Behind The Moves - The warehouse & logistics financial markets

London and New York stock prices went their separate ways since our last report on February 15, with the DJ Industrials losing 82 points to 12,266 while the FTSE 100 rose 97.3 to 5,884.3 but both remained hostage to nervous conditions, underscored by a rising cocktail of disturbing trends.

There has been a steady and worsening drip of US credit-related problems, crashing consumer confidence, rising inflation and weakening economic data. In Britain, further problems to come from the hedge fund industry were highlighted by the liquidation of a $2bn asset-backed securities fund, leading to fears of a hedge-fund meltdown, a scenario this column warned about last June. Back in America, the gloom deepened as the head of the Fed, Ben Bernanke, warned of likely bank failures, the kind of statement that one hopes Britain's BoE governor, Mervyn King, will never make if he wants to prevent a general collapse in banking confidence, from which a depression would be inevitable.

So far, the Fed's only device to reverse economic decline has been to cut lending rates aggressively to 3%, helped by the Government's $150bn fiscal boost but it has been useless in the beleaguered and deteriorating housing market, where rates on the standard 30-year fixed-rate mortgages are stuck at about 6.8%, where they were at the height of the credit crunch last Autumn.

The irony of rate manipulation may not be lost on those who, like this columnist, believe that dangerously low interest rates following 9/11 and the dot com bust brought on the current credit crunch as City creatures dreamt up new, unsound ploys to make fast megabucks. The reason financial collapses occur routinely is not so much because the City spivs are entirely ignorant of economic history, and so doomed to repeat it, but because they cannot resist their lust for rapid wealth creation, for they know that they will always emerge from the carnage smiling, while their dupes, mostly hard-working savers, are taken to the cleaners. Only a clean up of City, casino-style practices will diminish such recurrences.

Among our own selection of stocks, 16 rose while 14 fell since our last report. Most of the leading risers were among the IT stocks, with Britain's Belgravium up 18.2%, EMS Technologies, 11.4%, Psion, 12.2% and Zebra Technologies, 10%. Behind Psion's rise, perhaps, was the announcement of good results for 2007, which showed pre-tax proifts up more than 40% to £10.8m, and 2008 has started well, says the company. Sales rose only £9.1m to £199.7m and the dividend has been raised from 3.2p to 3.6p per share. Bucking the trend, however, was Motorola (Symbol Technologies) down 11.5% to this year's low, following well-known problems with its mobile phone division.

On the 3PL pitch, TDG added 18.2% following well received annual results for 2007. These show total pre-tax profits of £15.8m (2006: £15.2m), on sales up 26% to £669.5m, and an unchanged total dividend of 14 pence per share. The profits, however, are flattered by an exceptional gain of £4.2m from property disposals, but even ignoring that gain the return on capital employed is a derisory 6.19%, no better than building society payments. It is also well below the profits earned in the heady days of the 1980s, when they were typically twice as much. Like Christian Salvesen before it, TDG seems unable to emerge from its long-term profits rut and is likely to succumb to a takeover. David Garman, chief executive, remains confident that the group will make further progress in 2008.

The trend among 3PL stocks, however, was downward, with modest falls for Norbert Dentressangle, Deutsche Post, DSV, Ryder Systems, TNT and Wincanton. Serving the 3PL industry, Brambles, operators of the world's largest pallet pool through its Chep subsidiary, rose slightly after release of its interim results for the six months to December 31, 2007. These showed a 19% rise in comparable operating profits to US$500m on sales up 13% to $2.1bn. The interim dividend rises 26%. Chep was responsible for the strong growth, "which performed well in all regions in both sales and profits," said CEO, Mike Ihlain. A $750m investment calls for establishing a Chep presence in India, among other moves.

Among the significant fallers were forklift producers, Nacco Industries (Hyster & Yale), down 17.8%, close to its year's low, and French producer of rough terrain trucks, Manitou, off by 16.7%.

Bill Redmond

Bank of Scotland invests to support growth of Quartix

Bank of Scotland Corporate has today announced a substantial investment in Quartix Ltd., a leading supplier of vehicle tracking systems.

The Bank's Integrated Finance South team has delivered a comprehensive package of debt and equity, totalling over £12m, in a deal which will see Bank of Scotland take a 20% equity stake in the business. The remaining 80% will continue to be held by the management team, which will continue to hold complete operational and strategic control of Quartix.

Quartix is one of the fastest-growing real-time vehicle tracking companies in the UK. Based in Newtown, Wales, with an office in Cambridge, England, it was established in 2001 and has since gained a reputation for outstanding service at an attractive price.

Through its strategic partnership with Orange, Quartix provides companies in a variety of sectors the ability to track the movement of their vehicles through Quartix's website from any PC, without the need to install software. This ease of use, combined with reliability, has helped Quartix capture significant market share.

The deal was led by Owen Sennitt, Director of Integrated Finance supported by Ben Stephenson, Fiona Gibson and David Lock. Commenting on the deal ˆ the third completed by Integrated Finance South in recent months, following the debt and equity packages provided to Maynard & Harris Plastics and Charterhouse Print Management - Owen said:
"Quartix is an outstanding business whose recent growth rate is due to the drive, ambition, and vision of Andy Walters and his management team. This is an exciting investment for us, and our funding package will provide a solid platform for future expansion."

