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Covid strategy pays dividends for Maersk with strong Q3

The Ocean division has boosted Maersk's third-quarter results, showing remarkable growth in earnings of 39% on contracting revenues as the company's strategy of managing capacity pays off spectacularly.

The demand recovery, following the slowdown of the second quarter, which led to the reactivation of all available tonnage as well as significantly higher prices in the short-term market, helped the Copenhagen-based firm to deliver a strong quarter in the Ocean sector, according to the CEO of A.P. Moller - Maersk, Søren Skou.

“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,” said Skou, who went on to highlight, “Our transformation towards the global integrator of container logistics is progressing well, and our disciplined and consistent execution over the past three years is now starting to deliver tangible results.”

The Danish carrier has announced increased earnings before interest, tax, depreciation and amortisation (EBITDA) by 39% to US$2.3 billion with revenue decreasing 1.4% to US$9.9 billion.

The performance was strongly supported by Logistics & Services which benefitted from significant demand in supply chain management, intermodal and the acquired Performance Team, according to a statement.

In particular, Q3 revenue in Logistics & Services grew 11% and profitability increased by 44%, achieving an EBITDA of US$131 million up from US$91 million in 2019, despite restructuring costs of US$40 million. “In Terminals & Towage, our effort to become a world-class operator enabled us to continue to expand margins and grow earnings, despite lower volumes and revenue,” said Maersk in its announcement.

Skou noted, “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.”

Furthermore, cash return on invested capital (CROIC), in the last twelve months, increased from 9.9% to 13.9% due to stronger cash flow from operating activities and lower gross capital expenditure (CAPEX), while returns on invested capital (ROIC), in the same period, increased from 3% to 5.9% as earnings improved and invested capital declined slightly.

The free cash flow generation of US$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 US$10.8 billion by the end of the third quarter compared to US$11.7 billion by the end of 2019.

"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 lockdowns continue to pose in the coming quarters,” added Skou.

It is important to note that the board of directors of the company has decided to initiate a new share buy-back programme of DKK10 billion (US$1.6 billion) over a period of up to 15 months, the first tranche of which (US$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.

Given the current momentum across the business, A.P. Moller - Maersk expects EBITDA before restructuring and integration costs in the range of US$8 billion to US$8.5 billion, slightly increased from the previous announcement on 13 October.

Additionally, the global demand growth for containers is expected to contract by 4-5% in 2020 due to the pandemic, while organic volume growth in Ocean is now expected to be slightly below the average market growth from previously in line with or slightly below the market.

For 2020, the guidance on capital expenditures (CAPEX) is expected to be US$1.5 billion, and with the expectation of a high cash conversion (cash flow from operations compared to EBITDA). Moreover, for 2021-2022, the accumulated guidance on capital expenditures is expected to be between US$4.5 billion and US$5.5 billion with the expectation of a high cash conversion.

Antonis Karamalegkos

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