Conglomerate reports an $85 million loss from continuing operations, plans to spin off drilling company.
A.P. Møller – Maersk, the parent of Maersk Line and APM Terminals, said Friday that it had revenue of $9.5 billion in the second quarter of 2018, up 24 percent from the revenue of $7.7 billion reported in the same 2017 period. The increase was largely as a result of its acquisition last December of Hamburg-Süd.
The company’s container volumes were up 25.9 percent to nearly 6.8 million TEUs.
Excluding the effect of Hamburg-Süd, revenue was up 5.7 percent, and container volumes were up 4.3 percent, about on par with estimated global market growth of 4 percent.
The conglomerate had a profit of $26 million for the second quarter of 2018 after a loss from continuing operations of $85 million was offset by profits from discontinued operations of $111 million. In the second quarter of 2017, it had a loss of $264 million, while its continuing operations had a profit of $10 million and the discontinued operations had a loss of $274 million.
A.P. Møller – Maersk had EBITDA of $883 million in the second quarter of 2018 compared to $1.07 billion in the same 2017 quarter. Skou confirmed last week’s announcement that the company expects EBITDA of $3.5 billion to $4.2 billion in 2018, versus earlier guidance that it would have EBITDA for the year of $4 billion to $5 billion.
The company cited the outlook for freight rates for the rest of the year and continued high bunker fuel prices as two of the reasons for the downgrade in its EBITDA projection.
On Friday, the company said bunker costs were 55 percent higher in the second quarter of 2018 than in the second quarter of 2017.
It said part of that was due to the larger network of ships it is operating following the Hamburg-Süd acquisition. But it also noted the cost of fuel was 28 percent higher than a year ago.
The company, however, continues to reduce the amount of fuel it uses to move per container, using 4.2 percent less in the second quarter of 2018 than in the second quarter of 2017.
Søren Skou, the chief executive officer of A.P. Møller – Maersk, noted the company has been reducing capital spending, expecting to spend $3 billion this year and $2.5 billion to $3 billion in 2019. The money it is spending is because of decisions that were made, for the most part, prior to 2016, he said.
Skou said A.P. Møller – Maersk has few capital commitments after 2019 except for those under some terminal concessions. That low level of spending commitments will give the company “significant flexibility in terms of strategic agility,” he said.
A.P. Møller – Maersk announced in September 2016 that it was getting out of the oil and gas business and focusing on making itself an “integrated transport and logistics company.”
Discontinued operations include Maersk Oil, sold in March to Total; Maersk Tankers, sold in October 2017; Maersk Supply Service; and Maersk Drilling.
On Friday Maersk also announced that it would pursue a demerger and separate listing of Maersk Drilling on the Nasdaq Copenhagen stock exchange as a stand-alone company. Shareholders in A.P. Møller – Maersk will get a proportionate share of Maersk Drilling when it is spun off.
Skou said the company is still looking for a “solution” for Maersk Supply Services, which he said is in a difficult industry. The company also expects to distribute the proceeds from the sale of Maersk Oil Total Stock to shareholders sometime in 2019.
Skou said in addition to growth from the acquisition of Hamburg-Süd, the company also was “pleased with the organic growth in non-ocean” businesses such as logistics, terminals, and towage.
He added the conglomerate expects revenue to total about $40 billion in 2018, up almost 50 percent since 2016.
Ocean segment
Skou said the company’s ocean segment, which accounted for $7 billion in revenue in the second quarter of 2018 compared to $5.5 billion in the second quarter of 2017, saw a “sharp improvement in unit cost” after a first quarter “that was negatively impacted by inflow of capacity from the acquisition of Hamburg-Süd and network issues.” The unit had earnings before interest, taxes, depreciation and amortization of $674 million compared with $876 million in the second quarter of 2017.
Maersk said “profitability was significantly impacted by higher bunker prices in Q2 and remained at unsatisfactory levels. For the rest of the year we expect improvements in our profitability driven by lower unit cost and higher freight rates.”
