Carnival reports
strong Q4 for 2016

dsc00679-fill-600x450Carnival Corporation reported on 20th December that the fourth quarter income for 2016 had increased from $270 million to $609 million, year on year. Ticket sales, onboard spending and bookings for shore excursions all rose significantly. Overall the corporation posted a record $2.8 billion profit for the full fiscal year 2016.

Arnold Donald, President and CEO for Carnival, stated that capacity would increase a further 2.6% next year. The CFO, David Bernstein, reported that bookings for 2017 were well ahead of 2016. The fourth quarter saw the introduction of Carnival’s Carnival Vista, Holland America’s Konigsdam and Seabourn’s luxury Seabourn Encore. Also in the quarter three new cruise ships were ordered from Meyer Werft, to be powered by LNG, two for Carnival Cruise and one for P&O.

156925Expenses were up on last year, with increases in payroll, fuel costs, food and overall operating costs affecting final profits. Donald reported: “We are anticipating another solid year in 2017… the underlying strength in out fundamental business leaves us well positioned to achieve sustained double digit return on invested capital”. It was agreed that China was a developing market, with a number of charters and sub-charters to be completed. Carnival was also actively looking to include Cuba in its programme, and had applied for authorisations for at least one of the Carnival brands to be approved by June 2017.


Maersk announces new strategy to split business

maersk-triple-e-containershipThe CEO of Moller-Maersk, Soren Skou, announced on 12th December that the new strategy for the company would be to separate its energy activities from the transport and logistics operations. His plan is to develop the transport area for containerships. At first glance this seems odd, given the recent rally in oil prices and forthcoming deals with OPEC to control global output.

The container business has seen a serious deterioration in earnings this year, with the slump expected to continue for some time yet. Maersk has introduced a number of cost-cutting measures this year, which have helped reduce its losses significantly, but for the new strategy to work effectively, much more will need to be done. Freight rates have risen slightly recently, which will help, but there’s no guarantee that rates will improve further in the near future.

The purchase of Hamburg-Süd reported here recently should help, too, but it is uncertain how quickly this will show in the books. The principal problem facing all companies in the containership market is that there is excess capacity available, with several new ships on order or nearing completion. Scrapping or mothballing many of the less-efficient vessels would help reduce this, but it seems uncertain which company will blink first and accept their losses are too much. Maersk themselves believe that it will be 2022 before capacity will exceed supply.

Although Skou is slashing capital expenditure it is not clear that this will help long-term. He is expecting the average return on capital to increase from 7% up to 8.5%, but over an extended time scale. This may yet not be enough to reassure investors.

Moller-Maersk’s credit rating was put under review last September by Moody’s, and on 20th December was downgraded from BAA1 to BAA2, with a negative outlook. Last month Standard & Poor downgraded the company’s credit rating to BBB, with a negative outlook. Maersk acknowledged that its debt to operating profit ratio had climbed to 2.5 over the 12 months to the end of September. The company plans to reduce its capital expenditure from $6 billion in 2016 to $4 billion by 2018, and is looking at reducing the annual dividend again.

maersk-responsible-ship-recycling-india-1As part of the company’s planned savings, it is to scrap eight panamax ships in yards at both Alang and in China. Several are already being demolished, with the others to follow by mid-March 2017. They plan to reduce their fleet still further, as ships reach the end of their economic life. However, Maersk is committed to only using yards that meet or exceed the Hong Kong Convention on standards and safety.