Annual Report • Feb 21, 2019
Annual Report
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A.P. Møller - Mærsk A/S
Esplanaden 50, DK-1098 Copenhagen K / Registration no. 22756214
| Historic transformation | |
|---|---|
| of A.P. Moller - Maersk | 4 |
| Maersk at a glance | 5 |
| Message from the Chairman | 6 |
| Message from the CEO | 8 |
| Financial review 2018 | 10 |
| Guidance for 2019 | 14 |
| Implementing IFRS 16 | 15 |
| Five-year summary | 17 |
| Market update | 18 |
| Business model | 23 |
|---|---|
| Strategy | 24 |
| Risk management | 27 |
| Segment review | 30 |
|---|---|
| Sustainability | 51 |
"In 2018, we accelerated our transformation and improved earnings despite lower than expected container volume growth and an increase in bunker fuel prices."
| Governance | |
|---|---|
| Corporate governance | 54 |
| Board of Directors | 58 |
| Executive Board | 61 |
| Remuneration | 62 |
| Shareholder information | 65 |
| Financials | |
| Pages 67-145 | |
| Consolidated financial statements 2018 | 68 |
| Parent company financial statements 2018 | 117 |
| Statement of the Board of Directors | |
| and the Executive Board | 141 |
| Independent Auditor's Report | 142 |
| Highlights Q4 2018 | 147 |
|---|---|
| Quarterly summary | 150 |
| Company overview1 | 152 |
| Stock exchange announcements | 155 |
| Definition of terms | 156 |
| External financial reporting | |
| for A.P. Moller - Maersk2 | 157 |
1 Part of Financials 2 Part of Directors' report
The Annual Report for 2018 of A.P. Møller - Mærsk A/S (hereinafter referred to as A.P. Moller - Maersk or Maersk as the consolidated group of companies and A.P. Møller - Mærsk A/S as the parent company) has been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and further requirements in the Danish Financial Statements Act.
As of 2018, Maersk changed the reportable segments and presentation of financial items in the cash flow statement. In accordance with IFRS, comparative figures have been restated.
The Annual Report contains forward-looking statements.
Unless otherwise stated, all figures in parenthesis refer to the corresponding figures for the previous year.
of A.P. Moller - Maersk Maersk at a glance Message from the Chairman Message from the CEO Financial review 2018 Guidance for 2019 Implementing IFRS 16 Five-year summary Market update
Considerable progress on the historic transformation of A.P. Moller - Maersk towards the vision of becoming the global integrator of container logistics. 27%
The objective of finding structural solutions for the oil and oil-related businesses, ultimately leading to a
separation from A.P. Moller - Maersk, is progressing successfully.
Maersk Tankers was acquired by A.P. Møller Holding A/S in 2017.
For Maersk Oil, the agreement with Total S.A. closed on 8 March 2018 with an accounting gain of USD 2.6bn.
For Maersk Drilling, it was decided to pursue a separate listing on Nasdaq Copenhagen in 2019.
The search for a long-term solution for Maersk Supply Service continues.
Revenue increase
26%
Volume growth in Ocean
22%
Net interest-bearing debt (NIBD)
41%
Hamburg Süd and Maersk Line joined forces on 1 December 2017 and have successfully managed to form one team, amongst others, sharing best practices, resources and strengths.
For the four business segments implemented in 2018 and representing the continuing operations, the key results are presented below.
Manufacturing & Others including Maersk Container Industry and Maersk Oil Trading
4,914
4,267
Cash flow from operating activities was USD 3.2bn, equal to a cash conversion of 85% (88%) driven by an increase in EBITDA of USD 274m and partly offset by higher tax paid. The abolition of the export VAT scheme in Denmark had a negative one-off effect of USD 200m. Adjusted for the one-off effect, the cash
conversion would have been above 90%.
EBITDA did not grow in line with the increase in revenue of USD 8.1bn. In Ocean, the inclusion of Hamburg Süd positively impacted EBITDA, partly offset by a 32% increase in the average bunker price, not fully recovered in the freight rates, resulting in a modest increase of USD 230m. Terminals & Towage reported an EBITDA increase of USD 139m, while Logistics & Services and Manufacturing & Others reported a decrease of USD 41m and USD 114m, respectively.
The underlying profit for continuing operations after financial items and tax was USD 220m (USD 356m), which is in line with the latest guidance for 2018 of a positive underlying result. The result for the continuing operations was a loss of USD 148m (loss of USD 194m).
Capital discipline is reflected in gross capital expenditure (CAPEX) of USD 2.9bn, in line with guidance of around USD 3bn, mainly relating to vessels ordered in previous years, containers in Ocean, and development projects in Terminals & Towage. Free cash flow during the year (cash flow from operating activities less CAPEX) was positive at USD 349m.
Net interest-bearing debt decreased by USD 6.1bn. Free cash flow was USD 4.2bn (negative USD 2.8bn), positively impacted by cash proceeds from the Maersk Oil transaction of USD 2.0bn, the sale of Total S.A. shares for USD 3.0bn, cash proceeds from the separation of Maersk Drilling of USD 1.2bn and positive operating cash flow during the year, partly offset by CAPEX and payment of dividend.
5 A.P. Moller - Maersk | Annual Report 2018
Jim Hagemann Snabe Chairman of A.P. Møller - Mærsk A/S
For A.P. Moller - Maersk, 2018 was a year of building the foundation for our future business, and we have made significant progress on the transformation of A.P. Moller - Maersk.
The transformation of A.P. Moller – Maersk was initiated in 2016, based on our strategy to focus A.P. Moller – Maersk on becoming the global integrator of container transportation and logistics to enable global trade in an efficient, simple and sustainable way.
Since the announcement of the new strategy, we have worked hard to change the company from being a diversified conglomerate with individual business units in different industries to become an integrated and focused company leading the transforming of the transportation industry.
In 2018, we completed the process of finding new structural solutions for the majority of the energy-related businesses, which will
enable them to continue to develop and grow under new ownership structures.
The sale of Maersk Oil to oil major Total S.A. was completed in March. The new owner is financially strong and has a long-term interest in the industry. Total S.A. has made Denmark a hub for Total S.A.'s North Sea activities, ensuring the best possible foundation for the continued development of the people, capabilities and assets of Maersk Oil and, not least, the Danish North Sea shelf.
In August 2018, we decided to pursue a demerger of A.P. Moller - Maersk via a separate listing of Maersk Drilling on Nasdaq Copenhagen in 2019, which will offer our shareholders the opportunity to participate in the continued development of Maersk Drilling.
Maersk Drilling owns and operates a fleet of 23 mobile offshore drilling rigs specialising in harsh environment and deepwater operations and is recognised for its safe, efficient, and reliable drilling services to some of the leading and most innovative oil and gas companies
around the world. With superior financial uptime compared to peers, reflecting the company's focus on consistency, safety and reliability, Maersk Drilling is positioned as the contractor of choice among E&P operators. Maersk Drilling's management has done a remarkable job in preparing the company to operate as a standalone company and is organisationally and financially well-prepared for a listing.
Maersk Supply Service progressed on their divestment programme and strategy to diversify its business into new markets in 2018, and the pursuit of the long-term solution will continue. However, the timing for defining a solution remains difficult to predict due to the continued challenges in their core market.
The core of A.P. Moller – Maersk's transformation is enhanced customer service and added value for our investors. Furthermore, it is important that A.P. Moller - Maersk maintains a strong financial position with a solid capital structure to be able to pursue the necessary investments through this process.
During 2018 the net interest-bearing debt has been reduced by around USD 6bn to USD 8.7bn, through free cash flow generation from the operations, and cash proceeds related to both the separation of Maersk Oil and Maersk Drilling.
In parallel to our efforts to complete the separation of our energy-related businesses, we have progressed on strengthening the fundamentals of our transport and logistics business towards profitable growth. In 2018, we successfully completed the integration of Hamburg Süd and delivered significant revenue growth and market share expansion further strengthening our number one position within ocean container transportation.
Digitalisation is a key enabler of transforming both A.P. Moller - Maersk and the industry. Innovative digital solutions delivered by A.P. Moller - Maersk in 2018 are removing the
complexity and increasing the visibility and bringing much-needed simplicity to supply chains and documents. As the world's largest transportation and logistics network, A.P. Moller - Maersk is well placed to lead the digital transformation of the industry.
In 2018, seven people regrettably lost their lives while engaged in operational activities, and my deepest condolences go to the families of the victims. Accidents are never intentional but occur as the result of many factors coinciding. The Board and the management team have decided to focus on safety and build organisational capacity and operational controls that will act as barriers to accidents that could otherwise have escalated to cause life-changing or fatal outcomes.
Carrying around 80% of global trade, the shipping industry is vital in finding solutions to one of the world's most pressing challenges; climate change. As an industry leader, we
have a responsibility to contribute to the reduction of CO2 emissions. Since 2008, we have achieved a 41% reduction of our emission relative to cargo moved. In December 2018, we set a goal of reaching carbon neutrality in our Ocean segment by 2050.
The Board of Directors is proud to see the ambition level and the commitment from management to contribute to sustainable development – in particular to help decarbonise logistics, contribute to halving food loss, help multiply the benefits of trade and lead the change in the ship recycling industry.
We believe in rewarding all employees, including executives, for delivering exceptional performance, building shareholder value and working towards the company vision of becoming the global integrator of container logistics.
Our executive remuneration policy is designed to attract, retain and motivate a highly effective and engaged executive team to support the achievement of our vision. In 2018 we have updated our cash-based short-term incentive scheme and our share-based long-term incentive scheme to better align the interests of executives with those of shareholders. The schemes are based on the following criteria: collaboration, agility, customer and people orientation and rewarding individual performance, as well as to which extent the organisation meets the financial and strategic objectives that drive the growth and future of the business.
Based on the foundation laid in 2018, we will accelerate the transformation in 2019. We are confident that the company has the right strategy and are building the capabilities to successfully transform the company and improve our profitability in the years to come.
In many ways A.P. Moller - Maersk is the enabler of global trade, as the world's largest and most reliable transportation network, connecting suppliers and customers globally. Based on our strategy, we are leading the transformation of the industry, using digitalisation to make global supply chains more simple, transparent and efficient, thus making the access to global trade more accessible and less costly. A significant transformation which will not only impact our business, but also the world.
On behalf of the Board of Directors, I would like to extend our sincere gratitude to our leadership team and all our employees around the globe for their continued passion, efforts and dedication to transform our company. This loyalty and focus have built our unique position and is the foundation for our future.
Søren Skou CEO of A.P. Møller - Mærsk A/S
The objective of the transformation of A.P. Moller - Maersk is to set the company on a new profitable growth trajectory. In the past two and a half years, we have come far in regaining our growth ambition, but we still need to improve profitability from the level seen in 2018.
We have transformed from being a conglomerate, with a corporate layer overseeing independent, stand-alone business units that had their own bottom lines, to one company, with one bottom line and with customers at the centre of our attention. With the listing of Maersk Drilling, scheduled for 4 April 2019, we will have almost completed the separation of our energy-related businesses, totalling more than USD 12bn worth of separation transactions.
We have acquired and integrated Hamburg Süd, contributing towards industry consolidation and positively impacting our results. We have made progress on the digital transformation of our business, digitising customer transactions, improving how we operate the business and our assets, and enabling new business opportunities. We are transforming Maersk at a time, where our Ocean business has been challenged by weakening market fundamentals resulting in unsatisfactory financial results. We did not reach the earnings expectations we had at the beginning of the year, primarily due to the increase in bunker fuel prices having a negative impact during the first half of the year. Despite this, we have improved earnings and turned Maersk into a growth company again. Since 2016, we have added USD 12bn in revenue in the continuing businesses, a 43% increase, and have seen growth across all segments. In 2018 revenue grew 26% compared to the year before, and our net interest-bearing debt was significantly reduced.
In 2018, the most profound step in our integration towards becoming one company was to simplify how our customers do business with us, by forming a new global frontline, which came into effect on 1 January 2019. We now have one sales team, one customer service team and one delivery organisation, covering our Ocean and Logistics & Services segments. By going to market in this way, we are taking steps to grow our non-Ocean activities and to better balance our business model.
We also took steps to integrate our support functions, such as IT/Technology, Finance, HR, Legal, Sustainability, Security and Corporate Communications, into global teams. By forming one team, as opposed to a separate team supporting each segment, these functions can provide more comprehensive services, while reducing costs.
In the first quarter of 2018, we changed our reporting structure to reflect that we are one company with one bottom line.
During 2017 and 2018, we realised more than USD 300m in savings by harvesting synergies across business segments mainly driven by closer collaboration between our Ocean segment and gateway terminals, further optimisation of our terminals and improved planning and utilisation of manufacturing capacity.
In December 2017, our acquisition of Hamburg Süd was approved, and during 2018 we consolidated both network and the operational organisations to deliver synergies, while maintaining two separate brands with two distinct value propositions for our customers. Aside from the benefits to the network, the acquisition has also enabled further utilisation of the terminals and benefits from joint procurement. Since the acquisition, we have realised USD 420m in synergies from Hamburg Süd and the expectation of synergies was therefore revised to a minimum of USD 500m by the end of 2019, from previously USD 350- 400m.
Maersk's technological landscape is also transforming to help improve the customer experience and make our operations more efficient.
For ocean transport, the transactions have been digitised, enabling customers to do everything online; getting a price quote, booking and documentation. For many years, we have had the ambition to make it as simple to book a
container as it is to book an airline ticket. By enabling our customers to self-serve on multiple platforms, with 24/7 availability, we are well on our way to achieving this goal, and today, maersk.com is one of the largest business-to-business transaction sites in the world with more than 35,000 daily users and close to 20,000 bookings a day. We continuously focus on developing an even deeper understanding of our customers´ online journey, so that we can add new functionalities and products to the site.
In 2018, we improved the schedule reliability of our network putting Maersk and Hamburg Süd back in the top quartile of the industry, and the work to deliver better customer service leaves us with an all-time high customer satisfaction score in our Ocean segment. We have a continuous focus on improving the reliability of our network.
The actions we have taken to strengthen our fundamentals in our terminals and manufacturing locations are also showing results.
Our gateway terminals delivered solid volume growth of 11%, which is almost three times faster than the market growth. While the majority of that growth was from closer collaboration with the Ocean segment, including Hamburg Süd, we also grew above the market with external customers. Hub productivity was up by 9.7% compared to 2017, which means that hub productivity has now overall risen by 23% since the launch of the strategy in 2016.
In 2018, Maersk Container Industry reshaped its factory footprint by exiting the dry container business and closing two of three factories. By doing this, the business will build on its core strength of refrigerated equipment and focus on meeting the expectations of customers with increasingly complex needs around temperature controlled transportation.
The well-being of our employees is a top priority for me personally and for our company. Seven people lost their lives while working for A.P. Moller - Maersk in 2018. These losses sadden me deeply. No one should go to work for A.P. Moller - Maersk and not come home. The loss of seven lives in 2018 only reinforces our resolve to strengthen our safety approach, so fatalities can be avoided.
To ensure that we get closer to our aim of zero fatalities, we are implementing a different approach to safety, and a new corporate safety organisation. Our new safety approach will address three critical priorities, including leadership accountability, creating capacity for safe operations, and one safety culture. We are building on the solid measures we already have in place and involving the teams that are most at risk, to identify and ensure the right preventive actions are in place, thereby mitigating even more risks.
With Maersk as one of the driving forces, the industry has done an excellent job over the past 30 years in reducing costs and barriers of global trade. We are truly enabling exporters
to sell their products globally, and we are making it possible for importers to source parts or goods from the most competitive suppliers, no matter where they are in the world.
However, bringing cargo from one part of the world to another is still seen by our customers as a complex and unreliable process. We aim to deliver better reliability, more visibility and simplicity with our strategy: to become the global integrator of container logistics, connecting and simplifying our customers' supply chains. We will continue to leverage technology in the parts of the business that bring most value to the customer, and digital innovation remains key to offer customers a simple endto-end solution.
I want to express my sincere gratitude for the incredible focus and hard work that all 80,000 colleagues at Maersk are putting into this challenging transformation.
For 2019, the listing of Maersk Drilling on Nasdaq Copenhagen will be high on the agenda, and I am confident that we will also find the right solution for Maersk Supply Service. At this stage, a warm thank you to all our colleagues in the energy businesses who have worked relentlessly under challenging circumstances and uncertainty on future perspective.
In 2019, we will continue to focus on improving results across the company while at the same time growing our Logistics & Services segment by expanding the product portfolio. We will continue our efforts to improve the customer experience across our products and pursue the technological transformation, and build on steps already taken to be one company with one culture. We will continue forging ahead, despite uncertainties in the current global macroeconomic outlook.
2018 was a year of execution to build the foundation for the new A.P. Moller - Maersk. 2019 will be the year of accelerating our transformation to set us up for long-term, profitable growth that will benefit all our customers and create shareholder value.
A.P. Moller - Maersk reported strong revenue growth and a successful integration of Hamburg Süd, realising synergies faster and higher than expected. However, the financial performance at the beginning of the year was lower than expected, mainly due to the increase in bunker costs not fully recovered by increase in freight rates, resulting in a lower result than set in the initial guidance for 2018.
The year showed a strong cash conversion and a positive free cash flow from continuing operations. Net interest-bearing debt was significantly reduced due to the proceeds from the completion of the Maersk Oil transaction and subsequent partial sale of shares in Total S.A. and a lower CAPEX reflecting capital discipline.
A.P. Moller - Maersk reported an increase in revenue of 26% to USD 39.0bn (USD 30.9bn), with growth in all segments. Non-Ocean revenue amounted to 32% (35%) of total revenue. The lower share of non-Ocean revenue was driven by the acquisition of Hamburg Süd contributing to Ocean revenue.
In Ocean, revenue increased by 29% to USD 28.4bn (USD 22.0bn), mainly due to the inclusion of Hamburg Süd. Excluding Hamburg Süd, revenue increased by 5.8% to USD 22.7bn (USD 21.5bn), positively impacted by an increase in the average freight rate of 1.9% to 1,816 USD/FFE (1,782 USD/FFE), volume growth of 2.5% to 11,003k FFE (10,731k FFE), and a 13% increase in other revenue.
In Logistics & Services, revenue increased by 5.4% to USD 6.1bn (USD 5.8bn), supported by higher intermodal volumes in inland haulage, volume growth from supply chain management and revenue growth in warehousing activities.
Revenue grew by 8.4% to USD 3.8bn (USD 3.5bn) in Terminals & Towage, mainly driven by higher volumes in gateway terminals from Ocean by 19% and external customers by 7.3%.
EBITDA was USD 3.8bn (USD 3.5bn), in line with the latest guidance of USD 3.6-4.0bn, with an increase in Ocean to USD 3.0bn (USD 2.8bn), where the revenue increase was offset by a 32% increase in the average bunker price, equivalent to an additional cost of USD 1.2bn, not fully recovered in the freight rates. A Hamburg Süd pro forma EBITDA of USD 618m (pro forma USD 554m) made a positive contribution. EBITDA was negatively impacted by integration costs from Hamburg Süd of USD 60m, and restructuring costs of USD 50m from merging the commercial front lines of Ocean and Logistics & Services.
EBITDA in Terminals & Towage increased by 22% to USD 778m (USD 639m), and decreased in Logistics & Services to USD 98m (USD 139m), mainly due to restructuring costs and timing of maintenance costs in Star Air. For Manufacturing & Others, EBITDA declined to USD 59m (USD 173m).
Synergies related to the strategic integration of the transport, logistics and port businesses as well as the acquisition of Hamburg Süd have generally been realised as planned. For the integration of transport, logistics and port
| Highlights for the year | Revenue | EBITDA | CAPEX1 | |||
|---|---|---|---|---|---|---|
| USD million | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Ocean | 28,366 | 22,023 | 3,007 | 2,777 | 2,279 | 2,831 |
| Logistics & Services | 6,082 | 5,772 | 98 | 139 | 47 | 54 |
| Terminals & Towage | 3,772 | 3,481 | 778 | 639 | 556 | 704 |
| Manufacturing & Others | 2,547 | 1,689 | 59 | 173 | 16 | 23 |
| Unallocated activities, eliminations, etc. | -1,748 | -2,020 | -136 | -196 | -22 | -13 |
| A.P. Moller - Maersk consolidated – continuing operations | 39,019 | 30,945 | 3,806 | 3,532 | 2,876 | 3,599 |
1 See definition on page 156.
businesses, synergies of around USD 321m have been realised since the end of 2016. The synergy realisation is mainly reflected in the collaboration between Ocean and gateway terminals, with reported like-for-like volume growth in the financially consolidated gateway terminals of 10%, with the Ocean segment growing 19% compared to external customers growing 7.3%. The integration of Hamburg Süd delivered synergies of USD 420m in 2018, mostly realised within procurement, network optimisation and increased volumes in gateway terminals operated by Maersk.
EBITDA was negatively impacted by an estimated USD 0.2bn from changes in foreign exchange rate.
EBIT was USD 627m (USD 641m), positively impacted by the improvement in EBITDA in Ocean and Terminals & Towage, but negatively affected by increased depreciation due to the inclusion of Hamburg Süd. Furthermore, EBIT was negatively impacted by impairments of USD 206m in Maersk Container Industry, and from the share of profit/loss in associated companies affected by impairments of USD 190m in the RORO business in 2018, where
2017 was affected by an impairment of USD 265m impacting the share of profit/loss in APM Terminals´ joint ventures.
Financial expenses amounted to USD 389m (USD 616m), positively impacted by net foreign exchange rate developments and dividends from the Total S.A. shares of USD 238m, offset by higher net interest expenses due to higher average debt during the year.
Net profit including discontinued operations was USD 3.2bn (loss of USD 1.2bn), positively impacted by an accounting gain of USD 2.6bn from the closing of the Maersk Oil transaction in 2018 and an impairment in Maersk Drilling of USD 1.75bn in 2017. The result for the continuing operations was a loss of USD 148m (loss of USD 194m).
The underlying profit for continuing operations after financial items and tax was USD 220m (USD 356m), which is in line with the latest guidance for 2018 of a positive underlying result.
ROIC for continuing operations of 0.8% (1.6%) is at an unsatisfactory level, and below the target of minimum 8.5%.
The financial reporting structure changed for 2018 with new segments to reflect the strategic initiatives taken towards becoming the global integrator of container logistics. In addition, new financial and operational metrics were introduced to facilitate transparent insight into the performance of the various business activities. The segments comprise:
With the activities of Maersk Liner Business (Maersk Line, Safmarine and Sealand – A Maersk Company) together with the Hamburg Süd brands (Hamburg Süd and Aliança) as well as strategic transshipment hubs under the APM Terminals brand. Inland activities related to Maersk Liner Business are included in the Logistics & Services segment.
With the logistics and supply chain management services, container inland services, inland haulage activities (intermodal), trade finance services and freight forwarding.
Including gateway terminals, involving landside activities such as port activities where the customers are mainly the carriers, and towage services under the Svitzer brand.
Maersk Container Industry's activities within reefer containers, following the decision in January 2019 to exit the dry container business altogether, and other businesses.
Discontinued operations reported a profit of USD 3.4bn (loss of USD 970m), reflecting the accounting gain of USD 2.6bn from the Maersk Oil transaction. The gain comprises the original gain calculated as of 30 June 2017 of USD 2.8bn less the profit recognised in the period from 1 July 2017 until closing 8 March 2018 of USD 1.0bn, and the addition of locked box interest and the positive
Total S.A. share price development totalling USD 0.8bn. The result in 2017 was negatively impacted by impairment losses net of USD 2.2bn relating to Maersk Drilling and Maersk Supply Service.
Maersk Drilling and Maersk Supply Service reported a profit of USD 561m (loss of USD 1.8bn), positively impacted by the cessation of depreciation from classification as discontinued operations, and a positive fair value adjustment in Maersk Drilling of USD 445m due to the improved market outlook and a negative fair value adjustment in Maersk Supply Service of USD 400m, while 2017 was negatively impacted by impairments of USD 2.2bn.
USD 3.2bn (USD 3.1bn), equal to a cash conversion of 85% (88%) and driven by an increase in EBITDA of USD 274m, offset by the abolition of the export VAT scheme in Denmark, which had a negative one-off effect of USD 200m and higher tax paid, partly due to withholding tax on dividends received from the Total S.A. shares. Adjusted for the one-off related to the change in the VAT scheme, cash flow conversion would have been above 90%.
Gross capital expenditure (CAPEX) amounted to USD 2.9bn (USD 3.6bn), which is in line with the latest guidance for 2018 of around USD 3.0bn, mainly related to vessels ordered in previous years, containers in Ocean and development projects in Terminals & Towage. Free cash flow was USD 4.2bn (USD 1.3bn in 2017 excluding the acquisition of Hamburg Süd), positively impacted by the sale of Total S.A. shares of USD 3.0bn. Excluding the sale of the Total S.A. shares, the free cash flow was USD 1.2bn.
The contractual capital commitments for the continuing operations totalled USD 2.3bn (USD 3.9bn), of which USD 447m related to the newbuilding programme for vessels, etc. The remainder primarily relates to commitments towards terminal concession grantors.
With the objective of further strengthening the value of the brands, A.P. Møller - Mærsk A/S has entered into a joint usage agreement with A.P. Møller Holding A/S regarding the use of commonly used trademarks which historically have benefited both A.P. Møller - Mærsk A/S and A.P. Møller Holding A/S.
A.P. Møller Holding A/S is the controlling shareholder of A.P. Møller - Mærsk A/S, and is wholly owned by A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal.
The joint usage agreement establishes a framework and a branding strategy for the commonly used trademarks and a joint brand board, where the parties can cooperate regarding the use of these trademarks.
A.P. Moller - Maersk reported an increase in revenue of 26% to USD 39.0bn (USD 30.9bn), with growth in all segments.
In total, USD 263m has been contractually committed for the installation of scrubbers and retrofitting on a selected part of the fleet as part of the plan to comply with the new sulphur regulations from January 2020. Continued CAPEX discipline remains a key focus area, with no new large vessel orders or new major terminal investments expected until at least 2020.
Net interest-bearing debt for the continuing operations decreased to USD 8.7bn (USD 14.8bn), positively impacted by cash flow related to the cash proceeds of USD 2.0bn from the Maersk
Oil transaction in Q1 2018, the sale of USD 3.0bn of Total S.A. shares in Q3 and Q4 2018, cash proceeds from the separation of Maersk Drilling of USD 1.2bn in Q4 2018, and positive operating cash flow during the year, partly offset by gross investments and the payment of dividends and financial costs.
Maersk made net repayments of USD 5.5bn for the full year 2018 and repaid USD 5.1bn in Q4 2018. Net repayments of bonds amounted to USD 2.3bn, driven by free cash flow generation during the year, including cash flow from the sale of Total S.A. shares.
Maersk issued EUR 750m eight-year bonds in the euro market in March 2018, its first bond issue since 2016, and concurrently re-purchased a total notional amount of EUR 500m of its two outstanding EUR bonds maturing in 2019. Towards the end of the year, Maersk bought back the entirety of its USD bonds maturing in 2019 and 2020 with a total notional amount of USD 1.25bn, and parts of the EUR bonds maturing in 2019 and 2021 with a total notional amount of EUR 817m, or USD 925m.
Maersk's average maturity of debt was about four years (about four years), and gross debt has been reduced from USD 17.5bn to USD 11.9bn.
Total equity was USD 33.4bn (USD 31.4bn), positively impacted by the accounting gain of USD 2.6bn from the Maersk Oil transaction. With an equity ratio of 59.0% (49.7%), and a liquidity reserve of USD 10.3bn (USD 9.6bn), due to an increase in cash, Maersk maintains a strong financial position.
As part of the Maersk Oil transaction on 8 March 2018, Maersk received 97.5 million shares in Total S.A. with a value of USD 5.6bn. A total of 51.25 million Total S.A. shares, generating a cash flow of USD 3.0bn, were sold in 2018. At 31 December 2018, the Total S.A share price was EUR 46.2 per share, equal to a total value of the remaining 46.27 million shares of USD 2.4bn. The value adjustments are recognised in equity as other comprehensive income, while dividends are recognised in the income statement under financial items, net.
In 2019, Maersk has sold Total S.A. shares for an aggregated amount of approx. USD 1.0bn, and retains 27.9 million shares in Total S.A. with a current market value of approx. USD 1.6bn.
Maersk Drilling's separate financing has released cash proceeds of approx. USD 1.2bn to Maersk in Q4 2018.
Maersk remains investment grade-rated, and holds a Baa3 (stable) rating from Moody's after being downgraded in November, and a BBB (credit watch negative) for a possible downgrade rating from Standard & Poor's.
Maersk remains committed to maintaining its investment grade rating.
Subject to maintaining an investment grade rating, it is still expected that:
Further details related to the capital structure of A.P. Moller - Maersk and the distribution of the proceeds from the received Total S.A. shares will be announced at the latest in connection with the Q2 Interim Report in August 2019.
A.P. Moller - Maersk expects earnings before interest, tax, depreciation and amortisation (EBITDA) of around USD 5.0bn when including the effects from IFRS 16, and around USD 4.0bn when excluding the effects from IFRS 16. From Q1 2019, guidance for EBITDA will be based on IFRS 16.
The organic volume growth in Ocean is expected to be in line with the estimated average market
growth of 1-3% for 2019. Guidance on gross capital expenditure (CAPEX) is around USD 2.2bn and a high cash conversion (cash flow from operations compared with EBITDA).
Maersk's guidance for 2019 is subject to considerable uncertainties due to the current risk of further restrictions on global trade and other factors impacting container freight rates, bunker prices and foreign rate of exchange.
The guidance of A.P. Moller - Maersk for 2019 depends on several factors. Based on the expected earnings level and all else being equal, the sensitivities for 2019 for four key assumptions are listed in the table below:
| Factors | Change | Effect on EBITDA (next 12 months) |
|---|---|---|
| Container freight rate | +/- 100 USD/FFE | +/- USD 1.4bn |
| Container freight volume | +/- 100,000 FFE | +/- USD 0.1bn |
| Bunker price (net of expected BAF coverage) | +/- 100 USD/tonne | -/+ USD 0.6bn |
| Foreign rate of exchange (net of hedges) | +/- 10% change in USD | +/- USD 0.3bn |
(unaudited amounts)
The IFRS 16 accounting standard is effective from 1 January 2019 onwards. The new requirements in IFRS 16, entail that most leases recognise right-of-use assets and related lease liabilities, will have a material impact on the amounts recognised in the consolidated financial statements.
Implementation of IFRS 16 entails that almost all operating lease contracts will be recognised on the balance sheet. Operating leases for terminals, land, vessels, warehouses, buildings and other assets will be recognised on the balance sheet as right-ofuse assets and lease liabilities. In the income statement, lease costs will not be recognised as operating costs, but as depreciation of the right-of-use assets and interest cost on the lease liability.
A.P. Moller - Maersk has adopted IFRS 16 on 1 January 2019 without reassessing the lease definition compared to that in the existing IAS 17 and IFRIC 4. Maersk has chosen to use the simplified (modified retrospective) approach with no restatement of comparative figures for prior periods.
A pro forma restatement of key figures for 2018 for Maersk and the segments is presented on page 16.
Earnings before interest, tax, depreciation and amortisation (EBITDA) will be significantly higher than under the current accounting standards as a significant part of expenses related to operating leases are no longer included. For 2018, EBITDA increases by approx. USD 1.2bn to USD 5.0bn from USD 3.8bn.
Likewise, earnings before interest and tax (EBIT) will increase, but to a lesser extent due to higher depreciation costs as the asset base has increased. Therefore, EBIT increases approx. to USD 0.8bn from USD 627m.
Net profit will decrease slightly due to increased financial expenses. In 2018, the net loss for continuing operations increases to approx. USD 0.3bn from a loss of USD 148m. Assets will in the future be recognised for the right-of-use received, and liabilities will be recognised for the payment obligations
entered for most leases. Adopting the new IFRS 16 accounting standard will not materially change the existing accounting rules for finance leases.
Furthermore, Maersk will not recognise right-of-use assets and lease liabilities of lease contracts with a maturity shorter than 12 months, or leases of low-value assets. For dry containers, which individually are below the low-value assets threshold, Maersk has chosen a portfolio approach where contracts with multiple containers will be treated as one contract, and a right-of-use asset will be recognised.
In container vessels, approx. 20% of its lease commitment matures within 12 months, thereby lowering the impact from IFRS 16. In hub and gateway terminals, most of the lease commitments (approx. 90%) are longterm concession agreements, which add approx. USD 2.2bn to the balance sheet.
Therefore, total borrowings increase by approx. USD 6.0bn to USD 17.9bn. Invested capital also increases by approx. USD 6.0bn to USD 49bn.
Net interest-bearing debt increases by approx. USD 6.0bn from USD 8.7bn to USD 14.7bn.
Cash flow from operating activities will be impacted, as EBITDA increases due to the operating leases being reflected in higher interest costs, which are included in cash flow from financing activities. Therefore, cash flow from operating activities increases by approx. USD 1.2bn from USD 3.2bn to USD 4.4bn.
The guidance for 2019 is based on IFRS 16. From Q1 2019, the guidance will only be provided based on the new IFRS 16 accounting rules.
| Income statement | 2018 | Approx. IFRS 16 adjustment |
2018 (IFRS 16) |
|---|---|---|---|
| Profit before depreciation, amortisation and impairment | |||
| losses, etc. (EBITDA) | 3.8 | 1.2 | 5.0 |
| Depreciation, amortisation and impairment losses, net | -3.3 | -1.0 | -4.3 |
| Profit/loss before financial items (EBIT) | 0.6 | 0.2 | 0.8 |
| Financial items, net | -0.4 | -0.3 | -0.7 |
| Profit/loss before tax | 0.2 | -0.1 | 0.1 |
| Profit/loss for the year – continuing operations | -0.1 | -0.2 | -0.3 |
| Underlying profit/loss – continuing operations | 0.2 | -0.2 | < 0.1 |
| Balance sheet | |||
| Total assets1 | 56.6 | 6.0 | 62.6 |
| Borrowings (including lease liabilities) | 11.9 | 6.0 | 17.9 |
| Net interest-bearing debt | 8.7 | 6.0 | 14.7 |
| Invested capital1 | 43.2 | 6.0 | 49.2 |
| Cash flow statement | |||
| Cash flow from operating activities | 3.2 | 1.2 | 4.4 |
| Gross capital expenditure, excl. acquisitions and | |||
| divestments (CAPEX) | 2.9 | - | 2.9 |
| Net cash flow for the period | 1.0 | - | 1.0 |
| Financial ratios | |||
| EBITDA margin | 9.8% | 12-13% | |
| Return on invested capital after tax – continuing | |||
| operations (ROIC)2 | 0.8% | 1.0-1.5% | |
| Equity ratio | 59.0% | 53-54% |
| Ocean financial highlights | 2018 | Approx. IFRS 16 adjustment |
2018 (IFRS 16) |
|---|---|---|---|
| Profit before depreciation, amortisation and impairment | |||
| losses, etc. (EBITDA) EBITDA margin (%) |
3.0 10.6% |
0.8 | 3.8 13-14% |
| Logistics & Services financial highlights | |||
| Profit before depreciation, amortisation and impairment losses, etc. (EBITDA) EBITDA margin (%) |
0.1 1.6% |
0.1 | 0.2 3.0-3.5% |
| Terminals & Towage financial highlights | |||
| Profit before depreciation, amortisation and impairment losses, etc. (EBITDA) EBITDA margin (%) |
0.8 20.6% |
0.2 | 1.0 26-27% |
| Manufacturing & Others financial highlights | |||
| Profit before depreciation, amortisation and impairment losses, etc. (EBITDA) EBITDA margin (%) |
0.1 2.3% |
<0.1 | 0.1 5.0-5.5% |
1 Total assets and invested capital balances are opening balances on 1 January 2019.
2 Return on invested capital after tax – continuing operations is calculated based on invested capital excluding discontinued operations and the value of shares in Total S.A.
| Income statement | 2018 | 2017 | 2016 | 2015 | 2014 |
|---|---|---|---|---|---|
| Revenue | 39,019 | 30,945 | 27,266 | 30,161 | 34,806 |
| Profit before depreciation, amortisation and impairment | |||||
| losses, etc. (EBITDA) | 3,806 | 3,532 | 2,475 | 4,365 | 5,284 |
| Depreciation, amortisation and impairment losses, net | 3,325 | 3,015 | 2,495 | 2,391 | 2,730 |
| Gain on sale of non-current assets, etc., net | 144 | 154 | 190 | 391 | 505 |
| Share of profit/loss in joint ventures | 117 | -131 | 130 | 147 | 29 |
| Share of profit/loss in associated companies | -115 | 101 | -55 | 97 | 416 |
| Profit/loss before financial items (EBIT) | 627 | 641 | 245 | 2,610 | 3,505 |
| Financial items, net | -389 | -616 | -543 | -452 | -727 |
| Profit/loss before tax | 238 | 25 | -298 | 2,158 | 2,778 |
| Tax | 386 | 219 | 171 | 225 | 509 |
| Profit/loss for the year – continuing operations | -148 | -194 | -469 | 1,934 | 2,269 |
| Profit/loss for the year – discontinued operations1 | 3,369 | -970 | -1,428 | -1,009 | 2,925 |
| Profit/loss for the year | 3,221 | -1,164 | -1,897 | 925 | 5,195 |
| A.P. Møller - Mærsk A/S' share | 3,169 | -1,205 | -1,939 | 791 | 5,015 |
| UNDERLYING PROFIT/LOSS – CONTINUING OPERATIONS: | |||||
| Profit/loss for the year – continuing operations | -148 | -194 | -469 | 1,934 | 2,269 |
| Gain/loss on sale of non-current assets, etc., net | -144 | -154 | -190 | -391 | -505 |
| Impairment losses, net | 410 | 641 | 156 | 1 | 653 |
| Transaction and integration cost | 78 | 59 | - | - | - |
| Tax on adjustments | 24 | 4 | 7 | 9 | 162 |
| Underlying profit/loss – continuing operations2 | 220 | 356 | -496 | 1,553 | 2,580 |
| Balance sheet | |||||
| Total assets | 56,636 | 63,227 | 61,118 | 62,408 | 68,844 |
| Total equity | 33,392 | 31,425 | 32,090 | 35,739 | 42,225 |
| Invested capital3 | 43,219 | 46,297 | 43,491 | 43,509 | 49,927 |
| Net interest-bearing debt3 | 8,741 | 14,799 | 11,420 | 7,770 | 7,698 |
| Investments in non-current assets – continuing operations | 2,954 | 9,205 | 4,585 | 3,597 | 3,552 |
| Cash flow statement | |||||
| Cash flow from operating activities4 | 3,225 | 3,113 | 1,593 | 4,398 | 5,040 |
| Gross capital expenditure, excl. acquisitions and | |||||
| divestments (CAPEX) | 2,876 | 3,599 | 1,998 | 3,507 | 3,428 |
| Net cash flow from discontinued operations | 3,421 | 1,251 | 503 | 226 | 1,806 |
| Financial ratios2 | 2018 | 2017 | 2016 | 2015 | 2014 |
|---|---|---|---|---|---|
| Revenue growth | 26.1% | 13.5% | -9.6% | -13.3% | 2.6% |
| Revenue growth excl. Hamburg Süd | 8,3% | 11,5% | - | - | - |
| EBITDA margin | 9.8% | 11.4% | 9.1% | 14.5% | 15.2% |
| Cash conversion | 84.7% | 88.1% | 64.4% | 100.8% | 95.4% |
| Return on invested capital after tax (ROIC) – continuing operations |
0.8% | 1.6%5 | 0.5% | 8.2% | 8.4% |
| Return on equity after tax | 9.9% | -3.7% | -5.6% | 2.4% | 12.3% |
| Equity ratio | 59.0% | 49.7% | 52.5% | 57.3% | 61.3% |
| Stock market ratios | |||||
| Earnings per share – continuing operations, USD | -10 | -11 | -25 | 84 | 97 |
| Diluted earnings per share – continuing operations, USD | -10 | -11 | -25 | 84 | 97 |
| Cash flow from operating activities per share, USD | 155 | 150 | 61 | 199 | 225 |
| Ordinary dividend per share, DKK | 150 | 150 | 150 | 300 | 3006 |
| Ordinary dividend per share, USD | 23 | 24 | 21 | 44 | 49 |
| Share price (B share), end of year, DKK | 8,184 | 10,840 | 11,270 | 8,975 | 12,370 |
| Share price (B share), end of year, USD | 1,255 | 1,746 | 1,597 | 1,314 | 2,021 |
| Total market capitalisation, end of year, USD m | 25,256 | 35,419 | 32,215 | 27,587 | 42,848 |
1 Following the classification of Maersk Oil, Maersk Tankers, Maersk Drilling and Maersk Supply Service as discontinued operations in 2017, the businesses are presented separately on an aggregated level in the income statement, balance sheet and cash flow statements. In accordance with IFRS, the income statement and cash flow statement have both been restated in previous periods, while the balance sheet has not been restated in previous periods. The Maersk Tankers transaction was closed on 10 October 2017, and the Maersk Oil transaction on 8 March 2018.
2 See definitions on page 156.
3 Compared to prior periods, the definition of net interest-bearing debt has been adjusted to include the fair value of the derivatives hedging the underlying debt. Comparative figures have been restated.
4 To better reflect the ability of the continuing operations to convert earnings to cash (cash conversion) and prepare for the upcoming implementation of IFRS 16 (leases) in 2019, payments related to financial items have been moved from cash flow from operating activities to cash flow from investing activities (dividends received) and cash flow from financing activities (net financial payments). Comparative figures have been restated.
5 Excluding Hamburg Süd for comparison purposes at the end of December 2017.
6 An extraordinary cash dividend equal to DKK 1,671 per share of nominal DKK 1,000 was declared in connection with the sale of Danske Bank A/S.
Growth in global container trade remained steady at 4.1% year-over-year in Q4 2018, and full-year 2018 growth ended at 3.7%, which was significantly weaker than the 5.6% recorded in 2017. Meanwhile, supply growth remained high at the beginning of the year, reflecting the many new vessels entering the market as well as the low levels of idling and the scrapping of older vessels, which led to declining freight rates in the first two quarters of 2018. Market fundamentals stabilised in the second half of 2018, as effective supply growth tapered off and freight rates began to increase, and industry profits picked up in Q3 2018 from subdued levels in the first half of 2018. Profits were negatively impacted by the increase in bunker costs, and which were not fully compensated for by increase in freight rates.
grew 3.9% in Q4, and 5.8% for 2018. Finally, intra-regional trades posted solid growth of 5.5% in Q4, and 4.9% for the year.
The moderation in container demand growth in 2018 mirrors the slowdown in global macroeconomics and global export orders (Chart 2). The main risk to global container demand relates to a further cyclical slowing of the global economy. Emerging markets are particularly vulnerable to fluctuations in the US dollar and to economic developments in the US via their financial leverage. Moreover, a further escalation of the international trade tensions carries a significant risk to global
trade. Finally, the outcome of the Brexit negotiations poses a risk to the UK's container trade.
Trade restrictions between the US and China sharply intensified in 2018, and the trade restrictive measures exposed nearly USD 440bn worth of traded goods in 2018, corresponding to around 2.6% of the global value of traded goods. During Q4 2018, the US administration decided to delay the increase of US tariffs on USD 200bn of Chinese import goods from 10% to 25% until March 2019, pending negotiations between the US and China. The negative effects on global trade from the trade restrictions remain to be
East-West container trades grew by 2.6% in 2018 (Chart 1), as subdued trade flows in the first part of 2018 were counterbalanced by a growth acceleration to 4.5% in Q4 2018 compared to Q4 2017. The strong Q4 growth was driven by North American imports from the Far East of 10.8%, largely reflecting the front-loading of Chinese goods transport to the US in October and November to avoid the anticipated tariff rate increase on 1 January 2019, which was subsequently delayed. For 2018, North American imports from the Far East grew by 6.0%. European import growth from Asia remained moderate at 2.8% in Q4, in line with momentum in the European macroeconomy, bringing total growth on this trade to 1.9% for 2018. Meanwhile, Asian imports
from the US and Europe (East-West backhaul) declined in Q4 2018, largely because of the restrictions imposed by China on waste and scrap material imports, which kept volumes low for most of 2018, and led to a decrease of 1.7% for the full year of 2018. North-South container trades slowed to 2.3% growth in Q4, substantially lower than for the full year of 2018 with a growth of 3.9%. Latin American import growth had been strong in the first part of 2018, but a decline of 1.4% in Q4 was the main drag on North-South container trades. Growth of 3.4% for the full year reflected a closer alignment to domestic demand developments. Moreover, import growth in the Middle East and Indian subcontinent grew by only 1.7% in Q4, bringing total growth to 2.1% for 2018, while African imports
Source Internal Maersk
Note Global growth remained steady in Q4 2018, but was less than in 2017. East-West trade growth has increased during 2018, while North-South volume growth declined.
seen, but the combined effect of all trade restrictions introduced during 2018 is estimated to reduce global container trade growth by 0.3-1.0 percentage points per year in 2019-2020 if US tariffs are increased to 25% in March 2019, and by 0.2-0.5 percentage points per year if tariffs instead remain at current levels.
The global container fleet stood at 22m TEU at the end of 2018, 5.8% higher than at the end of 2017 (Chart 3). Deliveries amounted to 1,300k TEU (165 vessels) in 2018, with most deliveries occurring at the beginning of the year and only 184k TEU during Q4. Deliveries were dominated by vessels larger than
10k TEU. Hardly any vessels were scrapped in the first three quarters of 2018, but in Q4, 35 vessels were scrapped, bringing the total to 66 vessels in 2018, corresponding to 111k TEU. The low rate of scrapping in 2018 was linked to the small number of idled vessels, which in turn reflects the tight market for vessels below 7.5k TEU, which also supported time charter rates.
New vessel orders amounted to a decent 1,297k TEU in 2018 (215 vessels), probably reflecting the solid demand seen in recent years, and the very low amount of new orders in 2016 and 2017 of 292k TEU and 671k TEU, respectively. However, the level of new orders
Global container demand (left-hand side) Manufacturing export orders (right-hand side)
3mma 3 months moving average.
Source Demand is internal Maersk and Manufacturing export orders is IHS Market. Note Survey of manufacturing export orders indicates a further slowdown of global container demand from the beginning of 2019.
Global container demand was very low in Q4 2018, at only 59k TEU, and the overall orderbook-to-fleet ratio remains relatively low at around 12%, well below the 2013-2017 average of 18%. According to Alphaliner, this means that the nominal global container fleet is set to grow by 4.0% in 2019.
The International Maritime Organization (IMO) has decided to implement a 0.5% sulphur cap on marine fuel from 2020 (IMO 2020). While the consequences for container vessel supply are difficult to forecast, it could very well lead to the retrofitting of a significant part of the global fleet during a three-to-five-year period beginning in the later part of 2019. Together with incentives to reduce vessel
speed, this would likely reduce effective supply, potentially by up to 2.5% by 2021. Moreover, the spread between bunker and crudeoil fuel types could widen sharply, as early as from Q4 2019.
Freight rates, as measured by the China Composite Freight Index (CCFI), declined slightly by 1.0% in 2018, reflecting the substantial number of new vessels entering the market, mainly in the first part of the year (Chart 4). However, freight rates were 9.3% higher in Q4 2018 compared to Q4 2017, as only a few vessel deliveries came to the market, the number of idled vessels increased, and due to the extra demand growth on the Pacific trades
Source Demand is internal Maersk and supply is Alphaliner.
Note While global demand growth exceeded global supply growth in 2018, supply growth was stronger than demand in 2018.
following the front-loading of US imports from China. Freight rates rose by 32% in Q4 on the Asia to West Coast US trade. Rates were stable on the Asia to North Europe trade, with an increase of 0.5%, while Asia to Mediterranean Europe trade increased by 14%. Uncertainties relating to the strength of container demand in 2019 pose a downside risk to freight rates in general, while uncertainties about supply, particularly relating to the impact of IMO 2020 sulphur regulations, present an upside.
Time charter rates rose sharply in 2018 and peaked during the summer, reflecting a shortage of small and medium-size vessels, as noted earlier. More recently, time charter rates have come down on the back of the more moderate fundamentals. In Q4 2018, time charter rates declined by 12% compared to Q3 2018, but remained elevated. Clarksons´ time charter rate index increased by 8.8% compared to Q4 2017, down from a growth rate of 38% in Q2 2018.
Rotterdam bunker prices increased 31% in 2018 compared to 2017, reflecting a steady increase during Q1 to Q3 2018 followed by a decrease in Q4 of 6.0% compared to Q3 2018. Nevertheless, Q4 2018 bunker prices remained 19% higher than in Q4 2017. Forward markets indicate that bunker prices will decline by 4%
in Q1 2019 compared to Q4 2018. Thereafter, forward markets project a further 13% decline in bunker prices by Q4 2019, compared to Q4 2018. The anticipated decline is driven by a weaker outlook for crude oil prices and a wider bunker-crude oil spread, reflecting the market's view of the impact of the IMO 2020 sulphur regulations on demand for high sulphur bunker fuels.
The US dollar was on average 1.9% stronger against the euro in Q4 2018 compared to Q3 2018. The US dollar has on average been 4.5% weaker in 2018 than in 2017 (Chart 5).
Note Freight rates remained stable in the latter part of 2018, and ended up higher towards yearend than in 2017.
Source Thomson/Reuters.
The other transport and logistics markets, outside the ocean industry, were in broad terms impacted by the dynamics and market drivers that also steered the ocean industry. However, in the container port industry, structural challenges from the cascading of large container vessels, reinforced carrier alliances and increased point-to-point services combined with ongoing capacity increases in many ports continue to weigh on the industry. The increased load on the terminals is triggering requirements for upgrades of the terminal infrastructure, equipment, manning and planning capabilities, leading to more capital expenditure and operational cost, but lower utilisation. At the same time, carriers are looking for ways in which to reduce their terminal costs, which have become the biggest single cost item.
