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Gefco reports higher profits on modest revenue gains

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GefcoCarTransporterLogistics provider Gefco Group has reported a strong growth in pre-tax earnings over the first half of 2016 compared to the same period last year, driven by recovery in the automotive industry in Europe, cost reduction initiatives and the acquisition of Dutch freight forwarder, IJS Global.

Gefco, based in Paris and owned 75% by RZD Russian Railways, had a turnover of €2.22 billion ($2.48 billion) in the first six months of this year, a rise of 3.5% compared to first half of 2015. Earnings before interest, taxes, depreciation and amortisation (ebitda) grew strongly to €91.3m, a rise of 27.5%.

A strong European automotive market has supported the revenue and profit increase in 2016, with sales up by close to 10% in the first half of the year. The company also pointed to growth among a number of large industrial clients. In particular, business performance in western, central and eastern Europe, along with north Africa has improved for the company.

The growth in ebitda is set to reverse a fall in profit last year, when pre-tax earnings fell 18% in the full year compared to 2014, to €160m. Gefco credited the profit recovery this year to a “proactive policy launched by Gefco aiming at optimising procurement management and reducing fixed costs”, as well as more stability in oil prices (which last year hurt Gefco’s business in Russia and north African markets).

In a statement, the company said that its finances are sound, including low levels of debt and a flexible, ‘asset light’ business model.

The company’s growth is supported by its strong automotive business, including its largest customer and former majority owner, PSA Group, whose sales in Europe grew by nearly 7.5% in Europe in the first half, as well as by recovery at Opel/Vauxhall, for which Gefco has a major fourth party logistics (4PL) contract covering all inbound and outbound transport engineering and purchasing.

Luc_Nadal, gefco

Gefco chairman Luc Nadal is aiming for €8 billion in annual revenue by 2020

The company also pointed to a number of new business contracts that have supported growth, including with Fiat in Brazil for spare parts delivery, a 4PL contract for equipment manufacturer SNOP in France, and for storage services for Chinese OEM Dongfeng Liuzhou.

New contracts in other sectors outside automotive and industrial included Nintendo in Spain, Turkish chemicals and glass producer Sisecam, Ratier Fiegeac in aeronautics between France and Morocco, and Russian steel and mining group Severstal.

The acquisition of IJS has also expanded Gefco’s presence in a number of markets, including China, South-East Asia, Australia, New Zealand and the US.

“This first 2017 semester represents a significant rebound in Gefco’s profitability,” said Luc Nadal, chairman of the management board. “They show Gefco’s capacity to create value for our customers and partners, even in challenging environments.”

Risks abound

While Gefco’s business is growing, it still faces challenges, especially in its efforts to diversify beyond its core business in Europe. The continuing economic decline in the Russian market, including for the automotive industry, has held back its potential growth. For example, finished vehicle transport by rail in Russia fell by around 27% in the first half of the year, twice as fast as the market for new vehicles declined.

Last year, Gefco also took a hit to its Russian business when General Motors ended most of its operations and sales in the country.

The weakness of Brazil and the wider South American region is also a drag on the company’s growth.

In China, although PSA Group has just opened a new plant in Chengdu with joint venture partner Dongfeng, the carmaker’s sales are down around 20% so far in 2016 compared to last year. Gefco serves PSA and its joint ventures in China at a number of its plants and in vehicle and spare parts distribution.

Closer to its core markets, the impacts from the UK’s vote to leave the European Union could also have a negative impact for its cross-Channel business and British subsidiary. The fall in value of sterling versus the euro, for example, will lessen profits for the company. Both PSA and Opel/Vauxhall also import considerable amounts of vehicles and components to the UK from Europe; Opel/Vauxhall has already cut production in response to impacts from the decline in sterling.

In 2014, Gefco set a target of €8 billion in annual revenue, or double its turnover at the time. Since then, revenue has grown only to €4.2 billion in 2015, with modest increases so far this year. The company has not confirmed whether it has made any changes to this target, or whether it will rely on more aggressive acquisitions to reach it.

Luc Nadal from Gefco will be a speaker at the inaugural Automotive Logistics UK conference on October 5-6th in London. Find our more here.