally, with regards to your strong cash flow generation here in the quarter. When we look ahead, I would expect that at some point, you will start to buy vessels again. What kind of CapEx level would you say is fair to assume in more of a steady state?
Well, first of all, Casper, let me say that I can absolutely deny that we have started a price war and certainly also say that we have 0 intent to do so. We are focused on profitability and on generating cash, as we have said all the way back to the last Capital Markets Day, that we wanted to be -- and that's also what you see in our result, not just this quarter, but actually over the last many quarters. We brought down our committed investments so that we have much more focus on cash and results. In terms of the question regarding more TC vessels or whether a reduced CapEx will mean more TC vessels then, given that we are now reporting all of our lease obligations as part of IFRS 16, it doesn't actually matter much for us whether we charter the ships or we buy them as far as our balance sheet is concerned. So CapEx discipline means that we intend to invest less, whether it's direct or through time charter, in our Ocean business. And in terms of guidance on future CapEx then, we'll wait in guiding for CapEx in 2020 until we get closer to 2020. But you can expect to see a very disciplined CapEx. And as you know from our numbers this year, we have CapEx well below depreciation, and we're not expecting to change that anytime soon.
Okay. So you would expect that you could continue having CapEx below depreciations for more than just '19 and '20?
Yes. I don't think I could say much more about it, but yes.
Next question is from Robert Joynson from Exane BNP Paribas.
Three questions from me also but I'll do them one at a time. So first of all, on the share buyback, could you maybe just explain how the DKK 10 billion figure was arrived at? For example, is that the maximum amount you feel that you can do over 15 months without impacting the share price too much? Or is it simply the maximum amount you feel you can do at the current time whilst maintaining the investment grade rating? Or any other considerations?
I would basically say yes to your comments. That is the reason for taking this period of time and this amount. But we wanted -- well, the Board wanted to be clear that in a year's time they will, with the intent of distributing more, they will look at the situation then and then come back with more information on further steps.
So just to be clear, it was the first option, but you said yes there in terms of not impacting the share price too much?
That, of course, is always part of it. We have the safe harbor rules and so on. But we also have the liquidity. We have the rating. We have the cash flow, and we have to look at how -- where the world is going.
Okay. And just in terms of North-South volumes. You estimated that the market was down by 1.4% in Q1, but Maersk volumes was down by 5.6%. Was that entirely explained by Hamburg Süd? Or were there any other factors impacting that? For example, was Maersk maybe pricing at the upper end of the market, therefore, underperformed a little bit on volume?
Yes. So Robert, I think a big part of it is explained by the North -- excuse me, the Hamburg Süd retention. But we have also been very focused on prices, to be honest. So perhaps we have been more tough on prices than others and that has led to a smaller loss. But given the focus on profitability, that was the right strategy. We believe in that call.
Okay. And then the third question, just on the net income outlook. The EBITDA in Q1 was very much exactly 1 quarter of the $5 billion guidance for full year, but the underlying profit from continuing operations was negative. Should we conclude that if the $5 billion EBITDA target is hit, the net income for the full year will be negative? Or is that too simplistic?
Yes. I, of course, have a view. But we don't guide on net profit anymore.
Next question is from Frans Hoyer from Handelsbanken.
I have a question about the guidance, the $5 billion guidance, and how spacious is that guidance in your type of business. There will always be some to and fro. So is plus/minus 5% within guidance? Or is it more like plus/minus 10%?
What we have said is that we see this $5 billion as a plus/minus 10%. That's sort of the guidance range.
Yes. Okay. And so the $5 billion, does that correspond to 2% volume growth in your guide? And you were mentioning a range of 1% to 3% volume growth. So the $5 billion is that in the middle of that guidance range?
Well, like you said, the range -- what we're guiding on is 1% to 3% volume. But in this business, a lot has to do with the rates, right? So I would say, unfortunately, a lot of it is dependent on the rates and that you can see also from the sensitivity analysis that the rates hit so much harder than the volume.
They tend to go in the same direction. Okay. And in terms of your CapEx guidance of $2.2 billion, does that include the leasing assets that you might employ -- additional leasing assets that you might employ during the year?
No. That's a pure growth CapEx. And it's also not any inorganic, not acquisitions.
No, of course.
Next question is from Lars Heindorff from SEB.
The first one is regarding the growth outlook in Ocean. You mentioned you expect to grow volumes in line with the market 1% to 3% with the midpoint at least 2%. But can you just clarify and maybe repeat what is your aim in terms of capacity growth? Do you expect to keep the nominal capacity around those 4 million TEUs? And if the question to that -- sorry, if the answer to that question is yes, how would you expect them to reach the volume growth of 2% in line with the market?
