A.P. Moller-Maersk (APMM) announced its Q3 result, adding that it intends to cut costs further this year and into 2024. In particular, it plans to reduce its workforce by 3,500, lower its capital expenditure (CAPEX) and continue with its share buy-back program.
The company states rate erosion, which has happened quicker than expected, and the oversupply of tonnage has driven revenue down this quarter. While its initial cost measures did help to buoy its financial results, by reducing its expenses further in Q4 and in 2024, APMM hopes to weather the storm of a weaker market.
The group recorded revenue for Q3 2023 of USD 12.1bn compared to USD 22.8bn in Q3 2022. Its EBIT margin for this quarter was 4.4% due to lower freight rates and volumes. This is 90% lower than the EBIT reported for the same period last year.
Another notable result is the free cash flow recorded for Q3. According to the interim report, free cash flow (FCF) was negative USD 124m compared to a positive USD 7.8bn for Q3 2022. The low result is due to decreased cash flow from its operating activities, said Maersk.
Segment performance
A large contributor to the results is Maersk's ocean business, where the company had achieved an increase in volumes of 9% and a decrease in unit costs of 11%.
However, this was insufficient to compensate for lower rate levels, particularly on the Asia to Europe, North America and Latin America trades.
EBIT for the Ocean segment was negative at USD 27m for Q3 2023, compared to USD 8.7bn in Q3 2022.
"Ocean results have reached break-even levels due to continuing challenging market conditions resulting in substantially lower freight rates compared to the abnormally high rates in 2022. The impact of lower rates was partially offset by lower operating costs, which decreased despite an increase in volumes. Cost containment remains a key focus while ensuring quality and reliability of the Ocean products," said the report.
On a positive note, Maersk's terminal business exceeded expectations with a return on investment capital (ROIC) of 10.3%, higher than its expectations of above 9% towards 2025. In this segment, the company maintained strong results using rate adjustments and cost measures.
Financial guidance for 2023
Nevertheless, A.P. Moller-Maersk maintains its full-year guidance but expects the results to be on the lower end of the range.
For 2023, it expects an EBITDA of USD 9.5-11.0bn and an EBIT of USD 3.5-5.0bn. Additionally, its guidance for free cash flow remains at USD 3bn for the full year 2023.
On the cost-saving side, CAPEX guidance is around USD 8.0bn (previously USD9.0-10.0bn) for 2022-2023 and USD 8.0-9.0bn (previously USD
10.0-11.0bn) for 2023-2024. The increase in restructuring costs to USD350m in 2023 is expected to result in a USD 600m cost saving in 2024.
