Orient Overseas () : Announces 2016 Interim Results

Press Release

August 08, 2016

Orient Overseas (International) Ltd
Announces 2016 Interim Results

• Group Revenue of US$2,561 million

• Group Operating Loss of US$19 million

• No Interim Ordinary Dividend

Financial And Operational Highlights

• Group EBITDA of US$192.3 million

• Group EBIT of (US$7.9 million)

• Net Debt to Equity ratio at 36%

• Announced formation of Ocean Alliance effective 2Q 2017

• Phase 1 of new Long Beach Container Terminal begins operations

• Six 20,000 TEU Class newbuilding vessels to be delivered in 2017

Orient Overseas (International) Limited and its subsidiaries (the 'Group') today announced a loss attributable to equity holders, after tax and non-controlling interests, of US$56.7 million for the six-month period ended 30th June 2016, compared with profit of US$238.6 million for the same period in 2015.

The loss after tax and non-controlling interests attributable to equity holders for the first six months of 2016 included investment income of US$25.2 million from Hui Xian and a net fair value gain of US$9.7 million on the revaluation of Wall Street Plaza (after capital expenditure net off).

Loss per ordinary share for the first half of 2016 was US9.1 cents, whereas earnings per ordinary share for the first half of 2015 were US38.1 cents.

The Directors have not recommended the payment of an interim dividend.

The Chairman of OOIL, Mr. C C Tung, said, 'Market conditions in the first six months of 2016 have been difficult for the industry. Weak economic growth in many key economies has constrained consumer demand, and global uncertainty seems to have given rise to some level of slowdown in corporate and government investment. Consumer demand and investment are the key drivers of demand in our industry, and in this context it is no great surprise that cargo volume growth has been uninspiring.'
'The recent UK referendum might also lead to some further delay in investment processes in the short term, at least in Europe, especially if negotiations between the UK and EU on their future trading relationship prove to be protracted. In addition, violence in Europe and geopolitical conditions in the Middle East and South China sea have injected another layer of cautiousness to sustained corporate activities and investment', added Mr. Tung.

'In addition to global economic uncertainty, the industry continues to face a supply and demand imbalance. A combination of weak global growth on the demand side and excessive shipping capacity growth, exasperated by the industry's relentless pursuit for scale and efficiency in recent years, has compounded the over capacity. The result is a weak freight market where rates fell to levels that at times failed to cover voyage costs in selected trade lanes', commented Mr. Tung.

'Although fuel costs have risen considerably since the remarkable lows of the first few months of 2016, they remain far lower than in recent years, and provide some element of cushion against the unsustainably low freight rates that have been seen in some trades', added Mr. Tung.

The average price of bunker recorded by OOCL in the first half of 2016 was US$186 per ton compared with US$352 per ton for the corresponding period in 2015. In the first half of 2016, fuel costs decreased by 41% when compared to the corresponding period in 2015.

In the first half of 2016, no new-build vessels were delivered, and no new orders were placed by the Group. For six 20,000 TEU class new-build vessels contracted with Samsung Heavy Industries Co. Ltd. in South Korea, they are expected to be completed by the end of year 2017.

Compared to the first half of 2015, OOCL liner liftings increased by 5% and load factor by 1%, but revenue dropped by 17%. Average revenue levels in some trade lanes reached new post-Global Financial Crisis lows, with an average revenue per TEU drop of 21% in the first half.

'In this challenging environment, our trademark attention to costs and to operational efficiency are more important than ever. This consistent approach over many years, implemented by our experienced staff, coupled with ongoing investment in IT to deliver superior customer service, yield management and cost control, will help ensure that OOCL is well placed to face up to the challenges of the current market and to be ready for the market upturn when it comes', continued Mr. Tung.

'OOCL Logistics is a business focus for the Group. The combination of a soft market environment, intense competition, and changing trade patterns brought about both lower margins and service challenges for the industry. OOCL logistics continues to focus on building the underlying business, remaining profitable, and working towards becoming a steady and meaningful contributor to the Group's bottom line in the future', added Mr. Tung.

The Group's property investments include its long-standing ownership of Wall Street Plaza located in New York. Wall Street Plaza continues to record steady results and based on an independent valuation, has been re-valued upwards by US$10 million as at 30th June 2016 to reflect an assessed market value of US$210 million. After offsetting a total of US$0.3 million improvement to the building spent in the first six months of the year, the net fair value gain for the first half of 2016 was US$9.7 million.

The Group continues its investment in Beijing Oriental Plaza directly through holdings in the Hui Xian REIT and indirectly through Hui Xian Holdings Ltd., which holds units in the Hui Xian REIT. In the first half of 2016, Hui Xian Holdings declared a cash dividend and dividend in specie to its shareholders, of which the Group's shares amounted to US$22.2 million. In addition, the Group also received a distribution of US$3.0 million from its direct holding of Hui Xian REIT.

Mr. Tung commented on the outlook in the container shipping market, 'Looking ahead, notwithstanding the fact that there have been some tonnage withdrawals and pockets of volume growth in selected trade lanes, if deployed capacity continues to be substantially in excess of demand, the second half of 2016 will be challenging and difficult.'

Mr. Tung continued, 'The industry continues to face a supply and demand imbalance. While the orderbook as a percentage of existing fleet is anticipated to drop to 6.7% and 5.5% respectively in 2017 and 2018, the challenge for the next half decade is on the demand side. The world economy seems uninspiring at best. The US may have passed its most difficult period in this cycle, and China will likely avoid a hard landing. Even if Europe finds its footing in the aftermath of Brexit, the world may very well need to adjust to a 'new normal' where unexciting growth and a low interest environment become the norm, at least for a half decade. In the mean time, the polarisation of domestic politics, the rise of populism, and the tendency towards 'turning inwards' for many nations may also translate into a slow down in the velocity of globalization.'
Mr. Tung concluded that, 'The first half of 2016 was disappointing for OOIL. We expect continued challenges given the global landscape. However, we remain confident that our prudent and deliberate management approach will lead the Group through the challenging times. Our customer base remains solid, and our business operations continue to benefit from our focus on cost and on efficiency, helped enormously by our ongoing investment in information technology. My colleagues and I remain committed to ensuring that the Group is well positioned for the future and continues to be one of the highest performing in the industry.'

As at 30th June 2016, the Group had total liquid assets amounting US$2.3 billion and a total indebtedness of US$4.0 billion. Net debt as at 30th June 2016 was therefore US$1.7 billion compared with US$1.6 billion as at the 2015 year end.

Mr. Alan Tung, the Group's Chief Financial Officer, said, 'The Group continues to have sufficient borrowing capacity and remains comfortably within its target of keeping a net debt to equity ratio below 1:1.' Mr. Alan Tung added that, 'The Group is deliberate in its efforts to balance the need for a strong and liquid balance sheet, necessary in a capital intensive business, with an industry-competitive shareholder return.'

OOIL owns one of the world's largest international integrated container transport businesses, which trades under the name 'OOCL'. With more than 320 offices in 70 countries, the Group is one of Hong Kong's most international businesses. OOIL is listed on The Stock Exchange of Hong Kong Limited.

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Issued by: Orient Overseas (International) Limited

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