A.P. Møller - Mærsk A/S (MAERSKB) Earnings Call Transcript & Summary

Good morning, everyone, and thank you all for listening in on our earnings call for the fourth quarter and full year report for 2020. My name is Søren Skou. I'm the CEO of A.P. Møller - Maersk. And I'm joined today here by Patrick Jany, our CFO. Now 2020 will be remembered for the COVID-19 pandemic. It negatively impacted our lives, our health, jobs, business and the global economy. Our response to COVID-19 pandemic has, from the outset, been to keep our employees safe, help our customers and support them in running their global supply chains as smooth as possible, and to help societies fight the pandemic. We are very proud of our employees who have worked around-the-clock to keep the world's goods flowing in the best possible way and in some in the front line and while others have worked for months from home. In 2020, we made significant progress, both in our global integrated strategy and on the financials despite the pandemic. We are today a more profitable, growing global logistics company that offers a broad portfolio of logistics products from Ocean and air transport to inland transportation, warehousing and distribution, custom services and lead logistic products such as supply chain management and e-com fulfillment as well as container port services. Financially, as you can see on the numbers, we've delivered a strong value-creating result in 2020, and strong free cash flow. And we leave the year with a strong balance sheet and plenty of firepower. Our financial performance has allowed us to continue to distribute cash to shareholders through dividends and share buybacks, and that will continue in 2021. With the dividend we are announcing today and previously announced share buyback, we plan to distribute more than USD 2.25 billion -- more than $2 billion of -- USD 2 billion to shareholders this year, which is equal to more than -- or around 6% of the current market cap of the company. So moving to the next slide, which you are quite familiar with. Over the last 4 years, we have been very disciplined in the execution of the strategy. And this is despite the backdrop of weak trade growth since 2016, ongoing trade tensions between China and the U.S., geopolitical uncertainty, fuel switch to significantly more expensive low-sulfur fuel at the beginning of last year and since 2020 a pandemic. And all through this period, we have made financial progress since 2016. Frankly, we are quite pleased we can deliver a growing earnings and cash trajectory while facing all of these challenges in a so-called cyclical industry. And this is now the 10th quarter -- the fourth quarter of 2020 is now the 10th quarter -- consecutive quarter, where we have achieved year-on-year increases in our operating earnings. The work we have done over the past 5 years in Ocean, and by that, I mean, for instance, the 2M alliance that has helped us take out hundreds of millions of costs; the acquisition of Hamburg Süd, which has added further scale and competitiveness; the disciplined approach to CapEx; the digitization and development of unique products such as Maersk Spot, all of that has come together to deliver solid progress and we are today -- we today have a much stronger Ocean business that we had -- than we had 5 years ago. At the same time, our Logistics business is really poised to take off. We have solved our margin issue, and we are now starting to deliver meaningful growth, both organically and inorganically. And in Terminals, we have executed well on a turnaround since 2016, shifting focus from developing new terminals to being a world-class operator of terminals. And results and cash generation has steadily improved, and we now have an infrastructure business with resilient returns, also when a pandemic results in lower volumes. Now turning to Q4, which was a record quarter in several ways, despite the pandemic still impacting the world. While our earnings growth in the first 2/3 of 2020 was driven very much by our own actions on cost, on margins and was achieved despite the headwinds of lower volumes, Q4 was positively impacted by the tailwinds of growing volumes and higher freight rates. Year-on-year, we grew revenue 16% to $11.3 billion in Q4, operating earnings were 85 -- were up 85% to $2.7 billion, and we doubled free cash flow to $1.7 billion. In Q4, we delivered the best ever quarterly earnings result in Ocean, and in Logistics and in Terminals. In absolute terms, our strong performance is, of course, driven by higher volumes and rates in Ocean. The tailwinds experienced in the fourth quarter have continued into the first quarter, and we expect the first quarter of 2021 to be -- to have a result that is above our fourth quarter results. Whether demand stays strong once the world is reopening or consumers will spend all their money on services, all remains to be seen. However, what I can say is that we will continue to respond by serving our customers, matching supply to demand in the same way as we did very successfully in 2020. Right now, I guess you can say the Ocean spot rates are overshadowing the real and significant progress across our business. We had record results in all segments this quarter, but I'm particularly pleased about the progress in Logistics. And I see our performance as a strong proof point for our integrated strategy. Revenue was up 35% year-on-year and 9% since the third quarter, and above $2 billion for the first time in Logistics and margins were good. We now have a Logistics business with a run rate revenue around $8 billion and an EBITDA run rate of around $600 million, and we plan to continue to grow both organically and inorganically in the coming years. Also, I think it's worth highlighting for Q4 that free cash flow basically doubled to $1.7 billion and driven by high earnings, solid cash conversion and low CapEx. Now moving to Slide 