Annual Report 2018 Report 2018

Creating customer value Table of contents

Introduction 3 Corporate Governance Group Highlights in 2018 4 and Our history 8 Shareholder Chairman’s Letter 9 Information 57 Interview with Xavier Urbain, CEO 11 Corporate Governance Report 58 Compensation and Auditor’s Reports 87 Risk Management 106 Strategy and Shareholder Information and Business Investor Relations 109 Performance 14

CEVA Logistics in brief 15 The strategic partnership with CMA CGM 19 Financial Market and Industry 22 Statements 112 Information Technology 25 New Business 28 Consolidated Financial Statements Digitalization 30 and Auditor’s Report 113 Group Performance 32 Parent Company Accounts and Freight Management Performance 37 Auditor’s Report 208 Contract Logistics Performance 44 Anji-CEVA 49 Sustainability at CEVA 52

2 Annual Report 2018 CEVA Logistics Introduction Group Highlights in 2018

Global Player

Approximately US$ Present in over Direct presence Exclusive agents 58,000 7.4 bn #5 #14 160 in about in more than employees; including Revenue globally in globally in Freight countries 60 100 contractors Contract Logistics 1 Management 2 countries countries

1 Transport Intelligence report, Global Contract Logistics 2018: Ranking based on revenue 2 Transport Intelligence report, Global Freight Forwarding 2018: Ranking based on revenue

4 Annual Report 2018 CEVA Logistics Introduction A Leading Global 2018 highlights Strategic relationship with CMA CGM – 19 April, 2018: CMA CGM becomes CEVA’s Logistics Company IPO on SIX Swiss Exchange strategic partner and anchor shareholder The IPO on the SIX Swiss Exchange in May 2018 has – 24 October, 2018: CMA CGM and CEVA extend Blue-Chip Customer Base transformed the company. It has allowed us to signifi­ their cooperation. Public Tender Offer planned, cantly strengthen our financial position, which is expect­- to take place in February and March 2019. Average relationship ed to accelerate growth with existing and new clients. – What CMA CGM brings to CEVA: And, the strategic partnership with CMA CGM, who has – Commercial footprint: significant cross- 57% 15 years a 33% stake in the Group at the time of the publication selling opportunities and stronger footprint of gross revenue with with top 30 customers top 100 customers of this report, will create further opportunities. in Ocean Freight Management – Support functions: opportunity to access Through the IPO and the concurrent private place­ CMA CGM shared service center network Broad Service Range ment to CMA CGM, CEVA has raised gross proceeds with efficient processes of CHF1.2 billion which have been largely used to – Turnaround experience: proven track- Manages across over repay debt, and obtain approximately US$1.4 billion record of delivering turnaround 2 in new debt facilities. We have received very positive – A revised business plan for the medium-term, 9 m m 750 reactions from clients, successfully renego­tiated with the support of CMA CGM was presented warehouse space Contract Logistics locations payment terms with suppliers and are also seeking to on 26 November, 2018 and approved by negotiate lower costs on some leases where rates were CEVA’s Board of Directors in January 2019.

477,000 t previously impacted by credit quality. New medium-term (2021) strategic targets Air Freight 5% average Revenue >US$9 billion Debt refinancing and credit rating annual growth Adjusted EBITDA 1 US$470 – 490 million 787,000 TEUs Following the deleveraging from the IPO and improved 2 Ocean Freight operating performance, CEVA received rating upgrades EBITDA US$410 – 430 million 4.5–5.0% margin from both S & P Global Ratings and Moody’s Investors 1 Adjusted EBITDA includes the 50% proportional contribution of the Service in May 2018. S & P’s long-term issuer rating now Anji-CEVA joint venture and excludes specific items and share-based compensation costs 2.2 m t stands at BB-, while Moody’s has assigned a corporate Ground Transport 2 EBITDA excludes specific items and share-based compensation cost in rating of B1. the table

5 Annual Report 2018 CEVA Logistics Introduction A balanced product, geographic and industry exposure1

1 Freight Contract Freight Management Excluding Management Logistics contribution from Air Ocean Ground Anji-CEVA JV 48% 52% 6% 3% 9% 2 Including temporary and Healthcare agency workers Other 5% 3 By 1% Energy Consumer Comprising Contract & Retail North America, business Logistics 3% Central America, Employees Technology Other 27% and South line 81% America clusters % revenue by business 15% 1% FY 2018 2 4 line Comprising FY 2018 South East Asia, Mekong, India, Australia and New Zealand, China, and North By Asia clusters industry 5 Europe, By % revenue Comprising Middle East FY 2018 UK, Ireland, and Africa 5 Nordics, Benelux, region France, Germany, 41% % revenue 3 Central and FY 2018 The Americas Eastern Europe, Italy, Iberia, 33% and BAMECA Industrial (Balkans, Middle Asia Pacific 4 & Aerospace Automotive East and Africa) clusters 26% 24% 25%

6 Annual Report 2018 CEVA Logistics Introduction Group key financials

Revenue Adjusted EBITDA Net debt CEVA’s underlying business has continued to perform in line +5% -7% -43% 8,000 300 2,500 with expectations, albeit various one-time items have significantly 280 2,000 6,000 6,994 7,356 6,646 200 249 260 2,089 impacted profitability. New 1,500 1,918 business has remained promising 4,000 1,000 with a strong pipeline of new 100 1,192 customers as well as existing 2,000 500 customers as a positive conse- quence of the IPO. 0 0 0 2016 2017 2018 2016 2017 2018 2016 2017 2018

Freight Management Contract Logistics

Revenue Revenue

4,000 Air 4,000 Good volumes across existing Good performance and further contract portfolio productivity improvements 3,724 3,848 3,000 3,508 3,000 3,644 Productivity improvements 3,270 3,002 Ocean across contracts and clusters with 2,000 2,000 Strong volumes and increased half of low margin contracts focus on standardization already terminated, repriced or 1,000 1,000 improved Ground 0 Driver shortage in North America 0 However, some one-time issues All numbers in US$ million. 2016 2017 2018 increasing cost per mile 2016 2017 2018 impacting profitability in Italy

7 Annual Report 2018 CEVA Logistics Introduction Our history

CEVA is one of the world’s leading third-party logistics (3PL) companies, and many of the world’s best-known brands count on CEVA to serve their markets. We offer a broad spectrum of services in both Contract Logistics and Freight Management.

Our origins can be traced back to one of the founding fathers of the modern freight and logistics industry – Ken Thomas, who in 1946 founded Thomas Nationwide Transport (TNT) in Australia with a single truck. Over the next five decades, TNT developed an enviable global 2006, TNT Logistics was sold to American CEVA Logistics is now listed on the SIX Swiss reputation, particularly in contract logistics. venture capitalists Apollo Management LP, Exchange and CMA CGM, the fourth largest who renamed the company CEVA Logistics. Six container shipping group in the world, has made In the United States, in 1984, Eagle Global months later, EGL was bought by Apollo. a significant investment in the company, with a Logistics (EGL) was formed in Houston, Texas. view to setting up a strategic long-term partner­ Within little more than a decade it had become Thus, the current company was established in ship with CEVA. a global force in freight management – with 2007 through the merger of TNT Logistics A milestone for operations in over 100 countries. and EGL. CEVA had been halfway through its transfor­ road transporta- mation journey at the time of the IPO and the tion from China to Europe – By 1996, TNT had been acquired by the Dutch Since 2014, our current CEO Xavier Urbain strategic partnership with CMA CGM opens up CEVA’s first truck postal and telecommunications company KPN, has, with a new management team, executed a significant opportunities to accomplish this arrived in Poland and two years later it was split into three divisions comprehensive transformation of the business journey more rapidly, and deliver its business and after 11 days in November 2018. – Logistics, Express and Post. In the autumn of and launched an IPO in May 2018. financial targets.

8 Annual Report 2018 CEVA Logistics Introduction Chairman’s Letter

Dear Shareholder, this, a new governance structure has been put vis à vis clients and suppliers as a very different Let me first thank you for investing in in place, complying with Swiss listed-company company to do business with. As a consequence, standards and establishing a new Board of many new opportunities have emerged and CEVA. With this Annual Report covering Directors, which I am proud to chair. Our hopefully will materialize in the months to come. our first fiscal year after the Company’s Board of Directors includes eight non-executive Initial Public Offering (IPO), we want members, two of whom have been nominated Adapting the organization to a changing world to report our business, initiatives, and by CMA CGM. and evolving priorities has also been central to the Board’s agenda. A number of changes have results for 2018. In many respects, 2018 has been a challenging been made in the leadership team including the year albeit laying the foundations of a new and appointment (as of 1 January, 2019) of a Deputy The IPO was successfully completed stronger CEVA. CEO and Chief Operating Officer. This is a new on the SIX Swiss Exchange with our position and Nicolas Sartini will be expected to first day of trading on 4 May, 2018. The global macroeconomic and geopolitical accelerate our transformation, and make our As per our reporting date, CEVA now environment has been unhelpful with continuous leaner matrix organization deliver tangible out­ has a diversified shareholder base news of trade war threats, tariff increases on large comes quickly. We also have a new CFO, Serge with many institutional investors. segments of international trade and ultimately Corbel, bringing to CEVA a wealth of experience in Concurrent with the IPO, CMA CGM risks of a global economic downturn. Against our industry, and a new Chief Commercial Officer, (the world’s fourth largest ocean this backdrop, our business performance has Laurent Binetti, whose mission is to re-engineer container carrier), took a 24.99% been reasonably good and certainly in line with our new business development organization­ and stake in the Group as a new strategic expectations, notwithstanding the specific issues energize our new business performance. I would partner. This stake was subsequently our Contract Logistics operation experienced in like to take this opportunity to warmly thank raised to 33% in October 2018. Italy. In the meantime, CEVA’s management Xavier Urbain, Group CEO and his entire team for Rolf Watter, team has done a lot of work on cost reduction their accomplishments in 2018. Chairman Through the IPO and the private placement and pursuing key initiatives that were part of our of the Board of Directors from CMA CGM, CEVA raised gross proceeds of Excellence Program. Significant debt repayment The new Board of Directors has been very active, CHF1.2 billion in 2018 which have been largely as well as a comprehensive debt refinancing not only with meetings related to the Company’s used to repay debt and which allow us to show exercise have been achieved by the management capital structure, but also in the context of an a much stronger financial position. Alongside team, which helped us to reposition ourselves unsolicited approach from DSV. More recently,

9 Annual Report 2018 CEVA Logistics Introduction the Public Tender Offer submitted by CMA CGM opportunities and operational efficiencies – and Me and the Board of Directors are convinced that and the evaluation of the new business plan for deliver strong and sustainable value creation for CEVA’s new equity story will create substantial 2021, have created intense activity and healthy shareholders and customers. value over time and put us in a much better place debates. to grow profitably and reward shareholders than After the important work done pre-IPO, CEVA was available at the time of the IPO. I would Last October, CEVA opened a new chapter with is now embarked on a more ambitious journey like to encourage existing shareholders to stay CMA CGM as its strategic partner. Above and to reduce its cost base and focus on top line on board, keep supporting us and be rewarded beyond the level of ownership in CEVA Logistics expansion and more profitable growth. This new ultimately for their loyalty. I’d also like to welcome by CMA CGM, we are both convinced of the business plan, to be executed over the next three new shareholders to join and benefit from this substantial growth and value creation potential to five years, is set to deliver US$100 million more exciting new journey. of this joint project and future strategic in Adjusted EBITDA than the IPO plan showed. collaboration. CEVA operates in a growing industry driven by I would also like to thank all CEVA’s employees solid fundamentals and underlying global trends for their hard work every day for our clients, for One of the immediate benefits of this partnership which have prevailed across economic cycles. their teams and for their communities. It is their has been the opportunity for CEVA to acquire These include growing complexity in supply engagement and dedication that have made CMA CGM’s Freight Management operation. chains. While outsourcing rates remain low in CEVA the great company it is today. The agreement was signed on the last day of the most countries, higher demand for integrated 2018 business year and completion is expected end-to-end solutions, growth in e-Commerce, the Yours sincerely, in the course of the first half of 2019. This will need for technology and digitalization to increase significantly enhance CEVA’s position in Ocean efficiency, are all driving change worldwide. freight and expand our offering and geographic Combining solid industry trends with a leaner, footprint in various segments of Freight Manage­ more efficient cost base will put CEVA among ment – as well as better balancing CEVA’s overall industry leaders. In the meantime, the objective portfolio. is to keep CEVA independent, listed on SIX Swiss Rolf Watter Stock Exchange and pursue an arm’s length Chairman of the Board of Directors We have put together a “strategic business relationship with CMA CGM. plan” between CEVA Logistics and CMA CGM that can generate substantial new commercial

10 Annual Report 2018 CEVA Logistics Introduction Interview with Xavier Urbain, Chief Executive Officer

In your view, how did CEVA Has your strategy changed tracts themselves are signed for lengthy periods. perform in 2018? somehow since the IPO? The scope of services can also be quite complex, We have laid the foundations for our Our strategy remains unchanged. It is essentially requiring more time for discussion. We also future growth and performance: the to team up with our clients in the medium to started renegotiations with suppliers right after IPO has helped us repay our debt, long term development of their supply chains, the IPO and came up with tangible benefits, both therefore bringing our capital struc­ through operational excellence and competi­ in terms of costs and working capital. Financial ture to a more reasonable level and tive prices supported by technology. This is the costs, including cost of guarantees will generate reducing sharply our interest rate reason why we are reinforcing a client-based substantial savings. burden. Linked to this, it opened up service offering Automotive, Industrial & Aero­ – or reopened – a lot of new business space, Consumer & Retail / e-Commerce, Health­ opportunities which were inaccessible care, Energy and Technology. This approach Why do you think your clients to us before. In terms of business is driven by an in-depth understanding of our should chose CEVA against your Xavier Urbain, performance, CEVA has continued to clients’ strategies and challenges, be they large competitors? Chief Executive achieve decent growth in Ocean Freight Man­ corporations or small to medium-sized enter­ Clients are increasingly seeking value-added end- Officer agement and in Contract Logistics and we are prises. to-end logistics solutions for which CEVA Logistics pursuing a cost-reduction plan that addresses is ideally positioned. They look for specialization employee productivity in Freight Management and expertise in their vertical footprint in order to and underperforming activities both in Freight You said the IPO changed the provide seamless services across multiple coun­ Management and Contract Logistics. Finally, our clients’ mindset? Can you already tries and a robust execution in often complex and new business performance is promising and we see an acceleration in new busi- fast-changing business environments. I believe, have significantly re-engineered our business ness? Are there other areas where CEVA is definitely ticking these boxes and clients development organization. However, some of CEVA can benefit from its IPO? recognize that. This is why CEVA has competed these improvements have been offset by one- The company’s IPO and the deleveraging of for years with the top-tier players of the industry, time provisions and costs in Contract Logistics in its balance sheet has unlocked significant new as opposed to smaller competitors more compa­ Italy. Looking ahead, based on these healthier opportunities in both Freight Management and rable in size with CEVA. In my opinion, this com­ foundations, we are confident that we will further Contract Logistics. We saw some good results in petitive edge will be amplified with the services improve our performance and meet our new, Freight Management but the new business cycle CMA CGM is giving us access to, like rail connec­ even more ambitious, medium-term targets. in Contract Logistics is much longer, as the con­ tion between China and Europe, alternatives to

11 Annual Report 2018 CEVA Logistics Introduction air like TransPacific fast vessels, etc. We therefore together for the last few months and have already CEVA’s management expects that these addi­ expect very positive reaction from our customers demonstrated their ability to generate new sales tional initiatives will result in an incremental and increased competitiveness for CEVA in the for CEVA as well as their ability to extend existing US$100 million of Adjusted EBITDA by 2021E marketplace. contracts by broadening the scope of services on compared to the original objective set at the IPO. offer. In terms of profitability, some of the key As a result, management expects an Adjusted CEVA Logistics has announced levers that CEVA plans to use are more investment EBITDA range of US$470 to 490 million by 2021, it has broadened the partnership in IT, and leveraging CMA CGM’s shared-service which is US$200 million Adjusted EBITDA above with its anchor shareholder centers. This is an area in which CMA CGM has 2017. In terms of EBITDA margin, the objective CMA CGM and it has a new long experience and means we will not have to remains to achieve more than 5% in the longer strategic business plan. Could create our own. term when full benefits materialize. you summarise for us the main benefits for CEVA? Second, a strengthening of CEVA’s Freight Man­ CMA CGM intends to keep CEVA as an indepen­ With the support of CMA CGM, we can accelerate agement business through the acquisition of dent company and provided that a sufficient our transformation and turnaround in the next CMA CGM Logistics. This transaction will help us number of shareholders do not tender their CEVA three years and beyond. This can be achieved achieve our medium-term objective of reaching Shares into the current Tender Offer, to keep it by a combination of our commercial and sales one million Ocean TEUs ahead of schedule and listed. actions, cross-selling with CMA CGM customers, benefit from more attractive procurement prices. our own productivity actions, the integration of CMA CGM Logistics provides valuable access to How do you sell this new equity CMA CGM Logistics within CEVA and sharing products or geographies which are of interest story and attract potential share- resources with CMA CGM in the field of procure­ to CEVA and can be leveraged to diversify its holders? ment and administrative functions. product offering (India, rail connection from Despite challenging market conditions, the China to Europe, etc.). IPO has attracted many investors from various Our new strategic plan with CMA CGM relies on countries, who liked the growth and turnaround three key initiatives: Third, leveraging CMA CGM’s size, in terms of story CEVA was proposing. The CMA CGM Public First, an acceleration of CEVA transformation, back-office mutualisation in payroll, IT, account­ Tender Offer has obviously created new circum­ leveraging CMA CGM’s operational expertise ing and joint procurement of non-strategic items. stances and some IPO shareholders exited while and turnaround experience. In terms of top line, some new ones came in. We believe that funda­ the CEVA and CMA CGM teams have worked mentally our strengthened equity story and new

12 Annual Report 2018 CEVA Logistics Introduction targets are a compelling proposition for long- patterns will need to adapt on a pan-European new CFO will bring their experience to make it term investors. This is why we are confident that level. In our business, challenges immediately happen. Following the IPO and the deleveraging CEVA can remain a listed company, with decent bring additional opportunities, but it is the task of the company, now it is the time for an in-depth liquidity which will reward shareholders over time of our teams to catch the train on time. re-engineering of the business and a more focused with share price appreciation and a dividend organization. I trust these changes will bring which will also grow over time as we further In terms of costs, the high flexibility of our reliability and efficiency in the execution of what develop our balance sheet. workforce and the various self-help productivity we do. initiatives make us confident that our financial What’s your view on current targets will be met. This is the reason why we are How would you describe the macroeconomic developments, quite confident in our ability to grow annually outlook for 2019? such as the tariff discussions above 5% on average, despite possible head­ 2019 will be the first year of the new CEVA: a between China and the US, winds. lot of exciting work needs to be done based on Brexit and overall softening of healthier foundations and with the support of the world economy? There have been quite a few CMA CGM. I am confident our results will be Each challenge – US-China trade dispute, Brexit, changes at senior executive level better than in 2018. Our medium-term outlook the crisis in Turkey, you name it – creates opportu­ recently within CEVA and within is about 5% average annual revenue growth, nities for large, global service providers like CEVA. your organizational structure. bringing the total revenues above US$9 billion Growth in international trade and a more buoyant How should that be read? Is there by 2021 and EBITDA margin of 4.5 – 5% by economic outlook would definitely be our pre­ more to be done? 2021, i.e. an adjusted EBITDA of US$470 – 490 ferred scenario. However we need to adapt to our We need constant adaptation to our environment, million. In the longer term, we expect group environment and more importantly take advan­ and we have reviewed our Sales and Business EBITDA margin to be >5%. At business-line level, tage of new situations. CEVA has a well-balanced development structure under the leadership of we target EBITDA margin approximately 4% portfolio of business lines, clients, industries and our new Chief Commercial Officer. The execution in Freight Management by 2021 and approxi­ geographies. This helps us to mitigate potentially of our business plan needed a simpler, sharper and mately 5% in Contract Logistics. Finally, we are adverse situations in a country or an industry. leaner matrix organization with fewer geographic aiming to be a top ten player in both FM and CL If we take the example of what Brexit might clusters, as well as the expertise on successful by 2021 with a more balanced position between mean for us: We foresee more opportunities than turnarounds of some individuals. Nicolas, FM Air and Ocean. disruption as trade flows, storage and distribution our new COO and Deputy CEO and Serge, our

13 Annual Report 2018 CEVA Logistics Introduction Strategy and Business Performance CEVA Logistics in brief

CEVA offers a broad range of services in comprehensive offerings by fewer providers, Value proposition both Contract Logistics and Freight Manage- gives integrated global players like CEVA the CEVA has a comprehensive logistics service offer­ opportunity to gain market share and participate ing across Freight Management and Contract ment. The company employs roughly 58,000 in consolidation. Changing customer demand, Logistics with a broad geographic coverage and permanent and temporary / agency workers evolving supply chains, and shifting global trade a strong presence in high-growth markets, includ­ in more than 1,000 locations. In 2018, we patterns present a real opportunity for CEVA to ing China and other Asian countries, the Middle gen­erated revenues of US$7.4 billion with grow. We have significant competitive strengths. East and Latin America. Our sales are balanced These include: across products, segments and regions. an Adjusted EBITDA of US$260 million. – a strong value proposition positioned to compete with the largest logistics players; In 2018, Contract Logistics and Freight Man­ We are well placed to benefit from positive – an attractive financial profile with a flexible, agement comprised 52% and 48% of our industry trends, with a unique service offering asset-light business model that supports revenue, respectively. Geographically, Asia Pacific and geographic footprint, and the opportunity to cash generation; represented 26% of our 2018 revenue, while realize untapped cost efficiencies. According to – a management team that since 2014 has EMEA constituted 41% and the Americas 33%. independent sources like Transport Intelligence strengthened the business and is delivering In Greater China (including Hong Kong and (TI) in its 2018 Report, CEVA was ranked 14th in improved results; and Taiwan), CEVA is an attractive logistics partner in Freight Management globally (7th in Air and 14th – a strategic partnership with CMA CGM. Freight Management, through our wholly-owned in Ocean) and 5th globally in Contract Logistics. Freight Management At A Glance Industry dynamics The transportation and logistics industry is char­ Other Services acterised by its large scale and strong growth Air Freight Ocean Freight Ground Additional services prospects, outpacing world GDP growth. Drivers Air Freight Services Full Container Load Full and less-than-full Value Added Service (VAS) – of this growth include the continued outsourcing – Standard expedited service Less than Container Load truckload services complementing services – Shipment with transit time e.g. cross-docking, packing / of logistics activities, growing middle-classes in Freight Management Expedite network US 48–96 hours repacking emerging markets and the growth of e-Commerce. – Consolidation through CFS Services Dedicated transport Customs brokerage Ocean Charter Asset-light model In addition, the fragmented nature of much of Air Charter and (standalone) the industry and our customers’ requests for more On-board Courier and Project Solutions

15 Annual Report 2018 CEVA Logistics Strategy and Business Performance Contract Logistics At A Glance (“WMS”) that provide visibility throughout the entire supply chain. Many of our customers rely

Warehousing and Transportation and on our systems and applications, which drives Supply Chain Solutions value added services distribution greater customer loyalty and retention, and Central and regional distribution centers Just-in-time transportation and Supply chain design and execution creates opportunities to grow. Light manufacturing / customization sequencing over multiple modes and geographies and other value added services Outbound / store delivery including Controlling and monitoring solutions We serve a diversified, blue-chip Returns and reverse logistics mission-critical spares 4PL service offering integration and customer base Quality control and export services ‘White Glove’ delivery and installation management of other 3PL providers We enjoy a largely blue-chip – but well diversified – customer portfolio. We serve 39% of the For- activities, and in Contract Logistics, through the complex and customised end-to-end supply tune 500 (excluding financial and other services Anji-CEVA joint venture, which generated more chain solutions. Our skilled workforce is driven by a and competitors), and our top 100 customers than US$1.4 billion of revenues in 2018. culture of operational excellence and continuous accounted for 57% of 2018 revenue – with no improvement. Our services enable our clients to single customer accounting for more than 3.5%. We believe we are one of the few providers able focus on their core competences while shortening to deliver global end-to-end logistics solutions their time-to-market, enhancing supply chain visi­ Our top 30 customers, who represented 43% of to large customers in our target industries. bility and optimizing total logistics cost (including 2018 revenue, have an average relationship with These include Consumer & Retail (27% of 2018 working capital). This often requires the re-engi­ CEVA of 15 years. We serve most of 29 of these revenue), Automotive (25%), Industrial & Aero­ neering of operations, ensuring solutions are customers in at least 10 countries, and in both space (24%), Technology (15%), Healthcare tailored to the maturity of a given market. Freight Management and Contract Logistics. This (5%) and Energy (3%). reflects our ability to expand with our customers We have significantly upgraded our technology in globally and cross-sell effectively. Our expertise allows us to efficiently recent years, transitioning from disparate legacy deliver complex end-to-end solutions for platforms to next-generation systems with strong We have a differentiated account management our customers standardization. We have deployed our robust strategy for our largest multinational accounts We have deep industry expertise, logistics and CEVA Matrix® OFS Freight Management platform (approximately 45) and service these accounts solutions design capabilities and credentials worldwide and have developed a state-of-the-art with executive sponsorship through a dedicated across many sectors, which enable us to deliver suite of warehouse management applications single point of contact.

16 Annual Report 2018 CEVA Logistics Strategy and Business Performance This can offer both Contract Logistics and Freight provision of transportation services. Together Management services to provide comprehensive with our flexible workforce model (approximately solutions to complex logistics challenges. We 25% of staff are temporary or agency workers), believe that this approach can increase our share we can quickly scale our operations in order to of our top customers’ logistics expenditure from address the needs of our customers, and can the current estimated 3.1% of their outsourced adapt to changing industry conditions and logistics spend. environments.

In addition, we have identified 400 accounts, We have negative working capital and, despite either existing or new, where our focus is on increased investments notably in technology, growth through partially dedicated teams, strong limited capital expenditure (1.3% of revenue in sector expertise and a global approach. Relation­ 2018). ships with smaller customers, notably in Air and Ocean Freight, are managed locally. Management team Since 2014, under a new management, CEVA We believe our broad network and complex has been on a transformation journey. We are solutions capabilities mean that CEVA can committed to strengthening our approach to effectively compete with industry leaders better new business development, transforming our than other medium-sized players (those with IT infrastructure and improving the company’s US$4–10 billion in revenue). operational performance and productivity CEVA’s Ground through increased standardization and stream­ transportation Financial profile lined processes. services are primarily in CEVA operates a scalable asset-light business North America, model, delivering services principally through Turkey, the UK (picture), South people, technology and systems. CEVA does not East Asia and own substantial assets (99% of the warehousing China. space in our Contract Logistics segment is either leased or customer-owned) and outsources the

17 Annual Report 2018 CEVA Logistics Strategy and Business Performance Partnership with CMA CGM A revised business plan was launched in 2018, In April 2018, CEVA announced a strategic part­ supported by our new strategic partner CMA nership with CMA CGM. CMA CGM Group is the CGM. The plan seeks to improve the performance fourth largest container shipping company in of the business by means of: the world, with revenues of US$21 billion and – a stronger managerial drive to accelerate an EBITDA of more than US$2 billion in 2017. commercial development, notably in priority CMA CGM operates a global network covering segments such as Customer & Retail / East-West, North-South and intra-regional lines e-Commerce and Healthcare; and has developed a portfolio of over 30 port – systematic price increases in unprofitable terminal investments as well as dry ports. Its contracts; commercial network of over 750 agencies is – a more efficient matrix organisation with supported by seven service centers. Our strategic more focused priorities, better control from partnership with CMA CGM opens up significant central level, reinforced management opportunities to accomplish our transformation teams and appropriate incentive programs; journey more rapidly. – increased support for reinvestment in IT development and acceleration CEVA will remain an independent and standalone in standardization and automation; company. The partnership is in line with CMA – improved leveraging of shared-service CGM’s strategy of offering end-to-end logistics centers across functions and geographies. solutions to its customers, and pioneering the development of integrated logistics solutions. These strategic targets are intended to align Nonetheless it will retain an arm’s length busi­ ­CEVA’s profitability with the best-in-class players. ness relationship with CEVA in the field of Ocean Freight Management.

18 Annual Report 2018 CEVA Logistics Strategy and Business Performance The strategic partnership with CMA CGM

Fleet Employees Volumes 509 34,000 over ships serving 420 Ports globally 20 m TEUs worldwide transported

19 Annual Report 2018 CEVA Logistics Strategy and Business Performance The strategic partnership with CMA CGM

CMA CGM is a world leader in container Logistics agreed to acquire the freight manage­ shipping. The company made a ment business of CMA CGM, and concurrently CMA CGM decided to offer to purchase the strategic invest­ment in CEVA Logistics shares of CEVA Logistics’ shareholders wishing at the time of the IPO in May 2018. to exit their investment in CEVA. The Board of The two companies have agreed that Directors of CEVA Logistics unanimously agreed CEVA Lo­gistics will remain a listed that the partnership with CMA CGM would company with an arm’s length business provide an attractive value proposition to share­ holders in the mid- and long-term. relationship with CMA CGM. The new strategic partnership relies on the three following initiatives: CEVA and CMA CGM’s joint motivation is to 1 Acceleration: CMA CGM enjoys a worldwide work together and expand their commercial commercial presence and a customer portfolio About CMA CGM cooperation, to develop complementary services, complementary to the one of CEVA. Several of The CMA CGM Group, led by Rodolphe Saadé, addressing the increasing customer need for CMA CGM’s customers are asking for end-to-end is a world leader in maritime transport. Its integrated end-to-end solutions. Both compa­ solutions thus providing opportunities for new 509 ships serve more than 420 ports world- nies agreed they would explore arm’s length commercial leads for CEVA. CMA CGM also has wide on the five continents. They transported cooperation and believed from day one that the extensive experience of turning around compa­ over 20 million TEUs. CMA CGM experiences partnership could create significant value for cus­ nies and is willing to contribute some of its most a continuous growth and never stops inno­ tomers and would be mutually beneficial to both experienced managers to enable CEVA to benefit vating to propose new maritime, logistical companies. from their expertise, most recently demonstrated and inland solutions to its clients. with NOL acquisition and integration. After taking an initial stake of 24.99% at the The Group employs 34,000 people globally time of the IPO, CMA CGM increased its stake in 2 Efficiency: Improving the operating efficiency and 2,400 in Marseilles where it is based. CEVA to 33% in October 2018. It agreed that it is key to enhancing CEVA’s financial performance. It is present in 160 countries via its network. would also broaden its strategic partnership with This improvement relies especially on upgrading CEVA Logistics. As part of this initiative, CEVA IT systems, digitalization, automation and the

20 Annual Report 2018 CEVA Logistics Strategy and Business Performance 3 Strengthening of CEVA’s footprint in Ocean Freight Management through the acquisition of CMA CGM’s Freight Management activities: The transfer of the freight management business is expected to significantly reinforce CEVA’s foot­ print in Ocean Freight Management.

As described in other sections of this document, substantial growth and value creation potential can be delivered by this joint project and future strategic collaboration.

CMA CGM is present in 160 countries via its network of 755 agencies.

transfer of back-office functions to shared-service that employ more than 6,000 people in seven centers. CMA CGM has an extensive expertise in centers. CMA CGM is willing to help CEVA unlock saving on back offices functions and operates its productivity potential by providing manage­ a cost-efficient network of shared-service centers rial experience.

21 Annual Report 2018 CEVA Logistics Strategy and Business Performance Market and Industry

Today, as a result of a confluence trends, one of which is technology. Scale and The industry also operates under a complex set of demand-side and supply-side trends, expertise in verticals also matter. of multinational, national and regional regula­ the outsourced logistics industry tions covering trade, customs, security and envi­ Market growth drivers ronment, among other areas. Regulation has is evolving towards the provision of While the logistics industry has historically grown significantly increased over time but, generally inte­­grated solutions geared towards in line with global GDP and has remained resilient speaking, this has benefitted global providers optimizing overall supply chain costs. in the face of short-term disruptions, its perfor­ like CEVA who have the scale, expertise and tech­ Successful providers are changing mance in the recent past has outpaced growth in nology to comply and adapt. Given its expertise underlying industrial sectors many times over as a and breadth of services, players like CEVA not from being asset-heavy suppliers of result of the rapid globalisation of supply chains. only take advantage of these megatrends but largely commoditized services to manage well through economic cycles. partners. While the current pace of growth of logistics has slowed, it is still expected to be above world GDP Global market growth rates for the foreseeable future. Key industry trends The global market for logistics is enormous and growing. Oxford Economics predicts that global Key drivers of this anticipated growth include: E-Commerce trade flows in 2025 will amount to US$25–38 – economic development in emerging E-Commerce is attractive for logistics providers trillion as compared to US$16 trillion in 2015. markets in infrastructure and via a growing as it offers a total logistics spend approximately middle-class; 20% higher than traditional retail, and a need for Of this, it is expected that 30% would be between – urbanisation and the impact on supply end-to-end solutions integrating several modes emerging markets (compared to 25% in 2015), chains of megacities; of transport. whilst the share between developed economies – new distribution channels (e-Commerce), would have reduced from 32% to 27%. and product customisation in the technology The market for e-Commerce logistics, as esti­ and automotive industries, immediate mated by Transport Intelligence (TI), amounted Nonetheless, the outsourced logistics market in availability, and reduction in time-to-market – to EUR211 billion in 2017 – an increase of almost which CEVA operates is huge – estimated in 2017 for example in the fashion industry; and 20% on 2016. Of this, EUR89 billion was in Asia at over EUR5 trillion. The market has an intrinsic – increased complexity and outsourcing of (mostly China), EUR67 billion in North America growth dynamic fuelled by a variety of global supply chains. and EUR47 billion in Europe, with estimated

22 Annual Report 2018 CEVA Logistics Strategy and Business Performance Outsourcing and systems integration At the same time, consolidation is taking place in Outsourcing to third-party supply chain manag­ the industry at various levels and is expected to ers is an ongoing trend. Of the estimated EUR1.6 continue in the medium-term. trillion Contract Logistics market, only 12% is – In the shipping industry consolidation has currently outsourced to third-parties – providing already led to strengthening in the nego­ considerable headroom. tiating power of carriers. Currently the top 10 carriers control over 70% of the market. Levels of outsourcing vary significantly between – In Air Freight consolidation is lower countries. Generally, activities are more highly (as of 2015, the top 10 airlines controlled outsourced in the UK and the US, with China and roughly 50% of the freight market on India offering significant potential going forward. scheduled flights) and the consolidation – and dynamics are slower. In the current market, many manufacturers outsource elements such as transport and ware­ Among third-party logistics suppliers, there has housing. But CEVA can also provide additional also been a wave of consolidation, which we CEVA manages up stream services such as inventory and carrier expect to continue. With many segments of 9 million m2 annual growth rates from 2017 to 2021 of 21%, management, putting us among the few provid­ the logistics industry commoditized, the largest warehouse space globally. 11% and 9% respectively. ers of integrated services on a global scale. companies have sought to make bolt-on acqui­ sitions, to increase their exposure to vertical According to TI, e-Commerce has seen double Fragmentation and consolidation sectors or supply chain segments in which there digit growth in most geographies over the past The high level of industry fragmentation gives is less competition. two years and already makes up more than 10% strong global players ample opportunity to of the retail market worldwide. grow within the market, against a multitude of In addition, there is also consolidation within smaller-scale local providers with limited service customers who are becoming larger, more global As an increasing number of traditional retailers offerings. TI’s Global Freight Forwarding 2017 and reducing their logistics supplier base. This embrace e-Commerce they will need to bolster report said that the top 10 players in outsourced usually benefits global, integrated, logistics their supply chains to provide a successful multi- Freight Management represented only 44% of suppliers like CEVA. channel offer. the total outsourced market.

23 Annual Report 2018 CEVA Logistics Strategy and Business Performance This requires synchronizing processes which are not yet synchronized, improving predictive analytics and real-time supply chain visibility.

Artificial Intelligence and machine learning will accelerate technological processes and we will see an increase in automation and the use of robotics.

CEVA moved 787,000 TEUs in 2018.

Our customers and their customers With the question asked to logistics providers End consumers drive global markets, and the being not ‘if’, but only ‘when’, we increasingly better we understand our role in delivering for need to be in a position to adapt supply chains our customers and to their customers, the better very quickly at a global level and to optimize positioned we will be to expand our offer, adding costs. value and creating services along the supply chain. After market servicing, for example, is becoming a key differentiator with significant growth in reverse logistics.

24 Annual Report 2018 CEVA Logistics Strategy and Business Performance Information Technology

Information technology is a critical forward with a significant proportion of new E-Commerce solution

success factor in the logistics industry as developments being funded by the cost savings CEVA has created an e-Commerce solution it provides transparency – tracking they can achieve. We have successfully transi­ tioned from a legacy set-up to future-proofed based on our JDA (JDA Software Group Inc.) the locations of large numbers of products systems and infrastructure. Our IT operations WMS which includes our small parcel application to support fulfilment centers. along the supply chain – and the ability have been centralised into one organisation to automate processes. which has achieved significant cost reductions. Benefits include integration between the customer and CEVA Logistics which allows customers to pilot the supply chain and CEVA Logistics’ systems serve over 30,000 users receive real time events from the WMS, globally, processing 12 million transactions each together with extensive reporting and month. Our operational data storage amounts analysis capabilities. Our considerable to two petabytes housed on 3,000 servers across experience integrating our JDA WMS with five data centers around the world, and we are ERP applications for e-Commerce minimizes literally connected with our customers, through risk during start-up. more than 5,000 EDI connections. Our solution also provides failover and We employ close to 1,000 technology personnel disaster recovery with our hardware and software monitored 24 × 7 / 365 days a year. and continuously evaluate our technology systems to ensure that they provide a competitive The small parcel module provides efficient advantage. We believe that this is essential not processing, even when multiple carriers The third major only to improve internal operations and financial release of our are involved. Warehouse Man- performance, but also to provide our customers agement System with optimum solutions. (WMS) Standard platform was delivered in Since 2014, we have invested approximately 2018, currently 2.5% of revenue each year into IT. We consider handling 100 live customers. this level of investment to be sustainable going

25 Annual Report 2018 CEVA Logistics Strategy and Business Performance CEVA Matrix® is the common brand denoting a suite of applications leveraging a range of proprietary and third-party products tailored to CEVA’s specifications. Our global CEVA Matrix® IT platform comprises a suite of applications that provide end-to-end manage- ment of Air freight and Ocean freight ship- ments from origin to destination, together with warehouse, supply chain and ground transport management. These applications are in use in every country in which we operate, and some of them can be imple- mented in as little as three weeks. Our global CEVA Matrix® IT platform provides real time Radio frequency scanning leads information in order to optimise traceability to data which can and profitability. All elements of the suite be exchanged are integrated with our financial reporting with the customer. systems and can also be interfaced with customers’ financial, enterprise resource In 2018, CEVA Logistics invested close to US$3 work’s speed while reducing costs by 40%. The planning and logistics systems. million into a state of the art dual-data center commercial cooperation between CEVA Logistics in the USA, following its consolidation strategy and CMA CGM will also impact the digitalization and including a major upgrade of hardware and efforts of both companies with talks already software. This enabled the doubling of the net­ under way regarding potential synergies.

26 Annual Report 2018 CEVA Logistics Strategy and Business Performance Strategy – implementation of SD/WAN technology Our IT strategy is based on three pillars: will more than double bandwidth worldwide First, a lean and unified organization, ONE IT, and reduce costs by 40%. A third of our delivering enterprise-wide services leveraging its 900 sites are already deployed ; and shared Service Centers in Manila, Mexico and – additional automation of processes in both The main components are: Madrid. The aim is to bring innovation to our Freight Management and Contract Logistics – CEVA Matrix® OFS (one freight system), a business lines at optimum cost. (e.g. booking portal and rate management). freight management system that provides end-to-end management of Air freight and The second pillar is Product. Our IT works in part­ Since 2015, we have rationalised the number Ocean freight shipments from origin to nership with the rest of the business to provide of applications we employ from approximately destination; the new solutions they need, using Open Source 550 in 2015 to 400 in 2018 and the process is – CEVA Matrix® WMS (warehouse manage- technology. The third major release of our Ware­ ongoing. Further steps in the implementation of ment system), a system to manage ware- house Management System (WMS) Standard the strategy include hosting hyper-virtualisation, house operations; platform was delivered in 2018, and we now Big Data analytics, and the introduction of block­ – CEVA Matrix® TMS (transport manage- have capacity to implement 30 WMS projects in chain-based processes. ment system), a system to manage our parallel across the world. The platform currently ground transport network; handles over 100 live customers with 219 proj­ In August 2018, for example, we announced – CEVA Matrix® SCM (supply chain man- ects in the IT pipeline. a partnership with IBM and Maersk in the agement), a system to support our lead TradeLens solution, which is based on block­ logistics (4PL) business; and The third pillar, Infrastructure and Security, is chain technology. CEVA is one of more than 90 – CEVA Matrix® Connect, which denotes key for CEVA Logistics and our customers. There organisations worldwide involved in TradeLens, the interfaces that enable customers to is a powerful demand from our customers for us including port and terminal operators, customs connect to our platforms.

to deliver enterprise security services along with authorities and third-party logistics providers. In October 2018, we successfully added GDPR. Among the outcome of the strategy will The solution enables multiple trading partners to our 100th customer to our CEVA Matrix® be: collaborate by establishing a single shared-view Warehouse Management System (WMS). – Data Center consolidation from 17 in 2014 of a transaction along the customers’ supply More than 80 % of our new business wins to only 2 in 2020. We currently operate five; chain without compromising details, privacy or are now on CEVA Matrix® WMS. confidentiality.

27 Annual Report 2018 CEVA Logistics Strategy and Business Performance New Business

CEVA Logistics has increased its core trade lanes that are topped-up with margin cross-sell solutions. For these largest key accounts pipeline of business op­portunities by generating multinational and medium-enterprise our focus is on reinforcing the relationship and accounts. growing with and within the customer. Revenue 33% between 2014 and 2018 from these customers has grown by 12% and new business wins by 16% in We focus our business development resources between 2014 and 2018. the same period. on industries where we believe the supply chain is most complex, global in scale and critical to a Our portfolio includes a large proportion of customer’s core business, which creates opportuni­ Fortune 500 companies, with many industry The full-time equivalent of 1,200 people work in ties to become an integral part of their operations. leaders across our targeted sectors, including our business development teams, including 150 Automotive, Technology, Consumer & Retail, account managers and more than 400 field sales Customer portfolio Industrial and Energy. Although traditionally staff. Over time we have built up a highly diversified anchored in the automotive and technology customer base more than 15,000 strong, differen­ sectors, CEVA is achieving broader diversification, Their job is to achieve growth for CEVA through tiated by sector, customer type and geography, with the balance shifting. our customer focused approach, which is tar­ with no single customer accounting for more geted at meeting specific needs in different than 3.5% of our revenues. Between 2014 and 2018: customer segments. In particular, our business – Consumer & Retail grew from 23% of development efforts are looking to increase our In 2018, our top 100 customers accounted for revenue to 27% ‘share of wallet’ with existing accounts through 57% of our revenue – and our longest relation­ – Industrial & Aerospace grew from 20% cross-selling services or geographic expansion, ship was more than 40 years. Among this group, to 24% and on identifying new potential multinational the top 30 customers, averaging 15 years of – Automotive was up from 24% to 25% accounts. relationship, accounted for 43% of our turnover. – Healthcare up from 4% to 5%; whilst Nearly all of our top 30 customers are served – Technology declined from 20% to 15%; and The right mix of customers is crucial for the in more than 10 countries; use both Contract – Energy from 6% to 3%. success of our business. In Contract Logistics, our Logistics and Freight Management services; and customers provide a balance between dedicated 9 customers have more than 25% of revenues and multi-user facilities, while in Freight Manage­ from both Contract Logistics and Freight Man­ ment, our larger accounts provide a baseload on agement, demonstrating our strong ability to

28 Annual Report 2018 CEVA Logistics Strategy and Business Performance Large, multinational customers often have major CEVA’s approach Good new business momentum in 2018 competences of their own in supply chain and Customers often view CEVA as being able to CEVA experienced continued strong momentum logistics, and complex expectations that require add value to supply chains through flexible and across all sales products and business lines, with high levels of integration from third-party suppliers. resilient solutions that optimize their end-to- new business wins up approximately 6% in 2018. Consistently high service levels, flawless execution end supply chain and total logistics costs. Our and a full palette of solutions in all geographies approach offers solutions that are simple and of The IPO and subsequent deleveraging and are a pre-requisite for such customers who tend low complexity where possible. Yet high-tech and improvement of our capital structure, has defi­ to reduce the number of logistics providers they sophisticated when required. This is based on our nitely changed customers’ perceptions as well as use. capability to integrate both upstream and down­ unlocking many new business opportunities. Sig­ stream processes, and deriving forward-looking nificant new contracts and extensions were won However, the geographical footprint of smaller intelligence from available data. in 2018: in Air and Ocean freight we won contracts enterprises is expanding, and it is now common to with Technology and Automotive customers; in have one-time ‘local’ suppliers serve customers all Contract Logistics this mostly with Automotive, over the world. Smaller customers complement Healthcare, Consumer & Retail clients. our key accounts as they offer us the limited, flexible volumes that bring consolidation and an The partnership with CMA CGM started to deliver ideal volume / density mix especially in Freight additional opportunities and contributed US$22 Management. million in additional revenues. Finally, we are investing in our salesforce in order to accelerate sustainable growth in strategic geographies and segments.

29 Annual Report 2018 CEVA Logistics Strategy and Business Performance Digitalization

The speed of technological development Our key pillars are: is increasing exponentially. While other industries have already been Digital go-to-market approach The digitization of manual processes will help disrupted by the innovative solutions us to establish new business processes with the of advanced technology, logistics benefits of standardization internally, which will and transportation have not been result in improvements in productivity at opera­ impacted to the same extent. tional level. This in turn will result in easier ways of doing business, and eventually in a better customer experience. Our customers are facing increasing demands from their customers – a new digital savvy It can also aid the creation of new business areas population who want more transparency in the such as an online sales channel for quotations supply chain and greater ease of doing business. and bookings, supported by Internet of Things Increasingly B2B expects the user experience of (IoT) devices and blockchain applications. B2C. Big Data and Artificial Intelligence Even though the logistics industry is not a pioneer CEVA is in the process of creating a Big Data divi­ in digital transformation, the transformation has sion in order to transform itself into a data-driven started. For CEVA, the automation of existing organization. Using existing data from within the Installing manual processes is crucial, but does not by any Group collected in all geographies and industries, software and hardware for means cover all elements of digitalization. We and in combination with external data sources customers in have developed a digitalization strategy based with different data types, we are creating new warehouses is one of the on three pillars, to which the collaboration with insights on data analytics. These support CEVA’s value added the majority shareholder CMA CGM will bring existing business, for example in procurement, services CEVA additional benefits. operations and sales. provides.

30 Annual Report 2018 CEVA Logistics Strategy and Business Performance Collaborations with start-ups Observing and understanding existing and upcoming digital trends will be key success factors for CEVA, trends such as: autonomous vehicles, robotics, and augmented reality. Much of the technological innovation is and will continue to come from start-ups. So CEVA is engaged in collaborating with promising start-up businesses and supporting them in terms of industry compe­ tence, networks and resources.

CEVA is a premium partner of the ZeBox (part of CMA CGM) incubator program with the focus on the freight, logistics and mobility sectors, scouting for innovative solutions around industry 4.0, AI, Blockchain, the Internet of Things and ZeBox office, CMA CGM’s robotics. incubator program, in Marseille, France.

But data-based operations will also enable New competences and knowledge which have dynamic pricing and real-time forecasting as well not been needed in the past in the logistics as optimizing the complex supply chain require­ industry will become standard in the future. Data ments of our customers. Forecast modelling engineer, data scientist and mathematician will based on machine learning can provide the right become a regular part of CEVA’s job profiles. information to the right people (or machine) at the right time.