UK Logistics Industry sets £300 million target for training

UK logistics employers need to bid for nearly £300 million if they are to match the uptake of funding for NVQs and Skills for Life in comparable sectors such as construction and engineering.

Logistics needs £280 million to train 230,000 staff if it is to punch its weight as a sector in contributing to the Government's target of 79% of people qualified to Level 2 by 2011 says Sector Skills Council, Skills for Logistics (SfL).

SfL, backed by a group of influential logistics industry bodies warns that companies are losing out on major funding that can directly improve their bottom line and which they desperately need to improve skills and safeguard their future.

The £280 million figure has been issued as part of an ongoing national campaign, 'Skills Pay', which launched in January of this year.

Publicly funded qualifications, such as NVQs and Skills for Life (literacy and numeracy) dramatically improve productivity, staff retention and recruitment for businesses large and small, yet logistics employers remain unaccountably slow to apply for funding.

Dr Mick Jackson, of Skills for Logistics, speaking for the industry bodies, says: "We calculate that there are 330,000 logistics employees lacking basic literacy skills and 450,000 lacking basic numeracy skills. Over 47% of the logistics workforce is qualified below Level 2, which simply does not make good business sense.

"Why is it that the construction industry, which employs a similar number of people to logistics, receives 13% of publicly funded training, while logistics receives less than 2%? The Government is keen to address the issue of low skills across all sectors of the economy and is increasing the funding available in England - so let's go for it! If we in logistics don't take up our fair share, the money will still be spent, but in other sectors where the worth of qualifications is recognised and appreciated," adds Dr Jackson.

"There seems to be a belief in the logistics industry that if people are well trained they will simply walk away and go on to a better job - but this is not the case from the companies that we speak to, in fact improving people's qualifications often makes them stay with what they consider to be a caring employer. Training your staff makes good business sense - they are much more likely to feel valued and confident in doing the job - which means they stay add value to the company in return," concludes Dr Jackson.

Skills for Logistics
Tel: 0844 561 1905
www.skillsforlogistics.org/skillspay

70% of manufacturers think UK market is 'on the up'!

Following a survey of UK manufacturers by the Manufacturing Advisory Service at last week's Southern Manufacturing exhibition, more than 70% of respondents are positive about the state of the market - and confident that the situation is improving for manufacturers in the South East and London. A further 25%, who see the market as static today, believe that output will increase in the coming months and are positive in their outlook.

When asked for their views on sales growth, manufacturers are very positive - with more than 80% of respondents seeing improved or stable sales figures - and many expect further improvements in sales over the short to medium term.

Despite recent media commentary, less than 12% perceive global economic 'slow down' as a concern. On the contrary, 75% of survey responses point to a clear improvement in export trade, in spite of the backdrop of a strong UK currency. A higher priority for manufacturers is the concern about future skills shortages - with more than 35% of respondents citing this as having a key potential impact on future productivity.

AMI Express record follows move

AMI Express - the courier, small parcel and express freight division of the UK's largest airfreight wholesaler - enjoyed a mini-boom in business following its recent move to new, dedicated premises.

The final week of business in 2007 was an all-time record for AMI Express, up 20% on the same period in 2006. January 2008 was also well up on January 2007 bookings.

"Our customers are delighted," says recently-appointed General Manager Pat Walsh. "Our new location is still close to Heathrow, but it's away from the more congested areas around the airport. Speed is critical in our business: customers' drivers can now make quick and easy drop-offs to us. The average delivery time since we moved has fallen to just 4 minutes."

AMI Express' new telephone number is 01753 762222

Behind The Moves - The warehouse & logistics financial markets

Stock market volatility continued since our last report on February 1, which saw the DJ Industrials down 395 points to 12,348 and the FTSE 100 off by 242 to 5,787. The uncertain outlook for bond insurers (monolines) continued to affect sentiment, as failed auctions of "muni bonds" in America emphasised the spread of the credit crunch into new areas of the economy. Some US municipal governments now face a financial nightmare as interest rates for their new bonds skyrocket amid extremely low demand at bond auctions. Other bad news to hit the market included the recent release of poor manufacturing figures for the New York region, which showed the biggest ever drop in manufacturing activity, a surge in import prices and a drop in consumer confidence to a 16-year low.

Such contagion, however, does not stop there. The global credit crisis is set to spread to other areas of industry as companies are forced to write down the value of their investments, according to the head of the world's largest audit firm. This is because several large US companies had invested in asset-backed and mortgage-backed securities that caused multi-billion dollar losses in Wall Street banks. One such victim, Bristol Myers Squibb, reportedly wrote down $275 million in illiquid securities with exposure to sub-prime mortgages.

Investors would do well to remain on the sidelines, as cautioned in our December issue, for there is still much unravelling to come which no amount of fatuous, ill-conceived US rate reductions will prevent.

Winkled out
Our own selection of stocks saw 17 rise and 13 fall over the last two weeks with gains and losses limited to little more than 10%. Among the third party logistics (3PLs) operators there were generally good rises on news of their 2007 results. One rise, however, that had nothing to do with financial results was Deutsche Post, which added 2.5% following news that the company's chief executive, Klaus Zumwinkel, resigned amid allegations of colossal tax irregularities that could involve hundreds of people holding undeclared trusts in Liechtenstein and the loss to the German exchequer of hundreds of millions of Euros. His departure may be no bad thing as it could ease the way to clearing up its poor DHL performance in the States, where DHL is reportedly losing $1 billion a year.

