Review Credit Research 6 May 2016

Transcription

1 Review Credit Research 6 May 216 A.P. Møller - Mærsk Industry (GICS): Marine Sector (Nordea): Shipping and Transportation BBB+ Stable Key info Country Bloomberg debt Bloomberg equity Moody's S&P Market cap. (bn) Denmark MAERSK Corp MAERSKb DC Baa1/Stable BBB+/Negative USD 29.47/DKK Nordea Markets - Analysts Alexander Koefoed Analyst, Credit [email protected] Kristoffer B. Pedersen Analyst [email protected] Company data Bonds issued Coupon Amount Maersk 12/16/ % NOK 2m Maersk 3/22/217 N3M+21 NOK 3m Maersk 11/24/ % EUR 5m Maersk 2/26/218 S3M+21 SEK 11m Maersk 2/26/ % SEK 14m Maersk 3/18/219 EURIBOR+16 EUR 5m Maersk 8/28/ % EUR 75m Maersk 9/22/ % USD 75m Maersk 9/28/ % USD 5m Maersk 9/28/ % EUR 1m Maersk 11/24/ % EUR 6m Maersk 9/22/ % USD 5m Maersk 4/4/225 4.% GBP 3m Maersk 9/28/ % USD 5m Employees 9, Management Chairman of the board Michael Pram Rasmussen CEO Nils Smedegaard Andersen CFO Trond Westle Ownership A.P. Møller Holding A/S (42%) A.P. Møller og Hustru Chastine Mc-Kinney Møller Familiefond (9%) Den A.P. Møllerske Støttefond (3%) Public (46%) Company website Next reporting date 12-Aug-16 Solid numbers remove some downside risk In our view, APM realised a solid result in Q1 216, with net income of USD 224m (1,572m), down 86% versus our estimate of USD 322m but ahead of consensus at USD 16m. Net debt/ebitda of 1.3x was in line with our full-year estimate of 1.4x and we make only minor revisions to our full-year expectations. Management reiterated guidance of significantly lower results in 216 and has become more bearish on APM Terminals owing to the weak emerging markets. However, Maersk Line and Maersk Oil delivered solid results with an improving cost story and some rate resilience, removing some of the downside risk to estimates that we previously highlighted. We consider APM's bonds to besolid holdings and we still see selected value, although not as profound as before. Q1 results In Q1 216, APM beat consensus expectations thanks to the solid performance in Maersk Line and Maersk Oil. The leverage development was in line with our expectations for full-year 216. Despite smaller freight restoration rate hikes, Q1 saw positive net income levels for Maersk Line versus consensus expectations. Looking into 216 We argue that downside risk has come down a bit as the Q1 results beat consensus. Although some event risk persists, we currently consider it moderate and do not incorporate any group structure changes in our estimates. We expect EBITDA of USD 7,7bn in 216E unadjusted. Pricing We are more muted on APM bonds after the rally, but we still find selected value, eg the EUR float issue MAERSK 19 at mid-dm of 1 bp (mid z- spread of 86 bp) and the USD MAERSK 24 at a mid z-spread of 221 bp. Otherwise, we argue that bonds are good holdings, albeit with less potential in our view after spread contraction. Key credit metrics and ratios (adjusted numbers) USDm EBITDA 11,742 17,38 - margin 23% 38% EBIT 4,621 1,812 - margin 9% 24% Shareholders' equity 28,454 32,89 Debt 3,884 26,86 Debt/(Debt+Equity).5.4 FFO/Debt 14.1% 44.4% FOCF/Debt -25.3% 1.8% DCF/Debt -27.% 8.8% EBITDA interest coverage Debt/EBITDA ROC 7.7% 18.1% ,473 33% 9,886 2% 33,547 27, % 11.7% 1.4% % ,173 29% 8,45 17% 36,631 27, % -11.2% -14.6% % ,624 29% 7,986 17% 39,647 23, % 6.7% 2.7% % ,17 29% 6,482 14% 41,371 15, % 7.8% -.4% % ,16 27% 2,373 6% 35,46 18, % 7.6% -26.7% % 216E 9,631 26% 3,813 1% 34,999 2, % -3.6% -9.1% % 217E 1,126 27% 4,81 11% 35,25 22, % 2.1% -2.9% % 218E 9,861 26% 3,987 11% 36,38 24, % -5.5% -1.1% % IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets

