CEVA Group Plc Quarter Two, 2012 Interim Financial Statements. Table of Contents

Transcription

1

2 Table of Contents Table of Contents... 2 Principal Activities... 3 Key Financial Results... 3 Operating and Financial Review... 4 Consolidated Income Statement... 6 Consolidated Statement of Comprehensive Income... 8 Consolidated Balance Sheet... 9 Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Cautionary statement: the operating and financial review and certain other sections of this document contain forward looking statements which are subject to risk factors associated with, amongst others, the economic and business circumstances occurring from time to time in the countries and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables, which could cause actual results to differ materially from those currently anticipated.

3 Principal Activities CEVA is one of the world s leading non-asset based supply chain management companies and offers a broad spectrum of services based on market leading Freight Management and Contract Logistics expertise and capabilities, alone or in combination. CEVA designs, implements and operates complete supply chain solutions for multinational and large and medium sized companies on a national, regional and global level. CEVA operates a non-asset based model across all business units, with third parties providing the majority of the physical transportation and warehousing assets that CEVA manages and uses for the benefit of its customers. The integrated service offering spans the entire supply chain: Freight Management services that include international air, ocean and domestic freight forwarding, customs brokerage and other value-added services; and Contract Logistics services that include inbound logistics, manufacturing support, outbound/distribution logistics and aftermarket/reverse logistics. As of 31 December 2011, CEVA s combined global network comprised over 1,000 locations, utilizing a total of approximately 10 million square meters of warehousing space in over 170 countries, supported by more than 51,000 employees. CEVA has built leading market positions by understanding its target industry sectors and applying extensive expertise to design and implement customized logistics solutions that address industry-specific supply chain requirements. CEVA has deep expertise in a range of industries, including Automotive, Technology, Consumer & Retail, Energy and Industrial. CEVA s knowledge of customers supply chain functions and sector expertise creates competitive advantages for its customers, helps to develop more cost-effective solutions for them and puts CEVA in a strong position to grow its business. Key Financial Results The table below shows the Group s key consolidated financial results for the three and six months ended 30 June 2012 and 2011: millions Revenue 1,808 1,713 3,520 3,399 Revenue growth 5.5% -1.8% 3.6% 5.2% Adjusted EBITDA Adjusted EBITDA as a % of revenue 3.9% 4.7% 3.9% 4.5% Loss before income taxes (73) (36) (176) (43) Net capital expenditure Net capital expenditure as a % of revenue 1.4% 0.9% 1.3% 1.0% Cash generated from operations The table below shows the Group s key other financial metrics as at 30 June 2012 and 31 December 2011: 30 JUNE 31 DECEMBER millions Net working capital 9 (76) Cash and cash equivalents Net debt 2,531 2,774 3

4 Operating and Financial Review Revenue The tables below show the Group s operating segment revenue for the three and six months ended 30 June 2012 and 2011, together with additional geographic information: millions Freight Management ,606 1,540 Contract Logistics ,914 1,859 revenue 1,808 1,713 3,520 3,399 millions Americas ,073 1,008 Asia Pacific Northern Europe Southern Europe, Middle East and Africa revenue 1,808 1,713 3,520 3,399 Revenue increased by 5.5% to 1,808 million for the three months ended 30 June 2012 from 1,713 million for the three months ended 30 June We achieved revenue growth of 8.8% in Freight Management, with stronger growth in our Ocean freight business, particularly out of Asia, and flat Airfreight revenue. Contract Logistics grew by 2.9%, with new business wins, together with increased volumes in Asia Pacific, Northern Europe, partially offset by lower volumes in SEMEA. CEVA operates throughout the world and is impacted by foreign currency fluctuations, particularly the US dollar, the British pound and the Chinese yuan. Therefore, for comparative purposes, we also report our results on a constant currency basis using 2011 exchange rates. On a constant currency basis, our revenue would have been 1,711 million for the three months ended 30 June 2012 (three months ended 30 June 2011: 1,713 million). This difference compared to the actual result for the quarter arises largely from the year-on-year weakening of our reporting currency, the Euro. Adjusted EBITDA Adjusted EBITDA is a key financial measure used by management to assess operational performance. It excludes the impact of specific items, such as costs incurred in the realization of our cost containment programs, other non-recurring charges and the profits or losses realized on certain non-recurring transactions. Previously this measure of performance was called EBITDA before specific items. The tables below show the Group s operating segment Adjusted EBITDA for the three and six months ended 30 June 2012 and 2011 together with additional geographical information: millions Freight Management Contract Logistics Adjusted EBITDA millions Americas Asia Pacific Northern Europe Southern Europe, Middle East and Africa Adjusted EBITDA Adjusted EBITDA decreased by 13.6% to 70 million in the three months ended 30 June 2012 compared to 81 million in the three months ended 30 June

