Good day, everybody. Thank you for listening to our earnings call for the first quarter of 2019 today for Maersk. My name is Søren Skou, I'm the CEO, and I'm joined here by Carolina Dybeck Happe, our CFO. Moving on to the second slide, I'd like to, as usual, advise you to read our disclaimer regarding forward-looking statements. Let me start out with the financial highlights for the year. I believe we had a good start to the year, growing top line by 2.5% to $9.5 billion. Our EBITDA was up by a third to $1.2 billion, and it was driven by an increase across both ocean Logistics & Services, and the terminals and towage segment. Our operating cash flow performed strongly. We came in double of what we did in the same period last year, and the cash conversion was around 120%.
We have, as a consequence of the strong cash flow from operations, as well as the sale of the remaining Total S.A. shares, worth about $2.6 billion, been able to significantly delever the company $2.4 billion since the end of last year to $12.6 billion. If we look at it from the same quarter last year, our debt has been reduced by more than $7 billion. We feel in a much better place. We are in a much better place in terms of our balance sheet strengths. Return on invested capital also improved from negative 0.5% to 1.3%, and we maintain our long-term objective of getting to above 7.5%. Let me end by saying that our guidance of an EBITDA around $5 billion, including IFRS 16 for the financial year 2019, is maintained.
Before I go further into the results, let me just recap a bit from what we said when we last had a Capital Markets Day in the beginning of 2018. At that time, we said we would focus short-term on retaining our investment-grade rating, on completing the energy separation and distributing proceeds, restoring profitability, and having a very strong capital discipline. We have, of course, given the deleveraging of the company a much stronger credit metrics by now. We feel that we have a solid balance sheet. We have completed the energy separation. We have commenced the distribution of proceeds with the demerger of Maersk Drilling, and today we are announcing a share buyback program of $1.5 billion. We are restoring profitability. They're not where they need to be, but we are pleased with the progress in this past quarter.
Finally, on capital discipline, we remain very disciplined. We have not, as you all know, not started any new large terminal projects in the last three years, and we have basically not ordered any new ships as well, and we continue to maintain that policy. Longer term, our focus is going to be on growing our integrated offerings, growing our non-ocean revenue disproportionately, and becoming a more stable company with a reduced capital intensity. For those reasons, we defined these four transformation metrics that we will be reporting on every quarter to give you a better view of not only where we are doing in terms of the operations of the business as it looks right now, but also how we are progressing on the transformation.
First and foremost, I want to highlight the fact that our cash return on invested capital in this quarter was 6.7%, a reasonably good number, driven, of course, by the fact that we had strong cash flow from operations, but also because our CapEx was half of what it was in the same quarter last year in broad numbers. We continue to make progress on our synergies from putting our transport Logistics & Services businesses together and from the acquisition of Hamburg Süd, where our target stated previously is of $1 billion. We are now, with the progress this quarter, at $870 million, and have line of sight to achieving the target by end of the year. We also grew our non-ocean revenue 3.8% when you adjust for the fact that we closed some container factories, and we grew gross profit 2.2% in Logistics & Services.
Obviously, we're happy about the growth, but we also need to accelerate in this area in the coming quarters as part of our transformation. As you all know, we demerged Maersk Drilling and distributed the shares to our shareholders on the 4th of April. We believe that has been a good transaction for all and has created value. Maersk Drilling is still included in our numbers as a discontinued business in this Q1 report, and we have taken a write-down negative $628 million, which was the difference between the market cap at the end of the first day and the book value that we had. Now let me turn over to Carolina.
Thank you, Søren. We start by looking at last year, then we closed the sale of Maersk Oil, and we booked an accounting gain of $2.6 billion in Q1 last year. We also received 97.5 million shares, or almost 4% of Total, which we have then subsequently been selling. Now we have sold the remaining shares in Q1 this year. The total cash flow from selling the shares were $5.6 billion. We spent the first $1.2 billion last summer to reduce our debt, and we have previously communicated that we aim to distribute a material part of the proceeds of the Total share, either as a dividend or as a share buyback. Now we have concluded our separation of the energy business, and the board of directors have decided to issue a share buyback program. The size is DKK 10 billion, or around $1.5 billion.