2 A.P. Møller - Mærsk 6 May 216 Relative value We are more muted on bonds in APM after the rally, but we still find selected value including the EUR float issue MAERSK 19 at mid-dm of 1bp (mid z-spread of 86bp) and the USD MAERSK 24 at mid z-spread of 221bp. Otherwise, we argue the bonds are good holdings, albeit with less potential in our view considering the strong performance and spread contraction. Following Q1 results that beat consensus, we argue that the downside risks have come down a bit. With the current structure in APM group, we see the rating as having resilience, as we have previously highlighted. Relative value, spread to swap, bp Relative value, spread to swaps, bp MAERSK 4 3/8 11/24/17 MAERSK 3/18/19 ALFASS 9/12/19 MAERSK 3 3/8 8/28/19 VLVY 4 1/8 2/17/2 VLVY 2 3/8 11/26/19 SKFBSS 1 7/8 9/11/19 MAERSK 1 3/4 3/18/21 DONGAS 6 1/2 2 5/7/19 VLVY 5 5/31/ EUR EUR Benchmark BBB Benchmark curves EUR EUR Benchmark A Benchmark curves Source: Bloomberg and Nordea Markets Spread development EUR bonds, spread to swaps, bp bps over swaps 3 Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 MAERSK 3 3/8 8/28/19 MAERSK 1 1/2 11/24/22 MAERSK 1 3/4 3/18/21 Source: Bloomberg and Nordea Markets Spread development SEK, spread to swap, bp bps over swaps Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 MAERSK 3 3/4 2/26/18 SCANIA 7/8 12/3/18 VLVY 3 3/8 2/26/18 ASSABS /3/17 Source: Bloomberg and Nordea Markets MAERSK 3/18/19 VLVY 4 1/8 2/17/2 MAERSK 1 3/4 3/18/21 MAERSK 1 1/2 VLVY /27/24 11/24/22 8 ALFASS 1 3/8 ALFASS 9/12/22 6 9/12/19 MAERSK 3 3/8 DONGAS 2 5/8 8/28/19 4MAERSK 4 3/8 9/19/22 VLVY 2 3/8 2 11/24/17 DONGAS 6 1/2 SKFBSS 11/26/19 1 7/8 VLVY 5 5/31/17 5/7/19 9/11/ EUR EUR Benchmark BBB Benchmark curves EUR EUR Benchmark A Benchmark curves Source: Bloomberg and Nordea Markets Spread development, USD bonds, spread to swaps, bp bps over swaps 3 Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 MAERSK /22/19 MAERSK 3 3/4 9/22/24 MAERSK 2 7/8 9/28/2 MAERSK 3 7/8 9/28/25 Source: Bloomberg and Nordea Markets USD EUR spread development, spread to swaps, bp bps over swaps 2 Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 MAERSK /22/19 MAERSK 3 3/4 9/22/24 MAERSK 4 3/8 11/24/17 MAERSK 3 3/8 8/28/19 Source: Bloomberg and Nordea Markets Nordea Markets 2

3 A.P. Møller - Mærsk 6 May 216 Industry data points Container rates remain under pressure, with CCFI down 3% in the quarter y/y. We continue to see less volatile average rates for Maersk Line compared with the general market. As we also see a 13% decline for full-year 216 in Maersk Line, we expect the effects of alliances, industry consolidation, idling and higher bunker surcharges to support freight rates from here. Container rates Despite concerns in estimates ahead of the Q1 results which we argue have been based on lower rate restorations being pushed through by Maersk Line we see Maersk Line holding up rate levels relatively well compared to CCFI, which was down 3% in the quarter. Maersk Line's rate of USD 929 per TEU fell only 26% y/y. As we expect rates for Maersk Line to be down 13% for full-year 216, we expect rate restoration programmes to be pushed through to customers by the shipping liners. Container rate development, USD per TEU 1,65 1,45 1,25 1, Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16E Maersk Line CCFI SCFI Idle capacity and alliances to support The order book takes some 2% of total available TEU capacity. We see a substantial change in idling that should cushion freight rates, along with rising oil prices. Furthermore, the potential for new, more consolidated alliances and overall industry consolidation should lead to more rate stability, in our view. Many of APM's peers are bleeding cash. We argue that it is a matter of time before some stabilisation in rate declines is seen. EBIT margin performance, % Nordea Markets 3

