COPENHAGEN (Reuters) - Denmark’s A.P. Moller-Maersk (MAERSKb.CO) is stepping up investment in its oil, ports and drilling businesses to cut its exposure to a container shipping industry it expects to remain a victim of overcapacity and sluggish economies.
The oil and shipping group’s containers unit Maersk Line swung back to profit in the second quarter but has for years wrestled with the sector’s falling freight rates and glut of vessels - a trend which is set to continue, it said.
A change in strategy would see “significant” investments in areas such as oil exploration, the group said on Tuesday as it opened its doors for the first time in its 108-year history to invited analysts, investors and media.
The group’s three other core businesses Maersk Oil, APM Terminals and Maersk Drilling, will in future benefit from a combined 50 percent of the group’s total investment from its present 34 percent, it said.
Its Maersk Oil unit, in particular, would receive substantial investment, it added.
“The group is facing significant investments to grow our business and has undrawn facilities of $10 billion,” said Chief Financial Officer Trond Westlie.
Investment in its container unit Maersk Line, meanwhile, would be reduced to between 25-30 percent from its current 38 percent.
“We will aim for more stable results,” Chief Executive Nils Smedegaard Andersen said, adding the group aimed to deliver return on invested capital of above 10 percent in five years.
“It is going to continue to be a volatile business,” Andersen said, referring to its Maersk Line. “We will continue to see vessel overcapacity for some years.”
APM Terminals and Maersk Drilling were expected to contribute each $1 billion to the group’s results within five years, the company added.
The units contributed $0.6 billion and $0.5 billion respectively of the group’s $3.4 billion profit last year, while Maersk Line made a $0.6 billion loss and Maersk Oil a profit of $2.1 billion.
Westlie added the group had no immediate financing needs and would be able to grow via its own cash generation, and without increasing its gearing level.
Maersk Oil said it would target oil production level above 400,000 barrels of oil equivalent per day by 2020, from around 265,000 barrels per year today.
The group has previously said it aimed for 400,000 barrels of oil equivalent per day without a specific time frame.
Shares in A.P. Moller-Maersk were down 1.8 percent at 1250 GMT against a 0.7 percent decline in the Copenhagen stock exchange's benchmark index .OMXC20.
“This (date) is later than what a number of market participants had expected,” said head of Nordic shares at Sydbank Ole Jensen.
Maersk Oil spends $3 billion to $5 billion per year on maturing projects and development projects, in addition to $1 billion per year of exploration costs, it said.
Additional reporting by Ole Mikkelsen and Teis Jensen; Editing by Mike Nesbit