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SINGAPORE,
27 MARCH 2002 – Global transportation and logistics company Neptune
Orient Lines Ltd (NOL) today reported a loss for the full year 2001
of US$57 million. This included one-off provision of US$14 million for
impairment in values, particularly of various non-core property investments.
Revenue for the year was stable, increasing three per cent from US$4.61
billion to US$4.74 billion, while Earnings from business operations
Before Interest expenses, Tax, Depreciation, Amortisation and Minority
Interests (EBITDA) was US$349 million.
NOL Group President and Chief Executive Officer, Mr Flemming R Jacobs,
said, “The downturn in world trade coinciding with a substantial addition
of ship capacity had a significant impact on the Liner business and
therefore on the Group as a whole.”
APL Liner continued to be the biggest activity at 76 per cent of total
revenue, while APL Logistics’ share increased to 15 per cent and nine
per cent came from NOL Chartering and Enterprise activities.
Mr Jacobs said, “ Our tanker business, American Eagle Tankers (AET),
contributed strongly to the net result of the Group. Chartering, of
which it is part, achieved core Earnings Before Interest and Tax (EBIT)
of US$85 million on turnover of US$359 million.
“APL Logistics grew its topline by 72 per cent in 2001, but the bursting
of the dotcom bubble had a major negative impact on Direct Logistics,
which was part of the acquisition of GATX Logistics early in 2001. It
delivers goods purchased on-line and this business has fallen away,
so we have decided to exit Direct Logistics. For similar reasons we
also moved away from further developing IT specifically geared to serving
e-exchanges.
“However, it was the Liner business that had a particularly tough and
disappointing year and this was the main cause of the Group’s loss.
“Due to the double digit increase in container vessel capacity that
was to be added globally, freight rates were already beginning to soften
in late 2000, but they deteriorated significantly during the year, reaching
unprecedented and unsustainable levels in some trades. The uncertainty
following the tragic events of September 11 added to an already bleak
global trade environment.
“We of course plan for the swings and roundabouts that are inherent
in our cyclical industry. We knew global capacity would grow by 11 per
cent, and trade was forecast to grow by seven per cent. The capacity
came but the trade volume did not. As a result, rates disintegrated,”
Mr Jacobs said. “In just one year average trade-weighted rates plummeted
to levels last seen during the Asian crisis in 1997/98. But back then,
it had taken three years for the rates to erode that far.”
Reducing Costs, Gaining from Efficiencies Mr Jacobs said, “We moved
as swiftly as it is possible in our industry to match services to the
changed trade environment. We focused even more strongly on reducing
our costs particularly those associated with capacity, while still ensuring
we could grow our volumes in our target markets. The positive impact
on our fixed costs of those efforts will be felt mostly as we go forward
and had little impact on the 2001 results.
“Overall during 2001 we achieved considerable efficiencies that would
have been impossible if we had not worked hard over the past few years
to build strength and flexibility into the organisation. These efficiency
gains will enable us to provide better service, be more competitive
and make further savings in the future, thereby contributing positively
to the bottom-line.”
Mr Jacobs said there had been improved productivity across all business
units. In the core Liner business headcount had been reduced globally
by nearly ten per cent, even as volumes grew. “As we continue to press
for efficiencies, there will be further adjustments. However, we can
achieve these efficiency gains without compromising quality, adjusting
our work processes to meet new developments, and taking advantage of
natural attrition where possible,” Mr Jacobs said.
“By expanding the use of e-commerce solutions, particularly in the areas
of documentation, savings have been achieved for both the company and
its customers. For example we achieved a six per cent reduction in costs
associated with bills of lading processing and a 17 per cent increase
in productivity largely as a result of e-commerce developments. Around
one third of our customers now actively use our e-commerce products
and we saw a two-third increase in Internet transactions in 2001.”
Assets are also being used more efficiently. For example, we move more
cargo without correspondingly increasing the number of physical containers
in use.
“While we are focused on reducing costs and improving productivity,
that is not enough in these tough times,” Mr Jacobs said. “To prepare
for the future recovery we have been building on our strong relationships
with customers to forge partnerships that allow us to meet their needs
now and into the future in an even more targeted manner. We have also
been investing in our network and our people across all business units.
This was part of our on-going effort also to ensure that we would not
go into hibernation just because a recession in world trade had hit,
but instead prepare to emerge an even stronger competitor when the recovery
comes.”