7. As I mentioned before, we kept improving our financial results, while also accelerating on executing on our strategy, enabled us to improve all of our -- and that has enabled us to improve all of our transformation metrics. In particular, I'm pleased to -- that we managed to improve the ROIC, the return on invested capital, through 9.6% underlying after years of not being in a position of creating economic value. Secondly, I want to highlight the revenue growth in our Infrastructure and Logistics business of 22% in Q4, as we have increased revenue in Logistics from warehousing and distribution and supply chain management and in Terminals due to increased volumes. Now I'm happy to show you a new slide that is picturing the way we think about creating value in Maersk. It all starts with our 3 core segments: Logistics & Services, Ocean and Terminals, where we believe there is a strong opportunity within each to improve the underlying profitability. Therefore, we have accelerated the transformation efforts for each of these 3 businesses. For Logistics & Services, our transformation is about creating a broad and sizable full-scale and digitally-enabled product portfolio that is relevant to our customers, and simultaneously improve the efficiency of the products we sell to ensure that we are competitive. Our historic performance, while catching up, does now -- does provide opportunities to improve margins in this segment. And we have been building capabilities significantly over the past year and start to see the first results, as I've just highlighted in Q4, of the results, both in terms of growth and in terms of profitability. For Ocean, this transformation is about creating a modern and differentiated offering that better suit our customer needs and pulls our Ocean business out of the commodity trap we had fallen in. As exemplified by the launch of the Maersk Spot, we have a unique product with 2-way commitment. Continuously reducing cost also remains a focus area for us, and we will look to leverage technology to further reduce our operating cost and transform our operations to stabilize our earnings at a good level. In our Terminals business, we have a strong traction over the past years in transforming from a developer into a world-class operator, improving our margins significantly in the process. As we continue this journey, there's still good potential to improve our profitability in this segment, including leveraging opportunities for automation, to improve safety and efficiency. In other words, we believe we can create 3 businesses in Logistics, Ocean and Terminals that are world-class in their own right. The synergies between Ocean and the 2 other segments are the value that we can create over and beyond the segment improvements. It is the synergies that make us the best owners of Logistics & Services, Ocean and the Terminal business. The synergies are different in nature. Between Ocean and Logistics Services, it is really customer synergies and aspiration to create much better customer outcomes for our -- in Logistics & Services and Ocean, which in turn will result in shareholder value creation and more stable earnings and cash flow generation. Between Ocean and Terminals, it is financial and operational synergies, leveraging our volumes to monetize and derisk Terminals, and using our Terminal operating skills to drive efficiency and reliability for our Ocean network. This is a synergy case that plays to our existing strengths and which is directly shareholder value accretive. It is possible to read 1 set of these 2 synergies without the other synergies and vice versa, and they are not depending on each other. And we have decided to focus both on customer synergies between Ocean and Logistics and financial and operational synergies between Ocean and Terminals. This is unique in our industry. Finally, the technology enablement is critically important and will enable integration of data and operations to define the next level of operational excellence, permit creation of new products and services to customers, and facilitate a seamless and contemporary customer experience end-to-end. We will use our scale to create a world-class technology capability across all businesses. Finally, we will progress on sustainability as well as accelerate our commitment to decarbonization, leading our industry, and you will hear more about this in -- during 2021. You will also hear more about how we think about value creation at our Capital Markets Day that we are inviting for in May. Now moving to the next slide. We briefly introduced you to the transformation metrics that we will track in the coming phase of our strategic transformation and the strategic value creation model. This will be the leading indicators for how we are progressing over the next years. While we continue to track our overall progress in creating shareholder value through measuring our return on invested capital at A.P. Møller - Maersk level, the focus on segment level will concentrate on the organic growth and profitability in Logistics & Services and organic growth in gateway terminals. When we grow these businesses both in revenue and profitability, it adds to creating a more stable business model. On a more nonfinancial way of looking at our progress, we will focus on the growth in cross-selling revenue between Logistics & Services and the large Ocean customers so that we can demonstrate the customer synergies, and we will focus on the progress in digitalizing the product offering in Ocean via Maersk Spot, which will give you an indication of our ability to create the synergies that I talked to on the previous slide. We will report on these on a quarterly basis, and we'll provide you some -- with some more firm targets at our Capital Markets Day in May this year. With this, let me hand over to Patrick, who will take you through the financials and the segments.