The program will start in mid-June and will be executed over 15 months max. Well, we have decided to launch the share buyback program already now, as we have seen a very strong cash flow from the business. We have been able, as Søren mentioned, to reduce our debt even further, and we've also sold the final stake of Total. This has really enabled us to keep up our investment-grade rating, which is very important for us. Now after the conclusion of the separation, we are in the moment relatively comfortable with our credit metrics. After this share buyback program has been finalized, the board will evaluate our capital structure and outlook and will make decisions on further distributions, which is the intent. Moving to the new dividend policy. A small recap.
In the last five years, we have dividended out $11.1 billion, and this year, in 2019, we have dividended out $4 billion so far. Of course, there is the part of the share buyback we're just announcing to come. The new dividend policy will be an annual payout ratio of 30%-50% of the underlying net results, where we of course adjust for the gains, impairments, and restructuring. You can divide the work we do in the transformation of Maersk in a number of phases. We have now finalized the phase of separating the energy business and are now in the strategic phase of balancing the company between ocean and non-ocean. While in this phase, it is our expectation that the annual payout ratio should be in the low to midpoint range of this policy, so around 30%-40%.
Of course, the annual payout ratio will be set from an evaluation of the outlook, cash flow, CapEx, M&A opportunities, and our credit rating. I would say that this means that the new dividend policy really gives us the flexibility to adjust within the range to accommodate the investments that we need to grow our logistic business, mainly inorganically.
Now to the financial highlights. As I said, the revenue grew 2.5% with increases both in ocean and in terminal tows, while Logistics & Services was flat. Overall, profitability was up, EBITDA by 33% in Q1, and the EBITDA margin improved 3 percentage points. EBIT was $230 million compared to $7 million in 2018. The underlying result in the continuing business was a loss of -$69 million compared to a loss of $329 million in the first quarter last year, impacted by higher depreciations and amortizations of $62 million.
Turning to CapEx, this slide is looking better and better, especially from a CFO perspective. In the first quarter, our gross CapEx was $778 million. That actually includes $175 million from Maersk Supply Service, which we reclassified back into continuing operations. It's important to notice that we are keeping our CapEx guidance of $2.2 billion for the full year. $800 million of the $2.2 billion in the first quarter, we are sticking to the $2.2 billion guidance for the year. Also, you can say the carryover or the current contractual commitments, we are now at the end of Q1 on $2 billion in carryover, that is to be compared to a couple of years ago, which was almost $7 billion. A significant reduction here.
Really, if we look at that, it's only two vessels that are left to be delivered and some smaller terminal concessions. Turning to cash flow. On the cash flow development, we have also made significant progress. You can see that the operating cash flow increased with more than 100% to $1.5 billion. The cash flow from operations was positively impacted also by the working capital improvement of $370 million, as well as, of course, the increase in EBITDA up to $1.2 billion. The cash conversion was a full 120%. All in all, for Q1 2019, free cash flow was $3.5 billion. If we adjust that for the sale of the remaining shares in Total, which were $2.6 billion, the free cash flow was $0.9 billion.
We have the joy of IFRS 16 in this quarter to compare with, adjusted for financial leases, the free cash flow was $0.6 billion. With a strong cash flow, that has a good effect on your balance sheet. Moving on to the next slide and looking at the net debt. The net interest bearing debt decreased to $12.6 billion. We started the year with $15 billion. We've obviously been positively impacted by the sale of the Total share, the change in working capital, the improvement in the profit. We spent CapEx, I would say in a good way and uncontrolled way. We have a negative effect on the new financial leases, which are increasing with $0.9 billion. The biggest part of that is actually a hub in Morocco.
I would say an important thing to remember, here we compare just with the previous quarter, but if we look a year back, we were actually on almost $20 billion, including IFRS 16 then, but we were almost on $20 billion in net debt, now we're down to $12.6 billion, that's a big change.
