NOL stuck in the red for third straight year with $220.4m net loss

Cost savings are not enough.

NOL remains in the red for the third straight year, though net loss for FY15 tapered by an impressive 41.1% to $220.4m despite a 23.4% fall in revenue as cost of sales sank 25.2% to $5.03b.

According to a report by OCBC, the company’s Q4 net loss narrowed 36.8% YoY to $77.3m. Q4 revenue dropped 28.5% YoY to US$1.28b due to void sailings, weak freight rates and subdued container trade demand.

Cost of sales in the quarter tumbled 27.7% YoY to US$1.23b, mainly thanks to cost savings of US$100m (network optimisation and charter expiries) and a a US$130m fall in bunker price. However, costs savings and cheaper bunker were not enough to offset the US$99m volume decline and US$288m plunge in freight rates.

Meanwhile, NOL management states it is bracing for another rocky year. OCBC believes this gloomy outlook will persist due to flagging global trade growth on uncertain global economic outlook, and overcapacity of containerships exerting downward pressures on already depressed freight rates.

Over the last quarter of FY15, Transpacific (TP), Asia-Europe (AE) and Asia-Middle East (A-ME) trade routes comprised 45.8%, 13.0% and 29.2% of NOL’s liner revenue. However, overcapacity continued to drag down freight rates as its Q4 average revenue per FEU for all three trade routes. Demand also sank significantly as Q4 trade volume fell 12.7% YoY in TP, 16.2% in AE, and 5.4% in A-ME.

As such, these waning industry trends are expected to persist in FY16.

OCBC also notes that CMA CGM has been growing its NOL stake through open market purchase, and with NOL management expecting regulatory approvals by 2H16, the offer is likely to achieve its pre-conditions.