A.P. Moeller-Maersk A/SA (AMKAF) Q2 2016 Earnings Call

Søren Skou – CEO

A weak bottom and top line this quarter

“we reported the result of a profit of just over $100 million. That’s a decline from last year’s second quarter of $1 billion, where we made $1.1 billion last year. That is clearly not a satisfactory result for a group of our size. It’s equally clear that the reason for the result is lower prices in all of our markets, be that container freight rates, oil prices, rig rates, charter rates in tankers and supply, and terminal rates. And it meant that our turnover was down by $1.2 billion, or 16% year-over-year.”

Strong market headwinds of low growth and excess capacity have necessitated a strategic review

“..currently we are challenged by market headwinds, as I started out talking about, in the form of low growth and excess capacity in both our industries and that has led to declining prices and declining revenue. It’s in recognizing this development and the low growth and returns that the Board of Directors decided in June to initiate a process to develop and consider strategic and structural options for the Maersk Group.”

Volumes growing faster than capacity

“on network and utilization, we grew volumes 6.9% in the quarter, we grew capacity 2.2%. So obviously, that’s in our industry quite a positive development. Our network is now almost as full as it can be. We are operating at very high utilization rates in the head-haul freights, but also our roundtrip utilization is pretty high, as high as it’s ever been. And that’s of course because a big part of the growth that we’ve had during the quarter has been in backhauls rates…In terms of utilization of our network, in the last six months, we have been able to grow volumes ahead of capacity. ”

Cutting costs is the way back to profitability for oil companies

“…any recovery from the drilling industry will depend on the oil companies starting to become profitable again, and therefore, starting to be interested in investing in new activity. And that we feel confident will happen. 11 years, 12 years ago when the oil price increased to $40, $45, we were very profitable in our oil business. Now it’s a huge problem that the oil price have decreased to $40, $45. But I’m confident that the oil companies will work through this and get cost down and become – start to have a business again even at these levels.”

The current wave of consolidation in the industry started a while back

“Well, clearly, the industry is consolidating, and I would even go as far as calling it a wave of consolidation now, that started with Hapag-Lloyd acquiring CSAV…So, there’s a clear consolidation wave in the industry in response to the poor results that many carriers have experienced not just this year, but actually over the last five years. Overall, we believe that’s positive for the industry and we do think that there is a chance that the industry will significantly consolidate over the next decade, but obviously, that’s a speculation.”

Ordering level of ships very low

“..the number of ships that have been ordered this year is very low and we’re certainly not in the industry where we need more ships. So, I consider that also positive.”

Volatility in oil prices will be reflected in results with a time lag

“..we have seen fuel price go up during the second quarter. Right now, it’s actually come down again somewhat, so we expect that we will continue to see the volatility from the oil price in our results. And if there’s a sustained increase or decrease, it will show clearly in our result with a certain time lag.”

Trond Westlie – CFO

A challenging medium-term supply side foreseen

“All-in-all, a very difficult market on supply side and also backlog is challenging so that we do foresee a challenging environment on the supply side medium-term.”