Good morning, everybody, and thank you for listening in on our earnings call this morning. My name is Soren Skou. I'm the CEO of APMoller Maersk, and I'm joined here today by Claus Hemmick's our Vice CEO, Carolina Dubeck Happe, our CFO, Vincent Clark, Chief Commercial Officer and Cern Tuft, Chief Operating Officer. I invite you, as always, just to look at the statements around or the disclaimer around around forward looking statements. So now moving into the report, I'll start with a transformation update.
2018 was a year where we made a significant progress on the journey to become a a completely different company. We have gone from being a conglomerate operating 8 different divisions with a big corporate layer on top. To now being organized as one company with, with 1 frontline organization for our ocean and logistics service businesses. That means 1 Salesforce, 1 customer service, function 1 delivery organization. We have also, during 2018, successfully integrated our big acquisition from late 2017 Hamburg Sud and delivered the synergies from that transaction, better than planned.
We have confound our digitization journey to the point that in Ocean, the customers transaction with us are now largely digitized more than around 90% of oil prices are now issued via our website. We have almost 100% of all bookings are received in an electronic form and so on and so forth. So that we made serious progress there. Also during the year, we regained our position as one of the most reliable carriers in the industry. We did a number of investments in terms of customer service.
And solving certain issues, long standing issues with invoice quality. All of that meant that we left the year with the best customer satisfaction scores on record. Finally, I want to say that going forward, we will be introducing these 4 metrics that you see on the right that we will report on every single quarter. It seems to really give you some guidance other than the financial results on where are we our transformation journey. We'll focus on growth in the non Ocean, in the 2018 comp was a 5.5% growth.
We will focus on logistics and services. GP growth, it was a 5.6% improvement last year. We will focus on finalizing the synergies that we have, that we have previously communicated around from integrating the company and from the acquisition of Halper together, they add up to about 1,000,000,000. So we'll continue to measure on that. And then we're introducing the new metric cash return on invested capital to really demonstrate that we are moving forward in with a very, very strong, capital discipline and with the aim of of generating real cash returns.
Our long term return on invested capital and target of 8.5 stands, but it becomes 7.5 when we include the effects of like IFRS 16. Now moving on to the energy separation. Last year, we also made significant progress there as all know we separated out Maersk Oil in a transaction with Total in March of 2018, And we have been selling shares in Intuitl in the last year and this year, and we currently hold around 28,000,000 shares with a value of 1,600,000,000 in Total. We have also decided and announced last year that we are going to demerge Maersk Drilling and listed on the Copenhagen Stock Exchange as you all know this morning, we have now made that official, if you will, by announcing our intention to float. We expect to sign the final papers in the beginning of March and make the transaction effective as of 4th April 2019.
Assuming that the transaction gets approved by the annual general meeting on the 2nd April. We are still looking for solutions for our supply service We remain challenged by the market conditions, but we are sure that at some point, we'll find a solution With the transaction of Maersk Drilling, we will have done oil and energy transactions for more than $12,000,000,000 to separate out these businesses and had a cash flow that goes to $9,000,000,000 from that. We are planning to disclose further details about our capital structure about new dividend policy and about plans for distribution of a material part of the proceeds from the sale of Maersk Oil latest at in connection with our Q2 announcement in August. Now moving on to Transport And Logistics, we have 2018 result which can be characterized by the following. It was a year where we delivered a very strong growth We add $8,000,000,000 to the top, of course, very much driven by the acquisition of Hamburg Sud, but we also delivered good organic growth.
It means that now since 2016 where we started on this journey, we have added about $12,000,000,000 of turnover and we're $39,000,000,000 of turnover in 20 18, we now have a higher turnover than we had in 2016, where we included also the oil and energy related businesses. We did not make $8,000,000,000, up from $3,500,000,000 last year and $2,500,000,000 in 2016. We had expected better progress during the year, but a number of factors impacted us negatively. Most importantly, the fuel price increased a lot and we were not able to fully compensate for that. We have delivered well on the synergies from Hamburg Sud, $420,000,000 And we also continue to progress on the transport and logistics synergies.
Cash flow improved. We had a cash conversion of 85%. It would have been 90% if it was not because of a one time special effect from a change in Danish tax laws. We also were able to reduce the interest bearing debt quite significantly during twenty and 2018 and we to buy about CHF 6,000,000,000 to CHF 8,700,000,000, and we are continuing to reduce interest bearing debt in the 1st month of 2018 as we have sold, to tell shares. We are proposing an ordinary dividend of 150 Chrona per share, that's equal to approximately 500,000,000 for 2018.
And then as I already said, we will come back in connection with our Q2 interim report on what's next step in terms of proceeds from from, from the sale of Maersk Oil and a dividend policy that is fit for purpose for the new company. Our guidance for 2019 is an EBITDA of $5,000,000,000 including the effects of IFRS 16, which equals to around $1,000,000,000. Our guidance take very much out is very much focused on a number of uncertainties that we see. We see clearly a global economic growth that is declining. We see weaknesses in particular, China and Europe.
