SAF-HOLLAND SE — Call Transcript 2022

Mar 17, 2022

CONFERENCE CALL PRESENTATION

SAF-HOLLAND SE FY 2021

MARCH 17, 2022

Excellent performance in a challenging year 2021

KPIs 2021

Guidance achieved

	Guidance March 2021	Guidance July 2021	Achievement 2021
Sales (in EUR m)	1,050 – 1,150	1,100 – 1,200	1,246.6
Adjusted EBIT margin	around 7.0%	around 7.5%	7.5%
Capex ratio	around 2.5%	around 2.5%	2.0%

* after income tax paid

Regionally varying development of trailer and truck markets in 2021

	Trailer	Truck
EMEA	+21%	+29%
North America	+28%	+19%
Brazil	+35%	+75%
China	-10%	-19%
India	+114%	+164%

Sources: Market data (Nov 2021-Jan 2022) for trucks and trailers based on IHS Markit, ACT Research, CLEAR, ANFAVEA, ANFIR

• EMEA

• Strong growth of trailer and truck production based on economic upswing
• Higher exposure of SAF-HOLLAND to the European trailer than truck market

• North America

• Production of Class 8 trucks and trailers in North America up
• Truck production still impacted by supply shortages
• Brazil
• Strong development of truck production as well as of trailer production
• China
• Pre-buys in H1 of 2021 led to a market slow-down in H2
• Heavy cost inflation led to postponements of investment decisions
• India
• Trailer and truck production increased significantly
• Bullish market with large infrastructure projects

EMEA: Strong OE and aftermarket business

Sales (in EUR million)

• FY 2021 sales adjusted for FX effects: + 33.8%
• Strong OE and aftermarket business
• German and Turkish plants highly utilised during the year and fully loaded in Q4
• Strong trailer OE and aftermarket business drove sales in Q4

Adjusted EBIT (in EUR million and % of sales)

• Spike in steel prices, high freight rates and energy costs headwind on gross profit
• Adjusted selling expenses to sales ratio improved from 6.2% to 4.8%
• Despite strong cost headwind, FY adjusted EBIT margin of 9.2% nearly on prior year level
• Due to time lag in passing on cost increases, margin pressure in OE business in Q4

Americas: Strong truck OE and aftermarket business

Sales (in EUR million)

• FY 2021 sales adjusted for FX effects: + 25.0%
• FY sales growth driven by strong truck OE and aftermarket business
• Trailer OE business showed strong sales performance in the course of the year
• Q4 sales driven by very strong trailer OE business as well as strong aftermarket business

Adjusted EBIT (in EUR million and % of sales)

• Steel prices, high freight rates and energy costs significantly up
• FY adjusted admin expenses ratio improved from 6.4% to 4.6%
• Despite strong cost headwind, FY adjusted EBIT margin up to 6.0%
• Q4 margin increase y-o-y primarily driven by FORWARD 2.0 achievements and strong aftermarket business

APAC: Strong demand in India and Australia

• FY 2021 sales adjusted for FX effects: +47.9%
• FY sales growth driven by strong OE business in India and favourable demand growth in Australia
• China business still subdued
• 20,5 Q4 sales driven by strong trailer OE business 30,5

Adjusted EBIT (in EUR million and % of sales)

• Compared to the high sales growth adjusted cost of sales in 2021 grew underproportionally y-o-y by only 37.8%
• FY adjusted admin expenses to sales ratio improved from 9.5% to 6.6%
• Major driver for significant increase in FY adjusted EBIT margin is strong business development in India and Australia
• Development of Q4 margin y-o-y positive, however impacted by subdued China business

Financials 2021

Sales growth driven by high demand both in OE and aftermarket business

Sales development (by quarter, by region, by customer category)

in EUR million	2020	2021	Change	Change in %	thereof organic	thereof currency
Q1	283.4	285.6	2.2	0.8%	+5.6%	-4.8%
Q2	192.8	322.5	129.7	67.3%	+72.6%	-5.3%
Q3	232.4	316.6	84.2	36.2%	+36.4%	-0.2%
Q4	250.9	321.9	71.0	28.3%	+26.0%	+2.3%
FY	959.5	1,246.6	287.1	29.9%	+31.9%	-1.9%

Strong performance driven by both OE and aftermarket business; demand growth in all three regions EMEA, Americas and APAC

EUR 18.6 million
negative FX effect

Margin development impacted by high cost inflation

Adjusted Gross Profit (in EUR million and % of sales)

• Adjusted gross profit increased by 21.2%
• Cost of sales impacted by high cost inflation
• Spike in steel prices
• Freight rates and energy costs significantly up

