Analysis

From the first view CEVA Logistic seems to have strong financial position. However, the company is largely debt funded. But less than 1.5% of the total debt is due for repurchasing each year until 2012. There is a significant amount of cash available in the firm- €164 million. In addition to this there is €26 million of unused invested funds. As a result, CEVA is in a position where there is no much need to worry during this difficult period of global recession.⁴

There was normal financial growth during the first 10 months of the year 2008, after which the current world economic recession affected badly the company’s financial performance. CEVA Logistics business was largely impacted by a number of other factors, such as a significant decrease in the automotive manufacturing sector. The actual loss is (125 million EURO). CEVA was not the only logistics company, which suffered from the global economic recession.

Overall, year 2008 was a very important one for CEVA as two diverse companies were joined into one- CEVA Logistics. It is a significant long-term investment, which opens new business perspectives and opportunities in the logistics sphere of business. However, there can also be suspicious views why this merger did take place exactly in 2007.

Analytical skills/techniques (1)

Revenue

CEVA Logistics revenue for the 2007 was €4.8 billion. In 2008 CEVA Logistics becomes the fourth largest supply chain company in the world with revenue of €6.3 billion. The reason for such a large growth is the purchase of TNT Logistics to the CEVA’s Freight Management division. However, the current global economy is very unstable and it is quite difficult to predict now the consequences of this purchase.

EBIT

EBIT (earnings before interest, tax, depreciation and amortisation)⁵ has increased by 6.3% in 2008 to €320 million from €301 million in 2007. EBIT is a key management measurement for the company’s operational performance. The main point for growth of the revenue was purchase of the Freight Management business from TNT during 2007. EBIT was also largely affected by the decrease in the world economy in the latter part of 2008.

Cash generated from operations

There was a decrease in cash generated from operations, from €262 million to €245 million during in 2007 and 2008 respectively. This is a clear sign of a decrease of turnout and business operations of the company, which is a quite important aspect showing that the number of CEVA clients has declined and further decreases in the amount of cash generated from operation are quite possible.

Return on capital employed

Return on capital employed has remained stable. There were no significant operating income and capital employed fluctuations during 2008.

Goodwill

The total goodwill of the CEVA Logistics for the year 2008 is 1,427 million EURO. It has decreased compared with 2007 (1,464 million UERO). This Declining shows instability of the position of the owner of the CEVA and mistrust to it from outside partners or investors. This is a significant point as it shows how investor’s see the CEVA financial position. Figures show that the investor’s do not believe in CEVA future business success.

Borrowings

The total borrowing of the company is 2,202 in 2008. In 2007 the figure was 2,433. Both current and non-current borrowings have decreased in 2008. It can be identified that there is an enormous gap between current and non-current borrowing in the company: 2,125 and 77 respectively for 2008.

Liquidity

CEVA Group had €164 million at 30 Dec 2008. This figure has decreased from €175 million available of cash on the company’s balance sheet in the end of 2007. The reason for the liquidity decrease might be the purchase of TNT Logistics. CEVA Group has also access to €251 million of committed credits. This shows that banks find CEVA Logistics a reliable company and are ready to lend large sums of money to which a good sign.

Equity Ratios (Liquidity)

• Current ratio = Total current assets / total current liabilities = 1397/1220= 1.145

This shows that, for each pound of current liabilities, there are 1.145 penny current assets to support it⁶. 1.1 is a very good result .A higher figure is not necessary a good sign. Higher figure would mean that a large amount of available cash is not efficiently invested. ⁷

This ratio is a general and quick measure of liquidity of a firm and its financial stability.

• Quick ration (acid test ratio) = (cash + accounts receivable) / total current liabilities = (194 + 893) / 1220 = 0.89 = 0.9:1

The quick ratio is a measure of the ability of a company to pay its short-term debts (bill’s paying ability). The result is less than one which is not a good sign.

Debt-to-debt ratio = (Total liabilities / total equity= 3,898 / (136) = -28.66) is also negative supporting company’s inability to pay the loan back.

• Working capital = Total current assets - total current liabilities= 1,397-1,220=177

Net working capital represents the amount that is left free and clear if all current debts are paid off.⁸ It can be seen that the result is positive and quite high. This is a good sign for the investor. It means that the company meets its obligations .

