DP World Limited revenues decline during 6 months to 30 June 2009
Statement by Mohammed Sharaf Yuvraj Narayan, Chief Executive Officer and Chief Financial Officer, DP World: The first six months of 2009 have continued to present a very challenging operating environment across the portfolio. Despite the 10% decline in container volumes, EBITDA margins have remained strong at 38.7%, which is primarily as a result of solid results from emerging market terminals, improving terminal efficiencies and a strong focus on managing costs across our portfolio.
During the period we were awarded new concession agreements in Algeria, for ports in Algiers and Djen-Djen, which we began operating in the second quarter. We renewed two concessions in Australia in Adelaide and Sydney, for a further 30 years and 15 years respectively, and we began operations at new development Doraleh, Djibouti.
Our terminals in the UAE delivered a solid performance, working with our customers to handle larger container vessels and deliver a cost efficient platform from which customers are able to deliver cargo around the Gulf and Middle East and further afield into India and Africa.
Chief Executive Officer Mohammed Sharaf commented: “Our business has responded well to the very challenging macroeconomic environment in the first half of this year which resulted in a 10% decline in container volumes. “These results show that our business model has the flexibility to adapt to changing market environments. All our terminals around the world have worked very hard to improve efficiencies for customers and remove costs from the terminals to ensure we continue to operate efficient and profitable terminals. The quick action of management has resulted in a more positive outcome than might otherwise have been.
“Our portfolio has benefitted from our focus on emerging markets and in particular the UAE has continued to deliver a solid performance as the gateway for trade to the Gulf and Middle East.
Review of Operational and Financial Results
Our financial performance for the six months to 30 June 2009 reflects the 10% decline in consolidated volumes we have seen across our portfolio of 49 terminals and a substantial decline in non-container revenue. In addition, our portfolio of joint ventures and associates has contributed a significantly smaller profit so far this year.
As a global business, we are exposed to currency translation on our reported results. For this period, the strengthening US dollar has resulted in a net unfavourable currency movement of 3% on EBITDA.
Our portfolio and business model has responded with more resilience to declining volumes and with more flexibility to changes in our cost structure than we anticipated. Container revenue per TEU has held up and we have been able to remove more costs from our business at the same time as improving terminal efficiencies. This has resulted in strong EBITDA margins of 38.7%.
Revenue for our consolidated portfolio in the first half of 2009 was $1,384 million against our 2008 revenue for the same period of $1,598 million, a decline of 13% as a result of the 10% decline in container volumes and a decline in non-container revenue of 23%. Containerised revenue accounted for 80% of our total revenue in the period and reported a decline of 10% in line with the decline in volumes.
Excluding the contribution from those terminals which were not included in the prior period, underlying revenue declined by 20% against a volume decline of 13%. The strengthening of the US dollar has also impacted our reported revenue over the last few months.
Expenses for the period were $882 million, 12% lower than the same period last year despite the addition of new terminals into our portfolio. We have successfully reduced our fixed costs by 15%, with variable costs declining in line with revenue. Looking forward, we will continue to be as focused on reducing costs as in the first half of the year.
Our share of net profit from joint ventures and associates was $33.4 million, a decrease of 40% over the same period last year reflecting a significant volume decline in the first six months of the year in the Europe, Middle East and Africa region.
EBITDA declined 18% to $535 million with EBITDA margins of 38.7% against 40.8% for the same period last year. EBITDA and the EBITDA margin both include the contribution of profit from joint ventures and associates which has significantly declined in the current period. Net profit after tax from continuing operations was $188 million against $287 million for the same period last year.
With the decline in container volumes this year, we postponed approximately half of our capacity expansion plans focusing on expansion of those new developments which are nearing completion or those that are replacing existing terminals. We have continued to invest in appropriate equipment to ensure those terminals that joined the portfolio in the last 12 months develop into cost efficient terminals and to enable our customers to benefit from improved efficiencies.
In total, our capital expenditure in the first half was $516 million, of which over 90% was invested in new developments and 8% was spent on maintenance capital expenditure.
Review of Regional Trading for continuing operations
The Europe, Middle East and Africa region benefitted from new terminals joining the portfolio in the first half. A solid performance in the UAE was despite the decline in non-container revenues, as volumes and revenue held up better than in other markets. This solid performance was offset by the very challenging operating environment across Europe where margins came under pressure.