Good morning to all from my side as well. Turning to Slide 11. We can see that profitability improved significantly in Q4, with the net result reaching $1.3 billion from a loss a year ago. The improvement came from all 3 main businesses: Ocean, Logistics & Services and Terminals & Towage. In absolute terms, ocean was the main driver, benefiting from extraordinary market conditions, improving by more than $1 billion as a result of the uneven rebound in demand which resulted in bottlenecks across the supply chain, driving higher volumes and freight rates. Logistics & Services increased their earnings by more than 5x, driven mainly by intermodal and Performance Team and the fact that last year was impacted by negative one-offs. Overall, our EBITDA increased 85%, reaching $2.7 billion, and the EBITDA margin reached 24.1% compared with 15.1% the previous year. Consequently, EBIT increased 4.5x to $1.6 billion compared to $342 million in Q4 2019, leading to an EBIT margins of 14.2% compared to 3.5% last year. The other positions are a fairly small impact on our profitability. The increased depreciation, amortization and impairments was mainly driven by higher depreciation in Logistics & Services from acquisitions, and from a smaller impairment in one of our terminals. The positive impact from disposals was caused by the recognition of the final piece of the Maersk Container Industry sale of the Dongguan factory in China and some other small sale of assets. The tax decreased positively, impacted, amongst others, by effect from the CARES Act in the United States and several tax provision adjustments. This strong quarter contributed, as expected and guided for, to the strong EBITDA of $8.2 billion for the year, equivalent to an underlying EBITDA of $8.3 billion. When reflecting on the year, it is clear that the performance has been impacted by the pandemic, first, with a significant reduction of volumes in the first half of 2020 and, later, by bottlenecks across the supply chain, distorting market conditions, particularly in Q4. It is our best estimate that the net effect of volumes, cost and rates has increased operational profitability by $1.5 billion over the year. Considering all those effects, the net result reached $2.9 billion for the full year 2020, which, given the ample liquidity headroom, allows the Board of Directors to recommend a dividend of DKK 330 per share to the AGM on March 23, which is equivalent to a payout ratio of 35% and more than double the DKK 150 per share dividend in 2019. Now turning to Slide 12. Cash flow from operations was strong, improving 67% to $2.6 billion on the back of an increase in EBITDA and despite of the small deterioration of net working capital. Cash conversion was still high at 95% compared to 105% last year. Free cash flow in the quarter was $1.7 billion, after considering capitalized lease installments and gross CapEx, and was used to repay debt and to start the new share buyback program. On a yearly basis, we generated a free cash flow of $4.6 billion, which was used for $500 million for acquisitions, $1.3 billion to return cash to shareholders and reduced our debt by $2.5 billion. Net interest-bearing debt now amounts to $9.2 billion only. And it is worth mentioning that excluding these liabilities, net financial debt equals just $500 million compared to $3.1 billion at year-end 2019. Let us now turn to the business development and starting with Ocean on Slide 13. Revenue in Ocean grew 16% on the back of volumes increasing 3.2%, as demand picked up fast after the slowdown in the previous quarters. Also the sudden pickup in demand has led to a number of bottlenecks in the supply chain, which has driven the short-term rates to increase significantly. This, combined with a continued record high utilization, led to a doubling of the EBITDA from $1.1 billion to $2.2 billion and an EBITDA margin of 26.7%. Further progress was made in offering digital solution to our customers. And Maersk Spot once again had a large share of our short-term volume. By the end of the fourth quarter, the share of loaded volumes accounted for more than 50% of our spot volumes on a 4 weeks basis, on par with Q3. On Slide 14, we can see that the EBITDA increased in Q4, mainly driven by the extraordinary short-term environment of capacity constraints and bottlenecks in equipments; containers and vessels and ports. The situation impacted rates significantly and contributed to a $1.1 billion increase in EBITDA alone. Lower bunker costs and increased volumes also helped to the quarter, but were offset by the higher cost of operations incurred as we tried to manage the disruptions, to maintain the flow of goods and help our customers. The container handling costs, therefore, increased $127 million, and the network cost and bunker consumption increased by $130 million. SG&A and other costs increased mainly as a result of a general one-off bonus to all staff. And we also had close to $100 million up against us on a noncash unrealized loss on hedges as a result of the increased oil price. Turning to Slide 15. Our average freight rates increased by 18% in the quarter, driven by demand surges, especially in China-U.S. trades, combined with exceptional market conditions, driven by bottlenecks across the supply chain, including vessel and equipment shortages. We do expect that the tailwind from this situation and the impact on freight rates will last throughout Q1 and start easing in Q2. As Søren was alluding to earlier, it is really hard to predict the demand patterns for 2021. However, looking ahead, on the rates and volumes we have seen so far, we would believe that Q1 2021 should be better than Q4 2020, whereafter, we expect things to normalize. In Q4, we continued to focus on facilitating our long-term customer supply chains to meet their requirements, which added to increase in volumes from our long-term contracts. By now, we have concluded around 40% of all our long-term contracts for the coming year, and we have seen contract rates increase across the board. As a base rate for the different routes and services at very different levels, it does not make sense to give you an average U.S. dollar amount, but I will say that we are happy about the level we have agreed with our customers. Total volumes for the fourth quarter increased by 3.2%, driven by headhaul as demand surged, while backhaul volumes was largely flat. After a partial recovery in Q3, the growth momentum in Latin America, in particular, slowed in the fourth quarter. As congestions in the supply chain on various trades continued, especially in Terminals, container handling costs increased, leading to a slight increase in total operating cost of 1.2%. Bunker cost also took a significant drop in the fourth quarter and declined by 14%, driven by bunker price decreasing 16% to $323 per tonne and higher utilization. The bunker efficiency worsened by 0.2%, which was mainly driven by a margin increase in network speed, and our reliability was negatively impacted in the quarter as a result of the volatility in demand. When we talk about our costs in the fourth quarter, it is important to keep in mind that we have not set up the network to have the lowest absolute cost. Due to the bottlenecks in the supply chain and the challenges our customers are facing, we have set up the network to help our customers meet their needs in the best possible way and added more moves, more feeders and spread of vessels where appropriate. We, therefore, expect a temporary elevated cost structure to normalize once the bottlenecks due to COVID-19 disappear and are confident in our ability to keep taking out costs going forward. On Slide 17, we turn our attention to the success story of the quarter, our Logistics & Services business, which kept its positive momentum in revenue and reported a 35% increase to a record high of $2.1 billion. The growth was driven by both inorganic and organic growth, mainly supported by supply chain management, air freight forwarding, intermodal and acquisitions. Gross profit increased 57%, with a gross profit margin improving to almost 25%. And EBITDA grew more than fivefold to $158 million. The increase in profitability is led by intermodal margin improvement, strong rates in air freight forwarding, earnings from Performance Team in North America and the integration of KGH in Europe, strengthening the offering of end-to-end solutions. We are very pleased to see Logistics & Services delivering such strong results and growing in a profitable way. Slide 18 shows the development of gross profit and EBIT conversion in our Logistics & Services segment, which has shown a clear improvement in the last year. Our EBIT conversion improved in the quarter to 18.7%, continuing the nice constant progression of our EBIT conversion. We have also shown a table on this slide, which shows a positive and significant contribution from the acquisitions, adding $197 million in revenue and $27 million in EBITDA. But equally important is that you can also see that 2/3 of the growth in Q1 was actually organic growth with $335 million, while EBITDA grew by close to $100 million organically, also given the low previous year basis. This is a direct proof of our strategy working and our focus on improving margins. On Page 19, we turn to Terminals & Towage, where EBITDA increased by 20%, driven by higher volumes in gateway terminals. EBITDA in gateway terminals increased to $316 million, and the EBITDA margin increased by 4 percentage points to 36%, while Towage continued to show resilience in a difficult environment. Turning to the next slide. We have visualized the effects from volumes, revenue and costs on the EBITDA of gateway terminals. Volume increased like-for-like by 1%, with significant variations across regions with volumes in Europe increasing 2.1% and in North America by 1.5%, while volumes in Africa and the Middle East decreased by 4.7%. As in our Ocean business, we also saw bottlenecks in our Terminals business, especially in the U.S., and we are also exposed to a larger degree to the North-South trades, which have not experienced the same spikes as on the Pacific. Revenue per move increased by 1.9% to $279, positively impacted by higher revenue in Los Angeles and Port Elizabeth in the U.S., as a result of congested U.S. supply chain, including an increased dwell time. This was partially offset by rate of exchange impact in the African and Latin American regions, while cost per move decreased 4.6% to $220, mainly driven by the increase in volumes, lower costs and a positive one-off. Turning to Manufacturing & Others. We reported a decrease in EBITDA, mainly due to Maersk Supply Services suffering in the tough environment, while Maersk Container Industry had another strong quarter. With that, I'll pass the word to Søren for the full year guidance.

