Published May 13, 2009

Lower trade, rates hit NOL hard

It posts Q1 loss of US$245m and expects significant full-year loss

By VINCENT WEE

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(SINGAPORE) Neptune Orient Lines (NOL) posted a US$244.6 million first quarter net loss as revenue plunged by a third to US$1.54 billion as global trade flows and liner shipping volumes plunged while freight rates collapsed across all major trade lanes.

Lifting less: NOL's container unit APL carried a total of 481,000 FEUs in Q1 2009, 27 per cent down from the corresponding period a year ago, as volumes declined in all trade lanes

The loss is in line with management's guidance of about US$240 million announced last month but is still a sharp turnaround from the US$120.7 million net profit posted in Q1 2008. If the losses continue at the same pace, full-year losses could balloon to US$1 billion.

'For the rest of the year, NOL anticipates a continuation of adverse business operating conditions. NOL reiterates that it expects to post a significant full year loss,' the group said.

Related articles: Click here for NOL's news release Financial statements Presentation slides

It added that the group will continue to focus on improving asset utilisation, yields and productivity.

'The results announced today are in line with the update on business operating conditions NOL provided to the Singapore Exchange on April 16, 2009,' said group president and CEO Ronald Widdows.

Revenue from the core container shipping business fell 36 per cent to US$1.29 billion, resulting in a earnings before interest and taxes (Ebit) loss of US$236 million for the quarter.

Container unit APL carried a total of 481,000 forty-foot equivalent units (FEUs) in Q1 2009, 27 per cent down from the year-ago period, as volumes declined in all trade lanes. Container volumes averaged 32,600 FEU per week over the ten-week period from Dec 27, 2008 to March 6, 2009, and averaged 38,888 FEU per week during the four weeks from March 7 to April 3.

Average headhaul, or dominant, load factors plunged to 80 per cent from 95 per cent in Q1 2008, with the transpacific eastbound and transatlantic westbound trades being hit hard.

In addition, average revenue per FEU decreased by 16 per cent year-on-year to US$2,474. This was primarily due to a combination of lower bunker recovery and freight rate pressures, particularly in the Asia-Europe and Intra-Asia trade lanes.

Q1 Ebit contributions from the logistics and terminals businesses were also down although they turned in some gains. APL Logistics reported a 34 per cent decrease in Q1 2009 revenue, to US$241 million, and Ebit of US$14 million, 18 per cent lower than for the same period last year.

Mr Widdows said: 'Logistics recorded a substantial reduction in volumes and revenues for the quarter, reflecting global economic uncertainty and declining trade activity. Despite this, the logistics business improved its core Ebit margin to 5.8 per cent through continued disciplined cost management and a focus on revenue quality.'

Terminals business revenues were 23 per cent lower than Q1 2008 at US$112 million, while Ebit was US$4 million, compared with US$12 million. Core Ebit margin, however, was lower at 3.6 per cent compared with 8.3 per cent previously.

NOL shares closed five cents lower at $1.44 yesterday.