The company’s ocean segment is a mixed bag of both liner shipping companies operating under various “brands” — Maersk Line, Safmarine, MCC, Seago Line, Sealand, Hamburg-Süd and Aliança and what it calls “strategic transshipment hubs” using the APM Terminals brand. Those hubs include two in Rotterdam; two in Tangiers, Morocco; one in Algeciras, Spain; one in Port Said, Egypt; as well as joint ventures in Salalah, Oman; Tanjung Pelepas, Malaysia; and Bremerhaven, Germany.
The company said that it carried nearly 6.8 million TEUs in the second quarter, 25.9 percent more than in the same period last year.
The average freight rate in the second quarter of 2018 was $1,840 per 40-foot container down 1.2 percent when compared to the second quarter of 2017. But the company said excluding Hamburg-Süd, which has higher-than-average freight rates, rates were down 5 percent year-on-year.
Many new ships were delivered to shipping companies in the first quarter of this year, and that added capacity helped drive down freight rates. Vincent Clerc, executive vice president, said there were fewer ships delivered in the second quarter and that along with an emergency bunker surcharge Maersk implemented in June should have a positive effect on rates in the second half of 2018.
Skou said the company saw unit costs increase in the first quarter because of its acquisition of Hamburg-Süd stemming from an increase in tonnage tied to vessel sharing agreements that limited the company’s ability to “scale our network.” But he said in the second quarter the company has been able to reduce unit costs 5.9 percent when compared to the first quarter of 2018 and 1.4 percent when compared to the second quarter of 2017, excluding the effect of higher fuel costs.
He said the integration of Hamburg-Süd with Maersk Line is “very much on track. We have delivered synergies to the tune of $140 million so far year-to-date.” The company said it expects total synergies of at least $350 million to $400 million from the acquisition.
Soren Toft, executive vice president, said higher fuel costs offset higher freight rates, but that the company’s ocean businesses were able to increase revenue from demurrage and detention and sales of space to other companies, mainly through a deal with Hyundai Merchant Marine.
He said the company reduced capacity, as planned, by 1.8 percent from the first quarter of 2018 to the second quarter of 2018 as part of an effort to optimize its network following the acquisition of Hamburg-Süd. He said capacity has been reduced mainly by handing back chartered ships. He said the company also has eliminated some services that are not contributing positively to its business.
Logistics and services segment
Maersk said its logistics and services segment had revenue of $1.49 billion in the second quarter of 2018, up 6.7 percent from the second quarter of 2017. The company said it saw positive growth in supply chain management and inland haulage.
EBITDA was $28 million in the second quarter of 2018 compared with $46 million in the second quarter of 2017. It said earnings were negatively impacted by higher IT spending, start-up of contracts and lower profitability of inland service and higher maintenance cost for Star Air, a Danish cargo airline.
The segment includes the activities of A.P. Møller – Maersk logistics company Damco, inland operations of APM Terminals, inland haulage or intermodal activities of its shipping companies such as Maersk and trade finance.
Terminals and towage
The company’s terminals and towage business had revenue of $847 million in the second quarter of 2018, 3.4 percent more than in the same 2017 period. EBITDA for the segment was $178 million, 19.5 percent more than the $149 million earned in the second quarter of 2017.
The unit includes both APMT’s other gateway container terminals and the Svitzer towing business.
Manufacturing and others
The company’s other continuing operations, which include Maersk Container Industries, had revenue of $636 million in the second quarter of 2018 compared with $446 million in the second quarter of 2017.
EBITDA fell to $8 million in the second quarter of 2018, compared with $37 million in the second quarter of 2017, which the company said was largely related to the decision to close a factory that made refrigerated containers in Chile. Maersk Container Industries revenue declined $249 million in the quarter, a decrease of 13 percent from the second quarter of 2017, despite the fact that the company said it received its largest-ever order of reefer containers from a third party.
