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Maersk will spin Drilling off and list it separately

Maersk has now decided to spin off Maersk Drilling as an independent entity that will be listed on then Copenhagen Stock Exchange. The future for Maersk Supply Service remains uncertain, according to Maersk's second quarter interim report Friday. Get an overview of the group's strategy progress here.

Photo: Maersk Line

Maersk has now taken the next step in its strategy to focus its business around liner shipping and the supply chain surrounding container transport.

It has been decided that Maersk Drilling will neither be sold off nor made part of a merger, but rather that the group's drilling unit will instead continue as an independent company that will be listed on the Copenhagen Stock Exchange.

"Having evaluated the different options available for Maersk Drilling, A.P. Moller - Maersk has concluded that Maersk Drilling as a stand-alone company presents the most optimal and long-term prospects for its shareholders, offering them the possibility to participate in the value creation opportunity of a globally leading pure play offshore drilling company with long-term development prospects," writes Maersk in its interim report Friday.

The plan is for Maersk Drilling to be listed during 2019, and to prepare for the public listing, the group has secured debt financing of USD 1.5 billion from a consortium of international banks.

Solution for Maersk Supply Service yet to be found

Almost two years have passed since Maersk announced the split into a Transport unit and an Energy unit. This strategy has so far led to the divestment of Maersk Oil and Maersk Tankers.

The last company for which the group needs to find a solution is offshore service carrier Maersk Supply Service. A solution was expected to be found within the two years that have almost passed, but this has not been possible, and the group is uncertain about when a solution will be found.

"The pursuit of a solution for Maersk Supply Service is continuing, however the timing for defining a solution is difficult to predict due to the challenging markets," writes Maersk.

New split

Following the split into first Transport and Energy, the group earlier this year announced a new split, in which Maersk divided its business into four areas: Ocean, Logistics & Services, Terminals & Towage and Manufacturing & Others,

Ocean, covering Maersk Line a a series of select key terminals, is the by-far biggest business area. And Ocean is also the unit that hurts the group's earnings, due to factors such as surging bunker prices.

All four areas will be developed, writes Maersk in an update about the group's strategy work.

"As part of the transformation towards becoming one integrated container, port and logistics company less dependent on freight rates, focus will over the coming years be on growing the non-Ocean part of the business disproportionately to the Ocean business."

Maersk has set out four targets for developing the overall company. First of all, ROIC (return on invested capital) must now be 8.5 percent across the cycle.

Second, annual synergies of around USD 1 billion must be realized in 2019 on the integration of transport, logistics and the port businesses combined with the business Maersk has taken over through its acquisition of Hamburg Süd.

Furthermore, Maersk must achieve a cash conversion rate of above 90 percent.

The last point in the strategy is for capex across the business to be on par with the company's depreciations.

Bottom line setback

The overall results from the group, published Friday, show a growth in revenue but a decline in earnings.

"With revenue up 24% in Q2, we continued to deliver strong growth," says Group CEO Søren Skou in the report.

Revenue grew to USD 9.5 billion in the second quarter from USD 7.7 billion in the same period last year, while the profit went the other way, sliding to USD 88 million, which was down more than 50 percent from USD 205 million in the second quarter 2017.

English Edit: Daniel Logan Berg-Munch

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