DIRECTORS’ REPORT STRATEGY AND PERFORMANCE BUSINESS MODEL STRATEGY PERFORMANCE IN 2017 | APM TERMINALS

APM Terminals

APM Terminals reported revenue of USD 4.1bn on a consolidated basis on a par with 2016, however with underlying volume REVENUE 2017 (USD) growth on an equity-weighted basis of 6.5%. 4.1bn The under­lying profit was USD 414m (USD 433m), while the net result was negative USD 168m (profit of USD 438m), mainly due UNDERLYING PROFIT 2017 (USD) to impairments of USD 621m in commer- cially challenged markets. Cash flow from 414m operating activities was USD 827m (USD 819m), resulting in a positive free cash flow of USD 155m (negative USD 730m).

36 A.P. Moller - | Annual Report 2017 DIRECTORS’ REPORT STRATEGY AND PERFORMANCE BUSINESS MODEL STRATEGY PERFORMANCE IN 2017 | APM TERMINALS

Revenue of USD 4.1bn (USD 4.2bn) Three new terminals commenced operation in was negatively impacted by the loss 2017 (Lázaro Cárdenas, Mexico, Izmir, and of services in North America and lower APM Terminals faced Quetzal, Guate­mala), while APM Terminals di- revenue in some of the African entities vested one inland service, Pentalver, UK, as well due to the rate of exchange impact, challenging market as two terminals, Zeebrugge, Belgium, and Dalian, which was partially offset by higher China. Moreover, APM Terminals Tacoma, USA, revenue in Latin America and Europe. con­ditions and inflationary ended operations in September. The average port revenue per move, based on the consolidated revenue Increased volumes and cost initiatives partly com- excluding construction revenue, de- cost pressure pensated for the start-up cost for new terminals creased to USD 193 per move (USD 198 and the impact of the cyber-attack. However, APM per move), mainly due to market rate Terminals faced various commercial challenges pressure and the rate of exchange im- in 2017, which resulted in rate pressure, leading to pact at some of the African terminals. lower revenue per move and impairments in chal- lenged markets. APM Terminals’ volume amounted to 39.7m TEU (37.3m TEU) on an equi- APM Terminals won 29 new contracts, while eight ty-weighted basis, 6.5% higher than contracts were terminated. in 2016 following strong volumes in north Asia, Latin America and across several locations due to strong growth APM TERMINALS FINANCIAL HIGHLIGHTS from . APM Terminals’ equity-weighted volume growth was USD million 2017 2016 slightly higher than the estimated

Revenue 4,138 4,176 global port throughput growth in 2017 Profit/loss before depreciation, amortisation and impairment losses, etc. (EBITDA) 705 764 of 6% (Drewry). Adjusted for newly Depreciation, amortisation and impairment losses, net 790 388 commenced entities and divested Gain on sale of non-current assets, etc., net 22 18 terminals, volume increased by 5.0%. Share of profit/loss in joint ventures -158 101 Share of profit/loss in associated companies 106 92 Profit/loss before financial items (EBIT) -115 587 The average terminal utilisation based Tax 53 149 on consolidated operating terminals Net operating profit/loss after tax (NOPAT) -168 438 was 66% (69%), and 71% (73%) ex- cluding new terminals commencing Underlying profit 414 433 operations in 2017 and divested termi- nals. The utilisation decline was driven Cash flow from operating activities 827 819 Cash flow used for capital expenditure -672 -1,549 by lower volumes in North America Invested capital 8,106 7,967 and capacity increases across various ROIC, annualised -2.1% 5.7% terminals, partially offset by positive volume contributions in Europe and Containers handled (measured in million TEU and weighted with ownership share) 39.7 37.3 Latin America. Number of operating terminals 74 73

37 A.P. Moller - Maersk | Annual Report 2017 DIRECTORS’ REPORT STRATEGY AND PERFORMANCE BUSINESS MODEL STRATEGY PERFORMANCE IN 2017 | APM TERMINALS

