Ceva Logistics has reported positive results in its automotive business for the third quarter of 2012 driven by “extremely strong growth” in the Americas region. The situation in Europe, however, remains “a big area of concern” with Ceva continuing to feel the impact of factory closures and reduced output. It is has responded by terminating poorly performing contracts and eliminating Southern Europe as a separate operating division within its organisation.
Across the company revenue in Q3 has risen by 5.1% to €1,844m ($2,949m), up €36m since Q2, almost a third of what it was between Q1 and Q2 (€96m). For the first nine months of 2012 earnings (before interest, tax, depreciation and amortization) dropped 13.4% to €206m, a poor result the company said was mostly driven by weak performance in the Contract Logistics division, which grew just 3.3% over the same period.
Ceva’s new CEO, Marvin Schlanger said there was “no real prospect of a significant and sustained market recovery in the short term.” However, the company is addressing the decline in profitability with a comprehensive three-part plan to reduce overhead costs and make savings.
One part involves administrative and organisational changes. According to Rubin McDougal, Ceva’s chief financial officer (pictured), the company is eliminating the Southern Europe regional structure, including its headquarters in Milan, Italy, and its offices in Iberia and Greece, which will now become part of the wider European region. Business managers there will now report directly to Leigh Pomlett, president of Northern Europe, based in the UK. Ceva would not provide comment on what this meant for the southern regional directors affected.
That region also affects the Middle East and Africa and these regions will now report on an interim basis to Anneharm Barkema, Ceva’s chief human resources officer, until a new leader for the region is chosen in Q1 next year.
The second part of Ceva’s plan is to reduce fixed costs in its freight management network in Southern Europe, though less so in Italy (its main market in the region) as the company is reporting somewhat surprising growth related to component production for overseas markets.
Thirdly, the company is exiting or renegotiating underperforming contracts, including automotive, to either get a better return on investment or cut its losses.
“We have given notices to customers telling them we are exiting our termination rights and are leaving the contracts,” said McDougal but added that elsewhere it was continuing to work customers “to change the terms, scope or the pricing in order to make them give [Ceva] an adequate return.”
The company said it is also expecting new wins across Contract Logistics and Freight Management including those from the automotive sector. “Those new wins will start to come into play, some of the Freight Management ones have already started, but Contract Logistics typically takes a little longer,” said McDougal.
Boom in Americas
Ceva reported that its Ocean Freight business was also showing strong growth with automotive “a significant driver”, particularly because of the boom in the US automotive industry. “We are seeing automakers there who have diversified their supply base bringing a lot of componentry in from Asia, that is a big piece of it. We are also seeing intra-Asia automotive volumes doing well,” said McDougal.
But it is within the Americas that Ceva has seen its best results over the quarter, particularly in North America where the unit volume in the industry is up substantially.
“Not withstanding softness in the rest of the economy, most of the major auto manufacturers are talking about another good year next year,” said McDougal, citing a meeting this week with one of the Big Three who were reporting a stronger than average forecast for 2013 compared to their competitors.
As well as the US and Mexico, Ceva is also benefiting from automotive growth in Brazil thanks in part to recent incentive scheme extensions. “There is always the question of when the incentives will expire or not but two major [automotive] customers, that between them account for 50% of the market, were very upbeat there,” reported McDougal.
