Global transportation and logistics company Neptune Orient Lines Ltd (NOL) today reported a first half (1H) net profit of US$88.7 million on turnover of US$2.6 billion.
At the half-year mark in 2002, the company reported a loss of US$155.7 million with a turnover of US$2.2 billion. Freight rates in NOL's biggest revenue generating business, container shipping company APL, reached record lows at that time, while volumes climbed.
Turnover for the Group for 1H 2003 reached US$2.6 billion, an improvement of 19 per cent on 1H02, with each of the Group's three core businesses, APL, supply chain management company APL Logistics and crude oil transportation company American Eagle Tankers (AET), all improving their overall performance.
"The results show that at an operational level there has been a fundamental shift across the Group," Chairman Mr Cheng Wai Keung said. "The turnaround that began at the beginning of the year has been sustained, with rates continuing to correct to more historic levels on all of APL Liner's trade lanes, APL Logistics' performance improving and Chartering rates remaining relatively strong."
The effect of the sale of AET announced in April and completed at the end of July would only be reflected in third quarter results, he said.
Group CEO, Mr David Lim, said the disciplined focus on cost containment and maximising yield, and on providing customers with value would serve the Group well into the future.
"We are working out strategies that would see NOL grow and achieve its potential over the coming years," he said. "But common to all, we need to squeeze the bottom line by being lean in terms of cost and we need to maximise our top line by ensuring we provide customers with excellent value in our services.
"This will help us smoothen the cycles and occasional shocks experienced in world trade and sustain profitability. With costs controlled, an on-going focus on providing value, and our hard working and capable team, we can implement the right strategy and make the most of future opportunities for our company's growth," he said.
Group Chief Financial Officer, Mr Lim How Teck said that traditionally the second half of the year saw better results than the first half, with the peak season for both the Liner and Logistics companies beginning around July/August.
"With the proceeds from the sale of AET flowing through in the second half of the year, we expect our balance sheet to be reasonably strong by the end of the year," the CFO said. "We will continue to look at ways of addressing debt and improving cash flow to further reduce our gearing and strengthen our balance sheet and position ourselves for future investment and growth."
Mr Cheng said the Group would continue to assess other non-core businesses for divestment, including the product tanker company Neptune Associated Shipping (NAS), to focus on the core Liner and Logistics operations.
Barring unforeseen circumstances, Mr Cheng said, the NOL Group maintained its earlier positive outlook and expected to achieve significantly better results in the second half of 2003.
APL Liner APL performance at an operating level built on the success of the first quarter of 2003, with core Earnings Before Net Interest Expense and Tax (EBIT) of US$87 million - compared with a 1H 2002 core EBIT loss of US$71 million.
Cost savings of US$36 million were achieved in the second quarter, bringing the total savings in 2003 to date to US$70 million, compared with the same period last year.
"The focus on yield management, changing the mix of our business to maximise contribution, and beginning to improve how we go about optimising our global network saw our revenue increase overall by 14 per cent,"APL CEO Mr Ron Widdows said. "While the volume of containers moved globally reduced two per cent between 1H02 and 1H03 to 736,000 forty foot equivalent units (FEU), main headhaul volumes in the key revenue generating trade lanes, Trans-Pacific increased 11 percent and Asia-Europe increased eight per cent, improving revenue.
"Freight rates for 1H03 averaged US$2358 per FEU overall, a 17 percent improvement on 1H02, while average rates in the second quarter were US$2517, an increase of 26 per cent on the same period last year. Rates on the Trans-Pacific and Asia-Europe trades recovered to targeted levels but have yet to reach levels we've seen in the past," Mr Widdows said.
He noted that despite the expansion of the world container fleet, space was again becoming an issue. "Trade growth has largely absorbed the capacity added to the world fleet, including the 2003 additions, with growth on the Trans-Pacific eastbound and Asia-Europe westbound both increasing 20 per cent industry-wide in the first half of this year."
Utilisation remained strong and the pressure on space is forecast to continue beyond this year, he said.
APL Liner remains on track to achieve significantly better results in the second half of 2003, barring unforeseen circumstances.
APL Logistics NOL's supply chain management company improved its performance at the half year point with core EBIT of US$3 million. This compares with a first half core EBIT loss of US$11 million in 2002. Revenues increased a further 22 per cent to US$454 million over the same period, the result of a mixture of new business and expanded business from existing customers, and costs were further reduced.
"In our sales efforts, we are focusing on introducing our customers to our complete portfolio of services and the value that comes from truly integrated solutions. This customer focus, along with a strong internal drive to improve operating fundamentals, is paying off," APL Logistics CEO Mr Hans Hickler said.
APL Logistics is steadily improving its performance and expects be operationally profitable for the year 2003.
Chartering Charter rates for both crude oil and product tankers continued to be strong in the second quarter, although not reaching the record highs of the first quarter. NOL's Chartering division's revenue increased 68 per cent to US$263 million compared with US$157 million in 1H 2002, while core EBIT rose 689 per cent to US$71 million.
"We continued to enjoy a good income from our tanker division in the first half of the year," Mr Lim How Teck said. "And while we receive income for only one month of AET's operation in the second half of the year, since the sale to Malaysia International Shipping Corporation (MISC) was completed at the end of July, there is provision for an increase in the equity price should AET achieve certain performance milestones over the next two years."
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