Solid growth in global trade volumes in 2017 and 2018 has supported the broader logistics segment. However, there is variation across the segment. Gross margins in the freight forwarding market remain under structural pressure from digital offerings. Freight forwarders are attempting to mitigate these pressures by selling value-added services on top of basic freight forwarding products and by developing their own digital offerings to be competitive against new entrants. Contract logistics, a fragmented market, has seen solid demand for fulfilment activities from the booming e-commerce segment. Supply chain management also grew robustly with a few focused players increasing value added services through digitalised offerings.
The world economy is experiencing structural changes that could affect the outlook for global trade over the next 10-20 years.
The rapid rise of Global Value Chains (GVCs) has been an important driver of global trade growth, but emerging evidence suggests that the international fragmentation of production has lost momentum. For instance, the global container trade to GDP multiplier has declined to around 1.2 (see chart below).
The reasons are manifold, but can be grouped into two broad categories:
For example, rising wage costs in some emerging economies and the digitalisation of production could restore the competitiveness of mature economies, thereby discouraging further offshoring while encouraging the reshoring or nearshoring of production. Alongside the hidden costs of lengthy supply chains (including the costs of protecting proprietary knowledge), the need to balance cost efficiency with risk diversification (including rising barriers to trade) and the cost of internalising the environmental impact of international transport may increase the effective cost of international trade. If these trends persist, they will re-shape the future evolution of GVCs.
Estimating the impact of these trends on global trade patterns is complex and subject to significant uncertainties. The OECD has simulated how GVCs may evolve under different scenarios. This foresight exercise suggests that global trading patterns could change materially over the coming decades, and under certain assumptions could see global trade struggling to increase its current share of global output.
It is worth noting that even under these circumstances, global container volumes would increase by 18-23m FFEs over the next 10 years (assuming low global GDP growth of 2.0-2.5% per annum). This is equivalent to a new Maersk Line and Hamburg Süd entering the container market. In addition, the container industry is engaged with counteracting the above trends by radically reducing the complexity and effective cost of container trade by offering end-to-end integrated container services and reducing the environmental footprint of international trade. Not only will this positively affect the economics and robustness of GVCs, it will make international markets more accessible to small and mediumsized companies across the world. Maersk is at the forefront of these initiatives. The strategy section of this report explains the specific actions that are being taken to enable the growth of international trade and to increase the future resilience of the business model.
Business model Strategy Risk management
A.P. Moller - Maersk enables its customers to trade and grow by transporting goods anywhere.
Maersk works to provide customers with a simple end-to-end offering of products and services, seamless customer engagement and a superior end-to-end delivery network, taking the complexity out of global supply chains.
A.P. Moller - Maersk is in the process of transforming itself from being a conglomerate to becoming the global integrator of container logistics, providing customers with end-to-end supply chain solutions. Significant steps have been taken on this journey already, including the integration of the Transport & Logistics businesses and Hamburg Süd, the successful separation of Maersk Oil and Maersk Tankers, as well as the announcement of Maersk Drilling's separate listing in 2019. Efforts are continually being made to find the best solution for Maersk Supply Service, although the timing is difficult to predict.
segment. The guidance of being able to realise up to USD 600m in synergies, both operational and commercial, is maintained. The synergies were expected to be realised by 2019. However, the fact that commercial synergies are being kick-started in 2019, the full synergies are now expected to be realised in 2020.
The integration of Hamburg Süd is progressing ahead of plan, showing progress in network optimisation, synergies with APM Terminals and procurement, with realised synergies at a level of around USD 420m in 2018. Synergy expectations were revised up to a minimum of USD 500m by the end of 2019, from initially USD 350-400m.
Realised and expected synergies from the integration of Hamburg Süd, USD million
Considerable progress in building the new Maersk as one integrated container logistics company has already been made in several key areas, including the integration of Hamburg Süd, delivering synergies, improved customer satisfaction, as well as important steps in the digitisation journey. Moreover, changes to the Ocean and Logistics & Services organisations have been introduced with the One Maersk initiative, joining the front lines of the two, which came into effect on 1 January 2019. A transformation of this magnitude takes time, and Maersk is continuously working on and tracking the progress of the transformation.
A total of more than USD 300m in synergies from the integration of existing businesses has been realised in 2017 and 2018. These mainly comprise operational synergies from increased collaboration between the container shipping and terminal businesses, thus increasing utilisation in the terminals, as well as joint production planning between the Ocean and Manufacturing & Others segments. Furthermore, both commercial and cost synergies from increased collaboration within the Terminals & Towage segment are expected.
The commercial synergies have yet to be delivered, and the merging of the Ocean and Logistics & Services front lines as of 1 January 2019 will kick-start the delivery of these synergies, focusing on selling endto-end supply chain solutions to customers, while Damco freight forwarding will remain as a separate entity in the Logistics & Services
Minimum 500
2019
It should be as easy to ship a container across the world as it is for costumers to send a parcel, which, however, is not the case today. Changing the way in which container logistics is currently handled and leading the way in the digitisation of the industry are important steps towards this transformation, and holds considerable potential for improving the customer experience.
Digitisation of various parts of the business model plays a vital role in this, and will benefit customers in terms of ease of use and user-friendliness. Considerable progress on the digitisation of the customer experience has already been taken, for instance quote automation, Self-Service Instant Booking (SSIB), an online self-service platform, moving sales online, Remote Container Management (RCM), and digitising the paper trails related to moving a container, to name a few. Additionally, the One Maersk initiative will
integrate the customer experience across multiple products, increase the number of products and services available online, and provide customers with increasing visibility and actionability on their shipments.
Twill, a multicarrier platform, constitutes the digital effort to bring the full end-to-end supply chain solution online, where customers can book, manage and monitor their shipments with the click of a button. Significant growth was realised in 2018 on the Twill platform as
volumes more than quadrupled. Twill is currently active in 27 countries, with two more countries coming online at the beginning of 2019.
TradeLens, which provides the necessary infrastructure for sharing documents across the supply chain, and thereby reducing complexity for the customer as well as for suppliers, is an example of another project that is contributing to the process of disposing of many of the underlying manual and paperbased processes in the container logistics
Global integrator of container logistics – connecting and simplifying Maersk customers' supply chains
industry. Moreover, Maersk is increasing its digitisation of assets, as exemplified by RCM, as well as by experimenting with the increased traceability of dry cargo.
Maersk strives to put the customer in the centre, and has taken significant steps to improve the customer experience in 2018. Schedule reliability perfomance has improved, placing Maersk Line and Hamburg Süd back in the top quartile in the industry. Continuous efforts are being made to improve reliability. Moreover, improving invoice quality and issue resolution has been high on the agenda in 2018, and considerable progress has been made as customer satisfaction, as measured
by the Net Promoter Score, increased to an all-time high in 2018. Despite the progress on customer satisfaction, there is still room for improvement, and therefore Maersk will relentlessly pursue the continuous improvement of the customer experience to realise its ambition of making shipping a container as easy as shipping a parcel across the world.
Maersk is transforming from a conglomerate into becoming one integrated container logistics company, working to achieve a more balanced split of revenue as well as earnings. The ambition for 2023 is to balance the earnings level between the Ocean and non-Ocean
segments. Four key metrics have been defined for tracking the transformation in a structured manner, showing the progress externally.
As part of becoming the global integrator of container logistics, focus on growing the non-Ocean business is vital, so revenue growth in non-Ocean will be pursued. This will reduce the dependency on freight rates and increase growth in higher and more stable margin business. Terminals & Towage, part of the non-Ocean segment, currently provides a steadier cash flow than the Ocean segment, and will continue to optimise the portfolio and improve profitability.
With increasing focus on servicing customers with end-to-end supply chain solutions worldwide, growth in Logistics & Services' gross profit is being targeted, although, organic growth alone will not generate sufficient growth to realise the 2023 ambitions. Hence, inorganic growth may be required in the form of bolt-on acquisitions to build the capabilities needed in various parts of the Logistics & Services segment and to harvest synergies across the supply chain.
Finally, the strategic plan will be pursued while exercising strict capital discipline, and Maersk has committed to no new large vessels being ordered until at least 2020 as well as no new large terminal projects, while new dry containers will increasingly be leased rather than bought. Focus will thus be on less capital-intensive growth, and on the ability to generate free cash flow to ensure returns to shareholders and investments to support the strategic direction. Following the implementation of IFRS 16, the long-term target for return on invested capital (ROIC) is above 7.5%.
Transforming A.P. Moller - Maersk to become the global integrator of container logistics is a complex process which carries multiple risks. It is essential that risks associated with the transformation, and risks inherent to the business activities are managed effectively to keep the potential financial and reputational impact of such risks within acceptable levels.
summarises the status in quarterly reports to the Executive Board. Where the progress of mitigating actions is falling behind schedule, or where mitigating actions are not achieving the effect they were designed to have, the report will highlight this so that corrective action can be taken.
The latest risk assessment was carried out in the second half of 2018, and identified nine key risks that may have a significant impact on the business plan, including on earnings, financial position, and the achievement of other strategic objectives.
Effective risk management is key to growing sustainably in an increasingly volatile and uncertain business environment. Several initiatives have been launched to further strengthen the risk management process e.g. by improving board and management oversight and by driving accountability for the management of key risks.
The Board of Directors is responsible for overseeing risk management. The Board of Directors determines the framework for managing risks, including risk appetite. The Audit Committee monitors the execution of the risk management processes and the management of key risks. The Executive Board is responsible for overseeing day-today risk management.
Each year, the Executive Board establishes the key risks to the business plan. In preparation for the discussions in the Executive Board, a comprehensive risk assessment takes place. The Executive Board appoints a risk owner (an Executive Board member) for each key risk to oversee the management of the risk, including the preparation and execution of mitigation action plans. Once the plans for the management of the risks have been finalised, the risk owner presents and discusses such plans with the Executive Board and the Audit Committee in designated deep dive risk sessions.
The risk management function monitors the status of each key risk, including the progress and effect of the mitigation action plans, and
The key risks to realising the 2019-2023 business plan and the mitigation activities deployed are described in the following.
The risk is that the transformation of A.P. Moller - Maersk into a growth company supported by a digital business model with an integrated end-to-end (E2E) product offering does not materialise as envisaged due to a lack of business agility to anticipate and respond to the external developments and internal challenges.
To support and coordinate the business transformation in the next coming years several teams and new processes across the organisation have been established to drive the transformation.
Currently, there are no compliant low-cost fuels that fulfil the global Sulphur regulation (IMO 2020) requirements coming into force from 2020. The existing compliant fuels, as well as new fuels being developed, are expected to cost substantially more than current High Sulphur Fuel Oil bunkers, implying substantial fuel cost increases in 2020. Installing scrubbers on vessels will enable today's lower cost fuels to be used, but will, on the other hand, require substantial capital expenditure. The risk is that the increased costs relating to the implementation of and compliance with the IMO 2020 requirements cannot be recovered from customers.
Multiple commercial and operational mitigating initiatives are being pursued.
As Maersk becomes increasingly digitalised, more devices and control systems are connected online, resulting in a bigger interface across the IT infrastructure that could be compromised. A successful cyber-attack within this wider attack surface could result in major operational disruption and/or data breaches leading to major financial loss.
It is a strategic priority to continue to improve cyber security through the cyber security plan that was launched after the cyber-attack in 2017.
The risk is that freight rates collapse because of global trade deceleration and a resulting structural decline in demand for containerised transportation. Also, that new export orders in the US, EU and China slow down because of e.g. lower GDP and trade wars.
While Maersk is relatively well positioned to deal with the risk, it remains highly exposed to freight rates until a more diversified and balanced business has been established through expansion of the non-ocean activities. Having limited leverage over the overall demand for container shipping the key factors to mitigate risk from development in freight rates are to diversify the activities into logistics and maintain industry cost leadership.
Each year,the Executive Board identifies the key risksto the business plan. In preparation for the discussions in the Executive Board, a comprehensive risk assessment takes place.
One of the strategic priorities is to grow Logistics & Services organically and inorganically (i.e. through M&A activities). There is a risk that Maersk will not be able to do so due to a lack of available funds and increasing cost of capital.
Maersk remains committed to separating the energy businesses and maintaining an investment grade rating. That includes initiatives to stabilise and improve the level of earnings and effective capital discipline.
Maersk's transformation implies having a vision to connect and simplify customers' supply chains. There is a risk that Maersk will not achieve its vision due to misalignment between the transformation strategy of the Technology organisation and Maersk's business transformation strategy.
Mitigation includes upskiling of the Technology organisation.
The risk entails that Maersk loses the customer relation due to its inability to secure a digitally based competitive advantage in Liner operations and logistics; and/or value chain re-configuration in transport and logistics away from Liner-to-Beneficiary Cargo Owner contact.
Maersk is transforming its business model to become truly customer-centric and digital and through that create simplified E2E offerings, provide a superior delivery network and ensure seamless customer engagement.
A.P. Moller - Maersk is creating one commercial organisation to grow Logistics & Services and expand its product offering to customers. The risk is that customers are not willing to buy more products from Maersk, or that Maersk is unable to sell more products to customers, resulting in a failure to grow the business as planned.
A.P. Moller - Maersk has established one integrated commercial team across Ocean and Logistics & Services.
A.P. Moller - Maersk might fail to successfully deliver on its transformation objectives due to the lack of functional capabilities and behaviours required to transform the businesses and to deliver on the new strategy. The risk is mainly related to logistics, digital and the creation of 'One Maersk'.
A.P. Moller - Maersk has intensified the investments in employee capability and engagement.
During the year, the focus has been on successfully mitigating the risks associated with the Hamburg Süd integration, improving schedule reliability and the customer experience and protecting the quality of the Maersk balance sheet in times of transformation.
The integration of Hamburg Süd is progressing according to plan, and with synergies above expectations. The Net Promoter Score improvements are evidencing higher customer satisfaction, and the gross and net debt level have been reduced significantly, while A.P. Moller - Maersk remains an investment grade-rated company.
The business portfolio is increasingly exposed to fluctuations in freight rates following the separation of the energy businesses and the addition of Hamburg Süd. The Ocean segment remains the biggest marginal earnings volatility contributor, and completing the separation of the energy businesses will increase the effect even further. It remains a strategic priority for Maersk to reduce its dependency on freight rates and to grow adjacent businesses to reduce earnings and cash flow volatility.
Segment review Ocean Logistics & Services Terminals & Towage Manufacturing & Others Discontinued operations
Hamburg Süd and Maersk Line have successfully managed to form one team with a bigger and improved network offering for customers.
Ocean reported an increase in revenue of 29% to USD 28.4bn (USD 22.0bn) with volume growth of 22% (2.5% excluding Hamburg Süd). The average bunker price increased by 32%, equal to 92 USD/FFE, while the average freight rate increased by 5.1% (1.9% or 34 USD/FFE excluding the Hamburg Süd rate impact). Unit cost at fixed bunker was 3.6% higher than in 2017, partly because of the effects of Hamburg Süd´s portfolio mix and negative foreign exchange rate developments. EBITDA was USD 3.0bn (USD 2.8bn).
In the first half of 2018, bunker prices increased, the US dollar was weak and there was a high imbalance between supply and demand, mainly due to a high number of new deliveries and a limited number of scrappings. The freight rate development did not follow the increasing bunker price, and Maersk implemented an emergency bunker surcharge during the second half of 2018. The freight rates recovered slightly along with a better balance between supply and demand in the second half of the year.
The integration of Hamburg Süd delivered synergies of USD 420m in 2018, which were mostly realised within procurement, network optimisation and increased volumes in gateway terminals operated by Maersk.
Revenue increased by 29% to USD 28.4bn (USD 22.0bn), driven by a 22% increase in volumes to 13,306k FFE (10,939k FFE), an average freight rate increase of 5.1% to 1,879 USD/ FFE (1,788 USD/FFE) as well as increases in other revenue, mainly due to demurrage and detention. The volume increase was primarily driven by the inclusion of Hamburg Süd, which also contributed positively to the increase in freight rates and other revenue, mainly because of demurrage and detention.
North-South and Intra-regional trades accounted for most of the increase in
volumes, largely because of Hamburg Süd's position in these markets. Headhaul volume grew 20% and backhaul increased 24%, mainly due to the inclusion of Hamburg Süd. The volume growth excluding Hamburg Süd of 2.5% was driven by headhaul growth of 2.5% and backhaul growth of 2.6%. Due to a profitability focus including a capacity target of around 4m TEU in the second half of the year, the full-year volume growth of 2.5%, excluding Hamburg Süd, was lower than the estimated market growth of around 3.5-4.0%. The overweight presence on North-South and Asia-Europe, which had a lower growth than the Asia-US and Intra-Asia growth, partly made the overall growth lower than
| Loaded volumes | |
|---|---|
| FFE ('000) | 2018 | 2017 | Change | Change % | Change %, excl. HSÜD |
|---|---|---|---|---|---|
| East-West | 4,186 | 3,805 | 381 | 10.0 | 2.3 |
| North-South | 6,450 | 5,320 | 1,130 | 21.2 | 1.3 |
| Intra-regional | 2,670 | 1,814 | 856 | 47.1 | 6.8 |
| Total | 13,306 | 10,939 | 2,367 | 21.6 | 2.5 |
| USD/FFE | 2018 | 2017 | Change | Change % | Change %, excl. HSÜD |
|---|---|---|---|---|---|
| East-West | 1,860 | 1,801 | 59 | 3.3 | 1.8 |
| North-South | 2,078 | 1,983 | 95 | 4.8 | 2.7 |
| Intra-regional | 1,478 | 1,254 | 224 | 17.9 | 2.1 |
| Total | 1,879 | 1,788 | 91 | 5.1 | 1.9 |
| USD million | 2018 | 2017 |
|---|---|---|
| Revenue | 28,366 | 22,023 |
| Profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) | 3,007 | 2,777 |
| EBITDA margin | 10.6% | 12.6% |
| Gross capital expenditure, excl. acquisitions and divestments (CAPEX) | 2,279 | 2,831 |
| Operational and financial metrics | ||
| Other revenue, including hubs (USD m) | 3,441 | 2,547 |
| Loaded volumes (FFE in '000) | 13,306 | 10,939 |
| Loaded freight rate (USD per FFE) | 1,879 | 1,788 |
| Unit cost, fixed bunker (USD per FFE incl. VSA income) | 1,815 | 1,752 |
| Hub productivity (PMPH) | 81 | 73 |
| Bunker price, average (USD per tonne) | 424 | 321 |
| Bunker cost (USD m) | 5,042 | 3,341 |
| Bunker consumption (tonne in '000) | 11,894 | 10,395 |
| Average nominal fleet capacity (TEU in '000) | 4,115 | 3,456 |
| Fleet, owned (end of period) | 355 | 339 |
| Fleet, chartered (end of period) | 355 | 442 |
Ocean includes the ocean activities of Maersk Liner Business (Maersk Line, Safmarine and Sealand – A Maersk Company) together with the Hamburg Süd brands (Hamburg Süd and Aliança), as well as strategic transshipment hubs under the APM Terminals brand (Rotterdam, Maasvlakte II, Algeciras, Tangier, Tangier-Med II (under construction), Port Said and the joint ventures Salalah, Tanjung Pelepas and Bremerhaven). Inland activities related to Maersk Liner Business are included in the Logistics & Services segment.
global growth. Despite an overall slowdown in growth towards the end of the year, volumes from Asia to the US increased ahead of the anticipated import tariff increases from 1 January 2019 as part of the trade restrictions between the US and China.
The increase in the average freight rate of 5.1% or 91 USD/FFE was positively affected by the inclusion of Hamburg Süd, which has a different trade mix compared to Maersk Line, especially on the intra-regional trades. The average freight rate excluding Hamburg Süd increased by 1.9% or 34 USD/FFE. The increase was supported by the implementation of the emergency bunker surcharge in June 2018 on the back of the increases seen in the bunker prices throughout the year. The increased demand in the second half of the
year from Asia to the US affected the freight rates positively on the transpacific trades.
Freight revenue increased by 28% from USD 19.5bn to USD 24.9bn, mainly driven by the inclusion of Hamburg Süd and increased volumes. Other revenue increased by 35% to USD 3.4bn (USD 2.5bn), mainly driven by higher demurrage and detention, although from low levels during the cyber-attack in 2017, one-offs in 2018 and positive rate of exchange effects, along with positive contributions from the inclusion of Hamburg Süd. Excluding Hamburg Süd, other revenue increased by 13% to USD 2.8bn, mainly due to increased demurrage and detention.
Unit cost at fixed bunker of 1,815 USD/FFE increased by 3.6% compared to 2017, partly
Unit cost at fixed bunker price was 3.6% above 2017, partly due to the inclusion of Hamburg Süd, which has a different portfolio mix to Maersk Line. Unit cost at fixed bunker price has been negatively affected by a weaker US dollar, along with the inclusion of Hamburg Süd in 2018. Compared to a 2017 pro forma unit cost at fixed bunker, the unit cost at fixed bunker increased by 0.5% adjusted for a negative foreign rate of exchange impact.
New guidelines on the stowage of dangerous cargo were implemented on the back of the devastating fire in one of the cargo holds on the container vessel Maersk Honam. The fire was a seminal event for Maersk, after five colleagues sadly lost their lives. A study of the fire showed that all international regulations and requirements were adhered to, hence new guidelines and procedures for dangerous goods stowage were needed to mitigate the inadequacy of the rules. A further review of all international regulations and requirements covering the carriage and stowage of dangerous goods is currently taking place together with industry partners, and the results will be presented to the International Maritime Organization (IMO) to implement best management practices in the industry regarding dangerous cargo.
Different initiatives were implemented during 2018 to improve the customer experience, e.g. by reducing the complexity of shipping a container. As an example, the introduction of the instant booking confirmation allows customers to complete bookings within seconds. This is an improvement from previous procedures with waiting times of up to two hours. The initiatives have had a positive effect on customer satisfaction, which has improved from quarter to quarter throughout the year. Furthermore, the next steps towards improving the customer experience and becoming
the global integrator of container logistics were announced in September by bringing the commercial organisations of Maersk Line and Damco supply chain services together to serve customers as One Maersk, starting 1 January 2019.
It was further announced that Maersk aims to achieve net-zero CO2 emissions by 2050, and will initiate an open and collaborative dialogue with all possible parties to tackle the climate changes together. Amongst others, this involves new carbon-neutral vessels, which are due to be commercially ready by 2030.
By January 2020, the new global low sulphur bunker fuel regulations (IMO 2020) will come into force. To prepare for this, a total of USD 263m has been contractually committed for investing in scrubbers and retrofitting to be installed on selected vessels. Scrubbers form one element of the Maersk 2020 fuel sourcing strategy, while most of the fleet will rely on compliant low sulphur fuels when the regulation starts. To cover the estimated extra fuel costs, which could exceed USD 2bn per year following the new bunker regulations, a new Bunker Adjustment Factor (BAF) was announced. This is designed to balance fluctuations in fuel costs while also enabling customers to predict, plan and track how changes in fuel prices impact their total freight rates.
Hamburg Süd and Maersk Line joined forces on 1 December 2017, and the two companies have successfully managed to form one team, with a bigger and improved network offering to customers, amongst others by sharing best practices, resources and strengths. The benefit of the model of keeping Hamburg Süd as a commercially independent company has been seen in the high customer retention and high customer satisfaction rates.
In the first year, the integration progressed better than initially planned with total synergies of USD 420m in 2018. The synergies were slightly higher than the latest upgraded guidance from Q3 2018 of up to USD 400m. The synergies have been realised mostly
within procurement, network optimisation and increased volumes in gateway terminals operated by Maersk. Additionally, customer retention has been better than planned, and further synergies are expected in 2019. Total synergies are expected to amount to minimum USD 500m by 2019, excluding integration costs.
Hamburg Süd contributed with volumes of 2,303k FFE in 2018 (pro forma 2,343k in 2017) and pro forma EBITDA of USD 618m (pro forma USD 554m), adjusted for internal slot charter following the transfer of vessels and equipment from Hamburg Süd to the wider Ocean network. The total integration cost was USD 60m in 2018, in line with the guidance of less than USD 100m.
Volumes ('000 FFE) Freight rates (USD/FFE) Unit cost floating bunker
Volumes increased by 22% to 13,306k FFE (10,939k FFE) in 2018, mainly due to the inclusion of Hamburg Süd. The average freight rate increased by 5.1% to 1,879 USD/FFE (1,788 USD/FFE), positively affected by Hamburg Süd's different trade mix and a tighter supply and demand in the second half of 2018 along with the introduction of the emergency bunker surcharge. Unit cost at floating bunker was 7.9% above 2017, mainly driven by a 32% increase in the average bunker price. The freight rate increases did not absorb the increased bunker prices.
due to a change in the portfolio mix following the inclusion of Hamburg Süd and negative rate of exchange effects of 0.6%. Compared to an estimated pro forma 2017 unit cost at fixed bunker of 1,794 USD/FFE, had Hamburg Süd been part of Maersk since 1 January 2017, the unit cost at fixed bunker would have increased by 0.5% adjusted for negative rate of exchange effects. The main drivers of the increase were an unsatisfactorily high unit cost in Q1 2018 and low organic volume growth in the second half of 2018 driven by a focus on margin improvement.
Total unit cost at 2,015 USD/FFE (1,867 USD/ FFE) was 7.9% higher than in 2017, negatively impacted by a 32% increase in the average
bunker price or 92 USD/FFE. Bunker price volatility was significant in 2018, with high sulphur fuel in Rotterdam at around 360 USD/tonne in Q1, peaking at around 480 USD/tonne in October and closing the year at around 310 USD/tonne. Due to the drop in bunker price at the end of the year, it was decided to discontinue the emergency bunker surcharge on most trades, while being phased out gradually on the remaining trades towards the end of Q1 2019. Overall, the higher bunker prices, along with the higher consumption due to the inclusion of Hamburg Süd's volumes, resulted in a total bunker cost increase of 51% to USD 5.0bn (USD 3.3bn) compared to 2017. Out of the total increase of USD 1.7bn, USD 1.2bn was
Container handling Network cost excl. bunker Bunker Non-operational
was 19% higher than in 2017, mainly due to the inclusion of the Hamburg Süd fleet. The fleet ended the year at 4,009k TEU, and was in line with the target of around 4m TEU, which continues into 2019. Idle capacity was 78k TEU (five vessels) at the end of 2018, compared to 31k TEU (four vessels) at the end of 2017. The idle capacity corresponds to approx. 14% of the total idle capacity in the market. Five Baltic Feeder vessels, four 14k TEU vessels
and five 19k TEU vessels were delivered in 2018. No deliveries took place in Q4, as a Baltic Feeder vessel delivery was postponed into Q1 2019. Two Baltic Feeder vessels, three 14k TEU vessels and one 19k TEU vessel remain to be delivered by Q2 2019. The new vessels will replace older and less efficient vessels. One vessel was scrapped in 2018. No new orders of large vessels will be made before 2020, at the earliest.
due to the higher average bunker price, while the remaining increase was due to higher consumption from the inclusion of volumes from Hamburg Süd, partly offset by a 5.9% improvement in bunker efficiency per loaded FFE of 894 kg/FFE (950 kg/FFE). The bunker efficiency, measured in bunker fuel grams/ TEU times nautical mile, of 44.2 was an improvement of 2.9% compared to 2017. The previously announced new Bunker Adjustment Factor (BAF) is expected to cover fluctuations in the bunker prices from 1 January 2019 for volumes shipped on long-term contracts.
The number of port moves per hour in hub terminals was 80.6, which was 9.7% better than in 2017. Throughout the year, steady improvements were made to increase efficiency, mainly on the back of operational synergies between the hub terminals and Maersk Liner Business and efficiency initiatives that gradually materialised. Rotterdam and Maasvlakte II in the Netherlands improved the most compared to 2017.
EBITDA was USD 3.0bn (USD 2.8bn), with a full-year contribution from Hamburg Süd compared to one month in 2017; however, the cyber-attack affected performance in 2017. The EBITDA margin of 10.6% was 2.0 percentage points below 2017, mainly because the increase in bunker prices was not compensated for in the freight rates. Additionally, the bunker price increase along with the inclusion of Hamburg Süd changed the cost base split compared to 2017. Container handling and equipment increased slightly to 40% of the total cost base (39%), while improvements in network costs decreased their contribution from 34% in 2017 to 30% in 2018. Bunker cost increased by 2.4 percentage points to 19% of the total cost base, while non-operational costs including SG&A were unchanged at 11%.
The fleet consisted of 355 own vessels and 355 chartered vessels at the end of 2018. The average nominal capacity continued to decrease throughout the year, ending at an average of 4,115k TEU for the full year, which
| Fleet overview, year-end | ||||
|---|---|---|---|---|
| TEU | Number of vessels | |||
| 2018 | 2017 | 2018 | 2017 | |
| Own container vessels | ||||
| 0 – 2,999 TEU | 124,911 | 125,281 | 64 | 64 |
| 3,000 – 4,699 TEU | 365,811 | 343,751 | 90 | 84 |
| 4,700 – 7,999 TEU | 369,037 | 321,854 | 61 | 52 |
| 8,000 – 11,499 TEU | 771,982 | 847,232 | 85 | 93 |
| 11,500 – 14,999 TEU | 109,494 | 109,494 | 9 | 9 |
| 15,000 – 17,499 TEU | 246,496 | 185,448 | 16 | 12 |
| > 17,500 TEU | 572,480 | 469,640 | 30 | 25 |
| Total | 2,560,211 | 2,402,700 | 355 | 339 |
| Chartered container vessels | ||||
| 0 – 2,999 TEU | 388,314 | 463,887 | 189 | 240 |
| 3,000 – 4,699 TEU | 290,950 | 339,628 | 74 | 85 |
| 4,700 – 7,999 TEU | 272,428 | 395,913 | 45 | 67 |
| 8,000 – 11,499 TEU | 289,467 | 313,176 | 31 | 34 |
| 11,500 – 14,999 TEU | 207,168 | 211,522 | 16 | 16 |
| Total | 1,448,327 | 1,724,126 | 355 | 442 |
| Total fleet | 4,008,538 | 4,126,826 | 710 | 781 |
| Newbuilding programme (own vessels) | ||||
| 3,000 – 4,699 TEU | 7,192 | 25,172 | 2 | 7 |
| > 8,000 TEU | 66,246 | 229,990 | 4 | 13 |
| Total | 73,438 | 255,162 | 6 | 20 |
Logistics & Services reported a 5.4% increase in revenue to USD 6.1bn (USD 5.8bn), driven by supply chain management, warehousing and distribution activities as well as intermodal, whilst gross profit increased by 5.6% to USD 1.1bn (USD 1.0bn). EBITDA was USD 98m (USD 139m), negatively impacted by restructuring costs and the timing of maintenance costs in Star Air, only partly offset by improved results from supply chain management and inland activities.
Volumes grew by 8.2% in supply chain management and by 4.0% in intermodal as partnerships with several top clients deepened and new customer wins with broader service scope were secured. Furthermore, the solution sales pipeline in supply chain management grew significantly.
Revenue increased by 5.4% to USD 6.1bn (USD 5.8bn), mainly due to higher volumes in intermodal, supply chain management as well as warehousing and distribution activities. Gross profit increased by 5.6% to USD 1.1bn (USD 1.0bn), implying a gross profit margin of 18% (18%), mainly supported by supply chain management, warehousing and distribution, other value-added services, as well as continued focus on margins in Ocean and Airfreight. However, partially offset by higher maintenance costs in Star Air and higher operational
costs in intermodal. EBITDA decreased by 29% to USD 98m (USD 139m), with an EBITDA margin of 1.6% (2.4%) and an EBIT conversion ratio of 6.1% (14.5%), negatively impacted by restructuring costs in Damco of USD 21m and timing of maintenance costs in Star Air of USD 24m. Furthermore, EBITDA was impacted by higher warehousing and distribution costs, customer implementations and increased labour costs. Adjusted for the restructuring costs, the EBITDA margin would have been 1.9% and the EBIT conversion ratio 7.9%, which is still at an unsatisfactory level.
Logistics & Services segment The Logistics & Services segment comprises five main activities:
Supply chain management activities, where Maersk manages the customers' supply chain.
Inland activities are operating activities in inland service facilities with the main revenue stream being container storage, bonded warehousing, empty depot and local transportation.
Intermodal refers to all operating activities under Maersk Line, Safmarine and Sealand – A Maersk Company, brands with the main revenue stream, coming from the transportation of containers from vendors (shippers) to the port of shipment, and from the discharge port to the point of offloading (consignee) by truck and/or rail.
Freight forwarding with air and sea freight continuing to operate in a non-integrated way under the Damco brand name.
Other services includes warehousing, distribution and other value-added services as well as trade finance, which is providing export finance solutions as well as post-shipment and import finance solutions.
| USD million | 2018 | 2017 |
|---|---|---|
| Revenue | 6,082 | 5,772 |
| Profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) | 98 | 139 |
| EBITDA margin | 1.6% | 2.4% |
| Gross capital expenditure, excl. acquisitions and divestments (CAPEX) | 47 | 54 |
| Operational and financial metrics, USD million | ||
| Gross profit | 1,097 | 1,039 |
| EBIT conversion (EBIT/gross profit - %) | 6.1% | 14.5% |
| Ocean volumes (TEU) | 639,132 | 664,448 |
| Airfreight volumes (tonne) | 75,309 | 69,574 |
| Supply chain management volumes ('000 cbm) | 175,502 | 206,208 |
| Ocean revenue | 646 | 666 |
| Airfreight revenue | 608 | 659 |
| Supply chain management revenue | 867 | 778 |
| Intermodal revenue | 2,569 | 2,388 |
| Inland activities revenue | 595 | 589 |
| Other services revenue | 797 | 692 |
The cyber-attack on 27 June 2017 significantly affected the business in the second half of 2017 with a negative impact on margins. The explanations on developments year-over-year must be seen in this context.
Supply chain management revenue increased to USD 867m (USD 778m), supported by volume growth of 8.2% to 75,309 kcbm (69,574 kcbm), positively impacted by new customer wins. Gross profit increased to USD 347m
(USD 303m), supported by higher volumes and increasing margins of 7.0% to 4.6 USD/ cbm (4.3 USD/cbm). Due to ramp-up IT costs, profitability is subdued in the short-term, but is expected to improve over time.
Inland activities revenue was USD 595m (USD 589m), with a gross profit of USD 258m (USD 263m). Adjusted for the divestment of Pentalver in May 2017, revenue grew by 10%.
During the year, Twill has changed its brand affiliation from Damco to Maersk, which will make it possible to offer Twill to all customers, in line with the strategy of becoming a global integrator of container logistics offering end-to-end solutions. Furthermore, Twill was rolled out in 27 countries with instant quote availability on all portport trade lanes within these countries. The first door-to-door bookings were made in Q4 on the Twill online platform. Customer retention remains very high at around 80%, with more and more customers signing up for Twill directly via the online channels.
For Logistics & Services, significant new customer wins were secured throughout the year due to intensified and focused solution sales activities. To cater for the additional business, the warehousing and distribution footprint was expanded significantly with the addition of a six-building logistics campus within the Los Angeles industrial market. The new facility supports the commitment to servicing growing customer demand for last mile logistics space in the Los Angeles market.
Inland activities continued to expand the business across Latin America, Africa and Europe, including a new cold chain facility in India and a dedicated block train connection in Chile.
For intermodal, several new corridors were added throughout the year to the most important inland markets in Africa, India and China to unlock the inland growth potential in these markets.
Logistics & Services will further improve collaboration with customers via the accelerated co-development of solutions and lead digital innovations, including Twill, offering simple shipping to small and medium-sized companies. This will be further reinforced by merging Logistics & Services' and Ocean's commercial organisations as of 1 January 2019.
Ocean Air Supply chain management Inland haulage Inland activities Other services
Revenue, %
Revenue, %
Gross profit, %
Gross profit, %
Intermodal revenue increased by 7.6% to USD 2.6bn (USD 2.4bn), driven by higher volumes in India and Africa and by higher volumes and rates in European and Latin American markets. Gross profit increased to USD 46m (USD 39m), driven by portfolio expansion in line with the strategy. During 2018, there were also contingencies in Europe, mainly in the UK, and trucking strikes in Brazil, which adversely affected costs.
Ocean freight forwarding revenue was USD 646m (USD 666m) due to a volume decrease of 3.8% to 639k TEU (664k TEU); however, gross profit increased to USD 115m (USD 109m) due to improved margins. Margins grew by 9.8% to 180 USD/TEU (164 USD/TEU), supported by improved pricing and procurement.
Airfreight forwarding revenue was USD 608m (USD 659m) with volumes at 176k tonnes (206k tonnes), mostly due to an ongoing customer deselection process and an overall slow-down of the airfreight market, not least in China. Gross profit increased to USD 70m (USD 68m), reflecting higher margins. Margins increased by 20% to 396 USD/ tonne (331 USD/tonne).
EBIT conversion ratio of 6.1% (14.5%) decreased mainly due to restructuring costs in Damco, the timing of maintenance costs in Star Air, and lower profitability in inland activities. The lower profitability in inland services was mainly driven by 2017 being positively impacted by the divestment of Pentalver with a gain of USD 35m, and higher operational costs. Star Air was negatively impacted by the timing of maintenance costs. The EBIT conversion ratio for 2018 of 6.1% is unsatisfactory.
Terminals & Towage reported an increase in revenue of 8.4% to USD 3.8bn (USD 3.5bn), and an increase in EBITDA of 22% to USD 778m (USD 639m). The results in gateway terminals were driven by higher volumes from Ocean and external customers as well as cost per move reductions. Higher volumes in towage were due to increased activities in the Americas and Australia.
In Terminals, the closer collaboration with Ocean and the 19% growth in volumes from Maersk Line and Hamburg Süd were further supported by 7.3% volume growth from external customers, positively impacted by a net of 15 new contracts won. For Towage, activity increased in the Americas, in both Argentina and Brazil, driven by new customers in ports entered during 2018, and additional volumes and market share in the ports entered in 2017. In Australia, volumes improved due to higher commodity exports and improved market share for harbour towage.
Terminals & Towage reduced CAPEX in 2018. Gateway reduced CAPEX by USD 200m of which USD 146m was from increased capital discipline and USD 54m from lower CAPEX in terminals under construction. CAPEX in Towage amounted to USD 120m (USD 147m).
Revenue increased by 9.4% to USD 3.1bn (USD 2.8bn), and EBITDA increased by 28% to USD 567m (USD 442m). The volume in moves (volumes are financially consolidated if not stated otherwise) grew by 11%, while gross capital expenditure was reduced to USD 450m (USD 650m). Terminals under construction progressed according to plan, and Moin, Costa Rica, had its first vessel call in 2018.
The volume growth of 11%, 10% like-for-like, was above the estimated market growth of around 3.5-4.0% and driven by closer
collaboration, with Ocean volumes growing 19%, 15% like-for-like. The volumes from external customers grew by 7.3%, 7.6% likefor-like, supported by net 15 new contracts won (26 won and 11 lost), with a net impact of 1.3m annualised moves. Other commercial initiatives include the successful implementation of a digital customer solution in Bahrain, and in Onne, Nigeria.
Volume growth was also supported by rampup in new terminals in Lazaro Cardenas, Mexico, and in Puerto Quetzal, Guatemala. On an equity-weighted basis, volume in moves grew 9.1%, 7.4% like-for-like.
2017 2017 2017 2017 2018 2018 2018 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
| USD million | 2018 | 2017 |
|---|---|---|
| Revenue | 3,772 | 3,481 |
| Profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) | 778 | 639 |
| EBITDA margin | 20.6% | 18.4% |
| Gross capital expenditure, excl. acquisitions and divestments (CAPEX) | 556 | 704 |
| Operational and financial metrics | ||
| Terminal volumes – financially consolidated (USD) | 11.4 | 10.2 |
| Ocean segment | 4.1 | 3.5 |
| External customers | 7.3 | 6.7 |
| Terminal revenue per move – financially consolidated (USD) | 252 | 245 |
| Terminal unit cost per move – financially consolidated (USD) | 216 | 221 |
| Share of profit/loss from joint ventures and associated companies (USD m) | 164 | -78 |
| Number of operational tug jobs (harbour towage) ('000) | 131 | 123 |
| Annualised EBITDA per tug (terminal towage) (USD in '000) | 842 | 755 |
Terminals & Towage includes gateway terminals involving landside activities (being port activities where the customers are mainly the carriers), and towage services under the Svitzer brand.
Terminal towage is a one-customer operation. The customer is a port, a terminal or owner of an offshore facility. The contract is for specific vessels, and the customer determines which work the vessel performs. The annualised EBITDA per tug measure is the relevant measurement.
Harbour towage is a multi-customer operation in a common user facility. The customers are vessel owners and operators, either contracted for one to three years or booked call-by-call. The number of operational tug jobs (utilisation) is the relevant measurement.
Revenue per move increased by 3.0% to USD 252 (USD 245), driven by a higher proportion of volume from North and Latin America, higher revenue from landside customers mainly in Africa, a one-off settlement in North America, and terminals divested during 2017 (Tacoma, US, and Zeebrugge, Belgium). This was partly offset by negative rate of exchange impacts mainly in Latin America. Adjusted for the rate of exchange impact, the volume mix effects between operating terminals and from divested terminals, the revenue per move was in line with 2017. The volume mix effect relates to the impact on revenue per move from changes in the share of volumes from different terminals.
The cost per move decreased by 2.1% to USD 216 (USD 221), driven by an increase in utilisation, cost-reduction initiatives and rate of exchange effects. Examples of cost-reduction initiatives include the implementation of Lean methodology in operational processes in selected terminals and a procurement excellence programme. Cost per move reductions were partially offset by one-off costs related to a new operating system in North America, inflationary labour and concession costs, and volume mix effects. Adjusted for the rate of exchange impact and the volume mix effects between operating terminals and from divested terminals, the cost per move decreased by 4%.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
The construction of a USD 860m greenfield terminal in Moin, Costa Rica, progressed according to plan. The terminal celebrated an important milestone in 2018 with the first vessel call by Maersk Line, Cap Beatrice, in October 2018.
In Tema, Ghana, a USD 778m expansion project progressed according to plan with more than half of capital expenditure booked in 2018 and prior years. The implementation project in Vado, Italy, also progressed according to plan and is expected to go-live by the end of 2019, while Abidjan, Ivory Coast, is expected to go-live in 2021.
A number of divestments were made in 2018. The divestment of Izmir, Turkey, in Q4 was the largest of the divestments. Additionally, APM Terminals divested its minority share in Paranagua, Brazil, and ownership in Khalifa Bin Salman Port, Bahrain, was reduced via an IPO. In Bahrain, APM Terminals continues to operate the terminal, holding majority ownership.
Ivory Coast (2021)
The EBITDA margin increased by 2.7 percentage points compared to 2017, driven by improved utilisation, higher revenue per move, lower cost per move and the ramp-up of new terminals, with 2017 being impacted by the cyber-attack.
Consequently, the quarterly EBITDA margin increased by 4.3 percentage points to 18.6% (14.3%) during the past two years.
Volumes grew in all regions except Europe. The Americas grew by 28%, mainly driven
by the ramp-up in Lazaro Cardenas, Mexico, and Puerto Quetzal, Guatemala, the integration of Maersk Line and Hamburg Süd, and by new services with external customers in Los Angeles, in the US. In Africa and the Middle East, volumes increased by 4.9%, mainly driven by West Africa. Volume in Asia grew by 2.6%, mainly driven by South Asia entities. Growth in Europe was overall flat compared to 2017.
The Americas was the region that saw the biggest increase in EBITDA margin to 13.5% (8.9%). The main driver was high volume
| Financially consolidated volume, Terminals | |||
|---|---|---|---|
| Million moves | 2018 | 2017 | Growth (%) |
| Americas | 4.7 | 3.7 | 27.5 |
| Europe, Russia and Baltics | 2.7 | 2.7 | -0.3 |
| Asia | 2.2 | 2.1 | 2.6 |
| Africa and Middle East | 1.8 | 1.7 | 4.9 |
| Total | 11.4 | 10.2 | 11.1 |
Volume increased in all regions except for Europe.
| Million moves | 2018 | 2017 | Growth (%) |
|---|---|---|---|
| Americas | 4.8 | 3.7 | 29.9 |
| Europe, Russia and Baltics | 3.0 | 2.9 | 2.7 |
| Asia | 7.2 | 7.1 | 2.1 |
| Africa and Middle East | 2.0 | 1.9 | 4.2 |
| Total | 17.0 | 15.6 | 9.1 |
Increase in equity-weighted volumes in all regions, particularly strong in Latin America across several locations following robust growth from the Maersk Line and Hamburg Süd integration.
growth in Latin America, especially driven by the Hamburg Süd integration as well as external volume growth and a one-off settlement in Los Angeles. This more than offset one-off costs related to the implementation of a new terminal operating system in North America. In Europe, the EBITDA margin decreased by 1 percentage point, mainly due to negative volume growth in certain terminals. In Africa and the Middle East, the EBITDA margin increased by 1.6 percentage points, mainly due to higher storage revenue in the West African terminals, while the EBITDA margin in Asia decreased by 0.6 percentage points, mainly driven by East and South Asian entities.
The increase in profit from joint ventures and associated companies to USD 158m (loss of USD 86m) was due to impairments of USD 265m in 2017. Excluding the impairments, the profit from joint ventures and associated companies decreased by USD 21m compared to 2017, mainly due to one-offs in West African terminals.
APM Terminals' ports and inland activities
Closer collaboration between Maersk and APM Terminals Pier 400, Los Angeles, created new opportunities and better customer experience.
Closer collaboration between APM Terminals Pier 400, Los Angeles and Maersk Line has provided a good outcome for beneficial cargo owners and helped further increase volumes in Los Angeles.
The collaboration resulted in savings for a large electronics company in South Korea
which was facing delays with exports from its factory in Mexico due to network rescheduling. Maersk Korea and Pier 400 immediately decided to use trucks to shift the cargo from Mexico to Los Angeles. The cargo started arriving on a Friday, and by the following Tuesday, a Maersk Line vessel carrying electronics cargo departed Pier 400.
Los Angeles
Directors' report Performance 2018 Ocean Logistics & Services Terminals & Towage Manufacturing & Others Discontinued operations Sustainability
Bahrain
The implementation of digital customer solutions for landside customers in Bahrain since mid-2018 resulted in the onboarding of 1,200 users and saved almost seven man-years of transaction time for customers.
Landside customers had to visit the terminal 15 kilometres from the city for all their port dealings, causing issues such as long queues at appointment offices, a lack of transparency on available time slots, and complaints about the inability to process online payments.
By mid-2018, APM Terminals' digital team launched an advanced online platform in Bahrain to directly track and trace cargo realtime, check the status of shipments/vessels, schedule appointments such as deliveries and container stripping, and receive and pay invoices online with 24/7 support.
The innovative solutions resulted in considerable time savings for customers in the appointment process (from 3-4 hours to 1-2 minutes). The appointment process is now more transparent, and helps customers to better plan and manage their cargo flows.
The terminal is moving towards only using digital import bookings from 2019 – thereby ensuring efficiency savings for APM Terminals. The digital portal is also allowing customers to incrementally purchase value-added services such as container stripping and storage, increasing APM Terminals' participation in the container supply chain.
Revenue from towage activities amounted to USD 692m (USD 659m), mainly impacted by increases in the Americas by USD 18m, in Australia by USD 10m, and in Europe by USD 8m, offset by a USD 3m decrease in revenue in Asia, the Middle East and Africa. Like-forlike growth adjusted for currency developments totalled 4.6%.
Harbour towage activities measured by the number of tug jobs increased by 5.9% compared to 2017, mainly driven by increased activity in the Americas and Australia. For terminal towage, annualised EBITDA per tug increased compared to 2017 with a positive impact from new contracts in 2018, partially
Towage offset by a negative currency impact. The idle fleet in terminal towage has been reduced, which positively impacted EBITDA per tug.
Volumes in Australia improved due to higher commodity exports, and because of increased market share for harbour towage in competitive ports in Australia.
Activity in Europe remained stable, and Svitzer's market share for harbour towage in competitive ports was on par with 2017. However, more intense competition from consolidation amongst towage providers and the increasing supply of tugs led to lower prices.
In the Americas, activity in both Argentina and Brazil increased, driven by new customers in ports entered during 2018, and additional volumes and market share in the ports entered in 2017. Also, the terminal towage activities
| Revenue, Towage | |||
|---|---|---|---|
| Per region, USD million | 2018 | 2017 | Growth % |
| Australia | 273 | 263 | 3.8 |
| Europe | 244 | 236 | 3.5 |
| Americas | 96 | 78 | 23.6 |
| Asia, Middle East and Africa | 79 | 82 | -4.2 |
| Total | 692 | 659 | 5.0 |
| Total | 692 | 659 | 5.0 |
|---|---|---|---|
| Eliminations, etc. | -3 | -6 | N/A |
| Terminal towage | 210 | 209 | 0.4 |
| Harbour towage | 485 | 456 | 6.2 |
ramped up with operations in Costa Rica partially commenced in 2018.
In Asia, the Middle East and Africa, activity was in line with 2017, while some cost reductions were achieved. The cost reductions related to trimming the onshore organisation and the divestment of idle vessels. During 2018, towage operations commenced in Bangladesh as well as in Tangier Med II, Morocco.
Cash flow used for capital expenditure amounted to USD 120m (USD 147m). Towage sold 13 vessels with a cash flow impact of USD 14m in 2018.
Free cash flow amounted to USD 74m (USD 83m).
Activity levels in the harbour towage markets remain stable. For harbour towage in Europe, consolidation in the industry persists, leading to stronger competitors and more intense competition. In Australia, a new competitor started up at the end of 2018, which increases competition.
The strategic focus is still to improve cost levels and productivity, while utilising and expanding the global footprint to ensure closer cooperation with targeted customers.
The activity growth in terminal towage remains low, reflecting fewer offshore development projects initiated by oil companies.
