The Group’s revenue decreased by USD 933m or 9.2% compared to Q3 2015, predominantly related to Maersk Line with a decrease of USD 659m due to 16% lower average container freight rates, Maersk Oil with a decrease of USD 95m due to 8.0% lower oil prices and decreased rates in Damco and Maersk Tankers. This was partly offset by 11% higher container volumes in Maersk Line and 7.0% higher volumes in APM Terminals.
Operating expenses decreased by USD 573m or 7.3% mainly due to lower bunker prices and cost saving initiatives.
The Group’s cash flow from operating activities was USD 1.7bn (USD 2.2bn). Net cash flow used for capital expenditure was USD 935m (USD 1.3bn) with investments predominantly related to developments of the Culzean oil field in the UK and Johan Sverdrup in Norway.
With an equity ratio of 55.5% (57.3% at 31 December 2015) and a liquidity reserve of USD 11.8 bn (USD 12.4bn at 31 December 2015) the Group maintains a strong financial position.
Maersk Line continued to deliver on strategic objectives in Q3, gaining market share with a volume growth of 11% and continued improvement in network utilisation. Sustained pressure on container freight rates lead to a decline in average freight rates of 16% and an underlying loss of USD 122m. However, Maersk Line generated a positive free cash flow of USD 192m (USD 159m).
ROIC was negative 2.3% (positive 5.2%). The result was favourably impacted by various positive tax developments.
Revenue of USD 5.4bn was 11% lower than Q3 2015. The development was driven by a 16% decline in average freight rates to 1,811 USD/FFE (2,163 USD/FFE) partially offset by an 11% increase in volumes to 2,698k FFE (2,427k FFE). A significant part of the growth was due to more backhaul cargo at lower rates than headhaul. With an increase in fleet capacity of 3.8%, the increase in volumes represented an improvement of network utilisation. The freight rate decline was mainly attributable to decreasing bunker prices of 25%, but was also impacted by the increased backhaul volumes and continued weak market conditions.
Maersk Oil continues to deliver profit in a quarter with an average oil price of USD 46 per barrel and with a breakeven level below USD 40 per barrel for 2016. Adjustments to the business and organisation due to lower oil price environment and exit from Qatar by Mid-2017 have been initiated.
Maersk Oil reported a profit of USD 145m (USD 32m) and a ROIC of 13.5% (2.1%) in Q3 2016 at an oil price of USD 46 (USD 50) per barrel. The profit was positively impacted by higher operational efficiency and lower costs.
In a quarter with the usual planned maintenance shutdowns, entitlement production of 295,000 boepd (300,000 boepd) was in line with Q3 2015. Exploration costs of USD 57m (USD 82m) were 30% lower than the same period last year.
APM Terminals delivered a profit of USD 131m (USD 175m) and a ROIC of 6.6% (11.6%). Stronger performance in key gateway terminals lifts Q3 performance from previous quarters in 2016 while cost saving initiatives are starting to offset some of the reduced volume in commercially challenged terminals.
The profit was 17% above Q2 2016. Operating businesses generated a profit of USD 136m (USD 189m) and a ROIC of 9.5% (13.8%) and projects under implementation along with Grup Marítim TCB from beginning of March had a combined loss of USD 5m (loss of USD 14m), resulting from start-up costs. Profits remain under pressure in commercially challenged terminals in Latin America, North-West Europe and Africa as a consequence of liner network changes and continued weak underlying market conditions.
Maersk Drilling delivered a profit of USD 340m (USD 184m) and a ROIC of 17.2% (9.0%). Termination fees, high operational uptime and savings on operating costs were partly offset by more idle days. Underlying profit was positively impacted by USD 210m from early contract termination of Maersk Valiant.
Maersk Drilling has benefitted from a strong contract coverage at significantly higher dayrates than offered in the current market, but the market outlook for the offshore drilling industry remains challenged, which will also affect Maersk Drilling going forward as current contracts expire and new low dayrates are adopted or rigs are idle.
APM Shipping Services reported a profit of USD 25m (USD 154m) and a ROIC of 2.1% (13.1%) negatively impacted by a loss of USD 11m (profit of USD 45m) in Maersk Supply Service and a loss in Maersk Tankers of USD 1m (profit of USD 59m).
Maersk Tankers reported a loss of USD 1m (profit of USD 59m) and a negative ROIC of 0.3% (positive 14.6%). The result was negatively affected by deteriorating market rates (decrease of 59%), partly offset by Maersk Tankers market outperformance, contract coverage and cost saving initiatives aimed at creating higher efficiencies.
Maersk Supply Service reported a loss of USD 11m (profit of USD 45m) and a ROIC of negative 2.5% (positive 10.4%). Revenue for Q3 decreased to USD 94m (USD 145m) following lower rates and utilisation as well as fewer vessels available for trading due to divestments and lay-ups. Total operating costs increased to USD 72m (USD 69m), as a result of crew redundancies partly offset by fewer operating vessels and reduced running cost. Maersk Supply Service is well on the way of reducing daily running costs by a double digit percentage compared to 2015 on a like-for-like basis.
Svitzer delivered a profit of USD 22m (USD 30m) and a ROIC of 6.9% (10.8%). Despite new terminal towage activity in Australia and Americas and higher harbour towage activity, revenue saw only marginal increase of USD 2m. Positive effects were offset by low utilisation of the terminal towage spot fleet and GBP exchange rate impact. Even with significant over-capacity and slowdown in most shipping segments, Svitzer maintained its market share in competitive ports both in Australia and Europe.
Damco delivered a profit of USD 15m (USD 20m) and a ROIC of 29.7% (30.0%). Revenue was USD 635m (USD 719m), down 12%, impacted by lower freight rates and rate of exchange movements. Margins in supply chain management improved, while freight forwarding margins remained under pressure.
The Group’s guidance for 2016
In line with previous expectations the Group still expects a result significantly below last year (USD 3.1bn) and specifies an expected underlying result below USD 1.0bn. Gross cash flow used for capital expenditure is still expected to be around USD 6bn in 2016 (USD 7.1bn).
Maersk Line still expects an underlying result significantly below last year (USD 1.3bn) and specifies an expected negative underlying result for 2016. Maersk Line expects global demand for seaborne container transportation to increase by around 2% in line with previous expectation of 1-3%.
Maersk Oil still expects a positive underlying result. A breakeven result is now expected to be reached with an oil price below USD 40 per barrel versus previously in the range of USD 40–45 per barrel.
Maersk Oil maintains an expected entitlement production of 320,000-330,000 boepd (312,000 boepd), and exploration costs significantly below last year (USD 423m).
APM Terminals still expects an underlying result significantly below 2015 (USD 626m), due to reduced demand in oil producing emerging economies and network adjustments by customers.
Maersk Drilling now expects an underlying result in line with last year (USD 732m), with a break-even result expected in Q4, versus previously an underlying result below last year.
APM Shipping Services reiterates the expectation of an underlying result significantly below the 2015 result (USD 404m) predominantly due to significantly lower rates and activity in Maersk Supply Service and weaker rates in Maersk Tankers.
The Group’s guidance for 2016 is subject to considerable uncertainty, not least due to developments in the global economy, the container freight rates and the oil price. The Group’s expected underlying result depends on a number of factors. Based on the expected earnings level and all other things being equal, the sensitivities for the calendar year 2016 for four key value drivers are listed in the table below: