Tight margins squeeze profits for Ceva

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Ceva Logistics has posted an 18 per cent increase in EBITDA for the first half of 2010, despite profits being down six per cent in the second quarter.

Sales for the second quarter were up 30 per cent year-on-year. The company said the decrease in EBITDA was down to margin compression in the freight management business and a one-time contract logistics start up cost.

Chief financial officer Rubin McDougal said: “EBITDA was a function of major items – rates on purchase transactions increased as volumes went up pronouncedly so rates went up with that, and because rates changed our margins were squeezed.

“When we make a contract with a company and we may have a fixed price that we need to give 30, 60 or 90 days notice to change. If costs go up we have to give that notice and we are squeezed until that period is up.”

In some lanes, however, rates have decreased, which had the opposite effect and delayed price change.

McDougal is also keen to point out that the figure in Q2 is compared to a peak during the same period in 2009.

Looking towards the second half of 2010, McDougal believes margins will start to balance out. “I think we are going to be less squeezed going forward.”|

June was better than April, he said, “and July, although it’s not recorded in these figures, was better than June. It’s a favourable trend”.

Business wins continued well in the second quarter with 451m euros (£370m) of additional revenue, mainly driven by growth in the consumer and energy sectors and continued improvement in the automotive market.

New contract wins included a £27m deal with Triumph Motorcycles in the UK, a contract with Janssen Pharmaceutica in Belgium and a deal with AKI in Spain.

“We have six designated areas for focus,” explained McDougal. “Automotive is still very important for us, but consumer and technology will have special focus for the rest of the year.”

Despite the Bank of England’s growth forecast going down for the UK, McDougal reckons that even if there is a dip “we’re at a much higher level than 2009”.

“Our own economic forecast is fairly soft for the second half of 2010 and while we are cautious on the overall economy we are optimistic about Ceva’s performance. We are comfortable that industry is in a better position.”

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