The existing market portfolio continued to be optimised by focusing on growth in selected markets such as Argentina and Brazil.
Towage activities have been positively impacted by further cooperation with other A.P. Moller - Maersk businesses during 2018. These synergies within A.P. Moller - Maersk have generated additional volumes in various ports in Brazil, in Buenos Aires, Argentina, in Bremerhaven, Germany, in Poti, Georgia, and in Tangier Med II, Morocco, as well as secured contracts with start in early 2019 in Monrovia, Liberia, and in Antwerp, Belgium.
To address the increased commercial pressure resulting from fewer new projects, slow growth in vessel calls and overcapacity of towage tonnage in certain geographic markets, optimisation of the fleet utilisation continued through repositioning or selling vessels. With increased market shares and an unchanged harbour towage fleet, vessel utilisation has improved. The ongoing fleet optimisation continued, with the disposal of 13 idle vessels during 2018. The focus on improving customer satisfaction continued, along with efforts to strengthen the relationships with global customers.
| Fleet overview, Towage | ||
|---|---|---|
| Number of vessels | 2018 | 2017 |
| Owned | 339 | 339 |
| Chartered | 26 | 17 |
| Total | 365 | 356 |
| Newbuilding | ||
|---|---|---|
| Delivery within one year | 2 | - |
| Delivery after one year | - | 10 |
| Total | 2 | 10 |
The towage fleet increased by nine vessels to 365 vessels, with 339 owned and 26 chartered at the end of December 2018. A total of two vessels are on order, and will be delivered in 2019.
Manufacturing & Others´ revenue increased by 51% to USD 2.5bn (USD 1.7bn), impacted by the inclusion of acquired bulk activities from Hamburg Süd and a higher level of oil/ bunker trading with third parties. EBITDA of USD 59m (USD 173m) was negatively impacted by dry container margins under pressure as well as by restructuring costs in Maersk Container Industry and lower EBITDA across other businesses, in particular in Maersk Oil Trading.
Maersk Container Industry decided to consolidate its reefer container manufacturing in Qingdao, China, and the facility in San Antonio, Chile, was closed in June. Profitability was significantly impacted by dry container margins being under severe pressure, and was significantly below the level in 2017. In December 2018, it was decided to idle down operations at the dry factory in Dongguan, China, and in January 2019, Maersk Container Industry announced the decision to exit the dry container business altogether, including the manufacturing facility in Dongguan.
Maersk Container Industry reported revenue of USD 978m (USD 1.0bn). Revenue in reefer containers and services increased by 7%, despite the closing of the factory in Chile, driven by higher demand from third-party customers and by selling both integrated reefers and Star Cool units, while revenue in dry containers decreased by 24% due to lower sales prices and lower volumes.
Maersk Container Industry won large thirdparty reefer orders, and concluded both its single biggest order and the largest total volume within a year. Demand from the Ocean segment accounted for approx. 40% (65%) of reefer containers and 39% (82%) of total revenue including dry containers and services.
Volumes as number of containers in reefer including integrated containers, reefer boxes and Star cool units were 47,932 (45,645), and in dry containers 69,549 (94,699).
The EBITDA of USD 40m (USD 87m) was due to the negative development in profitability on dry containers and restructuring costs
Manufacturing includes the activities of Maersk Container Industry with the production and sale of reefer containers at the factory in China, following the announcement in January 2019 to exit the dry container business altogether.
Others includes the third-party activities of Maersk Oil Trading and bulk activities taken over as part of the Hamburg Süd transaction. However, these bulk activities were divested in January 2019.
in Chile of USD 18m. Steel prices remained high in 2018, however, this was not reflected in increased sales prices, leading to compressed margins. The EBITDA margin ended at 4.1% (8.6%), with margins on dry containers decreasing significantly, whereas reefer containers and services showed an increase driven by the higher revenue.
The closing of the factory in Chile in June, impacted results negatively by USD 141m in impairments, while exiting the dry business by closing the factory in Dongguan, China, had a negative impact of USD 66m in impairments.
The activities in Others reported revenue of USD 1.6bn (USD 674m), with a revenue in Maersk Oil Trading of USD 769m (USD 410m), due to a higher level of oil/bunker trading with third parties. Bulk activities acquired as part of the Hamburg Süd transaction generated revenue of USD 444m.
EBITDA in Others was USD 19m (USD 86m), of which Maersk Oil Trading reported negative USD 24m (positive USD 38m), while the bulk activities reported a negative EBITDA of USD 7m.
The remaining activities in Others reported a revenue of USD 356m (USD 264m), with an EBITDA of USD 50m (USD 48m).
With the consolidation of reefer activities in China and the exit from the dry container business, Maersk Container Industry will focus fully on growing its cold chain business and will continue to design, manufacture, sell and service the Star Cool Technology. This focused growth will require further investments in the best products and services.
Maersk Container Industry's other locations, including the reefer factory in Qingdao, China, and operations in Denmark, are not impacted by the closing of the two container factories, but will continue their operations and support the global network of customers.
Maersk Container Industry managed to win major reefer tenders with global container operators and fruit multinationals with its Integrated Star Cool reefers, while also increasing the sale of Star Cool units, which for the first time exceeded reefer container sales.
Maersk Container Industry announced Sekstant™ Global Guidance in November. The system for reefer digitalisation is the most significant technological breakthrough since the introduction of the Star Cool reefer machinery. Sekstant™ will provide container operators with accurate data at any point along the transportation chain, enabling optimisation of operations and transparency towards their shippers. At the same time, this will take the value chain for Maersk Container Industry to a new level through the utilisation of operational data and big data analysis.
| USD million | 2018 | 2017 |
|---|---|---|
| Revenue | 2,547 | 1,689 |
| Profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) | 59 | 173 |
| EBITDA margin | 2.3% | 10.2% |
| Gross capital expenditure, excl. acquisitions and divestments (CAPEX) | 16 | 23 |
| Operational and financial metrics | ||
| Maersk Container Industry, third-party customers share of revenue (%) | 61% | 18% |
The objective of finding structural solutions for the oil and oil-related businesses was successfully accomplished for Maersk Tankers in 2017, and for Maersk Oil in 2018 when the agreement with Total S.A. closed. As announced on 17 August 2018, A.P. Moller - Maersk has decided to pursue a demerger via a separate listing of Maersk Drilling on Nasdaq Copenhagen on 4 April 2019, while continuing to pursue a solution for Maersk Supply Service.
Maersk Drilling and Maersk Supply Service posted a profit of USD 561m (loss of USD 1.7bn), positively impacted by the cessation of depreciation from classification as discontinued operations, while 2017 was negatively impacted by impairments of USD 1.9bn.
Following an evaluation of the different options available to Maersk Drilling, A.P. Moller - Maersk has concluded that Maersk Drilling as a stand-alone company presents the most optimal and long-term prospects for its shareholders. This will offer shareholders the possibility of participating in a value-creation opportunity for a global, leading pure-play offshore drilling company with long-term development prospects. Details on the demerger and separate listing will be announced at a later stage.
In Q4, Maersk Drilling made the progress necessary to ensure that the entity is ready for a demerger in 2019, with the ambition of being both organisationally and financially ready to operate as an independent entity in due time before a listing.
As part of the preparations for the separation, debt financing of USD 1.5bn, out of which USD 1.2bn has been released as cash proceeds to A.P. Moller - Maersk, from a consortium of international banks has been agreed for Maersk Drilling to ensure a solid capital
structure after a listing. The Board of Directors was strengthened in January 2019, and a clear governance structure has been established.
On 7 February 2019, Maersk Drilling presented its consolidated annual report for 2018 including guidance for 2019.
Maersk Drilling reported a revenue of USD 1.4bn (USD 1.4bn), while EBITDA was USD 611m (USD 683m), negatively impacted by several idle rigs and lower day rates combined with costs for the planned separation. High operational uptime, more contracted days and a one-off had a positive effect on EBITDA.
Maersk Drilling reported solid cash conversion from an operational cash flow of USD 564m (USD 712m) and limited maintenance CAPEX.
The strong operational performance across the fleet resulted in an average operational uptime of 98% (98%) for the jack-up rigs and 97% (98%) for the deepwater rigs.
Oil prices were volatile in 2018, reaching approx. USD 85 per barrel in October, but ending the year at USD 53, driven by an uncertain demand outlook and robust supply, particularly from onshore US. Global rig demand continued to rise in 2018, albeit at a slow pace. Oversupply is still a factor, keeping utilisation rates at moderate levels. Total utilisation for floaters and jack-up rigs at the end of 2018 stood at 66% and 59%, respectively. Two jack-up rigs and five floaters were scrapped in Q4, bringing the 2018 total attrition figures to 36 jack-up rigs and 20 floaters. Scrapping activity remains limited to relatively older rigs, as contractors are optimistic about a coming rebound in demand. Estimates for a 2018 greenfield capital commitment for offshore projects were revised downwards in Q4 to USD 84bn from Q3 estimates of USD 94bn. The industry continues to target cost reduction through operational efficiency improvements, integrated alliances and partnerships, financial restructuring, and mergers and acquisitions.
Locations on 31 December 2018.
Maersk Drilling signed 12 new contracts and further extended 13 contracts during 2018, adding 4,022 days and USD 503m to the backlog. By the end of 2018, Maersk Drilling's total revenue backlog amounted to USD 2.5bn (USD 3.3bn), with forward contract coverage of 69% for 2018, 63% for 2019 and 37% for 2020.
In 2018, Maersk Drilling launched a new strategic ambition ´Smarter Drilling for Better Value´, with the aim of combining the leading drilling services with new services and innovative business models. The objective is to drive long-term business opportunities through increased customer collaboration, differentiation and asset utilisation. In this way, Maersk Drilling is at the forefront of change, and is recognised for its collaborative and innovative business approach which has enabled Maersk Drilling to forge strong alliances in the industry. The first example was the alliance with Aker BP, which aims at lowering the cost per barrel and increasing profitability for the partners while giving Maersk Drilling a preferential right to provide jack-up rigs for Aker BP in Norway. In September 2018, Maersk Integrator became the first rig to be contracted fully under alliance conditions.
In December 2018, Maersk Drilling entered yet another unique alliance with Seapulse Ltd. In this alliance, Maersk Drilling will provide fully integrated services, including the provision of rigs and related services to remove complexity across the entire value chain for a global 12 well exploration drilling programme.
1 Excluding Maersk Guardian, operating as an accommodation rig. Source The Maersk Drilling Group
Maersk Supply Service reported an 8% increase in revenue to USD 263m (USD 244m), reflecting higher utilisation and higher project activity. EBITDA of USD 3m (USD 13m) was, however, negatively impacted by the expiry of legacy contracts and increased project cost.
Cash flow used for capital expenditure decreased to USD 333m (USD 447m) due to the payment of four (four) newbuildings with a lower average price in 2018.
A negative fair value adjustment of USD 400m was recognised in Q3 to reflect management's
revised expectations of a fair value of Maersk Supply Service due to continued challenging market conditions.
The industry continues to be characterised by oversupply, financial restructurings and consolidation, and Maersk Supply Service expects the market outlook for the industry to remain subdued in the near and mid-term. Tender activity is rising; however, day rates remain under significant pressure and the offshore supply vessel industry has approx. 30% of vessels laid up globally, including Maersk Supply Service with 14 (15) vessels laid up at the end of 2018, corresponding to 33%. When including both laid-up and idle vessels, the industry percentage increases to approx. 47%.
Important contract wins and extensions were secured in all five core geographic regions – North America, Europe, West Africa, Latin America and Asia Pacific – ensuring utilisation of vessels. However, rates remain under pressure.
Within the integrated solutions area, the transportation and hook-up of the FSO in the Culzean field in the North Sea was completed in Q3, marking the last step of the installation under the project management of Maersk Supply Service. Over the course of the project, eight vessels and Maersk Supply Service crew carried out the marine operations. During Q4, a newbuild Subsea Support Vessel (SSV) was contracted to perform light well intervention work in Angola, which marks the first contract in this work scope for Maersk Supply Service, illustrating progress in a new service area. During Q3, Maersk Supply Service project-managed the decommissioning of
the Leadon subsea field in the North Sea. The recovery of the towhead was completed by another of the company's newbuild SSVs.
Maersk Supply Service's strategy to diversify its business into new markets has progressed, demonstrating the versatility of the fleet. Within the offshore wind industry, Maersk Supply Service has deployed a newbuild SSV performing walk-to-work duties, which is the first job within this important market. In Q2, an innovation partnership with Vestas aimed at lowering the logistics and installation costs within sustainable energy solutions was announced. In addition, Maersk Supply Service deployed two vessels to The Ocean Cleanup, a non-profit organisation, for installing the world's first clean-up system in the North Pacific to rid the oceans of plastic.
The joint venture between Maersk Supply Service and Maersk Drilling to provide bundled decommissioning solutions was fully established as of June 2018. While rising oil prices have led to some project delays in the market, as decommissioning increasingly competes for funding alongside exploration and production activities, Maersk Decom has received a positive response from both operators and regulators. The company began work on its first study contract in December 2018, and is engaged in in-depth project development dialogue with North Sea operators.
During 2018, the final of four Maersk Supply Service I-class Stingray newbuild vessels were delivered, and are now servicing global customers.
Decommissioning in the North Sea Decommissioning involves the safe plugging of wells and the disposal of equipment used in offshore oil and gas production.
Inspection, Maintenance & Repair (IMR) services in Mexico
IMR is the provision of inspecting, maintaining and repairing offshore production units.
Light well intervention is the servicing of subsea wells on the seabed using a vessel instead of a drilling rig.
Walk-to-work in the North Sea Walk-to-work is an accommodation service for wind turbine personnel, enabling them to access and maintain offshore wind turbines.
The link between business and sustainable, responsible practices is growing stronger, as global challenges, such as climate change and anti-globalisation grow. A.P. Moller - Maersk is responding to the growing expectations on the part of investors, customers and employees with leadership projects on transformational issues directly associated with the businesses and ensuring integrity in everything Maersk does.
The sustainability strategy issues, and four priority programmes that will With the Paris Agreement on climate change and the establishment of the United Nations Sustainable Development Goals, which are both supported by almost all countries in the world, companies are being given a new role as co-providers of solutions to critical issues, as innovators, as investors and as key players in implementing commercially viable solutions for a sustainable economy at scale.
A.P. Moller - Maersk welcomes this opportunity, and understands that while it opens doors for business, it also adds to the expectations of accountability and transparency by stakeholders – including shareholders. Responsible practices are therefore as important as ever, while demands on being able to manage and communicate on sustainability-related risks are growing. The largest change, however, is the growing expectation that companies use their business activities to create and drive positive impact – alone or in partnership with others.
The sustainability strategy encompasses these expectations with a non-wavering focus on responsible business practices with all material
enable the companies to drive the development of large-scale solutions that target some of the world's major sustainability challenges, while at the same time supporting business development.
Nowhere is this clearer than the growing urgency to tackle climate change. The latest assessments from the UN's Intergovernmental Panel on Climate Change leave no doubt as to the need for the world in general to go through a deep transformation away from its reliance on fossil fuels. Maersk wants to play a clear and leading role in driving the shipping industry's transformative process. This is the only responsible thing to do, but such efforts and investments are also believed to create strategic benefits for the business. At the same time, the risks of early mover disadvantages are being considered, and efforts are being made to avoid these through informative new framework conditions that will support the goal of having commercially viable vessels on the water by 2030.
Efforts to manage other material sustainability risks, responsibilities and opportunities also progressed in 2018.
Having reached a plateau in safety performance, and more importantly with highpotential events, particularly those resulting in fatalities, continuing to occur, significant steps to renew and step up the approach to safety were taken. In 2018, seven people regrettably lost their lives in connection with business operations.
The approach to ensuring safety will be fundamentally embedded in all aspects of the organisation, and will involve every part of the business, every employee and all business processes. An executive task force has developed the approach, which was approved by the Board of Directors, and it will be delivered through a new corporate safety function and new levels of both leadership and employee engagement.
Accidents are never intentional, but occur because of many factors coinciding, and there is rarely a correlation between the efforts being made to prevent minor events and injuries and high-potential accidents or events. In future, more focus will be directed at building the organisational capacity and operational controls that act as barriers to accidents which could otherwise have escalated to life-changing or fatal outcomes.
In 2018, a new company ambition of netzero CO2 emissions from own operations by 2050 was set. This will drive a transformation of the shipping industry towards using carbon-neutral fuels.
Until decarbonisation is achieved, decoupling business growth from emissions is a necessity. An efficiency target of 60% relative reduction in CO2 by 2030 from a 2008 baseline has been set. Due to the efforts over the past decade, 41% of these reductions have already been achieved.
To deliver on the target, massive innovation in ship and engine design and fuel transformation must take place in the next 5-10 years.
A. P. Moller - Maersk is committed to becoming a leader in this process, and will dedicate resources and efforts towards research collaborations, technical development,
customer engagement and regulatory advocacy. In addition, Maersk will call on all parties involved to collaborate on incentives and to develop innovative solutions.
Another aspect of climate change that is being prepared for are the physical impacts and potential risk to business assets and value. This work has been furthered by the investment community's focus on climate change from a financial risk perspective, as demonstrated in the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). In 2018, a hot-spot analysis aimed at estimating the effect of five climate hazards on ports, other fixed assets and strategic commodities within a 2020– 2040 time-frame was conducted. Further analysis of selected regions of material importance to the business to determine the future approach to building climate change resilience will be performed.
Zero
net-emissions from own operations by 2050.
60%
relative reduction in CO2 emissions by 2030 (2008 baseline).
41% 2018 results
relative reduction in CO2 emissions from own activities compared to 2008 baseline.
The International Maritime Organization's (IMO) 0.5% global cap on the sulphur dioxide (SOx) content in fuels for shipping will enter into force on 1 January 2020. To enable enforcement of the global cap, the IMO in 2018 decided on a carriage ban for non-compliant fuels on board vessels. Vessels with scrubbers installed for cleaning the exhaust gasses are exempted from this ban. The OECD estimates the cost of switching to new, compliant fuels at up to USD 15bn per year for the container shipping industry, equalling around USD 2bn annually for Maersk.
To prepare for the 2020 global cap, Maersk:
Maersk continues to work with ship recycling yards in Alang, India, to prove the viability of more options for responsible ship recycling. In 2018, the European Union (EU) introduced a list of approved yards for the recycling of vessels carrying EU flags. The desire to be included on this list is encouraging the transformation of Alang, where at least 66% of the yards are now investing in improvements. The current version of the EU list does not include Indian yards; however, it will be updated on an ongoing basis.
The Ship Recycling Transparency Initiative (SRTI) launched its online platform in December 2018. It encourages all shipowners to report on their
ship recycling practices against a comprehensive set of disclosure criteria, which is also followed by Maersk. The SRTI allows for sharing the risks related to investing in the transformation of ship recycling.
The commitment to contribute to halving food loss by 2030 is a new area in the sustainability strategy. The goal is to build capabilities in the supply chain in countries with a high prevalence of food loss in the production and transportation stages, and to enhance their ability to benefit from food loss-reducing solutions. This will increase local traders' participation in trade, and potentially allow growth in the cold chain business.
In 2018, relevant organisations for potential partnerships were mapped, and a memorandum of understanding was signed with the International Finance Corporation (IFC) for future cooperation on food loss projects at country level.
maersk.com/about/sustainability/reports
The sustainability report serves as the statutory reporting according to section 99a and b of the Danish Financial Statements act.
Tensions over global trade are currently at their highest level for many years. A positive outcome will depend on an orderly process to revise the global rule book on trade, reflecting the need for greater balance, inclusion and sustainability in trade.
In 2018, an ambitious set of commitments was adopted to help multiply the benefits of trade for both society and business by leveraging
the capabilities of A.P. Moller - Maersk as an integrated transport and logistics company to reduce complexity in global value chains. This will enable more countries and more companies to trade in simpler, cleaner, faster and cheaper ways. The commitments also aim to help empower small businesses to have better access to the benefits of trade, and thereby to support innovation and job creation. To deliver on these commitments, new partnerships were entered into and developed in 2018.
Corporate governance Board of Directors Executive Board Remuneration Shareholder information
Corporate governance is an important aspect of A.P. Møller - Mærsk A/S, in line with the company's values. A.P. Møller - Mærsk A/S is continuously developing its corporate governance in response to the strategic development, goals and activities, as well as to the external environment and input from stakeholders.
The five core values ´Constant Care´, ´Humbleness´, ´Uprightness´, ´Our Employees´ and ´Our Name´ remain pillars for the way in which A.P. Møller - Mærsk A/S conducts its business. Engrained in the company for more than a century, these corporate values are continuously being promoted throughout the global organisation, and serve as guiding principles for employees and leaders.
The governance structure supports close coordination between the Board of Directors, the Executive Board and leaders throughout the organisation. The structure promotes the objectives of:
The formal basis for the corporate governance of A.P. Møller - Mærsk A/S consists of:
anti-corruption, legal compliance, etc. and is continuously updated.
• The Maersk Whistleblower System, established in 2011, which enables employees and other stakeholders in 130 countries to report wrongdoings. Further information on whistleblower reports is available in the Sustainability Report. https://secure.ethicspoint.eu/domain/media/en/gui/102833/ index.html
To organise the preparation and conduct of Board meetings in the most efficient manner, the Board has established an Annual Plan in cooperation with the Executive Board. The Annual Plan outlines the main items and focus points for each ordinary Board meeting and topics on which the Executive Board is expected to report as well as matters for deliberation or approval by the Board members. The Annual Plan ensures that all relevant topics are covered sufficiently during the year.
During the summer of 2018, an externally facilitated Board evaluation process was conducted, among others covering the cooperation between the Board of Directors and the Executive Board, the Chairman's role, the Board's and Board committees´ effectiveness and results as well as an assessment of Board capabilities relative to those best supporting the company's strategy. All members of the Board of Directors and the Executive Board participated in the evaluation process and provided input via questionnaires and individual interviews, thus forming the basis of a comprehensive evaluation report. The results were discussed in plenary sessions of the Board of Directors and in one-to-one sessions between the Chairman and individual members of the Board and the Executive Board.
The main conclusions and outcomes of the board evaluation were:
asset-heavy industries, finance and accounting, risk management, global leadership and board service in stock-listed companies.
• The talent pipeline and development of leadership talent to be strengthened.
The evaluation report, results and conclusions from the evaluation process are foundational for the Nomination Committee's considerations and search for future candidates to the Board of Directors as well as for the Chairman's planning and conduct of Board meetings.
As a Danish listed company,
A.P. Møller - Mærsk A/S must comply with or explain deviations from the ´Recommendations for Corporate Governance´ implemented by Nasdaq Copenhagen in the Rules for issuers of shares and Section 107b of the Danish Financial Statements Act.
The Board of Directors has prepared a statement on corporate governance for the financial year 2018. The statement includes a description of the company's approach to each of the recommendations in the ´Recommendations for Corporate Governance´. A.P. Møller - Mærsk A/S complies with 37 recommendations, complies partly with five recommendations and explains deviation from five recommendations. The statutory Statement on Corporate Governance can be consulted at http://investor.maersk.com/corporate-governance
The General Meeting is the supreme governing body of A.P. Møller - Mærsk A/S. The shareholders exercise their rights at the General Meeting e.g. in relation to electing the Board members and the auditors of the company, approving the annual reports and dividends, deciding on the articles of association and on proposals submitted by shareholders or the Board. The company has two share classes: A shares carrying voting rights and B shares carrying no voting rights. A and B shares carry equal economic rights, and are traded publicly at Nasdaq Copenhagen.
A.P. Møller - Mærsk A/S has a two-tier management structure consisting of the Board of Directors and the Executive Board as illustrated. There is no overlap between members of the Board of Directors and members of the Executive Board. By inviting business leaders, functional leaders and relevant experts to participate in parts of its meetings, the Board of Directors and its committees interact with representatives from various parts of the organisation as well as external specialists.
The Board of Directors lays down the general business and management principles, and ensures the proper organisation and governance of the company. Furthermore, the Board of Directors decides the strategy and the risk policies, and supervises the performance of
the company and its management. The Board of Directors must consist of four to 13 members elected by the General Meeting. The Board members are elected for a two-year term. There are Board members up for election every year to ensure continuity in the work of the Board of Directors. Board members are eligible for re-election.
In connection with the Annual General Meeting on 10 April 2018, Niels Jacobsen, Renata Frolova-Hammer and Palle Vestergaard Rasmussen stepped down from the Board of Directors, and the Annual General Meeting elected Thomas Lindegaard Madsen and Jacob Andersen Sterling as new members. Since then, the Board of Directors has had 10 members, all elected by the Annual General Meeting. Half of the members of the Board of Directors, including the Chairman, are independent. The Chairman of the Board of Directors and the chairmen of the committees, except the Nomination Committee, are independent.
Further information on the members of the Board of Directors, committees as well as the Board members' participation in Board and committee meetings is available here http://investor.maersk.com/board-directors
The Board of Directors plans seven to nine ordinary meetings per annum.
The Chairmanship consists of the Chairman and the Vice Chairman (or Vice Chairmen) who are elected by and among the members of the Board of Directors. The Chairmanship performs certain preparation and planning in relation to Board meetings, and is a forum for the Chairman's and management's reflections. The Chairmanship meets regularly and as required.
The Audit Committee consists of three to four Board members appointed by and among the Board members. The Committee reports to the Board of Directors and currently has three members. The tasks of the Audit Committee include the review of accounting, auditing, risk and control matters, which are dealt with at meetings with the external auditors, the CFO and the heads of the accounting and internal audit functions. Furthermore, the Committee is tasked with reviewing material on related parties´ transactions. The tasks of the Audit Committee are described in rules of procedure approved by the Board of Directors and are available at the company's webpage http://investor.maersk. com/board-committees-0. The majority of the members are independent. In 2018, Jim Hagemann Snabe replaced Niels Bjørn Christiansen as member of the Audit Committee.
The Committee plans six to seven ordinary meetings per annum.
In 2018, the Board of Directors established a Nomination Committee consisting of three
Board members, one of whom is the Chairman of the Board. The members are elected by and among the Board members, and the Board appoints the chairman of the Committee. The Nomination Committee assists the Board by establishing an overview of the competencies required and represented on the Board, and reviews the structure, size, composition, succession planning and diversity of the Board of Directors. The Committee also reviews the application of the independence criteria, initiates recruitment and evaluates candidates for election to the Board of Directors at the General Meeting. The tasks of the Nomination Committee are described in the rules of procedure approved by the Board of Directors and are available at the compa-
The Committee meets as needed.
ny's webpage http://investor.maersk.com/
The Remuneration Committee consists of three Board members, one of whom is the Chairman of the Board. In 2018, a long-standing practice of the Remuneration Committee's composition being identical to the Chairmanship changed, and the Committee members are now separately elected by and among the Board members. The Remuneration Committee makes proposals to the Board of Directors for the remuneration of the members of the Executive Board. Furthermore, the Committee makes proposals to the Board e.g. with regard to incentive schemes, reporting and disclosure of remuneration, remuneration policies and incentive guidelines. The Remuneration Committee must ensure that the remuneration policy and practices as well as
incentive programmes support the strategy of A.P. Møller - Mærsk A/S and create value for the shareholders. The tasks of the Remuneration Committee are described in rules of procedure approved by the Board of Directors and are available on the company's webpage http://investor.maersk.com/board-committees-0. The majority of the members are independent.
The Committee plans four meetings per annum.
The Transformation & Innovation Committee consists of three to four Board members appointed by and among the Board members. The Committee reports to the Board of Directors and currently has three members. The Committee is established with the purpose of supporting the transformation of the company as well as the development of the company's overall strategic direction and innovation agenda. The tasks of the Transformation & Innovation Committee are described in rules of procedure approved by the Board of Directors and are available at the company's webpage http://investor.maersk.com/board-committees-0. The majority of the members are independent.
The Committee plans three to four meetings per annum.
Until April 2018, two members of the Board of Directors and three members of the Executive Board were part of an ad hoc committee established in 2017 which focused on the separation of the energy businesses (for
further description, see the Annual Report for 2017). The ad hoc committee was dissolved following completion of the sale of Mærsk Olie og Gas A/S.
Group Internal Audit was established in 1998, and provides assurance to the Board of Directors and the Audit Committee and acts independently of the Executive Board. Group Internal Audit's main focus is on reviewing the effectiveness of internal controls, procedures and systems to prevent and detect irregularities. The Head of Group Internal Audit reports to the Chairman of the Board of Directors and to the Audit Committee.
The members of the registered management (the Executive Board) of A.P. Møller - Mærsk A/S as of 1 January 2018 were Søren Skou (CEO), Claus V. Hemmingsen (Vice CEO), Jakob Stausholm (Chief Finance, Strategy and Transformation Officer), Vincent Clerc (CCO), Morten H. Engelstoft (CEO of APM Terminals) and Søren Toft (COO). On 31 March 2018, Jakob Stausholm stepped down as Chief Finance, Strategy and Transformation Officer and left the company. On 1 January 2019, Carolina Dybeck Happe took up the position as Chief Financial Officer (CFO) and became a member of the Executive Board. Further information about the members of the Executive Board, including names, photos and occupations can be found at http://investor.maersk.com/management.
Members of the Executive Board are appointed by the Board of Directors to carry out the dayto-day management of the company.
Responsibility for the overall governance and strategic direction of the company, including for instance:
In 2018, the Board of Directors held 10 meetings, and the attendance rate was 95.1%.
In 2018, the Chairmanship held nine meetings, and the attendance rate was 100%.
In 2018, the Audit Committee held eight meetings, and the overall attendance rate was 95.8%.
In 2018, the Nomination Committee held five meetings, and the attendance rate was 100%.
In 2018, the Remuneration Committee held three meetings, and the attendance rate was 100%.
In 2018, the Transformation & Innovation Committee held four meetings, and the attendance rate was 100%.
Thomas Lindegaard Madsen Robert Mærsk Uggla Jan Leschly Ane Mærsk Mc-Kinney Uggla Robert Routs Jim Hagemann Snabe Jacob Andersen Sterling Dorothee Blessing Niels Bjørn Christiansen Arne Karlsson
| Born | 1965 |
|---|---|
| Gender | Male |
| Joined the Board | 2016 |
| Current election period | 2018-2020 |
Chairman of the Board of Directors and the Remuneration Committee. Member of the Audit Committee, the Nomination Committee and the Transformation & Innovation Committee
Considered independent
Board experience from a.o. international, listed technology and innovation companies and from the financial sector. Management experience from global, listed IT companies.
| 10 out of 10 Board meetings | |
|---|---|
| 9 out of 9 | Chairmanship meetings |
| 7 out of 72 | Audit Committee meetings |
| 5 out of 5 | Nomination Committee meetings |
| 3 out of 3 | Remuneration Committee meetings |
| 4 out of 4 | Transformation & Innovation |
| Committee meetings |
2 In 2018, the Audit Committee held a total of eight meetings, however, one of these was before Jim Hagemann Snabe joined the Audit Committee.
| Born | 1948 |
|---|---|
| Gender | Female |
| Joined the Board | 1991 |
| Current election period | 2018-2020 |
Vice-Chairman of the Board of Directors and Chairman of the Nomination Committee
Not considered independent due to membership of the Board of A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal
• Master of Arts, 1977
Insight into the market fundamentals, values and history of the company. Knowledge of the company´s complex accounting matters.
| Born | 1967 |
|---|---|
| Gender | Female |
| Joined the Board | 2014 |
| Current election period | 2017-2019 |
Managing Director, Regional Head for J.P. Morgan in Germany, Austria, Switzerland, Israel, Ireland and the Nordics, responsible for all lines of business and Vice Chairman of Investment Banking EMEA and CEO of J.P. Morgan AG
• MSc in Economics (lic.oec.), University of St Gallen, Switzerland
Financial insight. Leadership experience from international investment banking and financial institutions.
9 out of 10 Board meetings
| Born | 1966 |
|---|---|
| Gender | Male |
| Joined the Board | 2014 |
| Current election period | 2017-2019 |
Chairman of the Transformation & Innovation Committee
CEO of LEGO A/S
• William Demant Holding A/S (Chairman)
• MSc in Engineering (DTU Denmark), 1991 • MBA from INSEAD, 1993
Management experience in large, global high-tech and industrial innovation companies. Board experience from both listed and private companies within the financial sector, private equity and industry.
Former CEO of Ratos AB
• BSc in Business and Economics, Stockholm School of Economics, 1982
Experience from positions as CEO and board member of different companies and with managing and developing a diverse portfolio of businesses operating in different markets.
Attendance in Board and Committee meetings
10 out of 10 Board meetings
| Born | 1940 |
|---|---|
| Gender | Male |
| Joined the Board | 2000 |
| Current election period | 2018-2020 |
Not considered independent due to more than 12 years of service on the Board of Directors
Experience from positions as CEO, board member and chairman of large listed companies with global activities. Experience with leadership of research and innovation companies.
9 out of 10 Board meetings
1 In 2018, the Audit Committee held a total of eight meetings, however, seven of these were held after Niels Bjørn Christiansen stepped down from the Audit Committee.
8 out of 8 Audit Committee meetings
| Thomas Lindegaard Madsen | Robert Routs | Jacob Andersen Sterling | Robert Mærsk Uggla | ||||
|---|---|---|---|---|---|---|---|
| Born | 1972 | Born | 1946 | Born | 1975 | Born | 1978 |
| Gender | Male | Gender | Male | Gender | Male | Gender | Male |
| Joined the Board | 2018 | Joined the Board | 2010 | Joined the Board | 2018 | Joined the Board | 2014 |
| Current election period | 2018-2020 | Current election period | 2018-2020 | Current election period | 2018-2020 | Current election period | 2018-2020 |
| Not considered independent due to employment | Member of the Remuneration Committee and the | Not considered independent due to employment | Member of the Nomination Committee, | ||||
| in A.P. Moller - Maersk | Audit Committee and elected risk expert in the Audit | in A.P. Moller - Maersk | the Remuneration Committee and the Trans | ||||
| Committee | formation & Innovation Committee | ||||||
| Captain, Maersk Line | Head of Charge Management Excellence, Maersk | ||||||
| Considered independent | Not considered independent due to the position | ||||||
| Other management duties, etc. | Other management duties, etc. | as CEO of A.P. Møller Holding A/S | |||||
| • None | Former Executive Director, Royal Dutch Shell plc. | • Member of the Board of Directors, NEPCon | |||||
| CEO of A.P. Møller Holding A/S | |||||||
| Education | Other management duties, etc. | Education | |||||
| • Graduated Master, Svendborg Navigations Skole, | • DSM NV1 (Chairman) | • MSc in Biology, University of Copenhagen, 2002 | Other management duties, etc. | ||||
| 1996 | • ATCO Group1 | • A.P. Møller Capital P/S (Chairman) | |||||
| • AECOM1 | Qualifications | • Maersk Product Tankers A/S (Chairman) | |||||
| Qualifications | Head of Charge Management Excellence in | • Agata ApS (CEO) | |||||
| Captain in Maersk Line since 2011 and Chief Officer | Education | A.P. Moller - Maersk. Relevant knowledge within | • Estemco XII ApS (CEO) | ||||
| in Maersk Line from 2004-2011. Technical, maritime | • MSc in Chemical Engineering, | development, standardisation and pricing of prod | • Foundation Board of IMD and board positions in | ||||
| and operational knowledge relevant to the shipping | Technical University of Eindhoven, 1969 | ucts, as well as with sustainability and environment | four subsidiaries of A.P. Møller Holding A/S | ||||
| activities in Maersk. | • PhD in Technical Sciences, Technical University | through employment in Maersk Line since 2009. | |||||
| of Eindhoven, 1971 | Education | ||||||
| Attendance in Board and Committee meetings | Attendance in Board and Committee meetings | • MSc in Business Administration (2003), Stockholm | |||||
| during 2018 | Qualifications | during 2018 | School of Economics, including studies at Università | ||||
| 7 out of 71 Board meetings |
Technical, commercial and managerial experience. | 7 out of 71 Board meetings |
Commerciale Luigi Bocconi | ||||
| More than 30 years of international working expe | • Executive education at The Wharton School of | ||||||
| rience in research, general management and from | the University of Pennsylvania, Stanford Business | ||||||
| CEO positions in the oil and gas, chemical, renew | School and Harvard Business School | ||||||
| ables and trading industry, including positions in | |||||||
| listed companies. | Qualifications | ||||||
| Leadership experience within investments, incubation, | |||||||
| Attendance in Board and Committee meetings | shipping and marine services. | ||||||
| during 2018 | |||||||
| 9 out of 10 Board meetings |
Attendance in Board and Committee meetings | ||||||
| 8 out of 8 | Audit Committee meetings | during 2018 | |||||
| 2 out of 22 | Remuneration Committee meetings | 10 out of 10 Board meetings | |||||
| 5 out of 5 | Nomination Committee meetings | ||||||
| 2 out of 21 | Remuneration Committee meetings | ||||||
| 4 out of 4 | Transformation & Innovation | ||||||
| Committee meetings | |||||||
| 1 Listed company. | |||||||
| 1 In 2018, the Board held a total of 10 meetings, however, three of these were before Thomas Lindegaard Madsen |
2 In 2018, the Remuneration Committee held a total of three meetings, however, one of these was held before |
1 In 2018, the Board held a total of 10 meetings, however, three of these were before Jacob Andersen Sterling joined |
1 In 2018, the Remuneration Committee held a total of three meetings, however, one of these was before Robert |
||||
| joined the Board of Directors. | Robert Routs joined the Remuneration Committee. | the Board of Directors. | Mærsk Uggla joined the Remuneration Committee. |
Chief Executive Officer (CEO)
| Born | 1964 |
|---|---|
| Gender | Male |
| Joined the Executive Board 2007 |
Vice Chief Executive Officer (Vice CEO)
| Born | 1962 |
|---|---|
| Gender | Male |
| Joined the Executive Board 2007 |
Born 1972 Gender Female Joined the Executive Board 2019
Other management duties, etc. • E-ON SE
Chief Commercial Officer (CCO)
| Born | 1972 |
|---|---|
| Gender | Male |
| Joined the Executive Board 2017 |
Other management duties, etc. • None
Chief Executive Officer (CEO), APM Terminals
| Born | 1967 |
|---|---|
| Gender | Male |
| Joined the Executive Board 2017 |
| Born | 1974 |
|---|---|
| Gender | Male |
| Joined the Executive Board 2017 |
61 A.P. Moller - Maersk | Annual Report 2018
From the left: Søren Toft
Søren Skou Claus V. Hemmingsen Vincent Clerc Morten Engelstoft
Carolina Dybeck Happe
A.P. Moller - Maersk established the Remuneration Committee in May 2018 to ensure that the remuneration policy and practices support the company's strategy and create value for shareholders.
Since the establishment of the Committee, it has been committed to strengthening the governance, refining the operating model and structuring the annual remuneration agenda. This allows the Committee to follow a steady cadence which supports the consistency and quality of its work.
In 2018, the disclosure of executive remuneration has been a focus area. The Remuneration Committee is working towards ensuring increased transparency for shareholders as well as identifying how remuneration can be actively utilised to connect the interests of executive management with shareholder interests. In the light of upcoming amendments to remuneration disclosure as part of the Shareholder Rights Directive, and the recently updated Danish Corporate Governance Code, the remuneration section of this report has been expanded from previous years to provide greater transparency, and it will continue to be developed in future.
As A.P. Moller - Maersk progresses towards its vision of becoming the global integrator of container logistics, executive remuneration continues to be a key factor in emphasising business priorities including financial performance, technological progress and customer experience. Executive remuneration at A.P. Moller - Maersk consists of a selection of programmes, which are designed to support the achievement of business goals, and balance short-term and long-term objectives in line with A.P. Moller - Maersk´s core value of Constant Care – taking care of today while actively preparing for tomorrow.
This section provides an overview of:
• The total remuneration awarded to the Board of Directors and Executive Board members in 2018.
Remuneration at A.P. Moller - Maersk is intended to drive a 'pay for performance' culture, by aligning reward to company performance and shareholder value creation.
The remuneration policy for the Board of Directors and the Executive Board is aligned with the objectives and philosophy set out in the below table.
Executive Board remuneration is decided by the Board of Directors based on recommendations from the Remuneration Committee. The Board of Directors may delegate, in whole or in part, its decision-making powers to the Remuneration Committee.
Remuneration levels are guided by comparison to other international companies of comparable size and complexity based in Europe.
The Executive Board remuneration structure is simple and transparent in design, and consists of the key elements outlined in the table on page 65.
The Executive Board members have service contracts which include a company notice period which is in line with market practice for peer companies in Europe. In the event of involuntary termination, the notice period can be up to and no more than 24 months.
Fixed base salary is the annual guaranteed cash wage awarded to the Executive Board members and is inclusive of pension contribution and company car. It is reviewed by the Committee annually. For 2018, the fixed base salary remained unchanged from 2017 for the Executive Board members.
| Objectives | Philosophy |
|---|---|
| The remuneration policy and practices are designed to support: • Delivering strong business and financial results to grow shareholder value, and • The attraction, retention and motivation of a highly effective executive team. |
The remuneration philosophy is built on the following principles: • Aligns the interests of executives with those of shareholders • Pays for performance and the company's achievement of financial and strategic objectives • Rewards behaviours that drive company growth through collaboration, agility and customer and people orientation. |
The short-term cash incentive plan is one of the main vehicles for driving pay for company performance. It provides Executive Board members with an annual cash award that is linked to performance against defined targets for the financial year.
The short-term cash incentive plan of 2018 had a key focus on financial measures, including underlying profit, revenue and cash flow.
In addition, transformational measures and customer experience were emphasised to support the focus on the need for the company to transform and move towards becoming the global integrator of container logistics.
Targets for these measurements were set in accordance with guidance provided to the external market for underlying profit and internal business plans for the remaining measurements.
In 2018, the Committee has reviewed the short-term cash incentive plan for the Executive Board. As approved at the Annual General Meeting in April 2018, the target incentive opportunity for the Executive Board members was changed from 25% to 40-50% of the fixed base salary, and the maximum incentive opportunity was changed from 50% to 80-100% of the fixed base salary. The changes were made to better align with European market practice and incentivise the Executive Board members to achieve the company's short-term goals.
The long-term incentives, delivered in the form of annual restricted share and premium priced stock option grants, promote retention and ensure that the Executive Board members maintain exposure to the development in the share price.
As adopted at the 2018 Annual General Meeting, the cash allowance previously offered to some Executive Board members to fund purchases of company shares was replaced by restricted share grants as of 2018. The change is to achieve retention of Executive Board members and align their long-term interests with those of the company´s shareholders.
A summary of the long-term share-based incentive programmes are set out in the table on page 66.
The Board of Directors considers director remuneration at least once a year based on recommendations from the Chairman of the Board. In formulating these recommendations, the Chairman is guided by comparisons to other international companies of comparable size and complexity based in Europe. The directors' remuneration for the previous year is approved at the Annual General Meeting as part of the review and approval of the Annual Report.
| Element | Purpose | Type | Key features |
|---|---|---|---|
| Fixed base salary |
Recognises market value and Exec utive Board members' performance, contribution and leadership. |
Cash | • Fixed base salary is an annual cash wage. From this wage, the Executive Board members cover the costs of pension and company car. |
| Short-term cash incentive |
Focuses and rewards Executive Board members on the achievement of short-term company goals. |
Cash | • Target incentive opportunity is set as a percentage of the annual fixed base salary. • Pay-out is based on company performance against a scorecard of annual financial and transformation goals. |
| Long-term share-based Incentives |
Links executive remuneration to the achievement of long-term corporate goals and supports executive reten tion. |
Shares/ options |
• Equity-based remuneration is awarded under two different plans - the restricted shares plan and the stock option plan. • Both plans offer an annual grant to the Executive Board members. The restricted share award is delivered in the form of Maersk B shares based on a fixed annual amount, while grants under the stock option plan are based on a percentage of fixed base salary. |
| Benefits | Provides for the Executive Board members' welfare needs. |
Benefits | • Benefits applicable to the Executive Board members include non-monetary elements such as insurance coverage, annual health check, phone, training/ education, company driver, news subscriptions and similar. |
Each member of the Board of Directors receives a fixed annual fee:
Directors serving on the Board committees or performing ad hoc work beyond the normal responsibilities as a board member receive an additional fixed fee. Members of the Board of Directors and the Board committees do not receive any incentive-based remuneration.
The table below shows the 2015-2018 financial impact of the remuneration awarded to the Executive Board members in aggregate, as set out in note 2 to the consolidated financial statements.
The Board of Directors´ fees have remained consistently at USD 3m during the period 2015-2018.
| Element | Remuneration (USD m) | |||
|---|---|---|---|---|
| 2018 | 2017 | 2016 | 2015 | |
| Fixed base salary | 10 | 8 | 13 | 15 |
| Short-term cash incentive | 5 | 2 | 2 | 3 |
| Long-term share-based incentives | 1 | 1 | -2 | - |
| Remuneration in connection with redundancy, resignations and release from duty to work |
4 | - | 22 | - |
| Lump sum retirement payment | - | - | -1 | 1 |
| Total | 20 | 11 | 34 | 19 |
| Restricted shares plan | Stock option plan | |
|---|---|---|
| Purpose | • The restricted shares plan supports the reten tion of Executive Board members and drives the alignment between the Executive Board and shareholder interests. |
• The stock option plan focuses on value creation, and strengthens the alignment between executives and shareholders by emphasising the focus needed on growing the value of the company. |
| Key features | • The vesting period for restricted share grants awarded in 2018 is five years. • The actual value of restricted shares is directly linked to the company share price, motivating executives to deliver business results and drive growth. |
• Maersk B shares are ´premium priced´, mean ing the exercise price for the stock option is set at 110% of the volume-weighted average share price of Maersk B shares traded on Nasdaq Copenhagen on the five trading days immediately following publication of the company's Annual Report most recent to the time of grant. • The stock options granted in 2018 have a three-year vesting period. • Any vested stock options must be exer cised within three years of the vesting date or they expire. • A stock option awarded in 2018 gives the right to purchase one B share in A.P. Moller - Maersk with a value of DKK 11,524. |
| Grant value | • The fair market value of the restricted shares granted within a given financial year can amount to up to 25% of the fixed base salary of the Executive Board member in the year of the grant. |
• The fair market value of the stock options granted within a given financial year can amount to up to 25% of the fixed base salary of the Executive Board member in the year of the grant. |
The share price decreased by 25% over the year, implying a total shareholder return of negative 23% for 2018. The Board of Directors in A.P. Møller - Mærsk A/S proposes an ordinary dividend of DKK 150 per share corresponding to a dividend yield of 1.8%.
The Maersk B share price decreased by 25% from its closing price at the end of 2017 of DKK 10,840. By comparison, the benchmark indices MSCI World Transportation and OMXC25 decreased by 12% and 13%, respectively. The Maersk B share price reached its highest price of DKK 11,605 on 8 January 2018, and its lowest price of DKK 7,600 on 11 July 2018. The total market value of A.P. Møller - Mærsk A/S was USD 25.3bn at the end of 2018. The negative share price performance throughout the year was a
Source Bloomberg; data are rebased from the Maersk B share price at the end of December 2018.
from deteriorating market conditions in the container liner industry, container rates not fully capturing the higher bunker cost, global trade tensions mainly due to the US-China trade war, and the company´s financial performance not meeting expectations.
Maersk shares are listed on Nasdaq Copenhagen and are divided into two classes: A shares with voting rights and B shares without voting rights. Each DKK 1,000 A share entitles the holder to two votes.
The A.P. Møller - Mærsk A/S share capital amounts to nominally DKK 20,816,862,000, divided between 10,756,378 A shares of nominally DKK 1,000 and 10,060,484 B shares of nominally DKK 1,000.
The total number of registered shareholders increased by 1,000 to around 82,800 during 2018. Shareholders with more than 5% of share capital or votes held 53% of the share capital, while the 20 largest institutional shareholders together owned around 14% of the total share capital and 32% adjusted for the free-float. Danish retail investors have decreased their ownership from 19% to 16% of the total share capital since the end of 2017. Hapag-Lloyd OMX Maersk B MSCI
A.P. Moller - Maersk holding of own shares comprised 0.27% of the share capital at the end of 2018, cf. note 10 in the consolidated financial statements.
| 2 April . . |
Annual General Meeting |
|---|---|
| 24 May | Interim Report Q1 2019 |
| 15 August . . |
Interim Report Q2 2019 |
| 15 November | Interim Report Q3 2019 |
Dividend is the primary distribution of capital to the company´s shareholders. A.P. Møller - Mærsk A/S´ objective is to increase the nominal dividend per share over time supported by underlying earnings growth.
The Board of Directors proposes an ordinary dividend to the shareholders of DKK 150 per share of DKK 1,000 (DKK 150 per share of DKK 1,000). The proposed dividend payment represents an ordinary dividend yield of 1.8% (1.4%), based on the Maersk B share's closing price of DKK 8,184 as of 28 December 2018. Payment is expected to take place on 8 April 2019.
The Annual General Meeting will be held on 2 April 2019 in Copenhagen, Denmark.
To keep investors and analysts updated on the company´s strategic development, market outlook and financial performance, A.P. Moller - Maersk arranges road-shows and participates in investor and industry conferences. Investor Relations, besides meeting domestic investors, also travels extensively to ensure that international investors are kept updated on the latest developments. In 2018, the Executive Board and the Investor Relations team had more than 400 meetings with the participation of more than 1,000 investors and analysts in Europe, Asia, Australia and the US.