31 Annual Report 2018 CEVA Logistics Strategy and Business Performance Group Performance

Revenue Adjusted EBITDA Net debt US$7.4 bn US$260 m reduced by up 5.2% in 2018 43% to US$1.2 bn

32 Annual Report 2018 CEVA Logistics Strategy and Business Performance Group Performance

2018 was a year of structural change, in productivity, cost reduction and other margin additional charges due to the expected change with the IPO and the overhaul of improvement initiatives, EBITDA has been neg­ of control accelerating the vesting of options. our pre-IPO capital structure. Since atively impacted by various one-time adverse Litigation costs were US$7 million in 2018 pri­ events: Contract Logistics issues in Italy as well marily as a result of a claim in South America. then, the company has made positive as some changes in accounting estimates in the Restructuring costs mainly related to Italy and management and organizational fourth quarter reflecting a more conservative North America amounted to US$14 million, a adjustments. We have also focused on approach from management. Without these reduction of US$16 million compared to the prior long-term strategy rather than on events, CEVA estimates that Adjusted EBITDA year. In total, specific items not-related to the for 2018 would have been approximately US$54 IPO amounted to US$26 million in 2018, down short-term performance. million higher. Furthermore, the translation effect US$10 million versus the prior year. of some currencies into US$, notably the BRL, the TRY and the EUR negatively impacted EBITDA by Depreciation and amortization 2018 Financial Review a further US$9 million for 2018. Depreciation and amortization for 2018 amounted to US$124 million, a decrease of Adjusted EBITDA for 2018 amounted to US$260 US$5 million year-on-year which was driven by Group results million compared to US$280 million in 2017. a decrease of US$19 million in amortisation This number includes US$62 million representing of intangible assets related to contractual and Revenue CEVA’s 50% share of EBITDA from the Chinese customer relationships which was partly offset Revenue increased by 5.2% to US$7,356 million JV Anji-CEVA, including a capital gain of US$14 by increased depreciation of US$6 million due to for 2018 from US$6,994 million for 2017. million. additional capital expenditure.

EBITDA before specific items and Specific items and SBC Operating income SBC and Adjusted EBITDA In 2018, specific items affecting EBITDA As a result of the items mentioned above, and The Group’s EBITDA before specific items and amounted to US$77 million and were up US$32 largely due to the challenges in our Italian Con­ SBC was US$198 million for 2018 compared million year-on-year. These include US$19 million tract Logistics business, operating income before to US$230 million for 2017. EBITDA margin of IPO costs, an increase in share-based compen­ specific items and SBC decreased from US$101 was 2.7% for 2018 and 3.3% for 2017. Whilst sation costs by US$23 million due to one-time million in 2017 to US$74 million in 2018. CEVA teams have achieved continued progress option grants issued in relation to the IPO and

33 Annual Report 2018 CEVA Logistics Strategy and Business Performance Key Financials Years ended 31 December Delta @actual rate Year ended 31 December Delta @constant rate US$ millions 2018 2017 in millions / % / bps 2017 – Constant in millions / % / bps

Revenue 7,356 6,994 5.2% 6,977 5.4% EBITDA before specific items and SBC 198 230 (32) 221 (23) EBITDA margin 2.7% 3.3% (60) bps 3.2% (50) bps Adjusted EBITDA 1 260 280 (20) 272 (12) Profit/(Loss) for the period (242) (197) (45) (201) (41) Basic and diluted EPS (US$) (5.99) (17.12) Adjusted basic and diluted EPS (US$) (2.97) (12.17)

FM EBITDA margin 2.7% 2.3% 40 bps 2.2% 50 bps CL EBITDA margin 2.7% 4.1% (140) bps 4.0% (130) bps

Net working capital (166) (254) Net capital expenditure 2 96 98

Free cashflow (247) (93)

Net debt 1,192 2,089 Net debt / LTM Adjusted EBITDA 4.6 7.5

Headcount (FTEs including temp) 57,614 55,904

1 Includes the Group’s share of EBITDA from joint ventures, and excludes specific items and non-cash share based compensation costs (“SBC”) 2 Capital expenditure excluding finance leases

The table above show the Group’s key consoli­dated financial results for 2018 and 2017.

Net finance income / expense ated amortization of capitalized debt issuance CEVA recorded a foreign exchange gain of US$4 In total, net finance expense decreased by costs (US$27 million), breakage fees relating million for 2018 (2017: loss of US$25 million), US$26 million year-on-year to US$232 million. to the debt that has been repaid and cancelled from the revaluation of payables and receivables Net finance expense for 2018 still partly (US$24 million) and other refinancing related balances denominated in foreign currencies. reflected the pre-IPO capital structure before the costs. Excluding these specific items and one- August refinancing and included US$56 million time financing costs, net interest expense was of refinancing related costs, including acceler­ US$180 million in 2018.

34 Annual Report 2018 CEVA Logistics Strategy and Business Performance Group’s operating segment revenue Years ended 31 December Delta @actual rate Year ended 31 December Delta @constant rate US$ millions 2018 2017 % 2017 – Constant %

Freight Management 3,508 3,270 7.3% 3,274 7.1% Contract Logistics 3,848 3,724 3.3% 3,703 3.9% Total revenue 7,356 6,994 5.2% 6,977 5.4%

Group’s operating segments EBITDA and EBITDA margin Years ended 31 December Delta @actual rate Year ended 31 December Delta @constant rate US$ millions 2018 2017 in millions / bps 2017 – Constant in millions / bps

Freight Management EBITDA before specific items and SBC 93 76 17 73 20 Contract Logistics EBITDA before specific items and SBC 105 154 (49) 148 (43) Total EBITDA before specific items and SBC 198 230 (32) 221 (23) EBITDA from joint ventures 62 50 12 51 11 Total Adjusted EBITDA 260 280 (20) 272 (12) Total EBITDA margin 2.7% 3.3% (60) bps 3.2% (50) bps Freight Management EBITDA margin 2.7% 2.3% 40 bps 2.2% 50 bps Contract Logistics EBITDA margin 2.7% 4.1% (140) bps 4.0% (130) bps

Income tax of the one-time costs in the Italian Contract Net working capital The income tax expense for the period in 2018 Logistics operations as well as from the one-time Our net working capital was US$(166) million was US$36 million (2017: US$18 million). Income expenses incurred for the IPO and refinancing as at 31 December, 2018 (31 December, 2017: tax included current tax charges of US$40 million activities, partly offset by the increased contribu­ US$(254) million). Actual cash outflow in con­ (2017: US$28 million) primarily related to tax in tion from the Anji-CEVA joint venture in China. nection with net working capital for the 2018 was certain countries with taxable profits. Current tax US$104 million compared to an inflow of US$25 charges were offset by deferred tax income of Net capital expenditure million in 2017. This significant swing to a cash US$4 million (2017: US$10 million). Our net capital expenditure was US$96 million for outflow for 2018 is a result of the exceptionally 2018 (2017: US$98 million), which represented good performance in December 2017, revenue Loss for the period 1.3% of revenue (1.4% for 2017). The capital growth, lower non-recourse factoring notably in CEVA’s loss of US$242 million for 2018 (2017: expenditure was mostly in line year-on-year. Italy and in Turkey and some accelerated pay­ US$197 million), was primarily due to the impact ments including a change in the US payroll.

35 Annual Report 2018 CEVA Logistics Strategy and Business Performance Cash flow Debt refinancing – With respect to the Senior Notes and the TLB, Cash generated from operations in 2018 was The Company completed a comprehensive debt CMA CGM has entered into a commitment an inflow of US$67 million (2017 cash inflow of refinancing in early August 2018. CEVA raised letter with certain banks, who agreed to US$209 million), largely impacted by the cash EUR300 million of 5.25% Senior Secured Notes underwrite an additional term loan facility in outflow from working capital of US$104 million due 2025, a US$475 million Senior Secured Term the amount of up to US$825 million to in the period. Loan B (TLB) due 2025 and a US$585 million be issued under CEVA’s existing senior term Senior Secured Revolving Credit and Ancillary and revolving credit facilities agreement; Free Cash Flow was US$(247) million in 2018 Facility due 2023. CEVA repaid or redeemed most – With respect to the Revolving Credit Facility, compared with US$(93) million in 2017. This of its previous credit facilities and notes. Through CEVA has received waivers from the majority deterioration is a reflection of the payment of the IPO and the refinancing, the Company raised of the lenders providing that they agree to IPO related costs, payments of interest and other approximately US$1.2 billion in equity and the Change of Control Event provided debt repayment/refinancing related costs as well approximately US$1.4 billion in new debt facil­ it occurs on or before 31 December, 2019; as the higher working capital outflow. ities. CEVA achieved longer maturities, more – With respect to the European Securitization flexibility, enhanced liquidity and much lower Facility and the US ABL Facility, they have Net debt interest cost through the deleveraging and the been amended in order not to trigger a Net debt was US$1,192 million as at 31 Decem­ refinancing. Change of Control Event. ber, 2018 (31 December, 2017: US$2,089 million). This sharp reduction is the result of the As a possible consequence of the Public Tender The Company is committed to further deleverag­ IPO gross proceeds of CHF1.2 billion (US$1.2 Offer launched by CMA CGM on CEVA shares, ing with a target of 1.5–2.0 × Net Debt / Adjusted billion) which allowed us to repay a number of if CMA CGM holds directly or indirectly more EBITDA in the medium-term. debt securities in 2018. than 50% of the voting rights or issued share capital of CEVA, a Change of Control Event would impact existing arangements between CEVA and its lenders with respect to its debt instruments. Together with CMA CGM, the following actions have been undertaken or prepared to secure the financing of CEVA:

36 Annual Report 2018 CEVA Logistics Strategy and Business Performance Freight Management Performance

Air Ocean Ground 477,000 787,000 2.2 m tonnes TEUs shipments

37 Annual Report 2018 CEVA Logistics Strategy and Business Performance Freight Management Performance

What we do Ocean Supply Chain Solutions (SCS) In Ocean freight, we offer pure Freight Man­ The SCS team provides solutions that manage Freight forwarding providers arrange and oversee agement services but also work as a non-vessel global sourcing and inventory activity, monitor the transportation of products and materials operating common carrier (NVOCC) through our supplier and third-party transport provider perfor­ by air, ocean and ground. They organise and fully owned subsidiary Pyramid Lines. Revenues in mance, enable end-to-end supply chain visibility consolidate shipments, procure and track trans­ 2018 were US$1.1 billion, at an EBITDA margin and act as 4PL/lead logistics provider. These ser­ portation. CEVA competes in all of these market of 3.2% vices include Solution Design, Logistics Services sectors. CEVA typically carries full loads, but also contracting and supply chain management and partial loads where we act as a freight consolida­ Ground technologies. tor. Our Ground business comprises road transport solutions that are organized according to an According to Transport Intelligence (TI), CEVA asset-light model, with the actual provision of Where we do it ranks 7th in the world in Air freight based on services outsourced to third-party providers revenue and 14th in Ocean freight based on working for CEVA using their own equipment. In We deliver end-to-end solutions to customers volumes. For the year ended 31 December, 2018, addition, we coordinate multi-modal transport in more than 160 countries operating through a CEVA handled more than 477,000 tonnes of solutions, and offer dedicated rail transport network of more than 250 Freight Management international Air freight and 787,000 twenty-foot services, notably between China and Europe. locations across six continents. We are also repre­ equivalent units (TEUs) of Ocean freight. Our sented by 99 independent agents in 114 countries. Ground network transported 2.2 million ship­ Other ments. Our Freight Management business also provides In Air freight, we have a strong position in the worldwide customs brokerage and a variety of trans-Pacific and the eastbound trans-Atlantic Air other ancillary services such as the preparation trade lanes and a growing position in intra-Asia, In Air freight, we offer a broad range of services and submission of documentation, packing / with the Asia-Europe trade lanes representing a from expedited to more economical multi-modal repacking and cross-docking. significant opportunity. We serve Air freight cus­ solutions, coordinating the journey of the cargo tomers in all industry verticals, but most notably from door-to-door. Revenues in 2018 were in Technology, and Consumer & Retail, where we US$1.5 billion, at an EBITDA margin of 3.9%. have seen strong growth driven by e-Commerce.

38 Annual Report 2018 CEVA Logistics Strategy and Business Performance Revenue by Industry Revenue by Geography How we do it

Healthcare Consumer Europe, Middle Given the nature of the business – often short- & Retail East and Africa 5% term, price-based contracts – freight manage­ 30% 22% Automotive Energy The Americas ment is a trading business that requires a global 12% 4% 39% network approach. The average contract duration of our freight management contracts is approxi­ mately one year.

We support our customers along the entire supply chain inbound and outbound from ocean transport to last-mile delivery. Key to success in Air and Ocean freight is a robust procurement strategy. And CEVA has established a core carrier program with strong relationships that enable us to address complex customer requirements.

CEVA designs its capacity plans based on

Industrial & customer and our own projections. We purchase Technology Aerospace Asia Pacific capacity in the belly of passenger flights, on cargo 22% 27% 39% aircraft and vessels depending on seasonality, freight volumes and other factors, either through medium or long-term contracts, with or without In Ocean Freight, our strengths are trans-Pacific Our Ground transportation services are primarily volume commitments, or on the spot market. eastbound and Asia to Europe, with our most in North America though also importantly – and important customer sector being Consumer & increasingly – in Turkey, the United Kingdom, Retail, followed by Industrial & Aerospace and South East Asia and China. Technology.

39 Annual Report 2018 CEVA Logistics Strategy and Business Performance The solutions provided are supported by robust – robust and standardized processes, sup­ 2018 Financial Review and innovative solutions developed in-house and ported by technology; with some “off-the-shelf” modules to accompany – detail-oriented execution and seamless flows Overview our customers’ needs. with real-time tracking and tracing leading to high reliability and timeliness of deliveries; Revenue in Freight Management increased by As of 31, December, 2018, we employed 9,966 – strong focus on performance management 7.3% or US$238 million to US$3,508 million for employees and temporary workers in the Freight (through KPIs) and focus on operational 2018 compared to US$3,270 million for 2017. Management business. Our teams include efficiencies and productivity improvement; specialists from various industry sectors in each – balanced customer mix with large multina­ CEVA experienced good volume growth in Ocean, geography in order to offer appropriate products, tional clients and small and medium-sized up 7.9% year-on-year to 787,000 TEUs. Volume taking into account industry-specific require­ enterprises, with adapted pricing strategies growth at CEVA was ahead of market growth. ments and regulations. to increase profitability; and Ocean yields (net revenue per TEUs) have mod­ – the right volume / density and cargo-type erately decreased as a result of a policy of market mixes in order to succeed in consolidating share expansion to US$261 per TEU. Our priorities shipments from various cargo owners in Air freight, as well as developing less-than- Air volumes slightly decreased by 0.7% year-on- The main market drivers in Freight Management container load activities in Ocean freight. year mainly from the earlier loss of certain cus­ are global trade volume developments, carrier tomers and a selective approach to new business. capacities and oil / fuel prices. We believe the key Yet freight volumes are highly seasonal and However air yields (net revenue per tonne) have success factors include: driven by, among others factors, festive seasons increased by 6.7% to 688 US$ per tonne in 2018 – a global air and ocean network with stations around the world for Consumer & Retail goods, compared to 2017. in key gateways and appropriate (regular) as well as by investment cycles in the logistics services / capacities between the nodes of industry itself. The cost of transportation services CEVA Freight Management operations have felt such networks; that carriers provide to CEVA is further impacted limited impact from the US-China trade tariffs – trade lane focus to ensure sufficient volumes by fuel price and freight rate fluctuations. dispute so far. and strong procurement, and relationships with core carriers to achieve bargaining power;

40 Annual Report 2018 CEVA Logistics Strategy and Business Performance Acquisition of CMA CGM Log

As part of the strategic partnership between the two companies, CEVA Logistics will acquire the freight management business of CMA CGM, which is highly complementary to CEVA’s current business.

The operations of CMA CGM Log will allow us to reach critical size and expand our product offering in priority segments such as FCL (Full Container Load) and LCL (Less-than-a Container Load) sea freight forwarding – where CMA CGM Log delivers 480,000 TEUs including 170,000 controlled TEUs – together with 20,000 tonnes of Air freight annually.

CMA CGM Log has a well-balanced portfolio of

CEVA’s revenue 15,000+ customers and employs 1,200 people. in Ocean freight Its global footprint includes a presence in in 2018 was 32 countries through directly owned entities US$1.1 billion. and 26 further countries through coopera- EBITDA before specific items and SBC (share- in the US Ground business due to driver short­ tion agreements. This footprint includes a based compensation cost) increased year-on- ages. CEVA has also been able to manage the significant presence in growing markets such year by US$17 million to US$93 million in 2018 bunker / fuel surcharges in Air and Ocean. EBITDA as China, Australia and the USA – and also in resulting from better revenues, productivity margin improved by 40 bps to 2.7% in 2018 India where it is the leading LCL platform. actions and improvements in the VAS operations, compared to 2017 and conversion increased 150 The acquisition will add US$20 million of partly offset by challenges in North America basis points to reach 10.2%. incremental EBITDA and enable an estimated relating to the increased cost of transportation US$30 million of synergies. It is expected to be closed in the second quarter of 2019.

41 Annual Report 2018 CEVA Logistics Strategy and Business Performance Air Ground Case Study Tonnage has slightly decreased but due to a The Ground network in Asia Pacific performed CEVA Logistics has been awarded a contract more selective approach concerning pricing, we very well, both in terms of shipments and GR / for international freight management ser- have seen a high single digit increase in revenue NR. In North America, however, business was vices with expected US$120 million revenue both for gross revenue (GR) and net revenue (NR). impacted by a drop in volumes. Shortage of driver over two years, from a leading automotive Yield in terms of NR / ton was up by 6.7% year availability caused the cost of transportation to OEM (Original Equipment Manufacturer). over year, reaching US$688 per ton. Performance significantly increase across the industry. Gross In addition, CEVA will support the OEM in by sector was strong in Consumer & Retail, and in margin and EBITDA were adversely affected optimizing its supply chain and in manag- line with the market in Technology and Industrial and could not be fully offset by corresponding ing a further approximately US$100 million products. Revenue in Automotive were down cost programs. Price increases, as a response worth of annual logistics spent. compared to 2017, bearing in mind that last year to cost of transport developments, got traction included some significant project shipments. from September on, and are likely to hold going Starting in autumn 2018, CEVA has been forward. managing inbound logistics into the OEM’s Ocean global locations from its supplier base in While 2018 saw the number of TEUs almost 8% the Asia Pacific region. CEVA will provide ahead of the previous year, the yield (NR/TEU) a ‘Control Tower’ solution as well as Ocean was down by 6.8%, as a result of a policy of freight, Ground transportation and origin market share expansion. Key growth contributors consolidation services. This represents were India, Middle East, China and Southeast approximately 50% of the OEM’s interna- Asia. By sector, we experienced above market tional ocean transportation spend. CEVA has year-on year growth for Technology, Automotive been working for the automotive OEM since and Industrial, while Consumer & Retail were the 1980s and provides a comprehensive below the prior year. range of services in Freight Management and Contract Logistics across many countries.

42 Annual Report 2018 CEVA Logistics Strategy and Business Performance Freight Management performance Years ended 31 December Delta @actual rate Year ended 31 December Delta @constant rate US$ millions 2018 2017 % 2017 – Constant in millions / % / bps

Revenue 3,508 3,270 7.3% 3,274 7.1% Net revenue 908 875 3.8% 878 3.4% EBITDA before specific items and SBC 93 76 17 73 20 EBITDA margin 2.7% 2.3% 40 bps 2.2% 50 bps EBITDA conversion 10.2% 8.7% 150 bps 8.3% 190 bps

Freight Management performance by product Air Years ended 31 December Delta @actual rate Year ended 31 December Delta @constant rate US$ millions 2018 2017 % 2017 – Constant %

Volumes ('000 tonnes) 476.6 479.9 (0.7%) 479.9 (0.7%) Gross revenue / tonnes 3,145 2,884 9.0% 2,892 8.7% Net revenue / tonnes 688 645 6.7% 643 7.0%

Ocean Years ended 31 December Delta @actual rate Year ended 31 December Delta @constant rate US$ millions 2018 2017 % 2017 – Constant %

Volumes ('000 TEUs) 786.6 728.8 7.9% 728.8 7.9% Gross revenue / TEUs 1,340 1,320 1.5% 1,329 0.8% Net revenue / TEUs 261 280 (6.8%) 282 (7.4%)

43 Annual Report 2018 CEVA Logistics Strategy and Business Performance Contract Logistics Performance

Locations Warehouse space Ranking 2 over 750 9 m m #5 around the world globally

44 Annual Report 2018 CEVA Logistics Strategy and business performance Contract Logistics Performance

What we do – Aftermarket / Reverse Logistics involves pro­ Revenue by Geography viding spare parts warehousing and forward The company’s Contract Logistics services include: stock locations to support customer service Europe, Middle East and Africa – Inbound logistics – which involves activities such as replacements, returns and 56% optimiza­tion of our customers’ collection repairs. CEVA also manages call centers Asia Pacific routes, reduction of their inventory through that coordinate distribution and collection 15% warehouse management and consolidation services. and enhancement of their production – CEVA Showfreight is an award-winning, efficiency by kitting and sequencing their specialist service for the exhibition and wider unassembled parts, along with quality control events sector, with over 30 years’ experience and other value-added services. in global tradeshow logistics. – Manufacturing support – which involves managing our customers’ inventory to Our contracts are typically large with 70% of our maintain optimal stock levels for revenue generated from contracts of more than manufacturing and supporting product line US$5 million, and our systems and employees are replenishment and feeding procedures. highly integrated into our customers’ operations. – Outbound / distribution logistics includes dedicated and shared warehousing tailored to individual customer needs, arranging Where we do it transport between customer locations and The Americas coordinating and improving the distribution We are the world’s fifth largest contract logistics 29% of customers’ finished products to their business by revenue, managing more than 750 end customers. locations in over 34 countries and territories with 46,783 employees and temporary workers.

45 Annual Report 2018 CEVA Logistics Strategy and Business Performance Revenue by Industry How we do it rates published by the International Monetary Fund. TI forecasts average annual growth rates Healthcare Energy We deliver services mainly through the provision in Contract Logistics at 5.1% between 2017 and 6% 1% of people, technology and systems, and rely on 2021, with geographical variations. Technology Other proprietary information systems, industry knowl­ 10% 1% edge, and a culture of operational excellence. Some key drivers of this anticipated growth include: We typically work on leased or customer-owned – strong economic development in emerging premises which allows us to operate with nega­ markets with significant infrastructure tive net working capital. Approximately, 70% of developments, a growing middle-class, our facilities are dedicated to a single customer. hungry for consumption and mobility; – urbanization with the logistics of megacities becoming a differentiator in supply chains; Our priorities – increasing consumer expectations in terms of new distribution channels (e-Commerce), Because the logistics industry is an enabler product customization (as is the case in of economic development, the industry has the technology and automotive industries), experienced steady growth guided by global immediate availability, and reduction in GDP growth, in particular in the manufacturing time-to market (as is the case in the fashion Industrial Automotive and consumption components. Global trade industry); 20% 37% has also historically remained resilient despite – increasing outsourcing of supply chains; and Consumer & Retail short-term disruptions which occur from time- – further optimization and constant re-design 25% to-time between various regions in the world. of supply chains with increasing complexity In an already developed world and with the (mixtures of off- and near-shoring, among service component of overall economic growth others). dominating, the pace of growth of logistics has slowed down but is still expected to continue to grow at a rate above the world GDP growth

46 Annual Report 2018 CEVA Logistics Strategy and Business Performance In this context, outsourcing to third-party At the same time, Europe faces political insta­ supply chain managers is an ongoing trend. Of bility and Brexit represents further potential the referenced EUR1.6 trillion size of the global changes and opportunities. Contract Logistics market, TI approximated only 12%, or EUR197 billion as currently outsourced Low unemployment rates in North America, to third-party Contract Logistics providers in 2017, Europe and regions in Asia are leading to labor evidencing considerable headroom. On that basis price pressures for blue collar workers, specifically we believe the third-party service share will con­ in relation to driver shortages. In addition, there tinue to grow as companies increasingly look to are significant foreign exchange pressures for outsource services to specialists who in turn will a global business like CEVA, in markets such as further benefit from enlarged scale. The levels of Argentina, Brazil and Turkey. outsourcing vary significantly between countries. Generally, activities are more highly outsourced in the UK and the US. Developing economies offer significant potential going forward, in terms 2018 Financial Review of growth and outsourcing. It is estimated, the logistics sector grew by 5% in 2018 driven in part Revenue in Contract Logistics increased by CEVA achieved by the growth of e-Commerce and its demand for 3.3% to US$3,848 million for 2018 compared US$3,848 million Although it could be expected that near-shoring transportation. to US$3,724 million for 2017. The company revenue in Con- tract Logistics in would reduce trade flows, especially from emerging handled good volumes in existing contracts and 2018, 3.3% more countries towards mature markets, the dynamics Yet at the same time, today’s geo-political there was good implementation of new business, than in 2017. are more complex as industries, facing prolifera­ environment is more fraught and complex than for example, in Consumer & Retail / e-Commerce tion of SKUs (units), redesign their supply chains it has been for many years with considerable and for leading customers in North America; Indus­ (notably for parts and components) and further simultaneous commercial uncertainties in most trial customers in Benelux; and scope extension expand distribution channels. These changes in of the world’s major trading areas. However, for Healthcare and Consumer Goods customers configuration and shorter delivery times require Contract Logistics is mostly a local business as in Europe. more integration and demanding logistics solu­ opposed to being directly driven by international tions. trade and potential tariff disputes.

47 Annual Report 2018 CEVA Logistics Strategy and Business Performance Contract Logistics Performance Case study Delta @ Year ended 31 Delta @ Years ended 31 December actual rate December constant rate Medtronic US$ millions 2018 2017 % 2017 – Constant in millions % / bps In September, CEVA Logistics and Medtronic opened a new 33,000 square Revenue 3,848 3,724 3.3% 3,703 3.9% Net Revenue 2,721 2,593 4.9% 2,601 4.6% meters distribution center in Heerlen in EBITDA before specific items and SBC 105 154 (49) 148 (43) the Netherlands creating 300 new jobs. EBITDA margin 2.7% 4.1% (,140) bps 4.0% (,130) bps Medtronic is among the world’s largest medical technology companies and has a Contract Logistics’ EBITDA before specific items EBITDA performance has also been impacted responsibility to deliver to all of its customers and SBC was down by 32% to US$105 million by a change in accounting estimates resulting and patients under all circumstances. for 2018 compared with US$154 million for 2017. in additional expense of US$10 million in 2018. The new distribution center will store and Despite many productivity improvements across In total, US$52 million one-time additional costs distribute devices and equipment such as many contracts and geographies, and continued have impacted Contract Logistics, overshadowing surgical instruments, implantables and gains on focus contracts, two contracts in Italy the genuine performance of many operations patient monitoring systems. The new center and the bankruptcy of a local partner for tempo­ around the world. As a consequence of the EBITDA will enable Medtronic to reach 15,000 rary staff have resulted in additional unplanned decrease, EBITDA margin was down 140 bps in hospitals in Europe and beyond within costs of US$42 million in 2018, comprising provi­ 2018. 24 hours. sions of US$30 million and additional costs and losses of US$12 million. A plan is currently being The new center will enable CEVA to offer executed to resolve the issues in Italy. world-class logistics services, and underscores our logistics expertise in the healthcare sector.

48 Annual Report 2018 CEVA Logistics Strategy and Business Performance Anji-CEVA

Revenue Employees Warehouse space 2 US$1.4 bn 19,000 2 m m EBITDA margin of 8.7% including temporary and in 22 provinces agency workers

49 Annual Report 2018 CEVA Logistics Strategy and Business Performance Anji-CEVA

CEVA Logistics has a unique position among The joint venture agreement gives Anji-CEVA Joint venture activities cover: global logistics providers in Greater China. exclusive rights for Contract Logistics operations – automotive parts inbound logistics where In Contract Logistics this comes through the both for automotive parts and non-automotive Anji-CEVA supports the production of more non-consolidated Anji-CEVA joint venture, which products (except Ground transportation) in China than four million vehicles a year with generated more than US$1.4 billion of revenue including Hong Kong and Taiwan. advanced services including pre-assembly for in 2018. In parallel, CEVA Logistics is also a sig­ brands like General Motors and Volkswagen nificant player in Freight Management, through The business model is asset-light, transportation as well as Chinese brands; a fully-owned network of Freight Management activities are managed from outsourced providers. – automotive spare parts aftermarket logistics, locations. Our global reach together with the As of 31 December, 2018, the company had including warehousing and distribution to strength of our local presence in China, make us more than 19,000 employees and temporary dealers and repair centers throughout the an attractive business partner for Chinese and and agency workers and managed more than country; foreign-based customers. two million square metres of warehousing space. – a fully-controlled Ground transportation network covering more than 200 cities in The Anji-CEVA joint venture is not a consolidated 22 Chinese provinces, managing more Who we are entity in CEVA’s Financial Statements. than 6,000 trucks; – some Air and Ocean freight of automotive Anji-CEVA Logistics is a joint venture between parts from and to mainland China; and CEVA Logistics and the Shanghai Automotive What we do – non-automotive warehousing and Industry Sales Corporation (SAIC), the largest distribution activities in sectors like Industrial, automotive manufacturer in China. It was estab­ Anji-CEVA provides Contract Logistics services Consumer & Retail and Technology. lished in 2002, for a 15-year period, which was including Ground transportation throughout renewed in 2017 for a further 15 years (until May Greater China, as well as Air and Ocean freight 2032). The joint venture operates as a limited services related to automotive parts that are liability company with each of SAIC and CEVA transported from and to mainland China. It is the owning 50% of the equity. number one automotive parts logistics provider in China with approximately 16% market share.

50 Annual Report 2018 CEVA Logistics Strategy and Business Performance EBITDA for 2018 was up US$22 million in con­ stant currency to US$124 million, including a capital gain on an asset disposal for US$28 million compared to a capital gain of US$12 million in the same period of 2017. Anji-CEVA’s EBITDA margin was 8.7% in 2018. An accrual of US$8 million was booked in 2018 for a service fee payment by Anji-CEVA agreed during the renewal of the JV contract in 2017, and contrac­ tually agreed in the second quarter of 2018.

Anji-CEVA manages more than 6,000 trucks 2018 Performance across China. In 2018, revenue at Anji-CEVA joint venture growth of 22.1% whilst the new Non-Automo­ (owned 50% by CEVA) amounted to US$1.4 tive division is gathering pace and winning signif­ billion, an increase of 23.7% compared to 2017 icant new business, including with opportunities in constant currency. This strong revenue growth coming from the CMA CGM partnership. Despite was fuelled by strong volume growth in existing a significant slowdown of the Chinese economy contracts, new implementations and the trans­ and particularly in the Automotive sector, Anji- fer of CEVA’s Contract Logistics business in July CEVA has continued to grow, including in the 2017. The Automotive division experienced a fourth quarter of 2018.

51 Annual Report 2018 CEVA Logistics Strategy and Business Performance Sustainability at CEVA

Training Quality Health and Safety 15.2 100% 10% hours per employee all locations are reduced loss days ISO 9001:2015 certified at work globally

52 Annual Report 2018 CEVA Logistics Strategy and Business Performance Sustainability at CEVA

CEVA Logistics is committed to operating sets out the principles, ethics and values by and enables an individual to report anonymously its business in a sustainable manner which CEVA Logistics does business and links to and confidentially any violations or suspected that creates value for its customers, em­ploy- many of its key policies. To ensure compliant and violations of the Code. ethical behavior, all of our staff are required to ees, investors, communities and read, understand and adhere to the Code. CEVA In addition, it is company policy that certain other stakeholders. Its sustainability focus Logistics maintains a hotline and web reporting vendors sign Compliance Covenants that include areas are closely linked to its business capability, which is available 24 / 7 and in local provisions encompassing anti-corruption, anti- objectives and are intended to relate to languages. This service is provided by a third party trust and general corporate conduct. the activities that CEVA undertakes. Marketplace Environment

– Help customers to understand and During 2018 CEVA Logistics carried out its first reduce their carbon footprint materiality assessment to better understand its – Enhance sustainable aspects Measuring, tracking social and environmental impact and the main in the procurement process and decreasing priorities of its stakeholders regarding sustaina­ – Work with suppliers to environmental impact bility. To learn about the outcomes and the Financial achieve sustainable solutions performance company’s sustainability practices in more detail, see the Sustainability Report 2018. Ethical https://www.cevalogistics.com/about-us/sustainability Workplace business Communities practices – Invest in the development of employees Ethical business practices Leveraging CEVA’s – Create a safer and healthier workplace experience of handling – Being an employer of choice Conducting the business in full compliance with complex logistics – Protecting human rights and sound labor all applicable legal and regulatory requirements, practices as well as observing the highest ethical standards is a priority for us. Our Code of Business Conduct

53 Annual Report 2018 CEVA Logistics Strategy and Business Performance Anti-corruption CEVA employees per region 2018 Gender ratio of total employees 2018 Our Global Anti-corruption Policy incorporates Male Female all major anti-bribery requirements including the Regions Number of employees 1 US Foreign Corrupt Practices Act, the UK Bribery Europe, Middle East 70% 30% 25,985 Act and the OECD Anti-Bribery Convention. We and Africa take a risk-based approach to the corruption Asia Pacific 10,995 risk presented by third parties. Those that CEVA The Americas 20,634 Logistics considers to be of high compliance Total 57,614 risk, must successfully complete a due diligence 1 Including approximately 13,000 temporary and agency workers. process and are regularly monitored and recerti­ fied. pany’s decentralized nature, it strives to create a standard set of capabilities for its employees and Our people to ensure that the appropriate people are in the right places within the company, people who are Our success is made possible by the quality and motivated to optimal performance. Therefore it dedication of our people. Attracting and retaining is a priority for us to invest in a variety of Human the best talents, providing them with professional Resources programs, that are aligned to our skills to assume more complex roles and enhance experience, expertise and career development overall business strategy. their leadership. Beside these two global pro­ opportunities is therefore an essential part of the grams, clusters run more than 130 local training company’s strategy, supporting CEVA’s aspira­ CEVA Logistics has two global Learning and courses related to behavioral and technical skills, tion to become an employer of choice. Development Programs. The Effective Leader­ dedicated to both white and blue collar workers, ship Program is aimed at enhancing and tailored to their level and function. Employees Investing in the development developing leadership capability and identifying received an average of 15.24 hours of training of the employees and retaining future leaders. In addition, the during 2018. As of 31 December, 2018, there are about 58,000 Leader­ship Development Centers have a focus people in the company’s operations of whom on the company’s emerging senior leaders, with More than 86% of CEVA managers and supervi­ almost 44,000 are employees. Despite the com­ the aim of providing them with the necessary sors (approx. 6,500 employees) received a regular

54 Annual Report 2018 CEVA Logistics Strategy and Business Performance performance and career development review Secure operations and high Transportation and warehouse security during 2018 through the People Performance quality of services Managing security is an integral part of our busi­ Management Program, to ensure an engaged, ness in order to reduce the risks of criminal action, focused and productive workforce. We are committed to providing safe workplaces and to keep both CEVA’s employees and custom­ that comply with all applicable laws, as well as ers’ goods safe and secure. The company ensures Respecting diversity and human rights internal and external standards. All employees the integrity of its security processes by following We aim to promote and value diversity in all and sub-contractors are expected to follow these the principles and standards in its Global Security areas of recruitment, employment, training and in their daily work. Policy. CEVA Logistics also follows various govern­ promotion based on merit and inclusiveness mental security initiatives at a local level and has without regard to race, gender, marital / civil status, CEVA Logistics’Health, Safety and 24 TAPA certified facilities globally. sexual orientation, disability, age, religion or Environment (HSE) Focus belief, ethnic or national origin. CEVA recognizes – ensuring a high level of safety management Cybersecurity that it can better understand its customers and through global health and safety policies and Keeping our customers’ and employees’ data more effectively address their needs when there standards safe is a top priority, as it is ensuring the avail­ is a diverse workforce that mirrors its worldwide – empowering employees to accept ownership ability of our systems. Because of the dramatic customer base. of critical health and safety factors at all change in cybersecurity threats and regulatory levels of the organization requirements, CEVA has decided to make further We respect and value human rights on a global – investing in continuous learning of CEVA’s significant investments in developing our internal scale. Operating ethically and respecting employ­ employees to allow appropriate handling capabilities in cybersecurity and incident response. ees, customers, and other stakeholders are funda­ of critical situations mental values of our corporate culture. CEVA – testing and implementing new technologies forbids all forms of slavery, human trafficking, and methods to make sustainable solutions forced labor, and child labor as defined by appli­ feasible, adaptable and practical cable law, and which is reflected in our Human – monitoring and analyzing HSE conditions Rights Compliance Program. CEVA is a signatory globally to the UK Modern Slavery Act and conducts – systematically measuring and continuously annual assessments to comply with its require­ improving ments.

55 Annual Report 2018 CEVA Logistics Strategy and Business Performance Quality Environmental responsibility Community engagement Delivering customer satisfaction and continual improvement is the responsibility of every CEVA As a low-asset-based supply chain management As a company with a presence in over 160 coun­ employee. Following the LEAN methodology, company, CEVA does not itself produce or man­ tries, CEVA has responsibilities to the communi­ employees are encouraged to look constantly ufacture products, and most of its environmental ties in which it operates. We can best enrich and for new ways to improve day-to-day processes, impact comes through the operations of its support lives through what it is best at – providing and find and eliminate waste in, for example, suppliers. Collaborative relationships with its logistics and transportation services. over-production, over-processing and unneces­ partners, such as customers, warehouse operators, sary movements. carriers and other suppliers, is therefore essential In 2018, employees from all over the world to have a better control and measurement of the initiated and took part in charitable actions to CEVA Logistics has implemented an overarching company’s impact on the environment. support their local communities. For example, management system based on ISO 9001:2015 they delivered aid to Puerto Rico as it recovered encompassing all locations and services, provid­ We have several global and local environmental from the devastation of a hurricane, and pro­ ing the capability to insert other standards in a initiatives underway, such as: vided complex logistics support for organizations modular way. CEVA is planning to become certi­ – eco-warehouse facilities like the Wreaths Across America, the London fied to ISO 14001 (Environmental Management) – green procurement practices Marathon or the Dutch Food Banks Association. globally in 2019, though a significant number of – a paperless initiative In Thailand and China, employees raised money sites are already certified. Furthermore, four data – supply chain optimization and sustainable or volunteered to help children and seniors in centers and two corporate sites have ISO 27001 redesign need. certification (Information Security). – customer supply chain carbon emission reporting Working with suppliers – investing in the measurement of CEVA’s CEVA works closely with a large number of suppl­ environmental impact iers. During the initial sourcing processes the com­- – representation in various industry associa­ pany ensures that suppliers are identified and tions, such as the Clean Cargo Working selected in a way that represents excellent value, Group (CCWG), International Air Transport while delivering service standards that satisfy the Association (IATA) and the Sustainable Air needs of both CEVA’s business and its customers. Freight Alliance (SAFA)

56 Annual Report 2018 CEVA Logistics Strategy and Business Performance Corporate Governance and Shareholder Information Corporate Governance Report

CEVA is committed to a transparent management structure to Corporate Governance of the SIX Swiss Exchange effective governed by international principles. This Corporate Governance 1 May, 2018 and provides investors with the corresponding report complies with the Directive on Information relating key information.

Group management structure

Board of Directors

Chief Executive Officer Xavier Urbain

Chief Financial Officer Group COO and Deputy CEO Serge Corbel Nicolas Sartini* Chief HR Officer Pierre A. G. Girardin

Chief Commercial Officer Chief Information Officer Laurent Binetti Christophe Cachat Managing Directors for 10 Clusters Chief Operating Officer – CL Chief Legal Officer Brett Bissell Kenneth J. Burch

Chief Operating Officer – A & O Executive Director Jérôme J. Lorrain Leigh Pomlett

Chief Operating Officer – Ground open

* Appointed as of 01/01/2019 Member of Executive Board

58 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Group structure and Shareholders North America Canada, Mexico, USA Latin America Argentina, Brazil, Chile, Colombia, Costa Rica, Guatemala, El Salvador, Group structure Panama, Peru UKIN Ireland, Nordics, UK Operational group structure Benelux Belgium, Luxembourg, Netherlands CEVA’s business activities are primarily organized by geography into the Central and Austria, Czech Republic, Germany, following ten geographic clusters: Eastern Europe Hungary, Poland, Romania, Slovakia, Switzerland South Europe France, Iberia, Italy IMEA Africa, India, Middle East, Turkey North Asia Greater China, Japan, South Korea South East Asia Bangladesh, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam ANZ Australia, New Zealand

The business activities are also divided into the following business segments: – Contract Logistics; and – Freight Management

Supplementary information is included in the segmental reporting section (note 5) of the Consolidated Financial Statements in this Annual Report.

59 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Listed companies within the scope of consolidation Significant shareholders CEVA Logistics AG (“CEVA” or the “Company”), the ultimate holding company of the CEVA Group, is the only listed company within the scope To the best of CEVA’s knowledge, the following shareholders held more of consolidation. CEVA has its registered office in Baar, Switzerland. CEVA than three percent of the total share capital of CEVA Logistics AG as of shares are listed exclusively on the SIX Swiss Exchange. The market capital­ 31 December, 2018: 1 ization amounted to CHF1,647,812,415.60 (55,203,096 registered shares – CMA CGM S. A., Marseille, France, held 33% at CHF29.85 per share) on the closing date of 31 December, 2018 (the – Societe Generale SA, Paris, France, held 8.13% ‘Closing Date’). The CEVA shares are traded under Valor no. 41323739, – Franklin Resources, Inc., San Mateo, CA, USA, held 5.27% ISIN CH0413237394, symbol CEVA. – The Goldman Sachs Group, Inc., Wilmington, DE, USA, held 6.26% – The Capital Group Companies, Inc., Los Angeles, CA, USA, held 4.694% Of the total CEVA share capital on the Closing Date the free float consisted – Davidson Kempner Capital Management LP, New York, NY, USA / of 22,481,910 shares and treasury shares amounted to 4,617 shares. Burlington Loan Management DAC, Dublin, Ireland held 3.33%

Non-listed companies within the scope of the consolidation During the reporting year disclosure notices (listed by shareholders and CEVA’s subsidiaries and associated companies are disclosed in its Con­ transaction date) were filed on the SIX Swiss Exchange electronic publication solidated Financial Statements in this Annual Report (note 29) including platform, and can be accessed via the following link: jurisdiction of organization, registered office, share capital and the CEVA https://www.six-exchange-regulation.com/en/home/publications/ Group’s percentage of ownership interest. significant-shareholders.html As of 31 December, 2018, shares of unregistered owners amounted to 47.97% of the issued shares.

1 The number of shares shown here as well as the holding percentages are based on the last disclosure of shareholding communicated by the shareholder to the Company and the Disclosure Office of SIX Swiss Exchange. as well as notifications filed with the Swiss Takeover Board by shareholders. The number of shares held by the relevant shareholder may have Cross-shareholdings changed since the date of such shareholder’s notification. Any reportable changes since the date hereof can also be found on the website of the Disclosure Office of the SIX Swiss Exchange, which also includes the individual reports of the significant shareholders. See: No cross-shareholdings exist between CEVA and any other company. https://www.six-exchange-regulation.com/en/home/publications/significant-shareholders.html

Reports filed with the Swiss Takeover Board can be found on the website of the Swiss Takeover Board. See: http://www.takeover.ch/transactions/detail/nr/0711

60 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Capital structure issuance of equity-linked financing instruments, all as further specified in Art. 3(a) of the Articles of Association.

Ordinary share capital As of the Closing Date, 61,733 Shares have been issued under this condi­ tional capital for compensation purposes. This number thus counts against As of the Closing Date, the outstanding ordinary share capital of CEVA the 2,068,077 Shares mentioned in the preceding paragraph. The capital amounted to 55,203,096 fully paid-up registered shares (representing a increase and the corresponding reduction of the conditional capital for nominal capital of CHF5,520,309.60), whereby each fully paid-up registered compensation purposes were not yet registered in the Commercial Register share has a nominal value of CHF0.10 (a “Share”, the “Shares”). 55,141,363 as of the Closing Date. Shares were registered in the Commercial Register as of the Closing Date and 61,733 Shares were created out of the conditional capital of the Company but not yet registered. Change in capital

Changes in the Ordinary Share Capital Authorized and conditional capital in particular The Company was incorporated on 19 February, 2018 with an ordinary share capital of 1,000,000 Shares (representing a nominal capital of As of the Closing Date, CEVA had an authorized capital consisting of CHF100,000.00). 6,204,231 Shares (representing a nominal capital of CHF620,423.10) which the Board of Directors can issue until 3 May, 2020 and where subscription Prior to the Company’s initial public offering, the Company was merged rights can be withdrawn only in certain circumstances enumerated in Art. 3(b) with CEVA Holdings LLC, the former holding company of the CEVA Group. of the Articles of Association, which can be downloaded as a pdf document In connection with the merger, the shareholders’ meeting held on 10 April, at https://ir.cevalogistics.com/websites/ceva/English/5000/corporate-governance.html 2018 resolved to increase the ordinary share capital to 11,505,000 Shares (representing a nominal capital of CHF1,150,500.00). CEVA furthermore has conditional capital covering the issuance of a further 6,204,231 Shares (representing a nominal capital of CHF620,423.10) In connection with the initial public offering of the Company, the share­ out of which a maximum of 2,068,077 Shares are covering options issued holders’ meeting held on 3 May, 2018 resolved to increase the Company’s to directors or employees for compensation purposes and the rest for the ordinary share capital to 41,361,537 Shares (representing a nominal capital exercise for conversion or options rights granted in connection with the of CHF4,136,153.70).

61 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information On 15 August, 2018, by virtue of the conversion of the mandatory In addition, the shareholders’ meeting held on 19 April, 2018 resolved convertible securities issued to CMA CGM S. A., the Company issued to create authorized capital consisting of 575,250 Shares (representing 13,779,826 Shares out of the conditional capital to CMA CGM S. A. increasing a nominal capital of up to CHF57,525.00), which the Board of Directors the ordinary share capital to 55,141,363 Shares (representing a nominal could issue until 30 June, 2018 to banks involved in the initial public offering capital of CHF5,514,136.30). The capital increase was registered in the of the Company if the banks exercised an over-allotment option. This Commercial Register on 21 August, 2018. authorized capital was increased by the shareholders’ meeting held on 3 May, 2018 to 2,512,671 Shares (representing a nominal capital of up During October and November 2018, the Company issued 61,733 Shares to CHF251,267.10). The Company did not make use of this possibility and out of conditional capital in respect of equity compensation paid to the authorization has in the meantime expired. members of the Board and settlement of equity awards granted to current and former employees of the Company under the Company’s 2013 Long Changes in the Conditional Capital Term Incentive Plan increasing the ordinary share capital to 55,203,096 The shareholders’ meeting held on 19 April, 2018 resolved to create Shares (representing a nominal capital of CHF5,520,309.60). This capital conditional capital covering the issuance of 1,725,750 Shares (representing increase was not yet registered in the Commercial Register as of the Closing a nominal capital of CHF172,575.00) out of which a maximum of 575,250 Date. Shares are for compensation purposes and the rest for equity-linked financ­ ing instruments. The conditional capital was increased by the shareholders’ As of 31 December, 2018, 55,203,096 Shares were issued (representing a meeting held on 3 May, 2018 to 6,204,231 Shares (representing a nominal nominal capital of CHF5,520,309.60). capital of CHF620,423.10) out of which a maximum of 2,068,077 Shares are for compensation purposes and the rest for equity-linked financing Changes in the Authorized Capital instruments. The shareholders’ meeting held on 19 April, 2018 resolved to create authorized capital consisting of 1,725,750 Shares (representing a nominal During October and November 2018, the Company issued 61,733 Shares capital of up to CHF172,575.00), which the Board of Directors could out of conditional capital for compensation purposes. This number issue until 19 April, 2020. The authorized capital had been increased by thus counts against the 2,068,077 Shares mentioned in the preceding the shareholders’ meeting held on 3 May, 2018 to 6,204,231 Shares paragraph. The capital increase and the corresponding reduction of the (representing a nominal capital of up to CHF620,423.10), which the Board conditional capital for compensation purposes were not yet registered in of Directors can issue until 3 May, 2020. the Commercial Register as of the Closing Date.

62 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information In addition, the shareholders’ meeting held on 19 April, 2018 resolved them transformed into another form. Any shareholder is however entitled to create conditional capital for CMA CGM S. A. covering the issuance of to request at any time that the Company issue a certificate stating the 3,835,000 Shares (representing a nominal capital of CHF383,500.000). number of Shares registered in their name in the share register. The conditional capital for CMA CGM S. A. was increased by the share­ holders’ meeting held on 3 May, 2018 to 13,779,826 Shares (representing The Company has no participation certificates. a nominal capital of CHF1,377,982.60). On 15 August, 2018, by virtue of the conversion of the mandatory convertible securities issued to CMA CGM S. A., the Company issued 13,779,826 Shares out of the conditional capital Dividend-right certificates to CMA CGM S. A. The capital increase and the corresponding removal of the conditional capital for CMA CGM S. A. were registered in the Commer­ On the Closing Date, no dividend-right certificates (Genusscheine) had cial Register on 21 August, 2018. been issued.