Yes. Lars, we do actually have an ambition to maintain about 4 million TEU of capacity in the network also for the rest of 2019. We aim to grow in line with market, and we plan to do that by improving our utilization.
And you have recently started to increase capacity. I can see you are taking in -- as you mentioned, you serve a number of vessels on time charter. For the first quarter, you lowered your nominal capacity by 3%. I mean should we then expect that to gradually increase so that you will see sort of a maybe low to single -- mid-single-digit increase in the capacity in the second half? Is that sort of what your thinking is about the capacity?
I think we still aim towards this 4 million TEU. But of course, in the individual months or quarter, there might be special circumstances. So for instance, we will be doing some scrubber installations throughout the year, and that means that we will have to -- we are putting ships in dry docks for 6 weeks. So that means that we have to do charter ships from the market to plug those holes. But I think the general message is clearly that we're not aiming to grow our capacity, and we don't believe we have to in order to accommodate 1% to 3% volume growth. Because we can improve the utilization or design the network in a different -- in a way where we achieve more capacity with the same amount of ships.
Okay. And then lastly, on the cost side, so also a little bit related to the capacity development. You disclosed 2 cost items in Ocean, bunker and all other costs, which is a fairly big number. I think it's around USD 20 billion on a yearly basis. I'm trying to get at how we should think about those USD 20 billion because in the first quarter, you reduced the capacity by 3% and other costs declined by 2%. Should we expect that other cost item to grow roughly in line with how you develop your capacity?
Sorry, say that again, the last part?
Yes. I'm trying to get at the other cost item in Ocean, if we should expect that, that will follow the development in the capacity growth. I mean you had minus 3% in capacity in the first quarter, and nominal capacity and other costs declined by 2% in the Ocean. So if you expect maybe to see an increase in capacity in the rest of the year in order to get to those 4 million TEUs, well, what kind of growth should be expect in that other cost item for the rest of the year?
Perhaps I can suggest you refer to Page 15 in the report there. We have actually broken out the different cost items. And you can see the capacity costs. That's basically network cost and bunker cost. And then we have container handling costs, which are, of course, completely driven by volume, whereas bunker and network are semi-fixed or fixed, as is SG&A. So maybe that will be able to answer your question.
Next question is from Neil Glynn from Crédit Suisse.
If I could ask 2 questions, please, both focused on free cash flow generation...
Neil, we cannot hear you properly. You're kind of speaking into something other than your phone, I think.
Can you hear me now?
Yes. Much better. Thank you.
I wanted to ask 2 questions on cash flow generation, please. The first one, you obviously don't guide on free cash flow like you don't guide on net income. But just interested, given your first quarter performance in free cash flow and the EBITDA guidance for the year, it seems like something like $2.5 billion or maybe even $3 billion of free cash flow underlying might be possible this year. Just interested in your thoughts on that. Then the second question, again, on the cash flow subject. Your, I think, disclosure on management incentivization is improving. But can you provide us some detail in terms of how management is incentivized on cash flow generation with some figures in terms of thresholds, for example? I think given the stage of life of the company and the cash flow generation as the bigger priority, it would help the market understand how much incentivization there is and how much commitment there is to cash flow generation going forward.
Okay. So first to the cash flow generation, I would have to say, of course, I was very happy to see the free cash flow in the quarter the $3.5 billion. But you have to remember, the big part, the $2.9 billion, is the Total. And then $0.9 billion is sort of the -- well, I was going to say the real cash flow, but you know what I mean. The cash conversion is 120% in the quarter. That was very high. I would say a good company, high cash conversion, which is what we have guided. We have said that we aim to have a high cash conversion this year as well. That will be somewhere just below, well, probably 90% to 100%. We're around 90%, right? So I think we should keep that in mind and also for the full year when we talk about cash flow and the high conversion. As to management, well, we don't guide on the bonus targets themselves. But I think you can hear from our comments and our focus in the discussions that it's very high up on our agenda. And I will certainly personally make sure it stays high on the agenda.
Understood. And just to follow up on that. Is there a chance that we might get further disclosure on that in the foreseeable future?
No plans now, but you know that we can't say anything about the future. We'll see then.
Next question is from Dan Togo from Carnegie.
A few couple of questions from me as well and one at a time. Firstly, on -- again, on cash flow. The cash contribution from net working capital, how much of that is a reflection of, so to say, the lower volumes that you have in Q1? And i.e., when start to increase, how much can we expect of this cash contribution from net working capital in the future? And will that just not -- just converge in coming quarters? That's the first question.
