CMA CGM Group Full Year 2019 results: good performance of the shipping segment

The Board of Directors of the CMA CGM Group, a world leader in shipping and logistics, met today.

Upon the release of the 2019 fourth quarter and full year results, Rodolphe Saadé, Chairman and Chief Executive Officer of the CMA CGM Group, commented:

"CMA CGM's shipping segment delivered a robust performance in 2019, with an improvement in profitability for the third consecutive quarter, thus outperforming our main peers in the fourth quarter. These results were driven by our development strategy, particularly in short sea lines, and our ability to cut costs.

The beginning of 2020 has been impacted by the Coronavirus epidemic. The Group has taken specific measures to protect its employees worldwide. This health crisis has also affected global trade and we have therefore adapted our shipping services. Thanks to CEVA, we have been able to provide alternative solutions to our customers to avoid disruptions to their supply chains.

Today, we are seeing an upturn in business in China, with production ramping-up in factories and exports increasing.”

Group revenue increased by 19.4% to USD 7.5 billion following the integration of CEVA, which contributed USD 1.87 billion.

Group EBITDAA amounted to USD 1.014 billion. Including CEVA's contribution and the IFRS 16 impact, the EBITDAA margin amounted to 13.5% in the fourth quarter.

The implementation of IFRS 16 had a negative effect of USD 87 million on net income which, combined with the loss contributed by CEVA (USD 48 million), resulted in a net loss for the Group of USD 122 million.

The Group's shipping business delivered a further improvement of profitability, once again demonstrating the strength of its strategy, which is based on the following core pillars:

• The performance improvement and cost reduction plan, which reduced unit operating expenses by USD 132 per TEU (twenty-foot equivalent unit) year-on-year in the fourth quarter;
• The Group's short sea lines, which grew faster than the market, with Containerships in Europe, CNC in Asia, Comanav in North Africa and Mercosul in Brazil;
• Retrofitting of the existing fleet and delivery of new vessels.

Volumes carried in the fourth quarter were stable compared with the fourth quarter of 2018, which benefited from front loading ahead of the expected hike in US customs tariffs. Shipping revenue thus amounted to USD 5.7 billion in Q4 2019

EBITDAA came to USD 420 million, up 19% year-on-year (excluding IFRS 16 impact). The EBITDAA margin was 7.4%, an improvement of 1.8 percentage points compared with the fourth quarter of 2018, while core EBIT was USD 265 million, giving a margin of 4.7%. Net income came to USD 13 million.

Logistics

Fourth quarter revenue in the logistics business was affected by weak growth in the logistics market, caused mainly by a decrease in global air freight volumes and exchange rate effects. Against this background, CEVA Logistics delivered revenue of USD 1.9 billion and EBITDAA of USD 112 million, giving an EBITDAA margin of 6%. It contributed a net loss of USD 55 million to Group net income, including an IFRS 16 loss of USD 7 million.

CEVA Logistics continued to implement its transformation plan, with the integration of CMA CGM LOG, optimization of the purchasing process, synergies between the Group's business activities (logistics and shipping) and diversification towards smaller customers, thus confirming the prospects of a return to profitability.

Full year 2019 revenue was up 29% to USD 30.3 billion compared with 2018, driven by the acquisition of CEVA, which contributed USD 7.1 billion. Excluding CEVA, revenue was down slightly by 0.8% mainly due to the trend in geographic mix and the transfer of CMA CGM LOG's business to CEVA Logistics.

Group EBITDAA was USD 3.8 billion, giving a margin of 12.4%. The Group incurred a net loss of USD 229 million, mainly due to the negative IFRS 16 impact of USD 329 million, which will gradually decline over the years, and the USD 140 million negative contribution from CEVA Logistics.

Operating cash flow came to more than USD 1 billion, stable compared with the previous year.

The Group's net debt stood at USD 17.8 billion at year end-2019. IFRS 16 had an impact of USD 7.6 billion, the acquisition of CEVA in 2019 had an impact of USD 1.1 billion and the consolidation of CEVA's debt had an impact of USD 1 billion. Adjusted for those items, net debt remained stable.

The Group's liquidity at year end-2019 stood at more than USD 1.6 billion, up almost USD 300 million compared with the previous quarter.

The shipping business delivered strong growth in results, driven by an increase of more than 4% in volumes carried and a sharp decrease in the Group's operating expenses across the year.

Volumes carried grew to 21.6 million TEU containers. This performance was due mainly to growth in intraregional (short sea) business driven by the consolidation of Containerships, turning it into a leading intra-Europe operator, and by strong growth in the CNC brand in intra-Asia as well as by the organic growth of Africa and Latin America lines.

