Maersk delivers strong Q3 result, raises 2020 guidance

Danish container shipping major A.P. Moller – Maersk managed to grow earnings and cash flow in the third quarter of this year, despite the negative effect of the COVID-19 pandemic on global economies.

Maersk Essen entering the Port of Los Angeles. Image by Maersk

Profit for the period stood at $947 million in Q3 2020, representing an increase of 82 per cent from $520 million seen in the corresponding quarter a year earlier.

The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 39 per cent to $2.3 billion with revenue decreasing 1.4 per cent to $9.9 billion.

As explained by the company, the performance increase was based on stringent costs control, agile capacity management, strong focus on customer offerings with further traction in uptake of digital services, and some benefit from a sequential demand recovery compared to the second quarter.  

“Despite COVID-19 negatively affecting activities in most of our businesses, our disciplined execution of the strategy led to solid earnings and cash flow growth in Q3,” Søren Skou, CEO of A.P. Moller – Maersk, commented.

At the same time, we managed to further integrate and simplify the organisation in Ocean & Logistics, we closed the acquisition of KGH Customs Services and continued the integration of Performance Team, supporting our strong financial performance in Logistics & Services.”

According to Maersk, the main performance driver this quarter was Ocean which, despite decreasing volumes of 3.6 per cent improved profitability by $511m to $1.8bn, reaching an EBITDA margin of 25.4 per cent on the back of a continued agile capacity deployment, lower costs and a temporary spike in short-term freight rates due to a sudden demand pick-up on some routes.

The performance was strongly supported by Logistics & Services which benefitted from significant demand in supply chain management, intermodal and the acquired Performance Team. In Q3, revenue in Logistics & Services grew 11 per cent and profitability increased by 44 per cent, achieving an EBITDA of $131 million up from $91 million in 2019, despite restructuring costs of $40 million.

In Terminals & Towage, the company continued to expand margins and grow earnings, despite lower volumes and revenue.

The free cash flow generation of $3 billion in the first nine months of 2020 allowed the company to return cash to shareholders, finance acquisitions and reduce debt with net interest-bearing debt decreasing further to $10.8bn by the end of Q3 compared to $11.7bn by the end of 2019.

“Throughout the pandemic, our main priorities have been keeping our employees safe, keeping our global network and ports operating to serve our customers and supporting the societies we are part of. This continues to be our focus as demand has begun to partially recover,” Skou added.

Our progress in earnings and in our transformation allows us to look confidently past the extraordinary 2020, however we remain well aware of the high level of uncertainty the pandemic and associated lock downs continue to pose in the coming quarters.”

Share buy-back programme

Given the strong performance and cash generation, Maersk’s board of directors decided to initiate a new share buy-back programme of around $1.6 billion over a period of up to 15 months.

The first tranche — amounting to $500 million — is expected to start in December.

The remaining part of the share buy-back is subject to shareholder approval at the next annual general meeting in March 2021, Maersk informed.

The company explained that the decision is supported by the strong earnings and free cash flow generation seen in 2020, which has led to further deleveraging of the company and improved credit metrics in line with investment grade rating.

After improving profitability in Q3, Maersk raises guidance

Given the current momentum across the business, Maersk expects EBITDA before restructuring and integration costs in the range of $8bn to $8.5bn from previously between $7.5bn to $8bn.

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The global demand growth for containers is expected to contract by 4-5 per cent in 2020 due to COVID-19.

Organic volume growth in Ocean is now expected to be slightly below the average market growth from previously in line with or slightly below the market.

For 2021-2022, the accumulated guidance on capital expenditures is expected to be between $4.5bn and $5.5bn with the expectation of high cash conversion.