Moving to Ocean, specific for the different segments. What we are relatively happy with is the fact that we improved EBITDA by 42% in Ocean compared to Q1 in 2018. EBITDA margin improved by 3.8 percentage points to 13.4%. We did that despite having slightly lower volume. The improvements were driven by higher freight rates, synergies, and a reduction in the total cost base. We also saw an increase in other revenue, mainly driven by higher D&D income, partly due to higher volumes into North America, where the tariffs are higher and also a number of places where we saw port congestions. Freight rates increased 3.9%. Volumes were down 2.2%. The freight rate increases were driven by high recovery of fuel price increases, but also general increases across the board. East-West trades increased by 4.9%, North-South 4.7%, regional trades by 5%.
The positive development was driven by our continued focus on margins. It's important for me to say here that at the end of the day, we are very much focused on improving earnings more than we are focused, as the numbers also indicate, on improving our market share. Total volumes declined by 2.2%, driven by North-South with a decline of 5.6%. Weak demand in Latin America and Oceania. We also have to say, for comparison, that the Q1 2018 was the first quarter where we had just taken over Hamburg Süd. They had all of their business, so to speak. So the decline in this quarter compared to same quarter last year is a reflection of the retention of the business. Moving on to operating costs. Total operating cost was positively impacted by lower container handling costs and network costs, our total cost was down by 2.8%.
If we adjust for rate of exchange development, total cost declined by 0.5%, mainly due to higher empty positioning cost because of lower background volumes. Unit cost at fixed bunker improved slightly, however, it was negatively impacted by the decline in volumes that came in weaker than what we had expected. Bunker costs decreased by more than 4%, despite an increase in the bunker price, the improvement was partly driven by bunker efficiency, which improved almost 9%, and partly due to less capacity in the network. Average nominated capacity in first quarter came in at 4,048,000 TEU, which is on par with Q4, and it's also very much in line with our long-stated ambition of maintaining our network just around 4 million TEU. Now turning attention to Logistics & Services. Revenue declined very slightly, $7 million, it was mainly driven by lower air freight forwarding volumes.
Gross profit improved by 2 percentage points, positively impacted by higher intermodal and warehousing, EBITDA improved by $6 million. At the beginning of the year, we merged the commercial organization of Logistics & Services and Ocean. We have lately announced that we're also adding what we previously called A.P. Møller Terminals inland services into this organization. What that effectively means is that we are now completely organized to execute on the strategy that we have outlined. On the next slide, briefly on Supply Chain Management. Volumes in Supply Chain Management increased slightly, impacted by new customers. Gross profit also improved to $79 million, supported by higher volumes and an increase in margins of about 1.4%. On the forwarding side, we saw margins in sea freight decreasing 25% per TEU.
In air freight, we saw an increase in margins of 6.6% per ton. Our EBIT conversion ratio was 6.8%. It was more or less on par with the 7% in Q1 2018, mainly because of loss on Delos provision and one-off gain in Q1 in 2018 in inland services. Adjusted for this, the EBIT conversion improved slightly compared to last year. On terminal and towage, we grew revenue by 9%, gateway terminals contributed with both increased revenue and EBITDA, while our towage activity faced headwinds, was mainly related to foreign exchange. EBITDA and gateway terminals increased by 15% as we added Moín in Costa Rica ramping up, general growth in volumes ahead of the market. We did see also some increasing in cost, mainly because a lot of the growth was in the U.S.
I want to say on terminals and towage, that we've seen significant progress in terminals business over the last couple of years. If we go back to Q1 2017, EBITDA is up by 61%. Those improvements in the results are continued good growth. Throughput increased by 3% in Q1, driven by volumes from Ocean, which grew 5%, and volumes from external customers grew by 2%. We continue to see strong improvements in the utilization by basically 10 percentage points, to 79%, driven by the strong volume growth over last year. Revenue per move increased 7.5%, reflecting higher revenue from storage in West Africa and Latin America, while cost per move increased by 8.7%, mainly driven by higher volumes in high-cost terminals, only partly offset by the increased utilization. On the Svitzer side, harbor towage activities measured by tug jobs grew by 2.3%.
