Welcome to the Fourth Quarter 2014 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Arnold Donald. Please go ahead, sir.

Hi everyone, this is Arnold Donald, CEO of Carnival Corporation and Plc and Happy Holidays. Thank you all for joining us for our fourth quarter 2014 earnings conference call. Today with me are Chairman, Micky Arison; our CFO, David Bernstein; and Beth Roberts, our Vice President of Investor Relations. Before I begin, please note that some of our remarks on this call will be forward-looking. I must refer you to the cautionary statement in today's press release. We finished our fiscal year with a strong fourth quarter, exceeding guidance even before factoring in the benefits of lower fuels, and leading to 2014 full year cash from operations of nearly $3.5 billion. Earnings growth of almost 25% over 2013 and well above our full year guidance. That performance is a credit to our outstanding 120,000 team members and associates across the globe. In 2014, we enjoyed some early wins on our cross-brand collaboration efforts, and we had a number of significant achievements. Importantly, the groundwork for continued progress is laid for 2015 and beyond, as we aggressively move towards double digit return on invested capital. Overcoming a number of obstacles as is often the case, including the loss of higher yielding itineraries due to geopolitical concerns, dramatic capacity increases on the Caribbean, and capacity absorption issues in Japan, as well as some other one-off impacts, we were still able to deliver very strong results. Despite the aforementioned competitive Caribbean impact in fact, the team effort at the Carnival brand delivered a mid-single digit improvement in yield last quarter and a solid profit improvement for the year, exceeding our internal plans. We made consistent progress in Europe, as Costa and AIDA continue to improve yields, and contain costs through the benefit of cross collaboration efforts among our European brands. In addition, the…

Thank you, Arnold. Before I begin, please note, all of my references to revenue and cost metrics will be in constant dollars, as this is a much more meaningful measure of our business trends. I will start today with a summary of our guidance topping fourth quarter and full year results, then I will provide some insight into our current bookings, and finish up with some color on our 2015 December guidance. Our non-GAAP EPS for the fourth quarter was $0.27. I am excited to report that this was $0.10 above the midpoint of our September guidance, and would have been above the high end of the September guidance range, even without the benefit of lower fuel prices. The improvement was essentially driven by two things, $0.05, the majority of which we benefited from higher onboard and other yields, as the improvement we saw in the third quarter was repeated again in the fourth quarter, and $0.05 from lower fuel prices. Now let's look at our fourth quarter operating results versus the prior year. Our capacity increased 2%. The North American brands were up 2.5%, while our European, Australia and Asian brands, also known as our EAA brands, were up 1%. Our total net revenue yields in the fourth quarter were up almost 3%. Now let's break apart the two components of net revenue yields. Net ticket yields were up over 2%, and this was driven by 2% plus increases on both sides of the Atlantic. Improvements in the North American brands were driven by seasonal European programs, and late season Alaskan sailings. Improvement in the EAA brands were driven by net itineraries and Australia. Net onboard and other yields increased over 4%, with increases on both sides of the Atlantic as well, and across the world in almost all…

[Operator Instructions]. Our first question comes from the line of Robin Farley with UBS. Please proceed.

I think that may be me, this is Robin Farley. Two questions, first is, I wonder if you could give us any kind of cumulative sense, how the Costa brand and the Carnival brand -- and at this point, through the end of this year versus peak pricing, going back to 2007. Just to get a sense of sort of how much recovery is left in each of those brands, in whatever way you might quantify for that? And then secondly, your ship announcement this morning, didn't have the cost per berth, and I wonder if we should assume both of them are sister ships to 2016 deliveries, how different is the cost on 2018 delivery? Thanks.