Liner Turnover for APL was US$3.6 billion, down from US$3.8 billion
in 2000. Total volumes increased three per cent to 1.4 million 40-foot
Equivalent Units (FEUs). Globally, APL rates averaged US$2,304 per FEU,
down nine per cent from US$2,523 in 2000.
As a major player in the Trans-Pacific trade, APL was hit hard as trade
volumes remained flat, falling 0.3 per cent, while capacity increased
by just over nine per cent. The Americas region, which includes Latin
America as well as the Trans-Pacific trade, saw APL’s volumes decline
by three per cent and average freight rates by around eight per cent.
In the Europe region, APL’s volumes grew 24 per cent as we further developed
our market there, but average rates fell 13 per cent on the back of
substantial industry increases in capacity on the Asia-Europe trade
of 12 per cent.
The Asia/Middle East region held steady, largely because of reasonably
robust Intra-Asia trade, suffering only a small decline in both volumes
and rates despite increased competition in the region.
In 2001, insurance costs rose significantly particularly in the final
quarter, when there was an increase of US$6 million. Other costs to
comply with new security requirements of around US$3 million also impacted
us in the final quarter.
APL Chief Operating Officer Ed Aldridge said that the constant focus
on costs continued to yield good results. However, this was far from
enough to counter the rate decline brought on by capacity issues. Services
have either been scaled back or removed in response to the reduced demand
of customers, and as volumes return the focus will be on improving fleet
utilisation.
Mr Aldridge said that the company benefited from the acquisition in
May 2001 of American Automar, which had performed well in 2001. Automar
is a ship-owning company providing U.S.-flag sealift services to the
U.S. Department of Defense (DoD) and other government agencies.
Outlook for 2002 Mr Aldridge said that the key word for the future was
“focus”, as evidenced in the recent organisational changes that created
six instead of three regions, including a new, Greater China region.
This underlines the importance APL puts on that market as China moves
to break down barriers to trade with membership of WTO. Currently China
trade accounts for around 40 per cent of APL’s business, and this is
expected to increase over coming years.
He also said that strides had been made to develop more effective sales
and pricing systems for the future. “Our industry is suffering from
way too little differentiation in pricing for our various services,”
he said. “This has to improve. E-commerce and the development of other
innovative information technology (IT) tools will allow us to better
price and to optimise our network, which we must do to improve our margins.”
2002 is expected to be another tough year. Mr Jacobs said, “We anticipate
moderate growth in volumes during 2002, but unless rates recover, APL
will not be a strong performer this year. We will continue to focus
on cost savings and have again substantial targets set for the year.
While we do not specify our targets, our record shows that we continue
to manage our costs effectively. But it is as important for us to also
be growing our top line with the right business. It is not enough just
to cut costs and neither merely to put any cargo on vessels. It must
be the right cargo so that we make the most of our global network while
managing our costs.”
Logistics Net turnover of APL Logistics (APLL) increased by 72 per cent
in 2001, from US$420 million to US$723 million. Overall, core EBIT for
the Logistics business was negative US$16 million. A comparison with
core EBIT for 2000 is not meaningful because of the substantial change
to the business due to acquisitions and consequent amortisation.
Integration costs associated with the acquisition of GATX Logistics
and German freight forwarding and distribution specialist Mare Logistik
& Spedition GmbH, together with the negative impact of Direct Logistics,
hit APLL’s bottom line.
CEO Dick Metzler said that during 2001 APLL had also further enhanced
its IT capabilities, investing in end-to-end supply chain visibility
product See Change Technology. “This is already winning fans amongst
our customers who are eagerly awaiting further developments, the next
stages of which are currently being tested.
“See Change Technology is something you will hear a lot more about.
It is an important IT tool and the backbone of supply chain management
for customers and us,” he said.
Outlook for 2002 Mr Metzler said that having now fully integrated GATX
Logistics, put the new management team in place and structured the organisation
for growth, he was looking to achieve significant gains in both efficiencies
and results during 2002.
“We said a year ago that we had ambitious growth plans for the coming
three to five years. Already in year one we took some significant steps.
As part of our plan we will continue to explore joint venture relationships
while spending time and effort on building fundamental profitability
into the business and pursuing healthy organic growth.
“We are projecting revenue in 2002 of around US$900 million and at least
80 per cent of this is forecast to come from business already committed,”
Mr Metzler said.
“All of us are committed to returning a positive contribution to the
Group in 2002,” he added.
