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Revenue in Ocean Freight increased 13.8% as volumes climbed 8.5%
CEVA Logistics has reported financial results for its Q1 period ended 31 March 2018. Revenue climbed 12.2% to reach US$1,790.0 million (up 5.4% year-on-year in constant currency) as EBITDA increased 17.8% to US$53.0 million. Adjusted EBITDA reached US$66.0 million, up US$12.0 million, or 22.2%, year-on-year. Net losses widened, however, in part impacted by higher finance charges.
EBITDA excludes specific items and share-based compensation cost. Adjusted EBITDA includes the proportional contribution of the ANJI-CEVA joint venture and excludes specific items and share-based compensation cost.
EBITDA margin was 3.0% in Q1, 2018, an improvement of 40 basis points in constant currency. The Company reported that EBITDA margins improved in both Freight Management and Contract Logistics and it expects to repay and refinance the majority of its existing debt facilities in the coming months.
The first quarter 2018 shows the progress CEVA is making in its transformation with continued good revenue growth, improved EBITDA and cash flows. The first quarter is seasonally the weakest quarter for CEVA in terms of revenue, profits, margins and cash flows.
The results for Q1, 2018 are for CEVA Holdings LLC, the predecessor company to CEVA Logistics AG. On 3 May 2018, CEVA Holdings LLC legally merged with CEVA Logistics AG with CEVA Logistics AG being the surviving entity that then listed on the Swiss Stock Exchange.
Q1 saw good momentum with several new business wins. The Company further improved productivity and reduced cost. Following the IPO, a deleveraged balance sheet and the strategic investment by CMA CGM are expected to create important growth opportunities. Looking ahead, the Company’s target is to improve Adjusted EBITDA by US$100.0 million in the medium-term.
Revenue in Freight Management was US$803.0 million in Q1, 2018, an increase of 14.4% year-on-year or 8.7% in constant currency on the basis of good volumes, new business wins and higher freight rates, notably in Air. Revenue in Air Freight was strong with an increase of 21.8% year-on-year. Volume growth at 1.6% was lower than in prior quarters reflecting the delayed onboarding of new business wins and certain contract losses. Yields (Net Revenue per ton), however, were up 17.1% year-on-year driven by better procurement and active margin management. Revenue in Ocean Freight increased by 13.8% year-on-year. Ocean Freight volumes have increased 8.5% with good growth in all key trade lanes and market share wins. Yields in Ocean (Net Revenue per TEU) were broadly flat. Revenue in other Freight Management activities increased 6.3%. Freight Management EBITDA increased by US$5.0 million or 50.0% to US$15.0 million, supported by yield improvements, continued productivity increases and efficiencies. EBITDA margin improved by 50 basis points to 1.9% in the seasonally lowest quarter.
Revenue in Contract Logistics was US$987.0 million, an increase of 10.4% or 2.8% in constant currency versus prior year. This reflects volume growth, new business wins and the termination of certain contracts and transfer of the Contract Logistics activities in China to the Anji-CEVA JV (as of July 2017). Growth was particularly strong in some of the European clusters, Latin America and South-East Asia. Contract Logistics EBITDA increased by US$3.0 million to US$38.0 million. The focused improvement initiatives at key operations are showing good results. EBITDA margin was 3.9%, an increase of 30 basis points in constant currency. The quarter has seen the implementation of major automotive and industrial contracts that will benefit the coming quarters as well as significant wins of eCommerce and consumer/retail contracts, notably in the US, Australia and Brazil.
Following the successful IPO on SIX Swiss Exchange, CEVA has initiated the process of repaying debt with the net proceeds from the IPO. CEVA expects Moody’s and S&P Global to update the company’s credit ratings in coming weeks, reflecting the improved financial position.
Following such updates, CEVA plans to replace the majority of its remaining debt facilities through a comprehensive refinancing. It is expected that a new financing package will be comprised of term loans, bonds, revolver and/or asset backed facilities in USD and EUR. Subject to prevailing market rates, CEVA expects to lower average interest rate to c.4.5% compared to the current 6.5%. CEVA intends to execute the refinancing plan in the coming months subject to market conditions.
Looking ahead, the Company’s Management targets to grow revenue above market and to increase EBITDA margins from the 3.3% recorded in 2017 to at least 4.0% in the medium-term. This should translate into an additional US$100.0 million in Adjusted EBITDA. For 2018, CEVA expects continued good volume and revenue growth in view of the sales momentum and recent business wins. The further productivity, cost savings and pricing initiatives pursued in Freight Management, Contract Logistics and SG&A are expected to support an increase in EBITDA margin in the year. Benefits from deleveraging are expected to already partially materialise this year. As such, management continues to believe that it can achieve for 2018, assuming no change in market conditions, double-digit Adjusted EBITDA growth and positive free cash flow (normalised for IPO and refinancing cost).