Maersk Group third quarter results ride high on shipping segment improvement

The Group delivered a profit of USD 1.5bn (USD 1.2bn) and a return on invested capital (ROIC) of 12.7% (9.5%) for Q3 2014.

“We are very satisfied with the result for the 3rd quarter of 2014 where we achieved an underlying profit of USD 1.3bn, driven by operational improvements in Maersk Line, Maersk Oil and APM Terminals. Looking at the first nine months, the Group’s underlying result has improved by USD 729m, equalling 25 percent, compared to same period last year. We are well positioned to take advantage of opportunities materialising in a volatile macroeconomic environment, and despite some caution in relation to the market outlook for the coming quarters, we maintain our outlook for the Group result to be around USD 4.5bn for the year,” says Group CEO Nils S. Andersen.

Group highlights
The underlying profit for the Group was USD 1.3bn (USD 1.3bn) when excluding discontinued operations, impairments and divestments. Increased underlying profits were in particular achieved for Maersk Line, Maersk Oil and APM Terminals; whereas the underlying profits were lower in Maersk Drilling and APM Shipping Services.
The result for Q3 was positively impacted by USD 215m after tax gains from divestment of APM Terminals Virginia, Portsmouth, USA and Maersk Drilling divesting the activities in Venezuela with a gain of USD 73m after tax, however countered by impairments in APM Terminals of USD 74m.

The Group’s revenue increased by 0.7% impacted by higher container volumes and freight rates as well as higher oil entitlement production, partly offset by a lower average oil price.
Cash flow from operating activities was USD 2.7bn (USD 2.7bn). Cash flow used for capital expenditure was USD 2.7bn (USD 1.9bn) and net of sales proceeds USD 1.4bn (USD 1.3bn). The Group’s free cash flow was USD 1.4bn (USD 1.4bn).

Net interest-bearing debt decreased by USD 3.5bn to USD 8.1bn (USD 11.6bn at 31 December 2013) positively impacted by receipt of USD 2.8bn net proceeds from the sale of Dansk Supermarked Group.

The financial items were negative by USD 188m (negative by USD 127m). The development of USD 61m was primarily due to negative currency adjustments. This was partly offset by lower net interest costs on less debt, lower interest rates and higher capitalised borrowing cost related to the newbuilding programmes.

During Q3 the Group acquired own shares at a total value of USD 151m as part of the USD 1bn share buy-back program.
In September 2014, the Group issued its first bonds in the US market, raising a total of USD 1.3bn and thereby gaining access to a new funding market.

Maersk Line made a profit of USD 685m (USD 554m) and a ROIC of 13.5% (10.9%). The improvement was achieved through lower costs and supported by an increase in the average freight rate. In line with the market Maersk Line increased volumes by 3.7% vs. Q3 2013.
Cash flow from operating activities was USD 1.0bn (USD 1.3bn) and cash flow used for capital expenditure was USD 483m (USD 491m) leaving a free cash flow of USD 546m (USD 768m).

Maersk Oil made a profit of USD 222m (USD 189m) impacted by 4% increase in entitlement production vs. Q3 2013 as well as lower exploration costs partly offset by lower average oil price of USD 102 per barrel (USD 110 per barrel). Despite major planned maintenance shutdowns, the entitlement production rose to 238,000 boepd (229,000 boepd). ROIC was 17.5% (12.0%).

Production from the Golden Eagle Development in the UK commenced late October 2014. The production will be ramped up towards 20,000 boepd (Maersk Oil’s 31.6% share) by the end of 2015.

Progress on Johan Sverdrup in Norway remains in line with expectations and the Culzean project in the UK is progressing towards final investment decision in 2015. In Angola tender bids for the major construction parts are being evaluated together with the authorities.
Exploration costs were USD 210m (USD 256m) with the completion of three exploration/appraisal wells.

Ongoing well activities include drilling of the Buckskin 3 side-track appraisal well in the USA where oil-bearing sand was found and in the UK the Marconi exploration well encountered hydrocarbons. Both wells are being assessed with respect to commercial viability.

Cash flow from operating activities was USD 726m (USD 989m); lower, mainly due to decline in oil price. Cash flow used for capital expenditure was USD 591m (USD 502m).
APM Terminals made a profit of USD 345m (USD 203m) and a ROIC of 22.5% (14.2%) impacted by divestment gains of USD 219m after tax partly offset by impairments of USD 74m (USD 0m). The volumes increased by 4.4% vs. Q3 2013 to 9.7m TEU.

Cash flow from operating activities was USD 318m (USD 261m). Cash flow used for capital expenditure was more than offset by cash flow generated by divestments leading to a positive investment cash flow of USD 570m (negative USD 222m).

Maersk Drilling made a profit of USD 192m (USD 148m) including a gain of USD 73m after tax due to divesting the Venezuela activities. Excluding the gain, the result was lower due to start-up of new rigs and maintenance. ROIC was 10.7% (11.7%).

Delivery was taken of the third newbuild drillship, Maersk Venturer, and the second jack-up, Maersk Interceptor.

Cash flow from operating activities was USD 127m (USD 212m) and net cash flow used for capital expenditure was USD 673m (USD 483m).

APM Shipping Services made a profit of USD 119m (USD 114m) and a ROIC of 8.7% (7.0%). Improved profit in Maersk Tankers of USD 84m (USD 18m) and in Maersk Supply Service of USD 79m (USD 61m) countered by lower profit in Svitzer of USD 23m (USD 34m) and a loss in Damco of USD 68m (profit of USD 1m).

Guidance for 2014
The Group still expects a result for 2014 significantly above the 2013 result of USD 3.8bn. The underlying result is still expected to be around USD 4.5bn (USD 3.6bn) when excluding discontinued operations, impairment losses and divestment gains.

Gross cash flow used for capital expenditure is now expected to be around USD 9bn from previous expectations of around USD 10bn (USD 6.3bn).

Cash flow from operating activities is expected to develop in line with the result.
Maersk Line now expects a result for 2014 above USD 2bn a specification from previous expectation of significantly above 2013 (USD 1.5bn) based on good Q3 performance. The global demand is now expected to grow by 3-5% (previously 4-5%).

Maersk Oil still expects an underlying result in line with 2013 (USD 1.0bn). Including the USD 1.7bn asset impairment in Brazil the expected full year loss remains around USD 0.7bn based on an average oil price for the year of USD 102 per barrel (previous expectation was USD 108 per barrel).

Maersk Oil’s entitlement production for 2014 is still expected to be above 240,000 boepd (235,000 boepd) with Q4 production expected to be higher than Q3 production.

APM Terminals still expects an underlying result above 2013 (USD 708m).

Maersk Drilling still expects an underlying result below 2013 (USD 551m) due to planned yard stays and high costs associated with training and start-up of operation of six new rigs.
APM Shipping Services still expects an underlying result around 2013 (USD 294m).
The Group’s guidance for 2014 is subject to considerable uncertainty, not least due to developments in the global economy, the container rates and the oil price.
Source: AP Moeller Maersk Group