Shares and participation certificates Limitations on transferability and nominee registrations Each of the 55,203,096 Shares carries one vote at a shareholders’ meeting and no preferential rights or similar entitlements exist. The Company The Articles of Association do not provide for any limitations on the transfer may issue Shares in the form of individual securities, global certificates or of Shares. Every person recorded in the share register is regarded as a share­ uncertificated securities. To the extent permitted by law, the Company, at holder vis-à-vis the Company. its sole discretion and without seeking shareholder approval, may transform Shares issued in one of these forms into another such form at any time. Upon application, acquirers of Shares will be entered in the share register The costs of such transformation are then borne by the Company. Share­ without limitation as shareholders with voting rights, provided they expressly holders have no right to have Shares issued in one particular form or have declare to have acquired the Shares in their own name and for their own account.

However, the Articles of Association provide that in order to be entered 1 Legal entities and partnerships with legal capacity, grouped together in terms of capital or votes, by common into the share register, persons not expressly declaring to be holding the management or in a similar manner, as well as natural or legal persons or partnerships acting in a coordinated manner with a view to circumventing the restriction on registration shall be considered as one acquirer. Shares for their own account (Nominees 1) are entered in the share register

63 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information with voting rights without further inquiry up to a maximum of 2% of the Board of Directors share capital. Above this limit, Shares held by Nominees are entered in the share register with voting rights only upon the Nominee disclosing the names, addresses and shareholdings of the persons for whose account Members of the Board of Directors the Nominee is holding 0.5% or more of the share capital and provided that the disclosure requirements stipulated by the Federal Act on The Board of Directors of CEVA is ultimately responsible for the direction Financial Market Infrastructure and Market Conduct in Securities and of the Company. This starts with a careful process for selecting Board can­ Derivatives Trading are complied with. The same restrictions also apply to didates to ensure qualified, committed members who will devote the effort the subscription for or acquisition of shares by exercising pre-emptive, and time necessary to effectively carry out their governance responsibilities, option or convertible rights arising from Shares. including as regards the oversight of management.

In selecting members, the Board looks for diversity of backgrounds (current Convertible bonds and options members represent four different nationalities and diverse ages) as well as experience and expertise relevant for the specific role they will play on There were no convertible bonds outstanding on the Closing Date. The only the Board, including on one or more of its four specialized committees: issued options relate to the Company’s 2013 Long-Term Incentive Plan (i) Audit Committee, (ii) Compensation Committee, (iii) Nomination and (“LTIP”) and the Company’s Board of Directors Share Plan (“Board Share Governance Committee and (iv) Risk and Compliance Committee. Plan”). For details of the LTIP and the Board Share Plan, please refer to the Compensation Report of this Annual Report. In furtherance of checks and balances, the Board consists entirely of non-executive members.

64 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information As of 31 December, 2018, the Board members were:

Name Age Role Nationality First Election Expires 1 Committees Rolf Watter 60 Chairman Swiss 2018 AGM 2019 Compensation, Nomination and Governance (Chair) Victor Balli 61 Independent Member Swiss 2018 AGM 2019 Audit (Chair), Risk and Compliance Daniel Hurstel 63 Member French 2018 AGM 2019 Audit, Risk and Compliance Emanuel R. Pearlman 58 Independent Member American 2018 AGM 2019 Audit, Nomination and Governance Rosalind Rivaz 63 Independent Member British 2018 AGM 2019 Audit, Risk and Compliance Rodolphe Saadé 48 Member French 2018 AGM 2019 Nomination and Governance Marvin O. Schlanger 70 Independent Member American 2018 AGM 2019 Compensation (Chair), Nomination and Governance John F. Smith 68 Independent Member American 2018 AGM 2019 Compensation, Risk and Compliance (Chair)

1 All Board members are elected annually in accordance with Swiss Corporate law and CEVA Logistics AG’s Articles of Association

Two members of the Board of Directors (Daniel Hurstel and Rodolphe Saadé) were appointed by CEVA’s main shareholder, CMA CGM S. A. In addition, Rodolphe Saadé is Chairman and Chief Executive Officer of CMA CGM S. A.

65 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information The biographies of the Board members are as follows:

Rolf Watter Victor Balli has been Chairman of our Board of Directors has been a member of our Board of Directors since 3 May, 2018. Mr. Watter has been a since 3 May, 2018. Mr. Balli currently serves partner at the Zurich law firm Bär & Karrer as a member of the board of directors and since 1994. He specializes in M & A transactions head of the Audit Committee of KWS Saat SE and is an expert in corporate governance (since December 2017). He has also served as a questions. He currently serves as chairman member of the board of directors of the Swiss of PostFinance AG, serves as a non-executive Federal Audit Oversight Authority since 2018, director of Aryzta AG, AW Faber Castell AG and a member of the supervisory board and audit AP Alternative Portfolio AG and is a board member in two charitable committee of Louis Dreyfus Command Holding B.V. since 2018 and a foundations. He is a member of the Regulatory Board of the SIX Swiss member of the board of directors, Audit Committee and Compensation Exchange and professor of law at the University of Zurich. He is a former Committee of Givaudan SA since 2016. Mr. Balli was Group Chief chairman of Nobel Biocare Holding AG and Cablecom Holding GmbH. Financial Officer of Barry Callebaut AG, the largest global supplier of In addition, he was a Board member of Zurich Insurance Group AG, cocoa and chocolate products from 2007 to 2018. From 1996 to 2006, Syngenta AG, Forbo Holding AG, and Centerpulse AG. Mr. Watter He was a director at Niantic Group, which represents the investment gradu­ated from the University of Zurich with a Doctorate in law and holding of Dr. Andreas Jacobs, and served in various executive and holds a Master of Laws degree from Georgetown University. board functions at subsidiaries of Niantic Group during that period. He is President of the Swiss Association of CFOs, where he has been a member since 2009. Mr. Balli holds an MSc of Chemical Engineering from the Swiss Federal Institute of Technology and an M.A. in Economics from the University of St. Gallen, and has continued to take advanced leadership courses through INSEAD.

66 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Daniel Hurstel Emanuel R. Pearlman has also been a member of our Board of has been a member of our Board of Directors Directors since 3 May, 2018. Mr. Hurstel has since 28 June, 2013. Mr. Pearlman currently been a partner in the Corporate and Financial serves as the Executive Chairman of Empire Services Departments at the American law Resorts, Inc., where he has served as a director firm Willkie Farr & Gallagher LLP since 1996 since May 2010 and previously served as advising leading international companies. Non-Executive Chairman of the Board from He also serves on the law firm’s Executive September 2010 through May 2016. He is Committee and has done so for several years. the Chairman and Chief Executive Officer of He holds an MBA from the French business school, HEC, as well as a Liberation Investment Group, LLC, which he founded in 2003. He has Master’s Degree in Law from the University of Paris 1. He is a recognized also been a director of Network-1 Technologies, Inc. since January 2012, author on corporate governance and company’s purpose issues. He where he serves as Chairman of the Audit Committee and a member served as Co-Chairman of the Securities section and of the Capital of the Corporate Governance Committee. From November 2018 until Markets Forum of the International Bar Association (IBA). He is an February 2019, Mr. Pearlman served on the Board of Managers and associate member of the Royal Academy of Belgium, Chevalier de la as President of each of SRC O.P., SRC Facilities LLC and SRC Real Estate Légion d’Honneur and Officier dans l’Ordre des Arts et des Lettres. (TX) LLC, which are special purpose bankruptcy remote limited liability companies with ownership of approximately 100 real estate properties of Sears. From May through September of 2017, Mr. Pearlman served on the board of directors of ClubCorp Holdings, Inc. where he served on the Strategic Review Committee, and from 2009 to 2014 he served as the sole independent director of the Fontainebleau Miami JV LLC, which currently owns and operates the Fontainebleau Hotel in Miami Beach. Mr. Pearlman served as a member of the boards of directors of Dune Energy and Jameson Inns, Inc. from 2012-2013. He also served as a director of Multimedia Games, Inc., from October 2006 to March 2010. Mr. Pearlman holds an MBA from the Harvard Graduate School of Business and graduated with an AB degree in economics from Duke University.

67 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Rosalind Rivaz Rodolphe Saadé has been a member of our Board of Directors has been a member of our Board of Directors since 3 May, 2018. Dr. Rivaz’s executive career since 3 May, 2018. Mr. Saadé currently serves spans more than 35 years, working in executive as Chairman and Chief Executive Officer of positions in blue chip companies in different the CMA CGM Group, a leading worldwide sectors, including ExxonMobil, Diageo plc, shipping group, where he has served as ICI and Smith & Nephew plc. Dr. Rivaz held a member of the Board of Directors since “C Suite” international roles, leading supply 2010. Prior to his appointment as Chairman chain, manufacturing and major change, and Chief Executive Officer, Mr. Saadé was culminating in her role as Chief Operating Officer for Smith & Nephew Executive Officer from 2004 to 2014 and Vice-Chairman from 2010 to plc. Dr. Rivaz currently serves as a member of the Board of Directors of 2017. During his tenure at CMA CGM Group, Mr. Saadé has overseen ConvaTec plc (since July 2017), the Board of Directors of Computacenter the financial restructuring of the company and has led a round of plc (since November 2016) and is the Senior Independent Director and consolidations and the negotiations of various strategic agreements. Remuneration Committee Chair (since April 2018), the Board of Directors He has also concluded the acquisitions of APL, Mercosul and of RPC plc (since April 2017), the Board of Directors of Boparan Holdings Containerships. Mr. Saadé is a member of the Board of Directors of (since August 2015) and the Board of Directors of Rimont Ltd. She is also ABC and is Knight of the French Legion of Honor. Mr. Saadé holds a on the UK Ministry of Defence’s Equipment and Support Board, where Bachelor of Commerce and Marketing degree from Concordia she has served as a member since January 2017. She is a member of the University in Montreal. Audit, Remuneration and Nomination committees on various boards on which she serves. From June 2013 to May 2017, Dr. Rivaz was a director at Rexam plc. In addition to functional expertise, Dr. Rivaz has expertise in the areas of risk and governance. Dr. Rivaz received a BSc Hons Chemistry and Honorary Doctorate (DSc) from the University of Southampton.

68 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Marvin O. Schlanger John F. Smith has been a member of our Board of Directors has been a member of our Board of Directors since 10 February, 2009. Mr. Schlanger was since June 2013. Mr. Smith was a principal our Chief Executive Officer from October 2012 at Eagle Advisors, LLC. From 2000 to 2010, through January 2014 and served as interim Mr. Smith served in positions of increasing President of the Americas from August 2013 responsibility with General Motors Corporation through March 2014. He was the Chairman of in sales and marketing, product planning and CEVA’s Board of Directors from 10 February, corporate strategy, most recently as Group Vice 2009 to 8 May, 2018. He is also a principal President, Corporate Planning and Alliances. in the firm of Cherry Hill Chemical Investments, LLC, which provides During his 42-year career in the automotive industry, Mr. Smith also management services and capital to the chemical and allied industries. served as General Manager of Cadillac Motor Car, President of Allison Mr. Schlanger has been involved with a number of companies affiliated Transmission, and Vice President, Planning at General Motors Interna- with Apollo Global Management LLC (“Apollo”) over the past decade tional Operations in Zurich, Switzerland. He previously served on as chairman or at the board level and he served as a consultant to Apollo the board of directors of Arnold Magnetics and as chairman on the from 2005 to 2017. He currently also serves as a director of UGI Corpo­ board of directors of Covisint Corp. He serves on the boards of directors ration, UGI Utilities, Amerigas Partners LP, Momentive Performance of American Axle & Manufacturing and TI Automotive, and provides Materials Holdings LLC and Hexion Holdings LLC. Mr. Schlanger holds advisory services to Arnold Magnetics, VNG.CO and Enginetics LLC. chemical engineering degree from Rutgers University and holds He also serves on the National Advisory Board of the Boy Scouts of a master of science in chemical engineering from the University of America. Mr. Smith holds an industrial engineering degree from Massachusetts. Kettering University and holds an MBA from the Harvard Graduate School of Business.

69 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Other activities and vested interests Elections and terms of office

Other than as listed in Section 3.1 above, the members of the Board of The General Meeting elects the Chairman, members of the Board of Directors, Directors do not hold other material offices, nor do they carry out any other the members of the Compensation Committee and the Independent Proxy, principal activities that affect the CEVA Group. in each case individually. Each is elected for a term of one year, ending with the next Ordinary General Meeting. Re-election is permitted at any time but members of the Board of Directors may serve no more than an aggregate Mandates of 12 years unless an exception is granted by the Board of Directors.

Article 18 of the Articles of Association limits the maximum number of The timing of the first election and the remaining term of office for each permitted additional mandates of the members of the Board of Directors member of the Board of Directors is specified under section “Members of to no more than 15 mandates outside the CEVA Group in the senior the Board of Directors”. management or directorial bodies of legal entities subject to the require­ ment of registration in the Commercial Register or in a comparable regis­ ter in another country. Of those, not more than five mandates may be in Internal organizational structure, exchange-listed legal entities. Board Committees and meetings in 2018

Multiple mandates within the same corporate group, and mandates Board of Directors performed at the behest of a corporate group or legal entity (including The Chairman of the Board of Directors and the members of the mandates for pension funds, joint ventures, and legal entities in which a Compensation Committee are elected by the General Meeting. The Board of substantial interest is held) are counted as a single mandate. Mandates Directors constitutes itself and appoints the Chairman of the Nomina­ in non-profit or charitable legal entities, such as clubs, associations, and tion and Governance Committee, the Chairman of the Audit Committee foundations are not subject to the five mandate limit and such mandates and the Chairman of the Risk and Compliance Committee. The Board of of members of the Board of Directors may not exceed 20 mandates. Directors also elects the members of the Nomination and Governance Committee, the Audit Committee and the Risk and Compliance Committee.

The scope of responsibilities of the Board of Directors and the Chairman are stipulated in the Articles of Association, the Organizational Regulations and

70 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information the Committee Charters to the extent not already determined by applicable In addition, the Board of Directors has the powers and duties as set out in law. In accordance with the Articles of Association and Swiss corporate the Company’s Levels of Authority. law, the main tasks and responsibilities of the Board of Directors, as further defined in the Organizational Regulations, comprise the following: Rolf Watter is Chairman of the Board of Directors, however, the entire Board – supreme managerial responsibility for the Company and issuing of of Directors is responsible for decisions that are of significant importance to the necessary directives; the CEVA Group. Certain tasks of the Board of Directors have been delegated – determining the company organization; to the Chairman and comprise the following: – the overall structure of the accounting system, financial control – preparation for Board meetings; and financial planning; – investor relations activities; – the appointment and dismissal of those persons responsible for – agreements, contracts and contractual commitments with value the conduct of business and for representing the Company, (revenue or cost) greater than US$100 million up to US$200 million the regulation of signatory authorities and the determination of over the life of the contract or greater than US$75 million in any year; their other authorities; – capital expenditures for individual projects greater than US$5 million – the supervision of those persons responsible for the conduct of up to US$10 million; business, especially in terms of their compliance with the law, with – lease commitments that are back to back with customer contracts the Articles of Association and with regulations and directives; greater than US$10 million up to US$15 million; and – the production of the Annual Report and of the Compensation Report, – lease commitments that are not back to back with customer contracts and the preparation of the General Meeting (including the agenda greater than US$5 million to US$10 million. and the Board of Directors’ proposals to the General Meeting) and the implementation of its resolutions; The Board of Directors usually convenes for a one-day meeting quarterly – all decisions relating to the subsequent paying-in of non-fully- with the Executive Board being represented by the CEO, the Deputy CEO, paid-up shares; the CFO and the CLO and convenes such other meetings throughout the – all decisions relating to capital increases and the consequent year in person or by telephone as are required for the operation of the amendment to the Articles of Association; Company’s business. The Board of Directors can and does invite other – notifying the courts in the event of over indebtedness; and members of the Executive Board to attend these meetings at its discretion. – all other non-transferable and inalienable responsibilities attributed The Board of Directors has appointed a Secretary, who is not (and does not to the Board of Directors by law or the Articles of Association. need to be) a member of the Board of Directors.

71 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information The Board of Directors takes decisions during the meetings or by written The overall responsibility of the Board of Directors is not affected by these circular resolutions. All Committees meet as often as required but usually committees. quarterly. Audit committee From the IPO in May 2018 until the Closing Date, the Board of Directors The Audit Committee consists of at least two members, who are held 14 meetings and held a two-day introduction meeting for its new independent members of the Board of Directors and financially literate. At members. In order to pass resolutions, at least a majority of the Directors least one member of the Committee shall be a Committee financial expert must be present either in person or by telephone or video link. No attendance – that is a person with (i) profound understanding of generally accepted quorum is required for confirmation or amendment resolutions of the Board accounting principles and Financial Statements, (ii) the ability to assess the in connection with capital increases. The adoption of resolutions of the general application of such principles in connection with the accounting Board requires a simple majority of the votes cast. Each Director has one for estimates, accruals and reserves, (iii) experience preparing, auditing, vote. In the event of a tie, the Chairman has the casting vote. In case of analyzing or evaluating Financial Statements with a sufficient breadth a decision by circulation, the resolution is deemed passed if (a) no oral and level of complexity or experience supervising persons engaged in such deliberation has been requested and (b) an absolute majority of Board activities, (iv) an understanding of internal control over financial reporting, members has accepted the proposed resolution. and (v) the Committee’s functions. The members of the Audit Committee are appointed by the Board of Directors, usually in the first Board meeting Board committees following the ordinary General Meeting, for a term of office extending to There are four committees of the Board of Directors: (i) Audit Committee, the completion of the next ordinary General Meeting. (ii) Compensation Committee, (iii) Nomination and Governance Committee and (iv) Risk and Compliance Committee. The committees generally meet The Audit Committee assists the Board of Directors in fulfilling its prior to meetings of the Board of Directors. The chairmen of the committees supervisory responsibilities with respect to (i) the accounting and inform and update the Board of Directors on the topics discussed and financial reporting of the Company, (ii) the integrity of the Company’s decisions made during such meetings. They submit proposals for approval Financial Statements, (iii) the external auditor’s qualification and related decisions that fall within the scope of the Board of Directors. independence, (iv) the performance of the Company’s internal and external auditors, (v) the Company’s compliance with legal and regulatory Objectives, organization, duties and cooperation with the Board of requirements, and (vi) issues recommendations to the Board. According Directors are defined in the Charters of the respective committees, which to the charter of the Audit Committee, the Audit Committee has, inter are reviewed and adopted by the Board of Directors. alia, the following main tasks:

72 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information – assess the external auditors (qualification, independence and – approve quarterly reporting for publication; and performance) as well as the audit results and the audit plan, – review the financial literacy of the Audit Committee members to coordinate between internal and external auditors on behalf of determine whether the applicable legal standards are met and propose the Board of Directors, select and nominate the external auditors to the Board the appropriate determination and disclosure. for election by the general meeting of the shareholders and set policies for the Company’s hiring of employees or former It is, however not the duty of the Committee to plan and conduct audits or employees of the external auditors; to determine whether the Company’s Financial Statements and disclosures – agree with the external auditors the audit fee and supervise their are accurate and complete and in accordance with generally accepted compensation; accounting principles and applicable laws and regulations. These are the – on behalf of the Board, pre-approve all auditing services and responsibilities of the Executive Management and the external auditor. non-audit services permitted under applicable law, regulations and listing requirements to be performed for the Group by its external Victor Balli was the Chairman of the Audit Committee on the Closing Date, auditor and establish and maintain the required approval procedures and Dr. Daniel Hurstel, Emanuel R. Pearlman and Dr. Rosalind Rivaz were in that regard; members. – discuss with the Executive Management and the external auditor the internal audit department’s responsibilities and staffing and The Audit Committee convenes its meetings as required, but meets at together with the CEO review periodically the appropriateness of the least four times a year. The Audit Committee may invite other members of organizational structure, budget and appointment and replacement the Board of Directors, members of the Company management and such of the senior internal audit executives; other persons as the Audit Committee deems appropriate to carry out its – review all internal audit reports, approve the internal audit plan and responsibilities to its meetings. assess the quality of the audit work by the internal auditors as well as the internal control system and the financial risk management Compensation Committee framework in general; The Compensation Committee consists of at least two members, who – review and assess the full- and half-year Financial Statements are independent members of the Board of Directors. The members of the (including interim statements) for approval by the Board, discuss such Compensation Committee are elected by the ordinary General Meeting for statements with the Executive Management and the external auditors; a term of office extending to the completion of the next ordinary General – review accounting issues and management decisions in areas where Meeting. the accounting standard allows discretion;

73 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information The Compensation Committee assists the Board of Directors in determining The Compensation Committee convenes its meetings as required, but and reviewing the Company’s compensation strategy and guidelines and meets at least three times a year. The Compensation Committee may the qualitative and quantitative criteria for compensation, the design invite other Members of the Board of Directors, members of the Company of compensation plans, the compensation of members of the Board of management and such other persons as the Compensation Committee Directors and the Chief Executive Officer, and the Compensation Report deems appropriate to carry out its responsibilities to its meetings. as well as the preparation of the proposals regarding compensation of the Board of Directors and the Executive Board to the General Meeting. Nomination and Governance Committee The Compensation Committee determines the compensation of the other The Nomination and Governance Committee consists of at least three members of executive management. It may submit to the Board sugges­ members, who are independent members of the Board of Directors. The tions and recommendations on further compensation matters. Further, not members of the Nomination and Governance Committee are appointed directly compensation related tasks include, inter alia: by the Board of Directors, usually at the first Board meeting following the – preparing and proposing to the Board of Directors the contractual ordinary General Meeting, for a term of office extending to the completion terms (if any) of the Board members; of the next ordinary General Meeting. – determining, upon proposal by the CEO, the terms of employment, promotion or termination of the other members of the Executive The Nomination and Governance Committee assists the Board of Direc­ Management (except for the CEO, the Deputy CEO and the CFO), tors in fulfilling its responsibilities with regard to (i) succession planning, (ii) reviewing the Company’s targets for the Executive Management the governance of the Company and (iii) the public responsibilities of the and including such targets into the short- and long-term incentive Company. According to the charter of the Nomination and Governance compensation/equity plans and assess the effectiveness of such Committee, the Nomination and Governance Committee has, inter alia, plans periodically; and the following main tasks: – together with the Risk and Compliance Committee, assessing whether – review the composition and size of the Board of Directors and the the Company’s incentives for employees below the Executive committees to ensure the Board and the committees have the required Management level are reasonably aligned to business performance, expertise and members who represent an appropriate diversity, but do not encourage undue risk taking. determine the criteria for the selection of the members of the Board and the committees as well as identify and assess potential Board Marvin O. Schlanger was the Chairman of the Compensation Committee on and committee members; the Closing Date, and Rolf Watter and John F. Smith were members.

74 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information – review the performance of each current member of the Board and – provide the Board with a proposal concerning the determination consideration of the results of such evaluation as to whether members and the corresponding disclosure of the independent status of of the Board should stand for re-election (taking into account, inter the Board members in accordance with the independence criteria alia, age, length of service and the ability and willingness to commit set forth in the Organizational Regulations; and adequate time to Board matters) as well as monitor the Board’s annual – oversee the Company’s strategy and governance on corporate review of the performance of the members of the management of responsibility. the Company and provide recommendations as to how performance can be improved; Rolf Watter was the Chairman of the Nomination and Governance – recommend to the Board the creation of additional Board committees Committee on the Closing Date, and Emanuel R. Pearlman, Rodolphe or a change in mandate or dissolution of a Board committee; Saadé and Marvin O. Schlanger were members. – ensure that all Board committees conduct the required number of annual meetings and report properly to the Board; The Nomination and Governance Committee convenes its meetings as – prepare and regularly review succession plans for the CEO, the Deputy required, but meets at least twice a year. The Nomination and Governance CEO and CFO of the Company (for both short-term emergencies and Committee may invite other Members of the Board of Directors, members for the longer term); of the Company management and such other persons as the Nomination – develop and make recommendations to the Board regarding and Governance Committee deems appropriate to carry out its responsibil­ corporate governance matters and practices, including (i) director ities to its meetings. qualification standards, (ii) director responsibilities, (iii) director access to management and, as necessary and appropriate, Risk and Compliance Committee independent advisors, (v) director orientation and continuing The Risk and Compliance Committee consists of at least three members, education, (vi) management succession plans, and (vi) annual the majority of whom are independent members of the Board of Directors. self-evaluation of the performance of the Board as a whole; The members of the Risk and Compliance Committee are appointed by the – review and approve the corporate governance report of the Company Board of Directors, usually at the first Board meeting following the ordinary for inclusion in the annual report as well as any other written public General Meeting, for a term of office extending to the completion of the disclosures on corporate governance matters; next ordinary General Meeting. – review and approve further mandates and consulting agreements of Board members regarding conflicts of interest; The Risk and Compliance Committee assists the Board of Directors in fulfilling its responsibilities in ensuring the proper assessment and

75 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information professional management of risks and compliance requirements, by (i) Definition of areas of responsibility supervising and reviewing the Company’s risk management system and processes (including keeping up to date on risk management best practices), Subject to the legal and statutory powers and duties of the General Meeting (ii) monitoring the Company’s investments and actions by management and the statutory auditors, the Board of Directors is the ultimate executive related thereto (including making sure that the Company and the Group body of the Company. The Board of Directors has the authority to pass take all necessary steps to foster a culture of risk-adjusted decision-mak­ resolutions in all matters of the Company that are not reserved to the ing, without preventing reasonable risk taking and innovation) and (iii) General Meeting or to another corporate body by law, the Articles or the monitoring the compliance by the Company and the Group with legal and Company’s Organizational Regulations. Subject to these limitations, the regulatory requirements. Further related tasks include, inter alia: Board of Directors has the authority to perform all acts that the business – informing the executive management and the Board regularly on the objectives of the Company may entail. most significant risks for the Company and the Group and how such risks are managed; In line with the law and the Articles of Association and as further set forth – reviewing important legislative and regulatory developments that may in the Organizational Regulations, the Board of Directors has delegated have a significant impact on the Company or the Group; and the executive management of the Company to the Chief Executive Officer – giving guidance on how policies of the Company are to be applied. and the Executive Board and has delegated the responsibility for financial matters of the Company to the Chief Financial Officer, who reports directly John F. Smith was the Chairman of the Risk and Compliance Committee on to the Chief Executive Officer. At a minimum the Executive Board includes the Closing Date, and Victor Balli, Daniel Hurstel and Dr. Rosalind Rivaz were the Chief Executive Officer, the Chief Financial Officer, the Chief Operating members. Officers for Freight Management and Contract Logistics, the Chief Com­ mercial Officer, the Chief Information Officer, the Chief Human Resources The Risk and Compliance Committee convenes its meetings as required, Officer and the Chief Legal Officer. The Executive Board is responsible but meets at least three times a year. The Committee may invite other for the management of the Company. It implements the strategy of the Members of the Board of Directors, members of the Company management Company under the Chief Executive Officer and ensures the execution of (in particular the Chief Financial Officer, the Group Chief Legal Officer the decisions of the Board of Directors in accordance with the law, the and persons reporting to the Chief Legal Officer and the head of Internal Articles of Association, the Organizational Regulations and the resolutions Audit) and such other persons as the Risk and Compliance Committee deems by the General Meeting. appropriate to carry out its responsibilities to its meetings.

76 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information The Levels of Authority adopted by the Board of Directors govern Further information regarding personnel and organizational changes, the cooperation between the Board of Directors, the Chairman and extraordinary events and the activities of analysts, investors and competitors the Executive Board. They contain a detailed catalog of duties and form part of ad-hoc reporting. Further, the Chairman regularly meets competences, which determine the financial thresholds within which with the CEO or other members of the Executive Board and informs the the Board of Directors, the Chairman and members of Company members of the Board of Directors of any relevant developments which management can efficiently execute their daily business. surface in such meetings.

Selected members of the Executive Board regularly join meetings of the Information and control instruments Board of Directors with the CEO, the Deputy CEO, the CFO and the General vis-à-vis the Executive Board Counsel always being present. In addition individual senior executives attend specific topic discussions pertaining to their particular field of exper­ The Executive Board informs the Board of Directors in a written format on tise. Furthermore, specific meetings of the Board of Directors are dedicated a monthly basis on the current course of business, covering the Group’s to a detailed review of major markets, business segments and the Group’s consolidated monthly and year-to-date income statements, including strategy according to a predefined schedule. deviation from budget and preceding year, regional and product income statements, functional costs/FTE development, financial position, statements The Audit Committee receives the Corporate Auditor’s quarterly reports and on cash flows and net working capital development. approves the annual audit plan as well planning and scope of internal audit. It further reviews all internal audit reports, approves the internal audit plan A detailed update is provided at each Board of Directors’ meeting. On a and assesses the quality of the audit work by the internal auditors as well as quarterly basis, the reporting covers the consolidated interim Financial the internal control system and the financial risk management framework Statements including key developments, income statement, statement in general. For further details please refer to section “Internal organizational of cash flows and explanatory notes, investor relations presentations and structure, Board Committees and meetings in 2018.” media releases.

77 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Executive Board Xavier Urbain is our Chief Executive Officer. Mr. Urbain was named CEO Members of the Executive Board of CEVA in January 2014. He has brought a long career in Year of Name Age Role Nationality the Supply Chain industry Appointment to CEVA, having served as a Xavier Urbain 61 Chief Executive Officer French 2014 member of the Management Chief Operating Officer and Nicolas Sartini 57 French 2019 Deputy Chief Executive Officer Board and Board of Directors Serge Corbel 60 Chief Financial Officer French 2018 of Kühne + Nagel from 2006 to 2009 and CEO of ACR Laurent Binetti 54 Chief Commercial Officer Swiss and Italian 2018 Logistics from 2004 to 2005. He has also held a number Chief Operating Officer of executive positions at Mayne Nickless and was CEO Jérôme J. Lorrain 42 French 2016 Air and Ocean of Hays Logistics. Mr. Urbain has also led a number of Chief Operating Officer entrepreneurial ventures together with private equity Brett Bissell 52 American 2014 Contract Logistics firms in senior advisor and Board member roles. He Kenneth J. Burch 47 Chief Legal Officer American 2014 also served as chairman of the board of directors of Christophe Cachat 50 Chief Information Officer French 2014 SOCOTEC from 2013 to 2016. He started his career as Pierre A. G. Girardin 59 Chief Human Resources Officer Swiss 2015 an external auditor at Deloitte & Touche before joining Leigh Pomlett 62 Executive Director English 2015 the international retail group Auchan, where he held both financial and logistics positions. He received his On the Closing Date, the Executive Board was composed of nine persons and a tenth person Economics and Finance Diploma from ESLSCA. was appointed as of 1 January, 2019. Mr. Urbain serves as the Chairman of the Board of the Anji-CEVA joint venture in China.

78 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Nicolas Sartini Serge Corbel Laurent Binetti is our Chief Operating is our Chief Financial is our Chief Com­ Officer and Deputy Officer. Mr. Corbel mercial Officer. Chief Executive joined CEVA in Mr. Binetti joined Officer, and joined October 2018, bring- CEVA in September CEVA January 2019. ing with him 30 years’ 2018. After starting Prior to joining CEVA, experience in the his career in the retail Mr. Sartini had been logistics industry. industry, Mr. Binetti Chief Executive Previously, he served subsequently spent Officer of APL since CMA CGM’s takeover of in various positions for CMA CGM S. A. From over 20 years with Dell, where he held several APL in June 2016. In this role, Mr. Sartini was 2016 to October 2018, he was CFO of APL / NOL, senior commercial positions in Switzerland instrumental in the quick turnaround of APL a CMA CGM company, based in Singapore. and the UK with an EMEA scope. During his between 2016 and 2018 and brings to CEVA a From 1991 to June 2016, Mr. Corbel was time at Dell, he successfully expanded the wealth of expertise in the ocean carrier field. corporate controller and member of the company’s presence into new geographies Prior to joining APL, he held various positions executive committee at CMA CGM. From and developed new products and services. within CMA CGM, including as Group Senior 1984–1991, his duties ranged from salesman Lately, he has led several start-up initiatives, Vice President. He graduated from the Paris- to commercial manager with NCHP, a French helping young entrepreneurs to structure their based Ecole des Hautes Etudes Commerciales container shipping company. Mr. Corbel is go-to-market strategies. He holds an MBA from business school in 1983. French and graduated from EAP-ESCP Europe the University of Neuchatel, Switzerland. in 1981.

79 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Jérôme J. Lorrain Brett Bissell Kenneth J. Burch is our Chief Operat- is our Chief Operating is our Chief Legal ing Officer – Freight Officer – Contract Officer. Mr. Burch Management Air and Logistics. Mr. Bissell joined TNT Logistics Ocean. Mr. Lorrain joined CEVA in in North America joined CEVA in July January 2011 as in 2003 where he 2015 as Executive Managing Director of was responsible for Vice President in CEVA’s Latin America Litigation and Risk charge for the Balkans, operations, where Management and Africa, Middle East and Central Asia based in he built a strong team that transformed CEVA’s was appointed General Counsel for the North Dubai. In January 2016, he took over the role of business and prospects in the region. Prior to American business in 2006 becoming CEVA’s Chief Operating Officer, Ground Products based joining CEVA, he held a number of executive Chief Legal Officer in 2014. He received his in Houston, Texas combining the role of Man- positions at Flextronics International with undergraduate degree in Accounting from aging Director for North America. In Novem- operational oversight of Japan and Brazil, Texas A & M University and his Juris Doctorate ber 2017 he was promoted to Chief Operating and has held a number of senior roles at from St. Mary’s University in Texas. Officer – Freight Management. Before joining Qualcomm. Mr. Bissell started his career with CEVA, Mr. Lorrain was Chief Executive Officer engineering roles at Toshiba and Motorola in of Wallenborn Transports in Luxembourg Japan. As CEVA’s COO for Contract Logistics from May 2009 to May 2014 and prior to that he is responsible for leading strategy, estab- worked at Kühne + Nagel for nearly a decade lishing best practices, and further growing the from 2000 in senior executive positions across business line. He received his MBA and MSc the world. Mr. Lorrain has a Bachelor’s degree in Electrical Engineering from the Massachu- in Mathematics, Chemistry and Biology from setts Institute of Technology and holds a BSc in Lycee Fabert, Metz (France). He also has a Electrical Engineering from Union College in Technician degree in Logistics and Transpor- New York. tation and holds a Master’s degree in Logistics from ESILog (Ecole Superieure Internationale de Logistique), Metz (France).

80 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Christophe Cachat Pierre A. G. Girardin Leigh Pomlett is our Chief Infor­ is our Chief Human is our Executive mation Officer. Resources Officer. Director. Mr. Pomlett Mr. Cachat joined Mr. Girardin joined joined CEVA in Sep- CEVA in June 2014. TNT Logistics in tember 2009 as Exec- Before joining CEVA, 2001 and has held a utive Vice President he served as number of interna- for UK and Ireland. SVP Information tional management He subsequently Technology, Americas positions since CEVA’s became President, for Kühne + Nagel from 2007 to 2014 as well as inception, including Global Head of Business Northern Europe in November 2010, was Chief Technology Officer for ACR Logistics in Development, Global Head of Strategy, as well appointed President, Europe in 2013 and since the United Kingdom from 2003 to 2006. Prior to as Executive Vice President for Benelux and January 2015 has acted as Executive Director. that, he held a number of security, technology MD for Turkey / Spain / France. Prior to CEVA, He has held a number of senior country and and engineering roles at ALSTOM in France, Mr. Girardin was a Partner of McKinsey & regional roles, beginning in 1980, including Banque Indosuez (now Crédit Agricole) and Company in Amsterdam and he held a number Chief Executive Mainland Europe for Exel and CEGETEL (now SFR). He received his Master’s of international management roles at Chief Executive Mainland Europe DHL Supply degree in Computer Science from the French Caterpillar. He holds an MSc in Mechanical Chain, as well as management roles spanning National School of Civil Aviation (ENAC) in Engineering from ETH Zurich and an MBA a number of business sectors. Mr. Pomlett Toulouse. from INSEAD Fontainebleau. received his Business degree from Liverpool University. He is also a member and chairman of the Board of the Freight Transport Associa- tion in the United Kingdom. He also sits on the Board of the Anji-CEVA joint venture in China.

81 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Other activities and vested interests Compensation, shareholdings and loans

There are no other activities or vested interests. Content and method of determining the compensation and the shareholding programs Permitted activities Details regarding compensation for members of the Board of Directors and The Articles of Association limit the number of mandates that members the Executive Board including shareholding programs can be found in the of the Executive Board may hold outside the CEVA Group. Article 18 of Compensation Report in this Annual Report. the Articles of Association limits the number of permitted mandates of members of the Executive Board outside of the CEVA Group to no more than five mandates in the senior management or directorial bodies of legal Compensations for members appointed entities subject to the requirement of registration in the Commercial after vote on pay Register or in a comparable register in another country. Of those not more than two mandates may be in an exchange-listed legal entity. Each Statutory rules governing the additional amount for payments to mandate requires the approval of the Board of Directors. members of the Executive Board, appointed after the vote on pay at the general meeting of shareholders, are outlined in the Articles of Association 1 Multiple mandates within the same corporate group, and mandates Article 27(4) and the Compensation Report in this Annual Report. performed at the behest of a corporate group or legal entity (including 1 https://ir.cevalogistics.com/websites/ceva/English/5000/corporate-governance.html mandates for pension funds, joint ventures, and legal entities in which a substantial interest is held) are counted as a single mandate. Mandates in non-profit or charitable legal entities, such as clubs, associations, and foundations are not subject to the five-mandate limit.

Management contracts

No management contracts exist with any third party outside the Group.

82 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Shareholders’ participation rights – capital increases from shareholders’ equity, in respect of a contribution in kind, or for the acquisition of property, and the granting of special benefits; Voting rights and restrictions and representation – limiting or suspending subscription rights; – relocating the Company’s registered office; and Each share entitles the holder to one vote. All shares have equal voting rights – dissolving the Company. and no preferential rights or similar entitlements exist.

Only those shareholders entered in the share register as shareholders with Convocation of the General Meeting of Shareholders voting rights are entitled to vote at a General Meeting. A shareholder may be represented at a General Meeting only by their legal representative, by General Meetings are called in accordance with the law and the Company’s another shareholder attending the General Meeting whose name is entered Articles of Association. Ordinary General Meetings must be held within six in the share register, or by the elected independent proxy. months after the close of the financial year (31 December). Extraordinary General Meetings may be convened if resolved at a General Meeting, upon the request of the Board of Directors, the external auditors or by one or Quorums required by the Articles of Association more shareholders who together represent at least 10% of the Company’s share capital. Liquidators and, in the case of bond issues, representatives of In principle, the legal rules on quorums apply, i. e. resolutions are passed the bondholders, are also entitled to convene a General Meeting. with an absolute majority of the votes represented at the General Meeting except as otherwise stipulated by law. For certain important decisions, a Shareholders who together represent at least 5% of the Company’s share two-thirds majority of the shares represented at the General Meeting of capital or shares with a total nominal value of at least CHF1 million may Shareholders and an absolute majority by nominal value represented is request that an item be placed on the agenda of a General Meeting, required: provided they submit details thereof to the Company in writing at least – changing the purpose of the Company; 50 days in advance of the General Meeting concerned. – introducing shares with privileged voting rights; – limiting or facilitating the transferability of registered shares; – increases in authorized or conditional capital;

83 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Entries in the share register Clauses on changes of control

Only those shareholders entered in the share register as shareholders with There are no contracts with members of the Board of Directors with voting rights at a specific qualifying date (record date) designated by the change-of-control clauses. There are equity award agreements entered into Board of Directors are entitled to vote at a General Meeting. by members of management and the Company under the LTIP that have change-of-control clauses. For details of these change-of-control clauses, please refer to the Compensation Report of this Annual Report.

Changes of control and defense measures

Duty to make an offer

According to the Articles of Association, the Company and shareholders of the Company who are acting in concert with the Company in the sense of art. 135 para. 1 FMIA in connection with art. 33 FMIO-FINMA, and their beneficial owners, are exempted from the duty to submit an offer pursuant to art. 135 FMIA, if and to the extent that the shareholder(s) acting in concert with the Company by themselves (i.e. without taking account of treasury shares of the Company) do not exceed the threshold of 33.33% of the Company’s voting rights.

If the shareholder(s) acting in concert with the Company in the sense of art. 135 para. 1 FMIA in connection with art. 33 FMIO-FINMA by themselves, without the Company, exceed the threshold giving rise to the offer obliga­ tion, then the shareholder(s) are bound to submit a mandatory offer alone (i. e. without the Company).

84 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Auditors Additional fees

The Group Auditors, PricewaterhouseCoopers AG, were compensated Duration of the mandate and term of with an amount of CHF2 million for audit related fees and CHF2 million office of the lead auditor for other services (including tax related services) rendered in the financial year 2018. The Group Auditors are appointed annually by the Annual General Meeting following the recommendation of the Audit Committee to the Board of Directors. Re-election is permitted. The lead auditor is to rotate Informational instruments pertaining after seven-years, in accordance with the Swiss Code of Obligations. to the external audit

The mandate to act as statutory and Group Auditors is assumed by The Group Auditors are supervised and controlled by the Board of Directors Price­waterhouseCoopers AG, Basel, who were been appointed at the who have appointed the Audit Committee to assist the Board with its incorporation meeting on 19 February, 2018. Bruno Rossi, the auditor in supervisory responsibilities with respect to the Group Auditors as described charge, began serving in his role in 2018. in Section 3.5. The Group Auditors report to the Audit Committee, and the lead auditors participate in quarterly meetings of the Audit Committee. During these meetings, the Group Auditors present a detailed audit plan for Auditing fees the current year including risk-based audit priorities and key audit matters, the audit scope, proposals regarding audit fees, organization and timing PricewaterhouseCoopers AG fees for audit services relating to the 12-month as well as updates and status of the results of the internal control system period ending 31 December, 2018 amounted to CHF5 million. and their independence. In subsequent meetings they present interim audit findings with respective statements and recommendations later followed by a detailed audit report and management letter. Presentations also contain references to upcoming changes in legislation, IFRS and other relevant matters.

85 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information The main criteria for the selection of Group Auditors includes indepen­ Information policy dence, network capabilities, industry and IT experience of the audit team, a risk-based audit approach, a central process management as well as the CEVA regularly updates its website: integration of Corporate Audit and risk management function. The Audit www.cevalogistics.com Committee annually assesses the performance of the Group Auditors and informing the public of any major events, organizational changes and determines the audit fees. (quarterly) financial results https://ir.cevalogistics.com/websites/ceva/English/3000/results-centre-_-presentations.html From the IPO in May 2018 until the Closing Date, the Audit Committee Media releases are accessible to all visitors to the website held four meetings with the Group Auditors in addition to several meetings https://ir.cevalogistics.com/websites/ceva/English/2000/news.html and calls between the auditors and the chair of the Audit Committee. The alternatively, subscriptions can be made so that the latest media releases Audit Committee chair provides the Board of Directors with regular updates are automatically forwarded via e-mail. regarding activities of the Audit Committee. https://ir.cevalogistics.com/websites/ceva/English/2100/subscription.html

Furthermore, all publications such as the Annual Report (including the Corporate Governance and Compensation Report) are available online.

The dates of the General Meeting of Shareholders as well as dates of publication of the quarterly financial results are published in the Annual Report and appear in the Financial Calendar on the website https://ir.cevalogistics.com/websites/ceva/English/4000/financial-calendar-and- investor-events.html The minutes of public shareholder meetings of CEVA will be published on CEVA’s website following each meeting. CEVA’s contact address can be found on the back cover of the Annual Report.

86 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Compensation and Auditor’s Reports

Compensation Committee Chairman’s Letter 88 Compensation 2018 97

Compensation to the Board of Directors (audited) 97 Compensation philosophy and principles 89 Shares and equity rights owned by members of the board of directors 99 Compensation to the Group Executive Board (audited) 100 Compensation governance 90 Shares and equity rights owned by members of the group executive board 101 Role of shareholders 90 Articles of association 90 Responsibilities in determining compensation 91 Outlook for 2019 103 Compensation Committee 92 Annual compensation committee planning cycle 92 Target Compensation structure 103 Long-term incentive plan 103 Malus and clawback provisions 104 Compensation framework 93

Compensation for the Board of Directors 93 Report of the statutory auditor 105 Compensation for the Group Executive Board 94 Annual base salary 95 Pensions and other employee benefits 95 Variable compensation 95 Employment contracts 96 Shareholding requirements 96

87 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Compensation Committee On the following pages, we explain how the different compensation elements for the Group Executive Board and the Board of Directors are Chairman’s Letter designed to support CEVA’s sustainable success and to advance the interests of our shareholders. We will further provide a brief outlook to Dear Shareholder, compensation in financial year 2019 as some of the newly developed It is my pleasure to present the first annual Compensation aspects of our compensation framework will only become effective then. Report of CEVA Logistics AG, a global logistics supply At the AGM in 2019, we will ask you for your approval of the maximum chain company in both Freight Management and Contract aggregate amounts to be paid to the members of the Board of Directors for Logistics now listed on the SIX Swiss Exchange. the term of office from AGM 2019–AGM 2020, the maximum aggregate amounts of the Group Executive Board for financial year 2020, as well as your opinion on this compensation report. On behalf of CEVA and the The reporting year was marked by significant changes in CEVA’s Compensation Committee, I thank you for your support and your valuable governance structure culminating in the successful listing of our feedback regarding our compensation philosophy and system. company on the SIX Swiss Exchange. The preparation of the Initial Public Offering (“IPO”) occupied our business focus in the Respectfully, beginning of 2018. In the remainder of the year, we predomi­ nantly worked on the establishment of CEVA as a listed company as well as on the expansion and growth of our business in the market. Marvin O. Schlanger Triggered by the IPO, a thorough review of the compensation Chairman of the Compensation Committee framework was conducted during 2018 and resulted in significant changes to compensation philosophy and strategy and thus Marvin O. a redesign of compensation elements. Most importantly, we Schlanger developed a compensation system for our newly established Board of Chairman of the Compensation Directors and overhauled the compensation approach for the Group Committee Executive Board.

88 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Compensation philosophy and principles and for the supervision of management. Board members receive a fixed compensation independent of operational performance. To strengthen To reflect their different roles in CEVA’s long-term success and the delivery the alignment with shareholders’ interests, members of the Board of of strategy, the Board of Directors and the Group Executive Board are Directors receive a part of their compensation in the form of restricted compensated according to different standards. share units or blocked shares.

Members of the Board of Directors are responsible for establishing Members of the Group Executive Board are compensated according to corporate governance, setting the strategic direction of the company CEVA’s general reward principles summarized below.

Alignment with company strategy Competitiveness Performance

Compensation is aligned to business strategy, Compensation policies and practices consider Compensation is aligned to company performance priorities and values. It enables employees to market conditions and support the attraction, and supports a performance culture, helping achieve business goals, rewarding them retention and development of employees. employees to understand how their efforts contrib­ appropriately for individual, team and company ute to company success and motivating employees performance. by recognizing their value and contribution.

Cost effectiveness Fairness Clarity

Compensation is cost effective and enhances the Compensation is fair and equitable; it doesn’t Compensation is delivered through clear and ability of management to effectively manage the discriminate on the grounds of gender, race, transparent processes actively supported by value derived from the costs of reward provision. disability, sexual orientation, culture or any other business leaders and management. inappropriate basis.

89 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Compensation governance the compensation principles and elements as well as the governance framework related to the compensation of the Board of Directors and the Group Executive Board. It also provides details on the compensa­ Role of shareholders tion awarded to the members of the Board of Directors and the Group Shareholders have the final say in compensation matters. The Articles of Executive Board in the reporting year.

Association that govern the principles of compensation were approved by the General Meeting in April 2018. According to these, shareholders Articles of association annually elect the members of the Board of Directors and the members of the Compensation Committee for the coming period of office at the ordinary The Articles of Association form the basis for CEVA’s strategy and policy for Annual General Meeting (“AGM”). In addition, shareholders approve the the Board of Directors and the Group Executive Board. The compensation- aggregate maximum compensation amounts for the Board of Directors related provisions of the Articles of Association are summarized in the table and the Group Executive Board each year through binding votes. Further­ below and can be found online at: more, shareholders may express their opinion on the Compensation Report https://ir.cevalogistics.com/ceva//pdf/corporate-governance/Articles_of_Association_ in a consultative vote at the AGM. The Compensation Report outlines CEVA_Logistics_AG_post_IPO_2018_05_03.pdf

Topic Article Summary Powers of the Art. 7 The AGM has the power to approve or amend the Articles of Association, approve the Annual Report, and approve the General Meeting compensation for the Board of Directors and the Group Executive Board. Powers of the Board of Directors Art. 16 The Board of Directors is responsible to produce an Annual Report including a Compensation Report. Compensation Committee Art. 20 Supporting the Board of Directors, the Compensation Committee assumes responsibilities around the compensation strategy, system, levels for the Board of Directors and the Group Executive Board as well as other topics if deemed necessary. Compensation of the Art. 24 The compensation of the Board of Directors is guided by several principles including avoidance of variable compensation, Board of Directors possibility to pay compensation in equity instruments and an appropriate long-term horizon. Compensation of the Art. 25 The compensation of the Group Executive Board is guided by several principles such as combination of fixed and variable Group Executive Board components of both short- and long-term nature, different performance measures with appropriate long-term focus if applicable, and the the possibility to pay compensation in equity instruments. Approval by the Art. 27 The General Meeting approves the maximum aggregate compensation amounts for the Board of Directors (fixed) and the General Meeting Group Executive Board (fixed and variable) in a binding vote and the Compensation Report in a consultative vote. In case of a no-vote, alternative amounts can be proposed by the Board of Directors at the same or a later meeting. Additional amounts (120% of highest compensation paid) are available for new or promoted members of the Group Executive Board.