A.P. Moller - Maersk is covered by around 30 sell-side analysts, predominantly from international investment banks, who regularly publish research reports and sector reports. A list of the analysts and other relevant information, including financial reports, investor presentations, share and bond information, is available at http://investor.maersk.com
| Shareholders according to section 55 of the Danish Companies Act are | Share capital | Votes |
|---|---|---|
| A.P. Møller Holding A/S, Copenhagen, Denmark | 41.51% | 51.45% |
| A.P. Møller og Hustru Chastine Mc-Kinney Møllers Familiefond, Copenhagen, Denmark | 8.84% | 13.12% |
| Den A.P. Møllerske Støttefond, Copenhagen, Denmark | 3.11% | 5.99% |
| Key figures | 2018 | 2017 | 2016 | 2015 | 2014 |
|---|---|---|---|---|---|
| Year-end share price (DKK, B share) | 8,184 | 10,840 | 11,270 | 8,975 | 12,370 |
| Share price range (DKK, B share) | 4,005 | 3,990 | 4,140 | 7,605 | 4,100 |
| Market capitalisation at year-end (USD bn, A and B share) |
25.3 | 35.4 | 32.2 | 27.6 | 42.8 |
| Earnings per share (USD) | 152 | -58 | -93 | 37 | 230 |
| Dividend per share (DKK, A and B share)1 | 150 | 150 | 150 | 300 | 300 |
| Dividend yield (B share) | 1.8% | 1.4% | 1.3% | 3.3% | 15.9%2 |
| Share buy-back programme (DKK bn)3 | - | - | 3.2 | 5.2 | 3.9 |
1 Ordinary dividend in proposed year 2 Including extraordinary dividend 3 Actual payments on a cash basis
Consolidated financial statements 2018 Parent company financial statements 2018 Statement of the Board of Directors and the Executive Board Independent Auditor's Report
(In parenthesis the corresponding figures for 2017)
Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet at 31 December Consolidated cash flow statement Consolidated statement of changes in equity Notes to the consolidated financial statements
| Note | 2018 | 2017 | |
|---|---|---|---|
| 1 | Revenue | 39,019 | 30,945 |
| 2 | Operating costs | 35,368 | 27,420 |
| Other income | 337 | 200 | |
| Other costs | 182 | 193 | |
| 1 | Profit before depreciation, amortisation and impairment losses, etc. | 3,806 | 3,532 |
| 6,7 Depreciation, amortisation and impairment losses, net | 3,325 | 3,015 | |
| 3 | Gain on sale of non-current assets, etc., net | 144 | 154 |
| Share of profit/loss in joint ventures | 117 | -131 | |
| Share of profit/loss in associated companies | -115 | 101 | |
| Profit/loss before financial items | 627 | 641 | |
| 4 | Financial income | 1,014 | 1,382 |
| 4 | Financial expenses | 1,403 | 1,998 |
| Profit/loss before tax | 238 | 25 | |
| 5 | Tax | 386 | 219 |
| Profit/loss for the period – continuing operations | -148 | -194 | |
| 9 | Profit/loss for the period – discontinued operations | 3,369 | -970 |
| Profit/loss for the period | 3,221 | -1,164 | |
| OF WHICH: | |||
| Non-controlling interests | 52 | 41 | |
| A.P. Møller - Mærsk A/S' share | 3,169 | -1,205 | |
| 10 Earnings per share – continuing operations, USD | -10 | -11 | |
| 10 Diluted earnings per share – continuing operations, USD | -10 | -11 | |
| 10 Earnings per share, USD | 152 | -58 | |
| 10 Diluted earnings per share, USD | 152 | -58 |
Maersk Oil, Maersk Tankers, Maersk Drilling and Maersk Supply Service were classified as discontinued operations in 2017, and the businesses are presented separately on an aggregated level in the income statement, balance sheet and cash flow statements. In accordance with IFRS, the income statement and cash flow statement have both been restated in previous periods, while the balance sheet has not been restated.
| Note | 2018 | 2017 | |
|---|---|---|---|
| Profit/loss for the year | 3,221 | -1,164 | |
| Translation from functional currency to presentation currency: | |||
| Translation impact arising during the year | -345 | 365 | |
| Reclassified to income statement, gain on sale of non-current assets, etc., net | - | 60 | |
| 15 Cash flow hedges: | |||
| Value adjustment of hedges for the year | -149 | 341 | |
| Reclassified to income statement | |||
| – revenue | -2 | -4 | |
| – operating costs | -2 | -45 | |
| – financial expenses | 31 | 55 | |
| – discontinued operations | -7 | -3 | |
| Reclassified to non-current assets | -6 | -28 | |
| 5 | Tax on other comprehensive income | 8 | -32 |
| Share of other comprehensive income of joint ventures and associated companies, net of tax |
2 | 2 | |
| Total items that have been or may be reclassified subsequently to the income | |||
| statement | -470 | 711 | |
| 16 Other equity investments (FVOCI), fair value adjustments for the year | -134 | 138 | |
| 13 Actuarial gains/losses on defined benefit plans, etc. | -7 | 159 | |
| 5 | Tax on other comprehensive income | -38 | -11 |
| Total items that will not be reclassified to the income statement | -179 | 286 | |
| Other comprehensive income, net of tax | -649 | 997 | |
| Total comprehensive income for the year | 2,572 | -167 | |
| OF WHICH: | |||
| Non-controlling interests | 38 | 47 | |
| A.P. Møller - Mærsk A/S' share | 2,534 | -214 |
| Note | 2018 | 2017 | |
|---|---|---|---|
| 6 7 |
Intangible assets Property, plant and equipment |
4,273 30,275 |
4,365 31,071 |
| Investments in joint ventures | 1,332 | 1,394 | |
| Investments in associated companies | 754 | 963 | |
| 16 Other equity investments | 41 | 30 | |
| 15 Derivatives | 135 | 260 | |
| 13 Pensions, net assets | 285 | 298 | |
| Loans receivable | 172 | 147 | |
| Other receivables | 273 | 316 | |
| Financial non-current assets, etc. | 2,992 | 3,408 | |
| 8 | Deferred tax | 267 | 302 |
| Total non-current assets | 37,807 | 39,146 | |
| Inventories | 1,064 | 974 | |
| 17 Trade receivables | 3,759 | 3,864 | |
| Tax receivables | 159 | 243 | |
| 15 Derivatives | 80 | 116 | |
| Loans receivable | 199 | 240 | |
| Other receivables | 866 | 923 | |
| Prepayments | 550 | 560 | |
| Receivables, etc. | 5,613 | 5,946 | |
| Equity investments, etc. Cash and bank balances |
2,448 2,851 |
1 2,171 |
|
| 9 | Assets held for sale | 6,853 | 14,989 |
| Total current assets | 18,829 | 24,081 | |
| Total assets | 56,636 | 63,227 |
| Note | 2018 | 2017 | |
|---|---|---|---|
| 10 Share capital | 3,774 | 3,774 | |
| Reserves | 28,847 | 26,835 | |
| Equity attributable to A.P. Møller - Mærsk A/S | 32,621 | 30,609 | |
| Non-controlling interests | 771 | 816 | |
| Total equity | 33,392 | 31,425 | |
| 12 Borrowings, non-current | 9,894 | 15,076 | |
| 13 Pensions and similar obligations | 259 | 287 | |
| 14 Provisions | 1,028 | 1,011 | |
| 15 Derivatives | 242 | 138 | |
| 8 | Deferred tax | 372 | 461 |
| Other payables | 42 | 72 | |
| Other non-current liabilities | 1,943 | 1,969 | |
| Total non-current liabilities | 11,837 | 17,045 | |
| 12 Borrowings, current | 1,991 | 2,437 | |
| 14 Provisions | 572 | 539 | |
| Trade payables | 5,134 | 5,250 | |
| Tax payables | 316 | 282 | |
| 15 Derivatives | 121 | 128 | |
| Other payables | 922 | 1,241 | |
| Deferred income | 182 | 158 | |
| Other current liabilities | 7,247 | 7,598 | |
| 9 | Liabilities associated with assets held for sale | 2,169 | 4,722 |
| Total current liabilities | 11,407 | 14,757 | |
| Total liabilities | 23,244 | 31,802 | |
| Total equity and liabilities | 56,636 | 63,227 |
| Note | 2018 | 2017 | |
|---|---|---|---|
| Profit/loss before financial items | 627 | 641 | |
| 6,7 Depreciation, amortisation and impairment losses, net | 3,325 | 3,015 | |
| 3 | Gain on sale of non-current assets, etc., net | -144 | -149 |
| Share of profit/loss in joint ventures | -117 | 131 | |
| Share of profit/loss in associated companies | 115 | -101 | |
| 20 Change in working capital | -358 | -282 | |
| Change in provisions and pension obligations, etc. | 40 | -127 | |
| 20 Other non-cash items | 104 | 159 | |
| Cash flow from operating activities before tax | 3,592 | 3,287 | |
| Taxes paid | -367 | -174 | |
| Cash flow from operating activities | 3,225 | 3,113 | |
| 20 Purchase of intangible assets and property, plant and equipment | -2,876 | -3,599 | |
| Sale of intangible assets and property, plant and equipment | 420 | 435 | |
| 21 Acquisition of subsidiaries and activities | 33 | -4,152 | |
| 21 Sale of subsidiaries and activities | -77 | 314 | |
| Sale of associated companies | 11 | 2 | |
| Dividends received | 439 | 213 | |
| Sale of other equity investments | 3,033 | 871 | |
| Other financial investments, net1 | -4 | -58 | |
| Purchase/sale of securities, trading portfolio | - | 52 | |
| Cash flow used for investing activities | 979 | -5,922 | |
| Repayment of borrowings | -7,604 | -2,632 | |
| Proceeds from borrowings | 2,126 | 3,454 | |
| Financial income received | 59 | 131 | |
| Financial expenses paid | -590 | -861 | |
| Sale of own shares | - | 14 | |
| Dividends distributed | -517 | -454 | |
| Dividends distributed to non-controlling interests | -75 | -62 | |
| Sale of non-controlling interests | 23 | 4 | |
| Acquisition of non-controlling interest | -60 | -13 | |
| Other equity transactions | -10 | 14 | |
| Cash flow from financing activities | -6,648 | -405 | |
| Net cash flow from continuing operations | -2,444 | -3,214 | |
| 9 | Net cash flow from discontinued operations | 3,421 | 1,251 |
| Net cash flow for the period | 977 | -1,963 | |
| Cash and cash equivalents 1 January | 2,268 | 4,077 | |
| Currency translation effect on cash and cash equivalents | -95 | 154 | |
| Cash and cash equivalents 31 December | 3,150 | 2,268 | |
| Of which classified as assets held for sale | -385 | -109 | |
| Cash and cash equivalents 31 December | 2,765 | 2,159 |
| Note | 2018 | 2017 |
|---|---|---|
| CASH AND CASH EQUIVALENTS | ||
| Cash and bank balances | 2,851 | 2,171 |
| Overdrafts | 86 | 12 |
| Cash and cash equivalents 31 December | 2,765 | 2,159 |
Cash and bank balances include USD 1.0bn (USD 1.0bn) relating to cash and bank balances in countries with exchange control or other restrictions. These funds are not readily available for general use by the parent company or other subsidiaries.
As of 1 January 2018, A.P. Moller - Maersk has changed the presentation of financial items in the cash flow statement. Comparative figures have been restated (please refer to note 23).
1 In 2018, A.P. Moller-Maersk sold 51.25m Total S.A. shares, generating a cash flow of USD 3bn.
| A.P. Møller - Mærsk A/S | ||||||||
|---|---|---|---|---|---|---|---|---|
| Note | Share capital | Translation reserve |
Reserve for other equity investments |
Reserve for hedges |
Retained earnings |
Total | Non-controlling interests |
Total equity |
| Equity 1 January 2017 | 3,774 | -706 | -232 | -255 | 28,677 | 31,258 | 832 | 32,090 |
| Other comprehensive income, net of tax | - | 420 | 141 | 281 | 149 | 991 | 6 | 997 |
| Profit/loss for the period | - | - | - | - | -1,205 | -1,205 | 41 | -1,164 |
| Total comprehensive income for the period | - | 420 | 141 | 281 | -1,056 | -214 | 47 | -167 |
| Dividends to shareholders | - | - | - | - | -454 | -454 | -62 | -516 |
| 11 Value of share-based payment | - | - | - | - | 10 | 10 | - | 10 |
| Sale of non-controlling interests | - | - | - | - | - | - | -16 | -16 |
| Sale of own shares | - | - | - | - | 14 | 14 | - | 14 |
| 10 Capital increases and decreases | - | - | - | - | - | - | 15 | 15 |
| 16 Transfer of gain/loss on disposal of equity investments to retained earnings |
- | - | 117 | - | -117 | - | - | - |
| Other equity movements | - | - | - | - | -5 | -5 | - | -5 |
| Total transactions with shareholders | - | - | 117 | - | -552 | -435 | -63 | -498 |
| Equity 31 December 2017 | 3,774 | -286 | 26 | 26 | 27,069 | 30,609 | 816 | 31,425 |
| 2018 | ||||||||
| Other comprehensive income, net of tax | - | -330 | -171 | -129 | -5 | -635 | -14 | -649 |
| Profit/loss for the period | - | - | - | - | 3,169 | 3,169 | 52 | 3,221 |
| Total comprehensive income for the period | - | -330 | -171 | -129 | 3,164 | 2,534 | 38 | 2,572 |
| Dividends to shareholders | - | - | - | - | -517 | -517 | -75 | -592 |
| 11 Value of share-based payment | - | - | - | - | 14 | 14 | - | 14 |
| Acquisition of non-controlling interests | - | - | - | - | -31 | -31 | -29 | -60 |
| Sale of non-controlling interests | - | - | - | - | 14 | 14 | 9 | 23 |
| 10 Capital increases and decreases | - | - | - | - | - | - | 12 | 12 |
| 16 Transfer of gain/loss on disposal of equity investments to retained earnings1 |
- | - | -57 | - | 57 | - | - | - |
| Other equity movements | - | - | - | - | -2 | -2 | - | -2 |
| Total transactions with shareholders | - | - | -57 | - | -465 | -522 | -83 | -605 |
| Equity 31 December 2018 | 3,774 | -616 | -202 | -103 | 29,768 | 32,621 | 771 | 33,392 |
1 To reduce the net interest-bearing debt, A.P. Moller - Maersk sold 51.25m Total S.A. shares during 2018, generating a cash flow of USD 3bn. The accumulated gain, net of tax, of USD 37m has been transferred within equity.
| Note 1 | |||
|---|---|---|---|
Note 3 Gain on sale of non-current assets, etc., net 77
Note 4 Financial income and expenses 77
Note 7 Property, plant and equipment 81
Discontinued operations and assets held for sale 83
| Note 10 Share capital and earnings per share |
86 |
|---|---|
| Note 11 Share-based payment |
87 |
| Note 12 Borrowings and net debt reconciliation |
90 |
| Note 13 Pensions and similar obligations |
92 |
| Note 14 Provisions |
95 |
| Note 15 Derivatives |
96 |
| Note 16 Financial instruments by category |
97 |
| Note 17 Financial risks, etc. |
99 |
Note 18 Commitments – continuing operations 101
| Note 19 Contingent liabilities |
103 |
|---|---|
| Note 20 Cash flow specifications |
103 |
| Note 21 Acquisition/sale of subsidiaries and activities |
104 |
| Note 22 Related parties |
106 |
| Note 23 Significant accounting policies |
107 |
| Note 24 Significant accounting estimates and judgements |
112 |
| Note 25 New financial reporting requirements |
115 |
| Note 26 Subsequent events |
116 |
| Ocean | Logistics & Services |
Terminals & Towage |
Manu facturing & Others |
Total | |
|---|---|---|---|---|---|
| FULL YEAR 2018 | |||||
| External revenue | 27,990 | 5,891 | 2,983 | 2,121 | 38,985 |
| Inter-segment revenue | 376 | 191 | 789 | 426 | 1,782 |
| Total segment revenue | 28,366 | 6,082 | 3,772 | 2,547 | 40,767 |
| Unallocated and eliminations | -1,748 | ||||
| Total revenue | - | - | - | - | 39,019 |
| Segment profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) |
3,007 | 98 | 778 | 59 | 3,942 |
| Unallocated items | -139 | ||||
| Eliminations | 3 | ||||
| Consolidated profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) |
3,806 1 | ||||
| Segment gross capital expenditures, excl. acquisitions and divestments (CAPEX) Eliminations Consolidated gross capital expenditures, excl. |
2,279 | 47 | 556 | 16 | 2,898 -22 |
| acquisitions and divestments (CAPEX) | 2,876 |
| Ocean | Logistics & Services |
Terminals & Towage |
Manu facturing & Others |
Total | |
|---|---|---|---|---|---|
| FULL YEAR 2017 | |||||
| External revenue | 21,663 | 5,570 | 2,842 | 843 | 30,918 |
| Inter-segment revenue | 360 | 202 | 639 | 846 | 2,047 |
| Total segment revenue Unallocated and eliminations |
22,023 | 5,772 | 3,481 | 1,689 | 32,965 -2,020 |
| Total revenue | - | - | - | - | 30,945 |
| Segment profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) |
2,777 | 139 | 639 | 173 | 3,728 |
| Unallocated items | -181 | ||||
| Eliminations | -15 | ||||
| Consolidated profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) |
3,532 1 | ||||
| Segment gross capital expenditures, excl. acquisitions and divestments (CAPEX) Eliminations |
2,831 | 54 | 704 | 23 | 3,612 -13 |
| Gross capital expenditures, excl. acquisitions and divestments (CAPEX) |
3,599 |
1 Reference is made to the income statement for a reconciliation from EBITDA to profit/loss.
As part of the A.P. Moller - Maersk strategy of becoming the global integrator of container logistics, the reportable segments have been reorganised as of Q1 2018 in ´Ocean', ´Logistics & Services', ´Terminals & Towage' and ´Manufacturing & Others'.
The Ocean segment with the activities of Maersk Liner Business (Maersk Line, Safmarine and Sealand – A Maersk Company) together with the Hamburg Süd brands (Hamburg Süd and Aliança) as well as strategic transshipment hubs under the APM Terminals brand. Inland activities related to Maersk Liner Business are included in the Logistics & Services segment.
The Logistics & Services segment with the logistics and supply chain management services, container inland services, inland haulage activities (intermodal), trade finance services and freight forwarding.
The Terminals & Towage segment including gateway terminals, involving landside activities such as port activities where the customers are mainly the carriers, and towage services under the Svitzer brand.
The Manufacturing & Others segment with Maersk Container Industry and others.
The segment disclosures provided above reflect the information which the Executive Board receives monthly in its capacity as 'chief operating decision-maker' as defined in IFRS 8. The allocation of resources and the segment performance are evaluated based on revenue and profitability measured according to earnings before interest, taxes, depreciation and amortisation (EBITDA).
| USD million | Types of revenue | 2018 | 2017 |
|---|---|---|---|
| Ocean | Freight | 24,925 | 19,476 |
| Other ocean | 3,441 | 2,547 | |
| Logistics & Services | Ocean | 646 | 666 |
| Supply chain management | 867 | 778 | |
| Airfreight | 608 | 659 | |
| Inland haulage | 2,569 | 2,388 | |
| Inland activities | 595 | 589 | |
| Other services | 797 | 692 | |
| Terminals & Towage | Terminal services | 3,095 | 2,830 |
| Towage services | 692 | 659 | |
| Manufacturing & Others | Sale of containers and spare parts | 978 | 1,016 |
| Other shipping activities | 719 | 199 | |
| Other services | 850 | 474 | |
| Unallocated activities and eliminations1 | -1,763 | -2,028 | |
| Total revenue | 39,019 | 30,945 |
1 Revenue eliminations between terminal services and towage services are included under Unallocated activities and eliminations.
Set out below is the reconciliation of the revenue from contracts with customers to the amounts disclosed as total revenue:
| 2018 | 2017 | |
|---|---|---|
| Revenue from contracts with customers | 37,917 | 30,093 |
| REVENUE FROM OTHER SOURCES | ||
| Vessel-sharing and slot charter income | 1,031 | 829 |
| Lease income | 51 | 13 |
| Others | 20 | 10 |
| Total revenue | 39,019 | 30,945 |
| Contract balances | 2018 | 2017 |
|---|---|---|
| Trade receivables | 3,532 | 3,759 |
| Accrued income – contract asset | 34 | - |
| Deferred income – contract liability | 70 | 76 |
Accrued income included in trade receivables in the balance sheet constitutes contract assets comprising unbilled amounts to customers representing the Group's right to consideration for the services transferred to date. Any amount previously recognised as accrued income is reclassified to trade receivables at the time it is invoiced to the customer.
Under the payment terms generally applicable to the Group's revenue generating activities, prepayments are received only to a limited extent. Typically, payment is due upon or after completion of the services.
Part of the deferred income presented in the balance sheet constitutes contract liabilities which represents advance payments and billings in excess of revenue recognised.
There were no significant changes in accrued income and deferred income during the reporting period.
Impairment losses disclosed in Note 17 relate to receivables arising from contracts with customers.
| External revenue | Tax paid | Non-current assets1 | ||||
|---|---|---|---|---|---|---|
| Geographical split | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Denmark | 404 | 240 | +79 | +119 | 17,747 | 15,825 |
| Brazil | 1,525 | 577 | 31 | 26 | 342 | 449 |
| China and Hong Kong | 2,229 | 1,937 | 12 | 19 | 2,758 | 3,047 |
| France | 276 | 238 | 72 | 8 | 3 | 3 |
| Germany | 1,304 | 962 | 1 | +4 | 687 | 4,057 |
| Netherlands | 1,160 | 916 | 7 | 18 | 731 | 806 |
| Nigeria | 682 | 656 | 38 | 15 | 77 | 89 |
| Singapore | 452 | 165 | 3 | 1 | 4,504 | 3,469 |
| UK | 1,410 | 1,255 | 2 | - | 143 | 146 |
| US | 6,735 | 4,917 | 11 | 12 | 1,169 | 1,341 |
| Other | 22,842 | 19,082 | 269 | 198 | 6,387 | 6,204 |
| Total | 39,019 | 30,945 | 367 | 174 | 34,548 | 35,436 |
1 Comprise intangible assets and property, plant and equipment relating to continuing operations.
Revenue for the shipping activities is based on the destination for ships operated by the Group and on customer location for ships on time charter. For non-current assets (e.g. terminals), which cannot be easily moved, geographical location is where the assets are located. For all other assets, geographical location is based on the legal ownership. These assets consist mainly of ships and containers registered in China, Denmark, Singapore and the US.
| 2018 | 2017 | |
|---|---|---|
| Costs of goods sold | 1,182 | 465 |
| Bunker costs | 5,212 | 3,372 |
| Terminal costs | 7,070 | 5,662 |
| Intermodal costs | 4,158 | 3,122 |
| Port costs | 2,392 | 1,984 |
| Rent and lease costs | 2,984 | 2,294 |
| Staff costs | 4,802 | 4,129 |
| Other | 7,568 | 6,392 |
| Total operating costs | 35,368 | 27,420 |
| REMUNERATION OF EMPLOYEES | ||
| Wages and salaries | 4,103 | 3,527 |
| Severance payments | 70 | 35 |
| Pension costs, defined benefit plans | 33 | 23 |
| Pension costs, defined contribution plans | 265 | 235 |
| Other social security costs | 385 | 324 |
| Total remuneration | 4,856 | 4,144 |
| OF WHICH: | ||
| Recognised in the cost of assets | 7 | 1 |
| Included in restructuring costs and other | 47 | 14 |
| Expensed as staff costs | 4,802 | 4,129 |
| Average number of employees1 | 80,220 | 75,813 |
1 The total number of employees (YTD average) is 84,404, of which 80,220 relate to continuing operations and 4,184 relate to discontinued operations.
Rent and lease costs include contingent rent totalling USD 263m (USD 191m), which entirely relates to operating leases. Rent and lease costs includes the service element.
Customary agreements have been entered into with employees regarding compensation in connection with resignation with consideration for local legislation and collective agreements.
For information about share-based payment, reference is made to note 11.
| Fees and remuneration to the Executive Board | 2018 | 2017 |
|---|---|---|
| Fixed base salary | 10 | 8 |
| Short-term cash incentive | 5 | 2 |
| Long-term share-based incentives | 1 | 1 |
| Remuneration in connection with redundancy, resignation and release from duty to work | 4 | - |
| Total remuneration to the Executive Board | 20 | 11 |
The contract of employment for the Executive Board contains terms customary in Danish listed companies, including termination notice and competition clauses. In connection with a possible takeover offer, neither the Executive Board nor the Board of Directors will receive special remuneration. Fees and remuneration do not include pension.
The Board of Directors has received fees of USD 3m (USD 3m).
| Fees to the statutory auditors | PwC including network firms |
|
|---|---|---|
| 2018 | 2017 | |
| Statutory audit | 13 | 12 |
| Other assurance services | 1 | 1 |
| Tax and VAT advisory services | 1 | 2 |
| Other services | 2 | 4 |
| Total fees | 17 | 19 |
Fees for other services than the statutory audit of the financial statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab to A.P. Moller - Maersk mainly consist of the audit of non-statutory financial statements, financial due diligence and transaction advice, accounting advisory services, tax advice and other services related to separating discontinued operations, review of the half-year interim report and other advisory accounting and tax services.
| 2018 | 2017 | |
|---|---|---|
| Gains1 | 226 | 203 |
| Losses | 82 | 49 |
| Gain on sale of non-current assets, etc., net | 144 | 154 |
1 Gains in 2018 were primarily related to the disposal of an associate, Inttra Inc., of USD 49m, to the sale and leaseback of three Cap San vessels of USD 38m, and to container sales of USD 17m.
In 2017, gains were mainly related to the sale of Mercosul Line of USD 59m and Pentalver Transport Ltd of USD 31m.
| 2018 | 2017 | |
|---|---|---|
| Interest expenses on liabilities | 797 | 630 |
| Of which borrowing costs capitalised on assets1 | 59 | 63 |
| Interest income on loans and receivables | 69 | 104 |
| Fair value adjustment transferred from equity hedge reserve (loss) | 53 | 55 |
| Unwind of discount on provisions | 1 | -5 |
| Net interest expenses | 723 | 513 |
| Exchange rate gains on bank balances, borrowings and working capital | 591 | 645 |
| Exchange rate losses on bank balances, borrowings and working capital | 538 | 1,085 |
| Net foreign exchange gains/losses | 53 | -440 |
| Fair value gains from derivatives | 74 | 598 |
| Fair value losses from derivatives | 55 | 268 |
| Fair value gains from securities | - | 1 |
| Net fair value gains/losses | 19 | 331 |
| Dividends received from securities2 | 239 | 1 |
| Impairment losses on financial non-current receivables | 3 | -5 |
| Reversal of write-downs of loans and other non-current receivables | 26 | - |
| Financial expenses, net3 | 389 | 616 |
| OF WHICH: | ||
| Financial income | 1,014 | 1,382 |
| Financial expenses | 1,403 | 1,998 |
1 The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 4.3% (4.1%). 2 Of which USD 139m (USD 1m) pertains to shares held at the end of the year and USD 100m (USD 0m) pertains to shares sold during the year.
3 Of which USD 45m relates to a loss on the prepayment of issued bonds and USD 30m net of swaps, etc.
For an analysis of gains and losses from derivatives, reference is made to note 15.
Note 5
| 2018 | 2017 | |
|---|---|---|
| TAX RECOGNISED IN THE INCOME STATEMENT | ||
| Current tax on profits for the year | 459 | 277 |
| Adjustment for current tax of prior periods | -97 | -78 |
| Utilisation of previously unrecognised deferred tax assets | -6 | -5 |
| Total current tax | 356 | 194 |
| Origination and reversal of temporary differences | -81 | -32 |
| Adjustment for deferred tax of prior periods | -26 | 5 |
| Adjustment attributable to changes in tax rates and laws | 1 | -25 |
| Recognition of previous unrecognised deferred tax assets | -7 | -12 |
| Reassessment of recoverability of deferred tax assets, net | 50 | 16 |
| Total deferred tax | -63 | -48 |
| Total income tax | 293 | 146 |
| Tonnage and freight tax | 93 | 73 |
| Total tax expense | 386 | 219 |
| 2018 | 2017 | |
|---|---|---|
| TAX RECONCILIATION | ||
| Profit/loss before tax | 238 | 25 |
| Profit/loss subject to Danish and foreign tonnage taxation, etc. | 91 | -292 |
| Internal gain/loss on sale of assets | -1 | - |
| Share of profit/loss in joint ventures | -117 | 131 |
| Share of profit/loss in associated companies | 115 | -101 |
| Profit/loss before tax, adjusted | 326 | -237 |
| Tax using the Danish corporation tax rate (22%) | 71 | -52 |
| Tax rate deviations in foreign jurisdictions | 16 | -28 |
| Non-taxable income | -54 | -96 |
| Non-deductible expenses | 179 | 136 |
| Adjustment to previous years' taxes | -123 | -73 |
| Effect of changed tax rate | 1 | -25 |
| Change in recoverability of deferred tax assets | 37 | -1 |
| Deferred tax asset not recognised | 117 | 168 |
| Other differences, net | 49 | 117 |
| Total income tax | 293 | 146 |
| Tax recognised in other comprehensive income and equity | 30 | 42 |
| OF WHICH: | ||
| Current tax | 31 | 12 |
| Deferred tax | -1 | 30 |
| Goodwill | Terminal and service concession rights |
Oil concession rights | Customer relations and brand name1 |
Other rights | Total | |
|---|---|---|---|---|---|---|
| COST | ||||||
| 1 January 2017 | 730 | 2,571 | 7,442 | - | 727 | 11,470 |
| Addition | - | 245 | 75 | - | 37 | 357 |
| Acquired in business combinations1 | 388 | - | - | 1,143 | - | 1,531 |
| Disposal | - | - | 178 | - | 10 | 188 |
| Transfer, assets held for sale | - | - | -7,339 | - | -241 | -7,580 |
| Exchange rate adjustment | 32 | 94 | - | -1 | 16 | 141 |
| 31 December 2017 | 1,150 | 2,910 | - | 1,142 | 529 | 5,731 |
| Addition | - | 181 | - | - | 29 | 210 |
| Acquired in business combinations1 | -72 | - | - | - | - | -72 |
| Disposal | - | - | - | - | 4 | 4 |
| Transfer, assets held for sale | - | -49 | - | - | -5 | -54 |
| Exchange rate adjustment | -39 | -64 | - | -6 | -11 | -120 |
| 31 December 2018 | 1,039 | 2,978 | - | 1,136 | 538 | 5,691 |
| AMORTISATION AND IMPAIRMENT LOSSES | ||||||
| 1 January 2017 | 396 | 274 | 6,690 | - | 490 | 7,850 |
| Amortisation | - | 79 | 42 | 6 | 58 | 185 |
| Impairment losses | - | 128 | - | - | 26 | 154 |
| Disposal | - | 3 | 164 | - | 10 | 177 |
| Transfer, assets held for sale | - | - | -6,568 | - | -131 | -6,699 |
| Exchange rate adjustment | 31 | 13 | - | - | 9 | 53 |
| 31 December 2017 | 427 | 491 | - | 6 | 442 | 1,366 |
| Amortisation | - | 77 | - | 69 | 26 | 172 |
| Impairment losses | 4 | - | - | - | 1 | 5 |
| Disposal | - | - | - | - | 4 | 4 |
| Transfer, assets held for sale | - | -49 | - | - | -5 | -54 |
| Exchange rate adjustment | -37 | -21 | - | - | -9 | -67 |
| 31 December 2018 | 394 | 498 | - | 75 | 451 | 1,418 |
| CARRYING AMOUNT: | ||||||
| 31 December 2017 | 723 | 2,4192 | - | 1,136 | 873 | 4,365 |
| 31 December 2018 | 645 | 2,4802 | - | 1,061 | 873 | 4,273 |
1 Acquisition of Hamburg Süd, please refer to note 21 ´Acquisition/sale of subsidiaries and activities'.
2 Of which USD 826m (USD 647m) is under development, primarily relating to APM Terminals Moin S.A., Costa Rica. USD 34m (USD 34m) is related to terminal rights with indefinite useful life in Poti Sea Port Corp. The impairment test is based on the estimated fair value according to business plans. An average discount rate of 8.97% (14.8%) p.a. after tax has been applied in the calculations.
Furthermore, the developments in volumes and rates are significant parameters. Service concession rights with a carrying amount of USD 80m (USD 94m) have restricted title.
3 Of which USD 30m (USD 20m) is related to ongoing development of software.
The recoverable amount of each CGU is determined based on the higher of its value-in-use or fair value less cost to sell. The value-in-use is calculated using certain key assumptions for the expected future cash flows and applied discount factor.
The cash flow projections are based on financial budgets and business plans approved by management. In nature, these projections are subject to judgement and estimates that are uncertain, though based on experience and external sources where available. The discount rates applied reflect the time value of money as well as the specific risks related to the underlying cash flows, i.e. project and/or country-specific risk premium. Further, any uncertainties reflecting past performance and possible variations in the amount or timing of the projected cash flows are generally reflected in the discount rates.
During 2017, certain terminals were faced with challenging market outlooks with decreasing volumes and rates which resulted in impairment losses as recoverable amounts were lower than the carrying amount.
For the intangible assets in Terminals & Towage, the impairment losses can be specified as follows:
| Applied discount rate p.a. after tax | Impairment losses | ||||
|---|---|---|---|---|---|
| Operating segment | 2018 | 2017 | 2018 | 2017 | |
| GOODWILL Terminals & Towage |
6.6% | 4 | - | ||
| TERMINAL AND SERVICE CONCESSION RIGHTS Terminals & Towage |
6.5% - 12.5% |
- | 128 | ||
| OTHER RIGHTS Terminals & Towage |
6.6% | 6.5% - 8% | 1 | 26 | |
| Total | 5 | 154 |
After impairment losses the recoverable amount of the impaired intangible assets is nil (2017: nil).
The carrying amount of goodwill has been allocated to the following operating segments and cash generating units based on the management structure.
| Carrying amount | |||
|---|---|---|---|
| Operating segment | Cash generating unit | 2018 | 2017 |
| Ocean | Ocean (Hamburg Süd acquisition) | 316 | 388 |
| Terminals & Towage | Multiple terminals (Grup Marítim TCB acquisition) | 248 | 248 |
| Other | 81 | 87 | |
| Total | 645 | 723 |
The most significant goodwill amount relates to the Ocean segment, where the impairment test is based on the estimated value in use from five-year business plans and a calculated terminal value with growth equal to the expected economic growth of 2% p.a. in both 2018 and 2017. A discount rate of 7.7% (8.7%) has been applied. For further information on impairment considerations, reference is made to note 24.
The key assumptions for Terminals & Towage's value calculations are container moves, revenue and cost per move and discount rate. The cash flow projections cover the concession period and extension options where deemed likely that they will be exercised. The growth rates assumed reflect current market expectations for the relevant period.
| Ships, containers, etc. |
Production facilities and equipment, etc. |
Rigs Construction work in progress and payment on account |
Total | ||
|---|---|---|---|---|---|
| COST | |||||
| 1 January 2017 | 44,039 | 31,749 | 9,982 | 5,588 | 91,358 |
| Addition | 1,504 | 60 | 1 | 3,799 | 5,364 |
| Acquired in business combinations | 3,801 | 30 | - | 37 | 3,868 |
| Disposal | 2,529 | 9,466 | 1 | 28 | 12,024 |
| Transfer | 2,094 | 1,421 | 648 | -4,163 | - |
| Transfer, assets held for sale | -5,715 | -17,481 | -10,630 | -3,782 | -37,608 |
| Exchange rate adjustment | 127 | 310 | - | 31 | 468 |
| 31 December 2017 | 43,321 | 6,623 | - | 1,482 | 51,426 |
| Addition | 751 | 74 | - | 1,979 | 2,804 |
| Acquired in business combinations | -8 | 26 | - | 1 | 19 |
| Disposal | 766 | 99 | - | 5 | 870 |
| Transfer | 1,792 | 231 | - | -2,023 | - |
| Transfer, assets held for sale | -27 | -31 | - | - | -58 |
| Exchange rate adjustment | -134 | -183 | - | -34 | -351 |
| 31 December 2018 | 44,929 | 6,641 | - | 1,400 | 52,970 |
| DEPRECIATION AND IMPAIRMENT LOSSES | |||||
| 1 January 2017 | 19,975 | 24,351 | 4,278 | 1,258 | 49,862 |
| Depreciation | 2,286 | 1,123 | 347 | - | 3,756 |
| Impairment losses | 616 | 185 | 1,700 | 197 | 2,698 |
| Reversal of impairment losses | - | 241 | - | - | 241 |
| Disposal | 2,104 | 9,432 | 1 | 7 | 11,544 |
| Transfer | 79 | 164 | 79 | -322 | - |
| Transfer, assets held for sale | -3,605 | -13,245 | -6,403 | -1,121 | -24,374 |
| Exchange rate adjustment | 60 | 136 | - | 2 | 198 |
| 31 December 2017 | 17,307 | 3,041 | - | 7 | 20,355 |
| Depreciation | 2,572 | 384 | - | - | 2,956 |
| Impairment losses | 11 | 147 | - | 13 | 171 |
| Reversal of impairment losses | 1 | 2 | - | - | 3 |
| Disposal | 514 | 73 | - | - | 587 |
| Transfer, assets held for sale | -16 | -47 | - | - | -63 |
| Exchange rate adjustment | -32 | -99 | - | -3 | -134 |
| 31 December 2018 | 19,327 | 3,351 | - | 17 | 22,695 |
| Ships, containers, etc. |
Production facilities and equipment, etc. |
Rigs Construction work in progress and payment on account |
Total | ||
|---|---|---|---|---|---|
| CARRYING AMOUNT: | |||||
| 31 December 2017 | 26,014 | 3,582 | - | 1,475 | 31,071 |
| 31 December 2018 | 25,602 | 3,290 | - | 1,383 | 30,275 |
| OF WHICH CARRYING AMOUNT OF FINANCE LEASED ASSETS: |
|||||
| 31 December 2017 | 2,947 | 102 | - | 4 | 3,053 |
| 31 December 2018 | 2,444 | 101 | - | 4 | 2,549 |
Note 7 — continued
The additions of USD 3.9bn in 2017 were related to the acquisition of Hamburg Süd.
As part of the Group's activities, customary leasing agreements are entered, especially regarding the chartering of vessels and the leasing of containers and other equipment. In some cases, the leasing agreements comprise purchase options for the Group and options for extending the lease term. In the financial statements, assets held under finance leases are recognised in the same way as owned assets.
Ships, buildings, etc. with a carrying amount of USD 2.1bn (USD 2.8bn) have been pledged as security for loans of USD 1.3bn (USD 1.8bn). Pledges related to Maersk Drilling and Maersk Supply Service, please refer to note 9.
For general information on the basis for calculating the recoverable amount, reference is made to note 24 and note 6.
In the cash-generating units set out below, the impairment test gave rise to impairment losses and reversals.
| Impairment losses | Reversal of impairment losses | Applied discount rate p.a. after tax | Recoverable amount | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Operating segment | Cash-generating unit | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Terminals & Towage | Terminals1 | 20 | 188 | - | - | 8.5% | 6.5% - 18.3% | 20 | 457 |
| Maersk Tankers | All vessels | - | 464 | - | - | - | - | - | - |
| Maersk Oil2 | Denmark | - | - | - | 235 | - | - | - | 950 |
| Maersk Drilling2 | Deepwater rigs | 1,024 | 10.5% | 1,546 | |||||
| Jack-up rigs | 676 | 10.5% | 2,631 | ||||||
| Maersk Supply Service2 | Anchor Handling Tug Supply vessels | 156 | - | - | |||||
| SSV | 166 | 10.1% | 396 | ||||||
| Others | 14 | 10.1% | 14 | ||||||
| Manufacturing & Others3 | Container manufacturing facilities | 140 | 45 | ||||||
| Other | 11 | 10 | 3 | 6 | - | - | |||
| Total | 171 | 2,698 | 3 | 241 |
1 Both in 2017 and 2018, the impairment losses relate to certain terminals in commercially challenged markets.
2 For Maersk Oil, Maersk Drilling and Maersk Supply Service, impairments were recognised immediately before the initial classification of the businesses as assets held for sale. For further information refer to note 24.
3 For Maersk Container Industry, the impairment losses relate to the close-down of production facilities. For further information refer to note 24.
Recognised deferred tax assets and liabilities are attributable to the following:
| Assets | Liabilities | Net liabilities | ||||
|---|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| Intangible assets | 32 | 26 | 217 | 228 | 185 | 202 |
| Property, plant and equipment | 55 | 67 | 220 | 221 | 165 | 154 |
| Provisions, etc. | 117 | 133 | 6 | 81 | -111 | -52 |
| Tax loss carry-forwards | 163 | 190 | - | - | -163 | -190 |
| Other | 25 | 30 | 54 | 75 | 29 | 45 |
| Total | 392 | 446 | 497 | 605 | 105 | 159 |
| Offsets | -125 | -144 | -125 | -144 | - | - |
| Total | 267 | 302 | 372 | 461 | 105 | 159 |
| Change in deferred tax, net during the year | 2018 | 2017 |
|---|---|---|
| 1 January | 159 | 15 |
| Intangible assets | -10 | -7 |
| Property, plant and equipment | 1 | 137 |
| Provisions, etc. | -68 | -33 |
| Tax loss carry-forwards | 26 | -23 |
| Other | -12 | 19 |
| Recognised in the income statement | -63 | 93 1 |
| Transfer to held for sale | - | 53 |
| Other, including business combinations | 9 | -2 |
| 31 December | 105 | 159 |
1 Of which USD 141m is recognised as an expense in discontinued operations.
| Unrecognised deferred tax assets – continuing operations | 2018 | 2017 |
|---|---|---|
| Deductible temporary differences | 122 | 149 |
| Tax loss carry-forwards | 654 | 496 |
| Unused tax credits | 13 | - |
| Total2 | 789 | 645 |
2 In addition, deductible temporary differences of USD 0 (USD 852m) and a tax loss carry-forward of USD 36m (USD 442m) relating to discontinued operations are included under Liabilities associated with assets held for sale.
The unrecognised deferred tax assets have no significant time limitations. There are no substantial unrecognised tax liabilities on investments in subsidiaries, associated companies and joint ventures.
Discontinued operations include Maersk Oil up to closing in March 2018, Maersk Tankers up to closing in October 2017 as well as Maersk Drilling where A.P. Moller - Maersk will pursue a demerger via a separate listing on Nasdaq Copenhagen on 4 April 2019. A structural solution for Maersk Supply Service is expected within 12 months. The results of the discontinued operations are presented in one separate line in the income statement, cash flow statement and balance sheet. Both the income statement and cash flow statement have been restated in previous periods, while the balance sheet has not been restated.
A.P. Moller - Maersk executed on the strategy to separate out its energy businesses in 2017 with an agreement for Total S.A. to acquire Maersk Oil for USD 7,450m in a combined share and debt transaction, and A.P. Moller Holding to acquire Maersk Tankers for USD 1.2bn in an all-cash transaction.
In the consolidated financial statements, the results for Maersk Oil, Maersk Tankers, Maersk Drilling and Maersk Supply Service are classified under discontinued operations with a net profit of USD 3.4bn (loss of USD 970m), positively impacted by the gain of USD 2.6bn on the sale of Maersk Oil. The cash flow from operating activities was USD 896m (USD 2.0bn), while the cash flow from investing activities, including the net cash proceeds from the Maersk Oil transaction, amounted to USD 1.5bn (negative USD 580m). Total cash flow from the discontinued operations amounted to USD 3.4bn (USD 1.3bn).
Intangible assets held for sale amount to USD 91m for Maersk Drilling and USD 6m for Maersk Supply Service. Property, plant and equipment held for sale mainly consists of Maersk Drilling in the amount of USD 4.9bn and Maersk Supply Service in the amount of USD 838m.
| 2018 | 2017 | |
|---|---|---|
| PROFIT/LOSS FOR THE PERIOD – DISCONTINUED OPERATIONS | ||
| Revenue | 2,237 | 6,555 |
| Expenses | 1,291 | 3,097 |
| Gains/losses on the sale of assets and businesses | 2,637 | 16 |
| Depreciation and amortisation | - | 1,295 |
| Negative fair value adjustment | 400 | - |
| Impairment losses | - | 2,413 |
| Positive fair value adjustment | 445 | - |
| Reversal of impairment losses | - | 236 |
| Profit/loss before tax, etc. | 3,628 | 2 |
| Tax1 | 259 | 972 |
| Profit/loss for the year – discontinued operations | 3,369 | -970 |
| A.P. Møller - Mærsk A/S' share of profit/loss | 3,369 | -967 |
| Earnings per share | 162 | -47 |
| Diluted earnings per share | 162 | -47 |
| CASH FLOWS FROM DISCONTINUED OPERATIONS | ||
| Cash flow from operating activities | 896 | 2,004 |
| Cash flow used for investing activities | 1,454 | -580 |
| Cash flow from financing activities | 1,071 | -173 |
| Net cash flow from discontinued operations | 3,421 | 1,251 |
1 The tax relates to the profit from the ordinary activities of discontinued operations. There is no tax related to the gain on the sale of Maersk Oil and Maersk Tankers. The gain on the sale of Maersk Oil was USD 2.6bn in 2018, and the gain on the sale of Maersk Tankers was USD 3m in 2017.
| 2018 | 2017 | |
|---|---|---|
| BALANCE SHEET ITEMS COMPRISE: | ||
| Intangible assets | 97 | 875 |
| Property, plant and equipment | 5,805 | 11,911 |
| Deferred tax assets | -8 | 244 |
| Other assets | 63 | 491 |
| Non-current assets | 5,957 | 13,521 |
| Current assets | 896 | 1,468 |
| Assets held for sale | 6,853 | 14,989 |
| Provisions | 150 | 3,059 |
| Deferred tax liabilities | 66 | 226 |
| Other liabilities | 1,953 | 1,437 |
| Liabilities associated with assets held for sale | 2,169 | 4,722 |
Maersk Drilling reported a profit of USD 979m (loss of USD 1.5bn), with 2018 impacted by the positive fair value adjustment of USD 445m due to an improved market outlook and no depreciation being recognised after classification as discontinued operations in Q3 2017. The result of 2017 was negatively impacted by an impairment of USD 1.8bn following classification as discontinued operations.
Property, plant and equipments with a carrying amount of USD 4.7bn have been pledged as security for loans of USD 1.5bn. As part of the preparation, debt financing from a consortium of international banks of USD 1.5bn has been agreed for Maersk Drilling to ensure a solid capital structure after a listing. In certain circumstances, earnings in respect of drilling contracts for the collateral rigs will be assigned in favour of the lenders under the loan agreements.
Maersk Supply Service reported a loss of USD 418m (loss of USD 251m), impacted by the negative fair value adjustment of USD 400m recognised in Q3 2018 due to continued challenging market conditions. The result was positively impacted by no depreciation being recognised after classification as discontinued operations in Q4 2017.
On 21 August 2017, A.P. Moller - Maersk announced the sale of Maersk Oil to Total S.A. The transaction, which was based on a locked box mechanism from 30 June 2017, closed on 8 March 2018 with an accounting gain of USD 2.6bn. In addition to the net cash proceeds of USD 2.0bn after closing adjustments and free cash flow of USD 0.3bn up to closing, A.P. Moller - Maersk received 97.5m shares in Total S.A., equivalent to an ownership interest of 3.7%. The market value of the Total S.A. shares was USD 5.6bn at closing on 8 March 2018. The accounting gain comprises the original gain calculated on 30 June 2017 of USD 2.8bn less the profit of USD 1.0bn recognised in the period from 1 July 2017 up to closing and the addition of the locked box interest and positive Total S.A. share price development totalling USD 0.8bn.
Maersk Oil reported a profit of USD 148m (USD 1.2bn) before elimination of internal interests. The gain and cash flow from closing the transaction is summarised below (comparative figures relate to the sale of Maersk Tankers in 2017):
| Cash flow from sale | 2018 | 2017 |
|---|---|---|
| CARRYING AMOUNT | ||
| Intangible assets | 779 | 6 |
| Property, plant and equipment | 6,750 | 1,159 |
| Financial assets – non-current | 433 | 10 |
| Deferred tax assets | 233 | 0 |
| Current assets | 1,338 | 420 |
| Provisions | -2,767 | -10 |
| Liabilities | -3,831 | -1,011 |
| Net assets sold | 2,935 | 574 |
| Non-controlling interests | 0 | 0 |
| A.P. Møller - Mærsk A/S' share | 2,935 | 574 |
| Gain/loss on sale | 2,632 | 3 |
| Repayment of loan | 2,500 | 760 |
| Locked box interest received | 156 | 0 |
| Total consideration | 8,223 | 1,337 |
| Shares in Total S.A. received | -5,567 | 0 |
| Contingent considerations asset | 0 | -28 |
| Cash and bank balances transferred at closing | -633 | -91 |
| Cash flow from the sale of subsidiaries and activities | 2,023 | 1,218 |
As part of the divestment of Mærsk Olie & Gas A/S (MOGAS) to Total S.A., A.P. Møller - Mærsk A/S (APMM) has assumed a secondary liability related to the decommissioning of the offshore facilities in Denmark by issuance of a declaration. APMM assesses the risk of economic outflows due to this secondary liability as very remote.
The potential beneficiaries of the declaration of secondary liability are the other participants in Danish Underground Consortium (DUC) and the Danish state. The declaration covers decommissioning costs related to DUC's offshore facilities in Denmark which existed as at 28 February 2018. The secondary liability is limited to decommissioning costs related to MOGAS's participating interest in DUC at that point in time (which was 31.2%). At close on 8 March 2018, MOGAS's provision for these decommissioning costs amounted to USD 1.2bn. APMM's secondary liability will be reduced as facilities are decommissioned at the cost of Danish Underground Consortium.
The payment obligation under the declaration of secondary liability is triggered towards the other participants in DUC if: a) MOGAS or a potential successor of MOGAS does not perform its payment obligations in respect of decommissioning costs, b) the non-defaulting DUC participants have exhausted the special remedies in the joint operating agreement; and c) payment of the full amount under the guarantee(s) issued by or on behalf of MOGAS has not been made upon receipt of a payment request. The payment obligation is triggered towards the Danish state if the Danish state has paid the decommissioning costs and MOGAS, a potential successor or a guarantor does not pay in full its share of the costs upon receipt of a payment request.
