Offshore Impairments Sink Maersk Groups Profit

Maersk Line Danish shipping and energy conglomerate Maersk Group reported a loss of USD 1.9 billion in 2016, negatively impacted by impairments of USD 2.7 billion in Maersk Supply Service and in Maersk Drilling as a consequence of an expected weaker outlook. As a result of USD 1.2 billion of USD 1.5 billion of impairments seen by the respective units, the unsatisfactory loss was a turnaround from the companys profit of USD 925 million seen in 2015. Despite significant cost optimisation initiatives, Maersk Drilling and Maersk Supply Service were severely impacted by continued large scale cost reductions and project cancellations in the oil industry and the large inflow of new capacity over the last years. 2016 was a difficult year financially, with headwinds in all of our markets. However, it was also a year when we decided to substantially transform A.P. Moller Maersk for the future. We have set a new course that over the next few years will lead A.P. Moller Maersk to become a focused container shipping, logistics and ports company with the aim of growing revenue again, Søren Skou, Maersk Group CEO, said. In line with the guidance of below USD 1 billion provided in November, the companys underlying profit came at USD 711 million, down from USD 3.1 billion seen in 2015. Compared to last year, the reduction in the underlying result was driven by headwinds in all Maersk Groups markets, including losses in Maersk Line and Maersk Supply Service and lower underlying results in APM Terminals, Maersk Tankers and Svitzer, while Maersk Oil, Maersk Drilling and Damco recorded increased underlying profits. Skou added that the companys top priorities for 2017 remain integrating the Transport & Logistics businesses, taking out cost in APM Terminals and Damco, closing the Hamburg-Süd acquisition, as well as progressing the work on finding structural solutions for each of its oil and oil-related businesses. Revenue for the year decreased to USD 35.5 billion from USD 40.3 billion seen in 2015 across all eight businesses, predominantly due to lower average container freight rates and lower oil price. Operating expenses decreased by USD 2.6 billion mainly due to lower bunker prices and focus on cost efficiency across all businesses. As the demand for transportation of goods grew below expectations in the first half of the year, the freight rates suffered a significant downward pressure. In the second half of the year and especially in the fourth quarter of 2016, demand increased while deliveries of new capacity were reduced, which led to a gradual improvement of freight rates. For 2017, we expect A.P. Moller Maersk to deliver an underlying profit above 2016, mainly driven by an improvement in underlying profit in excess of USD 1 billion in Maersk Line compared to 2016, Skou said. Maersk Group expects its gross capital expenditure for 2017 to be in the range from USD 5.5 billion to USD 6.5 billion, as the company anticipates a gradual improvements in container rates.