4 A.P. Møller - Mærsk 6 May 216 Arguably, we see that Maersk Line's gap in EBIT margin relative to peers has been reduced. For the Q1 216 results, management still reported that the margin gap in Q4 has been sustained. This negative result suggests very bearish performance in the peer group. Relative performance, EBIT margin gap, % 2% 15% 1% 5% % -5% -1% -15% -2% -25% Q1 9Q3 9Q1 1Q3 1Q1 11Q3 11Q1 12Q3 12Q1 13Q3 13Q1 14Q3 14Q1 15Q3 15 Spread Sector average margin % Maersk Line margin % Idle capacity, % of fleet and TEUm Oil price, futures, USD per bbl 1,8, 1,6, 1,4, 1,2, 1,, 8, 6, 4, 2, - Jan 5, 29 Apr 13, 29 Jul 2, 29 Oct 26, 29 Feb 1, 21 May 1, 21 Aug 16, 21 Nov 22, 21 Feb 28, 211 Jun 6, 211 Sept 12, 211 Jan 5, 212 April 9, 212 July 16, 212 Nov 5, 212 Feb 25, 213 Jun 3, 213 Sept 9, 213 Dec 16, 213 Mar 24, 214 Jun 3, 214 Oct 6, 214 Jan 12, 215 Apr 2, 215 July 27, 215 Nov 2, 215 Feb 8, 216 Idle capacity, total TEUm Idle capacity, % of fleet 14% 12% 1% 8% 6% 4% 2% % Oil 5 month Dec-17 Dec-18 Source: Alphaliner and Nordea Markets Source: Bloomberg and Nordea Markets Global fleet World fleet Total Owned Chartered Orderbook Rnk Operator TEU Ships TEU Ships Avg. Size TEU Ships % Chart TEU Ships % existing Avg. Size Global fleet & Order book 2,59, 5,173 3,848, % 8,17 1 Maersk Line 3,14, ,776, ,678 1,238, % 396, % 13,215 2 MSC 2,654, ,52, ,539 1,62, % 572, % 13,319 3 CMA CGM 1,814, , ,845 1,218, % 241, % 9,676 4 COSCON 1,549, , ,472 61, % 556, % 15,9 5 Evergreen 936, , , , % 395, % 9,653 6 Hapaq-Lloyd 914, , , , % 52, % 1,5 7 Hamburg Süd 644, , , , % 39, % 4,381 8 Hanjin Shipping 611, , ,48 337, % 18,6 2 3.% 9,3 9 OOCL 565, , , , % 126, % 21,1 1 MOL 55, , , , % 14, % 17, UASC 549, , ,72 141, % 74, % 14, APL/NOL 531, , , , % - -.% - 13 Yang Ming 514, , , , % 14, % 14,4 14 NYK 498, , ,86 225, % 126, % 14, 17 HMM 43, ,8 22 7,54 238, % 4, % 1,55 16 K Line 375, , , , % 69, % 13,87 17 PIL 347, , ,448 49, % 141, % 11,8 18 ZIM 347, ,53 7 4, , % - -.% - 19 Wan Hai 212, , ,374 43, % - -.% - 2 X-Press Feeders 134, ,1 18 1, , % - -.% - 21 KMTC 17, , ,679 65, % 8, % 1,64 22 IRISL 96, , , % 2, % 2,288 Top 1 Total /avg. 13,257,176 2,597 6,52,3 1,16 6,4 6,755,173 1, % 2,54, % 12,455 Top 3 Total /avg. 7,483,883 1,522 3,424, ,36 4,59, % 1,211, % 12,358 - % of total 37.3% 29.4% 31.5% 2.8% Source: Alphaliner and Nordea Markets Nordea Markets 4

5 A.P. Møller - Mærsk 6 May 216 Old market structure Expected market structure Source: Alphaliner and Nordea Markets Nordea Markets 5

6 A.P. Møller - Mærsk 6 May 216 Looking ahead into 216 We argue that the downside risk has declined a little following Q1 results that beat consensus. Although some event risk still exists, we consider it moderate at present and do not build any group structure changes into our estimates. We expect to see 216 EBITDA of USD 7.7bn. Expectations for full-year 216 results We expect the group to report EBITDA of USD 7.7bn for 216 and find comfort in the fact that the Q1 results beat consensus despite falling short of our expectations with net income of USD 224m (consensus of USD 16m versus our USD 322m forecast). This should translate into net debt/ EBITDA of 1.4x (.9x) for 216E. In Q1, this metric was 1.3x, which we believe aligns with our expectations for the full year. Despite some setbacks in APM Terminals owing to weak African and South American economies, we take comfort in the solid Maersk Line and Maersk Oil results, thanks to volume growth, freight rate resilience and entitlement production (Qatar PSA contract leading to higher production from a lower oil price). We argue that the performance in Maersk Line confirms the cost story and we see upside from higher utilisation and load factors going forward. Changes to estimates from the Q4 215 credit report USDm E Old 216E Change % change Transported volumes, FFEm % Average rate, USD / FFE 229 1, % Average fuel price, USD per tonne % Exploration costs, USDm % Entitlement production bbl per day, ' % Average crude oil price, USD per bbl % Containers handled, TEUm % EBITDA 974 7,676 7,6 76 1% Maersk Line ,942 3, % Maersk Oil ,26 1, % APM Terminals % Maersk Drilling ,131 1,131 - % Net debt ,657 1, % Net debt / EBITDA % New issue considerations We see net financing needs of USD 1.5bn for 216 in addition to around USD 2bn in repayments during the year. Based on raised capital of around USD 1.6bn in Q1, we could see additional financing considering the repayment needs and capex guidance of USD 7bn. We would not be surprised by new issues coming to the market, although we note that the net cash position of USD 3.6bn and total liquidity reserve including undrawn facilities of USD 11.9bn still accommodate financing needs. Management has been more verbal about the EUR and USD bond markets as sources of financing. Addressing event risk and Qatar tender We argue that the loss of the Qatar tender and lack of replacement of these producing assets (until Johan Sverdrup comes on line in 22) will dilute diversification in APM and that it may lose the diversification benefit that the rating currently enjoys (both our shadow rating and those of the rating agencies). Although it is not clear-cut, we believe this is a reasonable assumption in light of the divestments made in recent years. Further divestments may lead to such dilution in APM's diversification profile. Our base case estimates do not incorporate a renewal of the Qatar contract and we see supporting factors for the diversification benefit for APM in such circumstances. Nordea Markets 6