90 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Responsibilities in determining compensation reviewing the compensation strategy, policies, designing compensation elements, defining individual compensation packages for members of the CEVA’s compensation framework as well as the disclosure in the Compen­ Board of Directors, Group CEO and CFO, and compensation communication sation Report comply with: to shareholders, including Compensation Report as well as the preparation – the Swiss Code of Obligations, of the proposals regarding compensation to the AGM. – the Swiss Federal Ordinance Against Excessive Compensation in Listed Companies (“Ordinance”), The Compensation Committee acts in an advisory capacity while the Board – the Corporate Governance Guidelines of the SIX Swiss Exchange, of Directors retains the decision authority on compensation-related matters – and the principles of the Swiss Code of Best Practice for Corporate except for the maximum compensation amounts for the Board of Directors Governance of the Swiss Business Federation (economiesuisse). and the Group Executive Board, which are approved by shareholders at the AGM. The responsibilities of the different bodies regarding the key The Board of Directors is entrusted with supreme responsibility for the compensation matters are detailed in the table below. Company and with the supervision of its conduct of business, including compensation related matters. It is responsible for determining and

Compensation Board of Topics CEO Shareholders Committee Directors Compensation strategy, principles, and incentive plans Proposes Approves Maximum aggregate amount of compensation for the members of the Board of Proposes Recommends Approve Directors for the next term of office Contractual terms and individual compensation for the members of the Board of Directors Proposes Approves Maximum aggregate amount of compensation for the members of the Group Executive Proposes Recommends Approve Board for the next financial year Contractual terms and individual compensation for the Group CEO and CFO Proposes Approves Individual compensation for the members of the Group Executive Board Proposes Approves (except for the CEO and CFO) Comparison group for compensation benchmarking for the Board of Directors and Proposes Approves the Group Executive Board Compensation Report Proposes Approves Accept

91 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Compensation committee Marvin O. Schlanger Chairman First elected at extraordinary pre-IPO AGM 2018 As specified in the Articles of Association, the Compensation Committee Rolf Watter Ordinary member consists of less than two members of the Board of Directors. The Compen­ First elected at extraordinary pre-IPO AGM 2018 sation Committee members are individually elected by the shareholders at the AGM for a one-year term. In 2018, the Compensation Committee John F. Smith Ordinary member consisted of three members: First elected at extraordinary pre-IPO AGM 2018

Annual Compensation Committee Planning Cycle Q1 Q2 Q3 Q4 Annual General Meeting Compensation strategy and policy Compensation principles and strategy, including key terms of all compensation plans Compensation disclosure and communication Compensation-related items (“say-on-pay”) for AGM Compensation Committee governance Compensation Committee performance Organization and processes Compensation review Performance targets for short-term and long-term variable compensation Target achievements and resulting payouts of short-term and long-term variable compensation Market trends and benchmark-related updates Total at target / realized compensation for Group Executive Board Compensation for the Board of Directors Compensation framework Overall evolution of salaries depending on region, function and diversity groups Key HR activities and initiatives, incl. succession planning at Group Executive Board level and employee surveys

92 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information The Compensation Committee supports the Board of Directors in compen­ Compensation framework sation related matters. Additional information on the responsibilities of the Compensation Committee is provided in the Governance Report of this Annual Report. Compensation for the Board of Directors

The Compensation Committee meets as often as business requires, but at The compensation framework for the Board of Directors was completely least three times a year. In 2018, the Compensation Committee held five overhauled in light of the IPO in May 2018 to reflect CEVA’s new situation meetings and / or telephone conferences. It should be noted that the Board as a listed company. of Directors started to operate upon the IPO in May 2018 and therefore was only active during eight months in financial year 2018. The Compensation The Board of Directors’ compensation relates to the term of office, which Committee may invite other members of the Board of Directors, the Group starts with their election at the AGM and ends at the subsequent AGM. Executive Board, and/or further CEVA employees or outside experts /advi­ Members of the Board of Directors do not receive variable performance- sors as appropriate to attend its meetings as guests with no voting rights. based compensation or options. Each member of the Board of Directors Executives do not attend meetings when their own compensation and / or receives an annual fee for the Board membership and for performing performance is being discussed. additional functions such as chairman and / or member of a Board committee. The level of compensation for each role is determined based on The Chairman of the Compensation Committee reports to the Board of the skill set, experience, and time required to fulfil the respective obligations Directors on activities of the committee after each meeting. The Compen­ and responsibilities. The Chairman of the Board does not receive additional sation Committee may consult external advisors for specific compensation compensation for serving as a member or chairman of any committee. matters. In 2018, HCM International Ltd. (“HCM”) was mandated to provide services on compensation matters and related topics. Chairman of the Board Member of the Board Board membership CHF500,000 CHF160,000 Committee chairmanship – CHF40,000 Committee membership – CHF20,000

93 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Of the total compensation, 60% is paid in cash and 40% in equity-based Compensation for the Group Executive Board instruments: either in form of blocked for four years CEVA shares or as Restricted Share Units (“RSU”, representing conditional rights to receive The compensation for the Group Executive Board includes an annual base CEVA's shares free of charge) fully vested upon grant but not amenable for salary, variable compensation consisting of an annual cash incentive (Man­ settlement until four years from the date of grant. Cash payments are made agement Incentive Plan, “MIP”) and, starting from 2019, a long-term equity- quarterly in equal installments, allocation of shares and/or RSUs takes place based incentive (Long-Term Incentive Plan, “LTIP”), and customary benefits. after the AGM. The number of shares / RSUs for 2018 is determined by dividing 40% of each Board member’s compensation by the volume The total compensation package is structured in accordance with CEVA’s weighted average price the five day period after the exercise of the Green­ compensation principles to attract high performers with an innovative yet shoe (respectively the last day the Greenshoe could have been exercised, disciplined mindset and to recognize performance and long-term company if there is no such exercise), i.e. the five day period following 4 June, 2018. success through incentive plans.

Members of the Board of Directors are entitled to reimbursement of all Compensation to the Group Executive Board is benchmarked on a regular reasonable expenses that are incurred in connection with their Board basis against Swiss-based listed companies of comparable enterprise value duties. In addition, social security contributions payable on the equity part as well as international industry comparators. The most recent review was of the remuneration are borne by the Company where applicable. done in September 2018 with the comparison group comprising:

Compensation to the Board of Directors is benchmarked on a regular basis Ansaldo Arbonia Belimo against Swiss-based listed companies of comparable enterprise value. The Bobst GRP Bossard BPost most recent review was done in March 2018 with the comparison group Bucher Conzzetta Daetwyler comprising: DFDS DKSH Dormakaba DSW Expeditors Forbo AMS Belimo Bucher Clariant Daetwyler DKSH Georg Fischer Inficon Kühne+Nagel Dormakaba Emmi Forbo Georg Fischer Logitech OC Oerlikon Landis+Gyr OC Oerlikon Oesterreichische Post Panalpina SFS Group Sulzer Temenos Sunrise VAT Group Panalpina PostNL Schweiter SFS Group Stolt-Nielsen Sulzer VAT Group Wallenius WILH Logistics WILH Wilhelmsen XPO Logistics

94 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Annual base salary Variable compensation The annual base salary is a fixed element of compensation paid monthly The purpose of the Management Incentive Plan (“MIP”) is to reward the in cash. It reflects the scope and key responsibilities as well as the qualifica­ participants based on the company’s overall financial results and individual tion, competences, and skills required to perform the role. The annual base contribution during a given financial year. salary is reviewed annually, considering the individual’s performance and experience, business performance and market movements. The target MIP constitutes the amount to be paid out to the extent that all performance objectives have been fully achieved, and is determined as Pensions and other employee benefits a percentage of the annual base salary. It corresponds to 135% of annual Employee benefit plans consist mainly of retirement and insurance plans base salary for the CEO and 90% of annual base salary for other members that are designed to provide a reasonable level of protection with respect to of the Group Executive Board. The actual MIP payout depends on the per­ retirement, risk of disability, death and illness / accident. Among the members formance achieved and may vary between zero and 150% of the annual of the Group Executive Board, four are employed under Swiss employment base salary for the CEO and between zero and 100% of the annual base contracts, four under US contracts and one under UK contract. They salary for other members of the Group Executive Board. participate in the pension scheme applicable to all employees. The pension solution at CEVA exceeds the legal requirements of the Swiss Federal Law For 2018, the financial performance objectives are defined as Global on Occupational Pension Schemes (BVG) and is in line with what is being EBITDA (weighted at 60%) and Global Cash Flow (weighted at 20%); offered by other listed companies of comparable size. individual performance achievements are weighted at 20%. The MIP payout driven by financial performance is additionally subject to a pre­ Other benefits may include expense allowance, a company car, and defined Global EBITDA qualifier threshold as well as a Global Cash Flow reimbursement for one-time expenses relating to relocation, tax and legal threshold with no payout for these two components if these threshold advice for selected members of management and the Group Executive performance levels are not achieved. Board. The monetary value of these compensation elements is evaluated at fair value and is disclosed in the compensation table.

95 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Annual financial performance objectives are set in line with the company under the 2013 LTIP were generally subject to the discretion of the Com­ strategy and, for the Group Executive Board, relate to company performance. pensation Committee of CEVA Holdings. No new awards under the 2013 They are proposed by the Compensation Committee and approved by the LTIP were made following the first trading date. The outstanding grants vest Board of Directors at the beginning of each financial year. Their achievement through the year 2023 with the last option exercise period expiring in 2028. is assessed upon approval of the annual results by the Board of Directors. Upon occurrence of a change of control event, all unvested awards held by participants in the Company’s 2013 LTIP will become fully vested and Individual objectives are quantitative or qualitative, reflecting key priorities non-forfeitable. and strategic developments. The evaluation of individual performance is conducted at the year end and is subject to the Board of Director’s approval Employment contracts for the CEO and CFO, and the Compensation Committee’s approval for other All members of the Group Executive Board are employed under contracts of members of the Group Executive Board. unlimited duration and subject to a maximum notice period of 12 months. They are not entitled to termination payments or any change of control The MIP is paid out fully in cash on an annual basis after the full year results provisions, other than the special vesting provisions of the 2013 LTIP awards have been published. The award is, however, forfeited if employment ceases as described in the section Outlook for 2019. before the respective payout date. Shareholding requirements A new Long-Term Incentive Plan (“2019 LTIP”) will be implemented in Starting from 2018, to strengthen alignment of the Group Executive Board financial year 2019 to further recognize and reward members of the Group interests with those of shareholders and reinforce focus on the long-term Executive Board and selected senior managers (approximately 0.6% of all success of the company, members of the Group Executive Board are required employees) for sustainable value creation for the company and its share­ to build up a holding of CEVA shares that is equivalent to a multiple of their holders. Information on the 2019 LTIP is provided in the section Outlook annual base salary. Specifically, the shareholding requirements amount to 2019. 300% for the CEO and 150% for other members of the Group Executive Board. Shares owned outright or beneficiary by a member and / or his or her As disclosed at the IPO, in connection with the 2013 Recapitalization, CEVA immediate family members as well as vested RSUs and contingent rights Holdings adopted the 2013 Long-Term Incentive Plan ("2013 LTIP"), which to purchase CEVA’s shares, having an exercise price equal to CHF0.01 are permitted CEVA Holdings to grant shares and other share-based rights to included in the share ownership calculation. Unvested equity-based awards employees or directors of, or consultants to, CEVA Holdings or any of its as well as vested awards with a strike price of higher than CHF0.01 are not subsidiaries. The dates of grant, vesting, and pricing of options granted considered for this purpose. Overall, members of the Group Executive Board

96 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information are required to reach the relevant shareholding within five years of their Compensation 2018 appointment. The Compensation Committee reviews the status of individ­ ual share ownership on an annual basis. Non-compliance consequences at CEVA Logistics AG was first listed on the SIX Swiss Exchange on 4 May, 2018. the discretion of the Board may include restriction on selling already held Accordingly, there are no historic data available for CEVA Logistics AG in shares, application of holding requirements on shares vesting in the near terms of compensation of the Board of Directors and the Group Executive future, conversion of full or a portion of annual cash bonus payout into Board. Furthermore, it should be noted that compensation to the Board of shares. Directors is disclosed for an eight-month period in 2018, namely from the IPO in May to end of 2018. However, for members of the Group Executive Board, compensation is disclosed for the full financial year.

Compensation to the Board of Directors (audited) In light of the IPO, CEVA’s shareholders approved a maximum aggregate amount of compensation of CHF2.3 million to be awarded to the Board of Directors for the period from the 2018 General Meeting to the 2019 ordinary AGM. Total compensation awarded to the Board of Directors in 2018 amounted to CHF1.3 million and represents compensation for services rendered from 4 May, 2018 until 31 December, 2018.

A conclusive assessment for the entire period (up to the 2019 AGM) will be included in the Compensation Report 2019.

In the year under review, no compensation was paid after 4 May, 2018 to members of the Board of Directors who stepped down prior to the IPO or closely related parties.

No member or member of the Board of Directors who stepped down prior to the IPO was granted a loan during the reporting year. No loans were outstanding at the end of the year under review.

97 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Compensation to the Board of Directors

Eight months, from IPO Board Committee Number Compensation, CHF in May 2018 Membership Membership of shares

Value of allocated equity Allocated 1 2 3 4, 5 Audit Compensation Nomination & Governance Risk & Compliance Paid in cash award Other Total shares / RSUs Rolf Watter Chair Chair 150,000 146,440 27,464 323,904 7,831 Marvin O. Schlanger Chair 66,000 64,440 0 130,440 3,446 Emanuel R. Pearlman 60,000 58,587 125,550 244,137 3,133 John F. Smith Chair 66,000 64,440 0 130,440 3,446 Rosalind Rivaz 60,000 49,293 9,281 118,574 2,636 Victor Balli Chair 66,000 64,440 12,347 142,787 3,446 Rodolphe Saadé 54,000 52,734 0 106,734 2,820 Daniel Hurstel 60,000 49,293 9,281 118,574 2,636 Total 582,000 549,667 183,923 1,315,590 29,394

1 Represents gross amounts prior to employee social security and income withholding tax. 4 Number of shares was calculated based on gross amount before deductions covering employee social security and income withholding tax except for Rosalind Rivaz and Daniel Hurstel. Reference 2 Allocated on 1 October, 2018, at the closing share price of CHF18.70 per share. price used to define the number of to be allocated shares (defined as volume weighted average 3 Includes social security contributions and income withholding tax related to compensation settled price of the five trading days following 4 June, 2018) corresponds to CHF25.54. in equity where applicable as well as a special recognition payment to Emanuel R. Pearlman 5 Allocated either in form of blocked for four years CEVA shares or in form of RSUs fully vested upon related to the IPO transaction. grant but not amenable for settlement until four years from the date of grant.

98 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Shares and equity rights owned by members of the Board of Directors As of 31 December, 2018, members of the Board of Directors held a total of 79,189 registered shares, a total of 10,025 RSUs, and a total of 35,896 conditional rights to purchase CEVA shares, each having an exercise price equal to CHF98.48 (“Options”). Outstanding Options were allocated to Marvin O. Schlanger in connection with his former employment as CEO of CEVA Holdings, in July 2013 and his service as Chairman of the Board of Directors of CEVA Holdings, in July 2016.

as of 31 December, 2018 Number of shares held 1 Number of vested RSUs Number of vested Number of unvested Number of unvested options 2 RSUs options 2 Rolf Watter 10,831 0 0 0 0 Marvin O. Schlanger 3 23,320 3,446 35,896 0 15,384 Emanuel R. Pearlman 3 1,500 3,133 0 0 0 John F. Smith 3 4,500 3,446 0 0 0 Rosalind Rivaz 2,636 0 0 0 0 Victor Balli 3,446 0 0 0 0 Rodolphe Saadé 4 30,320 0 0 0 0 Daniel Hurstel 2,636 0 0 0 0 Total 79,189 10,025 35,896 0 15,384

1 Including shares held by related parties of members of the Board of Directors and shares subjected 4 Excluding (i) 18,164,534 registered shares beneficially owned by Mr. Saadé in his capacity as to a blocking period. joint controlling shareholder of CMA CGM S. A. and (ii) 6,959,471 shares in relation to which CMA CGM S. A. has an economic exposure pursuant to purchase positions and derivative transactions, 2 The ratio is one option for one CEVA share. in each case as of 31 December, 2018. 3 Members of the Board of Directors, who were allocated options and / or RSUs in connection with their service as members of the Board of Directors of CEVA Holdings prior to the IPO in May 2018.

99 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Compensation to the Group Executive Board (audited) In light of the IPO, CEVA’s shareholders approved a maximum aggregate amount of compensation of CHF34.0 million to be awarded to the Group Executive Board for financial year 2018.

In 2018, members of the Group Executive Board received a total compen­ sation of CHF15.4 million for services rendered from 1 January, 2018 until 31, December, 2018. This amount comprises on-going compensation as well as additional one-time discretionary IPO-related equity-based awards and is within the amount approved by the approved amount.

CHF 1 Group Executive Board 2 of which Xavier Urbain 3, CEO Annual Base Salary 4,716,570 1,030,000 Management Incentive Plan 4 457,542 154,500 Contributions to Pension Funds 277,939 70,592 Other Benefits 782,881 5 40,775 Awarded Compensation 6,234,932 1,295,867 Employer Social Security Costs 297,742 81,469 On-going Group Executive Board Compensation Cost 6,532,674 1,377,336 One-time IPO-related Equity-based Award 6 8,798,750 3,568,500 Employer Social Security Costs 29,940 0 Total Group Executive Board Compensation Cost 15,361,364 4,945,836

1 All compensation amounts represent gross amounts prior to employee social security and 3 Member with the highest compensation of the Group Executive Board. income withholding tax. The compensation of Brett Bissell, Christophe Cachat, Kenneth J. Burch, 4 Represents accrued MIP award for the financial year 2018, which will be paid in 2019, Jérôme J. Lorrain is paid in US$, the compensation of Leigh Pomlett is paid in GBP. after the publication of CEVA’s audited Consolidated Financial Statements. The underlying conversion rate for 2018 is 0.98336 for CHF/US$ and 1.24886 for CHF/GBP. 5 Includes salary, pension, Management Incentive Plan and social security payments for 2 Compensation includes pro rata compensation awarded to 2 new members of the Group Executive Peter Waller and Hakan Bicil after they stepped down as Group Executive Board Member. Board, who joined the company during 2018 as well as for 2 members of the Group Executive 6 As disclosed in the listing prospectus. Allocated on 19 April, 2018 and valued at IPO Board, who stepped down as member during 2018. with a fair market value of CHF27.45 per share.

100 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information During financial year 2018, we predominantly worked on the establishment In the year under review, no compensation was paid to former members of of CEVA as a listed company as well as on the expansion and growth of the Group Executive Board or to closely related parties. our business in the market. An overall very challenging business environ­ ment made it impossible for management to achieve the financial KPIs No member or former member of the Group Executive Board was granted and thresholds under the MIP. Despite their significant and valuable efforts a loan during the reporting year and no loans were outstanding at the end throughout the year, it was decided to cap the payout under the MIP for the of the year under review. entire Executive Board at 15% of base salary for the CEO and to 10% of base salary for other members of the Executive Board. Shares and equity rights owned by members of the Group Executive Board In addition to the on-going compensation prior to the IPO, the Board As of 31 December, 2018, members of the Group Executive Board held a of Directors had decided to grant a one-time discretionary IPO-related total of 23,730 registered shares, a total of 49,225 RSUs, a total of 103,350 equity-based award to the members of the Group Executive Board and conditional rights to purchase CEVA's shares, each having an exercise price cluster Managing Directors, prior and subject to IPO, in order to support equal to CHF0.01 (“Penny Options”), and a total of 132,728 conditional the successful IPO execution and post-IPO transformation. This award was rights to purchase CEVA's shares, each having an exercise price equal to settled in RSUs and/or Options, representing conditional rights to purchase CHF98.48 (“Options”). Outstanding Options were allocated to members of CEVA's shares, each having an exercise price equal to CHF0.01. The RSUs the Group Executive Board in connection with their former employment at and Options vest conditional on an unterminated contractual relationship CEVA Holdings prior to the IPO in May 2018. with the company in four equal annual installments. The total size of the award granted to the members of the Group Executive Board corresponded to 320,500 CEVA shares (thereof 130,000 shares for the CEO).

101 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information As of December Number of shares Number of vested Number of vested Number of vested Number of Number of Number of 31, 2018 held 1 RSUs Penny Options 2 Options 2, 3 unvested RSUs unvested Penny unvested Options 2 Options 2, 3 Xavier Urbain 16,690 0 78,900 94,280 0 167,100 162,850 Brett Bissell 540 13,900 1,460 8,164 32,100 0 12,246 Pierre A. G. Girardin 0 0 15,390 9,588 0 26,850 14,382 Laurent Binetti 0 0 0 0 0 0 0 Serge Corbel 0 0 0 0 0 0 0 Christophe Cachat 1,750 11,450 0 6,140 26,550 0 10,110 Kenneth J. Burch 1,500 9,500 0 4,800 21,750 0 7,200 Jérôme J. Lorrain 2,500 14,375 0 3,500 52,625 0 14,000 Leigh Pomlett 750 0 7,600 6,256 0 12,900 9,384 Total 23,730 49,225 103,350 132,728 133,025 206,850 230,172

1 Including shares held by related parties (members of close family, partnerships, companies, trusts or other entities in which the member or the members of the family have a controlling interest) of members of the Group Executive Board 2 The ratio is one option for one CEVA share. 3 A portion of the options are performance driven.

102 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Outlook for 2019 Target Compensation Structure

Target Compensation structure CEO The target compensation structure for the CEO and other Group Executive

Board members starting from 2019 is shown right. 3 0 % % 3 0 0 Long-Term incentive plan 3 %

Following the IPO, the Board of Directors has approved the new Long-Term % 0 Incentive Plan (“2019 LTIP”) for members of the Group Executive Board and 7 selected senior management (approximately 0.6% of all employees) with the first grant in financial year 2019. 40% The LTIP is to further recognize and reward sustainable value creation for the company and its shareholders through the annual issuance of Perfor­ mance Share Units (“PSU”). One PSU represents the conditional right to receive a fraction between 0% and 200% of a CEVA share subject to the Other Group fulfillment of certain vesting conditions. Vesting of the PSUs occurs on the Executive Board third anniversary of the respective date of grant. Vesting depends on the members 3 % 7 achievement of performance targets. Performance targets are represented 0 3 – % 3 7 3 by three-year weighted Group Net Income and three-year weighted Group 3 – – 9 6 5 3 %

– 2 9

1

Free Cashflow. The two targets are assigned weights of 75% and 25% % 6 respectively.

The award is forfeited if employment ceased before the vesting date for 33 Base salary –35 any reason other than death, disability, retirement or termination by the % Target MIP company as a “good leaver”, in which case the award is subject to a time Target LTIP pro-rated vesting at the regular vesting date except for death and disability At risk (immediate vesting). In case of change of control, the award is subject to Fixed

103 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information an early full vesting without consideration of the achievement of perfor­ Malus and clawback provisions mance targets. Grants under the new LTIP will however be unaffected by Starting from 2019, as part of the CEVA compensation framework and the change of control event related to the public tender offer by CMA CGM. ensuring appropriate risk management, all variable compensation (MIP and LTIP) is subject to malus and clawback provisions. The respective plan The award is forfeited if employment ceases before the vesting date for rules provide the Board of Directors and Compensation Committee with any reason other than death, disability, retirement or termination by the absolute discretion to recoup (or cause the forfeiture if not yet vested or company as a “good leaver”, in which case the award is subject to a time awarded) such amount of variable compensation as it determines is in pro-rated vesting at the regular vesting date except for death and disability excess of the compensation that would have been paid (or awarded) (immediate vesting). In case of change of control, the award is subject to under the restated financial result. Furthermore, any payouts of variable an early full vesting without consideration of the achievement of perfor­ compensation that would otherwise be due could be canceled for reasons mance targets. Grants under the new LTIP will however be unaffected by linked to an individual’s behavior. the change of control event related to the public tender offer by CMA CGM.

104 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Report of the statutory auditor An audit involves performing procedures to obtain audit evidence on the disclosures made in the Compensation Report with regard to compensa­ to the General Meeting of CEVA Logistics AG tion, loans and credits in accordance with articles 14 – 16 of the Ordinance. Baar The procedures selected depend on the auditor’s judgment, including the on the Compensation Report 2018 assessment of the risks of material misstatements in the Compensation Report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of Compen­ sation, as well as assessing the overall presentation of the Compensation We have audited the pages 97–102 of the accompanying Compensation Report. Report of CEVA Logistics AG for the year ended 31 December 2018. We believe that the audit evidence we have obtained is sufficient and Board of Directors’ responsibility appropriate to provide a basis for our opinion. The Board of Directors is responsible for the preparation and overall fair presentation of the Compensation Report in accordance with Swiss law and Opinion the Ordinance against Excessive Compensation in Stock Exchange Listed In our opinion, the Compensation Report of CEVA Logistics AG for the year Companies (Ordinance). The Board of Directors is also responsible for ended 31 December 2018 complies with Swiss law and articles 14 – 16 of designing the Compensation system and defining individual Compensation the Ordinance. packages. PricewaterhouseCoopers AG Auditor’s responsibility Our responsibility is to express an opinion on the accompanying Compen­ sation Report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical require­ Bruno Rossi Sven Rumpel ments and plan and perform the audit to obtain reasonable assurance Audit expert Audit expert about whether the Compensation Report complies with Swiss law and Auditor in charge articles 14–16 of the Ordinance. Basel, 26 February 2019

105 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Risk Management

Risk Management Approach Ongoing Risk Management Process and Process

As a global provider within the supply chain industry, CEVA works to identify and monitor a Step 1 variety of risks. Risk Identification / Inventory / Universe

CEVA’s risk management process involves routine Step 2 assessments to determine present risks and their Definition of Risk Appetite severity, and to identify the effectiveness of existing control measures. If further actions are Stakeholder Consultation / Step 3 required, they are assigned and reviewed regu­ Communication including Risk Evaluation larly. reporting to Executive Board and Risk and Compliance Committee (and the BoD) The top down and bottom up risk assessment Step 4 Current control and control effectiveness Administration Agenda, risk approach encompasses functions and clusters as recording /documentation well as risks realized within CEVA or the industries in which CEVA operates. Step 5 Risk treatment

Risk governance and culture Step 6 Risk monitor, review Risk Management is embedded in CEVA’s organization and processes and is designed to increase the awareness of these risks within the organization.

106 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information The Enterprise Risk Management Process is CEVA’s risk universe clusters various topics in four categories. Following you find an overview: aligned with other internal and external processes (for example internal control, internal audit, oper­ Strategic Risks ational compliance and quality assurance). Included risks Includes aspects like macro-economic issues, planning, business model, and various initiatives, including M & A activities. Summary on key risk The supply chain management industry relies on favorable trade policies and may be The process includes reporting to the Risk and and initiated mitigation materially adversely affected by negative changes in economic conditions across the global Compliance Committee, which provides Board- economy and individual countries and regions. Market Dynamics with potential volume level oversight. The Risk Management cycle sup­ downturn or downturn in particular industries or geographies remained a risk. ports the Executive Board to monitor risks on a CEVA’s business is diversified geographically, in freight management and contract logistics and offers services within different industries. day-to-day basis. CEVA’s business model relies on customer’s international production. Response to industry and technology shifts is essential, including further diversification of customer base in certain industries.

Key Risk analysis As an asset light service provider we profit from a large variable cost component, while allowing us to reduce our costs quickly. However, CEVA does rely on third-party suppliers, including their availability of services as well their compliance. In preparation for CEVA’s going public in May The adjusted commercial organization under our new CCO is structured to support existing 2018, a prospectus with a comprehensive risk and potential new customers. section has been published. Those risks are inte­ grated in CEVA’s risk universe and encompasses all identified risks in 2018. See: https://ir.cevalogistics.com/websites/ceva/English/3000/ Financial Risks results-centre-_-presentations.html Included risks Market and liquidity, currency risk, financial reporting, tax and risk financing. Summary on key risk Reference is made to note 4 of the Consolidated Financial Statements in this Annual Report. and initiated mitigation Following the Enterprise Risk Management cycle, the Executive Board reviewed risks and presented the selected top risks to the new Risk and Compli­ ance Committee.

107 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Operational Risks Included risks Product and Service related offering, people related risks and opportunities like Health, Safety but also technology aspects are covered. Summary on key risk Our 58,000 employees, contractors and partners are the heart of our business offering. and initiated mitigation To attract, retain and develop talent is a daily effort. We work closely with partners and stakeholders to avoid labor shortages. We invest with two major global learning and development programs in our employees and future leaders. Furthermore we expanded capacity of our internal recruiting team. Information Technology systems are crucial for our operation but might be subject to risk, including cyber breaches and disruptions. Adequate protection of personal or customer data is a key requirement. CEVA continuously invests in a number of IT projects that respond to customer needs and evolve with advances in technology like visibility, digitalization or automation. CEVA has decided to further invest and develop its internal capabilities with regard to cybersecurity and incident response. We also work closely with specialist companies to assist us in our priority for safekeeping customer’s and employees’ data as well as system availability.

Legal and Compliance Included risks Contracts, compliance with legal, regulatory and CEVA specific requirements. Summary on key risk Our business is subject to various laws and regulations around the world to comply with and and initiated mitigation minimize the risk of violation. Contracts with onerous terms and conditions might impact profitability. To avoid the risk of violation we have implemented a comprehensive compliance, approval and education structure in areas like trade compliance, HSE and data privacy. Furthermore we finalized a global umbrella quality management approach in December 2018.

108 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Shareholder Information and Investor Relations

Key Data IPO achieved in 2018 repay debt, in order to deleverage the balance sheet.

SIX Swiss Exchange CEVA Logistics AG achieved its initial public Listing (International Reporting offering on the SIX Swiss Exchange and CEVA Standard) LOGISTICS shares (ticker CEVA.SW) have been CMA CGM public tender offer Ticker symbol CEVA traded since 4 May, 2018. The launch price for Swiss security number 41 323 739 the shares was set at CHF27.50, giving a market In October 2018, CEVA Logistics AG and CMA ISIN CH0413237394 capitalization of approximately CHF1.5 billion. CGM S. A – its major shareholder and strategic Number of Shares in Issue 55,203,096 partner – announced that they would signifi­ (Dec. 31, 2018) The IPO was a primary offering consisting of up cantly broaden their partnership. As part of Market Capitalization CHF1.6 billion as of 31 December, 2018 to 29.9 million newly issued registered shares, this initiative, CEVA Logistics would acquire the Average Daily Trading volume CHF2.8 million in addition to which CMA CGM made an invest­ freight management business of CMA CGM. Median Daily volume 123,000 shares ment in CEVA Logistics of CHF380 million. Some Furthermore, CMA CGM would offer to buy CEVA CHF1.2 billion of the proceeds have been used to Logistics shares from existing shareholders for CHF30.00 per share in cash, unless they wished Share Price Trend since IPO to remain invested longer term. This option has been provided in the form of a public tender offer 35 open to all shareholders launched on 28 January, 2019. The tender offer started on 12 February. 30 The Board of Directors of CEVA Logistics unan­ 25 imously confirmed that the partnership with CMA CGM would provide an attractive value 20 proposition to shareholders in the mid- and long- term, and the two businesses have agreed that

15 CEVA Logistics will remain a listed company with an arm’s length business relationship with CMA May Jun Jul Aug Sep Oct Nov Dec Jan 2018 2019 CGM. For this reason, and in agreement with

109 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information CEVA share-price trend in 2018 After the announcement (on 25 October) of the CMA CGM tender offer, the share price reached a Share price performance between the IPO in high of CHF30.25, before stabilizing in November May and early October was disappointing, falling and December within a narrow range of CHF29 from an initial CHF27.50 to a low of CHF18.30 to CHF30.10. Since the IPO the performance has on 10 October. This was despite the fact that been +8%, vs. a market performance of the SMI CEVA Logistics had made progress on its strategy PR Index of 6.7%. – notably with first half results being slightly above market expectations, and a successful refinancing of its remaining debt at much lower Dividend policy and rates. Annual General Meeting

However, liquidity in the shares remained low CEVA Logistics aims to generate shareholder and the macro environment (including the tariff returns through price appreciation and dividends. situation between China and the US) was not We intend to pay our initial dividend in 2020 for helpful, though the impact so far has been limited. Fiscal Year 2019 subject to performance. Once Finally, it is often seen with a newly listed stock, we attain our goal of being further deleveraged, investors need more history and evidence of we will aim for a dividend payout ratio of at least delivery to firm up their investment decisions. 40% of net income.

In order to increase liquidity, we have actively The first Annual General Meeting of CEVA Logis­ reached out to existing and potential investors tics will be held on 29 April, 2019 in Lorzensaal, telling the CEVA Logistics story and communicat­ Cham (ZG). The Public ing business wins and productivity improvements. Tender Offer CMA CGM, CEVA’s Board of Directors has not This has included attending investor conferences from CMA CGM for CEVA recommended to existing shareholders to tender in Switzerland and abroad. shares has their shares. started on 12 February, 2019.

110 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Shareholder composition Investor Relations

On 31 December, 2018, CEVA Logistics’ main CEVA Logistics is committed to genuine dialog shareholder was its long-term strategic partner with its shareholders and with the broader finan­ CMA CGM, which owns 33% of the share capital. cial community. In order to ensure that the figures The remaining roughly 60% was held by institu­ we release each quarter are fully understood, tional investors in different countries including the Group organizes conference calls led by the Switzerland, the US, the UK, France and Germany Group Chief Executive Officer and Group Chief and private investors mainly located in Switzer­ Financial Officer. In addition, a program of regular land. meetings with investors and analysts is run, with the CEO and CFO holding sessions in Europe (in According to SIX Swiss Exchange, the main share­ particular in Switzerland, London and Paris) as holders as of 31 December, 2018 other than well as in the United States. These events create CMA CGM, were Société Générale with 8.1%, opportunities for more informal dialog. Themed The Investor Relations department is Goldman Sachs with 6.3%, Franklin Resources briefings can also be held to give analysts insight always available to answer questions from with 5.3%, Capital Group with 4.7% and into key strategic developments. CEVA Logistics analysts and investors. All plenary pre- Davidson Kempner with 3.3%. also regularly takes part in industry presentations sentations, recordings and transcripts are and conferences organized by brokerage firms in available on the Investor Relations section Switzerland and abroad. of the website https://ir.cevalogistics.com/websites/ceva/English/1/ investors.html

in addition to all press releases.

111 Annual Report 2018 CEVA Logistics Corporate Governance and Shareholder Information Financial Statements Consolidated Financial Statements and Auditor’s Report

113 Annual Report 2018 CEVA Logistics Financial Statements Consolidated income statement

Years ended 31 December US$ millions 2018 2017 Before specific Specific items Before specific Specific items Note Total Total items and SBC and SBC 1 items and SBC and SBC1

Revenue 6 7,356 - 7,356 6,994 - 6,994

Work contracted out (3,727) - (3,727) (3,526) - (3,526) Personnel expenses 8 (2,209) (44) (2,253) (2,104) (28) (2,132) Other operating expenses (1,222) (33) (1,255) (1,134) (17) (1,151) Operating expenses excluding depreciation, amortization and impairment (7,158) (77) (7,235) (6,764) (45) (6,809)

EBITDA 5 198 (77) 121 230 (45) 185

Depreciation 14 (61) - (61) (55) - (55) Amortization and impairment 13 (63) - (63) (74) - (74)

Operating income 74 (77) (3) 101 (45) 56

Finance income 9 11 - 11 5 - 5 Finance expense 9 (191) (56) (247) (226) (12) (238) Foreign exchange gain / (loss) 9 4 - 4 (25) - (25) Net finance income / (expense) (176) (56) (232) (246) (12) (258)

Net result from joint ventures 18 29 - 29 23 - 23

Profit / (Loss) before income taxes (73) (133) (206) (122) (57) (179)

Income tax income / (expense) 10 (47) 11 (36) (18) - (18) Profit / (Loss) for the period (120) (122) (242) (140) (57) (197)

Attributable to: Non-controlling interests - - Equity holders of the Company (242) (197)

Earnings per share (in US$) Basic and Diluted 11 (5.99) (17.12)

1 Refer to note 7 for details on specific items and non-cash share based compensation costs (SBC) 2 Refer to note 2 for details on the Accounting for a capital reorganization relating to the legal merger of CEVA Logistics AG and CEVA Holdings LLC

The accompanying notes are an integral part of the Consolidated Financial Statements.

114 Annual Report 2018 CEVA Logistics Financial Statements Consolidated statement of comprehensive income

Years ended 31 December US$ millions 2018 2017 Before specific Specific items Before specific Specific items Note Total Total items and SBC and SBC 1 items and SBC and SBC1

Profit / (Loss) for the period (120) (122) (242) (140) (57) (197)

Items that will not be reclassified to Profit and Loss: Remeasurements of retirement benefit obligations 21 8 - 8 (2) - (2) Tax effects of items in OCI 10 (2) - (2) 6 - 6

Items that may be reclassified subsequently to Profit and Loss: Hedge reserve (12) - (12) - - - Currency translation adjustment (21) - (21) 48 - 48 Total comprehensive income/(loss) for the period, net of income tax (147) (122) (269) (88) (57) (145)

Attributable to: Non-controlling interests - - Equity holders of the Company (269) (145)

Total comprehensive Profit / (Loss) for the period (269) (145)

1 Refer to note 7 for details on specific items and non-cash share based compensation costs (SBC).

The accompanying notes are an integral part of the Consolidated Financial Statements.

115 Annual Report 2018 CEVA Logistics Financial Statements Consolidated balance sheet

as at 31 December as at 31 December US$ millions Note 2018 2017 1 US$ millions Note 2018 2017 1

Assets Equity Non-current assets Capital and reserves attributable to equity holders Intangible assets 13 1,377 1,448 Share capital 19 6 1 Property, plant and equipment 14 175 169 Share premium 19 1,159 - Investments in joint ventures 18 99 98 Other reserves 2,319 2,319 Deferred income tax assets 10 106 108 Accumulated deficit (3,240) (2,997) Prepayments 39 44 Attributable to equity holders of the Company 244 (677) Other non-current assets 23 91 106 Non-controlling interests 1 3 Total non-current assets 1,887 1,973 Total Group equity 245 (674)

Current assets Inventory 15 6 18 Liabilities Trade and other receivables 16 1,136 1,053 Non-current liabilities Prepayments 66 65 Borrowings 20 1,519 2,197 Contract assets 6 138 - Deferred income tax liabilities 10 7 8 Accrued income - 131 Retirement benefit obligations 21 97 111 Income tax receivable 12 12 Provisions 23 116 125 Derivative financial instruments 4 2 - Other non-current liabilities 52 60 Cash and cash equivalents 17 368 295 Total non-current liabilities 1,791 2,501 Total current assets 1,728 1,574 Current liabilities Total assets 3,615 3,547 Borrowings 20 41 187 Provisions 23 76 68 Trade and other payables 24 1,387 1,449 Contract liabilities 6 36 - Income tax payable 25 16 Derivative financial instruments 4 14 - Total current liabilities 1,579 1,720

Total equity and liabilities 3,615 3,547

1 Refer to note 2 for details on the accounting for a capital reorganization relating to the legal merger of CEVA Logistics AG and CEVA Holdings LLC.

The accompanying notes are an integral part of the Consolidated Financial Statements.

116 Annual Report 2018 CEVA Logistics Financial Statements Consolidated statement of cash flows

Years ended 31 December Years ended 31 December US$ millions Note 2018 2017 US$ millions Note 2018 2017

Profit / (Loss) before income taxes (206) (179) Interest cost paid (149) (153) Other financing cost paid (56) (36) Adjustments for: Net income taxes paid 10 (30) (37) Depreciation, amortization and impairment 124 129 Net cash (used for) / from operating activities (168) (17) Finance income 9 (11) (5) Gain on disposal of property, plant and equipment (1) (1) Capital expenditure 1 (109) (102) Foreign exchange (gains) and losses 9 (4) 25 Proceeds from sale of property, plant and equipment 10 4 Finance expense 9 247 238 Dividends received 18 20 15 Share of profit from equity accounted joint venture (29) (23) Interest received 10 11 Share based compensation costs 33 9 Net cash (used for) / from investing activities (69) (72)

Changes in provisions: Issuance of shares 1 - Retirement benefit obligations 21 (5) (8) IPO proceeds (gross) 19 1,198 - Long-term Provisions 23 (6) (2) IPO transaction costs (38) - Repayment of borrowings 20 (2,050) (288) Changes in working capital: Proceeds from non-current borrowings 1 20 1,165 41 Inventory 15 10 (4) Proceeds from current borrowings 20 34 303 Trade and other receivables 16 (72) (8) Net cash (used for) / from financing activities 310 56 Prepayments and accrued income (30) 15 Trade and other payables 24 (12) 22 Change in cash and cash equivalents 17 73 (33) Cash and cash equivalents at beginning of period 17 295 333 Changes in non-current prepayments 3 (5) Foreign exchange impact on cash and cash equivalents 17 - (5) Changes in non-current assets and liabilities 26 6 Cash and cash equivalents at end of period 17 368 295 Cash generated (used for) / from operations 67 209 1 Includes US$13 million of capital expenditure funded by finance leases.

The accompanying notes are an integral part of the Consolidated Financial Statements.

117 Annual Report 2018 CEVA Logistics Financial Statements Consolidated statement of changes in equity

Attributable Non- Accumulated to equity Total Group US$ millions Share Capital Share Premium Other reserves controlling deficit holders of the equity interest Company

Balance at 1 January 2017 1 1 - 2,258 (2,800) (541) 3 (538) Currency translation adjustment - - 48 - 48 - 48 Tax effects of items in OCI - - 6 - 6 - 6 Remeasurements of retirement benefit obligations - - (2) - (2) - (2) Share based compensation - - 9 - 9 - 9 Loss attributable to equity holders for the period - - (197) (197) - (197) Balance at 31 December 2017 1 - 2,319 (2,997) (677) 3 (674)

Restated as at 1 January 2018 2 1 - 2,319 (2,998) (678) 3 (675) IPO proceeds 3 817 - - 820 - 820 CMA convertible securities 2 376 - - 378 - 378 IPO transaction costs - (38) - - (38) - (38) Currency translation adjustment - - (21) - (21) - (21) Hedge Reserve - - (12) - (12) - (12) Tax effects of items in OCI - - (2) - (2) - (2) Remeasurements of retirement benefit obligations - - 8 - 8 - 8 Share based compensation - 4 27 - 31 - 31 Loss attributable to equity holders for the period - - - (242) (242) - (242) Change in non-controlling interest - - - - - (2) (2) Balance at 31 December 2018 6 1,159 2,319 (3,240) 244 1 245

1 Refer to note 2 for details on the accounting for a capital reorganization relating to the legal merger of CEVA Logistics AG and CEVA Holdings LLC. 2 Refer to Note 2 for details on the restatement due to the adoption of new IFRS accounting standards.

The accompanying notes are an integral part of the Consolidated Financial Statements.

118 Annual Report 2018 CEVA Logistics Financial Statements Notes to the Consolidated Financial Statements

1. General information

CEVA Logistics AG (the “Company”) was established as a holding company In addition, Mr. Rodolphe Saadé (Chairman and CEO of CMA CGM and on 21 February, 2018 in Switzerland. The address of its registered office a director of the Company) and CMA CGM made additional purchases is Grabenstrasse 25, 6340 Baar, Switzerland. The founder of the Company of CEVA’s shares such that together they held at total of 33% of CEVA’s was CEVA Holdings LLC. On 3 May, 2018 CEVA Holdings LLC legally merged Shares as of 31 December, 2018. Additionally, CMA CGM entered into a with CEVA Logistics AG, with CEVA Logistics AG being the surviving entity. total return swap and a forward share purchase agreement related to CEVA’s Shares giving CMA CGM total economic exposure of approximately CEVA Logistics AG and its subsidiaries (collectively, the “Group” or “CEVA”) 46% in CEVA’s Shares as of 31 December, 2018. On 4 January, 2019, CMA design, implement and operate complete end-to-end Freight Management CGM entered into an additional forward share purchase agreement giving and Contract Logistics solutions for multinational and small and medium it total economic exposure of 50.6% in CEVA’s Shares. sized companies on a local, regional and global level. CEVA Logistics AG is the immediate parent of CEVA Group Plc, a company incorporated on 9 These Group Consolidated Financial Statements were authorized for issue August, 2006 in England and Wales as a UK public company with limited by the Board of Directors on 26 February, 2019. liability.

On 4 May, 2018, CEVA Logistics AG completed an IPO on the SIX Swiss Exchange with gross proceeds of CHF821 million (US$820 million), which successfully closed on 8 May, 2018. At the same time, CEVA Logistics AG issued mandatory convertible securities to CMA CGM S. A. (“CMA CGM”) in the amount of CHF379 million (US$378 million). The convertible securities were converted to ordinary shares of CEVA Logistics AG, par value CHF0.10 per share (“CEVA’s Shares”) on 13 August, 2018 following the receipt of regulatory approvals.

119 Annual Report 2018 CEVA Logistics Financial Statements 2. Summary of significant shares were then entitled to receive 10 common shares of CEVA Logistics AG for each CEVA Holdings LLC common share held after conversion of the accounting policies A1 and A2 preference shares. This resulted in 11.5 million shares of CEVA The principal accounting policies applied in the preparation of these Con­ Logistics AG being issued on merger and prior to IPO. solidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Under the principles of capital reorganization accounting, the Company has reported the whole prior period results and statement of comprehen­ sive income of CEVA Holdings LLC and its subsidiaries rather than including 2.1 Basis of preparation them only from the capital reorganization date and has reflected the new equity structure of CEVA Logistics AG from 1 January, 2017 in doing so. This The Consolidated Financial Statements of the Company have been pre­ gives rise to a difference on consolidation, called the capital reorganization pared on a going concern basis in accordance with International Financial reserve, which is included within other reserves as shown in the table below: Reporting Standards (IFRS) as issued by the International Accounting CEVA Logistics CEVA Holdings Standards Board (IASB), IFRIC interpretations and complies with Swiss law. AG – Balance US$ millions LLC – Balance as Merger as of 1 January The Consolidated Financial Statements of CEVA Holdings LLC (predeces­ of 1 January 2017 2017 sor entity to CEVA Logistics AG prior to legal merger) had been prepared Preferred stock, Common Stock and 1,443 (1,443) - in accordance with International Financial Reporting Standards (IFRS) as Additional paid in capital adopted by the European Union. We have not identified any material differ­ Share Capital - 1 1 ences between EU-IFRS and IFRS as issued by the IASB for the periods pre­ Other reserves 816 1,442 2,258 Accumulated deficit (2,800) - (2,800) sented. The Consolidated Financial Statements have been prepared under Attributable to equity holders of the (541) - (541) the historical cost convention, as modified by the revaluation of financial Company Non-controlling interest 3 - 3 assets and financial liabilities (including derivative instruments) at fair value Total Group equity (538) - (538) through profit or loss.

