A.P. Moller–Maersk posts profitability in Q1; operating earnings up by 23%

May 14, 2020: Despite the Covid-19 pandemic’s profound impact on the global trade, A.P. Moller-Maersk kept the momentum in its strategic transformation and demonstrated robustness to weather the crisis. The company’s operating earnings increased by 23 percent year-on-year, and cash return on invested capital increased (CROIC) by 3.5 percentage points to 10.5 percent in the first quarter of the year.

“The strong results were made during a quarter with sharp fuel cost increases derived from the industry’s switch to low-sulphur fuel and on the backdrop of a contraction in global trade due to lockdowns in most regions. From the beginning of the Covid-19 crisis our focus has been on the health and well-being of our employees, on supporting our customer’s businesses and the societies we are part of,” said Soren Skou, CEO of A.P. Moller-Maersk.

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

While earnings continued to grow, the 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 experienced an 86 percent increase in usage.

“The transformation of A.P. Moller - Maersk from a diversified conglomerate to becoming a focused, 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,” said Skou.

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

In ocean, EBITDA increased 25 percent to $1.2 billion in Q1 2020 and the EBITDA margin of 16.3 percent increased from 13.4 percent, 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 percent in Maersk’s average deployed capacity in Q1. For Q2, we will continue our measures to mitigate the impact of declining demand. Unit cost at fixed bunker decreased by 2.3 percent, mainly due to optimisation incapacity, which offset the lower volumes.

In the landside businesses, Logistics & Services excluding the freight forwarding business, improved EBITDA to $69 million from $49 million. Infrastructure, which covers terminals & towage, and logistics & services, but excluding freight forwarding, reported a decrease in revenue to $2.1 billion compared to $2.3 bilion in the same period last year due to lower revenue following Covid-19.

Net interest-bearing debt was nearly unchanged at $12.0 billion which was positively impacted by free cash flow, but offset by payments for annual dividends and share repurchases. Along with the investment grade rating and solid liquidity reserves of $9.2 billion, it underlines the company’s strong financial position.

The suspension on full year guidance for 2020, announced on March 20, remains, 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 percent. 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,” said Skou.

The global market growth in demand for containers is expected to contract in 2020 due to Covid-19 (previously between 1-3 percent growth). Organic volume growth in Ocean is expected to be in line with or slightly lower than average market growth.