Maersk Product Tankers

EXECUTIVE BOARD • Christian M. Ingerslev (CEO) • Morten M. Christensen (CFO) • Claus Grønborg • Prakash Thangachan • Søren C. Meyer • Tommy Thomassen

BOARD OF DIRECTORS • Robert M. Uggla (Chairman) • Paul J. Reed (Vice Chairman) • Ibrahim Gokcen • Maria Pejter • Martin N. Larsen • Tatsuya Okamoto

Maersk Product Tankers delivered a profit of USD 92m (loss of USD 33m) mainly due to improved market conditions across all product tanker vessel segments and positive sales gains.

Maersk Product Tankers, established in 2017 as a joint venture between A.P. Moller Holding and Mitsui & Co., is a leading company in the product tanker industry and owns one of the largest fleets in the industry with more than 80 vessels in the LR2, MR, Handy and intermediate segments.

THE YEAR IN BRIEF The product tanker market improved across all segments in 2019 and Maersk Product Tankers delivered an improved financial result, solid safety performance and continued to reduce its CO2 emissions.

Maersk Product Tankers saw the positive impact of reduced vessel running costs from USD 5,696 per day compared to USD 6,055 per day in 2018 on average. This was achieved through optimised procurement agreements, increased cost transparency and focus, as well as the use of new technology. Maersk Product Tankers remains committed to continue to work with the cost base.

Market rates had a solid start to the year followed by a more natural seasonal pattern, before again gaining momentum towards the end of Q3 and throughout Q4 2019. The positive development in rates was impacted by several factors, amongst others, continued growth in demand, imposed sanctions limiting the supply of vessels towards the end of 2019 and the implementation of new low sulphur regulations (IMO 2020), increasing the transported distances. The market is characterised by significant volatility and is expected to continue to fluctuate going forward. While markets have benefited from greater tonne-miles demand and a slow growth in operational vessel capacity in the early part of 2020, the outlook for the full year is uncertain. The outbreak and spread of COVID-19 and countries’ containment measures have led to global reductions in transport, industrial and commercial activity. This has caused a decline in the demand for oil and could eventually affect product tanker markets and freight rates.

During 2019, Maersk Product Tankers continued its fleet renewal strategy with the focus to remain competitive and enable attractive solutions for its customers. During the year, the company confirmed the order of four LR2s and acquired seven second hand Handy vessels and one MR, while divesting a total of 12 vessels

some of which will be handed over in 2020. Maersk Product Tankers had a fleet of 84 vessels at the end of the year.

Over the past decades, the company has developed a strong framework for acting dynamically and opportunistically in terms of fleet composition and renewal of the same. As a consequence of the vessel transactions during 2019, Maersk Product Tankers booked USD 43m of sales gains and net impairment reversals in 2019.

Maersk Product Tankers is well positioned going into 2020 with relevant exposure to attractive markets. However, the company will continue its opportunistic approach to fleet renewal where attractive opportunities arise.

STRATEGY REVIEW Maersk Product Tankers continued to deliver on its strategic priorities during 2019: Dynamic vessel portfolio, allowing an agile decision process aiming to deliver financially solid returns and retaining a cost leadership position.

IMO 2020 has in many ways attracted significant attention during 2019 and for good reason. Maersk Product Tankers will be compliant with IMO 2020 implemented as of 1 January 2020. In addition to operating on compliant fuel, the company decided to install scrubbers on four of its LR2 vessels while simultaneously investigating and testing new vessel technology to actively drive the environmental agenda forward.

In 2019, Maersk Product Tankers has successfully installed and tested solutions to reduce bunker fuel costs which account for up to 60% of a vessel’s total voyage costs and is expected to increase, when the global sulphur cap is introduced in 2020. An example hereof is the rotor sails installed on Maersk Pelican saving more than 8% fuel over 12 months equivalent to 1,400 tonnes CO2.

To stay relevant to its customers Maersk Product Tankers will continue its efforts to reduce its environmental footprint and develop improved climate solutions. FINANCIALS Maersk Product Tankers reported improved financial results with revenue increasing to USD 728m (USD 647m) and net profit of USD 92m (loss of USD 33m). The result was positively impacted by an average day rate for the fleet of USD 14.6k/day (USD 12k/day) and an improved average daily running cost. The cash flow from operating activities ended at USD 158m (USD 91m) and investment activities ended at a loss of USD 169m (loss of USD 119m) resulting in a negative free cash flow of USD 11m for the year (negative USD 28m).

The company has outstanding payments related to ten LR2 newbuilds being delivered between 2020 and 2022 with an outstanding capital commitment of USD 421m.

The prospects for the product tanker industry are positive, and in 2019 Maersk Product Tankers took important steps towards strengthening its position and securing long-term profitable growth, while continuing to optimise the fleet by taking initiatives to reduce its CO2 footprint through innovative digital solutions and fuelefficient technologies.

REVENUE (USDm)

647

2018

EBITDA (USDm)

110

2018

NET PROFIT (USDm)

728

2019

203

2019

92

-33 2018

FREE CASH FLOW (USDm)

2019

-28 2018 -11

2019