Hey, happy holidays to your Robin. First of all, concerning your question on Costa and Carnival, obviously we typically don't provide brand specific guidance; but through a lot of hard work, both brands are working their way back and we have been impacted, and the Costa brand by a significant economic downturn a year, but we are definitely on pace for a three to four year recovery, we just had a very good year with Costa, and we expect another one; Michael Thamm and his team are doing a great job over there. And hopefully, the moderately improving European economic situation is going to help us. In regards to Carnival, we did a really good job, offsetting the revenue shortfall that they experienced in the first half, and then we are working really hard to accelerate that. The profit improvement in 2014 was good, and we see things pointing up, especially as we get into the second and third quarters next year, when the Caribbean capacity decreases. And then concerning your second question on the fleet, the ships that we announced today, things are tightening up a bit, there is inflation and so on. But we are very pleased with the ships that we have announced, in terms of the deals we have constructed for those, that gives a shipyard lots of incentive to do high quality work, and give us an excellent opportunity for very high return on invested capital, given the ship's designs and the department plans going ahead. I hope I answered your questions Robin?

Not as specifically as I hoped, maybe if you could just talk one last one and then --

Sure. By all means.

I don't know if you have any initial thoughts on the potential for Cuba, and how you think that could affect kind of -- itineraries you get out to, when you look at your Caribbean mix thing, you know 35% or so of your fleet, and just sort of any initial thoughts, I realize its quite early?

There is no question, the legislative embargo was lifted, Cuba is a tremendous opportunity. There is a lot of pent-up demand to visit Cuba. It would allow us some very fuel efficient itineraries, also just new itineraries for those who love to go to Caribbean. There is about 11 ports, that are able today to accommodate our ships. There are some size restrictions, and those particularly in Havana. So we have a variety of ships and different sizes that can go to multiple ports. The Havana port specifically has a relatively shallow drafts, that will take some smaller ships that can't be drenched because of some of them over there -- the tunnels that is there. But there will be investment in ports and all the infrastructure required all the time, should the legislative embargo be lifted. But we are excited about the prospects for Cuba, and it would definitely create the demand that we need to have the relative scarcity to drive yields.

Great. Thank you.

Thank you.

Our next question comes from the line of Lisa Hendrix with Barclays. Please go ahead.

Hi, Felicia Hendrix and good morning and happy holidays. David, wondering if you could just walk us through how you get to the high end of your earnings guidance range, given the metrics that you gave us in the release?

We're talking about a range that is $0.30 wide, which is essentially two points of yield, and so at the high end of the range, from the midpoint you're probably either talking about a point additional yield, or something less than a point of additional yield, and something at a slightly less costs. Those are the types of things in terms of the guidance range that we are looking at.

Okay. That's helpful, because when you gave us the yields and the costs, those weren't ranges. But what I am hearing from you is that implicit in your EPS guidance is some kind of yields and cost range?

Yes, and basically the approximately 2% and approximately 3% was the midpoint of the range.

Right, okay. And then also David, keeping you in the hot seat here, regarding your overall net yield forecast, thank you for the color. You mentioned Australia as being an area of caution, given the capacity growth that's there. Just wondering if you could give us some more color on your thoughts, on what you're seeing and thinking about Europe next year, because capacity is growing there, while its mid-single digits, and its not an onerous number, it is up a lot versus a steep decline in 2014. So are you baking in any kind of conservatism for Europe, and then also maybe regarding the economy there, or how are you thinking about that?

Overall, we are looking at yields in Europe to be up, we are looking it both for the seasonal European program for our North American brands, as well as our EAA brands. So we have positive yields included in the forecast for both, and we feel very good about that. We give you our best guess all the time, and so up approximately 2% is our best guess, given what we are seeing. But remember, wave season is a few weeks, and we will have a much better indication of demand, when we get into January-February timeframe.

Perfect. Thank you so much.

Our next question comes from the line of Steven Kent with Goldman Sachs. Please proceed.

Hi, two questions; just to follow-up on Robin's question on cost; the reason why are so focused in on it, is that it sounded like you're still in recovery mode for the brand, and that would be a lot longer than I would have thought for the brand to come back. If costs are now trending more along with the other European brands, or if there is still something unique about it? And then just one other thing, we noticed in the back of the press release, there was a restructuring charge of $18 million, trademark and other impairment charges in Q4? I just wanted to know what that was, and whether it was related to a specific brand or something like that? Thank you.

