The A.P. Møller-Maersk conglomerate, which includes Maersk Line, APM Terminals, and energy related divisions like Maersk Oil, reported an underlying profit of $426 million in the third quarter of 2016, a 35.6 percent decline from third quarter 2015.
The A.P. Møller-Maersk conglomerate, which includes ocean carrier Maersk Line and port terminal operator APM Terminals (APMT), as well as energy-related divisions like Maersk Oil and Maersk Drilling, reported underlying profits of $426 million in third quarter 2016, a 35.6 percent decline from $662 million in the same 2015 period, according to the company’s most recent financial statements.
Revenues at the Danish shipping giant fell 9.2 percent year-over-year to $9.2 billion for the quarter.
The company attributed the decline in earnings and revenues primarily to what it called “market imbalances,” i.e. overcapacity, which has put sustained downward pressure on already rock bottom container freight rates, and the low price of oil.
“The result is unsatisfactory, but driven by low prices,” said Maersk Group CEO Søren Skou. “We generally perform strongly on cost and volume across businesses.”
In addition to container shipping, terminal operations and logistics, the Maersk Group is heavily involved in the oil and gas industry.
The conglomerate in September announced a massive restructuring that will see the group spilt into two independent divisions, one focusing on transportation and logistics, and the other on energy. The decision came after the June 23 announcement that the board of directors had named Skou to replace Nils S. Andersen, who had led the company for eight years, as chief executive officer.
The Transport and Logistics division will consist of Maersk Line, APMT, third-party logistics provider Damco, Svitzer and Maersk Container Industry, while the Energy division will include Maersk Oil, Maersk Drilling, Maersk Supply Service and Maersk Tankers.
“The future Maersk Group will be an integrated transportation and logistics company, while the objective is to find structural solutions for each of the oil and oil related companies,” the company said in its interim third quarter report. “The Maersk Group will going forward deliver best in class transport and logistics services as an integrated company based on combined capabilities, supported by industry leading digital solutions.”
According to Maersk, the split will allow the Transport and Logistics division to focus on generating growth and synergies based on a one-company structure with multiple brands.
By operating as a single entity, Transport and Logistics will be able to increase the product offerings of Maersk Line, APMT and Damco, realize synergies, optimize operations, and increase asset utilization.
“When making investments, acquisitions will be the preferred option,” the company said. “The estimated synergies are expected to generate up to two percentage points ROIC improvement over a period of three years. No material synergies are expected in 2016.
“It is expected that the oil and oil related businesses within the Energy division will require different solutions for future development including separation of entities individually or in combination from A.P. Møller – Mærsk A/S in the form of joint-ventures, mergers or listings.” it added. “Depending on market development and structural opportunities, the objective is to find solutions for the oil and oil related businesses within 24 months.”
“The implementation of the new strategic direction and the restructuring of the group is progressing, and we look forward to sharing further details at the Capital Markets Day on 13th of December,” said Skou.
The new structure will be reflected in Maersk Group’s financial reports for the new structure starting in first quarter 2017.
In addition, the group announced in a separate statement it has completed the sale of its remaining 16,163,504 shares in Danske Bank A/S to institutional investors at a price of 200 Danish krone (U.S. $29.88) per share. Following the sale, will hold no longer hold any shares in Danske Bank.
J.P. Morgan and Nordea acted as joint bookrunners in connection with the sale.
Through the first nine months of 2016, Maersk Group reported a underlying result of just $774 million, a 74.9 percent drop from the same 2015 period, on revenues that fell 16.8 percent to $26.6 billion.
Maersk Line
The group’s container shipping unit reported a third quarter net operating loss after tax of $116 million compared with an operating profit of $264 million in the third quarter of 2015, the second straight quarterly loss for Maersk Line. Earnings before interest and tax (EBIT) fell to a loss of $151 million for the quarter compared to an EBIT gain of $303 million the previous year.
Revenues totaled $5.4 billion, an 11 percent decline from the third quarter of 2015.
Skou noted the loss was the second in as many quarters at Maersk Line, as freight rates were 16 percent lower than in the same 2015 period, rates were actually up 5.5 percent compared with the previous quarter.
Some of the rebound in container freight rates, however, must be attributed to the demise of Hanjin Shipping, which filed for court receivership Aug. 31 in its native Korea, stranding its ships on the water and spurring widespread uncertainty and volatility in the market.
On a brighter note, Maersk Line was able to gain market share during the third quarter, carrying 11 percent more cargo by volume despite global container demand growing only 1 percent to 2 percent year-over-year for the quarter.
As of Sept. 30, the ocean carrier’s fleet consisted of 286 owned vessels with an aggregate capacity of 1.87 million TEUs and 325 chartered vessels with a combined capacity of 1.27 million TEUs, up 3.8 percent from the previous year.
“Managing capacity in line with the container demand remains a focus area for Maersk Line, while still defending the market leading position on volumes,” the company said.
Idle capacity, which is on the rise across the industry as carriers continue to grapple with persistent overcapacity, at the end of the third quarter stood at 10,000 TEUs (1 vessel) compared with 32,000 TEUs (3 vessels) at the end of Q3 2015, just 1 percent of total idle capacity in the market.
Maersk Line’s total order book is equal to about 12 percent of its current fleet, compared to an industry order book of around 16 percent, according to the company.
In all, the carrier has 27 vessels on order with a combined capacity of 367,000 TEUs scheduled for delivery in 2017 and 2018. The order book includes eleven 19,600-TEU second generation “Triple-E” ships, nine 14,000-TEU vessels, and seven 3,600-TEU ice-class vessels to be deployed in the intra-European market.
Maersk Line has now posted total losses of 229 million in the first three quarters of 2016 compared with $1.5 billion in profits during the same 2015 period. Revenues have fallen 16.9 percent year-over-year to $15.4 billion.
APM Terminals
APMT saw operating profits slip 7.6 percent to $131 million during the third quarter, even as revenues ticked up 1.5 percent to $1.06 billion.
EBIT fell to $171 million compared to $205 million in the third quarter of last year.
The port terminal operator said start-up costs resulting from its integration of the facilities of Grup Marítim TCB, which it acquired in March, resulted in a combined loss of $5 million.
“APM Terminals delivered a result below last year, as we continued to be challenged by low volume growth on a like-for-like basis,” said Skou.
“Profits remain under pressure in commercially challenged terminals in Latin America, North-West Europe and Africa as a consequence of liner network changes and continued weak underlying market conditions,” the company added. “The terminals in the oil related countries are experiencing diverging performance. Nigeria showed small positive improvements, Russia stabilized while imports into Angola continues to be severely impacted by the remaining low oil price.
“Several terminals in the global portfolio realized better results in Q3 than Q2 through successful commercial initiatives and cost savings,” it said. “Grup Marítim TCB contributed with a positive profit in Q3 in line with expectations.”
In the first nine months of 2016, APMT’s operating profits have tumbled 33.3 percent to $351 million as revenues slid 4 percent to $3.09 billion compared with the corresponding period in 2015.