Norbert Dentressangle rose over 5% to 56.95 Euro after disclosing that revenue growth in 2007 was 12.2% while organic growth was 8.1%. Its transport business posted sharp organic growth last year, as did the logistics division. In line with its strategy to expand its range of services by designing multimodal transport solutions, the group acquired a 10.4% stack in Novatrans from SNCF, bringing its total shareholding to 14%.

UPS advanced $1.36 to $74.2 after reporting an 8.7% rise in its fourth quarter earnings compared with the comparable period in 2006. Behind the performance was a double digit growth in export volume, among other factors. Over the full year the company delivered a record 3.97 billion packages. Total sales climbed by 4.9% to $47.9 billion. Ryder reported higher than expected fourth quarter profits owing to the strength of its contractual business, sending its shares up 6% on the announcement day. The company reported fourth quarterly net income of $71.9million compared with $65.8 million a year earlier. The French 3PL giant, Geodis, however, fell 7% since our last report despite reporting a 26.4% rise in 2007's sales, which were up 5.4% on a like-for-like basis.

Biggest of the risers was FKI, up 15%, perhaps on reflection that its bidder, Melrose, will have to up its offer, reportedly put at 70p a share. Cargotec, makers of the Kalmar brand of forklifts, found support, adding over 10%, but forklift companies generally fared badly, with Nacco Industries, (Hyster and Yale) down around 7.5%, Caterpillar, by 3% and Manitou 10%. This issue's wooden spoon for fallers goes to sub systems provider, Interroll, down over 10% or SF66.

Bill Redmond

Toshiba TEC Corporation acquires Ricoh's Auto ID business

TOSHIBA TEC Europe, a leading retail and industrial automation solutions provider, announced that TOSHIBA TEC Corporation acquired the Auto ID business from Tohoku Ricoh Co., Ltd., a 100% owned subsidiary of Ricoh Company. Prior to the transfer, Tohoku Ricoh separated its Auto ID division and established AI Solutions Co., Ltd., in October 2007. TOSHIBA TEC purchased the 100% share of the AI Solutions Co., Ltd. on December 28, 2007 and completed the acquisition.

AI Solutions Co., Ltd. has been specialised in development, manufacturing and sales of Auto ID systems with the annual turnover of 3 billion Yen, and TOSHIBA TEC expects to enhance the resource of auto ID solutions with this acquisition.

Strong growth in fourth quarter

The Volvo Group concluded an intense 2007 with a fourth quarter in which sales and operating income reached record levels.

In the fourth quarter, sales increased by 25 per cent to 84.6 billion kronor (£ 6.71bn) and operating income rose 12 per cent to 5.8 billion kronor (£460.3m). The underlying profitability remained at a favourable level, which is a reflection on the positive development in most of the Group's markets.

The operating margin of 6.8 per cent was negatively affected by the development in North America, integration expenses which initially yield lower profitability in acquired companies and a provision for engine-related warranty expenses in North America amounting to 370 million kronor (£ 29.4m).

The split market conditions are most apparent in the truck operations, in which nearly all markets continued to show favourable development, with the exception of North America and Japan. There is a good stability and high profitability in Europe and the Group is expanding production capacity, particularly against the background of very high demand in Eastern Europe. Following the acquisition of Nissan Diesel, Asia has grown to become the second largest truck market and truck deliveries tripled in the fourth quarter in Asia.

During the fourth quarter, Volvo CE had a very strong growth but profitability was impacted by increased production costs and costs related to the integration of acquired companies. Volvo Buses have the new Euro 4-engines based on the new engine platforms in place and are far ahead in the environment area, including hybrid buses in the commercial phase. Buses are now being integrated closer to the truck companies and Volvo 3P, with a focus on joint solutions, reduced costs and increased profitability. Volvo Penta continues to capture market shares in the marine segment and Volvo Aero ended the year strongly. Volvo Financial Services has stable profitability and delivered a return on equity of 15.9 per cent.

On December 31, 2007, the Volvo Group had 101,698 employees.

Behind The Moves - The warehouse & logistics financial markets

Since our last report (January 18) both London and Wall Street equity markets recovered some of their sharp losses, with the DJ Industrials up 644 points to 12,743 and the FTSE 100 up 128 to 6,029. Two panicky, unprecedented interest rate cuts by the Fed within eight days and more benign data on US manufacturing boosted markets but the underlying tone remains nervous. While there are still no cogent facts to point to a pending US recession (technically two quarters of negative growth) the turmoil created by the credit crunch could still be painful enough to turn recession fears into reality.

Both the Fed and the Bank of England (BoE) see their key roles as taming the inflation dragon but both have acted perversely by cutting rates while inflation is rising. Last year, the American consumer price index rose 4.1%, it sharpest annual rise in 17 years, while in Britain all the indicators are for further rises, well outside the BoE’s inflation comfort zone. Yet markets expect the BoE to cut rates in early February by another 0.25%.

This pussyfooting around with interest rates, designed more to protect financial companies whose lust for wealth created this credit crunch crisis in the first place, rather than maintain sound, national finances, will simply postpone the day when inflation will be so bad that severe recession, or worse, will be inevitable. But taking a more responsible view on interest rate levels by itself will not rid global economies of the higher risks now infecting the financial system unless the whole system is forced to ameliorate its casino-style mentality, created by new, exotic financial instruments that are nothing more than gambles.

