Following the decline in container freight rates and oil price in the international market, AP Moller Maersk Group, the Danish shipping conglomerate has delivered a second quarter profit of $1.1 billion, down from $2.3 billion recorded in Q2 of 2014, the Group’s performance report has said.
Also, the Group’s revenue decreased by 11.9 percent to $1.4 billion while the operating expenses decreased by $966 million mainly due to lower bunker prices and cost saving initiatives.
“In a quarter impacted by lower average container rates and lower oil price, the Maersk Group achieved a satisfactory result and maintained the expectation of an underlying result of $4.0 billion for the year. We reiterate our strategic direction of targeting profitable growth with top-quartile performance and a Return on Investment Capital (ROIC) above 10 percent over the cycle in all business units,” says Nils Smedegaard Andersen, Group CEO.
According to him, the turbulence in the oil price has had negative influence in the oil and offshore markets. “This has changed the outlook for Maersk Oil, Maersk Drilling, APM Terminals and APM Shipping Services, where previously announced profit and growth targets will be replaced by plans adapting to the current environment. The balance sheet remains strong and the Board has decided to launch a buy-back programme aiming at $1 billion.”
Cash flow from operating activities stood at a high level of $1.8 billion while the Group continues to invest in profitable growth with a net cash flow used for capital expenditure of $1.7 billion excluding the sale of shares in Danske Bank of $4.8 billion.
Maersk Line reported a profit of $507 million and an underlying profit of $499 million. Despite a sharp decline in the average freight rate of 14.1 percent, Maersk Line delivered a 10.1 percent ROIC based on its cost leadership strategy.
APM Terminals profit fell to $161 million from $223 million recorded in the corresponding period of 2014. The underlying profit stood at $159 million. The result was negatively impacted by a revenue reduction of 8.6 percent caused by decreased volumes in key oil dependent markets as well as divestments in 2014 and weakening of local currencies against the US dollar resulting in lower revenue in USD terms.
The lower oil price, the report said, resulted in significantly less import volumes in West African and Russian ports, which was partially offset by volume ramp up in Santos, Brazil. Revenue improvement and cost savings initiatives have been implemented across the global portfolio successfully delivering improvements of more than $100 million in the first half of 2015.
The report further states that Maersk Oil made a profit of $137million, recording a loss of $1.4bn, (adversely impacted by 1.7 billion impairment on Brazilian assets) with an underlying profit of $217 million. The result was positively impacted by increased production, lower costs due to the cost transformation programme and lower exploration costs but negatively impacted by the lower oil price and $80 million impairment from relinquishing Iraqi (Kurdistan) licenses.
As a response to the lower oil price, Maersk Oil has initiated a number of activities to improve profitability and position for growth. Maersk Oil expects that the net operating costs excluding exploration will be reduced with 10 percent by the end of 2015 compared to the 2014 baseline. This is in line with the targeted 20 percent reduction by the end of 2016.
Maersk Drilling delivered a profit of $218 million generating a ROIC of 10.6 percent, positively impacted by general cost savings, fleet growth and an additional gain of $29 million. Other businesses include APM Shipping Services, which made a profit of $138 million and a ROIC of 11.8 percent. The underlying profit was $109 million. Maersk Supply Service reported a profit of $64 million and a ROIC of 15.2 percent. The underlying profit was $33 million.
Maersk Tankers reported a profit of $35 million and a ROIC of 8.9 percent. The underlying profit was $39 million.