AP Moller-Maersk Group’s profit soars to $856m in Q2

AP Moller-Maersk, a Danish shipping conglomerate, has grown its net profit in the second quarter of the year to $856 million, above analysts’ expectation of $545.79 million.

Although the net profit in the year-earlier period was $965 million, the management says this year’s second quarter result has helped to advance the company’s full-year earnings forecast as it posted better than expected second quarter profit as a result of lower costs in its shipping unit.

According to statistics, the company recorded revenue slightly lower than expected at $14.2 billion, down from $15.4 billion that was recorded in the year-earlier period.

“We delivered a good operational result for the second quarter, thanks to improved performance in most of our businesses,” said Nils Andersen, the group chief executive officer.

“Maersk Line has made strong and consistent progress and is now an industry leader in terms of profitability. APM Terminals, which is the port arm of the group, has continued to deliver good results, and Maersk Drilling also had its best quarter ever based on strong operational performance. However, oil production was relatively low, but it has bottomed out now and will return to growth in the second half of the year,” he added.

He, however, said the group would continue to further advance performance and growth by establishing a fifth core business unit with a target of $0.5 billion by 2016.

“Increased profit was achieved across all businesses except Maersk Oil and Damco as well as Maersk Tankers, which was negatively impacted by impairments and provisions of $280 million related to very large crude carriers (VLCCs),” he said.

The result further shows that significant improvements were seen in Maersk Line and Maersk Drilling, whereas Maersk Oil’s profit was reduced due to declining entitlement production and lower oil price while maintaining substantial exploration costs in order to expand the oil production portfolio.

Also, Maersk Line made a profit of $439 million and a return on invested capital (ROIC) of 8.5 percent. The significant improvement in the financial performance was achieved through lower costs. Volumes increased by 2.1 percent, average freight rate decreased 13.1 percent, and total cost per FFE decreased by 12.7 percent due to vessel network efficiencies and lower bunker price. Maersk Line’s total fleet capacity also decreased by 0.9 percent in the period under review.

Cash flow from operating activities was $790 million while the cash flow used for capital expenditure was $311 million, leaving a free cash flow of $479 million.

Furthermore, APM Terminals recorded a profit of $179 million and 12.8 percent return on invested capital. The volumes were at the same level as those of last year, with most terminals in Europe and North America recording decreased volumes, offset by continued positive developments in high growth markets.

Cash flow from operating activities was $241 million while the cash flow used for capital expenditure was $212 million, from $63 million the previous year.

The shipping and oil company said the outlook for container transportation remains challenging, with demand expected to remain weak. Like other shipping lines, Maersk has been hit by weak freight demand at the same time as the industry continues to struggle with overcapacity on the busiest shipping routes. Deliveries of new container ships are expected to amount to 9.5 percent of its fleet and Maersk expects demand growth to remain modest this year.

“Global demand for seaborne containers is expected to increase by two to three percent in 2013, lower on the Asia-Europe trades but supported by higher growth for imports to emerging economies,” the company said.

Maersk Line said it now expects its full-year 2013 net profit to drop to $3.3 billion from $4 billion in 2012. Excluding impairment losses and divestment gains, it expects a profit of around $3.5 billion, up from last year’s $2.9 billion. The company previously forecast this year’s figure to be in line with that of 2012.

By: Uzoamaka Anagor