DP World to slow down expansion of Jebel Ali port due to ‘softer conditions’

Expects growth at its terminals to ease in the second half amid a grim global trade outlook.

Cargo containers line up at the Terminal 1 in Jebel Ali port in Dubai. Pawan Singh / The National

DP World plans to slow down expansion of its Jebel Ali port due to “softer market conditions” amid a grim global trade outlook.

The Nasdaq Dubai-listed port operator last year had planned to spend US$1.6 billion on a fourth terminal in Jebel Ali to boost capacity by 16 per cent to 22.1 million twenty-foot equivalent units (TEU) by 2018.

DP World is now delaying the 1.5 million TEU expansion of Terminal 3 at Jebel Ali into 2017 and will slow down construction of Terminal 4, without giving a new date of completion, chairman Sultan bin Sulayem said in a statement.

He declined to give a new timeline for Terminal 4 during a conference call with journalists.

“At Terminal 4, we haven’t stopped construction,” said Mr bin Sulayem said. “We will be ready to react if the customers feel that they will be increasing their business.”

The slower expansion at Jebel Ali follows a 6 per cent drop in UAE’s throughput to 7.4 million TEU in the first half due to reduction in lower margin cargo.

DP World said net profit attributable to equity holders before separately disclosed items in the six months to June 30 rose 4.3 per cent year-on-year to $608 million on a like-for-like basis at constant currency, and 50.2 per cent year-on-year on a reported basis. Like-for-like basis at constant currency excludes new capacity at Turkey, Germany, Belgium, Canada and the UAE.

“The year before, 2015, was unusually busy and it will be difficult to really beat that,” said Mr bin Sulayem on the conference call. “The issue is not the Middle East. The issue is a world issue. The shipping lines have more capacity. There are concerns about the slow pace of China [growth] and so on.”

The 50.2 per cent increase on a reported basis was attributed to continued integration of acquisitions of the Jebel Ali Free Zone and Prince Rupert Terminal in Canada. DP World acquired the Economic Zones World (EZW) in Jebel Ali from Dubai World, its parent company, in 2014 for $2.6bn. Last year, DP World acquired its second terminal in British Columbia in Canada for C$580m to capture trans-Pacific trade between Asia and North America.

DP World’s results beat forecasts from Egyptian investment bank, EFG Hermes.

“Looking ahead to the second half of the year, we expect throughput performance to improve, and like-for-like financial performance (excluding one-off items and foreign exchange gains) to be similar to the first half,” said Mr bin Sulayem. “The growth rates on a reported basis are expected to moderate as the acquisition benefits seen in the first half will not be repeated.”

Revenue rose 10.2 per cent to $2.09bn on a reported basis and 2.5 per cent on a like-for like at constant currency basis.

Consolidated throughput in the first half grew 1.6 per cent to 14.6 million TEU on a reported basis, but fell 1.4 per cent on a like-for-like basis. Consolidated throughput refers to volumes at ports DP World controls.

“The outlook for trade growth remains uncertain, however, we believe our portfolio is well positioned to continue to outperform the market,” said Mr bin Sulayem. “We remain focused on delivering relevant new capacity in the right markets through disciplined investment, improving efficiencies and managing costs to drive profitability.”

The port operator, which spent $586m in capital expenditure in the first half, stuck by its forecast for full-year capital expenditure ranging between $1.2bn and $1.4bn to finance investments in the UAE, UK, Canada, India and Turkey.

DP world shares closed up 0.96 per cent at $18.92 in Dubai.

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