5 Freight Management Adjusted EBITDA for the three months ended 30 June 2012 is at the same level compared to the three months ended 30 June Contract Logistics Adjusted EBITDA decreased by 21.6% for the three months ended 30 June 2012, as our business was affected by the general economic downturn, most evidently in Southern Europe, as well as certain one-off items, mainly in the prior year quarter, which accounted for approximately one third of the decline. Our Adjusted EBITDA is also impacted by fluctuations in foreign currencies. On a constant currency basis, using 2011 exchange rates, our Adjusted EBITDA would have been 64 million for the three months ended 30 June Net finance expense Net finance expense for the three months ended 30 June 2012 was 82 million (three months ended 30 June 2011: 52 million). Included in net finance expense is an unrealized non-cash foreign exchange loss of 7 million for the three months ended 30 June 2012 compared to a gain of 19 million for the three months ended 30 June Net finance expense excluding foreign exchange movements was 75 million and 71 million in the three months ended 30 June 2012 and 2011, respectively. Loss before income taxes Loss before income taxes was 73 million for the three months ended 30 June 2012 (three months ended 30 June 2011: loss of 36 million). Loss before income taxes before specific items was 53 million for the three months ended 30 June 2012 (three months ended 30 June 2011: loss of 13 million), with the year-on-year change principally due to unrealized non-cash foreign exchange movements. Net capital expenditure Our net capital expenditure was 26 million for the three months ended 30 June 2012 (three months ended 30 June 2011: 15 million), which increased year-on-year, primarily due to phasing within the year. The low level of expenditures relative to revenue is due to our nonasset based operating model and disciplined investment approach. Net working capital Our net working capital was 9 million as at 30 June 2012 (31 December 2011: (76) million, 31 March 2012: (17) million). The increase in net working capital in the quarter was mainly due to the seasonality. We continue to focus on improving our net working capital and in particular reducing our overdue receivables. Cash generated from operations Cash generated from operations during the three months ended 30 June 2012 amounted to 22 million (three months ended 30 June 2011: 17 million). Cash and cash equivalents As at 30 June 2012, CEVA had 199 million (31 December 2011: 217 million) of cash on its balance sheet. In addition to this cash, the Group has access to 375 million (31 December 2011: 280 million) of credit facilities held centrally, of which 285 million (31 December 2011: 207 million) was drawn. headroom at 30 June 2012 was therefore 289 million (31 December 2011: 290 million). Net debt Net debt, defined as total principal debt less cash and cash equivalents, has decreased by 8.8% to 2,531 million as at 30 June 2012 (31 December 2011: 2,774 million), principally driven by the refinancing which was completed on 1 February On May 2, 2012, the Group completed a refinancing of its synthetic letter of credits facility due 2013 by increasing its existing term loan due 2016 by US$150 million. This transaction has extended the maturity profile of the Group s debt. Risk factors CEVA is impacted by a number of risk factors, some of which are not within our control. Many of the risk factors affecting CEVA are macroeconomic and generally affect all companies, whereas others are more particular to CEVA. The principal risk factors faced by CEVA are unchanged from those identified in the 2011 annual financial statements. 5

6 Consolidated Income Statement millions, unaudited Note Before specific items Specific items Before specific items Specific items Revenue 6 1,808-1,808 1,713-1,713 Work contracted out (931) - (931) (878) - (878) Personnel expenses (510) (7) (517) (480) (4) (484) Other operating expenses (297) (12) (309) (274) (19) (293) Operating expenses excluding depreciation, amortization and impairment (1,738) (19) (1,757) (1,632) (23) (1,655) EBITDA 6 70 (19) (23) 58 Depreciation, amortization and impairment (42) - (42) (42) - (42) Operating income 28 (19) 9 39 (23) 16 Finance income (including foreign exchange movements) Finance expense (including foreign exchange movements) (82) (1) (83) (72) - (72) Net finance expense (including foreign exchange movements) (81) (1) (82) (52) - (52) Loss before income taxes (53) (20) (73) (13) (23) (36) Income tax expense (7) 2 (5) Loss for the period from continuing operations (52) (20) (72) (20) (21) (41) Attributable to: Non-controlling interests 1 1 Equity holders of the Company (73) (42) Loss for the period (72) (41) 1 Refer to note 7 for details on specific items 6

