Thursday, May 30, 2019

Container Shipping Giant Outlines Plans for its Future Logistics Operations Whilst Cutting Costs

Q1 Figures Come with a Side of Restructuring Plans
Shipping News Feature
FRANCE – WORLDWIDE – It is common knowledge that CEVA Logistics was not in the best state of health financially when French container line CMA CGM opted to expand its logistical operations by acquiring the Swiss listed freight forwarding group. Now, with the release of its first quarter figures, CMA CGM has published restructuring plans to implement a group wide cost reduction program.

The shipping group now owns 99.4% of CEVA's equity and says it is ‘resolutely committed to CEVA's financial recovery’. It says savings have already been made with the imposition of a new, stronger, governance structure with Nicolas Sartini becoming Chief Executive Officer as of 1 June, and tasked with implementing CEVA's turnaround plan and returning it to profitability.

A CEVA operations centre will be set up in Marseilles near the CMA CGM group head office, bringing together CEVA's management teams and support functions, for a total of 200 employees (new jobs and transfers) whilst the performance improvement and cost control program target is raised to $1.5 billion. This is a continuation of the group wide ‘Agility’ plan to improve overall operational performance, which was implemented in July 2016 and upgraded in March this year with the savings target raised to $1.2 billion.

The company says since its launch, this plan has already achieved savings of $245 million, through the rationalisation of some of the Group’s lines, greater operational efficiency, lower logistics costs, new partnerships with its suppliers, and the implementation of innovative technical solutions on board its ships to reduce their energy consumption and carbon footprint.

The rationalisation of the subsidiary lines will involve changes from 1 October whereafter CMA CGM, the group’s global brand, will be the only carrier in the Transatlantic, Asia-Europe, Asia-Mediterranean, Asia-Caribbean and Europe-India/Middle East markets. Meanwhile subsidiary APL will focus on the Transpacific routes, in which it plays a key role, the Asia-Indian Subcontinent services where it will be the Group's only brand, plus Intra-Asia, with CNC, Asia-Oceania, and the US Flag services. ANL will remain the lead brand for Oceania.

CMA CGM believes the new organisational setup will allow the Group to simplify its offer, making it more legible to its customers, and benefit from the expertise of specialist companies from coherent regional groups, while reducing its costs. The financial statements for the first quarter of 2019 came before the Board of Directors this week and the results were as follows.

Volumes transported rose by 4.4% compared to the first quarter of 2018 (fleet capacity was up 6.6%) and the beginning of 2019 was marked by strong development in intra-regional routes. Revenue per container increased slightly in the first quarter of 2019 compared to Q1 2018, particularly on the routes serving the United States and Africa. First quarter revenue was up by nearly 37% year-on-year, to $7.409 billion. Coming on top of the Group’s 5.5% organic growth, the impact of integrating CEVA amounted to $1.7 billion.

Describing the results as ‘a mixed operational performance’ adjusted EBITDA came to $779 million, of which $423 million corresponds to the impact of IFRS 16 and $144 million to the contribution from CEVA. Excluding these two items, EBITDAA remained broadly stable at $212 million, compared with $217 million for the first quarter of 2018. Over the quarter as a whole, the rise in costs was contained, in line with revenue growth per TEU.

One interesting point is that the IFRS 16 accounting standard has applied to the entire industry since 1 January 2019. It changes the way operating leases are managed and accounted, but has no effect on the Group's cash position. The standard has already been adopted by the rating agencies and therefore does not change or modify the CMA CGM Group’s credit rating in any way.

The CMA CGM group net loss was $43 million in Q1 compared to last year’s $77 million. The IFRS 16 impact on Q1 figures was a loss of $88 million excluding CEVA with CEVA contributing a further $21 million to this total. A table of the precise position can be seen HERE.