Maersk achieves strong Q3 result and looks forward for the rest of 2020
Profit for the 3rd quarter was $947 million, showcasing an increase of 82% from $520 million which was seen in the corresponding quarter a year before.
The company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) increased by 39% to $2.3 billion with revenue decreasing 1.4% to $9.9 billion.
As explained by Maersk, the performance increase was based on a few factors:
1) Stringent costs control
2) Agile capacity management
3) Strong focus on customer offerings
4) Higher usage of digital services
and some benefit from a sequential demand recovery when compared to the second quarter.
“Despite COVID-19 negatively affecting activities in most of our businesses, our disciplined execution of the strategy led to solid earnings and cash flow growth in Q3,” Søren Skou, CEO of A.P. Moller – Maersk, commented.
“At the same time, we managed to further integrate and simplify the organisation in Ocean & Logistics, we closed the acquisition of KGH Customs Services and continued the integration of Performance Team, supporting our strong financial performance in Logistics & Services.”
Maersk also mentioned that the main performance driver this quarter was Ocean which, despite decreased volumes of 3.6%, had improved profitability by $511m to $1.8bn, reaching an EBITDA margin of 25.4% on the back of a continued agile capacity deployment, lower costs and a temporary spike in short-term freight rates due to a sudden demand pick-up on some routes.
This increased performance was greatly supported by Logistics & Services which benefitted from significant demand in supply chain management, intermodal and the acquired Performance Team. In the 3rd quarter, revenue in Logistics & Services grew 11% and profitability increased by 44%, achieving an EBITDA of $131 million up from $91 million in 2019, despite restructuring costs of $40 million.
As for Terminals & Towage, the company continued to grow earnings and margins, despite facing lower volumes and revenue.
The free cash flow generation of $3 billion in the first nine months of 2020 allowed the company to return cash to shareholders, finance acquisitions and reduce debt with net interest-bearing debt decreasing further to $10.8bn by the end of the 3rd quarter as compared to $11.7bn by the end of 2019.
“Throughout the pandemic, our main priorities have been keeping our employees safe, keeping our global network and ports operating to serve our customers and supporting the societies we are part of. This continues to be our focus as demand has begun to partially recover,” Skou added.
He also mentioned that: “Our progress in earnings and in our transformation allows us to look confidently past the extraordinary 2020, however we remain well aware of the high level of uncertainty the pandemic and associated lock downs continue to pose in the coming quarters.”
Shares buy-back programme
As an outcome of the strong performance and cash generation, Maersk’s board of directors decided to initiate a new share buy-back programme of around $1.6 billion over a period of up to 15 months.
The first tranche which amounts to $500 million is expected to start in December.
The remaining part of the share buy-back is subject to shareholder approval at the next annual general meeting in March 2021 as informed by Maersk.
They explained that the decision is supported by the strong earnings and free cash flow generation seen in 2020, which has led to further deleveraging of the company and improved credit metrics in line with investment grade rating.
After improving profitability in the 3rd quarter, Maersk raises guidance.
Given the current momentum across the business, Maersk expects EBITDA before restructuring and integration costs in the range of $8bn to $8.5bn from previously between $7.5bn to $8bn.
The global demand growth for containers is expected to contract by 4-5% in 2020 due to COVID-19.
Organic volume growth in Ocean is now projected to be slightly below the average market growth from previously in line with or slightly below the current market.
For 2021-2022, the accumulated guidance on capital expenditures is expected to be between $4.5bn and $5.5bn with the expectation of high cash conversion.