Maersk focusses on profits despite volatile demand

Maersk continued to put profits before growth in Financial Year 2019 although its results were complicated by deteriorating market conditions in the fourth quarter.

Revenue shrank by 0.9% over the full year to US$38.9bn with a disconcerting fall of 5.5% in the fourth quarter, however Earnings Before Interest Depreciation and Amortisation (EBITDA) jumped by 14% to US$5.7bn for the full year. Importantly Earnings before Tax was $967m, up from 2018’s un-restated loss of -$357m.

The core ‘Ocean’ container shipping business continued on the trajectory of improving profitability through superior network efficiency that has been working quite well for Maersk for several years. For the full year, even though revenue edged-up only marginally, EBITDA rose by 15% to $4.3bn.

The underlying reality is that Maersk concentrated on improving profits margins which hit 15.3% for the full year whilst it sacrificed sales to do so, with the full-year seeing flat revenue overall but fourth-quarter revenue falling by 3.4% due to “initiatives taken to protect profitability”. Operating costs fell by 2.4% for the year and by 4.1% in the fourth quarter, however lower fuel costs were a significant part of this.

Similarly, in the fairly new ‘Logistics and Services’ division revenue fell by 2% to $5.9bn for the full year whilst EBITDA saw a rise in from $191m over the full year 2018 to $238m in 2019. Across the whole business, there was a clear attempt to ensure strong margins in the face of moderate demand. However, as in container shipping, performance from quarter to quarter varied with the third quarter being strong but the fourth quarter much weaker.

The picture was the same in ‘Terminals and Towage’ margins firmed over the full year and EBITDA rose by 10% to $1,107m over 2019, with a weaker fourth quarter. The core asset in this sector, the large ‘Gateway’ container terminals saw 3.9% volume growth for the full year, but margins were up 3.2% whilst EBITDA still managed to climb by 17% in the fourth quarter.

Overall these results gave a clear message that Maersk is focussed on profits and is capable of improving yield even in a difficult market. The message of the company’s senior management was that the coming year would be difficult, with growth in container shipping demand being between 1-3% with “significant uncertainties and impacted by the current outbreak of the Coronavirus in China”. This has led them to forecast an edging down of EBITDA, however, there may be an element of over-caution or even expectation management bearing in mind the fall in the oil price and the possibility of a violent recovery from the effects of the coronavirus.

Source: Transport Intelligence, February 20, 2020

Author: Thomas Cullen