The revenue was impacted by negative currency developments and volume decreases in Australia. In terminal and towage, annualized EBITDA per tug decreased, mainly driven by negative currency impact. Apart from this, new contracts have started in Australia, Bangladesh, and Costa Rica in 2018, partly offsetting the decrease in EBITDA per tug. Let me move on to manufacturing and others. Maersk Container Industry reported a decrease in revenue to $140 million from basically double, $288 million last year. That was driven entirely by the exit of the dry container business, as previously announced, and a 30% lower revenue from the reefer business. There, we have also closed a factory in 2018 in Chile. EBITDA was negatively impacted by the restructuring cost in connection with $31 million from closing of the dry factory.
We also now have Maersk Supply Service in this segment, which report an increase in revenue about 15%, reflecting higher rates and EBITDA increase to $5 million. Maersk Supply Service took delivery of two new buildings in Q1 2019, which thereby completes the order book of Maersk Supply Service. I'll hand back to Carolina.
Commenting on the guidance. At A.P. Møller - Mærsk, we reiterate our guidance for 2019. Our EBITDA guidance is that we will be around $5 billion for 2019, this is now, of course, including the effects from IFRS 16. The organic volume growth in Ocean is still expected to be in line with the estimated average market growth, which is 1%-3% for 2019. We still see uncertainties related to the market outlook, mainly related to the weak global economic growth, in addition to risk from a further escalation of trade tensions between the U.S. and China. Please remember, as you can see from the sensitivity table, how volatility really affects our numbers. You can see the changes in freight rates continue to have high impact on the EBITDA and of course also volume.
When it comes to the CapEx, the gross CapEx for 2019 is maintained at around $2.2 billion. We still expect a high conversion of cash for 2019. With that, Søren and I will open for questions.
Well, yeah.
Oh, sorry.
Yes.
Yeah. Questions? Yes, questions.
We'll now begin the question and answer session. The session will end no later than 1:00 P.M. If you do have a question, please press 01 on your telephone keypad now and you'll enter a queue. After you are announced, please ask your question. Please do limit yourselves to three questions. Thank you. The first question is from Casper Blom from ABG. Please go ahead. Your line is now open.
Thank you very much. I will take the opportunity to ask three questions. First of all, Søren, you touched a little bit upon this with your comments about focus on profitability. There has been some media reports out stating that you had initiated a new price war in the container industry by cutting rates. Is that something that you can confirm? Secondly, with regards to your focus on a more reduced capital intensity in the business, would that mean that we would, in the future, see a larger proportion of chartered vessels and less owned vessels? Then finally, with regards to your strong cash flow generation here in the quarter, when we look ahead, I would expect that at some point you will start to buy vessels again.
What kind of CapEx level would you say is fair to assume in more of a steady state? Thank you.
Well, first of all, Casper, let me say that I can absolutely deny that we have started that price war, and certainly also say that we have zero intent to do so. We are focused on profitability and on generating cash, as we have said all the way back to the last Capital Markets Day, that we wanted to be, and that's also what you see in our results, not just this quarter, but actually over the last many quarters. We brought down our committed investments so that we have much more focus on cash and results.
In terms of the question regarding more TC vessels or whether a reduced CapEx will mean more TC vessels, then given that we are now reporting all of our lease obligations as part of IFRS 16, it doesn't actually matter much for us whether we charter the ships or we buy them, as far as our balance sheet is concerned. CapEx discipline means that we intend to invest less, whether it's direct or through time charter in our ocean business. In terms of guidance on future CapEx, then we'll wait with guiding for CapEx in 2020 until we get closer to 2020. You can expect to see a very disciplined CapEx, and as you know from our numbers this year, we have CapEx well below depreciation, and we're not expecting to change that anytime soon.
Okay. You would expect that you could continue having CapEx below depreciations for more than just 2019 and 2020?
Yeah. I don't think I can say much more about it, but yes.
Fair enough. Thank you very much.
Next question is from Robert Joynson from Exane BNP Paribas. Please go ahead, your line is open.
Good morning, Søren Skou and Carolina. Three questions from me also, but I'll do them one at a time. First of all, on the share buyback, could you maybe just explain how the DKK 10 billion figure was arrived at? For example, is that the maximum amount you feel that you can do over 15 months without impacting the share price too much? Or is it simply the maximum amount you feel you can do at the current time whilst maintaining the investment grade rating or any other considerations?