It says much for such an infected system when one rogue derivatives trader seriously damaged a leading global bank but had the power to bring it crashing down, and the whole world financial markets with it. The BoE would do well to remember that greed and incautiousness brought Northern Rock to its knees and has saddled the taxpayer with a £25 billion loan, as if the Government’s finances did not have a big enough hole in them already. One more run on another major British bank would destroy that most delicate flower upon which the whole financial edifice rests - confidence, the outcome of which would be too awful to contemplate. The question now is whether the purblind functionaries running the Central Banks both sides of the Atlantic have the backbone to stand firm against the screeching of vested financial interests.

Our own list of stocks reflected the revival in markets, with rises outnumbering falls by 24 to 6. Biggest of the risers was FKI, up over 30% to 62p following news of a takeover bid approach, the second in less than a year. Possible suitors include Melrose, the engineering turnround company. On the forklift pitch there were double digit percentage gains from Cargotec (25%), Caterpillar (15%), Nacco Industries (20%) and Manitou (10%). Metalrax continued its rally, adding 10%, following news of a business redirection, with a $6 million purchase of a US company, and KCI Kone cranes put on 20% to 21.8 Euro. Sub systems provider, Interroll, clawed back much of its recent fall with a 19% gain.

Deutsche Post drops US packet
With few exceptions, most of the third party logistics (3PL) operators posted sharp gains. UPS, Wincanton, and Kuehne & Nagel all added 10% but Ryder shone with a 20% jump while Business Post and TDG added over 15% each. 3PLs to move south included French rivals, Norbert Dentressangle, which now includes Christian Salvesen, and Geodis. Biggest of all the 3PL operators, Deutsche Post, eased back 0.21 Euro but since the beginning of 2005 the company has sharply underperformed the German DAX index. This is because losses in the US have weighed heavily on its share price, which has scarcely moved since its IPO in 2000.

Deutsche Post has a reputation for paying too much for acquisitions, including, this column believes, Exel, Britain’s largest logistics services provider, which also includes Tibbett & Britten. Last week the company announced it had written down $880 million of its fixed US assets, and its US package delivery business (DHL) is reportedly losing nearly $1 billion a year. One possible scenario being mooted by analysts is a rollback of DHL’s operations in America but the next few months should see some clarity, said chief financial officer, John Allen.

On the IT pitch, Zebra Technologies added 10% but Motorola, which bought data capture specialist, Symbol Technologies, last year, shed 5% to $12.69 following poor trading in its mobile phone division.

Bill Redmond

A11 Improvements could bring £600 million economic boost

Upgrading the A11 to make Norfolk more accessible could bring significant economic benefits worth more than £600 million according to a study published today.

The study was jointly commissioned by the East of England Development Agency (EEDA), Norfolk County Council (NCC) and the Government Office for the East of England (GO-East) to evaluate the wider economic impacts of dualling the A11 between the Fiveways Junction and Thetford.

The study, undertaken by Atkins Transport Planning, shows that the scheme could generate an estimated £135 million of wider economic benefits, including significant productivity benefits to firms in Norwich and Thetford:
• £558 million resulting from time savings for road users;
• £98 million from reduced accidents.
The cost of the scheme is currently estimated at £101 million.

EEDA senior transport project manager, Andy Summers said: "Backed up by hard evidence EEDA can, with its partners, support proposals to government that will tackle traffic congestion, get the region moving and help businesses succeed in a competitive global marketplace. The recent Eddington report on transport showed that strategic and prioritised investment in the transport infrastructure, particularly at key pinch-points, can help businesses be more competitive and increase productivity. Investment in the transport network is key to the economic success of the region and the country.

"This single-carriageway section of the otherwise dualled A11 is considered to be a bottleneck on the strategic network, and this study has demonstrated that over £600 million worth of economic benefits would be generated from developing the A11 Fiveways to Thetford scheme.

EEDA will continue to gather economic evidence for transport-related interventions in the East of England, for the benefit of all those who live, work and invest in the region."

Adrian Gunson, cabinet member for planning and transportation at Norfolk County Council, said: "This study reinforces what many business people and councillors, including myself, have been saying for some 30 years, that there will be vast economic benefits to Norfolk in dualling the A11. Indeed the last stretch between the Fiveways junction and Thetford will bring benefits some six times the cost of dualling the road.

"Clearly we shall be using this study to press for the urgent dualling of this stretch of road to create economic growth and prevent some of the human suffering caused through deaths and injuries on this remaining stretch of single carriageway."
Atkins' Project Manager, Jonathan Foster-Clark said: "The completion of the dual carriageway will help business in Thetford, Norwich and Great Yarmouth by increasing access to other businesses elsewhere in the region and beyond. It will also play an important part in helping to reduce the peripherality of Norfolk and increase economic vitality in the county. Importantly, it will help to ensure that Thetford and Norwich are prepared for the growth that is planned in the next two decades.

"The draft guidance on wider economic benefits is an important tool to improve our understanding of how transport affects the economies of towns, cities and regions. It shows how to better take into account the impacts of transport projects on labour markets and business supply chains, and in many cases the benefits of projects can be increased by some 20-30%. As difficult decisions have to be made about prioritising transport budgets, more importance will need to be given to solid evidence of the benefits of schemes. This approach helps to do this, and the study for the A11 has shown that this scheme will deliver these benefits.