I will answer the second part first, $80 million refers to actions in both the Costa Group and the Holland America Group, where we set up reserves, as they effect the cross brand collaboration coordination, some redundancies widened, and we set up some reserves accommodate that, and the savings from that are reflected in the guidance, in the range that we have given for 2015. And what was the first part of your question again?

Let me answer on the loss, Steve, the losses on the ship sales and ship impairments. What was included in the fourth quarter, was relating to the three ships that we talked about, that will be leaving the fleet, and that was the $70 million in the fourth quarter. The impairments relate to prior periods, which are also included in the table.

Okay. And then your first question was back on Costa again; look, the reality is, we have moved on, and we are focused now on driving yields and containing costs. But as you guys asked the questions about previous points in time and performance; clearly, we feel the cost of recovery was impaired by the environment and economic environment in Europe. But we had a good year in Costa; we had excellent improvement in profitability and expect to grow again next year.

So then just sticking on that -- but I guess what we are asking is, is like Costa, AIDA, Cunard, just as European brands; are those three brands all moving together, or is Costa still not showing the same kind of momentum, both the upside and to the downside, as the other --

Europe is not one market, so you have the U.K., you have the Baltic, the Mediterranean, and so on. The brand sorts differently, in terms of their source markets, the countries people come from that, the weight of all that. So those are very three different brands; AIDA, the German brand, almost exclusively sourced in the German market, serves Germans almost exclusively, so that brand is not very-very well and continues to do so. The U.K. is heavily sourced, obviously with U.K. folks, and whatever happens in the U.K. and [indiscernible]. But Cunard is a global brand; Cunard sources from the U.K., North America, Asia, everywhere. So you are talking about apples, oranges and apricots kind of a thing. So we would not expect them to move in unison, because Europe is not one place, and even those brands, not all source exclusively from Europe. But Costa is doing well, Cunard is doing well, its just P&O, which I did mention and AIDA is doing very well.

Okay. Thank you.

Thank you.

Our next question comes from the line of Steve Wieczynski with Stifel. Please proceed.

Hey, good morning guys. So David, you specifically called out Australia; and I know capacity there is up somewhere between 15% and 20% for the industry next year; but is that something that you are currently seeing right now in terms of pressure, or is that something you're saying further down the road, you think that could be something, that that market could come under pressure?

I wasn't talking about pressure; Australia has seen double digit capacity increases, it absorbed it very well. All I was trying to do, as I was indicating that all the different programs were going to be up next year, including the Caribbean; but I was just cautioning you that Australia may not be up as much as some of the others, because of the larger capacity increase in that market.

Okay, got you. And then second question, it’s a question we get a lot from investors, but given where oil is today, and I know you guys have never hedged in the past, and you have your field insurance [ph] out there, but is there any discussion going on at this point, in terms of doing something more to the extreme in terms of, basically trying to lock in more fuel at today's prices?

Our practice has been to use collars to mitigate against spikes, and the prices, and that will be our practice going forward.

Okay. And then last -- David, can I just ask one housekeeping question; do you have the capacity increases for all of Carnival by quarter?

We do --

For first quarter, we are up 2.5%; second quarter is up 3%; third quarter is up 1.3%; fourth quarter is up 4%, for a total of 2.7 on the year.

Okay, thanks guys. Happy Holidays.

Sounds a little high, above the ship --

Let me just double check the number.

I think that number is a little high. We will get the right number back to you. Beth will give it to you.

Let's go to the next question, I will go back to that.

Thank you. Our next question comes from the line of Harry Curtis with Nomura. Please proceed.

Hey, good morning. Going back to that last question, Arnold, you mentioned that your practice is to use collars, that's not been set in stone for a long period of time, and you've seen an unprecedented move in the price of crude. And just the lift in crude between sort of 2006 and 2012, devastated the company's return on invested capital; so I am just wondering, you sound committed to the collars, but is there any flexibility to moving to hedges, because if we do see a move back in crude, its going to have a negative impact on your strategy of lifting your return on invested capital?

