A.P. Møller - Mærsk — Annual Report 2007

Mar 13, 2008

Annual Report 2007, A.P. Moller - Maersk Group

The Board of Directors of A.P. Møller - Mærsk A/S has today released the Company's Annual Report for 2007.

The Annual Report is available on our website maersk.com. The printed Annual Report is expected to be available and sent to the registered shareholders who have requested to receive such on 19 March 2008.

The Annual Report shows the following key figures:

	DKK million		USD million
	2007	2006	2007	2006
Revenue	278,872	260,134	51,218	43,743
Profit before depreciation, amortisation and
impairment losses, etc.	64,842	51,192	11,909	8 312 8,610
Depreciation, amortisation and impairment losses	26,213	19,357	4,814	3,255
Gains on sale of ships, rigs, etc.	6,062	4,227	1,113	711
Associated companies - share of profit after tax	3,084	2,881	567	484
Profit before integration costs	47,775	38,943	8,775	6,550
Integration costs on acquisitions	-	734	-	123
Profit before financial items	47,775	38,209	8,775	6,427
Financial items, net	-4,047	-2,219	-743	-374
Profit before tax	43,728	35,990	8,032	6,053
Tax on profit for the year	24,537	19,935	4,507	3,352
Profit for the year - continuing operations	19,191	16,055	3,525	2,701
Profit for the year - discontinued operations	-533	131	-98	22
Profit for the year	18,658	16,186	3,427	2,723
Of which attributable to A.P. Møller - Mærsk A/S	17,829	15,557	3,275	2,617
Total assets	327,519	313,695	64,533	55,409
Equity	146,715	136,711	28,907	24,148
Cash flow from operating activities	39,817	23,697	7,313	3,987
Cash flow used for capital expenditure	-49,003	-34,321	-9,000	-5,771
Financial ratios:
Return on equity after tax	13.2%	12.4%	12.9%	12.4%
Equity ratio	44.8%	43.6%	44.8%	43.6%
Earnings per share, DKK/USD*)	4,333	3,781	796	636
Cash flow from operating
activities per share, DKK/USD*)	9,677	5,759	1,777	969
Dividend per share, DKK/USD	650	550	128	97
Total market capitalisation, end of year*)	223,177	214,284	43,973	37,849

*) Adjusted for the Group's holding of own shares.

The profit for the year was USD 3,427 million corresponding to DKK 18,658 million (2006: USD 2,723 million corresponding to DKK 16,186 million), which by and large is in accordance with the expectations most recently stated in the Stock Exchange Announcement on 29 November 2007.

Compared to 2006, the profit for the year is in particular characterised by:

• Significant financial improvement for the container activities, primarily attributable to higher average freight rates, however, the result is still not satisfactory.
• Net result for tankers, offshore and other shipping activities was significantly above that of 2006, primarily due to gains on the sale of ships and rigs.
• Net result for the oil and gas activities was slightly below that of 2006, positively affected by higher production and higher oil prices and negatively affected by increased production and exploration costs, significantly increased depreciation and amortisation and higher taxes.
• In 2007 oil prices rose by 64% and on average the prices were 11% higher than those in 2006 with a positive effect for the oil and gas activities and a negative effect for the container activities. The total effect was negative also due to value adjustment of oil price hedges.

Consolidated cash flow from operating activities increased by 83% to USD 7,313 million corresponding to DKK 39,817 million (2006: USD 3,987 million corresponding to DKK 23,697 million) – positively affected by higher earnings before depreciation and amortisation especially in the container activities and in the oil and gas activities and less funds tied up in working capital.

The investment level increased from 2006 and the total cash flow used for capital expenditure was USD 9,000 million corresponding to DKK 49,003 million (2006: USD 5,771 million corresponding to DKK 34,321 million).

Outlook for 2008

Due to the unpredictability surrounding global economic development, the continuation of historically high oil prices and the ongoing reorganisation of Maersk Line, the outlook at the beginning of 2008 is subject to significant uncertainty. On the basis of the current level of oil prices and exchange rates, the Group expects to generate a profit in the order of USD 3.6-4 billion in 2008 (2007: USD 3.4 billion), equivalent to approximately DKK 18-20 billion (2007: DKK 18.7 billion) at a DKK/USD exchange rate of 5.00. This includes the expected gains from the restructuring of car carrier activities of USD 200 million and other gains from renewal of the fleet etc. Total gains on sales are assumed to be below those in 2007.

The A.P. Moller - Maersk Group is contemplating a possible sale of shares in non-strategic assets. If such sale is completed in 2008 it may improve the expected net result mentioned above in the order of USD 800 million.

