Gefco Group, the logistics subsidiary of France’s PSA Peugeot Citroën, has seen its profits slide nearly 56% in the first half of 2012 compared to 2011 following drops in revenue in Europe and particularly across Peugeot Citroën, its parent and largest customer. Gefco has also seen its margins squeezed by the terms of a long-term contract that it signed with PSA at the beginning of this year, according to the PSA Group.
Gefco’s revenue declined 6.7% in the first six months to €1.88 billion ($2.28 billion) from just over €2 billion in the first half of 2011, according to PSA. Recurring operating income (profit before interest and tax) fell to €63m in the period from €143m in the first half of 2011.
PSA attributed the fall in earnings mainly to declines across the automotive division of PSA, which itself recorded an operating loss of €662m in the first half compared to a €405m profit in 2011. PSA, which uses Gefco to operate most of its logistics activities globally, saw global vehicle sales (excluding China) decline around 13% in the first half to around 1.6m vehicles. In Europe, sales fell 15% to 980,000 vehicles, with sharp declines in the hard hit southern markets like Spain, Italy and Portugal, but also France.
“The Group is facing difficult times,” said Philippe Varin, chairman of the PSA Peugeot Citroën managing board, in a statement. “The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganisation of our French production base and a reduction in our structural costs.”
Gefco’s revenue with its parent customer dropped in line with the decline in sales, falling 13% to €1.1 billion. Its non-group revenue, on the other hand, increased nearly 4% in the first half to €772m.
In its earning report, PSA also attributed part of the reduction in Gefco’s margins – which were 3.3% in the first half of 2012 compared to 7.1% in the same period last year – to “the impact of the renewed pricing clauses in the long-term contract with the Automotive Division since 1 January 2012.”
A Gefco spokesperson said that the logistics provider could not comment further on the specifics of the contract or on its pricing clauses because PSA is responsible for financial results. PSA did not respond for further comment on this issue.
Gefco for sale
Gefco had a record year in 2011, including around €3.8 billion in revenue and €223m in operating profit. As part of an asset disposal to raise cash for its automotive division (which is struggling under a negative cash flow), PSA is currently reviewing bids to sell a majority stake in Gefco, which has reportedly attracted offers from a number of private equity firms. Luc Nadal, Gefco’s managing director, said during a press conference earlier this month in Paris that details of the sale were likely to be announced in October.
Gefco had a record year in 2011, including around €3.8 billion in revenue and €223m in operating profit. As part of an asset disposal to raise cash for its automotive division (which is struggling under a negative cash flow), PSA is currently reviewing bids to sell a majority stake in Gefco, which has reportedly attracted offers from a number of private equity firms. Luc Nadal, Gefco’s managing director, said during a press conference earlier this month in Paris that details of the sale were likely to be announced in October.
Earlier this month, Gefco and General Motors, which signed an alliance with PSA earlier this year, also announced that the logistics provider would take over most of GM’s logistics management in Europe, Russia and Turkey, on a fourth party logistics provider (4PL) basis starting from 2013 (read more here).
While the weaker results could weigh on an investor’s valuation of Gefco, the provider’s underlying business appears stronger than that of the automotive division. Non-group sales now account for more than 41% of revenue, while Gefco’s global expansions in markets such as Russia, China, India and South America have been generally robust. Gefco recently initiated two new joint ventures in China to expand in both inbound and outbound logistics.
PSA, which currently builds cars in China at two plants with Chinese OEM Dongfeng, is also building its third plant in China, this time with Changan. The plant will increase the carmaker’s capacity in the country to 750,000 units by 2015. The carmaker increased sales 7.5% to 209,000 units, although these are not consolidated under PSA’s global vehicle sales report. Because of the joint venture structure, Gefco is only responsible for a portion of PSA’s logistics activity in China. However, at a recent press conference, Gefco’s Christian Zbylut, head of international business development, said that the company’s new joint venture in China would be pursuing more of the Chinese domestic market.
Gefco has also invested considerably in Russia and Central Asia, including logistics centres near to PSA’s plant in Kaluga, as well as activities in St Petersburg and a subsidiary in Kazakhstan. Business in Russia will be further aided by PSA’s own expansion there, which includes both a 14% increase in first half sales to 41,000 units, as well as the switch from semi-knockdown (SKD) to complete knockdown (CKD) assembly of the Peugeot 408 in Kaluga.
At the Automotive Logistics Russia conference last month, Gefco revealed the complexity it will be managing for the 408’s global supply chain, including material imports by rail from Europe and China and by sea from South America. PSA is also adding five other models to Kaluga for assembly (read more here).
Changes still to come
Still, Gefco is unlikely to be spared the impacts of PSA’s planned restructuring in France as well as the OEM’s cost savings targets. The carmaker has already announced plans to stop production at its Aulnay factory, near Paris, in 2014 as well as to reduce production at a factory in Rennes. As well as €1 billion in planned cost savings for 2012, PSA has revealed further plans to save €1.5 billion by 2015, including €600m from reducing French-based production at Aulnay and Rennes, €500m in lower capital spending starting in 2013 and €350m in lowering production costs, half of which is expected to come from shared purchasing activities, including logistics, with General Motors.
Still, Gefco is unlikely to be spared the impacts of PSA’s planned restructuring in France as well as the OEM’s cost savings targets. The carmaker has already announced plans to stop production at its Aulnay factory, near Paris, in 2014 as well as to reduce production at a factory in Rennes. As well as €1 billion in planned cost savings for 2012, PSA has revealed further plans to save €1.5 billion by 2015, including €600m from reducing French-based production at Aulnay and Rennes, €500m in lower capital spending starting in 2013 and €350m in lowering production costs, half of which is expected to come from shared purchasing activities, including logistics, with General Motors.
However, while the drive to reduce logistics cost could further hit Gefco’s revenue, the company is in a unique position thanks to the contract with GM, which tasks Gefco with managing the carmaker’s European logistics budget and for finding efficiencies in combining logistics purchasing and operations with those of PSA. Nadal told Automotive Logistics two weeks ago that the contract would be worth around €800m in new annual revenue for Gefco, and would lead to the creation of around 100-150 jobs in logistics engineering and purchasing, some of which would be transferred from GM.
Nadal said at the time that he believed that the contract with GM had “secured” Gefco’s future, particularly in view of the difficult times facing PSA and the pending sale.
“While I don’t have information on what will happen to our employees [after the sale], I’m not worried about the future of Gefco, and I think the GM contract should reassure some of the worry that might be out there.”