Well first of all, with regards to return on invested capital, our plan has always been -- we weren't counting on fuel to drop, and we don't know what fuel is going to do in the future. So we need to get double digit return on invested capital regardless. Now clearly, if fuel continues where it is or drops further, that would accelerate the timeline, to get to the double digit return on invested capital. But we need to get there, regardless, so that's number one. And number two is that, we are protecting against spikes, so we want to protect against the downside, and there is all kinds of debate around hedging, and any cost of money to hedging, and you have to decided whether its worth it. In our case right now, we didn't hedge, and so we have been able to benefit in the recent drops in fuel prices that we had hedged. Before this, we wouldn't be enjoying quite as much benefit as we are today.

Right. But I am just if there is some flexibility at the board level on changing your strategy?

We will review it consistently. Our current recommendation is to maintain the color, practice that we have. But I am sure that that will be a conversation going forward.

Okay. And my other question is, can you give me a sense of the actual drydock days that are budgeted for 2015, and how that's different from 2014? What I am trying to get at is, when you think of how many ships in your fleet you really need to touch, whether its scrubber technology or vessel enhancement, are you -- is the implication that really by the end of 2015, all of that incremental investment and drydock days will be done by the end of 2015?

I think the way to look at it is, first of all we have got 550 drydock days in plan for 2015, that's a 50% increase over what occurred in 2014. There is no normal for drydock days, but if you want a number on average to think about over time, that would average out as probably in the 400 to 450 day type of range. In terms of the technologies, the fuel consumption saving technologies, as well as the exhaust cleaning systems; that's peaking for certain this year, in 2015. A lot of that will be done by 2016, and we should be pretty much done with that, completely by 2017. But there will be a major tailwind for 2016, from the reduced number of drydock days, 2016 compared to 2015.

So you would expect it to go back down to that average of 400 to 450 perhaps?

Yes, it will be in that range. We have to plan -- there is also other enhancements that we may put onboard, to drive revenue and so on. But directionally, you're absolutely right.

I am going to correct the capacity growth from earlier. The latest figures to cancel [ph] the ship sales for next year are 1.7% in the first quarter, 2.3% in the second, 0.6% in the third quarter, 3.3% in the fourth quarter, for a total of 2% flat on the year.

Right.

Okay. That does it for me. Thanks guys.

Thank you.

Our next question comes from the line of Jaime Katz with Morningstar. Please proceed.

Good morning. Thanks for taking my question. Can you talk a little bit about how the marketing has evolved in China, as you guys have learned more about the consumer there, and how you are better targeting the consumer base in the region?

Well first of all, it continues to evolve obviously, and in reality, if there is pent-up demand. What we have done is, based on the experience of Costa, which has been there since 2006, we have gone with Italy's finest as the theme for the Costa brand, and that's marketed through the various distributors in China, who market directly to the Chinese public, as well as there is general marketing effort through internet and through TV. On Princess side of things, they were offering international experience from an American type perspective. We have catered a number of the features on the ships to the Chinese consuming public. But we are all fortunate whether its ourselves or others in the industry that are participating in that market. It’s a very large market. There is pent-up demand, and we will continue to learn, to perfect both the guest experience onboard, as well as how to reach out to the Chinese public, that is eligible for cruising.

And then, do you guys have just forward CapEx estimates, so we can think about how those new ships might impact spend?

Sure. We are looking at $3 billion, and this includes newbuilds as well for 2015 and a little bit higher, probably about $3.3 billion for 2016, and roughly $2 billion for 2017.

Thank you.

Our next question comes from the line of Richard Carter with Deutsche Bank. Please proceed.

Hi. Good morning everybody. Is it possible to just give us a flavor of thinking about the vessel enhancements you have done so far on Carnival Cruise Lines? What sort of impacts you've seen in terms of revenues post enhancements, versus pre-enhancements? And then second, you obviously talked --

I am sorry go ahead.

