Chairman's Message
I am pleased to report that the NOL Group has delivered another excellent result in 2005 – our third consecutive year of strong performance.
During this period the Group has delivered considerable growth in value for shareholders, while maintaining quality service for customers.
In the past year, NOL's revenue grew by 11% to a record US$7.27 billion. This reflects the underlying strength of world trade, the strength of our relationships with existing customers, and our ability to win new customers.
Net profit was down 15% to US$804 million. The equivalent 2004 net profit of US$943 million had included gains from non-recurring items totalling US$120 million, including an earn-out following the sale of American Eagle Tankers and a write-back of deferred tax liabilities.
The business was affected by cost pressures, particularly fuel-related costs that constituted a major challenge during the year. These were well-managed by our people who also demonstrated an ability to secure strong prices for our high quality services.
We maintained healthy margins by continuing with our core operating strategy of keeping costs low, keeping liner utilization high and managing yields carefully.
We achieved basic Earnings Per Share (EPS) for 2005 of 55.35 US cents per share, compared with 65.47 US cents per share in the previous year.
An interim dividend of 8 Singapore cents per share was paid to shareholders on 15 September 2005.
On 7 December 2005 we announced plans for a capital reduction and cash distribution of 92 Singapore cents per share. Shareholders voted in favour of the proposal on 3 January 2006 and following approval by the High Court of Singapore, the cash distribution was made to shareholders on 21 February 2006. This initiative returned a total of S$1.34 billion (US$0.82 billion) to shareholders.
In view of this cash distribution and the interim dividend of 8 Singapore cents per share, the Group will not declare a final dividend for the financial year ended 30 December 2005.
The Group remains committed to its stated dividend policy in future years, which is to pay the higher of an annual dividend of 8 Singapore cents per share net, or a full year dividend payment of 20% of net profits.
NOL has returned S$2.13 billion (US$1.30 billion) to shareholders by way of dividends and cash distributions since 2003. Return on equity for 2005 was 34%, (compared with the previous year's record outcome of 54%). When recalculated to take into account the capital reduction and cash distribution following the balance sheet date, our 2005 return on equity was 41%.
The strength of our balance sheet - a legacy of NOL's excellent financial performance over the past three
years - sees us poised for future growth in line with our strategy.
Group Strategy
The Board of Directors has worked closely with management to develop a strategy to grow NOL and further differentiate ourselves from competitors.
NOL plans to grow significantly over the next five years. We will grow organically, by expanding our range of services and geographies, and by seeking to acquire value-adding businesses that have the potential to increase the reach and richness of our service offering to customers.
The Group will continue to differentiate itself in a number of ways: by concentrating on being a supplier of high quality cargo transportation services; by increasing our capacity to offer tailored customer solutions; by offering synergistic liner and logistics services; and by capitalising on our strong position and distinctive expertise in the
fast-growing Asian region.
By successfully executing our strategy, and achieving continued efficiencies in business management, NOL is committed to delivering profitability across the business cycle.
Governance
NOL complies with the Singapore Exchange's Code of Corporate Governance and the board strives to provide strategic guidance in line with this code.
During the year we took steps to review some of our significant corporate governance processes to ensure they are better aligned with best practice and with regulatory changes in the Singapore market. As a result, in August 2005, we established an Enterprise Risk Management Committee with a mandate to build up risk management capability within the NOL Group.
I wish to thank our more than 12,000 employees for their contribution to NOL's success during 2005, Group CEO David Lim for the leadership he has provided, and the management team for their performance, particularly in dealing with cost challenges. Finally, I thank my Board colleagues for their hard work and focused attention to the
business of the Company.
Two new Directors, Timothy Harris and Peter Wagner, were appointed to the NOL Board on 16 May 2005 following the retirement of four Board Members at the 2005 Annual General Meeting on 26 April 2005. Timothy Harris was formerly CEO of liner company P&O Nedlloyd and Chairman of the P&O Board. Among other senior roles, Peter Wagner was formerly Chief Executive of global freight forwarder Danzas Holding AG. The experience of our new Directors adds to NOL's already highly capable and experienced Board.
With three years of strong performance, and a long-term strategy that aims to buffer NOL against the volatility of cycles in the shipping industry, we are well on the way to establishing our credentials as a highly regarded cargo transportation sector investment.
Cheng Wai Keung
Chairman
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