NOL improves 3Q profits, raises $300 million in shares
Singapore-based Neptune Orient Lines, the parent company of APL Liner and APL Logistics, continued its profit recovery in the third quarter, with a net profit for the quarter of $206 million, as compared with a loss for the same quarter last year of $28 million. On the back of the profit rebound, the shipping group also announced a share placement aimed at raising $300 million in capital.
The improved group results for the third quarter include capital gains on the sale of tanker shipping subsidiary American Eagle Tankers, which contributed significantly to $99 million of positive exceptional items.
But NOL's profit before exceptional items also improved in the third quarter, to $107 million, as compared to a loss of $20 million for the same quarter last year.
NOL, which returned to the black in the first quarter, reported a net profit for the first nine months of this year of $295 million, as compared with a loss of $184 million for the same period last year.
In the third quarter, group core earnings before interest and tax soared to $135 million, from $12 million in the same quarter of 2002. The improvement was due primarily to NOL’s APL Liner arm, which increased its core earnings to $140 million in the latest quarter, from $7 million.
APL Liner’s revenue increased by 26 percent in the latest quarter, to $1.1 billion, as average freight rates rose by the same percentage, to $2,710 per 40-foot equivalent unit, from $2,153. Over the same period, container traffic volume rose marginally, to 361,000 FEUs, from 357,000 FEUs. Freight rates increased 37 per cent in Asia-Europe and 20 per cent in the transpacific.
“We continued to respond to the strength of both the Asia-Europe… and transpacific… trades in the third quarter, increasing market share in the headhaul (transpacific eastbound, Asia-Europe westbound) legs of these trades,” said Ron Widdows, chief executive officer of APL Liner.
Volumes in the transpacific eastbound increased 8 percent and Asia-Europe westbound 10 percent year-on-year.
However, Latin America “continued to feel the impact of the challenging economic situation in the region,” the carrier said.
Overall, Widdows said vessel utilization was high and forecast to remain so for the rest of this year and well into 2004. APL Liner reduced costs by $112 million in the first nine months.
APL Logistics improved its core earnings before interest and tax slightly in the latest quarter, to $2 million, as compared to a breakeven in the same period in 2002. Revenue for the third quarter was $235 million, an increase of 18 percent.
APL Logistics saw “strong growth” in all regions in the third quarter: in the Americas centred around warehousing and transportation management; in Europe centred around forwarding; and in Asia, the consolidation business.
Group revenue for the third quarter was $1.3 billion, up 18 percent on the year-earlier period, despite the sale of American Eagle Tankers completed in July.
“The extent of the group's turnaround has as much to do with our focus on yield management and cost containment as it does about rate recovery in the liner business,” said Cheng Wai Keung, chairman of NOL.
David Lim, the new chief executive officer of NOL, said that he was “pleased” with the improved results of APL Logistics. “While there is some way to go yet, this unit has reorganized to better meet customer needs and reduce costs,” he added.
NOL on Monday (Nov. 10) announced a share issue of 236 million shares and suspended trading in its shares. The share placement was due to be completed yesterday.
“In view of our improved performance and with the industry poised for further growth, we believed that it would be timely to raise capital to reduce our debt levels and prepare for future growth,” Cheng said.
The company indicated that the proceeds of the share issue would used to repay debts and lower its debt-to-equity ratio. It also referred to the need for “flexibility to be able to move quickly to make the most of opportunities that may arise in the future.”
NOL is targeting institutional investors in Asia, Europe and the United States with the share placement. Credit Suisse First Boston has been appointed as the sole bookrunner for the placement.
Group chief financial officer Lim How Teck said that the improved performance of the group, together with the sale of American Eagle Tankers, had resulted in “a substantial reduction” in debt levels and a lower net gearing of 1.58, down from 4.46 at the end of 2002. The group is also considering selling its product tanker company Neptune Associated Shipping.