7 Consolidated Income Statement millions, unaudited Note Before specific items Specific items Before specific items Specific items Revenue 6 3,520-3,520 3,399-3,399 Work contracted out (1,789) - (1,789) (1,733) - (1,733) Personnel expenses (1,008) (10) (1,018) (954) (6) (960) Other operating expenses (587) (20) (607) (560) (30) (590) Operating expenses excluding depreciation, amortization and impairment (3,384) (30) (3,414) (3,247) (36) (3,283) EBITDA (30) (36) 116 Depreciation, amortization and impairment (84) - (84) (84) - (84) Operating income 52 (30) (36) 32 Finance income (including foreign exchange movements) Finance expense (including foreign exchange movements) (164) (36) (200) (140) - (140) Net finance expense (including foreign exchange movements) (162) (36) (198) (75) - (75) Loss before income taxes (110) (66) (176) (7) (36) (43) Income tax expense (14) 4 (10) Loss for the period from continuing operations (107) (65) (172) (21) (32) (53) Attributable to: Non-controlling interests 2 2 Equity holders of the Company (174) (55) Loss for the period (172) (53) 1 Refer to note 7 for details on specific items 7

8 Consolidated Statement of Comprehensive Income 8

9 Consolidated Balance Sheet AS AT 30 JUNE AS AT 31 DECEMBER millions, unaudited Note ASSETS Non-current assets Intangible assets 1,989 1,999 Property, plant and equipment Deferred income tax assets Prepayments Other non-current assets non-current assets 2,368 2,369 Current assets Inventory Trade and other receivables 1,097 1,042 Prepayments Accrued income Income tax receivable 11 - Cash and cash equivalents Assets held for sale - 4 current assets 1,652 1,520 TOTAL ASSETS 4,020 3,889 EQUITY Capital and reserves attributable to equity holders Share capital 1 1 Share premium Other reserves 383 (135) Accumulated deficit (1,097) (923) Attributable to equity holders of the Company (331) (675) Non-controlling interests 11 9 Group equity (320) (666) LIABILITIES Non-current liabilities Borrowings 9 2,552 2,809 Deferred income tax liabilities Retirement benefit obligations Provisions Other non-current liabilities non-current liabilities 2,797 3,077 Current liabilities Borrowings Provisions Trade and other payables 1,374 1,306 Income tax payable 3 6 current liabilities 1,543 1,478 TOTAL EQUITY AND LIABILITIES 4,020 3,889 9

10 Consolidated Statement of Cash Flows millions, unaudited Loss before income taxes (73) (36) (176) (43) Adjustments for: Share based compensation Depreciation, amortization and impairment Finance income (1) (1) (2) (3) Gain on disposal of property, plant and equipment - - (2) - Foreign exchange (gains) and losses 6 (19) 18 (62) Finance expense Changes in provisions: Retirement benefit obligations - - (7) (7) Provisions (1) (7) (3) (13) Changes in working capital: Inventory (5) Trade and other receivables (28) 14 (41) 29 Prepayments and accrued income (40) (15) (87) (58) Trade and other payables 46 (33) Changes in non-current prepayments (4) (14) (7) (25) Changes in non-current accrued liabilities 2 2 (2) - Cash generated from operations Interest paid and other financing cost paid (63) (75) (140) (98) Net income taxes paid (13) (10) (22) (17) Net cash from operating activities (54) (68) (151) (47) Acquisitions/divestment Capital expenditure (34) (17) (53) (36) Proceeds from sale of property, plant and equipment Interest received Net cash used in investing activities (21) (14) (37) (32) Repayment of borrowings (46) (4) (762) (50) Proceeds from non-current borrowings Proceeds from current borrowings Net cash from financing activities Changes in cash and cash equivalents (41) (31) (20) (33) Cash and cash equivalents at beginning of period Foreign exchange impact on cash and cash equivalents 3 (2) 2 (13) Cash and cash equivalents at end of period

11 Consolidated Statement of Changes in Equity millions, unaudited Share capital Share premium Other reserves Accumulated deficit Attributable to equity holders of the Company Noncontrolling interest Group equity Balance at 1 January (89) (705) (411) 8 (403) Currency translation adjustment - - (25) - (25) (1) (26) Loss attributable to equity holders for the period (55) (55) 2 (53) Balance at 30 June (114) (760) (491) 9 (482) Balance at 1 January (135) (923) (675) 9 (666) Net investment hedges - - (17) - (17) - (17) Currency translation adjustment Capital contribution (note 9) Loss attributable to equity holders for the period (174) (174) 2 (172) Balance at 30 June (1,097) (331) 11 (320) 11

