CEO Skou reports “good progress” on business transformation, but says new tariffs could potentially reduce expected growth in global container volumes by 1%.
A.P. Møller – Mærsk A/S reported Friday that it had revenue of $9.54 billion in the first quarter of 2019, 2.5% more than the $9.31 billion in the first quarter of 2018.
Søren Skou, the company’s chief executive officer, said that Maersk had a “good start” to 2019 and was reaffirming its guidance for performance this year. Maersk said it expects to report earnings before interest, tax, depreciation and amortization (EBITDA) of around $5 billion, including effects from IFRS 16, a new lease accounting standard issued by the International Accounting Standards Board that went into effect this year.
The company said it expects ocean container volumes to grow between 1% and 3%, but Skou cautioned, “We are still facing considerable uncertainties from weaker macro numbers as well as the risk from trade tensions and implementation of IMO 2020,” the requirement by the United Nation’s International Maritime Organization that shipowners use low-sulfur fuel or equip their ships with scrubbers.
He said in the first quarter “volumes on transpacific trade between Asia and North America have shown signs of decline and new tariffs can potentially reduce expected growth in global container volumes by up to 1 percentage point.”
Asked during a phone call with securities analysts about media reports that Maersk had initiated a new price war by cutting rates, Skou said, “I can absolutely deny that we have started a price war and can also say we have zero intent to do so. We are focused on profitability and generating cash.”
The company had a loss of $656 million in the first quarter compared to the profit of $2.7 billion reported in the first quarter of last year, when the bottom line was boosted by the sale of its oil business to the French oil company Total.
Skou said the company has completed its separation of the energy business. Maersk sold Maersk Oil and Gas in a deal valued at $7.45 billion in March 2018, and demerged Maersk Drilling earlier this year. Maersk said Friday it plans to use $1.5 billion of the proceeds from the Total sale to buy back stock over the next 15 months.
Maersk highlighted that its EBITDA was $1.2 billion in the first quarter of 2019, up from $669 million as reported in the first quarter of 2018 or $931 million in the first quarter of 2018 when restated to include the impact of IFRS 16 as well as the inclusion of results from Maersk Supply Services, which the company has decided to count as a continuing operation. (Maersk Supply Service operates vessels that serve the offshore oil and gas industry. After having difficulty selling the company, Maersk announced in March it would retain full ownership of the company.)
Skou said Maersk has made “good progress” on the transformation of its business, not only in selling its oil and gas business last year and separating the drilling business into a new public company in April, but in further integrating its remaining businesses.
Maersk said revenue from its ocean business was $6.9 billion in the first quarter, up 1.7% from the same period last year and that EBITDA from the segment was $927 million, up 42% from the same period last year.
Skou attributed that to higher freight rates, synergies resulting from Maersk’s acquisition of Hamburg Süd in late 2017 and reduced costs. Revenues from detention and demurrage increased in part from the front loading of cargo to North America because of tariff fears and port congestion.
The company said average freight rates in the first quarter were $1,903 per 40-foot container (FEU), $71 per FEU more or a 3.9% increase over the same period last year, but that volumes were down 2.2%.
The company said rates were higher because of high recovery of fuel price increases and a focus on margins.
“We are very much focused on improving earnings more than we are focused on … market share,” Skou said.
Operating costs were 2.8% lower in the first quarter of this year as a result of lower container handling and network costs, excluding fuel costs. But the company said those savings were partly offset by higher empty repositioning costs because of lower backhaul volumes.
Maersk said even though bunker prices rose 9.2%, it was able to reduce fuel costs by 4.3%.
The company’s logistics and services segment had revenue of $1.45 billion, down 0.5%, largely because of lower air freight forwarding volumes. EBITDA was $51 million, up 13%.
“The merger of the commercial organizations of logistics and services and ocean progress according to plan during Q1 and is on track,” the company said. Maersk has said it wants to become a global integrator of container logistics.
Supply chain management volumes increased 1.1% due to new customers.
The company’s terminals and towage business had revenue of $991 million in the first quarter of 2019, a 9% increase over the first quarter of 2018. Volumes at the company’s major “gateway” terminals grew 3.5% and utilization of the terminals grew to 79% from 69%.