Valuation Update for the Logistics and Transport Industry

May 31, 2010
Transaction volumes in the transportation and logistics industry increased slightly when compared to the prior month. According to Capital IQ, there were 77 deals worldwide in May 2010, up from April’s total of 75. These deals yielded mean enterprise valuations of 0.4x revenue and 10.9x EBITDA. Mean valuation multiples for April were 0.8x and 7.4x, respectively.

The U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported that the U.S. Freight Transportation Services Index (TSI) rose 0.3 percent in April from its March level, rising for the third consecutive month. The April Freight TSI of 98.1 is a 4.9 percent increase from the recent low of 93.5 reached in May 2009. In May 2009, the index was at its lowest level since June 1997. The Freight TSI is down 13.1 percent from its historic peak of 112.9 reached in May 2006. (Source: U.S.
Department of Transportation, June 9, 2010)

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased for the sixth time in the last seven months, gaining another 0.9 percent in April. This followed a 0.4 percent increase in March. The latest improvement put the SA index at 110.2, which is the highest level since September 2008. Over the last seven months, the tonnage index grew a total of 6.5 percent. (Source: American Trucking Associations, May 28, 2010)

The International Air Transport Association (IATA) reported that passenger demand slumped by 2.4 percent as a result of massive flight cancellations centered in Europe during the six days following the eruptions of an Icelandic volcano during April 2010. International scheduled cargo traffic, less impacted by the cancellations, saw the pace of its recovery slow to 25.2 percent growth in April (down from the 28.1 percent improvement recorded in March). (Source: The International Air Transport Association, May 27, 2010)

The Baltic Dry Index (^BDI), an index tracking worldwide international shipping prices of various dry bulk cargoes, significantly increased in May, with the month’s average value rising 27 percent to 3,848, up from April’s average of 3,041. The Index finished May at 4,078 down 65.4 percent from the May 2008 peak of 11,793. (Source: Capital IQ, June 7, 2010)

• UK logistics provider Bibby Distribution Ltd. has completed the acquisition of
  Taygroup Plc for an undisclosed amount. UK-based Taygroup provides transportation, warehousing, and goods handling services to food manufacturers, furniture retailers, and electronic and white goods wholesalers. The combination further expands Bibby’s distribution network in the United Kingdom. (Source: Capital IQ, May 4, 2010)
  
  
• United Parcel Service, Inc. (NYSE: UPS) and P & T Express JSC have established ‘UPS Vietnam’ as a joint stock company to expand UPS’s footprint in Vietnam. Terms of the deal were not disclosed. Through the joint stock company, UPS will invest in new facilities in key commercial and industrial centers across Vietnam to widen access to growing intra-Asian capability and connect to the global UPS network. UPS will extend its express pickup and delivery service to 63 provinces in Vietnam and offer later pickup and cut-off times. (Source: Transport Intelligence, May 28, 2010)
  
  
• Netherlands-based TNT NV (ENXTAM: TNT) has definitively agreed to acquire KOWIN e-commerce BV for an undisclosed amount. KOWIN is a Dutch e-commerce solution provider with extensive knowledge in the field of online shopping and is a one-stop service provider for the full chain. The acquisition will enable TNT Post to develop capabilities for the entire e-commerce chain faster and to quickly expand its offering to new industries and markets. On top of this, KOWIN will support TNT Post’s current successful online retail initiatives under the label of Sjopze. (Source: Capital IQ, May 19, 2010)
  
  
• Commercial airliner UAL Corporation (NASDAQ: UAUA) has definitively agreed to acquire Continental Airlines, Inc. (NYSE: CAL) for US$3.1 billion. This implies an enterprise value of $6.1 billion and a multiple of .05x revenue and 12.4x EBIDTA based on Continental’s March 2010 LTM results. The combination creates the world’s biggest airline past Delta and American Airlines as United and Continental will have 21 percent of domestic capacity, in terms of so-called available seat miles, or one seat flown one mile. (Source: Capital IQ, May 2, 2010)
  
  
Earnings

• YRC Worldwide Inc. (NASDAQ: YRCW) reported unaudited consolidated earnings results for the first quarter ended March 31, 2010. For the quarter, the company announced a loss per share of US$0.33 when excluding a previously announced charge of US$0.20 per share for union employee equity-based awards, and a US$0.53 loss per share when including that item. By comparison, the company reported a US$4.61 loss per share in the first quarter of 2009. Operating cash flow was US$18 million compared to negative US$94 million for the same period last year. Operating loss was US$236.8 million on operating revenue of US$1.1 billion compared to operating loss of US$379.3 million on operating revenue of US$1.5 billion for the same period last year. Loss before income taxes was US$280.1 million, and net loss was $274.1 million compared to loss before income taxes of US$415.2 million and net loss of US$273.8 million for the same period last year. For the quarter, the company reported adjusted EBITDA of US$53 million compared with US$275 million for the same period a year ago. For the quarter, the company reported net cash provided by operating activities of US$18.3 million and acquisition of property and equipment of US$3.7 million compared with net cash used in operating activities of US$94 million and acquisition of property and equipment of US$15.4 million for the same period a year ago. The company announced an impairment charge of US$5.2 billion for the first quarter ended March 31, 2010. (Source: Capital IQ, May 4, 2010)
  
