CEVA’s new CEO has to restore profitability

CEVA’s Marvin Schlanger has announced his retirement as CEO to be replaced by former Kuehne and Nagel executive Xavier Urbain.  Mr Urbain’s job will not be so easy as the company’s latest results show that it is still struggling to keep its head-above water as its freight forwarding business suffers.

For the first nine months of this year revenue fell from US$6,873m in 2012 to US$ 6,368m, a fall of 8%, whilst for the 3rd quarter the fall was slightly greater. Profits as calculated in terms of ‘adjusted’ EBITDA (Earnings Before Interest, Depreciation and Amortisation) were down by US$64m to $200m for the nine months and by $9m to $80m. However, if exceptional items are included, operating profits are down even more heavily to $5m for the nine months to September 2013.

The good news is that the contract logistics business has apparently recovered from its problems, possibly a combination of having dealt with its dysfunctional contracts in the US and generally improved demand from the automotive sector. This business saw a rise in Adjusted EBITDA of almost a third to $64m for the quarter although over nine months the rise was modest. This was despite a small fall in revenue.

The real problem is the freight forwarding business which continues to suffer. Over the quarter, profits more than halved, down from $34m in Q3 2012 to $16m in Q3 2013. The picture is similar over the nine month period. Once again it appears that CEVA is getting hit badly by its airfreight business across the Pacific although the company says that its ocean freight volumes are stable.

From the most recent accounts, it appears that CEVA is now owned by a group of financial investors in addition to Apollo, Franklin Templeton Investments and Capital Research and Management. Although it is unclear as to how involved the financial investors are in the management of CEVA, over the medium term it seems inevitable the company will undergo some form of re-financing; despite a moderate loss over the course of 2013, the company has been aided by the financial gain achieved in the middle of the year. Fundamentally the business cannot handle its debt unless it improves its level of profitability. That will be the challenge for Xavier Urbain.