In case APMM is held liable under the secondary liability described above, APMM will have full recourse for such liability against Total S.A. (the buyer of MOGAS).
| A shares of | B shares of | Nominal value | ||||
|---|---|---|---|---|---|---|
| DKK 1,000 | DKK 500 | DKK 1,000 | DKK 500 | DKK million | USD million | |
| 1 January 2017 | 10,756,221 | 314 | 10,060,392 | 184 | 20,817 | 3,774 |
| Conversion | 41 | -82 | 6 | -12 | - | - |
| 31 December 2017 | 10,756,262 | 232 | 10,060,398 | 172 | 20,817 | 3,774 |
| 31 December 2018 | 10,756,262 | 232 | 10,060,398 | 172 | 20,817 | 3,774 |
All shares are fully issued and paid up.
One A share of DKK 1,000 holds two votes. B shares have no voting rights.
Adoption of resolutions regarding changes to the company's Articles of Association or increase or write-down of the share capital requires that at least two thirds of the A share capital at the General Meeting shall be represented by persons entitled to vote and that at least two thirds of the votes cast shall be cast in favour of the adoption of the resolution.
Apart from a resolution for the dissolution of the company, other resolutions at the General Meetings are passed by simple majority, if legislation does not require voting majority. Reference is made to the company's Articles of Association.
In the event of an increase in the company's share capital, the shareholders in the given share class shall have a pre-emptive right to subscribe for a proportionate share of the capital increase.
The General Meeting has authorised the Board to allow the company to acquire own shares on an ongoing basis to the extent that the nominal value of the company's total holding of own shares at no time exceeds 10% of the company's share capital. The purchase price must not deviate by more than 10% from the price quoted on Nasdaq Copenhagen on the date of the purchase. This authorisation is to remain in force until 29 March 2020.
Development in the holding of own shares:
| No. of shares of DKK 1,000 | Nominal value DKK million | % of share capital | ||||
|---|---|---|---|---|---|---|
| Own shares1 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| B SHARES | ||||||
| 1 January | 60,839 | 77,642 | 61 | 78 | 0.29% | 0.37% |
| Disposal | 5,324 | 16,803 | 5 | 17 | 0.02% | 0.08% |
| 31 December | 55,515 | 60,839 | 56 | 61 | 0.27% | 0.29% |
1 The company did not hold any A shares in 2017 and 2018.
Disposals of own shares are primarily related to the share option programme.
The Board of Directors proposes a dividend to the shareholders of DKK 150 per share of DKK 1,000 – a total of DKK 3,123m, equivalent to USD 479m at the exchange rate as per 31 December 2018 (DKK 150 per share of DKK 1,000 – a total of DKK 3,123m or USD 503m).
Payment of dividends is expected to take place on 8 April 2019. Payment of dividends to shareholders does not trigger taxes to A.P. Moller - Maersk.
The basis for calculating earnings per share is the following:
| A.P. Møller - Mærsk A/S' share of: | 2018 | 2017 |
|---|---|---|
| Profit/loss for the period of continuing operations | -200 | -238 |
| Profit/loss for the period of discontinued operations | 3,369 | -967 |
| Profit/loss for the year | 3,169 | -1,205 |
| 2018 | 2017 | |
|---|---|---|
| Issued shares 1 January | 20,816,862 | 20,816,862 |
| Average number of own shares | 56,856 | 64,472 |
| Average number of shares | 20,760,006 | 20,752,390 |
At 31 December 2018, there is no dilution effect on earnings per share from the 46,692 issued share options. The issued share options correspond to 0.22% of the total average number of shares in the Group. At 31 December 2017, there was no dilution effect on earnings per share from the 25,530 issued share options. The issued share options corresponded to 0.12% of the total average number of shares in the Group.
A.P. Moller - Maersk has two different equity-settled incentive plans. The restricted shares plan was introduced in 2013, and grants have been awarded to employees on a yearly basis since 2013. Beginning in 2018, grants have also been awarded to members of the Executive Board. In 2014, the Group established a three-year performance shares plan for members of the Executive Board and other employees. The performance shares plan lapsed in 2017.
The transfer of restricted shares is contingent upon the employee still being employed and not being under notice of termination, and takes place when three years have passed from the time of granting. For members of the Executive Board, the vesting period is five years.
The members of the Executive Board as well as other employees are not entitled to any dividends during the vesting period. Special conditions apply regarding illness, death and resignation as well as changes in the company's capital structure, etc. A.P. Møller - Mærsk A/S' holding of own B shares will be used to meet the company's obligations regarding the restricted shares plan.
| Outstanding awards under equity-settled | Restricted shares plan Employees1 |
Restricted shares plan Members of the Executive Board1 |
Performance shares plan Employees1 |
Total fair value1 |
|---|---|---|---|---|
| incentive plans (excl. share option plans) | No. | No. | No. | USD million |
| 1 January 2017 | 15,067 | - | 843 | |
| Granted | 5,024 | - | 66 | 8 |
| Exercised | 4,591 | - | 842 | |
| Adjustment2 | - | - | -67 | |
| Forfeited | 968 | - | - | |
| Outstanding 31 December 2017 | 14,532 | - | - | |
| Granted | 4,241 | 1,002 | 8 | |
| Exercised | 5,324 | - | ||
| Forfeited | 663 | - | ||
| Outstanding 31 December 2018 | 12,786 | 1,002 | - |
1 At the time of grant.
2 Primarily due to changes in the degree of certain financial goals being achieved.
The fair value of restricted shares (B shares) granted to 105 (132) employees and five members of the Executive Board was USD 8m (USD 8m) at the time of grant. The total value of granted restricted shares recognised in the income statement is USD 8m (USD 8m).
The fair value per restricted share at the time of grant is DKK 9,273 (DKK 11,550), which is equal to the volume-weighted average share price on the date of grant, i.e. 1 April 2018.
On 1 April 2018, the restricted shares originally granted in 2015 were settled with the employees. The weighted average share price on that date was DKK 9,273.
The average remaining contractual life for the restricted shares is 1.4 years (1.3 years) at 31 December 2018.
In 2015, A.P. Moller - Maersk introduced the performance shares plan to a broader range of employees. A share of the cash-settled Performance Plan lapsed in 2017, and the remaining share lapsed in 2018. The actual settlement of the awards was contingent upon the degree of certain financial goals being achieved, the employee still being employed and not being under notice of termination at the date of settlement. This meant that the number of awards that eventually will vest was adjusted during the vesting period. Depending on the agreement, the settlement did take place two or three years after the initial granting, and the employee had the option to settle the awards in shares.
The employees were not entitled to any dividends during the vesting period. Special conditions applied regarding illness, death and resignation as well as changes in the company's capital structure, etc.
| Outstanding awards under cash-settled | Employees | Total fair value1 | Carrying amount of liabilities |
|---|---|---|---|
| performance share plan | No. | USD million | USD million |
| 1 January 2017 | - | ||
| Granted | 780 | ||
| Adjustment2 | -780 | ||
| Outstanding 31 December 2017 and 31 December 2018 | - | - |
1 At the time of grant.
2 Due to changes in the degree of certain financial goals being achieved.
The fair value of awards granted to 0 (42) employees was USD 0m (USD 0m) at the time of grant. The total value of the awards recognised in the income statement is USD 0m (USD 0m).
The average remaining contractual life for the cash-settled incentive plan is 0 years (0.3 years) at 31 December 2018.
In addition to the plans described above, A.P. Moller - Maersk has share option plans for members of the Executive Board and other employees. Each share option granted is a call option to buy an existing B share of nominally DKK 1,000 in A.P. Møller - Mærsk A/S.
The share options are granted at an exercise price corresponding to 110% of the average of the market price on the first five trading days following the release of A.P. Møller - Mærsk A/S' Annual Report. Exercising the share options is contingent upon the option holder still being employed at the time of exercise. The share options can be exercised when at least two years (three years for share options granted to Executive Board members) and no more than seven years (six years for share options granted to employees not members of the Executive Board) have passed from the time of grant. Special conditions apply regarding illness, death and resignation as well as changes in the company's capital structure, etc.
| Members of the Executive Board1 |
Employees1 | Total | Average exercise price |
Total fair value1 |
|
|---|---|---|---|---|---|
| Outstanding share options1 | No. | No. | No. | DKK | USD million |
| 1 January 2017 | 3,840 | 7,635 | 11,475 | 8,298 | |
| Granted | 4,928 | 20,839 | 25,767 | 12,791 | 8 |
| Exercised | 3,840 | 7,530 | 11,370 | 8,298 | |
| Expired | - | 105 | 105 | 8,298 | |
| Forfeited | - | 237 | 237 | 12,791 | |
| Outstanding 31 December 2017 | 4,928 | 20,602 | 25,530 | 12,791 | |
| Exercisable 31 December 2017 | - | - | - | ||
| Granted | 6,230 | 18,137 | 24,367 | 11,537 | 7 |
| Forfeited | 1,173 | 2,032 | 3,205 | 12,507 | |
| Outstanding 31 December 2018 | 9,985 | 36,707 | 46,692 | 12,156 | |
| Exercisable 31 December 2018 | - | - | - |
1 At the time of grant.
The share options can only be settled in shares. A.P. Møller - Mærsk A/S' holding of own B shares will be used to meet the company's obligations in respect of the share option plans.
The fair value of awards granted to five (three) members of the Executive Board and 80 (79) employees was USD 7m (USD 8m) at the time of grant. The total value of granted share options recognised in the income statement is USD 6m (USD 3m).
The weighted average share price at the dates of exercise of share options was DKK 11,778 in 2017. No share options were exercised during 2018.
The average remaining contractual life is 5.5 years (6.1 years) at 31 December 2018, and the exercise price for outstanding share options is DKK 12,156 (DKK 12,791).
The fair value per option granted to members of the Executive Board is calculated at DKK 1,712 (DKK 2,130) at the time of grant, based on Black & Scholes' option pricing model. The fair value per option granted to employees who are not members of the Executive Board is calculated at DKK 1,875 (DKK 2,281) at the time of grant based on the same option pricing model.
The following principal assumptions are used in the valuation:
| Share options granted to members of the Executive Board |
Share options granted to employees not members of the Executive Board |
Share options granted to members of the Executive Board |
Share options granted to employees not members of the Executive Board |
|
|---|---|---|---|---|
| 2018 | 2018 | 2017 | 2017 | |
| Share price, volume-weighted average at the date of grant, 1 April, DKK |
9,273 | 9,273 | 11,550 | 11,550 |
| Share price, five days volume weighted average after publication of Annual Report, DKK |
10,476 | 10,476 | 11,628 | 11,628 |
| Exercise price, DKK | 11,524 | 11,524 | 12,791 | 12,791 |
| Expected volatility (based on historic volatility) |
33% | 33% | 31% | 31% |
| Expected term (years) | 5 | 5.75 | 5 | 5.75 |
| Expected dividend per share, DKK | 150 | 150 | 300 | 300 |
| Risk free interest rate | 0.21% | 0.29% | -0.12% | 0.01% |
| Net debt as at 31 December 2017 |
Cash flows1 | Acquisitions | Foreign exchange movements | Non-cash changes Other2 |
Net debt as at 31 December 2018 |
|
|---|---|---|---|---|---|---|
| Bank and other credit institutions Finance lease liabilities Issued bonds Total borrowings |
6,964 2,745 7,804 17,513 |
-2,557 -663 -2,258 -5,478 |
-7 - - -7 |
-173 29 -238 -382 |
22 152 65 239 |
4,249 2,263 5,373 11,885 |
| Derivatives hedge of borrowings, net | -88 | -2 | 238 | 24 | 172 | |
| BORROWINGS: Classified as non-current Classified as current |
15,076 2,437 |
9,894 1,991 |
1 Cash flows include prepayments of USD 6.4bn of which USD 5.6bn relates to prepayments made during Q4 2018.
2 Other includes new finance leases and fair value changes.
| Net debt as at 31 December | Cash flows1 | Non-cash changes | Net debt as at 31 December | |||
|---|---|---|---|---|---|---|
| 2016 | Acquisitions | Foreign exchange movements | Other2 | 2017 | ||
| Bank and other credit institutions | 4,967 | 1,982 | 146 | 80 | -211 | 6,964 |
| Finance lease liabilities | 2,271 | -309 | 606 | 5 | 172 | 2,745 |
| Issued bonds | 8,097 | -872 | - | 603 | -24 | 7,804 |
| Total borrowings | 15,335 | 801 | 752 | 688 | -63 | 17,513 |
| Derivatives hedge of borrowings, net | 806 | -224 | - | -619 | -51 | -88 |
| BORROWINGS: | ||||||
| Classified as non-current | 13,320 | 15,076 | ||||
| Classified as current | 2,015 | 2,437 |
1 Difference from the net proceeds from borrowings as presented in the cash flow statement mainly relates to discontinued operations' repayment of borrowings.
2 Other includes transfers to held for sale, new finance leases and fair value changes.
| Minimum lease payments | Interest | Carrying amount | Minimum lease payments | Interest | Carrying amount | |
|---|---|---|---|---|---|---|
| Finance lease liabilities | 2018 | 2018 | 2018 | 2017 | 2017 | 2017 |
| Within one year | 520 | 115 | 405 | 583 | 131 | 452 |
| Between one and five years | 1,565 | 266 | 1,299 | 1,816 | 292 | 1,524 |
| After five years | 715 | 156 | 559 | 1,080 | 311 | 769 |
| Total | 2,800 | 537 | 2,263 | 3,479 | 734 | 2,745 |
The finance lease agreements are described in note 7.
As an employer, the Group participates in pension plans according to normal practice in the countries in which it operates. Generally, the pension plans within the Group are defined contribution plans, where contributions are recognised in the income statement on an accrual basis. A number of entities have defined benefit plans, in which retirement benefits are based on length of service and salary level. To a limited extent, these defined benefit plans also include payment of medical expenses, etc.
Pension and medical plans which, as part of collective bargaining agreements, have been entered into with other enterprises (known as multi-employer plans) are treated as other pension plans. Such defined benefit plans are treated as defined contribution plans when sufficient information for calculating the individual enterprise´s share of the obligation is not available.
In 2019, the Group expects to pay contributions totalling USD 27m to funded defined benefit plans (USD 36m in 2018).
| UK | Other | Total | UK | Other | Total | |
|---|---|---|---|---|---|---|
| 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | |
| SPECIFICATION OF NET LIABILITY | ||||||
| Present value of funded plans | 1,999 | 481 | 2,480 | 2,242 | 532 | 2,774 |
| Fair value of plan assets | -2,301 | -382 | -2,683 | -2,534 | -425 | -2,959 |
| Net liability of funded plans | -302 | 99 | -203 | -292 | 108 | -185 |
| Present value of unfunded plans | - | 116 | 116 | - | 116 | 116 |
| Impact of minimum funding requirement/ asset ceiling |
61 | - | 61 | 58 | - | 58 |
| Net liability 31 December | -241 | 215 | -26 | -234 | 224 | -11 |
| OF WHICH: | ||||||
| Pensions, net assets | 285 | 298 | ||||
| Pensions and similar obligations | 259 | 287 |
The majority of the Group's defined benefit liabilities are in the UK (77 %) and the US (13 %). All the plans in the UK and the majority of the plans in the US are funded. Although all the UK plans are now closed to new entrants, active members in the two largest plans continue to accrue new benefits. The smaller UK plans are all closed to new accruals, although a salary link remains in some of the plans.
Overall, the plans have an average duration of 16 years, and approx. 53% of the obligation is in respect of pensioner members.
As well as being subject to the risks of falling interest rates, which would increase the obligation, poor asset returns and pensioners living longer than anticipated, the Group is also subject to the risk of higher than expected inflation. This is because many pension benefits, particularly in the UK plans, increase in line with inflation (although some minimum and maximum limits apply).
| UK | Total | UK | Total | |
|---|---|---|---|---|
| Significant financial assumptions | 2018 | 2018 | 2017 | 2017 |
| Discount rate | 2.8% | 3.0% | 2.5% | 2.7% |
| Inflation rate | 3.4% | 3.1% | 3.3% | 3.1% |
| Future salary increase | 3.6% | 3.1% | 3.5% | 3.1% |
| Future pension increase | 3.1% | 2.6% | 3.0% | 2.5% |
Rates of life expectancy reflect the most recent mortality investigations, and in line with market practice an allowance is made for future improvements in life expectancy. The Group assumes that future improvements will be in line with the latest projections (1.25% in 2018 and in 2017) for all UK plans.
| 31 December | ||||
|---|---|---|---|---|
| Life expectancy | 2018 | 2038 | 2017 | 2037 |
| 65-year-old male in the UK | 21.7 | 23.1 | 21.8 | 23.3 |
The liabilities are calculated using assumptions that are the Group's best estimate of future experience bearing in mind the requirements of IAS 19. The sensitivity of the liabilities and pension cost to the key assumptions are as follows:
| Sensitivities to key assumptions in the UK | Increase | Decrease | Increase | Decrease | |
|---|---|---|---|---|---|
| Factors | 'Change in liability' | 2018 | 2018 | 2017 | 2017 |
| Discount rate | Increase/(decrease) by 10 basis points | -30 | 31 | -35 | 36 |
| Inflation rate | Increase/(decrease) by 10 basis points | 16 | -18 | 19 | -21 |
| Life expectancy | Increase/(decrease) by 1 year | 87 | -86 | 96 | -94 |
The Group's plans are funded in accordance with applicable local legislation. In the UK, each plan has a trustee board that is required to act in the best interests of plan members. Every three years, a formal valuation of the plan's liabilities is carried out using a prudent basis, and if the plan is in deficit, the trustees agree with the Group or the sponsoring employer on a plan for recovering that deficit.
The expected contributions to the UK plans for 2019 are USD 21m and USD 32m in 2018, of which USD 0m (USD 9m in 2018) is deficit recovery contributions. In most of the UK plans, any surplus remaining after the last member dies may be returned to the Group. However, the Merchant Navy Ratings Pension Fund (MNRPF) and the Merchant Navy Officers Pension Fund (MNOPF) contributions paid by the Group are not refundable in any circumstance and the balance sheet liability reflects an adjustment for any agreed deficit recovery contributions in excess of deficit determined using the Group's assumptions. In 2018, an adjustment of USD 2m (USD 31m) was applied in this respect.
| UK | Other | Total | UK | Other | Total | |
|---|---|---|---|---|---|---|
| Specification of plan assets | 2018 | 2018 | 2018 | 2017 | 2017 | 2017 |
| Shares | 261 | 132 | 393 | 322 | 177 | 499 |
| Government bonds | 966 | 87 | 1,053 | 985 | 78 | 1,063 |
| Corporate bonds | 547 | 69 | 616 | 573 | 71 | 644 |
| Real estate | 27 | 5 | 32 | 113 | 5 | 118 |
| Other assets | 500 | 89 | 589 | 541 | 94 | 635 |
| Fair value 31 December | 2,301 | 382 | 2,683 | 2,534 | 425 | 2,959 |
Except for an insignificant portion, the plan assets held by the Group are quoted investments.
| Change in net liability | Present value of obligations |
Fair value of plan assets |
Adjust ments |
Net liability |
Of which: UK |
|---|---|---|---|---|---|
| 1 January 2017 | 2,512 | 2,451 | 81 | 142 | 4 |
| Current service cost, administration cost etc. | 19 | -6 | - | 25 | 7 |
| Calculated interest expense/income | 74 | 72 | - | 2 | -1 |
| Recognised in the income statement in 2017 | 93 | 66 | - | 27 | 6 |
| Actuarial gains/losses from changes in financial and demographic assumptions, etc. Return on plan assets, exclusive calculated interest income |
24 | 152 | 24 -152 |
5 -122 |
|
| Adjustment for unrecognised asset due to asset ceiling |
-11 | -11 | -11 | ||
| Adjustment for minimum funding requirement | -20 | -20 | -20 | ||
| Recognised in other comprehensive income in 2017 |
24 | 152 | -31 | -159 | -148 |
| Contributions from the Group and employees Benefit payments Settlements Effect of business combinations and disposals Exchange rate adjustment 31 December 2017 |
1 -162 -2 219 205 2,890 |
93 -142 - 122 217 2,959 |
8 58 |
-92 -20 -2 97 -4 -11 |
-88 - - 3 -11 -234 |
| Current service cost, administration cost etc. Calculated interest expense/income |
33 73 |
-6 75 |
- - |
39 -2 |
22 -6 |
| Recognised in the income statement in 2018 | 106 | 69 | - | 37 | 16 |
| Actuarial gains/losses from changes in financial and demographic assumptions, etc. Return on plan assets, exclusive calculated interest income Adjustment for unrecognised asset due to asset ceiling |
-111 | -112 | 34 | -111 112 34 |
-73 91 34 |
| Adjustment for minimum funding requirement | -28 | -28 | -29 | ||
| Effect of asset ceiling Recognised in other comprehensive income in 2018 |
-111 | -112 | 6 | - 7 |
23 |
| Present value of obligations |
Fair value of plan assets |
Adjust ments |
Net liability |
Of which: UK |
|
|---|---|---|---|---|---|
| Contributions from the Group and employees | 4 | 69 | - | -65 | -62 |
| Benefit payments | -151 | -141 | - | -10 | - |
| Effect of business combinations and disposals | 4 | - | - | 4 | - |
| Exchange rate adjustment | -146 | -161 | -3 | 12 | 16 |
| 31 December 2018 | 2,596 | 2,683 | 61 | -26 | -241 |
Under collective agreements, certain entities in the Group participate together with other employers in defined benefit pension plans as well as welfare/medical plans (multi-employer plans).
For the defined benefit pension plans, the Group has joint and several liabilities to fund total obligations. In 2018, the Group's contributions are estimated at USD 134m (USD 134m), while the contributions to be paid in 2019 are estimated at USD 151m. In general, the contributions to the schemes are based on man-hours worked or cargo tonnage handled, or a combination hereof.
No reliable basis exists for the allocation of the schemes' obligations and plan assets to individual employer participants. For the plans where the Group has an interest and there is a deficit, the net obligations for all employers totalled USD 0.9bn (USD 1.1bn). This net obligation is based on the most recent available financial data from the plan's trustees, calculated in accordance with the rules for such actuarial calculations in US GAAP. The deficit in some of the schemes may necessitate increased contributions in the future.
The welfare/medical plans are by nature contribution plans funded on a pay-as-you-go basis. As for the defined benefit pension plans, the contributions are based on man-hours worked or cargo tonnage handled, or a combination hereof.
| Restructuring | Legal disputes, etc. | Onerous and unfavourable contracts |
Other | Total | |
|---|---|---|---|---|---|
| 1 January 2018 | 55 | 923 | 334 | 238 | 1,550 |
| Provision made | 61 | 494 | - | 129 | 684 |
| Amount used | 32 | 168 | 21 | 53 | 274 |
| Amount reversed | 23 | 121 | 103 | 47 | 294 |
| Addition from business combinations | 1 | - | - | 17 | 18 |
| Unwind of discount | - | - | 1 | - | 1 |
| Transfer, assets held for sale | - | - | -45 | - | -45 |
| Exchange rate adjustment | -1 | -27 | -2 | -10 | -40 |
| 31 December 2018 | 61 | 1,101 | 164 | 274 | 1,600 |
| OF WHICH: | |||||
| Classified as non-current | 2 | 682 | 139 | 205 | 1,028 |
| Classified as current | 59 | 419 | 25 | 69 | 572 |
| Non-current provisions expected to be realised after more than five years | - | 17 | - | 38 | 55 |
Restructuring includes provisions for decided and publicly announced restructurings. Legal disputes, etc. include among other things tax, indirect tax and duty disputes. Onerous and unfavourable contracts are mainly related to Hamburg Süd´s unfavourable lease contracts acquired in 2017. Other includes provisions for warranties and risk under certain self-insurance programmes. The provisions are subject to considerable uncertainty, cf. note 24.
Reversals of provisions primarily relate to legal disputes and contractual disagreements, which are recognised in the income statement under operating costs and tax.
Hedges comprise primarily currency derivatives and interest rate derivatives. Foreign exchange forwards and option contracts are used to hedge the currency risk related to recognised and unrecognised transactions. Interest rate and cross-currency swaps are used to hedge interest rate exposure on borrowings. Price hedge derivatives are used to hedge crude oil prices and bunker prices.
| 2018 | 2017 | |
|---|---|---|
| Non-current receivables | 135 | 260 |
| Current receivables | 80 | 116 |
| Non-current liabilities | 242 | 138 |
| Current liabilities | 121 | 128 |
| Assets, net | -148 | 110 |
The fair value of derivatives held at the balance sheet date can be allocated by type as follows:
| Fair value, asset |
Fair value, liability |
Nominal amount of derivative |
Fair value, asset |
Fair value, liability |
Nominal amount of derivative |
|
|---|---|---|---|---|---|---|
| 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | |
| HEDGE OF BORROWINGS | ||||||
| Cross-currency swaps | ||||||
| EUR | 97 | 141 | 2,697 | 240 | 16 | 3,515 |
| GBP | - | 74 | 380 | 2 | 37 | 437 |
| JPY | 10 | 12 | 204 | 7 | 14 | 200 |
| SEK | - | - | - | - | 68 | 305 |
| NOK | - | 52 | 596 | 6 | 41 | 693 |
| Interest rate swaps | ||||||
| Cash flow hedges | 33 | 8 | 1,548 | 4 | 12 | 1,037 |
| Fair value hedges | - | 15 | 500 | - | 6 | 500 |
| Total | 140 | 302 | 259 | 194 | ||
| HEDGE OF OPERATING CASH FLOWS AND INVESTMENTS IN FOREIGN CURRENCIES |
||||||
| Main currencies hedged | ||||||
| EUR | - | 12 | 522 | 16 | - | 674 |
| GBP | - | 2 | 68 | 11 | - | 480 |
| DKK | - | 9 | 254 | 15 | - | 579 |
| Other currencies | 2 | 10 | 487 | 28 | 7 | 1,098 |
| Total | 2 | 33 | 70 | 7 |
| 2018 | Fair value 2017 |
|
|---|---|---|
| HELD FOR TRADING | ||
| Currency derivatives | 18 | -16 |
| Interest derivatives | - | - |
| Price hedge | 28 | -2 |
| Total | 46 | -18 |
The hedges are expected to be highly effective due to the nature of the economic relation between the exposure and the hedge. The source of ineffectiveness is the credit risk of the hedging instruments. For hedges where the cost of hedging is applied, the forward points and change in basis spread are recognised in other comprehensive income and transferred with the effective hedge when the hedged transaction occurs. The cost of hedging reserve amount is USD 1m (USD 7m).
For information about risk management strategy, currencies, maturities, etc., reference is made to note 17.
Cross-currency swaps are used to swap all non-USD issued bonds. Fixed to floating rate swaps are designated as a combination of fair value and cash flow hedges. The principal amounts in USD equivalents are: EUR 1,723m (EUR 1,835m), GBP 89m (GBP 95m), JPY 204m (JPY 200m) and NOK 252m (NOK 268m). The remaining swaps are fixed to fixed rate or floating to fixed rate swaps and are designated as cash flow hedges of currency and interest risk.
The hedge ratio is 1:1. The maturity of the hedge instrument 0-5 years is (USD equivalents): EUR 1,746m (EUR 3,419m), JPY 91m (JPY 89m) and NOK 344m (NOK 303m). 5-10 years: EUR 859m (EUR 0m), GBP 380m (GBP 405m), JPY 113m (JPY 111m) and NOK 252m (NOK 390m). Above 10 years: EUR 92m (EUR 96m).
Cross-currency swaps are designated as a combination of hedge of principal cash flow and hedge of interests at a weighted average rate of 4.5% (3.7%).
Interest rate swaps are all denominated in USD and pay either floating (fair value hedge) or fixed interest rates (cash flow hedge). The hedge ratio is 1:1, and the weighted average interest rate is 2.5% (2.2%) excluding margin on loans. The maturity of the interest rate swaps 0-5 years is USD 918m (USD 442m) and 5-10 years USD 1,130m (USD 1,095m).
For cash flow hedges related to borrowings, a loss of USD 80m (gain of USD 31m) is recognised in other comprehensive income, and the cash flow hedges reserve is a loss of USD 49m (gain of USD 31m). Reference is made to other comprehensive income.
The carrying amount of the borrowings in fair value hedge relation is USD 2,768m (USD 3,069m), and the accumulated fair value adjustment of the loans is a loss of USD 13m (loss of USD 28m). The loss on the hedging instrument in fair value hedges recognised in the income statement for the year amounts to USD 15m (loss of USD 33m), and the gain on hedged item amounts to USD 15m (gain of USD 33m).
Due to bond buy-back in 2018, the ineffectiveness from cash flow hedges is recognised in profit or loss at USD 20m in 2018.
Currency derivatives hedge future revenue, operating costs and investments/divestments and are recognised on an ongoing basis in the income statement and the cost of property, plant and equipment, respectively.
Hedges of future revenue, operating costs and investments mature within a year.
For hedges related to operating cash flows and investment of negative USD 89m (positive USD 55m) is recognised in other comprehensive income, and the cash flow hedge reserve is negative USD 34m (positive USD 55m).
Furthermore, the Group enters into derivatives to hedge economic risks that are not accounted for as hedging. These derivatives are accounted for as held for trading.
The gains/losses, including realised transactions, are recognised as follows:
| 2018 | 2017 | |
|---|---|---|
| Hedging foreign exchange risk on revenue | 2 | 4 |
| Hedging foreign exchange risk on operating costs | 2 | 45 |
| Hedging interest rate risk | -53 | -55 |
| Hedging investment in associated companies | - | -4 |
| Hedging foreign exchange risk on the cost of non-current assets | - | 119 |
| Hedging foreign exchange risk on discontinued operations | 13 | -83 |
| Total effective hedging | -36 | 26 |
| Ineffectiveness recognised in financial expenses | 22 | -1 |
| Total reclassified from equity reserve for hedges | -14 | 25 |
| DERIVATIVES ACCOUNTED FOR AS HELD FOR TRADING | ||
| Currency derivatives recognised directly in financial income/expenses | 11 | 334 |
| Interest rate derivatives recognised directly in financial income/expenses | -29 | -37 |
| Oil prices and freight rate derivatives recognised directly in other income/costs | 25 | -20 |
| Derivatives recognised in income statement for discontinued operations | -3 | -6 |
| Net gains/losses recognised directly in the income statement | 4 | 271 |
| Total | -10 | 296 |
For information about currencies, maturities, etc., reference is made to note 16.
| Carrying amount 2018 |
Fair value 2018 |
Carrying amount 2017 |
Fair value 2017 |
|
|---|---|---|---|---|
| CARRIED AT AMORTISED COST Loans receivable |
371 | 371 | 387 | 387 |
| Finance lease receivables | 26 | 26 | 29 | 29 |
| Other interest-bearing receivables and deposits | 58 | 58 | 62 | 62 |
| Trade receivables | 3,759 | 3,864 | ||
| Other receivables (non-interest-bearing) | 1,051 | 1,137 | ||
| Cash and bank balances | 2,851 | 2,171 | ||
| Financial assets at amortised cost | 8,116 | 7,650 | ||
| Derivatives | 215 | 215 | 376 | 376 |
| CARRIED AT FAIR VALUE THROUGH PROFIT/LOSS | ||||
| Other receivables (non-interest-bearing)1 | 4 | 4 | 10 | 10 |
| Other securities | 1 | 1 | 1 | 1 |
| Financial assets at fair value through profit/loss | 5 | 5 | 11 | 11 |
| CARRIED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME |
||||
| Equity investments (FVOCI)2 | 2,488 | 2,488 | 30 | 30 |
| Financial assets at fair value through OCI | 2,488 | 2,488 | 30 | 30 |
| Total financial assets | 10,824 | 8,067 | ||
| CARRIED AT AMORTISED COST | ||||
| Bank and other credit institutions | 4,249 | 4,286 | 6,964 | 7,140 |
| Finance lease liabilities | 2,263 | 2,388 | 2,745 | 3,112 |
| Issued bonds | 5,373 | 5,394 | 7,804 | 8,020 |
| Trade payables | 5,134 | 5,250 | ||
| Other payables | 964 | 1,306 | ||
| Financial liabilities at amortised cost | 17,983 | 24,069 | ||
| Derivatives | 363 | 363 | 266 | 266 |
| CARRIED AT FAIR VALUE | ||||
| Other payables | - | - | 7 | 7 |
| Financial liabilities at fair value | - | - | 7 | 7 |
| Total financial liabilities | 18,346 | 24,342 |
1 Relates to contingent consideration receivable.
2 Designated at initial recognition in accordance with IFRS 9.
As at 31 December 2018, USD 2,447m in equity investments at FVOCI classified as current pertains to the shares in Total S.A. received from the sale of Maersk Oil. Subject to meeting its investment-grade credit rating it is the plan to return a material portion of the value of the received shares to the A.P. Moller - Maersk shareholders during 2019, and therefore the shares have been classified as current.
In 2017, as the Salling Companies could complete the final transaction agreed on in 2014, A.P. Møller - Mærsk A/S sold its remaining 19% share of Dansk Supermarked Group for DKK 5.5bn, equivalent to USD 871m.
The accumulated loss of USD 123m has been transferred within equity. The loss can be attributed to the development in the DKK/USD exchange rate since initial recognition.
Fair value of listed securities is within level 1 of the fair value hierarchy. Non-listed shares and other securities are within level 3 of the fair value hierarchy.
Fair value of derivatives is mainly within level 2 of the fair value hierarchy and is calculated based on observable market data as of the end of the reporting period. A minor amount of crude oil price derivatives is within level 1 of the fair value hierarchy.
Fair value of level 3 assets and liabilities is primarily based on the present value of expected future cash flows. A reasonably possible change in the discount rate is not estimated to affect the Group's profit or equity significantly.
Fair value of the short-term financial assets and other financial liabilities carried at amortised cost is not materially different from the carrying amount. In general, fair value is determined primarily based on the present value of expected future cash flows. Where a market price was available, however, this was deemed to be the fair value.
Fair value of listed issued bonds is within level 1 of the fair value hierarchy. Fair value of the remaining borrowing items is within level 2 of the fair value hierarchy, and is calculated based on discounted future cash flows.
| Movement during the year in level 3 | Other equity investments (FVOCI) |
Other receivables |
Total financial assets |
Other payables |
Total financial liabilities |
|---|---|---|---|---|---|
| Carrying amount 1 January 2017 | 781 | - | 781 | 7 | 7 |
| Addition | - | 28 | 28 | - | - |
| Disposal | 877 | - | 877 | - | - |
| Gains/losses recognised in the income statement |
- | -18 | -18 | - | - |
| Gains/losses recognised in other comprehensive income |
138 | - | 138 | - | - |
| Transfer, assets held for sale | -31 | - | -31 | - | - |
| Exchange rate adjustment, etc. | 2 | - | 2 | - | - |
| Carrying amount 31 December 2017 | 13 | 10 | 23 | 7 | 7 |
| Addition | 13 | 4 | 17 | - | - |
| Disposal | - | - | - | 5 | 5 |
| Gains/losses recognised in the income statement |
- | -10 | -10 | -2 | -2 |
| Carrying amount 31 December 2018 | 26 | 4 | 30 | - | - |
The Group's activities expose it to a variety of financial risks:
The Group's overall risk management programme focuses on the unpredictability of financial markets, and seeks to minimise the potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central finance department under policies approved by the Board of Directors. The finance department identifies, evaluates and hedges financial risks in close cooperation with the Group's business units.
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and share price, will affect the Group's profit or the value of its holdings of financial instruments. The sensitivity analyses below relate to the position of financial instruments at 31 December 2018.
The sensitivity analyses for currency risk, interest rate risk and share price risk have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt, and the proportion of financial instruments in foreign currencies remain unchanged from hedge designations in place at 31 December 2018. Furthermore, it is assumed that the exchange rate, interest rate and share price sensitivities have a symmetric impact, i.e. an increase in rates results in the same absolute movement as a decrease in rates.
The sensitivity analyses show the effect on profit or loss and equity of a reasonably possible change in exchange rates, interest rates and share price.
The Group's currency risk relates to the fact that while income from shipping and oil-related activities (discontinued operations) is denominated mainly in USD, the related expenses are incurred in both USD and a wide range of other currencies such as EUR, NOK, GBP, CNY, JPY and DKK. As the net income is in USD, this is also the primary financing currency. Income and expenses from other activities, including APM Terminals, are mainly denominated in local currencies, thus reducing the Group's exposure to these currencies.
The main purpose of hedging the Group's currency risk is to hedge the USD value of the Group's net cash flow and reduce fluctuations in the Group's profit. The Group uses various financial derivatives, including forwards, option contracts and cross-currency swaps, to hedge these risks. The key aspects of the currency hedging policy are as follows:
An increase in the USD exchange rate of 10% against all other significant currencies to which the Group is exposed is estimated to have a negative impact on the Group's profit before tax of USD 0.1bn (positive impact of USD 0.3bn) and to affect the Group's equity, excluding tax, negatively by USD 0.3bn (positively by USD 0.0bn). The sensitivities are based only on the impact of financial instruments that are outstanding at the balance sheet date, cf. notes 15 and 16, and are thus not an expression of the Group's total currency risk.
The Group has most of its debt denominated in USD, but part of the debt (e.g. issued bonds) is in other currencies such as EUR, NOK, GBP, SEK and JPY. The Group strives to maintain a combination of fixed and floating interest rates on its net debt, reflecting expectations and risks. The hedging of the interest rate risk is governed by a duration range, and is primarily obtained using interest rate swaps. The duration of the Group's debt portfolio is 2.2 years (1.8 years). A general increase in interest rates by one percentage point is estimated, all else being equal, to affect profit before tax and equity, excluding tax effect, negatively by approx. USD 16m and USD 18m, respectively (negatively by approx. USD 48m and USD 40m, respectively).
This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
| Next interest rate fixing | ||||
|---|---|---|---|---|
| Borrowings by interest rate levels inclusive of interest rate swaps |
Carrying amount |
0-1 year |
1-5 years |
5- years |
| 2018 | ||||
| 0-3% | 208 | 162 | 39 | 7 |
| 3-6% | 10,568 | 5,606 | 3,262 | 1,700 |
| 6%- | 1,109 | 18 | 431 | 660 |
| Total | 11,885 | 5,786 | 3,732 | 2,367 |
| OF WHICH: | ||||
| Bearing fixed interest | 6,525 | |||
| Bearing floating interest | 5,360 | |||
| 2017 | ||||
| 0-3% | 6,872 | 4,591 | 1,767 | 514 |
| 3-6% | 9,419 | 4,467 | 3,285 | 1,667 |
| 6%- | 1,222 | 31 | 215 | 976 |
| Total | 17,513 | 9,089 | 5,267 | 3,157 |
| OF WHICH: | ||||
| Bearing fixed interest | 8,788 | |||
| Bearing floating interest | 8,725 |
The value of the shares in Total S.A. was USD 2,447m (level 1) on 31 December 2018. A 10% change in the share price will affect the Group's equity, excluding tax, positively/negatively by USD 245m. Changes in the share price will not affect the Group's profit, as value adjustments are recognised directly in equity (other comprehensive income). The shares are denominated in EUR and are measured at the EUR/USD spot rate. The underlying business of the shares is based on the USD. Dividends from these shares amount to USD 238m, of which USD 139m (USD 1m) pertains to shares held at the end of the year and USD 100m (USD 0m) pertains to shares sold during the year.
The Group has exposure to financial and commercial counterparties but has no particular concentration of customers or suppliers. To minimise the credit risk, financial vetting is undertaken for all major customers and financial institutions, adequate security is required for commercial counterparties, and credit limits are set for financial institutions and key commercial counterparties.
A.P. Møller - Mærsk A/S applies the simplified approach to providing the expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. In accordance with IFRS 9, non-due trade receivables have also been impaired.
| Maturity analysis of trade receivables | 2018 | 2017 |
|---|---|---|
| Receivables not due | 2,468 | 2,360 |
| Less than 90 days overdue | 1,132 | 1,309 |
| 91-365 days overdue | 241 | 293 |
| More than one-year overdue | 183 | 174 |
| Receivables, gross | 4,024 | 4,136 |
| Provision for bad debt | 265 | 272 |
| Carrying amount | 3,759 | 3,864 |
The loss allowance provision for trade receivables as at 31 December 2018 reconciles to the opening loss allowance as follows:
| Change in provision for bad debt | 2018 | 2017 |
|---|---|---|
| 1 January | 272 | 279 |
| Provision made | 192 | 200 |
| Amount used | 117 | 110 |
| Amount reversed | 80 | 69 |
| Transfer, assets held for sale | - | -25 |
| Exchange rate adjustment | -2 | -3 |
| 31 December | 265 | 272 |
Approx. 69% (64%) of the provision for bad debt is related to trade receivables overdue by more than one year.
Other financial assets at amortised cost comprise loans receivable, finance lease receivables and other receivables. These financial assets are considered to have low credit risk, and thus the impairment provision calculated based on 12 months of expected losses is considered immaterial. The financial assets are considered to be low risk when they have a low risk of default, and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.
The Group's objective is to maintain a liquidity profile in line with an investment grade credit rating. Capital is managed for the Group. The equity share of total equity and liabilities was 59.0% at the end of 2018 (49.7%).
| 2018 | 2017 | |
|---|---|---|
| Borrowings Net interest-bearing debt1 |
11,885 8,741 |
17,513 14,799 |
| Liquidity reserve2 | 10,296 | 9,649 |
1 For continuing businesses
2 Liquidity reserve is defined as undrawn committed revolving facilities with more than one year to expiry, securities and cash and bank balances, excluding securities and balances in countries with exchange control or other restrictions.
In addition to the liquidity reserve, the Group has USD 0.5bn undrawn committed loans which are dedicated to financing of specific assets, part of which will therefore only become available at certain times in the future.
Based on the liquidity reserve, loans for the financing of specific assets, the maturity of outstanding loans, and the current investment profile, the Group's financial resources are deemed satisfactory.
The average term to maturity of loan facilities in the Group was about four years (about four years at 31 December 2017).
It is of great importance for the Group to maintain a financial reserve to cover the Group's obligations and investment opportunities and to provide the capital necessary to offset changes in the Group's liquidity due to changes in the cash flow from operating activities.
The flexibility of the financial reserve is subject to ongoing prioritisation and optimisation, among other things by focusing on the release of capital and following up on the development in working capital.
| Cash flows including interest | |||||
|---|---|---|---|---|---|
| Carrying | 0-1 | 1-5 | 5- | Total | |
| Maturities of liabilities and commitments | amount | year | years | years | |
| 2018 | |||||
| Bank and other credit institutions | 4,249 | 1,177 | 2,902 | 871 | 4,950 |
| Finance lease liabilities | 2,263 | 520 | 1,565 | 715 | 2,800 |
| Issued bonds | 5,373 | 737 | 2,505 | 2,892 | 6,134 |
| Trade payables | 5,134 | 5,134 | - | - | 5,134 |
| Other payables | 964 | 922 | 33 | 9 | 964 |
| Non-derivative financial liabilities | 17,983 | 8,490 | 7,005 | 4,487 | 19,982 |
| Derivatives | 363 | 121 | 38 | 204 | 363 |
| Total recognised in balance sheet | 18,346 | 8,611 | 7,043 | 4,691 | 20,345 |
| Operating lease commitments | 2,045 | 4,686 | 5,304 | 12,035 | |
| Capital commitments | 1,083 | 346 | 872 | 2,301 | |
| Total | 11,739 | 12,075 | 10,867 | 34,681 | |
| 2017 | |||||
| Bank and other credit institutions | 6,964 | 1,901 | 4,958 | 906 | 7,765 |
| Finance lease liabilities | 2,745 | 583 | 1,816 | 1,080 | 3,479 |
| Issued bonds | 7,804 | 508 | 6,034 | 2,216 | 8,758 |
| Trade payables | 5,250 | 5,250 | - | - | 5,250 |
| Other payables | 1,313 | 1,241 | 66 | 6 | 1,313 |
| Non-derivative financial liabilities | 24,076 | 9,483 | 12,874 | 4,208 | 26,565 |
| Derivatives | 266 | 128 | 86 | 52 | 266 |
| Total recognised in balance sheet | 24,342 | 9,611 | 12,960 | 4,260 | 26,831 |
| Operating lease commitments | 1,950 | 4,496 | 5,853 | 12,299 | |
| Capital commitments | 2,111 | 622 | 1,121 | 3,854 | |
| Total | 13,672 | 18,078 | 11,234 | 42,984 |
As part of the Group's activities, customary agreements are entered regarding charter and operating leases of ships, containers, port facilities, etc. The future charter and operating lease payments are:
| Ocean1 | Logistics & Services |
Terminals & Towage |
Manu facturing & Others2 |
Total | |
|---|---|---|---|---|---|
| 2018 | |||||
| Within one year | 1,377 | 119 | 245 | 304 | 2,045 |
| Between one and two years | 1,029 | 92 | 216 | 181 | 1,518 |
| Between two and three years | 808 | 75 | 208 | 137 | 1,228 |
| Between three and four years | 662 | 59 | 208 | 95 | 1,024 |
| Between four and five years | 599 | 42 | 199 | 76 | 916 |
| After five years | 3,223 | 175 | 1,808 | 98 | 5,304 |
| Total | 7,698 | 562 | 2,884 | 891 | 12,035 |
| Net present value3 | 5,645 | 455 | 1,925 | 786 | 8,811 |
| 2017 | |||||
| Within one year | 1,541 | 100 | 244 | 65 | 1,950 |
| Between one and two years | 1,093 | 71 | 213 | 54 | 1,431 |
| Between two and three years | 923 | 58 | 208 | 33 | 1,222 |
| Between three and four years | 741 | 46 | 204 | 28 | 1,019 |
| Between four and five years | 552 | 32 | 212 | 28 | 824 |
| After five years | 3,213 | 100 | 2,460 | 80 | 5,853 |
| Total | 8,063 | 407 | 3,541 | 288 | 12,299 |
| Net present value3 | 5,941 | 335 | 2,272 | 238 | 8,786 |
1 About 35% of the time charter payments in Ocean reflected above are estimated to relate to operational costs for the assets.
2 Manufacturing & Others includes unallocated and eliminations.
3 The net present value has been calculated using a discount rate of 6% (6%).
| Capital commitments | Ocean | Logistics & Services |
Terminals & Towage |
Manu facturing & Others |
Total |
|---|---|---|---|---|---|
| 2018 | |||||
| Capital commitments relating to the acquisition of non-current assets |
726 | 16 | 309 | 9 | 1,060 |
| Commitments towards concession grantors | 280 | - | 961 | - | 1,241 |
| Total capital commitments | 1,006 | 16 | 1,270 | 9 | 2,301 |
| 2017 | |||||
| Capital commitments relating to the acquisition of non-current assets |
2,027 | 3 | 267 | 17 | 2,314 |
| Commitments towards concession grantors | 399 | - | 1,141 | - | 1,540 |
| Total capital commitments | 2,426 | 3 | 1,408 | 17 | 3,854 |
The decrease in capital commitments is primarily related to contractual payments during 2018.
| Newbuilding programme at 31 December 2018 | 2019 | Total |
|---|---|---|
| Container vessels | 6 | 6 |
| Tugboats | 2 | 2 |
| Total | 8 | 8 |
| Capital commitments relating to the newbuilding programme at 31 December 2018 | 2019 | Total | |
|---|---|---|---|
| Container vessels | 446 | 446 | |
| Tugboats | 1 | 1 | |
| Total | 447 | 447 | |
USD 0.4bn of the total capital commitments is related to the newbuilding programme for ships, etc. at a total contract price of USD 0.6bn including owner-furnished equipment. The remaining capital commitments of USD 1.9bn relate to investments mainly within APM Terminals.
The capital commitments will be financed by cash flow from operating activities as well as existing and new loan facilities.
Except for customary agreements within the Group's activities, no material agreements have been entered that will take effect, change or expire upon changes of the control over the company.
The necessary facility of USD 245m (USD 214m) has been established to meet the requirements for using US waters under the American Oil Pollution Act of 1990 (Certificate of Financial Responsibility).
Custom bonds of USD 444m (USD 429m) have been provided to various port authorities in India.
Maersk Line and APM Terminals have entered into certain agreements with terminals and port authorities, etc. containing volume commitments including an extra payment in case minimum volumes are not met.
The Group is involved in a number of legal disputes. The Group is also involved in tax disputes in certain countries. Some of these involve significant amounts and are subject to considerable uncertainty.
Tax may crystallise if the companies leave the tonnage tax regimes and on repatriation of dividends. Through participation in a joint taxation scheme with A.P. Møller Holding A/S, the Danish companies are jointly and severally liable for taxes payable, etc. in Denmark.
| 2018 | 2017 | |
|---|---|---|
| Change in working capital | ||
| Trade receivables | -35 | -401 |
| Other working capital movements | -267 | 99 |
| Exchange rate adjustment of working capital | -56 | 20 |
| Total | -358 | -282 |
| Purchase of intangible assets and property, plant and equipment | ||
| Addition | -3,006 | -3,805 |
| Of which finance leases, etc. | 124 | 172 |
| Of which borrowing costs capitalised on assets | 59 | 63 |
| Change in payables to suppliers regarding purchase of assets | -53 | -29 |
| Total | -2,876 | -3,599 |
Other non-cash items related primarily to the adjustment of provision for bad debt regarding trade receivables.