7 A.P. Møller - Mærsk 6 May 216 Expected group EBITDA diversification without Qatar, Al Shaheen renewal 9% 1% 3% 1% 1% 5% 42% 3% 15% Oil Drilling and services Shipping Terminals Freight forwarding Other 48% 25% 11% Source: Company data, S&P and Nordea Markets Based on the reasonably diversified divisions going into 217 and not assuming a Qatar renewal (our base case), we argue that this diversification will be upheld for the coming years, except if the board of directors should choose to continue divestments, including core operating entities such as Maersk Oil. Looking at EBITDA dispersion between the units, we argue that our 217 segmentation is commensurate with S&P thresholds for diversified operations (no unit accounts for more than 5% or less than 1%). Maersk Line We make minor adjustments to our volume growth expectations for Maersk Line and see 19.4bn TEU being transported in 216, up 2% on account of the strong Q1 growth of 7% in transported containers. The average freight rate for 216 suggests a 13% decline compared with 215 but Maersk Line showed resilience in Q1 despite achieving organic growth. We had feared that fewer rate hikes compared with peers could emphasise the downside risk in Maersk Line but following Q1 (beating consensus), this risk appears to have declined. As management still expects the result to fall significantly short of last year's level, we do not see Maersk Line as out of the woods yet and we probably still need to see stabilisation in freight rate declines possibly driven by a higher oil price and industry consolidation. A higher oil price would also have a positive effect on the African and South American economies with dependency on trade to the oil price. In these markets, Maersk Line holds strong market shares and has historically had very profitable trade lanes. Maersk Line's fleet growth, y/y Source: Company data, Alphaliner and Nordea Markets As in previous years, we find support in our estimates from a strong cost story, where load factors can have a substantial effect on profitability. We argue this has been the partial contributor to Q1 beating consensus and we observe that fleet growth has come down considerably since end-214, Nordea Markets 7

8 A.P. Møller - Mærsk 6 May 216 and chartered vessels continue to fall (down to 318 in Q1 from 355 for the same period last year). Maersk Oil Maersk Oil reported an increase in reserve levels and higher entitlement production from subdued oil price. We argue that lower exploration and operation costs led to the solid result and we expect EBITDA of USD 2bn for the full-year 216. We have seen reserve levels come up as of end-215 from the Johan Sverdrup oil field in North Sea, although we would expect levels to come down should the Qatar tender not be successful for Maersk Oil. This is what we currently incorporate in our estimates. Changes to estimates, adjusted numbers 216E 217E 218E Total revenue 1% -1% -1% EBITDA 1% % -1% Debt/EBITDA 1% 1% 1% FFO/Debt -1% 1% 2% Reserve data for Maersk Oil, mmboe mmboe Proved reserves (1P) Probable reserves Proved and probable reserves (2P) Contingent resources (2C) Reserves and resources (2P+2C) 1,384 1,359 1,473 1,311 1,141 Production mboe Net change in proven reserves RRR (%) -35% -21% -71% 71% Financials and credit metrics with sensitivity analysis Credit adjusted figures Base case Rate suppression scenario analysis USD(m) E 217E 218E E 217E 218E Revenues 5,258 45,559 49,917 49,491 47,386 47,569 4,38 36,471 37,53 37,547 4,38 34,823 34,923 35,63 EBITDA 11,742 17,38 16,473 14,173 13,624 14,17 11,16 9,631 1,126 9,861 11,16 6,55 7,947 8,177 - margin 23% 38% 33% 29% 29% 29% 27% 26% 27% 26% 27% 19% 23% 23% Debt 3,884 26,86 27,758 27,228 23,536 15,621 18,165 2,834 22,419 24,782 18,165 22,812 24,59 26,124 Equity 28,454 32,89 33,547 36,631 39,647 41,371 35,46 34,999 35,25 36,38 35,46 34,65 35,32 35,84 FFO 4,346 11,594 8,723 9,598 9,546 1,68 9,531 8,214 8,575 8,378 9,531 5,447 6,436 6,615 Change in NWC , OCF 3,48 11,95 1,269 5,972 9,419 1,238 9,341 8,2 8,741 8,698 9,341 3,697 6,436 6,621 Capex -1,875-9,137-7,7-9,3-7,84-9,25-7,951-8,759-8,264-1,54-7,951-7,614-8,14-7,614 FOCF -7,827 2,814 3,261-3,58 1,579 1,213 1, ,355 1,389-3,917-1, Net acquisitions 1, ,912 2,472 5,814 5,814 Dividends ,279-6,238-1,131-1,13-1,15-6,238-1, FFO/debt 14.1% 44.4% 31.4% 35.3% 4.6% 64.5% 52.5% 39.4% 38.2% 33.8% 52.5% 23.9% 26.2% 25.3% FOCF/debt -25.3% 1.8% 11.7% -11.2% 6.7% 7.8% 7.6% -3.6% 2.1% -5.5% 7.6% -17.2% -6.4% -3.8% DCF/debt -27.% 8.8% 1.4% -14.6% 2.7% -.4% -26.7% -9.1% -2.9% -1.1% -26.7% -22.4% -6.6% -4.6% Debt/EBITDA EBITDA/interest 648.1% 938.3% 974.9% 95.8% 997.3% % % 137.5% 173.5% 967.1% % 724.7% 796.% 771.5% Nordea Markets 8

