Financial Results, Q2 2010

Financial Highlights

Second quarter of 2010 – A Pivotal Year

As we complete the second quarter of 2010, the results continue to reflect this pivotal year for Agility as the US troop drawdown in Iraq continues and some of our large US government contracts enter their final option year.

We also have the challenges of coming out of a global recession and the legal proceedings by the US government which has had a deep impact on our Defense & Government Services (DGS) business.

In the face of uncertainty around the DGS business, the relative importance of the Global Integrated Logistics (GIL) business has grown. GIL’s strategy remains the same, but timelines have accelerated.  GIL continues to focus on driving growth in its core products of freight forwarding, specialties (project, chemicals, F&E and fuel logistics) and contract logistics across its network, with an emphasis on emerging markets.  Furthermore GIL remains committed to the promise of Personal Service to its customers.   In addition, in the face of this new reality, GIL is increasingly focused on cost and working capital management.

As we mentioned during our First Quarter 2010 results, going forward we will measure current quarterly performance versus the previous quarter which more accurately reflects the nature of business, in which large contracts ramp up over time and then decline as they reach the end of their contractual term.  For the commercial logistics represented by Global Integrated Logistics (GIL) we will also include Year on Year comparison to accurately compare the business and its seasonality. 

We expect net income to decline in the near term as the US government contracts expire, while GIL’s performance will begin to drive overall Agility results more directly. We are pleased to note that net income for Q2 has remained at similar levels to Q1 2010.

Financial Highlights:

 Agility’s overall revenue in the second quarter of 2010 was KD 428 million. This represents a 6% increase in revenue when compared with Q1 of 2010, and a 3% increase over the same quarter in 2009. To break these numbers down further:

·         Agility Defense & Government Services (DGS) revenues stand at KD 126 million, which is a 5% decline compared to Q1 as all major contracts continued during Q2.

·         GIL overall revenue in the second quarter of 2010 was KD 305.53 million, a 23% increase over the same quarter in 2009.  The growth is a reflection mainly of the increase in both the overall freight forwarding market over the same time frame in 2009 and additional customer wins.

·         Agility Infrastructure companies contributed KD 20.2 million to total revenue. This is almost flat when compared to Q1 of 2010, but more than 10% increase over the same quarter of last year. Agility Infrastructure has consistently shown healthy growth in the base business over the course of the last several years.

·         Net revenues margins for GIL in 2Q of 2010 stand at 23.8% compared to 31.8% in 2Q of 2009, a net decline of 8%.  This decline in margins is a result of two main factors: increased price competition resulting in industry-wide erosion of margins; and a greater demand in air and sea products, which have lower margins than contract logistics.

·          During the period, certain revolving credit facilities were paid down to reduce interest expenses.   These facilities remain available to the company until the initial maturity dates, subject to the terms and conditions thereof.

In combination, these factors have the following impact:

·         Operating profits are KD 20.74million in Q2 of 2010, a 9% increase since Q1 of 2010. 

·         Cash from operations and free cash flow for the quarter stand at KD 31M and KD 27M, a decline of 50% and 42% respectively as compared to Q1 10, as additional working capital was required to fund revenue growth.

·         Net income is KD 18.09 million in Q2 2010, as compared to KD 17.59 million for Q1 2010.  This results in Earnings Per Share of 17.96 fils for this quarter, compared to an EPS of 17.46 fils in Q1 2010.

Update on the business:

 The Defense & Government (DGS) business has been set back by the combination of the troop drawdown and the legal case with the US government. Since the legal dispute we have been assessing all strategic options.  Today DGS is focused on fulfilling its obligations under existing US government contracts and pursuing non-US government business.

Closing Remarks

Although we are facing challenges, we see this as a catalyst for change.  Agility is committed to a strategy to grow revenue organically, improve return on investment, manage costs and working capital prudently, and maximize yields on core operating assets.   By executing on this strategy, Agility will become more flexible and competitive.

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