Okay. So I mean when you talk about working capital, it's always important to have a little bit in context and seasonality and so on. But we had a good improvement of the 400 -- or 370 in the quarter, so that was good. But I mean sales are up in total, so we don't really see anything from that. I think it was a bit better considering that it's the first quarter. It's usually a bit weaker after year-end, but it was a good result in this quarter.
I'm just thinking about how much of this is sustainable going forward, and I'm referring to, of course, the lower volumes that you have in Q1.
No. I would say that, again, normally, Q1 is weak in cash flow after year-end, but this was not the case in this one. So I think we have to take that into context. It is 1 quarter and it's a bit unusual, so I don't think we can draw a trend from that.
Okay. Understood. And then on the synergies, you referred to $130 million from Hamburg Süd in the first quarter. Can you give any flavor on how that is distributed between Ocean and Terminals & Towage?
The $130 million is the combined synergies from both the Hamburg Süd integration and the Terminals & Towage part. So it's all-in. So for the full year, we are planning to reach $1 billion, and now we're up to $870 million. And $130 million of that was now in the first quarter.
And how much is included in Ocean? And how much is included, so to say, in -- or impacted in Terminals & Towage?
It's very hard to say. And I mean that's -- it's sort of towards the end. It usually comes in a bit into each other. So that's why we gave these numbers as a total.
Okay. And then does contribution both in Ocean but basically also, I guess, also in terminals from demurrage and detention, can you elaborate a bit on how that impacts EBITDA as well as, so to say, the margin on demurrage and detention?
Well, we can say it like this, that it's, of course, very high margin on that business.
And could you be a bit more specific of the impacts in Q1? You're just mentioning it as one of the -- but is -- can you quantify it in any way, the impact here?
I think in the U.S. and in Africa, it's been unusually high. But no, we don't give any separate guidance on exactly how much that has impacted. But it was one of the contributors like you say.
And then just a final question. You are now well into Q2, and I guess, you're also starting to receive some bookings for the peak season. Can you give any flavor on how you see, so to say, peak season and volumes going forward? Are we looking, so to say, for a slowdown? Or what should we aim for the year? I guess you got a bit more transparency now than you usually do when you report in Q1.
Well, we do but I think we're saying it relatively clear that we expect to grow in line with the market, and we expect the market to grow 1% to 3%. And we have also, of course, told you what our Q1 number was so you can do some math on that. I think it's probably the way to go.
Next question is from Finn Bjarke Petersen from Danske Bank.
My question goes in line of your growth. You are saying growth and relative performance to peers. If we look at the first quarter, you're probably down a couple of percentage. The market is up the same. In the fourth quarter, you were down, underperforming the market. Looking at it, very good peer. Down, say, in Hamburg. Hapag-Lloyd is increasing by 2.5 in the first quarter. Your rate developments are the same. You continue to underperform on EBITDA margins and also EBIT margin relative to the German peer. Could you explain to me where I should find the market growth that you keep saying is coming in line with the market? Now we have 2 quarters you underperformed. That's one question. The second question, when should I expect to see economy of scale in Maersk Line, meaning that you are actually outperforming in EBITDA and in EBIT to the German peer?
Well, actually, Finn, we did that in Q4. We actually had a better margin than Hapag-Lloyd. I think it's really, really difficult to look at this and compare 2 companies on a quarter-by-quarter basis because we don't recognize revenue in the same way and we don't have the same approach to hedging fuel. And as you know, we don't hedge fuel. Therefore, when the fuel price goes up as it did from Christmas throughout Q1, it impacts us quite negatively. And -- but when it goes down, it's the other way around. So I'm not going to have -- spend a lot of time comparing quarter-to-quarter with Hapag-Lloyd. They had a really good first quarter result, but we are absolutely happy with our result. We believe the company is moving clearly in the right direction in terms of earnings, in terms of cash flow generation, deleveraging of the balance sheet, doing what we said we were going to do on transformation and so on. So we are in a much better place than we were a year ago.
It's not because I want to compare the quarter-on-quarter. But if you look the last 8 quarters, it's a constant underperformance on EBIT margin if you look at your group versus their EBIT margin. And that's one thing. I'm just wondering when we should expect to see a sustainable lift in your EBIT margin compared to peers and so we can stop talking about cost leadership again. I still would want -- that's still my question number two. But if we return to the first question. I just wonder where the growth should come from if you have literally had 2 quarters where you were underperforming. You keep saying that you are performing in line with the market. So I just have to understand why -- where the growth should come from in the last 3 quarters for you to fulfill your prophecies.
