NOL results boosted by sale APL but underlying figures are solid

NOL Group has reported its Q2 2015 financial results. It reported revenue of $1.55bn, a decline of 24% compared to Q2 2014. Meanwhile the company also recorded net profit of $890m, although excluding the $887m gain on the sale of APL, its supply chain management business, NOL achieved a net profit of $3m for the period. However, compared to a net loss of $54m in 2Q 2014 this represented a marked improvement. A more telling measure is the turnaround in NOL’s Q2 EBIT of $29m from a loss of $15m in the second quarter of 2014. Accordingly the company’s EBIT margin stood at 1.87%.

Singapore-based NOL said that the second quarter of 2015 saw severe freight rate erosion with rates in major trade lanes falling to some of the lowest levels seen in recent years, seriously affecting profitability.

“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 NOL Group President and CEO Ng Yat Chung. “We remain focused on improving our cost competitiveness, yield optimization and service reliability to return the liner business to sustained profitability.”

NOL reported $100m in cost savings in 2Q 2015, bringing its total cost savings for the first half of the year to $255m. “There is room for further cost savings with another nine vessels scheduled for expiry in the second half of this year,” added Ng Yat Chung.

Following the completion of the sale of APL Logistics on May 29, 2015 for a final purchase price of $1.24bn, and after taking into account transaction and transaction-related expenses, the NOL group registered a gain of $887m. The group saw a healthier balance sheet after repayment of debt, with its net gearing ratio reduced to 1.03x from 2.25x.

APL, NOL’s container shipping business, recorded a 12% volume reduction in 2Q 2015 compared to the same period last year, due both to weak global demand as well as the carrier’s continued efforts to trim capacity in unprofitable trade lanes to optimise yield. Its average freight rates dipped 17% amidst pressure from over-capacity in the industry. Versus the same period of 2014, APL’s revenue fell by 22% to $1.3bn in the second quarter of 2015.

In spite of reduced revenue, APL achieved an improved 2Q 2015 Core EBIT of $20m, compared to a loss of $28m compared the same period of 2014. APL attributed its performance to stringent cost management as well as a yield-focused trade strategy that emphasises network rationalization and better cargo selection. These efforts mitigated the impact of lower volumes and freight rates in the quarter under review.