• Price increases, a positive product mix and efficiency improvements only partially offset higher costs

• Adjusted EBIT increased by 58.4%

• Lower SG&A contributed to overproportional EBIT margin improvement
• Operating leverage, cost measures and fixed cost discipline supported margin increase

34,5	61,3
2020	2021

• Adjusted net profit 77.7% up vs. 2020
• Financial result improved to EUR -9.4m (2020: EUR -11.8m)
• Adjusted tax rate of 26.8% on prior year level
• Undiluted adjusted EPS of EUR 1.35 (2020: EUR 0.76)

* before minorities

		2021			2020
in EUR million	Reported	Adjustments	Adjusted	Reported	Adjustments	Adjusted
Sales	1,246.6		1,246.6	959.5		959.5
Gross profit	209.1	7.6	216.7	168.8	10.0	178.8
EBIT	72.1	21.0	93.1	31.1	27.7	58.8
EBIT margin	5.8%		7.5%	3.2%		6.1%
Earnings before tax	62.7	21.0	83.7	19.3	27.7	47.0
Net profit for the period	36.8	24.5	61.3	14.2	20.3	34.5

• Significantly lower restructuring expenses of EUR 4.2m (2020: EUR 15.6m)

• Impairment China of EUR 4.7m as business development not as expected

Significant improvement of net income and EPS

Leverage significantly improved and equity ratio up to 37%

• Leverage improved significantly driven by better EBITDA of EUR 125.0m (2020: EUR 82.1m)

Equity (in EUR million and % of balance sheet total)

• Equity up due to
• Strong net profit for the period
• FX differences from the translation of foreign operations
• Revaluation of defined benefit pension plans

Net debt (in EUR million)

ROCE up despite higher capital employed

Capex (in EUR million and % of sales)

• Disciplined and focused investments in
• Efficiency improvements in Germany
• Capacity expansions in Mexico, Turkey and Russia
• Innovations (e.g. E-axle family)

• Significant sales growth lead to lower than guided capex ratio in 2021

• Inventories up to secure delivery performance

• Trade receivables and trade payables up due to higher demand and higher production volumes
• ROCE improved by 460 bps mainly driven by higher adjusted EBIT (LTM)

Cyclical rebound of net working capital burdened operating cash flow in 2021

Cash flow (in EUR million)

• Net operating cash flow clearly positive at EUR 39.7m
• Net cash flow from investing activities stable y-o-y
• Cash conversion rate impacted by substantially increased net working capital due to strong business in 2021

Outlook 2022

Regionally varying development of trailer and truck markets in 2022

	Trailer	Trucks
EMEA	+3%	+4%
North America	+16%	+17%
Brazil	+5%	+9%
China	-15%	-15%
India	+42%	+4%

Sources: Market data (Nov 2021-Jan 2022) for trucks and trailers based on IHS Markit, ACT Research, CLEAR, ANFAVEA, ANFIR

• EMEA

• Bullish market on an all-time high level
• Back to more normal growth trajectory in 2022
• Expect markets to strongly grow in the years to follow

• North America

• Expect truck production to be still impacted by supply shortages which could gradually diminish towards the end of 2022 / beginning of 2023
• Challenge for trailer OEMs to further ramp up production continues although staffing and supply chain issues seem to improve slightly
• Brazil
• Infrastructure projects including focus on e-mobility
• China
• Markets expected to be still subdued in 2022
• India
• Trailer expected to further increase significantly
• Large infrastructure and investment projects drive growth in coming years

Volatility of cost base mainly driven by material prices and freight costs

Major cost items	Trend 2022	Measures to counter cost increases on all levels
Material	Steel: • In the US still on a very high level • EMEA remain on a high level Supply chain disruptions started to slightly ease, but still constraint	Operational Excellence
Labour	Up due to inflation, increase in minimum wages and additional headcount	Supplemental
Freight	Freight rates remain on a very high level	collective Automation agreement for Germany
Depreciation	Planned depreciation slightly up driven by capacity expansions	Price escalation clauses in Recycling customer contracts

Negative impact of Russia-Ukraine war on economic development, steel, energy and freight costs as well as supply chain disruptions currently not predictable.

Sales	EUR 1.15bn to EUR 1.3bn
Adjusted EBIT margin	Significantly below 2021
Capex ratio	approx. 2% - 2.5%

ESG Focus

High scorings in sustainability ratings underpin ESG efforts

We aim to position ourselves as a globally attractive employer by promoting a tolerant, fair working environment and lifelong learning. We are establishing pioneering standards for CO² emissions and the circular economy, which we intend to implement globally.