12 Notes to the Consolidated 1. General Information CEVA Group Plc (the Company ) and its subsidiaries (together the Group or CEVA Group ) design, implement and operate complete, endto-end Freight Management and Contract Logistics solutions for multinational and large and medium sized companies on a local, regional and global level. CEVA Group Plc was incorporated on 9 August 2006 in England and Wales as a public company with limited liability. The address of its registered office is Bedford Row, London WC1R 4JS, United Kingdom. The immediate parent of CEVA Group Plc is CEVA Investments Limited, a company incorporated in the Cayman Islands. The ultimate controlling party of CEVA Group Plc is Apollo Global Management, LLC ( Apollo ). The Company has various senior secured and senior unsecured notes which are listed on the Global Exchange Market of the Irish Stock Exchange. This Results Announcement does not constitute the statutory accounts of the Group within the meaning of sections 434(3) and 435(3) of the Companies Act The balance sheet at 31 December 2011 has been derived from the full Group accounts published in the 2011 Annual Report, on which the report of the independent auditors was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act These consolidated interim financial statements were approved and authorized for issue by the Board of Directors on 1 August Basis of Preparation This condensed consolidated interim financial information for the three and six months ended 30 June 2012 has been prepared in accordance with IAS 34, Interim financial reporting. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). 3. Accounting Policies The accounting policies applied are consistent with those applied in the consolidated financial statements as at and for the year ended 31 December 2011, and as described in those consolidated financial statements. New standards and interpretations not yet adopted Revised IAS 19, "Employee Benefits", IFRS 9, "Financial instruments", and IFRS 13, "Fair Value Measurement" were issued in 2011 and are effective in 2013 or later. They are not expected to have a material impact on the Group s consolidated financial statements. IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities and revised standards IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures were issued during 2011 and are required to be adopted, with retrospective effect, by The standards reinforce the principles for determining when an investor controls another entity, amend in certain cases the accounting for arrangements where an investor has joint control and introduce changes to certain disclosures. The impact of the changes is currently under review. 4. Critical Accounting Estimates and Judgments The preparation of financial statements in accordance with generally accepted accounting principles under IFRS requires the Group to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the financial statements. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, rarely equal the related actual results. Actual results may differ significantly from these estimates, the effect of which is recognized in the period in which the facts that give rise to the revision become known. 12

13 In preparing these unaudited condensed consolidated interim financial statements, the significant judgments made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at, and for, the year ended 31 December Financial Risk Management The Group s operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial position, results of operations and cash flows. The Group s risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at, and for, the year ended 31 December The Group operates internationally and generates foreign currency exchange risks arising from future commercial transactions, recognized assets and liabilities, investments and divestments in foreign currencies other than the Euro, the Group s functional and reporting currency. The main exchange rates are shown below: June closing Three Month Average Six Month December Three Month Six Month Average June closing closing Average Average British pound US dollar Chinese yuan Segment Information The chief operating decision maker is the Executive Board. The Executive Board reviews the Company s internal reporting to assess performance and allocate resources. Management has determined the operating segments based on these reports. The Executive Board considered the operations from a business perspective. In addition, information from a geographical perspective has also been presented. Operating segments Freight Management including the provision of international air, ocean and domestic freight forwarding, customs brokerage, and other value-added services; and Contract Logistics including the provision of inbound logistics, manufacturing support, outbound/distribution logistics and aftermarket/reverse logistics. Additional geographical information Americas (including the United States of America, Canada, Brazil, Argentina and Mexico); Asia Pacific (including Australia, China, Singapore, Thailand, Malaysia and India); Northern Europe (including the United Kingdom, Ireland, the Nordics, Benelux, France, Germany and Eastern Europe); and Southern Europe (including Italy, Spain, Turkey and Greece), Middle East and Africa. The Executive Board assesses the performance of the operating segments based on earnings before, tax, depreciation, amortization and specific items ( Adjusted EBITDA, previously known as EBITDA before specific items). Interest income and expenditure are not included in the result for each operating segment that is reviewed by the Executive Board. The information provided to the Executive Board is measured in a manner consistent with that in the financial statements. 13

14 Operating segments The segment results for the three months ended 30 June 2012 are as follows: millions Freight Management 2012 Contract Logistics segment revenue ,814 Inter-segment revenue - (6) (6) Revenue from external customers ,808 Adjusted EBITDA Specific items (19) EBITDA 51 Depreciation, amortization and impairment (42) Operating income 9 The segment results for the three months ended 30 June 2011 are as follows: millions Freight Management 2011 Contract Logistics segment revenue ,717 Inter-segment revenue - (4) (4) Revenue from external customers ,713 Adjusted EBITDA Specific items (23) EBITDA 58 Depreciation, amortization and impairment (42) Operating income 16 The segment results for the six months ended 30 June 2012 are as follows: millions Freight Management 2012 Contract Logistics segment revenue 1,606 1,928 3,534 Inter-segment revenue - (14) (14) Revenue from external customers 1,606 1,914 3,520 Adjusted EBITDA Specific items (30) EBITDA 106 Depreciation, amortization and impairment (84) Operating income 22 The segment results for the six months ended 30 June 2011 are as follows: millions Freight Management 2011 Contract Logistics segment revenue 1,541 1,867 3,408 Inter-segment revenue (1) (8) (9) Revenue from external customers 1,540 1,859 3,399 Adjusted EBITDA Specific items (36) EBITDA 116 Depreciation, amortization and impairment (84) Operating income 32 14

