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Investor Presentaiton

8 A.P. Moller-Maersk Annual Report 2020 Directors' Report Message from the Chairman and the CEO =1 Secondly, we are leveraging the financial and operational synergies between our Ocean busi- ness and our Terminals business for lower cost as well as higher productivity and asset utilisation. Owning and operating container ports enables us to control our global transhipment hubs that are crucial for the reliability and cost effectiveness of our Ocean network. And thirdly, we are building competitive advantage through technology. We are digitising the interac- tion with our customers while offering unique dig- ital products and leveraging Maersk.com, which is one of the biggest B2B transaction platforms in the world. We are standardising, automating and digitising our core processes as well as our assets, such as ships, containers, warehouses and ports, to manage fuel cost and improve visibility in sup- ply chains, while lowering the overall cost base. "We have improved our financial performance while we transformed our business." Disciplined execution enables us to perform and transform Since we embarked on our transformation to become the global integrator of container logis- tics, we have executed the strategy consistently and with discipline. Despite a backdrop of weak trade growth, ongoing trade tensions, geopoliti- cal uncertainty and a pandemic in 2020, we have improved our financial performance while we transformed our business. We achieved good results in a year with extraordi- nary demand fluctuations due to COVID-19, which led from a sharp oversupply of capacity in Q1 to a shortage of vessels and equipment in the second half as demand rebounded, leading to a signifi- cant increase in short-term freight rates. We leave 2020 with a strong balance sheet which enable us to both increase payouts to our shareholders and fund the transformation that will enable the long- term growth of the company. The work we have done over the past five years to improve the performance of our Ocean business delivered solid results in 2020. Our acquisition of Hamburg Süd in 2017, our focus on cost, and our disciplined approach to CAPEX were all contribut- ing factors to the delivery of excellent results and strong cash flow in 2020. In parallel, we developed new, unique products such as Maersk Spot, which offers loading guarantee, easy online booking and a fixed price for our short-term customers. Our Logistics & Services business delivered excel- lent margin growth in 2020 and good revenue growth, mainly through acquisitions. We restruc- tured further to reduce cost and develop end- to-end products. We began the implementation of new technology platforms and recruited new leadership and logistics experts globally. Our "Since we embarked on our trans- formation to become the global integrator of container logistics, we have executed the strategy consistently and with discipline." Logistics & Services business grew revenue to almost USD 7bn with competitive margins and a sound foundation to accelerate growth in the coming years. In Terminals, we have executed a turnaround since 2016 and the business has shifted its focus from developing new terminals to becoming a world- class terminal operator. Results and cash genera- tion have steadily improved, also in 2020, despite lower volumes. Due to strong cost performance across all segments, we now have an infrastruc- ture business with resilient returns. Continuing the transformation At the Annual General Meeting in 2020, we announced three metrics to track progress on our strategic transformation. During 2020, we progressed well despite challenging market conditions: Cash return on invested capital (CROIC), last twelve months, increased to 16.6% (10.0%), due to stronger cash flow from operations, lower gross CAPEX, and lower invested capital. Infrastructure and Logistics revenue (excl. freight forwarding) increased to USD 9.4bn (USD 9.2bn), mainly due to the acquisition of Perfor- mance Team, a leading US-based warehousing and distribution company, only partly offset by lower revenue in gateway terminals because of the impacts from COVID-19. Logistics & Services EBITDA (excl. freight for- warding) improved to USD 470m (USD 221m) as a result of margin optimisation in intermodal and supported by the acquisition of Perfor- mance Team. ROIC, which is the overall return ambition of A.P. Moller-Maersk increased to 9.4% compared to 3.1%, driven by significantly improved earnings. Strategic milestones strengthen integrated offering In 2020, we finished the restructuring of our Ocean and Logistics & Services businesses into one, integrated and simplified organisation to enable further improvements in the customer experience and end-to-end service delivery.
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