A.P. Møller – Mærsk A/S has published its Interim Report Q1 2016 today, 4 May 2016.
Highlights:
- The Maersk Group delivered an underlying profit of USD 214m with six out of eight businesses returning a profit.
- Though profit remains challenged by the market conditions, Maersk Group continues to see good operational performance resulting from cost and optimisation programmes.
- Reduced cost levels bring break-even to the range of USD 40-45 per barrel from previous USD 45–55 per barrel in Maersk Oil.
- Maersk Line improved utilisation, lowered unit costs by 16% year on year and defended their market leading position, delivering an underlying profit of USD 32m.
- We are strengthening the Group’s position in the market and have completed acquisitions within APM Terminals and Maersk Oil.
The Group delivered a profit of USD 224m (USD 1.6bn) negatively impacted by the low oil price and low average container freight rates. The return on invested capital (ROIC) was 2.9% (13.8%).
The underlying profit of USD 214m (USD 1.3bn) was significantly lower than same period last year due to all businesses except Maersk Drilling, Maersk Tankers and Damco being lower and Svitzer being at the same level.
“The Maersk Group delivered an underlying profit of USD 214m in the first quarter. While market conditions remain challenging, we continue to adjust our cost base to the new conditions and maintain a good operational performance across our businesses. We maintain our focus on strengthening the Group’s position in the market and have completed acquisitions within APM Terminals and Maersk Oil, and in Maersk Line we have defended our market leading position,” says Group CEO Nils S. Andersen.
The Group’s revenue decreased by USD 2.0bn or 19% compared to Q1 2015, predominantly due to 37% lower oil price and 26% lower average container freight rates. This was partly offset by 7% higher container volumes and 15% higher oil entitlement production.
Operating expenses decreased by USD 1.0bn mainly due to lower bunker prices and cost saving initiatives, including lower oil exploration costs.
The Group’s cash flow from operating activities of USD 250m (USD 2.0bn) was, in addition to the low profit, impacted by a one-off dispute settlement in Maersk Oil. Net cash flow used for capital expenditure was USD 1.9bn (USD 1.6bn) with investments predominantly related to the Grup Marítim TCB transaction and Africa Oil Corporation. The total enterprise value of Grup Marítim TCB of USD 1.2bn consisted of acquired net assets of USD 0.8bn and acquired net interest-bearing debt of USD 0.4bn.
Net interest-bearing debt increased to USD 10.7bn (USD 7.8bn at 31 December 2015) mainly due to the negative free cash flow of USD 1.6bn (positive USD 307m), share repurchases of USD 475m and net interest-bearing debt of USD 0.4bn acquired through the Grup Marítim TCB transaction.
Total equity was USD 35.8bn (USD 35.7bn at 31 December 2015), positively impacted by the profit of USD 224m and other comprehensive income of USD 220m offset by share repurchases of USD 475m.
With an equity ratio of 55.7% (57.3% at 31 December 2015) and a liquidity reserve of USD 11.9bn (USD 12.4bn at 31 December 2015) the Group maintains a strong financial position.
Freight rates and oil prices stayed subdued and volatile in Q1 2016 due to the continued significant supply-demand imbalances. Within these difficult markets, we executed on our plans to reduce cost and deliver high operational performance.
Maersk Line made a profit of USD 37m (USD 714m) and a ROIC of 0.7% (14.3%) in Q1 2016.
Revenue of USD 5.0bn was 20% lower than Q1 2015. The development was driven by a 26% decline in average freight rates to 1,857 USD/FFE (2,493 USD/FFE) only partially offset by a 7.0% increase in volumes to 2,361k FFE (2,207k FFE).
The freight rate decline was attributable to lower bunker prices and deteriorating market conditions. Container freight rates declined across all trades, especially Maersk Line’s key trades to/from Europe as well as Latin America and North America were impacted. Recognised freight revenue was USD 4.5bn (USD 5.6bn) and other revenue was USD 514m (USD 627m). The EBIT margin gap to peers is estimated at around 5% for the last quarter (Q4 2015) on par with the ambition level.
The EBIT margin gap to peers narrowed as Maersk Line compared to peers benefits less from bunker price declines since Maersk Line operates a more fuel efficient network. Further, Maersk Line is negatively impacted by a relatively higher exposure to the Europe trades, which were more impacted by the freight rate decline than other trades. Maersk Line’s response remains an accelerated cost focus in line with the cost leadership strategy.
