Analysis: CMA CGM and AF-KLM – a strong signal to the market
CMA CGM has clearly been busy behind the scenes for some time – highly secret ...
“We are starting to be a normal company now,” said Xavier Urbain, CEO of Ceva Logistics, this morning.
By which he means Ceva plans to focus on its actual business, logistics, after years of refinancing, M&A talk, IPOs – and bankers’ fees.
“In the past five years we have done five refinancings,” he explained. “You must understand what that means in fees. And then the IPO.
“We didn’t have the time to focus on everything. But now we can transform in the way we want, supported by CMA CGM. We can move away from the exceptional costs, which created some big issues in terms of cash.”
He added that Ceva would remain independent for now.
“We will see how the public tender offer [by CMA CGM] goes, but the target is to stay listed in Switzerland. We are now ready to invest in our next 10 years – which was a different priority with our shareholder before.”
The aim is a “very realistic” new business plan, which will see Ceva find internal cost and productivity savings and synergies with new shareholder CMA CGM, as well as from the integration of CMA CGM Logistics (CMA Log), which Ceva agreed to buy last year.
Ceva expects $30m in savings from the CMA Log integration, which would also give it more market share and a $630m revenue contribution.
Internal costs savings and increased productivity meanwhile would be found from both “blue and white collar” roles, he said.
However, The Loadstar financial columnist Alessandro Pasetti commented that Ceva’s mid-term growth targets were “very ambitious”.
Ceva’s 2021 revenue target is some $9bn, or 5% average annual organic growth, including the CMA Log contribution. Its adjusted ebitda 2021 aim is for $470m to $490m – up from $380m.
Mr Urbain said Ceva would invest in capex for automation and digitilisation, “using support from CMA CGM, which will increase productivity and optimise processes“, and it would also invest in sales.
“Our plan is totally achievable, but the target is to be better than this plan. We are now definitely focusing on being profitable in net profit after tax, with positive free cashflow. These are our first two targets for 2019/2020.
“After that, we will consider M&A.”
Ceva’s results, despite the optimism, were slightly underwhelming, with adjusted ebitda down 7% to $260m – and a $1m-a-day cashburn.
However, net debt was down 43% to almost $1.2bn, from $2.1bn one year earlier, and revenue was up 5.2% to $7.35bn, from $6.99bn.
Ceva justified its ebitda decrease be saying: “Ebitda has been negatively impacted by various one-time events, including Contract Logistics issues in Italy, as well as some changes in accounting estimates in the fourth quarter, reflecting a more conservative approach from management.
“Without these events, Ceva estimates that adjusted ebitda in 2018 would have been approximately $54m higher. Furthermore, the translation effect of some currencies into US$, notably the Brazilian real, Turkish lira and the euro negatively impacted ebitda by a further $9m in 2018.”
In freight, Ceva saw 7.9% volume growth in ocean, a “weak” spot for the company, but yields, in terms of net revenue per teu, declined slightly “as a result of a policy of market share expansion”.
Air volumes slightly decreased, by 0.7% year on year, after “the earlier loss of certain customers and a selective approach to new business”. However, air yields in terms of net revenue per tonne increased by 6.7% to $688 per tonne.
Freight ebitda increased by $17m to $93m in 2018, resulting from “better revenues, productivity actions and improvements in value-added services operations, partly offset by challenges in North America relating to the increased cost of transport in the US ground business due to driver shortages”.
Contract logistics, meanwhile enjoyed a 3.3% revenue increase to $3.84bn, but ebitda fell 31.8% to $105m – as a result of one-time additional costs.
“Despite many productivity improvements across various contracts and geographies, and continued gains on focus contracts, two contracts in Italy and the bankruptcy of a local partner resulted in additional, unplanned costs of $42m in 2018 (including provisions taken for future years). Ceva has put into place a plan to resolve the issues in Italy.”
But crucially, Ceva’s more stable finances and improved capital structure – as well as having a more willing shareholder – have given customers more confidence, with new business wins up 6 %.
CMA CGM’s public tender offer for Ceva shares ends on 14 March, to be fully settled in mid-April.