In order to effect the merger of CEVA Holdings LLC with the Company, For the current reporting and comparatives, the Financial Statements of the the series A1 and A2 preference shares of CEVA Holdings LLC were first individual Group entities were combined on a line-by-line basis by adding converted into common shares of CEVA Holdings LLC. This resulted in 1.15 together comparable items of assets, liabilities, equity and income and million CEVA Holdings LLC common shares. The holders of these common expenses. Balances, transactions and unrealized gains or losses on transac­

120 Annual Report 2018 CEVA Logistics Financial Statements tions between the combined and consolidated entities, including their sub­ to exercise its judgment in the process of applying the Group’s accounting sidiaries, were eliminated in full. Refer also to note 19 for additional details. policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Consolidated Company management considers whether it is appropriate to prepare Financial Statements are disclosed in note 3 “Critical accounting estimates the financial statements under the going concern principle. CEVA pre­ and judgments”. pares annual budgets, multi-year forecasts and regularly supplements the budgets with forecasts during the year. In addition, the Company makes Presentation of financial information an assessment of the amount of facilities available to it, including commit­ The Group’s consolidated income statements and segment analysis sepa­ ments to repay debt and capital required for acquisitions. In this context, rately identify operating results before specific items and Share Based Com­ the Company has considered the implications of the change of control that pensation (“SBC”). Specific items and SBC are those that in management’s is expected to occur in connection with the public tender offer launched by judgment are exceptional by virtue of their size, nature or incidence and CMA CGM on 28 January, 2019 for all publicly registered CEVA Shares (the therefore are separately disclosed on the face of the consolidated income “Public Tender Offer”). Further details are provided at note 28 “Events After statements. In determining whether an event or transaction is specific, Balance Sheet Date”. After reviewing this information, and in particular management considers quantitative as well as qualitative factors such as noting that CMA CGM and CEVA have entered into a commitment letter the frequency or predictability of occurrence. This is consistent with the way with certain banks whereby such banks have agreed to underwrite additional that financial performance is measured by management and reported to term loan facilities in the amount of up to US$825 million comprised of two the Board of Directors and assists in providing a meaningful analysis of the tranches: (i) a US$475 million term loan B facility to be issued under CEVA’s operating results of the Group. Management believes that presentation of existing Senior Term and Revolving Credit Facilities Agreement, dated 3 the Group’s results in this way is relevant to an understanding of the Group’s August, 2018 (the “SFA”) and (ii) an additional US$350 million term loan financial performance. Furthermore, the Group considers a columnar pre­ B facility to be issued under the SFA or another debt instrument. Company sentation to be appropriate, as it improves the clarity of the presentation management has concluded that the Group has adequate resources for the and is consistent with the way that financial performance is measured by foreseeable future. Therefore, the Group and the Company have continued management and reported to the Board of Directors. Specific items may not to adopt the going concern basis in the preparation of the financial state­ be comparable to similarly titled measures used by other companies. Items ments. that have been considered to be specific items include costs incurred in the realization of our cost containment programs, other significant non-recur­ The preparation of Financial Statements in conformity with IFRS requires ring charges or credits, the profits or losses realized on certain non-recurring the use of certain critical accounting estimates. It also requires management transactions, impairment of intangible assets and transaction costs related

121 Annual Report 2018 CEVA Logistics Financial Statements to significant corporate activity. It also excludes SBC which are non-cash – IFRS 2, “Share Based Payments” – Clarifies the accounting for cash- accounting charges for share based compensation arrangements. Specific settled share-based payment transactions that include a performance items for the current and prior year are disclosed in note 7. condition, the classification of share-based payment transactions with net settlement features, and the accounting for modifications of share- EBITDA before specific items and SBC refers to earnings before interest, tax, based payment transactions from cash-settled to equity-settled. This depreciation, amortization, specific items and Share Based Compensation amendment had no material impact on the 2018 Financial Statements. (“EBITDA before specific items and SBC”), is a key financial measure used by – IFRS 9, “Financial Instruments” – Addresses the classification, measure­ management to assess operational performance. ment and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010, and further amended Adjusted EBITDA (“Adjusted EBITDA”) is another key financial measure in July 2014. It replaces the parts of IAS 39 that relate to the classifica­ used by management to assess operational performance. Adjusted EBITDA tion and measurement of financial instruments. IFRS 9 requires financial refers to EBITDA before specific items and SBC, and includes the Group’s assets to be classified into two measurement categories: those measured share of the EBITDA before specific items of the Anji-CEVA joint venture. as at fair value and those measured at amortized cost. The determina­ tion is made at initial recognition. The classification depends on the Neither EBITDA before specific items and SBC nor Adjusted EBITDA is a entity’s business model for managing its financial instruments and the measurement of performance or liquidity under IFRS and should not be contractual cash flow characteristics of the instrument. For financial lia­ considered as a substitute for profit / (loss) for the year, operating profit, bilities, the standard retains most of the IAS 39 requirements. The main net income or any other performance measures derived in accordance with change is that, in cases where the fair value option is taken for financial IFRS or as a substitute for cash flow from operating activities as a measure liabilities, the part of a fair value change due to an entity’s own credit of CEVA’s performance. Because not all companies calculate EBITDA before risk is recorded in other comprehensive income rather than the income specific items and SBC or Adjusted EBITDA identically, the presentations of statement, unless this creates an accounting mismatch. IFRS 9 relaxes EBITDA before specific items and SBC, and Adjusted EBITDA in this Annual the requirements for hedge effectiveness by replacing the bright line Report may not be comparable to other similarly titled measures of other hedge effectiveness tests. It requires an economic relationship between companies. the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management New and amended standards adopted by the Group purposes. Contemporaneous documentation is still required but is dif­ The Group has applied the following standards and amendments for the ferent to that currently prepared under IAS 39. IFRS 9 also introduces a first time for the financial year beginning on 1 January, 2018:

122 Annual Report 2018 CEVA Logistics Financial Statements single impairment model and removes the need for a triggering event to trade and other payables balances are affected by US$13 million and be necessary for recognition of impairment losses. US$11 million, respectively per 1 January, 2018. This led to an increase of US$2 million in retained earnings. No material impact on profit for The Group concluded that the classification and measurement basis for future periods is expected. In 2018 the revenue recognized at a point in its financial assets and liabilities is largely unchanged by adoption of time is not material. The Group assessed the impact of revenue recog­ IFRS 9. The main impact of adopting IFRS 9 arose from the implementa­ nition on the 2018 revenue figures, and we concluded that the revenue tion of the expected loss model regarding trade debtors. The calculat­ed would not have been materially different when reporting under IAS 18. impact at 1 January, 2018 under the “simplified approach” is US$3 million. No material impact on profit for future periods is expected. IFRS 15 requires contract assets and liabilities to be presented separately. The Group has presented US$138 million as contract assets and US$36 – IFRS 15, “Revenue from Contracts with Customers”. This new standard million as contract liabilities as of 31 December, 2018 on separate on revenue recognition supersedes IAS 18 Revenue, IAS 11 Construction balance sheet lines. As of 1 January, 2018, those balances amounted Contracts and related interpretations. The new standard establishes to US$137 million and US$38 million. In prior periods, these amounts uniform requirements regarding the nature, amount, timing, and time were presented as accrued income or included within trade and other period of revenue recognition. Revenue is recognized when a customer payables respectively. obtains control of a good or a service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard – IFRIC 22, “Foreign Currency Transactions and Advance Consideration”- provides a principles-based five-step model that must be applied to all This interpretation addresses foreign currency transactions: the date of categories of contracts with customers and has been adopted using the the transaction, for the purpose of determining the exchange rate, is modified retrospective approach which does not require comparatives the date of initial recognition of the non-monetary prepayment asset to be restated. or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or The Group carried out a review of existing contractual arrangements as receipt. The new interpretation requires application for annual periods part of this process. We concluded that IFRS 15 does not have a material beginning on or after 1 January, 2018. This interpretation had no impact impact on the Contract Logistics Business where revenue was recognized on the 2018 Financial Statements. over time already prior to IFRS 15. Regarding the Freight Management business, the timing of revenue recognition from certain types of con­ Restated opening balance sheet 1 January, 2018 tracts did change because according to IFRS 15 revenue is recognised IFRS 9 and IFRS 15 have been adopted by using the modified retrospective over time instead of at a point in time. As a result, accrued income and method without restating comparatives. The following tables show the

123 Annual Report 2018 CEVA Logistics Financial Statements adjustments recognized for each individual line item regarding the changes and have not been applied in preparing these Consolidated Financial State­ as described above. Line items that were not affected by the changes have ments: not been included. As a result, the sub-totals and totals disclosed cannot be – IFRIC 23, “Uncertainty over income tax treatments” – This interpreta­ recalculated from the numbers provided. The adjustments are explained in tion clarifies the accounting for uncertainties in income taxes, and to more detail above. be applied to the determination of taxable profit (tax loss), tax bases,

as at as at 1 unused tax losses, unused tax credits and tax rates, when there is uncer­ IFRS 9 IFRS 15 US$ millions 31 December January adjustment adjustment tainty over income tax treatments under IAS 12. IFRIC 23 is effective 2017 2018 for annual reporting periods beginning on or after 1 January, 2019. No Assets Trade and other receivables 1,053 (3) - 1,050 material impact is currently expected. Accrued income 131 - 13 144 Total current assets 1,574 (3) 13 1,584 – IFRS 3, “Business Combinations” – Clarifies the standard in relation to obtaining control of a business that is a joint operation in a business Total assets 3,547 (3) 13 3,557 combination wich is achieved in stages. This clarification requires appli­ Equity cation for annual periods beginning on or after 1 January, 2019. No Capital and reserves attributable to equity holders material impact is expected. Share capital 1 - - 1 Other reserves 2,319 - - 2,319 – IFRS 16, “Leases” – The new standard addresses the definition of a lease, Accumulated deficit (2,997) (3) 2 (2,998) recognition and measurement of leases and establishes principles for Attributable to equity holders (677) (3) 2 (678) of the Company reporting useful information to users of Financial Statements about the

Total Group equity (674) (3) 2 (675) leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance Liabilities Trade and other payables 1,449 - 11 1,460 sheet. The standard replaces IAS 17 “Leases”, and the related interpreta­ Total current liabilities 1,720 - 11 1,731 tions. The standard is effective for annual reports beginning on or after

Total equity and liabilities 3,547 (3) 13 3,557 1 January, 2019. The analysis conducted as part of the Group-wide project on initial appli­ New standards and interpretations not yet adopted cation indicated that IFRS 16 will have a material effect on components A number of new standards and amendments to standards and interpre­ of the Consolidated Financial Statements and the presentation of the net tations are effective for annual periods beginning after 1 January, 2018, assets, financial position and results of the Group as summarized below:

124 Annual Report 2018 CEVA Logistics Financial Statements Balance sheet: IFRS 16 requires lessees to adopt a uniform approach The Group will apply the Standard from its mandatory adoption date of to the presentation of leases. Assets must be recognized for the right 1 January, 2019. The Group will transition to IFRS 16 in accordance with of use received and liabilities must be recognized for the payment the modified retrospective approach and will not restate comparative obligations entered into for all leases. The Group will make use of the amounts for the year prior to first adoption. Right-of-use assets will be relief options provided for leases of low-value assets and short-term measured at the amount of the lease liability on adoption (adjusted for leases (shorter than twelve months). For leases that have been classi­ any prepaid or accrued lease expenses). fied to date as operating leases in accordance with IAS 17, the lease There are no other IFRS or IFRIC interpretations that are not yet effective liability will be recognized at the present value of the remaining lease that would be expected to have a material impact on the Group. payments, discounted using the lessee’s incremental borrowing rate at the date the standard is first applied. The right-of-use asset will gener­ ally be measured at the amount of the lease liability plus initial direct 2.2 Consolidation costs, after adjustments for prepayments and accrued lease payments recognized. The analysis conducted as part of the Group-wide project Subsidiaries on initial application indicates that on 1 January, 2019, as a result Subsidiaries are all entities (including structured entities) over which the of the transition, the Group will recognize right-of-use assets totaling Group has control. The Group controls an entity when the Group is exposed approximately US$1.2 billion and lease liabilities in the balance sheet to, or has rights to, variable returns from its involvement with the entity and totaling approximately US$1.2 billion. has the ability to affect those returns through its power over the entity. Sub­ sidiaries are fully consolidated from the date on which control is transferred Income statement: The Group expects that net profit after tax will to the Group. They are de-consolidated from the date that control ceases. decrease by approximately US$17 million as a result of adopting the accounting treatment for leases EBITDA is expected to increase by The Group uses the acquisition method of accounting to account for busi­ approximately US$370 million, as the operating lease expenses are no ness combinations. The consideration transferred for the acquisition of a longer included in EBITDA, and depreciation of the right-of-use assets subsidiary is the fair value of the assets transferred, the liabilities incurred and interest on the lease liability are excluded from this measure. and the equity interests issued by the Group. The consideration transferred Cash flow statement: cash flow from operations will increase and cash includes the fair value of any asset or liability resulting from a contingent flows from financing activities will decrease by approximately US$370 consideration arrangement. Acquisition-related costs are expensed as million as repayment of the principal portion of the lease liabilities will incurred. Identifiable assets acquired and liabilities and contingent liabili­ be classified as cash flows from financing activities. ties assumed in a business combination are measured initially at their fair

125 Annual Report 2018 CEVA Logistics Financial Statements values at the acquisition date. The Group recognizes any non-controlling joint ventures have been changed where necessary to ensure consistency interest in the acquiree at the non-controlling interest’s proportionate with the policies adopted by the Group. share of the acquiree’s net assets. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. 2.3 Revenue from contract with customers

Intercompany transactions, balances and unrealized gains on transactions Revenue recognition between Group companies are eliminated. Unrealized losses are also elimi­ The Group derives revenue from the transfer of services mainly over time in nated. Accounting policies of subsidiaries have been changed where neces­ four major product lines, Contract Logistics, Air Freight Management, Ocean sary to ensure consistency with the policies adopted by the Group. Freight Management and other Freight Management services (“Other FM”) which includes Ground, Brokerage and value added services. Joint arrangements The Group applies IFRS 11 for all joint arrangements. Under IFRS 11, invest­ The Group recognizes revenue when performance obligations are met ments in joint arrangements are classified as either joint operations or joint which is dictated by the type of service CEVA is providing in agreement with ventures depending on the contractual rights and obligations of each inves­ the customer. tor. The Company has assessed the nature of its joint arrangement (Anji- CEVA) and determined it to be a joint venture. Joint ventures are accounted Contract logistics services for using the equity method. CEVA provides a range of logistics services such as distribution, pick and pack, materials management services, international insurance services, Under the equity method of accounting, interests in joint ventures are ini­ global project management services and trade facilitation services. The tially recognized at cost and adjusted thereafter to recognize the Group’s revenue performance obligation is met over time based on the service share of the post-acquisition profits or losses and movements in other com­ delivered measured by either actual costs or output provided depending on prehensive income. the terms and conditions in the contracts. Costs are recorded or accrued to match revenue recognition. Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Air and Ocean Freight Management – indirect carrier Unrealized losses are also eliminated unless the transaction provides evi­ As an indirect carrier, CEVA obtains shipments from its customers, consoli­ dence of an impairment of the asset transferred. Accounting policies of the dates shipments bound for a particular destination, determines the routing,

126 Annual Report 2018 CEVA Logistics Financial Statements selects the direct carrier and tenders each consolidated lot as a single ship­ is between the customer and the direct carrier and the direct carrier is the ment to the direct carrier for transportation to a distribution point. CEVA primary obligor from the perspective of the customer. When acting in this issues a Bill of Lading to customers as the contract of carriage. CEVA has capacity, CEVA does not consolidate shipments or have responsibility for complete discretion in selecting the means, route and procedures to be shipments once they have been tendered to the carrier, therefore the CEVA followed in handling, transportation and delivery of freight. CEVA is the performance obligation is met at point in time once an agreement on the direct point of contact for service fulfillment. The performance obligation is shipment between the customer and the carrier is reached. The revenue measured based on the progress of each shipment during its time of travel, respective to agent revenue is recognized as either Ocean or Air. and thus met on an over time basis. The share of travel time not falling into a given reporting period is deferred to next period. The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment Other FM – Value added services by the customer exceeds one year. As a consequence, the group does not CEVA provides services at either origin or destination to clear shipments adjust any of the transaction prices for the time value of money. through customs, helping customers clear shipments through customs by preparing required documentation, calculating and providing for payment Contract assets and liabilities of duties and other taxes on behalf of the customers as well as arranging for The Group presents contract assets and contract liabilities separately. Con­ any required inspections by governmental agencies and arranging for deliv­ tract assets includes the accrued income of the Contract Logistics business. ery or providing additional services such as warehousing, transportation, Accrued income represents goods delivered and services rendered which storage and document handling. The performance obligation is measured have not fully been processed and invoiced. This is short term in nature and at point of time once the service has been completed, as the performance is recognized as revenue in current year. Contract liabilities mainly includes obligation is either met or not met. deferred revenue related to shipments in the Air and Ocean Freight Man­ agement business invoiced in advance which are not fully completed per Cargo agent (direct freight services) revenue as included period end. The contract liabilities are recognized as revenue once the ship­ in the Air and Ocean Freight Management business lines ments are completed, usually within one month following the period end. As an authorized cargo sales agent of most airlines and ocean shipping lines, CEVA also arranges for transportation of individual shipments and Revenue is recognized net of trade discounts, service level credits, credit receives a commission from the airline or ocean shipping line for arranging notes and taxes levied on sales when the service is rendered based on the the shipments or earns net revenue for the excess of amounts billed to the contract with the customer. The variable consideration in the contracts is customer over amounts paid to the direct carrier. The contract of carriage only recognized when it is highly probable.

127 Annual Report 2018 CEVA Logistics Financial Statements 2.4 Segment reporting Financial Statements are presented in US dollars (“US$”), which is the Group’s presentation currency. All values are rounded to the nearest million Operating segments are reported in a manner consistent with the inter­ except where otherwise indicated. nal reporting provided to the Group’s Chief Operating Decision Maker (“CODM”). The CODM, who is responsible for allocating resources and The Company is deemed to be a “stock corporation” with no operating assessing performance of the operating segments, has been identified as activities and mainly carries out financing activities. Financing activities the Executive Board, which makes strategic decisions. In addition, informa­ are mainly US$ denominated. The functional currency of the Company is tion from a geographical perspective has also been presented. therefore identified as US$.

Inter-segment pricing is determined on terms similar to those provided to Transactions and balances third parties. Foreign currency transactions in the Group’s entities are translated into the functional currency of the entity using the exchange rates prevailing at the Segment results, assets and liabilities include items directly attributable to dates of the transactions. Foreign exchange gains and losses resulting from a segment as well as those that can be allocated on a reasonable basis. the settlement of such transactions and from the translation at year-end Unallocated items mainly comprise borrowings and income tax assets and exchange rates of monetary assets and liabilities denominated in foreign liabilities. currencies are recognized in profit and loss of the entity concerned.

Segment capital expenditure is the total cost incurred during the period to Group companies acquire property, plant and equipment and intangible assets other than The results and financial position of all Group entities that have a functional goodwill, which is disclosed separately. currency different from the US$ are translated into US$ as follows:

a) assets and liabilities for each Consolidated Balance Sheet presented are 2.5 Foreign currency translation translated at the closing rate at the date of that balance sheet; b) income and expenses for each Consolidated Income Statement are Functional and presentation currency translated at average exchange rates (unless this average is not a rea­ Items included in the Financial Statements of each of the Group’s entities sonable approximation of the cumulative effect of the rates prevailing are measured using the currency of the primary economic environment on the transaction dates, in which case income and expenses are trans­ in which the entity operates (the “functional currency”). The Consolidated lated using the rate at the dates of the transactions); and

128 Annual Report 2018 CEVA Logistics Financial Statements c) all resulting exchange differences are recognized in other comprehen­ 2.6 Work contracted out sive income. Work contracted out represents the cost of third party transport providers The currencies in the Argentina and Angola operations are subject to a that CEVA utilizes to provide services to its customers. hyperinflationary economy. The impact for the Group is not material.

When the settlement of a monetary item receivable from or payable to 2.7 Other operating expenses a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are Other operating expenses include cost of materials, rental and operating considered to form part of a net investment in a foreign operation and are lease charges, maintenance and repair charges, professional fees and other recognized in other comprehensive income, and presented in the cumula­ miscellaneous expenses. tive translation reserve in equity.

On consolidation, exchange differences arising from the translation of the 2.8 Leases net investment in foreign operations and of borrowings and other currency instruments designated as hedges of such investments, are taken to other Leases in which a significant portion of the risks and rewards of ownership comprehensive income. When a foreign operation is disposed of or sold, are retained by the lessor are classified as operating leases. Payments made exchange differences that were previously recorded in other comprehensive under operating leases (net of any incentives received from the lessor) are income are reclassified to profit and loss as part of the gain or loss on sale. charged to profit or loss on a straight-line basis over the period of the lease.

Goodwill and fair value adjustments arising on the acquisition of a foreign Leases of property, plant and equipment where the Group retains substan­ entity are treated as assets and liabilities of the foreign entity and trans­ tially all the risks and rewards of ownership are classified as finance leases. lated at the closing rate of exchange. Exchange differences arising are Finance leases are capitalized at the lease’s commencement at the lower recognized in other comprehensive income. of the fair value of the leased property and the present value of minimum lease payments.

Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The

129 Annual Report 2018 CEVA Logistics Financial Statements corresponding rental obligations, net of finance charges, are included in 2.10 Income tax borrowings. The interest element of the finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of inter­ Income tax expense comprises current and deferred income tax. Income est on the remaining balance of the liability for each period. The property, tax expense is recognized in profit or loss, except to the extent that it relates plant and equipment acquired under a finance lease are depreciated over to items recognized in other comprehensive income or directly in equity. the shorter of the useful life of the asset and the lease term. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively.

2.9 Finance income and expenses Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date and Finance income comprises interest income on funds invested, changes in any adjustment to tax payable in respect of previous years. the fair value of financial assets at fair value through profit or loss, gains on the purchase of financial liabilities and gains on derivatives that are recog­ Deferred income tax is recognized using the balance sheet liability method, nized in profit or loss. Interest income is recognized as it accrues in profit or providing for temporary differences between the carrying amounts of loss. assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is not recognized for the follow­ Finance expenses comprise interest expense on borrowings, unwinding ing temporary differences: the initial recognition of assets or liabilities in of the discount on provisions, changes in the fair value of financial assets a transaction that is not a business combination and that affects neither at fair value through profit or loss, losses on hedging instruments that are accounting nor taxable profit or loss and differences relating to investments recognized in profit or loss, bank charges and bank guarantee fees. Borrow­ in subsidiaries and joint venture entities to the extent that it is probable that ing costs on qualifying assets are capitalized. All other borrowing costs are they will not reverse in the foreseeable future. In addition, deferred income recognized in profit or loss using the effective interest method. tax liabilities are not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred income tax is measured at Foreign currency gains and losses are presented on a net basis. the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority

130 Annual Report 2018 CEVA Logistics Financial Statements on the same taxable entity, or on different tax entities, but they intend to 2.12 Intangible assets settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair A deferred income tax asset is recognized to the extent that it is probable value of the Group’s share of the net identifiable assets, liabilities and that future taxable profits will be available against which the temporary contingent liabilities of the acquired subsidiary at the date of acquisition. difference can be utilized. Deferred income tax assets are reviewed at each Goodwill on acquisition of subsidiaries is included in intangible assets and is reporting date and are reduced to the extent that it is no longer probable carried at cost less accumulated impairment losses. that the related benefit will be realized. Goodwill impairment tests are undertaken annually or more frequently if Deferred income tax is not provided on the unremitted earnings of subsid­ events or changes in circumstances indicate a potential impairment. The iaries and joint ventures where the timing of the reversal of the remitting carrying value of goodwill is compared to the recoverable amount, which is temporary difference is controlled by the Group and it is probable that the the higher of value in use and the fair value less cost of disposal. Any impair­ temporary difference will not reverse in the foreseeable future or where the ment is recognized immediately as an expense and is not subsequently remittance would not give rise to incremental tax liabilities or is not taxable. reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

2.11 Earnings per share Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of Basic earnings per share is calculated by dividing the profit / (loss) for cash-generating units that are expected to benefit from the business com­ the period attributable to shareholders of the Company by the weighted bination. Goodwill is monitored at an operating segment level. average number of shares outstanding during the period. Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding during the period for the diluting effect of our share based compensation plans.

Adjusted earnings per share represents the basic / dilutive earnings per share excluding specific items and share based compensation expenses.

131 Annual Report 2018 CEVA Logistics Financial Statements Contractual customer relationships method to allocate the cost of licenses over their estimated useful lives of Contractual customer relationships acquired in a business combination are three to five years. recognized at fair value at the acquisition date. The contractual customer relationships have a finite useful life and are carried at cost less accumulated Acquired computer software licenses are capitalized on the basis of the amortization. Amortization is calculated using the straight-line method to costs incurred to acquire and bring to use the specific software. These costs allocate the cost of the contractual customer relationships over their esti­ are amortized over their estimated useful lives, which do not exceed three mated useful lives of between 10 and 20 years. years.

Other intangibles Other intangible assets that are acquired by the Group, which have finite Other intangible assets mainly comprise computer software, licenses and useful lives are measured at cost less accumulated amortization and accu­ brand names. mulated impairment losses. Other intangible assets are amortized on a straight-line basis over their estimated useful lives of three to 20 years. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when it can be demonstrated how the soft­ 2.13 Property, plant and equipment ware product will generate probable future economic benefits; there are adequate technical, financial and other resources to complete the devel­ Recognition and measurement opment and to use the software product and the expenditure attributable Items of property, plant and equipment are measured at cost less accumu­ to the software product during its development can be reliably measured. lated depreciation and impairment losses. Cost includes expenditures that Costs associated with maintaining computer software programs are rec­ are directly attributable to the acquisition of the asset. Purchased software ognized as an expense as incurred. Computer software development costs that is integral to the functionality of the related equipment is capitalized recognized as assets are amortized over their estimated useful lives, on as part of the cost of that equipment. average three years. Subsequent costs Separately acquired licenses are shown at historical cost. Licenses acquired The cost of replacing part of an item of property, plant and equipment is in a business combination are recognized at fair value at the acquisition recognized in the carrying amount of the item if it is probable that future date. Licenses have a finite useful life and are carried at cost less accu­ economic benefits embodied within the part will flow to the Group and its mulated amortization. Amortization is calculated using the straight-line cost can be measured reliably. The carrying amount of the replaced part is

132 Annual Report 2018 CEVA Logistics Financial Statements derecognized. The costs of the day-to-day servicing of property, plant and 2.14 Impairment of non-financial assets equipment are recognized in profit or loss as incurred. Assets that have an indefinite useful life, for example goodwill, are not Depreciation subject to amortization and are tested annually or earlier in response to a Land is not depreciated. Depreciation on other assets is calculated using triggering event for impairment. Assets that are subject to amortization are the straight-line method to allocate their cost or revalued amounts to their reviewed for impairment whenever events or changes in circumstances indi­ residual values over their estimated useful economic lives (or period of cate that the carrying amount may not be recoverable. An impairment loss finance lease, if shorter), as follows: is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s Buildings 10–50 years fair value less costs of disposal and value in use. For the purposes of assess­ Plant and equipment 2–10 years Other 3–10 years ing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial The assets’ estimated residual values and useful economic lives are assets, other than goodwill that suffered an impairment, are reviewed for reviewed, and adjusted if appropriate, at each balance sheet date. possible reversal of the impairment at each reporting date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recov­ 2.15 Financial assets erable amount. The Group has applied IFRS 9 using the modified retrospective method, and Disposal has thus not restated comparative information. As a result, the comparative Gains and losses on disposal of an item of property, plant and equipment information provided continues to be accounted for in accordance with the are determined by comparing the proceeds from disposal with the carrying group’s previous accounting policy. amount of property, plant and equipment and are recognized in profit or loss. Classification The Group classified its financial assets into two categories: (a) at fair value through profit or loss and (b) loans and receivables.

133 Annual Report 2018 CEVA Logistics Financial Statements The classification depended on the purpose for which the financial assets which they arise. Dividend income from financial assets at fair value through were acquired. Management determined the classification of its financial profit or loss is recognized in the Consolidated Income Statement when the assets at initial recognition. Group’s right to receive payments is established.

Loans and receivables If the market for a financial asset is not active (and for unlisted securities), Loans and receivables are non-derivative financial assets with fixed or the Group establishes FVTPL by using valuation techniques. These include determinable payments that are not quoted in an active market. They are the use of recent arm’s length transactions, reference to other instruments included in current assets, except for maturities greater than 12 months that are substantially the same, discounted cash flow analysis and option after the balance sheet date. These are classified as non-current assets. The pricing models, making maximum use of market inputs and relying as little Group’s loans and receivables comprise trade and other receivables and as possible on entity-specific inputs. cash and cash equivalents in the Consolidated Balance Sheet.

Recognition and measurement 2.16 Inventories The measurement at initial recognition did not change on adoption of IFRS 9. Regular purchases and sales of financial assets are recognized on Inventories under CEVA ownership are stated at the lower of cost and the trade date – the date on which the Group commits to purchase or sell net realizable value. Cost is determined using the first-in, first-out (FIFO) the asset. Financial assets carried at fair value through profit or loss are method. Net realizable value is the estimated selling price in the ordinary initially recognized at fair value and transaction costs are expensed in the course of business, less applicable variable selling expenses. Consolidated Income Statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and 2.17 Trade receivables rewards of ownership. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at Trade receivables are recognized initially at fair value and subsequently mea­ amortized cost using the effective interest method. sured at amortized cost using the effective interest method, less provision for impairment. The group applies the IFRS 9 simplified approach to measuring Gains or losses arising from changes in the fair value of the “financial assets expected credit losses which uses a lifetime expected loss allowance for all at fair value through profit or loss” category are presented in the Consol­ trade receivables and contract assets. To measure the expected credit losses, idated Income Statement within “net financial expense” in the period in trade receivables have been grouped based on the days past due.

134 Annual Report 2018 CEVA Logistics Financial Statements The expected loss rates are based on average bad debt expense and the impaired. The amount of the provision was the difference between the average trade receivable positions over a period of the last 5 years before asset’s carrying amount and the present value of estimated future cash 1 January, 2018. The historical loss rates are adjusted to reflect current flows, discounted at the original effective interest rate. The carrying amount and forward-looking information on macroeconomic factors affecting the of the asset was reduced through the use of an allowance account and ability of the customers to settle the receivables. the amount of the loss was recognized in the operating costs. When a trade receivable was uncollectable, it was written off against the allowance Trade receivables are written off when there is no reasonable expectation account for trade receivables. Subsequent recoveries of amounts previously of recovery. Indicators that there is no reasonable expectation of recovery written off are credited to operating expenses. include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make contractual payments for a period of greater than 120 days past due. 2.18 Cash and cash equivalents

Impairment losses on trade receivables are presented as net impairment Cash and cash equivalents includes cash in hand, deposits held at call with losses within the operating expenses. Subsequent recoveries of amounts banks, other short term highly liquid investments with original maturities of previously written off are credited against the same line item. three months or less.

In a non-recourse factoring arrangement, when the Group has transferred substantially all the risks and rewards of ownership of the receivables, the 2.19 Assets (or disposal groups) held for sale trade receivables are derecognized in their entirety. In a factoring of receiv­ ables with recourse the Group recognizes the factoring arrangement as a If the carrying amount of the non-current asset (or disposal group) will be financing transaction, that is, a liability is recognized at FVTPL. recovered principally through a sale transaction rather than through con­ tinuing use, the Group will classify the asset (or disposal group) as held for Previous accounting policy for impairment of trade receivables sale. For this to be the case, the asset, or disposal group must be available In the prior year, a provision for impairment of trade receivables was estab­ for immediate sale in its present condition subject only to terms that are lished when there was objective evidence that the Group was not able to usual and customary for the sale of such assets (or disposal group) and its collect all amounts due according to the original terms of the receivables. sale must be highly probable. Significant financial difficulties of the debtor and default or delinquency in payments were considered indicators that the trade receivable has

135 Annual Report 2018 CEVA Logistics Financial Statements Upon classification the assets (or disposal group) are measured at the lower that some or all of the facility will be drawn down, the fee is capitalized as of their carrying amount and fair value less costs to sell. a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

2.20 Share capital A financial liability is derecognized when it is redeemed or otherwise extin­ guished, that is when the obligation is discharged, cancelled or expired. An Common shares exchange between CEVA and a lender of debt instruments with substan­ Common shares are classified as equity. Incremental costs directly attribut­ tially different terms is accounted for as an extinguishment of the original able to the issue of common shares and share options are recognized as a financial liability and the recognition of a new financial liability. If the new deduction from equity net of any tax effects. terms are not substantially different the transaction is regarded as a mod­ ification.

2.21 Borrowings If a portion of a financial liability is purchased, the previous carrying amount of the financial liability is allocated between the portion that continues to Borrowings are recognized initially at fair value, net of transaction costs be recognized and the portion that is derecognized based on the relative fair incurred. Borrowings are subsequently stated at amortized cost; any differ­ values of those respective portions on the date of the repurchase. The differ­ ence between the proceeds (net of transaction costs) and the redemption ence between (a) the carrying amount allocated to the part derecognized value is recognized in profit or loss over the period of the borrowings using and (b) the consideration paid, including any non-cash assets transferred or the effective interest method. liabilities assumed, for the part derecognized are recognized in profit or loss.

Borrowings are classified as current liabilities unless the Group has an IFRIC 19 requires a gain or loss to be recognized in the income statement unconditional right to defer settlement of the liability for at least 12 months when a financial liability is settled through the issuance of the Companies after the balance sheet date. own equity instruments. It clarifies that the new equity instruments are treated as consideration paid for the extinguishment of a financial liabil­ Fees paid on the establishment of loan facilities are recognized as trans­ ity. The amount of the gain or loss recognized is therefore the difference action costs of the loan to the extent that it is probable that some or all of between the carrying value of the financial liability (or part of a financial the facility will be drawn down. In this case, the fee is deferred until some liability) extinguished and the fair value of the equity instruments issued. draw-down occurs. To the extent there is no evidence that it is probable The equity instruments issued are recognized and measured initially at fair

136 Annual Report 2018 CEVA Logistics Financial Statements value at the date the financial liability was extinguished. The difference – hedges of a particular risk associated with the cash flows of recognized between the carrying value of the debt extinguished and fair value of equity assets and liabilities and highly probable forecast transactions (cash issued is booked in the income statement as a gain / loss in specific items. flow hedges), or

– hedges of a net investment in a foreign operation (net investment Transaction costs are also likely to be incurred when the Company extin­ hedges). guishes a liability in exchange for equity instruments. IFRIC 19 considers a “debt for equity swap” to be a liability extinguishment in accordance with Derivatives are only used for economic hedging purposes and not as specu­ IFRS 9 When an extinguishment of a liability occurs in this way any costs or lative investments. The Group holds derivative financial instruments to fees incurred are recognized as part of the gain or loss on extinguishment. hedge its interest rate risk exposures and foreign exchange currency risk.

The fair value of the non-current interest bearing debt has been presented At inception of the hedge relationship, the group documents the economic using the available market price at the balance sheet date or otherwise relationship between hedging instruments and hedged items including using the face value. The senior bank debt’s fair value has been presented whether changes in the cash flows of the hedging instruments are expected using its face value, as it is a private floating rate facility, and the fair value to offset changes in the cash flows of hedged items. The Group documents of current debt has been presented using its carrying value given its short- its risk management objective and strategy for undertaking its hedge trans­ term nature. actions.

Where all relevant criteria are met, hedge accounting is applied to remove 2.22 Derivative financial instruments the accounting mismatch between the hedging instrument and the hedged item. Derivative financial instruments are initially recognized and subse­ Derivatives are initially recognized at fair value on the date a derivative con­ quently carried at fair value. All changes in fair value are recorded through tract is entered into and are subsequently remeasured to their fair value at other comprehensive income and accumulated in reserves in equity. Attrib­ the end of each reporting period in accordance with IFRS 9. The accounting utable transaction costs are recognized in the income statement when for subsequent changes in fair value depends on whether the derivative is incurred. Derivatives are carried as financial assets when the fair value is designated as a hedging instrument, and if so, the nature of the item being positive and as financial liabilities when the fair value is negative. hedged. The group designates certain derivatives as either:

137 Annual Report 2018 CEVA Logistics Financial Statements Cash flow hedges that qualify for hedge accounting legal or constructive obligation to pay further amounts. Obligations for The effective portion of changes in the fair value of derivatives that are des­ contributions to defined contribution pension plans are recognized as a ignated and qualify as cash flow hedges is recognized in the cash flow hedge personnel expense in profit or loss when they are due. Prepaid contributions reserve within equity. The gain or loss relating to the ineffective portion is are recognized as an asset to the extent that a cash refund or a reduction in recognized immediately in profit or loss, within other gains/(losses). future payments is available.

Net investment hedges (b) Defined benefit plans Hedges of net investments in foreign operations are accounted for similarly A defined benefit plan is a post-employment benefit plan other than a to cash flow hedges. defined contribution plan. The liability recognized in respect of defined benefit pension plans is the present value of the defined benefit obligation Any gain or loss on the hedging instrument relating to the effective portion at the balance sheet date less the fair value of plan assets. The defined of the hedge is recognized in other comprehensive income and accumu­ benefit obligation is calculated annually by independent actuaries using lated in reserves in equity. The gain or loss relating to the ineffective portion the projected unit credit method. The present value of the defined benefit is recognized immediately in profit or loss within other gains/(losses). obligation is determined by discounting the estimated future cash outflows by the yield at the reporting date on AA credit-rated bonds that are denom­ Gains and losses accumulated in equity are reclassified to profit or loss when inated in the currency in which the benefits will be paid and that have terms the foreign operation is partially disposed of or sold. to maturity approximating to the terms of the related pension obligation.

All actuarial remeasurements arising from experience adjustments and 2.23 Employee benefits changes in actuarial assumptions are recognized immediately in other com­ prehensive income. Interest expense on the pension obligation and interest Pension obligations income on the return on assets are recognized as a net amount in finance The Group operates a number of defined contribution and defined benefit income and expense. pension schemes. Other long term employee benefits (a) Defined contribution plans Other long term employee obligations include long-service, sabbatical or A defined contribution plan is a post-employment benefit plan under which jubilee leave and deferred compensation not payable within 12 months the Group pays fixed contributions into a separate entity and will have no after the end of the period. The expected costs of these benefits are accrued

138 Annual Report 2018 CEVA Logistics Financial Statements over the period of employment using the same accounting methodology as The fair value of awards granted under the 2013 Long Term Incentive Plan used for defined benefit pension plans except for actuarial gains and losses, is recognized as personnel benefits expense with a corresponding increase which are recorded in profit and loss. These obligations are valued annually in equity. The total amount to be expensed is recognized by reference to the by independent, qualified actuaries. fair value of the awards granted, excluding the impact of any non-market service and performance vesting conditions. Non-market vesting conditions Termination benefits are included in assumptions about the number of awards that are expected Termination benefits are payable when employment is terminated by the to vest. The total amount expensed is recognized over the vesting period, Group before the normal retirement date, or whenever an employee accepts which is the period over which all of the specified vesting conditions are to voluntary redundancy in exchange for these benefits. The Group recognizes be satisfied. At each balance sheet date, the Group revises its estimates of termination benefits when it has demonstrably committed to terminate the number of awards that are expected to vest based on the non-market the employment of current employees according to a detailed formal plan vesting conditions. The Group recognizes the impact of the revision to orig­ without possibility of withdrawal or provided termination benefits as a inal estimates, if any, in profit or loss, with a corresponding adjustment to result of an offer made to encourage voluntary redundancy. Benefits falling equity. due more than 12 months after the balance sheet date are discounted to their present value. Short term benefits Short term employee benefit obligations are measured on an undiscounted Share based compensation basis and are expensed as the related service is provided. The Company has adopted a long term incentive plan (the “2013 Long Term Incentive Plan“) pursuant to which equity awards may be issued to A liability is recognized for the amount expected to be paid under short managers, directors, employees or consultants of the Company and its term cash bonus or profit-sharing plans if the Group has a present legal or subsidiaries. Awards issuable under the 2013 Long Term Incentive Plan constructive obligation to pay this amount as a result of past service pro­ include nonqualified share options, rights to purchase common shares of vided by the employee and the obligation can be estimated reliably. the Company, restricted share units and other awards settleable in or based upon common shares or cash.

Information relating to the 2013 Long Term Incentive Plan is set out in note 22 “Share based payments”.

139 Annual Report 2018 CEVA Logistics Financial Statements 2.24 Provisions 3. Critical accounting estimates

A provision is recognized if, as a result of a past event, the Group has a and judgments present legal or constructive obligation that can be estimated reliably and The preparation of Financial Statements in accordance with generally it is probable that an outflow of economic benefits will be required to settle accepted accounting principles under IFRS requires the Group to make esti­ the obligation. Where relevant provisions are measured by discounting the mates, judgments and assumptions that may affect the reported amounts expected future cash flows at a pre-tax rate that reflects current market of assets, liabilities, revenue and expenses and the disclosure of contingent assessments of the time value of money and the risks specific to the obli­ assets and liabilities in the Financial Statements. Estimates and judgments gation. are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be rea­ Provisions for insurance represent an estimate, based on historical experi­ sonable under the circumstances. ence, of the ultimate cost of settling outstanding claims and claims incurred but not reported at the balance sheet date on certain risks retained by the The accounting estimates will, by definition, rarely equal the related actual Group. 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. The estimates, judgments and assumptions 2.25 Trade payables that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined Trade payables are recognized initially at fair value and subsequently mea­ below. sured at amortized cost using the effective interest method.

3.1 Estimated impairment of goodwill

The Group tests annually, or earlier in response to a triggering event, whether goodwill has suffered any impairment, in accordance with the accounting policy stated in notes 2.12 “Intangible assets” and 2.14 “Impairment of non-financial assets”. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calcu­

140 Annual Report 2018 CEVA Logistics Financial Statements lations require the use of estimates and assumptions consistent with the Defined benefit schemes are reappraised annually by independent actu­ most up-to-date budgets and plans that have been formally approved by aries based upon actuarial assumptions. Significant judgment is required management. Refer to note 13 “Intangible assets” for the key assumptions in determining these actuarial assumptions. Refer to note 21 “Retirement used for the value-in-use calculations. benefit obligations” for the principal assumptions used.

3.2 Income taxes 3.4 Provisions and contingent liabilities

The Group is subject to income taxes in numerous jurisdictions. Significant Legal proceedings covering a range of matters are pending in various juris­ judgment is required in determining the worldwide provision for income dictions. Due to the uncertainty inherent in such matters, it is often difficult taxes. There are many transactions and calculations for which the ultimate to predict the final outcome. The cases and claims against CEVA often raise tax determination is uncertain during the ordinary course of business. difficult and complex factual and legal issues. These are subject to many Where the final tax outcome of these matters is different from the amounts uncertainties and complexities, including but not limited to the facts and that were initially recorded, such differences will impact the income tax and circumstances of each particular case and claim, the jurisdiction and the dif­ deferred income tax provisions in the period in which such determination is ferences in applicable law. In the normal course of business, CEVA consults made. with legal counsel and certain other experts on matters related to litigation.

CEVA recognizes a provision when it is determined that an adverse outcome 3.3 Retirement benefits is probable and the amount of the loss can be reliably estimated. This includes onerous contracts and self-insurance provisions. In the event that The present value of the pension obligations depends on a number of factors an adverse outcome is possible and an estimate is not determinable, the that are determined on an actuarial basis using a number of assumptions. matter is disclosed. Refer to note 26 “Contingencies” for further information The assumptions used in determining the net cost (income) for pensions regarding contingent liabilities. include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

141 Annual Report 2018 CEVA Logistics Financial Statements 4. Financial risk management Foreign exchange risk arises when future commercial transactions or rec­ ognized assets or liabilities are denominated in a currency that is not the Financial risk factors entity’s functional currency. The Group’s operating activities expose it to a variety of financial risks, such as market risk (including foreign currency exchange risk, interest rate risk CEVA has certain investments in foreign operations, whose net assets are and commodity price risk), credit risk and liquidity risk. The Group’s financial exposed to foreign currency translation risk. Currency exposure arising risk management is predominantly controlled by a central treasury depart­ from the net assets of the Group’s foreign operations is managed primarily ment (group treasury) under policies approved by the board of directors. through borrowings denominated in the relevant foreign currencies. Group treasury identifies, evaluates and hedges financial risks. The Group’s overall risk management program focuses on the unpredictability of finan­ The main exchange rates are shown below: cial markets and seeks to minimize potential adverse effects on the Group’s financial performance. 2018 2017 Year end closing Average Year end closing Average British pound 0.7839 0.7500 0.7401 0.7762 The following analysis provides quantitative information regarding CEVA’s Euro 0.8719 0.8475 0.8336 0.8873 exposure to the financial risks described above. There are certain limitations Chinese yuan 6.8755 6.6144 6.5063 6.7606 inherent in the analyses presented, primarily due to the assumption that rates change in a parallel fashion and instantaneously. In addition, the anal­ A five percent strengthening of the following functional currencies ysis is unable to reflect the complex market reactions that normally would against the reporting currency (US$) at 31 December, 2018 would have arise from the market shifts assumed. increased / (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for (a) Market risk 2017.

Foreign currency exchange risk US$ millions 2018 2017 The Group operates internationally and is exposed to foreign currency Effect on profit Effect on Effect on profit Effect on before tax equity before tax equity exchange risks arising from future commercial transactions, recognized British pound - 5 1 5 assets and liabilities, investments and divestments in foreign currencies Euro (1) (6) (5) (10) other than the US$, the Group’s reporting currency. Chinese yuan 1 7 (1) 7

142 Annual Report 2018 CEVA Logistics Financial Statements A five percent weakening of the above currencies against the US$ at 31 US$ millions 2018 2017

December, 2018 would have had the equal but opposite effect on the Change in Effect on profit Effect on profit above currencies to the amounts shown above, on the basis that all other interest rate before tax before tax Euro (denominated) +100 bps 1 (3) variables remain constant Euro (denominated) -100 bps - 2 US dollar (denominated) +100 bps 4 (9) Cash flow and fair value interest rate risk US dollar (denominated) -100 bps (4) 7 Interest rate risk is the risk that unexpected interest rate changes negatively affect the Group’s results, cash flows and equity. Commodity risk As a supply chain company, CEVA is exposed to the risk of an increase in The table below shows the interest rate profile of the Group’s interest-bear­ the price of fuels. The Group typically has an ability to pass on fuel price ing financial instruments as of 31 December, 2018 and 2017 (refer to note increases to customers and has therefore not entered into any contract to 20 “Borrowings” for further details): hedge any specific commodity risk.

US$ millions 2018 2017 Derivative financial instruments Fixed rate instruments: Where all relevant criteria are met, hedge accounting is applied to remove Loan notes 1,066 1,069 the accounting mismatch between the hedging instrument and the hedged Variable rate instruments: item. As of 31 December, 2018, the Group has the following derivative Financial liabilities 494 1,315 Total 1,560 2,384 financial instruments:

Sensitivity analysis for variable rate instruments US$ millions 2018 2017 A change of 100 basis points (bps) in interest rates at the reporting date Current assets Cross Currency interest rate swap – net investment hedge 2 - would have increased / (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign Current liabilties Interest rate swaps – cash flow hedges 14 - currency rates, remain constant.

143 Annual Report 2018 CEVA Logistics Financial Statements (b) Credit risk Cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial. The Group is The collectability of accounts receivable is assessed on a monthly basis focusing strongly on the cash generating capacity of its businesses and using the IFRS 9 simplified approach to measuring expected credit losses acknowledges the importance of strong credit control which is monitored which uses a lifetime expected loss allowance for all trade receivables. To through periodic detailed analysis of overdue trade receivable balances. measure the expected credit losses, trade receivables have been grouped based on the days past due. Refer to note 2.17 for the details of the method Credit risk arises from credit exposures to customers as well as the risk that used and note 1 for the details of the opening balance adjustment. counterparties fail to meet their contractual payment obligations through insolvency or default. More than More than More than US$ millions Current 30 days 60 days 120 days Sub Total past due past due past due The carrying amount of financial assets represents the maximum credit At 31 December 2018 exposure. The maximum exposure to credit risk at the reporting date was: Expected loss rate 0.6% 3.8% 6.3% 15.8% 1.1% Gross carying amount – 960 26 16 19 1,021 US$ millions 2018 2017 trade receivables Loss allowance 6 1 1 3 11 Loans and receivables 1,227 1,159 Cash and cash equivalents 368 295

The Group has a provision for trade receivables subject to legal proceeding of US$12 million covering a gross trade receivable balance of US$18 million. (c) Liquidity risk

The credit loss rates per 1 January, 2018 do not significantly differ from the Liquidity risk is the risk that the Group does not have sufficient headroom credit loss rates per 31 December, 2018. The Group assessed the potential (cash and cash equivalents plus central credit facilities described in note recognition of a loss allowance for contract assets following the adoption of 20 “Borrowings”) available to meet both CEVA’s day-to-day operating IFRS 9, as the majority of contract assets are current the Group concluded requirements and debt servicing obligations (interest and debt repayment). that this was less than US$1 million. Refer to note 2 for details. As is typical of global, integrated companies such as CEVA, cash is often held in various jurisdictions in which the Group operates and may not be immediately available to Group Treasury. Group Treasury mitigates liquidity risk by seeking to ensure that CEVA has adequate funding at its disposal at

144 Annual Report 2018 CEVA Logistics Financial Statements all times and helping facilitate access to the money markets and capital the Company has access to US$953 million (2017: US$795 million) of credit markets. This includes relationship management with all financial stake­ facilities held centrally, of which US$697 million (2017: US$512 million) holders, such as banks, rating agencies and debt investors. was drawn. Total headroom at 31 December, 2018 was therefore US$565 million (2017: US$578 million). The headroom is adjusted for US$60 million Through the August 2018 Refinancing transaction, CEVA increased liquid­ of cash collateral for guarantees. For more details with regards to the cash ity, and established a long-term capital structure with a weighted average collateral please refer to Note 25 “Commitments”. maturity of 5.2 years. See note 20 “Borrowings” for more information regarding the Refinancing. The current weighted average maturity is 4.8 The table below analyzes the amounts of interest bearing borrowings and years. trade and other payables into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity As at 31 December, 2018, the Company had US$368 million (2017: US$295 date: million) in cash on its Consolidated Balance Sheet. In addition to this cash,

US$ millions 2018 Present value of minimum Future minimum Interest on total Trade payables and Interest Loan notes Bank borrowings lease payments lease payments borrowings accrued liabilities

Less than 1 year 6 3 9 - 35 76 1,185 1–3 years 9 4 13 - 436 128 - 3–5 years 4 3 7 344 736 116 - Thereafter 14 5 19 - - 92 - Total 33 15 48 344 1,207 412 1,185

US$ millions 2017 Present value of minimum Future minimum Interest on total Trade payables and Interest Loan notes Bank borrowings lease payments lease payments borrowings accrued liabilities

Less than 1 year 3 2 5 - 9 144 1,220 1–3 years 5 4 9 447 547 270 - 3–5 years 3 2 5 625 765 36 - Thereafter 14 6 20 - - - - Total 25 14 39 1,072 1,321 450 1,220

145 Annual Report 2018 CEVA Logistics Financial Statements The interest on borrowings with a variable interest rate has been calculated The gearing ratios at 31 December, 2018 and 2017 were as follows: by using the year end rate. The tables above exclude aggregate minimum operating lease payments totaling US$1,249 million (2017: US$1,208 US$ millions 2018 2017 million) that are disclosed in note 25 “Commitments”. Total borrowings (note 20) 1,560 2,384 Cash and cash equivalents (note 17) 368 295 Net debt 1,192 2,089 Capital management Total equity attributable to shareholders 244 (677) The Group’s objectives when managing capital, which comprises its paid Total capital 1,436 1,412 Gearing ratio 83.0% 147.9% in capital and borrowings, are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce The decrease in the gearing ratio during 2018 is primarily driven by the IPO the cost of capital. proceeds, refinancing and recapitalization.