Thank you, Patrick. And let me just say that given the outlook and, if you will, despite the high degree of uncertainty related to the continued impact for COVID-19 on economic growth and global demand, we expect continued progress in 2021 and better results in 2021 than we do in -- we had in 2020. We're guiding an underlying EBITDA range in the -- of $8.5 billion to $10.5 billion compared to $8.3 billion in 2020. That corresponds to underlying EBIT in the range of $4.3 billion to $6.3 billion compared to $4.2 billion in 2020. And then we are guiding free cash flow above $3.5 billion compared to $4.6 billion in 2020. As part of the full year guidance in 2020 (sic) [ 2021 ], we expect the current -- as we have already said, the current exceptional situation with demand surge leading to bottlenecks in the supply chain and equipment shortage, which contributed to approximately 1.5 -- by approximately $1.5 billion to EBIT in 2020. We expect that to continue in Q1 and normalize thereafter. And therefore, we expect the first quarter of 2020 (sic) [ 2021 ] to come in above the fourth quarter of 2020. Ocean is expected to grow in line with the global container demand at an expected 3% to 5% in 2021, with the highest growth seen in the first part of the year. For the years 2021 to 2022, the accumulated CapEx is still expected to be $4.5 billion to $5.5 billion. And with this, I'm happy to open for questions.