Then just second question, just on the pent-up demand in Asia, there is obviously a lot of capacity coming into Asia forecast over the next few years. So do you see any risk at all in terms of yield growth coming under pressure, or do you think the demand far outweighs the supply?

First of all, concerning the Fun Ship 2.0 enhancements for Carnival, there is not question that it contributed with one of the contributors to the strong performance of our Carnival brand this year, and the overall lift in the profitability of that brand, that we saw. It also shows us guest satisfaction scores onboard, and it certainly helped to further invigorate that brand, and keep it very relevant for the guests and gradually in a power way, and it has positioned us well going into next year. With regard to China, your question again?

I am just wondering about -- obviously you talk about this, there is a lot of pent-up demand, but there is also a lot of capacity of all the major lines going -- just your advice?

Right now, we are seeing yield improvements. But over time, depending on how things evolve there, there could be periods of out of sync capacity introductions to demand. But right now for 2015, where we have line of sight, demand is strong, and we are anticipating yield improvement and continued progress in China.

Can you try and quantify a little bit in terms of onboard spend, sort of percentage changes on the vessels that have the enhancement investment? Is there any way of just giving us a flavor --

Well of course, how it has been [ph] in terms of Carnival, you mean?

Yeah, post the investments on Carnival Cruise Lines?

Again a little more complicated than that. Its not just the Fun Ship 2.0 investment that would drive onboard revenues. But onboard revenue lift was strong, as we indicated in 5% in the fourth quarter. We don't see that as an ongoing run-rate of improvement, but we certainly see strong improvement and have that in our plan, to the guidance we have given you going forward. Some of that comes from not so much Fun Ship 2.0, but some different things we have done and we have learned through the brand collaboration and coordination and seeing all other things, and clearly some of it does come directly from the Fun Ship 2.0.

Okay. Thanks.

Thank you.

Our next question comes from the line of Tim Conder with Wells Fargo Securities. Please proceed.

Thank you and happy holidays, Merry Christmas to everyone. A couple here, just returning to the several questions you have had on Costa. You said that Costa is improving, I think maybe if you could give some color, it would be greatly appreciated I think by everyone. If you strip out China, which obviously you're using Princess and Costa in China led by Costa, how is Costa doing ex-China, I guess is maybe the question I'd like to drill in on? And then the FX going forward, can you give us a color, how much is U.S. dollar and then the major other currencies, the Euro, Pound and Aussie on a revenue and EBIT basis, looking to 2015?

Okay, with regard to Costa, China and then the European context, Costa is doing very well, but obviously as you move ships out, you have got less capacity in Europe. But in terms of the capacity out there, is higher performing [indiscernible]. We just don't give details by brand, but the reality is Costa has had a very nice recovery in Europe, and has set a strong performance in Asia. I will let David answer your exchange question.

Yeah, as far as the various currencies, if you look at our revenue, roughly speaking, 50% is in U.S. dollars, something around a quarter of our revenue is in Euros. GBP is probably 12%, Aussie dollar 10%, and then everything else is just a few percentage -- should add up to the total. Tim, I don't have the EBITDA by currency, but you can always call Beth and she can give you some more detail after the call.

Okay, great. And one last one David for you, on FX and the net cruise costs. You indicated that still you are looking at costs to be up roughly 3% with all the vessel enhancements, drydocks and scrubbers and everything. That's the guidance you guys gave 90 days ago, and with some of your costs denominated in foreign currencies, we would expect that to come down. Again, not to maybe lead the question here, but are we talking -- is that within the approximate 3%, and then you said 3% to a midpoint range, or is there -- have you all decided for 2015 to maybe spend a little bit more, the Super Bowl ad, or something else?

Let me make a quick comment before David answers; first of all, we have made progress against that 3%, we lost some of that progress when we sold the ship. But we got net positives from the sale of the ship, but the reality is, it was a drag on the cost side that David had added.

