A.P. Moller - Maersk posts profit of USD 201mln in Q1 2017
A.P. Moller - Maersk delivered an underlying profit of USD 201m in line with same quarter last year. Revenue increased by 5 pct. or USD 424m to USD 9.0bn as a result of revenue growth in Maersk Line and Maersk Oil.
The profit for A.P. Moller - Maersk was USD 253m (USD 224m) with a return on invested capital (ROIC) of 3.5% (2.9%), in line with expectations. Gross cash flow used for capital expenditure was USD 1.6bn (USD 2.1bn). The free cash flow was negative USD 376m (negative USD 1.6bn).
The underlying profit of USD 201m (USD 214m) was at the same level as last year, reflecting an increase of USD 321m in Maersk Oil due to higher oil price and lower operating expenses, offset by decreases in almost all other businesses. In particular, the overcapacity in the drilling industry lead to a decrease of USD 175m in Maersk Drilling, and despite increasing freight rates, Maersk Line experienced a decrease of USD 112m primarily due to higher bunker costs.
HIGHLIGHTS Q1 2017:
Revenue increased by USD 424m to USD 9.0bn with significant increases of USD 343m or 33% in Maersk Oil, and USD 519m or 10% in Maersk Line, which was only partly countered by a decrease of USD 310m or 47% in Maersk Drilling and USD 62m or 56% in Maersk Supply Service.
Operating expenses increased by USD 319m to USD 7.3bn mainly reflecting an increase of USD 569m in Maersk Line due to 80% higher bunker prices and 10% increase in volumes, partly offset by a decrease of USD 95m in Maersk Oil and USD 74m in Maersk Drilling, stemming from cost saving initiatives across all cost categories. Focus on cost efficiency across all businesses remains high.
Profit before tax was USD 574m (USD 369m) and tax amounted to USD 321m (USD 145m). The increase in effective tax rate from 39.3% to 55.9% was primarily due to a higher proportion of profit before tax stemming from Maersk Oil, which is taxed significantly higher than the normal corporate tax rate.
Cash flow from operating activities increased to USD 877m (USD 250m), primarily due to 2016 being impacted by a one-off dispute settlement in Maersk Oil. Net cash flow used for capital expenditure was USD 1.3bn (USD 1.9bn), mainly regarding investments in Maersk Drilling’s XLE Jack-up rig Maersk Invincible, development projects in Maersk Oil and APM Terminals as well as containers acquired in Maersk Line. This was partly offset by divestments of USD 396m (USD 260m) relating to sale-and-leaseback of vessels in Maersk Line and the disposal of the Boa field in Maersk Oil.
Net interest-bearing debt increased to USD 11.7bn (USD 10.7bn at 31 December 2016) mainly due to negative free cash flow of USD 376m, dividend payment of USD 454m and new finance leases of USD 170m.
With an equity ratio of 53.5% (52.5% at 31 December 2016) and a liquidity reserve of USD 10.3bn (USD 11.8bn at 31 December 2016), A.P. Moller - Maersk maintains its strong financial position.
The sales and purchase agreement to acquire the German container shipping line Hamburg Süd from the Oetker Group was approved by the boards of the Oetker Group and Maersk Line A/S. Maersk Line will acquire Hamburg Süd for EUR 3.7bn on a cash and debt-free basis (Enterprise Value). A syndicated loan facility has been established to fully finance the acquisition. The acquisition is expected to generate annual operational synergies of around USD 350-400m as from 2019, primarily derived from integrating and optimising the vessel networks as well as utilising the terminal capacity in APM Terminals.
The acquisition is subject to regulatory approvals. The US antitrust authorities have approved the acquisition and the EU commission has approved subject to conditions. Maersk Line expects to close the transaction end 2017.
The transaction is part of Transport & Logistics’ stated growth objective and represents sizeable operational synergies and commercial opportunities.
The Transport & Logistics division realised a consolidated revenue of USD 7.0bn (USD 6.4bn) up 10% compared to Q1 2016 driven by revenue growth in all businesses, with the exception of Svitzer. The reported underlying loss of USD 1m (profit of USD 79m) was in line with expectations with gradually improving container freight rates and normal seasonal impact around Chinese New Year. The division generated a free cash flow of USD 104m (negative USD 935m); including effect from sale-and-lease back transactions in Maersk Line.
Maersk Line reported a loss of USD 66m (profit of USD 37m) and a negative ROIC of 1.3% (positive 0.7%). The underlying result was a loss of USD 80m (profit of USD 32m).
Market fundamentals continued to improve in Q1 and demand outgrew nominal supply for the second consecutive quarter.