Megatrends and update on strategy

External truck and trailer production estimates for SAF-HOLLAND's key regions show continuing growth in the mid-term

Truck production (in '000)

Europe North America Brazil China India

Sources: Market data (Nov. 2021-Jan. 2022) for trucks and trailers based on ACT Research, CLEAR, IHS Markit, SIAM (Society of Indian Automobile Manufacturers), ANFAVEA, ANFIR, cvworld, caam, automarket, FAW/DFM/DongengLiuzhou/CNHTC & Special Purpose Vehicle Institute China, own estimates

Megatrends and industry trends drive need for innovation

Innovations secure profitable growth in the future

2022 European Transport Award for Sustainability (German journal "Transport")

• SAF TRAKr recuperative axle reduces fuel consumption, CO² - and particulate emissions
• SAF TRAKe electrified axle provides traction assistance in difficult road conditions

2nd in German Telematic Award 2022

• TrailerMaster links components, makes processes digital and automates the communication between trailer, driver and fleet operator

* initial filing of a patent

Update on Strategy 2025: Margin recovery on track

Adjusted EBIT (in EUR million and % of sales)

Management focus in 2022

Secure innovation and quality leadership

Manage COVID-19-related challenges

Efficient capital allocation

Drive shareholder value

Foster ESG

FY 2021 Call Presentation < 26 >

Contact and additional information

Financial calendar & IR contact

SAF-HOLLAND SE Hauptstrasse 26 63856 Bessenbach

Investor Relations

Email: ir@safholland.de Tel: +49 6095 301 – 918 / 617 / 117

Financial calendar 2022
March 17, 2022	Annual Report 2021
May 10, 2022	Q1 2022 Quarterly Statement
May 19, 2022	Annual General Meeting
August 11, 2002	H1 2022 Report
November 10, 2022	Q3 2022 Quarterly Statement

Additional information

ISIN	DE000SAFH001
WKN	SAFH00
Deutsche Börse	SFQ
Listing	Frankfurt Stock Exchange Prime Standard

Appendix

Group P&L 2021: Quality of earnings substantially improved

		Total		in %		Total		in %
in kEUR	2021		Adjustments 2021 adjusted*	of sales	2020		Adjustments 2020 adjusted*	of sales
Sales	1,246,583	–	1,246,583	100.0	959,519	–	959,519	100.0%
Cost of sales	-1,037,498	7,653	-1,029,845	-82.6	-790,673	9,985	-780,688	-81.4
Gross profit	209,085	7,653	216,738	17.4	168,846	9,985	178,831	18.6
Other income	2,151	–	2,151	0.2	2,632	-641	1,991	0.2
Other expenses	-2,927	2,927	–	0.0	-2,489	2,489	–	0.0
Selling expenses	-58,674	6,987	-51,687	-4.1	-56,119	7,549	-48,570	-5.1
Administrative expenses	-62,193	2,870	-59,323	-4.8	-63,246	7,979	-55,267	-5.8
Research and development costs	-16,926	551	-16,375	-1.3	-19,468	336	-19,132	-2.0
Operating profit	70,516	20,988	91,504	7.3	30,156	27,697	57,853	6.0
Share of net profit of investments
accounted for using the equity	1,624	–	1,624	0.1	946	–	946	0.1
method
EBIT	72,140	20,988	93,128	7.5	31,102	27,697	58,799	6.1
Finance income	2,807	–	2,807	0.2	2,275	–	2,275	0.2
Finance expenses	-12,252	–	-12,252	-1.0	-14,047	–	-14,047	-1.5
Finance result	-9,445	–	-9,445	-0.8	-11,772	–	-11,772	-1.2
Result before taxes	62,695	20,988	83,683	6.7	19,330	27,697	47,027	4.9
Income taxes	-25,899	3,497	-22,402	-1.8	-5,154	-7,379	-12,533	-1.3
Tax rate (%)	41.3%		26.8%		26.7%		26.7%
Result for the period	36,796	24,485	61,281	4.9	14,176	20,318	34,494	3.6

* Adjusted earnings correspond to the management perspective. The adjustments essentially include restructuring and transactions costs, write-off of goodwill, depreciation and amortisation arising from purchase price allocations, expenses arising from the step-up of inventories arising from purchase price allocations and remeasurement effects related to call and put options.