In Q4 2018, the provisional purchase price allocation regarding Hamburg Süd, prepared at closing on 30 November 2017, was finalised, resulting in a reduction of the calculated goodwill by USD 72m to USD 316m. The changes were primarily related to working capital balances.
| Cash flow used for acquisitions in 2017 | Hamburg Süd | Other | Total |
|---|---|---|---|
| FAIR VALUE AT TIME OF ACQUISITION | |||
| Intangible assets | 1,143 1 | - | 1,143 |
| Property, plant and equipment | 3,8682 | - | 3,868 |
| Financial assets | 202 | - | 202 |
| Deferred tax assets | 19 | - | 19 |
| Current assets | 1,0433 | - | 1,043 |
| Provisions | -5614 | - | -561 |
| Liabilities | -1,7515 | - | -1,751 |
| Net assets acquired | 3,963 | - | 3,963 |
| Non-controlling interests | - | - | - |
| A.P. Møller - Mærsk A/S' share | 3,963 | - | 3,963 |
| Goodwill | 388 | - | 388 |
| Purchase price 6 | 4,351 | - | 4,351 |
| Contingent consideration paid | - | 1 | 1 |
| Cash and bank balances assumed | -200 | - | -200 |
| Cash flow used for acquisition of subsidiaries and activities | 4,151 | 1 | 4,152 |
1 Intangible assets consist mainly of customer relations and brand name rights.
2 Property, plant and equipment consists mainly of container vessels and containers.
3 Current assets consist mainly of trade and other receivables.
6 The purchase price of USD 4,351m includes a positive hedge effect of USD 118m.
As of 1 December 2017, the Group acquired 100% of the shares in Hamburg Süd including partnership shares in assetowning companies (SPCs) owning vessels, newbuild contracts and containers connected hereto. Hamburg Süd is included in the consolidated financial reporting from 1 December 2017.
The goodwill of USD 388m is primarily attributable to network synergies between Maersk Line and Hamburg Süd including its Brazilian subsidiary Aliança, and is not deductible for tax purposes. From the acquisition date to 31 December 2017, Hamburg Süd Group contributed with a revenue of USD 0.5bn, while the result was immaterial.
If the acquisition had occurred on 1 January 2017, the impact on Group revenue would have been USD 5.4bn (proforma), while the result would have increased by USD 0.1bn.
For 2017, the acquisition and integration costs amounted to USD 59m.
The accounting for the business combination is considered provisional at 31 December 2017, as the acquisition was only completed on 1 December 2017.
When applying the acquisition method of accounting, fair value assessments are made for identifiable assets acquired and liabilities assumed. Determining fair values at the date of acquisition by nature requires management to apply estimates. Significant estimates are particularly applied in the valuation of vessels, containers, customer relationships, brands, finance lease obligations and unfavourable contracts. The inherent uncertainties in the fair value estimates may result in measurement adjustments in the 12 months following closing of the transaction. Goodwill has been assessed as recoverable at 31 December 2017.
Acquired material net assets for which significant accounting estimates have been applied are recognised using the following valuation techniques:
Customer relationships have been measured using the excess earnings method, in which the present value of future cash flows from recurring customers expected to be retained after the date of acquisition is valued. The main input value drivers are the estimated future retention rates and net cash flows of the acquired customer base. These have been estimated based on management's analysis of the acquired customer base, historical data and general business insights. The useful life of customer relationships is estimated at 15 years.
The fair value of brands has been measured using the relief from royalty method, in which management, based on an analysis, has assessed a royalty rate which an independent third party would charge for the use of the brands. Besides the royalty rate, the main input value driver is estimated future revenue. The useful life of brand names are estimated at 20 years.
The valuation of intangible assets reflects a market participant´s view, applying a discount rate of 9-10%.
Fair value of vessels and containers is measured using the market comparison method based on internally prepared valuations compared with external valuations.
The fair value of financial lease obligations has been measured using a discounted cash flow model in which the present value of the obligations has been determined based on the contractual future lease payments and an A.P. Moller - Maersk calculated borrowing rate.
The fair value of unfavourable contracts is measured using the market comparison method based on the actual market rates for similar contracts.
| Cash flow from sale | 2018 | 2017 |
|---|---|---|
| CARRYING AMOUNT | ||
| Property, plant and equipment | 2 | 178 |
| Financial assets | - | 20 |
| Deferred tax assets | - | 52 |
| Current assets | 43 | 143 |
| Provisions | - | -8 |
| Liabilities | -13 | -147 |
| Net assets sold | 32 | 238 |
| Non-controlling interests | - | -26 |
| A.P. Møller - Mærsk A/S' share | 32 | 212 |
| Gain/loss on sale1 | -32 | 140 |
| Proceeds from sale | - | 352 |
| Change in receivable proceeds, etc. | -40 | 40 |
| Contingent consideration recognised | -4 | - |
| Non-cash items | - | -31 |
| Cash and bank balances sold | -33 | -47 |
| Cash flow from sale of subsidiaries and activities | -77 | 314 |
1 Excluding accumulated exchange rate gain/loss recognised in equity.
No material external sales were performed during 2018. The sale of discontinued operations is disclosed in note 9.
In continuing operations, sales during 2017 primarily comprise Mercosul Line triggered by the Hamburg Süd acquisition, Pentalver in the UK, Dalian terminal in China and Zeebrugge terminal in Belgium. The sale of discontinued operations is disclosed in note 9.
| Controlling parties | Associated companies Joint ventures |
Management 1 | ||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| INCOME STATEMENT | ||||||||
| Revenue | 55 | 13 | 41 | 29 | 105 | 101 | - | - |
| Operating costs | 4 | 38 | 286 | 306 | 803 | 735 | 92 | 122 |
| Remuneration to management | - | - | - | 25 | 15 | |||
| Other | 1 | - | - | 1 | 1 | - | ||
| ASSETS | ||||||||
| Other receivables, non-current | - | - | - | - | 166 | 143 | - | - |
| Trade receivables | 38 | 31 | 36 | 7 | 31 | 40 | - | - |
| Other receivables, current | - | - | 44 | 41 | 11 | 87 | - | - |
| LIABILITIES | ||||||||
| Bank and other credit institutions, etc. current | - | - | - | - | 25 | 24 | - | |
| Trade payables | - | - | 34 | 40 | 111 | 125 | 1 | - |
| Other | - | 1 | - | - | - | - | - | - |
| Purchase of property, plant and equipment, etc. | - | - | - | - | ||||
| Sale of companies, property, plant and equipment, etc. | 1,2303 | - | - | - | ||||
| Capital increase | 34 | 11 | - | |||||
| Dividends | 1 | - | 70 | 56 | 123 | 157 | - | - |
1 The Board of Directors and the Executive Board in A.P. Møller - Mærsk A/S, A.P. Møller Holding A/S, A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal and their close relatives
(including undertakings under their significant influence). Trade receivables and payables include customary business-related accounts regarding shipping activities.
2 Includes commission and commercial receivables to Maersk Broker K/S from chartering as well as the purchase and sale of ships.
3 Includes USD 1.2bn relating to the sale of shares in Maersk Tankers A/S to APMH Invest A/S, and USD 13m for the sale of a building to A.P. Møller Holding A/S.
With the objective of further strengthening the value of the brands, A.P. Møller - Mærsk A/S has entered into a joint usage agreement with A.P. Møller Holding A/S regarding the use of commonly used trademarks which historically have benefited both A.P. Møller - Mærsk A/S and A.P. Møller Holding A/S. A.P. Møller Holding A/S is the controlling shareholder of A.P. Møller - Mærsk A/S, and is wholly owned by A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal. The joint usage agreement establishes a framework and a branding strategy for the commonly used trademarks and a joint brand board, where the parties can cooperate regarding the use of these trademarks.
A.P. Møller Holding A/S, Copenhagen, Denmark has control over the company and prepares consolidated financial statements. A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal is the ultimate owner.
Dividends distributed are not included.
The consolidated financial statements for 2018 for A.P. Moller - Maersk have been prepared on a going concern basis and in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for listed companies. The consolidated financial statements are also in accordance with IFRS as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements of A.P. Moller - Maersk are included in the consolidated financial statements of A.P. Møller Holding A/S.
The accounting policies are consistent with those applied in the consolidated financial statements for 2017, except for the following areas:
The effects of the changes on the cash flow statement are as follows:
| USD million | 2018 | 2017 |
|---|---|---|
| Cash flow from operating activities | +92 | +517 |
| Cash flow from investing activities | +439 | +213 |
| Cash flow from financing activities | -531 | -730 |
In addition, a number of changes to accounting standards are effective from 1 January 2018 and are endorsed by the EU. Those of relevance to A.P. Moller - Maersk are:
A.P. Moller - Maersk's current practice for recognising revenue has been shown to comply, in all material aspects, with the concepts and principles encompassed by the new standard.
For IFRS 15, the modified retrospective approach has been applied which entails that any cumulative effects are recognised in retained earnings as of 1 January 2018 and the comparison period has not been restated.
The other amendments encompass various guidance and clarifications which only affect disclosures.
New financial reporting requirements coming into effect after 31 December 2018 are outlined in note 25:
The consolidated financial statements comprise the parent company A.P. Møller - Mærsk A/S, its subsidiaries and proportionate shares in joint arrangements classified as joint operations.
Subsidiaries are entities controlled by A.P. Møller - Mærsk A/S. Control is based on the power to direct the relevant activities of an entity and the exposure, or right, to variable returns arising from it. In that connection, relevant activities are those that significantly affect the investee's returns. Control is usually achieved by directly or indirectly owning or in other ways controlling more than 50% of the voting rights or by other rights, such as agreements on management control.
Joint arrangements are entities in which A.P. Moller - Maersk, according to contractual agreements with one or more other parties, has joint control. The arrangements are classified as joint ventures, if the contracting parties' rights are limited to net assets in the separate legal entities, and as joint operations, if the parties have direct and unlimited rights to the assets and obligations for the liabilities of the arrangement.
Entities in which A.P. Moller - Maersk exercises a significant but non-controlling influence are considered associated companies. A significant influence is usually achieved by directly or indirectly owning or controlling 20-50% of the voting rights. Agreements and other circumstances are considered when assessing the degree of influence.
Consolidation is performed by summarising the financial statements of the parent company and its subsidiaries, including the proportionate share of joint operations, part-owned vessels and pool arrangements, which have been prepared in accordance with A.P. Moller - Maersk's accounting policies. Intra-group income and expenses, shareholdings, dividends, intra-group balances and gains on intra-group transactions are eliminated. Unrealised gains on transactions with associated companies and joint arrangements are eliminated in proportion to A.P. Moller - Maersk's ownership share. Unrealised losses are eliminated in the same way, unless they indicate impairment.
Non-controlling interests' share of profit/loss for the year and of equity in subsidiaries is included as part of A.P. Moller - Maersk's profit and equity respectively, but shown as separate items.
The consolidated financial statements are presented in USD, the functional currency of the parent company. In the translation to the presentation currency for subsidiaries, associates or joint arrangements with functional currencies other than USD, the total comprehensive income is translated into USD at average exchange rates, and the balance sheet is translated at the exchange rates as at the balance sheet date. Exchange rate differences arising from such translations are recognised directly in other comprehensive income and in a separate reserve of equity.
The functional currency varies from business area to business area. For A.P. Moller - Maersk's principal shipping activities, the functional currency is typically USD. This means, among other things, that the carrying amounts of property, plant and equipment and intangible assets and, hence, depreciation and amortisation, are maintained in USD from the date of acquisition. For other activities, including container terminal activities and land-based container activities, the functional currency is generally the local currency of the country in which such activities are performed, unless circumstances suggest a different currency is appropriate. The functional currency of oil and oil-related business within discontinued operations is USD.
Transactions in currencies other than the functional currency are translated at the exchange rate prevailing at the date of the transaction. Monetary items in foreign currencies not settled at the balance sheet date are translated at the exchange rate as at the balance sheet date. Foreign exchange gains and losses are included in the income statement as financial income or expenses.
The allocation of business activities into segments reflects A.P. Moller - Maersk's character as an integrated container logistics business and is in line with the internal management reporting. The reportable segments are as follows:
| Ocean | Global container shipping activities including strategic transhipment hubs |
|---|---|
| Logistics & Services | Freight forwarding, supply chain management, inland haulage and other logistics services |
| Terminals & Towage | Gateway terminal activities, towage and related marine activities |
| Manufacturing & Others Production of reefer and dry containers, trading and sale of bunker oil and other businesses |
Operating segments have not been aggregated.
The reportable segments mainly comprise:
Ocean activities, defined as operating activities under Maersk Line, Safmarine, Sealand – A Maersk Company and Hamburg Süd brands with 'Ocean container freight' being the main revenue stream. Ocean container freight is defined as the cost-per-weight measure of transporting goods on board a container vessel across the ocean, including demurrage and detention (D&D), terminal handling, documentation services, container services as well as container storage.
Hub activities, defined as operating activities under the APM Terminal brand generating revenue by providing port services only in major transhipment ports such as Rotterdam, Maasvlakte-II, Algeciras, Tangier, Tangier-Med II, Port Said, and joint ventures in Salalah, Tanjung Pelepas and Bremerhaven. The respective terminals are included under the Ocean segment, as the primary purpose of those ports is to provide transhipment services to Maersk's Ocean business, whereas third-party volumes sold in those locations are considered secondary.
Damco activities, defined as all operating activities under the Damco brand, a provider of logistics, freight forwarding and supply chain management services.
Inland haulage activities (intermodal), defined as all operating activities under Maersk Line, Safmarine, Sealand – A Maersk Company brands with the main stream of revenue deriving from the transportation of containers from vendors (shippers) to the port of shipment, and from discharge port to the point of stripping (consignee) by truck and/or rail. Inland haulage activities operating under the Hamburg Süd brand are still part of the Ocean activity.
APM Terminals inland activities, defined as operating activities in inland activities facilities fully or partially controlled by APM Terminals, with the main revenue stream being inland services such as full container storage, bonded warehousing, empty depot, local transportation, etc.
Trade Finance, a function providing export finance solutions, post-shipment and import finance solutions.
Star Air activities, operating cargo aircraft on behalf of UPS.
Terminals activities, defined as operating activities in ports fully or partially controlled by the APM Terminals brand, with the main revenue stream being port activities not considered a hub activity as described above.
Towage activities, defined as all operating activities under the Svitzer brand, a provider of offshore towage and salvage services.
Maersk Container Industry, a container manufacturer that produces dry containers and reefer containers.
Maersk Oil Trading, dedicated to sourcing marine fuels and lubricants for A.P. Moller - Maersk's fleet in addition to refinery activities and sales to external parties including Maersk Tankers.
Hamburg Süd tramp activity, bulk and tanker activity acquired as part of the Hamburg Süd acquisition.
Other businesses, consisting of Maersk Training, a provider of training services to the maritime, oil and gas, offshore wind and crane industries.
The reportable segments do not comprise costs in A.P. Moller - Maersk's corporate functions. These functions are reported as unallocated items.
Revenue between segments is limited, except for the Terminals & Towage segment, where a large part of the services is delivered to the Ocean segment as well as the sale of containers from Maersk Container Industry to the Ocean segment. Sales of products and services between segments are based on market terms.
Maersk Oil, Maersk Drilling and Maersk Supply Service were classified as discontinued operations during 2017.
Revenue for all businesses is recognised when the performance obligation has been satisfied, which happens upon the transfer of control to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for the goods and services.
Revenue from shipping activities is recognised over time as the performance obligation is satisfied, including a share of revenue from incomplete voyages at the balance sheet date. Invoiced revenue related to an estimated proportion of remaining voyage time and activities at the destination port is deferred. Detention and demurrage fees are
recognised over time up until the time of the customer´s late return or pick-up of containers. Retrospective volume rebates provided to certain customers which give rise to variable consideration are based on the expected value method and allocated to ocean freight revenue.
Revenue from terminal operations and towing activities is recognised upon completion of the service. In container terminals operated under certain restrictive terms of pricing and service, etc., the value of tangible assets constructed on behalf of the concession grantor is recognised as revenue during the construction.
Revenue from most freight forwarding activities is recognised over time.
Revenue from the sale of goods is recognised upon the transfer of control to the buyer.
Lease income from operating leases is recognised over the lease term.
Share of profit/loss in associated companies and joint ventures is recognised net of tax and corrected for the share of unrealised intra-group gains and losses. The item also comprises any impairment losses for such investments and their reversal.
Tax comprises an estimate of current and deferred income tax as well as adjustments to previous years of those. Income tax is tax on taxable profits, and consists of corporation tax, withholding tax of dividends, etc. In addition, tax comprises tonnage tax. Tonnage tax is classified as tax when creditable in, or paid in lieu of, income tax. Tax is recognised in the income statement to the extent that it arises from items recognised in the income statement, including tax on gains on intra-group transactions that have been eliminated in the consolidation.
Earnings per share are calculated as the A.P. Møller - Mærsk A/S' share of the profit/loss for the year divided by the number of shares (of DKK 1,000 each), excluding A.P. Moller - Maersk's holding of own shares. Diluted earnings per share are adjusted for the dilution effect of share-based compensation issued by the parent company.
Other comprehensive income consists of income and costs not recognised in the income statement, including exchange rate adjustments arising from the translation from functional currency to presentation currency, fair value adjustments of other equity investments (at FVOCI), cash flow hedges, forward points and currency basis spread as well as actuarial gains/losses on defined benefit plans, etc. A.P. Moller - Maersk's share of other comprehensive income in associated companies and joint ventures is also included.
On disposal or discontinuation of an entity, A.P. Moller - Maersk's share of the accumulated exchange rate adjustment relating to the relevant entity with a non-USD functional currency is reclassified to the income statement. Accumulated value adjustments of equity instruments classified as equity instruments at fair value through other comprehensive income will remain in equity upon disposal.
Other comprehensive income includes current and deferred income tax to the extent that the items recognised in other comprehensive income are taxable or deductible.
Intangible assets are measured at cost less accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis over the estimated useful lives of the assets. Intangible assets regarding acquired customer relationships and brand names are amortised over a useful life of 15 and 20 years, respectively. IT software is amortised over a useful life of 3-5 years.
For container terminals operated under certain restrictive price and service conditions, etc., concessional rights to collect usage charges are included under intangible assets. The cost includes the present value of minimum payments under concession agreements and the cost of property, plant and equipment constructed on behalf of a grantor of a concession. The rights are amortised from the commencement of operations over the concession period.
Property, plant and equipment are valued at cost less accumulated depreciation and impairment losses. Depreciation is charged to the income statement on a straight-line basis over the useful lives at an estimated residual value. The useful lives of new assets are typically as follows:
| Ships, etc. | 20-25 years |
|---|---|
| Containers, etc. | 12 years |
| Buildings | 10-50 years |
| Terminal infrastructure | 10-20 years or concession period, if shorter |
| Plant and machinery, cranes and other terminal equipment | 5-20 years |
| Other operating equipment, fixtures, etc. | 3-7 years |
Estimated useful lives and residual values are reassessed on a regular basis.
The cost of an asset is divided into separate components, which are depreciated separately if the useful lives of the individual components differ. Dry-docking costs are recognised in the carrying amount of ships when incurred and depreciated over the period until the next dry-docking.
The cost of assets constructed by A.P. Moller - Maersk includes directly attributable expenses. For assets with a long construction period, borrowing costs during the construction period from specific as well as general borrowings are attributed to cost. In addition, the cost includes the net present value of estimated costs of removal and restoration.
Impairment losses are recognised when the carrying amount of an asset or a cash-generating unit exceeds the higher of the estimated value in use and fair value less costs of disposal. Goodwill is attributed to cash-generating units on acquisition and impaired before other assets.
Intangible assets and property, plant and equipment are tested for impairment if there is an indication of impairment. However, annual impairment tests are carried out for goodwill and other intangible assets with indefinite useful lives as well as intangible assets that are not yet in use.
Assets are held for sale, when the carrying amount of an individual non-current asset, or disposal groups, will be recovered principally through a sale transaction rather than through continuing use. Assets are classified as held for sale when activities to carry out a sale have been initiated, when the activities are available for immediate sale in their present condition and when the activities are expected to be disposed of within 12 months. Liabilities directly associated with assets held for sale are presented separately from other liabilities.
Assets held for sale are measured at the lower of carrying amount immediately before classification as held for sale and fair value less costs to sell, and impairment tests are performed immediately before classification as held for sale. Non-current assets are not depreciated or amortised while classified as held for sale. Measurement of deferred tax and financial assets and liabilities is unchanged.
Lease contracts are classified as operating or finance leases at the inception of the lease. Once determined, the classification is not subsequently reassessed unless there are changes to the contractual terms. Contracts which transfer all significant risks and benefits associated with the underlying asset to the lessee are classified as finance leases. Assets held under finance leases are treated as property, plant and equipment.
Investments in associated companies and joint ventures are recognised as A.P. Moller - Maersk's share of the equity value inclusive of goodwill less any impairment losses. Goodwill is an integral part of the value of associated companies and joint ventures and is therefore subject to an impairment test together with the investment as a whole. Impairment losses are reversed to the extent the original value is considered recoverable.
Equity instruments, etc., including shares, bonds and similar securities, are recognised on the trading date at fair value, and subsequently measured at the quoted market price for listed securities and at estimated fair value for nonlisted securities. Fair value adjustments from equity investments at fair value through other comprehensive income (FVOCI) remain in equity upon disposal. Dividends are recognised in the income statement.
Inventories mainly consist of bunker, containers (manufacturing), spare parts not qualifying for property, plant and equipment and other consumables. Inventories are measured at cost, primarily according to the FIFO method. The cost of finished goods and work in progress includes direct and indirect production costs.
Loans and receivables are initially recognised at fair value, plus any direct transaction costs, and subsequently measured at amortised cost using the effective interest method. For loans and other receivables, write-down is made for anticipated losses based on specific individual or group assessments. For trade receivables, the loss allowance is measured in accordance with IFRS 9 applying a provision matrix to calculate the minimum impairment. The provision matrix includes an impairment for non-due receivables.
Equity includes total comprehensive income for the year comprising the profit/loss for the year and other comprehensive income. Proceeds on the purchase and sale of own shares and dividend from such shares are recognised in equity.
The translation reserve comprises A.P. Moller - Maersk's share of accumulated exchange rate differences arising on translation from functional currency into presentation currency. The reserve for other equity investments comprises accumulated changes in the fair value of equity investments (at FVOCI), net of tax. Reserve for hedges includes the accumulated fair value of derivatives qualifying for cash flow hedge accounting, net of tax as well as forward points and currency basis spread.
Equity-settled performance shares, restricted shares and share options allocated to the executive employees of A.P. Moller - Maersk as part of A.P. Moller - Maersk's long-term incentive programme are recognised as staff costs over the vesting period at estimated fair value at the grant date and a corresponding adjustment in equity. Cash-settled performance awards allocated to employees below executive levels as part of A.P. Moller - Maersk's long-term incentive programme are recognised as staff costs over the vesting period and a corresponding adjustment in other payables.
At the end of each reporting period, A.P. Moller - Maersk revises its estimates of the number of awards that are expected to vest based on the non-market vesting conditions and service conditions. Any impact of the revision is recognised in the income statement with a corresponding adjustment to equity and other payables.
Provisions are recognised when A.P. Moller - Maersk has a present legal or constructive obligation from past events. The item includes, among other things, legal disputes, provisions for onerous contracts, unfavourable contracts acquired as part of a business combination as well as provisions for incurred, but not yet reported, incidents under certain insurance programmes, primarily in the US. Provisions are recognised based on best estimates, and are discounted where the time element is significant and where the time of settlement is reasonably determinable.
Pension obligations are the net liabilities of defined benefit obligations and the dedicated assets adjusted for the effect of minimum funding and asset ceiling requirements. Plans with a funding surplus are presented as net assets on the balance sheet. The defined benefit obligations are measured at the present value of expected future payments to be made in respect of services provided by employees up to the balance sheet date. Plan assets are measured at fair value. The pension cost charged to the income statement consists of calculated amounts for vested benefits and interest in addition to settlement gains or losses, etc. Interest on plan assets is calculated with the same rates as used for discounting the obligations. Actuarial gains/losses are recognised in other comprehensive income.
Pension plans where A.P. Moller - Maersk, as part of collective bargaining agreements, participates together with other enterprises – so called multi-employer plans – are treated as other pension plans in the financial statements. For defined benefit multi-employer plans where sufficient information to apply defined benefit accounting is not available, the plans are treated as defined contribution plans.
Deferred tax is calculated on temporary differences between the carrying amounts and tax bases of assets and liabilities. Deferred tax is not recognised for differences on the initial recognition of assets or liabilities, where at the time of the transaction neither accounting nor taxable profit/loss is affected, unless the differences arise in a business combination. In addition, no deferred tax is recognised for undistributed earnings in subsidiaries, when A.P. Moller - Maersk controls the timing of dividends, and no taxable dividends are currently expected. A deferred tax asset is recognised to the extent that it is probable that it can be utilised within a foreseeable future.
Financial liabilities are initially recognised at fair value less transaction costs. Subsequently, the financial liabilities are measured at amortised cost using the effective interest method, whereby transaction costs and any premium or discount are recognised as financial expenses over the term of the liabilities. Fixed interest loans subject to fair value hedge accounting are measured at amortised cost with an adjustment for the fair value of the hedged interest component. Liabilities in respect of finance leases are measured at the interest rate implicit in the lease, if practicable to determine, or else at A.P. Moller - Maersk's incremental borrowing rate.
Derivative financial instruments are recognised on the trading date and measured at fair value using generally acknowledged valuation techniques based on relevant observable swap curves and exchange rates.
The effective portion of changes in the value of derivative financial instruments designated to hedge highly probable future transactions is recognised in other comprehensive income until the hedged transactions are realised. At that time, the accumulated gains/losses are transferred to the items under which the hedged transactions are recognised. The effective portion of changes in the value of derivative financial instruments used to hedge the value of recognised financial assets and liabilities is recognised in the income statement together with changes in the fair value of the hedged assets or liabilities that can be attributed to the hedging relationship. Currency basis spread and forward points are considered a cost of hedging and deferred in equity.
The ineffective portion of hedge transactions and changes in the fair values of derivative financial instruments, which do not qualify for hedge accounting, are recognised in the income statement as financial income or expenses for interest and currency-based instruments, and as other income/costs for oil price hedges and forward freight agreements.
Cash flow from operating activities includes all cash transactions other than cash flows arising from investments and divestments, received dividends, principal payments of loans, instalments on finance lease liabilities, paid and received financial items and equity transactions. Capitalisation of borrowing costs is considered as a non-cash item, and the actual payments of these borrowing costs are included in cash flow from financing.
Cash and cash equivalents comprise cash and bank balances net of bank overdrafts where overdraft facilities form an integral part of A.P. Moller - Maersk's cash management.
Upon acquisition of new entities, the acquired assets, liabilities and contingent liabilities are measured at fair value at the date when control was achieved using the acquisition method. Identifiable intangible assets are recognised if they arise from a contractual right or can otherwise be separately identified. The difference between the fair value of the acquisition cost and the fair value of acquired identifiable net assets is recognised as goodwill. Contingent consideration is measured at fair value and any subsequent changes to contingent consideration are recognised as other income or other costs in the income statement. Transaction costs are recognised as operating costs as they are incurred.
When A.P. Moller - Maersk ceases to have control of a subsidiary, the value of any retained investment is re-measured at fair value, and the value adjustment is recognised in the income statement as a gain (or loss) on the sale of non-current assets. The difference between sales proceeds and the carrying amount of the subsidiary is recognised in the income statement including fair value of contingent consideration at the time of sale. Contingent consideration is re-measured at fair value with changes recognised in the income statement.
The effect of the purchase and sale of non-controlling interests without changes in control is included directly in equity.
Discontinued operations represent a separate major line of business disposed of or in preparation for sale. The results of discontinued operations are presented separately in the income statement, and the cash flows from discontinued operations are presented separately in the cash flow statement with restatement of comparative figures. Assets and liabilities held for sale from discontinued operations are presented as separate items in the balance sheet with no restatement of comparative figures. Elimination between continuing and discontinued operations is presented to reflect continuing operations as post-separation, which entails the elimination of interest, borrowing, dividends and capital increases.
Assets and liabilities from discontinued operations and assets held for sale except financial assets, etc., are measured at the lower of carrying amount immediately before classification as held for sale and fair value less cost to sell, and impairment tests are performed immediately before classification as held for sale. Non-current assets held for sale are not depreciated.
In addition to the above general accounting policies, the following are significant about discontinued operations.
For drilling activities, revenue is recognised in accordance with the agreed day rates for the work performed to date. Compensations received, or receivable, for early termination are recognised as revenue with deferral of an estimated value of any obligations to stand ready for new engagements in the remaining contract period.
Oil and gas revenue is recognised as revenue upon discharge from the production site, reflecting the production entitlement quantities. In agreements where tax is settled in oil, an amount corresponding to the sales value is recognised as both revenue and tax.
Income tax also consists of oil tax based on gross measures. Oil tax on gross measures is a special tax in certain countries on the production of hydrocarbons and is separately disclosed within tax.
Intangible assets regarding acquired oil resources (concession rights, etc.) are amortised over a useful life of production until the fields' expected production periods end – a period of up to 20 years until classification as assets held for sale.
In property, plant and equipment, oil production facilities, where oil is received as payment for the investment (cost oil), depreciation generally takes place concurrently with the receipt of cost oil until classification as assets held for sale.
The cost includes the net present value of estimated costs of abandonment.
Annual impairment tests are not carried out for oil concession rights within the scope of IFRS 6.
The useful lives of new assets are 25 years for rigs and up to 20 years for oil and gas production facilities, etc. – based on the expected production periods of the fields.
Provisions includes provisions for the abandonment of oil fields.
The preparation of the consolidated financial statements requires management, on an ongoing basis, to make judgements and estimates and form assumptions that affect the reported amounts. Management forms its judgements and estimates based on historical experience, independent advice and external data points as well as in-house specialists and on other factors believed to be reasonable under the circumstances.
In certain areas, the outcome of business plans, including ongoing negotiations with external parties to execute those plans or to settle claims that are raised against A.P. Moller - Maersk, is highly uncertain. Therefore, assumptions may change or the outcome may differ in the coming years, which could require a material upward or downward adjustment to the carrying amounts of assets and liabilities. This note includes the areas in which A.P. Moller - Maersk is particularly exposed to a material adjustment of the carrying amounts as at the end of 2018.
In its assumption setting, management deals with different aspects of uncertainty. One aspect of uncertainty is whether an asset or liability exists where the assessment forms the basis for recognition or derecognition decisions, including assessment of control. Another aspect is the measurement uncertainty, where management makes assumptions about the value of the assets and liabilities that are deemed to exist. These assumptions concern the timing and amount of future cash flows and the risks inherent in these.
The future development in container freight rates is an uncertain and significant factor impacting especially Maersk Line, whose financial results are directly affected by fluctuations in container freight rates. Freight rates are influenced by the global economic environment and trade patterns, as well as by industry-specific trends in respect of capacity supply and demand. In addition, the new global low sulphur bunker fuel regulation (IMO 2020) which comes into effect in January 2020 is expected to increase the cost of compliant fuels significantly. Alternatively, installing scrubbers on vessels will enable the use of today's lower cost fuels but will instead require substantial capital expenditure. There is significant uncertainty that the increased cost regarding implementation and compliance with the IMO 2020 requirements cannot be recovered from customers through the freight rate.
The future development in the oil price is an uncertain and significant factor impacting accounting estimates across A.P. Moller - Maersk either directly or indirectly. Maersk Line is directly impacted by the price of bunker oil, where the competitive landscape determines the extent to which the development is reflected in the freight rates charged to the customer. APM Terminals is indirectly impacted by the oil price as terminals located in oil-producing countries, e.g. Nigeria, Angola, Egypt, Russia and Brazil, are indirectly impacted by the development in oil prices and the consequences on the countries' economies, which not only affects volume handled in the terminals, but also exchange rates.
A.P. Moller - Maersk carries goodwill of USD 645m (USD 723m) and intangible assets with indefinite lives of USD 34m (USD 34m). The majority of non-current assets are amortised over their useful economic lives.
Management assesses impairment indicators across this asset base. Judgement is applied in the definition of cashgenerating units and in the selection of methodologies and assumptions for impairment tests.
The determination of cash-generating units differs for the various businesses. Ocean operates its fleet of container vessels, containers and hub terminals in an integrated network, for which reason the Ocean activities are tested for impairment as a single cash-generating unit. In addition, the intermodal activities reported under Logistics & Services are included in the Ocean cash-generating unit for impairments testing to apply consistency between he asset base and related cash flows. In Logistics & Services, apart from Intermodal, each entity is defined as a cash-generating unit. In gateway terminals, each terminal is considered individually in impairment tests, except when the capacity is managed as a portfolio, which is the case for certain terminals in Northern Europe and Global Ports Investments (Russia). Towage groups vessels according to type, size, etc. in accordance with the structure governing management's ongoing follow-up. Projected cash flow models are used when fair value is not obtainable or when fair value is deemed lower than value in use. External data is used to the extent possible, and centralised processes, involving corporate functions, ensure that indexes or data sources are selected consistently while observing differences in risks and other circumstances. Current market values for vessels, etc. are estimated using acknowledged brokers.
In Ocean, although freight rates improved compared to 2017, it was not enough to compensate for the 32% increase in average bunker cost, the continuing low freight rates and an historical inability in the industry to recoup cost due to increased bunker costs are impairment indicators. In addition, the estimated fair value of the fleet continues to be significantly lower than the carrying amount. Consequently, an estimate of the recoverable amount has been prepared by a value in use calculation. The cash flow projection is based on forecasts as per December 2018 covering plans for 2019-23. The key sensitivities are: development in freight rates, container volumes, bunker costs, effect of cost savings as well as the discount rate. Management has applied an assumption of growth in volumes and continued pressure on, but increasing freight rates, and continued cost efficiency. The impairment test continues to show headroom from value in use to the carrying amount. Management is of the opinion that the assumptions applied are sustainable.
In Terminals & Towage, the decline in activity in oil-producing countries is an impairment indicator for the terminals in these countries. Management assesses impairment triggers, and based on these estimate recoverable amounts on the individual terminals. For APM Terminals' interest in Global Port Investments, being the share of equity and significant intangible assets acquired, management assesses the recoverable amount of its interest on an ongoing basis. Uncertain variables in the estimate are the economic outlook in Russia, local competition, effect on volume, operating expenses and discount rate. The carrying amount of the investment may not be sustainable in the next few years if markets develop significantly adversely compared to current expectations. Estimates of recoverable amounts were also prepared for other terminals where decreasing volumes triggered impairment tests. Key sensitivities are: expected volumes, local port rates, concession right extensions as well as discount rate. An impairment of USD 20m was recognised in 2018 compared to USD 621m in 2017 related to terminals in markets with challenging commercial conditions. Continued economic deterioration and a lack of cash repatriation opportunities in certain oil-producing countries can potentially put further pressure on carrying amounts of terminals in these countries.
Maersk Container Industry decided to consolidate the manufacture of reefer containers at the facility in Qingdao, China, and exit the dry container business completely. Consequently, operation ceased at the facility in San Antonio, Chile, in Q2 and Dongguan, China, in Q4 2018, as it was announced in early 2019 that the factory would not reopen after a planned idle period. In addition to restructuring costs of USD 18m with effect on EBITDA, the closing in Chile resulted in writing down of assets of USD 141m including write-down of inventories. The closure in China resulted in a write-down of assets of USD 66m.
The recoverable amounts for both factories are measured at fair value categorised as level 3 in the fair value hierarchy, as measurements are not based on observable market data and relate mainly to land and buildings which by nature are uncertain.
Reference is made to notes 6 and 7 for information about impairment losses, recoverable amounts and discount rates.
Useful lives are estimated based on experience. Management decides from time to time to revise the estimates for individual assets or groups of assets with similar characteristics due to factors such as quality of maintenance and repair, technical development and environmental requirements. Please refer to note 23 for the useful lives typically used for new assets.
Residual values are difficult to estimate given the long lives of vessels and rigs, the uncertainty as to future economic conditions and the future price of steel, which is considered the main determinant of the residual price. Generally, the residual values of vessels are initially estimated at 10% of the purchase price excluding dry-docking costs. The longterm view is prioritised to disregard, to the extent possible, temporary market fluctuations which may be significant.
A.P. Moller - Maersk operates worldwide, and in this respect, has operations in countries where access to repatriating surplus cash is limited. In these countries, management makes judgements as to how these transactions and balance sheet items are recognised in the financial statements.
For defined benefit schemes, management makes assumptions about future remuneration and pension changes, employee attrition rates, life expectancy, inflation and discount rates. When setting these assumptions, management takes advice from the actuaries performing the valuation. The inflation and discount rates are determined centrally for the major plans on a country-by-country basis. All other assumptions are determined on a plan-by-plan basis. Refer to note 13 for information about key assumptions and the sensitivity of the liability to changes in these assumptions.
Plan assets are measured at fair value by fund administrators.
Management's estimate of the provisions regarding legal disputes, including disputes on taxes and duties, is based on the knowledge available on the actual substance of the cases and a legal assessment of these. The resolution of legal disputes, through either negotiations or litigation, can take several years to complete and the outcome is subject to considerable uncertainty.
A.P. Moller - Maersk is engaged in a number of disputes with tax authorities of varying scope. Appropriate provisions have been made where the probability of payment of additional taxes in individual cases is considered more likely than not. Claims, for which the probability of payment is assessed by management to be less than 50%, are not provided for. Such risks are instead evaluated on a portfolio basis by geographical area, and country risk provisions are established where the aggregated risk of additional payments is more likely than not.
Judgement has been applied in the measurement of deferred tax assets with respect to A.P. Moller - Maersk's ability to utilise the assets. Management considers the likelihood of utilisation based on the latest business plans and recent financial performances of the individual entities. Net deferred tax assets recognised in entities having suffered an accounting loss in either the current or preceding period amount to USD 142m (USD 206m) for continuing operations, excluding entities participating in joint taxation schemes. These assets mainly relate to unused tax losses or deductible temporary differences generated during the construction of terminals, where taxable profits have been generated either in the current period or are expected within a foreseeable future.
A.P. Moller - Maersk's control, joint control or significant influence over an entity or activity is subject to an assessment of power and exposure to variability in returns.
The assessment of control in oil and gas activities entails an analysis of the status of operators in joint arrangements. Operators are responsible for the daily management of the activities carried out within the jointly established framework. Since operators are not exposed to, and have no right to, returns beyond the participating share, and since they can be replaced by agreement, the operators are regarded as agents as defined in IFRS 10. Operators of pool arrangements in shipping are similarly assessed.
When assessing joint control, an analysis is carried out to determine which decisions require unanimity and whether these concerns the activities that significantly affect the returns. Joint control is deemed to exist when business plans, work programmes and budgets are unanimously adopted. Within oil and gas activities, an assessment of joint control is carried out for each phase. These are typically exploration and development, production and decommissioning. Unanimity is often not required during the production phase. Given that the contracting parties have direct and unrestricted rights and obligations in the arrangements' assets or liabilities regardless of voting rights, the arrangements are accounted for as joint operations during all phases.
For pool arrangements in shipping, unanimity is not required in decisions on relevant activities. However, the contracting parties have direct and unrestricted rights and obligations in the unit's assets or liabilities, and as the pool arrangements are not structured into separate legal entities, they are treated as joint operations.
Judgement is applied in the classification of leasing as operating or finance leasing. A.P. Moller - Maersk enters into a substantial amount of lease contracts, some of which are combined leasing and service contracts such as time charter agreements.
Management applies a formalised process for the classification and estimation of present values for finance leases using specialist staff in corporate functions.
When classifying a disposal group as assets held for sale, management applies judgement to the estimated fair value of the disposal group. Depending on the disposal group's activity, assets and liabilities, the estimated value is encompassed by different levels of uncertainty and thus subsequent adjustments are possible. Measurement of the fair value of the disposal group is categorised as level 3 in the fair value hierarchy, as measurement is not based on observable market data.
According to IFRS 5, discontinued operations are valued at fair value less cost to sell.
A.P. Moller - Maersk has decided to pursue a listing of Maersk Drilling via a demerger in April 2019. In Q3 2018, A.P. Moller - Maersk recognised a positive fair value adjustment of USD 445m in relation to Maersk Drilling following an improved outlook for market fundamentals as well as higher oil prices and share prices of listed peers. Following the positive fair value adjustment, the invested capital of Maersk Drilling was USD 5.0bn. Fair value was primarily based on an external valuation indicating a range for Maersk Drilling's enterprise value. The valuation was based on a combination of several valuation methodologies. Based on the valuation received management has applied judgement to the recognised fair value of Maersk Drilling.
During Q4 2018, the oil price has decreased from above 80 USD/bbl to below 55 USD/bbl at the end of the year and share prices of listed peers have likewise decreased significantly. Consequently, management has reviewed new updated valuations of Maersk Drilling. Based on the review and given that the long-term business fundamentals have not changed, management maintains its fair value assessment of an enterprise value of USD 5.0bn. This is within the range indicated by the new external valuations.
The range indicates uncertainty in regard to assessing the fair value of Maersk Drilling. A fair value adjustment at listing in April 2019 will be recognised in the income statement as part of Profit/loss for the period – discontinuing operations.
In Q3 2018, A.P. Moller - Maersk recognised a negative fair value adjustment of USD 400m in relation to Maersk Supply Service to reflect management's revised expectations of a fair value of the business based on received external value indications and in line with trading levels of listed peers.. The fair value of Maersk Supply Service recognised at 31 December is USD 0.7bn. The fair value estimate for Maersk Supply Service is subject to significant uncertainties given the overcapacity in the off-shore markets which is keeping day rates at a continued low level in addition to the limited number of transactions in the offshore business.
The following new accounting standards are relevant to the Group for the years commencing from 1 January 2019. A.P. Moller - Maersk has not yet applied the following standards:
A.P. Moller - Maersk has in all material aspects, concluded analyses of the impending changes resulting from IFRS 16 and IFRIC 23. The key findings are explained below:
Effective 1 January 2019, APMM applied the new reporting standard on Leases, IFRS 16 according to the adoption date stipulated by the International Accounting Standards Board, IASB. Post transition, leases will be recognised as a rightof-use asset and a corresponding lease liability at the date on which the leased asset is available for use by APMM.
Each lease payment is allocated between a reduction of the liability and an interest expense. The interest expense is charged to the income statement over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset´s useful life and the lease term on a straight-line basis.
APMM has transitioned to IFRS 16 in accordance with the modified retrospective approach, therefore previous period comparative figures will not be adjusted. Additionally, the definition of a lease under IAS 17 and its related interpretations has been retained. Leases classified as finance leases at 31 December 2018 have been transitioned to IFRS 16 at their carrying amount of USD 2.3bn.
At 31 December 2018, APMM had non-cancellable operating lease commitments for continuing operations of USD 12.0bn (USD 12.0bn). As part of the transition, APMM applied the following adjustments before discounting lease payments:
After adjustments and discounting effect the lease liability is estimated at approx. USD 6.0bn. In discounting the future lease payments incremental borrowing rates of 1.6%-11.1% have been applied for the significant leasing contracts. In Q1 2019, the Group will present a bridge between the lease commitments and the lease liability.
The new requirement to recognise a right-of-use asset and a related lease liability has a significant impact on the presentation of APMM's gross debt and profit before depreciation, amortisation and impairment losses (EBITDA).
APMM's gross debt is estimated to increase by approx. USD 6.0bn to USD 17.9bn, while property, plant and equipment increases to approx. USD 36.2bn.
Operating expenses are estimated to decrease, positively impacting EBITDA by USD 1.2bn in comparison to the previous lease standard IAS 17. The cost related to operating leases will be recognised as depreciation, negatively impacting profit before financial items (EBIT) and interest cost, negatively impacting profit before tax.
A.P. Moller - Maersk follows most of the guidelines in IFRIC 23 for accounting for uncertain income tax positions and the implementation of the interpretation standard is not expected to result in a significant change to the net amount of tax provisions. The recognition in the balance sheet will change as A.P. Moller - Maersk currently recognises uncertain tax positions under provisions, whereas from 2019 these will be recognised as current and deferred tax.
On 21 February 2019, the Board of Directors has decided to initiate the separation of the drilling activities through a demerger. The shares in Maersk Drilling Holding A/S (Maersk Drilling) and its subsidiaries as well as certain other assets and liabilities will be contributed to a new company with the legal name ´The Drilling Company of 1972 A/S´. The Board of Directors intends to propose the demerger for approval by the shareholders of A.P. Møller - Mærsk A/S at the Annual General Meeting on 2 April 2019.
Subject to approval at the Annual General Meeting, the shares in Maersk Drilling will be distributed to A.P. Moller - Maersk shareholders with anticipated first day of trading on 4 April 2019. The A.P. Moller - Maersk Board of Directors intends to propose a single share class structure for Maersk Drilling with the new listed shares being distributed on a pro-rata basis based on the nominal value of the shares in A.P. Møller - Mærsk A/S. Shareholders will receive one share in Maersk Drilling per nominal A.P. Moller - Maersk DKK 500 share and two shares in Maersk Drilling per nominal A.P. Moller - Maersk DKK 1,000 share.