Transported volumes increased by 10% partly because of improved demand but also reflecting an increased market share, maintained from the second half of 2016. Freight rates increased by 4.4%, which did not fully compensate for the 80% increase in bunker price. Freight rates mainly increased on East-West trades and especially from Asia to Europe while North-South trades were below last year.
Maersk Line’s EBIT margin is estimated to be on par with peer group in Q4 2016, below the ambition of 5%-points gap. The unsatisfactory development was partly driven by trade mix, especially Maersk Line’s high exposure to North-South trades, and the impact from excluding Hanjin from the peer group in Q4 2016.
APM Terminals reported a profit of USD 91m (USD 108m) and a ROIC of 4.5% (6.2%). The underlying profit was USD 91m (USD 107m), negatively impacted by declining markets in West Africa and rate pressure in a number of locations due to overcapacity.
In line with the new strategy no new terminal projects have been pursued and APM Terminals achieved a positive free cash flow of USD 88m.
Damco realised a loss of USD 8m (profit of USD 2m) with a negative ROIC of 13.9% (positive 3.0%). The underlying loss was USD 8m (profit of USD 2m), affected by a significant margin pressure in freight forwarding products and higher investments in product development.
Svitzer reported a profit of USD 22m (USD 27m) and a ROIC of 7.1% (9.4%). The underlying profit was USD 21m (USD 25m), negatively impacted by lower activity in Europe and Americas, partly offset by cost saving initiatives.
Maersk Container Industry reported a profit of USD 14m (loss of USD 16m) and a positive ROIC of 16.1% (negative 15.7%). The underlying profit was USD 14m (loss of USD 16m), positively impacted by improved efficiencies and significantly higher volumes in both dry and reefer stemming from improved coordination between Maersk Line and Maersk Container Industry. In addition, the market prices for dry containers improved compared to 2016.
Maersk Oil reported a profit of USD 328m (loss of USD 29m) with a positive ROIC of 31.8% (negative 3.0%) at an average oil price of USD 54 (USD 34) per barrel. The underlying profit was USD 292m (loss of USD 29m) positively affected by the higher oil price, cost reductions and lower exploration costs and a one-off tax of income of USD 42m.
Entitlement production was 275,000 boepd (350,000 boepd), impacted by lower production in Qatar and the UK.
The Danish government provided new terms for the oil industry, enabling partners in the Danish Underground Consortium (DUC) to progress with a full redevelopment plan for the Tyra facilities towards project sanction by the end of 2017. The agreement with the
Danish government is subject to Danish parliamentary approval. The Tyra redevelopment will lead to an increase of the resources in Denmark and will extend the production for decades and at the same time unlock upside in the North Sea area.
Maersk Drilling reported a profit of USD 48m (USD 222m) and a ROIC of 3.0% (11.2%). The underlying profit was USD 48m (USD 223m), negatively impacted by a significant number of rigs being idle but positively impacted by higher operational uptime, cost savings and lower depreciation due to the impairments in Q4 2016.
Maersk Supply Service reported a loss of USD 22m (loss of USD 2m) and a ROIC of negative 13.3% (negative 0.4%). The underlying loss was USD 22m (loss of USD 2m), driven by lower utilization and lower rates.
Maersk Tankers reported a profit of USD 10m (USD 48m) and a ROIC of 2.3% (11.5%). The underlying profit was USD 9m (USD 46m), negatively impacted by declining rates, partly offset by cost savings.
GUIDANCE FOR 2017
A.P. Moller - Maersk's expectation of an underlying profit above 2016 (USD 711m) is unchanged. Gross capital expenditure for 2017 is still expected to be USD 5.5-6.5bn (USD 5.0bn).
The guidance for 2017 excludes the acquisition of Hamburg Süd.
The Transport & Logistics division reiterates the expectation of an underlying profit above USD 1bn.
Due to gradual improvements in container rates Maersk Line continues to expect an improvement in excess of USD 1bn in underlying profit compared to 2016 (loss of USD 384m). Global demand for seaborne container transportation is still expected to increase 2-4%.
The remaining businesses (APM Terminals, Damco, Svitzer and Maersk Container Industry) in the Transport & Logistics division still expect an underlying profit around 2016 (USD 500m).
The Energy division maintains an expectation of an underlying profit around USD 0.5bn, with Maersk Oil being the main contributor.
The entitlement production is still expected at a level of 215,000-225,000 boepd (313,000 boepd) for the full-year and around 150,000-160,000 boepd for the second half of the year after exit from Qatar mid-July. Exploration costs in Maersk Oil are still expected to be around the 2016 level (USD 223m).
A.P. Moller - Maersk's expected underlying result depends on a number of factors. Based on the expected earnings level and all other things being equal, the sensitivities for the calendar year 2017 for four key value drivers are listed in the table below:
