APL Logistics

A strong performance for APL Logistics in 2005 was marked by growth in demand for the Company's international services and an encouraging turnaround in the performance of our contract logistics operations.

Core EBIT improved 74% year-on-year to US$59 million on an 11% increase in total revenues to US$1.29 billion (2004: US$1.17 billion). The Core EBIT margin increased from 2.9% in 2004 to 4.6%.

The improved performance was highlighted by the financial discipline applied to the company's contract logistics businesses, which saw a major improvement in efficiency, utilisation and yield.

We placed a spotlight on each of our lines of business and individual operating units last year. This led to an exit from several unprofitable contracts, renegotiated leases, and a drive from within the business for continuous improvements in customer service, operational excellence, technical enhancements and product innovation.

Our strategy to grow the international services business segment, while focusing on improving the performance of the contract logistics business achieved the desired result. Core EBIT margins for international services and contract logistics improved to 8.4% and 2.7% on the back of revenues increasing 23% and 5% respectively.

International services remains our strength and we will continue to focus our growth in this area. Our strategy will be to develop an integrated approach to differentiating service offerings by leveraging the NOL asset-based businesses with our logistics capabilities to provide competitive advantage to our customers. The key to this integrated approach will be our ability to innovate and develop solutions that will meet the more complex requirements of our customers.

The Americas continues to account for almost 70% of APL Logistics' revenue, alongside steadily increasing revenue growth from Europe, Asia and the Middle East.

With rapid economic development and foreign investment in manufacturing, China and India continue to offer huge potential for APL Logistics to replicate capabilities and extend our relationships with major customers to these geographies. We are already well-established in both markets and have made significant progress in developing our presence further in 2005 through direct investment and joint venture partnerships.

In Europe we have created an exciting new partnership model with European logistics specialist, Christian Salvesen, in a joint venture named Holistica Solutions. This combines the worldwide capabilities of APL Logistics with Salvesen's comprehensive European network. At the same time, we are continuing to develop and build on APL Logistics' traditional strengths in understanding our customers' businesses and working with them to develop solutions that deliver control, greater efficiencies and simplify supply-chain management.

The commitment and experience of our people was a key factor in consistently delivering at and above customer expectations during 2005. I thank the APL Logistics team for their hard work, as well as their skill at harnessing our technology and assets to deliver excellent experiences for customers all around the globe.

Information technology continues to be a vital ingredient in the value we provide for customers. In 2005 we completed the evaluation phase of a new WMS (Warehouse Management Services) platform, which will be implemented at key facilities in the United States beginning in 2006. This will improve visibility of cargoes in each locality, connect seamlessly with feeds from international movements, and interface directly with customer data streams.

During the year we partnered with Sun Microsystems in establishing a test centre in Singapore that focuses on helping companies drive supply-chain benefits from Radio Frequency Identification (RFID) technology. The NOL-Sun Advanced Technology Centre is the first of its kind in Southeast Asia. We are focused on finding additional practical applications to fully realise the potential of this emerging technology.

Our product development pipeline also remains strong, with several exciting new offerings expected to be announced in the first half of 2006. We will focus our product development resources in three key customer verticals - Retail, Automotive, and Hightech - where we will deepen our expertise in order to enhance our service offerings.

Along with our sharpened focus on our three key customer verticals, we will be increasingly looking for opportunities to leverage the NOL Group's wider ocean cargo transportation expertise and assets for the benefit and advantage of our customers.