CEVA’s contract logistics stumbles

What is going on at CEVA’s Contract Logistics business? As a leading provider of advanced contract logistics services to the automotive sector, it ought to be growing nicely. Yet the most recent half-yearly numbers show a fall in both revenue and profits.

Over the past six months, revenue declined by 6% to US$1,814m although this was influenced by currency fluctuations and disposals in 2015. More concerning was the fall in EBITDA (Earnings Before Interest, Depreciation and Amortisation), which fell from $82m in the first half of 2015 to $69m in the same period of 2016, if the contribution from the Anji-CEVA joint venture in China is not included. The fall is explained by the company as “incremental start-up costs and slightly higher than planned costs in a limited number of facilities driven by adjusting to product mix changes”.

Admittedly there are difficult areas in CEVA’s market portfolio. For example, offshore oil & gas logistics, a particular strength of CEVA, is very depressed. More worryingly there are rumours that its ‘transport management solutions’ offering is being undermined by the company’s difficult finances. It is difficult to know for sure, but the fear must be that the quality of CEVA’s contract logistics business is deteriorating. The senior management’s ambition has been to strengthen the businesses margins beyond 5% return on sales in order to make it the most profitable contract logistics business of all the major global providers. The recent performance threatens this.

The dynamics of the traditionally weaker ‘Freight Management’ business over the past half-year was more understandable. Falling fuel and freight rates drove down revenue, in line with the present market trend, but EBITDA was up by 20% year-on-year to $30m as CEVA improved both its productivity and its margins, the latter was probably aided by weak rates.

CEVA as a whole continued to suffer from rising debt whilst, even after ‘adjustments’ for exceptional items, revenue for the whole company fell by 7.8% to US$3,232m and EBITDA fell by 5.6% to $118m. Through all of CEVA’s other travails, it is the strength of its contract logistics business that has underpinned the company. CEVA must hope that the past few months are atypical and contract logistics will resume its previous solidity.

Source: Transport Intelligence, August 10, 2016

Author: Thomas Cullen