“Excellent year” for liner boosts NOL’s earnings to $943 million
“Excellent year” for liner boosts NOL’s earnings to $943 million
Neptune Orient Lines (NOL), parent company of APL and APL Logistics, reported a 120-percent jump in group net profit to new record earnings of $943 million for 2004, as liner shipping delivered another substantial increase in profits.
The Singaporean group’s latest annual earnings compare with a net profit of $420 million for 2003 and a net deficit of $330 million in 2002.
NOL said its 120-percent improvement in group profit over 2003 came from both the liner and logistics businesses.
Group “core earnings” before interest, tax and non-recurring items increased 95 percent to $921 million in 2004.
Group revenue increased 19 percent to $6.54 billion last year. NOL’s group operating income soared 66 percent to $943 million, and the group benefited from an income tax credit, lower interest expenses, an “earnout” profit following the sale of the group’s tanker arm, American Eagle Tankers, and a goodwill impairment charge on its GATX logistics subsidiary.
“The liner business had an excellent year,” NOL said in a statement.
APL’s liner activities more than doubled earnings before interest and tax to $892 million in 2004, representing 17 percent of revenue, compared to $412 million, or 10 percent of revenue, in 2003. APL’s latest operating margin is very high by industry standards.
Whereas APL’s liner operating expenses rose 17 percent to $4.4 billion in 2004, virtually in line with volumes, its liner revenue increased 27 percent to $5.3 billion in 2004 from $4.2 million in 2003, on the back of higher rates and load factors.
APL’s traffic rose 18 percent to 1.79 million 40-foot equivalent units (FEUs) in 2004. APL’s average freight rate increased 8 percent to $2,713 per FEU from $2,512 in 2003. The carrier’s load factor in the eastbound transpacific trade averaged 97 percent, up from 94 percent, and its load factor in the Latin American trades improved.
Ron Widdows, chief executive officer of APL, cited measures aimed at “maximizing asset utilization under strong demand conditions.”
“Other key contributors to our record level of profits include a healthy cargo mix and thus maximizing yields, an 8 percent increase in average revenues per FEU, and continuing efforts to keep a tight lid on cost,” he said.
“Increased capacity with continued strong trade volumes, efficient asset utilization, tight cost control and higher freight rates helped offset the adverse impact of higher bunker, ship charter and land operation costs,” NOL said.
APL made $96 million of cost savings in 2004, slightly less than the targeted $100 million because of pressures from congestion and other infrastructural pressures. NOL said cost savings efforts at APL will continue in 2005, “although the results will be somewhat less than 2004 due to congestion related pressures.”
APL Logistics saw its earnings before interest and tax rise to $24 million from $7 million, with revenues increasing 20 percent to $1.2 billion.
“NOL registered a record level of profits in 2004, with strong operating performances from both the liner and logistics businesses,” said NOL chairman Cheng Wai Keung. “While the group benefited from healthy global demand conditions, the strong results also reflect positive contributions by the management team in focusing on improving efficiency, asset utilization and, most importantly, operating margins and hence, profits.”
In the fourth quarter, NOL’s group net profit rose 165 percent to $355 million, with improved performance mainly from the liner business. Revenue in the fourth quarter increased 18 percent to $2 billion.
APL’s fourth-quarter liner earnings before interest and tax rose 55 percent to $279 million, from $180 million a year earlier. “This was achieved despite higher bunker prices, higher ship charter hire rates and higher land operation costs due to congestion throughout the transport infrastructure globally and the USA West Coast in particular,” NOL said.
NOL’s large profit for 2004 and its moderate investments in fixed assets resulted in the repayment of $517 million of borrowings and $111 million of bonds during 2004, helping to improve its balance sheet. NOL’s non-current borrowings decreased 35 percent to $745 million at the end of 2004, from $1.1 billion a year earlier. Its cash balance has grown 24 percent to $675 million.
“Our balance sheet has improved significantly over the past two years,” NOL said. “This will support our longer term growth plans as well as tide us over any cyclical challenges within the core shipping business.”
“With the positive business environment and our continued focus on yield management and cost containment, the performance of the group is expected to be strong in 2005, barring any unforeseen circumstances,” NOL said.
The Singapore-based group expects its liner business “to perform strongly in 2005, barring a slowdown in demand for container shipping.”
“Congestion at terminals and in inland transportation operations may increase costs and reduce effective supply for the industry, but expected sustained trade growth is likely to see increased volumes shipped, and high utilization rates of ships and containers,” it added. “We will continue our efforts to mitigate against cost increases in expected higher bunker costs, charter hires and other operating costs, by focusing on efficient utilization of assets and other initiatives to save costs.”
NOL expects its logistics arm to build on its improving profit trend in 2005.
In a separate announcement, NOL said it will appoint Patricia Leung group chief financial officer replacing Lim How Teck, effective May 1. Lim will retire at the end of June, after a two-month handover period to allow a transition of duties.