Segment Information

Container shipping and related activities

	DKK million			USD million
	2007	2006	2007	2006
Revenue	145,214	150,312	26,670	25,275
Profit for the year after tax	1,183	-3,375	217	-568
Cash flow from operating activities	9,722	1,626	1,778	273
Cash flow used for capital expenditure	-19,777	-15,263	-3,632	-2,566

The global growth in containers transported was about 9%.

Maersk Line reduced the capacity on the non-profitable Transpacific routes and thus realised a volume decrease on the trades from Asia to North America of 17% compared to 2006. Overall, Maersk Line grew on the other trades – consequently achieving a growth in transported volumes on the important market from Asia to Europe of 12% and a growth on the Africa trades of 15%.

In total Maersk Line and Safmarine achieved a volume increase of 2% to 6.8 million FFE. Average freight rates including surcharge for higher fuel costs increased by 5% compared to 2006.

The average unit costs – including depreciation and amortisation – are reduced by 1% in spite of an approximately 10% increase in bunker prices.

Cash flow from operating activities increased by USD 1.5 billion to USD 1.8 billion due to improved earnings and reduced funds tied up in working capital.

APM Terminals achieved a growth in volumes of 13% compared to 2006 and a growth in revenue of 22% to USD 2.5 billion. The high investment level continued and seven new container terminals came into operation in 2007. The profit for APM Terminals was USD 111 million (2006: USD 99 million).

Tankers, offshore and other shipping activities

	DKK million		USD million
	2007	2006	2007	2006
Revenue	24,175	22,191	4,440	3,731
Profit for the year after tax	6,781	5,734	1,246	965
Cash flow from operating activities	5,402	5,718	992	961
Cash flow used for capital expenditure	-11,110	-6,994	-2,040	-1,176

Maersk Tankers experienced a rate level with significant fluctuations but on average slightly below that of 2006, and the profit was below that of 2006. The profit was, as in 2006, positively affected by gains on sale of ships.

Maersk Contractors achieved a profit considerably above that of 2006 due to gains on sale of three rigs. Before these gains the profit was below that of 2006. Higher day rates were more than offset by the fact that one rig (MAERSK EXPLORER) was without employment most of the year and two rigs (MAERSK GUARDIAN and MAERSK INSPIRER) spent long periods in shipyards in preparation for new contracts. In addition, the profit was affected by generally higher operational and financial costs due to the significant newbuilding programme.

2007 was a good year for Maersk Supply Service with high day rates and increased activity, and the profit was significantly higher than in 2006.

Oil and gas activities

	DKK million		USD million
	2007	2006	2007	2006
Revenue	51,537	41,126	9,465	6,915
Profit for the year after tax	8,866	10,119	1,628	1,702
Cash flow from operating activities	19,918	14,570	3,658	2,450
Cash flow used for capital expenditure	-14,524	-6,690	-2,667	-1,125

The average price for the year of the indicative Brent crude oil price was USD 72 per barrel, approximately 11% above that of 2006. The Group's total share of oil and gas production was somewhat above that of 2006, as a result of the higher production in Qatar and in the British sector of the North Sea, but 8% lower production in the Danish sector of the North Sea.

The profit for the year was slightly below that of 2006, positively affected by increased production and higher oil prices and negatively affected by increased exploration and production costs, significantly increased depreciation, amortisation and impairment losses and higher taxes.

Cash flow from operating activities increased by USD 1.2 billion to USD 3.7 billion and cash flow used for capital expenditure increased by USD 1.5 billion to USD 2.7 billion.

Retail activity

		DKK million
	2007	2006	2006
Revenue	56,382	43,054	53,755
Profit for the year after tax	2,015	1,838	2,027
Of which attributable to A.P. Møller - Mærsk A/S	1,298	1,331	1,331
Cash flow from operating activities	3,118	2,577	3,304
Cash flow used for capital expenditure	-1,798	-1,488	-1,938

Financial information for the Dansk Supermarked Group was included proportionally with a 50% share and with 18% under associated companies until 31 May 2006. As from 1 June 2006, the Dansk Supermarked Group and F. Salling A/S are fully consolidated. Figures for 2007 are thus not fully comparable with 2006. As from 1 January 2007 the ownership structure has been changed, and thus A.P. Møller - Mærsk A/S directly owns 67.68% of Dansk Supermarked A/S and 37.72% of F. Salling A/S. These changes do not have any impact on A.P. Møller - Mærsk A/S' share of the profit.

A.P. Møller - Mærsk A/S' share of profit for the year of DKK 1.3 billion was at the level of that in 2006. Profit before financial items was 12% above that of 2006. In 2007 financial items were negative by DKK 17 million compared to a positive amount in 2006 of DKK 254 million, negatively affected by value adjustment of securities.