9 A.P. Møller - Mærsk 6 May 216 Rating considerations We reiterate our shadow rating of BBB+ with a Stable outlook and make only minor adjustments to our estimates. We currently see credit metrics commensurate with an Intermediate financial risk profile. Although leverage is expected to rise into the forecast period , we argue APM holds rating resilience from financial flexibility as we have previously flagged. This flexibility comes both from adjustment possibilities for capital expenditures and dividends/buybacks. The credits metrics continue to be commensurate with an Intermediate financial risk profile Credit metric development We continue to expect an increase in leverage for APM, although our estimates seem comfortable with current financial risk profile. In 216, we expect FFO/debt to fall to 39% (53%) and net debt/ebitda to rise to 2.2x (1.6x) which we argue underscores the solid levels from APM in terms of credit metrics that are well within an Intermediate financial risk profile. Furthermore, we see lenient interest coverage ratios and note flexibility in the capital expenditure programme, with guidance of USD 7bn for 216 (with only USD 1bn in new building capex commitments and around USD 2.4bn in APM Terminals from Grupo Maritim TCB and a maximum of USD 2.2bn in Maersk Oil). Furthermore, we see flexibility with adjustments from share buybacks; we currently incorporate USD 1bn into both 216E and 217E. Such share buybacks are subject to uncertainty and we underscore the Board of Directors' discretion. Therefore, should oil prices and freight rates due to recessionary pressure, we argue that such flexibility can cushion the credit worthiness of APM. FFO/debt and financial risk profile thresholds, % 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% E FFO/debt FRP, Significant Source: Company data, S&P and Nordea Markets FFO/debt, credit case FRP, Aggessive Nordea Markets 9

10 A.P. Møller - Mærsk 6 May 216 Debt/EBITDA and financial risk profile thresholds, x 5. x 4. x 3. x 2. x 1. x. x E Debt/EBITDA FRP, Significant Source: Company data, S&P and Nordea Markets Debt/EBITDA, credit case FRP, Aggessive APM benefits from: Conglomerate status with diversified business operations in oil, shipping, drilling and terminal businesses Leading market shares, modern fleets, operational up-time and abovepeer profitability A strong financial risk profile with ample cash flow generation and financial flexibility in its capex programme and dividends Management commitment to a stronger investment grade profile A strong cash position with solid undrawn credit lines An excellent operational record The credit is challenged by: Exposure to highly cyclical industries Medium to high event risk as the group has historically grown through mergers and acquisitions Reduced oil production in the forecast period (216-18) suggests limited diversification benefits if the production gap is not closed through asset or equity investments into oil or other strategic business areas The possibility of further divestments or amendments to the group strategy and/or structure of emphasising its conglomerate status We reiterate our BBB+ shadow rating with a Stable outlook We believe that APM will maintain a Satisfactory business risk profile and we find comfort that 216 guidance does not fall outside our previously outlined stressed forecasts. Our forecasts for point to an Intermediate financial risk profile and we believe that APM should still be treated as a conglomerate and receive a one-notch higher preferential treatment on account of its diversification benefits. Our shadow rating is therefore reiterated at Nordea BBB+ with a Stable outlook. Expected APM group EBITDA diversification without Qatar, Al Shaheen renewal 9% 1% 3% 1% 1% 5% 42% 3% 15% Oil Drilling and services Shipping Terminals Freight forwarding Other 48% 25% 11% Source: Company data, S&P and Nordea Markets Nordea Markets 1

11 A.P. Møller - Mærsk 6 May 216 Financial risk profile Core ratios Supplementary coverage ratios Supplementary payback ratios FFO/debt Debt/EBITDA FFO/Cash interest(x) EBITDA/interest(x) CFO/debt(%) FOCF/debt(%) DCF/debt(%) Minimal >6 <1.5 >13 >15 >5 >4 >25 Modest Intermediate Significant Aggressive Highly leveraged <12 >5 <2 <2 <1 <5 <2 Source: Company data, S&P and Nordea Markets Rating matrix without uplift from diversification Business risk profile Financial risk profile Minimal Modest Intermediate Significant Aggressive Highly leveraged Excellent aaa/aa+ aa a+/a a- bbb bbb-/bb+ Strong aa/aa- a+/a a-/bbb+ bbb bb+ bb Satisfactory a/a- bbb+ bbb/bbb- bbb-/bb+ bb b+ Fair bbb/bbb- bbb- bb+ bb bb- b Weak bb+ bb+ bb bb- b+ b/b- Vulnerable bb- bb- bb-/b+ b+ b b- Source: Company data, S&P and Nordea Markets Some thoughts on S&P's and Moody's outlooks On February 19, 216 S&P changed outlook to Negative from Stable on APM although we note the wording from the S&P analyst: A negative rating action could arise if the economic downturn persists and becomes more severe than we currently anticipate, placing considerable strain on Maersk's profitability and cash flows. With an EBITDA adjusted expectation of USD 8.2bn-8-8.8bn against our estimate of 9.6bn and consensus of USD ~9bn adjusted, we argue that this scenario appears more remote. We therefore argue in favour of our rating assessment. S&P leverage development % 6% 5% 4% 3% 2% 1% % Nordea's estimate FFO/Debt Source: Company data, S&P and Nordea Markets Debt/EBITDA (S&P) FFO/Debt, S&P Moody's changed outlook to Stable from Positive on February 19, 216 with the wording: Downward pressure on the rating could result if Maersk's debt/ebitda ratio increases above 2.25x and FFO interest coverage decreases to below 1x over a prolonged period of time. With estimates closing into these thresholds, we see some lag time before a change in outlook should it materialise, considering the levels need to be sustained over a 'prolonged period of time'. Nordea Markets 11

