Exel plc: comment on results.
Exel does logistics work for most of the world’s top multinationals. That may give it a privileged view of the global economy. So Exel provided something of a reality check yesterday when it said it saw little improvement in air freight in the first two months of 2002 in the Americas – where the overall market was down close to 20 per cent year-on-year in December. It saw no market rebound in Europe either. Air freight is an early link in the supply chain, though predominantly a means of moving technology products. If volumes were not improving, that suggests from Exel’s worm’s eye view that the economic recovery was still feeble.
Asia was improving, with anecdotal strength in semiconductors and mobile phones, but weakness in telecommunications infrastructure. China and South East Asia have syphoned some of that business from the US and Europe during the downturn, which may explain part of the weakness on both sides of the Atlantic. Exel, too, may be downplaying expectations. But given the uncertainties, it would be prudent to put off hopes of a sharp rebound in Exel’s profits until 2003.
Yet while group margins fell from 4.9 per cent in 2000 to 4.6 per cent in 2001, its contract logistics business saw margin declines only in the maturing UK and Ireland. Free cash flow grew by 126 per cent, suggesting it was not clobbered by the downturn. Exel’s 25 per cent exposure to the technology sector means its valuation multiples have fallen some 20 per cent below peers such as UPS and Federal Express. Given its resilience, they may start playing catch-up.