We have we are expecting container demand to decline to 1% to 3% this year. From 3.7,3.8 last year. And as a result of that, on top of that, we have quite some uncertainty as to what happens with fuel prices. They have gone up quite a lot in the last months or so. And then finally, we will be, as an industry, implementing IMO 2020 towards the end of the year, which will All three is equally also mean a significant increase in fuel process.
In terms of trade war, of course, we also are concerned about continued high level of tensions on the trade agenda. U. S, China Negociates are ongoing and we have no insights to how likely it is that the deal will be landed even though if the press is positive right now. But we don't believe that China, U. S.
Deal will be the last we have heard about trade tensions in 2019 because there's also clearly an outstanding discussion between Europe and the U. S. And that's really the background for our guidance for 2019. And with that, I will turn on turn over to Cal Guido to recover.
Thank you, Soren, and I will turn to our financials for 4th quarter in 2018. Our revenue increased mainly due to the acquisition of Hamburg Sud, but also excluding Hamburg Sud, the growth in revenue was 9.3%. Due to a strong focus on profitability in the Ocean segment, our EBITDA improved 32 percent in the fourth quarter of 2018, and we are reporting the highest EBITDA margin in Ocean throughout the year. EBIT was $219,000,000, down from $273,000,000. And this was negatively impacted from higher depreciation amortizations as well as impairments related to our MCI and railroad business in a total of SEK156,000,000.
Underlying profit in the continuing business was SEK 120,000,000, which is an improvement from Q4 last year of SEK 36 1,000,000. And remember that we reported for the full year 2018 an underlying profit of 1,000,000. For the CapEx then, in the 4th quarter, gross CapEx amounted to $587,000,000, which takes us to the total of USD 2,900,000,000 for the year, slightly below our guidance of USD 3,000,000,000. Despite postponing 1,000,000 of CapEx from 2018 to 2019, we have lowered our expectations for gross CapEx for 2019, to around $2,200,000,000 from previously at 2,000,000,000 to 2,500,000,000 range. The lower CapEx is due to our focus on CapEx discipline.
And I would like to repeat that we will not be ordering any new large vessels until at earliest 2020 and no new greenfield projects in the terminal business in the foreseeable future. We have also started leasing more containers instead of buying them as we disclosed in the half year report and with our expected market outlook lowered to 1% to 3% for 2019 and our expectations to grow in line with the market in our Ocean segments. This naturally leads to lower CapEx. Requirements. The current contractual capital commitments, that is the CapEx that we have already sort of contractually committed ourselves to spend.
Is $2,300,000,000 at the end of the year, which is actually $1,500,000,000 lower than it was going out of 2017. So that leaves us with a high degree of flexibility. The remaining commitments primarily relates to remaining 6 vessels that will be delivered until half year 'nineteen and some terminal concessions. Moving then to the cash flow development. Here we have split the slide into two graphs.
1 for the full year, A10 and 1 for the 4th quarter. So operating cash flow increased slightly. To USD 3,225,000,000 for the full 2018. And that reflects a cash conversion of 85 percent for the year and adjusted for the VAT scheme that Stern mentioned, we are above 90% for that. The cash flow from operations was negatively impacted by net working capital increase, and that was mainly due to the increased bunker price, which then of course meant that our inventories or the value of our inventories in Ocean increased.
Free cash flow for the full year 2018 was 1,000,000,000, but that includes the 1,000,000,000 from the share or the sale of the share in Total. So SEK349,000,000 was generated from the continuing business and the rest is from dividends received as well as cash from divestments. For the fourth quarter in 2018, we generated a free cash flow of close to 1,000,000,000 of that. 1,000,000 was generated from operations and 1,800,000 from the sale of the shares in Total. We had a very high cash conversion of 121 percent in the quarter.
Should remember though that 2017 number is including the Hamburg Sud is excluding the Hamburg Sud acquisition, but it includes $900,000,000 from the sale of the remaining shares in Dansk Supermarket. And around another 1,000,000 from sale of other businesses. Since the end of Q4 2018, we have sold around 18,400,000 shares in Total asset. So that generates a cash flow of around SEK 1,500,000,000, which means we have around SEK 1,500,000,000 left in value at the current share price. Moving on then to the balance sheet and the huge deleveraging that we have seen during the year.
The net interest bearing debt decreased from $14,800,000,000 to $8,700,000,000. So a big reduction of over $6,000,000,000. The reduction has been supported by the SEK3.2 billion related to the sale of the shares and the dividends from Total as well as the $2,000,000,000 in cash from the sale of Maersk Oil and $1,200,000,000 in cash proceeds from the separation of Maersk Drilling. But remember that net debt will actually increase with the same amount of around 1,000,000,000 due to the adoption of IFRS 16. So basically we'll be back where we started, but that's from a technical point of view.
On this slide, we have summarized the consolidated financial information. I have touched most of the lines. A comment to the financial cost in the fourth quarter, we were lower than last year. And that is due to the impact from the dividend that we received from the Total shares. Within that, we had interest increases though and some one off costs related to prepayment of debt.
