Low Freight Rates Affect Maersk Group’s Profit

Danish shipping and energy conglomerate Maersk Group delivered a profit of USD 438 million in the third quarter of 2016, down from USD 778 million seen in the same period a year earlier, negatively impacted by lower container freight rates.

Maersk’s underlying profit for the quarter was at USD 426 million, compared to USD 662 million reported in 2015, predominantly driven by a loss in Maersk Line and with lower underlying results in APM Shipping Services and APM Terminals, while the company’s Maersk Drilling and Maersk Oil recorded increased underlying profits.

“The result is unsatisfactory, but driven by low prices. We generally perform strongly on cost and volume across businesses,” Søren Skou, the Group CEO, said.

The group’s revenue decreased by USD 933 million or 9.2% compared to the third quarter of 2015, mostly related to Maersk Line with a decrease of USD 659 million due to 16% lower average container freight rates, Maersk Oil with a decrease of USD 95 million due to 8% lower oil prices and decreased rates in Damco and Maersk Tankers.

This was partly offset by 11% higher container volumes in Maersk Line and 7% higher volumes in APM Terminals.

The group’s subsidiary Maersk Line continues to face challenging market conditions as it posted a loss of USD 116 million in the third quarter of the year, compared to a profit of USD 264 million seen in the same period in 2015.

Revenue of USD 5.4 billion was 11% lower than in the third quarter of 2015. The development was driven by a 16% decline in average freight rates to 1,811 USD/FFE partially offset by an 11% increase in volumes to 2,698k FFE.

The group’s APM Terminals delivered a profit of USD 131 million, down from USD 175 million reported a year earlier. The profit was 17% above the result reported in the second quarter of 2016.

APM Terminals handled 9.5 million TEUs in the third quarter, an increase of 7% compared to 8.9 million TEUs reported in the same period of 2015, mainly due to the acquisition of Grup Marítim TCB.

Excluding the Grup Marítim TCB acquisition and terminals divested during 2015, APM Terminals handled 1.5% more volumes than in the same period last year, mainly driven by growth in Salalah, Oman and Maasvlakte II, Rotterdam, the Netherlands.

On June 23, Maersk Group initiated a strategic review to evaluate the strategic and structural options with the objective to generate growth, increase agilities, unlock synergies, and maximise shareholder value.

In September, the company said that 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.

As a consequence, the group’s portfolio will be reorganised into two separate divisions: Transport & Logistics and Energy.

The Transport & Logistics division consists of Maersk Line, APM Terminals, Damco, Svitzer and Maersk Container Industry, while the Energy division consists of Maersk Oil, Maersk Drilling, Maersk Supply Service and Maersk Tankers.

“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,” Skou said.

In line with previous expectations, the group still expects a result significantly below last year’s of USD 3.1 billion and specifies an expected underlying result below USD 1 billion. Gross cash flow used for capital expenditure is still expected to be around USD 6 billion in 2016, against USD 7.1 billion seen in 2015.