Shipyards, other industrial companies, interest in Danske Bank A/S, etc.

	DKK million
	2007	2006
Revenue	8,224	10,213
Profit for the year after tax	2,449	1,835
Cash flow from operating activities	1,607	46
Cash flow used for capital expenditure	-613	-2,891

For the Shipyard Group the result was negative when excluding gains on group internal transfer of Ejendomsselskabet Lindø A/S etc.

The A.P. Moller - Maersk Group owns 20% of the shares in Danske Bank A/S. Danske Bank A/S achieved a profit of DKK 14.9 billion (2006: DKK 13.5 billion), of which DKK 3.0 billion is included in the profit of the A.P. Moller - Maersk Group.

Share Option Programme

In connection with a review of the remuneration policy the Board of A.P. Møller - Mærsk A/S has decided to establish revolving share option programmes for members of the Management Board and key executives. The programmes are based on options giving right to purchase B shares from the Company's holding of own shares.

Two share option programmes are being established, one for the Management Board and one for selected key executives. The options will be granted free of charge to the key executives. Members of the Management Board (Partners) will purchase the options at market value.

Options to key executives will be granted annually on 1 April, first time on 1 April 2008. The number of options to the key executives will be calculated based on a percentage of pay excluding bonus, equivalent to 1-2 months pay. Based on the current share price, approximately 2,700 options are expected to be granted to around 110 key executives in 2008.

Options to members of the Management Board will be granted each year after publication of the Company's annual report. Members of the Management Board will be obliged to acquire options at calculated market value. The number of options is based on a percentage of each member's remuneration, equivalent to approximately 2 months remuneration. In 2008, approximately 1,100 options are expected to be sold to members of the Management Board. The options are priced and acquired on the sixth business day after the publication of the Company's annual report.

Other than employment in the A.P. Moller - Maersk Group on 1 April or membership of the Management Board at the time of granting, no conditions are attached to the granting or acquiring. Non-vested options will in certain circumstances lapse in connection with an employee's or a member of Management Board's resignation.

The options are exercisable over a period of two to five years from granting or acquiring. Options granted on 1 April 2008 can therefore be exercised from 1 April 2010 to 1 April 2013. Options which are not exercised during this period will lapse. Options may only be exercised in accordance with the Company's internal rules on insider trading.

One option gives the right to purchase one B share in the Company. The options are granted at a strike price corresponding to 110% of the average of the market price (for A.P. Møller - Mærsk A/S B share "All trading") on the first five trading days following the release of A.P. Møller - Mærsk A/S' annual report.

The market value of the options expected to be granted in 2008 has been estimated at app. DKK 30 mill. Market value is based on the Black Scholes model with the following assumptions: Share price: DKK 48.200, volatility: 25%, riskfree interest: 4% and a dividend per share of DKK 650. The exact market value cannot be calculated before the grant price has been determined.

At the Annual General Meeting on 29 April 2008, the Board will present general guidelines for incentive pay for the Company's Management Board for the approval of the shareholders.

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Annual General Meeting, Dividend and Board of Directors

The Annual General Meeting will be held in Svendborg on 29 April 2008 at 11.00 a.m.

Dividend

The Board of Directors proposes a dividend of DKK 650 per share of DKK 1,000 (2006: DKK 550) corresponding to a total amount of DKK 2,857 million (2006: DKK 2,418 million).

Board of Directors

Poul J. Svanholm, Ane Mærsk Mc-Kinney Uggla, Lars Kann-Rasmussen, Jan Leschly, Svend Aage Nielsen, Cecilie Mose Outzen and Henrik Lorensen Solmer will retire from the Board of Directors.

At the Annual General Meeting the Board of Directors will propose re-election of Poul J. Svanholm, Ane Mærsk Mc-Kinney Uggla, Lars Kann-Rasmussen, Jan Leschly and Cecilie Mose Outzen. Furthermore, the Board of Directors will propose that Sir John Bond, Lars Pallesen and John Axel Poulsen are elected as new members to the Board of Directors. CVs including other management duties of the three last-mentioned persons are published on the company's website maersk.com.

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Copenhagen, 13 March 2008

A.P. Møller - Mærsk A/S

Contacts: Nils Smedegaard Andersen, Partner and Group CEO, telephone +45 3363 3600 Søren Thorup Sørensen, Partner and Group CFO, telephone +45 3363 3650 Per Møller, Group Senior Vice President, Accounting, telephone +45 3363 4313

An interim management statement regarding first quarter 2008 is expected to be published on 15 May 2008, and regarding the first three quarters on 13 November 2008.

The Interim Report is expected to be published on 27 August 2008.