NOL carves 2Q profit mainly from logistics sale, cost savings

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NOLSingapore-based Neptune Orient Lines (NOL) said it achieved a net profit of US$890 million in the second quarter of the year compared to a net loss of $54 million year-over-year, largely due to the $887 million gain on the sale of its supply chain business. Without the sale of APL Logistics, NOL pocketed $3 million in net profit for the period.

The company said the second quarter saw severe freight rate erosion “with rates in major trade lanes falling to some of the lowest levels seen in recent years.” Despite the tough operating environment, the group said it posted a second quarter 2015 core EBIT (earnings before interest, taxes and non-recurring Items) of $29 million versus a loss of $15 million in the same quarter last year.

Core EBITDA (earnings before interest, taxes, depreciation, and amortization) in the second quarter was $119 million, up 53% from $78 million in the same period last year.

“The Group’s container shipping business continued to face a challenging environment characterised by over-capacity and weak market demand. Nonetheless, APL reversed a core EBIT loss in the second quarter last year to a positive position this year,” said group president and CEO Ng Yat Chung in a statement.

He said the company will continue to focus on improving its cost competitiveness, yield optimization, and service reliability to return the liner business to sustained profitability.

NOL reported $100 million in cost savings for the period under review, bringing its total cost savings for the first half of the year to $255 million. “There is room for further cost savings with another nine vessels scheduled for expiry in the second half of this year,” added Ng.

Following the completion of the sale of APL Logistics on May 29 this year for a final purchase price of $1.238 billion, the group registered a gain of $887 million.

APL, NOL’s container shipping business, recorded a 12% volume reduction in the second quarter compared to the same period last year, due both to weak global demand and the carrier’s continued efforts to trim capacity on unprofitable trade lanes to optimize yield. Its average freight rates dipped 17% amidst pressure from over-capacity in the industry. Versus the same period last year, APL’s revenue fell 22% to $1.3 billion in the second quarter of 2015.

In spite of reduced revenue, APL achieved an improved 2Q core EBIT of $20 million, compared to a loss of $28 million over the same period last year. This is its sixth consecutive year-on-year improvement in its quarterly core EBIT.

APL attributed its performance to stringent cost management as well as a yield-focused trade strategy that emphasizes network rationalization and better cargo selection. The carrier returned five “expensive” chartered ships in the second quarter. As a result, total cost of sales per forty-foot-equivalent unit fell by 15% year-on-year. APL also kept its headhaul utilization above 90%.

“These efforts mitigated the impact of lower volumes and freight rates in the quarter under review,” it continued.

APL also highlighted its improved schedule reliability, saying: “According to the June edition of the Global Liner Performance Report published by SeaIntel Maritime Analysis, APL was the most reliable carrier in May 2015 with a global on-time performance of 85.5%, above the industry average of 78.3%.”

NOL earlier this month clarified that it had not yet made any decision to sell its shipping liner business, amid media reports about its rumored sale. It issued the statement after media reported that Temasek Holdings, which owns nearly 67% of NOL, had put the loss-making shipping company up for sale.