Orient Overseas (International) Ltd first half earnings fall 93 percent
Orient Overseas (International) Ltd (OOIL) posted a sharp drop in first-half earnings with its net profit plunging by almost 93 percent.
The Hong Kong-listed company, parent of container line OOCL, posted a net of US$158.2 billion, down from the $2.216 billion it reported in the same period last year.
The poor result saw its shares on the Hong Kong Exchange closing 7.5 percent down on the opening price.
The firm blamed the spike in oil prices for higher costs, resulting in the steep fall in profits despite higher revenues. OOCL accounts for 99 percent of OOIL's turnover.
Operating profit for container transport and logistics operations clocked in at $208.9 million, a meager 1.7 percent year-on-year increase.
"The improved result from our container transport and logistics operations came from increased revenue that was in line with our expectations," said OOIL chairman CC Tung.
"We experienced only a small decline in load factor despite a significant increase in capacity, and we benefited from the improvement in freight rates seen over the course of 2007.
"However, higher costs due to the increase in the price of oil offset a substantial portion of the improved revenue result."
OOCL's total liftings increased by 9.4 percent for the first half of the year, and overall revenue per TEU increased 14 percent over the corresponding period in 2007.
Ken Cambie, the group's chief financial officer, told reporters at the results announcement in Hong Kong that he expected the third quarter to be "difficult".
"But we hope by the fourth quarter to see a stabilisation of oil and food prices," he said.
Cambie cited the "Olympic factor", the shutting down of factories across northern China to reduce pollutants in time for the games, as one element that would have an impact on the second half of the year.
OOCL saw a 12.8 percent increase in capacity for the first half of 2008 as compared with the same period last year.
The company took delivery of three new 4,506 TEU vessels this year, with another 20 to be delivered by the end of 2011.
Asked if OOCL might cancel some of its vessel orders, Cambie said the vessels represented the minimum needed extra capacity.
He added that OOCL had long-term confidence in the industry and would be placing more orders at a later date.
Cambie said the group's largest volume was in the intra-Asia trade, and that the key issue for 2008 was bunker costs.
He noted that higher energy costs continued to affect profit margins, with only a 60 percent recovery of total fuel costs through the bunker adjustment factor.
The average bunker cost for the first half of 2008 was $502 per tonne, a 64 percent increase on the $306 per tonne in the same period of 2007.
"The weak US economy and the subprime crisis has effected volume and freight rates," said Cambie. "We expect US imports to continue to reduce, and to offset that we have seen a large increase in US exports and expect that to continue."
Stanley Shen, in charge of OOIL's investor relations, noted at the press conference that there had been a drop in US West Coast volume while box numbers to and from the US East Coast had increased.
Shen said the Asia to West Coast trade featured heavy competition with many lines competing for the transpacific business.
The Hong Kong-listed company, parent of container line OOCL, posted a net of US$158.2 billion, down from the $2.216 billion it reported in the same period last year.
The poor result saw its shares on the Hong Kong Exchange closing 7.5 percent down on the opening price.
The firm blamed the spike in oil prices for higher costs, resulting in the steep fall in profits despite higher revenues. OOCL accounts for 99 percent of OOIL's turnover.
Operating profit for container transport and logistics operations clocked in at $208.9 million, a meager 1.7 percent year-on-year increase.
"The improved result from our container transport and logistics operations came from increased revenue that was in line with our expectations," said OOIL chairman CC Tung.
"We experienced only a small decline in load factor despite a significant increase in capacity, and we benefited from the improvement in freight rates seen over the course of 2007.
"However, higher costs due to the increase in the price of oil offset a substantial portion of the improved revenue result."
OOCL's total liftings increased by 9.4 percent for the first half of the year, and overall revenue per TEU increased 14 percent over the corresponding period in 2007.
Ken Cambie, the group's chief financial officer, told reporters at the results announcement in Hong Kong that he expected the third quarter to be "difficult".
"But we hope by the fourth quarter to see a stabilisation of oil and food prices," he said.
Cambie cited the "Olympic factor", the shutting down of factories across northern China to reduce pollutants in time for the games, as one element that would have an impact on the second half of the year.
OOCL saw a 12.8 percent increase in capacity for the first half of 2008 as compared with the same period last year.
The company took delivery of three new 4,506 TEU vessels this year, with another 20 to be delivered by the end of 2011.
Asked if OOCL might cancel some of its vessel orders, Cambie said the vessels represented the minimum needed extra capacity.
He added that OOCL had long-term confidence in the industry and would be placing more orders at a later date.
Cambie said the group's largest volume was in the intra-Asia trade, and that the key issue for 2008 was bunker costs.
He noted that higher energy costs continued to affect profit margins, with only a 60 percent recovery of total fuel costs through the bunker adjustment factor.
The average bunker cost for the first half of 2008 was $502 per tonne, a 64 percent increase on the $306 per tonne in the same period of 2007.
"The weak US economy and the subprime crisis has effected volume and freight rates," said Cambie. "We expect US imports to continue to reduce, and to offset that we have seen a large increase in US exports and expect that to continue."
Stanley Shen, in charge of OOIL's investor relations, noted at the press conference that there had been a drop in US West Coast volume while box numbers to and from the US East Coast had increased.
Shen said the Asia to West Coast trade featured heavy competition with many lines competing for the transpacific business.