15 Geographical information The geographical results for the three months ended 30 June 2012 are as follows: millions Americas Asia Pacific Northern Europe 2012 Southern Europe, Middle East and Africa segment revenue ,831 Inter-segment revenue (9) (5) (6) (3) (23) Revenue from external customers ,808 Adjusted EBITDA Specific items (19) EBITDA 51 Depreciation, amortization and impairment (42) Operating income 9 The geographical results for the three months ended 30 June 2011 are as follows: millions Americas Asia Pacific Northern Europe 2011 Southern Europe, Middle East and Africa segment revenue ,735 Inter-segment revenue (9) (4) (6) (3) (22) Revenue from external customers ,713 Adjusted EBITDA Specific items (23) EBITDA 58 Depreciation, amortization and impairment (42) Operating income 16 The geographical results for the six months ended 30 June 2012 are as follows: millions Americas Asia Pacific Northern Europe 2012 Southern Europe, Middle East and Africa segment revenue 1,090 1, ,566 Inter-segment revenue (17) (8) (13) (8) (46) Revenue from external customers 1, ,520 Adjusted EBITDA Specific items (30) EBITDA 106 Depreciation, amortization and impairment (84) Operating income 22 The geographical results for the six months ended 30 June 2011 are as follows: millions Americas Asia Pacific Northern Europe 2011 Southern Europe, Middle East and Africa segment revenue 1, ,442 Inter-segment revenue (19) (7) (11) (6) (43) Revenue from external customers 1, ,399 Adjusted EBITDA Specific items (36) EBITDA 116 Depreciation, amortization and impairment (84) Operating income 32 15

16 The reported Adjusted EBITDA for the three months ended 30 June 2012 includes 9 million (three months ended 30 June 2011: 9 million) from joint ventures. The reported Adjusted EBITDA for the six months ended 30 June 2012 includes 15 million (six months ended 30 June 2011: 13 million) from joint ventures. 7. Specific Items THREE MONTHS ENDED 3O JUNE SIX MONTHS ENDED 3O JUNE millions Personnel expenses Other operating expenses Finance expense before income tax expense Personnel expenses For the three months ended 30 June 2011 and 2012, personnel expenses were incurred as a result of cost reduction programs being implemented by the Group. Other operating expenses For the three months ended 30 June 2011 and 2012, other operating expenses largely comprise costs incurred for outsourcing and optimizing our finance processes and streamlining our freight management systems, and the earlier period also included costs relating to the industry wide anti-trust investigation and restructuring costs. 8. Income Tax Expense Income tax expense is recognized based on management s best estimate of the weighted average annual income tax rate expected for the full financial year before specific items. The estimated average annual tax rate used for the six months ended 30 June 2012 is 2.3% (six months ended 30 June 2011: (23.3)%). The main difference between the statutory rate and the estimated annual tax rate is due to uncertainty regarding the future utilization of losses for which no deferred tax asset has been recognized. The tax effect of specific items is calculated and shown separately. 9. Borrowings The carrying amounts and fair value of borrowings are as follows: 30 JUNE 31 DECEMBER millions Carrying value Fair value Carrying value Fair value Non-current Bank borrowings ,278 1,231 Loan notes 1,775 1,761 1,494 1,291 Finance leases non-current borrowings 2,552 2,558 2,809 2,559 Current Bank overdrafts Bank borrowings Finance leases current borrowings borrowings 2,651 2,657 2,912 2,662 Unamortized debt issuance costs principal debt 2,730 2,991 The fair value of the non-current interest bearing debt has been determined using the market price at the balance sheet date. The senior bank debt's fair value approximates its carrying value as it is a floating rate facility, and the fair value of current debt approximates its carrying value given its short-term nature. The average floating interest rate for the six months ended 30 June 2012 was 5.9% (six months ended 30 June 2011: 5.5%) and 5.2% (six months ended 30 June 2011: 4.7%) for Euro and for US dollar denominated loans respectively. The Group is in compliance with its covenant on its existing borrowings and believes that it has sufficient working capital and undrawn financing facilities to service its operating activities and continued growth ambitions for the foreseeable future. 16

