Maersk’s profit slashed amid low freight rates

Maersk’s profit slashed amid low freight rates
Maersk was significantly hit by weak market conditions

The Maersk Group has announced an 82% year-on-year drop in its 2015 profit amid sharply reduced freight rates and falling oil price.

The company, which was hit by a widening supply-demand gap in the second half of 2015, reported that its profit went down from US$5.2bn in 2014 to US$925m last year, while its underlying profit dropped by 31% from US$4.5bn in 2014 to US$3.1bn in 2015.

The group experienced significantly lower profits at several of its businesses, including the carrier Maersk Line and port operator APM Terminals (APMT).

Maersk Line recorded a 44% year-on-year fall in its profit from US$2.3bn in 2014 to US$1.3bn last year, with a 13% drop in revenue from US$27bn in 2014 to US$24bn in 2015.

The group said in a statement that Maersk Line reduced capacity by closing four services and adjusted the network over the course of 2015 in response to the weakening demand.

Nevertheless, the carrier’s total capacity went up by 0.5% year-on-year to 3.0m teu in 2015, with idle capacity going up by 80% from 18,138 teu (three vessels) in 2014 to 32,733 teu (four vessels) at the end of 2015.

As the group added, to minimise the impact of lowering freight rates, the shipping line “accelerated further network rationalisations and operating cost reduction programmes”, with plans to cut more than 4,000 staff positions by 2017.

APMT made a profit of US$654m in 2015, a 27% fall from the US$900m profit recorded in 2014, with a 4.8% year-on-year decrease in revenue.

According to a group’s statement, the operator’s drop in revenue was the result of divestments in 2014 as well as of the sharp decline, due to low oil price, in import volumes into Russia, Brazil and oil producing countries in West Africa.

APMT recorded a 6% year-on-year fall in the number of containers handled in 2015, from 38m teu in 2014 to 36m teu last year.

The Maersk Group claimed in a statement that this drop was mostly due to the divestment of four facilities in 2015 and two terminals in 2014, adding that excluding divestments, like-for-like volumes fell by 1.1% in 2015.

As regards 2016 expectations, the group said in a statement that Maersk Line expects an underlying result significantly below the US$1.3bn recorded in 2015 “as a consequence of the significantly lower freight rates going into 2016 and the continued low growth with expected global demand for seaborne container transportation to increase by 1-3%”.

Nils S. Andersen, CEO of The Maersk Group, said in a conference call on the group’s 2015 results that the company, which has orders outstanding for 27 new container vessels, will invest in new capacity, adding that there are plans for both scrapping and redelivering of vessels in 2016. “I think we have a really good tonnage plan actually for 2016,” he said, “we are fully aware that some of our competitors have much more aggressive growth plans, but at the end of the day, the winner in this industry will be the ones that make money and it is hard to make money with excess capacity.”

The group reported that APMT expects an underlying result around the 2015 level, which was US$626m. “The guidance for APMT includes the effect of [the acquisition of] TCB in the coming year, but TCB has, at least that is what we have based our acquisition on, a relatively low contribution to profit in the first years: they have a number of expansion projects on going, so that means that we expect to ramp up profitability after a few years,” Andersen commented in a conference call.

The group’s shares, which fell by almost 50% in the past 10 months, closed at DKK 7,875 (US$1,186) on February 10, 2016, a 3.5% fall from the previous closing price of DKK 8,165 (US$1,229).            

Andersen said: “We do not see pressure on cash flows, we also do not have any pressure from the debt side, so we are in excellent position to continue to invest during the downturn: that’s the way companies operating in cyclical businesses do make money.”