Q3 ocean volumes are expected to see a mid-single digit contraction
In Q2 2020, A.P. Moller – Maersk improved profitability across all businesses through agile capacity deployment, cost mitigation initiatives and adaption to changed customer needs. The earnings improvement was achieved despite the sharp drop in global volumes following the COVID-19 crisis.
Operating earnings improved by 25.0%, marking the eighth consecutive quarter with year-on-year improvements, driven by strong cost performance across all businesses, lower fuel prices and higher freight rates in Ocean and increased profitability in Logistics & Services.
Earnings before interest, tax, depreciation and amortisation (EBITDA) improved to US$1.7 billion, which is higher than the initial expectations in the trading update from June of an EBITDA slightly above US$1.5 billion. The EBITDA margin increased from 14.1% in Q2 last year to 18.9%.
Revenue decreased by 6.5% to US$9.0 billion, driven by a volume decrease of 16.0% in Ocean and 14.0% in gateway terminals. In Ocean, the lower volumes were partly offset by agile capacity deployment of the global network leading to lower costs, together with lower fuel prices and higher freight rates. In Logistics and Services, profitability increased through cost measures, favourable airfreight contributions and the integration of Performance Team, while Terminals & Towage showed their resilience by compensating lower volumes through cost measures.
The continued focus on improving returns showed further results with cash return on invested capital (CROIC), last twelve months improving to 12.5% from 8.9% and ROIC, last twelve months increasing to 4.7% from 1.4% in the previous year.
Looking ahead, the focus on a strong cost and capital allocation discipline will continue, and more additional cost and structural measures across the business will be taken to offset the negative impact of COVID-19 and fund the next stages of the transformation.
Maersk suspended the full-year guidance for 2020 on 20 March 2020 due to the COVID-19 pandemic, given material uncertainties and lack of visibility related to the global demand for container transport and logistics. Despite the uncertainties related to COVID-19, it now reinstates its full-year guidance for 2020 and now expects EBITDA to be between US$6.0 billion-7.0 billionn, before restructuring and integration costs.
The global demand growth for containers is still expected to contract in 2020 due to COVID-19 and for Q3 2020 volumes are expected to progressively recover with a current expectation of a mid-single digit contraction. Organic volume growth in Ocean is expected to be in line with or slightly lower than the average market growth.
The outlook and guidance for 2020 is subject to significant uncertainties related to the COVID-19 pandemic and does not take into consideration a material second lockdown phase. The guidance is also subject to uncertainties related to freight rates, bunker prices and other external factors.