Xavier Urbain, CEO, Ceva Logistics.
Mister Urbain, Ceva has been on a bumpy road for several years. Why, from your point of view, is the company now ready to go public?
We did a lot of restructuring 2014 und 2015, putting in place the right foundation, an agile management and a new strategy for ten years. We did not do just a transformation to have a quick fix but wanted to place Ceva as one of the leading logistic providers. For this, we made substantial investments in people and information technology. We built a strong platform which is running perfectly well now.
But still there are some weaknesses left. Which are the most critical ones for you?
We have addressed a lot of legacy issues. It was important to rebuild some foundations before pushing the button of development in 2016. There is still room for substantial improvement in the next years, in standardization of internal processes and in productivity.
There are headwinds in the market. Pressure on margins has mounted, especially in freight management. Is the goal to grow adjusted Ebitda by 100 Mio. $ or more than 10% per year until 2020 not overambitious?
We will deliver no matter what happens in the markets. The beauty of Ceva in terms of Ebitda improvement lies in our ability to fix internal cost issues: productivity, head office costs, standardization and so on. That means we do not have a business plan which relies heavily on the increase of revenues.
Will the deleveraging of the balance sheet after the IPO help to widen the customer base?
Definitely. The top 100 customers represent 57 percent of turnover. Due to our heavy balance sheet some of them have been shy to expand business with us for risk assessment reasons. Now the IPO will open a lot of doors that were closed in the last years. And we are winning a lot of new customers already.
Volumes in the sector, especially in air, grew strongly in 2017. Could Ceva’s business be dampened by a trade war and new trade barriers?
We see a slight slowdown of the activities right now but nothing dramatic. We can’t predict what will happen between the US and China but in any case it will not impact our business substantially. With the currently envisioned tariff increases, the biggest impact would be in the bulk part of the ocean business. A trade war will rather hit the shipping lines than freight forwarders.
The company wants to participate actively in the consolidation process in the sector. Has Ceva sufficient financial strength for substantial M&A?
Ceva belongs to the medium size players. But we have global coverage with a presence in 160 countries and a well balanced range of services. Strengthening profitability and growing organically are the pillars of our strategy. We do not need M&A but may consider selective will do acquisitions in specific areas in the world where we need to inject more volumes and get higher market share. Acquiring companies shall immediately bring added value to our network..
Ceva has a 50/50-Joint-Venture in China with an attractive growth and margin profile. Is there an opportunity to buy a majority stake?
Not in the foreseeable future. And honestly, we do not want to do it. It is an excellent partnership. Today, the level of logistics outsourcing in China is between 5 and 10 percent only. In the UK for example, it is between 55 and 60 percent. That leaves us much room for development in China.
What will be Ceva’s dividend policy?
We plan to distribute a small dividend in 2019 for fiscal year 2018. Of course, in the short term the yield will clearly be lower than that of our Swiss peers. Later on, we intend to distribute at least 40% of our profit to shareholders. The more important part of total performance however, we believe, will come from value creation.
Apart from consolidation, digitization is going to change the landscape of the sector. Is Ceva currently not too distracted by its own specific problems and therefore might be left behind?
Not at all. We have invested a lot on new technology starting in 2016, in a business intelligence department, a new data house, some block chain projects and on automation.
Ceva made some progress in recent years but there is no long track record. How can investors assess the value of the company?
Including the first quarter 2018, it is now six quarters in a row that Ceva is well on track. We know exactly what to do and are working on it. Our business plan of growing revenues by 4 to 5 percent und expanding Ebitda by more than 10 percent per year is based namely on internal improvement and therefore realistic.
In Switzerland investors can choose already between two different types of shares in the sector, Kühne + Nagel (KNIN 152.75 1.66%) and Panalpina (PWTN 227.2 0.09%). One is very reliable, the other one a turnaround case. Where would you place Ceva?
We will see what the pricing of our shares will be. I am convinced that we can create of lot of value and investors will recognize the upside potential.
As far as profitability is concerned, do you have long term goals? Is Ceva’s benchmark the average of the sector or the best in class?
We benchmark ourselves on a monthly basis with the top ones in Europe, namely Kühne + Nagel, Panalpina and the Danish DSV (DSV 653.4 -0.94%). Our goal is to fill the substantial gap to our peers in the medium term. Once we have reached it, we will set new, more ambitious targets.
Some of the principal shareholders are Private Equity (PEHN 56 0.9%) firms. Their possible exit after the end of a 180-day-lock-up-period could put the share price under pressure. That might keep away some potential investors. Are there commitments from the shareholders for longer holding periods?
The management has a lock-up of 360 days. No one wants to leave. Each of the current four main shareholders will consider after the IPO what to do. However they are only allowed to sell only a limited number of shares each time. Some shareholders have indicated interest to stay on board in a longer term perspective.