P&O Nedlloyd continues profit recovery

P&O Nedlloyd continues profit recovery    Strong volumes and higher freight rates allowed P&O Nedlloyd to turn an operating loss of $51 million in the first half of 2003 into an operating profit of $121 million in the first six months of this year.
   Container shipping operations contributed $117 million towards the company’s total operating profit, while its other businesses such as logistics, terminals and trucking made a combined operating income of $4 million.
   Releasing its first set of results since P&O Nedlloyd became a wholly owned unit of Amsterdam-listed Royal P&O Nedlloyd, the shipping group said these were the best six-month results it has ever had.
   “This is an encouraging first half result, with much remaining to be done in terms of improving the underlying operational performance as judged against best in class,” said Philip Green, chief executive officer of Royal P&O Nedlloyd.
   First half net profit after tax was $81 million, compared to a loss of $78 million in the same period of 2003.
   Average freight rates rose 13 percent to $1,384 per TEU, and volume rose 9 percent on a comparable basis to 2 million TEUs. Taking into account the recent withdrawal of P&O Nedlloyd from the West Africa/Europe trade, the volume increase was 6 percent. The combination of increases in rates and volumes resulted in a 23-percent jump in revenue to $3.1 billion in the first half.
   The shipping group expects its container shipping business to make at least $325 million in profit before interest and tax this year.
   Green said P&O Nedlloyd is working on a plan over several years to bridge the profitability gap between P&O Nedlloyd and other container carriers. P&O Nedlloyd was recently ranked 29th out of 31 shipping companies by American Shipper in terms of operating profit margin for 2003.
   “Yield management is where we see the biggest opportunity to bridge the profitability gap,” Green told a press conference in Amsterdam today. The shipping company is introducing a new management and information management system this year, from which it expects substantial positive results next year and in the following two years. The program aims to focus the group on bridging the earnings before interest and tax per TEU gap with competitors, including by improving contribution and yield management, and keeping control of costs.
   Whereas revenue per TEU was up 13 percent in the first half, cost per unit rose 6 percent. P&O Nedlloyd said the cost increase was due to adverse exchange rate variations, higher vessel charter rates and imbalance costs.
   Green reported that P&O Nedlloyd has experienced a shortage of capacity in the transpacific trade.
   “For most container shipping companies operating from Asia at the moment, the dominant legs are full,” he said.
   P&O Nedlloyd increased its first half transpacific cargo volumes 13 percent, while growth in other American trades was lower. Unit freight rates in its Americas trade rose 16 percent, “with significant improvement in both the transatlantic and transpacific trades,” the carrier said.
   P&O Nedlloyd reported that demand in the transpacific trade remains strong, particularly to the U.S. East Coast. “This is fueled in part by concerns over infrastructure capacity (rail and truck) on the West Coast,” P&O Nedlloyd said. It has recently launched, jointly with other members of the Grand Alliance, an additional service to the East Coast.
   “Demand in the transatlantic trade also remains good, helped by some downsizing of tonnage by other lines (stimulated by the overall scarcity of tonnage),” the carrier said.
   P&O Nedlloyd predicts that supply and demand will remain in balance this year and in 2005. Green said he was also positive about the market prospects for carriers in 2006, although he said this was harder to forecast.
   Royal P&O Nedlloyd, which owns P&O Nedlloyd Container Line and holds a 50-percent share of the airline Martinair, reported a first-half profit after tax of $74 million, as compared to a loss of $45 million in the same period of 2003. Royal P&O Nedlloyd has changed its reporting currency from the euro to the U.S. dollar following its buyout in April of Peninsular and Oriental Steam Navigation Co. from the P&O Nedlloyd joint venture.
   P&O now owns 25 percent of Royal P&O Nedlloyd. A requirement of this transaction was that P&O would not sell any shares in Royal P&O Nedlloyd before October.
   In a statement issued today, P&O said: “Whilst we would not rule out a sale of some or all of our shares at a price that recognized the full potential of the company, we are very comfortable with our shareholding.”
   P&O added that the prospects for Royal P&O Nedlloyd “are highly positive,” and noted that the relationship between P&O Nedlloyd and P&O Ports will be a key factor in any future decisions.