CMA CGM Reports $48M Profit, Receives $1.18 Billion Loan

The CMA CGM Group said that despite the financial and operational challenges posed by the coronavirus pandemic, it was able to turn in a solid first-quarter performance that included a net profit of $48 million.

CMA CGM said other Q1 achievements included increased liquidity, improved operating margin, and initiatives toward carbon neutrality.

"The good results of the first quarter demonstrate the strength and the resilience of the group," said Rodolphe Saadé, chairman and chief executive officer of the CMA CGM Group. "During this unprecedented crisis, our customers have been able to rely on our agility, the expertise of our teams, and [complementary logistics and maritime offerings] in order to ensure the continuity of their supply chains." 

CMA CGM said it also had demonstrated "effective cost control and prompt adaptation of deployed capacity in response [to] evolving market conditions."

The world's fourth-largest container shipping line said its operating margin increased to 13.5%, helping it achieve the $48 million profit.

Bolstered Bank Account

To strengthen its cash position, CMA CGM has obtained a €1.05 billion ($1.18 billion) loan 70% guaranteed by the French government. 

About a third of that loan reportedly will be used by CEVA Logistics, which CGM CGM acquired last year. 

CMA CGM said in the Q1 earnings announcement that it had begun a new phase in the plan to return CEVA to profitability. 

"The execution of this plan includes several actions, including revitalizing business development, reducing costs, and modernizing industrial assets and systems," CMA CGM said. "The COVID-19 crisis has confirmed the relevance of our strategy … offering complementary maritime transport and logistics services, namely CEVA Logistics' commercial offering, particularly in terms of air freight and warehousing."

In February 2019, CMA CGM announced that it would launch a $1.65 billion tender offer for the two-thirds of CEVA shares it didn't already own. Two months later it owned 98% of CEVA's shares and had replaced the freight forwarder's top management.

In November, CMA CGM disputed notions that the purchase of CEVA had overburdened the company with debt. But it did say at the time that it would continue to divest in an effort to raise $2 billion in 2020.

CEVA Logistics' Q1 2020 revenue increased by 0.6% to $1.71 billion, due primarily to the consolidation with CMA CGM's logistics business in May 2019.

CEVA's adjusted earnings with interest, taxes, depreciation, and amortization (EBITDA) decreased by 4.9% to $137 million, representing an adjusted EBITDA margin of 8%, CMA CGM said.

CMA CGM is not the first container carrier to receive government aid during the coronavirus crisis. After news broke last month that both Yang Ming and HMM were receiving federal aid, A.P. Moller – Maersk tweeted the link to an article in which its CEO, Søren Skou, told the Financial Times that the European Union needed to push for free trade and intervene against Asian carriers receiving government assistance.

CMA CGM said in the Q1 earnings release that it also will get an $815 million lift from the sale of its first portfolio of eight-port terminals. The sale of two additional terminals covered by the agreement between CMA CGM and China Merchants Port (CMP) is expected to close this summer.

The group announced in March that it had finalized the sale of its stakes to Terminal Link, a joint venture it created in 2013 with CMP and of which it owned 51%. CMA CGM sold its stakes in Odessa Terminal in Ukraine; CMA CGM PSA Lion Terminal, Singapore; Kingston Freeport Terminal, Jamaica; Rotterdam World Gateway, the Netherlands; Qingdao Qianwan United Advance Container Terminal, China; Vietnam International Container Terminal, Ho Chi Minh City; Laem Chabang International Terminal, Thailand; and Umm Qasr Terminal, Iraq.

CMA CGM said the sale was part of the $2.1 billion liquidity plan it announced in November. It said at the time the plan was to reduce the company's consolidated debt by more than $1.3 billion in the first half of 2020.

Q1 Ups And Downs

During the first quarter of 2020, "in the context of a slowdown in world trade and a decline in carried volumes," CMA CGM Group revenues totaled $7.19 billion, down 3% compared to revenues of $7.41 billion in the same period last year, it said. "This contained decrease is achieved thanks to the diverse range of industries in which the group's customers operate, a balanced global presence, and the complementary nature of the group's shipping and logistics activities."

The group said its operating performance improved significantly. Adjusted EBITDA increased by 25% to $973 million, "equating to a margin of 13.5%, up 3 percentage points relative to the first quarter of 2019," when adjusted EBITDA was $779 million.

Shipping revenue declined by 3.3% compared to Q1 2019, to $5.52 billion. "Volumes carried by CMA CGM decreased by 4.6% compared to the first quarter of 2019 due to the impact of COVID-19 and more specifically the shutdown of factories, particularly in Asia in February and March," it said. "Nevertheless, revenue per carried container improved slightly, due mainly to the application of fuel surcharges."

Adjusted EBITDA, excluding a gain from sales, increased by 31.6% over the first quarter of 2019 and reached $836 million. The adjusted EBITDA margin increased by 4 percentage points to 15.1%.

"The performance reflects the full impact of the cost-reduction plan implemented throughout 2019 and still continuing during the period," CMA CGM said.

CMA CGM said its "reactivity and flexibility" enabled it to quickly adapt the capacity of the fleet deployed during the COVID-19 pandemic.

CMA CGM said the impact of the coronavirus crisis was partly offset by an increase in air charters, which ensured supply chain continuity for industrial clients as well as the supply of medical products.

CMA CGM said its year-over-year Q1 volumes were down only 4.6%, despite the coronavirus pandemic's slam to the world economy and global trade flows.

CMA CGM said in "demonstrating the resilience of the shipping industry the group managed to promptly adapt its deployed capacity to the current environment while protecting the supply chains of its customers. The group leveraged its expertise to maintain the transportation of essential goods, particularly medical products, by building logistical bridges."

The French carrier is strengthening those bridges in the second quarter. CMA CGM recently presented its gift of 200,000 respirator face masks to Logistics Victory Los Angeles at the Port of LA.

Going Greener

The group said it is doing its part to improve air quality in full compliance with the International Maritime Organization low-sulfur fuel regulation (IMO 2020). As of Jan. 1, CMA CGM had "implemented a wide range of measures that were financed by the full application of dedicated tariff adjustments [bunker adjustment factors]," it said.

At a United Nations conference last week, Saadé announced the group's target to be carbon neutral by 2050.

Alternative fuels are expected to account for 10% of the group's fuel consumption by 2023. The group said it will make a major step this year with the delivery of a fleet of container ships with a capacity of 23,000 twenty-foot equivalent units (TEUs) powered by liquified natural gas (LNG), reducing CO2 emissions by about 20% and eliminating nearly all sulfur and fine particle emissions.

Named for the company's late founder, the CMA CGM Jacques Saadé, the first of nine 23,000-TEU LNG-powered ships, was launched in September. 

Looking Ahead

CMA CGM said thanks to its "operational efficiency, financial discipline, and business agility," it is ready to face the uncertainties ahead. 

Saadé said he expects a financial improvement in Q2 as well as continued strides in reducing carbon emissions.

Q3 improvement could be indicated by the reinstatement of a previously voided sailing by the OCEAN Alliance, of which CMA CGM is a member with COSCO, OOCL, APL, and Evergreen.

A blanked trip from Qingdao, China, on June 23 has been reinstated and will indeed sail and return from Savannah, Georgia, on July 24.

The 8,575-TEU vessel transits the Panama Canal and also calls on Charleston, South Carolina, as well as Boston and New York.

Saadé said in the earnings release, "Despite the uncertainty around the global economy, we anticipate an improvement during the second quarter, thanks to our operational flexibility and our discipline in terms of cost control. The current situation reinforces our conviction that it is essential to develop better balanced economic exchanges whilst respecting the environment."

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