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VIRUS OUTBREAK

Shipping group CMA CGM sees limited virus impact as China activity resumes

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CMA CGM says that it expects to return to normal fleet capacity in China from mid-March.

Paris

FRENCH shipping group CMA CGM said its operations in China were returning to normal after the Covid-19 outbreak crippled traffic last month, forecasting that the global health crisis would have a limited impact on its performance this year.

The world's fourth-largest container shipping firm said on Friday that it expected to return to normal fleet capacity in China from mid-March. There had been signs of industrial production picking up since late February, it said.

Market leader Maersk warned last month that the outbreak would weigh on 2020 earnings and analysts have warned of a sharp downturn in global growth, or even recession.

But CMA CGM's chief financial officer Michel Sirat told Reuters that restocking by companies and freight rate increases announced by container lines will support a second-quarter rebound in shipping.

"We'll have to see if the longer term effects of the novel coronavirus could have a more structural impact. We don't think that's the case currently so we're confident for 2020," Mr Sirat said by telephone. The novel coronavirus brought parts of China to a standstill before spreading around the world, leading container lines to re-route cargoes and reduce calls to Chinese ports.

The potential financial impact of the slowdown in China for CMA CGM was thought to be equivalent to 2-3 per cent of 2019 core earnings of around US$4 billion, Mr Sirat said, suggesting an impact of around US$100 million.

The group posted a net loss of US$229 million for 2019, compared with a US$34 million profit the previous year, citing the effects of an accounting rule change and the acquisition of loss-making Swiss firm CEVA Logistics.

Its shipping business increased its core operating margin to 5.8 per cent from 4.9 per cent, supported by US$1.3 billion in cost savings, CMA CGM said.

CMA CGM had not yet seen an impact on demand in Europe as the virus spread, including in Italy, the hardest hit economy in the region, Mr Sirat said.

The group had been able to find sufficient containers despite disruption to routes from Asia, he added.

CMA CGM said it had renewed US$535 million in credit lines due to expire this year. They will now run to 2023.

The group had been shut out of the bond market like other high-yield borrowers due to market fears over Covid-19, but expected the situation to be temporary, Mr Sirat said. The group's adjusted net debt, which swelled to US$17.8 billion at the end of 2019 from US$7.7 billion a year earlier due to the accounting changes on leases and the integration of CEVA, was manageable and not affecting cash generation, he said. REUTERS