CP Ships 3Q Results

CP Ships Limited today announced unaudited operating income for third quarter 2004 of $41 million, up from restated $38 million operating income in third quarter 2003. Net income available to common shareholders was $31 million compared to restated $27 million in the same period 2003. Basic earnings per share was $0.34 compared with restated $0.30 in third quarter 2003.

EBITDA(A) was $72 million compared to restated $67 million in third quarter 2003. Free cash flow (B) was $95 million for third quarter 2004 and $130 million for January through September 2004.

Volume of 578,000 teu was another quarterly record and was up 4% from third quarter last year, driven by growth in the TransAtlantic and Asia. Revenue per teu (C), including inlands, increased by 13% from $1,471 per teu to $1,669 per teu. Average freight rates(D) increased 7% from third quarter last year and 6% from second quarter 2004.

Revenue was also a quarterly record at $966 million and increased by 18% from restated $816 million in the third quarter last year. However, total expenses at $925 million were 19% higher than restated $778 million in the same period last year. Including the adverse impact of the weaker US$, cost per teu(E) increased by 13% in third quarter 2004 compared to the same period in 2003 which in turn was 9% higher than third quarter 2002.

“After a difficult time for the company, this was a solid quarter overall with record volume and revenue. Profits in the TransAtlantic were lower than expected, even though volume was up, as costs continued to increase and freight rates were flat,” said CEO Frank Halliwell. “In Asia, where we broadened our service coverage, volume growth was strong and freight rates up sharply, outweighing higher operating costs. Meanwhile, better conditions in Latin America and a steady performance in Australasia are encouraging.”

Operating income for January through September 2004 was $78 million, compared to restated $66 million before exceptional charges in the same period last year. Stronger volume up 5% and higher freight rates up 7% were substantially offset by higher costs. Net income available to common shareholders was $37 million, compared to restated $25 million. Basic earnings per share was $0.41 compared with restated basic earnings per share of $0.39 before exceptional charges in the same period last year.

TransAtlantic Market

Operating income at $5 million was $8 million lower than restated $13 million in third quarter last year. Volume was up 7%, with growth mainly in the lower margin export trade from North America to Europe. Average freight rates were flat compared to both third quarter last year and second quarter 2004, while unit operating costs were significantly higher driven mainly by the adverse impact of the weaker US$, increased ship network and other operational costs.

For the first nine months 2004, operating income at $11 million was down from restated $34 million in the same period last year due mainly to increased costs, even though volume was up 5% and average freight rates up 6%. In September 2004, we announced plans to adjust the Montreal Gateway capacity by replacing three owned 2400 teu ships in one of the three Montreal-North Europe weekly services with three new chartered 1600 teu icestrengthened ships between February and April 2005. The larger ships will be deployed elsewhere in our network, replacing costly chartered ships. This initiative, which will reduce our overall capacity in the TransAtlantic market by about 7%, is part of a broader review of our TransAtlantic services to tighten supply, reduce costs where possible and improve freight rates, without compromising service integrity and market share.

Australasian Market

Operating income at $7 million in third quarter 2004 was the same as third quarter last year. Average freight rates, up 11% from third quarter 2003 but slightly lower than second quarter 2004, were partly offset by reduced volume, which was 8% lower than third quarter last year due mainly to the restructuring of our Trans Tasman services. Year-to-date operating income at $23 million was $4 million higher than restated $19 million for the same period last year, with higher average freight rates up 14% offset by lower volume and increased operating costs.

Latin American Market

Operating income of $12 million was up $8 million from restated $4 million in third quarter last year. Continuing improvement in trade lane conditions led to higher average freight rates, up 26% on third quarter 2003 and 10% up from second quarter 2004.

For the first nine months of 2004, operating income at $18 million was more than double restated $7 million for the same period last year with volume up 3% and average freight rates up 11%.

Asian Market

Operating income of $11 million in third quarter 2004 was up from $8 million in restated third quarter 2003 and breakeven in second quarter 2004. Volume, up 15% compared to third quarter last year, grew in all trade lanes due to continuing strong conditions, the expansion of our services and the easing of congestion in the Vancouver gateway. Average freight rates were 8% higher from third quarter last year and 13% up from second quarter 2004.

However operating expenses were higher, due mainly to increased ship network, inland and empty positioning costs. Year-to-date operating income was $10 million, a $14 million improvement from the 2003 restated $4 million loss in the same period last year. The improvement was due to stronger volume up 15%, higher average freight rates up 5%, withdrawal from Asia-Europe, and better operating performance in the Indian trades, partly offset by higher operational costs.

Other Activities

Operating income, at $6 million, was flat compared to restated third quarter 2003. Year-to-date operating income of $16 million was up from restated $10 million in 2003, due to stronger performance of Montreal Gateway Terminals and the North America-South Africa trade, as well as the contribution from the recently acquired ROE Logistics.

Outlook

We expect improved performance in the fourth quarter, with strong volume and increased freight rates, including modest increases in the TransAtlantic following the October freight rate negotiations. Asia, in particular, is anticipated to show substantial profit improvement over third quarter. We expect recovery in the Latin America trades to continue, leading to stronger results, while Australasia is expected to remain stable. Therefore, despite the weaker than anticipated third quarter, especially in the TransAtlantic, and continuing cost pressures we expect net income for full year 2004 to be similar to last year’s $82 million, as originally reported before any restatement. The outlook for 2005 is positive. Subject to current industry and market conditions continuing, we expect earnings to substantially exceed the result for 2004. This outlook is based upon modest volume growth and freight rate increases in most trade lanes but continuing cost pressures.