  
• Con-way Inc. (NYSE: CNW) reported consolidated earnings results for the first quarter ended March 31, 2010. For the quarter, the company reported operating income of US$14.4 million, loss before income tax provision of US$2.9 million, net loss applicable to common shareholders of US$4 million or US$0.08 per diluted share on revenues of US$1.2 billion compared to the operating loss of US$150.3 million loss before income tax provision of US$165.8 million net loss applicable to common shareholders of $153.9 million or US$3.35 per diluted share on revenues of US$963 million for the same quarter a year ago. (Source: Capital IQ, May 5, 2010)
  
  
• Pacer International Inc. (NASDAQ: PACR) reported unaudited consolidated earnings results for the first quarter ended March 31, 2010. For the quarter, the company’s revenues increased US$5.1 million to US$363.7 million compared to US$358.6 million for the quarter ended March 31, 2009. Income from operations increased US$223.7 million to income of US$0.6 million compared to a loss of US$223.1 million in the 2009 quarter (which included a pretax goodwill impairment charge of US$200.4 million). Excluding the 2009 goodwill impairment charge and US$1.4 million and US$1.2 million of severance expense in the 2010 and 2009 quarters, respectively, adjusted income from operations increased US$23.5 million to adjusted income of US$2 million from a 2009 adjusted loss of US$21.5 million. Net loss decreased from a loss of US$177.4 million in the 2009 quarter to a net loss of US$0.5 million in the 2010 quarter. Excluding the impact of the goodwill impairment charge in 2009 and severance charges in both periods, adjusted net income increased US$12.9 million to an adjusted income of USS$0.4 million or $0.01 per diluted share in the 2010 period from an adjusted loss of US$12.5 million or US$0.36 per diluted share in the 2009 period. Adjusted income before income taxes was US$0.7 million against loss before income taxes of US$21.8 million a year ago. Cash provided by operating activities increased US$27.6 million to US$0.5 million for the 2010 quarter from a use of cash of US$27.1 million in the 2009 quarter. Capital expenditure was US$2.7 million. Diluted loss per share was US$0.01 against US$5.11 a year ago. (Source: Capital IQ, May 5, 2010)
  
  
• British Airways (LSE: BAY) announced earnings results for the year 2010. For the year, the company posted a pretax loss of US$765 million. British Airways (BA) cabin crews went on a five-day strike beginning May 29, disrupting travel plans for thousands of passengers planning to fly with the national carrier, beginning the first in a series of strikes after negotiations between the union and BA broke down on the weekend. BA said it will maintain 60 percent of its long-haul flights and about half of its short-haul flights from London’s Heathrow airport during the strike. Service will operate at normal levels from Gatwick and London City airport. Unite, the union representing cabin crews, and the company have reached agreements in principle over pay rates. But stumbling blocks in the negotiations include disagreements over perks, such as staff travel concessions. The union also wants immunity for more than 55 of its members who were sacked or face disciplinary action for their involvement in the dispute. (Source: Capital IQ, May 21, 2010)
Other News

• YRC Worldwide Inc. (NASDAQ: YRCW) has announced that joint committees representing International Brotherhood of Teamsters (IBT) leadership and YRC Worldwide management are being formed to address the company’s competitiveness and reentry into union pension plans. In addition, Teresa
  Valuation Update for the Transport and Logistics Industry Ghilarducci has been nominated by the IBT to join the YRC Worldwide board of directors. Ghilarducci’s nomination is in conjunction with the most recent Memorandum of Understanding between the union and the company. (Source: Transport Intelligence, May 26, 2010)
  
  
• European service provider Logwin AG (XTRA: TGH) has established its own national subsidiary in Kenya. The first office opened in the Kenyan capital of Nairobi in April, with a second office to be established in Mombassa in June. With its own offices in Nairobi and Mombassa, Logwin has a presence in two major logistics centers in Kenya. (Source: Transport Intelligence,
  May 28, 2010)
  
  
• DHL has launched a procurement outsourcing service designed to help public and private sector organizations achieve cost-savings through sourcing of products and services. It will work in concert with DHL’s other service capabilities to create new integrated services. The new team, which will be based in the United Kingdom, will be headed by Roger West, former Procurement Director of NHS Supply Chain (NHSSC), a DHL business procurement unit created in 2006 under contract to the UK Department of Health. The new unit—called DHL Procurement Outsourcing - aims to work with both the public and private sectors to help drive down costs at a time when the economic background is particularly challenging. DHL calculates it has saved the UK National Health Service more than £100m in the past three years. DHL expects rapidly to build business in other countries from their successful UK experience, and especially the replication of their ‘direct from manufacturer’ sourcing program. (Source: Transport Intelligence, May 26, 2010)