I think it's important for me to say that our focus is on driving profit and cash flow in the business. We have a size now in Ocean where we are certainly not going to be at a disadvantage from a scale point of view. And therefore, whether we have 0.5 percentage point of market share, more or less, it's not going to ruin my day. Obviously, we need to drive as efficient a business as we possibly can. In the fourth quarter, last year, we had the highest margin in the industry. This time, this quarter, we'll maybe have the second-highest. We were not beating Hapag-Lloyd, but we beat everybody else who has reported at this point in a reporting cycle. And we're just waiting for CMA. So for us, really driving focus on improving earnings in Ocean and then driving growth in Logistics & Services and the Terminals & Towage, that's really our focus at this point. We still believe, given the volume plans that we have on Ocean, that we will be able to deliver 1 to 3 percentage point of growth for the year. And that means, of course, that we have to accelerate in the coming quarters.
Next question is from Marcus Bellander from Nordea.
Just one question for me, a follow-up question on the previous question regarding price wars. You said you certainly didn't start a price war, but you did cut your FAK rate on Asia-Europe pretty significantly. So couldn't that be perceived as starting a price war? And also, why did you cut that rate by so much? Is it because volume growth was weak in Q1 and you want to get volumes back up?
I have to say, I'm simply not aware of us having dramatically cut the rate on FAK from Asia to Europe. So I don't believe that, that's the case. And we have 0 interest in doing so.
And our final question for today is from Johan Eliason from Kepler Cheuvreux.
I hope you can hear me well. I have some problems hearing, Soren and Carolina, in replying to you. But I hope it will be better this time. So I was wondering about this CapEx and ship ordering. You are saying no new ships before 2020. Your German competitor is basically saying the same. What's so magic about 2020? Why are you not saying no new ships before 2025? Or what will happen in 2020? Is this a -- there are other some specific drivers that will imply that we should expect the ship ordering from you and the competitors to increase 20-something going forward, but obviously don't change your CapEx profile much near term as it -- to your delivery time or so. But should then the CapEx growth by, let's say, 2024 be significantly above today's level and potentially above the depreciation? Or how should we think -- what's basically the magic thing with 2020 and order intake for new ships beyond that year?
Maybe I should let my CFO answer the question. But what I would like to say in general is we have had as a company a long history of not being disciplined on CapEx. And I think we are changing that and we have changed that since -- basically since 2016. We have made no significant investment decisions, and that's why our committed CapEx have continued to drop. And if you look at it, we now only have about $200 million of committed CapEx for 2020. And we continue -- we want to drive a culture of much more focus on CapEx and not driving gross CapEx above depreciation again and again. And then I'll turn it over to Carolina to comment as well.
Yes. Well, I think, Soren, you should have the credit, and you got a very disciplined CFO in on this. But I think it's important that with the visibility we have, we have said now for this and next year, and I think the carryover is very important. It's important to remember that, that did start a couple of years ago. And that is why we are in a situation we are in now. I think another comment in the same sort of area is to say that what we want to invest more in is, of course, the growth in L&S. So we want to create a lot of space to grow and do both organic and inorganic investments on the L&S side to balance the Ocean and non-Ocean side, right?
But is there any underlying driver that will come into 2020 requiring you to do more shipyard ordering like a replacement cycle? Or is it just what you expect demand in a few years’ time to be?
Yes. So we don't see 2020 -- or IMO 2020 as a driver of significant new CapEx for us. We have a relatively modern fleet and we don't see any reason for why a higher fuel mix should mean that we have to invest in a lot of new ships. All right. I believe that was the last question. So let me just give you a few final remarks. As I said, the first quarter, we believe we are off to a reasonably good start. We continue to improve profitability. We, of course, are not where we needed to be but delivery of improvement was good, and we also had a positive return on invested capital although very small. We have significantly deleveraged the company. The focus on free cash flow and a disciplined CapEx is really starting to pay off. And that means that our balance sheet is in a much better shape than it was a year ago. That gives us opportunity and flexibility to move further with our transformation. It was a highlight that we have now finished the Energy separation with the demerger of Maersk Drilling as well as the announcement now of the commencement of the share buyback program of around $1.5 billion. That moves us forward. And we look forward to continuing the progress in 2019 with the transformation of the company, building a bigger and stronger non-Ocean revenue side of A.P. Møller - Mærsk, and that's what all of our focus is on as we speak. So thanks again for listening in, and we look forward to talking to you again in 3 months’ time. Thank you.