The world’s fourth largest container port operator, with 48 container facilities and 13 new port developments in 31 countries worldwide, has blamed the global downturn in container volumes for the need to impose cost cutting measures that include a freeze on recruitment and tighter controls on expenditure such as travel.
Announcing the preliminary result for 2008, which he described as “another solid year of growth”, chief executive, Mohammed Sharaf, added, “The container terminal industry has reported increasingly challenging conditions during 2008, which have worsened during the fourth quarter.”
Whilst remaining confident of the long-term prospects for the industry and DP World’s strong competitive positioning, Sharaf cautioned, “We expect these conditions to remain for the foreseeable future. With this in mind, we have implemented a strategy to focus on minimising the impact on margins and preserving cash, which includes reducing costs and taking a prudent approach to our working capital position.”
Speaking to Reuters, DP World’s chief financial officer Yuvraj Narayan did not expect there would be substantial job cuts but added that until the market stabilises the company was “in no hurry to expand through acquisition”.
“Under the fast-changing conditions we have initiated a review of all expansion projects that are currently under implementation,” he told reporters. It is expected that the results of this review will be announced next month (March).
Giving a foretaste of the group’s performance, Narayan stated, “We anticipate delivering strong 2008 results with profit before tax expected to be well ahead of 2007”.
“We successfully integrated our new terminals at Aden, Dakar and Sokhna into our portfolio and won a concession to operate two terminals in Algeria, which will contribute to our volume during this year. We continue to improve efficiencies at our terminals and we are successfully managing the rollout of a major capacity expansion project at our flagship terminal in Jebel Ali.”
Preliminary figures for 2008, which will be fully reported in March, showed DP World handled more than 27.7m teus, representing a 15% on 2007, across its 26 ‘consolidated’ terminals, where the group has majority ownership or operational/management control. Excluding the contribution from new terminals joining the portfolio during 2008, volume growth was 6%. Across its total portfolio of 46 operational terminals in 2008, 46.8m teus were handled, an increase of 8%.
“Whilst volume growth was very strong in the first half, the slowing macroeconomic environment in the second half of the year has impacted volumes at many of our terminals, most notably in the final few months of the year,” Sharaf added.
Looking to the future he said, “It is too early to comment with any certainty on the outcome for 2009, but we believe our proactive approach to cost reduction and our strong focus on efficiency and customer service will help to mitigate the impact on profitability.”
It is estimated that DP World shares have lost more than 80 percent of their value since November 2007. The value of shares sold to the public to fund the purchased of P&O, including its ports business, for US$5.7bn, were valued at US$1.30 each. However, this week the Nasdaq Dubai stock market quoted the stock value at 25 cents, valuing the company at just over US$4bn, well below what it paid for P&O.
Analysts at Citigroup last week cut the price target for DP World to 50 cents from $1.10 and said 2009 and 2010 may be tough.