Tax payments also have increased in Q4 'eighteen, but that is mainly due to the high tax that we paid on the dividends from the Total share. So overall, adjusting from the impairment, the restructuring costs and the like, we end at an underlying profit of $120,000,000 for the fourth quarter $220,000,000 for the full year, 2018. Next slide shows what IFRS 16 does to us. And we have implemented it as of January 2019. And here you can see comparison on how the 2018 financials would have looked like, as you maybe had included the standard already in 2018 for your comparability.
So EBITDA will be significantly higher as expenses related to operating leases longer than 12 months are no longer included. So for 2018, EBITDA, technically, will increase with 1,200,000,000 to 5,000,000,000 from the 3.8 Net profit will decrease slightly due to the increased depreciation impacting EBIT and higher financial expenses. And as a consequence of the implementation of IFRS 16, as I mentioned, our net debt will also increase to 1,000,000,000 from the 8.7% to 14.7%. ROIC increases slightly to the level of 1% or somewhere between 1% and 1.5% for 2018 from 0.8. However, going forward, it will dilute ROIC on a general basis, and that's why we are lowering our book target from 8.5 to now be a long term target of 7.5.
The guidance for 2019 is based upon IFRS 16, and from Q1 twenty nineteen, the guidance will only be provided based on the new IFRS 16 accounting rules. There are more details related to the impact for each of the segments that you can see in our full year report on page 15 to 16. And with that, I will hand the microphone over to Enviso.
Thank you. Thank you Carolina. And in Ocean, our revenue grew both including and excluding Hamburg Sud. And this had, of course, a positive reflection on our EBITDA which increased 50% compared to the same quarter a year ago. Our EBITDA margin has improved by 2.4% to 12.7% in Q4 2018.
A big contributor to that increase was the increase we had in other revenue, mainly demerge and detention income from our customers. Compared to Q4, as year, the freight rates increased by 9.3% and that was mainly driven by a strong recovery on East West trades. Where we saw a recovery both on Asia Europe and the Pacific and especially on the Pacific where The strong volumes were supported by a pre tariff rush that we saw throughout the trade for most of the quarter. The North South trade also saw some recovery and grew by 6.4% while the intra regional trades increased by 14%. The inclusion of Hamburg Sud affected the average freight rate positively, especially in the intra regional trades where you can see the difference compared to a year ago on the intra Latin America.
The increase was partly due to the implementation and the continued application of our emergency bunker surcharge with was implemented over the summer. Excluding the positive effect of higher rates from Hamburg Sud, who also comes into the portfolio with the higher unit costs. Our rates were up by 7% compared to the same quarter of last year, which on a stand alone is more than enough to compensate was more than enough to compensate for the fuel increases we faced in the quarter over a year ago. If we exclude the Hamburg Sud, the volumes declined by 1.1% which is lower than the estimated market growth we have of 3%. This decline happened mostly in backhaul trades, 3.5% and was also the effect of some capacity rationalization adjustments we implemented throughout the quarter as we focused on restoring margins in this segment.
On an annual basis, the volumes excluding Hamburg Sud grew by 2.5%, which was in line with the guidance we had provided of growing slightly below the market for this year and mainly to focus on profitability and to lower our exposure to the to some of the trades where we could not make positive return. With this, I'm going to hand it over to Sean Tuft.
Thank you, Vincent. And quickly progressing on the cost side and unit cost at fixed bunker and fixed rate of exchange increased 0.5% year on year. Of course, the full year to full year pro form a development is significantly affected by the very poor start that we had in quarter 1 of 2018. As we still had a lot of the existing operational agreements from Hamburg Sud in effect. But the following three quarters, we have improved performance significantly.
And in Q4, we also improved by 1.8% versus quarter 3. And that despite Vincent mentioned the much weaker volumes. Q4 2017 versus Q4 2018, the unit cost did increase 1.9% without the adjustments that we normally do for the Hamburg Sudmix and the FX. And just to be upfront, Then due to the inclusion of Hamburg Sud and since their Tramp activities, in fact, also set in the Ocean segment in quarter 4 of 2017, We are unable to give specific mix effects on the quarter 4 and quarter 4 developments. Also, you should bear in mind that last quarter 4 2017, was impacted by a number of significant one offs, for instance, tax release provisions.
On fuel cost, we continued the progress that we have showed the last several quarters where, of course, the cost increased due to the price year on year, but our efficiency improved nearly 10% also due to initiatives from the Hamburg Sud acquisition and the network synergies. If we go to the next slide and continue about network, then the average capacity quarter 4 over quarter 4 increased 7.4%, while volumes increased 11% in the same period. Average capacity in Q4 twenty eighteen was in line with Q3 twenty eighteen, and that is despite sailing a number of additional 1 off trips to cater for the U. S. Peak and despite having added 5 to 7 ships for significant congestion, especially in Nigeria.
