CEVA struggles towards the light at the end of the profit tunnel

CEVA is recovering from the effects of its recapitalisation, as its 2013 results show revenue and EBITDA both down on 2012. It has relieved its debt interest debt burden somewhat, with its overall liabilities falling by more than half, but it still made a loss for the full year of $60m.

Freight Management was badly hit over both the year and the last quarter. Revenue was down by from US$4,292m in 2012 to US$3,775m whilst ‘adjusted’ EBITDA (earnings Before Interest, Tax, Depreciation, Amortisation) crashed from $130m in 2012 to $42m in 2013. For the 4th quarter however things were slightly better with EBITDA down by just over a half at $16m.CEVA suffered from the depressed market for trans-pacific air freight and the uncertainty over the future of the company during the re-capitalisation process in the middle of the year. Both these factors had a severe effect on the ability to attract business.

Contract logistics was a contrast. Indeed its profits margins of 5% are excellent. Revenue year-on-year was down slightly at $4,742 adjusted EBITDA increased by 24% to $235m. Much of this appears to be the product of aggressive rationalisation of contracts combined with high demand in areas such as US automotive. Rubin McDougal, Chief Financial Officer of CEVA commented to Transport Intelligence that the Contract Logistics business was looking to expand revenue over the next year. This is in contrast to the Freight Management division where restructuring in tender management and trade lane management is focussing on delivering higher margins.

A key aspect of the past couple of quarters has been the change in ownership at CEVA. The private equity firm Apollo, which financed the merger of TNT Logistics and EGL, now owns just 21% with the other finance companies CapRe and Franklin owning 29% and 28% respectively, smaller investors own the outstanding 22%. It is likely that none of these investors are in for the long-term, so we are looking at what Rubin McDougal describes as a “liquidity event”, that is a floatation on the stock exchange, to inject some long-term stability into CEVA’s ownership but there is no date for this.

Certainly the financial burden has been reduced somewhat, with interest and similar charges probably being around $170m for 2014 offering the possibility that, in combination with a recovery in the freight forwarding business, CEVA may finally enter the black.