Unit cost improved by 16% to 2,060 USD/FFE (2,449 USD/FEE) benefitting from decreased bunker prices, cost efficiencies and USD appreciation. Bunker cost decreased 48% compared to Q1 2015 driven by 50% lower bunker prices. Bunker efficiency improved by 1.8% to 957 kg/FFE (974 kg/FFE).
Maersk Oil reported a loss of USD 29m (profit of USD 208m) and a ROIC of negative 3.0% (positive 14.8%).
The lower result was mainly due to 37% lower average oil price of USD 34 per barrel versus USD 54 per barrel in Q1 2015 with Brent oil price reaching a low in January of USD 27 per barrel. The market has since then seen a slow but increasing upward trend. Partly offsetting the lower result was a 15% higher entitlement production of 350,000 boepd (304,000 boepd) and 65% lower exploration costs of USD 57m (USD 162m). In addition, Q1 2015 was positively impacted by a deferred tax income of USD 170m due to reduction of the UK tax rate.
Maersk Oil reduced operating expenses by 21% excluding exploration costs, to USD 570m (USD 724m) showing good progress towards the targeted 20% reduction by the end of 2016 compared to the 2014 baseline. Maersk Oil is striving to secure the lowest possible break-even oil price, previously announced at a level around USD 45-55. A combination of effects from exchange rates, cost reductions, exit from Polvo, Brazil as well as the very low level of exploration activities has reduced the break-even level to around USD 40-45 per barrel.
Maersk Oil completed the acquisition of 15-25% in three onshore exploration licences in Kenya and two in Ethiopia, following approval by both governments in Q1 2016. After nine successful exploration wells, Maersk Oil and partners are evaluating the future development options for the Lokichar field in Kenya.
RESERVES AND RESOURCES: The yearly update of Maersk Oil’s reserves and resources as per end of 2015 showed entitlement reserves and resources (2P+2C) of 1,141m barrels of oil equivalent (1,311m boe) including proved and probable (2P) reserves of 649m barrels of oil equivalent (510m boe). The net (2P) reserves increase of 139m boe was due to addition of close to 300m boe from the major development projects Johan Sverdrup and Culzean, offset by the 114m boe of entitlement production (92m boe) and some downwards revisions mainly due to the lower oil price. The reserves and resources are estimated according to international standards (Society of Petroleum Engineers’ Petroleum Resources Management System) and the reserves are reviewed by an independent third party.
APM Terminals made a profit of USD 108m (USD 190m) and a ROIC of 6.2% (12.9%).
In general, weak demand, especially in Europe, slowing growth in China, and the low oil price continued to impact APM Terminals negatively. Being largely dependent on raw material exports, many economies in Latin America and West Africa where APM Terminals has significant activities, continue to see declining growth and foreign trade. Decreased volumes on the westbound Asia-Europe trade lane impacted terminals in both China and Europe. Globally, the container market grew by 1.4% in Q1 (Drewry) with some regions showing modest growth of 3-4% (North America and Middle East/South Asia), while markets declined in Northern Europe and West Africa.
These developments put pressure on APM Terminals volumes, causing revenue to decrease by 15% to USD 962m (USD 1.1bn) and the EBITDA-margin to decrease to 17% (19%). Operating businesses generated an underlying profit of USD 116m (USD 184m) and a ROIC of 8.3% (13.4%) and projects under implementation including Grup Marítim TCB with eight terminals from beginning of March had a loss of USD 9m (loss of USD 9m) and a ROIC of negative 2.4% (negative 9.3%) resulting from their start-up costs.
APM Terminals accelerated its revenue improvement and cost savings initiatives through staff redundancies as well as overhead and general cost reductions across the portfolio.
APM Terminals completed the acquisition of Spanish Grup Marítim TCB’s port and rail interests. APM Terminals has yet to receive regulatory approval related to three of 11 terminals under Grup Marítim TCB, but has decided to move ahead with the acquisition, as the remaining terminals constitute less than 5% of the enterprise value of the acquisition. The acquisition adds eight ports with a combined 2m TEU equity-weighted volume to APM Terminals, expanding the network to 72 operating ports, across 69 countries.
APM Terminals signed an agreement to develop a new transshipment terminal at the Tangier Med 2 port complex with an annual capacity of 5m TEU. It will be the first automated terminal in Africa and is set to become operational in 2019. The total investment in the new terminal is expected to be around USD 0.9bn with APM Terminals’ share being 80%.