17 On 1 February 2012, CEVA Group Plc, together with its parent CEVA Investments Limited ( CIL ), completed a refinancing through the issuance of US$325 million of 8.375% first lien senior secured notes due 2017 and US$620 million of 12.75% senior unsecured notes due The proceeds, together with cash on hand, were used to redeem or repay all of the 164 million of term loans maturing in 2013 under CEVA s senior secured credit facilities, 266 million of 8.5% senior notes due 2014, US$165 million of senior unsecured loan due 2015 and 81 million of 10% senior subordinated notes due These have been accounted for as extinguishments of the old debt and the issuance of new debt. CIL also issued 883 million of new equity securities to Apollo, which controls CIL, in exchange for the contribution and subsequent cancellation of securities previously held by Apollo and its affiliates, including 73 million of 8.5% senior notes due 2018, US$516 million of senior unsecured loan due 2018 and 57 million of 10% senior subordinated notes due 2018 of CEVA Group Plc, which was shown as a capital contribution in equity, as well as CIL securities of 355 million plus accrued interest. In addition CEVA Group Plc increased the size of its revolving credit facility under the senior secured facilities by 100 million to 179 million. On May 2, 2012, the Group completed a refinancing through the issuance of US$150 million Term Loan due August The proceeds were used to repay drawings under the revolver and to refinance the pre-funded letter of credit facilities maturing in August These transactions extended our debt maturity profile and reduced our interest burden. In addition they resulted in the accelerated write off of 35 million of previously unamortized debt issuance costs, and the incurrence of 34 million of issuance costs which have been deducted from proceeds. 10. Commitments Operating lease commitments The Group leases various offices and warehouses under non-cancellable operating lease agreements. The lease terms are generally between one and six years and the majority of lease agreements are renewable at the end of the lease period at market rates. The Group also leases various motor vehicles, office and computer equipment under operating lease agreements. During the three months ended 30 June 2012, 76 million was recognized as an expense in the income statement in respect of operating lease rentals (three months ended 30 June 2011: 72 million). During the six months ended 30 June 2012, 149 million was recognized as an expense in the income statement in respect of operating lease rentals (six months ended 30 June 2011: 144 million). The future aggregate minimum lease payments under non-cancellable operating leases are as follows: AS AT 30 JUNE millions Less than 1 year years Thereafter ,102 1,021 Of which guaranteed by third party / customers Of the future lease payments, 839 million (30 June 2011: 801 million) relates to commitments in relation to multi-user/shared facilities, while the remainder of 263 million (30 June 2011: 220 million) is dedicated to specific customers. Guarantees The Group has issued guarantees in the ordinary course of business, in connection with lease agreements, customs duty deferment and local credit lines amounting to 275 million (31 December 2011: 265 million) of which 117 million (31 December 2011: 174 million) are on the CEVA Group synthetic letter of credit facility and 63 million (31 December 2011: nil) under the Revolver facility. The obligations under the guarantees issued by banks and other financial institutions have been secured by CEVA and certain of its subsidiaries. 17

