More uncertainty over Ceva

Uncertainty continues to hang over private equity-owned worldwide logistics service and supply chain provider CEVA Group plc following the announcement of its annual results last week.

The Netherlands-based company's 2008 numbers revealed a strong underlying business which expanded throughout the first three quarters of the year. Over the full year, organic growth in revenue for its contract logistics and freight forwarding business was up 0.5% to €6,329m while EBITDA (earnings before interest, tax, depreciation and amortization) fell by 15.3% to €320m. The performance in the fourth quarter, however, was hit by the recession, with revenue falling 6.7% year-on-year and EBITDA down 43% at €57m.

Like other big freight forwarders, CEVA appears to have gained market share in an environment of rapidly falling volumes in its core air freight market. The group also appears to have maintained its margins, with EBITDA, at constant exchange rates, down just 4% for the year.

The contract logistics business held up less well, with EBITDA falling 20%. A key aspect of CEVA's market strategy has been a reduction in its reliance on the automotive sector. Until recently, that sector generated almost 40% of the group's business, led by its 'Lead Logistics Provider' contract with FIAT. Although around half CEVA's automotive business involves the more stable aftermarket contracts, it has still been hit hard by the fall in automotive production and that sector now accounts for just 32% of revenue.

Despite that, CEVA appears to have reacted aggressively, expanding with key customers such as Rolls-Royce Aero Engines. Consequently, its overall contract logistics business seems stable and of high quality.

The real issue with CEVA is the state of its finances. The group's huge debts, bequeathed by its private equity owners, remain and the company is focused on cash management in order to manage those. CEVA has already drawn down its revolving credit facility to maintain its financial headroom but that only highlights the criticality of the situation. It would not require too much pessimism to entertain the thought of a substantial restructuring of debt and possibly even ownership in the not too distant future. The underlying quality of the business, however, gives options in that area.