Hi. I would basically say yes to your comments. That is the reason for taking this period of time and this amount, the board wanted to be clear that in a year's time, with the intent of distributing more, they will look at situation then and then come back with more information on further steps.
Just to be clear, it was the first option that you said yes to in terms of not impacting the share price too much.
That, of course, is always part of it. We have the safe harbor rules and so on, but we also have the liquidity, we have the rating, we have the cash flow, and we have to look at where the world is going.
Okay, thank you. Just in terms of north-south volumes, you estimated that the market was down by 1.4% in Q1, but Maersk's volume was down by 5.6%. Was that entirely explained by Hamburg Süd, or were there any other factors impacting that? For example, was Maersk maybe pricing at the upper end of the market, therefore underperformed a little bit on volume?
Yeah. Robert, I think a big part of it is explained by the Hamburg Süd retention. We have also been very focused on prices, to be honest. Perhaps we have been more tough on prices than others, and that has led to a small loss. Given the focus on profitability, that was the right strategy, we believe, in that quarter.
Okay, thank you. Then the third question, just on the net income outlook. The EBITDA in Q1 was pretty much exactly one quarter of the $5 billion guidance for full year. The underlying profit from continuing operations was negative. Should we conclude that if the $5 billion EBITDA target is hit, the net income for the full year will be negative, or is that too simplistic?
Yeah, I of course have a view, but we don't guide on net profit anymore.
Okay. Thank you.
Next question is from Frans Høyer from Handelsbanken. Please go ahead, your line is now open.
Thank you very much. I have a question about the guidance, the $5 billion guidance, how spacious is that guidance? In your type of business, there will always be some.
Some to and fro. Is ±5% within guidance or is it more like ±10%?
No, what we have said is that we see this 5 as a ±10%. That is sort of the guidance range.
Yes, okay. The DKK 5 billion, does that correspond to 2% volume growth in your-- I mean, you are mentioning a range of 1%-3% volume growth. The 5, is that in the middle of that guidance range?
Well, like you said, the range, what we are guiding on is 1%-3% volume, but in this business, a lot has to do with the rates, right? I would say unfortunately a lot of it is dependent on the rates.
Yes.
That's actually also from the sensitivity analysis that the rates hit so much harder than the volume.
They tend to go in the same direction. Okay, in terms of your CapEx guidance of DKK 2.2 billion, does that include the leasing assets that you might employ, additional leasing assets that you might employ during the year?
No, that's a pure growth CapEx, it's also not any inorganic, not acquisitions.
No, of course. Okay. Thanks very much.
Next question is from Lars Heindorff from SEB. Please go ahead, your line is open.
Morning, thank you also for taking my questions. The first one is regarding the growth outlook in Ocean. You mentioned you expect to grow volumes in line with the market, 1%-3%, with a midpoint of this 2%. Can you just clarify and maybe repeat what is your aim in terms of capacity growth? Do you expect to keep the nominal capacity around those 4 million TEUs? If the answer to that question is yes, how do you expect them to reach the volume growth of 2% in line with the market?
Lars, we do actually have an ambition to maintain about 4 million TEU of capacity in the network also for the rest of 2019. We aim to grow in line with market, we plan to do that by improving our utilization.
You have recently started to increase capacity. I can see you are taking in, as you mentioned yourself, a number of vessels on time charter. For the first quarter, you lowered your nominal capacity by 3%. Should we expect that to gradually increase so that you will see sort of maybe low mid-single-digit increase in the capacity in the second half? Is that sort of what your thinking is about the capacity?
No, I think we still aim towards this 4 million TEU, of course, in the individual months or quarter, there might be special circumstances. For instance, we will be doing some scrubber installations throughout the year, and that means that we are putting ships in dry dock for six weeks, so that means that we have to do charter ships from the market to plug those holes. I think the general message is clearly that we're not aiming to grow our capacity, and we don't believe we have to in order to accommodate a 1% to 3% volume growth because we can improve the utilization or design the network in a way where we achieve more capacity with the same amount of ships.