18 11. Contingencies Litigation and Legal Proceedings The Company is involved in several legal proceedings relating to the normal conduct of our business. While the outcome of these legal proceedings is uncertain, the Company believes that it has provided for all probable and estimable liabilities arising from the normal course of business, and we therefore do not expect any liability arising from any of these legal proceedings to have a material impact on our results of operations, liquidity, capital resources or financial position. Surcharge Antitrust Investigation and Litigation Several CEVA subsidiaries and certain current and former employees have been or are subject to, and cooperating with, investigations by the European Commission ( EC ) and the government of Brazil, as well as an information request from the government of Switzerland, for possible price-fixing and other improper collusive activity with respect to certain accessorial and other charges, along with several other entities in the freight forwarding industry. Several investigations (including by the U.S. Department of Justice ( DOJ ) and by authorities in Canada, Japan and New Zealand) have been resolved. CEVA has also reached a settlement agreement with the plaintiffs in a putative class action lawsuit against EGL, Inc. and EGL Eagle Global Logistics, LP, styled Precision Associates, Inc., et al. v. Panalpina World Transport (Holding) Ltd, et al., filed in the U.S. District Court for the Eastern District of New York. The agreement remains subject to final court approval (the court granted preliminary approval on 23 September 2011) and other contingencies, such as our rescission rights, and there can be no assurance that it will result in final resolution of the matter. In February 2010, we received a statement of objections from the EC concerning our alleged participation in certain price-fixing cartels in the air freight forwarding business in violation of the European Union antitrust rules. We submitted a response, and on 28 March 2012, the EC issued its ruling. The EC ruled that EGL, Inc. and two of its subsidiaries (now known as CEVA Freight (UK) Limited and CEVA Freight Shanghai Limited) had violated European Union competition law by participating in two infringements of competition law in relation to the pricing of two discrete fees. The EC imposed a total fine of approximately 3 million on EGL, Inc. and its subsidiaries, which we have now paid, pending our appeal, which has now been filed. The Company cooperated with the EC throughout its investigation and received substantial reductions in its fines as a result. With regard to the Brazilian investigation, on 6 August 2010, the Brazilian antitrust enforcement authorities announced an administrative proceeding against numerous freight forwarding companies, including CEVA Logistics Holdings BV and CEVA Logistics Ltda., and against numerous individuals, including one current and one former employee of CEVA. Pursuant to the applicable administrative process, we intend to submit a response. At this time, the extent of the potential claims identified by the Brazilian authorities that are being alleged as to the Company s subsidiaries is not clear; nor is the timing of the next steps in the administrative process or any potential resolution of the matter. Accordingly, it is not possible to predict the timing or outcome of the investigation or the potential financial impact on the Company, which could involve the imposition of administrative or civil fines, penalties, damages or other sanctions that could have a material adverse impact on the Company. We have also received a letter of inquiry from the Competition Commission of Singapore, dated 14 December 2011, which appears to be focused on the subject matters of the DOJ plea agreement, the New Zealand Commerce Commission settlement, and the EC statement of objections. We cannot determine the timing or outcome of the governmental investigations that remain pending. These investigations could result in the imposition of administrative or civil sanctions, including fines, penalties, damages and debarment from federal contracting in the U.S. or other sanctions which could have a material adverse effect on our financial position, results of operations, operating cash flows and business activities. We are also the subject of an investigation by the Italian competition authority related to possible price-fixing and other improper collusive activity with respect to international road freight forwarding to and from Italy. On 16 June 2011, we were notified that the Italian competition authority has found an infringement of Italian law and imposed fines and penalties against a number of freight-forwarders, including a subsidiary of CEVA. As a result of the fines being imposed, we have previously recorded a provision in connection with this investigation, paid the fine, and appealed; our initial appeal was rejected, but we have filed a further appeal. Management believes the amounts in question are not material to the financial performance of the Company. Independent Contractor-Related Proceedings The classification of drivers as independent contractors which we believe to be a common practice in our industry in the U.S. is challenged from time to time by federal and state governmental and regulatory authorities, including tax authorities, as well as by individual drivers who seek to have drivers reclassified as employees. We are currently party to two putative class action lawsuits in this regard. In Mohit Narayan, et al. v. EGL, Inc. and CEVA Freight, LLC, the plaintiffs are seeking a declaratory judgment, restitution, damages and other relief. The case is currently on remand from the Ninth Circuit Court of Appeals to the federal district court in the Northern 18

19 District of California. In Franklin Browning v. CEVA Freight, LLC and EGL, Inc., the plaintiffs make similar claims under the Fair Labor Standards Act and New York labor law and seek damages. In addition, in October 2009, the California Employment Development Department ( EDD ), based on a worker classification audit, determined that such individuals should be reclassified as employees for purposes of state unemployment tax, employment training tax, disability insurance contributions, and personal income tax, and the EDD issued a tax assessment. We have petitioned the EDD to review its assessment, with a potential for abating a majority of the assessed taxes. While we cannot provide assurances with respect to the outcome of these cases and it is possible that we could incur a material loss in connection with any of these matters, we intend to vigorously defend ourselves in these proceedings and do not at this time believe that a loss in these cases is probable or reasonably estimable. We are also subject to a nationwide class action in James Foster and Stone Logistics, Inc. v. CEVA Freight, LLC, in which the plaintiffs allege that CEVA s independent contractor agreements with its owner-operators fail to comply with federal leasing regulations and that CEVA is in breach of the agreements. The plaintiffs seek damages, an injunction against continued violations, a declaration that CEVA is in violation of federal leasing requirements, and other relief. The court certified the class in December 2010; we have filed a motion to decertify the class, which is pending before the court. Trial is scheduled for August We have recorded a provision in connection with this matter, which management believes is not material to the financial performance of the Company. Tax Proceedings We are involved in tax audits in various jurisdictions relating to the normal conduct of our business. While the outcome of these audits is uncertain, we believe that we have provided for all probable and estimable tax liabilities arising from its normal course of business, and we therefore do not expect any liability arising from these audits to have a material impact on our results of operations, liquidity, capital resources or financial position. Other Proceedings From time to time, we are involved in a variety of legal proceedings and disputes arising in the ordinary course of business. For example, we have been and currently are subject to numerous labor and employment proceedings and disputes in both Italy and Brazil alleging various causes of action and raising other legal challenges to our labor and employment practices. Such proceedings include individual claims and lawsuits, disputes with unions, class action claims, and governmental or quasi-governmental investigations. While the outcome of these legal proceedings is uncertain and may not be capable of estimation, we believe that resolution of these matters and the incurrence of their related costs and expenses should not have a material adverse effect on our results of operations, liquidity, capital resources or financial position. 12. Related Party Transactions Parent company The immediate parent of CEVA Group Plc is CEVA Investments Limited, a company incorporated in the Cayman Islands. The following table sets forth the shareholders of CEVA Investments Limited as at 30 June 2012 and 31 December 2011: Number of shares beneficially owned 30 JUNE 31 DECEMBER Ownership Number of shares Ownership percentage beneficially owned percentage AP VI CEVA Holdings, L.P. 2,844, % 2,844, % AlpInvest Partners Beheer 2006, L.P. 422, % 422, % AAA Guarantor Co-Invest VI, L.P. 406, % 406, % CEVA management investors 343, % 352, % 4,017, % 4,026, % Number of shares excludes 4,416,565 class B shares issued on 1 Feb 2012 to affiliates of Apollo. Apollo is a related party by virtue of the fact that it manages AP VI CEVA Holdings, L.P., AlpInvest Partners Beheer 2006, L.P., AAA Guarantor Co-Invest VI, L.P., Apollo Fund VI BC, L.P., and Autumnleaf L.P. These entities together own all of the class B shares and 91.4% (31 December 2011: 91.3%) of the other ordinary shares in CEVA Investments Limited, which in turn owns 100% of the equity of CEVA Group Plc. One share is held by Louis Cayman Second Holdco Ltd, a wholly owned CEVA entity. CEVA Group Plc has a service agreement with Apollo for the provision of management and support services. The annual fee is equal to the greater of 3 million per annum and 1.5% of the Group s EBITDA. Fees and expenses of 3 million (six months ended 30 June 2011: 3 million) are included in the income statement for the six months ended 30 June Gareth Turner, Josh Harris, Stan Parker, Tom White, Marvin Schlanger and Michael Jupiter are Directors of CEVA Group Plc and also hold senior positions at Apollo or Apollo portfolio companies. 19