12 A.P. Møller - Mærsk 6 May 216 Moody's financial leverage development E 217E 218E Nordea's estimate Debt/EBITDA (Moody's) Source: Company data, Moody's and Nordea Markets Nordea Markets 12

13 A.P. Møller - Mærsk 6 May 216 Result in Q1 In Q1 216, APM beat consensus expectations thanks to solid performances in Maersk Line and Maersk Oil. We see the leverage development aligning with our full-year expectations. Following smaller freight restoration rate hikes, another quarter of negative net income levels in Maersk Lines was feared. Q1 showed resilience to freight rates compared with CCFI, though, as has also been evidenced historically. Moreover, the cost story is still alive. Maersk Oil increased its entitlement production level and its guidance is now for a lower oil price breakeven price than initially communicated with the 215 report. Overall view on the report APM realised group net income of USD 224m (1,572m), down 86%, versus our estimate of USD 322m (but ahead of consensus at USD 16m) for Q EBITDA was USD 1,597m (2,57m), down 38%, compared with our USD 1,692m forecast (still ahead of consensus for USD 1,442m). The weaker performance is attributable to the low oil price and freight rates, aligned with our expectations, as well as a weaker-than-expected volume development in APM Terminals. The EBIT margin gap to peers remains subdued, as oil prices and bunker fuel costs are at low levels (giving a relative advantage to peers less fuel-efficient vessels) but management states that the gap from Q4 has continued. Net interest-bearing debt increased to USD 1.6bn (7.6bn) from low operating profit and capex relating to the TCB acquisition in APM Terminals. Net operating cash flow came in at USD 25m (1,95m) owing to a settlement dispute plus lower operating income. This translates into net debt/ebitda of 1.3x. For full-year 216, we expect net debt/ebitda of 1.4x (.9x). Overall, leverage was in line with our expectations for Q1 at 1.3x, versus the 1.4x forecast for the full year Still management support to maintaining a " strong Investment Grade rating" Overall, the report is aligned with our expectations on leverage development and management reiterate its outlook guidance for 216 and expects a result 'significantly below 215' despite becoming more muted on APM Terminals result guidance (now expect 'lower result') as a result of weaker than expected African and South American economies. Changed wording on rating commitment We note that management has changed its wording somewhat and now states its intention to maintain a "strong Investment Grade level" from specifically mentioning the current BBB+ rating level before (both our shadow rating and the rating from S&P). We argue that financial flexibility and the new wording point to both a willingness and ability to support financial strength and credit metrics commensurate with the current rating level, except if changes to strategy and/or further divestments (or other loss of business units) make it impossible to do so. Management guidance largely unchanged Management reiterated guidance with the expectation of realising net income significantly below the 215 level. However, APM Terminals has turned more cautious in its guidance and now expects its 216 result to be below the 215 level. On the other hand, Maersk Oil expects a lower break-even oil price of USD 45-5 per boe (45-55) and higher production of 32,-33, barrels (315,) from the Qatar and UK production fields. Maersk Line results Maersk Line s transported volumes were up 7% to 2,361m FFE (2,27m) in Q1, driven, we believe, by aggressive pricing, but not as much as downside risk implied. The average freight rate of USD 1,857 per FFE (2,493) was down 26% (compared with the CCFI index, which dropped Nordea Markets 13

14 A.P. Møller - Mærsk 6 May 216 3%), so we expect rates in Maersk Line to come down by 13% for 216. Unit costs per FFE were USD 2,6 (2,449), down 16%, which we see confirming the cost story and we expect unit costs to be brought down 13% for the full year. We note the chartered fleet declined a further 5% to 318 vessels (335). Maersk Line realised EBITDA of USD 486m (1,22m) down 6% versus our estimate of USD 67m (consensus for USD 387m). Maersk Oil results Maersk Oil's cash flow from operations has been impacted by a one-off settlement dispute that is otherwise undisclosed in the statements. The average crude oil price was USD 34 per boe (54) with total daily production of 35, boe (34,) owing to from the low oil price driving higher production in Qatar under the PSA contract. EBITDA was down 29% to USD 421m (59m) compared with our USD 36m forecast (consensus for USD 292m) on account of lower exploration and higher operating costs. Maersk Oil is well under way to reducing costs other than exploration, and aims to cut costs by 2% in 216 compared with the 214 level. Costs were down in the quarter by 21% y/y to USD 57m (724m). Management's focus has been on freezing salary levels as well as procurement and administration costs and will remain so. A more lenient tax regime in the UK should also support earnings (down 1 pp from 5%). Nordea Markets 14