Okay. Lastly, on the cost side, also a little bit related to the capacity development. You disclosed two cost items in Ocean, bunker and all other cost, which is a fairly big number. I think it's around DKK 20 billion on a yearly basis. I'm trying to get at how we should think about those DKK 20 billion, because in the first quarter you reduced the capacity by 3% and other costs declined by 2%. Should we expect that other cost item to grow roughly in line with how you develop your capacity?
Sorry, say that again, the last part.
Yeah. I'm trying to get at the other cost item in Ocean, if we should expect that will follow the development in the capacity growth. You had minus 3% in capacity in the first quarter, in nominal capacity, and other costs declined by 2% in the Ocean. If you expect maybe to see an increase in capacity in the rest of the year in order to get to those 4 million TEUs, what kind of growth should we expect in that other cost item for the rest of the year?
Perhaps I can suggest, you refer to page 15 in the report. There we have actually broken out the different cost items. You can see the capacity cost, that's basically network cost and bunker costs. We have container handling costs, which are, of course, completely driven by volume, whereas bunker and network are semi-fixed or fixed, and as is SG&A. Maybe that will be able to answer your question.
Okay. All right. Thank you very much.
Next question is from Neil Glynn from Credit Suisse. Please go ahead, your line is now open.
Oh, hello, everybody. If I could ask two questions, please, both focused on free cash flow generation.
Neil, we cannot hear you properly. You're kind of speaking into something other than your phone, I think.
Can you hear me now?
Yes, much better. Thank you.
I wanted to ask two questions on the cash flow generation, please. The first one, you obviously don't guide on free cash flow, like you don't guide on net income. We're just interested, given your first quarter performance and free cash flow and the EBITDA guidance for the year, it seems like something like $2.5 billion or maybe even $3 billion of free cash flow underlying might be possible this year. Just interested in your thoughts on that. The second question, again, on the cash flow subject. Your, I think disclosure on management incentivization is improving, but can you provide us some detail in terms of how management is incentivized on cash flow generation, with some figures in terms of thresholds, for example?
I think given the stage of life of the company and of cash flow generation as a bigger priority, it would help the market understand how much incentivization there is and how much commitment there is to cash flow generation going forward.
First to the cash flow generation. I would have to say, of course, I was very happy to see the free cash flow in the quarter with three and a half billion. We have to remember big part, the $2.9 is the total, and $0.9 is sort of the, well, I was going to say the real cash flow, but you know what I mean. The cash conversion is 120% in the quarter. That is of course very high. I would say a good company, high cash conversion, which is what we have guided. We have said that we aim to have a high cash conversion this year as well. That will be somewhere just below, well, probably 90%-100% or around 90%. Right.
I think we should keep that in mind also for the full year when we talk about cash flow and the high conversion. As to management, well, we don't guide on the bonus targets ourselves, but I think you can hear from our comments and our focus in the discussions that it's very high up on our agenda, and I will certainly, personally make sure it stays high on the agenda.
Understood. Just to follow up on that. Is there a chance that we might get further disclosure on that in the foreseeable future?
No plans now, we can't say anything about the future. We'll see then.
Okay. Thank you.
Next question is from Dan Togo, from Carnegie. Please go ahead. Your line is open.
Yes, thank you. A few couple of questions from me as well. One at a time. Firstly, again, on the cash flow. The cash contribution from net working capital. How much is that a reflection of, so to say, the lower volumes that you have in Q1 and, i.e., if volume starts to increase, how much can we expect of this cash contribution from net working capital in the future? Will that not just reverse in coming quarters? That's the first question.
Okay. When we talk about working capital, it's always important to have it little bit in context and seasonality and so on. We had a good improvement of DKK 400 or DKK 370 in the quarter. That was good. Sales are up in total, we don't really see anything from that. I think it was a bit better considering that it's the first quarter. It's usually a bit weaker after a year end, it was a good result in this quarter.
I'm just thinking about how much of this is sustainable going forward. I'm referring to, of course, the lower volumes that you have in Q1.
No, I would say that again, normally Q1 is weak in cash flow after year end, this was not the case in this one. I think we have to take that into context that it's one quarter and it's a bit unusual. I don't think we can draw a trend from that.