FKI faces bid approach

FKI, Britain's biggest materials handling systems supplier, has received an approach that may lead to a takeover bid, said the company, the second approach in less than a year. The shares jumped 33% on the news to 67p, still well below its 52-week high of 147p. FKI stressed that there was no certainty that an offer would be made from the unnamed suitor, whom press speculation names as Melrose, the engineering turnround company. Melrose, however, would not comment on market speculation.

Given that FKI's share price fell by two thirds in recent months, sparked by investors' concerns over its high gearing, it comes as no surprise to this column that an opportunistic bid has emerged. FKI has good growth businesses in Lifting Products and Services and Energy Technology but holding these back are worsening conditions in its systems handling division, Logistex, and its hardware division, so heavily dependent on the ailing US housing market. These two divisions have been up for sale for some time but turmoil in the credit markets has delayed the sell-off. Any bidder would have to grapple with problems of gauging accurate valuations for these businesses and pitching their bid offer accordingly.

Some analysts remain sceptical about a successful bid but if the bidder could obtain £300m for the two problem divisions then any successful bid under 100p would leave the suitor with a remarkable bargain. Shareholders might also welcome new blood at the top, if they accepted shares instead of cash, given how badly previous board incumbents have served the group, saddling it with stratospheric gearing to acquire Logistex for around £500 million, which has returned so little, and blowing a fortune on its failed wind turbines venture.

Business failures up as credit crunch hits

According to the Equifax Business Failures Report for Quarter 4 2007, despite gloomy predictions for Christmas, the retail market saw just a 1.8% increase in business failures compared to the same period in 2006. And encouragingly, the Retail sector saw a drop in businesses going bust for the year as a whole, with numbers down 3.1% when compared to the 12 months of 2006.

However, as leading business information provider Equifax revealed, most other industry sectors were hit hard in Quarter 4 of 2007 with an increase in business failures of 5.7% overall compared to the same period in 2006. A rise in the number of businesses going bust could be a sign that the credit crunch is starting to have an impact warns Equifax.

"Business failures were up in most sectors in Quarter 4 as the credit crunch began to take its toll on the UK economy" confirmed Neil Munroe, External Affairs Director, Equifax. "The Construction industry suffered the most in the last Quarter with a 16.6% rise in failures, followed by the Services sector at 13.8%, and the Wholesale sector at 11.8%. And, as we enter the first Quarter of 2008, businesses are under increasing pressure as lenders continue to tighten their purse strings, making it essential for them to monitor their customers and accounts to avoid the threat of bad debt."

Behind the moves - The warehouse & logistics financial markets

Growing worries over recession pounded equity markets both sides of the Atlantic since our last report on December 21, 2007, leaving the DJ Industrials down 1,351 points at 12,099 and the FTSE 100 off by 533 points at 5,901. Data on US factory activity, retail sales and the housing market all turned negative, exacerbated by the bizarre spectacle of Middle and Far Eastern investors bailing out two of Wall Street's top investment banks, hit by the sub-prime mortgage implosion. News of a $140bn fiscal boost to the US economy and expected cuts in US lending rates failed to impress investors, as they ran for cover in safe haven investments.

Investors, it seems, have lost some of the respect for the Fed's ability to smooth the markets, which in any event was always more dependent on its reputation than its actual resources. The Fed has lost credibility for failing to prick the stock bubble of the 1990s and the recent housing bubble, the latter of its own creation following irresponsibly low interest rates of 1%. There are many other reasons why the Fed has lost respect, like rewarding those very institutions that helped create the present credit crisis, fired by uncontrollable greed. If the Fed fails to clean up its act, the task of restoring normality in financial markets will be even harder. All the current financial woes were foreseeable, but as history repeatedly shows, when greed bestrides the saddle history's valuable lessons are ignored.

In Britain, the Bank of England, for once, stood firm against the shrill squawks from retailers, in particular, calling for immediate rate cuts in the aftermath of what they claim was a poor Christmas season. Markets confidently expect a rate cut in February but that would be a mistake as the greater threat comes from rising inflation, given a boost by recent, hefty hikes in energy bills.

European and Far Eastern markets also succumbed to the depression, leaving the Eurofirst 300 at its lowest level since August 2006, and Australian and Hong Kong stocks also fell sharply over the last week.

The turmoil over the last month left our own selection of stocks badly battered, with only two stocks rising and 28 falling, many showing double digit percentage falls. Of the risers, Metalrax gained 60%, a reaction, perhaps, to being oversold following a profit warning. Business Post, also looking oversold, rose 9% following an up beat interim management statement which showed group revenues for the last quarter of 2007 up 13% over the same period of 2006. Its UK mail business continues to achieve strong growth, with sales up 60% on 2006's final quarter. The company now handles 10% of all mail collected in the UK. Overall, the board expects good progress for the whole year.

Among the 3PL service providers, percentage declines were typically in double digits, led by Group Norbert Dentressangle, which now includes Christian Salvesen, down by nearly 20%. Next came Geodis, down 16%, DSV, off 15%, and TNT, 12%. The UK's biggest, British-owned 3PL, Wincanton, eased back 10%.

Many of the IT specialists supporting the 3PLs showed equally heavy losses, with Motorola leading the way down with a near 20% fall.