As of 30 June 2009, we had 25 terminals in the region, of which 13 were consolidated for financial reporting purposes. On average, terminals that contributed to revenue for the region experienced a decrease in volume of 9% over the same period the previous year. The region benefitted from a full six months of volumes from Dakar (Senegal), Sokhna (Egypt) and Tarragona (Spain) as well as a contribution from Doraleh (Djibouti).
Revenue from our consolidated terminals declined 8% in line with the 9% decline in volumes across this region. Excluding those terminals that joined the portfolio during the year, underlying revenue declined 20%, primarily as a result of the large decline in non-container revenues and the challenging operating environment in Europe.
Our share of profit from joint ventures and associates was severely impacted by this region’s exposure to joint venture terminals in Europe with only $0.8 million of profit generated in the first half.
EBITDA fell 11% to $391 million with margins of 45%, largely unchanged on the same period last year reflecting the greater contribution of EBITDA from those terminals with higher margins.
The Asia Pacific and Indian Subcontinent region showed the least impact of the downturn across financial results as the 10% decline in volumes only led to a 7% decline in revenue and a 6% decline in EBITDA.
As of 30 June 2009, we had 15 operating terminals in the region, of which 7 were consolidated for financial reporting purposes. On average, terminals that contributed to revenue for the region experienced a decrease in volume for the period of 10% compared with the same period in the previous year and utilisation rates remaining in the region of 90%.
Revenue from our consolidated terminals declined by less than the decline in volumes – only 7% on the back of a 9% decline in volumes as containerised revenue per TEU increased slightly driven by strong performance in Karachi (Pakistan).
Our share of profit from joint ventures and associates declined 10% as terminals predominantly in Asia reported a considerable decline in volumes. EBITDA fell 6% to $127 million with margins maintained at 51%, despite the volume decline. This is as a result of our ability for those terminals in this region to implement cost reductions which in total have amounted to 8% over the prior period.
$90 million of our capital expenditure was spent in the region focused on our new developments at Ho Chi Minh City (Vietnam), Vallapadam (India) and Karachi (Pakistan).
The Americas and Australia region is predominantly made up of terminals in developed countries which have been harder hit by the downturn in global trade. Our volumes declined by 16% and we reported a greater decline in revenue and EBITDA as unfavourable movements in currency disguised the substantial cost savings made in the region since the second half of last year.
As of 30 June 2009, we had 9 terminals in the region, of which 7 were consolidated for financial reporting purposes. In addition, P&O Maritime Services is accounted for in this region. On average, terminals that contributed to revenue experienced a decrease in volume of 16% against the same period last year.
Revenue declined by over 31% in line with both the volume decline and unfavourable currency movements. At constant currency, revenue per TEU was flat against the same period last year. Our share of profit from joint ventures and associates was similar to the same period last year at $12.7 million as the majority of our joint ventures in this region delivered a small increase in profit
over the prior period.
EBITDA fell to $59 million resulting in lower margins of 22%, against 31% for the prior period as a result of the decline in volumes and the unfavourable movement in currency – costs were reduced by 21% during the first six months of the year.
$91 million of our capital expenditure was spent in the region, predominantly in our new development in Peru, Callao and in Brisbane following the successful renewal of the concession agreement at the end of last year.
Capital expenditure for the first six months of the year was $516 million, focused on the completion of the expansion of Jebel Ali (UAE), our new terminal at Doraleh (Djibouti), both of which are fully operational, and our new terminal developments at Ho Chi Minh City (Vietnam) and Callao (Peru), both of which should be operational in the next six months.
In addition, we have invested in those ports that joined our portfolio over the last 12 months and they are benefitting from appropriate improved equipment to develop them into cost efficient, higher margin terminals.
We remain fully committed to meeting the long-term market demand for capacity expansion, however, due to the continued decline in global trade and lower utilisation rates continue, and therefore we continue to take a cautious approach to investing in new capacity with capital expenditure in new capacity expected to be as previously guided, in the region of $800 - $1,000 million for the full year.
Net debt at the 30 June 2009 was $4,792 million compared with $4,215 million at the end of 2008. This increase in net debt is as a result of continued investment in our portfolio. Net finance costs are largely unchanged against the prior period at $131 million.
Earnings per Share
Earnings per share have declined by 33% to 1.06 cent per share.
As announced at the time of our IPO, it is our current dividend policy that not less than 20% of our profit for the year attributable to shareholders of the Company (after separately disclosable items) will be distributed as dividends. Dividends in respect of the full year 2009 will be proposed with the preliminary results for the full year 2009.