CEVA earnings hit by Italian contract logistics problems

CEVA Logistics saw 2018 third quarter (Q3) and year to date (YTD) revenues hit by problems at its Italian contract logistics arm.
CEVA, whose board rejected a $1.5bn takeover approach by Danish logistics operator DSV in mid-October, reported adjusted EBITDA of $55m for Q3 and $198m YTD, down $27m and $8m respectively in constant currency. DSV has pulled out of the bid process.
The Switzerland-based group’s Q3 revenues were $1.8bn, up 1.6% on like period and up 4.7% on constant currencies, while revenues for the first nine months of 2018 were $5.4bn, up 6.8% versus 2018 or 5% with constant currencies.
The Switzerland stock exchange quoted company, which has announced plans to “deepen” its strategic relationship with major shareholder CMA CGM, said that the fall was “mainly due to provisions for Italian Contract Logistics business”.
Two contracts in Italy and the bankruptcy of a local Italian partner for temporary staff have resulted in “additional unplanned costs” of $26m in the third quarter and $42m for the first nine months.
It added: “A plan is currently being executed to address and resolve the issues in Italy”.
Revenue in Freight Management division increased by 4.9% on a reported basis and by 6.8% in constant currency in the third quarter of 2018 compared to the same period in the prior year. Freight Management EBITDA decreased by $3m at constant currency to $22m in the third quarter of 2018.
It said that “better revenues” in the freight management arm were “offset by challenges in North America relating to the increased cost of transportation in our Ground business due to driver shortages, partly mitigated by improvements in the VAS (Value added Services) operation.”
For the nine months of 2018, EBITDA was $64m, up $9m year on year in constant currency.
In the first nine months of 2018, revenue at Chinese joint venture Anji-CEVA amounted to just over $1bn, an increase of 17.6% in constant currency, compared to the prior year.
Said CEVA: “This healthy revenue increase was fuelled by strong volumes growth in existing contracts, new contract implementations and the transfer of the Chinese CEVA CL business in July 2017.
“In particular the new Non-Automotive Division is gathering pace and winning significant new business. EBITDA for the first nine months of 2018 was $99m including a capital gain from a fixed asset disposal of $28m in Q3 2018 compared to a capital gain of $12m in Q3 2017.”
It added that CEVA experienced “continued strong momentum” across all sales segments and business lines, with new business wins up approximately 8% YTD.
“Significant new contracts and extensions were won in the third quarter: in Air and Ocean freight, CEVA won contracts with Technology and Automotive customers, in Contract Logistics this was mostly with automotive, healthcare, consumer and retail clients.
“The partnership with CMA CGM started to deliver additional opportunities. Finally, the company is investing in its salesforce in order to accelerate sustainable growth in strategic geographies and segments.”
In its outlook, CEVA is confirming its medium term targets to grow revenue above market and to increase EBITDA margins from the 3.3% achieved in 2017 to at least 4%, "which should result in an additional approximately $100m in adjusted EBITDA, excluding any additional benefits from the much closer cooperation with CMA CGM".
Xavier Urbain, chief executive of CEVA Logistics, said: "CEVA continues to reduce its cost base, with a strong focus on productivity addressing underperforming activities both in FM and CL. Most of our operations continue to perform well and our new business performance is promising.
“However, in the third quarter, margins have been adversely impacted by one-time provisions taken in Contract Logistics in Italy.
“Looking ahead, we are confident that we will further improve our performance and meet our medium-term targets. More importantly, we plan to intensify the cooperation with our strategic partner CMA CGM which will bring additional value for all our stakeholders."
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