For 2019, on a like for like basis, capacity will be flat compared to the second half of twenty eighteen. When we then include impact from already announced slow steaming initiatives and the effect of the temporary scrubber insulation, we'll see We expect capacity will slightly increase year on year to the tune of 1% to 2%. But remember, the scrubber effect is a temporary thing And obviously, capacities for slow steaming are decisions that are helping both the product that we offer to our customers as well as the cost position that we have. If we then go to the next slide, then as Soren Skou mentioned, we believe the Hamburg Sud integration has gone really well. We've kept the full customer base.
The integration has happened without basically any client disruptions and positive client satisfaction and synergies are coming in ahead of the plan. For 2018, we expect to We have delivered 1,000,000 and we realized integration costs of 1,000,000. That's well below the recent estimates we gave you. Synergies are of course benefiting in the Ocean segment, mainly due to more efficient network and better supplier contracts, but they are also significantly benefiting the terminal and towed meant due to more profitable volumes. The Q4 EBITDA pro form a that we come out with an Hamburg Series 204000000 versus 148000000 in Q3 2018 again, mainly from both better freight rates and the fully realized synergies.
For 2019, we maintained minimum $500,000,000 of synergies And we're now updating you on a slightly lower integration cost expectation of around 1,000,000. I'll hand the word over to Vincent for logistics and services.
Thank you. And now turning our attention to our second segment here, logistics and services, we saw a revenue increase of 2 percent to 1,557,000,000 compared to 1.527 last year. This was positively impacted by the activity growth that we have in intermodal and in line activities as well as supply chain management, but was impacted negatively also by the continued weeding of our nonprofitable or less profitable business in freight forwarding and here under especially air, where we have a strong drive to concentrate on margin generation rather than top line and and volumes. EBITDA was negative EBITDA was negatively impacted by a restructuring cost of $20,000,000 as an effect of the merging that we effectuated of the frontline organizations between, between damco and Maerskline. And the maintenance cost in and a maintenance cost expense of 1,000,000 for the Star Air fleet.
However, EBITDA adjusted cost is still at an unsatisfactory 1.2% for the quarter. Adjusting further for the maintenance to have more like for like comparison with the previous years, the EBITDA is actually in line with what we expected for now. On the next slide, we can see some of the highlights that I touched upon previously with our SCM volumes growing by 7.3% for the quarter, which is both a reflection of the very strong, Pacific volumes we saw during the quarter as we talked about the the pre tariff rush here in the fourth quarter, but also the implementation of, of new customers and new wins from our pipeline throughout the year. Gross profit for the segment improved 1.5% supported by these volumes in SCM, but also increase in warehousing and distribution, especially in the U. S.
And also, as I mentioned, inland activities. Margins in Air And Ocean increased by 3.39% respectively, mainly due to the continuous focus on margin. This came at the expense of volumes to a large extent as we really focused on margins and of course had an impact on our top line. Our EBIT conversion ratio was negative 5.9% versus 9.2% positive in Q4 2017 while adjusting for restructuring costs and the conversion ratio would have been 1.5%, which is disappointing and that we're we'll work hard on with the new organization set up now to improve profitability with the several initiatives that we're taking in this field right now. Let me hand over to Sarah now to talk about terminal and Towage.
So in the Terminals and Towage segment, we are pleased with the progress. Revenue grew 14% quarter 4, 2018 over quarter 4, 2017. The gateway terminals increased both revenue and EBITDA, while towage business faced some headwinds due to price pressures and currency developments. In the gateway terminals, EBITDA continued to improve significantly, mainly due to the strong growth in volumes ahead of And in fact, in the last 12 months, EBITDA in gateways have increased 21% from these stronger volume very close collaboration between mass line and APM terminals, Hamburg Sud synergies and obviously also VSA partners. Moving volumes into APM terminals.
If we look a little bit closer 18% quarter on quarter, 14% from the external customers, the VSA customers and 18% from the ocean segment significantly above the market, both for the quarter and obviously also for the year. Revenue per move was up 4.4% that's mainly due to high activity in North America and Latin America offset partly by unfavorable rate of exchange. Cost per move was higher up 5.8 percent, also mainly due to more volumes in the high cost terminals, but also congesting that we experienced in especially New York And Los Angeles. In the towage segment, the harbour towage job increased nearly 6% But again, here, revenue was impacted by currency and quite a number of price pressure in mature markets. If I then continue with the Manufacturing segment, then the brief story here is that MCI's revenue decreased quarter 4 over quarter 2017 from 1000000 to 1000000, 1000000, mainly because of lower dry volumes and significant price pressure on dry business.
And we have, as a consequence of that, as you know, decided to close the dry factory and focus MCI for the future strategically fully on the reefer business and cold chain services. EBITDA in MCI was slightly below Q4, wafer pulled up in the other businesses, which now also included the Hamburg Sudtramp. Revenue was significantly up, but EBITDA negative due to the very poor bulk fundamentals. We have announced the sale of the bulk segment, and it'll be closing somewhere in early Q22 2019. I will give the word to Claus Hemmingsen.
