Maersk profit advances 40% on oil, shipper buys rival
Source: 29-AUG-2008 Intellasia | Bloomberg
Aug 29, 2008 - 7:00:00 AM A.P. Moeller-Maersk A/S, the world's largest container line, rose the most in almost two months after reporting profit that beat analysts' estimates and announcing a takeover that will make it the biggest shipper of oil products.

Net income rose 40% to 11.6 billion kroner (US$2.3 billion) from a year earlier as earnings nearly doubled in the oil exploration division and the shipping unit returned to profit, the Copenhagen-based company said today in a statement. Analysts surveyed by Bloomberg had predicted profit of 10.5 billion kroner. Revenue increased 13% to 148.4 billion kroner.

Maersk raised its full-year sales and profit forecasts based on advances in the Oil & Gas division, which has become the largest profit contributor after oil prices nearly doubled over the past 18 months. The company also said today it will buy Brostroem AB to surpass D/S Torm A/S in oil-product shipping. The container business remains "challenging'' because of rising fuel costs, overcapacity and a weaker dollar, it said.

"The impressive profit is driven by the oil unit, but it's also worth noting that the container line posted a good result when considering the tough market conditions they're under,'' Stephen Rammer, an analyst with Alm. Brand Henton A/S in Copenhagen, said by telephone. He recommends buying the shares.

Maersk rose 3,700 kroner, or 7%, to 56,600 kroner in Copenhagen trading, the sharpest gain since July 9. The shares have gained 4% this year, outpacing the Bloomberg European 500 Index of Europe's largest companies, which lost 22%.

Qatar, North Sea

The energy exploration unit almost doubled first-half profit to 6.47 billion kroner. It has invested in oil and gas fields offshore of Qatar, and also explores in the Danish and UK parts of the North Sea.

Maersk predicted profit before minority interests of 20 billion kroner to 23 billion kroner this year, compared with a previous range of 18 billion kroner to 20 billion kroner. Sales will be about 320 billion kroner, up from a previous forecast of 300 billion kroner, it said.

The shipper will pay 3.62 billion Swedish kronor (US$568 million) for Brostroem, creating the world's largest operator of gasoline, jet fuel and diesel tankers. The purchase will bring Maersk's combined fleet to 301 chemical and refined oil tankers, including 60 under construction.

Refining Demand

The additional tankers may help Maersk tap demand for longer-distance oil deliveries as most new refineries are being built in Asia and the Middle East, away from the US and Europe where the bulk of the fuel is consumed.

"It's a good deal for Maersk and I don't think it's good for Brostroem,'' Erik Helberg, an Oslo-based analyst at Pareto Securities ASA, said by phone. It was "surprising'' no other bidders were identified, he said.

Maersk offered 57 kronor in cash for each Brostroem share, or 10% more than the closing price yesterday. Brostroem rose 8.2% to 56 kronor.

"The scale of the combined operation will enable us to offer a superior worldwide service through a large, modern and homogeneous fleet,'' Soren Skou, Maersk Tankers chief executive officer, said in a statement. "We need scale to ensure our organisation is cost effective and for customers to have easy access to chartering offices globally.''

The fleet will have a market share of about 7% and a maximum of "11 or 12%'' in any vessel segment, he said. That should yield no European antitrust objections, he added.

Good strategy

"It makes sense from a strategic point of view,'' said Peter Rothausen, an analyst at Kaupthing Bank A/S. "They are paying a high price, which means they must get some good synergies.'' He recommends selling Maersk shares.

Maersk's fleet of tankers for refined oil products is about the same size as that of Danish rival Torm. The Brostroem acquisition will make Maersk larger, Skou said.

"The Brostroem deal is good news for consolidation of the product-tanker market'' and for Copenhagen as a shipping centre, Klaus Kjaerulff, Torm chief executive officer, said by phone. Oil companies want "bigger fleets in fewer hands to serve their needs for quality,'' he said.

Brostroem reported sales of 3.5 billion kronor last year and profit of 427 million kronor, Maersk said. The Swedish company's A-class shareholders, who control 55.9% of votes, accepted the offer, it added.

Eliminating jobs

Maersk is undertaking the biggest cost-reduction plan in its 103-year history by cutting about 15% of the labour force at the container unit. The measures resulted in one-time costs of US$164 million in the first half.

Maersk hasn't yet improved the vessel utilisation rate from a year earlier, as the container market has grown less than expected, Chief Executive Officer Nils Smedegaard Andersen said in a conference call.

"We will have to accept some loss of market share'' to improve utilisation, he said.

Maersk Line, which operates more than 500 vessels that can carry 1.7 million containers, posted a 359 million kroner profit compared with a 1.23 billion kroner loss the year before.

"The container division came in much stronger than expected,'' David Hallden, an analyst at Credit Agricole Cheuvreux in Stockholm, wrote in a note. Hallden, who rates the stock "outperform,'' said he hadn't expect the unit to be that profitable until 2011.

Global container rates were 10% higher in the second quarter than a year ago, with fuel surcharges included, Philip Damas, research director at Drewry Shipping Consultants Ltd in London. Asia to Europe rates, the most important for Maersk, rose 3%.

Second-quarter profit rose to 6.76 billion kroner from 6.52 billion kroner a year earlier, before accounting for minority interests. The figures, reached by subtracting first-quarter totals from first-half earnings, were verified by Maersk accountant Per Moeller. Revenue rose 12% to 76.5 billion kroner.

Maersk also dropped plans to sell unidentified assets worth about US$800 million after the potential buyer's interest "waned,'' Andersen said in a Bloomberg Television interview. Maersk may still sell the assets, he said.