Unclear why GEFCO profits are falling

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The visibility around GEFCO’s performance has not increased since Russian State Railways (RZD) took a 75% stake in the former subsidiary of Peugeot-Citroen. Sales are up but profits are down and it is hard to be certain why this is.

The somewhat minimal numbers released yesterday for the financial year 2015 described a company with a growing revenue, up 3% to €4,174m but EBITDA (Earnings Before Interest, Depreciation and Amortisation) falling by 18% at €131m.

This fall in profits is attributed by GEFCO’s chairman, Luc Nadal, to “a decline in oil prices, the economic crisis hitting hard countries such as Russia and Brazil, and difficulties experienced by car makers in Latin America and Russia are the key reasons of this setback.” Why the falling oil prices should be problem for profits is unclear, although possibly it is the impact on Russian and Brazilian economies that are the issue. If so it tells us a lot about GEFCO’s expansion over the past few years.

GEFCO’s core market of finished vehicles ought to be healthy, with solid demand growth in North America, Europe and China balancing-out falls elsewhere. However, it appears that GEFCO may be disproportionately exposed to Russia- where it always had a strong presence even before RZD took a controlling stake. The prospects for this market look grim even in the medium to long term. The Brazilian car market has also been savaged over the past year although the prospects for a recovery here are probably better.

Yet the profit fall is still a little surprising as GEFCO has been busy diversifying and broadening its markets. Once just the logistics arm of Peugeot, it has been successful in gaining business from a variety of other vehicle manufacturers including Renault Dacia and Jaguar Land Rover. GEFCO is also expanding its business into ‘high & heavy’ vehicle logistics and air and sea freight forwarding. It has quite a strong global presence in, for example China and South America, so it ought to be positioned for growth. That it isn’t growing profits may be due to depressed markets or that expansion has been mismanaged by its Russian owners.

Source: Transport Intelligence, 18th May 2016

Author: Thomas Cullen