Tanker The chartering business, consisting mainly of the crude oil transportation
activity under American Eagle Tankers (AET), and product tankers now
operated under Neptune Associated Shipping (NAS), performed well during
2001, despite a volatile year for the industry as a whole. Core EBIT
was US$85 million, up 73 per cent, while turnover reached US$359 million.
The remaining four bulk carriers were bareboat chartered out for a minimum
three years and will leave the fleet at the end of that time. Because
of this, exit costs will be spread over this and the subsequent two
years.
CEO and President Joseph Kwok said, “AET remained strong in the Atlantic
basin during 2001, delivering around 13 per cent of the USA crude oil
imports. Our lightering business in the Caribbean and Gulf of Mexico
region continued to be an important part of our business. We also expanded
our presence in the North Sea and Mediterranean regions.
“At the end of 2001, AET’s fleet strength stood at 25 modern Aframax
tankers (vessels with a carrying capacity of around 100,000 deadweight
tonnes (dwt)), all either double-hulled or double-sided. We continue
our strong focus on safety and reliability and, as part of our fleet
renewal programme, we plan to take delivery of five new double-hulled
Aframax tankers by the end of 2003.
Outlook for 2002 “A softer spot market is expected for most tanker sectors
compared with the past two years as production cuts reduce the demand
for oil transportation,” Mr Kwok said.
“In the Aframax sector, 24 per cent of the current capacity is on order
for delivery particularly over the coming two years. There will be some
scrapping due to age and vessels being single-hulled. However, supply
overall is likely to weaken, at least until the oil starts to flow fully
again. But we expect relatively better utilisation due to our position
in the lightering business,” Mr Kwok said. “In addition, I also see
a promising future for NAS.”
NOL Group Outlook Mr Jacobs was not optimistic about the business climate
for 2002, saying that falling rates in the Liner business had continued
through to the end of 2001, which meant that this year started from
a lower base. He said, however, that the Group now had the fundamentals
right and so was well positioned with a lower cost base to cope with
the cyclical nature of the industry and achieve sustained profitability
when trade and freight rates returned to more historic levels
“We are starting to see some better trade volumes and slight improvements
in freight rates in some trades,” he said. “However, unless we start
to see more substantial improvements, it will be difficult for us to
achieve profitability this year.
“As I said at the time we announced our interim results for 2001, we
would have liked a little more time to consolidate our position,” he
said. “However, we are getting the right underlying processes, network
and people in place and we are building from that base to generate better
income and still reduce costs even further.
“We will continue to improve productivity during 2002 and achieve higher
yields with more focused sales and sustainable pricing.
“Our cashflow is strong and in June we arranged a note issue of approximately
US$300 million to support the expansion of our Group businesses and
to refinance existing borrowings. The arrangement was part of a medium
term note (MTN) programme of up to US$1 billion for up to ten years.
This reflects the confidence of the banking community in our future,
and allows us to invest in opportunities that may arise during 2002
and beyond, and to prepare for the recovery we know will come.
“Early in 2002 we made changes to the management organisation of APL
to take advantage of the depth of talent in the APL management team
and to allow all to focus clearly on those areas where we can improve
and grow, and to search for further efficiencies. As part of our restructuring
in 1999, we established a relatively central core of management to get
our fundamentals right. Having achieved that we are ready to expand
the local focus.
“In addition, we continue to invest in the skills and development of
our people for the future demands of our organisation, with training
through the NOL Global Campus and with the expansion of our Management
Trainee Programme. Nearly 50 young people are now part of the three
year programme and more will be added this year. It is a pleasure to
see these young folk grow and take charge,” he added.
“There is no doubt that this is a difficult business climate,” Mr Jacobs
said. “As part of the infrastructure of world trade, we in the transportation
industry are directly and negatively impacted by downturns. But the
NOL Group has the strength and the flexibility to meet the challenges
and make the most of the opportunities, focusing not solely on cost
cutting but on improving efficiencies and growing our business judiciously.
This is a strategy not just for the tough times, but for all times,”
he concluded.
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APL Media contacts:
Sarah Lockie(65) 6371.5022sarah_lockie@nol.com.sg<BR><BR>
Asia, Paul Wilke, tel. +65 371-5311 or email Paul Wilke at paul_wilke@apl.com
Americas, John Pachtner, tel. +1-510-272-7208; or email john_pachtner@apl.com
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