The forklift pitch fared worse. Cargotec, makers of the Kalmar brand, slumped 25%, Jungheinrich by 20% and Manitou and Caterpillar by over 15% and 10% respectively. Nacco Industries, makers of the Hyster and Yale brands, slumped 15% as it comes to grips with restructuring its forklift division. As a conglomerate, however, it expects 2007's results to be in line with those of 2006.

Sophisticated hardware kit suppliers to the automated warehouse industry were savaged amid signs that such investments were being shelved until the outlook for the global economy clears. Britain's largest supplier in this field, FKI, fell over 10%, close to its year's low, while Swiss-based Swisslog Holdings slumped 20%, likewise testing its year's low. Sub systems supplier, Interroll, which had enjoyed an unjustified run up, in this column's view, slumped nearly 20%

Bill Redmond

Companies Set to ride out economic storm

The UK economy is set for a rocky year ahead, but two thirds of fork lift trucks companies look surprisingly well placed to benefit, according to leading market analysts Plimsoll Publishing.

Despite predictions of doom and gloom, the fork lift trucks sector will not suffer terminal fallout in 2008, according to the company's latest in-depth report on the industry.

"In fact," said Plimsoll's senior analyst, David Pattison, "it could turn out to be a very exciting year."

Plimsoll sees four clearly defined groups among the 420 companies in its new analysis:
• 71 firms chasing extra market share at any cost
• 82 successful companies poised to go on the offensive
• 145 being squeezed out of the market
• 122 sitting the whole thing out.

For each of these groups, there are advantages and disadvantages to the position they find themselves in. David Pattison outlines them.

The market chasers
"These 71 companies spent 2007 gearing up for growth - to such an extent that some of them are completely reliant on outside finance. Despite the prospect of even tighter credit, they look surprisingly confident to continue with their aggressive expansion plans. With their expected growth rates likely to be in the 20% to 24% range, they could cause chaos in the market as their undercutting pricing policies cripple the competition. Capturing sales from other players is a key part of their strategy.

"The biggest threat to these companies is any interruption of cash flow, which could be fatal. They need to hope that the financiers and the banks don't become any more nervous as the year develops."

The predators
"This group has most to gain in 2008, and the companies in question are capable of funding their investments with their own cash, rather than looking for outside finance. They have enjoyed average profit margins of 5.2% in the last two years, and the economy will play into their hands in 2008, as competitors go under and cheap acquisitions appear on the market.

"The biggest danger in this sector is missing opportunities because of a lack of clear strategy."
The prey

"These companies are badly exposed because 50 of them are losing money, they are in debt and their ability to respond is slow. If they act quickly, cut costs and bring their bad news out now, they may still turn things around.

"The biggest threat they face is leaving it too late in 2008 to act."

The fence-sitters
"These companies have been slowing down their capital expenditure, controlling costs and sticking to profitable areas of their business. They have been staggeringly profitable, making margins of more than 5% year on year, often in niche markets.

"The firms in question may appear to be in the lowest risk category as they ride out the storm. But doing nothing is perhaps more dangerous than you think. All it takes is for a more aggressive player to target their sector of the market and their position could be jeopardised."

Finally, with apologies to Ian Dury, Plimsoll offers some Reasons To Be Cheerful in 2008. These include:
- Going to your customers and reasonably arguing to pass on costs
- Company failures creating breathing space in the market
- Using the downturn as an excuse to make changes you have been dying to make for ages

Plimsoll Publishing
David Pattison
www.plimsoll.co.uk

Latest West Trax Study data confirms SAP UK MD's concerns

Logistics Service Providers are failing to exploit the full potential of the software they are paying for, a 2007 report from West Trax reveals.

The transport industry is among 13 different sectors named in the report, which shows that companies are using less than half of the standard SAP code they pay for, wasting millions of euros each year as a result, due to it sitting there doing nothing.

In its report, West Trax found that users were typically failing to fully exploit the potential of the standard SAP functionality that was available in their systems. In business areas where some SAP standard transactions had been used a very high proportion of the available standard functionality remained unused.

Companies use SAP(R) solutions to solve the core dilemma of transportation - how to meet the unique delivery requirements of customers while still achieving profitability. The SAP(R) Transportation Management application together with Supply Chain Management application helps companies increase visibility and control of shipments globally while reducing the costs associated with transportation management by making the process more flexible and dynamic. It enables companies to sense and respond quickly and profitably to the fast pace of change in today's competitive transportation environment.

Even in most of the Best Practice systems in the study, more than 50% of the SAP standard transactions that were relevant to the users' businesses and available in their systems were not used. Users pay licence and maintenance fees for this software yet failed to exploit the potential to convert these costs into business value. Optimising a system based on current usage can reduce workload and costs significantly.

On November 26th at the SAP UK & Ireland User Group Conference in Birmingham SAP's UK MD Steve Rogers challenged the delegates present to use their SAP assets more effectively. "I find it frustrating that the majority of you only seem to be using a modest slice of the software you have acquired," Rogers said.

West Trax recently repeated last year's groundbreaking SAP Cost / Benefit Study. Data was analysed from 269 benchmarks in 13 different industry sectors. The intent was to objectively examine the actual usage of SAP systems using the KPI Scan(R) methodology and to compare the results with those from the previous year.

