A.P. Møller – Mærsk A/S has published its Interim Report Q2 2016 today, 12 August 2016.
Highlights:
- In a second quarter impacted by low growth and falling prices in nearly all our markets, the Maersk Group delivered an underlying profit of USD 134m.
- Cost reductions and operational optimizations made a significant contribution to mitigating the impact of the negative market conditions.
- The Group’s expectation for an underlying result for 2016 is unchanged significant below last year (USD 3.1bn).
- Maersk Line delivered an underlying loss of USD 139m, despite costs being reduced to all time low level of under USD 2,000/FFE. Expectation for 2016 maintained.
- Maersk Oil achieved an underlying result of USD 130m and a ROIC of 12.1% and expects a small positive underlying result for 2016.
- Progress on the initiated strategic review of the Group will be communicated before end of Q3, 2016.
In response to challenging supply-demand imbalances, the Group continues to execute on factors that are within our control by reducing cost and delivering high operational performance.
The Group delivered a profit of USD 118m (USD 1.1bn) negatively impacted by the average container freight rates and oil price. The return on invested capital (ROIC) was 2.0% (10.2%).
The underlying profit for the Group of USD 134m (USD 1.1bn) was significantly lower than for the same period last year for all businesses except Damco.
“In a second quarter impacted by low growth and falling prices in nearly all our markets, the Maersk Group delivered an underlying profit of USD 134m. The result is unsatisfactory. Cost reductions and operational optimizations, however, made a significant contribution to mitigating the impact of the negative market conditions. Maersk Oil has reduced operational costs by 25 percent, upholding a break-even at USD 40-45 per barrel. The costs in Maersk Line have been reduced to an all-time low level and are under USD 2,000/FFE for the first time. Our financial position remains strong with a liquidity reserve of USD 11.5bn. The Group’s expectation for 2016 of an underlying result significantly below last year is unchanged. To ensure the future strength, profitability and development of new growth opportunities of the company, the Board of Directors have initiated a strategic review of the company and will report on progress of the review before the end of Q3, 2016,” says Maersk Group CEO Søren Skou.
Group Highlights:
The Group’s revenue decreased by USD 1.7bn or 16% compared to Q2 2015, predominantly due to 24% lower average container freight rates and 26% lower oil price. This was partly offset by 6.9%
higher container volumes and 8.2% higher oil entitlement production.
Operating expenses decreased by USD 808m mainly due to lower bunker prices and cost saving initiatives as well as lower oil exploration costs.
The Group’s cash flow from operating activities of USD 940m (USD 1.8bn) was materially impacted by the low profit. Net cash flow used for capital expenditure was USD 614m (USD 1.7bn in Q2 2015 excluding the sale of shares in Danske Bank of USD 4.8bn) with investments predominantly related to the acquisition of the jack-up rig Maersk Highlander as well as development of the Culzean oil field in the UK.
With an equity ratio of 54.8% (57.3% at 31 December 2015) and a liquidity reserve of USD 11.5bn (USD 12.4bn at 31 December 2015) the Group maintains a strong financial position.
Maersk Line reported an unsatisfactory loss of USD 151m (profit of USD 507m) in challenging market conditions. ROIC was negative 3.0% (positive 10.1%).
Revenue of USD 5.1bn was 19% lower than Q2 2015. The development was driven by a 24% decline in average freight rates to 1,716 USD/FFE (2,261 USD/FFE) partially offset by a 6.9% increase in
volumes to 2,655k FFE (2,484k FFE). With an increase of fleet capacity of 2.2%, the increase in volumes represents an improvement of network utilisation. The freight rate decline was mainly
attributable to lower bunker prices and weak market conditions.
Maersk Line continued to deliver on strategic objectives in Q2, with record low unit costs and a volume growth at least in line with the market.
Maersk Oil reported a profit of USD 131m (USD 137m) and a ROIC of 12.1% (9.2%) in Q2 2016. The return to profit in Q2 was mainly due to an oil price of USD 46 (USD 62) per barrel compared to USD 34 in Q1 2016 as well as improved operational performance and reduced costs.
Entitlement production of 331,000 boepd (306,000 boepd) was 8.2% higher than in Q2 2015 and exploration costs of USD 47m (USD 109m) 57% lower than the same period last year. Maersk Oil
reduced operating expenses versus same quarter last year by 25% excluding exploration, to USD 475m (USD 632m).
Continued focus on maturing Johan Sverdrup and Culzean will add production by 2019. Maersk Oil will exit Qatar in 2017. The tender result will not lead to any impairments or reduce Maersk Oil’s reserves and resource base which was disclosed in the Q1 2016 Interim Report.
APM Terminals made a profit of USD 112m (USD 161m) on par with Q1 2016 (USD 108m) and with a ROIC of 5.8% (10.9%).