[Operator Instructions] First question is from the line of Robert Joynson from Exane BNP Paribas.

I have 3 questions, please. The first couple on rates. So to begin with, if we look at the recent spike in rates, in particular during the final months of 2020, could you maybe just provide some color on the extent to which you think that, that spike was driven by a tight supply-demand balance on the shipping side versus a general lack of availability on the equipment side, please? And then the second question related to that. Could you maybe also just provide some color on the extent to which you're now seeing container availability improving? And then the third question on CapEx. CapEx was about $1.3 billion in 2020, and the run rate was only slightly above that level in Q4. If we look at the guidance, the high end is more than double that level on average for this year and next. You've been pretty clear that you don't expect to order a significant number of new ships from what I can see. Can you maybe just provide some additional color, therefore, on how you expect the additional CapEx to be deployed and particularly in terms of spend on new containers?

Yes, Rob, thanks. So in terms of rates, I think, first of all, it should be clear what's going on. One is, of course, that the consumer demand has been very strong during -- since August last year, as consumers have been spending some of the money that they could not spend on travel and restaurant visits and events, they've been spending on products. And we, of course, have benefited from that. I think we are also benefiting from an inventory cycle where companies -- many, many companies -- many retail companies really scaled down their purchases of goods in the third -- in the second quarter last year and well into the summer in Asia, and then they found out suddenly, as fall came and consumer demand held up, that they had too few goods on the shelf, so to speak, and lost sales. So retailers are restocking combined with strong demand from the consumer. That has been driving this massive growth in demand, as -- if you've seen the numbers on the U.S. I mean it's really extraordinary. And between capacity and -- vessel capacity and container capacity, it's really hard for us to separate the, if you will, the hot and the cold water. And I'm not sure it's that important either. I mean reality is that the global fleet and the global container fleet was able to carry global trade very well through 2019 and 2020 in the first 3 quarters, and then we saw spikes in the U.S. of 25% growth and so on; 40%, I think it was in November. And a fixed capacity system is simply not geared to handle that kind of volatility. So as the inventory cycle, if you will, resolves itself, I mean at some point retailers will have restocked, then we are back to the basic demand of the consumer to drive our demand. And there who knows what happens when you get out of the pandemic. I don't think any of us that are alive have tried the situation. So I think we need to look at it in that way. And then maybe Patrick will talk about CapEx.