Mr. Rogers also urged users to upgrade their systems. This message was repeated by Martin Reidel, head of SAP's global upgrade office who commented that UK organisations were amongst the slowest to adopt the latest version of SAP's core ERP product. The West Trax study highlights one of the possible reasons for users' reluctance to upgrade - the high levels of customisation in current systems.

In the systems analysed, between 20 and 40% of the transactions used were customised, incurring significant development and support costs in addition to SAP's licence and maintenance fees. In every sector the Measured Best Practice (MBP) values demonstrate that it is possible to operate using less custom code, especially as the Best Practice systems may themselves contain considerable unrealised optimisation potential.

Ecommerce survey reveals another happy eChristmas

An early poll done by retail specialist, Actinic, into Christmas trading results has found continued growth in shopping online. Respondents reported a 27% rise in the number of customers buying online at Christmas compared to the same period in 2006. They also reported an even greater increase in internet revenues at 46% - indicating that not only are more people shopping online, but they are spending more as well.

The poll also found ecommerce making a greater proportional contribution to the bottom line compared with other channels. Companies trading both online and offline, reported that on average, just over 50% of sales in November and December were made online, compared with only 30% in 2006.

According to Actinic CEO Chris Barling, the results show that growth in online spending remains remarkably buoyant. "Considering the effects of the US credit crunch, the Northern Rock crisis and the general overall decline in confidence, 46% is remarkable growth and continues the rise and rise of online retailing," he says.

In all, over half of retailers who responded were very confident that online sales would continue to increase in 2008. Less than a quarter expressed the same level of confidence that conventional retail sales would grow.

Jason Beer of Quality Silver is one retailer who is very certain of continuing acceleration into 2008. "The number of people purchasing online is growing faster than the number of internet retailers," he believes. He also cites increased consumer confidence in online security as a reason for the sustained growth.

Behind the moves - The warehouse & logistics financial markets

New York and London regained some of their poise since our last report on November 23, with the DJ Industrials rising 470 to 13,450 and the FTSE 100 up 172 to 6,434, bolstered, it seems, by reports of more foreign investment shoring up American bank balance sheets. Yet the underlying mood remains cautious over the credit crunch outlook, and UK consumer confidence is at its weakest for more than 10 years.

The caution is well justified as the American sub prime mortgage debacle has far more damage to do, and could be followed by a similar scenario from the credit card industry, where debt almost matches the suspect, securitised debt on sub prime mortgage loans. Already, as though mirroring the "Grapes of Wrath," depicted in Steinbeck's novel of American itinerant agricultural workers in the depression, there are similarities like the rapidly-growing Tent City in Los Angeles, filling up with residents from foreclosed housing. Such foreclosures are now at an all-time national high, the ramifications of which will damage far more than financial institutions and the building related industries.

This column sees no reason to change its view of lightening up on equities for safe haven investments expressed in our last issue.

Still continuing last month's pattern, our own list of stocks saw falls outnumber rises by 17 to 12, with much of the change evident in the logistics services sector. the French 3PL provider, Geodis, led the way down with a 19.2% fall, closely followed by Business Post, off 16.5% and Wincanton, 10.4%. One exception, however, was Ryder Systems, which at the end of November said it would combine its US and International Supply Chain Solutions businesses to serve its customers better. Changes to our 3PL constituents see Christian Salvesen replaced by French rival, Norbert Dentressangle, which acquired Salvesen for a 92p cash bid, worth £254.4m, back in October.

Among the systems hardware suppliers, FKI slumped over 16% to 59p, close to its year's low, following further company comments that its Logistex systems handling division could see sales fall 10-15% in its second half after many of its US customers, which account for almost half the division's sales, postponed warehouse and handling projects owing to the uncertain economic outlook. This will make the task of selling its Logistex and hardware divisions for a fair price more difficult.

Over in the IT pitch, there were mixed movements. The American suppliers, EMS Technologies and Intermec, rose over 10% and 7.5% respectively, while Zebra fell $2.15 and Manhattan Associates by $1.49. Britain's Belgravium lost 10%.

Bill Redmond


FKI interims up, but Logistex outlook worsens

FKI's worsening share price following its interim results reflects deteriorating economic conditions in North America, where the group sells 48% of its output. Group results for the six months to September 30, although showing sales and operating profits up 7% and 26.2% respectively, have left shareholders unimpressed. After tax, profits barely rose from £17.7m in the first half of 2006 to £18.3m and net debt has risen to 115%. The interim dividend remains unchanged at 1.5p per share.

At the time of the results release, the chief executive, Paul Heiden, sounded a bullish note, saying that the full year remained strong, with closing order books up 23.4% on March 31, 2007. In particular, he stressed that the Logistex division, responsible for systems handling, although displaying lower turnover on last year's levels owing to rescheduling of major orders, showed that order intake was robust and 19% higher than the first half of 2006. Since the results announcement, however, FKI has warned of order delays, saying US customers have decided to delay orders for warehouse and distribution projects owing to uncertainty in their end markets. The cumulative effect of this could see Logistex's sales fall 10-15% compared with the last year's second half.

This is a significant blow to the group's strategy of selling off its Logistex and hardware divisions, so necessary to reduce disturbingly high net debt and leave the group free to concentrate on its more promising Lifting Products and Services and Energy Technology. If any one investment could be blamed for FKI's struggling it is the incredible premium it paid for the Logistex group of companies, costing around £500m, sending gearing into the stratosphere and returning far from adequate profits.

