CMA CGM rebounds with fervor
From a cash-flow deficit in mid-2009, the French container line forecasts 2010 profits of nearly $2 billion.
By Eric Johnson
French liner carrier CMA CGM said Tuesday its results have improved so dramatically in the last nine months it may not need to use a $500 million credit facility made available by the line's creditors in late 2009.
In a far-ranging teleconference with American Shipper and other journalists, new CMA CGM Chief Executive Philippe Souli' and Executive Officer Rodolphe Saad' also said the line is intent on bringing in outside investors for the first time in the family-owned company's history.
CMA CGM, like its competitors, was wracked by a historically bad period for liner shipping from the end of 2008 through mid-2009. It fought off speculation about bankruptcy and continual reports that it was not able to finance its huge order book of new vessels, much less day-to-day operations.
However, the two executives said the line has rebounded so resoundingly in the first half of 2010 that it is forecasting a $1.8 billion net profit for the year — more than enough to wipe away $1.4 billion in net losses in 2009, including a $667 million operating loss for the steamship line.
|' There was an element of urgency nine months ago which has disappeared. We have been generating cash since January, and quite significantly over the last two to three months.'|
Souli' said the line started discussing a debt restructuring with its banks nine months ago, in the midst of the liner-shipping crisis in 2009.
'Now we are in May 2010 and the situation has completely changed,' he said. 'There was an element of urgency nine months ago which has disappeared. We have been generating cash since January, and quite significantly over the last two to three months.'
CMA CGM's debt is $5.4 billion, and Souli' said he expects it will be at around $5 billion by the end of 2010, 'and then going down quite rapidly after that.'
The line is still holding discussions with its creditors over repayment of loans and is seeking 18-month moratorium payment of the principal it owes.
In the meantime, after much publicity over the $500 million credit facility afforded to CMA CGM to allow it to cover day-to-day operations, the line said most of the $500 million won't even be required.
'In December, we thought we would require $500 million to tide us over,' Souli' said. 'We got the first tranche of $80 million in February, but we don't need the rest of the $500 million.'
That's because operations have recovered to such a great, and speedy, extent.
'The transpacific market is picking up,' Saad' said. 'It seems the market is recovering. Volume is moving from China to the U.S. We want to be optimistic and all signs are here for a recovery — not only a restocking that the market is recovering.'
Still he said the rate increases lines on the transpacific have secured are 'not enough to be sustainable.'
Another issue that kept cropping up in 2009 was the French line's order book and how it would be financed. There were widespread reports that the line was canceling orders and even forfeiting advance payments on some vessels.
'We have an order book of 42 ships, most with large capacity,' Souli' said. 'We actually could use all of them currently. If we had them in the fleet, we'd be extremely happy. But for financial reasons, we are delaying 30 of them and canceling 12 of the smaller-sized ships.'
The dozen canceled ships are mostly 3,600-TEU vessels from a Hanjin shipyard, while two 12,600-TEU ships have also been nixed. Souli' estimates the carrier could forfeit as much as $300 million in advanced payments on the canceled ships.
'It's complex and expensive to cancel ships,' Souli' said. Canceling the ships 'doesn't mean the discussion (with shipyards) stops then. I don't think it's damaged our relationship with shipyards. The relationship is as good as ever. There's no resentment from their side and no frustration from our side.'
He said that for its 2009 financial accounts, CMA CGM took a 'worst-case scenario' view of its discussions with shipyards, 'so whatever happens, it can only be good for us.'
Saad', son of company founder Jacques Saad', added CMA CGM 'has been a good customer of all five South Korean shipyards.'
Back on the financial front, Saad' said the company would likely sell a minority stake, though the majority and controlling share would rest with the family.
'The family has decided to open the company to investors and we are making good progress,' he said. 'Hopefully we will finalize an agreement in the next few months. We would like FSI (the French sovereign wealth fund Fonds Strategique d’Investissement) to be part of the restructuring.'
Saad' also confirmed reports that CMA CGM is eyeing a potential initial public offering, though he offered no details about when or where the public listing would occur.
'Yes, it is an area we are exploring as we speak,' he said. 'We need to restore our results for the time being. We need to first finalize a restructuring plan. It's too premature at this stage to talk about any details of an IPO.'
'Six months ago, floating stock looked like a remote idea,' added Souli'. 'But we're looking at $1.8 billion EBITDA this year. Now there are people coming to us.'
The French line is also considering the issue of convertible bonds, which would be converted into shares for would-be investors.
Both executives stressed that while 2009 was difficult, CMA CGM remains a viable and profitable entity in the long-term.
'The company was set up 30 years and we have lost money in only two years — the Iraq war and in 2009,' Saad' said. 'We are a good company and we have a good track record.'
Saad' said the company has benefited from Souli's outside perspective: 'He brings an outsider view of the industry. CMA faces a difficult situation, but many lines are facing the same situation. The company has not changed much except to welcome Philippe's expertise. Indeed CMA was facing tough times, but we were not close to bankruptcy.'
Souli', who was CEO of French conglomerate Constructions Industrielles de la Mediterranee, concurred.
'From an operating performance, we compared quite favorably with other companies' in the shipping industry, Souli' said. 'I'm not sure we really came that close' to bankruptcy.
The topic of acquisitions inevitably arose, but Souli' said CMA CGM would refrain from buying despite its record of acquiring niche carriers the past decade.
'(There won't be acquisitions for us) for a long time,' he said. 'We're trying to get our house in order. Now is not the time to look at other ways of spending money. There is clearly a gap widening between the three mega-carriers and the rest of the crowd. There should be consolidation around those three.'
Saad' noted that many of the top lines in the world — including the four biggest — are family-owned companies.
'It's important for our industry for lines to be owned by families,' he said. 'It allows decisions to be made quickly.'
He also addressed the growing partnership with Maersk Line, one that was strengthened May 11 when the two lines announced they were jointly starting a new big-ship loop between Asia and Europe in June. The two lines have collaborated on a number of trades in recent years.
'We formerly partnered with carriers in South America and China,' Saad' said. 'But we find with Maersk, we share the same ideas on operational strategy. We are very pragmatic with these agreements. If we feel it is better to not do business together, we can split. We feel it is a good partnership. We share pretty much the same views.'
Finally, in response to a question about how hard the crisis in 2009 had hit his father, Saad' commented that little has changed within the organizational and strategic structure of CMA CGM. The line and its shareholders approved the introduction of Souli' in January, with Rodolphe Saad' an executive board member and Jacques Saad' operating solely as chairman.
'It's important for CMA to be a profitable business,' he said. 'Yes, this is difficult to go through all the changes, but it is in the interest of the company and that's what's important to us. Life is still the same at CMA. It is still run as a family, but with a new face to get us through the tunnel.'