News / Bullish CEVA stems losses in H2 and says its turnaround is 'on track'

CEVA reported mixed half-year results today, with growth in freight management, but higher costs and low throughput in contract logistics.

However, the group saw net losses fall from $111m to $32m in the second half – “a positive signal” that its turnaround plan is on track.

Revenues fell 5.5% to $1.6bn in the second quarter, or 2.8% on a constant currency basis, and 8.7% to $3.23bn in the first half.

Freight management EBITDA, before specific items, grew $2m to $20m in Q2, and the company reported air freight volumes up 6.6% and ocean freight up 2.2%, outpacing the market.

“This is a positive signal,” said David Urbach, svp corporate development. “Air is taking increasing volumes from SMEs, where profitability is stronger. Volumes are up, but revenues are down because rates are down and because of currency effects. EBITDA made a significant improvement, up 32%.

“We are seeing our efforts come through and there is a significant improvement on profitability. We are on track.”

CEVA added that tradelane optimisation and its investment in more sales staff had helped.

Contract logistics was more of a mixed story. EBITDA was down 8.6%, at a constant currency, to $69m. Mr Urback said the weak economy had led to lower throughput.

“The fixed component is good, but the volume component is suffering.”

CEVA noted several new business wins in contract logistics, but their start-up costs had been high.

“There are a few facilities with higher-than-expected costs, and the drop in EBITDA is mostly driven by those temporary effects,” said Mr Urbach. “There is top line improvement because of new contracts, and the costs are not related to any issues, just the start-up. We are turning the curve.”

Net losses for the second quarter fell from $37m to $35m.

CEVA has been thwarted financially by its large level of debt, saddled on it by private equity owner Apollo, and finance expenses were $76m in the first half, a major improvement on the $140m a year earlier. Net debt stood at $2bn at the end of June, while net working capital was -$73m.

“Working capital has been affected by the implementation of our freight management system,” explained Mr Urbach. “Operationally it’s working very well, but there have been some teething problems with invoicing. There is a significant backlog of invoices which have not gone out yet, and that has made a big change in our working capital.”

“The debt situation has not changed, but we still have $558m in headroom [due to undrawn finance facilities], which is very close to what we had last year.”

CEVA expects the market to remain soft for the remainder of the year.

“We think high inventory volumes in the US will mean volumes aren’t too good in the second half,” said Mr Urbach. “We have a feeling the market will remain soft. But we expect some rate stabilisation, as airlines are trying some capacity management, and in ocean we think  the alliances won’t let rates deteriorate. But there are question marks over the geopolitical environment.

“But even if we assume a stable rate environment, we expect single digit growth in revenues and we expect margins to improve.”

CEVA had a legal win last month with an Oregon appeals court ruling that haulage owner-operators leased to CEVA Freight are independent contractors, not employees.