The past year has been the most momentous in our history, says Neil Crossthwaite, managing director of Ceva Logistics – and he should know, having spent 28 years in the business. It is little more than 12 months since TNT announced it was selling off its logistics business – a move that Crossthwaite admits came as much of a bombshell to him as anyone else.
However, he says, it’s hard to fault the financial logic of the decision – the margins available in the express and mail markets are significantly higher than in logistics. In fact, the UK logistics business can claim a very respectable performance. It is turning over about £500 million a year and produces a profit margin of some six per cent – well above the industry average.
TNT’s decision to sell raised three major issues: what would it mean for the customers; what would be the effect on the employees; and what impact would there be on the sales effort?
Many customers insist on having the right to walk away from a contract if the ownership of the contractor changes, however, not one chose to do that as a consequence of the sale, says Crossthwaite. In fact, the contract renewal rate last year was the highest for four years.
He points out that the fact that the business has been bought by a private equity investor means that it has been kept intact, whereas a buyer from within the logistics industry would probably have wanted to merge operations to exploit the synergies.
Potential customers seem to have been quite relaxed about the sale process. The company picked up new business with Tesco, Disney and furniture retailer Ilva last year, and expects to announce several large new contracts over the next couple of months. “Our profits will be about 20 per cent up on the previous year,” says Crossthwaite.
The company has delivered 15 per cent average annual organic revenue growth over the last seven years and, of course, the acquisition in 2000 of Taylor Barnard gave it a substantial boost. Crossthwaite says he regards the sale as a shot in the arm for the business. As a stand-alone business it has short decision-making lines, and it will benefit from that agility.
One of the things that will change is the relationship with the TNT express parcels business. Historically, the two of them have developed hand in hand. Crossthwaite, himself, started his career in the express business before moving over to logistics. Even today, they still share a building at Atherstone.
Ceva, however, will be moving out. Crossthwaite points out that this was always going to happen as the two businesses are now outgrowing the building. The plan is to find news offices in the same area to minimise disruption to staff.
Ongoing commercial relationships with TNT have all been formalised. For example, Ceva handles deliveries for TNT Mail and that will continue under a five-year contract. Equally, TNT Express does a lot of engineering and IT work and the basis on which that is done has had to be formalised.
The express business also handles a lot of deliveries for Ceva. Crossthwaite points out that the logistics business has always had the freedom to choose the most appropriate express supplier.
“We will continue to use TNT but we have never been a machine simply to feed parcels to them.”
Having gone through the sale process, the plan now is to grow the business. “We have always had aggressive targets so there won’t be any change there.”
Crossthwaite doesn’t rule out other acquisitions. The intention is to develop Ceva as a major player in the global third party logistics market and there will be funds available for acquisitions, he says.
However, return on capital is not being forgotten: “We have always made appropriate investment decisions towards an appropriate return – we don’t have a single loss-making contract.”
Crossthwaite stresses the importance of developing the right kind of relationship with the customer. He argues that open book contracts are the best way to encourage co-operation and harness the enthusiasm of customer and contractor to cut costs and improve efficiency.
Expectations for 2007 are high. “We are coming off the back of a good year and we have fewer relationships to renew this year and the pipeline is strong so we are budgeting for the best new business for eight years.”