CMA CGM on the verge of completing NOL buy

This is likely to be the last time Transport Intelligence covers NOL as an independent financial entity.

On 25 May, France’s CMA CGM announced that it had received “confirmation that its pending acquisition of Neptune Orient Lines (NOL), South East Asia’s largest container shipping company, has been cleared by the anti-monopoly Bureau of the Chinese Ministry of Commerce.”

The $2.4bn deal will see CMA CGM acquire NOL and its container shipping line APL, and is set to be the largest takeover in the history of liner shipping in terms of capacity, with the buyer now expected to proceed with its formal offer this week, and meaning that its completion is only a matter of weeks away.

The combined entity will have a turnover of $22bn and a fleet size of 563 vessels, CMA CGM said when the deal was announced on 7 December 2015.

However, while the acquisition is almost done, the French group will have to pull all the stops to successfully integrate the troubled Singaporean firm. In early May, NOL’s trading update showed a first-quarter consolidated net loss of $105m, which is not a trivial amount, particularly because most of it was recorded at operating level, with an EBIT loss of $84m.

A comparison with the same period in 2015 shows that net losses widened significantly year-on-year from an $11m net loss one year ago, when EBIT was positive to the tune of $30m.

Although core EBITDA came in at $18m in the first quarter this year, worsening overcapacity “of shipping tonnage in 2015 hit the industry well into [this] first quarter,” pushing down adjusted cash flows by 86% from $133m one year earlier.

President and Chief Executive Ng Yat Chung said freight rates declined across all “major trade lanes to historic lows”, and while there are some indications demand may improve, there are no guarantees that asset utilisation levels will improve.

As a result, APL’s Q1 revenues plunged 29% to $1.1bn from $1.6bn year-on-year, while NOL’s top-line plunged down 43% from almost $2bn.

“The difficult market condition is prompting consolidation and changes in alliances in the industry. While APL continues to make progress in taking out costs and improving yield, the proposed acquisition of APL by CMA CGM will help APL achieve scale to stay competitive in the industry.”

NOL said that against a backdrop of weak global demand and excess capacity in the industry, “APL’s first quarter year-on-year volume fell 6% due mainly to weak backhaul volume, while average freight rates fell 23% during the same period.”

It added that in a challenging environment, APL maintained “prudent management of its deployed capacity, keeping its headhaul asset utilisation rate above 90%”, while it also stayed focused on its rigorous “cost management and yield-focused trade strategy that emphasised network rationalisation and better cargo selection”, which remains key in this market.

Source: Transport Intelligence, 1st June 2016

Author: Alessandro Pasetti