Thank you, Sharon. And if you turn to page 25, we'll talk a little bit about the Maersk Drilling. And as Joan already said, the Board of Directors have today decided to pursue demerger of APMolecular is going to listing up Maersk Drilling. So the anticipation is that we will on 4th March, sign and you the demerger documents in order to propose to the annual general meeting, sorry, on the 2nd April, that the shareholders approved a demerger. And that means that the shareholders of today will also be the shareholders of tomorrow after the demerger in mergering I think the important thing here is that the Board of Directors intends to propose a single share class, so no NDCR structure, but shares that will have equal voting rights, and it's going to be on a prorated basis so that the shareholders of APmolemers will receive equal shares in Maersk Drilling.
As John mentioned, the 1st day of trading is anticipated to be the 4th April subject to the ATM approval. It also noted that APM Holding has agreed to a 360 day logout period for their shareholding, but also have signaled that intend to be a long term shareholder. So I will just refer to that Maersk Drilling will hold their Capital Markets Day on the 25th February where a lot of details will be available to investors. I'll just say here that it's a very strong and well reputed company. They are serving the most demanding customers that are amongst the biggest companies in the world.
They come out with a very strong contract backlog $2,500,000,000, which is unique in the market and with a very good financial fundamentals of a net interest bearing debt of just short of $1,100,000,000. If you turn to Page 26, just briefly on Maersk Drilling's 2018 report, was issued on 7th February in detail. So revenue of 1,000,000 and an EBITDA of 1,000,000 slightly lower than last year, impacted by the expiry of legacy contracts. The forward contract coverage for 2019 is 63%, And, and as I just mentioned, they hold 1 of the highest backlogs in the industry. Maersk Drilling have issued a guidance for 2019 that they expect an EBITDA before special items around 1,000,000.
Expectations is thereby in 2019 below 2018, and that primarily due to the increased number of yard stays that is necessary to keep the rigs within the special surveys and they have to fall between 7 10 rigs in 2019. Capital expenditures are expected to be in the range of $300,000,000 to $350,000,000 mainly comprising of the rig upgrades and yard stays just referred to. If you turn to Page 27 from a supply service they reported a client revenue of 5%, reflecting lower day rates and expiry of, of also legacy contracts. EBITDA was negative 1,000,000 and impacted by the by increased project cost and, of course, also by the expiry of contracts. First Supply Service have taken delivery of their final new building here on 14th February, and that completes the CapEx new building program for Maersk Supply Service for now.
We are still working on finding structural solutions for Maersk Supply Service and I'm confident that we will find a solution for Maersk Supply service going forward. So with these brief words, I'll hand the microphone back to Carolina, who will cover guidance.
Thank you, Claus. So to the guidance for 2019, APMela Maersk expects an EBITDA of around USD 5,000,000,000 for 2019. And that is including the effects from IFRS 16. This is equivalent to around USD 4,000,000,000 excluding the IFRS effect. The organic volume growth in Ocean is expected to be in line with the estimated average market growth of 1% to 3% for 2019.
As we currently see, uncertainties related to the market outlook related to weaker global economic growth, just to mention Brexit, weaker growth in China, risk in emerging markets and other things that Cern mentioned in the beginning of this call as well. Please remember, and as you can see from the sensitivity table, the volatility related to changes in freight rates continues to be high and impacts EBITDA by around 1,400,000,000 if average freight rates increased by $100 per FFE. Which is equivalent of a change of 5%. Guidance on gross capital expenditure, CapEx is around $2,200,000,000 And we do expect a high cash conversion also for 2019. And with that, we will open up for Q And A.
Thank you. And we will now begin the question and answer And please limit yourself to two questions at a time. And the first question is from the line of Patrick Crossett. Please go ahead. Your line is now open.
And it looks like we lost connection to the line of Patrick So our next question is from the line of Casper Blum from ABG Sundal Collier. Please go ahead. Your line is open.
Thank you very much. And I'll take the opportunity to ask 2 questions, and I'll ask them one at a time so you don't have to write down too much. I'd like to start with your guidance. You mentioned that you expect the market to grow by 1% to 3% this year. I suppose that is also, what is the sort of background for the guidance?
And could you elaborate a bit that the 1,000,000,000 around 1,000,000,000 of guidance under the old accounting principle, EUR 5,000,000,000 under the new, is that then equivalent to the market growing 2% or how should we sort of see that range, so to say?
Yes, Vincent here. Casper, so we have an expectations now for a market growing around these 2% as you mentioned. And our volume expectations are in line with that. I think what is important to understand is really the variance that there is around that, that number given the high uncertainties that there is So, and that's why I think it's really important to understand the leverage of 5% change in freight rate has a huge impact as Carolina just outlined. So I think the guidance reflects the high level of uncertainty around trade, around macro environment, around the implementation of the IMO 2020 at the end of the year.
The volatility we have seen in fuel price. I mean, these are all factors that can swing and have a massive impact as we've seen some of them play out in 2018.
But if I may follow-up then, is it it a fair interpretation that given that you will have some things helping you in 2019, for example, the synergies that you mentioned previously, I also suppose you want to have lower unit costs in 2019 that you are implicitly guiding for freight rates that are lower in 2019 than in 2018.
