The exchange offer, which allowed Ceva bondholders to convert their notes into equity and which Ceva first announced last month, follows mixed financial results for the company in 2012. Last week Ceva released its official report for the year, which confirmed that while revenue increased by around 5%, operating profit declined by 24.4%. After increases in costs related to debt payments and refinancing, redundancies and lower incomes, Ceva’s loss before income taxes widened to €669m ($876m) last year compared to a loss of €191m in 2011.
Last month, Standard & Poor’s also lowered Ceva’s credit rating from ‘B minus’ to ‘selective default’ after it missed a scheduled interest payment to certain bondholders on April 1st. However, Ceva said last month that it missed the payment as part of the recapitalisation plan and that it would not constitute a default during the ’30 day cure period’, during which time it would complete the debt-for-equity swap.
The swap expired as planned on May 1st and was expected to be completed the following day. According to Schlanger, the transaction has lowered Ceva’s net debt by €1.3 billion and its annual cash interest payments by more than €130m per year, a reduction of half for both. As part of an ownership restructuring, in which three primary shareholders will now control Ceva, the company has also received more than €230m in capital.
“The result is that Ceva is a much stronger competitor in the supply chain industry,” Schlanger told Automotive Logistics News. “We’ve been out in the market talking to our customers from the moment we issued the press release [in April] and the reaction has been very positive.”
According to Schlanger, the negotiations with shareholders and participation in the rights offerings have both turned out better than Ceva had initially expected. The company ended up with about €100m less debt, and around €25m more cash than it announced last month.
Calming customer and market fears
The restructuring will reduce Ceva’s historically high debt, which is a legacy of the company’s creation when private equity group Apollo Management bought TNT’s logistics division in 2006 and later combined it with US-based provider EGL.
Schlanger acknowledged that there had been concern in the marketplace about Ceva’s debt and balance sheet, but he maintained that there shouldn’t be any doubt now about the company’s financial stability. “With the strengthening of our balance sheet, we have removed all of the concerns that our customers have ever expressed about Ceva’s ability or about giving us new business,” Schlanger told Automotive Logistics.
Ceva now has three primary shareholders, including Apollo, Capital Research and Management and a third institutional investor that had not been named. Schlanger said that Apollo would retain a majority on the board of directors.
An intermediate step towards going public
As a necessary part of the restructuring plan last month, the company withdrew an earlier filing for an initial public offering (IPO) that had been planned for this spring. Schlanger would not speculate on when the company would again pursue a public offering, but he said that the company was not under immediate pressure to do so by its shareholders. Rather, he said that the reduced debt and cash injection would allow Ceva “to spend more time focusing on the supply chain industry and more time on our balance sheet”.
There is little doubt, however, that the company’s medium to long-term plan remains a stock offering. Schlanger described Ceva’s debt reduction and new ownership structure as an “intermediate step” between having a single owner and being traded on the stock exchange. “When we think about an IPO, we have taken several steps already,” he said. “First, we now have multiple owners and a more structured board. As a result, our board processes are going to have to be more robust and formal than in the past, which is what you’d expect out of an IPO.”
In the meantime, Schlanger said that Ceva was going to focus on improving its financial performance. He pointed to an ongoing cost reduction programme, including eliminating the jobs it had already planned to shed by the end of the second quarter. He also said Ceva would continue to renegotiate or drop contracts that were unprofitable. Finally, Schlanger said that Ceva wanted to grow its freight management business further, and that the company would add resources to help turnaround its declining air freight business.
The automotive industry would play a large role in growing Ceva’s ocean and air freight management, he added. “We’re currently involved in a number of automotive tenders [in freight management] that we hope to win,” said Schlanger. “With our footprint, globalisation in the auto industry can only be a plus for Ceva.”