Unit operating costs averaged USD 1,017 per TEU in 2019, down 5.6% compared with 2018. Consequently, EBITDAA (before IFRS 16) for the shipping business increased by more than 18% to USD 1.4 billion, resulting in a margin of 5.8%, an improvement of almost 1 percentage point. Core EBIT was USD 749 million, giving a margin of 3.2%. Lastly, net income rose sharply from USD 34 million in 2018 to USD 240 million in 2019.

Logistics: second phase of CEVA Logistics' turnaround plan

One year after CMA CGM's public tender offer for CEVA Logistics, many actions and investments have been initiated, to boost logistics segment operating profitability.

CEVA is pursuing its strategic transformation plan, aimed at delivering strong revenue growth combined with a significant improvement in its profitability.

CEVA Logistics delivered revenue of USD 7.1 billion in a highly competitive, low-growth logistics market. EBITDAA was USD 544 million including the IFRS 16 impact, giving a margin of 7.6%. CEVA Logistics contributed a net loss of USD 161 million for the year, impacted by restructuring costs and provisions against certain Italian contracts, which have now been settled, as well as the application of IFRS 16, which had a negative impact of USD 21 million.

Coronavirus

After an extremely robust month in January, the early part of the year has been marked by the Covid-19 crisis.

Health measures to protect employees and meet the needs of the Group's customers:

• The priority for the CMA CGM Group is to ensure the safety and health of its employees and provide its customers with the best possible solutions.
• The Group is fully mobilized and sufficiently agile to manage this exceptional situation. For several weeks now, it has taken all the health measures required to enable its employees to continue working in the safest possible conditions. 

The CMA CGM Group has seen an upturn in business in China:

• Volumes shipped from China are traditionally slower after the Chinese New Year. After the usual manufacturing close down, it normally takes 4 to 6 weeks for shipments to return to their average rate. This year, it has taken longer for business to pick up and the Group has made an increased effort to reduce its operated capacities in China. Production capacity of Chinese manufacturing plants is monitored daily and has shown signs of improvement since the end of February.
• There has been an upturn in volumes and a major catch-up effect is expected once the health situation stabilizes, as Western countries will be seeking to rebuild their inventories. The Group therefore expects to operate a normal capacity fleet as of mid-March.
   

Meanwhile, CMA CGM remains agile and reactive, not only to minimize the impact on its business but also to support its customers. It expects to benefit from a new USD 1.3 billion cost reduction plan in the shipping business during 2020.

Strengthening the financial structure in line with the liquidity plan announced in November 2019

The Group continues to implement the USD 2.1 billion liquidity plan announced on November 25. The plan aims to reduce the Group's net debt by more than USD 1.3 billion by mid-2020 and to extend the maturity of some credit facilities due in 2020.

• As of December 31, the Group had finalized circa USD 820 million of vessels sale & lease-back and vessels refinancing deals, enabling to repay 75% of the CEVA acquisition loan.
• On December 20, 2019, the Group signed a firm agreement with China Merchants Port to sell a portfolio of ten port terminals to Terminal Link for USD 968 million in cash. The most significant part of the deal is expected to be closed in the next few weeks whilst the remainder should be finalized before the end of June, in line with the announced timetable.
• In March 2020, CMA CGM and NOL (Neptune Orient Lines) signed a three-year extension to the credit lines due in 2020 for a total of USD 535 million.

CEVA: a strategic investment in logistics

CEVA brings genuine expertise in logistics and provides solutions that offer a good fit with our historical business, enabling us to provide our customers with end-to-end solutions, as we have been doing for the past few months faced with the slowdown in business in China.

In January 2020, CEVA Logistics embarked on phase two of its turnaround plan with a strengthened management team. The plan's key pillars include strengthening its sales force, developing new products, developing the network in Africa and South East Asia, the digitalization plan, and investment in IT, particularly in Freight Management.

CMA CGM plans to accelerate the energy transition in shipping and logistics

Building on its family values, the CMA CGM Group has always considered that its economic performance was inseparable from its environmental performance.

To comply with the Low Sulphur rules applicable since January 1, 2020, the CMA CGM Group is focusing on using a low-sulphur fuel (0.5%) for its fleet. The cost of this new regulation has been passed on in prices charged to our customers and therefore does not affect the Group's margin.

2020 will see the delivery of the first 23,000-TEU container ship powered by Liquefied Natural Gas (LNG) under a nine-vessel order. The Group's commitment to using LNG for its high-capacity vessels is a pioneering decision that will reduce emissions of sulphur and fine particles by 99%, nitrogen oxide emissions by around 85% and carbon dioxide emissions by up to 20%. We have already reduced our CO2 emissions by 6% in 2019, thus demonstrating the effectiveness of the Group's proactive environmental strategy.