15 A.P. Møller - Mærsk 6 May 216 Reported numbers and forecasts Income statement USDm Total revenue -growth Gross profit - margin EBITDA - margin EBITA - margin EBIT - margin Net finance Pre-tax profit Taxes Net profit, continuing operations Discontinued operations Net profit to equity 29 5, % 37, % 9, % 4, % 3, % -1,459 2,877-3, , , % 35, % 15, % 1, % 1, % -1,14 9,57-4,518 4, , , % 37,93 76.% 14, % 9, % 9, % -1,26 8,282-5,932 2,44 1,27 2, , % 36, % 11, % 7, % 7, % ,914-3,161 3, , , % 27, % 11, % 6, % 7, % -78 6,62-3,237 3, , ,569.4% 28, % 11, % 7, % 5, % ,311-2,972 4,366 2,856 5, , % 24, % 9, % 4, % 1,87 4.6% -66 1, , E 36, % 32, % 7, % 2,91 8.% 3, % , ,4 2,9 217E 37,53 2.8% 33, % 8, % 3, % 3, % , ,491 2, E 37,547.1% 33, % 7, % 3, % 3,56 9.3% , ,445 2,33 EBITDA (credit adj) EBIT (credit adj) Interest expense (credit adj) 11,742 4,621-1,812 17,38 1,812-1,845 16,473 9,886-1,69 14,173 8,45-1,491 13,624 7,986-1,366 14,17 6,482-1,171 11,16 2, ,631 3, ,126 4, ,861 3,987-1,2 Balance Sheet USDm Goodwill Other intangibles Tangible assets Shares associates Interest bearing assets Deferred tax assets Other non-interest bearing non-current assets Other non-current assets Non-current assets ,898 45,864 4,578 1,7 1,363 55, ,2 43,357 4, , ,19 44,352 5, , ,94 43,844 8, ,124 58, ,788 41,293 8, ,23 56, ,818 44,671 4, , ,922 43,999 4, ,39 216E 2, ,149 4, ,88 217E 2, ,758 4, , E 2, ,375 4, ,731 Inventory Accounts receivable Other current assets Cash and cash equivalents Current assets 1,812 3,773 3,615 2,68 11,268 1,854 4,216 3,56 4,65 14,235 2,24 4,45 2,552 4,454 13,651 2,274 5,349 2,935 2,982 13,54 1,251 4,629 8,877 3,571 18,328 1,139 4,77 1,834 9,175 16, ,476 1,87 4,891 11, ,519 1,824 3,542 9, ,6 1,5 2,962 8, ,529 1,52 1,444 7,451 Assets held for sale Total assets 66,641 66,677 7,444 72,396 74,59 68,844 62,48 63,713 64,773 67,182 Shareholders equity Minority interest 28,722 1,948 32,35 2,3 33,792 2,398 36,896 2,428 39,829 2,684 41, , , , , Deferred tax Convertible debt Long term interest bearing debt Non-current liabilities Pension provisions Other long-term provisions Other long-term liabilities Non-current liabilities 1,16 18, ,93 23, , ,965 2,19 1,46 16, ,212 22,68 1,149 16, ,48 21,36 1,11 12, ,189 18, , ,642 17, , ,539 17, , ,664 18, , ,774 19, , ,974 21,118 Short-term provisions Accounts payable Other current liabilities Short term interest bearing debt Current liabilities Liabilities for assets held for sale Total liabilities and equity 5,966 3,791 2,331 12,88 66,641 5,998 3,986 2,249 12,233 66,677 6,48 3,174 2,532 12,186 7,444 6,138 3,445 2,129 11,712 72,396 5,379 5,1 3,41 13,52 74,59 5,277 2,913 1,412 9,62 68,844 5,15 3,141 1,335 9,491 62,48 4,376 3,499 1,335 9,211 63,713 4,313 3,217 1,335 8,865 64,773 4,318 3,296 1,335 8,949 67,182 Cash and cash eq (credit adj) Total assets (credit adj) Shareholders equity (credit adj) Debt (credit adj) ,135 28,454 3,884 1,151 73,723 32,89 26,86 1,114 77,476 33,547 27, ,93 36,631 27, ,471 39,647 23,536 2,294 69,456 41,371 15,621 1,223 65,614 35,46 18, ,931 34,999 2, ,426 35,25 22, ,974 36,38 24,782 Nordea Markets 15

