A.P. MØLLER HOLDING A/S ANNUAL REPORT 2018 MANAGEMENT REVIEW
LETTER FROM THE CEO
ROBERT M. UGGLA, CEO
Dear Reader
The A.P. Moller Group looks back on a momentous year. Some of the most noteful events include the closing of the divestment of Maersk Oil to Total S.A., the announcement and planning of the demerger of Maersk Drilling, the successful closing of the Africa Infrastructure Fund, the extraordinary general meeting (EGM) of Danske Bank, the partial sale of Maersk Product Tankers to Mitsui & Co. Ltd and the initial build-up of A.P. Moller Holding’s investment team. The Group holds a solid financial position with a 2018 revenue of DKK 261bn, a net result of DKK 10.9bn, and consolidated assets of DKK 413bn. A.P. Moller Holding, the Group’s parent company, is
debt free and saw a net cash inflow of DKK 4.1bn. Despite and beyond these fairly impressive figures, 2018 proved to be a challenging year for several of our portfolio companies. Our consolidated book equity grew 11% to DKK 256bn, of which our share was DKK 126bn, but the portfolio’s market values, defined as net asset values, dropped to DKK 98bn or 28%. The discrepancy between the market and book values of our listed companies demonstrates the disconnect between how capital markets and the companies themselves assess the intrinsic value of their activities. Simply put, investors assume that every dollar of equity invested by these companies is only worth 80 cent. In the case of A.P. Moller - Maersk, the company has to demonstrate an ability to deliver a return above its cost of capital across the cycle. For several consecutive years, Danske Bank has traded above its book value, based on a healthy return and competitive results compared to peers. The bank’s current discount reflects the uncertainty surrounding the outcome and wider implications of the AML case. The discount of both companies’ share price is a function of shareholders’ dissatisfaction with both companies’ performance. From our vantage point, it also represents a significant opportunity for the management teams and boards to create long term value for their shareholders, which we see as a pressing objective. The closing of the gap between market and book value would equal value creation to the tune of DKK 87bn for the shareholders in these two companies. REBUILDING DANSKE BANK’S CREDIBILITY AND POSITION AS A LEADING NORDIC BANK Danske Bank is one of the largest financial institutions in Northern Europe. It provides valuable and critical financial infrastructure and services to many parts of the Nordic economy. It is our conviction that Danish society as well as the Danish financial ecosystem
benefit widely from having a universal bank like Danske Bank with a significant balance sheet to provide attractive funding, a deep bench of financial talent (also moving on to other roles outside the bank), and institutional know how. With that said, Danske Bank’s role in society comes with a major responsibility. We find it critical that the board and management of Danske Bank instil and safeguard a sound business culture, in line with the expectations of society, regulators, customers and shareholders. Based on what came to light during the last year in the AML case, A.P. Moller Holding took the unusual step and called for an EGM, in coordination with other large shareholders. We assessed that the board of the bank required new leadership to rebuild the bank’s credibility. In many respects, the EGM was a unique event which carried risks. With this in mind, we are grateful for the impressive turnout of national and international shareholders, who, with approximately 95% of the registered votes, endorsed A. P. Moller Holding’s nominated candidates Karsten Dybvad and Jan T. Nielsen. The newly formed Chairmanship, and the additional three new Directors elected at the 2019 annual general meeting, hold valuable perspectives and capabilities to be leveraged as the bank rebuilds its credibility. They are also in a better position to create stronger alignment between the board and Danske Bank’s regulators, societal stakeholders as well as shareholders. At the same time, we are grateful that Carol Sergeant, Lars-Erik Brenøe and Jens Due Olsen remain part of the board in 2019 as they all hold important competencies, and the significant changes to the board need to be balanced with a degree of stability and business continuity.
Performance vs. indices (Indexed, 2014 = 100 as base year)
CAGR 2015
2016
2017
93.2 108.9
117.1 119.9
118.5 130.3
85.6 123.1
-3.8% 5.3%
SCFI Index
79.8
90.7
78.6
86.8
-3.5%
Brent oil price (per BBL)
65.0
99.1
116.6
93.8
-1.6%
Our Net Asset Value Index ProCapture Global AC Index
2018 (2014-2018)
5
