Low oil price, freight rate push Maersk Group profit down 82% in 2015
Following the significant drop in the price of oil and drop in container freight rate, Maersk Group, the Danish shipping conglomerate, has announced a profit of $925 million in 2015, as against $5.2 billion recorded in 2014. The Group also recorded an underlying profit of $3.1 billion against $4.5 billion of the previous year.
The Group’s profit was severely impacted by a widening supply-demand gap across most of its businesses, and this was led by significant oil price and freight rate reductions. Also, the first half of the year turned out a satisfactory result of 10.2 percent returned on Invested capital (ROIC), while that of the second half of the year was negative at 6.3 percent, caused by impairments of $2.5 billion after tax in Maersk Oil and underlying loss of $9 million in the fourth quarter, compared with $1.0 billion profit of the same period in the prevision year.
Amid a significant decline in container freight rate and oil price, the Group delivered a strong cash flow from operating activities of $8 billion against $8.8 billion of 2014.
“We are satisfied with the good operational performance across our businesses in 2015. Despite the challenging market conditions in our industries, all business units delivered positive underlying profits that led to an underlying result of $3.1 billion,” says Nils Andersen, the Group CEO.
Andersen further states, “Given our expectation that the oil price will remain at a low level for a longer period, we have impaired the value of a number of Maersk Oil’s assets by $2.6 billion after tax. We will continue to strengthen the Group’s position through strong operational performance and growth investments.”
Meanwhile, when compared to the previous year, profits were lower in Maersk Line, Maersk Oil and APM Terminals while Maersk Drilling and APM Shipping Services recorded higher profit. But, with an equity ratio of 57.3 percent against 61.3 percent in 2014 and a liquidity reserve of $12.4 billion compared to 11.6 billion of the previous year, the Group maintains its strong financial position.
A breakdown of the Group’s performance shows that Maersk Line profit dropped to $1.3 billion from $2.3 billion of the previous year. The underlying profit declined to $1.3 billion from $2.2 billion, due to poor market conditions that led to significantly lower freight rates, especially in the second half of the year, but this was partially offset by lower bunker prices, dollar appreciation and cost efficiencies.
Maersk Line also placed three new building orders for a total of 27 vessels with a total capacity of 367,000 Twenty Equivalent Units (TEUs) while further investments have been postponed due to the weak market conditions.
On the other hand, Maersk Oil loss $2.1 billion in the period under review against loss of $861 million of 2014. The result was negatively affected by $2.6 billion impairments after tax. The underlying profit stood at $435 million against $1.0 billion of the previous year.
APM Terminals made a profit of $654 million against $900 million of 2014. The underlying profit declined to $626 million from $849 million of 2014 due to lower volumes particularly in West-Africa, Russia and Brazil, but this was partly offset by revenue improvement and cost saving initiatives.
Within the period under review, APM Terminals accelerated their global growth ambition with several significant acquisitions and new projects. APM Terminals’ global terminal network grew from 63 to 74 terminals in 37 countries across five continents. It has additional seven terminals under implementation.
Also, Maersk Drilling made a profit of $751 million against $478 million in 2014 while APM Shipping Services made a profit of $446 million compared to $230 million loss recorded in 2014.
The Group expects an underlying result significantly below last year’s $3.1billion across its subsidiaries and it’s guidance for 2016 is subject to considerable uncertainty, not due to developments in the global economy, but due to container freight rate and the oil price. The Group’s expected underlying result depends on a number of factors.
Uzoamaka Anagor-Ewuzie