The Group moved to a balanced debt to equity capital structure from a Fair value estimation highly leveraged capital structure. This was as a result of the IPO which The net fair value of the derivative financial instruments at 31 December, happened in May 2018. As at 31 December, 2018 the gross debt to equity 2018 is US$12 million (2017: nil) and was determined based on a level 2 ratio for the group was 0.94. The Company also successfully completed its valuation method. As at 31 December, 2018 there were foreign exchange refinancing in August 2018, which substantially reduced its overall debt and interest derivative contracts with a notional amount of US$697 million and interest costs, as well as increased liquidity and strengthened its capital (2017: US$6 million). structure. The structure of the Company’s debt and facilities is a combi­ nation of long term debt and medium term facilities which are available to support shorter term liquidity requirements. The Company also entered into hedging transactions in November 2018 to hedge its’ variable debt exposure. As a result, approximately 68% of CEVA’s interest rates are now fixed. No other material debt is scheduled to mature in 2019.

146 Annual Report 2018 CEVA Logistics Financial Statements 5. Segment information – Contract Logistics, which includes the provision of inbound logistics, manufacturing support, outbound / distribution logistics and aftermar­ The Group’s operating and reporting segments are its Freight Management ket logistics. and Contract Logistics businesses which are the main focus of the Group’s Chief Operating Decision Maker (“CODM”), the Executive Board of the Additional geographical information Group (the “Executive Board”). This is the primary way in which the CODM is The Group is operating on a worldwide basis in the following geographical provided with financial information. The Group’s internal organization and areas: management structure is also aligned to the two businesses. All reporting – Americas – comprising North America, Central America, and South to the CODM analyzes performance by Freight Management and Contract America clusters; Logistics business activity, and resources are allocated on this basis. Disclo­ sure has been included in the segment note to reflect these operating seg­ – Asia Pacific – comprising South East Asia, Mekong, India sub-continent, ments. As additional information the Group has also provided geographical Australia and New Zealand, Greater China, and North Asia clusters; information on its results. The Company administers its operations on a – Europe – comprising UK, Ireland and Nordics (UKIN), Benelux, France, Cluster basis throughout the global regions in which it operates. A Cluster is Germany, Central and Eastern Europe, Italy, Iberia, and BAMECA comprised of one or more countries. For the year ended 31 December, 2018 (includes the Balkans, the Middle East and Africa) clusters. there were 17 Clusters, excluding our joint venture Anji-CEVA. Per 2019 this is reduced to 10 clusters. The Executive Board assesses the performance of the operating segments The Executive Board considers the operations from a business perspective. (including joint ventures) based on EBITDA before specific items and SBC. In addition, information from a geographical perspective has also been Interest income and expenditure are not included in the result for each presented. operating segment that is reviewed by the Executive Board. The informa­ tion provided to the Executive Board is measured in a manner consistent Operating segments with that in the Financial Statements. – Freight Management, which includes the provision of international air, ocean, ground, customs brokerage, deferred air and pickup and delivery, and other value-added services; and

147 Annual Report 2018 CEVA Logistics Financial Statements Operating segments The segment results for the year ended 31 December, 2017 and 2018 are as follows:

Years ended 31 December US$ millions 2018 2017 Freight Contract Freight Contract Total Total Management Logistics Management Logistics

Total segment revenue 3,508 3,851 7,359 3,270 3,728 6,998 Inter-segment revenue - (3) (3) - (4) (4) Revenue from external customers 3,508 3,848 7,356 3,270 3,724 6,994

EBITDA before specific items and SBC 93 105 198 76 154 230 Specific items and SBC (77) (45) EBITDA 121 185 Depreciation, amortization and impairment (124) (129) Operating income (3) 56 Net finance income / (expense) (232) (258) Net result from joint ventures 1 29 23 Profit / (Loss) before income taxes (206) (179) EBITDA before specific items and SBC, 2.7% 2.7% 2.7% 2.3% 4.1% 3.3% as a % of revenue

1 Refer to note 18 for details the net result from joint ventures

The segment assets and liabilities at 31 December, 2017 and 2018 and the capital expenditure for the years then ended are as follows:

Years ended 31 December US$ millions 2018 2017 Freight Contract Freight Contract Unallocated Total Unallocated Total Management Logistics Management Logistics

Total assets 2,191 1,305 119 3,615 2,045 1,381 121 3,547 Total liabilities 762 976 1,632 3,370 729 1,061 2,431 4,221 Capital expenditure 30 79 - 109 23 79 - 102

148 Annual Report 2018 CEVA Logistics Financial Statements Additional information – geographical The geographical results for the year ended 31 December, 2017 and 2018 are as follows:

Years ended 31 December US$ millions 2018 2017 Americas Asia Pacific Europe Total Americas Asia Pacific Europe Total

Total segment revenue 2,446 1,933 2,981 7,360 2,332 1,850 2,816 6,998 Inter-segment revenue (2) (1) (1) (4) (1) (1) (2) (4) Revenue from external customers 2,444 1,932 2,980 7,356 2,331 1,849 2,814 6,994

EBITDA before specific items and SBC 63 100 35 198 57 79 94 230 Specific items and SBC (77) (45) EBITDA 121 185 Depreciation, amortization and impairment (124) (129) Operating income (3) 56 Net finance income / (expense) (232) (258) Net result from joint ventures 1 29 23 Profit / (Loss) before income taxes (206) (179)

1 Refer to note 18 for details the net result from joint ventures

The geographical assets and liabilities at 31 December, 2017 and 2018 and capital expenditure for the years then ended are as follows:

Years ended 31 December US$ millions 2018 2017 Americas Asia Pacific Europe Unallocated Total Americas Asia Pacific Europe Unallocated Total

Total assets 1,335 927 1,234 119 3,615 1,292 867 1,267 121 3,547 Total liabilities 463 369 906 1,632 3,370 473 344 973 2,431 4,221 Capital expenditure 28 28 53 - 109 25 22 55 - 102

149 Annual Report 2018 CEVA Logistics Financial Statements The Group’s revenue from external customers in specific countries is as 6. Revenue follows: Disaggregation of revenue from contracts with customers US$ millions 2018 2017 The disaggregation of revenue results from contracts with customers for the United States 1,830 1,747 year ended 31 December, 2018 are as follows: China 822 811 United Kingdom 677 630 Year ended 31 December Italy 495 509 US$ millions 2018 Other Countries 1 3,532 3,297 Freight Management Contract Total Total 7,356 6,994 Air Ocean Other Logistics

1 Revenue from external The total revenues from external customers in Switzerland was US$7 million (2017: US$6 million). 1,499 1,054 955 3,848 7,356 customers

The total of non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insur­ The disaggregation of revenue results from contracts with customers for the ance contracts located in Switzerland is nil (2017: nil) and the total of these year ended 31 December, 2017 are as follows:

non-current assets located in other countries is US$1,681 million (2017: Year ended 31 December US$1,765 million). US$ millions 2017 Freight Management Contract Total Air Ocean Other Logistics

Revenue from external 1,384 962 924 3,724 6,994 customers

150 Annual Report 2018 CEVA Logistics Financial Statements Assets and liabilities related to contracts with customers 7. Specific items and SBC Contract assets have increased as the group has provided more services in the Contract Logistics business in the last period of 2018 compared to The following table provides a detailed split on the specific items and SBC: 2017. The group assessed the potential recognition of a loss allowance for contract assets following the adoption of IFRS 9. Based on this assessment Years ended 31 December US$ millions 2018 2017 the Group concluded that this is nil. Work contracted out - - Personnel expenses 44 28 All contract liabilities are short term in nature, the opening balance is there­ Other operating expenses 33 17 fore recognized as revenue in 2018. The contract assets are also short term Items affecting EBITDA 77 45 Finance expenses 56 12 in nature and all balance are related to revenue recognized in 2018. Total (income) / expense before income taxes 133 57 Tax expenses (11) - Total (income) / expense 122 57

The following table provides a detailed split on the specific items and SBC:

Years ended 31 December US$ millions 2018 2017

Restructuring and transformation 14 30 Litigation and legacy tax 7 - Advisor cost 2 4 Other 3 2 Subtotal specific items excluding IPO 26 36 IPO and refinancing related operating costs 19 - Share based compensation (non-cash) 32 9 Items affecting EBITDA 77 45 Finance expenses 56 12 Total (income) / expense before income taxes 133 57 Tax expense (11) - Total (income) / expense 122 57

151 Annual Report 2018 CEVA Logistics Financial Statements Restructuring and transformation Share based compensation Restructuring and transformation costs in 2018 arose predominantly in the Non-cash share based compensation costs are recognized in a similar Italian and North American clusters as part of the ongoing cost reduction manner as specific items. These relate to the issuance of shares in CEVA initiatives. In 2017, costs mainly consisted of severance costs and provisions. Holdings LLC (predecessor entity to CEVA Logistics AG following legal merger) and grant of equity awards to certain members of management Litigation and legacy tax under the CEVA Holdings LLC 2013 Long-Term Incentive Plan in July 2016. Litigation and legacy tax includes a legal claim in the South American Additionally, a one-time grant was awarded to certain members of man­ cluster, settlement payments received in the North America cluster, inde­ agement in anticipation of the IPO. These costs are included within person­ pendent contractor litigation in California and costs relating to the CIL nel expenses. As a result of the accelerating vesting of awards due to the litigation. Litigation charges within other operating expenses incurred in change in control US$16 million was expensed in 2018 (see note 22). 2017 related predominantly to increases in provisions for compensation in certain litigations and external advice, offset by the receipt of a settlement Finance expenses payment related to an anti-trust claim. Finance expenses include the accelerated write-off of capitalized debt issuance costs (US$27 million), as well as breakage fees (US$24 million) Advisor costs relating to the debt that has been repaid and cancelled, and other finance Advisor costs for 2018 and 2017 relates to fees incurred for external advice costs relating to refinancing transactions pre IPO and the August 2018 for strategic projects. Refinancing. In 2017, US$12 million of expenses were booked as specific items relating to the write off of debt issuance costs and the exchange of Other the 4% Notes. Costs for 2018 relates to improvements in the Italian and North American clusters. Costs for 2017 mainly relate to a legacy claim in BAMECA cluster.

IPO and refinancing operating costs IPO related operating costs includes certain legal, accountancy and other professional fees incurred for external advice in relation to the IPO.

152 Annual Report 2018 CEVA Logistics Financial Statements 8. Personnel expenses 9. Finance income and expense

US$ millions 2018 2017 US$ millions 2018 2017

Wages and salaries 1,921 1,843 Interest income 11 5 Social security charges 250 236 Finance income 11 5 Pension costs – defined benefit plans (note 21) 3 3 Interest expense on bank borrowings (170) (182) Pension costs – defined contribution plans 46 41 Interest on finance lease liabilities (3) (2) Share options granted to managers and employees 33 9 Net foreign exchange gains / losses 4 (25) Total personnel expenses 2,253 2,132 Net interest on retirement benefit obligations (2) (2) Other financial expense (72) (52) Finance expense (243) (263)

Average number of people employed Net finance expense (232) (258) The average number of persons (including executive management) employed by the Group during the year was as follows: Other financial expense includes the amortization of debt issuance costs of US$38 million (2017: US$14 million). US$ millions 2018 2017

Freight Management 8,349 8,355 Contract Logistics 34,553 33,910 Total 42,902 42,265 10. Taxation The average number of persons employed by the Group in Switzerland was 53 (2017: 53). US$ millions 2018 2017

Current tax expense 40 28 Deferred tax income (4) (10) Income tax (income) / expense 36 18

Income tax expense recognized for the year in other comprehensive income is US$2 million (2017: US$(6) million) relating to retirement benefit obliga­ tions.

153 Annual Report 2018 CEVA Logistics Financial Statements The contributing factors for the difference between the theoretical tax rate The United States tax reform (law H.R. 1, originally known as the “Tax Cuts and the expected tax rate are as follows: and Jobs Act”) enacted in December 2017 includes a reduction of the federal tax rate from 35% to 21% for income earned after January 1, 2018. US$ millions 2018 2017 (Loss) before income taxes (206) (179) Other changes to tax rates include an increase in Turkey from 20% to 22% Tax at the domestic rate of 14.32%(2017: 14.47%) (29) (26) for income earned as from 1 January, 2018 and a decrease in Belgium Effect of different tax rates (36) (55) from 33% to 29% for income earned after 1 January, 2018. The tax rate Tax effect of non-deductible expenses 30 22 in Belgium is scheduled to further reduce to 25% for income earned after Deferred tax not recognized on tax losses and 57 82 temporary differences 1 January, 2020. Changes in respect to prior years 4 (4) Current and deferred impact of withholding taxes 5 3 Impact of tax rate changes - (4) Deferred income tax assets and liabilities are offset when there is a legally US taxes levied at a different rate than 21% 5 - enforceable right to offset and when the deferred income taxes relate to federal income tax Actual tax charge/(income) 36 (17.5)% 18 (10.1)% the same fiscal authority. The amounts recognized are as follows:

US$ millions 2018 2017 Switzerland levies a direct federal income tax at a flat rate of 8.5% (2017: Before offsets: Deferred income tax assets (117) (115) 8.5%) on profit after tax. The cantonal communal income tax rate in Baar is Deferred income tax liabilities 18 15 8.22% (2017: 8.42%) levied on profit after tax. Income taxes are deductible Net deferred income tax liabilities (99) (100) for tax purposes and reduce the applicable tax base (i.e. taxable income), After offsets: resulting in a combined income tax rate on profit before tax of approximately Deferred income tax assets (106) (108) Deferred income tax liabilities 7 8 14.32% (2017: 14.47%). Net deferred income tax liabilities (99) (100)

The tax rate for the United Kingdom has reduced to 19% for income earned The movement in deferred income tax assets and liabilities during the year, from 1 April, 2017 through 31 March, 2020 (20% for the period before without taking into consideration the offsetting of balances within the 1 January, 2017 – 1 April, 2017) and is scheduled to further reduce to 17% same tax jurisdiction, is as follows: as of 31 March, 2020. The Finance (No. 2) Act 2017 for the United Kingdom that was granted Royal Assent on 16 November, 2017 includes limitations on utilization of losses carried forward and deductions of interest expense.

154 Annual Report 2018 CEVA Logistics Financial Statements Deferred income tax assets:

Retirement benefit US$ millions Losses Property, plant obligations and Credits Other Total carried forward and equipment other provisions

Balance at 1 January 2017 98 11 - - 12 121 Items recognized in other comprehensive income - 6 - - - 6 Tax Amnesty in Brazil (4) - - - - (4) Exchange rate differences (3) - - - 1 (2) Income statement effect (15) 1 11 2 (5) (6) Deferred income tax assets at 31 December 2017 / at 1 January 2018 76 18 11 2 8 115 Items recognized in other comprehensive income - (2) - - - (2) Exchange rate differences (1) (1) (1) - - (3) Income statement effect (5) (4) 5 - 11 7 Deferred income tax assets at 31 December 2018 70 11 15 2 19 117

In 2017 a dispute regarding customs in Brazil was settled in a tax amnesty The Company recognized deferred tax assets of US$9 million (2017: US$16 program, in exchange for tax losses amounting to US$4 million and US$1 million) for which utilization is dependent on future taxable profits whilst the million payment in cash. related entities have incurred losses in either the current or preceding years. Management believes the company in Australia will be able to utilize the The Group has unused tax losses of US$897 million (2017: US$1,027 million) tax losses and deductible temporary differences because it reports taxable available for offset against future taxable profits for which no deferred tax income in the most recently logged tax return. asset has been recognized because the entities concerned reported losses in either the current or prior year. Tax losses amounting to US$386 million (2017: US$313 million) will not expire. Within one to three years, US$37 million (2017: US$30 million) of tax losses will expire. The remainder of tax losses, amounting to US$474 million (2017: US$684 million) will expire in 4 to 20 years.

155 Annual Report 2018 CEVA Logistics Financial Statements Deferred income tax liabilities: Subsidiaries and Property, plant and equipment Intangibles Other Total US$ millions joint ventures

Balance at 1 January 2017 - 24 7 - 31 Income statement effect - (15) (1) - (16) Deferred income tax liabilities at 31 December 2017 / at 1 January 2018 - 9 6 - 15 Income statement effect 1 (6) - 8 3 Deferred income tax liabilities at 31 December 2018 - 3 6 8 18

The Company did not recognize deferred tax liabilities on temporary differences associated with undistributed earnings of subsidiaries for an aggregate amount of US$123 million (2017: US$114 million), because the Company is in a position to control the timing of the reversal of the tem­ porary difference, and it is probable that such differences will not reverse in the foreseeable future.

156 Annual Report 2018 CEVA Logistics Financial Statements 11. Earnings per share Adjusted earnings Years ended 31 December US$ millions 2018 2017 Profit for the period Years ended 31 December Profit / (Loss) for the period (242) (197) US$ millions 2018 2017 Specific items 133 57 Adjusted Income tax (11) - Profit / (Loss) before tax (206) (179) Profit / (Loss) for the period attributable - - Income tax (36) (18) to non-controlling interests Profit / (Loss) for the period (242) (197) Adjusted Profit / (Loss) attributable (120) (140) Profit / (Loss) for the period attributable to shareholders of the Company - - to non-controlling interests Profit / (Loss) for the period attributable (242) (197) to shareholders of the Company Earnings and adjusted earnings per share Years ended 31 December US$ millions 2018 2017 Weighted average number of shares Basic and Diluted (5.99) (17.12) Number of shares 2018 1 2017 2 Basic and Diluted – adjusted (2.97) (12.17)

Issued shares at 1 January 11,505,000 11,505,000 Effect of issued shares during the period 28,900,670 - Shares for basic and diluted earnings 40,405,670 11,505,000 per share for the period 12. Business combinations 1 596,243 potentially dilutive share options have been excluded from the computation of the diluted average number of shares outstanding as they would have an anti-dilutive effect The Company did not complete any material acquisitions in 2018 or 2017. 2 295,129 potentially dilutive share options have been excluded from the computation of the diluted average number of shares outstanding as they would have an anti-dilutive effect

157 Annual Report 2018 CEVA Logistics Financial Statements 13. Intangible assets Impairment tests for goodwill As required by IAS 36, goodwill is subject to annual impairment reviews. Contractual Other Management monitors goodwill based on its operating segments (Freight US$ millions Goodwill and customer Total Intangibles relationships Management and Contract Logistics). For the purpose of the impairment review an amount of goodwill is attributed to each of the operating seg­ Net book amount 1,266 85 55 1,406 at 1 January 2017 ments. Such operating segments are determined to be a “Cash Generating Additions - - 23 23 Unit” (CGU) as determined by IAS 36 “Impairment of Assets”. The recover­ Amortization - (53) (21) (74) Exchange rate differences 80 6 7 93 able amount of each CGU is determined based on calculating its value in Closing net book amount 1,346 38 64 1,448 use. The value in use is calculated by applying discounted cash flow mod­ at 31 December 2017 eling to management’s own projections covering a five year period. Cash Historical cost 1,756 926 497 3,179 Accumulated impairment (410) - - (410) flows beyond the five year period are extrapolated using an average long Accumulated amortization - (888) (433) (1,321) term growth rate of 2% which does not exceed the estimated long term Net book amount 1,346 38 64 1,448 at 1 January 2018 GDP growth rates for the most relevant territories in which the businesses Additions - - 19 19 operate. Amortization - (34) (29) (63) Exchange rate differences (26) (1) - (27) Closing net book amount Management’s projections have been prepared on the basis of strategic 1,320 3 54 1,377 at 31 December 2018 plans, knowledge of the market, performance of competitors and manage­ Historical cost 1,730 893 486 3,109 ment’s views on achievable growth in market share over the longer term. Accumulated impairment (410) - - (410) Accumulated amortization - (890) (432) (1,322) Net book amount 1,320 3 54 1,377 Key assumptions at 31 December 2018 The following growth rates and discount rates are used for the reviews:

The other intangibles include internally generated software with a closing 2018 2017 net book amount at 31 December 2018 of US$28 million (2017: US$21 Growth rate Pre-tax Growth rate Pre-tax beyond discount beyond discount million). five years rate five years rate Freight Management 2.0% 9.7% 2.0% 11.4% Contract Logistics 2.0% 9.7% 2.0% 11.4%

158 Annual Report 2018 CEVA Logistics Financial Statements The discount rates applied to cash flows are based on the Group’s weighted Net Working Capital (NWC) levels average cost of capital (WACC) adjusted for income tax and reflects the Projections for NWC levels are based on the actual NWC needs of the Freight specific risks relating to the Freight Management and Contract Logistics Management and Contract Logistics segments during 2018. businesses, which operate in similar geographies. The WACC is calculated based on a weighted average of the post-tax interest rates paid on CEVA’s Result loans, and a return on equity based on the equity market risk premium (that No goodwill impairment losses were recognized for the year ended 31 is the required increased return required over and above a risk free rate by December, 2018 (2017: nil) as a result of the goodwill impairment testing. an investor who is investing in the market as a whole) and the risk adjust­ ment, beta, applied to reflect the risk of the Group relative to the market as The recoverable amount, carrying amount of the CGU’s and the headroom a whole. The beta used is based on an average of the betas of what man­ per CGU as at 31 December, 2018 is as follows:

agement considers to be the most comparable listed logistics companies. US$ millions 2018 Freight Contract Total Projected EBITDA Management Logistics The five year projections for EBITDA have been prepared using strategic Recoverable amount 1,641 1,711 3,352 Carrying amount of CGU (1,189) (227) (1,416) plans which include key assumptions for growth in sales and costs over Headroom 452 1,484 1,936 this period. These assumptions take into account knowledge of the current markets in CEVA’s Freight Management and Contract Logistics segments, management’s view on the development of CEVA’s services relative to the Sensitivities market and the impact of the cost reduction activities and investments. A sensitivity analysis has been performed on each of the base case assump­ tions used for assessing the goodwill with other variables held constant. Budgeted capital expenditure Consideration of sensitivities to key assumptions can evolve from one finan­ The cash flow forecasts for capital expenditure are based on past experi­ cial year to the next. ence and include the ongoing capital expenditure required to implement new projects and maintain existing activities in CEVA’s Contract Logistics segment and grow and maintain CEVA’s Freight Management network. Capital expenditure includes cash outflows for the purchase of property, plant and equipment and computer software.

159 Annual Report 2018 CEVA Logistics Financial Statements The table below shows the sensitivity impact of changes in key assumptions 14. Property, plant and equipment by CGU: Under Land and Plant and US$ millions Other construc- Total US$ millions 2018 buildings equipment tion Freight Contract Total Management Logistics Opening net book amount 62 37 36 5 140 at 1 January 2017 Decrease in long term growth rate of 1% (211) (218) (429) Additions 16 37 20 2 75 Increase in discount rate of 1% (259) (268) (527) Disposals - (1) (2) - (3) Decrease in projected EBITDA of 10% (288) (367) (655) Depreciation (16) (23) (16) - (55) Increase in projected capital expenditure of 10% (52) (137) (189) Exchange rate differences 5 4 3 - 12 Closing net book amount 67 54 41 7 169 at 31 December 2017

The table above shows the change in headroom as a result of a change Historical cost 236 360 297 7 900 Accumulated amortization in assumptions affecting the headroom. None of these would individually (169) (306) (256) - (731) and impairment lead to an impairment for either the Freight Management or Contract Net book amount 67 54 41 7 169 Logistics segment. The above sensitivity analyses are based on a change at 1 January 2018 Additions 14 23 27 26 90 in an assumption while holding all other assumptions constant. In practice, Disposals (4) (3) (1) - (8) this is unlikely to occur, and changes in some of the assumptions may be Depreciation (20) (23) (18) - (61) correlated. Transfers 4 11 1 (16) - Exchange rate differences (4) (4) (3) (4) (15) Closing net book amount 57 58 47 13 175 at 31 December 2018

Historical cost 217 330 295 13 855 Accumulated depreciation (160) (272) (248) - (680) Net book amount 57 58 47 13 175 at 31 December 2018

160 Annual Report 2018 CEVA Logistics Financial Statements Finance leases 16. Trade and other receivables The following assets held under finance leases are included in property, plant and equipment: US$ millions 2018 2017

Trade receivables 1,039 995 Land and Plant and US$ millions Other Total Provision for impairment of trade receivables (23) (16) buildings equipment Trade accounts receivable – net 1,016 979

Under finance lease 31 December 2017 19 8 - 27 VAT receivable 39 34 Under finance lease 31 December 2018 18 15 - 33 Other 81 40 Other receivables 120 74

Total trade and other receivables 1,136 1,053

Other receivables includes miscellaneous other receivables, vendor and sup­ 15. Inventory plier rebate receivables and amounts receivable from insurance companies. The fair value of trade and other receivables approximates its carrying amount. US$ millions 2018 2017

Raw materials and supplies 4 16 Finished goods 2 2 At 31 December, 2018 non-recourse factoring and participation in cus­ Total inventory 6 18 tomer supply chain financing arrangements resulted in the derecognition of US$142 million (2017: US$155 million) of trade receivables. The provision for inventory obsolescence is nil (2017: nil). During October 2012, certain Australian subsidiaries of the Group entered Movements in inventory are recorded in other operating expenses in the into a Receivables Purchase Agreement with a facility limit of A$40 million Consolidated Income Statement. maturing in September 2016. On 22 May, 2016, certain of the Company's Australian subsidiaries of the Group renewed and extended CEVA's A$40 million receivables purchase facility. The renewal, among other things, extended the maturity of the facility to 30 April, 2020 and amended certain economic terms including facility margin. In 2017 additional amendments were done to increase the facility limit of the facility to A$50 million. As of

161 Annual Report 2018 CEVA Logistics Financial Statements 31 December, 2018, the outstanding drawn amount under the facility was On 24 March, 2016, certain of CEVA’s subsidiaries entered into a series A$42 million (US$30 million). Receivables sold under this agreement are of agreements to establish a securitization facility (the “European Secu­ not derecognized and the related liabilities are included in bank borrowings. ritization Facility”) with a facility limit of EUR170 million. Pursuant to the European Securitization Facility certain CEVA subsidiaries sell or otherwise On 19 November, 2010, certain US subsidiaries of the Group (“the Origi­ transfer their eligible account receivable and any related rights (the “Securi­ nators”) and a new subsidiary, CEVA US Receivables LLC (the “Unrestricted tized Assets”) to a special purpose vehicle (the “Securitization Issuer”) on a Subsidiary”), entered into agreements establishing an ABL Facility with non-recourse basis. The Securitization Issuer has granted security over sub­ a commitment amount of US$250 million. The obligations of the Unre­ stantially all of its assets and property to secure the Securitization Facility. stricted Subsidiary under the ABL Facility are secured on a first-priority basis Additionally, security interests have been granted over the accounts into by all currently owned and subsequently acquired assets of the Unrestricted which obligors in respect of the Securitized Assets are directed to make their Subsidiary, including, but not limited to, all of the accounts receivable trans­ payments in respect of the Securitized Assets. As of 31 December, 2018 ferred to the Unrestricted Subsidiary by the Originators. The ABL Facility was the outstanding drawn amount was EUR169 million (US$194 million). The scheduled to mature on 31 December, 2018, but was amended in November maturity date of the facility is 28 February, 2020. Receivables sold under 2017 and now matures on 1 August, 2020. The commitment amount for this agreement are not derecognized and the related liabilities are included the facility was also reduced to US$225 million. The transaction has been in bank borrowings. accounted for as collateralized borrowing (refer to note 20 “Borrowings”). Following an event of default by the Unrestricted Subsidiary under the ABL As at 31 December, 2018, trade receivables were subject to the IFRS 9 Facility loan agreement or if a specified liquidity event occurs, the lenders expected loss provision. The ageing profile of the trade receivables is as have the right to receive the cash flows from the pledged receivables to follows: repay the outstanding loans under the ABL Facility. Absent an event default or liquidity event, the Unrestricted Subsidiary will collect the receivables and US$ millions 2018 2017 all new receivables transferred to the Unrestricted Subsidiary by the US sub­ Past due 0–30 days 87 74 Past due 31–60 days 25 22 sidiaries will be collateral. The amount of collateral pledged as at 31 Decem­ Past due 61–90 days 10 12 ber, 2018 is approximately US$335 million. As at 31 December, 2018, the Past due 91–120 days 5 6 amount drawn under the ABL facility was US$212 million. Receivables sold Past due more than 121 days 17 13 Total 144 127 under this agreement are not derecognized and the related liabilities are included in bank borrowings.

162 Annual Report 2018 CEVA Logistics Financial Statements The carrying amount of the Group’s trade and other receivables are denom­ 17. Cash and cash equivalents inated in the following currencies: US$ millions 2018 2017 US$ millions 2018 2017 Cash at bank 277 226 Euro 236 265 Current bank deposits 91 69 US dollar 436 338 Total cash and cash equivalents 368 295 British pound 85 95 Other currencies 402 371 Total 1,159 1,069 Cash and cash equivalents are available for use by the Group, except for US$60 million deposited to support contingent liabilities under guarantees Movements on the provision for impairment of trade receivables are as and letters of credit of the same amount (31 December, 2017: Nil). Bank follows: overdrafts are included within interest bearing borrowings (note 20 “Bor­ rowings”). US$ millions 2018 2017

At 1 January 1 19 19 Charged to other operating expenses 19 9 Receivables written off during the year as uncollectable (11) (10) Unused amounts reversed (2) (2) Exchange rate differences (2) - At 31 December 23 16

1 Refer to note 2.1 for the details related to the IFRS 9 opening balance adjustment.

The creation and release of the loss allowance on receivables has been included in Other operating expenses in the Consolidated Income State­ ment. The other classes within trade and other receivables do not contain impaired assets. Refer to note 4b for the provision matrix with the expected credit loss percentages.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above.

163 Annual Report 2018 CEVA Logistics Financial Statements 18. Joint ventures The “summarized” consolidated income statement of Anji-CEVA for the years ended 31 December, 2018 and 2017 is as follows: The Group has an investment totaling US$99 million as at 31 December, Years ended 31 December 2018 (31 December, 2017: US$98 million), being a 50% interest in Anji- US$ millions 2018 2017 CEVA Logistics Co. Ltd (“Anji-CEVA”) with its registered address at No. 258 Revenue 1,432 1,134 Operating expenses excluding depreciation, Miquan Road, Anting Town, Jiading District, Shanghai City, P.R. of China. (1,336) (1,045) amortization and impairment Anji-Ceva principally engages in contract logistics activities, including ware­ Gain /(loss) from assets held for sale 1 28 12 housing, distribution, transportation, domestic freight, technical consulting EBITDA 124 101 and training. For the year ended 31 December, 2018, CEVA’s share in Depreciation, amortization and impairment (27) (22) Anji-CEVA’s net result was US$29 million (year ended 31 December, 2017: 97 79 US$23 million). Operating income Finance income (including foreign exchange movements) 4 2 Finance expense (including foreign exchange movements) (1) (1) The “summarized” consolidated balance sheet of Anji-CEVA as at 31 Net finance income / (expense) 3 1 December, 2018 and 2017 is as follows: (including foreign exchange movements) as at 31 December Profit / (Loss) before income taxes 100 80 US$ millions 2018 2017 Income tax (expense) / Income (28) (22) Current Profit / (Loss) for the period 72 58 Cash and cash equivalents 194 144 Attributable to: Other current assets 432 410 Non-controlling interests 14 (11) Total current assets 626 554 Equity holders of the Company 58 47 Financial liablities (2) (7) 1 Gains from assets held for sale relate to property disposals in September 2018 US$14 million Other current liabilities (572) (532) (CEVA’s share) and in July 2017 was US$6m (CEVA’s share). Total current liabilities (574) (539)

Non-current Assets 167 170 Total non-current assets 167 170

Financial liablities (5) - Other liabilities (12) - Total non-current liabilities (17) -

Net assets 202 185

164 Annual Report 2018 CEVA Logistics Financial Statements The reconciliation from the net asset value to the carrying value of the parties to the joint venture. During 2018, a formal agreement to this effect Anji-CEVA joint venture for the years ended 31 December, 2018 and 2017 was entered into under which JV pays a fee that is based on the difference is as follows: between the ratio in joint venture revenue stemming from the SAIC-group versus non-SAIC-group companies. This will be an operating expense and Years ended 31 December affect EBITDA; the economic consequences for CEVA are the same as if the US$ millions 2018 2017 adjustment had been done subsequent to net profit distribution. Opening net assets – 1 January 185 149 Allocated to non-controlling interest (41) (35) Adjusted opening net assets – 1 January 144 114 For 2018 the JV will pay an annual adjustment payment to Anji-Logistics, Profit for the period 72 58 however, as the share of non-SAIC group revenues is expected to increase, Non-controlling interest (14) (11) Dividend paid by joint ventures 1 (40) (30) the impact on CEVA is expected to reduce accordingly. As a result of a stra­ Foreign exchange impact (14) 13 tegic review that may occur in 2021 depending on the level of non-SAIC Closing net assets – 31 December 148 144 Interest in joint ventures at 50% 74 72 revenue achieved in 2020, the parties may amend the joint venture agree­ Goodwill in joint ventures 25 26 ment, including the profit sharing provisions, purpose of the joint venture Carrying value 31 December 99 98 and business transfers, or the parties may sell a portion of their interests in 1 Included are dividends received by CEVA in December 2018. The CEVA portion of the dividend paid the joint venture or the Anji-CEVA joint venture in its entirety. The agree­ by joint ventures amounted to US$20 million (2017: US$15 million). ment did not have any impact on the dividend CEVA received in 2018.

The Company had no contingent liabilities towards Anji-CEVA as at 31 December, 2018 (31 December, 2017: nil). There are no significant restric­ tions on the ability of Anji-CEVA to transfer funds to the Company in the form of cash dividends, or to repay loans or advances made by the Company.

As part of the agreement in 2017 to renew the Anji-CEVA joint venture agreement it was agreed in principle that the joint venture parties, CEVA and Anji Automotive Logistics Company Limited (Anji Logistics) (a subsid­ iary of Shanghai Automotive Industry Sales Corporation, or SAIC), will be entitled to certain annual adjustment payments prior to or subsequent to the net profits distribution depending on certain contributions made by the

165 Annual Report 2018 CEVA Logistics Financial Statements 19. Share capital At the same time, CMA CGM made a strategic investment of CHF379 million in convertible securities issued by CEVA in a concurrent private place­ Number of Nominal value ment. On 15 August, 2018, these securities were converted to 13,779,826 common shares registered common shares after regulatory approvals were received. 1 January 2018 1 - Issued share capital during the year 55,203,096 CHF0.10 The proceeds from the IPO were primarily used to repay debt as disclosed Authorised and issued share capital 55,203,096 - as per 31 December 2018 in Note 20.

1 On 3 May, 2018 CEVA Logistics merged with CEVA Holdings LLC and was the surviving parent company of the Group. As a result of this capital reorganization the share capital of Each common share has one vote. All shares have equal voting rights, and CEVA Logistics AG has been reflected in the consolidated balance sheet as though the no preferential rights or similar entitlements exist. Company had always been the parent of the Group. See Note 2 for further details.

On 21 February, 2018, the Company was incorporated with 1,000,000 fully paid in registered shares with a nominal value of CHF0.10 per share issued at par value. On 10 April, 2018, the Company issued 10,505,000 fully paid in registered shares with a nominal value of CHF0.10 per share issued at par value.

The Company legally merged with CEVA Holdings LLC on 3 May, 2018 with CEVA Logistics AG being the surviving entity.

On 8 May, 2018, the Company successfully completed an IPO on the SIX Swiss Exchange and issued 29,856,537 new registered shares with a nominal value of CHF0.10 each for CHF27.50 per share.

166 Annual Report 2018 CEVA Logistics Financial Statements 20. Borrowings

The carrying amounts and fair value of borrowings are as follows:

US$ millions 2018 2017 Carrying value Level 1 fair value Level 2 fair value Total fair value Carrying value Level 1 fair value Level 2 fair value Total fair value

Non-current Bank borrowings 1,148 - 1,137 1,137 1,165 - 1,138 1,138 Loan notes 344 335 - 335 1,008 995 - 995 Finance leases 27 - 27 27 24 - 24 24 Total non-current borrowings 1,519 335 1,164 1,499 2,197 995 1,162 2,157

Current Bank overdrafts 22 - 22 22 131 - 131 131 Loan Notes - - - - 39 39 - 39 Bank borrowings 13 - 13 13 13 - 13 13 Finance leases 6 - 6 6 4 - 4 4 Total current borrowings 41 - 41 41 187 39 148 187

Total borrowings 1,560 335 1,205 1,540 2,384 1,034 1,310 2,344

Unamortized debt issuance costs 24 38

Total principal debt 1,584 2,422

The different levels for calculating the fair value have been defined as instruments) are determined by using valuation techniques. These valuation follows: techniques maximize the use of observable market data where it is available Level 1: The fair value of financial instruments traded in active markets and rely as little as possible on entity-specific estimates. If all significant is based on quoted market prices at the balance sheet date. A market is inputs required to fair value an instrument are based on observable market regarded as active if quoted prices are readily and regularly available from data, the instrument is included in level 2. The fair value of derivatives is an exchange, dealer, broker, industry group, pricing service, or regulatory calculated as the present value of the estimated future cash flows based agency, and those prices represent actual and regularly occurring market on observable interest yield curves, basis spread and foreign exchange rates. transactions on an arm’s length basis. Level 3: If one or more of the significant inputs is not based on observable Level 2: The fair value of financial instruments that are not traded in an market data, the instrument is included in Level 3. The Company did not use active market (for example, over-the-counter derivatives or convertible bond a level 3 calculation to measure fair value.

167 Annual Report 2018 CEVA Logistics Financial Statements Net Debt reconciliation The table below sets out an analysis of the movements in net debt for the years ended 31 December, 2018 and 2017: Years ended 31 December Non Cash Movements US$ millions Reclass Non-current 2017 Cash-Flows Foreign exchange Other 2018 to current

Non-Current borrowings 2,197 (689) (27) - 38 1,519 Current borrowings 187 (138) (8) - - 41 Total liabilities from financing activities 2,384 (827) (35) - 38 1,560

Cash and cash equivalents (295) (73) - - - (368) Net Debt 2,089 (900) (35) - 38 1,192

Other includes amortization of debt issuance costs (US$38 million). Years ended 31 December Non Cash Movements US$ millions Reclass Non-current 2016 Cash-Flows Foreign exchange Other 2017 to current

Non-Current borrowings 2,138 22 38 (38) 37 2,197 Current borrowings 113 34 2 38 - 187 Total liabilities from financing activities 2,251 56 40 - 37 2,384

Cash and cash equivalents (333) 33 5 - - (295) Net Debt 1,918 89 45 - 37 2,089

In 2017, other includes the refinancing of US$351 million of the Company’s Non-current borrowings 4.00% First Lien Senior Secured Notes due 2018 (the “4% Notes”) with the The fair value of the loan notes has been presented using the available market Company’s 9.0% First Lien Senior Secured Notes due 2020 (the “9% Notes price (Level 1) at the balance sheet date. The bank borrowing’s fair value has due 2020”) and the resulting charge of US$15 million (of which US$12 been presented using a valuation technique based on prices of recent over- million was booked in specific items), additional debt incurred during the the-counter transactions for these borrowings (Level 2). The average floating refinancing of the 4% Notes (US$9 million), amortization of debt issuance interest rate for the period was 3.1% (2017: 3.7%) and 6.6% (2017: 6.1%) costs (US$4 million), non-cash interest on the 9% Notes due 2020 (US$6 for Euro and for US dollar denominated loans respectively. million) and other adjustments (US$3 million).

168 Annual Report 2018 CEVA Logistics Financial Statements Current borrowings The carrying amounts of current borrowings approximate their fair value.

Terms and debt repayment schedule Year ended 31 December Amount drawn at Amount drawn at Unamortized debt Amount drawn at Nominal Currency Maturity 31 December 2018 31 December 2018 issuance costs at 31 December 2018 interest rate principal value principal value 31 December 2018 carrying value in US$ millions in US$ millions in US$ millions

Senior secured facilities – New term loan US dollar US LIBOR + 3.75% August 2025 $474 $474 ($11) $463 Senior secured facilities – Revolver US dollar US LIBOR + 2.375% August 2023 $262 $262 ($5) $257 5.25% senior notes Euro 5.25% August 2025 € 300 $344 ($5) $339 US ABL facility US dollar US LIBOR + (2% ~ 2.5%) August 2020 $212 $212 $0 $212 Australian Receivables facility AU dollar BBSW + 3.45% April 2020 AUD 42 $30 $0 $30 European ABS Euro EURIBOR + 1.75% February 2020 € 169 $194 ($2) $192 Bank overdrafts Various Various Various $22 $22 $0 $22 Finance lease liabilities Various Various Various $34 $34 $0 $34 Other loans Various Various Various $13 $12 ($1) $11

$1,584 ($24) $1,560

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

US$ millions 2018 2017

Euro 755 261 US dollar 659 1,935 Other currencies 146 188 Total borrowings 1,560 2,384

As at 31 December, 2018 the weighted average period to maturity of the borrowings was 4.8 years.

169 Annual Report 2018 CEVA Logistics Financial Statements On 3 August, 2018, CEVA successfully completed a comprehensive refi­ ii. To redeem in full the US$300 million principal amount of 7.0% First nancing. CEVA issued EUR300 million of 5.25% Senior Notes due 2025 (the Lien Senior Secured Notes due 2021 and US$325 million principal “5.25% Senior Notes”); US$475 million Term Loan B due 2025 (the “TLB amount of 9.0% Senior Secured Notes due 2021 on 24 May, 2018; Facility”) and entered into a US$585 million Senior Revolving Credit Facility iii. To redeem in full the US$26 million principal amount of the 12.75% due 2023 including ancillary facilities (the “Revolving Credit Facility”). The Senior Notes due 2020 on 13 June, 2018. net proceeds were used to repay, redeem and cancel US$438 million 9.0% Notes due 2020, US$581 million of term loans due 2021 and US$94 million Bank borrowings, letters of credit and guarantees of drawings under the existing senior revolving credit facility due 2021. As at 31 December, 2018, US$262 million was drawn in cash and US$80 million was utilized as ancillary facilities (the “Ancillary Facilities”) to be As at 31 December, 2018, the outstanding amount drawn in cash under the used for guarantees and letters of credit under the Revolving Credit Facility Revolving Credit Facility was US$262 million. Of this amount, US$60 million (2017: US$250 million was undrawn under the Company’s former revolving was drawn to fund CEVA’s legacy synthetic letter of credit facility (the credit facility). “Synthetic Facility”), which is in the process of being repaid and reissued under separate guarantee facilities. As at 31 December, 2018 approximately US$145 million of guarantees and letters of credit in various currencies were issued, but undrawn, under the May 2018 IPO Ancillary Facilities and the Synthetic Facility (2017: US$275 million were On 8 May, 2018, CEVA Logistics AG successfully completed an initial public issued but undrawn under the former guarantee facilities). The remaining offering (the “IPO”) on the SIX Swiss Exchange. The Company received amount unissued under the Ancillary Facilities as at 31 December, 2018 aggregate gross proceeds of CHF1.2 billion (equivalent to US$1.2 billion) was US$26 million (2017: Nil undrawn the former guarantee facilities). from the IPO and the private placement of the CMA CGM convertible secu­ rities. The Group has the following undrawn borrowing facilities which expire beyond one year: Since the closing of the IPO, the Company has used the net proceeds from the IPO to repay debt as follows: US$ millions 2018 2017 Floating rate 256 283 i. To repay US$184 million of drawings under the Company’s existing Fixed rate - - Total 256 283 term loans which were outstanding, on 14 May, 2018;

170 Annual Report 2018 CEVA Logistics Financial Statements As at 31 December, 2018, the Company had US$368 million (2017: US$295 As at 31 December, 2018, the Group is in compliance with its financial cov­ million) in cash on its Consolidated Balance Sheet. In addition to this cash, enants. the Company has access to US$953 million (2017: US$796 million) of credit facilities held centrally, as described above, of which US$697 million Change of control (2017: US$512 million) was drawn. Total headroom at 31 December, 2018 A substantial portion of CEVA’s financing agreements include a require­ was US$565 million (2017: US$578 million). The facility amounts described ment to obtain consent from the lenders if any person or group of persons here will be impacted by the change of control which is expected to occur acting in concert gains control of the Company. Further details are provided following the public tender offer by CMA CGM. The Company, together with in Note 28 “Events After Balance Sheet Date”. CMA CGM, has taken steps to mitigate this. Further details are provided at Note 28 “Events After Balance Sheet Date”. Interest rate and fees The interest rates applicable to loans under the SFA are equal to either Certain covenants LIBOR or, if LIBOR is unavailable, at an alternate base rate, for (at CEVA’s Financial covenants: CEVA is required under the terms of the SFA only, option)a one, two, three or six-month interest period, or a nine or twelve with a relevant period on a twelve month rolling basis ending on the last day month period, if available from all relevant lenders, in each case, plus an of each calendar quarter end, that: applicable margin.