(In parenthesis the corresponding figures for 2017)
Income statement Statement of comprehensive income Balance sheet at 31 December Cash flow statement Statement of changes in equity Notes to the parent company financial statements
| Note | 2018 | 2017 | |
|---|---|---|---|
| 1 | Revenue | 55 | 70 |
| 2 | Operating costs | 191 | 225 |
| Other costs | 11 | 18 | |
| Profit/loss before depreciation, amortisation and impairment losses, etc. | -147 | -173 | |
| 6,9 Depreciation, amortisation and impairment losses, net | - | 1 | |
| 3 | Gain/loss on sale of companies and non-current assets, etc., net | 8,120 | -386 |
| Profit/loss before financial items | 7,973 | -560 | |
| 4 | Dividends | 4,025 | 2,839 |
| 4 | Financial income | 1,571 | 1,419 |
| 4 | Financial expenses | 4,756 | 3,434 |
| Profit/loss before tax | 8,813 | 264 | |
| 5 | Tax | 85 | -89 |
| Profit/loss for the year – continuing operations | 8,728 | 353 | |
| 9 | Profit for the year – discontinued operations | 2 | 407 |
| Profit/loss for the year | 8,730 | 760 | |
| APPROPRIATION: | |||
| Proposed dividend | 479 | 503 | |
| Retained earnings | 8,251 | 257 | |
| 8,730 | 760 | ||
| Proposed dividend per share, DKK | 150 | 150 | |
| Proposed dividend per share, USD | 23 | 24 |
| Note | 2018 | 2017 | |
|---|---|---|---|
| Profit/loss for the year | 8,730 | 760 | |
| 14 Cash flow hedges: | |||
| Value adjustment of hedges for the year | -105 | -13 | |
| Reclassified to income statement | 41 | 45 | |
| 5 | Tax on other comprehensive income | 8 | -10 |
| Total items that have been or may be reclassified subsequently to the income statement |
-56 | 22 | |
| 15 Other equity investments (FVOCI), fair value adjustments for the year | 329 | 112 | |
| 5 | Tax on other comprehensive income | -71 | - |
| Total items that will not be reclassified to the income statement | 258 | 112 | |
| Other comprehensive income, net of tax | 202 | 134 | |
| Total comprehensive income for the year | 8,932 | 894 |
| Assets | ||||
|---|---|---|---|---|
| Note | 2018 | 2017 | ||
| 6 | Property, plant and equipment | - | 4 | |
| 7 | Investments in subsidiaries | 18,753 | 13,385 | |
| 7 | Investments in associated companies | 5 | 203 | |
| 15 Interest-bearing receivables from subsidiaries, etc. | 20,025 | 18,532 | ||
| 14 Derivatives | 133 | 290 | ||
| Other receivables | 8 | 20 | ||
| Financial non-current assets, etc. | 38,924 | 32,430 | ||
| Total non-current assets | 38,924 | 32,434 | ||
| Trade receivables | 6 | 53 | ||
| Tax receivables | - | 223 | ||
| 15 Interest-bearing receivables from subsidiaries, etc. | 3,144 | 4,992 | ||
| 14 Derivatives | 97 | 94 | ||
| Other receivables | 107 | 117 | ||
| Other receivables from subsidiaries, etc. | 251 | 442 | ||
| Prepayments | 51 | 72 | ||
| Receivables, etc. | 3,656 | 5,993 | ||
| Cash and bank balances | 1,193 | 686 | ||
| 9 | Assets held for sale | 3,935 | 6,893 | |
| Total current assets | 8,784 | 13,572 | ||
| Total assets | 47,708 | 46,006 |
| Equity & liabilities | ||
|---|---|---|
| Note | 2018 | 2017 |
| 10 Share capital | 3,774 | 3,774 |
| Reserves | 25,600 | 17,172 |
| Total equity | 29,374 | 20,946 |
| 12 Borrowings, non-current | 7,573 | 11,687 |
| 13 Provisions | 75 | - |
| 14 Derivatives | 244 | 141 |
| 8 Deferred tax |
1 | 74 |
| Other non-current liabilities | 320 | 215 |
| Total non-current liabilities | 7,893 | 11,902 |
| 12 Borrowings, current | 1,173 | 1,705 |
| 12 Interest bearing debt to subsidiaries, etc. | 8,743 | 10,583 |
| Trade payables | 73 | 67 |
| Tax payables | 158 | 197 |
| 14 Derivatives | 155 | 165 |
| Other payables | 110 | 413 |
| Other payables to subsidiaries, etc. | 18 | 25 |
| Deferred income | 6 | 3 |
| Other current liabilities | 520 | 870 |
| 9 Liabilities associated with assets held for sale |
5 | - |
| Total current liabilities | 10,441 | 13,158 |
| Total liabilities | 18,334 | 25,060 |
| Total equity and liabilities | 47,708 | 46,006 |
| Note | 2018 | 2017 | |
|---|---|---|---|
| Profit/loss before financial items | 7,973 | -560 | |
| 6,9 Depreciation, amortisation and impairment losses, net | - | 1 | |
| 3 | Loss/gain on sale of companies and non-current assets, etc., net | -8,120 | 386 |
| 19 Change in working capital | -16 | -31 | |
| Other non-cash items | 11 | -80 | |
| Cash from operating activities before tax | -152 | -284 | |
| Taxes paid | -38 | 158 | |
| Cash flow from operating activities | -190 | -126 | |
| Purchase of property, plant and equipment | - | -5 | |
| Acquisition of and capital increases in subsidiaries and activities | -85 | -23 | |
| Sale of subsidiaries and associates | 2,705 | 1,397 | |
| Dividends received | 1,664 | 539 | |
| Other financial investments | - | 872 | |
| Cash flow used for investing activities | 4,284 | 2,780 | |
| Repayment of borrowings | -6,367 | -1,630 | |
| Proceeds from borrowings | 2,027 | 3,318 | |
| Financial income received | 1,204 | 624 | |
| Financial expenses paid | -514 | -739 | |
| Sale of own shares | - | 14 | |
| Dividends distributed | -517 | -454 | |
| Movements in interest-bearing loans to/from subsidiaries, etc., net | 584 | -5,252 | |
| Cash flow from financing activities | -3,583 | -4,119 | |
| Net cash flow from continuing operations | 511 | -1,465 | |
| 9 | Net cash flow from discontinued operations | - | - |
| Net cash flow for the year | 511 | -1,465 | |
| Cash and cash equivalents 1 January | 682 | 2,013 | |
| Currency translation effect on cash and cash equivalents | -46 | 134 | |
| Cash and cash equivalents 31 December | 1,147 | 682 |
| Note | 2018 | 2017 |
|---|---|---|
| CASH AND CASH EQUIVALENTS | ||
| Cash and bank balances | 1,193 | 686 |
| Overdrafts | 46 | 4 |
| Cash and cash equivalents 31 December | 1,147 | 682 |
As of 2018, the Company has changed the presentation of financial items in the cash flow statement. Comparative figures have been restated (please refer to note 21).
| Share capital |
Reserve for other equity investments |
Reserve for hedges |
Retained earnings |
Total | |
|---|---|---|---|---|---|
| Equity 1 January 2017 | 3,774 | -235 | 16,963 | 20,502 | |
| Other comprehensive income, net of tax | - | 112 | 22 | - | 134 |
| Profit/loss for the year | - | - | - | 760 | 760 |
| Total comprehensive income for the year | - | 112 | 22 | 760 | 894 |
| Dividends to shareholders | - | - | - | -454 | -454 |
| 11 Value of share-based payments | - | - | - | -10 | -10 |
| 10 Sale of own shares | - | - | - | 14 | 14 |
| 15 Transfer of loss on disposal of equity investments at FVOCI to retained earnings |
- | 123 | - | -123 | - |
| Total transactions with shareholders | - | 123 | - | -573 | -450 |
| Equity 31 December 2017 | 3,774 | - | 22 | 17,150 | 20,946 |
| 2018 | |||||
| Other comprehensive income, net of tax | - | 258 | -56 | - | 202 |
| Profit/loss for the year | - | - | - | 8,730 | 8,730 |
| Total comprehensive income for the year | - | 258 | -56 | 8,730 | 8,932 |
| Dividends to shareholders | - | - | - | -517 | -517 |
| 11 Value of share-based payments | - | - | - | 13 | 13 |
| 10 Sale of own shares | - | - | - | - | - |
| 15 Transfer of gain on disposal of equity | |||||
| investments at FVOCI to retained earnings | - | -258 | - | 258 | - |
| Total transactions with shareholders | - | -258 | - | -246 | -504 |
| Equity 31 December 2018 | 3,774 | - | -34 | 25,634 | 29,374 |
| Note 13 | Parent company financial statements | |||
|---|---|---|---|---|
| Revenue | 122 | Provisions | 131 | Activities comprise other shipping. Also, holding |
| of shares in subsidiaries and associated companies, | ||||
| Note 2 | Note 14 | as well as funding, procurement and cash manage ment are included in the parent company's activities. |
||
| Operating costs | 122 | Derivatives | 132 | |
| The subsidiary Mærsk Olie og Gas A/S was disposed | ||||
| Note 3 | Note 15 | in Q1 2018 after being classified as asset held for | ||
| Gain on sale of companies and | Financial instruments by category | 133 | sale in 2017. | |
| non-current assets, etc., net | 123 | In the parent company financial statements, shares | ||
| Note 16 | in subsidiaries and associated companies are rec | |||
| Note 4 | Financial risks, etc. | 134 | ognised at cost, cf. note 21, less impairment losses, | |
| Financial income and expenses | 124 | and in the income statement, dividends from sub | ||
| Note 17 | sidiaries and associated companies are recognised | |||
| Note 5 | Commitments | 136 | as income. | |
| Tax | 125 | The net result for the year was a profit of USD 8.7bn | ||
| Note 18 | (USD 0.8bn). Especially gain on sale of companies | |||
| Note 6 | Contingent liabilities | 137 | increased considerably compared to 2017, but also | |
| Property, plant and equipment | 125 | a raise in dividends from subsidiaries contributed. | ||
| Note 19 | Impairment losses on mainly assets held for sale increased financial expenses. |
|||
| Note 7 | Cash flow specifications | 137 | ||
| Investments in subsidiaries and | Cash flow from operating activities was negative | |||
| associated companies | 126 | Note 20 | of USD 0.2bn (negative of USD 0.1bn). Total assets | |
| Related parties | 138 | amounted to USD 47.7bn (USD 46.0bn) and equity | ||
| Note 8 | totalled USD 29.4bn (USD 20.9bn) at 31 December 2018. |
|||
| Deferred tax | 127 | Note 21 | ||
| Significant accounting policies | 139 | |||
| Note 9 | ||||
| Discontinued operations and | Note 22 | |||
| assets held for sale | 127 | Significant accounting estimates | ||
| and judgements | 140 | |||
| Note 10 | ||||
| Share capital | 128 | Note 23 | ||
| Subsequent events | 140 | |||
| Note 11 | ||||
| Share-based payment | 128 | |||
| Note 12 | ||||
| Borrowings and net debt reconciliation | 131 |
| 2018 | 2017 | |
|---|---|---|
| Revenue from vessels | 44 | 55 |
| Other revenue | 11 | 15 |
| Total revenue | 55 | 70 |
| 2018 | 2017 | |
|---|---|---|
| Rent and lease costs | 47 | 67 |
| Staff costs reimbursed to Rederiet A.P. Møller A/S1 | 114 | 108 |
| Other | 30 | 50 |
| Total operating costs | 191 | 225 |
| Average number of employees directly employed by the company | 2 | 2 |
1 Wages and salaries of USD 106m (USD 100m), pension plan contributions of USD 8m (USD 8m), other social security costs of USD 0m (USD 0m) less capitalised staff costs etc. of USD 0m (USD 0m).
| The company's share of fees and remuneration to the Executive Board | 2018 | 2017 |
|---|---|---|
| Fixed base salary | 5 | 5 |
| Short-term cash incentive | 2 | 1 |
| Long-term share-based incentive plans | - | 1 |
| Remuneration in connection with redundancy, resignation and release from duty to work | 2 | - |
| Total remuneration to the Executive Board | 9 | 7 |
Contract of employment for the Executive Board members contains terms customary in Danish listed companies, including termination notice and competition clauses. In connection with a possible takeover offer, neither the Executive Board nor the Board of Directors will receive special remuneration. Fees and remuneration do not include pension.
The Board of Directors has received fees of USD 3m (USD 3m).
| Fees to the statutory auditors of A.P. Møller - Mærsk A/S | 2018 | 2017 |
|---|---|---|
| PRICEWATERHOUSECOOPERS STATSAUTORISERET REVISIONSPARTNERSELSKAB | ||
| Statutory audit | 1 | 1 |
| Other assurance services | - | - |
| Tax and VAT advisory services | - | 0 |
| Other services | 1 | 2 |
| Total fees | 2 | 3 |
Fees for other services than statutory audit of the financial statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab to A.P. Møller - Mærsk A/S mainly consist of audit of non-statutory financial statements, financial due diligence and transaction advice, accounting advisory services, tax advice and other services related to separating discontinued operations, review of the interim report and other advisory accounting and tax services.
| 2018 | 2017 | |
|---|---|---|
| Gains | 8,120 | 67 |
| Losses | - | 453 |
| Gain/loss on sale of companies and non-current assets, etc., net | 8,120 | -386 |
Gains relate to the sale of the subsidiary Mærsk Olie og Gas A/S to Total S.A., as described in note 9 to the consolidated financial statements. The gain for the company is calculated as the difference between cost price and consideration received in Total S.A. shares together with locked box interest and pre-closing dividend linked to the sale. Cash flow impact was USD 2.7bn, mainly related to the pre-closing dividend.
The 2017 gain was the sale of shares in Egyptian Drilling Company SAE and the loss related to the sale of Maersk Tankers A/S shares.
| 2018 | 2017 | |
|---|---|---|
| Interest expenses on liabilities | 717 | 548 |
| Interest income on loans and receivables | 1,226 | 594 |
| Fair value adjustment transferred from equity hedge reserve (loss) | 61 | 46 |
| Fair value adjustment on issued bonds attributable to interest rate risk (gain) | 15 | 33 |
| Net interest income | 463 | 33 |
| Exchange rate gains on bank balances, borrowings and working capital | 252 | 351 |
| Exchange rate losses on bank balances, borrowings and working capital | 283 | 632 |
| Net foreign exchange losses/gains | -31 | -281 |
| Fair value gains from derivatives | 24 | 336 |
| Fair value losses from derivatives | 18 | 36 |
| Net fair value gains/losses | 6 | 300 |
| Dividends received from subsidiaries and associated companies, net1 | 3,879 | 2,835 |
| Dividends received from other equity investments | 146 | 4 |
| Total dividend income | 4,025 | 2,839 |
| Reversal of impairment losses, investments in subsidiaries and associated companies2 | 31 | 105 |
| Impairment losses, investments in subsidiaries and associated companies3 | 3,431 | 2,172 |
| Reversal of write-down of loans | 23 | - |
| Write-down of loan receivables from subsidiaries4 | 246 | - |
| Financial income/expenses, net5 | 840 | 824 |
| OF WHICH: | ||
| Dividends | 4,025 | 2,839 |
| Financial income | 1,571 | 1,419 |
| Financial expenses | 4,756 | 3,434 |
1 Some of the companies have paid dividend during 2018. Dividends received in 2018 are predominantly from Maersk Drilling Holding A/S of USD 3.3bn and Maersk Oil Trading and Investments A/S of USD 0.4bn. Net dividends and impairments for Maersk Drilling Holding A/S amount to USD 1.1bn and to USD 0.1bn for Maersk Oil Trading and Investments A/S.
2 Reversal of impairment losses relates to A.P. Moller Finance SA (in 2017 Maersk Container Industry A/S, Maersk Aviation Holding A/S and Maersk FPSOs A/S).
3 Impairment losses to recoverable amount relate mostly to fair value adjustment of Maersk Drilling Holding A/S (USD 2.2bn based on fair value less cost to sell) and Maersk Supply Service A/S of USD 0.4bn (based on fair value less cost to sell), both classified as assets held for sale. Reference is made to the consolidated financial statements note 24, Valuation of discontinued operations. Furthermore, Maersk Oil Trading and Investments A/S of USD 0.3bn and Maersk Container Industry A/S of USD 0.2bn (in 2017 Maersk Drilling Holding A/S, Maersk Supply Service A/S and A.P. Moller Finance SA).
4 Loan receivables from Maersk Supply Service A/S and Maersk Container Industry A/S have been written down to recoverable amount.
5 Of which USD 45m relates to loss on prepayment of issued bonds and USD 30m net of swaps, etc.
Reference is made to note 14 for an analysis of gains and losses from derivatives.
Refer to note 22 for significant accounting estimates.
| 2018 | 2017 | |
|---|---|---|
| TAX RECOGNISED IN THE INCOME STATEMENT | ||
| Current tax on profit for the year | 115 | -54 |
| Adjustment of tax provision | - | -5 |
| Adjustment for current tax of prior periods | -26 | -63 |
| Withholding taxes | 69 | 11 |
| Total current tax | 158 | -111 |
| Origination and reversal of temporary differences | -56 | 15 |
| Adjustment for deferred tax of prior periods | -17 | 7 |
| Total deferred tax | -73 | 22 |
| Total tax expense | 85 | -89 |
| TAX RECONCILIATION: | ||
| Profit/loss before tax | 8,813 | 264 |
| Tax using the Danish corporation tax rate (2018: 22%, 2017: 22%) | 1,939 | 58 |
| Tax rate deviations in foreign jurisdictions | 12 | - |
| Non-deductible expenses | 20 | 15 |
| Gains related to shares, dividends, etc. | -1,846 | -80 |
| Adjustment to previous years' taxes | -43 | -70 |
| Adjustment of tax provision | - | -5 |
| Other differences, net | 3 | -7 |
| Total income tax | 85 | -89 |
| Tax recognised in other comprehensive income and equity | 63 | -10 |
| OF WHICH: | ||
| Current tax | 63 | -10 |
Note 5 Note 6
| Production facilities and equipment, etc. |
Rigs | Construc tion work in progress and payment on account |
Total | |
|---|---|---|---|---|
| COST | ||||
| 1 January 2017 | 6,770 | 976 | 112 | 7,858 |
| Addition | - | - | 64 | 64 |
| Disposal | 6,879 | 976 | 62 | 7,917 |
| Transfer | 114 | - | -114 | - |
| 31 December 2017 | 5 | - | - | 5 |
| Transfer, assets held for sale | 5 | - | - | 5 |
| 31 December 2018 | - | - | - | - |
| DEPRECIATION AND IMPAIRMENT LOSSES | ||||
| 1 January 2017 | 5,634 | 619 | - | 6,253 |
| Depreciation | 159 | 16 | - | 175 |
| Reversal of impairment losses | 235 | - | - | 235 |
| Disposal | 5,557 | 635 | 6,192 | |
| 31 December 2017 | 1 | - | - | 1 |
| Transfer, assets held for sale | 1 | - | - | 1 |
| 31 December 2018 | - | - | - | - |
| CARRYING AMOUNT: | ||||
| 31 December 2017 | 4 | - | - | 4 |
| 31 December 2018 | - | - | - | - |
Vessels, rigs and containers, etc., owned by subsidiaries with a carrying amount of USD 1.6bn (USD 1.5bn) have been pledged as security for loans of USD 0.5bn (USD 0.7bn).
| Investments in subsidiaries |
Investments in associated companies |
|
|---|---|---|
| 2018 | 2018 | |
| COST | ||
| 1 January 2017 | 34,905 | 799 |
| Addition1 | 846 | - |
| Return of capital | 8,000 | - |
| Disposal | 2,483 | 4 |
| Transfer, assets held for sale4 | 9,926 | - |
| 31 December 2017 | 15,342 | 795 |
| Addition2 | 5,990 | 24 |
| Disposal | 27 | - |
| 31 December 2018 | 21,305 | 819 |
| IMPAIRMENT LOSSES | ||
| 1 January 2017 | 4,409 | 592 |
| Impairment losses3 | 2,172 | - |
| Disposal | 1,496 | - |
| Reversal of impairment losses | 105 | - |
| Transfer, assets held for sale4 | 3,023 | - |
| 31 December 2017 | 1,957 | 592 |
| Impairment losses3 | 626 | 222 |
| Reversal of impairment losses | 31 | - |
| 31 December 2018 | 2,552 | 814 |
| CARRYING AMOUNT: | ||
| 31 December 2017 | 13,385 | 203 |
| 31 December 2018 | 18,753 | 5 |
1 Additions in 2017 were non-cash capital increase in Maersk Drilling Holding A/S of USD 0.3bn and Mærsk Olie og Gas A/S USD of 0.5bn. Maersk A/S (in 2018 renamed Maersk Oil Trading and Investments A/S) returned USD 8bn in a noncash transaction.
2 Addition in 2018 is mainly capital increase in Maersk Oil Trading and Investments A/S of USD 5.9bn by non-cash transfer of shares in Total S.A.
3 Impairments are recognised when carrying amount exceeds recoverable amount as described in note 4, 21 and 22.
4 All shares in companies related to energy business were in 2017 transferred to assets held for sale.
Reference is made to pages 152-154 for a list of significant subsidiaries and associated companies.
Recognised deferred tax assets and liabilities are attributable to the following:
| Assets | Liabilities | Net liabilities | ||||
|---|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| Liabilities, etc. | - | - | 1 | 74 | 1 | 74 |
| Total | - | - | 1 | 74 | 1 | 74 |
| Change in deferred tax, net during the year | 2018 | 2017 |
|---|---|---|
| 1 January | 74 | -2 |
| Disposal | - | 54 |
| Recognised in the income statement1 | -73 | 22 |
| 31 December | 1 | 74 |
1 Relating to continued operations.
There are no unrecognised deferred tax assets.
There are no significant unrecognised tax liabilities on investments in subsidiaries, associated companies and joint ventures.
The parent company transferred the oil and gas activities in the Danish sector of the North Sea and four drilling rigs to fully-owned subsidiaries in 2017. As a result, these activities have been reclassified as discontinued operations. The reclassification reflects the ongoing process on separation of the energy-related businesses from A.P. Moller - Maersk. The activities were transferred at carrying value of the net assets, hence the transfers did not result in any gains/ losses.
Shares in the subsidiaries Maersk Drilling Holding A/S and Maersk Supply Service A/S are furthermore presented as assets held for sale, measured at fair value less cost to sell. Reference is made to note 24 in the consolidated financial statements regarding "valuation of discontinued operations".
Shares in Mærsk Olie og Gas A/S were sold to Total S.A. in 2018, cf. note 3.
| 2018 | 2017 | |
|---|---|---|
| PROFIT FOR THE YEAR – DISCONTINUED OPERATIONS | ||
| Revenue | - | 867 |
| Expenses | - | 317 |
| Depreciation, amortisation and impairment losses, net | - | -60 |
| Financial items, net | 4 | -25 |
| Profit/loss before tax, etc. | 4 | 585 |
| Tax1 | 2 | 178 |
| Profit/loss for the year – discontinued operations | 2 | 407 |
| CASH FLOWS FROM DISCONTINUED OPERATIONS FOR THE YEAR | ||
| Cash flow from operating activities | -6 | 254 |
| Cash flow used for investing activities | -26 | -60 |
| Cash flow from financing activities | 32 | -194 |
| Net cash flow from discontinued operations | - | - |
| BALANCE SHEET ITEMS COMPRISE: | ||
| Non-current assets | 3,935 | 6,893 |
| Assets held for sale | 3,935 | 6,893 |
| Provisions | 3 | - |
| Other liabilities | 2 | - |
| Liabilities associated with assets held for sale | 5 | - |
1 The tax relates to the profit from the ordinary activities of discontinued operations.
| A shares of | B shares of | Nominal value | ||||
|---|---|---|---|---|---|---|
| DKK 1,000 | DKK 500 | DKK 1,000 | DKK 500 | DKK million | USD million | |
| 1 January 2017 | 10,756,221 | 314 | 10,060,392 | 184 | 20,817 | 3,774 |
| Conversion | 41 | -82 | 6 | -12 | - | - |
| 31 December 2017 | 10,756,262 | 232 10,060,398 | 172 | 20,817 | 3,774 | |
| 31 December 2018 | 10,756,262 | 232 10,060,398 | 172 | 20,817 | 3,774 |
All shares are fully issued and paid up.
One A share of DKK 1,000 holds two votes. B shares have no voting rights.
Shareholder disclosure subject to section 104 of the Danish Financial Statements Act:
| Share capital | Votes | |
|---|---|---|
| A.P. Møller Holding A/S, Copenhagen, Denmark | 41.51% | 51.45% |
| A.P. Møller og Hustru Chastine Mc-Kinney Møllers Familiefond, Copenhagen, Denmark | 8.84% | 13.12% |
| Den A.P. Møllerske Støttefond, Copenhagen, Denmark | 3.11% | 5.99% |
Note 10 in the consolidated financial statements includes rules for changing the share capital, and information regarding the authorisation of the Board of Directors to acquire own shares as well as the total number of own shares held by the Group.
Development in the holding of own shares:
| No. of shares of DKK 1,000 | Nominal value DKK million | % of share capital | ||||
|---|---|---|---|---|---|---|
| Own shares | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| B SHARES | ||||||
| 1 January | 60,839 | 77,642 | 61 | 78 | 0.29% | 0.37% |
| Disposal | 5,324 | 16,803 | 5 | 17 | 0.02% | 0.08% |
| 31 December | 55,515 | 60,839 | 56 | 61 | 0.27% | 0.29% |
The company did not hold any A shares in 2017 and 2018.
Disposals of own shares relate to the share option programme.
Note 11
A.P. Moller - Maersk has two different equity-settled incentive plans. The restricted shares plan was introduced in 2013 and grants have been awarded to employees on a yearly basis since 2013. Beginning in 2018, grants have also been awarded to members of the Executive Board. In 2014, the Group established a three-year performance shares plan for members of the Executive Board and other employees. The performance shares plan lapsed in 2017.
The transfer of restricted shares is contingent upon the employee still being employed and not being under notice of termination and takes place when three years have passed from the time of granting. For members of the Executive Board, the vesting period is five years.
The members of the Executive Board as well as other employees are not entitled to any dividends during the vesting period. Special conditions apply regarding illness, death and resignation as well as changes in the company's capital structure, etc. A.P. Møller - Mærsk A/S' holding of own B shares will be used to meet the company's obligations in connection with the restricted shares plan.
| Outstanding awards under equity-settled | Restricted shares plan Employees1 |
Restricted shares plan Members of the Executive Board1 |
Performance shares plan Employees1 |
Total fair value1 |
|---|---|---|---|---|
| incentive plans (excl. share option plans) | No. | No. | No. | USD million |
| 1 January 2017 | 15,067 | - | 843 | |
| Granted | 5,024 | - | 66 | 8 |
| Exercised | 4,591 | - | 842 | |
| Adjustment2 | - | - | -67 | |
| Forfeited | 968 | - | - | |
| Outstanding 31 December 2017 | 14,532 | - | - | |
| Granted | 4,241 | 1,002 | - | 8 |
| Exercised | 5,324 | - | - | |
| Forfeited | 663 | - | - | |
| Outstanding 31 December 2018 | 12,786 | 1,002 | - |
1 At the time of grant.
2 Primarily due to changes in the degree of certain financial goals being achieved.
The fair value of restricted shares (A.P. Møller - Mærsk A/S B shares) granted to 105 (132) employees and five members of the Executive Board was USD 8m (USD 8m) at the time of grant. The total value of granted restricted shares recognised in the income statement is USD 1m (USD 1m).
The fair value per restricted share at the time of grant was DKK 9,273 (DKK 11,550), which is equal to the volumeweighted average share price on the date of grant, i.e. 1 April 2018.
On 1 April 2018, the restricted shares originally granted in 2015 were settled with the employees. The weighted average share price at that date was DKK 9,273.
The average remaining contractual life for the restricted shares as per 31 December 2018 is 1.4 years (1.3 years).
In 2015, A.P. Moller - Maersk introduced the performance shares plan to a broader range of employees. The actual settlement of the awards is contingent upon the degree of certain financial goals being achieved, the employee still being employed and not being under notice of termination at the date of settlement. This means that the number of awards that eventually will vest may be adjusted during the vesting period. Depending on the agreement, the settlement will take place two or three years after the initial granting and the employee may have the option to settle the awards in shares.
The employees are not entitled to any dividend during the vesting period. Special conditions apply regarding illness, death and resignation as well as changes in the company's capital structure, etc.
| Outstanding awards under cash-settled | Employees | Total fair value1 | Carrying amount of liabilities |
|---|---|---|---|
| performance share plan | No. | USD million | USD million |
| 1 January 2017 | - | ||
| Granted | 780 | ||
| Adjustment2 | -780 | ||
| Outstanding 31 December 2017 | - | - | |
| Outstanding 31 December 2018 | - | - |
1 At the time of grant.
2 Due to changes in the degree of certain financial goals being achieved.
The fair value of awards granted to 0 (42) employees was USD 0m (USD 0m) at the time of grant. The total value of the awards recognised in the income statement is USD 0m (USD 0m).
The average remaining contractual life for the cash-settled incentive plan as per 31 December 2018 is 0 years (0.3 years).
In addition to the plans described above, A.P. Moller - Maersk has share option plans for members of the Executive Board and other employees. Each share option granted is a call option to buy an existing B share of nominal DKK 1,000 in A.P. Møller - Mærsk A/S.
The share options were granted at an exercise price corresponding to 110% of the average of the market price on the first five trading days following the release of A.P. Møller - Mærsk A/S' Annual Report. Exercise of the share options is contingent on the option holder still being employed at the time of exercise. The share options can be exercised when at least two years (three years for share options granted to Executive Board members) and no more than seven years (six years for share options granted to employees not members of the Executive Board) have passed from the time of granting. Special conditions apply regarding illness, death and resignation as well as changes in the company's capital structure, etc.
| Members of the Executive Board1 |
Employees1 | Total | Average exercise price |
Total fair value1 |
|
|---|---|---|---|---|---|
| Outstanding share options1 | No. | No. | No. | DKK | USD million |
| 1 January 2017 | 3,840 | 7,635 | 11,475 | 8,298 | |
| Granted | 4,928 | 20,839 | 25,767 | 12,791 | 8 |
| Exercised | 3,840 | 7,530 | 11,370 | 8,298 | |
| Expired | - | 105 | 105 | 8,298 | |
| Forfeited | - | 237 | 237 | 12,791 | |
| Outstanding 31 December 2017 | 4,928 | 20,602 | 25,530 | 12,791 | |
| Exercisable 31 December 2017 | - | - | - | - | |
| Granted | 6,230 | 18,137 | 24,367 | 11,537 | 7 |
| Forfeited | 1,173 | 2,032 | 3,205 | 12,507 | |
| Outstanding 31 December 2018 | 9,985 | 36,707 | 46,692 | 12,156 | |
| Exercisable 31 December 2018 | - | - | - | - |
1 At the time of grant.
The share options can only be settled in shares. A.P. Møller - Mærsk A/S' holding of own B shares will be used to meet the company's obligations in respect of the share option plans.
The fair value of awards granted to three members of the Executive Board and 80 (79) employees was USD 7m (USD 8m) at the time of grant. The total value of granted share options recognised in the income statement is USD 1m (USD 1m).
The weighted average share price at the dates of exercise of share options in 2017 was DKK 11,778. No share options were exercised during 2018.
The average remaining contractual life as per 31 December 2018 is 5.5 years (6.1 years) and the exercise price for outstanding share options is DKK 12,156 (DKK 12,791).
The fair value per option granted to members of the Executive Board is calculated at DKK 1,712 (DKK 2,130) at the time of grant based on Black & Scholes' option pricing model. The fair value per option granted in 2017 to employees not members of the Executive Board is calculated at DKK 1,875 (DKK 2,281) at the time of grant based on the same option pricing model.
The following principal assumptions are used in the valuation:
| Share options granted to members of the Executive Board |
Share options granted to employees not members of the Executive Board |
Share options granted to members of the Executive Board |
Share options granted to employees not members of the Executive Board |
|
|---|---|---|---|---|
| 2018 | 2018 | 2017 | 2017 | |
| Share price, volume-weighted average at the date of grant, 1 April, DKK |
9,273 | 9,273 | 11,550 | 11,550 |
| Share price, five days volume weighted average after publication of Annual Report, DKK |
10,476 | 10,476 | 11,628 | 11,628 |
| Exercise price, DKK | 11,524 | 11,524 | 12,791 | 12,791 |
| Expected volatility (based on historic volatility) |
33% | 33% | 31% | 31% |
| Expected term | 5.00 | 5.75 | 5.00 | 5.75 |
| Expected dividend per share, DKK | 150 | 150 | 300 | 300 |
| Risk-free interest rate | 0.21% | 0.29% | -0.12% | 0.01% |
| Net debt as at 31 December 2017 |
Cash flow1 | Foreign exchange movements |
Other changes Other2 |
Net debt as at 31 December 2018 |
|
|---|---|---|---|---|---|
| Bank and other credit institutions | 5,588 | -2,040 | -1 | -174 | 3,373 |
| Issued bonds | 7,804 | -2,258 | -238 | 65 | 5,373 |
| Subsidiaries, etc., net | -12,941 | 584 | 229 | -2,298 | -14,426 |
| Total borrowings, net | 451 | -3,714 | -10 | -2,407 | -5,680 |
| Derivatives hedge of borrowings, net | -110 | -2 | 238 | 46 | 172 |
| BORROWINGS CLASSIFICATION: | |||||
| Classified as non-current | 11,687 | 7,573 | |||
| Classified as current | 12,288 | 9,916 |
1 Cash flow includes prepayments of USD 6.1bn whereof USD 5.2bn relates to prepayments made during Q4 2018.
| Net debt as at 31 December 2016 |
Cash flow | Foreign exchange movements |
Other changes Other2 |
Net debt as at 31 December 2017 |
|
|---|---|---|---|---|---|
| Bank and other credit institutions | 3,064 | 2,522 | 2 | - | 5,588 |
| Issued bonds | 8,097 | -872 | 603 | -24 | 7,804 |
| Subsidiaries, etc., net | 1,978 | -5,252 | -179 | -9,488 | -12,941 |
| Total borrowings, net | 13,139 | -3,602 | 426 | -9,512 | 451 |
| Derivatives hedge of borrowings, net | 719 | -224 | -603 | -2 | -110 |
| BORROWINGS CLASSIFICATION: Classified as non-current Classified as current |
9,772 15,557 |
11,687 12,288 |
2 Non-cash dividends, capital increases, etc.
Note 13
| Other | Total | |
|---|---|---|
| 1 January 2018 | - | - |
| Provision made | 75 | 75 |
| 31 December 2018 | 75 | 75 |
Other includes provisions for unsettled claims and legal disputes, etc.
Hedges comprise primarily currency derivatives and interest rate derivatives. Foreign exchange forwards and option contracts are used to hedge the currency risk related to recognised and unrecognised transactions. Interest rate swaps are used to hedge interest rate exposure on borrowings.
| 2018 | 2017 | |
|---|---|---|
| Non-current receivables | 133 | 290 |
| Current receivables | 97 | 94 |
| Non-current liabilities | 244 | 141 |
| Current liabilities | 155 | 165 |
| Assets/liabilities, net | -169 | 78 |
The fair value of derivatives held at the balance sheet date can be allocated by type as follows:
| Fair value, asset |
Fair value, liability |
Nominal amount of derivative |
Fair value, asset |
Fair value, liability |
Nominal amount of derivative |
|
|---|---|---|---|---|---|---|
| 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | |
| HEDGE OF BORROWINGS | ||||||
| Cross-currency swaps | ||||||
| EUR | 97 | 141 | 2,697 | 240 | 16 | 3,515 |
| GBP | - | 74 | 380 | 2 | 37 | 437 |
| JPY | 10 | 12 | 204 | 7 | 14 | 200 |
| SEK | - | - | - | - | 68 | 305 |
| NOK | - | 52 | 596 | 6 | 10 | 634 |
| Interest rate swaps | ||||||
| Fair value hedges | - | 15 | 500 | - | 6 | 500 |
| Total | 107 | 294 | 255 | 151 |
| Fair value | ||
|---|---|---|
| 2018 | 2017 | |
| HELD FOR TRADING | ||
| Currency derivatives | -3 | -25 |
| Interest derivatives | 21 | -1 |
| Total | 18 | -26 |
The hedges are expected to be highly effective due to the nature of the economic relation between the exposure and the hedge. The source of ineffectiveness is the credit risk of the hedging instruments. For hedges where cost of hedging is applied, the forward points and change in basis spread are recognised in other comprehensive income and transferred with the effective hedge when the hedged transaction occurs. Cost of hedging reserve amounts to USD 1m (USD 6m).
For information about risk management strategy, currencies, maturities, etc. reference is made to note 16.
Cross-currency swaps are used to swap all non-USD issued bonds. Fixed to floating rate swaps are designated as a combination of fair value and cash flow hedges. The principal amounts in USD equivalents hereof are: EUR 1,723m (EUR 1,835m), GBP 89m (GBP 95m), JPY 204m (JPY 200m) and NOK 252m (NOK 268m). The remaining swaps are fixedto-fixed rate or floating-to-fixed rate swaps and are designated as cash flow hedges of currency and interest risk.
The hedge ratio is 1:1. The maturity of the hedge instrument 0-5 years in USD equivalents are: EUR 1,746m (EUR 3,419m), JPY 91m (JPY 89m) and NOK 344m (NOK 244m). 5-10 years: EUR 859m (EUR 0m), GBP 380m (GBP 405m), JPY 113m (JPY 111m) and NOK 252m (NOK 390m). Above 10 years: EUR 92m (EUR 96m).
Cross-currency swaps are designated as a combination of hedge of principal cash flows and hedge of interests at a weighted average interest rate of 4.5% (3.7%).
Interest rate swaps are all denominated in USD and pays floating interest. The hedge ratio is 1:1 and the weighted average interest rate excluding margin on loan is 2.8% (3.4%). The maturity of the interest rate swaps 5-10 years USD 500m (USD 500m).
For cash flow hedges related to borrowings, loss of USD 64m (gain of USD 32m) is recognised at other comprehensive income and the cash flow hedges reserve is loss of USD 33m (gain of USD 32m) excluding tax effect. Reference is made to other comprehensive income.
The carrying amount of the borrowings in fair value hedge relation is USD 2,768m (USD 3,069m) and the accumulated fair value adjustment of the loans is loss of USD 13m (loss of USD 28m). The loss on the hedging instrument in fair value hedges recognised in the income statement for the year amounts to USD 15m (loss of USD 33m) and the gain on hedged item amounts to USD 15m (gain USD 33m).
Due to bond buy-back in 2018, the ineffectiveness from cash flow hedges is recognised in profit or loss at USD 20m in 2018.
Furthermore, the company enters into derivatives to hedge economic risks that are not accounted for as hedging. These derivatives are accounted for as held for trading.
The gains/losses, including realised transactions, are recognised as follows:
| 2018 | 2017 | |
|---|---|---|
| Hedging foreign exchange risk on operating costs | - | 1 |
| Hedging interest rate risk | -61 | -46 |
| Total effective hedging | -61 | -45 |
| Ineffectiveness recognised in financial expenses | 20 | - |
| Total reclassified from equity reserve for hedges | -41 | -45 |
| DERIVATIVES ACCOUNTED FOR AS HELD FOR TRADING: | ||
| Currency derivatives recognised directly in financial income/expenses | -10 | 336 |
| Interest rate derivatives recognised directly in financial income/expenses | -4 | -36 |
| Net gains/losses recognised directly in the income statement | -14 | 300 |
| Total | -55 | 255 |
Note 15
| Carrying amount 2018 |
Fair value 2018 |
Carrying amount 2017 |
Fair value 2017 |
|
|---|---|---|---|---|
| CARRIED AT AMORTISED COST | ||||
| Interest-bearing receivables from subsidiaries, etc. | 23,169 | 23,176 | 23,524 | 23,524 |
| Finance lease receivables | 8 | 8 | 10 | 10 |
| Other interest-bearing receivables and deposits | - | - | 1 | 1 |
| Total interest-bearing receivables | 23,177 | 23,184 | 23,535 | 23,535 |
| Trade receivables | 6 | 53 | ||
| Other receivables (non-interest-bearing) | 107 | 116 | ||
| Other receivables from subsidiaries, etc. | 251 | 442 | ||
| Cash and bank balances | 1,193 | 686 | ||
| Financial assets at amortised cost | 24,734 | 24,832 | ||
| Derivatives | 230 | 230 | 384 | 384 |
| Contingent considerations | - | - | 10 | 10 |
| Other financial assets | 230 | 230 | 394 | 394 |
| Total financial assets | 24,964 | 25,226 | ||
| CARRIED AT AMORTISED COST | ||||
| Bank and other credit institutions | 3,373 | 3,414 | 5,588 | 5,750 |
| Issued bonds | 5,373 | 5,394 | 7,804 | 8,020 |
| Interest-bearing loans from subsidiaries etc. | 8,743 | 8,743 | 10,583 | 10,583 |
| Total borrowings | 17,489 | 17,551 | 23,975 | 24,353 |
| Trade payables | 73 | 67 | ||
| Other payables | 110 | 413 | ||
| Other payables to subsidiaries and associated companies, etc. | 18 | 25 | ||
| Financial liabilities at amortised cost | 17,690 | 24,480 | ||
| CARRIED AT FAIR VALUE | ||||
| Derivatives | 399 | 399 | 306 | 306 |
| Financial liabilities at fair value | 399 | 399 | 306 | 306 |
| Total financial liabilities | 18,089 | 24,786 |
After disposal of the remaining 19% share in Dansk Supermarked Group in 2017, the company holds no material equity investments at fair value through other comprehensive income (FVOCI).
With the sale of Mærsk Olie og Gas A/S to Total S.A., the company received 97.5m shares in Total S.A. equivalent to an ownership interest of 3.7%. The market value of the Total S.A. shares was USD 5.6bn on closing 8 March 2018. In June 2018, the shares were transferred in a non-cash transaction to the subsidiary Maersk Oil Trading and Investments A/S. Market value on the transfer date was USD 5.9bn and the gain for the company is included in other comprehensive income. Dividends recognised during the ownership period amount to USD 146m.
| Movement during the year in level 3 | Non-listed shares | Contingent consideration |
Total financial assets |
|
|---|---|---|---|---|
| Equity Investments (FVOCI) |
Held for trading |
|||
| Carrying amount 1 January 2017 | 759 | 1 | - | 760 |
| Addition | - | - | 28 | 28 |
| Disposal | 871 | 1 | - | 872 |
| Gains/losses recognised in the income statement | - | -18 | -18 | |
| Gains recognised in other comprehensive income | 112 | - | - | 112 |
| Carrying amount 31 December 2017 | - | - | 10 | 10 |
| Gains/losses recognised in the income statement | -10 | -10 | ||
| Carrying amount 31 December 2018 | - | - | - | - |
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
Financial instruments measured at fair value can be divided into three levels:
Level 3 — Inputs for the asset or liability that are not based on observable market data.
Fair value of listed shares falls within level 1 of the fair value hierarchy. Non-listed shares and other securities fall within level 3 of the fair value hierarchy.
Fair value of derivatives falls mainly within level 2 of the fair value hierarchy and is calculated based on observable market data as of the end of the reporting period.
Fair value of level 3 assets and liabilities is primarily based on the present value of expected future cash flows. A reasonably possible change in the discount rate is not estimated to affect the company's profit or equity significantly.
Fair value of the short-term financial assets and other financial liabilities carried at amortised cost is not materially different from the carrying amount. In general, fair value is determined primarily based on the present value of expected future cash flows. Where a market price was available, however, this was deemed to be the fair value.
Fair value of listed issued bonds is within level 1 of the fair value hierarchy. Fair value of the remaining borrowing items is within level 2 of the fair value hierarchy and is calculated based on discounted interests and instalments.
Note 16
The company's activities expose it to a variety of financial risks: market risks, i.e. currency risk and interest rate risk, credit risk and liquidity risk. The company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise the potential adverse effects on the company's financial performance. The company uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central finance department under policies approved by the Board of Directors. The finance department identifies, evaluates and hedges financial risks in close cooperation with the company's business units.
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the company's profit or the value of its holdings of financial instruments. The below sensitivity analyses relate to the position of financial instruments at 31 December 2018.
The sensitivity analyses for currency risk and interest rate risk have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and the proportion of financial instruments in foreign currencies remain unchanged from hedge designations in place at 31 December 2018. Furthermore, it is assumed that the exchange rate and interest rate sensitivities have a symmetric impact, i.e. an increase in rates results in the same absolute movement as a decrease in rates.
The sensitivity analyses show the effect on profit or loss and equity of a reasonably possible change in exchange rates and interest rate.
The company's currency risk arises primarily from its treasury activities where financing is obtained and provided in a wide range of currencies other than USD such as EUR, GBP and NOK.
The main purpose of hedging the company's currency risk is to hedge the USD value of the company's net cash flow and reduce fluctuations in the company's profit. The company uses various financial derivatives, including forwards, option contracts and cross-currency swaps, to hedge these risks. The key aspects of the currency hedging policy are as follows:
An increase in the USD exchange rate of 10% against all other significant currencies to which the company is exposed is estimated to have a negative impact on the company's profit before tax of USD 0.1bn (negative impact of USD 0.1bn) and a negative impact on the company's equity, excluding tax, of USD 0.1bn (negative impact of USD 0.1bn). The sensitivities are based only on the impact of financial instruments that are outstanding at the balance sheet date, cf. note 14 and 15, and are thus not an expression of the company's total currency risk.
The company has most of its debt denominated in USD, but part of the debt (e.g. issued bonds) is in other currencies such as EUR, GBP, JPY and NOK. Some loans are at fixed interest rates, while others are at floating interest rates.
The company strives to maintain a combination of fixed and floating interest rates on its net debt, reflecting expectations and risks. The hedging of the interest rate risk is governed by a duration range and is primarily obtained with interest rate swaps.
A general increase in interest rates by one percentage point is estimated, all other things being equal, to have an effect on profit before tax and equity, excluding tax by USD 0.2bn (USD 0.0bn).
This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
| Next interest rate fixing | ||||
|---|---|---|---|---|
| Borrowings and interest-bearing debt to subsidiaries by interest rate levels inclusive of interest rate swaps |
Carrying amount |
0-1 year |
1-5 years |
5- years |
| 2018 | ||||
| 0-3% | 10,186 | 8,751 | 1,095 | 340 |
| 3-6% | 7,303 | 4,988 | 1,015 | 1,300 |
| Total | 17,489 | 13,739 | 2,110 | 1,640 |
| OF WHICH: Bearing fixed interest Bearing floating interest |
3,756 13,733 |
|||
| 2017 | ||||
| 0-3% | 16,759 | 14,620 | 1,636 | 503 |
| 3-6% | 7,216 | 3,947 | 1,995 | 1,274 |
| Total | 23,975 | 18,567 | 3,631 | 1,777 |
| OF WHICH: Bearing fixed interest Bearing floating interest |
5,432 18,543 |
The company has substantial exposure to financial and commercial counterparties, but has no particular concentration of customers or suppliers. To minimise the credit risk, financial vetting is undertaken for all major customers and financial institutions, adequate security is required for commercial counterparties and credit limits are set for financial institutions and key commercial counterparties.
Financial assets at amortised cost comprise loans receivable, finance lease receivables and other receivables. These are all considered to have low credit risk and thus the impairment provision calculated basis of 12-month expected losses is considered immaterial. The financial assets are considered to be low risk when they have low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.
A.P. Møller - Mærsk A/S applies the simple approach to providing the expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. In accordance with IFRS 9, also non-due trade receivables have been impaired.
Other financial assets at amortised cost include loans to subsidiaries. As of 31 December 2018, the loans amount to USD 23.2bn and are considered to have a low credit risk, thus the impairment provision to be recognised during the period is limited to 12-month expected losses. The credit risk has not increased significantly since the initial recognition and is considered low based on the investment grade credit rating for the group and consequently the financial strength of the major subsidiaries within the Group. Loans to Maersk Supply Service A/S and Maersk Container Industry A/S were in total written down with USD 0.2bn.
| Maturity analysis of trade receivables incl. subsidiaries, etc. | 2018 | 2017 |
|---|---|---|
| Receivables not due | 1 | 6 |
| Less than 90 days overdue | 5 | 40 |
| More than 90 days overdue | - | 7 |
| Receivables, gross | 6 | 53 |
| Provision for bad debt | - | - |
| Carrying amount | 6 | 53 |
It is of great importance for the company to maintain a financial reserve to cover the company's obligations and investment opportunities and to provide the capital necessary to offset changes in the company's liquidity due to changes in the cash flow from operating activities.
The flexibility of the financial reserve is subject to ongoing prioritisation and optimisation, among other things, by focusing on release of capital and following up on the development in working capital.
| Cash flows including interest | ||||||||
|---|---|---|---|---|---|---|---|---|
| Carrying | 0-1 | 1-5 | 5- | Total | ||||
| Maturities of liabilities and commitments | amount | year | years | years | ||||
| 2018 | ||||||||
| Bank and other credit institutions | 3,373 | 707 | 2,439 | 747 | 3,893 | |||
| Issued bonds | 5,373 | 737 | 2,505 | 2,892 | 6,134 | |||
| Interest-bearing loans from subsidiaries, etc. | 8,743 | 8,761 | - | - | 8,761 | |||
| Trade payables | 73 | 73 | - | - | 73 | |||
| Other payables | 110 | 110 | - | - | 110 | |||
| Other payables to subsidiaries, etc. | 18 | 18 | - | - | 18 | |||
| Non-derivative financial liabilities | 17,690 | 10,406 | 4,944 | 3,639 | 18,989 | |||
| Derivatives | 399 | 155 | 40 | 204 | 399 | |||
| Total recognised in balance sheet | 18,089 | 10,561 | 4,984 | 3,843 | 19,388 | |||
| Operating lease commitments | 15 | 13 | - | 28 | ||||
| Total | 10,576 | 4,997 | 3,843 | 19,416 | ||||
| 2017 | ||||||||
| Bank and other credit institutions | 5,588 | 1,569 | 4,056 | 621 | 6,246 | |||
| Issued bonds | 7,804 | 508 | 6,034 | 2,216 | 8,758 | |||
| Interest-bearing loans from subsidiaries, etc. | 10,583 | 10,594 | - | - | 10,594 | |||
| Trade payables | 67 | 67 | - | - | 67 | |||
| Other payables | 413 | 413 | - | - | 413 | |||
| Other payables to subsidiaries, etc. | 25 | 25 | - | - | 25 | |||
| Non-derivative financial liabilities | 24,480 | 13,176 | 10,090 | 2,837 | 26,103 | |||
| Derivatives | 306 | 165 | 89 | 52 | 306 | |||
| Total recognised in balance sheet | 24,786 | 13,341 | 10,179 | 2,889 | 26,409 | |||
| Operating lease commitments | 65 | 43 | - | 108 | ||||
| Total | 13,406 | 10,222 | 2,889 | 26,517 |
Note 17
As part of the company's activities, customary agreements are entered regarding operating lease of vessels, equipment and office buildings, etc. The future charter and operating lease payments for continuing operations are:
| 2018 | 2017 | |
|---|---|---|
| Within one year | 15 | 65 |
| Between one and two years | 9 | 28 |
| Between two and three years | 4 | 10 |
| Between three and four years | - | 5 |
| Between four and five years | - | - |
| After five years | - | - |
| Total | 28 | 108 |
| Net present value1 | 27 | 105 |
1 The net present value has been calculated using a discount rate of 6% p.a. (6% p.a.).
About one-third of the time charter payments within shipping activities are estimated to relate to operating costs for the assets.
Total operating lease costs incurred are stated in note 2.
The company has no material capital commitments at the end of 2018.
As part of the divestment of Mærsk Olie og Gas A/S to Total S.A., the company has assumed a secondary liability related to the decommissioning of the offshore facilities in Denmark by issuance of a declaration. The company assesses the risk of economic outflows due to this secondary liability as very remote.
Reference is made to note 9 in the consolidated financial statements for full description.
Guarantees amount to USD 0.5bn (USD 0.8bn). Of this, USD 0.5bn (USD 0.8bn) is related to subsidiaries. The guarantees are not expected to be realised, but they can mature within one year.
Except for customary agreements within the company's activities, no material agreements have been entered that will take effect, change or expire upon changes of the control over the company.
The company is involved in a number of legal disputes. The company is also involved in tax disputes in certain countries. Some of these involve significant amounts and are subject to considerable uncertainty.
Tax may crystallise on repatriation of dividends. Through participation in joint taxation scheme with A.P. Møller Holding A/S, the company is jointly and severally liable for taxes payable, etc. in Denmark.
Note 19
| 2018 | 2017 | |
|---|---|---|
| CHANGE IN WORKING CAPITAL | ||
| Trade receivables | 47 | 6 |
| Other receivables and prepayments | 234 | -71 |
| Trade payables and other payables, etc. | -304 | -5 |
| Other working capital movements | 1 | 15 |
| Exchange rate adjustment of working capital | 6 | 24 |
| Total | -16 | -31 |
Note 20
| Controlling parties1 | Subsidiaries | Associated companies | Joint ventures | Management2 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |
| CONTINUING OPERATIONS | ||||||||||
| Income statement | ||||||||||
| Revenue | 44 | 12 | 11 | 14 | - | - | - | 1 | - | - |
| Operating costs | - | 38 | 11 | 16 | - | - | - | - | - | - |
| Remuneration to management | - | - | - | - | - | - | - | - | 12 | 10 |
| Dividends | - | - | 3,879 | 2,835 | - | - | - | - | - | - |
| Financial income | - | - | 1,261 | 685 | - | - | - | - | - | - |
| Financial expenses | - | - | 402 | 491 | - | - | - | - | - | - |
| Assets | ||||||||||
| Interest-bearing receivables, non-current | - | - | 20,025 | 18,532 | - | - | - | - | - | - |
| Derivatives, non-current | - | - | - | 31 | - | - | - | - | - | - |
| Trade receivables | - | - | 6 | 43 | - | - | - | - | - | - |
| Interest-bearing receivables, current | - | - | 3,144 | 4,992 | - | - | - | - | - | - |
| Derivatives, current | - | - | 46 | 18 | - | - | - | - | - | - |
| Other receivables, current | - | 29 | 251 | 442 | - | - | - | - | - | - |
| Liabilities | ||||||||||
| Derivatives, non-current | - | - | 3 | 13 | - | - | - | - | - | - |
| Interest-bearing debt, current | - | - | 8,743 | 10,583 | - | - | - | - | - | - |
| Trade payables | - | - | 18 | 9 | - | - | - | - | - | - |
| Derivatives. current | - | - | 40 | 73 | - | - | - | - | - | - |
| Other liabilities, current | - | - | 13 | 25 | - | - | - | - | - | - |
| Sale of companies, property, plant and equipment | - | 1,217 | - | - | - | - | - | - | - | - |
| Capital increases and purchase of shares | - | - | 5,990 | 846 | 24 | - | - | 1 | - | - |
| Capital increases, assets held for sale | - | - | 360 | - | - | - | - | - | - | - |
| Return of capital | - | - | - | 8,000 | - | - | - | - | - | - |
| Discontinued operations | ||||||||||
| Income statement – income | - | - | - | 813 | - | - | - | 4 | - | - |
| Income statement – expenses | - | - | - | 51 | - | - | - | 5 | - | - |
1 A.P. Møller Holding A/S, Copenhagen, Denmark, has control over the company and prepares consolidated financial statements. A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal is the ultimate owner.