Okay. Understood. Then on the synergies, you referred to DKK 130 million from Hamburg Süd in the first quarter. Can you give any flavor on how that is distributed between the Ocean and Terminals, Towage?
The DKK 130 is the combined synergies from both the Hamburg Süd integration and the terminal and towage part. It's all in. For the full year, we are planning to reach DKK 1 billion, and now we're up to DKK 870, and DKK 130 of that was now in the first quarter.
How much is included in Ocean and how much is included, so to say, in or impacted in terminals and towage?
It's very hard to say. I mean that it's sort of towards the end, it usually comes in a bit into each other. That's why we give these numbers a total.
Okay. Then there's a contribution both in Ocean but basically also, I guess also in terminals from the demurrage and detention. Can you elaborate a bit on how that impacts EBITDA as well, so to say, the margin on the demurrage and detention?
Well, we can say like this, that it's of course very high margin on that business.
Yeah. Can you be a bit more specific of the impact in Q1? You're just mentioning it as one of the. Can you quantify it in any way, the impact here?
I think, in the U.S. and in Africa it's been unusually high. No, we don't give any separate guidance on exactly how much that has impacted. It was one of the contributors, like you say.
Okay, cool. Just a final question. You are now well into Q2. I guess you're also starting to receive some bookings for the peak season. Can you give any flavor on how you see, so to say, peak season and volumes going forward? Are we looking, so to say, for a slowdown or what should we aim for here? I guess you've got a bit more transparency now than you usually do when you report on the quarter.
We do, but I think we're saying it relatively clearly that we expect to grow in line with the market. We expect the market to grow 1%-3%. We have also, of course, told you what our Q1 number was. You can do some math on that, I think is probably the way to go.
Okay. Thank you.
Next question is from Finn Bjarke Petersen from Danske Bank. Please go ahead. Your line is open.
Yes. Thank you. My question goes in line of your growth. You're saying growth and relative performance to peers. If we look at the first quarter, you're probably down a couple of percentage. The market is up the same. In the fourth quarter, you were down, underperforming the market. Looking at a very good peer down in Hamburg, Hapag-Lloyd, is increasing by 2.5 in the first quarter. Your rate developments are the same. You continue to underperform on EBITDA margins and also EBIT margin relative to the German peer. Could you explain to me where I should find the market growth that you keep saying is coming in line with the market? Now we have 2 quarters you've underperformed. That's 1 question.
The second question, when should I expect to see economy of scale in Maersk Line, meaning that you are actually outperforming on an EBITDA and an EBIT to the German peer?
Well, actually, Finn, we did that in Q4. There we actually had a better margin than Hapag-Lloyd. I think it's really difficult to look at this and compare two companies on a quarter-by-quarter basis, because we don't recognize revenue in the same way, and we don't have the same approach to hedging fuel. As you know, we don't hedge fuel, therefore, when the fuel price goes up, as it did from Christmas throughout Q1, it impacts us quite negatively. When it goes down, it's the other way around. I'm not going to spend a lot of time comparing quarter-to-quarter with Hapag-Lloyd. They had a really good first quarter result. We are absolutely happy with our result.
We believe the company is moving clearly in the right direction in terms of earnings, in terms of cash flow generation, de-leveraging of the balance sheet, doing what we said we were going to do on transformation, and so on. We are in a much better place than we were a year ago.
It's not because I want to compare the quarter-on-quarter, but if you look the last eight quarters, it's a constant underperformance on EBIT margin, if you look at your group versus their EBIT margin. That's one thing. I'm just wondering when we should expect to see a sustainable lift in your EBIT margin compared to peers, so we can start talking about cost leadership again. That's still my question number two, if we return to the first question, I just wonder where the growth should come from. If you have literally had two quarters where you underperformed, and you keep saying that you are performing in line with the market. I just have to understand where the growth should come from in the last three quarters for you to fulfill your prophecies.
I think it's important for me to say that our focus is on driving profit and cash flow in the business. We have a size now in Ocean where we are certainly not going to be at a disadvantage from a scale point of view. Therefore, whether we have half a percentage point of market share, more or less, is not going to ruin my day. Obviously, we need to drive as efficient a business as we possibly can. In the fourth quarter last year, we had the highest margin in the industry. This quarter, we'll maybe have the second highest. We're not beating Hapag-Lloyd, but we beat everybody else who has reported at this point in the reporting cycle, and we're just waiting for CMA.