For APM Terminals, profits remain under pressure, as terminals in oil dependent markets face declining volumes and commercially challenged terminals in Latin America, North-West Europe and Egypt have not regained business to compensate earlier lost services.
Lower profits in several key markets was partly offset by cost savings across the organisation. Integration of Grup Marítim TCB is progressing as planned.
Maersk Drilling delivered a profit of USD 164m (USD 218m) and a ROIC of 8.3% (10.6%). Maersk Drilling continues to be positively impacted by a strong contract coverage secured at higher dayrates in a different market environment than the current. However, the market outlook for the offshore drilling industry remains challenging over the medium-term, which will impact Maersk Drilling’s future earnings.
High operational uptime and savings on operating costs were partly offset by more idle days.
APM Shipping Services made a loss of USD 44m (profit of USD 138m) and a ROIC of negative 3.6% (positive 11.8%) due to Maersk Supply Service delivering a loss of USD 106m impacted by an impairment of USD 97m.
Maersk Tankers made a profit of USD 28m (USD 35m) and a ROIC of 6.9% (8.9%). The result was negatively affected by rate reductions partly offset by improved commercial initiatives and cost
savings.
Maersk Supply Service made a loss of USD 106m (profit of USD 64m) and a ROIC of negative 24.0% (positive 15.2%) impacted by an impairment of USD 97m. The underlying result was a loss of USD 8m (profit of USD 33m).
Svitzer delivered a profit of USD 24m (USD 32m) and a ROIC of 7.8% (11.6%). Revenue was in line with same quarter last year despite salvage being excluded after activities were merged with Titan Salvage, USA on 1 May 2015 (impact of USD 4m), low utilisation of terminal towage spot fleet and a stronger USD compared to AUD and EUR.
Damco made a profit of USD 10m (USD 7m) and a ROIC of 18.5% (8.9%). The result was positively impacted by cost saving initiatives, improved processes and operational efficiencies.
The Group’s guidance for 2016
The Group’s expectation of an underlying result significantly below last year (USD 3.1bn) is unchanged. Gross cash flow used for capital expenditure is now expected to be around USD 6bn in
2016 (USD 7.1bn) from previously around USD 7bn.
Maersk Line reiterates the expectation of an underlying result significantly below last year (USD 1.3bn). 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.
Maersk Oil now expects a positive underlying result versus previously a break-even result. A breakeven result is still to be reached with an oil price in the range of USD 40-45 per barrel. Maersk Oil maintains an expected entitlement production of 320,000-330,000 boepd (312,000 boepd). Exploration costs are now expected to be significantly below last year (USD 423m) versus previously to be below 2015.
APM Terminals now expects an underlying result significantly below 2015 (USD 626m) versus previously below the 2015 level, due to reduced demand expectations in oil producing emerging
economies and network adjustments by customers.
Maersk Drilling now expects an underlying result below last year (USD 732m) up from significantly below last year, due to the positive impact from termination fees.
APM Shipping Services reiterates 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.
The Group’s guidance for 2016 is subject to considerable uncertainty, not least due to developments in the global economy, the container freight rates and the oil price. The Group’s expected underlying result depends on a number of factors. Based on the expected earnings level and all other things being equal, the sensitivities for the rest of 2016 for four key value drivers are listed in the table below:
Group strategy update
The Group has since 2008 effectively optimised the operations of the businesses and in 2015 seven out of eight businesses, corresponding to around 97% of the Group’s invested capital, delivered top quartile performance in their industries.
Operationally the Group has continuously taken steps to mitigate the challenges from supply-demand imbalances by focusing on customer services, innovation, and higher competitiveness by
optimising the businesses and reducing costs.
Recognising the Group’s low growth and returns the Board of Directors has during Q2 initiated a process to develop and consider the strategic and structural options for the Maersk Group to further increase agility and synergies. The purpose of this review is to ensure that the Group remains strong, profitable and financially viable as the Group develops new growth opportunities.
Until the ongoing strategic review is finalised, the Group strategy remains unchanged as previously communicated with a strategic direction of targeting profitable growth through business
optimisation and value-enhancing acquisitions, cost efficiency programmes and a strong customer focus to maintain top-quartile performance in all business units.
In order to maintain and grow the businesses in a low interest environment and thereby achieve the Group’s ambition of ROIC above 10% over the cycle, the Group has to accept the potential of making investments that at present do not on a standalone basis fully comply with the 10% ROIC target.
The Group continues to focus on ensuring a strong capital structure and a high operating cash flow conversion. The Group’s ambition is to increase the nominal dividend per share over time, supported by underlying earnings growth.
Copenhagen, 12 August 2016
Source: AP Moeller – Maersk press release and 2
Source: 2