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Maersk profits jump in Q3 spurred by capacity management and demand recovery

Maersk profits jump in Q3 spurred by capacity management and demand recovery
Maersk's ocean business led the improvement

Maersk improved profitability across its business and delivered strong cash flow despite the impact of the COVID-19 pandemic, growing EBITDA by 39% to US$2.3bn in the third quarter.

Although revenue dropped by 1.4% to US$9.9bn, the improvement in performance was based on stringent cost control, capacity management, a focus on customer offerings with greater uptake of digital services and some benefit from a recovery in demand compared to Q2.

Søren Skou, CEO of A.P. Moller – Maersk, said: “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.

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

The Danish company’s ocean business drove the gains despite volumes falling by 3.6%. Profitability improved by US$511m to US$1.8bn, reaching an EBITDA margin of 25%, following capacity adjustments, lower costs and a temporary spike in short-term freight rates due to a sudden demand pick-up on some routes.

The free cash flow generation of US$3.0bn 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 US$10.8bn by the end of Q3 compared to US$11.7bn by the end of 2019.

Based on the strong financial performance, Maersk’s board of directors has decided to initiate a share buy-back programme worth around US$1.6bn over a period of up to 15 months, starting with US$500m in December.

The remaining part of the share buy-back is subject to shareholder approval at the next Annual General Meeting in March 2021.

Skou added: “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.

“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.”

For the full year, Maersk expects EBITDA before restructuring and integration costs to be in the range of US$8.0-8.5bn from previously between US$7.5-8.0bn.

The global demand growth for containers is expected to contract by 4-5% in 2020 due to COVID-19 while Maersk’s organic volume growth is now expected to be slightly below the average market growth.

For 2020, guidance on capital expenditures (CAPEX) is expected to be US$1.5bn, and with the expectation of a high cash conversion (cash flow from operations compared to EBITDA).

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