Maersk defies COVID-19 impact with strong Q2 results

Maersk sells off $1bn stake in Total
PHOTO CREDIT: Maersk

 

A.P. Moller–Maersk managed to improve profitability across all businesses in the second quarter of 2020 despite a sharp drop in global volumes following the COVID-19 crisis.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) improved to $ 1.7 billion, beating initial expectations from June of an EBITDA slightly above $ 1.5 billion.

The EBITDA margin increased from 14.1% in Q2 last year to 18.9%.

Danish shipping and logistics major ascribed earnings boost to agile capacity deployment, cost mitigation initiatives and adaption to changed customer needs.

“I am pleased that we despite the headwinds, continued our track record of improving earnings and free cash flow. Our operating earnings improved by 25%, marking the eighth consecutive quarter with year-on-year improvements, driven by strong cost performance across all our businesses, lower fuel prices and higher freight rates in Ocean and increased profitability in Logistics & Services,” says Søren Skou, CEO of A.P. Moller – Maersk.

Revenue decreased by 6.5% to $ 9billion, driven by a volume decrease of 16% in Ocean and 14% in gateway terminals.

In Ocean, the lower volumes were partly offset by agile capacity deployment of the global network leading to lower costs, together with lower fuel prices and higher freight rates.

In Logistics and Services, profitability increased through cost measures, favorable airfreight contribution and the integration of Performance Team, while Terminals & Towage showed their resilience by compensating lower volumes through cost measures.

The cash return on invested capital (CROIC) for the last twelve months improved to 12.5% from 8.9% and ROIC increased to 4.7% from 1.4% in the previous year.

Maersk said it would continue to mind its spending announcing cost and structural measures across its businesses.

Furthermore, the company reinstated its full-year guidance for 2020, suspended in March due to COVID-19 uncertainties, saying that it and expects EBITDA to be between $6 billion-$7 billion, before restructuring and integration costs. The projection is much more optimistic from the initial guidance of $ 5.5 billion.

However, the container shipping giant still expects the global demand growth for containers to contract in 2020 due to COVID-19 and Q3 2020 volumes to progressively recover with a current expectation of a mid-single digit contraction.

Organic volume growth in Ocean is expected to be in line with or slightly lower than the average market growth.

“The outlook and guidance for 2020 is subject to significant uncertainties related to the COVID-19 pandemic and does not take into consideration a material second lockdown phase. The guidance is also subject to uncertainties related to freight rates, bunker prices and other external factors,” Maersk noted.

The accumulated guidance on gross capital expenditures excl. acquisitions (CAPEX) for 2020-2021 is still expected to be $ 3 billion-4 billion, with steps being taken to reduce CAPEX in 2020.