Maersk Group Posts $200 Million Profit for Q1

Maersk Gallant (file image courtesy Maersk)

By MarEx 2016-05-04 20:58:12

On Wednesday, the Maersk Group announced a profit of $214 million. The bottom line number reflects low oil prices and container rates, but the relatively strong result demonstrates that the firm is "competitive as ever," said CEO Nils Andersen. 

The majority of its subsidiary units returned a positive underlying result. Maersk said that core businesses Maersk Line and Maersk Oil had improved performance through cost reductions, and overall, "operating expenses decreased by $1 billion, mainly due to lower bunker prices and cost saving initiatives, including lower oil exploration costs." Maersk Oil now expects a breakeven oil price in the range of $40-45, down from previous guidance of $45-55.

Maersk Oil's cost reduction measures have included 1,300 position eliminations and a salary freeze, outsourcing of administrative functions, and the unit's complete exit from the Brazilian oil market, the firm said. 

Maersk Line turned a small underlying profit of $32 million, beating expectations. Offshore rig operator Maersk Drilling improved its performance in the first quarter of 2016 year-on-year, with profit up by roughly 10 percent to about $225 million. Maersk Drilling achieved 12 percent cost reductions for the quarter, citing payroll cuts and other measures. It also benefited from $60 million from the contract termination for the rig Maersk Deliverer. For comparison, competitor Transocean posted Q1 net income of roughly the same, $249 million, a reversal of its nearly $500 million loss in the same period last year; competitor Diamond Offshore posted $87 million, up from a $250 million loss last year.  

The Maersk Group forecasts lower profits for FY2016 than achieved in 2015, and it warned that there is considerable uncertainty in the outlook due to variability in the global economy. An oil price change of +/- $10 per barrel would result in a +$300 / -$500 million change in the bottom line, and the bunker and container markets could also have marked effects. 

Asked about the state of the firm's markets, Mr. Andersen said that "both shipping and oil are cyclical industries, and when they both bottom out at the same time, of course a lot of people have a tendency to become gloomy and pessimistic. I just think we have to keep in mind that these are cyclical businesses, they will improve again, and then all the hard work we're doing now to improve our competitiveness . . . that will put us in a good place to take advantage of an upturn when it comes."

Given the firm's strong position, there may also be opportunities for acquisitions ahead. “We still have a very strong balance sheet and have plenty of liquidity reserves for unexpected and expected investments,” Andersen said. The group’s cash reserves stand at about $12 billion.