Yes, sure. Rob, so on the CapEx, indeed, we were very disciplined in 2020 with $1.3 billion. And -- but we absolutely stick to the guidance, which implies indeed doubling of the CapEx, particularly for 2021. And that, as we previously mentioned, is really driven by the fact that we are investing in growth. When you see the returns we have, it actually makes sense to invest in the business. And we are doing so by, on the one hand, looking for equipment. So containers is certainly in short supply. That is certainly part of the investment, as we mentioned, I think earlier. It also makes more sense for us to actually buy them than to lease them. And therefore, we are also shifting to the previous and normal policy to actually buy the equipment. So we are doing so, which increases the CapEx number. And we have some first vessels, smaller vessels replacement coming in as well in 2021 and '22. So that will be part of the increased CapEx guidance and which we totally maintain. We shouldn't forget as well that Terminals has been very restricted and has growth plans as well and automation investments, which will further contribute to higher operation profitability. And L&S, which is growing. Obviously, it needs a bit more. They haven't received too much in the past. And obviously, warehousing and so on is maybe not the same scale as the other businesses on single investments. But clearly, our growth expectations and ambition in Logistics drives as well CapEx in that business.

Next question is from Muneeba Kayani from Bank of America.

Just back on spot rates. Based on your current bookings, what are you seeing in terms of demand and what is your visibility for the next month or 2 months? And then we've heard some -- that some Asian liners have increased new vessel orders. How do you view that? And how are you thinking about your market shares, please? And then on Logistics, can you give a bit more color on your inorganic growth plans in terms of size and timing, please?

Look, on spot rates, I mean we are full and spot rates are high, as you can see, in the index. And we expect to remain full also past Chinese New Year, what is quite extraordinary this year. As I'm sure you have seen in the press that the Chinese government and many companies in China, manufacturers are encouraging and incentivizing employees actually to stay at work as opposed to do what they usually do to take a week off and travel back home to their families. So the manufacturing sector in China is doing really good. And so we expect this to run for -- through the better part of our first quarter. In terms of market share and new vessel orders, we are guiding we expect to grow in line with the market in Ocean to 3% to 5%. That, of course, implies to maintain our market share. We have been -- on new vessel orders, we have -- we've tried to give you a couple of reference points. I mean, first of all, we have talked for since 2018 about having a 4 million TEU of capacity in our network in total, and we still try to keep to that. Right now, we're probably creeping a little bit above as we are trying to solve all of the bottlenecks that we have. But it is still our guidance that you should not see dramatic deviations from the 4 million. We have to replace our tonnage. I mean, every day, our fleet -- own fleet gets 1 day older. So there will be some replacement work, but you should not expect anything dramatic. And then lastly, I think it's important to say also that we are starting to guide you on free cash flow to really try to get out of this constant discussion of whether we are going to order a lot of ships or not. We're going to order ships to replace our fleet and to make sure that we broadly can maintain our market share, but nothing more than that. And then on inorganic growth, as far as Logistics & Services is concerned, we have said a number of times also last year that our main focus have been to acquire capabilities, to acquire growth platforms. We have called it bolt-on transactions, more than big transformative transactions. We have been very successful with that, we believe. I mean the couple of acquisitions we made last year were -- have been really helpful for us and you should expect to see more, if you will, of that type of acquisitions this year. And then what happens later, we'll see as things develop, and I hope we can be more clear in terms of answers to your questions when we get to our Capital Markets Day.

The next question is from Michael Rasmussen from Danske Bank.

A couple of questions from my side here. So it clearly sounds like there are no kind of new fuel technology in the CapEx guidance for '21/'22. But I know, sir, that you've been out talking about that you'll be ready to put down the orders in 2 to 3 years from now. So obviously, can you share something on what kind of pricing levels or timing or magnitude are you seeing in the years after '21/'22, just in terms of reaching the CO2 emission targets out there? And then my second question goes a little bit if you could talk about kind of the volume expectations that -- kind of the run rate during the course of the year, obviously, beyond the first quarter. Can you please talk a little bit because, obviously, the comps from 2020 also varies quite a lot. So if you could just talk about the various scenarios that you've been putting into this 3% to 5% growth?

