DP World sees signs of recovering demand as Chinese factories re-open

Full-year revenue in 2019 rose to $7.68bn from $5.6bn in 2018

Port operator DP World will delist from the Nasdaq Dubai stock exchange, returning the company to full state-ownership in a move that will help the Dubai government's investment company repay more thaShow more

DP World said it is "well positioned" in the short term to meet challenges from the coronavirus outbreak, regional geopolitics and global trade disputes through "disciplined" investments and cost management, as it posted an 8.3 per cent decline in annual profit amid trade uncertainties.

Profit attributable to owners after separately disclosed items, dropped to $1.19 billion (Dh4.37bn) for the financial year ending December 31, from $1.29bn in 2018, the ports operator said on Wednesday in a statement to Nasdaq Dubai, where it is listed. Annual revenue rose by 36 per cent on a reported basis to $7.68bn driven by acquisitions.

Last year was "dominated by the trade dispute between China and US, and while this has caused uncertainty, it is pleasing to see that container volumes still grew albeit in low-single digits", said Sultan Bin Sulayem, group chairman and chief executive of DP World. "DP World has delivered a solid set of financial results in 2019 despite challenging market conditions with continued strong cash generation."

The Dubai ports operator said capital expenditure reached $1.146bn in the year, below its guidance of $1.4bn, as it curtailed spending given the uncertain trade environment. Its investment focused on UAE, Posorja in Ecuador, London Gateway and P&O Ferries in the UK, Berbera in Somaliland and Sokhna in Egypt.

Capex for 2020 is $1.4bn with investments planned in the UAE, Prince Rupert in Canada, London Gateway in the UK, Jeddah, Callao in Peru, Sokhna in Egypt and Berbera in Somaliland.

DP World's board recommended a dividend of 40 cents per share.

The Dubai company warned the global trade outlook remains "uncertain" as the coronavirus outbreak disrupts the supply chain.

"The near-term outlook remains a cause for concern with global trade disputes, Covid-19 outbreak and regional geopolitics, causing disruption to trade," Mr Bin Sulayem added. "However, DP World is well positioned to respond in the short term by focusing on disciplined investment and managing the cost base to protect profitability. Overall, we remain positive on the medium to long term outlook of the industry."

DP World's data from the first eight weeks of 2020 have shown "weakness" in the sixth and seventh weeks due to factory closures and disruptions in China, where Covid-19 first appeared, said Yuvraj Narayan, chief financial executive of DP World. Data from the eighth week suggests a "significant bounce-back." The company will have a better idea of any potential fallout next month, he said.

The coronavirus epidemic entails "both supply and demand shocks. Business disruptions have lowered production, creating shocks to supply. And consumers’ and businesses’ reluctance to spend has lowered demand," the International Monetary Fund's chief economist Gita Gopinath said this week.

Global supply and demand for dry bulk shipping stocks such as building materials and commodities dropped "similar to during the most acute phase of the global financial crisis, reflecting curtailed economic activity associated with the unprecedented containment effort. This drop was not seen in recent epidemics or after the 9/11 attacks", Ms Gopinath said.

DP World plans to respond to the near term uncertainty by managing costs while focusing on integrating its acquisitions to explore "revenue synergies" and drive earnings growth, Mr Bin Sulayem said.

"It remains a priority to manage the growth opportunities whilst retaining a strong balance sheet," he said.

Its portfolio is focused on high value cargo and fast growing markets. The company aims to retain its structure that has a 70 per cent exposure to origin and destination cargo and a 75 per cent exposure to fast-growing markets.

DP World, which has a market capitalisation of $11bn, last month said it will delist from Nasdaq Dubai after the company concluded that the disadvantages of remaining on the stock exchange outweigh the benefits.

"Following the planned delisting, the leverage on the balance sheet will rise temporarily but we are confident of de-leveraging as we remain committed to a strong investment grade rating in the medium term," Mr Bin Sulayem said.

The company can maintain a strong balance sheet, thanks to high levels of cash flow combined with more disciplined investment and potential "capital recycling," he said.

"Our immediate focus is to integrate our acquisitions and explore synergies with the objective of providing a range of smart end-to-end solutions which will improve the quality of our earnings and drive returns," the chairman said.