Obviously, so the first of all, the unit cost we're guiding on is at fixed fuel price. So I think what is really important to remember is exactly this background of trade tensions, macro weakness and volatility in fuel price that has a high that will eventually play out on a freight rate, on a freight rate player, which we don't really know how it's going to shape up at this stage.
Okay. And then my second question, more sort of regarding the state of things as it is right now. And could you give any comment to the fact that rates have actually sort of looks from the outside, at least, to have started at fairly good levels here in 2019. And maybe also a bit of commentary to sort of contract negotiations you've had around New Year's? Thank you.
Yes. So I think it's, it's, as you rightfully point out, the rates ended up the year of 2018. We can see it here and with this even cleaned up for the impact of Hamburg Sud 7% year on year growth. In freight rates, that's we're ending the year in we have ended the year in a much better shape than we ended the previous year. That obviously means a better in to start the year into and a better environment to negotiate contracts into.
We are about halfway through the contracting season. We done basically Asian and European customers. And I would say that the rates we're contracting at are also in line with a better climate to negotiate those. We still have the entire North American portfolio to go through because those are effective from 1st May. And I just want to remind you also that half of our business is actually a short term business that we renegotiate either monthly or weekly And that's really where a lot of the risk, even after the contracting season is done, a lot of the risk is going to is going to play out because it's a significant part of our business and it's an extremely volatile part of the business.
That's very clear. Thanks a lot.
And next question is from the line of Robert Johnson from Exane BNP Paribas. Please go ahead. Your line is open.
Good morning everybody. I also have two questions. I'll do them one at a time as well. So If we just start off with the EBITDA guidance, sorry to repeat the point, but it is obviously the main discussion topic from this morning. If we look at the numbers including the impact of IFRS 16, the run rate EBITDA coming out 2018 is around 1,000,000,000 just based on the Q4 result, which is obviously materially higher than the 1,000,000,000 guidance.
You just referenced that unit costs are improving. Freight rates have started 2019 at a higher level than 2018. And you've also just confirmed that contract rates have been maybe a little bit more favorable than 2018 as well. So those factors would suggest EBITDA increasing in 2019 rather than declining at least versus the run rate Could you maybe just help us to reconcile those factors with the 1,000,000,000 guidance? And for example, are there any buffers factored into the guidance related to the uncertainties for 2019 that you mentioned earlier in the call?
This is Carnila here. I would say that all of what you mentioned is true, but there still are big uncertainties in the world. So I think we're going to have to come back to that. And the uncertainties, that's why we guide for the 1% to 3% for 2019. It's significantly down from 2018.
We have China slowdown. We have Brexit, hard or not. We have the weaker economic outlook. We talked about the bunker price fluctuations. It is difficult to predict the movements.
And we have a risk on the timing and the impact on the rates. I would say, in an environment with weaker demand and steel inflow of large vessels, we have the implementation of the IMO 2020, which will most likely impact the second half of twenty nineteen with idling, scrapping, fuel prices, what have you? And we also should remember that the Ocean Performance was strong in the second half of 'eighteen, where we had a sort of an increase in average freight rates more than compensated for the increase in fuel prices. So if you look at we will also have tough comps in the second half of 'nineteen. Okay,
thank you. Then just the second question hopefully a quick one. You've mentioned before about holding capacity flat sort of roundabout the current level of 1,000,000 also TUs. Could you maybe just comment on how much additional volume can be handled while holding capacity constant at around the current level? Thank you.
Think we have given the answer already by saying that like for like capacity will be flat, but we expect to grow in the 1% to 3% range for the year. So that's that would be the starting point.
Okay. Thank you very much.
Next question is from the line of Dan Togel from Carnegie. Please go ahead. Your line is open.
Yes. Thank you. And two questions from me as well. First one is, on, in Q4, you Vincent mentioned that VSAs and demerge was a positive year and and a bit higher in previous quarters as well or at least it has been fairly high. Is this sustainable?
And can you give some color on that? And how should we look at this going into 2019? That's the first question.
So, so there are, I think there are 3 things to build into that. 2 of them are sustainable and one is not. So one is, is a part of the synergies we report with Hamburg Sud is actually that they have been able to increase their collection in the course of the year. So that is something that we expect to remain a feature of Hamburg Sud going forward. The other thing is actually the collection from Maersk from its customers has actually increased.
We have toughened up a lot of our policies in that field and have been able to also increase the revenues that we gain per FFE on the other revenues there. So that we expect to come as well. Another another factor has been, some of the congestions that Santosh mentioned on the terminal and Towage, was specifically in the U. S. With the pre tariff rush where you where the customers had a hard time getting delivery and processing all the goods that has had a bit of a windfall effect in the fourth quarter that will not be a recurring one, going forward.
Are these more or less equal in size? Can is that a fair assumption?
