Real momentum as strategy delivers tangible results - The transformation of A.P. Moller - Maersk from a diversified conglomerate to a focused and integrated global logistics company is well under way.
A.P. Moller - Maersk today offers a broad and global portfolio of logistics products from ocean and air transport to inland transportation, warehousing and distribution – including cold storage, customs services and lead logistics products, such as supply chain management services and e-com fulfilment, as well as container port services and towage.
Our strategy is built on three core elements:
Firstly, we offer our customers end-to-end digitally enabled transport and logistics services that help them manage their supply chains, sell their products globally, and source from the most competitive suppliers worldwide. For us to deliver superior value to our customers, we have built our land-based logistics and service offerings in a way that seamlessly integrates with our strong, leading and sustainable Ocean business. This enables us to leverage the commercial synergies inherent in selling land-based logistics services to our 70,000 customers in our Ocean business.
Secondly, we are leveraging the financial and operational synergies between our Ocean business and our Terminals business for lower cost as well as higher productivity and asset utilisation. Owning and operating container ports enables us to control our global transhipment hubs that are crucial for the reliability and cost effectiveness of our Ocean network.
And thirdly, we are building competitive advantage through technology. We are digitising the interaction with our customers while offering unique digital products and leveraging Maersk.com, which is one of the biggest B2B transaction platforms in the world. We are standardising, automating and digitising our core processes as well as our assets, such as ships, containers, warehouses and ports, to manage fuel cost and improve visibility in supply chains, while lowering the overall cost base.
Disciplined execution enables us to perform and transformSince we embarked on our transformation to become the global integrator of container logistics, we have executed the strategy consistently and with discipline.
Despite a backdrop of weak trade growth, ongoing trade tensions, geopolitical uncertainty and a pandemic in 2020, we have improved our financial performance while we transformed our business.
We achieved good results in a year with extraordinary demand fluctuations due to COVID-19, which led from a sharp oversupply of capacity in Q1 to a shortage of vessels and equipment in the second half as demand rebounded, leading to a significant increase in short-term freight rates. We leave 2020 with a strong balance sheet which enable us to both increase payouts to our shareholders and fund the transformation that will enable the longterm growth of the company.
The work we have done over the past five years to improve the performance of our Ocean business delivered solid results in 2020. Our acquisition of Hamburg Süd in 2017, our focus on cost, and our disciplined approach to CAPEX were all contributing factors to the delivery of excellent results and strong cash flow in 2020. In parallel, we developed new, unique products such as Maersk Spot, which offers loading guarantee, easy online booking and a fixed price for our short-term customers.
Our Logistics & Services business delivered excellent margin growth in 2020 and good revenue growth, mainly through acquisitions. We restructured further to reduce cost and develop end-to-end products. We began the implementation of new technology platforms and recruited new leadership and logistics experts globally. Our Logistics & Services business grew revenue to almost USD 7bn with competitive margins and a sound foundation to accelerate growth in the coming years.
In Terminals, we have executed a turnaround since 2016 and the business has shifted its focus from developing new terminals to becoming a world-class terminal operator. Results and cash generation have steadily improved, also in 2020, despite lower volumes. Due to strong cost performance across all segments, we now have an infrastructure business with resilient returns.
Continuing the transformation
At the Annual General Meeting in 2020, we announced three metrics to track progress on our strategic transformation. During 2020, we progressed well despite challenging market conditions:
- Cash return on invested capital (CROIC), last twelve months, increased to 16.6% (10.0%), due to stronger cash flow from operations, lower gross CAPEX, and lower invested capital.
- Infrastructure and Logistics revenue (excl. freight forwarding) increased to USD 9.4bn (USD 9.2bn), mainly due to the acquisition of Performance Team, a leading US-based warehousing and distribution company, only partly offset by lower revenue in gateway terminals because of the impacts from COVID-19.
- Logistics & Services EBITDA (excl. freight forwarding) improved to USD 470m (USD 221m) as a result of margin optimisation in intermodal and supported by the acquisition of Performance Team.
- ROIC, which is the overall return ambition of A.P. Moller - Maersk increased to 9.4% compared to 3.1%, driven by significantly improved earnings. Strategic milestones strengthen integrated offering.
Strategic milestones strengthen integrated offering
In April 2020, we acquired Performance Team, and in September, we closed the deal on KGH Customs Services, a leading specialist in trade and customs services management in Europe. Both companies are logistics experts within their fields, customer feedback is positive, and we have added important capabilities and immensely strengthened our logistics offering and geographical footprint.
We have benefited from our early investments in digitisation and seen a huge uptake on Maersk.com and the Maersk App, as customers have embraced the digital space even more this year on the back of the pandemic.
Our customers also appreciate the predictability, reliability and ease that Maersk Spot offers. The online booking solution has grown exponentially from 20% of short-term volume in the last four weeks of 2019 to 51% in the same period of 2020 under the Maersk brand. Twill, an online service for small and medium-sized businesses, has also experienced immense growth this year. In 2020, more than 2,500 new customers booked on Twill with volumes exceeding 100,000 FFE, representing a 13 fold year-over-year growth.
In the terminal space, our Pier 400 terminal in Los Angeles is progressing on a multi-year automation programme and has carried out the first commercial, fully automated moves in the third quarter. Digitising our assets enables speed, operational ease, safer operations and lower cost.