There was a lot of changes in September and today, as Arnold indicated. And believe it or not, the sale of the Costa Celebration had an impact on 0.3 on the overall cost on a per ALBD basis. So that offset the total dollars and the savings flowed to the bottom line, but on a per ALBD calculation, we had less ALBDs, which made the percentage go up -- back up to the 3%.

Okay, okay. Thank you very much. Appreciate it.

Our next question comes from the line of Assia Georgieva with Infinity Research. Please proceed.

Good morning guys. Happy Holidays to you as well. I had one quick question on the Carnival brand. We have seen the recovery in the second half of the year, a lot of that was onboard and I think Arnold, you mentioned that we shouldn't be counting on that to continue indefinitely. Were there any other specific initiatives, or was it more demand and market related?

First of all, in terms of the onboard, we expect it to continue, I just don't want you guys locked in on a 5% run rate. We will work hard to do that in better, but we are not forecasting that kind of a run rate going forward. But we absolutely expect it to do better going forward, and the improvement is included in the plan. In terms of overall though, Carnival is on a very good track, and we are very pleased with that. I do want to answer your question specifically though so, if you want to restate part of it, I will.

I guess my question is whether demand market -- while demand has improved in the back half of the year, or was it something that relates more specifically to the efforts you have made at this brand?

Well it’s a combination too, if you ask an industry demand, certainly, because there was so much capacity in the Caribbean. Overall, the industry saw more people failing, and therefore by definition, there was increased demand. Our take of [ph] yield was up in that period, and we are forecasting it to be up certainly in the second, third and fourth quarters next year, helped by the fact that there will be significant capacity reduction late in the second quarter, going into the third quarter, but also helped by the performance of the brand itself, and then the overall efforts we have on the way, to create demand.

Thank you, Arnold. That was helpful. Thank you.

Our next question comes from the line of Edward Stanford with Lazarus. Please proceed.

Good afternoon everybody. Good morning. Just a quick question please, on the impact of the additional fuel costs relating to ECA. Has that guidance changed at all, since you last update the market, or is it the same as it was before? Thank you.

The guidance is the same. We have mitigated what would have been a $0.35 a share impact, down to $0.10 for next year; and overtime that will disappear, that will be reduced in 2016 and all but gone in 2017.

Thank you very much.

Thank you.

Our next question comes from the line of Stuart Gordon with Berenberg. Please proceed.

Yes good morning. I apologize. We actually have about five [indiscernible] from across the lake. Two questions please; the first one is, you spoke earlier, but you know one thing as to forecast onboard going at the same pace as it has done. Could you give us a better color and what kind of difference it would make to your guidance as it did? And the second question is, is on the returns, obviously we have seen the improvement this year, you're guiding for 1% improvement in 2015. But it appears if we take what you said at the third quarter, that without the change to fuel, actually returns into 2015 would have gone down. Was that your thinking at the third quarter, or has your outlook for 2015 tempered slightly since?

Okay. First of all, I hope that's really test, because you are still on the phone with us. For the second part, David go ahead.

As far as the onboard is concerned, every percentage point increase in onboard revenue yields, is worth about $0.04 in 2015. So we were forecasting something in the range, we have included in the guidance of 2%. If it turns out to be 3%, then we got to pick up $0.04. And as far as the return on invested capital is concerned, I mean overall if you looked at the full year increase on the midpoint versus 2013, the midpoint of 2.45 you're talking about, a $0.49 or a $0.50 increase overall. Fuel and currency, net of both the transactional and translational impact was about a $0.41 increase. So we did have some operational increase, and that's the result of the 2% yields offset by the 3% costs. So there was other increases, putting aside the operational increase, which would have drove return on invested capital up.

Okay. Thank you.

[Operator Instructions]. And there are no questions at this time. I will turn the call back to you sir. End of Q&A

Okay everyone, thank you very much. Happy Holidays, we are clearly excited about what we have going on here and we look forward to seeing you throughout the new year.

Happy Holidays. Take a look at the commercials.

Yeah. Take a look at worldleadingcruiselines.com, look at the spots and get ready for the Super Bowl.