No, it's not a fair assumption because the, obviously, the size of Hamburg should be being what it is. It would mean that they would have had to increase a real a lot to make up for the differences in size, but all three were significant, I would say, in the fourth quarter.
Okay. Thank you. And then just a question mark on IFRS 16 and the impact because in your guidance, you you say around 1,000,000,000, but when I look into 18 numbers, it's 1,200,000,000 when you adjust here. So which numbers should be used for for 2019, is there any reason why the impact of IFRS 16 is lower in 2019 compared to 2018? Or is this just a matter of rounding?
The guidance is including IFRS since that is what go with from 'nineteen. So it is SEK 5,000,000,000 and it's also what we say is that it's around, right? So, I would stick to that. That is the guidance.
So if just to clarify here, so if I use 1.2, which was the effect in 18. If I use 1.2 for 2019, I will not be wrong.
Mean, within IFRS, there are a little bit of sort of things that you need to take into consideration there, but that's why we say it's around 5% and you have sort of the you can see there's a bridge between, but the guidance is 5. And
next question is from the line of Lars Heindo from SEB. Please go ahead. Your line is open.
Yes, good morning. Two questions from my side as well. The first is regarding your capacity growth you're saving. That you will keep your nominal capacity roughly flat. But I think you mentioned during your presentation that you expect to grow capacity by 1% to 2%.
I'm just curious to find out how you will get to that if you have business that would be out to have scrubbers installed and also if you intend to do more slow steaming? That's the first one.
Lasse, so on toft here, let me try to repeat. Our capacity on a like for like basis in 2019 will be flat with the second half of 2018. And I deliberately say the second half because the first quarter of 2018 was not a if we say a peak that we are particularly pleased with. What I then said is that year over year, I expect our capacity to be slightly up 1 to 2%. And that includes then the temporary refitting of ships for scrubber and some investments in slow steaming.
So it means that even with this effect, there'll be a very marginal increase on the full year numbers.
Okay, all right. Thank you. And then the other question is regarding, logistics I think it's clear from the numbers that you have delivered in Q4 that your freight forwarding is probably not going very, very well. I don't know if you could give us a status about that you have earlier indicated that that's maybe not part of your core business going forward?
Yes, on freight forwarding, what we can say is that we have effectively from 1st January carved out the DAMCO Freight Forwarding business from the rest and it now operates as as an independent, stand alone company. And it has only one one mission that is to become a profitable freight forwarding business with a focus on on air and ocean. That's basically where we are at this point. So we now have one P and L that is only free forwarding, who is employed there, what offices they have. And so on, that is the status at this point.
And I cannot say any more than that.
Okay. Can you review the EBITDA in the 4th quarter for that business?
No, no, we don't disclose at that level, but obviously, as I just said, we're not happy with the level of profitability in the freight forwarding and it needs to improve.
And next question is from the line of Patrick Cossette from Goldman Sachs. Please go ahead. Your line is open.
Hi, thanks for taking my question. Just to come back to, to your guidance for 2019, I mean, when we take the run rate in the fourth quarter, it would imply somewhere around 1,000,000,000 EBITDA or so in 2019. You're guiding 1,000,000,000 on a comparable basis. Is it fair to say that the sort of SEK 500,000,000 difference is effectively a margin of safety for all the global risks you've mentioned earlier? Or are you actually seeing a bit of a deterioration in bookings and rates, etcetera, post the Chinese New Year?
And then is basically reflecting a deteriorating environment at the moment? Thanks.
So we are guiding, Patrick, this is Sonia. We are guiding around 4,000,000,000. That's plus-10 percent. And then I think we're basically highlighting that the level of uncertainty that we have right now around fuel prices, IMO 2020, trade tensions, global economic growth, China and so on is at a really high level, we believe. So we are 2 months into the year, there's a lot of uncertainty out there.
Okay. So the discrepancy basically reflects various global risks rather than a tangible deterioration you'd be experiencing at the moment?
Yes.
Okay. Can I just ask a second one on on logistics? So you mentioned the profitability level underlying profitability level in 2018 was not satisfactory. What sort of profitability level would would you be happy with and perhaps you can target in 2019?
Yes, this is Vincent here. So we don't guide specifically on segment specific profitability targets.
Okay, thanks.
And next question is from the line of Edward Stanford from HSBC.
Bobby. Two questions as usual. One is very quick, I think. The billion of cash from recognized from Maersk Drilling, has that actually been received, or is that in anticipation of receipt upon demerger? And secondly, You've talked about growing Ocean, sorry, non Ocean revenues.
When do you think the group has the sufficient balance sheet strength to contemplate M and A in violation? Thank you.
So I'll answer the first one regarding the SEK 1,200,000,000 to, to, drilling, yes, that has been received.
In terms of balance sheet, our focus this year will be to build, strengthen our logistics and services segment by adding capabilities and capacity we would be particularly focused on in land, on supply chain management, on cost and house brokerage. And most of that, we see as organic growth and capacity building, So we're not expecting to make a significant acquisitions this year in logistics and services, we will be focused on special capabilities. As we have just We've just acquired a small company in the U. S. That is a customhouse brokerage company, which enables us to have a competitive Customhouse Brokerage solution in the U.
