NOL Group 1Q Profits Drop 64%

Monday, May 14, 2007
Neptune Orient Lines (NOL) reported a net profit for the first quarter of 2007 of $43m, down 64% year-on-year. The Group’s Core EBIT (Earnings Before Gross Interest Expense, Tax and Non-Recurring Items) was $58 million, 59% lower than Core EBIT for the same period of 2006. The Liner business achieved Core EBIT of $41 million, down 67%. APL Logistics reported Core EBIT of $12 million, down 25%.

1Q2007 revenues rose year-on-year by 1% to $1.9 billion.

NOL Group President and Chief Executive Officer, Dr Thomas Held, said: “Freight rate levels for our company in the first quarter of 2007 were, on average, 6% lower than in first quarter 2006. This reduction in rate levels year-on-year has been the major factor in the lower profit reported today. The effect of recent freight rate increases achieved in some key trade lanes have yet to be fully reflected in these results.” “Demand for our premium liner services strengthened in the first quarter. Overall volumes in our core liner shipping business grew by 10% over the prior year, reflecting continuing strong demand across all trade lanes,” he said.

The company continued its disciplined approach to cost management. The ongoing focus on cost mitigation in the liner business delivered cost reductions of $45 million in the quarter, through increased fuel efficiencies, network optimization and improved management of container equipment. Overall liner costs per FEU improved by 1.5% year-on-year. Dr Held said: “We will continue our drive for cost leadership.”

In the Logistics segment, Contract Logistics revenues were down 12% year-on-year, reflecting some customer turnover and the exiting of certain contracts with a view to improving margins. Revenues in International Services were up 10%, showing the increased focus on the international conveyance business. “The overall results of our Logistics business are disappointing in that they show a decline in year-on-year earnings, but reflect the ongoing process of realignment of the business outlined last year,” said Dr Held.

Logistics will accelerate its program of realignment of its portfolio of business and enhance service levels.

New Initiatives

Dr Held said: “Within the context of a challenging business environment, the NOL Group is taking steps to ensure we can fully capitalize on robust global trade growth and fulfill the increasingly complex and international needs of our customers.”

A range of new initiatives are being implemented to enhance the service offering for customers and position NOL to take advantage of improving market conditions. The company will soon begin operating container freight trains in India in the fast-growing New Delhi-Mumbai freight corridor. Capital works to expand the capacity of container terminal facilities in Vietnam and Oakland are underway. The APL vessel fleet will also be expanded with the introduction of eight additional ships during 2007; and APL last month signed a charter agreement to take delivery of five new 7,000 TEU vessels in 2009 for deployment in the Transpacific trade. New shipping services connecting ports in Asia with the US East Coast, via the Panama and Suez Canals, will commence in July. Dr Held said: “The strategic initiatives being implemented across the NOL Group are building the platform for a new phase of profitable growth and innovation for our company, which will create long-term value for shareholders.”

Outlook

Freight rate increases have been achieved recently in some key trade lanes due to a better than expected supply and demand gap. The Group will continue to focus on optimizing asset utilization, yield and cost management. Despite cost mitigation efforts, cost pressures and volatility in fuel prices remain key concerns.

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