– The ratio of consolidated EBITDA as defined in the agreement to net European Securitization due 2020 finance charges in respect of each relevant period shall not be less than On 24 March, 2016, the Company closed a EUR170 million (US$191 million) 2.00:1; and Pan-European Asset Backed Securitization (“the European Securitization – The ratio of total net debt on the last day of each relevant period to Facility”). The European Securitization Facility is a four year commitment consolidated EBITDA as defined in the agreement in respect of that (two year initially, extended in 2017) from two banks and is based on secu­ relevant period shall not exceed 4.5:1; ritization of receivables from six European countries. As of 31 December, 2018, the outstanding drawn amount under the facility was EUR169 million The definition of consolidated EBITDA in the agreement allows adjustments (US$194 million). and certain items to be added back to the reported EBITDA for the purpose of calculating the covenants. Australian Receivables Facility due 2020 On 22 May, 2016, certain of the Company’s Australian subsidiaries of the Group renewed and extended CEVA’s A$40 million receivables purchase

171 Annual Report 2018 CEVA Logistics Financial Statements facility. The renewal, among other things, extended the maturity of the facil­ 21. Retirement benefit obligations ity to 30 April, 2020 and amended certain economic terms including facility margin. Additional amendments were made in 2017, which increased the The Group operates a number of pension plans around the world, most of facility limit to A$50 million. As of 31 December, 2018, the outstanding which are defined contribution plans. CEVA has a small number of defined drawn amount under the facility was A$42 million (US$30 million). benefit plans of which the main ones are based in Italy, the United Kingdom and the United States. The plans in Italy, the United Kingdom and the US ABL facility due 2020 United States are closed to new members. On 19 November, 2010, certain US subsidiaries of the Group (“the Origi­ nators”) and a new subsidiary, CEVA US Receivables, LLC (the “Unrestricted The majority of benefit payments are from trustee-administered funds; Subsidiary”), entered into agreements establishing an Asset Backed Loan however, there are also a number of unfunded plans where the Company (ABL) Facility with an initial commitment amount of US$200 million (the meets the benefit payment as it falls due. The pension plan in the Neth­ “ABL Facility”). On 30 November, 2010, the committed amount of the ABL erlands changed to a career average plan with no indexation as from 1 Facility was increased to US$250 million. The ABL Facility was scheduled to January, 2013. The new plan is treated as a defined contribution plan for mature on 31 December, 2018, but was amended in November 2017 and accounting purposes. now matures on 1 August, 2020. The commitment amount for the facility has been reduced to US$225 million. As at 31 December, 2018, the out­ Amounts recognized in the Consolidated Balance Sheet standing drawn amount of the ABL Facility was US$212 million. US$ millions 2018 2017

Present value of funded obligations 180 203 Fair value of plan assets 83 92 Liability in the balance sheet 97 111

Italian pension plan In accordance with the Trattamento di Fine Rapporto (“TFR”) legislation in Italy, employees are entitled to a termination payment on leaving the Company. The TFR regulation changed from 1 January, 2007 and employ­ ees were given the option to either remain under the prior regulation or to transfer the future accruals to external pension funds. The funded provision

172 Annual Report 2018 CEVA Logistics Financial Statements for TFR maturing after 1 January, 2007 is treated as a defined contribution Movement in plan assets plan under both options. An amount of US$10 million at 31 December, US$ millions 2018 2017 2018 (2017: US$14 million) has been recognized in the provision for pension liabilities in accordance with this legislation, which is unfunded. As At 1 January 92 79 Interest income 2 3 part of the retirement benefit obligation the Group also reports a liability Remeasurements - - (“Cassa Vincolata Passiva”) of US$25 million at 31 December, 2018 (2017: Experience gains / (losses) (5) 5 Exchange rate differences (4) 6 US$27 million) that represents the right of current employers of former Employer contribution 3 4 CEVA employees to claim TFR payments. Similarly, the Group also has Benefits paid (5) (5) an asset (“Cassa Vincolata Attiva”) of US$1 million (2017: US$1 million) At 31 December 83 92 which is included in non-current prepayments. This asset reflects the right of the Group to claim TFR payments for certain employees from their prior Expense recognized in the Consolidated Income Statement employers. The participants are paid out within 6 months after their retire­ US$ millions 2018 2017 ment. Mortality assumptions for the Italian pension plans are based on the Tabelle di mortalita RG48 pubblicate dalla Ragioneria Generale dello Stato. Recognized in personnel expenses (note 8) Service costs 3 3

Recognized in finance expense (note 9) Movement in defined benefit obligations Interest income (2) (3) Interest costs 4 5 US$ millions 2018 2017 Employer pension expense for the year 5 5 At 1 January 203 181 Service costs 3 3 Interest costs 4 5 Amounts recognized in the Statement of Other Comprehensive (Gain) / loss from change in financial assumptions (13) 7 Income Exchange rate differences (6) 18 Benefits paid (11) (11) US$ millions 2018 2017 At 31 December 180 203 Remeasurements recognized in the statement of other (8) 2 comprehensive income in the period (before tax) Cumulative remeasurements recognized in the statement 58 66 of other comprehensive income (before tax)

173 Annual Report 2018 CEVA Logistics Financial Statements Principal actuarial assumptions These tables translate into an average life expectancy for the largest plans in the United Kingdom and the US in years of a pensioner retiring at age 65 US$ millions 2018 2017 as set out below: Discount rate 2.8% 2.4% Rate of compensation increase 2.8% 2.8% 2018 2017 Inflation 2.4% 2.3% UK US UK US Retiring at the end of the reporting period: Percentages indicated are weighted averages across all the schemes. Male 22.1 21.1 22.8 21.7 Female 24.2 23.1 24.5 23.7

Assumptions regarding future mortality experience are set based on actu­ Retiring 20 years after the end of the reporting period: arial advice in accordance with public statistics and experience in each Male 23.8 19.8 25.0 20.5 Female 26.1 22.5 25.0 23.2 territory. Mortality assumptions for CEVA’s most important funds are based on the following post-retirement mortality tables: Other key assumptions inherent to the valuation of the Group’s pensions – United Kingdom: The post-retirement mortality assumption adopted and the determination of CEVA’s pension cost include employee turnover, is 100% / 97% S2PA tables for males / females respectively, with discount rates, and future wage increases. The expected return on plan future improvements projected from 2007 in line with the CMI’s 2017 assets is determined by considering the expected returns available on projections model with a long term improvement rate of 1.5% / 1.0% assets underlying the current investments policy. These assumptions are per annum for males / females. given a weighted average and are based on independent actuarial advice – United States: RP-2006 Aggregate Mortality Table, with Projection and are updated on an annual basis. Actual circumstances may vary from Scale MP-2018 Fully Generational these assumptions giving rise to a different pension liability.

Through its defined benefit pension plans and post-employment medical plans, the group is exposed to a number of risks, the most significant of which are detailed below:

– Asset volatility: The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit.

174 Annual Report 2018 CEVA Logistics Financial Statements – Inflation risk: The main part of the Group’s pension obligations are The methods and types of assumptions used in preparing the sensitivity linked to inflation, and higher inflation will lead to higher liabilities. analysis did not change compared to the prior period. The majority of the plan’s assets are either unaffected by or loosely correlated with inflation, meaning that an increase in inflation will also The weighted average duration of the defined benefit obligation is 17 years. increase the deficit. Expected employer contributions to post-employment benefit plans for the – Life expectancy: The majority of the plans’ obligations are to provide year ending 31 December, 2018 are US$3 million. benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. Plan assets do not include any investments in the Group and are comprised as follows: The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: US$ millions 2018 2017 Listed equity 36 45 Change in Fixed interest 18 20 Increase in assumption Decrease in assumption assumption Cash 3 3 2018 2017 2018 2017 Other 26 24 Total 83 92 Decrease by Decrease by Increase by Increase by Discount rate 0.5% 7.6% 8.2% 8.3% 8.9% The actual return on plan assets is a US$2.9 million loss (31 December, Pension growth Increase by Increase by Decrease by Decrease by 0.5% rate (inflation) 5.1% 5.5% 4.5% 5.0% 2017: US$7.8 million income). Increase by Increase by Decrease by Decrease by Life expectancy 1 year 2.9% 3.1% 2.7% 2.9%

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized in the Consolidated Balance Sheet.

175 Annual Report 2018 CEVA Logistics Financial Statements 22. Share based payments In connection with the 2013 Recapitalization, certain CEVA employees received either share options having an exercise price equal to US$0.01 or 2013 Long Term Incentive Plan restricted share units, depending on the jurisdiction in which they resided In connection with the 2013 Recapitalization, the Board of Managers of on the date of grant (collectively, the “Recap Equity Awards”). Recap Equity CEVA Holdings LLC adopted the 2013 Long Term Incentive Plan, a share- Awards vested in three equal installments on the third, fourth, and fifth based compensation plan, which permitted CEVA Holdings LLC to grant anniversaries of the date of grant. share options, rights to purchase common shares of CEVA Holdings LLC, restricted shares, restricted share units, and other share-based rights to Also in connection with the 2013 Recapitalization, certain CEVA employ­ employees, managers or directors of, or consultants to, CEVA Holdings LLC ees received options to purchase common shares of the Company, each or any of its subsidiaries. having an exercise price equal to the fair market value of a common share of the Company on the date of grant (collectively, the “Recap FMV Equity Following the Company's IPO, the Compensation Committee converted all Awards”). In general, 40% of each of the Recap FMV Equity Awards granted existing equity awards granted under the CEVA Holdings LLC 2013 Long vested in five equal installments on the first five anniversaries of the date of Term Incentive Plan into equivalent equity awards with respect to shares grant. The remaining 60% of the Recap FMV Equity Awards were subject of the Company. In addition, since the shareholders of CEVA Holdings LLC to vesting upon the achievement of certain performance goals, which in became entitled to receive ten shares of the Company in respect of each practice can no longer be achieved, as they related to the cash-on-cash and share of CEVA Holdings LLC held as consideration in the merger of CEVA internal rate of return of funds managed by Apollo Global Management Holdings LLC with the Company, the Compensation Committee increased LLC, who is no longer an investor in the Company. the number of shares underlying each existing equity award by a multiple of ten. The Compensation Committee also adjusted the per share exercise In July 2016 the Compensation Committee evaluated the equity compen­ price of each equity award by dividing such price by ten and converting the sation that had been granted under the 2013 Long-Term Incentive Plan price to CHF. and decided to (i) allow members of the CEVA Holdings LLC Executive Management Group to increase their investment in CEVA Holdings LLC The 2013 Long Term Incentive Plan is administered by the Compensation by subscribing to purchase additional common shares of CEVA Holdings Committee of the Board of Directors, The dates of grant, vesting, and LLC and (ii) issued additional equity awards to members of the CEVA pricing of options granted under the 2013 Long Term Incentive Plan are Holdings LLC Executive Management Group consisting of (a) either, share generally subject to the discretion of the Board of Managers. options having an exercise price equal to US$0.01 or restricted share units, depending on the jurisdiction in which they resided on the date of grant

176 Annual Report 2018 CEVA Logistics Financial Statements (the “EMG Equity Awards”) and (b) options to purchase common shares of Equity Awards and EMG FMV Options vest in tranches on the first, second, CEVA Holdings LLC, each having an exercise price equal to the fair market third, fourth and fifth anniversaries after the date of grant. value of a common share on the date of grant (collectively the “EMG FMV Options”). On 31 March, 2018, each of the non-employee managers who were not affiliated with the Apollo Funds received a grant of 1,500 fully vested A portion of the EMG Equity Awards granted to each grantee fully vested restricted share units (after conversion). In addition Marvin O. Schlanger on the date of grant and the remaining portion of the EMG Equity Awards received a grant of 3,000 fully vested restricted share units (after conver­ granted to each grantee vest in five equal installments on the first, second, sion). The restricted share units were to be settled on the earlier of (a) third, fourth, and fifth anniversaries of the date of grant. Vesting of the EMG 1 March, 2019 (b) the occurrence of an initial public offering and (c) the Equity Awards is subject to the grantee’s continued provision of services to date of the managers termination of relationship with CEVA Holdings LLC. the Company or one of its subsidiaries through the applicable vesting date, These restricted share units were settled by the issuance of shares of the subject to accelerated vesting in the event of a change in control of the Company in 2018. Company or upon certain terminations of employment. To support the successful completion of the IPO and post-IPO transfor­ EMG FMV Options will vest in five equal installments on the first, second, mation, in April 2018 the Compensation Committee of CEVA Holdings third, fourth, and fifth anniversaries of the date of grant, Vesting of the EMG LLC approved a one-time discretionary IPO-related equity-based award to FMV Options is subject to the grantee’s continued provision of services to the members of the Group Executive Board and cluster MDs through the the Company or one of its subsidiaries through the applicable vesting date, issuance of Restricted Share Units (RSUs), representing conditional rights subject to accelerated vesting in the event of a change in control of the to receive shares of CEVA Holdings LLC free of charge and / or options, rep­ Company or upon certain terminations of employment. resenting conditional rights to purchase shares of CEVA Holdings LLC, each having an exercise price equal to US$0.01 (the “IPO Options”). The total size Issuance of the EMG FMV Options and the EMG Equity Awards in 2017 was of this award was 392,500 Company shares. The IPO Options vest in four not part of an annual or recurring incentive plan and the Board of Direc­ equity installments on 1 July, 2018, and the second, and third and fourth tors does not anticipate, at this stage, further grants of this scope. In total anniversaries of the date of grant and vesting is subject to the grantee’s 34,550 EMG FMV Options and 30,495 EMG Equity Awards were granted continued provision of services to the Company or one of its subsidiaries in the period. The EMG FMV Options and EMG Equity Awards have no per­ through the applicable vesting date. formance conditions other than length of service and 4,568 EMG Equity Awards vested immediately at the grant date and the remaining EMG

177 Annual Report 2018 CEVA Logistics Financial Statements Certain equity awards granted under the 2013 Long Term Incentive Plan The number and weighted average exercise price of FMV share options are will vest upon a qualified change in control. A change in control means (a) as follows: (i) the acquisition by any individual, entity or group (within the meaning Weighted average Number of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial exercise price in CHF

ownership (within the meaning of Rule 13d-3 promulgated under the Outstanding as at 1 January 2017 574,040 98.44 Exchange Act) of more than 50% of the voting power of the Company or Granted during the year 39,500 98.44 (ii) the consummation of a merger, consolidation, recapitalization or Forfeited / expired (8,580) 98.44 Exercised - 98.44 similar business combination transaction of the Company or any direct or Outstanding as at 31 December 2017 604,960 98.44 indirect subsidiary thereof with any other entity following which the voting Exercisable at the end of the year 65,980 98.44

securities of the Company that are outstanding immediately prior to such Outstanding as at 1 January 2018 604,960 98.44 transaction cease to represent at least 50% of the combined voting power of Granted during the year 18,000 98.44 Forfeited / expired (182,055) 98.44 the securities of the Company or, if the Company is not the surviving entity, Exercised - 98.44 such surviving entity or any parent or other affiliate thereof, outstanding Outstanding as at 31 December 2018 440,905 98.44 Exercisable at the end of the year 227,746 98.44 immediately after such transaction; or (b) a sale or other disposition of all or substantially all of the assets of the Company and its subsidiaries to any other person or entity. The number and weighted average exercise price of Penny Options and RSUs are as follows: The maximum term of options granted under the 2013 Long Term Incen­ Weighted average Number tive Plan is ten years. Subject to certain exceptions set forth in the applicable exercise price in CHF award agreements, unvested options automatically expire upon the date Outstanding as at 1 January 2017 335,120 0.01 of a grantee’s termination of relationship with the Company or one its Granted during the year 53,410 0.01 subsidiaries. Vested options generally expire 30 days following the date of Forfeited / expired (8,530) 0.01 Exercised 21,380 0.01 a grantee's termination of relationship with the Company or its subsidiar­ Outstanding as at 31 December 2017 358,620 0.01 ies other than for cause. All options (whether vested or unvested) will be Outstanding as at 1 January 2018 358,620 0.01 forfeited upon a termination of the grantee’s relationship with CEVA or its Granted during the year 438,395 0.01 subsidiaries for cause. Forfeited / expired (32,690) 0.01 Exercised (47,950) 0.01 Outstanding as at 31 December 2018 716,375 0.01 Exercisable at the end of the year 152,444 0.01

178 Annual Report 2018 CEVA Logistics Financial Statements The options outstanding at 31 December, 2018 have a remaining weighted The fair value of share options was determined based on public market average contractual life of 0.25 years (2017: 7.88 years). information.

As at 31 December, 2018 a total of 196,275 (2017: 80,450) restricted share The total amount expensed for share based payments in 2018 is US$33 units were outstanding. Other than fair market value options, restricted million (2017: US$9 million) and US$51 million (2017: US$23 million) is share units shall be converted into shares as soon as practicable following reported as Share Based Compensation reserve in Equity. the applicable settlement date with no out of pocket / additional expense to the recipient other than any tax liabilities which the recipient may incur. Refer to note 8 “Personnel expenses” for the share option expense and the details of the options granted to Managers and executive management. The fair value for services received in return for share options granted is based on the fair value of share options granted. The weighted average fair value of the share options granted during the year determined using the Black-Scholes Merton valuation model was CHF18.71 (US$18.87) per option (2017: US$195.97 per option). The significant inputs into the model were:

– a weighted average share price of CHF98.44 (US$99.27); – exercise price as shown above; – average volatility during the year of 32.56% (2017: 32.78%); – a weighted average expected option life of 5.50 years (2017: 5.50 years); – a risk free interest rate of 2.63% (2017: 1.06%) based on the U.S. Securities and Exchange Commission (“SEC”) rates on each grant date The expected volatility is estimated by considering the historic average share price volatility of CEVA’s industry peers.

179 Annual Report 2018 CEVA Logistics Financial Statements 23. Provisions due to cash deposit and an agreement reached between insurers. No actual cash outflow for CEVA did occur and is expected.

Legal Restruc- US$ millions Insurance Other Total claims turing While the outcome of these disputes cannot be predicted with certainty, man­ Balance at 1 January 2018 80 75 8 30 193 agement believes that, based upon legal advice and information received, Raised during the year 18 38 1 49 106 the final decision will not materially affect the consolidated financial position Utilized during the year (33) (28) (4) (14) (79) of the Group. To the extent management has been able to reliably estimate Reversed during the year (3) (15) (1) (4) (23) Exchange rate differences (3) - - (2) (5) the expected outcome of these claims, a provision has been recorded as at Balance at 31 December 2018 59 70 4 59 192 31 December, 2018. Where the expected outcome cannot be reliably esti­ Of which non-current 48 29 - 39 116 Of which current 11 41 4 20 76 mated, disclosure of the matter is given in note 26 “Contingencies”.

The economic outflow of non-current provisions is expected to occur within Insurance one to five years. The impact of discounting was not considered to be mate­ The insurance provision includes amounts provided in respect of self-insur­ rial. ance schemes which represent estimates, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not Legal claims reported at the balance sheet date on risks retained by the Group. A number of legal claims are pending against the Group. They consist of provisions for claims related to labor and employment matters, commer­ Restructuring cial arrangements, personal injury and property damage claims (including These provisions relate to various restructuring projects initiated as part of claims seeking to hold us liable for accidents involving CEVA’s independent the Group’s cost containment programs. They include staff redundancy owner-operators), international trade, intellectual property, health, and costs, and site closure costs. safety, tariff enforcement, subrogation claims and various other matters arising from CEVA’s ordinary business activities. Other Other provisions largely comprise provisions for dilapidations and disman­ A provision for a warehouse fire in 2006 is included for US$38 million (2017: tling costs, onerous contract related the Italian cluster, tax and other related US$62 million), which is fully covered by insurance. A corresponding insur­ costs. In Italy a provision of US$29 million is recorded as best estimate of ance receivable asset of US$38 million (2017: US$62 million is included in the least cost of exiting the contract as well as the consequences of the Other non-current assets. The decrease of the provision and receivable is bankruptcy of a local partner company involved in the contract.

180 Annual Report 2018 CEVA Logistics Financial Statements 24. Trade and other payables The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

US$ millions 2018 2017 US$ millions 2018 2017

Trade payables 828 810 Less than 1 year 369 340 Personnel related accruals 125 154 1–5 years 720 688 Social security and other taxes 77 75 Thereafter 160 180 Accrued liabilities 357 410 Total 1,249 1,208 Total trade and other payables 1,387 1,449 Of which guaranteed by third party / customers 72 129

Of the future lease payments, US$567 million (2017: US$759 million) relates to commitments in relation to multi user/shared facilities, while the 25. Commitments remaining US$682 million (2017: US$449 million) is dedicated to specific Capital commitments customer/facilities. Capital expenditure for the acquisition of tangible fixed assets contracted for at 31 December, 2018 but not yet incurred totals US$6 million (2017: Guarantees US$7 million). In the normal course of our business, we provide bank guarantees or letters of credit to various customs authorities, landlords, suppliers and insurance Operating lease commitments underwriters. The principal sources of the bank guarantees or letters of The Group leases various offices and warehouses under non-cancellable credit are CEVA’s Synthetic Facility and ancillary guarantee facilities. The operating lease agreements. The lease terms are generally between one bank guarantees and letters of credit issued under the Synthetic Facility and six years and the majority of lease agreements are renewable at the were cash collateralized on 3 August, 2018 and will be transferred to ancil­ end of the lease period at market rates. The Group also leases various motor lary facilities over time, with the cash collateral being released back to CEVA. vehicles, trailers and (office and computer) equipment under operating lease agreements. The Revolving Credit Facility and the TLB Facility (the “New Senior Secured Facilities”) and the 5.25% Senior Notes are unconditionally guaranteed by During the year ended 31 December, 2018, US$354 million was recognized CEVA Logistics AG, each borrower thereunder and certain of CEVA Logistics as an expense in the Consolidated Income Statement in respect of operat­ AG’s direct and indirect material subsidiaries. All obligations under the New ing leases (2017: US$336 million). Senior Secured Facilities and the 5.25% Senior Notes and the guarantees

181 Annual Report 2018 CEVA Logistics Financial Statements of those obligations are (subject to the agreed security principles) secured 26. Contingencies on a first-priority basis by charges over (i) shares held in the obligors under the New Senior Secured Facilities and the 5.25% Senior Notes (excluding Litigation and Legal Proceedings shares in CEVA Logistics AG); (ii) certain bank accounts of, and intra-group The Company is involved in several legal proceedings relating to the normal receivables due to, the obligors; and (iii) in the case of the obligors incorpo­ conduct of CEVA’s business. While the outcome of these legal proceedings rated in the United States of America, substantially all of the other property is uncertain, the Company believes that it has provided for all probable and and assets to the extent a security interest is able to be granted or perfected estimable liabilities arising from the normal course of business, and CEVA therein. therefore does not expect any un-provisioned liability arising from any of these legal proceedings to have a material impact on CEVA’s results of As at 31 December, 2018, the Group has issued guarantees on behalf of operations, liquidity, capital resources or financial position. its subsidiaries in the ordinary course of business in connection with lease agreements, customs duty deferment and local credit lines amounting to Independent Contractor-Related Proceedings US$194 million (2017: US$329 million), of which US$145 million (2017: The classification of drivers as independent contractors, which CEVA US$275 million) was issued but undrawn under CEVA’s synthetic letter of believes to be a common practice in its industry in the U.S., is challenged credit facility. The obligations under the guarantees issued by banks and from time to time by federal and state governmental and regulatory author­ other financial institutions have been secured by CEVA and certain of its ities, including tax authorities, as well as by individual drivers who seek to subsidiaries. have drivers reclassified as employees. We have previously been subject to claims relating to the classification of independent contractor owner-oper­ ators, and we are currently subject to such claims in California including a regulatory action by the California Employment Development Department. While CEVA cannot provide assurances with respect to the outcome of these matters and it is possible that CEVA could incur a material loss, CEVA intends to vigorously defend itself.

182 Annual Report 2018 CEVA Logistics Financial Statements CIL Related Proceedings Other Proceedings CIL Limited (formerly CEVA Investments Limited), the former parent of From time to time, CEVA is involved in a variety of legal proceedings and dis­ CEVA Group Plc, is involved in a consensually filed liquidation proceeding putes arising in the ordinary course of business. For example, CEVA has been in the Cayman Islands and an involuntary Chapter 7 proceeding in the and is currently subject to numerous labour and employment proceedings Bankruptcy Court for the Southern District of New York. The Trustee in the and disputes in both Italy and Brazil alleging various causes of action and Chapter 7 proceeding filed a claim against CIL Limited’s former directors, raising other legal challenges to CEVA’s labour and employment prac­ CEVA Group Plc, and affiliated entities relating mostly to CEVA’s recapital­ tices. Such proceedings sometimes include individual claims and lawsuits, ization in 2013. In 2015 the defendants filed motions to dismiss certain of disputes with unions, class action claims, and governmental or quasi-gov­ the claims asserted by the Trustee, and in January 2018, the Bankruptcy ernmental investigations. While the outcome of these legal proceedings is Court issued an order granting in part and denying in part the defendants’ sometimes uncertain and may not be capable of estimation, CEVA believes motions. In July 2018, the Trustee filed an amended complaint. The defen­ that resolution of these matters and the incurrence of their related costs dants and the Trustee have filed motions for summary judgment which and expenses should not have a material adverse effect on CEVA’s results have been fully briefed. The Company cannot provide assurances regarding of operations, liquidity, capital resources, or financial position. the outcome of this matter and it is possible that if the Trustee were to prevail on his claims, the Company could incur a material loss in connection with this matter, including the payment of substantial damages and / or the unwinding of the recapitalization in 2013. However, the Company believes the claims are without merit and intends to vigorously defend itself.

Tax Proceedings CEVA is involved in tax audits and tax proceedings in various jurisdictions relating to the normal conduct of its business. While the outcome of these audits and proceedings is uncertain and can involve material amounts, in the reasonable judgement of CEVA a liability for uncertain income tax treatments has been booked, and CEVA therefore does not expect any lia­ bility arising from these audits to have a material impact on its results of operations, liquidity, capital resources, or financial position.

183 Annual Report 2018 CEVA Logistics Financial Statements 27. Related party transactions Trading transactions During the year, Group entities entered into the following trading transac­ On 3 May, 2018 CEVA Holdings LLC as transferring entity merged with CEVA tions with related parties that are not members of the Group: Logistics AG with CEVA Logistics AG being the surviving entity. On 4 May, 2018, CEVA Logistics AG successfully completed an IPO on the SIX Swiss Years ended 31 December US$ millions 2018 2017 Exchange in connection with an initial public offering (the “IPO”) of the Sales of goods Purchases of Sales of goods Purchases of Company’s shares that closed on 8 May, 2018. At the same time, CEVA goods goods Logistics AG sold mandatorily convertible securities to CMA CGM S. A. (“CMA Joint ventures 10 16 2 11 Bär & Karrer - 2 - - CGM”), which converted to shares of CEVA Logistics AG on 13 August, 2018 CMA CGM - 57 - - after receiving regulatory approvals. Rodolphe Saadé is Chairman and CEO

of CMA CGM and is a director of the Company. Years ended 31 December US$ millions 2018 2017

In addition, Mr. Rodolphe Saadé (Chairman and CEO of CMA CGM and Amounts owed Amounts owed Amounts owed Amounts owed by related to related by related to related a director of the Company) and CMA CGM made additional purchases parties parties parties parties of CEVA’s shares such that together they held at total of 33% of CEVA’s Joint ventures 9 1 7 2 Shares as of 31 December, 2018. Additionally, CMA CGM entered into a Bär & Karrer - 1 - - CMA CGM - 9 - - total return swap and a forward share purchase agreement related to CEVA’s Shares giving CMA CGM total economic exposure of approximately 46% in CEVA’s Shares as of 31 December, 2018. On 4 January, 2019, CMA Bär & Karrer are considered a related party due to the fact that Rolf Watter, CGM entered into an additional forward share purchase agreement giving Chairman of the Board of Directors, is also a partner at Bär & Karrer. it total economic exposure of 50.6% in CEVA Shares Logistics AG’s share capital. Related party transactions pre IPO Prior to the IPO, we considered Capital Research and Management Company CMA CGM and the Company have entered into a Relationship Agreement, (“CapRe”), Franklin Advisers, Inc. and Franklin Templeton Investments Corp. which conveys a right to CMA CGM to nominate three members of the (together, “Franklin”) and Apollo to be related parties by virtue of the fact Company’s Board of Directors (as long as it holds more than 25% of the that they each held over 20% of the equity of CEVA Holdings LLC on an share capital of CEVA). as converted basis and Apollo held a majority of the voting power of CEVA Holdings LLC and had the ability to elect a majority of the members of the

184 Annual Report 2018 CEVA Logistics Financial Statements board of directors of CEVA Holdings LLC (predecessor entity to CEVA Logis­ At 31 December, 2018 the Group has booked a net payable, which is dis­ tics AG prior to the legal merger). Following the IPO, neither Apollo Global puted (see Note 26 “Contingencies”) by the Group both as to validity and Management (“Apollo”) nor its affiliates hold a majority of the voting power amount, to CIL Limited, amounting to US$14 million (31 December, 2017: of CEVA Logistics AG nor do they have the ability to appoint a majority of US$15 million). This mainly relates to intercompany cash pooling arrange­ the members of the Company’s Board of Directors. ments and is included within trade and other payables in the Consolidated Balance Sheet. CIL Limited was the former parent company of CEVA Group A subsidiary of CEVA Group Plc had a service agreement with Apollo for Plc and was placed in liquidation proceedings in connection with the Recap­ the provision of management and support services, which was terminated italization. CIL Limited is involved in an official liquidation proceeding in effective as of 8 May, 2018. The annual fee under the service agreement was the Republic of the Cayman Islands and a Chapter 7 proceeding in the equal to the greater of US$4 million per annum and 1.5% of the Group’s Bankruptcy Court for the Southern District of New York. EBITDA and was waived by Apollo for 2017 and 2018. Expenses of US$0.3 million (2017: US$0.2 million) are included in the income statement for the Transactions with key management personnel for the year ended 31 year ended 31 December, 2018 pursuant to the service agreement. December, 2018 are:

Other related party transactions Years ended 31 December US$ millions 2018 2017 CEVA Logistics AG is the immediate parent of CEVA Group Plc, a company Salaries and other short-term benefits 7 8 incorporated on 9 August, 2006 in England and Wales as a UK public Post-employment benefits 0 0 company with limited liability. The Company and two of its indirect subsid­ Share-based payments 23 7 iaries, CEVA UK 1 Limited and CEVA UK 2 Limited, who each hold one ordi­ Total 30 15 nary share, collectively own 99.99% of the ordinary shares of CEVA Group Plc, 0.01% is held by CIL Limited (formerly CEVA Investment Limited, the former parent of CEVA Group Plc), and one ordinary share is held by Louis Cayman Second Holdco Limited, a wholly owned subsidiary of CIL Limited, on trust as bare nominee for CIL Limited. In addition, CIL Limited holds 349,999 deferred shares and Louis Cayman Second Holdco Limited owns 1 deferred share (which has the right to a return of capital upon a winding up after the holders of ordinary shares have received the amount paid up on such ordinary shares plus a premium of GBP10,000 per ordinary share).

185 Annual Report 2018 CEVA Logistics Financial Statements 28. Events after balance sheet date – CMA CGM has published on 28 January 2019 its prospectus for the Public Tender Offer for CEVA’s Shares. Post settlement of the Public Tender On 28 January, 2019, CMA CGM announced the Public Tender Offer and Offer, CEVA expects to acquire CC Log from CMA CGM. It is CEVA’s and published its prospectus relating to its offer to purchase CEVA’s Shares. The CMA CGM’s objective to maintain the listing of CEVA Share's on the SIX announcement also explained: Swiss Exchange with a significant free float, with governance principles in line with best practices for Swiss listed companies. The entire Public – The strategic partnership between CMA CGM and CEVA is aimed to offer Tender Offer process is expected to close in mid-April 2019. end-to-end logistics solutions to each partner’s customers, pioneering the development of integrated logistics solutions, while retaining an Consequences of a change of control arm's length business relationship between the partners. CMA CGM As of 31 December, 2018, the following material debt instruments of CEVA plans to keep CEVA as an independently listed company with a signif­ contained provisions, which would be triggered by a CMA CGM Change of icant free float on SIX Swiss Exchange. Control Event: – If CMA CGM holds more than 50% of the voting rights or issued share – EUR300 million of the 5.25% Senior Notes capital of CEVA, this triggers a “change of control” under the agreements governing a significant portion of CEVA’s debt (a “CMA CGM Change – US$475 million TLB Facility; of Control Event”). As a consequence, CEVA is actively working on new – US$585 million Senior Revolving Credit Facility; financing solutions, most of which are well advanced. See also “Conse­ quences of a change of control” below. – EUR170 million European Securitization Facility due 2020;

– CEVA has agreed on 31 December, 2018, subject to the settlement of the – US$225 million ABL Facility due 2020. Public Tender Offer and receipt of necessary regulatory approvals sought in connection with the Public Tender Offer, to acquire CMA CGM’s freight Together with CMA CGM, the following actions have been undertaken or management business known as CMA CGM Logistics (“CC Log”) for a total prepared in anticipation of the CMA CGM Change of Control Event: consideration (cash free/debt free) of US$105 million (the “CC Log Acqui­ sition”). Closing of the CC Log Acquisition is expected to be completed in – With respect to the 5.25% Senior Notes and the TLB Facility, CMA CGM the second quarter of 2019. CC Log’s activities generated revenues of and CEVA have entered into a commitment letter with certain banks (the approximately US$630 million in the year ended 31 December, 2018. “Commitment Letter”) whereby such banks have agreed to underwrite additional term loan facilities in the amount of up to US$825 million

186 Annual Report 2018 CEVA Logistics Financial Statements comprised of two tranches: (i) a US$475 million term loan B facility to CEVA expects that interest costs under the new facilities will be higher than be issued under the SFA and (ii) an additional US$350 million term loan under its existing TLB Facility and the 5.25% Senior Notes and that the B facility to be issued under the SFA or another debt instrument; issuance costs in connection therewith will in part be paid by CEVA.

– Pursuant to the Commitment Letter, on 22 February, 2019 a new term loan B facility was agreed and priced, to raise US$475 million with a margin of 5.00% and with 3% of original issue discount; 29. Group entities – With respect to the Revolving Credit Facility, CEVA has received waivers from the majority of its lenders providing that each waiving lender The Group’s subsidiaries, joint ventures, associates and investments as at agrees to the CMA CGM Change of Control Event provided that the CMA 31 December, 2018 are included in the table below. All entities other than CGM Change of Control Event occurs on or before 31 December, 2019 intermediate holding companies are primarily involved in the provision of and agrees that it will not exercise any right that it may have under the Freight Management and Contract Logistics services. change of control provisions in the SFA with respect to the CMA CGM Change of Control Event; All subsidiary undertakings are included in the consolidation. If the pro­ portion of the voting rights in the subsidiary undertakings held directly by – The European Securitization Facility has been amended to provide that the Group differs from the proportion of ordinary shares held, the former is a change of control will not be deemed to occur if the CMA CGM Change disclosed in brackets in the table below. All entities were indirectly held by of Control Event occurs on or prior to 31 December, 2019. In addition, the parent, CEVA Logistics AG, other than CEVA Group Plc which is a directly the Company expects to terminate the European Securitization Facility owned intermediate company. Subsidiaries in which the Group holds less and the US ABL Facility and enter into a new global securitization facility than 50% of the voting rights are generally controlled through contractual during 2019, which new facility would permit the CMA CGM Change of arrangements with the other shareholder(s). Both the equity investment Control Event to occur. and the result for the year of those subsidiaries are not significant for the – With respect to the US ABL Facility due 2020 this has been amended to Group as a whole. The subsidiaries in which the Group holds a non-con­ provide that a CMA CGM Change of Control Event would not trigger the trolling interest are also not significant. change of control provisions.

187 Annual Report 2018 CEVA Logistics Financial Statements Country of incorporation and Principal place Holding if less Entity Share capital Currency principal place of business of business than 100%

Algeria CEVA Logistics Algerie EURL Alger 5,000,000 DZD Angola CEVA Logistics (Angola) - Trânsitários e Agentes de Navegação, Lda Luanda 9,500,000 AOA Argentina CEVA Logistics Argentina S.A. Buenos Aires 1,000,000 ARS Circle International Argentina S.A. Buenos Aires 5,000 ARS CEVA de Argentina S.R.L. (f/k/a Eagle Global Logistics de Argentina S.R.L.) Buenos Aires 1,813,834 ARS Australia CEVA Freight (Australia) Pty. Limited Brooklyn 3,528,370 AUD CEVA Freight Receivables Trust Brooklyn Not applicable * CEVA Logistics (Australia) Pty. Limited Brooklyn 77,956,543 AUD CEVA Logistics Receivables Trust Brooklyn Not applicable CEVA Materials Handling Pty. Limited Brooklyn 100,090 AUD CEVA Pty. Limited Brooklyn 17,001 AUD CEVA Receivables (Australia) Pty. Limited Brooklyn 2 AUD Austria A.S.S. Logistik Schrader Schachinger GmbH Hörsching 72,200 EUR 50% ** A.S.S. Logistik Schrader Schachinger GmbH & Co. KG Hörsching 100,000 EUR 50% CEVA Freight Austria GmbH Schwechat 155,880 EUR CEVA Logistics Austria GmbH Schwechat 127,177 EUR Bahrain EGL Eagle Global Logistics (Bahrain) W.L.L. Bahrain 20,000 BHD 0%(51%) Belgium CEVA Belgium Receivables BVBA Willebroek 18,550 EUR CEVA Freight Belgium NV Machelen 6,562,000 EUR CEVA Ground Europe BVBA Antwerp 2,671,121 EUR CEVA Logistics Belgium NV Willebroek 3,906,497 EUR EDOserve Courcelles 10,000 EUR 0.1% EGL (Belgium) Holding Company BVBA Ashby de la Zouch 66,639 EUR SODIAC Beerse 10,000 EUR 0.1% Bermuda FACET Insurance Limited Houston 120,000 USD Regga Holdings Ltd. Houston 1,975,000 USD Brazil AV Manufacturing Indústria e Comércio de Peças e Acessórios Automotivos Ltda. Rio Grande 1,303,664 BRL CEVA Freight Management do Brasil Ltda. São Paulo 68,114,869 BRL CEVA Holdings Ltda. São Paulo 135,797,185 BRL CEVA Logistics Ltda. Betim 150,844,132 BRL Circle Fretes Internacionais do Brasil Ltda. São Paulo 3,480,947 BRL British Virgin Islands CEVA Central America Holding Limited Houston 100 USD CEVA China Holding Limited Houston 100 USD

* Guarantor, ** Joint venture

188 Annual Report 2018 CEVA Logistics Financial Statements Country of incorporation and Principal place Holding if less Entity Share capital Currency principal place of business of business than 100%

Canada CEVA Freight Canada Corp. Mississauga 11,643,455 CAD * CEVA Logistics Canada, ULC Mississauga 66,249,202 CAD Cayman Islands CEVA Logistics Cayman Ashby de la Zouch 32,267 USD CEVA Logistics Second Cayman Ashby de la Zouch 8,950 USD Chile CEVA Freight Management Logistica de Chile Ltda. Pudahuel 11,172,178,000 CLP 99.99%(100%) China Anji-CEVA Logistics (Suzhou) Company Limited Changshu 25,000,000 CNY 50% ** Anji-CEVA Logistics (Zhengzhou) Company Limited Zhengzhou 50,000,000 CNY 50% ** Anji - CEVA Logistics Company Limited Shanghai 30,000,000 USD 50% ** Anji-Shangwen Chemical Transportation (Shanghai) Company Limited Shanghai 8,100,000 CNY 45% ** CEVA Freight (Shenzhen) Limited Shenzhen 100 USD CEVA Freight International (Shanghai) Company Limited Shanghai 200,000 CNY 50% ** CEVA Freight Shanghai Limited Shanghai 2,556,500 CNY CEVA Logistics Company Limited Shanghai Shanghai 26,238,200 CNY 50% ** CEVA Logistics International Trading (Shanghai) Company Limited Shanghai 1,659,975 USD Chongqing Anji - CEVA Hongyan Automotive Logistics Company Limited Chongqing 35,000,000 CNY 30.00% ** Hangzhou Changan Minsheng-Anji Logistics Company Limited Hangzhou 10,000,000 CNY 25% ** Jiangsu Anji - CEVA Logistics Company Limited Jiangsu 28,000,000 CNY 35.00% ** Liao Ning A-Lean Automotive Logistics Company Limited Shenyang 8,000,000 CNY 25.01% ** Shanghai Anji-Suchi Automotive Logistics Company Limited Shanghai 40,000,000 CNY 33% ** Shanghai Anji-Tonghui Automotive Logistics Company Limited Shanghai 50,000,000 CNY 26% ** Wuhan Anji-Tonghui Automotive Logistics Company Limited Wuhan 4,000,000 CNY 26% ** Yizheng SAIC Logistics Co., Ltd Yizheng City 60,000,000 CNY 35% ** Colombia Agencia de Aduanas CEVA Logistics S.A.S Nivel 2 Bogota 350,000,000 COP CEVA Freight Management de Colombia S.A.S. Bogota 6,575,000,000 COP Congo CEVA Logistics Congo S.A. Pointe-Noire 10,000,000 CDF 70%(100%) Costa Rica CEVA Freight Management Costa Rica, S. de R.L. Bufete Lacke 1,000 CRC Czech Republic CEVA Freight Czech Republic s.r.o. Prague 2,928,000 CZK CEVA Logistics spol. s r.o. Dobroviz 1,800,000 CZK El Salvador CEVA Freight Management El Salvador, Ltda. de C.V. La Libertad 1,750,000 USD Finland CEVA Logistics Finland Oy Vantaa 131,187 EUR France CEVA France Receivables SAS Tremblay 1 EUR CEVA Freight Holdings France SAS Tremblay 43,328,801 EUR CEVA Freight Management France SAS Tremblay 7,421,852 EUR CEVA Logistics France SAS Vatry 46,250 EUR

* Guarantor, ** Joint venture

189 Annual Report 2018 CEVA Logistics Financial Statements Country of incorporation and Principal place Holding if less Entity Share capital Currency principal place of business of business than 100%

Germany CEVA Freight (Management) GmbH Frankfurt am Main 25,565 EUR CEVA Freight Germany GmbH Frankfurt am Main 2,939,929 EUR CEVA Germany Receivables GmbH Frankfurt am Main 25,000 EUR CEVA Logistics Berlin GmbH Frankfurt am Main 25,566 EUR * CEVA Logistics GmbH Frankfurt am Main 25,000 EUR DIHS-DAKOSY Interessengemeinschaft Hamburger-Spediteure GmbH Hamburg 286,000 EUR 3.85% IDSP GmbH & Co. KG Bremen 5,921 EUR 7.66% Kombiverkehr Deutsche Gesellschaft für kombinierten Güterverkehr GmbH & Co. KG Frankfurt am Main 16,000 EUR 0.22% TRANSCONTAINER-UNIVERSAL GmbH & Co. KG Bremen 3,579 EUR 1% Guatemala CEVA Freight Management Guatemala, Ltda. Edificio La Galeria 1,906,618 GTQ Hong Kong Anji-CEVA Logistics (Hong Kong) Limited Kowloon Bay 908,000 USD 50% ** CEVA FM (Hong Kong) Limited Kowloon Bay 11,000,000 HKD CEVA Freight (Hong Kong) Limited Kowloon Bay 5,000,000 HKD CEVA Logistics (Hong Kong) Limited Kowloon Bay 1,001,000 HKD Freight Systems Limited Kowloon Bay 1,000,000 HKD Ozonic Limited Kowloon Bay 250,000 HKD Pyramid Lines Limited Kowloon Bay 9,475,000 HKD Hungary CEVA Contract Logistics Kft. Szazhalombatta 3,000,000 HUF CEVA Logistics Hungary Kft. Vecses 20,100,000 HUF India CEVA Logistics India Private Limited Mumbai 119,596,300 INR Indonesia PT. CEVA Freight Indonesia Jakarta 1,786,539 USD 95% PT. CEVA Logistik Indonesia Jakarta 5,630,000,000 IDR PT. Circle Persada International Jakarta 200,000 IDR 95% Iraq, Republic of (GOLDEN CEVA) Company for Contracting and Commercial brokerage and Erbil 1,000,000 IQD Services/Limited (in liquidation) Ireland AVEC International Services Limited Harristown 2,000 USD AVEC Logistics (Ireland) Limited Harristown 70,001 EUR Italy CEVA Freight Italy S.r.l. Milan 500,000 EUR CEVA Logistics Holding Italy S.p.A. Milan 90,000,000 EUR CEVA Logistics Italia S.r.l. Milan 5,775,000 EUR Japan * CEVA Logistics Japan Inc. Tokyo 70,000,000 JPY Jordan CEVA Logistics Jordan Limited Amman 100,000 JOD 50%(100%) Kazakhstan CEVA Logistics Kazakhstan LLP Almaty 117,000 KZT Korea, Republic of CEVA Logistics Korea, Inc. Seoul 1,020,000,000 KRW

* Guarantor, ** Joint venture

190 Annual Report 2018 CEVA Logistics Financial Statements Country of incorporation and Principal place Holding if less Entity Share capital Currency principal place of business of business than 100%

Luxembourg CEVA Freight Holdings Luxembourg S.à r.l. Luxembourg 6,015,000 USD CEVA Freight Luxembourg S.à r.l. Luxembourg 12,500 EUR Malaysia CEVA Freight (Malaysia) Sdn. Bhd. Selangor Darul Ehsan 250,000 MYR CEVA Freight Holdings (Malaysia) Sdn. Bhd. Selangor Darul Ehsan 604,691 MYR CEVA Logistics (Malaysia) Sdn. Bhd. Selangor Darul Ehsan 4,000,000 MYR Milage Sdn. Bhd. Selangor Darul Ehsan 15,000 MYR 0%(100%) Regga (Malaysia) Sdn. Bhd. Selangor Darul Ehsan 10 MYR Unipearl Corporation Sdn. Bhd. Selangor Darul Ehsan 2 MYR Marshall Islands CEVA Subsidiary 3 LLC Ajeltake Island 100 USD Mexico CEVA Freight Management Mexico, S.A. de C.V. Mexico City 6,680,200 MXN CEVA Logistica de Mexico, S.A. de C.V. Houston 50,000 MXN CEVA Servicios de Maxio, S.A. de C.V. Ramos Arizpe 50,000 MXN Myanmar CEVA Logistics Myanmar Company Limited Yangon 50,000 USD Netherlands CEVA Coop Holdco B.V. Hoofddorp 18,454 EUR CEVA Freight Holdings B.V. Hoofddorp 20,000 EUR CEVA Freight Holland B.V. Schiphol 881,400 EUR CEVA Holdco B.V. Hoofddorp 10,000 EUR CEVA India Holding B.V. Hoofddorp 18,000 EUR CEVA Intercompany B.V. Hoofddorp 18,000 EUR CEVA Logistics B.V. Hoofddorp 3 EUR CEVA Logistics Dutch Holdco B.V. Hoofddorp 18,000 EUR * CEVA Logistics Finance B.V. Hoofddorp 18,100 EUR CEVA Logistics Headoffice B.V. Hoofddorp 20,500 EUR * CEVA Logistics Netherlands B.V. Culemborg 18,200 EUR CEVA Netherlands Receivables B.V. Hoofddorp 1 EUR CEVA/EGL I B.V. Hoofddorp 1,001 EUR New Zealand CEVA Logistics (New Zealand) Limited Auckland 2,350,002 NZD Nigeria CEVA Freight Management Nigeria Limited Lagos 10,000,000 NGN Northern Ireland CEVA Logistics NI Limited Belfast 200 GBP Norway CEVA Logistics Norway AS Oslo 100,000 NOK Oman CEVA Logistics L.L.C. Muscat 150,000 OMR 65% Panama CEVA Centram S. de R.L. Panama City 2,000 PAB CEVA Freight Management Panama S. de R.L. Panama City 2,000 PAB 55% EGL Colombia Holding, S. de R.L. Panama City 100,000 PAB

* Guarantor, ** Joint venture

191 Annual Report 2018 CEVA Logistics Financial Statements Country of incorporation and Principal place Holding if less Entity Share capital Currency principal place of business of business than 100%

Peru CEVA Logistics Peru S.R.L. Lima 25,285,800 PEN CEVA Peru Aduanas S.A.C. Lima 850,000 PEN 99%(100%) EGL Agencia de Aduanas S.A.C. Lima 2,251,200 PEN 99.92%(100%) Philippines CEVA Holdings (Philippines), Inc. Paranque City 10,027,600 PHP 40% CEVA Logistics Philippines Inc. Paranque City 40,000,000 PHP CEVA Logistics (SUBIC), Inc. Olangapo City 750,000 PHP CEVA Warehousing and Distribution, Inc. Cavite City 100,000,000 PHP Regga Transport Contractors, Inc. Baguio City 3,000,000 PHP Poland CEVA Direct Sp. z o.o. Warsaw 5,000 PLN CEVA Freight (Poland) Sp. z o.o. Warsaw 50,000 PLN * CEVA Logistics Poland Sp. z o.o. Bielsko-Biala 50,000 PLN Portugal CEVA Logistics (Portugal) - Logistica Empresarial, Lda. Lisbon 264,363 EUR Puerto Rico CEVA Logistics Puerto Rico, Inc. Houston Not applicable Qatar CEVA Logistics (Qatar) W.L.L. Doha 200,000 QAR 49%(100%) Romania CEVA Logistics S.R.L. Bucharest 4,524,800 RON Saudi Arabia CEVA International Al-Suwaiket Company Limited Jeddah 1,000,000 SAR 49%(100%) Singapore CEVA Asia Pacific Holdings Company Pte. Ltd. Singapore 6,862,001 SGD CEVA Logistics Asia Pte. Ltd. Singapore 7,327 SGD CEVA Logistics Singapore Pte. Ltd. Singapore 1,351,353 SGD CEVA Supply Chain Singapore Pte. Ltd. Singapore 501,100 SGD Slovakia CEVA Logistics Slovakia, s.r.o. Bratislava 100,000 EUR South Africa CEVA Logistics South Africa (Proprietary) Limited Pomona 333 ZAR Spain * CEVA Freight (España), S.L.U. Madrid 718,195 EUR CEVA Logistics España, S.L.U. Madrid 510,860 EUR CEVA Production Logistics España, S.L.U. Valladolid 700,000 EUR CEVA Spain Receivables, S.L. Madrid 3,500 EUR Sweden CEVA Logistics (Sweden) AB Stockholm-Arlanda 2,500,000 SEK Switzerland CEVA Logistics Switzerland GmbH Kloten 250,000 CHF CEVA Management GmbH Baar 100,000 CHF Taiwan, R.O.C. CEVA Logistics (Taiwan) Company Limited Taipei 10,000,000 TWD Thailand CEVA Freight (Thailand) Limited Bangkok 46,000,000 THB CEVA Logistics (Thailand) Limited Bangkok 30,000,000 THB CEVA Vehicle Logistics (Thailand) Limited Bangkok 25,000,000 THB 99.99%(100%) CWBI Limited Bangkok 100,000 THB 49%

* Guarantor, ** Joint venture

192 Annual Report 2018 CEVA Logistics Financial Statements Country of incorporation and Principal place Holding if less Entity Share capital Currency principal place of business of business than 100%

Tunisia CEVA Logistics Tunisia S.a.r.l. (in liquidation) Tunis 10,000 TND Turkey CEVA Lojistik Limited S¸irketi Istanbul 27,869,150 TRY CEVA Uluslararasi Tas¸imacilik Limited S¸irketi Istanbul 520,000 TRY United Arab Emirates CEVA International Freight L.L.C. (in liquidation) Abu Dhabi 150,000 AED 49%(100%) CEVA Logistics (U.A.E.) L.L.C. Dubai 300,000 AED 49%(100%) CEVA Logistics FZCO Dubai 500,000 AED United Kingdom CEVA Automotive Logistics UK Limited Ashby de la Zouch 7,800,002 GBP CEVA Collections LLP Ashby de la Zouch 2 GBP CEVA Container Logistics Limited Ashby de la Zouch 851,500 GBP CEVA Distribution Limited Ashby de la Zouch 50,000 GBP CEVA Freight (UK) Holding Company Limited Ashby de la Zouch 42,316 GBP CEVA Freight (UK) Holdings Limited Ashby de la Zouch 100,000 GBP * CEVA Freight (UK) Limited Ashby de la Zouch 537,792 GBP * CEVA Group Plc London 1,240,195 GBP 99.99% CEVA Limited Ashby de la Zouch 310,000 GBP * CEVA Logistics Limited Ashby de la Zouch 37,396,043 GBP CEVA Network Logistics Limited Ashby de la Zouch 852,339 GBP CEVA Showfreight Limited Ashby de la Zouch 200 GBP CEVA Supply Chain Solutions Limited Ashby de la Zouch 77,839,417 GBP CEVA UK 1 Limited Ashby de la Zouch 1 GBP CEVA UK 2 Limited Ashby de la Zouch 1 GBP CEVA UK Receivables Limited Ashby de la Zouch 1 GBP Eagle Global Logistics (UK) Limited Ashby de la Zouch 25,000 GBP F.J. Tytherleigh & Co. Limited Ashby de la Zouch 454,652 GBP Louis No. 2 Limited Ashby de la Zouch 1 GBP Newsagents Wholesale Corporation Limited Ashby de la Zouch 9,816 GPB Newsfast Limited Ashby de la Zouch 1,000 GBP Paintblend 2 Limited Ashby de la Zouch 1 GBP Paintblend Limited Ashby de la Zouch 1 GBP United States Ashton Leasing, Limited Houston 143,222 USD 49% CEVA Freight Management International Group, Inc. Houston 2,200,100 USD * CEVA Freight, LLC Houston 83,143 USD CEVA Government Services, LLC Fort Worth Not applicable CEVA Ground US, L.P. Houston Not applicable

* Guarantor, ** Joint venture

193 Annual Report 2018 CEVA Logistics Financial Statements Country of incorporation and Principal place Holding if less Entity Share capital Currency principal place of business of business than 100%

United States CEVA International Inc. Houston 100,000 USD CEVA Logistics, LLC Houston Not applicable CEVA Logistics Japan LLC Houston Not applicable CEVA Logistics Services U.S., Inc. Houston 1,000 USD * CEVA Logistics U.S., Inc. Houston 1,000 USD CEVA Logistics U.S. Group, Inc. Houston 348 USD * CEVA Logistics U.S. Holdings, Inc. Houston 16 USD CEVA Ocean Line, Inc. Houston 100,000 USD CEVA Trade Services, Inc. Houston 6,000 USD CEVA US Receivables, LLC Houston Not applicable CEVA US Receivables Finance 1 LLC Houston Not applicable Circle International Holdings LLC Houston 1,850,560 USD ComplianceSource LLC Houston Not applicable CUSA Risk Retention Group, Inc. Jeffersonville 2,000,000 USD Customized Transportation International, Inc. Houston 1,000 USD Eagle Partners L.P. Houston 1,000 USD Eagle USA Import Brokers, Inc. Houston 1,000 USD EGL Eagle Global Logistics, L.P. Houston Not applicable * EGL, Inc. Houston 10 USD Select Carrier Group LLC Houston Not applicable Uruguay Circle International Latin America Holdings S.A. Montevideo 5,000 USD Gadupal S.A. Montevideo 630,000 UYU Vietnam CEVA Logistics (Vietnam) Co. Limited Ho Chi Minh City 1,000,000 USD 70%

* Guarantor, ** Joint venture

194 Annual Report 2018 CEVA Logistics Financial Statements Report In our opinion, the accompanying consolidated Our audit approach of the statutory auditor financial statements (pages 113 to 194) give a true and fair view of the consolidated financial Overview to the General Meeting of CEVA Logistics AG position of the Group as at 31 December 2018 Baar and its consolidated financial performance and Materiality on the audit of the its consolidated cash flows for the year then ended in accordance with the International Audit scope consolidated financial Financial Reporting Standards (IFRS) and comply statements with Swiss law. Key audit matters

Basis for opinion We conducted our audit in accordance with Swiss Overall Group materiality: USD 15,000,000

Opinion law, International Standards on Auditing (ISAs) Full scope audit work was performed at We have audited the consolidated financial state­ and Swiss Auditing Standards. Our responsibilities 23 reporting entities in 19 countries. Our ments of CEVA Logistics AG and its subsidiaries under those provisions and standards are further audit scope addressed over 75% of the (the Group), which comprise the consolidated described in the “Auditor’s responsibilities for the Group’s revenue. In addition, the Anji-CEVA income statement and consolidated statement audit of the consolidated financial statements” joint venture was subject to an audit of its of comprehensive income for the year ended at section of our report. income statement and balance sheet. 31 December 2018, the consolidated balance sheet as at 31 December 2018 and the consoli­ We are independent of the Group in accor­ As key audit matters the following areas of dated statement of cash flows and consolidated dance with the provisions of Swiss law and the focus have been identified: statement of changes in equity for the year then requirements of the Swiss audit profession, as – Goodwill impairment assessment ended, and notes to the consolidated financial well as the IESBA Code of Ethics for Professional – Revenue recognition statements, including a summary of significant Accountants, and we have fulfilled our other – Initial Public Offering (IPO) and accounting policies. ethical responsibilities in accordance with these re-financing requirements. We believe that the audit evidence – Loss-making contracts/onerous leases we have obtained is sufficient and appropriate to provide a basis for our opinion.