For us, really driving focus on improving earnings in Ocean and then driving growth in Logistics & Services and the terminal and so on, that's really our focus at this point. We still believe, given the volume plans that we have on Ocean, that we will be able to deliver 1 percentage point-3 percentage points of growth for the year. That means, of course, that we have to accelerate in the coming quarters.
Okay. Thank you.
Next question is from Marcus Bellander from Nordea. Please go ahead. Your line is open.
Yeah. Thank you. Just one question from me, a follow-up question on a previous question regarding price wars. You said you certainly didn't start a price war, you did cut your FAK rate on Asia-Europe pretty significantly. Couldn't that be perceived as starting a price war? Also, why did you cut that rate by so much? Is it because volume growth was weak in Q1 and you want to get volumes back up?
I have to say, I'm simply not aware of us having dramatically cut the rate on FAK from Asia to Europe. I don't believe that's the case, and we have zero interest in doing so.
Okay. Thank you.
Our final question for today is from Johan Eliason from Kepler Cheuvreux. Please go ahead, your line is open.
Yes, thank you for taking my question. I hope you can hear me well. I have some problems hearing Søren and Carolina replying to it, but I hope it will be better this time. I was wondering about this CapEx and ship ordering. You are saying no new ships before 2020. Your German competitor is basically saying the same. What's so magic about 2020? Why not say no new ships before 2025, or what will happen 2020? Are there some specific drivers that will imply that we should expect ship ordering from you and the competitors to increase 2020 going forward? Obviously don't change your CapEx profile much near term as it's a two-year delivery time or so, but should then the CapEx profile, let's say 2024, be significantly above today's level and potentially above the depreciation, or how should we think?
What's basically the magic thing with 2020 and ordering intake of new ships beyond that year? Thank you.
Maybe I should let my CFO answer the question, what I would like to say in general is we have, as a company, a long history of not being disciplined on CapEx. I think we are changing that, and we have changed it since 2016. We have made no significant investment decisions, and that's why our committed CapEx have continued to drop. If you look at it, we now only have about $200 million of committed CapEx for 2020. We want to drive a culture of much more focus on CapEx and not driving gross CapEx above depreciation again and again. Then I'll turn it over to Carolina to comment as well.
Well, I think, Søren, you should have the credit, and you got a very disciplined CFO in on this. I think it's important that with the visibility we have, we've said now for this next year, and I think the carryover is very important. It's important to remember that that did start a couple of years ago, and that is why we are in the situation we are now. I think another comment in the same sort of area is to say that what we want to invest more in is, of course, the growth in L&S. We want to create a lot of space to grow and do both organic and inorganic investments on the L&S side to balance the ocean and non-ocean side. Right?
Is there any underlying driver that will come as of 2020 requiring you to do more shipyard ordering, like a replacement cycle, or is it just the way you expect demand in the future years' time to be?
We don't see IMO 2020 as a driver of significant new CapEx for us. We have a relatively modern fleet, and we don't see any reason for why higher fuel mix should mean that we have to invest in a lot of new ships.
Thank you very much.
I believe that was the last question, let me just give you a few final remarks. As I said, the first quarter, we believe we were off to a reasonably good start. We continue to improve profitability. We, of course, are not where we need to be, but the level of improvement was good, and we also had a positive return on invested capital, although very small. We have significantly deleveraged the company. The focus on free cash flow and disciplined CapEx is really starting to pay off, and that means that our balance sheet is in a much better shape than it was a year ago. That gives us opportunity and flexibility to move further with our transformation.
It was a highlight that we have now finished the energy separation with the demerger of Maersk Drilling, as well as the announcement now of the commencement of a share buyback program of around $1.5 billion that moves us forward. We look forward to continuing the progress in 2019 with the transformation of the company, building a bigger and stronger non-ocean revenue side of A.P. Moller-Maersk. That's what all of our focus is on as we speak. Thanks again for listening in, and we look forward to talking to you again in three months' time. Thank you.