Freight slowdown buffets Ocean
Tuesday 02 March 1999
After a strong run in the past two weeks, the shares came off 38p to close at 804p, in spite of a 13 per cent jump in profits achieved through careful control of margins.
John Allan, chief executive, said the group had been hit by the strength of sterling and continuing weakening of export markets in the developing world and South-east Asia.
"Export volumes have weakened in markets that are significant for us, including the UK. But we do anticipate some pick-up in volumes in the second half of the year," Mr Allan said.
Unlike rival freight companies - typically restricted to one part of the globe - Ocean has succeeded in marketing its services to 99 per cent of the world's economies, allowing it to give multinationals a single port of call for freight services.
In spite of the worldwide slowdown, the company has been able to increase profits by taking advantage of a glut of airline capacity offered by international carriers. Mr Allan has pursued a strategy of becoming one of the world's largest buyers of airline space, giving the company considerable buying muscle when it purchases space from airlines.
With Asian airlines desperate to sell their capacity, this has allowed Ocean to bargain down the price it pays for space and to boost profit margins, largely making up for the fall in total volumes.
The company, which completed a pounds 103m cash return to shareholders in December, is also planning to spend pounds 173m on acquisitions in Europe and the US.
Damian Brewer, an analyst with Paribas, the investment house, said: "We have Asia beginning to show the first signs of recovery and airlines are the first to gear up for that. So there is a lot of extra capacity, which allows for bigger margins.
"There is still pressure on price in the short term. But in the long term there is strong potential for recovery, making this a good long-term play," he said.
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