Letter from the CEO

ROBERT M. UGGLA CEO The A.P. Moller Group reflects on another eventful year. Financially, it ended on a fairly satisfactory note, with a 2019 revenue of DKK 275bn, a net result of DKK 6.6bn and consolidated assets of DKK 462bn (consolidated equity of DKK 263bn). A.P. Moller Holding, the Group’s parent company, remains debt free and saw a net cash inflow of DKK 5.1bn. The gap between book value of equity and market value of equity was reduced during the year, although portfolio company returns have to improve further for such discount to be completely removed.

While the overall financial figures and year-on-year development paint a relatively rosy picture, and we acknowledge the many positive steps taken over the last year to strengthen our portfolio companies’ market position and the balance sheets of the Group, we are mindful of the recent, very negative developments and dark clouds on the horizon, resulting from the COVID-19 pandemic.

A.P. MOLLER - MAERSK TURNS A PAGE Our portfolio’s single biggest holding, A.P. Moller - Maersk, concluded its separation process in 2019. The objective has been to create sufficient focus on the various businesses, which have their own set of opportunities and challenges, to increase capital discipline and enhance agility. This means that companies like Maersk Tankers and Maersk Drilling now operate with their own management teams and boards, who have relevant expertise in these specific industries. We believe all our group companies will continue to benefit from being part of the A.P. Moller Group, which encompasses a deep network of talent and know-how, but is based on a structure of independent companies, and not a corporate conglomerate. Moreover, following A.P. Moller - Maersk’s sale of Maersk Oil, our Group has divested the portfolio’s single biggest exposure to hydrocarbons, including the abandonment liabilities of our oil activities, seemingly at an opportune point in the cycle.

A.P. Moller - Maersk’s strategy entails leveraging the liner activities’ customer footprint, to provide an enhanced service and build a stronger presence ashore, through continued investments in the terminal and related infrastructure activities and in container related logistics. The financial merits of investments in infrastructure activities are well proven at this point, and we recognise the continued good performance of A.P. Moller Terminals in 2019, while the logistics acquisitions carry more uncertainty, as it is an area where A.P. Moller - Maersk has less of a record. With this in mind, we are encouraged by the approach of A.P. Moller - Maersk to make small logistics investments initially, to assess how to best adjust the operating model and harness promising synergies. As owners, we are also glad to see the increased capital discipline of A.P. Moller - Maersk, which is vital for the company in the coming period of great macro-economic uncertainty and slowdown in trade.

While the demerger of Maersk Drilling has started out as a bumpy ride, and with more headwind in 2020’s depressed oil environment, we are grateful that the company has been separated from the container related activities allowing sufficient focus on its own activities. Maersk Drilling has a strong team in place, second to none balance sheet, a fairly robust backlog of contracts and a dedicated Board of Directors. The latter is not just highly qualified, but also one of the most diverse boards of all listed companies in Denmark.

With the recent election of new Directors, the company now have a board with five different nationalities, of which four are women and five men. As a separate listed company, we expect that Maersk Drilling may have more flexibility and options to find structural opportunities in what has become a very distressed industry.

In 2019, Maersk Tankers continued its transformation journey, initiated after A.P. Moller Holding acquired the company from A.P. Moller - Maersk. Having separated out its entire fleet of assets in a new company (Maersk Product Tankers), Maersk Tankers is now an asset light, agile services platform, using software to optimise vessel flows and reduce the carbon footprint of tramp shipping. 2019 was a momentous year for the company, as it became profitable in its own right, and with a growing fleet of vessels under management - out of the 200 vessels, a majority come from third party vessel owners.

We are equally encouraged by the development of A.P. Moller Capital, trying to be part of the bigger solution for a continent, holding 60% of the world’s population growth. Africa is in dire need of foreign direct investments to create economic growth for a young workforce, in order to pre-empt the spread of poverty, radicalisation and large-scale migration. In 2019, A.P. Moller Capital expanded its team of investment professionals and industry advisors, and pursued several projects to support Africa’s significant demand for energy and transport infrastructure. A.P. Moller Capital has just started its journey and we look forward to following its progress in the coming years.

