Dubai: Uncertain market conditions in the global economy have made it challenging for ports operator DP World to forecast its performance in the second half of the year, according to the company's top executive.
"There is uncertainty around the outlook for the global economy, making it more challenging to forecast how global trade will develop in the second half of the year," Mohammad Sharaf, CEO of DP World, said Thursday in a conference call to reporters.
He added that historically the "second half of the year has been stronger than the first half."
Further commenting on the declining economic conditions globally, Sharaf said the company has not seen any signs of a decline in the markets where it operates.
"Should it start we will be seeing the impact of it not before October. And if not by October also, then we would see it only by the first quarter of 2012," he said, adding that the global economy could follow the same trend as it did during the 2008 economic slump.
"That is the problem. It is all very uncertain at this point," said Sharaf.
However, despite the uncertainty in the global markets and any potential slowdown in trade, DPW remains confident that it will deliver full year results in line with market expectations, according to Sharaf.
Analysts seem to agree. "DPW advised that they have so far not witnessed any negative impact from the global condition; on the contrary July was a record month for them. Any adverse impact will not be felt before October because of advance bookings," said Kareem Murad, Senior Vice President of Research (Transportation and Logistics Sector) at Shuaa Capital.
Redwan Ahmad, VP, Equity Research at EFG-Hermes, said, "We believe the company will deliver a slightly improved performance in the second half as the second half is typically stronger due to seasonal factors."
Asked if DPW still considering re-entering the US market given the shaky market conditions, Sharaf said: "We are still interested in re-entering the US market, but it has to be when the time is right and when we can get the right return on investment. Otherwise we won't enter the US market. Other markets are giving better returns today."
Cashflow
Maintaining a healthy cashflow, DPW has approximately $4 billion (Dh14.6 billion) in cash at present to fuel its future expansion, according to Yuvraj Narayan, Chief Financial Officer.
Asked if the money was going to go to DPW's parent company, Dubai World, Narayn said during a conference call: "We have had a healthy cashflow for the last two years. It stays with us. If it had to go, it'd have gone much earlier. We intend to use it to achieve our growth plans and bringing our leverage down."
First-half profit up 36%
DP World Thursday said its first-half 2011 profit after tax, before separately disclosed items, surged to $281 million (Dh1.03 billion), up 36 per cent from $206 million in the corresponding period last year owing to the sale of its Australia operations last year.
In March, 2011, DP World formed a strategic partnership in Australia, monetising 75 per cent of its Australia terminals, resulting in a large one-off profit, the company said in a statement. It added that profit after tax after separately disclosed items, which includes profit from the Australian transaction, rested at $741 million, resulting in reported earnings per share of 0.85 cents for the first half of the year, which is four times greater than the prior period.
The company's revenue, meanwhile, jumped three per cent to $1.5 billion for the first six months of the year, while it achieved earnings before interest, tax, debt and amortisation (EBITDA) of $645 million with record EBITDA margin of 42.9 per cent.
The company also stated that proceeds of the Australia transaction, along with a stronger performance of its terminals, helped reduce its net debt to $3.7 billion and leverage to 2.9 times.
The first-half gross volumes, meanwhile, climbed to 26.2 million TEU or twenty-foot equivalent container units. "We have had a very good start to the year with gross volume growth 11 per cent ahead of the prior period, improved revenue generation, a continued focus on cost management and improved terminal efficiencies," Mohammad Sharaf, DP World's CEO, said in a statement.
Strong focus on emerging markets:
Emerging markets will continue to drive future growth for DP World, according to CEO Mohammad Sharaf.
"There is a need to focus on these markets," he said. "Experts say that emerging markets are going to grow more than the developed markets — developed markets are to grow below five per cent while emerging markets will register close to double-digit growth."
He further clarified that: "It doesn't mean that the company will completely ignore the developed markets."
Meanwhile, in terms of revenue break-up between the two, CFO Narayan said 86 per cent of DPW's revenue (post Australia deal) comes from emerging markets.
Added Sharaf: "We expect that would change to a ratio of 75 (emerging markets) versus 25 (developed markets) as and when new terminals start operating.
He, however, declined to share any details on DPW's forthcoming acquisition deals in emerging markets. Asked if DPW should be looking at acquisitions in emerging markets such as Asia and Africa, EFG-Hermes' Redwan Ahmad said: "Possibly but the group has enough expansion projects that it does not need to acquire anything."
