Neptune Orient Lines Lessens the Bleeding

The shipping industry continues to face headwinds in 2013 and this has caused Neptune Orient Lines (SGX: N03) to continue facing losses though there are signs of shoots of improvement.

The company had just released its full-year results for 2013 yesterday and is the parent of Asia Pacific Liner (APL), the largest container shipping outfit in Singapore.

Performance for the year

With shipping firms, it’s perhaps instructive for investors to cast an eye on industry-trends related to supply and demand. During the whole of 2013, total industry capacity (the supply) for container freight grew by 5.7% whereas global throughput volume (the demand) only went up by 3.6%. The mismatch between supply and demand caused the SCFI freight rate index to drop by 14% in 2013.

With a falling freight rate as a backdrop, Neptune Orient Lines (NOL) had suffered a 7% year-on-year drop in revenue to US$8.83 billion. The company splits its revenue streams into two segments: Liner, and Logistics. The liner business, which accounts for 83% of NOL’s total revenue, saw its top-line slip by 9% to US$7.33 billion. Meanwhile, the logistics business was there to soften the blow a little as sales grew 2% to US$1.59 billion.

With the company’s aggressive cost cutting initiatives (NOL has reportedly saved more than US$1 billion in costs over the past two years), its core earnings before interests and tax (EBIT) had managed to improve 9% from a loss of US$183 million in 2012 to a loss of US$167 million.

Consequently,  NOL achieved a net loss of US$76 million for 2013, which is a big improvement from the net loss of US$412 million recognised a year ago. However, it should also be noted that NOL’s results for 2013 were supported by a one-time US$200 million gain stemming from the sale of its headquarters in Singapore.

Balance sheet worsens

As the company is still suffering from losses, its debt level has been increasing. Compared to a year ago, NOL’s net gearing (net debt over total equity) had increased from 1.4 times to 1.82 times.

But despite a weakening balance sheet, the company’s net asset value per share had improved slightly from S$1.01 at the end of 2012 to S$1.02 as of 31 Dec 2013. That’s because the Singapore dollar has depreciated against the US dollar.

Foolish Summary

It seems that NOL is still wary of the near term prospects of the liner industry. It expects the over-supply issue to continue and freight rates to be under pressure. It should be noted however, that the company’s still aggressively expanding amid weak macro-economic conditions judging from the increase in its capital expenditures from US$1.0 billion in 2012 to US$1.31 billion in 2013, with the bulk of the money spent on purchasing vessels.

Going forward, NOL mentioned that it would focus on improving its cost management and operational efficiencies.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.