A.P. Moller lowers 2006 profit expectations, shares slide 9%
A.P. Moller-Maersk, owners of the world’s largest containership operator Maersk Line, Tuesday downgraded its profit expectations for 2006 by 20 percent, citing difficulties integrating its 2.3-billion-euro ($2.9 billion) acquisition P&O Nedlloyd.
The Danish group said it expects its 2006 net profit result to be 20 percent lower than the DKK 20.2 billion ($3.4 billion) achieved in 2005.
“Maersk Line has not obtained the anticipated share of the general market growth during the first half year of 2006. Changes in the service network and the integration of the organizations following the acquisition of P&O Nedlloyd, as well as the implementation of new IT systems have been contributing factors,” A.P. Moller-Maersk said in a statement to the Copenhagen Stock Exchange.
“An improvement of Maersk Line’s cargo volumes is expected in the second half-year, even though the originally expected development for this period will not be met. At the same time, increased bunker costs and further reductions in the average freight rates have had a negative impact. The earnings for the container business before depreciations will consequently be considerably below the March expectations and unsatisfactory.”
The company said its other shipping related activities “are as a whole performing as expected.”
Group revenue for 2006 is expected to be about DKK 270 billion ($45.5 billion), 29 percent higher than DKK 209 billion ($35.2 billion) posted in 2005 but A.P. Moller-Maersk warned that “the estimate is still sensitive to changes in freight rates and volumes, especially in Maersk Line as well as changes in oil prices and currency rates.”
The news will confirm to many that the container-shipping industry’s current boom period is coming to an abrupt end and sent A.P. Moller-Maersk’s share price tumbling 9 percent to DKK43.000 ($7.24) at the close of business Tuesday.
The announcement also had a ripple effect in Germany, where shares in TUI AG, Hapag-Lloyd’s parent company, fell to an almost two-year low. Shares in Neptune Orient Lines, parent company of APL, have also recently been at their lowest point for a number of years.
At the same time, A.P. Moller-Maersk said is will establish an executive board and make some management changes as it prepares for the retirement of Group Chief Executive Officer Jess S'derberg.
Effective July 1, Knud E. Stubkj'r will share the role of chief executive officer at Maersk Line with Group Chief Financial Officer Eivind Kolding. S'ren Thorup S'rensen will replace Kolding as group CFO. Tommy Thomsen will take over as chairman of the board in a number of large foreign A.P. Moller-Maersk organizations, including China, India, Africa and APM Terminals. Thomas Thune Andersen continues as head of M'rsk Olie og Gas A/S. Executive Vice President, Claus V. Hemmingsen, with responsibility of Maersk Contractors and Maersk Supply Service, will take charge of Group IT. S'ren Skou, executive vice president of Maersk Tankers, will also be in charge of Group Oil Trading as well as a number of the group’s ship technical departments.
All of the above will form the new executive board.
“The company has grown considerably in the past years, and the board wants to strengthen the top management, both by a broader and more flat structure, which will increase focus in the individual areas, and by redeployment of responsibilities internally,” said Michael Pram Rasmussen, A.P. Moller-Maersk’s chairman.
“The increased number of persons reporting directly to the group CEO should, besides strengthening the day-to-day management, be seen as the board’s preparations for candidates to succeed Mr. Jess S'derberg,” Rasmussen said.