Group: Reconciliation EBIT to adjusted EBIT

in kEUR	2021	2020	Change absolute	Change in %
EBIT	72,140	31,102	41,038	131.9
EBIT margin in %	5.8%	3.2%
Additional depreciation and amortisation of property, plant and equipment and intangible assets from PPA	9,145	10,184	-1,039	-10.2
Valuation effects from call and put options	2,927	1,876	1,051	56.0
Impairment of tangible and intangible assets	4,729	–	4,729	–
Restructuring and transactions costs	4,187	15,637	-11,450	-73.2
Adjusted EBIT	93,128	58,799	34,329	58.4%
Adjusted EBIT margin in %	7.5%	6.1%

EMEA: Reconciliation EBIT to adjusted EBIT

in kEUR	2021	2020	Change absolute	Change in %
EBIT	62.034	45.720	16,314	35.7
EBIT margin in %	8.4%	8.3%
Additional depreciation and amortisation of property, plant and equipment and intangible assets from PPA	4.513	4.637	-124	-2.7
Valuation effects from call and put options	–	-613	613	–
Restructuring and transactions costs	671	2,932	-2,261	-77.1%
Adjusted EBIT	67.218	52,676	14,542	27.6%
Adjusted EBIT margin in %	9.2%	9.5%

Americas: Reconciliation EBIT to adjusted EBIT

2021	2020	Change absolute	Change in %
15,989	2,470	13,519	547.3
4.0%	0.7%
2,213	2,352	-139	-5.9
2,927	2,489	438	17.6
2,871	6,148	-3,277	-53.3
24,000	13,459	10,541	78.3%
6.0%	4.1%

APAC: Reconciliation EBIT to adjusted EBIT

in kEUR	2021	2020	Change absolute	Change in %
EBIT	-5.883	-17,088	11,205	–65.6
EBIT margin in %	-5.3%	-23.0%
Additional depreciation and amortisation of property, plant and equipment and intangible assets from PPA	2,419	3,195	-776	-24.3
Impairment of tangible and intangible assets	4,729	–	4,729	–
Restructuring and transactions costs	645	6,557	-5,912	-90.2
Adjusted EBIT	1,910	-7,336	9,246	–
Adjusted EBIT margin in %	1.7%	-9.9%

Disciplined and focused investments

• Capex at 2.0% of Group sales in 2021 (FY 2021 guidance: around 2.5% of Group sales)
• Investment focus: further automation of production processes at the Bessenbach location, capacity expansions in Turkey and Mexico, first investments in Russian operation (on hold now) and post-contractual payments for the Yangzhou plant
• Close monitoring of the investment approval process to streamline capital allocation

D&A (in % of sales)

• Depreciation & amortisation ratio (excl. PPA) down y-o-y
• Relatively stable in 2021 with the peak the in Q4

Adjusted EBITDA margin

Americas

Americas by quarter (in 2021)

APAC

APAC by quarter (in 2021)

CURRENT FINANCING STRUCTURE

Maturity profile (in EUR million)

Product	Amount EUR m	Maturity date
Loan RMB	9.0	06/2022
Promissory note loan old (7 years)	5.0	11/2022
Promissory note loan new (3 years)	141.0	03/2023
Promissory note loan new (3.5 years)	20.0	09/2023
Revolving credit facility***	200.0	10/2024
Promissory note loan new (5 years)	69.0	03/2025
Loan	5.0	09/2025
Promissory note loan old (10 years)	9.0	10/2025
Non-current loan	10.0	03/2026
Non-current loan	35.0	06/2026
Promissory note loan new (7 years)	15.0	03/2027
Promissory note loan new (10 years)	5.0	03/2030

• RCF mostly undrawn ** option for an additional EUR 100 m *** additional one year extension possible

Disclaimer

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This presentation contains certain statements related to our future business and financial performance and future events or developments involving SAF-HOLLAND and/or the industry in which SAF-HOLLAND operates that may constitute forward-looking statements. These statements may be identified by words such as "believes," "expects," "predicts," "intends," "projects," "plans," "estimates," "aims," "foresees," "anticipates," "targets," and similar expressions. Forward-looking statements are not historical facts, but solely opinions, views and forecasts which are based on current expectations and certain assumptions of SAF-HOLLAND's management or cited from third party sources which are uncertain and subject to risks. Actual events may differ significantly from the anticipated developments due to a number of factors, including without limitation, changes in general economic conditions, changes affecting the fair values of the assets held by SAF-HOLLAND and its subsidiaries, changes affecting interest rate levels, changes in competition levels, changes in laws and regulations, environmental damages, the potential impact of legal proceedings and actions and the Group's ability to achieve operational synergies from past or future acquisitions. Should any of these risks or uncertainties materialise or should underlying expectations not occur or assumptions prove to be incorrect, actual results, performance or achievements of SAF-HOLLAND may (negatively or positively) vary materially from those described, explicitly or implicitly, in the relevant forward-looking statement.

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