S. We already offer that product today, but this acquisition triples the size of our operation and makes us relevant for our supply chain management customers as an example. Thank you.
And next question is from Mark McVicar from Barclays. Please go ahead. Your line is open.
Good morning. I have two questions both for Carolina, I think. First question is you've come into a group that's sort of quite a long way through a rationalization and restructuring program. Do you see any opportunity to reduce the scale of the, the overheads that sit above the group, or have they been naturally shrinking as businesses have been sold or ready to the demerger.
As any good CFO, I would answer yes to that question. No. Of course, there are possibilities to do more. But the team is also working on doing more.
Sure. Okay. Thank you. And my second question is, could you, I haven't had a chance to read the whole in your report yet, sadly. But could you update us on where you think we are, you are with the rating agencies and what has to happen from here to maintain the investment grade and remove the negative washes?
Is it just literally the steps you've outlined as in demerger of of drilling with the receipt of cash back to Topco, if you like? Or do you think more has to happen before they they will steady those ratings?
Well, we remain very dedicated to keeping our investment grade and we are working in close sort of analysis together with them to stand by it. And now we'll get the drilling done and then come back with more information on our capital structure and future dividend policies, when we come up with the 2nd quarter earnings.
Okay. But as you've looked at it, you're happy that the steps already in place, selling the total shares, demerging drilling will be enough to maintain that rating.
We have taken the steps that are sort of in a good direction, but then we also have to look at what happens in the overall world that also has an effect on the rating institutes. So we do what we can and then we'll make sure that We do our best in that and then we'll have to see how the rest of the world develops. That's not in our control.
Perhaps I can just add, I think it's important to highlight the reduction in our CapEx, the discipline around that. Since 2016, our committed CapEx forward committed CapEx have been gone from more than $5,000,000,000 to just over $2,000,000,000. And that's the kind of that's the kind of discipline we want to continue.
But presumably, the guidance but CapEx doesn't include the assets you would normally have taken in through leases.
The gross CapEx is excluding the leases, but you can also say on the first page of our presentation where we show what we want to track going forward. And then we have the cash return on invested capital as an important target for us going forward. So I think that is also sort of in line with showing what our commitment is.
Okay. But should we be adding about 1,000,000,000 for the normal lease take given that you've got 1,000,000,000 of extra EBITDA and adding 1,000,000,000 of or 1,000,000,000 of lease liabilities?
When it comes to the IFRS 16, we have this one page which you can look at and then you can see exactly how it affects and which lines it affects. And that's probably best to take that one to really bridge the gap since it sort of technical calculation, it doesn't have a real effect on the cash flow.
And our final question for today is from Johan Eliason from Kepler Cheuvreux.
Yes, thank you. This is Johan from Kepler Cheuvreux. Just taking another stab at your guidance, it looks like if you include your remaining merger synergies, you're basically guiding for a flat earning in 2019 over 2018. Is that sort of what we should expect that in a a volume scenario with around 2% growth. You're mainly able to offset normal cost inflation or how are you thinking about this?
1% to 2% unit cost reduction target longer term?
Yes, Soren Skou here. I mean, we continue to have a target of reducing unit cost of 1% to 2% per year, at fixed bunker in ocean.
And then just the comment on this capacity, how you see that development? You highlighted that there will be some temporary capacity reductions due to the scrubber installations, but the scrubber installations will not only impact this year or don't you that to continue for a couple of years until you've had sufficient number of scrubbers installed or how should we think about that going into 2020 and forward?
Just want to clarify, sir, on toft here, we don't expect capacity reduction. We expect capacity increases temporary because of the scrubbers. It's correct scrubber installation will also go into the early part of 2020. But you should not plan with scrubber installation going 1 to 2 years thereafter. It'll be a short term thing and then we will be done.
I'll give the word to Soren Skoll for final remarks.
Thank you. And I just want to highlight again that that we believe we've come, quite some ways in the transformation of APMala Vasquez from being a conglomerate with business interests in many different industries to to being fully focused and integrated a global logistics company. We have improved our earnings not as much as we would have liked and certainly not as much as we expected starting 2017. So it's important that we improve from the current level. And that's what we set out to do.
I also have to say that we have we believe solved a good part of our the growth channels that we have when we go back to 2017 'sixteen. Hamburg Sud has been successfully integrated. We are very happy with the acquisition. We think we acquired a good company at the right time of the cycle and it's contributing quite positively to our earnings. We are in a much better position from a balance sheet situation point of view.
We are focused on cash flow and we will start reporting on cash flow return on invested capital every quarter to make sure that we keep that, that focus. Today, we read an important a milestone on energy separation with the announcement of the delisting of a listing and demerger of Maersk Drilling And then again, as many of many of your questions have centered in on and circulated around, then we are quite cautious in our outlook for 2019. We believe there are there's a considerable uncertainties out there to be that can impact us during the year. So thank you very much for listening in and we look forward to having the next call in May. Thank you.