20 At 30 June 2012 CEVA Group Plc has a payable to CEVA Investments Limited, amounting to 13 million (31 December 2011: 13 million). This relates to intercompany cash pooling arrangements and is included within trade and other payables in the Consolidated Balance Sheet. Trading transactions During the three and six months ended 30 June 2012, Group entities entered into the following trading transactions with related parties that are not members of the Group: millions 2012 Sales of goods Purchases of goods Amounts owed by related parties Amounts owed to related parties Sales of goods Purchases of goods 2011 Amounts owed by related parties Amounts owed to related parties Joint ventures millions 2012 Sales of goods Purchases of goods Amounts owed by related parties Amounts owed to related parties Sales of goods Purchases of goods Amounts owed by related parties 2011 Amounts owed to related parties Joint ventures Financing From time to time, depending upon market, pricing and other conditions, as well as our cash balances and liquidity, we or our affiliates, including Apollo, may seek to acquire or sell notes or other indebtedness of CEVA through open market purchases or sales, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we or our affiliates may determine (or as may be provided for in the indentures or other documents governing the notes or other indebtedness), for cash or other consideration. In addition, we have considered and will continue to evaluate potential transactions to reduce our outstanding debt (such as debt for debt exchanges and other similar transactions), to extend our debt maturities or enter into alternative financing arrangements, as well as potential transactions pursuant to which third parties, Apollo or its affiliates may provide financing to CEVA or otherwise engage in transactions to provide liquidity to CEVA. There can be no assurance as to which, if any, of these alternatives or combinations thereof we or our affiliates may choose to pursue in the future as the pursuit of any alternative will depend upon numerous factors such as market conditions, our financial performance and the limitations applicable to such transactions under our financing documents. At 30 June 2012, and at the date of approval of these interim consolidated financial statements, funds managed by Apollo held approximately US$32 million of 11.5% junior priority senior secured notes due 2018 (31 December 2011: US$77 million), none of the 8.5% senior notes (31 December 2011: 157 million), US$113 million of the senior unsecured loan facility due 2018 (31 December 2011: US$629 million), none of the 10% senior subordinated notes (31 December 2011: 82 million) and US$132 million of the 12.75% senior notes due 2020 (31 December 2011: nil). Ultimate controlling party The ultimate controlling party of CEVA Group Plc is Apollo. Other related party transactions There are 258 management and other personnel in CEVA Group companies who participate in the management equity plan. They also receive salaries and benefits as part of their employment compensation. 13. Seasonality of Operations Our intra-year results are subject to seasonal trends, due to holiday seasons, consumer demand, weather and other intra-year variations. The Freight Management results are generally stronger in the final three quarters of the calendar year, which is partly offset by Contract Logistics results, which are often weighted to the first half of the year. The Company s seasonality is also offset to some extent by its sector diversification, as well as the global nature of its business; however, overall the Company s first quarter is generally the weakest. 20

21 0