Profitability Ratios

• Net Profit Margin = Adjusted Net Profit before Taxes / Sales *100 = (141) / 6,329 = -2.22%

Net profit margin is used to represent the profit from trading operations before any costs of servicing long-term finance are taken to account.⁹ It is a very good measure to find the company’s operational performance. In this case, profit margin is negative- a very bad sign. One of the reasons for that is the increased operation cost, which is understandable due to the extremely high petrol prices before and during the recession.

• The Return on Capital Employed ratio (ROCE) tells us how much profit is earned from the investments the shareholders have made in their company. ROCE ratio should be as high as possible. The ROCE of the CEVA Logistics is negative. So, there is no capital return. This is an extremely bad sign. This means that the company is making losses. The loss for the year 2008 is (125) millions EURO. Moreover the total group equity is also negative (136)

• Return on Equity = Net Income / Total Equity Return on Assets = Net Income / Total Assets = (125) / 3898 = -0.032 * 100 = -3.2%

Shows how a company managed to reinvests its earnings in order to generate additional revenue in the future. This measure is important as it considers prospective opportunities of the company relevant for the investors. ¹⁰The negative result shows that .company is not going to earn much revenue in the future.

Activity (Efficiency Ratios)

• Accounts Receivable Days = (Accounts Receivable / Sales) * 365 = 988 / 6529 * 365 = 55.23

This means that the company will need 55 days to collect the payments for its services. The result is higher than 50 which mean that CEVA has collection problems and a pressure on the cash flows.

• Fixed Asset Turnover = Sales / Gross Fixed Assets = 6329 / 2501 = 2.53

The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.¹¹Compared with the previous year, it has declined.

Altman Z- Score ¹²

X₁ is working capital /total asset = 0,05 X₂ is retained earnings (profit) / total asset = 0,03 X₃ is EBIT / total asset = 0,03 X₄ is market value of equity /total liabilities=0,00008 X₅ is sales / total asset =1,5

Z = 1.2X₁ + 1.4X₂ + 3.3X₃ + 0.6X₄ + X₅

= 1.2 *0,05 + 1.4*0,03 + 3.3*0,08 + 0.6*0,00008+ 1,5 = 0,06+0,042+0,264+0,000048+1,5 = 1,86

The Altman Z-score is a measure of a company's financial strength that uses a weighted sum of several factors to predict company’s bankruptcy. CEVA logistics presents low results which suits in grey zone (.8 and 2.7), what means that company has good chances going bankrupt within 2 years of operations from the date of financial figures given.

Updates for the latest period (2009)

The latest figures taken from the second quarter of 2009 did not show any Improvement. On the other hand, there was a further decrease in various sections of the balance sheet and the total business presentation.

Group equity decreased significantly from -136 to -196 million EURO.

Consolidated revenue has decreased by 16.1% from 1,595 to 1,336 million EUR compared with the same period last year of 2008 three month after 30 June. The reason for that is clear: global economic crisis. However, there was an increase in the revenue since March 2009 at a rate of 2.8%. The figures were largely affected by the fluctuations of the currencies, especially, the US dollar and the British pound sterling .EBIT decreased by 22.5% in the three month ended June 2009 from 89 million euro to 69 million euro.

Loss before income tax has increased from 13 million euro to 18 million euro for the three month ended 30 June 2008 and 2009 respectively. This was caused by a number of factors including an increase in depreciation and amortisation, higher operating prices and others.

Cash has decreased from 164 million euro at 30 Dec. 2008 to 152 million euro by 30 June 2009.

Capital expenditure has also increased. For the three month period ended 30 June 2008 and 2009 it increased from 25 million euro to 29 million euro.

However, there were a few positive moments in the financials of the company. Cash generated from operations increased from 41 million euro to 94 million euro. This was driven by the improvements in the working capital, which resulted in a 68.3% decrease 126 million euro to 40 from 30 Dec. 2008 to 30 Jun 2009. In addition, the company managed to keep the rate of total assets quite similar to the one in the end of 2008 – around 3,700 ~ 3,800 million EURO.

Overall, year 2009 is not going that good for the company. Year 2009 seems to be even worse than 2008. ¹³