Building competitive advantage from technology
Technology and digitisation of our industry are key to the transformation at A.P. Moller - Maersk. Through technology, we are offering new products, connecting and simplifying the customer experience and enabling more efficient operations and utilisation of assets. We want to build sustainable, competitive advantage through the following focus areas:
Firstly, we are building new digital platforms, which enable integrated offerings, standardisation and automation. In particular, TradeLens, which is an open and neutral supply chain platform jointly developed with IBM, continues to gain momentum as new customers, partners, and suppliers onboard. The tenants of this platform are already benefiting from increased visibility of events in their supply chains and reduced costs from having access to a digital bill of lading.
Secondly, we are strengthening our investment in Internet of Things (IoT) and automation of our terminals to drive better management of our physical assets and efficiencies in our operations.
We are building a roadmap to harness near real-time data from devices in our vessels, containers and terminals and drive intelligent decision making in our operations and for our customers.
Thirdly, we are committed to leveraging data as a discrete and differentiating asset that will offer data products, such as visibility, and democratise access to data to serve our customers better.
Our technology roadmap is enabled through a common and scalable enterprise architecture, a cloud-first strategy, and continued investment in digital cyber security. This is made possible through focused efforts to insource high-value IT-capabilities to develop one of the leading IT organisations in the industry.
Our response to a global emergency
The COVID-19 pandemic continues to impact the world. As a global company and industry leader, we have remained focused on protecting our employees, supporting our customers and contributing to the societies we are part of by keeping goods flowing throughout the pandemic – ensuring essential food, protective equipment and medical supplies.
Our colleagues at sea, in our ports and at our warehouses have been in the eye of the storm. They have kept the world’s goods moving by showing up to work every day.
In particular, our colleagues at sea have contributed by taking longer shifts on board than anyone would have imagined. Our single biggest challenge has been to relieve our seafarers after their tour has ended, due to travel restrictions, closed borders and the constant change of local regulations and requirements. By the end of the year, we had succeeded in relieving due crew members from our vessels and bringing them home to their families and friends.
On shore, we have taken extraordinary measures to protect our workers at ports, warehouses and other frontline locations. Our office-based colleagues have shown their resilience by adapting to working from home to the extent possible, and we have done our outmost to support this change, mentally and physically.
Amid a pandemic that has large impacts on supply chains, customers need flexible and robust solutions. With our integrated approach, we are supporting their end-to-end logistics needs, while controlling the most central assets and offering alternative solutions as borders close, air traffic stops and roads are blocked.
Unwavering commitment to sustainability
Sustainability continues to be at the top of our agenda, and we are fully committed to our ambition of reducing CO2 emissions as we continue to work towards carbon neutrality in 2050. Our customers are supporting the ambition and demanding responsible transportation of their goods so they can limit their own footprint, and this expectation is also reflected among our investors.
In 2020, we updated our sustainability priorities. Our key focus areas reached a level of maturity where they are now fully integrated into our business practices.
Decarbonising logistics is the one commitment where we can make the greatest contribution to climate action.
In June 2020, the A.P. Møller Foundation established the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping to take the next step to develop new fuel types and technologies together with a group of likeminded global industry leaders.
The centre is a non-profit, independent research centre that will work across the entire shipping sector with industry, academia and authorities to find real-life solutions.
We would like to thank the A.P. Møller Foundation for making this possible thereby demonstrating the essence of our shared values and strong leadership in the efforts towards reducing the industry’s carbon emissions to zero by 2050.
In addition, we remain committed to our broader sustainability agenda, including our role in multiplying the benefits of trade, contributing to halving food loss and improving the ship recycling industry.
We are proud of the progress made so far and remain committed to all our stakeholders to be an innovative and responsible global integrator of container logistics.
2021 – continuing to perform while we complete the transformation
In 2021, we will continue to focus on growing our landside logistics, expanding our product portfolio to all relevant markets and increasing cross-selling and upselling to our customers to deliver profitable, organic growth. In addition, we expect to continue to acquire capabilities and growth platforms, particularly within warehousing and distribution, air freight as well as customs services to further strengthen our integrated product offerings.
In Ocean, our focus will be on developing our existing products further as well as adding new and unique products to our portfolio. We will remain focused on optimising our network and cost structure to ensure we stabilise earnings and deliver good, sustainable returns in our largest business.
In Terminals, our focus continues to be on improving the operating performance of our portfolio of ports, financially and operationally. We will drive further synergies with our Ocean business, complete our automation project in Los Angeles and our construction project for a new terminal in Abidjan, Ivory Coast, and mature plans for future growth in our portfolio, including automation.
Thank you for your continued support
On May 1, we welcomed our new CFO and member of the Executive Board, Patrick Jany. Patrick brings solid financial experience and a proven record of managing cost discipline and profitable growth through M&As and innovation.
We are also happy to welcome Blythe S. J. Masters to the Board of Directors. Blythe has added critical capabilities to the Board with her international outlook and experience within financial services and technology, having extensive knowledge in start-ups, platforms and blockchain.
We would like to thank our 80,000 colleagues deeply for their truly extraordinary efforts to keep trade moving under such challenging conditions.
In times of increased uncertainty, open supply chains and free global trade are more relevant than ever.
We remain optimistic about society’s ability to recover and committed to building on the strong business momentum and foundation that has now been established as we enter another transformative year for A.P. Moller - Maersk.
Jim Hagemann Snabe
Chairman of A.P. Møller - Mærsk A/S
CEO of A.P. Møller - Mærsk A/S