Efficiency initiatives aid CEVA profit rebound

Efficiency initiatives aid CEVA profit rebound    An improvement in the global economy and internal processes helped CEVA Logistics record a 35 percent increase in net profit to 89 million euros ($124.5 million) in the fourth quarter of 2010, its best financial performance since the third quarter of 2008.
   After a disappointing start to the year, the company posted its best revenue ever in the third quarter and carried the positive momentum through the end of the year.
   The third-party logistics provider's revenue increased 22 percent over the same period in 2009, and 25 percent year-on-year to 6.8 billion euros ($9.6 million), moving ahead of pre-recessionary levels.
   Operating profit for the year was up 25 percent to 292 million euros ($408.5 million), not including special items such as restructuring and legal costs. In 2009, CEVA's revenue fell 13.2 percent and earnings before interest, taxes, depreciation and amortization (EBITDA) tumbled 28.5 percent to 233 million euros.

Pattullo

   In a phone interview, Chief Executive Officer John Pattullo said big structural changes undertaken by CEVA started to pay dividends in 2010.
   An initiative called Project Uno involved standardizing work processes for freight management so that every office operates the same way using common best practices. CEVA executives decided that tightening productivity standards was necessary because the freight forwarding business that resulted from the acquisition of Eagle Global Logistics in 2007 tended to under perform the industry on profit margins.
   The move 'has lead to more productive station performance,' Pattullo said.
   CEVA also outsourced routine back-office finance functions, such as billing and accounting, to offshore companies to save money and make its financial systems stronger, while retaining financial management and analysis capabilities.
   Pattullo said the reorganization of the financial system enabled the 3PL to catch up with other companies that have farmed out clerical work to parts of the world with lower labor costs.
   CEVA, incorporated in Hoofddorp, The Netherlands, was also able to restructure its debt by pushing out the maturity date for a large portion of its notes to 2016 and 2017 from 2013 and 2014. CEVA's owner, New York-based Apollo Management, borrowed heavily for its $3.8 billion purchases of EGL and TNT Logistics, which now forms its contract logistics division.
   In the past 18 months, the company has reduced its debt due by the end of 2014 by more than 70 percent.
   'That provides a lot of assurance to our customers with regard to our balance sheet,' Pattullo said.
   Even though CEVA is privately held, it reports earnings like a public company because some Apollo investors sold shares in the company on the New York Stock Exchange in 2008.
   Also contributing to improved earnings last year was CEVA's decision to centralize operational control of freight transportation buying and selling in its forwarding network, Pattullo said.
   Stations previously operated semi-autonomously, making it difficult for the company to leverage its purchasing power.
   Chief Operating Officer Bruno Sidler sets guidelines for purchased transportation and customer pricing activities and all stations at major gateways report directly to him.
   Individual offices are still responsible for their profits and losses, but now follow a more integrated strategy.
   Last fall, CEVA appointed Dominik Tickelkamp as its new head of ocean transportation and named Greg Weigel in January as head of global air cargo.
   Both men are tasked with developing pricing and product strategies, and developing partnerships with ocean and air carriers that take advantage of the companies scale.
   'We've now tightened our global freight management network to make it more efficient,' Pattullo said. 'I believe it's one of the reasons for our margin improvement in the second half of the year.'
   CEVA said that financial performance was strong in the Asia-Pacific and Americas, aided by contributions from its automotive logistics group. Northern European revenues grew, but at a slower pace because of the sluggish economy, the volcanic ash cloud that spread from Iceland, fallout from cargo security threats, and early arrival of a harsh winter.
   The economic outlook for 2011 is quite positive save for southern Europe, where countries such as Spain are still struggling to get out of recession, Pattullo said.
   'In most of our other markets, our customers seem to be trading positively.'
   His comments represented a slight shift from ones made in late September when he expressed pessimism for 2011 because the red-hot growth in volumes in the first half of 2010 had decelerated going into the fourth quarter.
   The markets for ocean and air freight transportation, as well as contract logistics, seem poised for low single-digit growth this year, but CEVA anticipates exceeding general market volumes based on its previous history, the CEVA CEO said.
   The rise in fuel prices hasn't had a noticeable impact on CEVA's cost structure, especially because it ultimately passes such costs on to the shipper, Pattullo said.
   'Our bigger worry is on customer costs and whether that has a dampening effect on customers. I don't see that happening yet, but it's obviously a concern that we'll have to watch closely,' he said. ' Eric Kulisch