DANSKE BANK MOVES FORWARD During 2019, A.P. Moller Holding was pleased to see fundamental changes to the board and management of Danske Bank, as a first step in regaining the credibility of the bank. The new CEO, Chris Vogelzang, is facing a highly challenging leadership task, as he has to rebuild trust in the bank from customers and society at large, but also improve its financial situation. We have a belief that Denmark benefits from a large-scale bank with its headquarters in Copenhagen, not least because the bank is a source of vital knowledge, talent and capital for the local business community. We welcome and support Chris and his team’s societal and financial plans for the bank. Our ownership in the bank is based on the premise that the bank acts with integrity and that it generates an attractive risk adjusted return over the cycle. In our view, this is essential for any bank to remain independent in a global consolidating banking industry.

We are witnessing an increased regulatory burden on banks. If financial institutions fail to live up to society’s expectations of them, as was the case with Danske Bank, relevant directors of such companies should be replaced at the general meeting by the shareholders. As owners and through our participation in several board nomination committees, we are seeing a worrying trend that many qualified directors no longer have an interest in joining the boards of financial institutions, especially in Denmark. Potential directors express concerns about the personal liabilities of being on a bank board (exemplified by the Amagerbanken case), an overwhelming work burden (a single board meeting of a Danish bank may include more than a thousand pages of pre-reading) and with less time available in the boardroom for strategic, commercial and technology related topics.

Politicians and regulators should closely follow this development as the Nordic financial sector needs directors with integrity, who hold relevant experience and domain expertise, including from the

Performance vs. indices

Our Net Asset Value Index (DKK) MSCI World Index (DKK) SCFI Index (USD) Brent oil price (per BBL, USD) CAGR

2015 2016 2017 2018 2019

(20152019) 106,871 134,229 135,857 98,085 116,605 2.2% 11,421 12,345 13,025 12,282 15,694 8.3% 837 952 824 911 959 3.4% 37 57 67 54 66 15.3%

financial sector and from the technology sector. From our vantage point, making a director’s role more attractive in financial institutions is as pressing as it is paramount for the long-term viability of the sector. Regulation alone, will not create a better banking system. We need to be able to attract the best qualified managers and directors to the sector.

THE INVESTMENT STRATEGY EVOLVES FROM OUR HISTORY An important part of our mission is to ensure the Group remains relevant over time. Some of our future direction is guided by our past learnings.

As the shipping industry moved from sail to hydrocarbons, more than a century ago, the master Peter Mærsk Møller and his son Arnold Peter founded, what is today, the A.P. Moller Group. The initial investments were tramp ships, propelled by coal and steam, but soon the company became more diversified. Much of the Group’s value creation came as a result of the two great tailwinds of the 20th century: the rise of the combustion engine, which created demand for oil products, and the rise of trade, creating demand for shipping. As a Group, we have so far managed to navigate difficult waters, and survive hardship, whether it has been world wars or great recessions, but we are now facing maybe our most daunting task: how to revive the Group’s growth prospects, by finding the next tailwind.

An important part of our long-term continued importance and relevance will happen in our current portfolio businesses. As an example, A.P. Moller - Maersk is at the forefront of trying to address the global shipping industry’s carbon footprint (today the shipping industry emits 2-3% of all greenhouse gases). A.P. Moller - Maersk’s vocal industry leadership and 2050 zero carbon plan does not only make sense for society and our environment, but is also integral to creating a viable business model long-term.

The A.P. Moller Group’s continued importance and relevance is also closely linked to A.P. Moller Holding’s plans to invest in and develop a portfolio of new companies. Over the last 1.5 years, we have hired a diverse team of highly capable investment professionals, who have worked diligently on defining our investment strategy and developing a pipeline of opportunities. This investment strategy is based on three important criteria:

Firstly, we invest in companies and activities that have a positive impact on society. In the 1950s, our family established the A.P. Moller Foundation, the ultimate owner of A.P. Moller Holding, to secure the long-term ownership of the Maersk activities, and, as it is specifically spelled out in the charter, to re-invest proceeds in ‘nyttig virksomhed’. This mindset of being a good corporate citizen running a profitable business, while also supporting wide ranging societal goals, is also an important parameter for our future investments.