2 The Board of Directors and the Executive Board in A.P. Møller - Mærsk A/S, A.P. Møller Holding A/S, A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal and their close relatives (including undertakings under their significant influence).
With the objective of further strengthening the value of the brands, A.P. Møller - Mærsk A/S has entered into a joint usage agreement with A.P. Møller Holding A/S regarding the use of commonly used trademarks which historically have benefited both A.P. Møller - Mærsk A/S and A.P. Møller Holding A/S. A.P. Møller Holding A/S is the controlling shareholder of A.P. Møller - Mærsk A/S, and is wholly owned by A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal. The joint usage agreement establishes a framework and a branding strategy for the commonly used trademarks and a joint brand board, where the parties can cooperate regarding the use of these trademarks.
Dividends distributed are not included.
Note 21
The financial statements for 2018 for A.P. Møller - Mærsk A/S have been prepared on a going concern basis and in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and further requirements in the Danish Financial Statements Act. The financial statements are also in accordance with IFRS as issued by the International Accounting Standards Board (IASB).
The accounting policies of the company are consistent with those applied in the financial statements 2017 except for:
| USD million | 2018 | 2017 |
|---|---|---|
| Cash flow from operating activities | -2,354 | -424 |
| Cash flow from investing activities | +1,664 | +539 |
| Cash flow from financing activities | +690 | -115 |
The accounting policies are furthermore consistent with the accounting policies for the Group's financial statements (note 23 in the consolidated financial statements) with the following exceptions:
In 2017, energy-related activities were transferred to subsidiaries as a contribution in kind. The cost of the subsidiary is measured at the carrying amount of the net assets transferred. The profit/loss and cash flow are included in 2017 for the period up to the transfer of the activities, cf. note 9.
The following new accounting standards are relevant to the company for the years commencing from 1 January 2019.
The new requirement in IFRS 16 to recognise a right-of-use asset and a related liability is not expected to have material impact on the amounts recognised in the company's financial statements.
The company will adopt IFRS 16 on 1 January 2019, applying the following main transitions options:
The company follows most of the guidelines in IFRIC 23 for accounting for uncertain income tax positions and the implementation of the interpretation standard is not expected to result in a change. The policy for recognition in the balance sheet will change as the company has previously recognised uncertain tax positions under provisions, whereas from 2019 these will be recognised as current and deferred tax.
When preparing the financial statements of the company, management undertakes a number of accounting estimates and judgements to recognise, measure and classify the company's assets and liabilities.
Estimates that are material to the company's financial reporting are made on the basis of, inter alia, determination of impairment of financial non-current assets including subsidiaries and associated companies (including assets held for sale) and recognition and measurements of provisions. Reference is made to note 4, 7 and 9.
Management assesses impairment indicators for investments in subsidiaries and associated companies, and determines recoverable amount generally consistent with the assumptions described in note 6, 7 and 24 of the consolidated financial statements.
The accounting estimates and judgements are described in further detail in note 24 of the consolidated financial statements.
On 21 February 2019, the Board of Directors has decided to initiate the separation of the drilling activities through a demerger. The shares in Maersk Drilling Holding A/S (Maersk Drilling) and its subsidiaries as well as certain other assets and liabilities will be contributed to a new company with the legal name ´The Drilling Company of 1972 A/S´. The Board of Directors intends to propose the demerger for approval by the shareholders of A.P. Møller - Mærsk A/S at the Annual General Meeting on 2 April 2019.
Subject to approval at the Annual General Meeting, the shares in Maersk Drilling will be distributed to A.P. Møller - Mærsk A/S shareholders with anticipated first day of trading on 4 April 2019. The Board of Directors intends to propose a single share class structure for Maersk Drilling with the new listed shares being distributed on a pro-rata basis based on the nominal value of the shares in A.P. Møller - Mærsk A/S. Shareholders will receive one share in Maersk Drilling per nominal A.P. Møller - Mærsk A/S DKK 500 share and two shares in Maersk Drilling per nominal A.P. Møller - Mærsk A/S DKK 1,000 share.
The Board of Directors and the Executive Board have today discussed and approved the Annual Report of A.P. Møller - Mærsk A/S for 2018.
The Annual Report for 2018 of A.P. Møller - Mærsk A/S has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and further requirements in the Danish Financial Statements Act, and in our opinion gives a true and fair view of A.P. Moller - Maersk's and the company's assets and liabilities and financial position at 31 December 2018 and of the results of A.P. Moller - Maersk's and the company's operations and cash flows for the financial year 2018.
In our opinion, the Directors' report includes a fair review of the development in A.P. Moller - Maersk's and the company's operations and financial conditions, the results for the year, cash flows and financial position as well as a description of the most significant risks and uncertainty factors that A.P. Moller - Maersk and the company face.
We recommend that the Annual Report be approved at the Annual General Meeting on 2 April 2019.
Copenhagen, 21 February 2019
| Executive Board | Board of Directors |
|---|---|
| Søren Skou — CEO | Jim Hagemann Snabe — Chairman |
| Claus V. Hemmingsen — Vice CEO | Ane Mærsk Mc-Kinney Uggla — Vice Chairman |
| Carolina Dybeck Happe — CFO | Dorothee Blessing |
| Vincent Clerc | Niels Bjørn Christiansen |
| Morten Engelstoft | Arne Karlsson |
| Søren Toft | Jan Leschly |
| Thomas Lindegaard Madsen | |
| Robert Routs | |
| Jacob Andersen Sterling | |
| Robert Mærsk Uggla |
To the shareholders of A.P. Møller - Mærsk A/S.
In our opinion, the consolidated financial statements and the parent company financial statements (pages 67-140 and 152-154) give a true and fair view of the Group's and the parent company's financial position at 31 December 2018 and of the results of the Group's and the parent company's operations and cash flows for the financial year 1 January to 31 December 2018 in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act.
Our opinion is consistent with our Auditor's Long-form Report to the Audit Committee and the Board of Directors.
The consolidated financial statements and parent company financial statements of A.P. Møller - Mærsk A/S for the financial year 1 January to 31 December 2018 comprise income statement and statement of comprehensive income, balance sheet, cash flow statement, statement of changes in equity and notes, including summary of significant accounting policies for the Group as well as for the parent company. Collectively referred to as the "financial statements".
We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor's responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark. We have also fulfilled our other ethical responsibilities in accordance with the IESBA Code.
To the best of our knowledge and belief, prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 were not provided.
We were first appointed auditors of A.P. Møller - Mærsk A/S on 12 April 2012 for the financial year 2012. We have been reappointed annually by shareholder resolution for a total period of uninterrupted engagement of seven years including the financial year 2018.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Recognition of revenue is complex due to the volume of transactions and the extent of different revenue streams within the segments.
We focused on this area, as recognition of revenue involves accounting policy decisions, including assessment of IFRS 15 "Revenue from contracts with customers", and judgements made by Management originating from different customer behavior, market conditions, terms and nature of services in the various segments. Further, the volume of transactions and extent of different revenue streams require various IT setups of revenue recognition, which are complex and introduce an inherent risk to the revenue recognition process.
Reference is made to notes 1 and 23 in the consolidated financial statements.
Our audit procedures included considering the appropriateness of the revenue recognition accounting policies and assessing compliance with applicable accounting standards, including adoption of IFRS 15.
We tested the relevant controls, including applicable information systems and Management's monitoring of controls, used to ensure the completeness, accuracy and timing of revenue recognised.
We performed substantive procedures over invoicing and significant contracts in order to assess the accounting treatment and principles applied, and tested journal entries on revenue.
The principal risk is in relation to Management's assessment of future timing and amount of cash flows, which are used to project the recoverability of the carrying amount of property, plant and equipment as well as intangible assets. Bearing in mind the generally long-lived nature of assets, the most critical assumptions are Management's view on discount rate and the long-term outlook for freight rates and volumes, bunker price as well as terminal volumes and revenue per container move.
We focused on this area, as Management is required to exercise considerable judgement because of the inherent complexity in determining the discount rate, estimating future cash flows and defining appropriate cash generating units (CGUs).
Reference is made to notes 6, 7 and 24 in the consolidated financial statements.
In addressing the risk, we walked through and tested the controls designed and operated relating to the assessment of the carrying value of property, plant and equipment as well as intangible assets. We considered the appropriateness of Management defined CGUs within the businesses. We also tested Management's process for identifying CGUs that required impairment testing in line with IFRS and tested that all assets requiring impairment testing were identified.
We examined the methodology used by Management to assess the carrying amount of property, plant and equipment as well as intangible assets assigned to CGUs, to determine its compliance with accounting standards and consistency of application.
We examined Management's impairment trigger assessments and performed detailed testing for the assets where a need for an impairment review was identified. We assessed the reasonableness of key assumptions in relation to the ongoing operation of the assets. We corroborated Management's estimate of future cash flows and challenged whether these were appropriate in light of key assumptions, such as freight and terminal rates, volume growth and capital expenditures, including assessed Management's macroeconomic assumptions. With the assistance of our valuation experts, we independently calculated the discount rate. In calculating the discount rate, the key inputs used were independently sourced from market data, and we assessed the methodology applied. We compared the discount rate used by Management to our calculated rate. We tested the mathematical accuracy of the relevant value-in-use models prepared by Management.
| Key audit matter | ||
|---|---|---|
| -- | -- | ------------------ |
When operating in a complex multinational tax environment, and with open tax audits and inquiries with tax authorities, Management is required to exercise considerable judgement when determining the appropriate amount to provide in respect of uncertain tax positions.
We focused on this area, as the amounts involved are potentially material and the valuation of tax assets and liabilities is associated with uncertainty and judgement. At 31 December 2018, provisions are recognised in respect of legal disputes etc., which among other things include tax, indirect tax and duty disputes.
Reference is made to notes 8, 14, 19 and 24 in the consolidated financial statements.
We evaluated relevant procedures and controls regarding completeness of records of uncertain tax positions and Management's procedure for estimating the provision for uncertain tax positions.
In understanding and evaluating Management's judgements, we considered the status of recent and current tax authority audits and enquiries, the outcome of previous claims, judgmental positions taken in tax returns and current year estimates and developments in the tax environment.
In addition, we used our tax specialists where applicable, and evaluated and challenged the adequacy of Management's key assumptions and read correspondence with tax authorities to assess Management's estimates.
Management is responsible for Directors' report.
Our opinion on the financial statements does not cover Directors' report, and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read Directors' report and, in doing so, consider whether Directors' report is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
Moreover, we considered whether Directors' report includes the disclosures required by the Danish Financial Statements Act.
Based on the work we have performed, in our view, Directors' report is in accordance with the consolidated financial statements and the parent company financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement in Directors' report.
Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, Management is responsible for assessing the Group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or the parent company or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditor's Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
continue as a going concern.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
sible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters,
Group to express an opinion on the consolidated financial statements. We are respon-
the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our Auditor's Report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Copenhagen, 21 February 2019
PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no 3377 1231
Mogens Nørgaard Mogensen State Authorised Public Accountant mne21404
mne9777
Highlights Q4 2018 Quarterly summary Company overview1 Stock exchange announcements Definition of terms External financial reporting for A.P. Moller - Maersk2
1 Part of Financials 2 Part of Directors' report
For the continuing operations, A.P. Moller - Maersk reported a revenue of USD 10.2bn, equal to growth of 21% (9% adjusted for Hamburg Süd) compared to Q4 2017. EBITDA was USD 1.1bn (USD 844m), positively impacted by the inclusion of Hamburg Süd and growth in gateway terminals, partly offset by integration and restructuring costs in Ocean and restructuring cost in Logistics & Services, as well as cost increases in gateway terminals. Cash flow from operating activities was USD 1.4bn (USD 1.1bn), equal to a cash conversion of 121% (116%) and gross CAPEX was reduced by 37% to USD 587m.
Revenue increased by 22% to USD 7.3bn (USD 6.0bn), driven by 12% increase in volumes to 3,353k FFE (3,007k FFE), primarily related to the inclusion of Hamburg Süd from 1 December 2017. The average freight rate increased by 9.3% to 1,913 USD/FFE (1,750 USD/FFE).
The volumes excluding Hamburg Süd decreased by 1.1%, driven by a backhaul volume reduction of 3.5%, while headhaul volumes were on par.
The decline was below the estimated market growth of around 4% due to strong Q4 2017 volumes following the cyber-attack in Q3 2017 along with a focus on improving margins in the second half of 2018, demonstrated by the freight rate development and uplift in EBITDA.
The increase in the average freight rate of 9.3% was driven by East-West trades, which increased 15%, partly supported by the pretariff rush seen on the transpacific trades from China to the US. North-South freight rates grew by 6.4%, while the Intra-regional trades increased by 14%. The inclusion of Hamburg Süd affected the average freight rates positively due to Hamburg Süd's different trade mix compared to Maersk Line, especially on the Intra-regional trades. The increase was also partly due to the impact of the emergency bunker surcharge. Excluding Hamburg Süd, the average freight rate increased by 7.0%. The average freight rate decreased by 0.8% compared to Q3 2018, driven by the usual seasonal fluctuations in freight rates.
Other revenue amounted to USD 938m (USD 734m), mainly driven by higher demurrage and detention.
Unit cost at fixed bunker price at 1,776 USD/ FFE decreased 1.8% compared to Q3 2018. The decline was partly driven by the usual seasonality in unit costs, partly due to year-end rebates. Compared to Q4 2017, unit cost at fixed bunker increased 1.9% without adjusting for rate of exchange and development in Hamburg Süd portfolio mix effects. The increase was mainly driven by the decline in
| Highlights Q4 | Revenue | EBITDA | CAPEX1 | |||
|---|---|---|---|---|---|---|
| USD million | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Ocean | 7,283 | 5,989 | 927 | 617 | 332 | 692 |
| Logistics & Services | 1,557 | 1,527 | -1 | 33 | 16 | 25 |
| Terminals & Towage | 1,082 | 948 | 213 | 191 | 242 | 212 |
| Manufacturing & Others | 650 | 460 | 22 | 65 | 4 | 7 |
| Unallocated activities, eliminations, etc. | -390 | -484 | -45 | -62 | -7 | 2 |
| A.P. Moller - Maersk consolidated – continuing operations | 10,182 | 8,440 | 1,116 | 844 | 587 | 938 |
1 See definition on page 156.
volumes excluding Hamburg Süd, and further driven by a focus on margin improvement. Schedule reliability was below the level from Q4 2017, but on a par with last quarter. Utilisation slightly declined versus Q3, but improved compared to last year. Additionally, average nominal capacity of 4,038k TEU was in line with the 4m TEU ambition.
Total unit cost at 2,001 USD/FFE (1,878 USD/FFE) was 6.5% higher than in Q4 2017. The increase was negatively impacted by a 35% increase in the average bunker price. The total bunker cost was USD 1.3bn (USD 1.0bn), of which the bunker price drove an increase of USD 347m (103 USD/FFE), while the remainder was from higher consumption due to the inclusion of Hamburg Süd. The total consumption was, however, positively impacted by a 9.5% improvement in bunker efficiency of 849 kg/FFE (939 kg/FFE).
Port moves per hour in hub terminals of 83.7 was 11% higher than in Q4 2017, and a 1.1% improvement since Q3. Operational synergies between the hub terminals and Maersk Liner Business drove the improvements along with efficiency initiatives materialising. Salalah and Maasvlakte II improved the most since Q4 2017.
EBITDA ended at USD 927m, which is an increase of 50% compared to Q4 2017. The EBITDA margin was 12.7% (10.3%), and improved 0.1 percentage point compared to Q3 2018. Profitability increased compared to the same period last year, despite an increase of the unit cost at fixed bunker, partly on the back of the margin focus in Q3 and Q4 2018.
Hamburg Süd contributed with volumes of 586k FFE and a pro forma EBITDA of USD 204m versus 148m in Q3 2018. Integration costs amounted to USD 22m in Q4 2018.
Revenue increased by USD 30m to USD 1.6bn (USD 1.5bn), mainly supported by higher volumes in intermodal and higher revenue from inland activities. Gross profit was USD 266m (USD 262m), or a gross profit margin of 17.1% (17.1%), positively impacted by growth in supply chain management, warehousing and distribution, partly offset by the timing of higher maintenance costs of USD 20m in Star Air. EBITDA was negative USD 1m (positive USD 33m), mainly due to restructuring costs of USD 20m in Damco, with an EBIT conversion ratio of negative 5.9% (positive 9.2%). Adjusted for the restructuring costs, the EBITDA margin would have been 1.2% and the EBIT conversion 1.5%, which is still highly unsatisfactory.
Supply chain management revenue totalled USD 211m (USD 212m), while gross profit increased to USD 88m (USD 81m), supported by volume growth of 7.3% to 18,434 kcbm (17,178 kcbm), positively impacted by new customer wins as well as an increase in margins to 4.8 USD/cbm (4.7 USD/cbm).
Inland activities revenue increased to USD 150m (USD 139m), mainly driven by higher volumes in Latin America and Europe. Gross profit remained unchanged at USD 65m (USD 65m).
USD 185m (USD 163m), and volumes increased 2.1% to 166k TEU (163k TEU). The increase in gross profit to USD 30m (USD 29m) was due to the improved volumes and margins, supported by prioritisation of higher margin business and the higher market prices due to preloading on China-US goods ahead of expected tariffs. Margins improved by 3.3% to 181 USD/TEU (175 USD/TEU).
Airfreight forwarding revenue decreased to USD 168m (USD 225m), with reduced volumes of 25% to 45k tonnes (60k tonnes), primarily from customer deselection but also from an overall slow-down of the airfreight market and exposure to China in the retail and lifestyle segments. Despite the decrease in revenue, gross profit remained flat at USD 18m (USD 17m), driven by margin increases to 396 USD/ tonne (285 USD/tonne), due to the continuous focus on higher margin business.
Intermodal revenue increased by 4.9% to USD 644m (USD 614m) from higher volume and growth on high revenue corridors in Africa and India. The volumes increased by 3.8% to 935K FFE (900K FFE), mainly in the West Central Asia, Africa and Europe regions, partly offset by decreases in China. Gross profit increased to USD 13m (USD 5m), mainly due to focused growth in profitable markets in Africa and India.
EBIT conversion of negative 5.9% (positive 9.2%) was mainly impacted by restructuring costs of USD 20m related to the merger of the commercial organisations in Logistics & Services and Ocean.
Revenue increased by USD 134m to USD 1.1bn (USD 948m) and EBITDA to USD 214m (USD 191m).
Gateway terminals revenue increased by 17% to USD 921m (USD 784m), and EBITDA increased by 21% to USD 171m (USD 142m). Volume in moves grew by 15%, and gross capital expenditure (CAPEX) was reduced to USD 236m (USD 266m). Terminals under construction progressed according to plan, and Moin, Costa Rica, had its first vessel call in Q4 2018, while the divestment of the shareholding in Izmir, Turkey, announced during Q3 was completed.
Volume growth of 15% (like-for-like growth of 15%) was driven by closer collaboration with Ocean, with volumes growing 19% (like-forlike growth of 18%), while external customers grew volumes by 13% (like-for-like growth of 14%). On an equity-weighted basis, volumes grew by 13%. Revenue per move increased by 4.5% to USD 263 (USD 252). The increase was driven by increased volumes from North and Latin America with higher average rates, as well as increased storage revenues offsetting the negative rate of exchange impacts, mainly in Latin America.
Cost per move increased by 5.8% for Q4 to USD 225 (USD 213), mainly driven by higher volumes in higher cost terminals as well as by one-offs in North and Latin America, despite the increase in utilisation and favourable rate of exchange effects.
Towage revenue stable at USD 166m (USD 166m), mainly impacted by volume increases in harbour towage in the Americas and Australia and improved revenue per tug job in the Americas. However, this was offset by a negative currency impact from the Asia, Middle East and Africa regions, and price pressure and volume decrease in Europe. Revenue growth adjusted for currency development was 3.4%. Harbour towage activities measured in tug jobs increased by 5.7% compared to Q4 2017.
Overall, revenue per tug job for harbour towage was at a slightly lower level measured in USD, mainly impacted by negative currency development from activities in AUD, GBP and EUR. In Europe, intense competition from consolidation amongst towage providers and an oversupply of tugs led to lower prices in local currencies, and in Australia, the entry of a new competitor has increased the price pressure in the region.
In terminal towage, annualised EBITDA per tug dropped compared to Q4 2017, which was primarily driven by a negative currency impact. Apart from this, new contracts have started in Australia, Bangladesh and Costa Rica in 2018, and the idle fleet has been reduced, partly offsetting the decrease in EBITDA per tug.
EBITDA was USD 43m (USD 49m), mainly impacted by negative currency impact and higher maintenance and repair costs compared to Q3 2017, while revenue remained stable.
Revenue increased by USD 190m to USD 650m (USD 460m) with an EBITDA of USD 22m (USD 66m).
Maersk Container Industry reported revenue of USD 215m (USD 247m), with a decrease of 35% in dry containers due to a combination of lower volumes and lower sales prices as well as a cessation in the production of dry containers for the last three weeks of December. Revenue in reefer containers and services decreased by 0.7% due to a two-week production stop in October.
EBITDA of USD 9m (USD 12m) was negatively impacted by the profitability on dry containers that continued to be under severe pressure. The EBITDA margin ended at 4.2% (4.7%), with margins on dry containers decreasing significantly, whereas reefer containers and services showed a slight increase.
For other businesses, revenue ended at USD 436m (USD 214m), impacted by a higher level of oil/bunker trading with third parties as well as the inclusion of bulk activities acquired as part of the Hamburg Süd transaction. EBITDA was USD 13m (USD 54m).
Maersk Drilling reported a revenue of USD 336m (USD 370m), while EBITDA was USD 139m (USD 147m), negatively impacted by lower day rates due to expiring legacy contracts, partly offset by the cessation of depreciation following classification as discontinued operations.
Maersk Drilling reported solid cash conversion from an operational cash flow of USD 138m (USD 234m), and limited maintenance CAPEX.
The strong operational performance across the fleet resulted in an average operational uptime of 98% (98%) for the jack-up rigs and 96% (98%) for the deepwater rigs.
Maersk Supply Service reported a decrease in revenue to USD 57m (USD 60m), reflecting lower rates resulting in an EBITDA of negative USD 4m (positive USD 6m), which was also negatively impacted by increased project costs.
Cash flow used for capital expenditure decreased to USD 82m (USD 206m), due to the payment of one (two) newbuildings during Q4.
| 2018 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Income statement | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Revenue | 10,182 | 10,077 | 9,507 | 9,253 | 8,440 | 7,714 | 7,690 | 7,101 |
| Profit before depreciation, amortisation and impairment losses, etc. (EBITDA) | 1,116 | 1,138 | 883 | 669 | 844 | 977 | 1,073 | 638 |
| Depreciation, amortisation and impairment losses, net | 873 | 781 | 903 | 768 | 709 | 782 | 889 | 635 |
| Gain on sale of non-current assets, etc., net | 56 | 45 | 10 | 33 | 77 | 8 | 54 | 15 |
| Share of profit/loss in joint ventures | - | 41 | 39 | 37 | 27 | -202 | 14 | 30 |
| Share of profit/loss in associated companies | -80 | -78 | 17 | 26 | 34 | 20 | 25 | 22 |
| Profit/loss before financial items (EBIT) | 219 | 365 | 46 | -3 | 273 | 21 | 277 | 70 |
| Financial items, net | -127 | -71 | -71 | -120 | -137 | -112 | -234 | -133 |
| Profit/loss before tax | 92 | 294 | -25 | -123 | 136 | -91 | 43 | -63 |
| Tax | 126 | 103 | 60 | 97 | 104 | 21 | 33 | 61 |
| Profit/loss for the year – continuing operations | -34 | 191 | -85 | -220 | 32 | -112 | 10 | -124 |
| Profit/loss for the year – discontinued operations1 | 107 | 169 | 111 | 2,982 | 354 | -1,427 | -274 | 377 |
| Profit/loss for the year | 73 | 360 | 26 | 2,762 | 386 | -1,539 | -264 | 253 |
| A.P. Møller - Mærsk A/S' share | 59 | 347 | 18 | 2,745 | 374 | -1,555 | -269 | 245 |
| Underlying result | 120 | 251 | 88 | -239 | 36 | 254 | 205 | -139 |
| Balance sheet | ||||||||
| Total assets | 56,636 | 61,787 | 61,200 | 61,639 | 63,227 | 60,260 | 61,310 | 60,428 |
| Total equity | 33,392 | 34,116 | 33,588 | 34,313 | 31,425 | 30,954 | 32,349 | 32,316 |
| Invested capital | 43,219 | 46,542 | 47,924 | 47,819 | 46,297 | 43,346 | 44,202 | 44,507 |
| Net interest-bearing debt | 8,741 | 12,416 | 14,290 | 13,395 | 14,799 | 12,552 | 11,852 | 12,212 |
| Cash flow statement | ||||||||
| Cash flow from operating activities | 1,354 | 1,085 | 353 | 433 | 983 | 744 | 941 | 445 |
| Gross capital expenditure, excl. acquisitions and divestments (gross CAPEX) | -587 | -401 | -708 | -1,180 | -938 | -1,092 | -892 | -677 |
| Net cash flow from discontinued operations | 1,200 | 32 | -119 | 2,308 | 1,082 | 149 | 203 | -183 |
| Financial ratios2 | ||||||||
| Revenue growth | 21% | 31% | 24% | 30% | 19% | 11% | 15% | 9% |
| Revenue growth excl. Hamburg Süd | 9% | 11% | 4% | 9% | 12% | 11% | 15% | 9% |
| EBITDA margin | 11% | 11% | 9% | 7% | 10% | 13% | 14% | 9% |
| Cash conversion | 121% | 95% | 40% | 65% | 116% | 76% | 88% | 70% |
| Return on invested capital after tax – continuing operations (ROIC) | 1.0% | 3.2% | -0.1% | -0.6% | 2.9% | 0.0% | 3.1% | 0.2% |
| Stock market ratios | ||||||||
| Share price (B share), end of year, DKK | 8,184 | 9,020 | 7,948 | 9,344 | 10,840 | 11,960 | 13,090 | 11,570 |
| Share price (B share), end of year, USD | 1,255 | 1,401 | 1,243 | 1,556 | 1,746 | 1,899 | 2,008 | 1,662 |
| 2018 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Business drivers and other data | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Ocean | ||||||||
| Other revenue, including hubs | 938 | 890 | 783 | 830 | 734 | 643 | 614 | 556 |
| Loaded volumes (FFE in ´000) | 3,353 | 3,334 | 3,399 | 3,220 | 3,007 | 2,631 | 2,700 | 2,601 |
| Loaded freight rate (USD per FFE) | 1,913 | 1,929 | 1,840 | 1,832 | 1,750 | 1,829 | 1,863 | 1,713 |
| Unit cost, fixed bunker (USD per FFE incl. VSA income) | 1,776 | 1,809 | 1,783 | 1,895 | 1,744 | 1,788 | 1,732 | 1,745 |
| Hub productivity (PMPH) | 84 | 83 | 79 | 75 | 75 | 73 | 72 | 73 |
| Bunker price, average (USD per tonne) | 465 | 452 | 401 | 382 | 343 | 307 | 313 | 320 |
| Bunker cost | 1,325 | 1,318 | 1,205 | 1,194 | 970 | 809 | 780 | 782 |
| Bunker consumption (tonnes in ´000) | 2,848 | 2,915 | 3,002 | 3,129 | 2,825 | 2,636 | 2,490 | 2,444 |
| Average nominal fleet capacity (TEU in ´000) | 4,038 | 4,042 | 4,154 | 4,231 | 3,761 | 3,523 | 3,311 | 3,224 |
| Fleet, owned (end of period) | 355 | 353 | 346 | 346 | 339 | 285 | 282 | 284 |
| Fleet, chartered (end of period) | 355 | 370 | 396 | 430 | 442 | 383 | 364 | 355 |
| Logistics & Services | ||||||||
| Gross profit | 266 | 290 | 278 | 263 | 262 | 259 | 265 | 253 |
| EBIT conversion (EBIT/Gross profit - %) | -5.9% | 14.7% | 8.4% | 6.4% | 9.2% | 7.9% | 27.5% | 13.1% |
| Ocean volumes (TEU) | 166,294 | 170,763 | 156,388 | 145,687 | 162,822 | 167,467 | 167,822 | 166,337 |
| Supply chain management volumes (´000 cbm) | 18,434 | 22,228 | 17,672 | 16,975 | 17,178 | 20,186 | 16,227 | 15,983 |
| Airfreight volumes (tonnes) | 45,068 | 46,057 | 44,218 | 40,159 | 60,396 | 50,672 | 50,138 | 45,002 |
| Ocean revenue | 186 | 165 | 148 | 147 | 163 | 167 | 170 | 166 |
| Supply chain management revenue | 211 | 256 | 194 | 206 | 212 | 221 | 170 | 175 |
| Airfreight revenue | 168 | 152 | 147 | 141 | 224 | 156 | 151 | 128 |
| Inland haulage revenue | 645 | 653 | 648 | 623 | 614 | 615 | 586 | 573 |
| Inland activities revenue | 150 | 147 | 154 | 144 | 139 | 136 | 148 | 166 |
| Other services revenue | 197 | 208 | 198 | 194 | 175 | 176 | 171 | 170 |
| Terminals & Towage | ||||||||
| Terminal volumes – financially consolidated (moves in m) | 3.1 | 2.8 | 2.8 | 2.7 | 2.7 | 3.4 | 1.7 | 2.4 |
| Terminal revenue per move – financially consolidated (USD) | 263 | 254 | 239 | 252 | 252 | 247 | 233 | 247 |
| Terminal unit cost per move – financially consolidated (USD) | 225 | 214 | 206 | 209 | 213 | 214 | 222 | 220 |
| Result from joint ventures and associated companies | 6 | 53 | 51 | 54 | 41 | -185 | 32 | 34 |
| Number of operational tug jobs (´000 harbour towage) | 34 | 32 | 32 | 33 | 31 | 31 | 30 | 31 |
| Annualised EBITDA per tug (terminal towage) (USD in ´000) | 636 | 958 | 956 | 747 | 729 | 805 | 1,026 | 635 |
| Manufacturing & Others | ||||||||
| Maersk Container industry, share of external customers (%) | 61% | 77% | 60% | 30% | 32% | 11% | 4% | 28% |
1 Following the classification of Maersk Oil, Maersk Tankers, Maersk Drilling and Maersk Supply Service as discontinued operations in 2017, the businesses are presented separately on an aggregated level in the income statement, balance sheet and cash flow statements. In accordance with IFRS, the income statement and cash flow statement have both been restated in previous periods, while the balance sheet has not been restated in previous periods. The Maersk Tankers transaction was closed on 10 October 2017 and the Maersk Oil transaction on 8 March 2018.
2 See definitions on page 156.
A.P. Moller - Maersk comprises more than 850 companies of which the largest are listed below.
The Danish Financial Statements Act section 97a, par. 4 has been applied in the company overview.
A more comprehensive list of companies is available at http://investor.maersk.com/financials.cfm
| Company | Country of incorporation | Owned share |
|---|---|---|
| A.P. Moller Finance SA | Switzerland | 100% |
| A.P. Moller Singapore Pte. Ltd. | Singapore | 100% |
| Addicks & Kreye Container Service GmbH & Co. KG | Germany | 51% |
| Aliança Navegação e Logística Ltda. | Brazil | 100% |
| APM Terminals - Aarhus A/S | Denmark | 100% |
| APM Terminals Algeciras S.A. | Spain | 100% |
| APM Terminals Apapa Ltd. | Nigeria | 94% |
| APM Terminals B.V. | The Netherlands | 100% |
| APM Terminals Bahrain B.S.C. | Bahrain | 80% |
| APM Terminals Callao S.A. | Peru | 51% |
| APM Terminals China Co. Ltd. | Hong Kong | 100% |
| APM Terminals Elizabeth, LLC | USA | 100% |
| APM Terminals Gothenburg AB | Sweden | 100% |
| APM Terminals India Pvt. Ltd. | India | 100% |
| APM Terminals Inland Services S.A. | Peru | 100% |
| APM Terminals Lázaro Cárdenas S.A. de C.V. | Mexico | 100% |
| APM Terminals Liberia Ltd. | Liberia | 75% |
| APM Terminals Management B.V. | The Netherlands | 100% |
| Company | Country of incorporation | Owned share |
|---|---|---|
| APM Terminals Mobile, LLC | USA | 100% |
| APM Terminals Moin S.A. | Costa Rica | 100% |
| APM Terminals Maasvlakte II B.V. | The Netherlands | 100% |
| APM Terminals North America B.V. | The Netherlands | 100% |
| APM Terminals Pacific LLC | USA | 100% |
| APM Terminals Rotterdam B.V. | The Netherlands | 100% |
| APM Terminals Tangier SA | Morocco | 90% |
| Aqaba Container Terminal Company Ltd. | Jordan | 50% |
| Bermutine Transport Corporation Ltd. | Bermuda | 100% |
| Coman SA | Benin | 100% |
| Container Operators S.A. | Chile | 100% |
| Damco (UAE) FZE | United Arab Emirates | 100% |
| Damco A/S | Denmark | 100% |
| Damco Australia Pty. Ltd. | Australia | 100% |
| Damco Belgium NV | Belgium | 100% |
| Damco China Ltd. | China | 100% |
| Damco Distribution Services Inc. | USA | 100% |
| Damco France SAS | France | 100% |
| Damco India Pvt. Ltd. | India | 100% |
| Damco International A/S | Denmark | 100% |
| Damco Logistics Uganda Ltd. | Uganda | 100% |
| Damco Sweden AB | Sweden | 100% |
| Damco UK Ltd. | UK | 100% |
| Damco USA Inc. | USA | 100% |
| Farrell Lines Inc. | USA | 100% |
| Gateway Terminals India Pvt. Ltd. | India | 74% |
| Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft A/S and Co KG |
Germany | 100% |
| Lilypond Container Depot Nigeria Ltd. | Nigeria | 100% |
| Maersk (China) Shipping Company Ltd. | China | 100% |
| Maersk Agency U.S.A. Inc. | USA | 100% |
| Maersk Aviation Holding A/S | Denmark | 100% |
| Maersk B.V. | The Netherlands | 100% |
| Maersk Bangladesh Ltd. | Bangladesh | 100% |
| Maersk Container Industry A/S | Denmark | 100% |
| Maersk Container Industry Dongguan Ltd. | China | 100% |
| Company | Country of incorporation | Owned share |
|---|---|---|
| Maersk Container Industry Qingdao Ltd. | China | 100% |
| Maersk Denizcilik A.Ş. | Turkey | 100% |
| Maersk Drilling A/S | Denmark | 100% |
| Maersk Drilling Deepwater A/S | Denmark | 100% |
| Maersk Drilling Deepwater Egypt LLC | Egypt | 100% |
| Maersk Drilling Holdings Singapore Pte. Ltd. | Singapore | 100% |
| Maersk Drilling International A/S | Denmark | 100% |
| Maersk Drilling Norge AS | Norway | 100% |
| Maersk Drilling USA Inc. | USA | 100% |
| Maersk Drillship III Singapore Pte. Ltd. | Singapore | 100% |
| Maersk Drillship IV Singapore Pte. Ltd. | Singapore | 100% |
| Maersk Egypt For Maritime Transport SAE | Egypt | 100% |
| Maersk FPSOs A/S | Denmark | 100% |
| Maersk Gabon SA | Gabon | 100% |
| Maersk Global Service Centres (Chengdu) Ltd. | China | 100% |
| Maersk Global Service Centres (India) Pvt. Ltd. | India | 100% |
| Maersk Holding B.V. | The Netherlands | 100% |
| Maersk Hong Kong Ltd. | Hong Kong | 100% |
| Maersk Inc. | USA | 100% |
| Maersk Innovator Norge A/S | Denmark | 100% |
| Maersk Integrator Norge A/S | Denmark | 100% |
| Maersk Inter Holding B.V. | The Netherlands | 100% |
| Maersk Interceptor Norge A/S | Denmark | 100% |
| Maersk Intrepid Norge A/S | Denmark | 100% |
| Maersk Line A/S | Denmark | 100% |
| Maersk Line Agency Holding A/S | Denmark | 100% |
| Maersk Line UK Ltd. | UK | 100% |
| Maersk Line, Limited | USA | 100% |
| Maersk Logistics Warehousing China Company Ltd. | Hong Kong | 100% |
| Maersk Oil Trading and Investments A/S | Denmark | 100% |
| Maersk Oil Trading Inc. | USA | 100% |
| Maersk Shipping Hong Kong Ltd. | Hong Kong | 100% |
| Maersk Supply Service (Angola) Lda. | Angola | 49% |
| Maersk Supply Service A/S | Denmark | 100% |
| Maersk Supply Service Canada Ltd. | Canada | 100% |
| Maersk Supply Service International A/S | Denmark | 100% |
| Company | Country of incorporation | Owned share |
|---|---|---|
| Maersk Supply Service UK Ltd. | UK | 100% |
| Maersk Treasury Center (Asia) Pte. Ltd. | Singapore | 100% |
| Maersk Vietnam Ltd. | Vietnam | 100% |
| Maersk Viking LLC | USA | 100% |
| MCC Transport Singapore Pte. Ltd. | Singapore | 100% |
| New Times International Transport Service Co. Ltd. | China | 100% |
| Poti Sea Port Corporation | Georgia | 100% |
| PT Damco Indonesia | Indonesia | 98% |
| Rederiaktieselskabet Kuling | Denmark | 100% |
| Rederiet A.P. Møller A/S | Denmark | 100% |
| Safmarine (Pty) Ltd. | South Africa | 100% |
| Safmarine MPV NV | Belgium | 100% |
| Seago Line A/S | Denmark | 100% |
| Sogester - Sociedade Gestora De Terminais S.A. | Angola | 51% |
| Suez Canal Container Terminal SAE | Egypt | 55% |
| Svitzer A/S | Denmark | 100% |
| Svitzer Australia Pty Ltd | Australia | 100% |
| Svitzer Marine Ltd. | UK | 100% |
| Terminal 4 S.A. | Argentina | 100% |
| U.S. Marine Management, Incorporated | USA | 100% |
| West Africa Container Terminal Nigeria Ltd. | Nigeria | 100% |
| Company | Country of incorporation | Owned share |
|---|---|---|
| Abidjan Terminal SA | Ivory Coast | 49% |
| Brigantine International Holdings Ltd. | Hong Kong | 30% |
| Brigantine Services Ltd. | Hong Kong | 30% |
| Congo Terminal Holding SAS | France | 30% |
| Congo Terminal SA | Republic of the Congo | 23% |
| Cosco Ports (Nansha) Ltd. | British Virgin Islands | 34% |
| Guangzhou South China Oceangate Container Terminal Co. Ltd. | China | 20% |
| Gujarat Pipavav Port Ltd. | India | 43% |
| Höegh Autoliners Holdings AS | Norway | 39% |
| Meridian Port Services Ltd. | Ghana | 42% |
| Salalah Port Services Company SAOG | Oman | 30% |
| Shanghai Tie Yang Multimodal Transportation Co. Ltd. | China | 29% |
| South Asia Gateway Pvt. Ltd. | Sri Lanka | 33% |
| Tianjin Port Alliance International Container Terminal Co. Ltd. | China | 20% |
| Company | Country of incorporation | Owned share |
|---|---|---|
| Anchor Storage Ltd. | Bermuda | 51% |
| Ardent Holdings Limited | UK | 50% |
| Brasil Terminal Portuario S.A. | Brazil | 50% |
| Cai Mep International Terminal Co. Ltd. | Vietnam | 49% |
| Douala International Terminal SA | Cameroon | 40% |
| Eurogate Container Terminal Wilhelmhaven Beteiligungsgesellschaft GmbH |
Germany | 30% |
| First Container Terminal ZAO | Russian Federation | 31% |
| Global Ports Investments PLC | Cyprus | 31% |
| North Sea Terminal Bremerhaven Verwaltungsgesellschaft GmbH Germany | 50% | |
| Pelabuhan Tanjung Pelepas Sdn. Bhd. | Malaysia | 30% |
| Petrolesport OAO | Russia Federation | 31% |
| Qingdao New Qianwan Container Terminal Co. Ltd. | China | 19% |
| Qingdao Qianwan Container Terminal Co. Ltd. | China | 20% |
| Shanghai East Container Terminal Co. Ltd. | China | 49% |
| Smart International Logistics Company Ltd. | China | 49% |
| South Florida Container Terminal LLC | USA | 49% |
| Vostochnaya Stevedore Company OOO | Russia Federation | 31% |
| Xiamen Songyu Container Terminal Co. Ltd. | China | 25% |
The complete list of announcements is available at http://investor.maersk.com/financials.cfm
• Annual Report 2017
• Sale of Mærsk Olie og Gas A/S completed
• Notice convening the Annual General Meeting 2018 in A.P. Møller - Mærsk A/S
• Management change
• Establishment of Restricted Share Plan
• New financial reporting structure from Q1 2018
• Interim Report Q1 2018
• Management change — New CFO
• A.P. Møller - Mærsk A/S – Adjustment of expectations for the 2018 result
• Interim Report Q3 2018
• Financial calendar 2019
• Correction: Financial calendar 2019
Technical terms, abbreviations and definitions of key figures and financial ratios.
Alphaliner is a worldwide provider of container shipping data and analysis.
The direction of the trade route that has the lowest volumes, whereas the opposite direction is referred to as headhaul.
The value of future contract coverage (revenue backlog).
A surcharge applied to freight rates to compensate unexpected fuel oil price variations as an element in the contracts with the customers.
Cash payments for intangible assets and property, plant and equipment, excluding acquisitions and divestments.
Cash flow from operations to EBITDA ratio.
A.P. Moller - Maersk's operating cash flow from continuing operations divided by the number of shares (of DKK 1,000 each), excluding A.P. Moller - Maersk's holding of own shares.
Percentage indicating the part of vessel/rig days that are contracted for a specific period.
EBIT costs including VSA income and hub income and adjustments for restructuring costs, the result from associated companies and gains/losses.
Cash return on invested capital based on free cash flow excluding acquisitions/divestments divided by average invested capital for continuing operations.
Compensation payable when a customer holds Maersk's containers beyond the agreed amount of free time, including any storage costs that Maersk may have incurred in connection therewith as well as compensation by way of liquidated damages for not having the containers available for circulation.
Discontinued operations are a major line of business (disposal group) that is either held for sale or has been sold in previous periods. The disposal group is reported separately in a single line in the income statement and cash flow statement. Comparison figures are restated. In the balance sheet assets and liabilities are classified and disclosed separately on an aggregate level as assets held for sale and liabilities associated with assets held for sale. In the balance sheet comparison figures are not restated. Discontinued operations include Maersk Oil up to closing in March 2018, Maersk Tankers up to closing in October 2017 as well as Maersk Drilling and Maersk Supply Service.
Equal to the proposed dividend for the year divided by the share price.
Calculated as EBIT divided by the gross profit.
FFE
Earnings Before Interest, Taxes, Depreciation and Amortisation.
Calculated as equity divided by total assets.
The relationship between GDP growth and trade growth, calculated as global container volume growth divided by global real GDP growth, at market prices.
The sum of revenue less variable costs and loss on debtors.
The direction of the trade route that has the highest volume, whereas the return direction is referred to as backhaul.
The International Maritime Organization's (IMO) 0.5% global cap on sulphur dioxide (SOx) content in fuels for shipping will enter into force on 1 January 2020.
A drilling rig resting on legs that can operate in waters of 25-150 metres.
Loaded volumes refer to the number of FFEs loaded on a shipment which are loaded on first load at vessel departure time excluding displaced FFEs.
Equals interest-bearing debt, including fair value of derivatives hedging the underlying debt, less cash and bank balances as well as other interest-bearing assets.
Net Operating Profit or loss After Tax.
Productivity is calculated as the average of the gross moves per hour for each call. Gross moves per hour for a single vessel call is defined as the total container moves (on load, off load and repositioning) divided by the number of hours for which the vessel is at berth.
Average freight rate per FFE for all the Maersk containers loaded in the period in either Maersk Line or Hamburg Süd vessels or third parties (excluding intermodal). Hamburg Süd is not excluding intermodal.
Cost per FFE assuming a bunker price at USD 200/tonne excluding intermodal but including hubs and time charter income. Hamburg Süd is not excluding intermodal.
Calculated as the profit/loss for the year divided by the average equity.
Profit/loss before financial items for the year (EBIT) less tax on EBIT divided by the average invested capital.
Annualised EBITDA per tug equivalent (pilot boats and others count for 0.5).
Tug jobs on which Svitzer performs the physical job, which include jobs where Svitzer has the commercial contract with the customer as well as jobs which Svitzer receives from the competitor through over-flow or other agreements.
Terminal volumes in moves weighted on terminal ownership percentages include all entities (subsidiaries and joint ventures and associates).
Twenty-foot container Equivalent Unit.
Hire of a vessel for a specified period.
Total number of shares – excluding A.P. Møller - Mærsk A/S´ holding of own shares – multiplied by the end-of-year price quoted by Nasdaq Copenhagen.
Equal to the price appreciation rate (price variance from the beginning to the end of the year) and the dividend yield.
Underlying profit/loss is profit/loss for the year from continuing operations adjusted for net gains/losses from sale of non-current assets, etc. and net impairment losses as well as transaction, restructuring and integration costs related to major transactions. The adjustments are net of tax and include A.P. Moller - Maersk's share of mentioned items in associates and joint ventures.
A period when a unit is functioning and available for use.
Vessel Sharing Agreement is usually reached between various partners within a shipping consortium who agree to operate a liner service along a specified route using a specified number of vessels.
A.P. Moller - Maersk has tailored its external financial reporting specifically towards the needs of our different stakeholders with two annual publications.
The Annual Report focuses on the very detailed and legally required information, whereas the focus of the Annual Magazine is on providing an overview of key developments during the year. The publications can be read individually or together depending on our stakeholders' interests. The Annual Report is available electronically in English at http:// investor.maersk.com/financials.cfm
The Annual Magazine provides an overview of the operations and performance of Maersk in a concise and easy-to-read format. This publication is not a substitute for the Annual
Report, and does not contain all the information needed to give as full an understanding of Maersk's performance, financial position and prospects as provided in the Annual Report. The Annual Magazine is published in English and Danish, both available for download prior to the Annual General Meeting at http://investor.maersk.com/financials.cfm
Maersk also produces Interim Reports for each of the first three quarters of the financial year, and a summary report for Q4 is included in the Annual Report.
To further add value and with a focus on the professional segment and others with more specific interests, detailed presentations are available each quarter following the release of the Interim Reports and the Annual Report. Maersk also hosts, on a regular basis, Capital Markets Days, which can be followed through a live webcast, and the speakers' presentation slides can be accessed via links.
This extended information of Interim Reports, presentations and webcasts can be found on our Investor Relations website at http://investor.maersk.com/
Quarterly figures for 2010-2018 are available at http://investor.maersk.com/financials.cfm
The Board of Directors of A.P. Møller - Mærsk A/S continues to consider the 'Recommendations for Corporate Governance' implemented by Nasdaq Copenhagen. For further information, see page 55 of this report.
An independently assured Sustainability Report for 2018 has been published, which provides detailed information on Maersk's sustainability performance. The report serves as Maersk's Communication on Progress as required by the UN Global Compact, and ensures compliance with the requirements of Section 99a and b of the Danish Financial Statements Act, Årsregnskabsloven, on corporate social responsibility and reporting on the gender composition of management. The report is available at https://www.maersk. com/about/sustainability/reports
Additional information on how Maersk manages issues and explains implementation, progress and relevant commitments and frameworks can be found on the Sustainability website at https://www.maersk.com/about/ sustainability
Disclosure of tax payments on a country-bycountry basis up until separation of Maersk Oil on 8 March 2018 in accordance with the EU Accounting Directive and as implemented in Section 99c of the Danish Financial Statements Act is provided in a separate report. The report is available at http://investor. maersk.com/financials.cfm
Editors Stig Frederiksen Finn Glismand
Design and layout
e-Types
ISSN 1604-2913 Produced in Denmark 2019
Jim Hagemann Snabe, Chairman Ane Mærsk Mc-Kinney Uggla, Vice Chairman Dorothee Blessing Niels Bjørn Christiansen Arne Karlsson Jan Leschly Thomas Lindegaard Madsen Robert Routs Jacob Andersen Sterling Robert Mærsk Uggla Executive Board, A.P. Møller - Mærsk A/S Søren Skou, Chief Executive Officer (CEO)
Claus V. Hemmingsen, Vice Chief Executive Officer (Vice CEO) Carolina Dybeck Happe (CFO) Vincent Clerc Morten Engelstoft Søren Toft
Arne Karlsson, Chairman Robert Routs Jim Hagemann Snabe
Jim Hagemann Snabe, Chairman Robert Routs
Robert Mærsk Uggla
Ane Mærsk Mc-Kinney Uggla, Chairman Jim Hagemann Snabe Robert Mærsk Uggla
Niels Bjørn Christiansen, Chairman Jim Hagemann Snabe
Robert Mærsk Uggla
PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab
Esplanaden 50 DK-1098 Copenhagen K Tel. +45 33 63 33 63 www.maersk.com [email protected]
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