Maersk Drilling delivered a profit of USD 222m (USD 168m) generating a ROIC of 11.2% (8.5%).
The underlying profit was USD 223m (USD 195m), positively impacted by USD 60m due to the termination of Mærsk Deliverer and cost savings partly offset by more idle days. Maersk Drilling continued to be positively impacted by the high contract coverage at higher rates compared to current markets.
In response to the challenging business environment Maersk Drilling continues to identify and drive cost savings to optimise profitability and cash flows. In Q1 2016, Maersk Drilling reduced costs by 4% compared to Q1 2015, excluding exchange rate effects. Since the launch of the cost reduction and efficiency enhancement programme in Q4 2014, Maersk Drilling has reduced cost by 12%.
The economic utilisation of the fleet was 83% (88%) adversely impacted by four rigs being idle or partly idle. Maersk Drilling delivered a high operational performance across the rig fleet with an average operational uptime of 96% (99%) for the jack-up rigs and 98% (94%) for the floating rigs.
At the end of Q1 2016, Maersk Drillings’ forward contract coverage was 72% for 2016, 54% for 2017 and 43% for 2018. The total revenue backlog by the end of Q1 amounted to USD 4.7bn (USD 5.9bn).
Maersk Drilling had the contract for the harsh environment jack-up Mærsk Gallant cancelled, but concurrently Maersk Drilling signed a new contract in direct continuation of the cancelled contract. The contract cancellation and new contract are financially neutral to Maersk Drilling.
Furthermore, Maersk Drilling received a notice of early contract termination for the ultra-deepwater semi-submersible Mærsk Deliverer. The contract was due to end in December 2016. As per the contract, Maersk Drilling is entitled to receive compensation for the remaining part of the contract period, and the cancellation is expected to be neutral for the 2016 full year financials.
APM Shipping Services made a profit of USD 75m (USD 94m) and a ROIC of 6.2% (8.1%).
Maersk Tankers made a profit of USD 48m (USD 36m) and a ROIC of 11.5% (9.0%). The result was positively affected by improved commercial performance and cost savings.
Maersk Supply Service made a loss of USD 2m (profit of USD 38m) and a ROIC of negative 0.4% (positive 8.8%). The market situation in the offshore industry continued to be challenging with significantly reduced demand for offshore services.
Svitzer delivered a profit of USD 27m (USD 29m) and a ROIC of 9.4% (11.0%). Despite significant overcapacity and slowdown in most shipping segments, not least bulk trades, Svitzer increased its market share in Australia and Europe.
Damco made a profit of USD 2m (loss of USD 9m) and a ROIC of 3.0% (negative 11.2%). The result was mainly driven by cost saving initiatives and growth in supply chain management activities.
The Group’s guidance for 2016
The Group’s expectation of an under-lying result significantly below last year (USD 3.1bn) is unchanged.
Gross cash flow used for capital expenditure is still expected to be around USD 7bn in 2016 (USD 7.1bn).
Maersk Line reiterates the expectation of an underlying result significantly below last year (USD 1.3bn) as a consequence of the significantly lower freight rates going into 2016. Global demand for seaborne container transportation is still expected to increase by 1-3%. Maersk Line aims to grow at least with the market to defend its market leading position.
Following cost reductions, Maersk Oil now expects a breakeven result to be reached with an oil price in the range of USD 40-45 per barrel versus previously with an oil price in the range of USD 45-55 per barrel. Previous guidance was a negative underlying result.
Maersk Oil’s entitlement production is now expected to be 320,000-330,000 boepd (312,000 boepd) compared to previously around 315,000 boepd. Exploration costs are now expected to be below last year (USD 423m) versus previously to be in line with 2015.
APM Terminals now expects an underlying result below 2015 (USD 626m) versus previously around the 2015 level, due to reduced demand expectations in oil producing emerging economies.
Maersk Drilling reiterates the expectation of an underlying result significantly below last year (USD 732m) mainly due to lower dayrates and more idle days.
APM Shipping Services maintain the expectation of an underlying result significantly below the 2015 result (USD 404m) predominantly due to significantly lower rates and activity in Maersk Supply Service.
Copenhagen, 4 May 2016
Contact:
Head of Media Relations Denmark, Simon Augustesen, phone. +45 3363 1912
The Interim Report Q2 2016 is expected to be announced on 12 August 2016.
The full report can be downloaded here: 2016_q1_report.
Source: Maersk press release
Source: Maersk press release