The cost per move, based on the con- TERMINALS solidated operating terminals excluding 2017 2016 cost from terminals under construction,  16 / 14 was USD 172 (USD 172) as a positive rate Americas of exchange impact, higher volumes Key initiatives in 2017 and cost savings were offset by infla- 19 / 19 tionary pressure and the cost of termi- APM Terminals Lázaro Cárdenas, 2.3m TEU annual capacity. APM As part of the TCB transaction in Asia nals in ramp-up stage. Mexico, Latin America’s largest Terminals Tacoma, USA, ended op- 2016, APM Terminals acquired the semi-automated terminal, com- erations at the end of September Terminal de Contenedores Quetzal menced operations in April. The ter- as part of its portfolio optimisation (TCQ) in Guatemala. A public inves- Operating business reported a loss 23 / 24 minal has the capacity to receive the plans, and transferred its conces- tigation launched a few weeks after Europe, Russia of USD 146m (profit of USD 487m), world’s largest ships. With the first sion to SSA Marine. APM Terminals became the owner and Baltics negatively impacted by impairments phase of the terminal complete, of TCQ (now APM Terminals Quetzal in challenging markets, while projects APM Terminals Lázaro Cárdenas APM Terminals’ portfolio of inland (APMTQ)) alleges irregularities 16 / 16 under implementation realised a loss occupies an area of 49 hectares, services has been growing its pres- dating back to the time before APM with a 750-metre-long quay and ence with six new locations, includ- Terminals acquired the terminal. Africa and of USD 23m (loss of USD 49m) stem- Middle East an annual capacity of 1.2m TEU. ing the opening of a container depot The administrative court ruled in ming from start-up costs. in Sullana, Peru. Sullana is one of December 2017 in favour of the re- As part of APM Terminals’ strategy the largest areas for grapes produc- quest to have the contract nullified, The share of profit/loss in joint ven- implementation and portfolio opti- tion as well as for growing organic which is currently subject to appeal tures and associated companies misation, APM Terminals completed bananas and mangos. Across its by APMTQ. APMTQ commenced op- in 2017 the divestment of its 100% portfolio, APM Terminals launched erations in Q1 2017. With an annual was a loss of USD 52m (profit of USD Three new terminals stake in Pentalver, the UK-based new products for landside custom- container throughput capacity of were added to the 193m). Excluding the impact of im- provider of container transport and ers to further support their logistics 340,000 TEU, APMTQ is currently portfolio in Lázaro pairments, the result from joint ven- other container-related services, its requirements. the largest facility on the west coast Cárdenas, Mexico, Izmir, Turkey and tures and associated companies was 51% stake in Zeebrugge, Belgium, of Central America between the port Quetzal, Guatemala,­ a profit of USD 212m, USD 19m higher with 1.3m TEU annual capacity and of Lázaro Cárdenas in Mexico and while one inland its 20% stake in Dalian, China, with the Panama Canal. service and three ter- than in 2016. minals were divested. Tax decreased to USD 53m (USD 149m), mainly due to prior-year adjustments, the rate of exchange impact on de- ferred tax and a reduced tax rate in the USA following changes in legislation. REVENUE Cash flow from operating activities was USD 827m (USD 819m). Cash USD million 2017 2016 flow used for capital expenditure was Port revenue1 3,549 3,515 USD 672m (USD 1.5bn), of which USD Inland revenue 589 661 490m related to terminal implemen- Total 4,138 4,176 tation projects. The capital expendi- Construction revenue 237 257 ture in 2016 was mainly due to the ac- 1 Construction revenue is part of port revenue. quisition of the Spanish Grup Marítim The slight increase in port revenue, which was mainly due to volume increase in Latin America was partially offset by TCB’s port and rail interests. volume decrease in North America, while inland revenue declined due to the divestment of Pentalver, UK, in Q2.

38 A.P. Moller - Maersk | Annual Report 2017 DIRECTORS’ REPORT STRATEGY AND PERFORMANCE BUSINESS MODEL STRATEGY PERFORMANCE IN 2017 | APM TERMINALS

APM Terminals’ ports and inland services

Ports Inland services

EQUITY-WEIGHTED VOLUME America of 7.8% and in Latin America Million TEU 2017 2016 Growth (%) of 6.9%, and with high growth in the

Americas 6.4 6.4 0.0 Middle East of 5.8%, in Asia of 5.8% Europe, Russia and Baltics 12.7 11.8 7.6 and in Europe of 5%. Drewry’s five-year Asia 13.6 12.5 8.8 global demand forecast Africa and Middle East 7.0 6.6 6.1 is 4% per annum and the projected port Total 39.7 37.3 6.5 capacity expansion is 2.7% per annum. The 6.5% increase in equity-weighted volume was due to strong APM Terminals generated a positive capacity of the top 10 carriers, which volumes in north Asia, Latin America and across several locations free cash flow of USD 155m (negative is expected to rise further, given the Despite signs of stability in some mar- following strong growth from Maersk Line. USD 730m). upcoming mergers of K-Line, MOL kets, industry-wide market challenges and NYK, and Cosco and OOCL. This and rate pressure are expected to Invested capital increased to USD may result in continued rate pressure continue in 2018. APM Terminals will 8.1bn (8.0bn), mainly due to capital across the market. continue to collaborate closely with FINANCIALLY CONSOLIDATED VOLUME investment in projects under imple- all customers including Maersk Line in

Million moves 2017 2016 Growth (%) mentation, partially offset by impair- Throughout 2017, the global container all regions, with the focus on support- ment and capital discipline. throughput has generally been growing ing customers’ needs and improving Americas 3.7 3.6 2.8 with demand recovering by 6%, mark- the utilisation of its facilities. With Europe, Russia and Baltics 6.8 6.4 6.3 Asia 2.1 1.9 10.5 The market ing the highest surge since 2011 (Dre- synergies from closer collaboration Africa and Middle East 4.5 4.5 0.0 After the launch of new alliances in wry Q4 Forecaster). There was higher and additional volumes resulting from Total 17.1 16.4 4.3 April 2017, the shipping industry saw growth in all regions compared to Q3 the Hamburg Süd acquisition, APM The 4.3% increase in consolidated volume was mainly due to strong a new high in industry concentration Drewry Forecaster, with very strong Terminals expects to deliver further volumes in Latin America and Europe. at 77% (Alphaliner) of combined growth in South Asia of 8.8%, in North volume growth in 2018.

39 A.P. Moller - Maersk | Annual Report 2017