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Nov 18, 2020 at 4:30 PMThe shipping company A.P. Moller – Maersk presents good figures for the third quarter of 2020. The operating result (EBITDA) was increased by 39 percent to 2.3 billion USD, despite a 1.4 percent decline in revenue. This is attributed to strict cost control.
(Copenhagen) In the third quarter, A.P. Moller – Maersk improved profitability across the company and delivered a strong free cash flow, despite the negative impacts of the COVID-19 pandemic on the global economy. The company increased its earnings before interest, taxes, depreciation, and amortization (EBITDA) by 39 percent to 2.3 billion USD, while revenue fell by 1.4 percent to 9.9 billion USD. The performance improvement was based on strict cost control, agile capacity management, a strong focus on customer offerings with further traction in the uptake of digital services, and some sequential demand recovery compared to the second quarter.
Disciplined Execution of Strategy
“Although COVID-19 negatively impacted activities in most of our business areas, our disciplined execution of strategy in the third quarter led to solid earnings and cash flow growth. At the same time, we managed to further integrate and simplify the organization in Ocean & Logistics, we completed the acquisition of KGH Customs Services, and continued the integration of the Performance Team to support our strong financial performance in Logistics & Services,” says Soren Skou, CEO of A.P. Moller – Maersk.
Performance Driver Ocean
The main performance driver in this quarter was Ocean, which improved profitability by 511 million USD to 1.8 billion USD despite a volume decline of 3.6 percent, achieving an EBITDA margin of 25.4 percent, due to continued agile capacity deployment, lower costs, and a temporary spike in short-term freight rates due to a sudden demand revival on some routes. The performance was strongly supported by Logistics & Services, which benefited from significant demand in supply chain management, intermodal, and the acquired Performance Team. In the third quarter, revenue in Logistics & Services increased by 11 points, and profitability rose by 44 percent, reaching an EBITDA of 131 million USD compared to 91 million USD in 2019, despite restructuring costs of 40 million USD. In Terminals & Towage, we were able to further increase margins and improve results despite lower volumes and revenues.
Increased Return
The cash return on invested capital (CROIC) increased over the past twelve months due to stronger cash flow from operating activities and lower gross CAPEX from 9.9 to 13.9 points. The return on invested capital (ROIC), which was in the last twelve months, rose from 3 to 5.9 points as earnings improved and invested capital slightly decreased. The free cash flow generation of 3 billion USD in the first nine months of 2020 enabled the company to return cash to shareholders, finance acquisitions, and reduce debt, with net debt further decreasing to 10.8 billion USD by the end of the third quarter, compared to 11.7 billion USD at the end of 2019.
Employee Retention
Soren Skou adds: “During the pandemic, our main priorities have been to keep our employees safe, maintain our global network and ports to serve our customers, and support the communities in which we operate. This remains our focus as demand has partially recovered. Our earnings progress and transformation enable us to look confidently beyond the exceptional year 2020, but we are very aware of the high uncertainty that the pandemic and related lockdowns will continue to pose in the coming quarters.”
Share Buyback Program
In light of the strong performance and cash generation, the Board of Directors has decided to initiate a new share buyback program of 10 billion DKK (approximately 1.6 billion USD) over a period of up to 15 months, with the first tranche (500 million USD) expected to begin in December. The remaining part of the share buyback is subject to shareholder approval at the next Annual General Meeting in March 2021.
Guidance for 2020 and CAPEX
Given the current momentum across the business, A.P. Moller – Maersk expects, as announced on November 17, 2020, an EBITDA before restructuring and integration costs in the range of 8 to 8.5 billion USD, up from the previously announced 7.5 to 8 billion USD on October 13, 2020. Global demand growth for containers is expected to shrink by 4-5 points in 2020 due to COVID-19. Organic volume growth in Ocean is now expected to be slightly below the average market growth, which has so far matched or slightly lagged the market. For 2020, a forecast for capital expenditures (CAPEX) of 1.5 billion USD is expected, with a high cash conversion (cash flow from operating activities compared to EBITDA) anticipated. For the years 2021-2022, the cumulative forecast for capital expenditures with high cash conversion is expected to be between 4.5 and 5.5 billion USD. Photo: © Moller – Maersk
