CEVA sets ambitious 10 billion euro sales target by 2010
CEVA Logistics, the company created by New York-based private equity firm Apollo Management after the purchases of TNT Logistics in the Netherlands at the end of 2006 and Houston’s EGL Inc. earlier this year, has set a revenue target of 10 billion euros by 2010.
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John Pattullo |
New Chief Executive Officer John Pattullo, speaking in London on Friday at the release of CEVA's third quarter and nine months results, said its growth ambitions will primarily be organically driven but admitted the company could be tempted by more takeovers although on a far smaller scale than the $2 billion or so deals for TNT Logistics and EGL.
“This industry is still very fragmented. There will still be consolidation. As part of that consolidation there might be some small sweet opportunities that emerge and we'd be stupid not to look at them. But they will be small bolt-ons rather than any major acquisitions,” said Pattullo, formerly chief operating officer of the EMEA (Europe, the Middle East and Asia) division of DHL Exel Supply Chain, the logistics arm of Deutsche Post.
Pattullo identified possible targets as companies with annual revenues of 30 million to 50 million euros or those with activities in certain geographies that would broaden CEVA's global network.
With the addition of EGL, Pattullo said that CEVA is now the world’s fourth-largest integrated supply chain management company with consolidated revenue in 2006 of $8 billion (billion euros) placing it behind DHL ($29 billion), Kuehne + Nagel ($14 billion), and Schenker ($13 billion).
Pattullo expects CEVA will only see a modest increase for 2007 and short of any radical restructuring in the industry, doesn't expect to catch the leading trio. The revenue target, which he stressed is an internal goal that isn’t firmly built into its financial models, will require roughly 15 percent growth year-on-year, just above the market’s double-digit growth projections for the next few years.
“We've got to move a lot of rocks in 2008, 2009 and 2010 to get that growth. We believe that with the momentum we've got the company will hit it but it's certainly going to be a challenge,” he said.
Aside from any possible takeovers, CEVA plans to increase its sales by switching its focus from air to sea freight with a particular emphasis on ocean cargo from Asia to North America and Europe. CEVA will establish a dedicated team to develop its sea freight business, probably based in Shanghai, from the first quarter of 2008, Pattullo said.
“As production cycles have got more regular, as things have got more predictable, more and more of the traffic is moving from air to sea so we want to follow that trend,” Pattullo said.
He added that CEVA will also put more emphasis on key account management, look for large-scale strategic outsourcing contracts, develop its U.S. and European road transport businesses as well as increase its presence in Dubai, East Europe and the Far East, particularly China.
CEVA's results for the third quarter ended Sept. 30 are the first to include those from EGL. CEVA’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the three months period was 93.1 million euros ($133 million), up 80.9 percent from 57.5 million euros in the comparable period last year. Net sales for the quarter increased 58.4 percent to 1.33 billion euros ($1.9 million) from 840.4 million euros.
After nine months, the adjusted EBITDA improved 41.2 percent to 202.3 million euros ($289 million) while net sales gained 19.7 percent to 3.01 billion euros ($4.4 billion).
The CEVA boss expects the integration process of EGL to be concluded in the next few months.
“We are blessed by the fact that the two companies are very complementary. This is very different from the Exel/DHL merger which I lived through where there was huge overlap,” Pattullo said.
On the industry wide probe into alleged anticompetitive behavior among international freight forwarders, Pattullo said CEVA is cooperating fully with investigators but hasn't set any money aside for potential fines.
“While we are worried about our legal bills we are not worried about any of our folks ending up in jail,” he said, adding that CEVA has just launched a new corporate code-of-conduct policy.
When asked about Apollo's long-term plans for the company, Pattullo said that it is a healthy business relationship that he hopes will last a long time.
“I enjoy working with Apollo because they're active investors; they're smart and bring a lot of global know-how to the business so as far I'm concerned it's a good relationship and the longer it continues the better.
“I have no doubt though that at some stage they will exit the business. Their track record has been to stay relatively long to build companies, but their decision when they exit will be based on our performance and market conditions and is entirely that — their decision. I can't be more specific than that.” ' Simon Heaney