Is Maersk really being broken-up? The sale of Maersk’s stake in the Danish investment bank, Danske Bank, has triggered speculation that the whole conglomerate is being re-shaped. The news service Bloomberg quoted Berenberg Bank commenting “it suggests nothing is sacred within the Maersk portfolio and that a sum-of-the-parts valuation for this group is no longer merely a theoretical exercise.” Is this true? The company is hardly under pressure to break itself up.
Maersk as a group announced a record profit of US$5.2bn, this represented an increase of 38% year-on-year and was driven by Maersk Line. The profit increase was despite considerable headwinds in the group’s various oil and gas related businesses.
Maersk Line saw annual profits jump by over 50% to US$2.34bn despite revenue rising by less than 5%. This was on an increase of volume of 6.8% to 9.4m FEUs with demand rising on North-South and Intra-Asian routes. The cause of the improved profitability was a lower cost base largely from reduced fuel costs. Over the fourth quarter total costs increased by 1.9%, yet volume was up by 9.8%. Terminal costs and ship costs rose by 7.6% and 8.7% respectively but bunker fuel costs fell by 12.8%.
It can be said that the 2014 profit numbers for Maersk Line are being flattered by the crash in the price of oil, although increasing fuel efficiency is still playing a role. The implication is that the low oil price might not be permanent with the company commenting that “Maersk Line has no plans of increasing the vessel speed as network and fleet adjustments require a sustained low bunker price level which is not reflected in the market forward curve”
Meanwhile in the wider group Maersk saw a 50% fall in the profits from its oil and gas business with extensive write-downs. Its ‘Shipping Services’ business also saw a loss of $230m.
The Shipping Services business is heavily exposed to the off-shore oil field services, such as anchor handling vessels, which may have had a tough end to the year. It is also responsible for the group’s freight forwarding business, Damco, which did not perform well. Its loss for the year 2014 more than doubled to $293m, worsened by $68m of write-offs around “acquired intangible assets”, something which sounds like the underperformance of the various businesses bought by Damco over the past few years.
The sea freight forwarding business saw its volumes fall by 6% while air freight forwarding’s volumes fell by 16%, although the Supply Chain Management business increased its volumes by 11%. Revenue was flat at $3.2bn. Overheads at Damco are still “above the desired level” and it still encountering restructuring costs. The implementation of new coherent systems for the business is proving to be more difficult than expected. To make things worse the company is now $201m cash-flow negative.
Maersk Group continues to own a broad range of assets but the core businesses of shipping and oil do complement each other and provide financial stability to the group as a whole.