APL’s profits slip 39% in 1st quarter
Singapore-based Neptune Orient Lines (NOL) said today its container-shipping unit APL’s first quarter core earnings before interest, tax and non-recurring items (Core EBIT) dropped 39 percent to $123 million.
In the first quarter 2005, APL’s core EBIT was $201 million.
“Revenue and volumes continued to grow in the first quarter, but our earnings contribution has been hit by rising fuel-related costs,” said Ron Widdows, APL’s chief executive officer. “Average revenues per FEU decreased by 1 percent to $2,700 per FEU in the face of some rate pressures. We have continued to focus on having the right combination of business to make best use of our assets.
“Going forward, we will continue to manage our business mix to ensure maximum overall yields. In the near term we will continue our measured approach to capacity growth through a combination of charters and partnership arrangements. This approach is enabling us to meet our customers’ needs for increased capacity, without incurring unnecessarily high capital costs for new vessels.
“While nominal supply growth is forecast to exceed demand growth in 2006, in quarter one 2006 demand in many trade lanes continued to be ahead of supply — driven by continuing high demand growth in markets such as China and India,” Widdows said.
He added that APL achieved $21 million cost savings in the quarter, which is slightly below schedule if the carrier is to achieve its hoped for $100-million-plus cost savings program for the year.
APL Logistics’ Core EBIT improved 4.7 percent to $16 million with revenue up 9 percent to $344 million.
“New business wins, supported by financial discipline and cost controls in our global contract logistics business, paid off with a healthy increase in the contribution of this line,” said Brian Lutt, president of APL Logistics.
“The solid foundation provided by contract logistics will enable us to continue to focus on growing our international logistics services, taking advantage of the robust demand resulting from the continued shift of sourcing and manufacturing.
“Our automotive segment posted the strongest growth in the first quarter. Going forward we expect this to continue, alongside positive growth in other core markets such as electronics and high tech,” Lutt said.
NOL posted a quarterly group net income of $120 million, down 39 percent from $195 million in the same period last year. Group revenue increased 4 percent to $1.88 billion from $1.80 billion in the first quarter 2005.
“Our latest results show that we are performing well operationally, and continuing to deliver value to our customers and returns for shareholders. But we are now in a more challenging operating environment. Our lower net profit reflects the continued pressure of high fuel costs. Rates in some key trades have softened. However, industry demand in the first quarter grew at a stronger pace than expected, and as a result industry supply/demand has remained in better balance than anticipated,” said David Lim, NOL Group president and CEO.
“NOL expects the business environment of the liner industry to continue to be challenging over the next year. The outlook for freight rates will depend on the extent to which demand growth keeps pace with the expected increased supply of shipping tonnage over the next twelve months. We expect to experience the continuing cost impact of high fuel prices, resulting in high bunker and land transportation costs,” NOL said in a statement.
“The group’s focus continues to be on optimizing asset utilization, yield management and managing cost pressures, as well as investing to grow our Liner and Logistics capabilities,” NOL said.