Maersk’s Revenue Grows in a Challenged Market

In the second quarter of 2018, Danish transport and logistics major A.P. Moller – Maersk showed progress in the strategic business transformation, reporting revenue growth at the same time as realising synergies through further business integration.

Revenue grew 24% to USD 9.5 billion across segments in the second quarter of the year, compared to USD 7.7 billion reported a year earlier. The number was 5.7% higher excluding the effect from Hamburg Süd.

Revenue growth was seen in key areas such as Logistics & Services, which among others was positively affected by increase in service of customers supply chain management and in Gateway & Towage. All segments reported revenue growth with non-Ocean revenue growth of 12% compared to same period last year.

“With revenue up 24% in Q2, we continued to deliver strong growth. The acquisition of Hamburg Süd of course was a positive contributor to growth in our Ocean segment, and we are pleased with the organic growth in non-Ocean. We expect revenue of around USD 40 billion in 2018, up almost 50% since 2016,” Søren Skou, CEO of A.P. Møller – Mærsk A/S, said.

“We also delivered a sharp improvement in unit cost in Ocean, after a Q1 that was negatively impacted by inflow of capacity from the acquisition of Hamburg-Süd and network issues. 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.”

A.P. Moller – Maersk reported a profit of USD 26 million for the period, compared to a loss of USD -264 million seen in the same quarter in 2017. The company’s underlying profit was at USD 88 million, against USD 205 million reported a year earlier, while the discontinued operations reported a profit of USD 111 million, compared to a loss of USD 274 million.

Earnings before interests, tax, depreciation and amortization (EBITDA) showed a decline of 18% to USD 883 million from USD 1.1 billion reported a year earlier, mainly related to lower EBITDA in Ocean of USD 202 million, negatively impacted by higher bunker costs not being compensated in the freight rates and adverse development in foreign exchange rates.

In Q2 2018, the average bunker price was 28% higher than same period last year while the average freight rate in Ocean was 1.2% lower. Consequently, an emergency bunker surcharge was announced effective June 1 for unregulated corridors and July 1 for regulated corridors. The impact from this on average freight rates is expected in the second half of 2018.

For the integration of transport, logistics and port businesses, synergies of around USD 200 million have been realised to date. The synergy realisation is among others reflected in the collaboration between Ocean and gateway terminals with reported equity-weighted volume growth like-for-like in the gateway terminals of 8.8% with the Ocean segment growing 20% and external customers growing 4.4%.

For Hamburg Süd, synergies of around USD 140 million have been realised in the first half of 2018 within procurement, network optimisation and collaboration with APM Terminals.

Lower unit costs were mainly driven by a reduction in network costs in Ocean, comprising network changes and increase in loaded volume.

Furthermore, in Q2 the revenue in Ocean grew 25% to USD 7bn, 0.6% excluding Hamburg Süd, and volumes grew 26%, 4.3% excluding Hamburg Süd, which is in line with estimated market growth of around 4%.

Guidance for 2018 including sensitivities

As reported in early August 2018, the underlying profit after financial items and tax amounted to group EBITDA of USD 883 million was negatively impacted by increased bunker costs in Ocean. Combined with the development in freight rates and uncertainties related to trade tensions it led to an adjustment in the expectation for EBITDA for the full-year 2018 to be in the range of USD 3.5 – 4.2 billion.

The organic volume growth in Ocean for the full year is still expected slightly below the estimated average market growth of 2-4% for 2018. Further, guidance is maintained on gross capital expenditures (capex) around USD 3 billion and a high cash conversion.

The guidance continues to be subject to uncertainties due to the current risk of further restrictions on global trade and other factors impacting container freight rates, bunker prices and rate of exchange.