AP Moller-Maersk’s progress in cutting costs reassured investors on Friday, lifting its shares despite the Danish shipping and oil giant reporting a sharp fall in net profit and sticking to a downbeat forecast for 2016.
Maersk fired its chief executive in June and replaced him with Soren Skou, head of Maersk Line, indicating it could split it into separate companies and sell off part of the group, including its oil division, as it struggles to cope with a shipping recession and tough oil markets.
The group is fighting to remain the world's leading container shipping carrier as a wave of mergers and acquisitions, particularly in Asia, creates new challengers.
Maersk’s net profit fell 90 per cent to $101 million in April to June, amid significantly lower container freight rates, and it stuck to a profit forecast of an underlying profit for 2016 significantly below last year’s $3.1 billion.
‘Unsatisfactory’
Although Skou called the results “unsatisfactory”, Maersk shares were 5.25 per cent higher at 7.30am as investors focused on its progress in reducing costs.
“Cost reductions and operational optimisations . . . made a significant contribution to mitigating the impact of the negative market conditions,” Skou said in a statement.
The group reported a second-quarter operating profit of $656 million, above the $525 million figure forecast in a Reuters poll, while the net profit lagged expectation.
"Some numbers in the report are better than feared, and they did not cut profit guidance as some had expected," analyst Michael Friis Jorgensen from Alm Brand Markets said about the share price reaction.
Strategy review
However, the chief executive declined to comment on the work being done on Maersk’s strategy review, saying it is still planning to publish the results before the end of the third quarter.
Maersk Line, the world’s largest container shipper and the group’s biggest business unit, reported a loss of $151 million while expectations were for a loss of $67 million.
“Maersk Line has reduced costs by 15 per cent but it has not been enough to match a drop of 24 per cent in freight rates,” Skou said.
About 150 container vessels are expected to be scrapped in 2016, but it will not be enough for an industry battling over capacity, low demand and falling rates, consultancy firm Drewry said in July, with an imbalance between demand and supply expected to persist for years.
Maersk is not alone in struggling with the industry downturn. German container shipping group Hapag-Lloyd said on Wednesday it dropped to a first-half operating loss of €39.7 million as disappointing freight rates hurt its business.
Market speculation has focused on DSV as a potential buyer of Maersk's Damco unit. Maersk could also pursue a takeover itself as peers including Hapag Lloyd and CMA-CGM have already acquired rivals to boost their market positions in core areas including Asia and South America.
- (Reuters)