Wednesday, May 23, 2018

Shipping Decline Impacts First Quarter Figures for Largest Global Container Carrier

Danish Logistics Group Edging Away from Traditional Ocean Freight Business
Shipping News Feature
DENMARK – A.P. Moller Maersk released Q1 figures this week and pronounced an underlying result, after financial items and tax were taken into account, as 'unsatisfactory'. The group says it is initiating some short term moves to improve profitability after the shipping and logistics giant declared a negative result of $239 million for the quarter. Søren Skou, CEO of A.P. Moller Maersk commented:

"In the first quarter of 2018, we reported a 30% revenue growth [to $9.3 billion] and the integration of the business is well underway with a successful start to the Hamburg Süd integration and the closing of Maersk Oil transaction in March with an accounting gain of $2.6 billion. At the same time, on the short-term performance, our result especially in the ocean related part of the business was unsatisfactory. In response to the current challenging market conditions we are implementing a number of short-term initiatives to improve profitability and we reiterate our guidance for 2018.”

The company reconfirmed its expectations for 2018 of an underlying profit above 2017 ($356 million), however noting increased uncertainties due to geopolitical risks, trade tensions and other factors impacting freight rates, bunker prices and rate of exchange.

The Maersk boss went on to explain that the group was more than the world's largest ocean container freight carrier and has evolved into an integrated global container transport and logistics business which aims to grow the other arms of its trade, thereby minimising the cyclical part of its operations.

Maersk has a new financial reporting structure implemented from Q1 2018 to support the strategic direction towards becoming the global integrator of container logistics. The four new business segments (Ocean, Logistics & Services, Terminals & Towage and Manufacturing & Others) are now aligned with the strategic focus on growing the non-ocean part of the business disproportionally to the ocean.

Additional growth measures will be the realisation of synergies from integrating the transport, logistics and port businesses ($600 million by 2019) as well as the acquired activities from Hamburg Süd ($350-400 million by 2019) and the businesses ability to convert profitability into cash (a high cash conversion) together with continued capital expenditure discipline.

Volume growth in Ocean (excluding Hamburg Süd) for Q1 was 2.2%, as expected slightly below estimated global demand growth of 3-4%. The non-Ocean businesses reports a revenue growth with 6% in Logistics & Services and 11% in Terminals & Towage, reflecting strong growth in volumes Maersk says was mainly driven by commercial wins and new terminals and services. Further, synergies have been realised from increasing collaboration especially between Ocean and gateway terminals, leading to volume growth significantly above the market growth.

EBITDA was $669 million ($638million), negatively impacted by adverse rate of exchange development compared to same period last year of around net $100 million. Earnings in Ocean of $492 million ($484 million) was impacted by higher unit costs among others due to adverse developments in bunker price and rates of exchange. For the non-Ocean businesses, the higher volumes in Terminals & Towage led to an improvement in EBITDA from $139 million to $196 million, while Logistics & Services reported slightly lower EBITDA of $23 million ($32 million).

The full first quarter 2018 interim report can be viewed HERE.

Photo: Søren Skou, CEO of A.P. Moller Maersk.