195 Annual Report 2018 CEVA Logistics Financial Statements Context of our audit 2018 Overall Group materiality USD 15,000,000 As described in note 1, during the year, the Group proceeded with a fiscal How we determined it 0.2% of revenue, rounded restructuring and a new holding company was created, CEVA Logistics AG. Rationale for the materiality We considered various commonly used benchmarks This company was subsequently listed on SIX Swiss Exchange (SIX) and the benchmark applied and applied professional judgement in determining Group's debt was refinanced. As 2018 was our first year of involvement as Revenue to be the most appropriate since Revenue is a benchmark against which the performance of the the Group auditor of CEVA Logistics AG we spent time understanding the Group is commonly measured. critical judgements and positions taken by the CEVA Holdings LLC auditors and confirmed that they were acceptable. Apart from this work and the We agreed with the Audit Committee that we would report to them mis­ audit of the Initial Public Offering and refinancing, the Group audit process statements above USD 1,000,000 identified during our audit as well as any and the component audit teams involved has remained largely unchanged misstatements below that amount which, in our view, warranted reporting from the previous year. for qualitative reasons.

Materiality Audit scope The scope of our audit was influenced by our application of materiality. Our We tailored the scope of our audit in order to perform sufficient work to audit opinion aims to provide reasonable assurance that the consolidated enable us to provide an opinion on the consolidated financial statements financial statements are free from material misstatement. Misstatements as a whole, taking into account the structure of the Group, the accounting may arise due to fraud or error. They are considered material if, individually processes and controls, and the industry in which the Group operates. or in aggregate, they could reasonably be expected to influence the eco­ nomic decisions of users taken on the basis of the consolidated financial CEVA Logistics AG has 17 clusters of operating entities organized by geo­ statements. graphical region, which comprise operating entities that are within either its Contract Logistics (“CL”) or Freight Management (“FM”) reporting seg­ Based on our professional judgement, we determined certain quantitative ments. Overall there are over 200 operating entities included in the Group thresholds for materiality, including the overall Group materiality for the consolidation. For the Group audit we scoped in 23 operating entities. Each consolidated financial statements as a whole as set out in the table below. of these operating entities was subject to an audit of its complete financial These, together with qualitative considerations, helped us to determine the information. One operating entity was considered a financially significant scope of our audit and the nature, timing and extent of our audit proce­ component as it contributes more than 15% of Group revenues. There dures and to evaluate the effect of misstatements, both individually and in were a further four ‘large’ operating entities that individually account for aggregate, on the consolidated financial statements as a whole. between 5% and 10% of Group revenues and in aggregate account for

196 Annual Report 2018 CEVA Logistics Financial Statements 29% of Group revenues. A further 18 operating entities were included based We centrally managed audit work performed for component audit teams on size and risk representing in aggregate an additional 34% of Group rev­ that was largely substantive in nature, at the main outsourced shared service enues. We visited the financially significant operating entity during the final centre in India, and visited the site to direct the work being performed. stage of their audit work to review the component teams’ work and to meet with local management. We also visited two of the ‘large’ operating enti­ These, together with additional procedures performed at the Group level, ties and two smaller operating entities as part of our oversight procedures including auditing the consolidation and financial statement disclosures, over the work of local component teams. In addition, the Group audit team gave us the evidence we needed for our opinion on the consolidated finan­ held teleconference calls with all the audit teams of the operating entities cial statements as a whole. in-scope for the Group audit both at interim and final stages of their audits to evaluate their work. Key audit matters Key audit matters are those matters that, in our professional judgement, Further, we performed specified procedures at a Group level on balances were of most significance in our audit of the consolidated financial state­ within head office administered entities that are either holding companies ments of the current period. These matters were addressed in the context or finance companies or cost centers in nature, or combination thereof, of our audit of the consolidated financial statements as a whole, and in including CEVA Logistics AG. The Anji-CEVA joint venture in China was also forming our opinion thereon, and we do not provide a separate opinion on subject to an audit of its income statement and balance sheet. A visit during these matters. the interim stage and several teleconference calls with the local auditors, who are not from a PwC network firm, were undertaken as part of our over­ sight of their local audit work.

197 Annual Report 2018 CEVA Logistics Financial Statements Goodwill impairment assessment

Key audit matter How our audit addressed the key audit matter Goodwill arises from acquisitions in previous years and has an indefinite expected useful We evaluated the Directors determination of the carrying values of the respective CGU’s life. The Directors test for impairment at least annually at the cash-generating unit to be tested for impairment. (“CGU”) level. The Group has three CGUs, being the Contract Logistics (CL) segment We evaluated the Directors future cash flow forecasts of the CGUs, and the process excluding the Anji-CEVA joint venture, Anji-CEVA, and the Freight Management (FM) by which they were drawn up, and assessed whether both the underlying value in use segment. As at 31 December 2018, the total goodwill, in aggregate, amounted to USD models are adequate for the purposes of the impairment tests and also the respective 1,320 million. No goodwill impairment charge was recorded in 2018. However, enhanced calculations for their mathematical accuracy. As part of this process we compared the sensitivity disclosures have been made (refer to note 13 to the consolidated financial forecasts used to the latest Board approved plans. statements). We evaluated the reasonableness of the Directors’ forecasts, by assessing their historical We focused on these impairment assessments as they involve a number of judgements forecasting accuracy. We also evaluated those assumptions that had the most significant and estimates about the future performance of the CGUs. These judgements and esti­ impact on the valuation being: mates include key assumptions about projected EBITDA, budgeted capital expenditure, – the Directors’ key assumptions for projected EBITDA based on gross revenues, and long-term growth rates and discount rates. EBITDA margins, by comparing them to current revenue and cost trends, as well as historical results and economic and external industry data; – budgeted capital expenditure used in the valuation model, by comparing them to historical results and the funding requirements; – the long-term growth rate used in the forecasts, by comparing them to external industry forecasts; and – the discount rate applied in the value in use calculations by assessing the cost of capital applicable to the respective CGUs with the support of our valuation specialists. We found the assumptions used to be consistent with our expectations, including the results of our own sensitivity stress test analysis on each of the key assumptions to ascertain the extent of change in those assumptions that, either individually or collectively, would be required for the goodwill to be impaired. As part of this testing we considered the expected growth across key markets by CGU, in particular in FM; projected EBITDA (including margins) by CGU including expected improvements from past cost saving initiatives; the long-term growth rate applied; the discount rate used; and how recent actual results compared to previous forecasts to assess forecasting accuracy. We also compared the combined value-in-use of the Group’s CGU’s to the Group’s market capitalisation at 31 December 2018 after adjusting for net debt. Based on our testing, we determined that the conclusions reached by the Director’s with regard to the determination of CGUs to be tested and the carrying value of goodwill were reasonable and supportable.

198 Annual Report 2018 CEVA Logistics Financial Statements Revenue recognition

Key audit matter How our audit addressed the key audit matter See note 2 of the consolidated financial statements for the Directors’ disclosures of the We examined the appropriateness of the Group's accounting policy on revenue recogni­ related accounting policies, judgements and estimates for further information. tion including changes made as a result of its implementation of IFRS 15 and tested the application of this policy. We focused on revenue in all in-scope CL and FM operating entities to ensure it was recognised appropriately and related to a service for customers where performance We performed substantive tests of detail for all in-scope operating entities focusing on obligations had been fulfilled. This included management’s implementation of changes the risks identified opposite, and specifically that revenue was accurately calculated in required as a result of IFRS 15 ‘Revenue from contracts with customers’ (IFRS 15). IFRS accordance with customer contracts and the satisfaction of performance obligations 15 did not have a material impact on the Contract Logistics Business where revenue therein. This included the assessment of specific IFRS 15 considerations including vari­ was recorded over time already prior to IFRS 15. Regarding the Freight Management able consideration in CL contracts and its consistent application throughout the Group. business, the timing of revenue recognition from certain types of contracts did change For transactions close to the year-end we tested that cut-off procedures were appro­ because according to IFRS 15 revenue is recognised over time instead of at a point in priately applied including the calculation of revenue deferrals in FM for transactions time. that should be recognised over time and straddle the year end. For contract assets we We focussed specifically on the accuracy of revenue recognised in line with arrangements examined evidence indicating the services had been provided to the customer by the end with customers as well as the timing of revenue recognition, whether over time or at of the year and that invoices had been raised after the year end to those customers. a point in time, especially in the final months of the year to check that revenue was We also tested journal entries posted to revenue accounts to identify any unusual or recorded appropriately. irregular items, and the reconciliations between the revenue sub-ledger systems used by the Group and their financial ledgers. Based on our testing, we determined that the judgments made in the area of revenue recognition were reasonable and supportable and we did not identify any material misstatements.

199 Annual Report 2018 CEVA Logistics Financial Statements Initial Public Offering (IPO) and re-financing

Key audit matter How our audit addressed the key audit matter Initial Public Offering (IPO) IPO As explained in note 1 to the consolidated financial statements, CEVA Logistics AG We involved accounting technical specialists to help assess the appropriateness of the successfully completed an IPO on the SIX Swiss Exchange on 4 May 2018. capital reorganisation accounting treatment and resulting presentation. We also tested the entries processed in the consolidation to give effect to the reorganisation. CEVA Logistics AG was formed in February 2018 and merged with CEVA Holdings LLC and was the surviving entity immediately prior to IPO. As a result traditional business We tested the receipt and accuracy of the IPO proceeds by vouching cash receipts combination accounting does not apply and instead the Directors accounted for this from the underwriting banks. Moreover, we performed substantive testing over the IPO transaction as a capital reorganisation. They applied a form of ‘merger’ accounting transaction costs to verify completeness and appropriateness of the portion deducted whereby the Group portrays a continuous trading track record. from equity. CEVA incurred IPO transaction costs of USD 57 million. IFRS requires IPO transaction Based on our testing we did not identify any material misstatements. costs that are directly attributable to the issuance of equity to be charged to equity. The Directors have assessed the nature of the transaction costs and determined that USD 38 million of these costs are related to the issuance of new equity and this has been recorded as a deduction from equity as required by IFRS. This is comprised of banker fees and stamp duty. The remainder of USD 19 million mainly relates to lawyer fees, consul­ tants and IPO preparation costs that have been expensed as specific items to operating expenses. We focussed on these transactions due to their complexity and size of the issuance costs recorded in equity. Re-financing Re-financing As explained in note 20 the Directors successfully completed a comprehensive re-financing We read the underlying contractual documentation and tested the existence and of the Group in the months following the IPO. As a result, the majority of the pre-IPO accuracy of the proceeds obtained through the issuance of the new financial instruments debt instruments of CEVA have been derecognised and replaced with new debt. Previously by vouching cash receipts. Moreover, we performed substantive testing over the debt unamortised debt issuance costs of USD 27 million relating to the old debt repaid was issuance costs to verify completeness and proper classification of the recorded expenses. written-off in the year. This together with early repayment charges of USD 24 million For the repayment of existing debt we vouched cash payments made to test occurrence have been recorded in finance expenses as a specific item. and accuracy of the transactions. Further, we recalculated the write-offs of unamortised We focussed on these transactions due to the size of write-offs of previously unamortised debt issuance cost and substantively tested early repayment charges as well as the debt issuance costs and early repayment charges, and the fact that there is judgement journal entries recorded in connection with debt repayments. involved in assessing whether the criteria set out in the accounting standards for Based on our testing we did not identify any material misstatements. recognizing such expenses have been met.

200 Annual Report 2018 CEVA Logistics Financial Statements Loss-making contracts/onerous leases

Key audit matter How our audit addressed the key audit matter The Directors review the status of significant customer contracts where profitability Our procedures included reviewing Management’s analysis and commentary on mar­ is marginal or they are loss making and warehouse sites with empty or under-utilised ginal and loss-making contracts including empty warehouse space and discussing these space on a monthly basis. CEVA has a track record of such contracts/warehouses being with Management and assessing the reasonableness of their expectations for low margin managed so that they are renegotiated or early suspension negotiations are entered into or loss-making customer contracts and warehouse leases with empty or under-utilised to mitigate future losses. space. We focussed on this area since significant judgement and estimation is involved in the Moreover, for the contract losses in Italy we have read and understood the customer con­ assessment of these contracts. This includes modelling various scenarios reflecting possi­ tract, held meetings with Group and local management including an external consultant, ble trading outturns with certain terms renegotiated and costs mitigated as well as costs who supports CEVA, and with the local component audit team. to exit. Based on the best estimate of the least unavoidable cost the required provision is We have also reviewed management’s calculations and noted that they include signifi­ calculated. A reassessment of the provision is performed at every balance sheet date. cant judgment regarding the outcome of ongoing negotiations with the customer. We Management determined that additional provisions for contract losses in Italy of USD 29 have also assessed whether the judgments made around other uncertainties impacting million were required, representing its best estimate of the least cost of exiting the con­ the eventual outcome that could impact the determination of the contract loss provision tract as well as the consequences of the bankruptcy of a local partner company involved have been consistently applied and are reasonable. in the contract (refer to note 23 Provisions to the consolidated Financial Statements). Based on the enquiries made and information presented to us by management we did not identify any material misstatements in the provision, which is management’s current best estimate of the expected future outcome.

201 Annual Report 2018 CEVA Logistics Financial Statements Other information in the annual report In preparing the consolidated financial statements, the Board of Directors is The Board of Directors is responsible for the other information in the annual responsible for assessing the Group’s ability to continue as a going concern, report. The other information comprises all information included in the disclosing, as applicable, matters related to going concern and using the annual report, but does not include the consolidated financial statements, going concern basis of accounting unless the Board of Directors either the stand-alone Financial Statements and the remuneration report of CEVA intends to liquidate the Group or to cease operations, or has no realistic Logistics AG and our auditor’s reports thereon. alternative but to do so.

Our opinion on the consolidated financial statements does not cover the Auditor’s responsibilities for the audit of the consolidated other information in the annual report and we do not express any form of financial statements assurance conclusion thereon. Our objectives are to obtain reasonable assurance about whether the con­ solidated financial statements as a whole are free from material misstate­ In connection with our audit of the consolidated financial statements, our ment, whether due to fraud or error, and to issue an auditor’s report that responsibility is to read the other information in the annual report and, in includes our opinion. Reasonable assurance is a high level of assurance, but doing so, consider whether the other information is materially inconsistent is not a guarantee that an audit conducted in accordance with Swiss law, with the consolidated financial statements or our knowledge obtained ISAs and Swiss Auditing Standards will always detect a material misstate­ during the audit, or otherwise appears to be materially misstated. If, based ment when it exists. Misstatements can arise from fraud or error and are on the work we have performed, we conclude that there is a material mis­ considered material if, individually or in the aggregate, they could reason­ statement of this other information, we are required to report that fact. We ably be expected to influence the economic decisions of users taken on the have nothing to report in this regard. basis of these consolidated financial statements.

Responsibilities of the Board of Directors for the consolidated As part of an audit in accordance with Swiss law, ISAs and Swiss Auditing financial statements Standards, we exercise professional judgment and maintain professional The Board of Directors is responsible for the preparation of the consolidated scepticism throughout the audit. We also: financial statements that give a true and fair view in accordance with IFRS – Identify and assess the risks of material misstatement of the consoli­ and the provisions of Swiss law, and for such internal control as the Board of dated financial statements, whether due to fraud or error, design and Directors determines is necessary to enable the preparation of consolidated perform audit procedures responsive to those risks, and obtain audit Financial Statements that are free from material misstatement, whether evidence that is sufficient and appropriate to provide a basis for our due to fraud or error. opinion. The risk of not detecting a material misstatement resulting

202 Annual Report 2018 CEVA Logistics Financial Statements from fraud is higher than for one resulting from error, as fraud may – Obtain sufficient appropriate audit evidence regarding the financial involve collusion, forgery, intentional omissions, misrepresentations, or information of the entities or business activities within the Group to the override of internal control. express an opinion on the consolidated financial statements. We are – Obtain an understanding of internal control relevant to the audit in order responsible for the direction, supervision and performance of the Group to design audit procedures that are appropriate in the circumstances, audit. We remain solely responsible for our audit opinion. but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. We communicate with the Board of Directors or its relevant committee – Evaluate the appropriateness of accounting policies used and the rea­ regarding, among other matters, the planned scope and timing of the audit sonableness of accounting estimates and related disclosures made. and significant audit findings, including any significant deficiencies in inter­ – Conclude on the appropriateness of the Board of Directors’ use of the nal control that we identify during our audit. going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or con­ We also provide the Board of Directors or its relevant committee with a state­ ditions that may cast significant doubt on the Group’s ability to continue ment that we have complied with relevant ethical requirements regarding as a going concern. If we conclude that a material uncertainty exists, we independence, and to communicate with them all relationships and other are required to draw attention in our auditor’s report to the related dis­ matters that may reasonably be thought to bear on our independence, and closures in the consolidated financial statements or, if such disclosures where applicable, related safeguards. are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, From the matters communicated with the Board of Directors or its relevant future events or conditions may cause the Group to cease to continue as committee, we determine those matters that were of most significance in a going concern. the audit of the consolidated financial statements of the current period – Evaluate the overall presentation, structure and content of the consoli­ and are therefore the key audit matters. We describe these matters in our dated financial statements, including the disclosures, and whether the auditor’s report unless law or regulation precludes public disclosure about consolidated financial statements represent the underlying transac- the matter or when, in extremely rare circumstances, we determine that tions and events in a manner that achieves fair presentation. a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

203 Annual Report 2018 CEVA Logistics Financial Statements Report on other legal and regulatory requirements

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.

We recommend that the consolidated financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Bruno Rossi Sven Rumpel Audit expert Audit expert Auditor in charge

Basel, 26 February 2019

204 Annual Report 2018 CEVA Logistics Financial Statements Description of key line items in the consolidated income statement

Below is a brief description of the composition of the key line items of our Depreciation, amortization and impairment Consolidated Income Statement: Depreciation and amortization is charged to profit or loss on a straight-line basis over the expected life of the related asset. Amortization and impair­ Revenue ment on contractual customer relationships and brands recognized upon Revenue represents the delivery of goods and services to third parties less the acquisition of the Contract Logistics business from TNT N.V. and the discounts, credit notes and taxes levied on sales. Freight Management business from EGL Inc. is recognized in amortization and impairment on purchased intangibles. Impairment is recognized in Operating expenses profit or loss as incurred. Operating expenses have been classified by nature as follows: Net finance income/(expense) (including foreign exchange move- – Work contracted out includes amounts charged by third parties directly ments) attributable to the normal operating activities of the business. The Interest income mainly relates to interest earned on loans and deposits majority of these costs relate to purchased transportation; and interest charged on overdue customer receivables. Interest and similar – Personnel expenses are charged to the profit and loss account when expenses relates to interest charged on loans, financial leases, other borrow­ due and in accordance with employment contracts and obligations. ings and pension schemes. This includes all wage and social costs of both direct and indirect Income tax expense employees. It also includes agency costs of non-permanent (subcon­ tracted) warehouse personnel; Income tax represents the aggregate amount included in the determina­ tion of profit or loss for the period in respect of current tax and deferred – Other operating expenses include cost of materials (including fuel, income tax. Current tax is the amount of income taxes payable / (recover­ packaging, pallets and utility costs) and costs incurred for insurance, able) in respect of the taxable profit / (loss) for a period. Deferred income consultancy, audit, legal and miscellaneous costs. Additionally, this tax represents the amounts of income taxes payable / (recoverable) in includes expenditure associated with the rental of trucks and material future periods in respect of taxable (deductible) temporary differences and handling equipment, as well as warehouse rental costs. Other operating unused tax losses. income representing insurance receipts and other sundry income may be netted against other operating expenses if they are not material

205 Annual Report 2018 CEVA Logistics Financial Statements Certain definitions

Unless expressly stated otherwise or where the context otherwise requires, as a measure of CEVA’s performance. Because not all companies calculate “the Company”, “we”, “us”, “our”, “Group” and other similar terms refer to EBITDA identically, the presentations of EBITDA in this annual report may CEVA Logistics AG and its subsidiaries not be comparable to other similarly titled measures of other companies.

Adjusted EBITDA FVTPL is a key financial measure used by management to assess operational refers to Fair Value Through the Statement of Profit or Loss performance. It excludes the impact of specific items and Share Based Compensation (‘SBC”), such as costs incurred in the realization of our cost Franklin containment programs, other significant non-recurring charges or credits refers to Franklin Advisers, Inc. and Franklin Templeton Investments Corp. including the profits or losses realized on non-recurring transactions. Fur­ thermore, Adjusted EBITDA includes the Group’s share of the EBITDA Gearing ratio before specific items of joint ventures that are equity accounted, currently refers to a financial ratio comparing the net debt to the net debt adjusted Anji-CEVA for equity attributable to equity holders of the Company

Apollo Headroom refers to Apollo Global Management, LLC and its affiliates, which include is the sum of cash and cash equivalents plus committed facilities less Apollo Management VI, L.P., AP VI CEVA Holdings and AAA Guarantor – amounts drawn on committed facilities Co-Invest VI (B), L.P. IFRS CapRe refers to International Financial Reporting Standards refers to Capital Research and Management Company Net debt EBITDA or is calculated as total borrowings less cash and cash equivalents earnings before interest, tax, depreciation and amortization is not a measurement of performance or liquidity under IFRS and should Net working capital not be considered as a substitute for profit / (loss) for the year, operating is defined as trade and other receivables (net of provision for impairment), profit, net income or any other performance measures derived in accor­ inventories, prepayments, accrued income and income tax receivables less dance with IFRS or as a substitute for cash flow from operating activities non-interest charging current liabilities

206 Annual Report 2018 CEVA Logistics Financial Statements Recapitalization $, dollar, United States dollar, US dollar, US$ or USD refers to the Recapitalization that the Company successfully completed on refers to the lawful currency of the United States of America 2 May, 2013, which substantially reduced its overall debt and interest costs, as well as increase liquidity and strengthen its capital structure A$ or Australian dollar refers to the lawful currency of Australia SEC refers to the U.S. Securities and Exchange Commission CHF refers to the lawful currency of Switzerland Specific items and SBC are significant non-recurring items. The principal events which may give rise €, Euro or EUR to a specific item include restructuring, profit / loss on disposal of a business, refers to the single currency of the participating Member States in the Third cost reduction programs and material litigation costs, amongst others. It Stage of European Economic and Monetary Union of the Treaty Establish­ also excludes SBC which are non-cash accounting charges for share based ing the European Community compensation arrangements £, British pound, pounds sterling or GBP TFR refers to Trattamento di Fine Rapporto refers to the lawful currency of the United Kingdom leaving service benefits provided to Italian employees that are mandatory under Italian law

TNT refers to TNT N.V.

207 Annual Report 2018 CEVA Logistics Financial Statements Parent Company Accounts and Auditor’s Report

208 Annual Report 2018 CEVA Logistics Financial Statements Balance sheet

Asset as at 31 December as at 21 February Note 2018 2018 2018* 2018*

US$ CHF US$ CHF Current assets Cash and cash equivalents 9,455 9,279 106,519 100,000 Trade receivables - - due from direct/indirect investments 2.3 4,356,615 4,275,582 - - Other current receivables - - due from third parties 1,594,724 1,565,062 - - due from direct/indirect investments 2.3 3,729,520 3,660,151 - - Total current assets 9,690,313 9,510,073 106,519 100,000

Non-current assets Financial assets - - Loans to direct/indirect participants 2.3 250,000,000 245,350,000 - -

Investments 2.2 2,150,232,069 2,110,237,752 - - Total non-current assets 2,400,232,069 2,355,587,752 - -

Total assets 2,409,922,381 2,365,097,825 106,519 100,000

* The balance sheet position is as per incorporation date of CEVA Logistics AG.

209 Annual Report 2018 CEVA Logistics Financial Statements Liabilities as at 31 December as at 21 February Note 2018 2018 2018* 2018*

US$ CHF US$ CHF Short-term liabilities Trade payables due to third parties 1,452,624 1,425,606 - - due to direct/indirect investments 2.3 1,682,968 1,651,664 - - Other short-term liabilities due to third parties 219,805 215,717 - - due to direct/indirect participants 2.3 936,000 918,590 - - Accrued expenses and deferred income 2.4 8,274,305 8,120,403 - -

Total short-term liabilities 12,565,702 12,331,980 - -

Long-term liabilities

Total long-term liabilities - - - -

Total liabilities 12,565,702 12,331,980 - -

Shareholders’ equity Share capital 5,561,725 5,520,310 106,519 100,000 Legal reserves Reserves from capital contribution 2,606,321,185 2,608,350,087 - - CTA (Unrealized translation gain/loss) - -47,396,202 - - Profit/loss brought forward -169,383,389 -168,942,988 - -

Profit/loss for the year/period -45,142,842 -44,765,362 - -

Total shareholders' equity 2,397,356,679 2,352,765,845 106,519 100,000

Total liabilities 2,409,922,381 2,365,097,825 106,519 100,000

* The balance sheet position is as per incorporation date of CEVA Logistics AG.

210 Annual Report 2018 CEVA Logistics Financial Statements Income statement

Profit and loss statement for the financial year/period ended 31 December

Note 2018 2018

US$ CHF Board fees -1,719,178 -1,704,802 Other operating expenses -1,565,870 -1,552,776 Operating Result -3,285,047 -3,257,578

Financial income 13,687,652 13,573,197 Financial expenses -557,450 -552,789 Non-operating expenses 2.8 -5,503,910 -5,457,887 Extraordinary, non-recurring or prior-period expenses 2.9 -50,884,875 -50,459,381

Profit/loss before taxes -46,543,631 -46,154,438

Direct taxes 1,400,789 1,389,076

Profit/loss for the year/period -45,142,842 -44,765,362

211 Annual Report 2018 CEVA Logistics Financial Statements Notes to the Financial Statements

1. Accounting principles Financial assets applied in the preparation of Financial assets are valued at acquisition cost less adjustments for foreign currency losses and any other impairment of value. the Financial Statements Investments Investments are initially recognized at cost. Investments in CEVA Group 1.1 Basis of preparation subsidiaries are individually assessed annually and in case of an impairment adjusted to their recoverable amount within their category. These Financial Statements have been prepared in accordance with the Swiss accounting legislation of the Swiss Code of Obligations (SCO). Share capital Ordinary shares are classified as equity. Incremental costs directly attribut­ CEVA Logistics AG is presenting Consolidated Financial Statements accord­ able to the issue of ordinary shares and share options are recognized as a ing to IFRS. As a result, these Financial Statements and notes do not include deduction from equity net of any tax effects. additional disclosures, cash flow statements or a management report. Foreign currencies The Company has determined that its functional currency is the US Dollar Foreign currency transactions are translated into US Dollar (US$) using the based primarily on the denomination of its borrowings. It has also chosen exchange rates prevailing at the dates of the transactions. Foreign exchange to adopt the US Dollar as its presentation currency. gains and losses resulting from the settlement of such transactions are rec­ ognized in profit and loss.

1.2 Accounting policies Monetary and non-monetary items in foreign currency are translated into Swiss Francs (CHF) at the following exchange rates: Financial income and expense Current assets and current liabilities denominated in foreign currencies are Foreign currency 2018 profit and loss statement Balance sheet as at 31.12. 2018 converted at year-end exchange rates. Realized exchange gains and losses, CHF 0.9916 0.9814 and all unrealized exchange losses arising from these as well as those from business transactions are recorded net as financial income or financial expenses.

212 Annual Report 2018 CEVA Logistics Financial Statements The exchange rates used for balance sheet items are the rates prevailing 2018 2018 on 31 December; the exchange rates used for equity are based on historic Name and legal form Registered office US$ CHF rates; the exchange rates used for transactions conducted during the course CEVA Group Plc United Kingdom 2,150,232,065.37 2,110,237,748.95 of the year and for items in the profit and loss statement are average rates CEVA Logistics B.V. The Netherlands 3.25 3.19 Total investment in (in)direct participants 2,150,232,068.62 2,110,237.752.14 for the 2018 financial year.

During 2018 the company merged with CEVA Holdings LLC, a company from the Marshall Islands. The equity participations CEVA Holdings LLC 2. Details, analyses and explanations had in CEVA Group Plc and CEVA Logistics B. V. became participations of CEVA Logistics AG, the surviving entity. As at the 31 December, 2018, an to the Financial Statements impairment assessment was performed. The impairment review of invest­ ments was based on the value in use calculation also used for the goodwill 2.1 Employees impairment assessment disclosed in note 13 of the Consolidated Financial Statements. The value in use is calculated by applying discounted cash flow The number of full-time equivalents on an annual average basis during modeling to management’s own projections covering a five year period. 2018 was zero. Cash flows beyond the five year period are extrapolated using an average long term growth rate of 2% for the FM and CL business. These cash flows have been discounted with a pre-tax rate of 9.7%. The expected cash flows 2.2 Investments from the Anji-CEVA joint venture have been discounted with a pre-tax discount rate of 13.0%.The resulting recoverable amount supports the 2018 2018* Name and legal form Registered office Capital Votes Capital Votes carrying value as per 31 December, 2018.

CEVA Group Plc United Kingdom 99.996% 100% 0% 0% CEVA Logistics B.V. The Netherlands 100% 100% 0% 0% Details of the Company’s subsidiaries is included in note 29 of the Consolidated Financial Statements.

213 Annual Report 2018 CEVA Logistics Financial Statements 2.3 Receivables and liabilities 2.5 Contingent liabilities

Details of the Company’s subsidiaries is included in note 29 of the CEVA Logistics AG is involved in claims, legal disputes, regulatory and tax Consolidated Financial Statements. audits, investigations and other legal matters. There are no legal matters that the company deems to be material. If a loss is possible and determin­ 2018 2018 able, an estimate of the loss in the form of a contingent liability is provided. US$ CHF CEVA Group Plc 5,553,385.00 5,450,092.04 CEVA Logistics Finance B.V. 2,532,749.57 2,485,640.43 Total receivables from (in)direct participants 8,086,134.57 7,935,732.47 2.6 Share capital and significant shareholders CEVA Group Plc 250,000,000.00 245,350,000.00 Loans to direct/indirect participants 250,000,000.00 245,350,000.00 The CEVA Logistics AG share capital consists of registered shares with CEVA Logistics Headoffice B.V. 1,682,967.57 1,651,664.37 a nominal value of CHF0.10 each. Refer to note 19 of the Consolidated Board of Directors of the Company 935,999.92 918,590.32 Financial Statements for further details. Total payables to (in)direct participants 2,618,967.49 2,570,254.69

According to the share register, shareholders owning 5% or more of the 2.4 Accrued expenses and deferred income Company’s capital at 31 December and being entitled to voting rights on all of their shares, are as follows: Accrued expenses and deferred income mainly relates to expected costs to be received in relation to the IPO, debt refinancing, litigation, unpaid board 2018 fees as well as this year’s audit fees. CMA CGM S. A. 33.00% Societe Generale S. A. 8.13% The Goldman Sachs Group, Inc. 6.26% Franklin Resources, Inc. 5.27%

The company’s Articles of Incorporation state that no nominee shall be regis­ tered with the right to vote for more than 2% of the share capital as set forth in the Commercial Register. In particular cases, the Board of Directors may allow exemptions from the limitation for registration in the share register.

214 Annual Report 2018 CEVA Logistics Financial Statements According to the share register, nominees owning 2% or more of the as at 31 December Number of vested Number of unvested No. of shares Company’s capital at 31 December and being entitled to voting rights on Penny Options 2 / Penny Options 2/ held 1 all of their shares, are as follows: Options 3, 4 / RSUs Options 2, 3 / RSUs Xavier Urbain 16,690 173,180 329,950 2018 Brett Bissell 540 23,524 44,346 Pierre A. G. Girardin - 24,978 41,232 Euroclear Nominees Limited 6.21% Laurent Binetti - - - Chase Nominees Ltd. 3.97% Serge Corbel - - - The Bank of New York Mellon 3.83% Christophe Cachat 1,750 17,590 36,660 Kenneth J. Burch 1,500 14,300 28,950 Jérôme J. Lorrain 2,500 17,875 66,625 Leigh Pomlett 750 13,856 22,284 Total 23,730 285,303 570,047 2.7 Shares and options held by the members of the 1 Including shares held by related parties (members of close family, partnerships, companies, Board of Directors and the Group Executive Board trusts or other entities in which the member or the members of the family have a controlling interest) of members of the Group Executive Board as at 31 December 2 The ratio is one option for one CEVA share. No. of shares Number of vested Number of unvested held 1 Options 2 / RSUs Options 2/ RSUs 3 A portion of the options are performance driven.

Rolf Watter 10,831 - - Marvin O. Schlanger 3 23,320 39,342 15,384 Emanuel R. Pearlman 3 1,500 3,133 - John F. Smith 3 4,500 3,446 - Refer to note 22 of the Consolidated Financial Statements for more infor­ Rosalind Rivaz 2,636 - - mation on the long term incentive plan. Victor Balli 3,446 - - Rodolphe Saadé 4 30,320 - - Daniel Hurstel 2,636 - - Total 79,189 45,921 15,384 2.8 Explanations of non-operating expenses 1 Including shares held by related parties of members of the Board of Directors and shares subjected to a blocking period. 2 The ratio is one option for one CEVA share. Non-operating expenses are costs that relate to shareholders activities. 3 Members of the Board of Directors, who were allocated options and / or RSUs in connection with their service as members of the Board of Directors of CEVA Holdings prior to the IPO in May 2018. 4 Excluding (i) 18,164,534 registered shares beneficially owned by Mr. Saadé in his capacity as joint controlling shareholder of CMA CGM S. A. and (ii) 6,959,471 shares in relation to which CMA CGM S.A. has an economic exposure pursuant to purchase positions and derivative transactions, in each case as of 31 December, 2018.

215 Annual Report 2018 CEVA Logistics Financial Statements 2.9 Explanations of extraordinary, non-recurring or prior-period items in the profit and loss statement

Extraordinary expense of US$50,884,875 (CHF50,459,381) resulted from the IPO, Refinancing, CIL Litigation and the write-off of the PIK Loan note. Refer to note 7 of the Consolidated Financial Statements for more information on extraordinary expenses for the Company.

2.10 Hidden reserves

In 2018, there was no release of hidden reserves.

2.11 Guarantees

Refer to note 25 of the Consolidated Financial Statements.

2.12 Significant events occurring after the balance sheet date

Refer to note 28 of the Consolidated Financial Statements.

216 Annual Report 2018 CEVA Logistics Financial Statements Report of the statutory Basis for opinion Our audit approach auditor We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsi­ Overview to the General Meeting of CEVA Logistics AG bilities under those provisions and standards are Materiality Baar further described in the “Auditor’s responsibilities on the audit of the for the audit of the financial statements” section Audit scope financial statements of our report. We are independent of the entity in accordance Key audit matters with the provisions of Swiss law and the require­ Opinion ments of the Swiss audit profession and we We have audited the financial statements of have fulfilled our other ethical responsibilities in Overall Group materiality: USD 24,000,000 CEVA Logistics AG, which comprise the balance accordance with these requirements. We believe We tailored the scope of our audit in order sheet as at 31 December 2018, income statement that the audit evidence we have obtained is to perform sufficient work to enable us to and notes for the year then ended, including a sufficient and appropriate to provide a basis for provide an opinion on the financial state- summary of significant accounting policies. our opinion. ments of the Company as a whole, taking into account the structure of the entity, the In our opinion, the accompanying financial state­ accounting processes and controls, and the ments (pages 208 to 216) as at 31 December industry in which the entity operates. 2018 comply with Swiss law and the Company’s articles of incorporation. As key audit matter the following area of focus has been identified: – Investment in subsidiaries impairment assessment

217 Annual Report 2018 CEVA Logistics Financial Statements Materiality Audit scope The scope of our audit was influenced by our application of materiality. We designed our audit by determining materiality and assessing the risks Our audit opinion aims to provide reasonable assurance that the financial of material misstatement in the financial statements. In particular, we con­ statements are free from material misstatement. Misstatements may arise sidered where subjective judgements were made; for example, in respect due to fraud or error. They are considered material if, individually or in of significant accounting estimates that involved making assumptions aggregate, they could reasonably be expected to influence the economic and considering future events that are inherently uncertain. As in all of our decisions of users taken on the basis of the financial statements. audits, we also addressed the risk of management override of internal con­ trols, including among other matters consideration of whether there was Based on our professional judgement, we determined certain quantitative evidence of bias that represented a risk of material misstatement due to thresholds for materiality, including the overall materiality for the financial fraud. statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit Report on key audit matters based on the circular 1/2015 and the nature, timing and extent of our audit procedures, and to evaluate of the Federal Audit Oversight Authority the effect of misstatements, both individually and in aggregate, on the Key audit matters are those that, in our professional judgement, were of financial statements as a whole. most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the Overall Group materiality USD 24,000,000 financial statements as a whole, and in forming our opinion thereon, and How we determined it 1% of total assets, rounded we do not provide a separate opinion on these matters. Rationale for the materiality We believe that total assets is an appropriate benchmark benchmark applied for the Company as this entity is principally an invest­ ment holding company with little operational activity.

We agreed with the Audit Committee that we would report to them mis­ statements above USD 1,000,000 identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for qualitative reasons.

218 Annual Report 2018 CEVA Logistics Financial Statements Investments in subsidiaries impairment assessment

Key audit matter How our audit addressed the key audit matter The carrying value of investments in subsidiaries amounts to USD 2,150 million as at 31 We assessed whether the carrying value of the investments in subsidiaries is recoverable as December 2018. The main investment of the entity is in CEVA Group plc which holds the at 31 December 2018 based on the procedures below. operating entities of the Group. We evaluated the Directors’ value-in-use model for mathematical accuracy and assessed The market capitalization of the Group as at 31 December 2018 amounts to CHF 1,648 the key assumptions applied, specifically the expected cash flow growth over the forecast million based on a share price of CHF29.85. period, the growth rate after the forecast period and the discount rate applied. The Directors determined the market capitalization to be an indicator of impairment and We compared the forecast used in the value-in-use model to the latest Board approved assessed the recoverability of the carrying value of investments in subsidiaries through a budget and the five year forecast. value-in-use calculation as at 31 December 2018. We challenged management to substantiate its key assumptions in the cash flow pro­ We consider the recoverability of the investments in subsidiaries a key audit matter due jections during the forecast period and its intention and ability to execute their strategic to the magnitude of the line item compared to the total assets of the Company and the initiatives. judgments and estimates included in the value-in-use calculation as at 31 December 2018. We compared the growth rate after the forecast period to the rate of inflation in the key See note 2.2 Investments to the CEVA Logistics AG financial statements. markets and compared it to industry expectations. We tested the discount rate applied with the support of our valuation specialists. We also discussed the key assumptions applied in the value-in-use model with management and the Audit Committee. Overall we found these to be reasonable for the purpose of supporting the carrying value of the investments in subsidiaries.

219 Annual Report 2018 CEVA Logistics Financial Statements Responsibilities of the Board of Directors for the financial statements As part of an audit in accordance with Swiss law and Swiss Auditing Stan­ The Board of Directors is responsible for the preparation of the financial dards, we exercise professional judgment and maintain professional scepti­ statements in accordance with the provisions of Swiss law and the Com­ cism throughout the audit. We also: pany’s articles of incorporation, and for such internal controls as the Board – Identify and assess the risks of material misstatement of the financial of Directors determines is necessary to enable the preparation of financial statements, whether due to fraud or error, design and perform audit statements that are free from material misstatement, whether due to fraud procedures responsive to those risks, and obtain audit evidence that is or error. sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher In preparing the financial statements, the Board of Directors is responsible than for one resulting from error, as fraud may involve collusion, forgery, for assessing the entity’s ability to continue as a going concern, disclosing, intentional omissions, misrepresentations, or the override of internal as applicable, matters related to going concern and using the going concern control. basis of accounting unless the Board of Directors either intends to liquidate – Obtain an understanding of internal control relevant to the audit in order the entity or to cease operations, or has no realistic alternative but to do so. to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Auditor’s responsibilities for the audit of the financial statements the entity’s internal control. Our objectives are to obtain reasonable assurance about whether the – Evaluate the appropriateness of accounting policies used and the rea­ financial statements as a whole are free from material misstatement, sonableness of accounting estimates and related disclosures made. whether due to fraud or error, and to issue an auditor’s report that includes – Conclude on the appropriateness of the Board of Directors’ use of the our opinion. Reasonable assurance is a high level of assurance, but is not going concern basis of accounting and, based on the audit evidence a guarantee that an audit conducted in accordance with Swiss law and obtained, whether a material uncertainty exists related to events or Swiss Auditing Standards will always detect a material misstatement when conditions that may cast significant doubt on the entity’s ability to it exists. Misstatements can arise from fraud or error and are considered continue as a going concern. If we conclude that a material uncertainty material if, individually or in the aggregate, they could reasonably be exists, we are required to draw attention in our auditor’s report to the expected to influence the economic decisions of users taken on the basis of related disclosures in the financial statements or, if such disclosures are these financial statements. inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern.

220 Annual Report 2018 CEVA Logistics Financial Statements We communicate with the Board of Directors or its relevant committee Report on other legal regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in inter­ and regulatory requirements nal control that we identify during our audit. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing We also provide the Board of Directors or its relevant committee with a state­ Standard 890, we confirm that an internal control system exists which has ment that we have complied with relevant ethical requirements regarding been designed for the preparation of financial statements according to the independence, and to communicate with them all relationships and other instructions of the Board of Directors. matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. We recommend that the financial statements submitted to you be approved.

From the matters communicated with the Board of Directors or its relevant PricewaterhouseCoopers AG committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or Bruno Rossi Sven Rumpel when, in extremely rare circumstances, we determine that a matter should Audit expert Audit expert not be communicated in our report because the adverse consequences of Auditor in charge doing so would reasonably be expected to outweigh the public interest benefits of such communication. Basel, 26 February 2019

221 Annual Report 2018 CEVA Logistics Financial Statements Imprint

Published by: CEVA Logistics AG, Baar, Switzerland, © 2019

Concept / Layout: CEVA Logistics AG, Baar, Switzerland sqn grafik, Uetikon, Switzerland

Photographs CMA CGM, (page 19; P. Plisson, 20; MELMIF, 21; @portofLA, 31) Adobe Stock (page 14, 24, 49, 110) CEVA Logistics AG, Baar, Switzerland (all other pictures)

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