CEVA achieves stability in difficult market but growth is still limited

CEVA did not suffer too badly from the volatility in the air and sea forwarding market over the past year, but neither did it grow particularly aggressively. However, the company’s corporate finance situation is getting slightly dramatic.

Over the financial year 2016 revenue fell by 4.5% to US$6.65bn, driven down by lower fuel and freight rates in the forwarding market. Stripping-out currency fluctuations CEVA estimated that revenue was 1.2% lower. Earnings Before Interest, Depreciation and Amortisation (EBITDA) was $212m before exceptional items, down from $234m in 2015. In currency adjusted terms operational profits were effectively flat. The overall loss was $176m, substantially down on 2015’s figure of $210m, due in substantial part to lower finance costs.

The freight forwarding business saw volumes in terms of tonnages and TEU increase noticeably, with air freight up 6.7% and sea freight 4.1% higher. As has been the trend in the wider market, demand increased strongly towards the end of the year. Again, as in the rest of the market, the hardening of rates in the latter part of the year compressed CEVA’s margins. Revenue for the business fell 5.7%, although after stripping out the effects of currency fluctuation this was 2.9%. Income in terms of EBITDA before adjustments edged-up to $65m from the $64m seen in 2015, although CEVA cite a currency adjusted figure of $72m.

Contract Logistics was more muted. Before allowing for currency movements, revenue fell slightly to $3,644m from $3,776m in 2015, although this represented an underlying increase of 2.5%. Profits were also lower, with EBITDA before currency and exceptional items at $147m, down from 2015’s $170m. Profit margins have not yet hit CEVA management’s target of 5%, being around 4.1% in terms of adjusted EBITDA as a proportion of revenue.

Of course CEVA continues to struggle with its €2.28bn worth of debts. This is really the responsibility of CEVA’s owners, a group of finance companies led by the ‘leveraged buy-out’ specialist Apollo who are skilled at debt management. One of the financial innovations CEVA is using is to back its numerous bonds with specific parts of the business, who act as ‘guarantors’ for each bond. From the outside it is difficult to know the reasoning behind this move, but it might suggest a degree of scepticism in the debt markets about CEVA. The company is also issuing more debt paper.

The underlying business however, looks in reasonable shape although growth is hardly enormous. It would be nice if Contract Logistics was making more progress yet the freight forwarding operation is demonstrating some agility in a difficult market.

Source: Transport Intelligence, March 14, 2017

Author: Thomas Cullen