Agility plan rolled out on 1 July, combining an assertive $1 billion cost-cutting programme and in addition to integration synergies with APL
Performance impacted by persistently low freight rates
Unit costs reduced by a significant 10.7%
Q2 – 2016
Excluding NOL’s contribution*
Q2 – 2015
%
Q2 – 2016
Revenue, in $ billions
3.3
4.1
-18.6%
3.5
Core EBIT**, in $ millions
-66
325
n.m
-81
Core EBIT margin
-2.0%
7.9%
-10.2ppt
-2.3%
Consolidated net profit/(loss), Group share,
in $ millions
(109)
156
n.m
(128)
Return on invested capital
n/a
14.0%
n/a
-0.4%
Volumes carried, in TEU*** millions
3.3
3.3
+0.2%
3.5
Vessel fleet
445
457
-12
532
Fleet capacity, in TEU*** millions
1.807
1.692
+6.8%
2.351
Gearing
n/a
0.47
n/a
1.47
*Excluding NOL’s contribution which has been included in the consolidation scope from 14 June 2016
**EBIT before disposals and impairment charges and non-recurring items
***Twenty-foot equivalent units
Rodolphe Saadé, CMA CGM Group Vice-Chairman, said:
“We are experiencing a market environment that remains difficult, with excessively low freight rates weighing on our revenue and margins. In an environment shaped by a lack of visibility, CMA CGM has the advantage of a strong liquidity position. The strategic relevance of NOL, fully financed, is reinforced. We are working to improve operating performance, notably via the launch of the Agility plan, which includes a programme to reduce costs by $1 billion over the next 18 months, and in addition to the post-acquisition synergies with NOL.”
The Board of Directors of France’s CMA CGM Group, a leading worldwide container shipping company, met under the chairmanship of Jacques R. Saadé, Chairman and Chief Executive Officer, to review the financial statements for the second quarter of 2016, which included NOL as of 14 June.
Review of operations in the second quarter
Excluding NOL’s contribution, freight carried by CMA CGM rose by 0.2% year-on-year in the second quarter, to 3.3 million TEUs.
Volumes rose slightly on the North-South lines, but declined on the East-West lines. Including NOL, which was consolidated as from 14 June, total volumes carried for the period amounted to 3.5 million TEUs.
Average revenue per TEU, excluding NOL, fell by 18.8% year-on-year and by 6.0% quarter-on-quarter, reflecting the persistent pressure on freight rates.
As a result, consolidated revenue contracted by 18.6% like-for-like over the period, to $3.3 billion ($3.5 billion including NOL).
The Group kept a tight rein on costs, helping to drive a 10.7% reduction in unit costs thanks to the combined impact of lower bunker prices and disciplined expense management. As part of this process, CMA CGM rationalised its network of lines and continued to align deployed capacity with market demand.
Core EBIT ended the period at a negative $66 million, excluding NOL, and a negative $81 million as reported.
Excluding NOL, the net loss stood at $109 million.
Highlights and outlook
NOL acquisition completed
After successfully acquiring a controlling interest in NOL, CMA CGM has consolidated the Singapore-based company since 14 June.
By 30 June, the total stake had risen to nearly 93%. Since that date, a compulsory acquisition process has been initiated, which will result in CMA CGM owning all of the company’s outstanding shares. Subsequently, as previously announced, NOL will be delisted.
The acquisition has made CMA CGM a driving force behind market consolidation, while enabling the Group to strengthen its competitive position and resilience in a challenging market environment.
Integration of NOL
As part of the NOL integration process, CMA CGM reviewed the portfolio of brands deployed on its various lines and concluded that only two brands should be used on each trade. APL will now serve as the core brand alongside CMA CGM on the Transpacific, Transatlantic and Asia-Gulf lines. ANL will be repositioned on the Asia-Oceania trade. Reorganisation of the APL and CMA CGM lines will be further improved when Ocean Alliance is implemented next April.
In addition, the synergy and rationalisation programme is now being implemented, with the goal of enabling APL to reduce its costs and enter a new phrase of growth.
Creation of Ocean Alliance
Work is continuing apace in preparation for the start-up of the Ocean Alliance operating partnership with Cosco Container Lines, Evergreen Lines and Orient Overseas Container Lines. As previously announced, the Alliance is scheduled to start operating in April 2017, once the regulatory approvals have been granted. Like the other CMA CGM subsidiaries, NOL will be part of Ocean Alliance from the beginning.
Start-up of the Kingston Container Terminal concession in Jamaica
Announced in 2015, the Kingston Containers Terminal concession has come came into effect on July 1st. The hub, which will be expanded, is ideally situated to accommodate vessels on Central America-Caribbean lines outbound from the newly widened Panama Canal.
Roll-out of the Agility operating efficiency plan on 1 July
The Group has deployed Agility, a global plan to improve operating performance that combines:
· A programme to reduce costs by $1 billion over the next 18 months by capitalising on the Group’s experience in this area.
· The NOL synergy programme.
In particular, these plans are structured around i) the reorganisation of the line network; ii) the optimisation and renegotiation of bunker costs, charters, logistics, port handling and other operating expenses; and iii) certain initiatives intended to boost revenue per TEU, notably by expanding in such high value-added segments as reefer carriage.
In support of the Agility programme, CMA CGM has responded to the industry’s difficulties by postponing delivery of certain vessels until 2017 and reducing its capital expenditure commitment.