16 A.P. Møller - Mærsk 6 May 216 Cash flow statement USDm EBITDA Adj due to change in group structure Change in Provisions Other non-cash adjustments Net financials Dividends received Paid taxes Other Operating cash flow before NWC Change in NWC Operating cash flow CAPEX Free Operating cash flow Dividends paid Share issues / buybacks Discretionary cash flow Other investments / divestments Other Proceeds from sale of assets Net change to group borrowing/repayments Other Change in cash 29 9, ,174 3, ,519-9,642-6, , , , , ,18 1, ,39-7,34 2, ,363 3, , , ,491 8, ,317-5,59 2, , , , , ,95 5, ,336-7,83-3, ,385-1,2-1, , , , ,575 7, ,854-7, ,234-1,217 1, , ,289 7, ,755-8, , , ,515-2,888 2, , ,473 6, ,229-7, , ,921 5, , E 7, , ,656-7, ,131-1, -2,82-3 1,5-1,35 217E 8, , ,395-6, ,13-1, -1, , E 7, , ,352-8,64-1,288-1,15-2, , -1,468 Adjusted metrics Funds from operations (FFO) (adj) Operating cash flow (OCF) (adj) Free operating cash flow (FOCF) (adj) Discretionary cash flow (DCF) (adj) 4,346 3,48-7,827-8,338 11,594 11,95 2,814 2,3 8,723 1,269 3,261 2,887 9,598 5,972-3,58-3,976 9,546 9,419 1, ,68 1,238 1, ,531 9,341 1,389-4,849 8,214 8, ,888 8,575 8, ,378 8,698-1,355-2,55 Key ratios Profitability ROC ROIC after tax ROE after tax Debt & Interest coverage FFO/Debt FOCF/Debt DCF/Debt EBITDA interest coverage FFO cash interest coverage Leverage Debt/EBITDA Equity ratio Debt/(Debt+Equity) Capital expenditure CAPEX/Depreciation and amortisation CAPEX/Sales Working capital ratios Inventory turnover (days) Receivables turnover (days) Days sales outstanding (days) Per share data EPS EPS (adj.) DPS BVPS Equity valuation and yield Market cap. Enterprise value P/E P/BV EV/Sales EV/EBITDA Dividend yield Payout ratio % -3.4% -4.8% % -25.3% -27.% % , ,2 47,63 n.m % n.m % 1.9% 15.4% % 1.8% 8.8% % , ,969 5, % 1.9% % 5.5% 8.6% % 11.7% 1.4% % , ,113 4, % 13.2% % 8.2% 1.6% % -11.2% -14.6% % , ,89 42, % 24.5% % 7.6% 9.% % 6.7% 2.7% % , ,779 54, % 27.4% % 7.2% 12.3% % 7.8% -.4% % , ,64 43, % 25.5% % 6.5% 2.1% % 7.6% -26.7% 11.9 n.m % , ,281 32, % 788.6% 216E 7.% 5.3% 6.% 216E 39.4% -3.6% -9.1% E %.4 216E E E , E 29,466 36, % 54.1% 217E 7.2% 6.% 6.7% 217E 38.2% 2.1% -2.9% 1.7 n.m. 217E %.4 217E E E , E 28,428 37, % 48.% 218E 6.7% 5.7% 6.4% 218E 33.8% -5.5% -1.1% E %.4 218E E E , E 28,428 39, % 49.9% Nordea Markets 16

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18 A.P. Møller - Mærsk 6 May 216 Analyst Shareholding Nordea Markets analysts do not hold shares in the companies that they cover. No holdings or other affiliations by analysts or associates. Market-making obligations and other significant financial interest Nordea Markets has no market-making obligations in A.P. Møller - Mærsk. Recommendation definitions Outperform Over the next three months, the fixed income instrument's total return is expected to exceed the total return of the relevant benchmark. Market perform Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark. Investment banking transactions Nordea Markets has no ongoing or completed public investment banking transactions with A.P. Møller - Mærsk. In view of Nordea s position in its markets readers should however assume that the bank may currently or may in the coming three months and beyond be providing or seeking to provide confidential investment banking services to the company/ companies Underperform Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark. All research is produced on an ad hoc basis and will be updated when the circumstances require it. Distribution of recommendations Recommendation Outperform Market perform Under perform Total As of 1 October 215 Count % Distribution 19% 52% 29% 1% Distribution of recommendations (transactions)* Recommendation Outperform Market perform Under perform Count % Distribution Total 28 As of 1 October 215 * Companies under coverage with which Nordea has ongoing or completed public investment banking transactions. 22% 64% 14% 1% Issuer Review This report has not been reviewed by the Issuer prior to publication. Nordea Bank AB (publ) Nordea Bank Danmark A/S Nordea Bank Finland Plc Nordea Bank Norge ASA Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Hamngatan 1 Strandgade 3 (PO Box 85) Aleksis Kiven katu 9, Helsinki Essendropsgate 7 SE Stockholm DK-9 Copenhagen C FI-2 Nordea N-368 Oslo Sweden Denmark Finland Norway Tel: Tel: Tel: Tel: Fax: Fax: Fax: Fax: Reg.no Reg.no Reg.no Reg.no Stockholm Copenhagen Helsinki Oslo