Oops, I have to turn this on. In terms of volume expectations, then, of course, as you're right, the comps are going to be -- the percentages are going to look pretty weird, especially when we get to the second quarter where volumes were down 15% last year, year-on-year. So we expect 3% to 5% for the year. That means that we are going to get, in 2021, volumes that will be slightly above the absolute level of 2019. And we, of course, are starting the year strong in that range, 3% to 5% growth, and maybe even higher than that, and we expect it will moderate to the lower end of the range, if you will, in the second half of the year. That's basically our assumption at this point. But as I said before, it's -- we haven't really been in this situation before of coming out of a pandemic. But that's our expectation. So higher volume growth in the beginning of the year and lower in the second half. Now in terms of CapEx guidance and fuel technology, I think, first of all, we're still working on figuring out what is the best fuel for us for the future. But the alternatives that we are looking at, they are fuels which, like alcohols, like ammonia and so on, which basically is using the basic principle of a combustion engine. So that means that if we end up finding exactly the right solution there, then there will be a big retrofit opportunity for us. And then, of course, there already today are engines in the world that are marketed, which run on methanol, also an alcohol, and ammonia engines are under developing. And I'm sure they will be more expensive than the ones we do today. But I'm not -- we're not -- it's not like we are seeing a huge mountain of CapEx come at us because of engine technology, if we end up where we think we will end up with ammonia or methanol or something like that as a future fuel.

Great. So it's too early for you to put kind of also any numbers on the retrofit per vessel, so to say?

Yes. Yes.

Next question is from Carolina Dores from Morgan Stanley.

I have 2 questions -- 3 questions actually. The first one, it's trying to understand a bit more guidance because you are assuming the volumes go up 3% to 5%, so in some way, some resilient demand. And to reach the bottle -- to achieve the bottom range of your guidance, achieved rates would have to be flat, why you expect contracted -- from what I understand, contracted rates, 40% so far. So I just wanted to understand how conservative you've been on guidance, especially if you're guiding for the first quarter of 2021 above fourth quarter and volumes to stay, capacity to stay through Chinese New Year? My second question is a bit of a follow-up on what Muneeba has asked. So far, we've seen a few new orders at the start of the year. How do you see supply and demand in 2023? And my last question is with $3.6 billion of free cash flow this year and you focusing more on acquiring knowledge more than big M&A, how should we think about capital deployment in terms of buybacks and dividends?

Yes. So starting with your first question on the guidance. Indeed, as Søren was saying, it's a bit difficult now to really model all the variations you can have for 2021. But if we look at the evolution on the volumes, we guide for 3% to 5%, which really puts you back to more or less the 2019 level. So that is more or less the base assumption where we work on. Then it is really a matter of timing of normalization, how fast it happens, in which trade it happens and to which extent rates normalize within the quarters. That is still up. We guide for a good Q1. That's what we can see. And then obviously, there are different scenarios. If you really look at it with a bit of distance, the lower end of our guidance of $8.5 billion is just a replication of 2020, with the other way around, right? So it's nothing dramatic in a way, but it's, compared to the current level, quite a significant reduction implied in the rates. The higher end is a more smoother normalization. And frankly, probably, the reality will be a bit in between. I think those are 2 wide scenarios. This is why we have also widened the guidance of $2 billion instead of $1 billion. So we just want to reflect the uncertainty that is in the market, and we'll take it as it comes. Nevertheless, I would say, the most credible and probable scenario is probably in the middle of those two, and then it really depends on how extreme the year goes either way. I'll continue on your third question on the use of cash. I think it's -- first of all, it's good to have some cash. We still have some debt to repay. And then when you look at the use of cash, while we are continuing share buyback and return cash to shareholders, as we mentioned, we will be returning $2.2 billion this year, and there's a strong commitment here to continue to return cash to shareholders. And in terms of growth, clearly, with the ROIC we have, it makes sense to invest in the business as well. That includes organic growth as well. We just talked about CapEx, and there is growth as well in people, in expanding our operations. When you see there will be strong progress we have in Logistics, it is definitely the priority of investments, both for organic and external as well. So it's not all about acquisitions and so on. It's just about developing and growing, particularly the Maersk Spot, but also the Terminal Spot. When you look at acquisitions, as we said before, it is, first of all, looking at capabilities and then -- like we did very successfully in 2020, it's looking for the same kind of opportunities in '21. And maybe if there's a -- some smaller bigger ones, that will depend on the opportunities. It takes 2 always to find a good opportunity in the market. But overall, I would say we will invest those funds mostly as well in the business, both organically and inorganically.