Verdict: Seven years ago this column warned that FKI would find that earning a decent return from such a huge, overvalued investment could prove harder than they thought, and so it has emerged. When last commenting on FKI's annual results in our July 15 issue, this column advised potential investors to play the waiting game, since when (June 22), the share price has fallen from 126.5p to 57.5p (December 19), close to its 52-week low of 56p. Until the problem children of Logistex and hardware have been resolved, it sees no reason to change that advice.


DAHER acquires precision engineers and fabricators ICN

DAHER UK, part of the European integrated equipment and services suppliers DAHER CIE, has acquired LCN Ltd, precision engineers and fabricators.

Under the terms of the acquisition DAHER has purchased 100% of the company from its present owners. The acquisition will secure the jobs of the 30 people who work at the company.

"This acquisition enhances one of our core skills in the UK, the design and manufacture of special-to-type plastic and wood containers for the aerospace and defence sectors. LCN's experience in metallic containers and fittings will enable us together to provide a comprehensive range of logistic equipment," said Chris Melrose, Chairman of DAHER in the UK.

"We have worked with LCN for a number of years as they have provided us with manufacturing engineering support plus the fabrication and machining of numerous complex items such as WIP trolleys, stillages and transportation fixtures" he added.

Colin Sparkes, Managing Director of LCN, commented "We are delighted to be becoming part of the DAHER group. Not only are our two manufacturing skill sets complimentary but also the pool of knowledge we offer and the customer base we share will give us a strong presence."

LCN has a well developed customer base across the defence and aerospace sectors including the UK MoD and many of the major primes including Thales, MBDA, BAE Systems and UK AEA.


Mobile Devices completes €3.1million fund raising

Mobile Devices, a leading provider of technology for telematics, fleet management and navigation applications, is pleased to announce the completion of its first round of private investment. The company has raised a total of €3.1 million from Innovacom, the sole financial investor in this private placement.

Mobile Devices enables any company involved in telematics (navigation, driver information and fleet management), to develop, deploy and operate value-added services to their customers. The full line of embedded devices from tracking devices to high end navigation and messaging terminals, the open platform embedded in every terminal, the administration solutions, and the powerful and user friendly development environment help solutions providers quickly bring new products to the market. Mobile Devices also provides a comprehensive catalogue of ready-to-use applications.

"We are delighted to have received this level of financing and are proud to have closed our first round of private equity with Innovacom who are fully confident in the future of our technology," said Aaron Solomon, President and CEO of Mobile Devices Ingénieurie. "Mobile Devices has an aggressive product roadmap which will extend the capabilities of its product offerings. This investment will support the continuous development of our technology and the establishment of an international sales network."


New report: UK Pallet Networks to continue growth

Today Transport Intelligence launches its latest report, UK Pallet Networks 2008. The report concludes that the growth of the UK Pallet Network sector over the last ten years has been exceptional and will continue strongly in the years ahead. Whilst traditional road hauliers have struggled with falling revenues and margins, the pallet networks have seen its volumes grow significantly. The industry is now attracting increasing interest from a range of express, parcels and logistics companies hoping to benefit from its success. With only a small market penetration the market looks set to continue its strong growth for many years to come.

In terms of volumes, Transport Intelligence estimates that the UK Pallet Network market will grow at around 25% in 2008 but will start to slow slightly between 2009 and 2011. Overall it is estimated that the market will grow by a CAGR of 22% between 2007 and 2011.

According to Joel Ray, the report's author, one of the key reasons behind the growth in pallet networks has been a switch from FTL (full-trailer-loads) consignments to smaller, more frequent deliveries. This has come about due to the prevalence of just-in-time manufacturing which has placed an emphasis on the frequent replenishment of stocks in order to reduce inventory. This basic supply chain concept has required the supply side logistics industry to adopt more flexible, time sensitive business models, and it has also resulted in smaller consignments which can be more easily unitised using pallets.

The number of 'brands' in the pallet market also suggests that there will be a certain amount of consolidation in the years ahead. Economies of scale at hubs indicate that the smaller players will struggle to compete with larger rivals unless they develop their own competitive advantage.

UK Pallet Networks 2008 is an ideal starting point for companies which are interested in becoming involved in the market, or who want to find out more about the competition and market in which they operate.


Employment prospects highest in 14 years

The 17th annual UPS Europe Business Monitor reveals that well over a third (38%) of business leaders in the UK say they plan to increase their workforce over the next 12 months. That figure is the highest since the question was first asked in 1993 and is up 2% on last year’s results (36%). An additional 46% plan to keep their workforce about the same as it is now, meaning 84% of senior UK executives predict a stable or growing employment situation in the coming year.

The net result (the number of companies predicting an increase in staffing minus the number predicting a decrease) is also the highest in 14 years, at 24% (only 8% in 2005). Across Europe, businesses in the Netherlands are most likely to predict workforce growth in 2008 with a net positive result of 27%, whilst businesses in Italy and France are least likely to predict growth, with net results of 11% and 14% respectively. The net average across the countries polled is 20%.

The UK’s employment optimism is mirrored by confidence in the general economic climate; with over half of respondents (56%) reporting that the economic position of their company is better than it was 12 months ago and only 8% reporting that it is worse.


Share Prices: