AP Moller – Maersk registers 23% YOY increase in operating earnings in Q1 2020

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Despite the COVID-19 pandemic’s profound impact on global trade, AP Moller – Maersk has kept momentum in its strategic transformation and demonstrated robustness to weather the crisis.

In the first quarter of the year, AP Moller- Maersk’s operating earnings increased by 23% year-on-year (YOY), and cash return on invested capital (CROIC) increased by 3.5% to 10.5%.

The strong results were made during a quarter with sharp fuel cost increases derived from the industry’s switch to low-sulphur fuel on the backdrop of a contraction in global trade due to lockdowns in most regions.

“2020 is a challenging year, but as we proactively respond to lower demands and show progress in our transformation and financial performance, we are strongly positioned to weather the storm,” says Søren Skou, CEO of AP Moller – Maersk.

Earnings before interest, tax, depreciation and amortisation (EBITDA) improved 23% to USD 1.5bn compared to Q1 last year and the EBITDA margin increased to 15.9%. Revenue increased slightly to USD 9.6bn, despite lower volumes, mainly driven by Ocean.

While earnings continued to grow, Maersk’s product offerings kept expanding in line with the strategy of supporting customer’s supply chain end-to-end.

The acquisition of Performance Team, a US-based warehouse and distribution company, and a cold store construction in St Petersburg, Russia were completed during Q1. Furthermore, the usage of digital services increased significantly as customers benefitted from the convenience of managing their supply chains remotely. The Maersk app, for example, experienced an 86% increase in usage.

“The transformation of AP Moller – Maersk from a diversified conglomerate to becoming a focussed, integrated and digitised global logistics company continues to be validated also in this quarter, as we are serving our customers, connecting and digitising their supply chains, while also growing earnings and free cash flow in difficult circumstances,” says Skou.

Return on invested capital (ROIC) after tax in the last twelve months grew to 3.8% as earnings improved and invested capital was reduced. Free cash flow was USD 506mn after capitalised lease payments and gross capital expenditures (CAPEX) excluding acquisitions was at USD 310mn compared to USD 778mn in Q1 2019, reflecting the company’s ongoing strong capital discipline.

In Ocean, EBITDA increased 25% to USD 1.2bn in Q1 2020 and the EBITDA margin of 16.3% increased from 13.4%, driven by factors compensating for the increase in fuel prices following the implementation of IMO 2020, including a positive result from the self-supply bunker strategy and adjustments in capacity mitigating the lower volumes related to COVID-19.

More than 90 sailings were blanked, leading to a decline of 3.5% in Maersk’s average deployed capacity in Q1.

Unit cost at fixed bunker decreased by 2.3%, mainly due to optimisation in capacity, which offset the lower volumes.

In the landside businesses, logistics and services excluding the freight forwarding business EBITDA improved to USD 69mn from USD 49mn.

Infrastructure, which covers terminals and towage, and logistics and services, but excludes freight forwarding, reported a decrease in revenue to USD 2.1bn compared to USD 2.3bn in the same period last year due to lower revenue following COVID-19.

Net interest-bearing debt was nearly unchanged at USD 12.0bn which was positively impacted by free cash flow, but offset by payments for annual dividends and share repurchases.

The investment grade rating along with solid liquidity reserves of USD 9.2bn underlines the company’s strong financial position.

For Q2, Maersk plans to continue with its measures to mitigate the impact of declining demand.

Guidance for 2020

The suspension on full year guidance for the year, announced on March 20, remains the same as the COVID-19 pandemic continues to lead to material uncertainty in the coming quarters.

“Looking into Q2 2020, visibility remains low as a result of the COVID-19 pandemic. We continue to support our customers in keeping their supply chains running, however as global demand continues to be significantly affected, we expect volumes in Q2 to decrease across all businesses, possibly by as much as 20-25%,” says Skou.

According to Maersk, the global market growth in demand for containers is expected to contract in 2020 due to COVID-19 (previously between 1 – 3% growth). Organic volume growth in Ocean is expected to be in line with or slightly lower than average market growth.

The accumulated guidance on CAPEX for 2020-2021 on USD 3.0 – 4.0bn is unchanged, with steps being taken to reduce CAPEX in 2020. A high cash conversion (cash flow from operations compared to EBITDA) is expected for both years, Maersk informs.

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