If I can add to that, on your second question around new orders and so on. If I'm not mistaken, the order book in percentage of existing fleet is around 11% right now. And that is a very, very, frankly, manageable number. If global trade is growing 3% to 5%, you have to figure out that around 2% of existing capacity is actually scrapped every year on average. So it's a very moderate growth in capacity coming at us in the coming years. I believe Alphaliner is predicting that supply growth after scrapping, also net will grow around 1.5% in 2023, which was your question. So this is all very, very manageable. And then I think it's also an important point to make, frankly, that what matters is not really how many ships are in the global fleet. What matters for our pricing is how many ships are actually deployed. And as you saw during 2021 (sic) [ 2020 ] pricing was kept stable as carriers, they adjusted the capacity to demand in a very agile manner. And that is certainly also what we are planning to do in the coming years in Maersk.

And the next question is from Casper Blom from ABG Sundal Collier.

A couple of questions from my side also. First, about unit cost within the Ocean division. 2020 unit cost actually turns out to be a little bit higher than in 2019. You have explained why it went up a bit in Q4. You also warned that it will probably be a little bit elevated also in the beginning of 2021 also. But how should we think about unit cost for the whole of '21? Is it the usual 1% to 2% decrease? Or is there actually a bigger potential to decrease unit cost due to an elevated level in 2020? That's my first question, please.

Yes. Thanks very much for your question. I think, obviously, the unit cost in 2020 has, as we have tried to explain, been impacted by the fact that we are trying to serve our customers, right? So we haven't really looked at optimizing the cost. That's not the priority right now. The priority is to get the goods for our customers and get the goods going and helping them out. So we have had some lower efficiency on the bunker consumption because everything we have sailed, and we're trying just to make both ends meet. When ultimately the situation normalizes, we will absolutely return to a good situation of having our cost under control because that's, I would say, there is potential to continue to reduce our cost. But on the other hand, you have, obviously, the charter rates, which have increased. So therefore, the new agreements will be at a higher rate as well. So I don't think the cost per unit will be a major driver, looking at 2021 and in the years ahead. There's potential on our own further cost optimization, bunker consumption, but it will be a little bit offset as well by increased charter rates as well, but not a major dramatic movement there.

Okay. That's very good. Then secondly, Patrick, you mentioned, I think it was you, that you had -- were happy with the contract negotiations on some of the longer term contracts that you have in the Ocean division. Could you sort of talk a little bit to how much have been renewed so far? And also, what do you expect for the remaining part of outstanding contracts that are still to be negotiated? And what you have sort of assumed there in your guidance?

Yes, Casper, maybe I should take that. I mean we are quite pleased with the progress in our contract negotiations. We have achieved solid improvements in the freight rates. We are 40% in. So 40% of the volume that we want to sign up has been signed up, and it runs until May. We expect, as things look right now, that we will continue to be happy, so to speak, and continue to achieve significant increases. I know you would love for me to give a number, but I'm not going to do that because I don't think that it would be helpful in terms of the negotiations with our customers.

That is fully understandable. But as I hear you, you basically assume sort of similar level of increases in the remaining 60%. Is that fair?

Yes. So we continue to believe that -- I mean it's not like the contract market is weakening, I guess, is what right now is the signal I want to send.

Okay. That's great. Then my last question is, we talk about this normalization of the market and how once bottlenecks are cleared, then rates come down. But what is actually sort of the level that rates should come down to? We saw in the beginning of 2020 that the industry showed sort of an unforeseen discipline that hadn't been seen before in terms of handling capacity. I mean do you think that we will sort of go back to the rate levels we saw in 2019? Or will it be a sort of healthier industry that is the new normal?

Look, I think it's obviously an open question we have commented on, let's say, the discipline of the industry previously, but it always remains an open question. What you have to see is with our guidance, which might appear a bit low on the $8.5 billion, we actually, as was calculated before, forecast to get there quite -- coming down of rates, right? And that is our worst-case scenario. So what we're implicitly guiding here is that in 2021, whatever happens, we're going to be more profitable than 2020 and '19 and '18. So from that point of view, it is not a bad level to be in, right? And so while I understand the focus on the short-term rates, and this is really what drives our operations, we are trying every day to fulfill our commitment to the customers. We have to have a longer view here and see that we have progressively improved the profitability of the company, and we talk about profitability between $8.5 billion and $10.5 billion, which is a good level, and it's underpinned by Terminals and Logistics growing and being more profitable every year.

And if I can just very quickly add to that. I mean even at the low end of our guidance, I mean the return on invested capital is well above 9% -- the 9.6% we achieved this year underlying based on $8.3 billion. So you can do the math.

Next question is from Lars Heindorff from SEB.