Secondly, we invest in companies benefiting from long-term macro tailwinds. As long-term owners of companies, we rely on the overall macro environment of such companies.

Thirdly, we invest in companies, where we, as engaged owners, can impact the outcome or degree of success and add value, e.g. by bringing certain insights or networks to the table or attracting highly qualified and talented directors. In this respect, we are also mindful that there are better owners for certain industries, where we as a Group do not have the relevant expertise or capabilities.

NEW INVESTMENTS IN THE RESOURCE EFFICIENCY SEGMENT The above three criteria were fulfilled when we acquired KK Wind Solutions during 2019.

The investment case started with an extensive review of how the increased demand for resource efficiency impacts industries, such as the shift to green power and energy, including electrification. We eventually turned our sights to KK Wind Solutions, which is a world leading supplier of electromechanical systems and solutions to the wind industry, with products today generating wind power to approximately five million additional homes every year. KK Wind Solutions is not only benefiting from the strong and global long-term demand for wind power, but also from a general industry trend with large OEM’s outsourcing a bigger part of their production to suppliers like KK Wind Solutions, to reduce costs and capital deployed. Access to goods, energy and financial services remains the backbone of a well-functioning society. In this respect, I am encouraged to see how our organisations take necessary precautions to minimise the risks for our employees and their families, while we try our best to continue to serve our communities across the world.

KK Wind Solutions is headquartered in Denmark, but with a desire to follow its customers to other parts of the world, with new interesting projects in Asia and the Americas. We are excited to be part of KK Wind Solutions’ journey to build an industrial champion in the renewables space, to create meaningful jobs in Denmark and internationally and to be part of the solution for the green energy transition. We are also excited that the KK Wind Solutions team is part of our network, as they bring new important insights and capabilities to our Group.

A.P. Moller Holding is also exploring the opportunity to establish a geothermal company, with a team of highly talented and qualified colleagues, who hold vast knowledge and experience from the upstream industry. The objective of our incubation effort is to develop geothermal energy for district heating in Denmark and, potentially, internationally. The Aarhus municipality stands out in its ambition to create Europe’s biggest geothermal plant, as a greener and more sustainable replacement of biomass. However, the viability of the project largely depends on the government implementing a robust regulatory framework, to enable what constitutes an investment of up to several billion DKK in a new form of green energy.

KUDOS TO OUR TEAMS As a concluding remark, let me as CEO extend my sincere thanks to our team members in A.P. Moller Holding for their relentless efforts, long hours and valuable contributions during 2019. We are blessed to have a team of talent, who often stand out in their endeavours, and with a joint desire to not just build a great company, but also a company that makes a real difference, as owner and investor.

I would also like to extend my gratitude to the many hard-working and diligent directors and executives in our portfolio companies, for their many efforts and for a constructive dialogue with A.P. Moller Holding. At times, we may appear to be very demanding owners, but we share the same long-term aspirations and passion for our portfolio companies. I know the entire team of A.P. Moller Holding feels very blessed to be part of the same Group and network as you! A BLACK SWAN AND STORM: COVID-19 As the last decade was coming to an end, the world suddenly found itself in dire straits. At the time of writing this letter, COVID19 is having a profound impact on our society and economy in many ways. Lives and livelihoods have been extinguished by the virus. Most of our businesses are hit very hard by the pandemic and the economic outlook is uncertain.

We have faced adversity in the past. I am confident that we have the means and capabilities to also overcome these challenges, by working closely together and by applying ‘constant care’. Access to goods, energy and financial services remains the backbone of a well-functioning society. In this respect, I am encouraged to see how our organisations take necessary precautions to minimise the risks for our employees and their families, while we try our best to continue to serve our communities across the world.

As seafarers have said for centuries: make sure to keep one hand for yourself and one for the ship for a safe voyage.

We believe all our group companies will continue to benefit from being part of the A.P. Moller Group, which encompasses a deep network of talent and know-how, but is based on a structure of independent companies, and not a corporate conglomerate.