Agility is increasingly focusing on its Global Integrated Logistics (GIL) division in the face declining profitability over the course of the next four quarters, according to chairman Tarek Sultan.
He said profitability is declining as a result of major US government contracts winding down in Iraq, recovery from the global recession, and the financial impact of the legal dispute with the US government.
In the first quarter of 2010, operating profit was £44.4 million (KD18.9m), a 55.3 per cent decline since the fourth quarter of 2009. This decline was driven by the reduction in volumes in the defence and government services business, and pressure on net revenue margins in the GIL division.
GIL has been affected by carrier prices, which fell in the early days of the global financial crisis, steadily rising. “This has put pressure on freight forwarding margins industry-wide.”
Group sales, at £947m (KD403m), fell 4.4 per cent from the fourth quarter of 2009.
Sultan said: “To reverse the decline in profitability, we will aim to grow revenue organically, accelerate realisation of return on investment, reduce costs prudently, and maximize yields on core operating assets.”
“While net income may decline over this period, we will focus on cash management throughout the business. We expect that free cash flow will be the key metric to guide us on the health of the business.”
Agility’s Defence & Government (DGS) business has been hit by the combination of the troop drawdown and the legal case with the US government.
Sultan said: “If the company is able to settle the dispute, then DGS will focus on aggressively rebuilding its business, reinvigorating business development and customer outreach. If we cannot reach a mutually-agreeable settlement, then we would need to assess all strategic options for the DGS business. For now, the situation is fluid and no decision has been made, but we have contingency plans in place.”[asset_ref id=”782″]
The relative importance of the GIL business has grown in the face of uncertainty around DGS, he said.
“GIL’s strategy remains the same, but timelines will be accelerated. GIL will continue to focus on growth, performance, and innovation. Growth strategies are centred around a tradelane development program and on growing business with global accounts. Performance strategies are focused on controlling overhead costs, maximizing returns on assets, and managing cash. Innovation strategies are centred on transforming our operations platform and investing in technological modernization which will lead to productivity improvements.”