First quarter results see UTi struggling in difficult market

UTi Worldwide continues to struggle operationally and efforts to address the situation have been hindered by the difficult market conditions. Revenue for both the freight forwarding and contract logistics businesses fell compared to Q1 FY2013, down 7.5% for the whole group at US$1.080bn, whilst gross profit was down 7.4% at $347m. This led to the company making a loss of $12.4m.

Freight forwarding saw its revenue fall by $6m to $169.5m in Q1 this year compared to last year, whilst operating income fell by over $4m to $12.7m. Contract logistics was hit even harder with profits halving to $10.3m on revenue down $23m year-on-year at $206m. On a geographical basis, the situation in ‘Europe, the Middle East and North Africa’ appeared to deteriorate badly.

Eric Kirchner, UTi’s CEO was relatively optimistic commenting that the company saw “steady improvement each month during the quarter and in April net revenue increased on a year-on-year basis for the first time in 13 months”.

For the forwarding business Mr Kirchner described an unsurprising picture of airfreight volumes being “slightly lower during the quarter, but ocean freight volumes were higher than the comparable prior year period”. However, no strong picture emerged regarding the impact of lower freight costs on the gross profit situation at the company, which ought to be supporting profits. The performance in contract logistics was particularly concerning with the business continuing “to be impacted by lower volumes from existing business and the previously reported loss of certain high-margin accounts,” although Mr Kirchner did imply that the situation was improving.

Although the general market situation for UTi was poor during the reported period, it is apparent the continuing efforts to turn the company around are still a key issue. Mr Kirchner commented that the company’s “freight forwarding operating system deployment continues to advance….in nine countries….and we continue to expect that more than 70% of shipments will be on the new system by the end of fiscal 2014” illustrating that UTi still has work to do in terms of coherent business systems. These results also suggest that this is likely to be the case in contract logistics as well.